Eleven Days

There is no reason to try to present this in a witty or provocative way.  We are already getting a show from Washington.  The numbers speak for themselves.

The federal government spent roughly $3,600 billion dollars in 2011.  It took in about $2,400 billion dollars.  That is a deficit of $1,200 billion. 

The current argument in Washington is if the Bush tax cuts should expire for those making over $250k a year.  The revenue for that would be $70 billion, which is enough money to run the government for about 10 or 11 days.  Let’s give them the benefit of doubt and say eleven days.

Eleven days.  They have drawn a line in the sand and that line is eleven days. 

This fight isn't about the financial health of the nation.  It is show.  It is a ploy to win favor for re-election.  It is a farce that is dividing the country along economic lines. 

Washington, get back to me when you are ready to have real conversations involving real decisions that might actually make a difference.

Succession

Since the election succession has been in the news.  This is based on a few online petitions posted on a White House web site.  Rest assured that these petitions are not going to lead to anything.  The White House may or may not even comment on them.  It does show that there is a discontentment with the way the Federal government is working, but it will take a lot more than this for succession to be a real issue.  It does raise some question about the relationship of the States and the Federal government.

It is an easy case to make that the Federal government has been growing in power and size since around the 1920s (maybe longer).  The State lose a little power everything the Federal government increases theirs.   The balance of power issue does seem to be reaching somewhat of a tipping point.  If the Federal government continues to grow at some point the States will cease to be a government, but an institution to carrying out the policies of the Federal government at the State level.  Once this happens it will truly be a point of no return.

The States are already dealing with these issues.  They are already forced to enforce and fund policies set by the Federal government.  States will soon reach the point where they will have to raise taxes to fund things passed by the Federal government.  Will we reach a point where the States will resent that this?  Will State leaders get tired of putting their elections up just to satisfy decisions made by their Federal level counterparts?

Today’s political class is first most concerned with getting re-elected.  Raising taxes doesn't play well with most voters.  What recourse do the States have?  They won’t be able to count on the courts.  The courts have long erred on the side of affirming the power grab by the Federal government.  So will States start talking about succession?

More than likely they will push down, like they are being pushed down on.  The States will start putting more controls on the monies they spend.  They don’t have the money to fund the Federal policies and educations for example.  They will claim for the good of the children that the system needs to be reformed.  Restriction and requirements will be put around funds.  Things like tenure will be removed in the name of trimming dead weight, but it will also serve as a way to control costs.  The local school board will be nothing more than a figure head. 

While it is pretty clear the petitions for succession will go next to nowhere.  It is possible the States will push for it as their power and influence is threatened.  It is just a likely that they will push into a new role and find their power in other places.

Fiscal Cliff

The fiscal cliff refers to expiration of tax cuts and spending cuts as part of the Budget Control Act of 2011.  This act did three things: raised the debt ceiling the US Federal Government, created a “super committee” to cut $1.2 trillion from the deficit in 10 years, and the fiscal cliff if they failed.  The committee failed and Congress kicked the can down the road for the lame duck session.

According the Obama administration the average family of 4 that makes $55-$85K can expect to have their taxes increase around $2,200 a year.  This added tax revenue and the spending cuts across domestic and defense will decrease the deficit.  The Congressional Budget office projects that under current 2012 policies the Federal Debt will be at 90% of the GDP in 2022.  If we go over the fiscal cliff the debt will be just 58% of GDP in 58%. 

The problem with such drastic changes in fiscal policy is that it will cause the economy to contract and increases to the unemployment rates.  This would cause the type of unrest that most politicians can’t stomach.  Take for example what similar measures that have done in European nations, like Greece, have resulted in. 

I think that the fiscal policies of this nation have already run us off the fiscal cliff.  The question now is how long it takes to hit bottom and how hard we hit.  Dealing with this problem now meaningfully will probably cause some short term pain.  Kicking the can down the road will only delay the pain and make it more severe. 

It has taken years for us to get into the state we are now, starting with the Bush administration and continuing with the current one.  Unwinding the mess in a controlled way would take a lot of political resolve to stick to the course.  I doubt the current political class has the kind of statesmen that would be up to that task.  Which leaves us will only a quick and sudden solution.  Let’s hope that this isn't kicked down the road yet again.

Value of the Dollar

In 1971 President Nixon severed the tie between the US Dollar and gold.  This meant that the dollar was no long valued based on real hard commodities, but became a commodity on its own.  A commodity’s value is determined largely by supply and demand.  The more common something is the less valuable it is.  The less common the more valuable it is.  Inflation would be the supply growing and deflation would be the supply shrinking.  Inflation means that a dollar can now buy few goods or services.

The supply of money is controlled by the Federal Reserve, the central bank of the United States of America.  As the central bank it has various responsibilities.  Along with controlling the monetary policy it is mandated to maintain stable prices and to keep employment high. 

The Federal Reserve currently believes we are in a state of deflation.  In order to turn this deflation and spur economic growth the Fed would need to inject money into the system.  It is a commonly held belief that a little inflation is needed for economic growth.  (I will let you research that and reach your own conclusion).  So how does the Fed inject the money into the system?  More on that later.

It is widely known that US Federal government operates in a budgetary deficit year after year.  (Never mind that we haven’t had a budget in four years.)  In order to have the capital to operate under a deficit we issue treasuries.  It is easiest to think of treasuries as loans.  Banks and foreign governments buy treasuries as a safe investment. 

Now back to the Fed.  The Fed, through a process called quantitative easing, is printing money and buying treasuries from banks.  This is getting more currency in the economy, which could be loaned out or used to buy treasuries.  (For a humorous look at quantitative easing, http://youtu.be/PTUY16CkS-k)

In review.  The Federal government runs a deficit.   We get operating capital by issuing treasuries.  In order to get money in the system so someone or thing can buy treasuries the Fed prints money, which increases the money supply that leads to inflation.  Now the money the Federal government raised is worth less and can buy fewer goods and services.  So we will have to issue more treasuries. 

Inflation will affect everyone.  The money you have in bank will be worth less.  The money you bring home will buy less.  It may even lead to hyperinflation.  Imagine a world where in a span of weeks a loaf of bread goes from costing a couple bucks to costing a few million dollars.

It doesn't have to be that extreme to cause major problems.  Even a slightly above normal inflation rate will leave money in banks and investments with less buying power than when the money was earned.  One way to hedge against this is to invest in hard assets.  These assets can be things that you know you will need: food or clothes.  That can be things you can barter: food, firearms, ammo, firewood.

There are a lot of options.  You should do your own research and develop your own plan.  We know we will have inflation.  That is the goal of the policies of the Fed.  Do we know how bad it will be?  No, but if a few simple things can be done to hedge against it.  

The Day After

The night was disappointing.  The results weren't what we hoped.  The realizations of the significance were crushing.  It was the kind of night that lingers on for days to come.  It left a hangover that you just can’t shake.

The reality of the situation is that our reality wouldn't have changed either way the night would have ended.  A victory would have just been a start, but the real work would have just begun.  It wouldn't have brought a guarantee of a changing course.  A victory would have given a shot in the arm to the efforts, but the hard work would still remain.

Looking back won’t serve a purpose.  The only things to do are taking stock of the situation and setting a course to move forward.  In the next few posts I will be taking stock.  The setting of the course will be up to you.  You will have to take actions that are right for you and your families.

 

Grab your bootstraps, pull yourself up and shake of the dust.  The world didn't change because of the events of last night and neither should we.

GOP Leaders

Tomorrow night President Obama will address the nation in front of the joint session of congress. While this isn't technically a State of the Union address, it basically is. Without a doubt the foremost issue that he will address is the economy and how he plans to fix it. It will also give a member of the GOP a chance to give a response.

The honor this time will go to the Governor of the State of Louisiana, Bobby Jindal. Jindal is a rising star in the party and someone, hopefully, that will emerge as a leader for conservatives. He has already challenged Obama by considering not accepting money from the stimulus package. Rush said today on his radio show that Jindal was the closest thing to Ronald Reagan of any elected official.

So set the DVR, grab a snack and settle into your favorite chair. We will see if Obama continues his negativity about the economy and his attacks against opposing view points. We will also see a rising star in the GOP and more importantly a possible emerging leader.

Most Vetted, Ever

We all know that the stimulus bill was fast tracked. Our law makers worked tirelessly for days to get it passed. Obama even broke this five day rule. All so we could get this economy turned around fast.

The bill was passed so quickly that Sen. Frank Lautenberg (D-N.J.) told CNNNew.Com “No, I don’t think anyone will have the chance to [read the entire bill],”. John Boehner said that not one member had read the entire bill. Which makes sense because it was voted on less than 24 hours after the final version was released.

Than we have these quotes from two US Representatives.

On Chris Matthews’ MSNBC show Hardball, Rep. Debbie Wasserman Schultz (D-FL) just called the stimulus bill “the most transparent piece of legislation in American history.”

With David Schuster on MSNBC, Rep. Chris Van Hollen (D-MD) called the stimulus bill "the most vetted bill in history," and "the most transparent piece of legislation in history."

I can only think of two explanations for those quotes. The first is that our lawmakers never read bills before voting and just do as their party leaders tell them. Plus they have a unusually bad grasp of American history. Second is that they think we are all idiots and will believe anything that they say.

Personally I am not sure which is worse. Could they possibly believe what they are saying? I am not calling them liars, but I am not not calling them liars either.