Posts Tagged ‘social security’

Europe and Japan cut government spending, but not U.S.

Copyright 2010 by John T. Reed All rights reserved

Austerity measures everywhere but here

Page A11 of the June 23, 2010 Wall Street Journal has an interesting set of articles. Here are there headlines:

• France’s Lagarde [Finance Minister] Forecasts Austerity

• U.K. Unveils Severe “Unavoidable” Budget

• Japan Lays Groundwork for Cutting Massive Public Debt

Greece, Spain, Iceland, Ireland, and other European countries had previously announced various plans to cut government spending.

Have their U.S. counterparts—Obama, Geithner, Pelosi, Reid—announced any similar plans to cut federal spending?

Are you kidding? (more…)

Cost-of-living adjustments are woefully inadequate

Many things are indexed these days: some laws, long-term leases, long-term labor contracts, Social Security, government pensions, Treasury Inflation Protected securities (TIPs), and so on.

Why?

To protect people who pay or receive money from inflation including hyperinflation.

So are they protected?

Hell, no!

Why not?

1. income taxes
2. hyperinflation moves too fast for adjustments based on published changes in the Consumer Price Index

No real gain but you have to pay a real tax

Your basis in an asset is not indexed for the purpose of calculating capital gains when you sell it. Only the U.K. and Australia index basis for capital gains tax calculating purposes.

Let’s say you own a $200,000 home. It does not go up in real value one penny over two years until you sell it. But because the purchasing power of the dollar dropped by 10% during that period, your sale price is $200,000 x 110% = $220,000.

How much real (adjusted for inflation) gain have you experienced? Zero. The house is now worth 10% more in dollars, but so is a gallon of milk or anything else you buy. Your house did not go up in value really, but the IRS says you owe a capital gains tax on that $20,000 “gain.”

If you complain to your congressperson, he or she will probably point out that your tax bracket and dependent exemptions and a number of other things are indexed for inflation. True, but that won’t do you a damned bit of good with regard to the tax on your $20,000 “gain.” The government will take 15% of that in 2010 or $3,000. So you are $3,000 poorer in a real (after adjustment for inflation) sense.

Tax robs your TIPs bond of its inflation protection

Treasury Inflation Protection securities, also knows as TIPs bonds, are supposed to protect you from inflation.

Do they?

Hell, no!

Why not. They adjust your principal twice a year. If there was 10% inflation in a year, and your bond were originally $100,000, it would adjust 5% at the first six-month point and another 5% at the second raising the balance owed you by the government from $100,000 to $110,000 BEFORE TAX.

But that adjustment is taxable (by the federal government only). As with the house example above, it’s not a real gain or real income. All that 10% adjustment reflects is that the government printed too much money during the year. But the “fine” you have to pay for your government printing too much money is your tax bracket multiplied by your inflation adjustment. Both the interest you get and the adjustment to your principal amount for inflation are taxed as ordinary income, not capital gains! Plus, you do not actually get the principal adjustment amount until maturity. That is, you have to pay tax now on money you do not receive until later.

Nowadays, if you are affluent, that means you will get hit with a tax in the 40% range after Obama imposes his Medicare tax increase and lets the Bush tax cuts expire.

So do Treasury Inflation Protected securities protect you from inflation? Before tax, they protect you from moderate inflation, but after tax, you’re screwed out of close to half of your protection.

Virtually all incremental amounts you receive from adjusting your income for inflation are taxed thereby cutting your inflation protection approximately in half. That applies to everything, not just TIPs bonds.

You even get screwed if there’s DEFLATION!

Sometimes, you even get screwed tax-wise when we have deflation. That happens when the tax brackets are two-way indexed, that is, the adjustment applies to both inflation and deflation.

For example, for the 2009 tax year, your bracket jumped from 25% to 28% when your income went above $137,050. If there was deflation, that trigger income level would be adjusted downward, say, to $130,000. So if your income were between $130,00 and $137,050, you would get a 3% tax rate increase from the purchasing power of the dollar going up, not because you got a raise.

These sorts of problems, and how to protect yourself from them, are discussed in greater detail in my book How to Protect Your Life Savings from Hyperinflation and Depression.

Way too slow

But wait! There’s more!

Suppose the cost of living goes up really fast? Faster than it has gone up since the Greenback dollar and Confederate dollar during the Civil War? As fast as the hyperinflation in Weimar Republic Germany in 1922 and 1923?

Are you protected by the various cost-of-living clauses in laws and contracts?

In your freaking dreams!

Take Social Security. It’s indexed right? So no problem.

Think again. They adjust it annually. Annually!? What if the inflation rate is 20% per year. By the time they get around to doing the once- a-year adjustment, you’ve had to suffer through months of lower purchasing power.

What if inflation is 445% per year as it was in Israel in 1984? At that rate, here is what happens to the price of a gallon of milk that starts at the current price of $3.

445% x $3 = $13.35 That’s a $10.35 price increase in a year; $86¢ per month.

But essentially the Social Security Administration will keep giving you $3 to buy that gallon of milk for a year. Then they will start paying you $13.35 to buy that gallon of milk, but the price will move up to 445% x $13.35 = $59.41 during the second year of 445% hyperinflation—about $4 per month. But again, you will only get $13.35 to buy that gallon of milk for a year until the next adjustment.

So how often they adjust per year is crucial when the inflation rate goes higher.

But wait! There’s even more! A lag.

How often they make the adjustment per year is not the worst part of the too-slow problem. There is also a lag between when they look at the current prices and when they publish what those prices were.

In the case of the TIPs bonds, for example, it is a three-month lag. That is, the semi-annual adjustment they make in, say, April, will actually be for the inflation that occurred in the previous July through the January!

During Weimar Germany inflation, it hit 30,000% per month. at that rate, a “Value Meal” at McDonalds that costs $1 on January 1st costs $300 on February 1st, $90,000 on March first, and $27,000,000 on April 1st—when they adjust the principal on your TIPs bond so you can afford the “Value meal” at its January 1st cost of $1.

Thanks for nothing.

And remember that the adjustment to your principal on a TIPs bond is taxable. So on the next adjustment date, you will see your principal adjusted to $27,000,000 x 300 x 300 x 300 x 300 x 300 x 300 = $19,683,000,000,000,000,000,000—$19.683 quintillion dollars. Good luck paying the income tax on that at 40%.

So you see, inflation fans, a three-month lag can be a very big deal during hyperinflation. Indeed, you still won’t be able to buy that McDonalds “Value meal” which will cost $19,683,000,000,000,000,000,000 x 300 x 300 x 300 = ??? by the time you get the adjustment because of the next three-month lag.

Real, after-tax

What matters is the real, after-tax adjustment to the amount owed to you. “Real” means you have to adjust for inflation as of this minute—no semi-annual or lags or any of that. Also, it has to be after tax. If they only adjust you before tax, and you have to pay tax on the adjustment, you are no longer adjusted. You’re screwed.

How to deal with such cost-of-living adjustment problems during hyperinflation is one of the many issues covered by new book How to Protect your Life Savings from Hyperinflation and Deflation.

ObamaCare

Obamacare becomes law on 3/22/10

OK. I let this settle for a couple of days as I usually do. One of the problems with Internet news groups is too many people popping off instantly in reaction to another post. A little reflection is better.

Unconstitutional

I think the law is unconstitutional. That is not to predict the U.S. Supreme Court will agree with me. I have no idea about that.

It violates the Tenth Amendment:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

The public seems to think the federal government outranks the state governments and the people. No. The opposite is true.

The Dems claim they can pass Obamacare under the “Commerce Clause.” But that says nothing about individual Americans. It states, in Article I, Section 8 that Congress shall have power “To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes.” Its purpose is to prevent states from charging import duties on stuff coming in from other states or countries. It’s a stretch to extend it to forcing citizens to buy a private product or service. But the Supreme Court is famous for stretching the commerce clause in the past.

Ironically, I think the federal government may have the right to establish a single-payer health insurance system, which is somewhat similar to social security, a mandatory pension plan for all workers in the U.S. I actually think social security is unconstitutional, but that question has already gone through the Supreme Court and they upheld it.

There are also provisions that seem to me to violate the Fourteenth Amendment “equal protection” clause. You have to treat everyone the same. NE, FL, and LA do not get a better deal than the other 47 states.

ObamaCare may be a tax on the states that is not permitted by the Constitution. The original Constitution allowed only a head tax. Income taxes were declared unconstitutional as a result. The Sixteenth Amendment allowed Congress to tax“ incomes.” But Southern states have paid lesser Medicaid benefits than Northern states. ObamaCare forces Southern states to pay more for medicaid. As such, it is neither a head tax nor an income tax.

‘The process’

There was much talk in the media about the Dems violating House and Senate rules. That did not happen. The law that was signed was passed by 60 Senators on Christmas eve. The House passed that bill according to their normal majority rule. Deeming was not used. I do not know what they are going to do to “fix” the Senate version to make it more like the House wants. Normally, they go to conference then the resulting compromise has to pass both houses which subjects it to the Senate 60-vote cloture rule.

I surmise they are going to use reconciliation to pass the compromise version to avoid the need for the 60 Senate votes they no longer have. That arguably violates the rules pertaining to reconciliation, but the Vice President can overrule the Senate Parliamentarian and he will. The Constitution says the House and Senate can pass their own rules. The Vice President’s power to overrule the parliamentarian is one of those rules. No unconstitutionality.

All that all of this means is the Dems are darned lucky Harry Reid met one of their arbitrary deadlines on Christmas eve.

Were the bribes to get those 60 votes sleazy? Absolutely. The whole Congress is sleazy. You get in there by winning a best- liar contest back in your district or state.The president is sleazy. He won the best-liar-in-the-country contest.

Hey, the Dems squeaked it through. If the Supreme Court does not overturn it, those who do not like it need to elect a new Congress and President to repeal it. It’s as simple as that. Read the Constitution.

‘Doing nothing was not an option’

Obama kept saying that the Republicans wanted to do nothing. He lied. The Republicans CAN do nothing because they are in the minority and do not control the White House.

Obama also said that health care as now operated in the U.S. is unsustainable.

That is correct. The costs are way too high compared to other countries and the rate of increase has been way too high.

Then Obama said the fact that current costs are unsustainable means we have to do “something.”

“Something?” What does that mean?

To Obama, it seems to mean “anything” as in “Anything is better than nothing.”

That is not correct. The action we need to take is to change the way medical care is purchased and paid for in ways that reduce the costs to more appropriate levels without causing new problems.

It is not clear what that would mean. I would expect we would need to study health care systems around the world and either copy the best one or a least use ideas from the best. I have read that Germany and Singapore have universal health care systems that work pretty well. Germany’s was started by Otto von Bismarck in the late 1800s and has survived two world wars, Weimar Republic hyperinflation, and more than a century. It works through private insurance companies. Basically, Germany helps its citizens buy private insurance. Germany and Singapore also have very successful economies. The rest of Europe is a mess being bankrupted by their versions of ObamaCare.

The premier of Newfoundland, Canada recently came to Florida for medical care rather than use his country’s universal system. I am told the affluent in Canada do that to avoid Soviet-style customer service and lowest-common-denominator, we’re-all-equal treatment of people who are used to going first class. Apparently, one of the unwritten ways Canada pays for its health care is to charge the rich for it, then drive them to pay again for better service in the U.S. like what’s done to those who send their kids to private schools in the U.S. (By the way, did you know Newfoundland used to be its own country. It could not pay its bills so the U.K. annexed it into Canada.That was called gunboat diplomacy. Apparently, they still cannot pay the bill for quality health care service.)

Was Obama’s version of “doing something” better than doing “nothing?

Are you kidding? The “problem” was high costs. What does ObamaCare do to lower costs? Absolutely nothing. Part of it spends billions on attacking waste, fraud, and abuse. They should have attacked waste fraud and abuse in 1965 when Medicare started. The anti-fraud billions raise costs. Whether the money will produce a a net benefit when you achieve savings and subtract the cost of the achieving them remains to be seen. Actually, I do not need to wait. There is not a snowball’s chance in La Jolla that waste, fraud, and abuse will be eliminated or even reduced. It is endemic to all government activity. Indeed, I am certain that the bureaucracy created to stop waste, fraud, and abuse will itself have the usual amount of waste, fraud, and abuse, thereby making the waste, fraud, and abuse worse.

ObamaCare is to fixing the high-cost problem of U.S. health care what shooting gasoline from a fire hose is to putting out a fire.

Socialism?

Is ObamaCare socialism? Yeah, of course. So are Medicare, Social Security, and Medicaid. Socialism is not a pass-fail question. It is a matter of degree. Pure socialism is government spending is 100% of GDP. Pure capitalism is 0%. Our spending in 1903 was about 17% of GDP and is now about 45%.

Here is a Web site that says the U.S. spends 19.9% of GDP, 144th out of 160. This is 2006 data. Other major countries on that table come out like this:

Japan 103rd 30.9%
Switzerland 76th 37.8%
Germany 41st 48.8%
U.K. 37th 50%
France 7th 61.1%

Single payer

Obama denies it now, but in the past he said he was a single payer guy. That means total government takeover of health care. All doctors, pharmaceutical companies, hospitals, and medical equipment manufacturers are paid by a single payer: the federal government. That’s the Soviet, Cuban model.

Here is a YouTube of Obama saying this. I saw him confronted with it by a media interviewer. His response: He claimed he could not hear what he was saying on the video they played for him.

That’s lame and he knows darned well what he said. Transcripts of it are all over and Obama and his advisers have discussed it behind closed doors. “I can’t hear it” is the best they could come up with? “I changed my mind” might, I repeat, might be believable. “I can’t hear it,” is not believable.

In the video, he says, “we may not get there immediately.” ObamaCare 2010 is not getting there immediately. But make no mistake, every single hard- core proponent of ObamaCare regards it as merely the camel nose inside the tent. They are not stopping with ObamaCare. They will push for moving to single payer or closer to it as soon as they think they can get away with it. And they will not stop pushing for single payer until they get it. Shame on the American people who believe the Dems have abandoned their dreams of single payer. 2010 ObamaCare is to the left what Czechoslovakia was to Hitler. The British agreed to let Germany have Czechoslovakia to get an agreement that they would seek no more territory. It was called appeasement. The Peace in Our Time Munich Agreement was signed by the British and Germans on 89/30/38. Germany invaded Poland starting World War II in Europe on 9/1/39. Americans who oppose single payer but who are OK with 2010 ObamaCare are clones of British prime minister Neville Chamberlain who sold out the Czechs for a worthless agreement that Germany would seek no greater territory. The left will pursue single payer until they get it and they will use ObamaCare to get American addicted to government health care so they can later get single payer.

The next step will be leftists using ObamaCare rules and law to drive all health-insurance companies out of business. Then they will say, “See!? We told you those people were no good. We’ll take care of you now. And be sure to vote Democratic in the next election—if you know what’s good for you.”

Effects of government intervention

Socialism doesn’t work. Government intervention makes things worse. Here is what I expect will happen as a result of ObamaCare:

• The best and brightest Americans will stop going to medical school.
• Medical students interns and residents will abandon medical school and medical careers.
• Current American doctors will quit the profession or retire early.
• More hospitals and doctors will refuse to take Medicare patients. The Mayo Clinic refused to take them before ObamaCare.
• Your heath insurance plan, and doctor, whom Obama assured you that you would be able to keep, will shut down and no longer be an option.
• The addition of 32 million new insureds and the reduction in the number of doctors will result in a severe doctor shortage that will be partially taken care of by importing Third World doctors who cannot speak or understand English well enough to adequately understand your symptoms, adequately explain your situation and therapies to you, or establish any sort of cultural or personal rapport with you.
• The same will be true of nurses.
• The U.S., which is the last country to aggressively seek new medicines and medical devices, will stop doing that because of lack of profit incentive. The number of new patents for new medicine and equipment will flat line worldwide. Tenured University personnel will putter around continuing efforts to develop new therapies, but without the profit motive, they will do so only at glacial speed. Recently, the rest of the world has gotten away with not doing medical research cause they could count on us to do it for the whole world. When, we, too, allow a government takeover of all health care, neither we nor the rest of the world will be able to benefit from technological progress.
• All prescription medicine will become generic in about 17 years (patent term)
• Hospitals will deteriorate and age more than in the past. As in rent control, the building owners will have no incentive to rehab or replace them.
• Waiting lines will get unbelievably long. Waits for appointments will get longer.
• Many therapies and diagnostic tests will be rationed because the equipment or medicine is expensive.
• All medical personnel from doctors to nurses to orderlies to janitors to administrators will unionize and seek and get generous benefits like retirement when they are in their 40s, suspiciously high rates of disability, cost-of-living adjustments to pensions, high pensions.
• the best people and managers will leave health insurance companies to be replaced by gum-chewing, union, it’s-not-my-job, bureaucrat drones

Author of Is the Welfare State Justified?

On 3/28/10, I heard a brief interview with Professor Daniel Shapiro of WVU. He wrote the book Is the Welfare State Justified?

Basically he said that those who favor government health care and all that are even wrong when judged on their own priorities. Liberals say their priorities are right and those of the right wrong. Shapiro says, OK, let’s use your priorities. He then shows that the priorities of the liberals—like social justice, fairness, and egalitarianism—are better served by letting the market run health care. His evidence is to show how actual market and government health care systems around the world work. For example, in government-run health care systems, the poor end up at the back of long lines and waiting lists for health care. The rich pull strings, use connections, or spend money to get better health care and better service. Plus, the government-run system costs more so there is less health care for everyone, especially the poor, than in a market system.

Shapiro agrees with me that the proper health care delivery system is the 1970s and before approach. You pay out of your own pocket for routine and semi-routine and moderate cost care—like car insurance. And, as in car insurance, you have major medical insurance that only covers catastrophically high-cost care.

Essentially, that is what we will have, either because we are smart enough to recognize it, or because we act like idiots and bankrupt ourselves in which case we will be forced into the pay-your-own-way plus major medical system because we cannot get anyone to lend us the deficit spending necessary to offer Santa Claus level universal health care with no deductible.

Pre-existing conditions

Both Republicans and Democrats agree that pre-existing conditions have to be covered by health insurers. Good for them, but they’re nuts.

By definition, insurance cannot cover pre-existing conditions. Insurance covers risks. There is no risk in a pre-existing condition.

The answer to pre-existing conditions is pre-existing insurance. My sons were covered from birth. That ought to be the case with everyone.

What about people who for one reason or another did not do that or had gaps in coverage which caused them to be disqualified when they attempted to get new insurance?

1. Pay out of your own net worth for the needed health care. Your pre-existing condition is certainly not any one else’s fault.
2. Seek charity from relatives, friends, organized charities.
3. When you run out of money or private charity, go to Medicaid.

A bigger picture solution is to end government and employer involvement in health insurance. This was sort of done with pensions. It used to be that those who lost their job lost equity they had built up in company pensions. The pension was switched to the person, not the company, with 5401(k)s, IRAs, SEPs, and so on. Good law.

The same should be done with health insurance. You buy it from an insurance agent like car insurance or fire insurance, not through your employer. The stupidity of employers providing health care started during World War II as a way to get around another stupidity called wage and price controls. It was a way to give raises. Employers have better things to do than provide health care or insurance, like employ people. The requirement that they provide health insurance deters starting new businesses and expanding them. Everyone should buy their own health care and health insurance the way they buy food, clothing, housing, and so on. That would fix the high cost and rapid price increases too. Only bureaucrats tolerate high, rapidly rising costs. Consumers would shop around and refuse overly expensive treatments.

Letting people with pre-existing conditions buy health insurance that covers that condition is like letting you buy life insurance on dead people or letting people at the race track bet on races after they are over. It’s stupid on its face. People with pre-existing conditions don’t need insurance. They need to pay for their care themselves or get charity.

Essentially, people with pre-existing conditions have long been covered for health care by Medicaid. The real problem is that middle class and affluent people want someone else to pay for their misfortune. They do not want to have to burn through their net worth until they qualify for Medicaid. I understand the economics of their motivation. What I do not understand is why they do not see the economics and fairness in mine. Sorry about your pre-existing condition, but no you may not bankrupt me, my children, or my country to pay for it. You pay for it until you are bankrupt. Then become a ward of the state.

With ObamaCare, the law will now “cover” them, but only briefly before trying to do that bankrupts the insurance companies and the country.

End lifetime policy limits

Another “we can all agree” provision is prohibiting insurance companies from putting a lifetime cap on health care coverage.

Why don’t we repeal the law of gravity while we are at it? That would eliminate injuries from falls.

We cannot force insurance companies to end limits on the amount of are they will provide. They are not bottomless pits of money. All insurance policies have limits.

Of course, ObamaCare went ahead and outlawed lifetime limits anyway. Enjoy it while it lasts. It will bankrupt the companies then the country.

Bankruptcy of the U.S. government

We have been told for decades that Social Security alone will bankrupt the country. It will. The first of the 78 million Baby Boomers still have not yet started collecting. They have to be 67 to get full benefits that are not reduced by their other income. Social Security went into the red—outlays exceeded inflows— in 2008 for the first time in history. The first Baby Boomers turn 67 on January 1, 2013. You have to be 65 to get Medicare. The first Baby Boomers turn 65 on 1/1/11. The 12/9/09 Daily Paul—Congressman Ron Paul’s web site—says,

The 2009 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached nearly $107 trillion in today’s dollars! That is about seven times the size of the U.S. economy and 10 times the size of the outstanding national debt.

Actually, the current national debt is http://defeatthedebt.com/debt-clock/?gclid=CJTN99-U06ACFRlRagodeCcRsw.

An Internet article said his about Medicaid unfunded liabilities:

In the next 50 years, Medicaid, the program for the poor — broadly, sometimes very broadly defined — could become a bigger threat than Medicare to the nation’s prosperity.

Even Barack Obama says current U.S. fiscal behavior (spending, taxing, and borrowing) is “unsustainable.” He’s right. Everyone says that. They are all right.

But no one, I repeat, no one, is doing the slightest thing about it. Obama says ObamaCare will reduce the deficit by $118 billion in the next ten years according to the Congressional Budget Office. If you believe that, you are too dumb to vote. Please stay away from the polls. Second, even if it were true, it is a drop in the bucket. The problem is over $100 trillion. $118 billion is one tenth of one percent of the $100 trillion problem.

Basically, the bond market and/or foreign exchange market will go on strike with regard to the dollar at some point. It’s called a run on the dollar. Anyone who owns dollars or dollar-denominated assets like U.S. government or corporate bonds worldwide will frantically try to sell them. That will drive up interest rates dramatically. It may be that no one will buy dollars or dollar bonds at all. In that case, the Congress and the President will not be able to deficit spend. They will have to raise taxes or cut programs drastically to pay the government’s bills. In fact, they will simply not have the money to pay pensions, bond interest and principal, government employee salaries, government bills for ammunition, fuel, electricity, and so on.

That was going to happen without ObamaCare. ObamaCare greatly accelerates it.

So in the end, the issue is not how Obama Care will hurt health care. The issue is when will ObamaCare and all the prior entitlement programs stretching back to 1933 cause the world financial markets to say “No more.” I saw a Harvard economist get asked when that will happen on Charlie Rose or some similar show in 2009. He thought a moment and said,

Five years—not ten.

In other words, he expects the U.S. to go bankrupt in 2015, 2019 at the latest. It’s really not possible to tell. It depends on events worldwide.

ObamaCare, therefore, is not something that you will experience in a hospital or doctor’s office. It is something you will experience on Fox Business TV, Wall Street, at your bank, your 401(k), your IRA, and, after the bankrupt federal government figures out how to pay the judges and bailiffs, in your recently re-opened local bankruptcy court.

Can the “greatest country in the world” actually go bankrupt?

YES WE CAN.

Obama has not ‘inherited’ anything

Barack Obama cannot get through a paragraph without whining that he inherited all the nation’s woes from the Bush administration.

Bull!

There are two definitions of inherit:

1. to receive assets as a result of the death of a person pursuant to a will or intestate succession state law

2. to receive, by being conceived, genetic characteristics from a biological ancestor

Neither applies to Obama. George W. Bush did not die and, if he had, he sure as hell would not have left any assets to Barack Obama. Obama admits to being a cousin of Dick Cheney, but cousins are not descendants and Obama surely is no descendant of Bush.

Obama SOUGHT the position he is now in

Unless you are one of the Menendez brothers or Anna Nicole Smith, you do not seek an inheritance. It just happens to you without the slightest effort on your part.

That sure as hell does not describe Obama’s behavior since the year he decided to go into politics at age 23. He has been busting his ass off, neglecting his family, and bending every effort to achieve the highest political office he could achieve. He desperately chased the three political offices he has held. He was not selling insurance for Allstate when he got a call that his uncle George died and left him the White House

Inheritance, like elective office, is optional

When you are told you are to inherit assets as the result of the death of their prior owner, you’d better make sure you want them before you agree to accept them. In the case of real estate, the property in question may be underwater (mortgage bigger than current market value) or contaminated with toxics like asbestos or underground waste that would cost more to clean up than the property would be worth afterwards. The same is true of businesses or other assets that may have been pledged as loan security. A corporation might have tort or other types of liabilities that would cause you to say no thanks to the executor of the estate.

Heirs can just say no to the receipt of any particular assets offered to them as a result of someone’s death.

Barack Obama could have declined to run for president or, after being elected, he could have declined to take the oath or, after inauguration, could have resigned.

Not only did he not do any of those things, he did the opposite. He cited all the nation’s problems as reasons:

• why he wanted the job
• why he should be elected to fix those problems
• why the party in power in the White House should be replaced by him

Now he tells us the prior administration left him a mess. Isn’t that the exact same mess he spent all 2007 and 2008 talking about and asking us to put him in charge of? He told us he was an expert on that mess. He told us he was the best person in the country to fix it.

Now, those exact same things are his all-purpose excuse for not fixing it.

During World War II, the French were famous for blaming all sorts of inefficiencies and shortages on the war with the all-purpose excuse “C’est la guerre.”

Obama’s version of that is “C’est le Bush Administration.”

Quit the whining and get to work! You wanted the job. You got the job. Now do the job. Find ways to get it done and stop making excuses for not getting it done. If the mess left by the previous administration is too much for you, resign. If not, shut up and start producing some real results.

The Bush administration never had your Congressional majorities and indeed spent half of their time in office with a minority in Congress, yet they got far more done. Literally, the only laws you have enacted were two earmark laws—the earmarks you promised would end if and when you got elected.

The plain fact is you suck as a president. You had one of the three biggest Congressional majorities since 1900. The others were FDR in 1932 (Depression) and Carter in 1976 (Watergate).

Democrat Lyndon Johnson got far more done than you (e.g., Civil Rights Act of 1964, Great Society) with normal Congress’s and a much bigger war (Vietnam with 553,000 U.S. troops in country). Why did Johnson and Bush get far more done with far fewer Congressional party mates? Because, unlike Barack Obama, they knew what they were doing as a result of many years of real experience. You stumble around the Oval Office like a guy groping for a towel after leaving the shower with soap in his eyes.

As I said in my job interview article early in the 2008 campaign, Barack Obama could not get a job as an unpaid volunteer youth basketball coach, McDonald’s night manager, or Army second lieutenant—literally—if he applied for them with the same resume but no celebrity.

Bush was president, not king

Bush was not king from 2001 to 2009. He was merely president. There was also a Congress. What happened or did not happen between 2001 and 2009 was the responsibility of both the president and the Congress. Obama himself was a U.S. Senator in that Congress from 2005 to 2009—2/3 of a six-year senate term. The two parties were tied or the majority party went back and forth. The most senators the Republicans ever had when Bush was president was 55, not the magic number of 60. Barack the “magic negro” managed to render the magic number of 60 anything but magical by spending every month when he had that magic number pushing for a health care bill that required even more than 60 Democrats because the Democrats themselves could not all support the various hodge podge versions that were bandied about.

Who made the mess?

Did Bush alone create all the challenges facing the nation in 2009 and 2010? As we all know, he did not. He could not.

The mess facing the nation was created by all the Congresses and presidents since around 1928. Before then, the federal government was too small to make huge messes. They just ran the Army and Navy and post office and customs.

The mess is the accumulation of laws like social security (FDR), Medicare and Medicaid (Johnson), Medicare Part D (Bush II), war after war after war (Kennedy, Johnson, Nixon, Reagan, Bush, Obama). It is also caused in part by quasi-governmental organizations like FNMA, FHLMC, Federal Reserve. And it was caused by people outside the U.S. like Hitler, Tojo, Mussolini, North Korea, North Vietnam, Iran, Saddam Hussein, Mullah Omar, Osama Bin Laden, and so on.

Almost all presidents have blamed their predecessor to an extent for the problems they face. But none of them have done it so many times or for so many months as Obama.

What Obama really means by the word ‘inherit’

Aside from the inaccuracy and incompleteness of Obama’s whining about inheriting the mess, he intends a whole new, very dangerous meaning to the word. To Obama, the allegation that he inherited the problems currently facing the country means:

1. The existence of the problems alleged by Obama on inauguration day is not his fault, which is generally true.
2. The continued existence of those problems is neither his fault nor his responsibility to fix. There seems to be a silent implication that Bush and Cheney have to somehow come back and clean those problems up.
3. The appearance of additional, similar problems after inauguration day are also due to Bush/Cheney because the problems that have arisen since Obama took office are somehow the offspring of the problems Obama “inherited.”
4. The worsening of the problems Obama inherited from Bush/Cheney is also not Obama’s fault nor his responsibility to fix because those problems would not exist if Bush/Cheney had not created them and left them unfixed.

In short, Obama is absolved from either blame for, or of any obligation to fix, any problem that could, in any way, however remotely, be traced to Bush/Cheney.

Obama sees his entire responsibility to be scolding the ROW (rest of the world, i.e., everyone but Barack Obama), especially the prior administration and “Washington” and “Wall Street” for all of their mistakes and shortcomings. He will sign an occasional bill and make a zillion speeches, but otherwise, “somebody” needs to clean up this mess.

For the record, it is the job of each president to manage the federal government in the best way possible and the correct total amount of time each president should spend pointing out the deficiencies of his predecessor is 0:00. What’s done is done. The president’s job is the situation as he finds it on inauguration day regardless of its origin. If you call a washing-machine repairman, and all he does is complain about the manufacturer of the machine or the previous repairman, you would rightly refuse to pay him.

Not suited for the job

I have been saying since before the election that Barack Obama wanted the title of president and the celebrity of president, but that he never had any interest in actually doing what the president has to do. Ronald Reagan, a former two-term California governor, knew what chief executive meant, wanted the job and did the job, not perfectly, but he knew what he was getting himself into and handled it rather well. Hillary is a policy wonk and loves that stuff.

Obama is the opposite of a policy wonk. He is a dilettante, perpetual graduate student. He enjoys talking about this stuff, but not to the point where he is going to bother to do his homework so he knows what he’s talking about. Like the Pope, Obama is always pontificating. Unlike the Pope, Obama has no authority to pontificate.

In my book How to Manage Residential Property for Maximum Cash Flow and Resale Value, 6th edition, which just came out, it tells a tale of two employees of mine. Both were resident managers of apartment complexes I owned. The managers of my Greenbriar Apartments loved the job. They had been there for decades. They had written an article for the local paper once about how great the job was because of all the different people they met from around the country and the world who were tenants there. Never a dull day. Every day was different and so on.

Then there was the other manager I had briefly at my Las Brisas Apartments. She complained bitterly of being bothered all hours of the day, stupid tenants, impossible list of things to do, and so on. She demanded her pay be double or some such. I fired her after about three weeks.

Both managers were describing the exact same job—albeit at two different complexes. One saw the glass as half full; the other, half empty.

My books says when you hire an employee who complains bitterly about those aspects of the job which are normal, fire her or him. It is not that she is wrong when she says a resident manager of an apartment building gets “bothered” at all hours of the day. They do. The issue is whether it is a “bother” and whether they appreciate also being off-duty all hours of the day when nothing in particular is happening. Those who are as well suited for the job as they should be are not “bothered” by the tenants coming to them with maintenance requests or other issues. They see it as what they get paid for and recognize that the compensation is fair for the time required. I would not even say the complaining manager is a bad person. But they sure as hell need to find another job.

The generic version of this is the manager who complains that they are “always putting out fires” or that they can never get a full team of the “right people.” If they could just get the “right people,” everything would be fine.

If the guy who complains that they have no time for anything but putting out fires at work, and he is a fireman, fire him. More broadly, if organizations always worked smoothly, there would be no need for managers. A manager is to people, when the maintenance man at a factory is to the manufacturing equipment. If the equipment never broke down there would be no need for a maintenance man. By the same token, managers are the maintenance men of human organizations. If everybody always did the right thing, organizations would not need managers.

President of the United States is a people manager job. The current holder of that job incessantly complains about the mess and the problems and the recalcitrant Congress and voters.

Complaining about the job description!

He is complaining about the job description! What president did not have to deal with such things? Throughout our history there have been wars and financial crises. There’s a list of all U.S. wars at this link. And there’s a list of business cycles since 1854 (all booms and recessions) here.

Barack Obama could not have had more notice of what the job of President of the United States involved. Now he complains bitterly about precisely the job for which he told us he was the best qualified person. He is unqualified for the job and unsuited for it. The plain truth is he never wanted the job in the first place, only the title and prestige and celebrity of it, and he wants it even less now that he has it. He should resign (after first getting Biden to resign and appointing Wes Clark or Hillary or some such the new vice president).

Do not complain about the job description after you take the job. Read it before you apply. If you don’t like the job description, don’t apply for, or accept, the job.

Barack, lead or get out of the way. Whichever you choose, quit your adolescent whining.

Obama job creation claims and plans

A job is a civilian private sector job. A government job is nothing but the echo of a private sector profit that is partly taken as tax revenue then paid out for government expenses like salaries of government employees. If there were zero private sector jobs in the U.S., there would also be zero public sector jobs.

So the only jobs to be created are private sector jobs.

Government’s only involvement with private sector jobs is to get in the way of creating them or get out of the way of creating them. If they get out of the way, more will be created. If they increase the ways in which they are in the way, fewer will be created.

To say that Obama and his Democrat allies are getting in the way of private sector job creation would be the understatement of the year. Democrats love jobs, but they hate employers. They love jobs, but the hate the profits that motivate and enable private sector business owners to create new jobs.

Obama and his allies have either increased taxes on small business owners or promised to do so. He has promised unspecified change which translates to uncertainty in the minds of businesspeople and investors. Uncertainty, in turn, means “wait” to businesspeople and investors. Waiting means those seeking jobs must also wait until Obama stops confronting job creators with uncertainty that makes them afraid to expand or start new businesses.

Blue and red neon ‘OPEN’ signs

You know those blue-and-red “OPEN” signs you see everywhere nowadays in store windows? Those are the physical, visible manifestations of jobs created. Almost all private sector new jobs are created by brand new private businesses. A typical example would be a family of immigrants from China who work initially in the Chinese restaurants of others then save up enough to open their own. The new jobs created would typically be the waiters, cooks, and busboys they hire.

Do they encounter obstacles to doing that? Yes. They need capital equipment which often requires borrowing. They need permits to sell food and liquor. They may need zoning changes. Are all of the obstacles government? No, but many are. Are the obstacles necessary? Some are. Some are not. Can the federal government help? Yes, they can remove unnecessary obstacles to starting business caused by federal regulations and laws.

Is Obama doing that? Hell, no! He is doing the opposite.

The following are generally favorites of Obama and unfavorites of those who want to expand their business or start a new business:

• unions
• higher taxes
• increased regulation
• more mandates forcing business to adopt pet policies of the left like healthier eating, alternative energy, save the planet, higher mileage

What about those who say healthier eating and saving the planet are good things? So proselytize the public to do that. But don’t force them down people’s throats through those who create new jobs. Creating new jobs is a good thing, too.

No one is opposed to having officials at football games or umpires at baseball games. But sensible people are opposed to either too little or too much regulation of those games. Yet in the context of business, the debate changes to whether regulation, as a generic abstraction, is good or bad. The correct answer is that every human activity needs Goldilocks regulation: not too much, not too little, but just the right amount. Democrats are not seeking the right amount. They are seeking more. Republicans tend to want less, but not so mindlessly.

Going bankrupt

If all regulation were instantly eliminated—say, by the nation going bankrupt—there would instantly be more jobs. But we would also become Somalia.

By the way, I believe it is fair to say that the U.S. is headed toward bankruptcy. Obama himself said so, albeit as a scare tactic to get health care passed. He said we would go “bankrupt,” using that precise word, if his health care was not passed. He is right that the nation will go bankrupt if social security, Medicare, and Medicaid benefits are not cut drastically. But his statement that his health care reform would head off the bankruptcy is the opposite of the truth. His expansion of health care entitlements radically accelerates our financially suicidal path.

The number of observers and experts predicting U.S. bankruptcy is reaching a crescendo. In addition to describing the behavior of the Congress and White House using various words for “crazy,” I also hear words like “unsustainable.” Can it be a self-fulfilling prophecy? Yes. But, if anything, there appears to be a bias in the other direction. That is, people who believe it are reluctant to say it. No intelligent person believes we can continue doing this. No legislator nor Obama is willing to breathe the slightest hint of stopping it. If any Republican gives the slightest hint of reforming Medicare, the Democrats immediately smirk and ask, “So you’re going to cut Medicare?” The Republican instantly swears eternal allegiance to never cutting Medicare.

Medicare will be cut all right, but by the domestic and international bond markets who are currently financing it, not Congress or Obama.

Only a question of when

When will the U.S. go bankrupt? The consensus appears to be five to ten years from now—2015 to 2020. But such predictions are not an exact science. Obama, Pelosi and Reid keep dropping anvils on the camel’s back. At some point, the bond market is going to panic and there will be a run on the dollar and a run on U.S. bonds. You can already see the precursors in gold prices rising in relation to the dollar, foreign currency prices rising in relation to the dollar, China tongue-lashing U.S. fiscal policies and buying commodities instead of U.S. bonds.

What will the run on the dollar and U.S. bonds mean? Higher interest rates. Higher prices on imports which means almost every stitch of clothing on your body, many cars, a large percentage of our food. Probably a deeper, longer recession or depression.

Hyperinflation and financial repression

The U.S. government will probably resort to hyperinflation and financial repression to deal with their inability to deficit spend. Inflation is no longer a powerful enough scam—too many amounts that the government has to pay out (e.g., social security) and collect (e.g., tax brackets) are now indexed, which nullifies the government’s ability to surreptitiously steal from the taxpayers via inflation.

They now need to use hyperinflation which moves too fast for the CPI index to stop it.

Financial repression means force you to put your money in banks that pay below-market interest rates on deposits then force those banks to put your deposits into risky, below-market-interest-rate U.S. government bonds. Essentially, they will force you indirectly to put your cash into unacceptably risky, below-market-interest-rate U.S. bonds. Ultimately, the U.S. will have to eliminate Medicare and Medicaid and cut social security to keep government expenditures within tax receipts. They will try to raise taxes on the rich, but they have gone to that well about as many times as they can. They need to raise taxes on the people whose taxes they have been cutting: the middle class and lower class. It’s called broadening the tax base.

I doubt anyone currently in Congress or the White House is capable of that. If so, the U.S. government will force you to buy its bonds directly or indirectly, then default on them.

The right amount of regulation reduces jobs somewhat, but it gives us an appropriately civilized country. Too much regulation, as now, gives us 10% unemployment. The additional regulation and taxation pushed by Obama in health insurance mandates and cap & trade would dramatically reduce the number of existing jobs and the number of new jobs created.

The government, at all levels, needs to remove all unnecessary or not cost-effective barriers to entry (starting a business) and barriers to exit (going out of business). They need to remove all barriers or discouragements to hiring (like minimum wage, mandatory employee taxes and insurance) and to firing (like requirements that a plant give notice before closing).

What Obama really wants

Obama does not give a rat’s rump about job creation. All he cares about is persuading the American people to believe that he has created jobs. It’s not that he believes perception is reality. He just thinks reality, truth, and all that are irrelevant. FDR wrecked the U.S. economy and turned a recession that would normally have last a year or so into a permanent depression that only ended when World War II arrived. 75 years later he is still beloved by tens of millions. Obama looks at that and concludes that the mere perception of job creation is close enough for government work to actual job creation.

Obama wants the U.S. public to believe he has created millions of union jobs. He talks about private-sector jobs, but if he can get away with it, he will create nothing but government jobs for SEIU members.

Economist Milton Friedman once observe thousands of Indians with shovels digging at some government construction project in India. He asked why they were not using more efficient motorized backhoes, bulldozers, road graders, and so on. The official wearily explained that it was a jobs program. Using heavy construction would reduce the number of jobs. Friedman then suggested they replace the shovels with spoons.

If Obama thought he could get away with it, he would switch to union spoon-ready, rather than shovel-ready, government make-work projects. That’s what FDR’s Civilian Conservation Corps was. It was out in the boondocks only because the unions demanded that no such non-union jobs be near populated areas where their unions were. My Uncle Frank was killed when he was in the CCC by a truck backing over him—in Sitka, AK—far from any objecting union.

Poor countries recover faster

Page 169 of the 2009 book This Time Is Different: Eight centuries of financial folly, says developed countries take longer to recover than poor ones. Why? During crises, like wars and depressions, rich countries turn socialist with stimulus packages and such which they finance by borrowing.

Why don’t poor countries do that? They can’t.

In one of his movies, actor Richard Burton had a memorable line,

She believed in free love and, at the time, it was the only kind I could afford.

Poor countries resort to free-market solutions to crisis because it’s the only kind they have the money to pay for. They get better faster than rich countries because socialism doesn’t work.

If Obama really wanted to create jobs, he would emulate the poor countries who lack the credit cards to play welfare state. He said he was going to make sure not one dime of taxpayer money was wasted. In fact, Obama is more interested in making sure he does not leave one dime of unused credit on the United States credit card for his successor.

Productivity growth

The sole source of prosperity in the post war U.S. has been productivity growth. That’s an economist word. It just means learning more efficient ways to do things. For example, I attended a panel discussion on stopping piracy in Somalia. They said one of the problems was the merchant vessels have tiny crews. The government-run ship the U.S.S. Ronald Reagan has a crew of 5,700. It is 1,000 feet long. The biggest oil tankers are five times as big as the Ronald Reagan in terms of weight. If I recall correctly, the panel said those huge oil tankers have a crew of 28 or so. At least one-third are sleeping at any given time. Pirates attack at night.

But I digress. The fact that modern, private enterprise, non-union, non-U.S. flag ships can operate with 28 guys contrasts dramatically with the lack of productivity improvement on the government navy ship. Socialists would say that the U.S.S. Ronald Reagan is more of a job creator. Actually, the opposite is true. Wasting money on too many people doing a task inefficiently raises prices of the goods or service in question which, in turn, means less money to hire more workers elsewhere. America and the world are far more prosperous than 40 years ago precisely because it now only takes 28 guys to staff an oil tanker and similar productivity gains have occurred all over our economy. (In the interest of full disclosure, some new U.S. Navy ships have much smaller crews than they did several decades ago. Fletcher class WW II 3,000-ton destroyers had 330 men. The proposed DDG-100 class of new 14,000-ton destroyers will have 150 crew members and in some respects are more powerful. On the other hand, I believe all navy surface ships have been obsolete since about the mid 1950s. But I digress again.)

So how do we improve productivity? Innovation. Automation. De-unionization. Stronger patent and copyright laws. Grant more H1b visas. Make it easier to fire workers (productivity means doing more with fewer workers). Treat capital expenditures more favorably taxwise for businessmen who invest in productivity-enhancing plant and equipment (generally, productivity gains come from employing more capital, that is, plant and equipment and automation, per worker). Get rid of tariffs and other trade barriers to maximize competition thereby giving our businesses more incentive to innovate than any other country in the world. Reduce penalties for business failure and barriers to entry into and exit from business.

Any of that sound like Obama? No. It is all the opposite of Obama. He is the president of the unions who are Luddites. They hate productivity gains. They want to be paid more for less work. Productivity gains mean more production from fewer workers. They hate almost everything on this list and Obama’s attitude is the enemy of my friend is my enemy. Same is true of Democrat politicians in general. They love jobs but they hate employers. And they cannot, or will not, see the big picture that free trade and innovation and the rest of it ultimately mean more jobs for all in spite of the creative destruction that it causes to specific easily identified small vocal unionized groups.

What the ObamaCare and Cap & Trade laws are really about

Why don’t they understand that socialism does not work?

Ever since I became old enough to figure out that socialism doesn’t work—at around age 22—I was perplexed that liberals still want it. Why don’t they see capitalism is better and that economic freedom is necessary for all the other freedoms?

People who work for the government do not have freedom of speech. They are afraid they won’t get promoted or may lose their pension and other benefits. Similarly, a nation that gets all its health care from the government is a nation that is afraid to criticize the government out of fear that they or their relatives or friends may be retaliated against by the rationers.

Joseph Schumpeter

Joseph Schumpeter was a Harvard economist. He invented the phrase “creative destruction” to describe the effect of entrepreneurs. He also said entrepreneurs and their innovations were the engines of prosperity Liberal Harvard economist John Kenneth Galbraith said Schumpeter was the most sophisticated conservative of the twentieth century. Schumpeter was the subject of the 2007 book Prophet of Innovation by Thomas K. McCraw.

Schumpeter was the polar opposite of John Maynard Keynes. Both were born in 1883. As a young professor in Europe, Schumpeter was perplexed by intelligent leftists not recognizing that capitalism was infinitely superior to socialism as a way to organize a society and an economy. Indeed, one of my Harvard Business School section mates, Michael Rothschild, wrote the book Bionomics which says capitalism is analogous to the way the plant and animal kingdoms are organized and operate. In other words, capitalism is the all-natural, organic way of organizing living things.

Schumpeter finally figured it out. As have I reading about him and seeing other evidence of it.

Social justice

The left does not care which system produces the most prosperity or freedom. They want power. Dictatorial power. They are not in favor of anything. They hate capitalism because it lets the “wrong” people win. People like Sam Walton, founder of nonunion Wal-Mart. He was the richest man in the world for a while. His company is still the biggest in the U.S.

The left does not want maximum prosperity for all. They want all rich people who disagree with them to be stripped of their money. They understand that this will impoverish all but the government apparatchiks. That is what they want. They plan to be government apparatchiks. The left wants to wipe off the face of the earth anyone of whom their side is envious.

Journal editorial

The 11/10/09 Wall Street Journal has an editorial titled “Confessions of an ObamaCare backer.” It is about remarks recently made by leftist John Cassidy of the New Yorker magazine.

Cassidy, the Journal said, “let the mask slip” briefly and revealed the “real political motivation” behind ObamaCare. I add that the same motives are behind cap and trade and a great many other leftist initiatives. The green movement is nothing but the red movement in disguise.

Cassidy continues:

The Obama Administration…is creating a new entitlement program, which, once established, will be virtually impossible to rescind. [The reason is] making the United States a more equitable country

The Journal says the “…purpose is to further redistribute income by putting health care under government control, and in the process making the middle class more dependent on government. As the party of government, Democrats will benefit over the long run.”

The Journal says this explains why the Democrats are not afraid of angering the public by going against their will and even losing many purple district seats in the 2010 election. They figure if they can get this law enacted, they will be like drug dealers living off a nation of entitlement addicts within the next ten years and the few losses in 2010 will be irrelevant ancient history as the U.S. becomes a one-party nation.

The nation is going bankrupt because of Medicare, Medicaid, and Social Security, but there are no Americans who want to reform any of those three programs. Indeed, the mere suggestion of such reform is the “third rail of American politics.” Even the slightest criticism of any of those programs dooms the Republican who dared to suggest it. The Democrat program is to make their party platform in its entirety the third rail of American politics. And there is no indication whatsoever that they will not succeed after the push they got from George W. “TARP” Bush and the Wall Street plutocrats in 2008.

More Cassidy:

Putting on an amateur historian’s cap, I might even suggest that some subterfuge is historically necessary to get great reforms enacted.

Translation: Our noble end of turning America into a Democrat party dictatorship justifies our means, namely, lying about our motives.

Rush and Sean

The main guys who have figured this out and who are condemning it for what it really is are Rush Limbaugh and Sean Hannity. I have trouble finding fault with Limbaugh. Hannity, on the other hand, is not quite smart enough to hold the position he does, and he admits using tedious repetition of his propaganda phrases, like “unrepentant terrorist Bill Ayres,” to brainwash his listeners and viewers. He is also often incorrect, for example, with regard to his worship of Ronald Reagan. Reagan’s actual record is far more mixed than Hannity understands or admits.

You can measure the preeminent effectiveness of these two men by how hard Obama and his people are trying to stifle them through proposals to bad mouth them and to censor them through misleading proposals like the one to require local ownership of radio and television stations.

The problem with these two men being the main leaders in our nation against what the Democrats are trying to do is they are both ratings-seeking entertainers. They do, indeed, maximize their ratings by their mixture of humor and exaggeration, relative to other entertainers or headline news-type programs, but they simultaneously limit their audience in the wider population. Most importantly, their entertainment focus causes the majority of American to not take seriously the evidence they present and the logical conclusions they draw from that evidence.

I am a libertarian, not a conservative or a Republican.

The solution to all this is a third party. The libertarian ideas are generally the right ones. I do not endorse their actual platform in its entirety. It includes stuff like opposition to the draft and recreational drug regulation.

Are the Libertarians as a party poised to start winning elections? Not at all. They are talkers, not doers. They almost never elect a Congressman, let alone a president so they do not really have the organization or skills to win a majority. They have the ideas. I think most Americans today are actually libertarians but they either do not realize it or refuse to admit it. My mom was a Catholic, but I call her a social Catholic. I think she was actually an atheist based on knowing her for 47 years, but she would have vehemently denied that out of fear of it harming her relationships with her friends and relatives—who were probably also actually atheists. People who do not admit to being libertarians are afraid it might adversely affect their social status.

But ultimately, socialism does not work. Ultimately, the Democrats, with plenty of help from Republicans, will bankrupt the country. Best guess as to when? 10 to 20 years.

Harvard economist Kenneth Rogoff just came out with a new book This Time Is Different: Eight Centuries of Financial Folly. On Charlie Rose on 11/10/09, he was asked how long until the irresponsible U.S. government fiscal policy (taxing and spending) triggers a catastrophe. He said something like, “Probably five years. Sooner than 20.”

When that happens, the public will turn to a third party. Unfortunately, no third party is currently ready to turn that support into electoral victory in Congressional and presidential elections.

What bankruptcy of the U.S. might look like

Since the subprime crisis hit, I have been reading books about the Great Depression, the subprime crisis, Long Term Capital Management’s failure, the 2008 crash, Bear Stearns, J.P. Morgan, bailouts, stimulus, earmarks, and all that. I have also sought out local speeches about those things in San Francisco at the Commonwealth Club and TV expert discussions on Charlie Rose and similar shows.

Singapore leader Lee Kuan Yew was on Charlie Rose the last week in October, 2009. Very impressive, seemingly extremely knowledgeable guy.

Bond and forex traders

Based on everything I’ve read and heard and seen, I think Yew’s prediction is the correct one. He said or seemed to say that the bankruptcy of America will start with bond and forex (foreign exchange or foreign currencies) traders making a run on the dollar. Bond traders and forex traders are like the canary in the mine. They watch the U.S. fiscal and monetary policy with microscopes and telescopes 24/7. They will be the first to herald the arrival of the financial apocalypse.

What will bring us to the tipping point? Either an accumulation of straws on the camels back in the form of one media story after another, one new law after another, one new entitlement after another

or

some major shocking event, like a downgrade of U.S. credit by some international authority; hyperinflation, something like that.

When will it happen? I’m not sure. Maybe tomorrow. Maybe next year. Maybe five years from now.

Can we escape this fate? In theory, yes. But as a practical matter, no. There is not the slightest indication that the Congress or the president will behave prudently. Obama is worse than his predecessors, but his predecessors going back to Roosevelt the second were all disasters to one degree or another.

Panic

Normally, the phrase “run on the” ends with the word “bank.” Yew spoke of a run on the dollar.

In both cases, it means the public wants their money out of there. In a run on the bank, they lose faith in the bank and want to get their money out before the bank fails and they lose money.

That used to happen in the U.S. before the FDIC was created on 1/1/1934. Since then, deposits are covered up to $250,000 per account per bank with many rules about how many accounts one can be covered for.

A run on the dollar

A run on the dollar would be caused by people in the U.S. and other countries losing faith in the U.S. government’s willingness to get their national debt and unfunded liabilities under control.

If the debt and unfunded liabilities continue to explode, informed people expect that the Federal Reserve will be forced to print huge amounts of money. That causes inflation and hyperinflation.

Yew said if the U.S. government does not convince the world bond and forex markets that the U.S. government debt and unfunded liabilities intends to control it’s fiscal policy, there will be a run on the dollar. He seemed to shudder or wince at the thought of a run on the dollar and said it would be very bad or words to that effect.

What that would mean

A run on the dollar would mean that all the people of the world including U.S. citizens would decide the dollar was going to inflate big time. That means the purchasing power of the dollar would fall significantly, maybe to zero, as it has in the past in

Angola 1991-1995
Argentina 1975-1991
Austria 1921-1922
Belarus 1994-2002
Bolivia 1984-1986
Bosnia-Herzegovina 1993
Brazil 1986-1994
Bulgaria 1996
Chile 1971-1973
China 1948-1949
Danzig 1923
Georgia 1994
Germany 1920-1923
Greece 1944
Hungary 1945-1946
Israel 1971-1986
Japan 1943-1951
Krajina 1993
Madagascar 2004-2005
Mozambique 1977-1992
Nicaragua 1987-1990
Peru 1988-1990
Philippines 1942-1945
Poland 1989-1991
Romania 2000-2004
Russia 1921-1922
Turkey 1990-2005
Ukraine 1993-1995
United States 1861-1865
1916-1920
1969-1982
Yugoslavia 1989-1994
Zaire 1989-1996

This is research I did for my book How to Protect Your Life Savings from Hyperinflation and Depression

As you can see, there were three bouts of inflation in the U.S.: during the Civil War (both sides); just before, during and after World War I; and in the 1970s after the Vietnam War. There was also severe inflation technically before the U.S. existed during our Revolutionary War (“not worth a Continental”). There was also on-again-off-again inflation (and federal price controls) during and after World War II.

So don’t say it can’t happen here. It already has and it can again.

When hyperinflation occurs, as with the Revolutionary War “Continental” and Confederate dollars and the German mark in the early 1920s, the currency in question simply ceases to exist. That is, it becomes worthless. Obviously, no one wants to still be holding that currency when that happens. They want to get out before it goes that far. Hyperinflation is a form of Ponzi Scheme. If a Ponzi Scheme “victim” manages to withdraws their money before it collapses, they typically make a lot of money. But if they are still there when the music stops, they lose everything.

That’s how hyperinflation works.

If and when the people of the world conclude there is a danger that the U.S. will inflate the dollar significantly, they will get rid of dollars.

Currency and bonds

You get rid of dollars by trading them for other currencies or goods and/or services. Dollars take the form of actual currency, bank accounts, certificates of deposits, U.S. bonds, and contracts payable in dollars.

You’ve heard of the deficit—deficit spending. But do you know what it means? It means the government is spending more than it takes in in tax revenues. So where do the get the extra money?

They sell U.S. bonds. Who buys them? U.S. citizens and organizations and foreign governments and organizations and individuals.

A run on the dollar would mean among other things that:

A. No one bids at the next U.S. bond auction
B. Owners of U.S. bonds sell the ones they already own so they can put the money in something other than dollar-denominated bonds or accounts

As a practical matter, what would actually happen is that the U.S. Federal Reserve bank would buy all the bonds offered at the auction. This is what goes by the phrase “printing money.” When the Federal Reserve buys U.S. bonds, they are doing one of the things that is technically the equivalent of printing money. The Federal Reserve buying the bonds puts that much into the bank accounts of the federal government. That increases the money supply by that much. That causes inflation.

Indeed, there is a vicious spiral. Fear of dollar inflation causes people to refuse to buy U.S. bonds that they fear will lose purchasing power because of inflation. The government reacts by printing even more money which causes inflation to get even worse which cause more people to try to sell the U.S. bonds they already own which causes the Federal Reserve to buy those bonds because no one else will and so on.

To keep on deficit spending, the U.S. would either have to “print” money (Federal Reserve buying U.S. bonds) or the U.S. would have to pay higher interest rates on the new bonds to attract enough bond buyers. That would be awful because it would mean they would have to raise taxes or cut benefits even more to pay the new higher interest rates on U.S. bonds. Also, higher interest rates on U.S. bonds, would mean even higher interest rates on all other types of bonds or loans including mortgages, car loans, education loans, business loans, and so on. That, in turn, would drive down the values of all capital assets like cars, houses, factories, nd so on.

U.S. imports

We got lots of stuff cheap. Probably most of the clothes you are now wearing were made outside the U.S. Ditto your TV, car, and so on.

What happens if people in other countries no longer trust the dollar? They will tell you to pay for your flat screen TV or underwear or imported car in yen or euros or yuan or whatever currency they trust. So you have to exchange your dollars for other currencies to get the money to buy your imports. But the forex dealers aren’t much more interested in your dollars than anyone else. So you will have to pay a lot more dollars than in the past to buy, say, yen.

My youngest son and I went to London, Paris, and Rome in May, 2008. The dollar amount for purchases that were cheap in the U.S. were brutal. What Yew fears would be a lot worse.

U.S. exports

In theory, U.S. exports would be greatly helped by the value of the dollar falling in relation to other currencies. It would make our stuff cheaper overseas. But as a practical matter, those countries are used to exporting to the U.S. not importing from it. Losing those exports would lose many jobs and cause very unhappy people in those countries. Their politicians might react the way they often do when we pass tariffs that hurt their exports to us. That is, they might slap retaliatory tariffs on our exports to them to placate their unemployed workers and force their citizens to buy from manufacturers within their own countries.

Inflation not enough

The U.S. government has five choices for fixing the excess debt:

• monetize the debt (use inflation to make it easier to collect more taxes and easier to make payments on debt not indexed to inflation)
• cut spending, mainly social security, Medicare, and Medicaid
• raise taxes (not really much of a possibility because the amounts needed are about three times current total tax revenues)
• economic growth that increases tax revenues
• default on the debt

Economic growth, is of course, the most pleasant choice, although the rate of growth needed would have to be almost unprecedented and for an unprecedented period. But the bigger problem is Democrats are now in charge and they hate all pro-growth measures, namely:

• reduction of top tax rates
• elimination of dubious environmental restrictions
• free trade (elimination of tariffs like the “Buy American” part of the Stimulus or the tariffs on Chinese Tires)
• increase in the percentage of the economy that is controlled by entrepreneurs
• strongest possible rewards for innovation
• drill for oil and dig for other minerals in U.S.
• end detrimental restrictions on business like zoning, rent control, permits
• tort reform

and so on. See my longer article on a miracle growth program that would cost the American taxpayers almost nothing.

Default is arguably the best alternative

Crazy as it sounds, default may be the best choice. It eliminates the need to raise taxes. It does not monetize all debts. So private debts would still be payable and the lenders not cheated by inflation. Default would hurt all owners of U.S. bonds, but generally, they can afford it better than the wider group that would be hurt by inflation. Many people own U.S. bonds without knowing it via pensions and mutual funds.

What would be the consequences of default?

Probably all the other countries would promptly do the same. Why be a chump? Why not retaliate against the country(ies) that did that to them?

What about future deficit spending? There would not be any.

Why not? Because governments have to sell bonds to engage in deficit spending and no one would buy government bonds after a default.

Essentially, the previously no-limit credit cards of the President and Congress would be terminated and cut up into little pieces. They would have to pay all cash—that is, tax revenues—for all government spending.

Our children and grandchildren would not be stuck with an impossible debt. Neither would they live in a country with good credit.

Government spending, mainly Medicare, Medicaid, and Social Security would have to be cut drastically—probably means tested, that is, affluent and middle class people get no money from the government. What about the fact that you paid into it?

Tough.

They would also have to cut things like government employees, government employee pensions, government employee health care benefits, earmarks, boondoggles, government buildings, etc..

The budget would look like it did in, say, 1927—percentage and deficit-wise, not counting the effects of 82 years of inflation since then. We had a budget surplus that year. Our government spending was a bit less than total tax revenues.

Would the government not being able to deficit spend be the end of the world? Actually, that’s more or less the way all 50 states have always had to operate. They could issue bonds, but not too many. They recently did issue too many such bonds in CA and other states. The bond rating agencies downgraded them and that was, roughly speaking, the end of their deficit spending.

Let me repeat one part of this. If we defaulted on the national debt, our Congress and President would be henceforth prohibited from spending more than they collect in tax revenues.

As Martha Stewart likes to say,

That would be a good thing.

Actually, compared to what’s been going on since 1930 (Hoover Administration), it would be a fantastic, unbelievable improvement.

Most of all, it would keep the barefaced-lie promise that we are not going to “kick the can down the road” or “put a bunch of debt on the backs of our children and grandchildren.” In fact, “kicking the can down the road” and mortgaging the futures of our children and grandchildren is exactly what we have been doing since 1930. The authors of The Coming Generational Storm rightly call it fiscal child abuse.

Defaulting is not the right thing to do. The right thing to do is to broaden the tax base, adopt pro-growth policies, and drastically cut entitlements. However, there is absolutely no hope that Congress or the president will do the right thing. Nowadays, Represenative democracy attracts to Congress and the White House a collection of sociopaths. Normal people like you and I would never run for Congress or president in a million years. The people who will in the 21st century are psychiatrically defective. We need to default to stop those sickos from making things even worse.

Defaulting would force the voters and politicians responsible for that misbehavior, us and our parents who are still alive, to pay for it right now.

Rough justice.

Disaster only way to get ‘change we can believe in’

On page 246 of their 2005 book The Coming Generatonal Storm, authors Kotlikoff and Burns put it this way:

Truth be told, our politicians care more about their next fix—the next election—than they do about the next generation. And they’re not going to clean up their act unless and until they are confronted with a major crisis. Hence, as crazy as it sounds, our only real hope is that the economy will go critical sooner rather than later.

I would add, if that’s where we’re going, and there seems no doubt of that, let’s get it over with—save the nine stitches.

The best way to push the economy off the cliff ASAP is probably Obama’s current quartet of health care, cap and trade, protectionism, and increasing taxes on “the rich.” They are likely to be the anvil on the camel’s back.

Why preventive Obamacare raises, not lowers, costs

Obama says he’s going to give 49 million people who do not now have it health insurance and the nation’s bill for health care will go down. If you believe that, stop reading. You’re too dumb to comprehend the rest of this.

One way Obama says he is going to cut costs is to emphasize preventive medicine. Well that makes sense, doesn’t it? After all, we all know that a stitch in time saves nine.

Actually, it does not make sense if you think it through.

Charles Krauthammer is a conservative newspaper columnist and regular Fox News contributor. He’s also a licensed medical doctor and psychiatrist. He’s great. I just added him to my living national treasures list. He should have been there before.

When asked about preventive medicine on Fox News, Krauthammer said it was a good thing for a number of reasons but lower cost was most definitely not one of them.

I researched and wrote about preventive medicine in the second edition of my book Succeeding which came out in 2008. It relates to that book because being healthy helps you succeed and enables you to enjoy your success.

As far as cost is concerned, preventive medicine does not cost less. It costs more.

1. Preventive medicine costs more money to pay for additional medicine, exams, tests, vaccinations, health club membership, and safety devices.
2. Preventive medicine causes people to live longer which costs more because they receive more medical care, not to mention Social Security benefits, during their longer lives.
3. Living longer means you are more likely to die of a degenerative disease that requires prolonged intensive health care and hospitalization.

The cheapest health care for the government would be if everyone died suddenly of a heart attack after they stop earning taxable wages but before they started colleting Social Security. Like I said in the title, “You’ve had a good life, now drop dead.”

In Succeeding, I listed six categories of preventive medicine:

1. good health habits including:
• diet quality
• diet quantity
• exercise
• hygiene
2. regular physicals
3. getting recommended tests for detection of symptomless illnesses
4. recommended vaccinations
5.
safer activities and places where you spend time
6. promptly getting professional advice when you have symptoms

Obama sets the diet quality and quantity example with his consumption of arugula from Whole Foods and his Somali warlord physique. But he smokes cigarettes. Sound preventive medicine would ban tobacco products. If not, the people who use them should not be eligible for health insurance that I contribute money to. Call use of tobacco a pre-existing condition—stupidity—that either excludes the user from all public health care or at least from health care that relates to tobacco use.

Same thing applies to fat people and alcoholics or problem drinkers and illegal drug users.

Obama may set an example with regard to exercise. We occasionally see him playing pick-up basketball. But he needs to work out more systematically every other day—both cardio and weight training. Maybe he could lead an exercise TV program daily like the Richard Simmons in Chief.

As far as hygiene is concerned, we’re gonna need daily inspections.

Basically, since good health habits are the main thing in preventive medicine, Obama is going to have to enact a law that requires universal daily attendance at a weigh-in, inspection of your personal hygiene, a drug test, and calisthenics. Let’s call it reveille. There’s even music for it. It sounds like this. He can bring all sorts of R. Lee Ermey types out of retirement to supervise it.

Persons who benefit from universal health care but who are AWOL from daily reveille will have a warrant issued for their arrest.

Overweight persons will be required to report to a fat boot camp where their food intake will be restricted and they will be required to exercise.

These steps will cost more money than the current heath care system.

Mandatory regular physicals

Mandatory universal health care that emphasizes preventive medicine require mandatory physicals that are at least annual or more often for persons with certain risk factors. If you do not attend your scheduled physicals, a warrant will be issued for your arrest.

Mandatory tests

Similarly, according to your age and other risk factors, you will be required to get the tests recommended by the medical profession including sigmoidoscopies and breast exams. If you do not appear for your scheduled tests, a warrant will be issued for your arrest.

Mandatory vaccinations

Ditto. You will get your flu shots, DPT, etc. No exceptions. These shots will kill some of you but not getting them will kill more of you. You’ve had a good life.

Hazardous activities and places

All hazardous activities will be outlawed, like riding motorcycles. All places frequented by humans like homes, workplaces, and public areas will be inspected periodically for safety hazards. If you have a safety hazard and do not correct it promptly, a warrant will be issued for your arrest.

Regular dental care

Since dental care is part of your health and affects all of your health, daily brushing and flossing will be required and inspected for at reveille. Also, regular checkups will be mandatory and recommended dental therapies must be performed when recommended by your dentist. If you fail to take care of your teeth, a warrant will be issued for your arrest.

All of the above will cost more than the current health care system.

False positives and negatives

The more tests you perform, the more false positive and false negative results you get. I lost half my thyroid gland to a false alarm benign lump that was discovered during my annual physical. False negatives cause you to ignore continuing symptoms that warrant a second or third opinion. In short, federally mandated mandatory preventive medicine will cause far more false test results and those, in turn, will waste more money.

A stitch in time saves nine

Preventive maintenance is usually wise because a stitch in time saves nine. One is cheaper than nine.

But preventive maintenance is not wise in some cases because sometimes the stitch only saves one or a half a stitch. You have to do a cost-benefit analysis and be careful not to cross the point of diminishing returns.

From a strict dollar standpoint, much health care given to older persons is not cost effective given their likely remaining life span. Other countries that have universal health care deny much of the health care given in the U.S. to seniors. Preventive medicine increases the percentage of people who live to become seniors.

The stitch-in-time advice does not apply to many health-care decisions. For example, preventive medicine can prevent or delay heart attacks. But everyone has to die of something. Preventive medicine that prevents heart attacks will almost certainly result in the person in question dying of a far more expensive disease, like cancer or Alzheimers, not to mention all the health care costs they will trigger for other things during their expanded-by-preventive-medicine life span.

Preventive medicine is wise policy, but not because it reduces medical care costs. It raises them. Furthermore, most preventive medicine relates to lifestyle choices and the government will not dare make effective efforts to change those choices.

The financial numbers that show the U.S. going off a cliff

The U.S. national debt is $11.9 trillion.

The U.S. Gross Domestic Product was $14.3 trillion in 2008.

Total U.S. tax revenue was $2 trillion for 2008.

Projected additional deficits for the next ten years are $11.7 trillion.

The President of the Dallas Federal Reserve Bank, Richard Fisher, said, “We at the Dallas Fed believe the total [current unfunded liabilities of the U.S. government] is over $99 trillion.”

Unfunded liabilities are debt the U.S. government owes or will owe for federal employee pensions and benefits, social security, Medicare, and Medicaid. Corporations are required to state them on their balance sheets. The federal government is not.

The sum total amount is: current national debt of $11.5 trillion + projected additional deficits over next ten years of $11.7 trillion + unfunded liabilities of $99 trillion = $122.2 trillion.

Total world financial assets are $178 trillion. Since the U.S. government is almost certainly underetimating our national debt and unfunded liabilities, the amount we owe is probably closer to $178 trillion. In other words, it is literally true that all the money in the world is not enough to pay our national debt and social security, Medicare, and so on.

The total market capitalization of all U.S. stocks is $15 trillion; all the stocks in the world, about $40 trillion.

The total value of all the assets in the world is about one quadrillion dollars; in the U.S., about $110 trillion. That’s all assets, not just financial assets, that is, your car, jewelry, furniture, real estate, gof clubs, and so on. In other words, if we sold the entire U.S. and everything in it to someone, it would not be enough to pay off our national debt and all the social security, Medicare, and so on that we have pledged to pay.

If we were to pay that debt off over the next 30 years at 5% interest the annual payments will be $7.9 trillion. To get the tax money to pay that much per year, we would have to raise taxes by $7.9 trillion ÷ $2 trillion current annual tax revenue = 400%. For example, if you paid $50,000 in taxes last year, you would have to pay $200,000 a year for the next 30 years to cover the debt obligations of the U.S. government.

The American people cannot pay such taxes and would refuse if they could.

Total wealth of all U.S. residents and entities: $55 trillion

Net worth of the population of the U.S. according to Federal Reserve Consumer Balance Sheet figure quoted in a 2005 book: $40 trillion

The alternatives are:

A. default on some or all of those obligations
B. inflate the dollar which has the effect of lowering the real (after inflation), value of all debts, bonds, CDs, life insurance, annuities, and savings accounts
C. cut spending by $6 trillion a year which is impossible because the total annual outlays are only $3.9 trillion

Obviously, the government will do B, inflate the currency, because it is the only choice that holds out the hope that the politicians can deflect blame to someone else, namely, retail merchants. Inflating the currency wipes out the real (after inflation) values of dollar-denominated assets like those listed above in B.

The government will probably also “means test” Social Security and Medicare. That is, they will reduce, in many cases to zero, the Social Security and Medicare benefits that affluent people receive.

The over $1 trillion per year of planned deficit spending over the next ten years requires that someone lend the U.S. government that much each year. Thus far, U.S. citizens, pension funds, banks, and foreigners have been making those loans by buying U.S. Treasury bonds. As inflation heats up, they will stop buying those bonds and will try to sell them. That will force the U.S. government to offer higher and higher interest rates to entice someone to buy the bonds. Foreigners will also refuse to accept dollars for their exports and will run on all the banks where they hold dollar-denominated accounts to convert those dollars into gold or other hard assets or currencies.

This will be the equivalent of forcing the U.S. government into involuntary bankruptcy. There is no precedent for what that means. Normally national defaults are handled by the International Monetary Fund and World Bank. IMF offers highly leveraged loans to poorer countries. They are not big enough to bail out the U.S. The World Bank is similar. No international organization is big enough to bail out the U.S. Furthermore, the rest of the world is so tied to the U.S. financially, that they will need their own bailing out as a result of the U.S. bankruptcy.

Could economic growth cover the additional $6 trillion per year we need to pay these debts? The non-partisan and respected Congressional Budget Office already assumed some growth in their projections of deficits over the next ten years, so the answer is not. Economic growth from a recovery is already factored into these numbers.

What should you do? I wrote a book called How to Protect Your Life Savings from Hyperinflation and Depression where I make a variety of recommendations for individuals to save themselves as much as possible. Basic ideas are buying things you will need in the future now as much as possible, pay off recourse debt, favor hard assets rather than dollar-denominated ones, make sure you have sufficient liquid hard assets like precious metals to avoid forced sales of illiquid hard assets like stocks or real estate, hedges, and so on. The recommendations are fairly technical not some simple one-step formula like buy real estate. The research on past episodes of inflation and deflation are scary. But the ancient observation “This too shall pass” applies. The typical hyperinflation or deflation has lasted one to 12 years. But those who configured their assets and liabilities wisely before it hit came out well or reasonably well. Those who did not, suffered far longer than the national hyperinflation or deflation period itself.

I appreciate informed, well-thought-out constructive criticism and suggestions. If there are any errors or omissions in my facts or logic, please tell me about them. If you are correct, I will fix the item in question. If you wish, I will give you credit. Where appropriate, I will apologize for the error. To date, I have been surprised at how few such corrections I have had to make.

Obama’s 2/24/09 economic speech to Congress

After being told by many of his fellow Democrats to back off “the sky is falling” rhetoric, Obama inserted some football coach “we can do it” pep talk stuff into his speech.

Let me tell you about the “we” in that reference.

How ‘we’ got to be ‘we’

America is not the world’s greatest country because “we” are located between Mexico and Canada. It is not the world’s greatest country because there is something in the water here. Or that “we” Americans have some unique ingredient in our DNA.

“We” are the greatest country because of certain crucial ingredients in our constitution and social compact, namely, the rule of law, free enterprise, private property, and reliance of our citizens on themselves to make their lives better, not on our government.

But the Bush-Obama laws of the last five months have to a large extent made those crucial ingredients illegal!

Obama celebrates how great “we” are and what great things “we” have done while simultaneously outlawing the great things “we” did.

Financial capital of the world

For example, the U.S. has been the financial capital of the world for about a century. The “we” who did that were the bankers and Wall Street guys combined with the U.S. laws and regulations that gave those bankers and investment bankers the freedom and leeway to do what they did.

Democrats now point to the subprime crisis as evidence that the bankers and investment bankers are utter incompetents who know nothing and whose activities need to be outlawed. For example, they are now micromanaging compensation of highly paid employees, including those paid by commission based on their sales or profits, and they are outlawing off-site business meetings according to demagogic, scapegoat stereotypes. What is the effect of this? The head of Morgan-Stanley was interviewed by Charlie Rose. Rose asked about these restrictions on compensation. The Morgan-Stanley CEO said the companies not covered by the new federal regulations on compensation are being gleefully headhunted by U.S. companies not covered by the new regulations and by foreign companies like Deutschebank. These are traders and star executives that those companies have been trying to recruit to work for them for years, with only partial success. Now, they are thrilled that the president of the U.S. has limited compensation. It will lead to an enormous brain drain of Wall Street talent to unregulated U.S. and foreign companies.

So while Obama is bragging about and almost taking credit for the great financial power that “we” created, and promising that since “we” created that financial center of the world, “we” can create it again, he is driving the “we” who actually did it and who know how to do it, away. He is also creating a structure of federal control and other laws that prevent a new generation of “we” from recreating the world’s greatest financial system. This started not too many years ago, in the wake of Enron etc. with the Sarbanes-Oxley new regulations which overnight made the U.S. IPO market number 2 to London after years of U.S. domination. The next great thing in Silicon Valley will have to go to London or Hong Kong or somewhere for financing because New York is now under the thumb of the Democrat politicians.

Obama and his Democrat allies say “we” can recreate our role as the world financial center, but he is simultaneously making it illegal for “we” to do just that. Yes, “we” can, but only if the Democrats change the laws back to permit it to happen. If it is illegal, as with Sarbanes-Oxley and the latest restrictions and nationalizations, it will not happen regardless of the fact that “we” are, as always, capable of doing it.

What about the fact that the bankers and investment bankers caused this problem? It’s true. They screwed up. Anyone who points that out should be congratulated for his grasp of the obvious. The bankers and investment bankers would, without the slightest action by the government, correct the mistakes. Their motive is to make as much profit as possible next year. They cannot do that by making lousy loans or by losing people’s money. They would adopt new internal controls to prevent the same mistakes from happening again. They would strengthen their balance sheets so they can again attract investors. This would happen fastest if there was absolutely no government intervention. The market would force them to do it and they would be rewarded to the extent that they get it right, fast. Some regulations relating to private businesses spending or risking need to be improved, but as always, the government needs to be careful not to overreach. Obama is not being careful to overreach. His picture is now next to the definition of overreaching in the dictionary.

Instead, we now have politicians and bureaucrats making business decisions. There is not a snowball’s chance in hell that management by the politicians and bureaucrats will do anything to the banks and investment banks but destroy them. Politicians and bureaucrats are the folks who run the Bureau of Indian Affairs, Katrina, and so forth.

London was the financial capital of the world a hundred years ago. If the British government does not overreact, London will again become the financial center of the world. “We” will be unable to regain our prior status in spite of our bigger market because our government will have made financial market excellence illegal.

Cars, too

The same thing applies to the car industry. Obama says we invented it, therefore we must save it. Actually, the Germans invented the car. Henry Ford just applied the assembly line (which he did not invent) to the manufacture of cars and applied a business principle other car manufacturers did not think of or rejected. That is, he assumed that low prices would increase the number of cars sold and that increasing the number of cars sold would let him lower the price still further, and so on.

The fact that we had the first successful manufacturer and marketer of huge numbers of cars has nothing whatsoever to do with whether the federal government should endlessly pump taxpayers’ money into the Big Three. We actually did invent the TV, but it has been a long time since a U.S. company manufactured one. No one cares.

The problem with the Big Three is their overly generous-to-the-union contracts. The solution is to renegotiate them either outside of or inside of bankruptcy. Taxpayer money should have nothing to do with it. The foreign car companies who manufacture cars in the U.S. are not in so much trouble because their plants are in the South and non-union.

Bankrupting the country

Then there is the issue of Bush and Obama bankrupting the country. When “we” made the U.S. the greatest country in the world, we did not have the ridiculous debt levels—either in dollars or percentage of Gross Domestic Product or whatever metric you want to use. Whether “we” can become great again while carrying this mind boggling debt weight on “we’s” back is very questionable. “We” did it before. And “we” can do it again. But “we” never did it with an $11 trillion dollar debt before. That debt that is now 79% of our gross domestic product and climbing by hundreds of billions or trillions a week as Obama passes one new monster program after another. Our national debt has not been that high since World War II/Korean War. During the Great Depression, the national debt was only about 20% of the gross national product.

It is fairly easy to come up with multiple scenarios in which that debt prevents us from regaining the greatness that “we” created in the past.

Obama is fond of saying we have to spend, spend, spend because we are facing the worst financial crisis since the Great Depression. Actually, at present, the financial crisis is more like the 1981 recession than the Great Depression. One could make a more compelling argument that we have to cut, cut, cut spending because we have the biggest debt since the World War II/Korean War period.

Wall Street has crashed and crashed again and crashed again as Bush and Obama have stumbled ineptly from one “try this” to another. Obama’s spokesman says he pays no attention to the stock market.

Say what? I believe the stock market is where the vast majority of Americans invested their life savings, their retirement money. The only reason Obama pays no attention to the stock market is because it keeps panning his “solutions.” The fact is until Obama causes the stock market to stop falling, everything else he does is just throwing gasoline on a fire.

The locomotive of the American economy is its entrepreneurs. Obama pays lip service to them, but all his policies hurt them. Monstrous borrowing by the federal government crowds out the entrepreneurs seeking financing or drives up the interest rates they have to pay. Raising taxes on the top 2% reduce the incentives that motivate entrepreneurs. Crack downs on Wall Street make it hard or impossible to do the initial public offerings that are the keystone event in the history of companies like Microsoft, Google, and Apple. Democrats would unionize their factories and burden them with greater health care costs. In fact, Obama really thinks jobs come from government and he will kill the private sector by draining more and more tax revenue from them and by regulating them out of profitability.

Yes, “we” can, but only if the government does not outlaw it. Government is outlawing and discouraging and elbowing aside entrepreneurial activities. Top talent in the U.S. will brain drain to the Middle East or London or Hong Kong or Singapore or wherever if the opportunities are better there. Obama seems to have no understanding of that.

We have been hearing for years that social security will bankrupt the country. And it will. The Baby Boomers start drawing their social security retirement benefits in five years in 2014. There is no money in the bank to pay them.

Medicare is worse Alan Greenspan was asked what will bankrupt the country first. He answered “Medicare” and gave the same answer years later when asked again. Medicare is a medical program for the elderly. The Baby Boomers hit 65 in three years.

Medicaid is another program we have been told will bankrupt us. And it will. It is also a program that will be hit by a Tsunami of Baby Boomers is a couple of years.

Several “progressive” states have tried to enact universal health care. All were forced to back off of it within months. It costs too much. Yet Obama is going to enact it right now.

He is also going to pay to send everyone in America to college or vocational school after high school. And spend hundreds of billions on solar and wind, which has already had tens of billions spent on it and it still hasn’t made economic sense. And he is still encouraging a trade war that will all by itself throw the world into a Depression. And he’s going to give 98% of the population a tax cut.

And who’s going to pay for all this? Not our grandchildren. gee, I’m glad to hear that. No, the top 2% who make more than $250,000 a year are going to get their taxes increased and all of the above will be paid for by them and only them.

Well, that would be me and my wife among others. Memo to Mr. Obama: We cannot afford to pay for all that even if we were stupid enough to do so. Richest man in the world Bill Gates’ entire net worth would not pay for even 10% of the “stimulus” bill. We are not stupid enough to do so. If you raise our taxes, we will look for ways to reduce them. I am the author of the book Aggressive Tax Avoidance for Real Estate Investors, now in its 19th edition. If I cannot find such legal ways, I will probably decide that making more than $250,000 a year is not worth the effort and let my income drop down to $249,999. It won’t affect our lives much. I expect most others will do the same.

Others will decide that cheating on their taxes is too valuable to not risk it. The higher tax rates go, the more people cheat. People can also move to other countries with lower tax rates, if they renounce their citizenship. Obama’s turning the U.S. into a socialist country will no doubt cause many to do just that, especially those with high earnings.

In short, Obama’s speech was incoherent. There is not enough money in the world to pay for all the stuff he promised. We cannot even afford the stuff we enacted into law before last year. And his additional promises that we will not leave a big debt for our grandchildren or raise taxes are even more at odds with reality. Yet every time he made another insane promise, the audience stood up and applauded again.

America has lost its mind. Reality, national bankruptcy or hyperinflation is what we will get. How many years from now? I will look for media stories by experts who run those numbers. It can’t be much longer.

I appreciate informed, well-thought-out constructive criticism and suggestions. If there are any errors or omissions in my facts or logic, please tell me about them. If you are correct, I will fix the item in question. If you wish, I will give you credit. Where appropriate, I will apologize for the error. To date, I have been surprised at how few such corrections I have had to make.