Let’s Get Real

Posted by Ray on July 25, 2011 under Economy, Main, Markets, Politics | Be the First to Comment

Listening to the talking heads TV and our political leaders about this debt crisis is merely subjecting you to unneeded heartburn. First and foremost, the USA is not “defaulting” on anything on August 2nd, period. The USA will not be downgraded on August 2nd by any of the ratings agencies, even though we should not be carrying the AAA rating to begin with. Bonds only default is interest or principal payments which will not happen on August 2nd as the Treasury brings in enough money to cover our debt payments on a monthly basis. Social Security checks and Medicaid/care checks will go out and the sun will rise in the East and set in the West.

All that happens on August 2nd is the Treasury Department looses the ability to issue new debt beyond the stated debt ceiling. I have not witnessed such scare tactics in my entire life and the misinformation the media and politicians are giving the public is shameful. In fact this entire debate is shameful as we are not having an honest discussion about debt and the US government. Everything you hear being discussed is merely kicking the can further down the road and I believe the markets will not let this can kicking continue on forever. Everything comes to an end at some point and our crazy spending will have to end and we all need to pay the Piper.

Let’s get real about our debt problem. We are hearing all sorts of nonsense about $4T in deficit reducing spending cuts or a combination of cuts with higher taxes over a ten year period. That means we are raising taxes or cutting spending, or a combination thereof, of $400B a year, big deal. If we subtract the $400B a year from our recent annual deficits we are still running $1 to $1.2T of deficits per year for as far as we can see. These tax hikes and spending cuts are meaningless to our long-term financial health and all the talk we are hearing from Washington or the other experts is meaningless until they lay out the facts like I just did. In my opinion even if we raised taxes and cut spending by $400B a year the USA will be downgraded within 2 years anyhow, which is what should have happened a long time ago.

The talk we are hearing from the left about wasted tax surpluses is so far off base it is ridiculous. The talk from the right about spending controls and how a 4% tax increase will kill jobs is equally as moronic. The surpluses in the late 1990’s and in 2000 were bogus to begin with. We had massive surpluses on Social Security and Medicare which the government simply took and replaced the entitlement surpluses with IOU’s and called them budget surpluses. It was accounting gimmickry and those surpluses should have remained in the entitlement programs. Do tax cuts really spur more jobs? I don’t think so and there is no proof that it does either. What spurred job growth in the 1990’s was technology. What spurred job growth in the 2000’s was housing, both bubbles I might add, but in both cases it was a new “killer app” that spurred economic growth and I do not believe we have anything like that in today’s world. Not to say we couldn’t have a new technology or other “killer app” materializes as fast as tomorrow, but there simply is nothing I see right now that will spur growth and jobs which is the real problem here.

Most people do not want to hear this, but taxes do need to go up, I hate taxes for the record. To prove my point we often hear the right complain that 47% of the USA’s citizens do not pay anything in taxes. Well, if you are going to use that line you simply cannot support tax cuts. Why would I say such a thing? Well, it was the Bush Tax cuts that caused 47% of people to not pay anything, which is not exactly true either, in taxes. The reductions in middle class tax rates were massive and the lowest tax bracket was erased. It is also important to realize that 20-30% of the population will never pay taxes because they do not earn enough to live on.

The Bush tax cuts, all of them, cost the USA $3.7T over a 10 year period or $370B a year, interesting figure don’t you think? The left says the rich need to pay more, but the rich in terms of the Bush tax cuts only account for $700B over 10 years. Raising the top income tax brackets only raises $70B a year which is nothing when we are spending $4T a year. Simply raising taxes on the rich will do nothing to solve our problems as it is the totality of the Bush tax cuts that are part of the problem. I do not like taxes, but let’s get real about this, OK? We cannot reduce our debt with phantom spending cuts and tax increases on a select few people, everyone needs to pay up.

We are in serious trouble and no one has put it all together yet. It is unreal to me that the President can say; “I cannot guarantee that Social Security checks will go out on August 3rd” and no one questioned him about why that would be. Social Security was supposed to be fine until 2036 and self funded but if we cannot issue new debt the checks will not go out… what! Well, our Einstein news anchors and the political talking heads simply do not want you to know that Social Security has no money in it, it is broke. I just talked about this earlier, our political leaders took the surpluses in Social Security and spent it replacing those surpluses with IOU’s. Since Social Security has only IOU’s in order for checks to go out the government must issue debt. That should scare you to death, we have to fund Social Security with debt. That is also why Social Security can never be privatized either. However, no one has put this together yet, unreal.

The fact that the US government cannot do anything without issuing new debt should be a real wake up call for the citizens of the USA, but no one seems to get it. The USA, the so called richest nation in the world, is bankrupt! If we cannot survive without using the credit card we are technically insolvent, if I am wrong what would you call it? The USA has also never paid of our debt, except for when Andrew Jackson was president, and simply rolled over all of our national debt year after year and this was hidden from you by using certain terms like we retired the 30 year treasury instead of we called in and paid off all of our 30 year treasuries, we simply rolled that debt into shorter term debt instruments. The USA also has “grown” our way out of recessions and past debt problems. Growing our GDP is a great way to hide the debt problem and it causes the government to do everything possible to always grow our GDP which is why hedonics accounts for over $2T of our annual GDP, hedonics is made up benefits for certain things like free checking, Google it.

You should be terrified about what you are seeing and not because we are going to “default” but because this whole show is basically telling you how bankrupt the USA really is. If our world shuts down because we cannot issue new debt we are in huge trouble and that is exactly what is happening now. The reasons I have listed here are the reason why everyone should own gold and silver as it is the ultimate hedge against out of control government spending and if the truth was ever told we have already defaulted on our debt through depreciation of the dollar and by simply rolling over old debt into new debt. If we ever really got real about our debt issues I can assure you that the story is even scarier than what I have just laid out. Luckily we have politicians that will always lie to us and hide the truth until it is so obvious you already knew it and it is too late to do anything about it. Good day and good luck.

Joe, please pass whatever you’re smoking

Posted by Ray on April 23, 2010 under Politics | Be the First to Comment

I am not a fan of the current administration, I think most people know this by now and no I am not a racist or anti-government, but the action lately has just gone over the top of prudent governance. Joe Biden, at a fund raising event, said that the economy will be adding 500,000 jobs a month in the near future. Joe, whatever you are smoking, please pass it because you are feeling no pain and I could use that for a little while.

The notion that this economy will create 500K jobs a month in the “next few months” is absurd and irresponsible. How in the world will this happen? We are still seeing 450K+ a week in initial claims which shows that employers are still laying people off. The work week is still well below 40 hours, coming in at a little over 33 hours a week, and wages are starting to deflate. If this economy was going to create 500K jobs in the next few months we would not be seeing what we are seeing. I understand this administration is under tremendous pressure to boost employment, but there is a difference between giving people hope and flat out lying, Joe is doing the latter.

I suspect he made this statement because census hiring will kick into high gear for April and with the passage of the health care bill the government will begin hiring for the new agencies being created. However, those jobs are not “real” jobs, yes they pay people and they do work, but they are not private sector jobs which actually create products or services. Government jobs create nothing and are actually a drain on the citizens of the country as the salaries for these positions must be paid for by some type of tax or fee which sucks capital out of the economy.

Clearly Joe was being Joe when he made that statement because, as usual, it was reckless and inaccurate, like most of the things Mr. This is a Big F****** Deal says. I see a trend with this administration that is eerily like that of FDR’s administration, please read The Great Depression: A Diary by Benjamin Roth to see the similarities, which would not stand for criticism of any kind. I get many do not like the Tea Party because there are a few nut jobs in the crowd, as with any crowed, but look at what they are doing to them. They branded them anti-government, racist and dumb which is largely unfounded accusations and I seem to recall liberal rallies which were supported by the Democrats as citizens exercising their right to free speech. However, when the speech is criticizing the Democrats, well, they can’t have that now, can they?

Regardless, let’s take a look at another report about the health care bill. A new report from the Associated Press today says the bill will cost far more than what was projected by the CBO and by the Democrats, are you really surprised by this? The bill will cost $311B between 2010 – 2019 and, which the CBO already admitted, will raise premiums for everyone. However, there is way more cost than most people think about, let’s take a look at some back of the envelope costs.

The bill mandates that everyone has to have coverage or face a fine, but because of this mandate the government will offer generous subsidies up to individuals/couples making $88K a year. Who knows if these subsidies get bigger or smaller in the future, but we will use what we know for sure. The good news is that the poor will get “free” coverage and as your income increases so will the amount you will have to pay. The range of premiums owed is based on a sliding scale and will cost you between, assuming you make less than $88K, 3% – 9.5% of your income.

That is a heavy burden on a family even making $88K a year and for the kind of poor, making, say, $50K a year, you are taking a big chunk of a person’s income which they have no choice but to pay. On $50K a year they will end up paying about $1,500 a year for health insurance, $125/month, that is a lot of money considering the bi-weekly pay is about $1,200 for someone in that income range. This means that money will impact their standard of living perhaps preventing them from even owning a home. At the very least this bill will pull billions out of the economy every year, that is not what we need right now.

If we look at the 32M this bill will insure times the estimated about they will have to pay, the number gets pretty ugly. If we assume the average person will pay $3,500 a year in premiums, who much money will that take out of the economy? The answer, $112,000,000,000, almost 1% of the current GDP. If we look at the average subsidy you will receive, which the government, i.e. other taxpayers, will provide people, how much would that be? The answer, $288,000,000,000 (32M x $9,500 – average subsidy by my calculations based on current insurance premiums on an annual basis). I am not sure how Congress came up with the cost of this bill being only $930B or so, but I do not want whoever crunched those numbers to do my taxes.

The point I am making is that this bill which is being bragged about by the Democrats is not good for business and not good for the middle class. Let’s not forget that the real middle class, couple, will more than likely make more than $88K per year which means no subsidy at all for them. Paying for a $12K or $1,000 a month for a health insurance policy is a lot to ask. Most people do not realize that making $100K in today’s world is not that much money, after taxes, mortgage payments, property taxes, energy costs, kids and so forth.

The worst part is that the GAO has estimated that by 2020 93 cents on every dollar collected by the government through taxes will have to go towards entitlement programs. That means only a small portion will be available to go towards everything else we have, you know, like debt servicing costs. Does anyone think taxes on everyone are not going to go higher? I know, they promised that only the rich will pay higher taxes, news flash, politicians lie, shocking. If we do not have a VAT, value added tax, it will have to come from higher income taxes and, more than likely, we will end up with a VAT AND income taxes which would be horrible. I am not even going to go into the tax base they used to calculate this, but I will say it is absurd.

No one did not want to reform health care we just wanted it done right. I think people would have been for the stimulus if it was done right. The problem is that these programs were not done right and will cost us all dearly in the future. This is not about party lines, the Republicans stink as well, this is about the countries very survival. To put this into perspective, Obama just said I walked into a bad situation with trillion dollar deficits and $8T in national debt. Well, it is Obama’s second year in office and the national debt is now reaching $13T and somewhere along the way we are being told that 2 wrongs make a right, because bush did it first.

This is unsustainable and I mean any annual deficit is now unsustainable. Adding even $500B a year is irresponsible and will have catastrophic consequences let alone adding trillions more to this figure. People say we have to run deficits because we have trade deficits. What they don’t tell you is our trade deficits are not that big and we have enough debt outstanding that would cover our trade deficits for a very, very long time. I believe we are past the point of no return and freezing spending after increasing the budgets of government agencies by 20% is doing nothing to reduce our long-term debt obligations. Just like we are seeing in Greece now, this will all come to ahead very soon and who will bail us out?

In the meantime, if you actually believe we will have 500K a month job growth in the next few months while initial claims come in at 450K per week, pass me whatever you’re smoking.



Health care

Posted by Ray on March 17, 2010 under Politics | Be the First to Comment

I have been on the phone trying to get through to my Congressman, Dan Maffei (D), all day long to voice my opposition to what is going on in Washington. His phone was busy and I finally got his voice mail which was full, but I wanted to give him a piece of my mind so I kept calling until I got through. I left him a scathing message with less than polite language so if you do not hear from me send care packages to GITMO c/o Ray. I really do not care what side of the issue you are on, but I hope you are voicing your opinion to your representative. I am opposed to the current bill and want them to start over. I am not in the camp of “there is nothing wrong here,” but this thing has gotten way out of hand.

Many of you know my position on this bill, it is bad news for the country, and even more shockingly is the fact that Congress went back into hiding to hammer out the details again. This whole thing is like watching a plane crash and you have 2 choices, get in front of it so it ends quickly or stay where you are and risk catching fire, both choices are bad. What is worse is the fact that they may not actually vote on the bill itself, but use a procedure that “deems it approved” which is crazy. Again we are hearing, well the Republicans did it hundreds of times, I am sure that is true, but on something this big? I think not.

The people deserve to know how their representatives are voting on this bill, either for or against, so the voter can voice their opinion at the polls in November, either for or against. To me this whole thing is just amazing and unreal as we just wrapped up the worst 8 years in American history, well, that I have been alive for at least, and now just as we thought we got rid of a tone deaf administration another tone deaf administration has taken its place. What makes this dangerous is the fact that Obama is an ego maniac, in my opinion, and refuses to admit that he is going against the peoples will, so much for change.

As many of you know, I have also been in the insurance industry for many years, I know how this stuff works. I am well connected in the research area and do a ton of consulting, which is why I am not posting as often now. I often get calls from Senators or Congress members seeking opinions on various topics, they know who I am. Now, here we are in the midst of one of the most important legislative changes ever to hit the insurance industry and guess how many calls I have received? None. Not only have I not received any calls, but neither have any of my other geeky friends who work in this industry. Now, how can this be? How can this bill be vetted by people in the industry when, myself not necessarily included, some of the brightest people I know of in the insurance industry never got one call from even the lowliest intern from Congress?

It makes no sense and it should make you concerned because lawyers are great at lawyer stuff, but they are not good at figuring out insurance issues. Most probably do not even know what the mortality tables look like or what tables we are even using now. They have no idea on how to balance risk or spread it around and I got news for you, there is no way you can insure everyone, pre-existing conditions or otherwise, without raising premiums through the roof. Especially if you eliminate annual or lifetime caps, it is just not possible because you need to pool the risk. To make matters worse, if we continue with the archaic state system that we have now it will be a complete disaster as there is no way to spread geographical risk. It makes my head hurt just thinking about what they are doing.

We need to do something, I agree with that, but this is insane and I guarantee you it is not what you think. Premiums will go higher now until 2014 and then, who knows what will happen because we have not seen the bill yet, however I am sure it is not good news for you. I am extremely sensitive to this topic as it impacts me more than it does the average person, but it is not possible to insure everyone and maintain good quality care. This is where I get into the argument I hear a lot from the left, they claim the U.N. says we are 37^th in terms of the quality of health care. First, the U.N. holds little weight with me as they seem to not really like us. Second, how can we add another 31M people to the system and expect to improve the quality of health care? It is not possible.

If what I think happens actually happens, many doctors will leave, the New England Journal of Medicine says one third of doctors will leave the business if this thing passes. Again, how would this increase the quality of care? With Dennis Kucinich all of a sudden signing on to this thing it makes me wonder what really happened when he was on Air Force One. Dennis is a public option fan and he was dead set against this bill, which is the Senate bill, but again, who really knows. Did Obama promise that the public option was on the way in the future? I suspect it is at some point and if it is doctors will leave the business. Medicare pays $26 an office visit, do you think doctors can stay in business at $26 a pop? Not a chance.

Maybe we could do it better than a Canada or a UK, but at the end of the day, I am not a fan of the government involved in my life. I do not want the government to know what drugs I am on, prescription I mean, or what health issues I might have. We also know that Medicare is a favorite for politicians to cut funding from, they tend to do it a lot, so when it becomes so large, on top of our debt, what do you think they will do to save money? They will cut health care, it is that simple. History shows what our elected officials will do and it is always in their best interests, never yours. I do not want even a stepping stone to a single payer system. However, I want some things down and you cannot tell me that you could not win an up or down vote on outlawing a preexisting condition clause on insurance contracts.

The last thing we need is more secrecy in Washington, but that is what we are getting. We have lazy politicians who do not want to start over because it is too hard, they do work for us you now, but that is what needs to be done. I highly recommend you call your representative and let them know where you stand and that you will remember their vote in November. However, I encourage you to say no to this bill, mostly because they keep changing it (!) and tell them to start over.

Andrew Cuomo, can NY ever catch a break?

Posted by Ray on March 3, 2010 under Politics | Read the First Comment

Haven’t we learned anything about legacy political leaders after the Bush years and countless other Congressional leaders who “inherited” their seat from a parent? Part of the reason the US is in shambles is because we elect these people, why I do not know, and they are ignorant about the problems the country faces. It is no secret that Mario Cuomo was extremely liberal and responsible, in my view, for NY States horrible financial condition because of his socially liberal programs. While I was young during his reign even I knew he was a terrible governor, but we elected Pataki twice so New Yorkers are not known for picking the better candidates.

Now we might be living under another Cuomo who is also a terrible leader and, as Dick Bove claims, largely responsible for the GSE’s collapse. According to Bove, Cuomo’s relentless pursuit to force Freddie and Fannie to loan to the poor led to the GSE’s into buying sub-prime mortgages and eventually their collapse. Frankly, in my opinion, Mr. Bove is correct, you will not hear me agree with Bove much I might add. Cuomo took the GSE’s and many banks to court because of discrimination, some of which I am sure is true, but his main problem was that banks were not loaning money to the poor. Now, I am not a rocket scientist, but I do know if you loan money to poor people who do not have the ability to pay back loans they will eventually default. The banks knew this and that is why they did not lend money to the poor, yes, some discrimination probably existed though.

Because of his zealous behavior we know have had to guarantee Freddie and Fannie for unlimited losses, which is also why the Fed will stop buying MBS’s as well because the GSE’s can now pick up the slack. With NY in such dire straits, and we are, is it wise to elect another lawyer to the governors position? I think not. Surprisingly, I actually like our current governor, who is a Democrat, because for all of his faults he realizes what a horrible position NY is in. He is actually trying to cut spending, but is met with the same corrupt response from the unions and Assembly that usually appears when you try to take money away from their interests.

Patterson is a mess and not the best person for the job, but I would vote for him over Cuomo any day of the week. Of course, Obama and other NY Democrats want him out, are you really surprised over the recent scandals breaking? My belief is that these timely scandals are appearing because Patterson is trying to cut spending which will impact many social programs like schools and welfare. Those are the Democrats pet projects and by cutting spending there, which is the primary reason for our fiscal distress I might add, he was a marked man and is now out.

Cuomo will be a party man upping the spending as much as the market will allow, but that will not be too much more given our deficits. He will do what he is told and not make those hard decisions because he is just like his father, a tax and spend liberal without the knowledge on how to pay for it. It is far easier to get reelected when you make your base happy and paper over the major problems. However, our problems here are so severe they cannot be papered over any longer. They have already robbed the highway and bridge trust fund to pay for the interest on our debt, that money was supposed to be secured for, well, highways and bridges.

How anyone can look to this man or to the Democratic Party in NY is beyond me. They have shown themselves to be horrible when it comes to financial issues and refuse to make the hard decisions. I am referring to NY Democrats not Democrats nationwide. I will not vote for him and I will find it difficult to vote for the Republican challenger, Rick Lazio is potentially the R’s candidate, because politics in NY have not changed. They simply pick the next person in line who is ‘due’ for the next run at a major office. I almost hope we go into receivership as it will let some sane court appoint conservator to get rip of the ridiculous contracts the unions have and, ultimately, uncover all of the corruption we know exists, but has been masterfully hidden from the public.

And the Moron of the Week Award goes to…

Posted by Ray on March 2, 2010 under Politics | 2 Comments to Read

Senator Jim Bunning who was more upset over missing a basketball game than helping his fellow citizens by objecting to an extension of unemployment benefits. Now, keep in mind it was Senator Bunning, (R) from Kentucky, who prevented himself from seeing his precious game and could have easily DVR’d it, or better yet just stopped his foolish objection to the measure. I just do not get how this guy could balk at a minor, considering the size of other bills recently passed, $10B in spending that goes directly to the people and not to banks is simply beyond me.

Mr. Bunning could have stopped the spending of hundreds of billions of dollars in the past, but decided that this measure, a true sign of how horrible the economy really is, was the time to take a stand against spending. He had no problem voting for Bush’s crazy spending without those programs being paid for, but this $10B for an extension of unemployment benefits, wow. There is simply not much to say about this guy except e will not be missed when he retires this year. I am willing to bet that if we add up all the freebies he gave to corporate America this extension of unemployment benefits probably would be close to the bottom of the list as far as the price tag is concerned.

I am totally against spending without paying for it, I think we all are, but there are exceptions to the rule. When you are cutting off millions from badly needed benefits that pay the mortgage and put food on the table for those who are unemployed I think that qualifies you for being heartless. There are currently 6 people searching for every 1 job in America. The percentage of people collecting unemployment benefits for 26 weeks or longer has never been higher. We are 2 years into this recession and we are still losing jobs and this is the type of representation we have in Congress?

I think there is no wonder why Americans, and the Brits now, are signing on to the Tea Party, at least they are not the same 2 irresponsible parties we have to choose from now. I realize what the Tea Party is and am not a huge believer in it, but I get what the average person believes, it is something different than the status quo. Unfortunately, the founders are probably a bunch of right wing nut jobs trying to bring the country back to a hard right path. Regardless, with leadership like we have now there is no wonder why people are seeking something new and different, but we should always be careful what we wish for.

The bottom line is that Senator Bunning is a jackass and whatever axe he has to grind he should leave the American people out of it. When you think about it, you must really be a screw-up when your own party says that you do not represent the body of the whole and side with the opposition against you. Think about that Jimmy.