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.
Saturday, February 20, 2010
The economic stimulus
We are being directed to doing economic stimulus by Nobel economists. I have to say that my credentials can't possibly match theirs. They have written books. They have taught at Princeton, Harvard or other Ivy League schools. They are the kings in the economic fields. I am just an engineer with a small dollup of common sense that I like to use on occasion.
On one thing we agree. The US economy is in sad shape. Unemployment is at record highs. According to shadowstats, the official unemployment rate is 10%. The Bureau of Labor Statistics unemployment rate estimate is 16% and shadowstats estimate is 21%. I am more inclined to believe the stadowstats estimate. The banks are in terrible shape even if they did show remarkable profits. If they ever applied mark to market rules, all of the top banks would be under water. The US government could not afford to have the top banks all going under water at the same time so they simply changed the rules. We have not touched on the commercial real estate loans that are coming due this year. According to a Smart Money article, Goldman Sachs now predicts that asset prices will fall 40 to 42 percent on average. Private-equity firm Blackstone has marked down its commercial real estate portfolios by 45 percent. Rents are dropping at a 9 percent annualized rate, the worst decline on record. California is paying debts with IOUs. Tent cities are forming in the US.
What we have is a crisis of debt. A federal government with a debt, $12.3 trillion, almost as big as the GDP of the United States, $13.84 trillion. At our rate of indebtedness, it will overtake the GDP this year. At the state level, California is broke, paying their debts with IOUs and still showing no signs of the political will to cut spending. Unfortunately, California is not the worst. State pensions are moved off the books so that they are not included in the calculation of state debts. Adding these in makes investment in state debt a poor gamble. Debt permeates the structure of the US economy like a malignant cancer on steroids. So to handle the poor economy that is a result of debt the Nobel prize winning economists feel that we need to spend more and incur more debt.
I do not understand how they got their credentials. I do not understand how incurring more debt will make our debt crisis better. Do the schools teach this? Next thing they will be telling us that war will make our economy better. Oh wait! They do. They still teach that WWII brought the US out of the great depression. God help us if they think that will work again.
The Economic Rules
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.
On one thing we agree. The US economy is in sad shape. Unemployment is at record highs. According to shadowstats, the official unemployment rate is 10%. The Bureau of Labor Statistics unemployment rate estimate is 16% and shadowstats estimate is 21%. I am more inclined to believe the stadowstats estimate. The banks are in terrible shape even if they did show remarkable profits. If they ever applied mark to market rules, all of the top banks would be under water. The US government could not afford to have the top banks all going under water at the same time so they simply changed the rules. We have not touched on the commercial real estate loans that are coming due this year. According to a Smart Money article, Goldman Sachs now predicts that asset prices will fall 40 to 42 percent on average. Private-equity firm Blackstone has marked down its commercial real estate portfolios by 45 percent. Rents are dropping at a 9 percent annualized rate, the worst decline on record. California is paying debts with IOUs. Tent cities are forming in the US.
What we have is a crisis of debt. A federal government with a debt, $12.3 trillion, almost as big as the GDP of the United States, $13.84 trillion. At our rate of indebtedness, it will overtake the GDP this year. At the state level, California is broke, paying their debts with IOUs and still showing no signs of the political will to cut spending. Unfortunately, California is not the worst. State pensions are moved off the books so that they are not included in the calculation of state debts. Adding these in makes investment in state debt a poor gamble. Debt permeates the structure of the US economy like a malignant cancer on steroids. So to handle the poor economy that is a result of debt the Nobel prize winning economists feel that we need to spend more and incur more debt.
I do not understand how they got their credentials. I do not understand how incurring more debt will make our debt crisis better. Do the schools teach this? Next thing they will be telling us that war will make our economy better. Oh wait! They do. They still teach that WWII brought the US out of the great depression. God help us if they think that will work again.
The Economic Rules
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.
Wednesday, February 17, 2010
Covering Gambling Debts
Look at this OCC website. If you look at the reports on the web site, you can see several things. The first is that as of the third quarter of 2009, the banks had exercised a total of 204 trillion dollars worth of derivatives. Say what? How can the banks, mostly JP Morgan, Goldman Sachs, Citigroup and Bank of America have exercised that much in derivative contracts? The second is that these banks continued to play the derivative game that got them into trouble in the first place requiring the US taxpayer to bail them out. Third, their risk to capital ratio is greater than 1, with Goldman Sachs at 8.5.
Now take a look at the TARP legislation. Under the subsection of Crisis Management, there is a provision to facilitate a blank check from the government to cover the next crisis that they see coming. (Okay, it is only $4 trillion dollars, almost 2x last year's tax receipts.)
When the next banking crisis hits, I want to see the banks go under. If they don't it will be the biggest bank robbery in world history.
Now take a look at the TARP legislation. Under the subsection of Crisis Management, there is a provision to facilitate a blank check from the government to cover the next crisis that they see coming. (Okay, it is only $4 trillion dollars, almost 2x last year's tax receipts.)
When the next banking crisis hits, I want to see the banks go under. If they don't it will be the biggest bank robbery in world history.
Tuesday, February 16, 2010
A few things about the 2009 budget
Here are a few of the figures from the 2009 budget. I found them at the treasury web site:
$Billions
Expenditures: 3521
Receipts: 2104
Deficit: 1417
Social Security: 727
HHS 796
Interest 383
TARP 154
Food stamps 70
Subtotal 2130
Note that we have not even touched on the business that the US government is supposed to handle under the constitution and every dollar of the federal tax receipts got spent. I understand the desire to save the world, including with our military. We just can't afford it any more.
$Billions
Expenditures: 3521
Receipts: 2104
Deficit: 1417
Social Security: 727
HHS 796
Interest 383
TARP 154
Food stamps 70
Subtotal 2130
Note that we have not even touched on the business that the US government is supposed to handle under the constitution and every dollar of the federal tax receipts got spent. I understand the desire to save the world, including with our military. We just can't afford it any more.
Monday, February 15, 2010
Our burdensome dwellings and vehicles
Elizabeth Warren wrote a book called The Two Income Trap. I have to confess that while I have listened to Elizabeth Warren lecture, I have never read the book. But since I have listened to the lectures, I can bet I know what the book is about. It is about couples who buy into a house that they can afford with their two incomes but lacking either one or the other income, they can't make the payments. It is a trap. The odds of one of two losing a job, getting sick so that he/she can't work, dying or otherwise being incapable of earning a paycheck is much higher than the odds of a single earner doing the same. In a single wage earner's household, if the wage earner cannot bring home a paycheck the other can go out and find work to keep the house going. If one of the two wage earners loses a job, there is no plan B.
Today, we make the situation worse. The two earner family is shoehorned into a house using teaser rates, negative amortization loans, loans of 110% of the home's value, all with the promise that rates won't rise until later when they can either sell the house, or being such wonderful people will have risen in income to where they can afford the house at the higher market rate. Hey, bankruptcies happen. But listening to Elizabeth Warren's lectures, they happen because we move into housing that we really can't afford. And the system allows us to do so. It all boils down to rule 4. Burdens and debt in particular ruin economies. Couples all over the nation are learning the hard way, watching their home ruin their personal economies.
Unfortunately, it seldom stops there. I have seen people who are shoehorned into these homes that are realistically beyond their means go out and buy the car or the truck that they feel fits their personality. The truck bed may be immaculate without a mark that indicates it has ever carried a load and none of the passenger seats in the SUV may have been sat in, but this vehicle is what they are and it says it. And just like their home, it is more than they can afford and more than they need.
It happens to couples making $50,000 a year and it happens to couples making $200,000 a year. There has to be a gaping hole in the American education.
The Economic Rules
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.
Today, we make the situation worse. The two earner family is shoehorned into a house using teaser rates, negative amortization loans, loans of 110% of the home's value, all with the promise that rates won't rise until later when they can either sell the house, or being such wonderful people will have risen in income to where they can afford the house at the higher market rate. Hey, bankruptcies happen. But listening to Elizabeth Warren's lectures, they happen because we move into housing that we really can't afford. And the system allows us to do so. It all boils down to rule 4. Burdens and debt in particular ruin economies. Couples all over the nation are learning the hard way, watching their home ruin their personal economies.
Unfortunately, it seldom stops there. I have seen people who are shoehorned into these homes that are realistically beyond their means go out and buy the car or the truck that they feel fits their personality. The truck bed may be immaculate without a mark that indicates it has ever carried a load and none of the passenger seats in the SUV may have been sat in, but this vehicle is what they are and it says it. And just like their home, it is more than they can afford and more than they need.
It happens to couples making $50,000 a year and it happens to couples making $200,000 a year. There has to be a gaping hole in the American education.
The Economic Rules
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.
Sunday, February 14, 2010
Today's federal deficit
Today's federal deficit is at 12.3 trillion dollars. Our tax receipts for last year was 2.1 trillion dollars. This just covers the "mandatory" items on the budget. Note that the mandatory items include social security, medicare, medicade, the TARP, and other social programs. It does not include military, homeland security or any other expenditures which are deemed discretionary. Does anyone remember when the interest rates were 21%? I do. If the interest rates were 21% then the interest would exceed the tax receipts.
The federal government has no choice. It will inflate the currency. Governments do not default on their debts. They print money and inflate the currency. I cannot predict when the inflation will hit. I cannot predict how bad it will be. But I can predict that inflation will happen. Get ready for it.
The federal government has no choice. It will inflate the currency. Governments do not default on their debts. They print money and inflate the currency. I cannot predict when the inflation will hit. I cannot predict how bad it will be. But I can predict that inflation will happen. Get ready for it.
On Social Security and Medicare
Take a look at rule 2. The promise of social security and medicare (rule 4) is that when you reach retirement age between 62 and 67 you can stop working and rely of the workforce you left behind. You move from a producer to a consumer in the American economy. This is wonderful for you and terrible for the rest of the economy. It is a violation of rule 2 that has to be made up for by the rest of the producers and a negative under rule 4.
Do you understand that whether it was promised to you or not, whether you paid for your parents to participate or not, whether it is fair or not, social security and medicare are pyramid schemes. It may not have started that way, but it is that way now. And what is, is. The people who run these programs (congress) have drawn and are drawing the money out and leaving IOUs. If anybody but congress did this it would be illegal. There will be a point at which this burden can no longer be born. The government will handle it by inflating its way out or we can be more mature about this and change the rules. Either way, the economic reality of rules 2 and 4 will eventually take over.
What happens if they cure diabetes, heart disease and cancer. Then the average life expectance will jump from 78 years maybe up to 90. Then what? Will the young start to euthenize the old or will the old start to show some maturity and continue working past the so called retirement age?
When social security first started, the average life expectancy was 60 and the retirement age was 65. If this aspect were applied today then you could start drawing on social security and medicare when you are 83. A rule that ties the age of social security to the life expectancy may even be a sustainable burden on this economy. If it is not then the age should be even higher or social security and medicare should not exist.
It is not fair that we put so much money into social security so that our parents could retire at the age of 65 and now we can't do the same. Isn't it our money? Yes it is. But with our votes, we allowed a pyramid scheme to continue. At some point it has to end. There is no point to continuing it just so that we who are close to retirement can get ours while those who are further away continue to pay.
Either raise the age of social security and medicare or end the programs entirely.
The Economic Rules
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.
Do you understand that whether it was promised to you or not, whether you paid for your parents to participate or not, whether it is fair or not, social security and medicare are pyramid schemes. It may not have started that way, but it is that way now. And what is, is. The people who run these programs (congress) have drawn and are drawing the money out and leaving IOUs. If anybody but congress did this it would be illegal. There will be a point at which this burden can no longer be born. The government will handle it by inflating its way out or we can be more mature about this and change the rules. Either way, the economic reality of rules 2 and 4 will eventually take over.
What happens if they cure diabetes, heart disease and cancer. Then the average life expectance will jump from 78 years maybe up to 90. Then what? Will the young start to euthenize the old or will the old start to show some maturity and continue working past the so called retirement age?
When social security first started, the average life expectancy was 60 and the retirement age was 65. If this aspect were applied today then you could start drawing on social security and medicare when you are 83. A rule that ties the age of social security to the life expectancy may even be a sustainable burden on this economy. If it is not then the age should be even higher or social security and medicare should not exist.
It is not fair that we put so much money into social security so that our parents could retire at the age of 65 and now we can't do the same. Isn't it our money? Yes it is. But with our votes, we allowed a pyramid scheme to continue. At some point it has to end. There is no point to continuing it just so that we who are close to retirement can get ours while those who are further away continue to pay.
Either raise the age of social security and medicare or end the programs entirely.
The Economic Rules
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.
The economic rules
The following are the rules that will be used to discuss different aspects of the US economy and what should be done to cure the ills we are seeing.
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.
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.
Saturday, February 13, 2010
On Savings and Borrowing
Savings takes money from the now and moves it into the future. Borrowing takes money from the future and moves it into the now.
I have seen it happen with people who make six figure salaries, who borrowed so much money for their houses, their Lexus SUVs, their vacation homes and with their electronic toys, and ongoing costs of living have nothing in the bank to show for it. When their children go to college they will have to do so on government loans. If they retire, it will be through the largess of social security and medicare. All of this because of living with all debt and no savings. These are supposedly intelligent people, so why would they get themselves into fixes like this? There has to be a gaping hole in their education.
I have seen it happen with people who make six figure salaries, who borrowed so much money for their houses, their Lexus SUVs, their vacation homes and with their electronic toys, and ongoing costs of living have nothing in the bank to show for it. When their children go to college they will have to do so on government loans. If they retire, it will be through the largess of social security and medicare. All of this because of living with all debt and no savings. These are supposedly intelligent people, so why would they get themselves into fixes like this? There has to be a gaping hole in their education.
Friday, February 12, 2010
Pillars of any economy
It never matters the size or the type of the economy. The forces that hold it up are the same. They fall into the following categories:
Education
Infrastructure
Production
Efficiency
Trust
These are the forces that move one from dependency or starvation to having what you need to having what you want to opulence.
On the other side are the destructive forces. They all comprise burden of one form or another.
Commitments and promises
Debt
Crime
Security issues
Overhead
If you look at what has been happening here in the US with the idea of creating the first five items and cutting out the last five, you have to ask what we in the US have been thinking.
Education
Infrastructure
Production
Efficiency
Trust
These are the forces that move one from dependency or starvation to having what you need to having what you want to opulence.
On the other side are the destructive forces. They all comprise burden of one form or another.
Commitments and promises
Debt
Crime
Security issues
Overhead
If you look at what has been happening here in the US with the idea of creating the first five items and cutting out the last five, you have to ask what we in the US have been thinking.
Supply and demand
I am always amazed at our lawmakers' ignorance of the law of supply and demand. The health care reform act is meant to supply health care to the rest of the US that is not now insured. It is supposed to make health care cheaper. Does anyone besides me see that with more people consuming the same health care resources, the price of health care necessarily must go up? Where are the provisions to increase the amount of health care available in the bill.
Does anyone else see what happens when people are paid when they are unemployed? They will stay unemployed because that is what the government paid them to do.
Does anyone else see what happens when people are paid when they are unemployed? They will stay unemployed because that is what the government paid them to do.
Thursday, February 11, 2010
To consume you must produce
Consumption must necessarily follow production. It is an easy concept. What is not so easy is what follows:
1. No economy can have many of its members not producing
2. Living longer necessarily means working longer.
3. Universal health care will not provide more health care. That can only be provided with more hospitals, clinics, doctors, nurses and medicine.
4. Producing something that nobody else wants or needs is the same as producing nothing.
It is a simple concept and it is amazing how often this concept is ignored in public policy.
1. No economy can have many of its members not producing
2. Living longer necessarily means working longer.
3. Universal health care will not provide more health care. That can only be provided with more hospitals, clinics, doctors, nurses and medicine.
4. Producing something that nobody else wants or needs is the same as producing nothing.
It is a simple concept and it is amazing how often this concept is ignored in public policy.
Wednesday, February 10, 2010
A dollar spent is a dollar taxed
Why can't either party get it? A dollar spent is a dollar taxed. You could also say that when the government spends a dollar they tax a dollar. This is true whether they get it by taxes, by borrowing or by printing the money. Instead:
From the Republicans: We get a siren call for tax cuts. Of course these are tax cuts without the corresponding cut in spending. Nobody is in favor of that. When there is not enough money to make ends meet, there is always the plastic or the printer.
From the Democrats: I could do so much more for you if you would give me more money to spend. But when you can't, there is always the plastic or the printer.
Note that both parties lead us to paper or plastic. If there is no change then it is time for a new and fiscally responsible party.
From the Republicans: We get a siren call for tax cuts. Of course these are tax cuts without the corresponding cut in spending. Nobody is in favor of that. When there is not enough money to make ends meet, there is always the plastic or the printer.
From the Democrats: I could do so much more for you if you would give me more money to spend. But when you can't, there is always the plastic or the printer.
Note that both parties lead us to paper or plastic. If there is no change then it is time for a new and fiscally responsible party.
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