Americanly Yours

For the first time in almost 35 years, there will be no cost of living increase in Social Security payments.  In the predictable “something must be done about this [so called] problem” mentality of this administration, President Obama has proposed sending $250 checks to over 50 million seniors to help them cope with their financial woes.

The problem here is that there is a very good and simple reason why there is not going to be an increase in Social Security payments: prices have dropped by 2.1% since the fall of 2008, meaning that the money that seniors already get from Social Security actually buys more goods and services than it did last year.  On top of this, the Social Security Administration has already given seniors a large increase in their payments this year: in January, seniors received a 5.8% boost in their payments, the largest increase since 1982.

Once again, President Obama is using misguided “logic” to support his own political goals.  Social Security payments are indexed to price inflation, however, they are not allowed to be decreased, meaning that a decrease in prices actually makes seniors much better off.

I understand that many seniors are suffering in this recession.  Many have lost a great deal of their savings due to the collapse in stock prices.  However, Congress decided over three decades ago that Social Security payments would be linked to the cost of living.  Besides the obvious reason of guaranteeing seniors a livable income, Congress likely had another reason for guaranteeing the benefits: they wanted to take the decision out of the hands of the political process.  Right or wrong, it will be very difficult for members of Congress to vote against the $250 payment for seniors.  For one, seniors are a vulnerable group, many of whom are living only on their fixed Social Security payments.  Seniors also vote–a lot.  As a group, they historically have the highest rates of voter turnout.

I firmly believe that this bill should be voted down.  For one, President Obama’s proposal to send checks to seniors  is addressing a problem that doesnt actually exist: seniors can buy more for their money than they could a year ago.  Additionally, these payments will cost roughly $13,000,000,000 [$13 billion] in money that the government does not have.  The money being spent on this non-existent problem will have to be expropriated from hard working citizens or printed out of thin air (devaluing the savings and earnings of anyone who does not receive a payment).

This “something must be done” mentality is flat out wrong.  Many supporters of the bailouts, stimulus, and other interventionist policies defend them not on moral or economic grounds, but rather defend them by saying that “at least they are trying something.”  This mentality has brought this once great Nation to the brink of bankruptcy and has brought government regulation into nearly every single aspect of daily life.  We can only hope that enough members of Congress will do the right thing and oppose these payments.

Americanly Yours,

Phred Barnet

Please help me promote my site:

Share on Facebook

Become a fan on Facebook

Please take a look at the following article and then read on:

http://seekingalpha.com/article/134820-the-worst-case-scenario-someone-has-to-say-it?ref=patrick.net

This article comes from what I believe is the best financial site on the internet. Its a list of predictions for what the worst case scenario will look like in 2012. I think that every prediction made in the article is accurate and will happen if the government continues to respond to this economic crisis in the manner that it has been for the past year and a half. His unemployment predictions for 2009-2012 are almost exactly in line with what happened during the Great Depression from 1930-1933. I think that the author’s timeline is probably off by a few years, but if we do not change our course, every single prediction in this article will come true within the next 10-15, and possibly sooner.

[[However, this might not be all bad: From the comments section of the article: “On the bright side, this means there will be no money to build machines that will wind up conquering us, so we won’t have to bring a terminator back from the future.“]]

We have more than doubled the amount of money we have in print in just the last year. We have “spent, lent, or committed $12.8 trillion” in less than 2 years–over 90% of our GDP–trying to stop this financial crisis from getting worse. This money has been printed, but most of it has only been pledged and has not yet been spent. When this money is spent, economic laws of the multiplier effect and the velocity of money, along with the realities of the current fractional reserve system will lead to a massive and unavoidable increase in the money supply. This will cause the value of the dollar (and any savings that you may have) to drop, while the cost of goods and services will rise.

If you have the means to do so, I suggest that you buy some gold… just in case.  This isnt just a solution for the rich.

On top of this, we are nearing a major crisis with Medicare and Social Security.  According to the Social Security Administration, the Medicare fund will be in a deficit starting this and will be completely exhausted by 2019.  Social Security will be in a deficit starting in 2011 and will be exhausted by 2041.

Future funds for these programs will have to come from general revenues, but the CBO is already forecasting trillion dollar deficits for quite some time.  Deficits in Medicare and Social Security will put an even greater strain on our budget.  This happening because of a collective failure which is the fault of all Presidents from President Franklin Roosevelt up to and including President Obama, as well as all Congressmen who refused to debate proposals to reform these programs for the past 60 plus years.

Here is an interesting article from the President of the Dallas branch of the Federal Reserve.  In the article, he explains that to fund these programs at current levels, spending will have to be cut by 97%!  I took a few quotes and posted them below:

“I would say the mathematics of the long-term outlook for entitlements, left unchanged, is nothing short of catastrophic.”

“And just to drive an important point home, these spending cuts or tax increases would need to be made immediately and maintained in perpetuity to solve the entitlement deficit problem. Discretionary spending would have to be reduced by 97 percent not only for our generation, but for our children and their children and every generation of children to come. And similarly on the taxation side, income tax revenue would have to rise 68 percent and remain that high forever. Remember, though, I said tax revenue, not tax rates. Who knows how much individual and corporate tax rates would have to change to increase revenue by 68 percent?”

To fund these programs, the government essentially has 3 options:  borrow, raise taxes, and print money.  At some point, other nations will stop lending us money.  It is only a matter of when.  Raising taxes is politically explosive.  The  economics of printing money is too boring for the vast majority of Americans to care about, making it the only political solution to this problem.

Of course, there is a 4th option:  cut spending drastically and reform these programs before our economy collapses.  But, does anyone think that Congress or the President will make any serious effort to do so?

Americanly Yours,

Phred Barnet

Please help me promote my site:

Share on Facebook

Become a fan on Facebook

Here is an excerpt from a piece I wrote back on September 26th, before Congress passed the $700 billion TARP program.  A lot of things have changed since then, but I still think this is a good and relevant piece.  I did not change this from the way that I wrote it back in September, except to correct a spelling mistake in the last paragraph.

We should, however, worry about our economy now.  The national debt is rapidly marching towards ten trillion dollars ($10,000,000,000,000).  Our unfunded liabilities in Social Security and Medicare now total an additional sixty-seven trillion dollars ($67,000,000,000,000).  By 2012 the Medicare fund will be going into a deficit and we will be forced to spend tax dollars to keep up with Medicare payments.  By 2017, the same thing happens with Social Security.  American families now owe over $15 trillion in household debt.  We have nothing left.  We are witnessing the slow, painful fall of the American Empire.  It hurts me to watch because I love this Nation so much.

For years we threw money at problems without ever trying to really solve them (poverty, drugs, education, health care).  Now we have no money and things are getting worse in all of these areas.

Iconic American companies are being swallowed up by foreign firms at an unprecedented rate.  Budweiser is being bought out by a Dutch firm, Miller is now owned by South Africans, and Coors is owned by Canadians.  Ford, Chrysler, and General Motors are now on the brink of extinction and are closing down American plants to move to other nations.

Sovereign wealth funds (companies owned by foreign governments) have been buying up large stakes in American companies—these sovereign wealth funds now own about 10% of Citigroup, 20% of the NASDAQ stock exchange, 9% of UBS, 10% of Morgan Stanley.  They own 7.5% of the Carlyle Group (which owns major defense contractors, telecommunications and technology companies, CSX railroads’’ domestic container lines, and consumer companies like Baskin-Robbins and Dunkin’ Donuts).  China owns 10% of the Blackstone Group (which owns Hilton Hotels, American textbook publisher Houghton-Mifflin, Universal Studios Parks, and is in the process of purchasing a large stake in The Weather Channel).  These wealth funds also own well over 10% of Merril Lynch (RIP), 2% of Barclays (which controls large portions of the stock of many large companies—go here and put in any symbol and you will see that Barclay’s owns a large stake), 7.5% in Diamler, AG, and several hundred million dollars worth of Visa.

The German government owns 35.5% of DHL, 20.3% of Volkswagen, and 32% of T-Mobile.  Through its stake in Renault, the French government owns 6.9% of Nissan.  Any time that you buy a product or a service from one of those companies, you are essentially paying a tax to a foreign government.  For example, if you stay at a Hilton hotel, 10% of the profit made from your visit goes to the Chinese government.  If you buy a new Mercedes, 7.5% of the profits made subsidize the Dubai government.  Do you think that American text books will continue to criticize the policies of Mao, now that China owns 10% of the company that makes our history books?

This is socialism, but at least in traditional socialism, Americans would see some benefit from their dollars going to state-owned enterprises.  In this case however, American dollars are going directly into the hands of foreign governments.  Would foreign nations tolerate the American government coming in and buying up stakes in their countries?  think not.

Do you remember mercantilism from history class?  That is what is happening in this country.  We export food, chemicals, plastic, cigarettes, cotton, and many other raw materials, only to import these goods back into the country later as finished goods: the cotton comes back as clothing, the plastic comes back in the form of goods made in China, and so on.   We produce nothing here.   We consume foreign goods like the world is ending tomorrow.  We now have the import/export profile of a 3rd world nation.

Rome is burning while Congress is playing the fiddle.  Be scared.  You should be.  Your children will know a different America.

Americanly Yours,

Phred Barnet