Up In Smoke! Picking Winners & Loosers Again...

There is not doubt in my mind that there are winners and losers in every aspect of life and a person’s free will and ability to choose can determine whether they are a winner or a loser. We all have a choice. There is a point when we grow up and we can choose to good or bad, right or wrong, left or right.

I believe that the reason America is so strong is because our government was designed to allow this free will to exist. You can choose good and be rewarded or you can choose poorly and be punished.

That punishment can come in many forms. Some choices mean that you, the individual making the choice, are left out of the social or economic growth experienced by others. For instance, choose to sleep in every day and show up to work late and you’ll be unemployed. Bad!

However, choose to get up early, get to work on time and be productive and you will be rewarded! Good!

Choose to break a law and go to jail, choose to do the right thing and stay out of jail. I think you get my point and here’s where I’m going with all of this. It seems that lately we Americans have lost sight of the fact that allowing a winners and losers to be created in society through free will is much better than having a nanny state determine who the winners and losers are.

Now we seem to applaud the government for their daring efforts to save the banks. We MUST save the auto industry and now we’ve done it again. In an attempt to save people from themselves and their choices we have finally instituted stricter regulations on tobacco products.

An unintended consequence of this regulation is that it will establish one company above all others as the leader in the industry and may solidify them in that position for ever. As a matter of fact, Phillip Morris (the company destined to hold the top spot) actually lobbied FOR the regulation! http://www.marketwatch.com/story/under-fda-rule-big-tobacco-could-get-bigger?link=kiosk

So now we have the Government choosing winners and losers again! When does it all stop? If you think this is a good thing then ponder this. What happens when the government decides that the company that competes with the one you work for is more important than yours? What happens when you are on the losing side and you get laid off or see your sales drop so drastically that the company is shut down?

In the end having a government that chooses winners and loser can only lead to ruin. Look at the Soviet Union, Facist/Socialist eras in France and other Eastern European states during the 80’s. Is that what we want America to become? I thing not … and if it does, anyone up for sharing a plane ride to Australia?

As The World Turns

As The World Turns is a daytime drama that has been on for years. And as all soap operas are apt to do, the drama that unfolds on a daily basis is so complex and drastic as to be unbelievable. Well the same can be said for the World Economy…

In America we woke up this morning to news that the Swine Flu has broken out in Mexico and Mexico City is like a ghost town. Luckily the epidemic has only spread into 5 states in the U.S. and outbreaks here have been minor.

We also learned that the British Pound-Sterling will stay that way for quite some time. For better or for worse (I think for the better) the Brits will not acquiesce and diminish their economy even further by joining the EU and converting their currency to the Euro.

And yes, there’s even more world wide news, seems that China is developing even closer ties with Taiwan while property prices in Hong Kong are making a huge comeback.

So, why do I report all of these things going on around the world? It’s because they affect our bond market which ultimately affects the flow of capital and the interest rates we pay.

Weak Economies Follow the Strong

Several months ago I wrote a blog titled ‘And So Goes the World.’ The point of the article was that as our economy experienced ups and downs, the world’s economy follows right along.

I wrote that article because many of the more liberal financial journalists were decrying our capitalist system and pointing to the strength of the EU and China and implying that their economic systems were superior to ours. In truth, these journalists with an agenda were wrong.

We don’t live in a vacuum and neither do our trading partners. Many bemoan the fact that America consumes so much, but we consume because our economy is so strong. What is happening to the world economy right now is a direct result of our economy losing it’s ability to consume.

So where is all this heading this morning? I’m not trying to make a political point here, I’m making a statement of fact. Property values in Europe have fallen and their banks are a mess. Their economic cycle follows ours by about 12-18 months.

Next it’s the BRIC economies …Brazil, Russia, India and China… These economies follow ours with a 20-24 month lag.

Stabilization is the Next Step

In the US we have seen a recent stabilization of property values and in the economy overall. Things may still be trending downward but not at as rapid a pace. The same is starting to happen in Europe, however, they still have a few big hits before they get to where we are.

But, China and the other BRIC nations are just starting to feel the heat. Remember earlier in this article I mentioned that property values in Hong Kong were on the rise? That’s because Hong Kong is one the few places in the world where the economy is somewhat insulated.

Their tax system (a consumption tax akin to the Fair Tax) has made the economy very insulated over the years. They follow patterns similar to the US so now that China is feeling the squeeze money is moving from China to Hong Kong!

What does all this mean to us …US…? It means this. We are getting close to the end of our economic down turn. Nobody knows if growth will be robust or sluggish, but that’s not the point. The point is we probably have one more big-hit coming and then we stabilize.

Ferocious Entrepreneurial Spirit!

This also proves another point. Many left-leaning ideologues would have us believe that capitalism can’t work without highly restrictive government oversight. But, they are wrong, capitalism works in spite of highly regulatory environments.

If you look at the data you will find that the government actions did very little to stop our precipitous fall. Some will argue that the TARP helped save banks, but did it really? Not all of the TARP money was even used.

The government still has hundreds of billions in unspent TARP money and the banks have stabilized. A very, very small percentage of the pork-filled, ear-mark laden, $800 billion dollar stimulus package has hit the economy. Yet, we are stabilizing.

The correction of the bubble in the economy was due to normal business cycles within the world wide Capitalist economy. No the ferocious entrepreneurial spirit will turn the American and World economies around despite the best efforts of central governments around the world and NOT because of them and their actions!

A Lesson on Greed

When you look around the world and see the haves and have-nots, does it make you wonder if this capitalist society filled with greed is injurious to the world?

A powerful question to be sure. I like the answer given by Milton Freeman and countless other modern day philosophers. Is there some benevolent benefactor within mankind that is so pure that they can order our society for us?

The answer is NO. When you look around the world, the truth is that the societies with a free enterprise system (capitalism) have the highest living standards on the planet. As a matter of fact the freest people have the best quality of life.

However, look at the world where governments restrict free trade and control societies. Their standard of living is squashed and the motivation to improve society is squandered.

Ah, but human nature is not abated. The leaders of these ‘controlled’ and closed societies are greedy. We need only look at the standard of living the leaders enjoy as compared to the poverty they force upon their populous. Is this not Greed?

The problem with heading towards socialism was best stated by Margaret Thatcher when she said that the problem with Socialism is that eventually you run out of other people’s money.

But I think there is an even greater problem. When you look at the history of countries that trend towards Socialism and Communism you see what happens when men are entrusted with ultimate power.

Their Human Nature overtakes them and the next thing you know you move towards Totalitarianism. In a free trade, free enterprise, capitalist society with a Republic form or government, the market and the rule of law helps to minimize our human nature and acts as a checks and balance to human greed.

Sure, greedy people do succeed, but so do people those that aren’t greedy. In a capitalist system, the non-greedy can compete with the greedy and many times the non-greedy win. This creates a better society, not control by some authoritarian overseer.

Some would blame our current economic situation of the greed of capitalism, but the truth is that this situation was caused by poor government policy, shoddy oversight and mismanaged regulations.

In other words, this problem was caused by powerful politicians attempting to dictate to industry how they should operate.

Now the USA moves towards Socialist policies and I find it ironic that as our President visits his once vaunted campaign trail in Europe he is being met with cold shoulders and words of warning.

Even the once Socialist stalwart nations of Germany, France and Italy are now looking upon the actions of Barak Obama with disdain. They have publicly questioned the soundness of the Presidents push for governments to spend more money to get the world economy moving again.

What they are saying (without saying it) is that this has been tried before. They have tried it before …and…. IT DOES NOT WORK!

So I leave with this one question. If the great Socialist Utopias of Europe are not willing to go further down this path because they understand that it will only do more harm than good, then why are we the citizens of the freest nation on earth allowing our government to lead us this way?

Watch the video and learn… I welcome your opinion.

Economics 101 - Raising Taxes Helps Nobody!

When I have conversations with close friends who may not agree with my fiscal conservative political view, I am always struck by one fact. Many of their views are formulated by an understanding of economics as described by the media.

And when I watch the major news networks and see their talking heads, I’m dumbfounded that these guys don’t have any clue about economics or the things they are reporting on.

It’s understandable that a majority of our citizens don’t understand economics but it is unfathomable to me that reporters who are supposed to investigate the stories they report on don’t have a clue.

I am going to attempt to strip the politics out of my statement but some will never see the truth of what I am about to say. For those people who are so partisan that you can’t get your head out the sand and see the truth then you deserve the totalitarian government that will one day befall us all.

There once was a Republican President that was followed by a Democratic President and they both ruined our economy. The commonality between their presidencies was a progressive tax rate with a mid range tax above 38% and the top rate above 50%.

Both these presidents believed in price controls and caused a calamity on commodities prices and production. Both presidents policies caused high unemployment, high interest rates and out of control inflation. Who were they? Richard Nixon and Jimmy Carter.

Further stripping away the politics from the economics of our country, there were two presidents, one Democrat and one Republican that lowered taxes, stripped away regulations and allowed the markets to work freely and the economy boomed. They were John F. Kennedy and Ronald Regan.

When we analyze the histories here we see that tax increases “on the wealthy’ or tax decreases “for the wealthy” has no sound economic strategy, it’s just pandering and populism to garner votes and power. The real story is that the way our progressive tax system works is not beholden to how we “feel” about the rich.

To read the rest of this post please visit my blog at http://brainsnotincluded.com/

(BTW - Who defines who the rich are anyway? That’s a scary thought…huh?)

Here are the real facts of the matter. We don’t just live in the vacuum of a capitalist economy. Our capitalist economy is part of the world’s greater Capitalist economy.

The truth is that we can’t detach our economy from the world economy no more than we can tax the rich into oblivion and expect to be able to lift up the poor to a higher status. Ever since we took our economy off the gold standard we stopped employing a Static scoring methodology and moved to a dynamic scoring system.

So what does all this gibberish mean? It simply means that we can’t punish the rich without punishing everyone. Two presidents, one Democrat and one Republican, proved that raising taxes and imposing heavy regulations on a capitalist economy will kill the incentive and motivation to work and produce.

They proved that less money comes into the treasury because every thing just stops. They proved what Thomas Jefferson said about government. Government cannot create wealth, it can only redistribute other peoples wealth thereby destroying it.

These same two presidents also proved what Margaret Thatcher said; The problem with Socialism is that you eventually run out of other people’s money. And a progressive tax system with a heavy handed government is very close to socialism.

Now on the other side of the equation we’ve had two presidents that employed a very different approach. One was a Democrat and the other a Republican and both lowered the tax rate to an optimum point to encourage, incentivize and motivate the populus.

These presidents created a robust economy and even with lower tax rates on ‘the wealthy’, they still managed to increase revenue to the treasury. This issue of whether to raise taxes or not has nothing to do with economics. If it did, we’d always keep taxes low.

No, the real issue is about feelings. Well, I for one am tired of feeling good about bleeding the rich for every red penny they have. I would much rather be happy because my own coffers are full and the economy is solid.

Let’s take the politics out of our discussion about taxation and let’s use real facts about how to get an economy moving and keep it growing. Higher taxes is not the answer!

The Good, The Bad and The Ugly

Finally we might get some movement on solving the bank and mortgage mess! It is about time. I've always said if the problem is really bad loans then get them out of the system and everything will be fine.

Now we here that's exactly what might happen. New Tres. Sec., Timothy Gheithner has suggested the creation of a 'bad bank'. This bank would be an aggregator used to accumulate the loans that are in default, essentially removing them from banks books and getting them out of the system.

This 'bad bank' would absorb all of the delinquent assets and turn our banks back into 'good banks' again! Stupendous. But wait, here's the ugly part, there's not enough money left in the TARP fund to buy all the bad loans.

The answer might be to seek investment capital from the private sector. With enough government guarantees on returns, that money might come flowing in fast and furious. However, the real ugly part would be if the American tax payer were to be burdened further with those guarantees.

For now all we can do is take a wait and see stance on this. This is the most logical decision to be made by the Treasury since this whole thing started over two years ago.

Let's hope Timothy 'the dodger' Geithner is right. I think he is, it's what the economist I follow have been saying for a while ....and they are all conservatives so maybe they all got it right this time.

What? 'the dodger' comment above? What's that all about? Sorry, it's just my swipe at yet another Obama appointment where the appointee had a tax problem....but that's a subject for another blog isn't it.

Sorry, back to the subject at hand. If the Secretary of Tresury is correct on this one, the fix could be in and we might see our economy improve as early as the 4th quarter of this year.

But the recovery may still be blunted if the Democrats are successfully in Porking America again with this huge, over inflated, pork barrel, pig belly so called stimulus package. Again, we will all just have to wait and see.....zzzzz.....zzzzz..... Somebody wake me up when this nightmare is over please! ;-)

Porked Again!

While the President lectures America's CEO's about excessive pay and the Vice Pres plays buddy-buddy with Al Gore, the Democratically controlled Congress voted to hand $93,000 to each and every member!

So the earmarking will stop under the Obama administration, right? Of course that's unless you take into consideration that the $800 billion stimulus is nothing but one HUGE earmark!

Now the Dems have found a new way around future earmarks, you need only look at their most recent actions. They just gave themselves $93,000 per congressman as pocket change.

It's being sold to us as 'a necessary increase to help out constituents'. Bull Sh%#! It's an earmark without being an earmark!

It has been intimated by the Vice President that its patriotic to pay taxes. It has been suggested by Harry Reid and Nancy Pelosi that we all have to tighten our belts. So tell me something, why don't the politicians have to tighten theirs?

I thought we were going to get some leadership out of the Obama administration. Turns out we're all just getting Porked Again!

Here Today but Tomorrow? Not so much!

So the stimulus package is here! Yeah! The Dems are here to save the day. They intend to dump $800 billion dollars into the economy! That should get things moving again!

What? What do you mean only 3% of that money will make it into the economy over the next 18 months. Huh? How come 25% of the money isn't spent until 11 YEARS from now?

I'll tell you why, because ramming this particular spending package (notice I didn't call it a stimulus) through is nothing more than an attempt to create bigger government programs well into the future. This idea is as bad as the idea to stop charging payroll taxes on people making less than $50,000 per year.

You haven't heard much about how the tax break works because its a really, really bad idea as well. We all know that Social Security, Medicare and Medicaid are underfunded and virtually insolvent. We also know that the 'payroll' tax is what supposedly funds them.

So what's our solution to the problem? To have even less money come in to fund these programs? What?

We need a new program in America. We need to change this economy from a 'spending' economy to a 'savings' economy. We can't do that if the government keeps spending, spending and spending some more.

Taking away the payroll tax for some and not all is not the right step. The right step is scrapping the entire income tax system all together. Change our system to a consumption tax.

With a consumption tax, like the Fair Tax, every time someone buys something the government gets paid. Think about all those illegal aliens that burden our hospitals and school systems.

They would not be under the 'tax radar' anymore. They buy food, they pay tax. They buy gas, they pay tax. Heck, they buy anything, they pay a tax!

Our poorer citizens, you know the real Americans ....the ones that were born here or did the right thing and did what was necessary to stay here legally... those people would get a card to rebate them for the tax they paid!

That would transform our economy from spenders to savers! What's so wrong with that. There are many excuses why it can't be done, but those excuses are mostly made by politicians that would lose power and be forced to come up with REAL solutions to REAL problems.

Let's force the politicians to stop pitting us against each other based on whose wealthy and whose not and lets stop electing our politicians based on who will tax you less or who will rape the rich! It's time for a paradigm shift in the way we operate. Stop spending and save!

To Big To Fail

There is a huge problem right now and it's about to cost the American economy even more money! It is the concept of 'to big to fail.'

That's what was said about Chrysler back in the late 80's when they received their first bailout in the form of a loan from the federal tax payer. That's what happened with the Savings & Loan bailout that created the Resolution Trust Corporation.

To big to fail? Didn't we learn our lesson? Now we're at it again. Banks that are to big to fail! The problem was the repeal Glass-Steagall Act and Clinton's signing of Grahm, Leach, Bliley which deregulated the banks, securities and insurance companies allowing them to compete with each other and even combine operations.

Now CitiGroup is 'un'grouping and Bank of America (who thought it would be a good idea to swallow up Countrywide Home Loans) is getting another infusion of capital from the Feds. We're talking tens of billions of dollars of our money!

Well, as I think about it, I guess it isn't our money yet. From what I understand the Feds have the printing press ramped up and ROLLING! The green stuffs flying off the presses faster than lemmings over a cliff! (excuse the obscure reference to a 1980's arcade game, but you know, I'm olde! LOL)

The point here is that we keep buying into this to big to fail concept. Now we're creating a situation where our debt is escalating from an already unfathomable high amount and the dilution of our currency may some day create hyper inflation!

It has to stop! Yes, there will be some pain. We have to remember that we have bankruptcy laws for a reason. It's so businesses can restructure.

The bottom line is that we need to restructure our entire economy. We need to change from a spending economy to a savings economy and the only way to do that is to leave this 'to big to fail' concept in the trash heap and change our tax system from an income tax to an embedded consumption tax like the Fair Tax.

I mean, what are we thinking? Do we believe the World will look at America and decide that we are to big to fail? Doubtful, they'll cheer while they watch our collapse. Time to wake up before we reach the point of no return. The we really do fail.

Taxes Must Be Voluntary?

Timothy Geithner is approved or as the next Sec. Tres. Who is Geithner? If you believe what many senators and congressmen and women have said about him, he's one of the most important appointees to be considered since the Carter Administration!

Geithner's resume is long and distinguished and it's true that he's not dolt. You don't get to be the President of the New York Region Federal Reserve without having some solid smarts!

But here's my problem. Mr. Geithner has had some tax problems, as in, he didn't pay them. That's right, he 'avoid' paying some taxes through an accounting error.

When pressured about how he managed to miss calculate his tax liability to the tune of more the $40,000, Mr Geitner was more than disingenuous. He blamed the mistake on the fact that he uses Turbo Tax to calculate his return and 'the program' must have missed something.

Here's the interesting thing, the mainstream media gave him a pass. His lofty stature and humongous brain are just to important to America in this critical time. So much for objectivity int he news media.

My problem with this entire situation is not that he miscalculated his tax burden by more money than many people make in a years time, my problem is with the nonchalance he displayed in dealing with the issue. I have a real problem with this 'big brain' not being able to figure out his taxes or at least being smart enough to understand that NONE of us can figure them out and that's why we have to pay others to do it for us!

Let's up their correct, let's hope his 'big brain' can get us out of this economic mess and the country moving again!

Exit Stage Right

For those of you who are part of the baby boom crowd you may remember Hanna Barbara's Snagglepuss cartoon. I used to love it when he would do something to get in trouble and say; "Exit! State Right!" and pewang! He was off the screen.

For some reason that memory makes me laugh. It reminds of a simple time in my life. It reminds me of when I was safe and didn't have to worry about anything.

As one president takes office another has 'exited, stage right'. To him our nation owes a debt of gratitude. Those of you who scoff at this comment and who laughed at V.P Dick Cheney in a wheel chair because he hurt his back moving boxes, I say grow up!

To those who booed the President Bush as he arrived at the inauguration ceremony and to those who joked and laughed about him on National T.V. (supposed objective journalist), I say grow up! You think you are being patriotic but your unprofessional and childish displays only prove your lack of objectivity.

I will concede that he was not the best President where the economy is concerned, however, we have not had a single attack on American soil since the horrific 9/11 attacks. He has taken the fight to an enemy that has attacked our nation for years and he has injured that enemy greatly.

So I say to President Bush and Vice President Cheney, THANK YOU! Our nation is safer because of your unwavering principles and because of your steadfast dedication to eradicating evil threats to keep this nation safe!