Time For The Middle Class To Eat The Cost of Government

Posted by Jason | Posted in Economics, Government | Posted on 19-02-2010

6

When Democrats want welfare programs and Republicans want wars, ultimately the bill comes due. When asked how they are going to pay for them, they always default to their standard line, “We’re going to tax the rich.” Well, the rich are not that stupid to pay for other people’s free lunch. How do they avoid paying? Well, let’s look at how we are going to pay off the debt we have accumulated with all the government spending.

As the White House tried one more time Thursday to galvanize support from a recalcitrant Congress for a deficit commission to tackle the nation’s dangerously bloated debt, fears are growing that the United States will once again resort to printing money and ginning up inflation to resolve its debt problem.

While accelerating the printing presses could do irreversible damage to the dollar’s international reputation and the U.S. economy, history suggests that this is the way Washington will go to avoid the political pain of having to raise taxes and cut spending on popular programs such as Social Security, defense and Medicare.

Some notable economists argue that such a move would avert a debt crisis like the one confronting Greece and other European countries that have been unable to reduce spending because of strong public resistance.

Political leaders and the Federal Reserve, which is charged with printing and circulating U.S. dollars, strenuously deny that they have any intent to “inflate” out of the debt.

Nevertheless, a sign emerged this week that the prospect is increasingly becoming an issue in internal Fed deliberations.

The Fed’s most strident inflation fighter, Thomas Hoenig, president of the Fed’s Kansas City reserve bank, warned on Tuesday that “short-term political pressures” are prompting Congress to take a risky gamble by continuing to borrow at unsustainable rates rather than address the deficit problem and he expects political leaders to be “knocking at the Fed’s door” to demand that it print money to pay for the debt.

This path “inevitably leads to financial crisis,” Mr. Hoenig said, while the inflation it would spawn would threaten American living standards and destroy the independence and credibility of the Fed, whose most important job is to prevent inflation.

That’s right. How do you rob the middle class without most of them knowing you are taxing them to pay for government? You devalue the money they have. Think this isn’t a tax on the middle class? Well, prices will effect he poor as well, but they get inflation adjusted government benefits anyway. How about the rich? Well, the rich own assets, which go up with inflation. Rich people aren’t sitting around swimming through their devaluing dollars like Scrooge McDuck. They own real estate, businesses, etc. Real estate prices go up with inflation. Businesses will charge more for their products and services, so their value will go up with inflation. Now, how about the middle class? The middle class will be the ones paying this tax. Their pay will not adjust before prices increase, so their pay will be eroded and they will afford less goods and services.

Keynesians, the ruling economists of our government, believes that in a recession wages will not decrease enough to help with improving the economy. They believe this to be the case, because workers are unwilling to take less pay. I can tell you from real world experience this is not the case. Many workers have taken one or more pay cuts in our current recession to help their companies and to remain employed. The Keynesians though argue that because workers won’t take pay cuts, you must lower their pay without them knowing it. How do they do it? They devalue their pay with inflation. Just more of the government trying to manipulate the economy at our expense.

But despite some resistance and wariness at the Fed, a growing number of Wall Street gurus expect the U.S. to adopt at least an unofficial policy of growing or “inflating” out of the debt in light of Congress’ unwillingness to tackle budget deficits running at more than $1 trillion for the foreseeable future.

“Inflation was the largest factor behind debt reduction” after World War II, he said. “Growth was the second-largest factor,” with Congress making only a small contribution through modest budget restraint. The behind-the-scenes role of the Federal Reserve in accommodating faster growth and inflation through faster money creation was critical, he added

I guess this is supposed to be an example of us doing this in the past, so you should just say, “Oh, OK. If it worked then, then I guess we can do it now.” This is a horrible example though. One, we went into debt to fight the largest war the world has ever known. Currently our debt is largely frivolous spending, with more spending in the pipeline. Second, we had tremendous growth after the horrible policies of FDR were removed from the economy after the war. Imagine how fast you would be able to run, after throwing another person off your back. That is what happened to the economy. The rationing and price controls implemented during the new deal and the war, shackled the economy. When they were removed, the economy boomed. Do you see that happening now? Of course not, it will take much more inflation than it did after the war.

“The independence of the Fed is extraordinarily important. If the Congress or the administration were to begin to interfere with our monetary policy decisions, then the markets would say, wait a minute, there’s going to be more inflation because of political reasons, more inflation because the government wants the Fed to spend money in order to pay for the deficit.”

Independent my ass. The Fed was created by the congress, which means ultimately the congress can pressure them to do what they like. Watch Bernanke testify before congress, and see how often he mentions what congress tasked the Fed to do. The congress could easily change what they task them to do. There is no such thing as independence when one party has a gun.

But some analysts say the Fed undermined its own case last year by instituting programs that had the effect of helping to underwrite the Treasury’s debts.

The Fed printed money to purchase $200 billion of Treasury bonds last year in an effort to keep interest rates low and nurture an economic recovery. The rationale was that interest rates paid by consumers and businesses are linked to Treasury rates. But Fed officials ended the program in the fall, partly out of concern that it gave the appearance that the central bank was printing money to help underwrite the national debt.

Some respected economists have openly advocated an inflation strategy for reducing the debt. Kenneth Rogoff, a former chief economist at the International Monetary Fund, has suggested a 4 percent to 6 percent inflation target for the Fed to help deal with the debt.

via Induced inflation feared as way to cut debt – Washington Times.

How many people have are getting 4 to 6 percent raises every year just to keep their same purchasing power. Of course, what this number really is is disputable. The Fed uses the Core CPI with energy, food, and housing excluded. It just so happens those are the areas where most of your money goes.

“What? No, No, there’s no inflation here. Look! The CPI says so. Nothing here to see. Get back to work. You’ll need to get some extra hours in.”

VN:F [1.9.21_1169]
Rating: 8.0/10 (1 vote cast)

Getting Your House in Order as the Government Destroys It

Posted by Jason | Posted in Government | Posted on 06-02-2010

0

We are trying to recover from a debt driven bubble, and Americans are cleaning up their personal debt. The problem is the government is borrowing 700% more than people are paying off. Makes you wonder why you should even get your house in order, when the government is mortgaging our futures away.

For every dollar in debt that Americans have paid off since they started cleansing their balance sheets in mid-2008, the U.S. government has borrowed more than $7. All the hard work by consumers to replenish their piggy banks may be for naught if big government budget deficits play havoc with the economy.

Last week’s federal budget didn’t provide much solace. The Obama administration projected that the federal debt could double over the next decade, prompting Moody’s Investors Service to warn that the pristine AAA credit rating of the U.S. “could come under downward pressure.”

Investors need to account for the burgeoning federal budget deficit as they save for retirement, college tuition or homes. Uncle Sam’s borrowing binge could set off a surge in inflation and push down the dollar, both of which would erode the value of savings. It could also push interest rates higher, hammering the value of the more than $1 trillion in Treasury bonds owned by households directly or through mutual funds. Income taxes, already set to rise, might have to climb further to help close the government’s budget gap.

The result could be what Laurence Siegel, director of the Research Foundation of the CFA Institute, calls a “triple whammy” of weak economic growth, higher inflation and higher tax bills. Inflation itself is a kind of tax; by driving up prices of assets like stocks and real estate, it triggers bigger capital-gains tax bills even when the assets barely keep pace with the higher cost of living.

via Protecting Yourself From the Giant New Deficit – WSJ.com.

VN:F [1.9.21_1169]
Rating: 5.5/10 (2 votes cast)

Alan S. Blinder has a new set of rose (keynesian) colored glasses

Posted by Jason | Posted in Economics | Posted on 16-12-2009

0

In the Wall Street Journal today, Alan Blinder, talks up the economy and show’s his optimism (naivete) of things to come.

By ALAN S. BLINDER

The U.S. economy is digging itself out of a deep hole. You have probably heard a lot of doom and gloom lately, including talk of a jobless recovery, an L-shaped recovery (which means no recovery at all), or even a W—the feared double-dip recession. The Scrooges have a point: There are serious dangers to the nascent recovery. But you’ve heard all that many times. Let me offer instead, in deliberately one-sided fashion, the case for optimism. It is, after all, the holiday season.

The case begins with the “slingshot effect” I wrote about on this page last summer (“The Economy Has Hit Bottom,” July 24, 2009). When the growth rate of any component of GDP rises, it gives overall GDP growth a boost. And going from sharply negative growth to zero is a notable rise. In July, the slingshot scenario was hypothetical—though likely. In today’s economy, it’s a real phenomenon.

During the first half of this year, the investment component of GDP declined at a stunning 38% annual rate. Since the investment share of GDP was then about 14%, this implosion accounted for minus 5.4 percentage points of GDP growth. But since overall GDP declined “only” 3.6% in those two quarters, the rest of GDP (the 86%) actually rose. It was a small but real reason for optimism in a stormy sea.

Then came the third quarter. Like a woozy prizefighter lifting himself off the canvas, the battered investment component of GDP managed to rise (at an 11% annual rate), which added 1.3 points to GDP growth rather than subtracting 5.4 points. That 6.7 point swing was the start of the slingshot effect, which is not yet over.

Investment has three components: business investment, inventory stocking, and homebuilding. Inventory stocks were still declining at near-record rates in the third quarter; they simply must level off within a few quarters because sales are rising and firms will not want to deplete their stocks indefinitely. Business investment remains 20% below its 2008 peak; its likely course is up, not down, because plants and equipment wear out. And housing? Well, you know. Homebuilding is still in the doldrums—limping along at less than half the level of 1960. The only way to go is up.

This is where Keynesians think they have things right by using their assumptions to prove their assumptions. Blinder says while investment decreased, the other GPD components picked up the slack, so GPD didn’t decline as much as it would have otherwise. The problem is the slack was government spending. This is how they reinforce their own assumptions. They believe the government can boost the economy with stimulus, printing money, etc. Then they create a GDP calculation that includes government spending as one of it’s components. Then to increase GDP, they use that component to minupulate the calculation. The problem is that component does nothing to create wealth for our economy. It does not create real economic value. Gross Domestic Product is about production, but the government produces nothing. If this was the way to economic growth, why don’t we just focus on that component of GDP? Why not just quadruple the government spending? GDP would skyrocket!

Of course, the investment slingshot won’t last forever. Sometime in 2010, consumer spending must take over. And this is where the pessimists go into full throttle. Burdened by huge losses of both wealth and jobs, American households will start saving like mad, we are told. Sounds plausible, but it hasn’t really happened. True, the average personal saving rate has risen to 4.5% of disposable income so far this year from 2.7% in 2008. That’s higher, but a long way from the 8%-10% saving rates the doomsayers have foreseen. A saving rate near 5% is consistent with 3%-4% GDP growth in 2010.

Let’s hope consumers don’t listen to Blinder. Our country is badly in the need for savings. Savings are used for investment, which is what creates real economic growth. Yes, ultimately consumers need to spend, because we need to buy much of what we produce. If we don’t, it won’t be produced. The problem is when that consumption is heavily leveraged as it has been. I’m sure the Fed will eventually trick the public into going more in debt as things start to get back to normal.

The second major source of optimism is the amazing performance of productivity during the recession. To be sure, that performance had a downside: While real GDP was falling 3.7%, payroll employment dropped 5%, devastating many American families. But by definition, that discrepancy means that productivity—output per hour of work—rose substantially during the recession, which is pretty unusual.

The last two quarters were even more extreme: Productivity in the nonfarm business sector grew at a shocking 8.1% annual rate. There are two possible explanations. One: The last two quarters were among the most technologically innovative and entrepreneurial in the history of the United States. Two: Fearful businesses pared payrolls to the bone. If the second is closer to the truth, payrolls are extraordinarily lean right now. Which means that firms will need to hire more workers as their sales and production grow. Which means that employment may start growing sooner than the pessimists think.

I have been pointing this out for months, but until the last employment report, it was a hypothesis supported by no evidence. Not anymore. While payrolls continued to decline in November, it was by only a scant 11,000 jobs; and the job counts for September and October were revised upward. The data now show a clear trend that suggests that net job creation may be only a month or two away. We’ll see.

Here again, the problem is Blinder is counting the government as if all jobs are created equal. Jobs do the economy no good if they aren’t producing value to the economy, and government jobs do not produce value. The latest jobs report showed increases in government jobs and temporary employment. All other jobs, the ones we want, were down. More government jobs, used to distort the jobs report, is not a good thing.

There is more to the case for optimism. For one thing, less than 30% of February’s $787 billion fiscal stimulus has been spent to date; over 70% is still in the pipeline. Pessimists dote on the fact that the rate of increase of stimulus spending has probably peaked and will be lower in 2010. True. But the level of GDP will continue to get support from fiscal policy, and a second job-creation package (“Please don’t call it a stimulus!”) looks to be in the works.

Back to increasing the government component of GDP. See why government spending should be taken out of GDP?

Then there is the Federal Reserve’s stupendously expansionary monetary policy. It is well known that interest rates work on the economy with long lags. But the Fed’s last rate cut came a year ago. So isn’t the monetary policy pipeline empty? The answer is no, for at least three reasons. First, history suggests that the time lag is closer to two years than to one. So even the normal policy lags are not over.

But second, and more important, the lags are likely to be abnormally long this time around. As long as the economy’s credit-granting arteries were blocked, they could not carry the Fed’s lower-interest-rate medicine into the economy’s bloodstream. Sadly, some of these arteries remain blocked today—such as for small business lending. But the Fed, Treasury, FDIC and others have created a bewildering variety of stents and bypasses to get credit flowing again. The credit markets are now healing, though slower than we would like. Hence there is still monetary stimulus in the pipeline.

And third, the Fed continues to inject more medicine. Not by cutting interest rates, of course. Zero is as low as you can go, and the Fed arrived there a year ago. But “quantitative easing” is still in play. One example is the mortgage-backed securities (MBS) purchase program, which is adding MBS to the Fed’s balance sheet and providing vital support to the mortgage market. Yes, the Fed has begun to think about its exit strategy. But that is for the future, not for now.

The Fed’s “stupendously expansionary monetary policy” is what we should fear the most. The author may be right on the lag, and that would be the most devasting blow to the economy. Many are predicting massive inflation as the Fed’s stimulus finally leaves the reserves and enters the economy. I wouldn’t call that a case for optimism. As I highlighted in a previous blog, even the best case inflation scenario is not too comforting. If not severely contracted, we’ll have massive inflation. If severely contracted, we could be looking at a serious contraction in the economy. Pick your poison.

I warned at the outset that I would present a deliberately biased case. So let me admit, once again, that serious downside risks remain. The investment slingshot and the fiscal stimulus will both peter out in 2010. Consumer finances and confidence are shaky. Banks are still failing and commercial real estate is a mess. We cannot count on exports to pull us out of this slump. All true. And all reasons not to expect the kind of exuberant boom that typically follows a deep recession—such as the 7.7% growth spurt in the six quarters following the 1981-82 slump. No one expects that.

So my optimism is guarded. The 3%-4% growth rate that I anticipate for the rest of this year and for 2010 is a lot worse than 7.7%, to be sure. But compared to what we’ve been through, it will feel a whole lot better.

Mr. Blinder, a professor of economics and public affairs at Princeton University and vice chairman of the Promontory Interfinancial Network, is a former vice chairman of the Federal Reserve Board.

via Alan S. Blinder: The Case for Optimism on the Economy – WSJ.com.

Blinder doesn’t even consider the effects of the health care takeover, national debt, etc. Then again why would he? Keynesians think government spending is as valuable as business investment. Why? Because GDP says so.

VN:F [1.9.21_1169]
Rating: 0.0/10 (0 votes cast)

Survival skills and preparing for the TEOTWAWKI

Posted by Jason | Posted in Government | Posted on 15-12-2009

7

Unfortunately, I have not been able to blog much over the past few days. I spent a lot of time this weekend just browsing around the web looking at survival skills that you would need in the absolute worse case scenario of an economic collapse. This is referred to as TEOTWAWKI, the end of the world as we know it.

While I’ve been looking into guns for a while now, I’ve finally settled on the Ruger SR9, and I plan on picking one up as soon as Christmas is over. Protection is at the top of the list for survival skills. Hurricane Katrina highlighted how quickly society can deteriorate.

In addition, I did some research on solar panels and wind turbines. It would be good to know how to get off the grid if you needed an energy source. It was actually pretty fascinating reading how you can buy materials off ebay or Amazon and build your own solar panels. Power is a must in a TEOTWAWKI scenario.

While I  was reading up on this stuff, I came across a very cool blog, Survivalblog.com, a site dedicated to survival skills. There is a ton of good information about all kinds of survival skills; including guns, power creation, and even home based business. I then saw the guy who started the site wrote a book, Patriots: A Novel of Survival in the Coming Collapse. I hopped on over to Amazon to check it out, and it had 505 reviews. Wow, I figured this must be a great read, so I headed out to the local bookstore and picked it up.

So far, I’ve only read the first two chapters, but it does not take long at all to pull you in (probably about 2 pages tops). The first chapter is about how the collapse starts, and let’s just say, it’s an ominous chapter in regards to our current economy. The government spends way too much money, the Fed prints too much money, foreign governments begin dumping our treasuries, and the house of cards begins to come down. Bank runs take place, which results in the Fed printing money for the FDIC to dish out to the depositors. All this does is make inflation worse. As you can imagine, unemployment sky rockets in no time at all, and chaos erupts in the larger cities.

The main characters are a group of people who met in college and had a plan for such an event. They formed a group that would come together in such an event, and each member developed specific survival skills, such as handling gun shot wounds. They bought  a 40 acre retreat in Idaho, and they are all making their way there to setup their “retreat”.

That’s about as far as I got. It’s an awesome read, and really makes you think about how unprepared we are as a society. We have no where near the survival skills that our grandparents had during the Great Depression. Needless to say, my wife thinks I’m a lunatic for even thinking something like that could happen, which gets back to how most of society is. We are like sheep in this cage that our government has built. A huge part of the population can’t even take care of themselves with all this abundance, so how would they take care of themselves in a real economic collapse.

Any way, it really got my noodle cooking and thinking that while it’s fun to comment on the idiocy of our government and how they are going to destroy the country, ultimately, you need to be prepared for it. It doesn’t do you or your family any good to stand around as Rome burns saying, “See, I predicted that on my blog.” It’s time to start thinking about TEOTWAWKI and learning some of the survival skills that would be necessary to survive. It’s always the crazy SOB that people go to when excrement hits the fan. I might as well get a little crazy.

VN:F [1.9.21_1169]
Rating: 5.5/10 (2 votes cast)

Peter Schiff hands out an ass whoopin to David Epstein

Posted by Jason | Posted in Economics, Government, Video | Posted on 12-12-2009

0

I can’t remember how I found this video, but if you have the time, it’s a much watch. You want to know why we are heading for disaster? It’s because the government is filled with David Epsteins, when we need more Peter Schiffs. Hopefully, Schiff will defeat Dodd next year, and we’ll at least have one. Add Rand Paul into the equation, and we are heading into the right direction.

VN:F [1.9.21_1169]
Rating: 0.0/10 (0 votes cast)

Hyperinflation – Even The Best Case Scenarios Look Bad

Posted by Jason | Posted in Economics, Government | Posted on 11-12-2009

4

Bob Murphy has a article on The American Conservative basically outlining how he sees our currency being destroyed and possibly ushering in the Amero. While the entire article is pretty scary, the part about the current bank reserves really popped out at me.

Monetary Catastrophe

Since the start of the present financial crisis, the Federal Reserve has implemented extraordinary programs to rescue large institutions from the horrible investments they made during the bubble years. Because of these programs, the Fed’s balance sheet more than doubled from September 2008 to the end of the year, as Bernanke acquired more than a trillion dollars in new holdings in just a few months.

If Bernanke has been so aggressive in creating new money, why haven’t prices skyrocketed at the grocery store? The answer is that banks have chosen to let their reserves with the Fed grow well above the legal minimum. In other words, banks have the legal ability to make new loans to customers, but for various reasons they are choosing not to do so. This chart from the Federal Reserve shows these “excess reserves” in their historical context.

U.S. depository institutions have typically lent out their excess reserves in order to earn interest from their customers. Yet currently the banks are sitting on some $850 billion in excess reserves, because (a) the Fed began paying interest on reserves in October 2008, and (b) the economic outlook is so uncertain that financial institutions wish to remain extremely liquid.

The chart explains why Faber and others are warning about massive price inflation. If and when the banks begin lending out their excess reserves, they will have the legal ability to create up to $8.5 trillion in new money. To understand how significant that number is, consider that right now the monetary aggregate M1—which includes physical currency, traveler’s checks, checking accounts, and other very liquid assets—is a mere $1.7 trillion.

What does all this mean? Quite simply, it means that if Bernanke sits back and does nothing more, he has already injected enough reserves into the financial system to quintuple the money supply held by the public. Even if Bernanke does the politically difficult thing, jacking up interest rates and sucking out half of the excess reserves, there would still be enough slack in the system to triple the money supply.

via The American Conservative » Killing the Currency.

If the currency doubled over night and the goods and services of the country did not grow, prices would quickly double as well.  While this is a drastic example, it will not work much different if it happened over a longer period of time. It just wouldn’t be as obvious. The problem here as Bob points out is even if Bernanke manages to pull out half the reserves, you’d have the money supply possibly tripling in a short period of time. Obviously, our goods and services would not triple in a short period of time, so you would have inflation that no living American has ever experienced.

What happens in situations like that? Well, look at the Argentina.

It never ceases to amaze me the arrogance we have been programmed to believe. America is a great country, but it cannot defy history just because it’s America. I’ve heard countless pundits just over the past couple weeks pooh, pooh all the “crazy talk” about the economy by saying “We’re Americans. We’ll figure our way out of this.” Why do we believe being American has anything to do with our odds? If we do the same things that were done historically, we will get the same results. It’s as simple as that. This very arrogance is even manifest in the history of decline civilizations. Do you think Rome didn’t believe they were special and could keep going as they were? How about the Soviet Union? We spent all the money in the 80s to bankrupt the Soviet Union, because Reagan knew that was the best and easiest way to destroy it. Here we are 20 years later following the same path of destruction that led to the collapse of the Soviet Union. Are we that stupid and arrogant to think because we are Americans, it will be different?

VN:F [1.9.21_1169]
Rating: 0.0/10 (0 votes cast)

Obama Pushes New Job Stimulus – WSJ.com

Posted by Jason | Posted in Government | Posted on 09-12-2009

2

When will this nightmare called the Obama administration end? They never question that fact that they got it wrong. They always believe they just didn’t do enough yet. We have close to a 1$1.5 trillion deficit this year, and these idiots can’t stop thinking of ways to spend more money.

In a speech at the Brookings Institution, Mr. Obama avoided calling his jobs push a new stimulus plan. But White House officials acknowledged that the president was taking stimulus components that he believed worked best and extending or amplifying them.

Has anyone seen any part of the stimulus that worked and continues to work? Cash for Clunkers might have give a blip on the GDP chart, but it’s obvious it was not sustainable. Government stimulus in the form of spending never is.

These include putting an additional $50 billion toward infrastructure spending, ramping up Treasury Department lending to small businesses through the Troubled Asset Relief Program, extending tax credits for business investment and offering state and local governments a fresh lifeline.

Other ideas that weren’t in the February stimulus legislation include a tax credit that rewards companies for hiring workers and tax rebates for individuals who make their homes more energy efficient.

Additional wealth must be created in our country for hiring to take place. Infrastructure does not create wealth. Are you wealthier when you trade in an older car for a newer one? No, you still have a car, just like you did before.

Increased lending to small business isn’t going to help either if the economy remains in shambles. Who will want to borrow money when the future is so uncertain?

Tax credits don’t work in the long term. Only long term tax cuts work for ongoing growth. Are you going to change your long term habits for a one time handout? Neither is business. They will change habits if it’s a lasting change such as reduced taxes, just as you would change your habits with a pay increase.

Don’t even get me started on more state bailouts. It’s stealing money from responsible states and giving it to irresponsible states such as California. The responsible states have to pay for the over-the-top government benefits in other states. Would Texas please secede already.

Mr. Obama’s push comes as a partisan debate over the stimulus plan’s effectiveness heats up and Democrats grow increasingly worried about the political price of a stagnant job market. With a midterm election looming in 2010, Friday’s relatively hopeful employment reports didn’t much relieve the pressure, senior Democrats said.

And we wonder why our country is going bankrupt. Politicians try buying their re-elections. It’s all politics, and has nothing to do with what is best for the country.

Democratic aides expect two bills. The first would top $100 billion and would extend unemployment insurance, temporary food-stamp payment increases and subsidies for health-care purchases by the unemployed. That would likely be attached to a spending bill in coming weeks. The second, a jobs bill estimated at about $70 billion, would contain many of Mr. Obama’s initiatives and likely wouldn’t reach his desk until early next year.

Get ready for all the job creating from incentivizing unemployment. It seems like we extend unemployment almost every week now. What’s it up to, half your life?

The hiring tax credit may generate the most controversy. Mr. Obama campaigned on the idea last year, but Democrats abandoned it amid the stimulus debate. Employers, they worried, could fire workers and rehire them to claim the credit, or divide a full-time job into two part-time jobs, cut the wages and hours of one worker, then hire a new, part-time worker to claim the credit.

Ralph Braun, chief executive of Braun Corp. in Winamac, Ind., said a tax credit is meaningless for a producer like him. “If you’re just going out to hire someone just for a tax credit, what kind of job will you put them in that has any longevity to it?” said Mr. Braun, whose 730-employee company produces wheelchair lifts and other equipment. “You have to have a customer for that employee to serve — so I’m confused how a tax credit would stimulate anything.”

Still, there are executives who see merit to the idea. Ronald DeFeo, chief executive of Terex Corp. in Westport, Conn., would like to see such a credit targeted at recent college graduates. “If we had a tax incentive that paid for a third of [a recent college graduate's] wage for two years, then 10% for the next two years, it would be a way to encourage companies like mine to hire,” he said.

via Obama Pushes New Job Stimulus – WSJ.com.

I bet Ralph Braun’s company is much better ran than Ronald Defeo’s. Ralph is completely right. If there is no customer to serve, then there is no need for a new position. Ronald on the other hand thinks it makes good sense for the public to pay 1/3rd of two years wages and 10% for the third and forth year for new hires. Is he smoking crack? This is what he thinks is good for our country? I know he gets to save money for himself, but meanwhile that money has to come from somewhere. If that position doesn’t warrant paying the employee, then the position should not be created. It’s a sham, and only results in a lower standard of living for everyone else, well except for Ronald Defeo.

VN:F [1.9.21_1169]
Rating: 10.0/10 (1 vote cast)

More Bad Ideas From The Job Summit

Posted by Jason | Posted in Economics, Government | Posted on 05-12-2009

0

In order to appear as if he’s doing something, Obama held the “Jobs Summit” at the White House. Here are some of the ideas that are supposed to help small business.

On Thursday, about 130 small-business owners, financial experts, union leaders, economists and CEOs from across the country convened at the White House to discuss their best ideas for stimulating job growth — and staving off another uptick in the unemployment rate, which climbed to 10.2% in October.

While many small-business owners and advocates welcome the attention being paid to boosting employment, there were plenty of skeptics in attendance. Some complained that sustained economic recovery — not new jobs bills — are needed to kick-start hiring. Others pointed out that job losses have already moderated in recent months, and called into question the necessity of any moves.

I wonder how quickly the guys who questioned the need for any government involvement were thrown out of the room. Maybe we’ll see them on TV today as the Job Summit Crashers.

Work-Share Tax Credit

A jobs-sharing initiative, which already exists in 17 states, has gained traction among several members of Congress. In August, Rep. Rosa L. DeLauro (D., Conn.) introduced the Keep Americans Working Act, which would allow employers to reduce their employees’ hours in order to hire new workers to pick up the slack. Although employees’ hours would be reduced, their pay would remain the same, as the government would pay the balance. Notably, Paul Krugman, economist and Nobel prize winner, also backed the work-share idea.

They must be looking to Europe’s job market for this idea. Europe has instituted ideas like this in the past and made it illegal to have anyone work over a certain number of hours. This is supposed to spread the hours out among more workers. It’s a stupid idea. It does not take into account all the cost involved. For example, if I have a guy who has been working for several years, he knows how to do his job. I know what his productivity is. If I cut his hours back and hire a new person, that person needs trained, doesn’t know the job, and is less efficient. My company’s productivity will have declined. Not only that, I have to deal with a new person. I know my current employee and his work habits. I know if he’s late, takes days off, has family issues, etc. I have no clue what kind of person I may be bringing in that has to be able to produce as much as my current employee. I also have to deal with another person’s benefits, health-care, etc. Will this person cost me more in health care when government passes health care legislation? Will he drive up my unemployment, because I’m more likely to have to lay him off if the economy declines again? These are all concerns that this does not address.

What it does do is steal money from tax payers and give it to businesses so one person doesn’t have to work a normal work week. This is just crazy. You take money from people who work full-time to give it to another person who you are taking hours from in order to hire someone who is unproductive. Do they realize wealth is based on what is produced, not jobs.

Jobs Tax Credit

By contrast, jobs tax credits are largely welcomed by small-business advocates and economists. One plan from the Economic Policy Institute, a Washington-based research organization focused on labor issues, calls for the government to provide refundable tax credits of 10% to 15% against payroll taxes for each new hire over two years.

Isn’t social security and medicare already bankrupt? How does it help long term to take money away from them? I’m all for getting rid of them both, but that isn’t going to happen. Instead, this just leads to more government debt. Also, 15% of a new hire’s payroll tax is not that much incentive. You typically aren’t going to pay a new hire much money, and the company’s share of payroll taxes is 7.5% of their salary. How much incentive is 15% of 7.5% of their salary going to provide? I maybe reading this wrong, but that is how I read this proposal.

If I have this write, here is what it would look like. You hire a new employee and pay him $30,000 a year. You pay $2250 a year in payroll taxes on him. You get a tax credit back in the amount of 15% of his payroll tax, which is $337.50. Wow, let’s start hiring. Even if they are looking at the entire payroll tax, which is around 15%, it still doesn’t provide much incentive. The new hire seems pretty risky in today’s environment, and a few hundred dollars sure isn’t going to change that equation.

‘Cash for Caulkers’

Former President Bill Clinton and others have suggested a cash-for-clunkers style initiative that would task construction workers and contractors with weatherizing homes. By employing unspent stimulus funds, Clinton’s plan, popularly known as “cash for caulkers,” involves weatherizing houses and apartments, as well as commercial and industrial buildings. Depending on how many property owners take up the initiative, the plan could not only provide jobs to the hard-hit construction sector, it would limit carbon emissions and reduce owners’ energy costs.

Does this sounds like money down the drain or what? I can just imagine the scamming that is going to take place by a group of people, that while many are the salt of the earth, many others are about as shady as you can get. Believe me. I’ve worked construction for my dad when I was in high school and when I got laid off in the tech bubble. This is going to lead to scamming old people, the government, and all of society in general. Then again, maybe I’ll start a fake caulking business and make some extra income.

Public Works Projects

Similarly, a range of economists and nonprofits support instituting some form of directed public jobs works programs. Similar to Depression-era New Deal jobs programs, the government could create jobs in targeted places that have high unemployment. The focus would be on rebuilding infrastructure for roads, clean-up or school repair, says Mark A. Price, a labor economist at the Keystone Research Center, a think tank in Harrisburg, Pa.

Can we just admit that the people who want public works all the time are communists. Let’s not act like it’s anything else. There has already been so much wasted money on road projects. They are tearing up and rebuilding roads that don’t even need it. All this does is destroy the wealth of our country by taking money that would otherwise be going into wealth creation and putting it into things that do not increase our wealth. If we have a road before this begins and a road after this begins, but we spent billions, we are not wealthier. While proponents will claim it creates jobs that will lead to personal consumption, they are overlooking that it is taking that money from other consumers. It’s not even a wash, because the government project isn’t as efficient and productive. Government projects never create wealth, unless you are one of the cronies who gets the project and line your pockets with tax payer money.

Payroll Tax Holiday

Leading up to the first stimulus package, small-business advocacy organizations such as the National Federation for Independent Business supported a six-month payroll tax holiday.

I’m all for tax cuts, but I’m getting tired of tax cuts without spending cuts. Also, are you going to hire people for a six-month payroll tax holiday? If you do, there is a chance again, as stated above, that you are going to have to lay the new hires off shortly in the future, leading to increased unemployment insurance. Also, if I’m a small business, I’m going to take savings on payroll taxes to increase my profits. If my clients aren’t demanding more of my goods or services, I’m not going to hire more employees. Also, what is a payroll tax holiday going to do when you have this health care monstrosity hanging over your head?

Capitalizing Community Banks

President Obama has already dispatched calls for giving small companies looking to expand — and, thus, create jobs — greater access to capital by way of community banks. Making it easier for community banks with less than $1 billion in assets to access funds from the Troubled Asset Relief Program, or TARP, would give small businesses a greater chance of landing loans, says Obama.

via Small Business: The White House Works It – WSJ.com.

TARP should be called To Anyone Requesting Program. It was passed against the will of the public for a specific purpose, and then the government decided on its own that it will do whatever it pleases with it. One of the best things they could do is announce the end of TARP. That would signal that they believe the crisis is coming to an end. Of course they won’t because they love the power that they can exercise with all the TARP money. Look at the power they have exercised over banks, automotive, etc. Last thing I would want is my community bank being at the end of the government’s leash. We’ve already seen how they change the terms of the agreement after the fact.

While all of these would probably produce some jobs, they ignore the negative consequences of each one. They ignore the jobs that will be harmed now and in the long term. They also ignore the economic consequences for the future with more government debt. Worst of all they presume that the government can fix the economy, create wealth, and is needed for economic growth. This is disasterous for the long term psyche of our country. Ronald Reagan had it right when he said, “Government is not the solution to our problem; government is the problem.” Apparently, this has been forgotten.

VN:F [1.9.21_1169]
Rating: 0.0/10 (0 votes cast)

Another Responsibility Shirking Government Panel

Posted by Jason | Posted in Government | Posted on 25-11-2009

0

Some in Congress are calling for a bi-partisan panel on ways to cut the deficit. As you can imagine, I’m laughing my butt off right now. Can you imagine telling your spouse you  need to get an outside advisor to help you figure out why you are getting further into debt as you go out and buy a bunch of stuff you don’t need on your credit cards?

By JONATHAN WEISMAN and JOHN D. MCKINNON

WASHINGTON — The White House is considering a bipartisan commission to tackle the nation’s swelling deficit, as it seeks to show resolve on a problem that threatens its broader agenda.

Top White House officials, including budget director Peter Orszag, met Tuesday with Senate Budget Committee Chairman Sen. Kent Conrad to discuss establishing such a commission, which has been pushed by Mr. Conrad, a North Dakota Democrat, and his Republican counterpart on the committee, Sen. Judd Gregg of New Hampshire.

Chuck Marr, a budget aide to the Democrats’ former Senate Majority Leader Tom Daschle, said some kind of commission or budget summit could be the only way to bring Republicans into the decision making in the hopes of generating support for cutting cherished programs or raising taxes.

So now the Democrats want to bring in Republicans to support cutting cherished programs. Isn’t this as they are about to pass a huge new program that isn’t supported by Republicans?

But House Speaker Nancy Pelosi (D, Calif.) and senior Democrats such as House Appropriations Committee Chairman David Obey of Wisconsin have vociferously opposed delegating tough decisions to outside panels or commissions.

Taking concrete steps to cut spending and raise taxes, always politically difficult, has become even harder given the U.S. economy’s weakened condition. With projected deficits averaging more than 5% of gross domestic product over the next decade, the enormity of the task makes it more daunting. So does the looming 2010 election, when Democrats face the possibility of big losses.

via White House Weighs New Panel to Tackle Deficit – WSJ.com.

Holy crap! Who would have thought I would ever agree with Nancy Pelosi. I better reconsider my belief. I was under the impression that we elect these idiots to make the tough decisions. I didn’t think we elected them to create panels anytime things are politically tough to do. They say it’s politically difficult, but yet it seems people on all sides are complaining about the deficit. The only difference seems to be where each side thinks the cuts should come from. I have a great idea that will solve this. Cut everything. Pass legislation that will move towards the end of medicare, social security, etc while protecting those who are on it or will be on it shortly. Young people know they will not get any of these benefits, so quit robbing them to pay for a failing system. For the left, shut some damn bases down around the world. Do we really need the cost of bases in Germany, Japan, South Korea, etc?

Was that hard? Do we really need a commission to make a report that probably wouldn’t include common sense ideas anyway? Now that this has been put out there, congress can use it. They don’t even have to pay me. Well, maybe they could let me not pay taxes for a few years.

VN:F [1.9.21_1169]
Rating: 0.0/10 (0 votes cast)

Uncle Sam’s Crowding Out Of Private Lending

Posted by Jason | Posted in Economics, Government | Posted on 24-11-2009

2

For anyone who thinks we’ll be pulling out of this recession anytime soon, you may want to think again. Even if we do pull out, it will more than likely be temporary. Unfortunately, the government is crowding out private investment by killing financing to the privates sector. George Melloan, author of “The Great Money Binge: Spending Our Way to Socialism” writes in the Wall Street Journal.

For anyone who wondered if last winter’s federal seizure of the financial services industry would have adverse economic consequences, an answer is now available. The credit market has been tilted to favor a single borrower with a huge appetite for money, Washington. Private borrowers, particularly small businesses, have been sent to the end of the queue.

The Federal Reserve, which supervises some 7,000 banks, has been telling bankers that they must cut risk. The most spectacular step in that effort was the Fed announcement last month that it will evaluate the salaries of bank officers on how carefully they manage risk.

By official definition, Treasury securities are risk-free, so how better to manage risk than to pad your bank’s portfolio with Treasury securities, which is what bankers are doing. Under the new management from Washington, bankers who take a flyer on a venture that might some day become an Apple, Microsoft or Google will risk not only their depositors’ money but a possible pay cut. Banking has been captured by the nanny state, which means that its potential for contributing to economic growth and job creation has been sharply curtailed, even as its potential contribution to government growth has been expanded.

The federally dictated risk-aversion was underway even before the Fed began monitoring banker paychecks. According to the Fed’s September flow of funds report, commercial banks were net buyers of Treasury securities to the tune of $25 billion on an annualized basis in the second quarter. They were net buyers of federal agency paper—think Fannie Mae and Freddie Mac—at an annualized rate of a whopping $185 billion, contributing mightily to federal efforts to keep these miscreants afloat. Meanwhile, private lending, which once was the mainstay of banking, was shrinking at a $392 billion annual rate.

Washington hasn’t been able to milk the taxpayers sufficiently to finance its massive deficit. The Chinese are getting skittish as well. So tapping bank deposits is yet another avenue to a big pot of cash. As for the bankers, they’ve been awarded an easy life. Thanks to the Fed’s zero interest-rate policy, they can make a decent profit on “safe” Treasury and agency securities yielding 3% or more. The too-big-to-fail banks like Citi and Bank of America can draw on their big shareholder, the U.S. Treasury, if their capital needs further supplements. Bankers don’t have to worry about making risk judgments because they’ve been ordered to not take risks. So maybe the Fed is justified in cutting their salaries, since whatever banking skills they had—meaning the ability to assess risk—are no longer needed or wanted. An office boy could buy government bonds.

via George Melloan: Government Deficits and Private Growth – WSJ.com.

VN:F [1.9.21_1169]
Rating: 0.0/10 (0 votes cast)