The following are marks of pyramid schemes:
1. People who get into the scheme make out well. People who get in later are robbed.
2. The people who manage the scheme skim the money not being paid out off the top.
3. The money does not get invested. It only seems to be invested.
1. Look at Ida May Fuller. http://en.wikipedia.org/wiki/Ida_May_Fuller. She was one of the first into social security. She made out like a bandit. Anyone who starts to collect social security does not collect any interest on the money put in. We would have been better off with passbook savings.
2. Look at where social security money goes. Congress pays out what was promised. The rest congress pays out for other purposes.
3. The money we put into social security goes in as an IOU. Congress does not have any money to pay back the investment in social security.
Sunday, April 4, 2010
Saturday, March 13, 2010
Bank bonuses - a diversion maybe?
Why would the banks be giving out such huge bonuses to their executives? Here are some possible reasons:
1. They really think that these geniuses that got the banks into such trouble are needed to make money for the banks in these troubled times.
2. They think that the banks will not be around in a few years so they are getting the money out now while they still can.
3. The real story is far more odious than the fact that the banks are giving out billions in bonuses.
If I had to guess, I would guess them in this order: 3,2,1. For the first reason, if an executive drove my business into the ground the way these Wall Street executives did, I would get them out as quickly as I could. The real puzzle is why the board of directors allows these geniuses to stay around.
For the second reason, I would not be surprized. That much in bonuses is not given out to businesses that think that they are hanging on by a thread. And these banks are indeed hanging on by a thread. There is a huge bow wave of foreclosures, both commercial and residential that is coming up through this year, 2010 and going on throughout 2011. This bow wave dwarfs the foreclosures that almost sunk the banks and pushed congress to pass the bailout. I do not know if the top four banks will survive.
The third reason is far more believable. All you have to do is ask the question: In this time of economic downturn, where did the banks get the money? Where did they get the money to pay back the TARP? Where did they get the money to pay the bonuses? Where did they get the money to show such a huge profit. Where did they get the money to accumulate such huge cash reserves? This leads to the next question: Are the executives being paid to keep quiet?
I do not have any proof for any of this except that the money involved is magical. There is no visible source for it and yet there it is. Based on the numbers, I would guess that the money is being lent to the big banks by the fed at 0.5-0.75%. (The fed is printing this money on a hard drive.) This money is being lent to the treasury at 3-4%. This gives the top banks >10 billion each year in profit over and above what they made before. More money is being lent to the banks so that they have cash on the balance sheet to handle this bow wave that is coming. I just do not know if it will be enough. Then again, the fed can always print more for them.
1. They really think that these geniuses that got the banks into such trouble are needed to make money for the banks in these troubled times.
2. They think that the banks will not be around in a few years so they are getting the money out now while they still can.
3. The real story is far more odious than the fact that the banks are giving out billions in bonuses.
If I had to guess, I would guess them in this order: 3,2,1. For the first reason, if an executive drove my business into the ground the way these Wall Street executives did, I would get them out as quickly as I could. The real puzzle is why the board of directors allows these geniuses to stay around.
For the second reason, I would not be surprized. That much in bonuses is not given out to businesses that think that they are hanging on by a thread. And these banks are indeed hanging on by a thread. There is a huge bow wave of foreclosures, both commercial and residential that is coming up through this year, 2010 and going on throughout 2011. This bow wave dwarfs the foreclosures that almost sunk the banks and pushed congress to pass the bailout. I do not know if the top four banks will survive.
The third reason is far more believable. All you have to do is ask the question: In this time of economic downturn, where did the banks get the money? Where did they get the money to pay back the TARP? Where did they get the money to pay the bonuses? Where did they get the money to show such a huge profit. Where did they get the money to accumulate such huge cash reserves? This leads to the next question: Are the executives being paid to keep quiet?
I do not have any proof for any of this except that the money involved is magical. There is no visible source for it and yet there it is. Based on the numbers, I would guess that the money is being lent to the big banks by the fed at 0.5-0.75%. (The fed is printing this money on a hard drive.) This money is being lent to the treasury at 3-4%. This gives the top banks >10 billion each year in profit over and above what they made before. More money is being lent to the banks so that they have cash on the balance sheet to handle this bow wave that is coming. I just do not know if it will be enough. Then again, the fed can always print more for them.
Sunday, March 7, 2010
Let's ignore the constitution
I do not understand. When I look in the constitution, I expected to see something in it that prohibited congress from making a sweetheart deal for one state at the expense of another. I did. It is in Article I, section 9, and reads as follows:
No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear or pay Duties in another.
The healthcare bill is a regulation of a major portion of the US commerce. So what magic of wordsmithing has congress used to say that it is okay to make a sweetheart deal for Florida, Nebraska and Louisiana to get the health care bill to pass?
Have we the people gotten so indifferent to the constitution that our elected officials swore to uphold? I hope that we would vote anyone who blatantly disregards the constitution out of office. It should never be ignored for the convenience of the elite members of congress.
Nancy Pelosi, do you have anything to say about this?
No Preference shall be given by any Regulation of Commerce or Revenue to the Ports of one State over those of another: nor shall Vessels bound to, or from, one State, be obliged to enter, clear or pay Duties in another.
The healthcare bill is a regulation of a major portion of the US commerce. So what magic of wordsmithing has congress used to say that it is okay to make a sweetheart deal for Florida, Nebraska and Louisiana to get the health care bill to pass?
Have we the people gotten so indifferent to the constitution that our elected officials swore to uphold? I hope that we would vote anyone who blatantly disregards the constitution out of office. It should never be ignored for the convenience of the elite members of congress.
Nancy Pelosi, do you have anything to say about this?
Saturday, March 6, 2010
A new economic rule: Save or go into debt
Governments try to maintain a state where all of the money taken in each year is spent and no more. It will amaze you to see the lengths to which bureaucrats throughout the United States go to make sure that all of the money they have been budgeted gets spent and not a penny more. This state of matching income to outgo is a metastable condition, just like balancing a broom on the end of a finger and requires continuous effort and vigilance. It becomes impossible when economic forces beyond the control of the bureaucrat manifest. Bureaucrats have attempted to correct this problem by hiding money in accounts that they maintain from one fiscal period to the next. But these funds are called slush funds. With the amount of money in these funds, many bureaucrats have fallen to the temptation to misuse them.
Queueing theory: What does that have to do with it?
Queueing theory says that if the number of people coming into a bank is constant, and the time required to service each of these people is constant and the teller time matches the rate of service then the line will not grow. But if the rate of people coming into the bank is random with an average rate of entry equal to the rate of service then the line will grow infinite.
What does that mean? It means that randomness requires the ability to service to exceed the rate of required service or the queue grows.
What does that mean for money? It means that income has to exceed outgo or you have projects that will sit and wait and when they can't wait, you go into debt to pay for them.
Therefore, it applies to all including the government: Save or go into debt.
These are economic rules that apply to the everyday. There are others and as they are needed, I will add them to the list.
1. A dollar spent is a dollar taxed
2. To consume you must produce
3. The law of supply and demand still applies even if you are the government
4. Education, infrastructure, production, efficiency, trust raise the economy. Burdens such as commitments, promises, debt, crime, security issues and overhead lower the economy
5. Savings takes money from the now and moves it into the future. Borrowing takes money from the future and moves it into the now.
6. Save or go into debt
Queueing theory: What does that have to do with it?
Queueing theory says that if the number of people coming into a bank is constant, and the time required to service each of these people is constant and the teller time matches the rate of service then the line will not grow. But if the rate of people coming into the bank is random with an average rate of entry equal to the rate of service then the line will grow infinite.
What does that mean? It means that randomness requires the ability to service to exceed the rate of required service or the queue grows.
What does that mean for money? It means that income has to exceed outgo or you have projects that will sit and wait and when they can't wait, you go into debt to pay for them.
Therefore, it applies to all including the government: Save or go into debt.
These are economic rules that apply to the everyday. There are others and as they are needed, I will add them to the list.
1. A dollar spent is a dollar taxed
2. To consume you must produce
3. The law of supply and demand still applies even if you are the government
4. Education, infrastructure, production, efficiency, trust raise the economy. Burdens such as commitments, promises, debt, crime, security issues and overhead lower the economy
5. Savings takes money from the now and moves it into the future. Borrowing takes money from the future and moves it into the now.
6. Save or go into debt
Saturday, February 27, 2010
Seven strokes of genius in the constitution
There is a whole list of things that make the constitution a work a genius:
1. The constitution is a short document with few words. Take a look at any legislation today. It typically runs above 1000 pages. Legislation obfuscates what the legislation actually does with its length and its verbage. The constitution, written hundreds of years ago is much clearer and more concise. Unlike today's legislation, it is meant to be understood.
2. Freedom of religion. It means that there are no people made into second class citizens because of their religion. It keeps any religion from dominating people of other religions. Belief in that right allows people of various religions to coexist and practice their religions without conflicts seen in the Middle East.
3. Limits on the federal government. The federal government has ignored these limits in a lot of different ways. However, back when the federal government was limited in its scope, the cost of government was a tiny fraction of what it is today. People could not vote money for themselves through legislators who buy their votes with taxpayer money.
4. The requirement to treat all states equally. This keeps congress from writing laws that favor one state over another. It also makes the bribe to Nebraska and Louisianna written into the proposed health care legislation unconstitutional.
5. The right to bear arms. As much as I fear another Columbine incident, I fear what the federal government can do even more. If you do not believe that just take a look at what Stalin did to the USSR citizens or what Mao did to the Chinese citizens, or what Pol Pot did to the citizens of Cambodia. The right to bear arms is what stands in the way of the federal government going amok.
6. Freedom of the press. This is even more important now that there is an internet. Government does many things in secret. And sometimes what it does in secret is wrong. Freedom of the press is the only check against that.
7. Bicameral legislation. This keeps the larger states with their greater representation from running roughshod over the smaller states. It also makes laws harder to pass. Fewer laws are better laws.
1. The constitution is a short document with few words. Take a look at any legislation today. It typically runs above 1000 pages. Legislation obfuscates what the legislation actually does with its length and its verbage. The constitution, written hundreds of years ago is much clearer and more concise. Unlike today's legislation, it is meant to be understood.
2. Freedom of religion. It means that there are no people made into second class citizens because of their religion. It keeps any religion from dominating people of other religions. Belief in that right allows people of various religions to coexist and practice their religions without conflicts seen in the Middle East.
3. Limits on the federal government. The federal government has ignored these limits in a lot of different ways. However, back when the federal government was limited in its scope, the cost of government was a tiny fraction of what it is today. People could not vote money for themselves through legislators who buy their votes with taxpayer money.
4. The requirement to treat all states equally. This keeps congress from writing laws that favor one state over another. It also makes the bribe to Nebraska and Louisianna written into the proposed health care legislation unconstitutional.
5. The right to bear arms. As much as I fear another Columbine incident, I fear what the federal government can do even more. If you do not believe that just take a look at what Stalin did to the USSR citizens or what Mao did to the Chinese citizens, or what Pol Pot did to the citizens of Cambodia. The right to bear arms is what stands in the way of the federal government going amok.
6. Freedom of the press. This is even more important now that there is an internet. Government does many things in secret. And sometimes what it does in secret is wrong. Freedom of the press is the only check against that.
7. Bicameral legislation. This keeps the larger states with their greater representation from running roughshod over the smaller states. It also makes laws harder to pass. Fewer laws are better laws.
Tuesday, February 23, 2010
How can that be?
How long ago was it that the top banks were in trouble and needed billions in bail outs. They also needed billions given to AIG, not to save AIG but to pass through to the top banks. Now, when the economy is suffering, they suddenly have a lot of cash sitting on their balance sheets. When the economy is in dire straits they go from beggar status to windfall profits. Where did the money come from? They have made so much profit that they have all paid back the TARP money and are paying their top executives really fat bonuses. And still they need the provision in TARP that if anything else goes wrong a blank check can be filled in with enough zeros to give every man woman and child in the United States a $10,000 bonus. (It is in there, a provision to facilitate $4 trillion to save the banks again.)
If anyone has an explanation, tell me. I need to know, how can that be?
If anyone has an explanation, tell me. I need to know, how can that be?
Sunday, February 21, 2010
Federal Expenditures
Last year, the federal tax receipts were $2.1 trillion. Now look at the expenditures for 2010 according to the US Treasury site.
Billions
Defense 895
Social Security 722
Welfare 557
Senior Health 457
Welfare Health 335
Interest 188
Federal Retirement 121
All Other 446
Total 3721
This year, we will add $1.6 trillion to the money owed by the federal government. Note that the federal government can't get through the first three line items without exceeding the tax receipts. Our expenditures are huge. The only way to get back to fiscal sanity is to address all of the line items.
Defense:
Defense is at 43% of tax receipts. We can no longer be the world's policeman. That means pulling out of Iraq and Afghanistan. It means that we reduce our military presence in Europe, Japan, Korea and the Middle East. It means that we reduce or eliminate the contracts for the military hardware that are in place where it is practical to do so.
Social Security, Senior Health and Federal Retirement:
Senior spending is at 62% of the tax receipts. Living longer means working longer. To do otherwise means relying on younger workers to pick up the slack or violating the rule that to consume you must produce. Being 65 or older cannot be a ticket to stop working. If you look at the mean life age in 1932 when social security started, it was 60 and the social security age was 65. Apply that to today when the mean life age is 78 then the social security age would be 83.
Welfare:
Welfare is at 26% of tax receipts. The vast majority of welfare is dedicated to people who are unemployed. If the US has to give out welfare, then it should be to the underemployed, not the unemployed. It should not include enough to pay for cell phones for cable television or anything other than the basic necessities.
Interest:
If you could believe the projection, interest payments are at 9% of tax receipts. Realistically, it is probably twice that level or 18%. Interest rates are what the market says they are.
The only way to keep the governments interest rates down is to stop printing and borrowing money. Otherwise, when the 3 year treasuries come due there will be nobody at the window just as there was nobody at the window for our longer term treasuries recently. This means that we have to execute on a reduced spending plan or it will all go to pieces when the interest rates are jacked up to the point where instead of being 1.5% as projected for the 2010 budget they will completely consume the tax receipts. This would happen if the interest rates were 17%.
Fiscal responsibility means pain. It is time for people in the US and our political leadership to grow up and face it.
Billions
Defense 895
Social Security 722
Welfare 557
Senior Health 457
Welfare Health 335
Interest 188
Federal Retirement 121
All Other 446
Total 3721
This year, we will add $1.6 trillion to the money owed by the federal government. Note that the federal government can't get through the first three line items without exceeding the tax receipts. Our expenditures are huge. The only way to get back to fiscal sanity is to address all of the line items.
Defense:
Defense is at 43% of tax receipts. We can no longer be the world's policeman. That means pulling out of Iraq and Afghanistan. It means that we reduce our military presence in Europe, Japan, Korea and the Middle East. It means that we reduce or eliminate the contracts for the military hardware that are in place where it is practical to do so.
Social Security, Senior Health and Federal Retirement:
Senior spending is at 62% of the tax receipts. Living longer means working longer. To do otherwise means relying on younger workers to pick up the slack or violating the rule that to consume you must produce. Being 65 or older cannot be a ticket to stop working. If you look at the mean life age in 1932 when social security started, it was 60 and the social security age was 65. Apply that to today when the mean life age is 78 then the social security age would be 83.
Welfare:
Welfare is at 26% of tax receipts. The vast majority of welfare is dedicated to people who are unemployed. If the US has to give out welfare, then it should be to the underemployed, not the unemployed. It should not include enough to pay for cell phones for cable television or anything other than the basic necessities.
Interest:
If you could believe the projection, interest payments are at 9% of tax receipts. Realistically, it is probably twice that level or 18%. Interest rates are what the market says they are.
The only way to keep the governments interest rates down is to stop printing and borrowing money. Otherwise, when the 3 year treasuries come due there will be nobody at the window just as there was nobody at the window for our longer term treasuries recently. This means that we have to execute on a reduced spending plan or it will all go to pieces when the interest rates are jacked up to the point where instead of being 1.5% as projected for the 2010 budget they will completely consume the tax receipts. This would happen if the interest rates were 17%.
Fiscal responsibility means pain. It is time for people in the US and our political leadership to grow up and face it.
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