Baby Boom Economics…A Legacy of Failure

Bill Clinton was the first Baby Boomer to ascend to the Presidency in 1992 then followed by George W. Bush, now Barrack Obama and with the current trend another Baby Boomer is poised to take the White House in 2016.

Here is their economic record….you can blame whoever you want Republicans or Democrats, but the economic outcome is the same.  The Baby Boomer power brokers have ruined this country in just under 25 years.

Politicians of the Baby Boom Generation were peddling fiction… for everyone else, there’s this reality!

Source http://www.bls.gov/help/hlpforma.htm

No child (or student, or poor person, or grandchild, or debtholder, or healthy person, or retiree, or African American, or family, or homeowner, or renter) left behind untouched…

Now that is a legacy.

 

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Economic Health of the US….

KjmBkWhether you support a 74 year old mathematically challenged socialist, Bernie Sanders or a 70 year business men with no real details on how he is going to “Make America Great Again” other than trust me.  One thing is clear, the financial hole the United States finds itself in is a topic no one currently on the campaign trail want to address.  Neither do the supporters of these candidates…..we see things Ted Cruz looks like the Zodiac Killer, Bernie has the stupid tag lie Feel the Bern, Hillary acting like a three legged cat trying to cover up crap with one scandal after another chasing her all the way to the nomination.  Let’s no forget the circus side show of insults between Cruz, Rubio, and Trump over the last week.

But while everyone was focused squarely on the absurd……………..

The US government just published its audited financial statements on February 26th , signed and sealed by Treasury Secretary Jack Lew.

These reports are intended provide an accurate accounting of government finances, just like any big corporation would do.  And once again, the US government’s financial condition has declined significantly from the previous year.

For 2015, the government reports $3.2 trillion in total assets.

This includes everything from financial assets like bank balances to physical assets like tanks, bullets, aircraft carriers, and the federal highway system.  Curiously, the single biggest line item amongst these listed assets is the $1.2 trillion in student loans that are owed to the government by the young people of America.

This is pretty extraordinary when you think about it.

37% of the government’s total reported assets are student loans, which is now considered one of the most precarious bubbles in finance. $1.2 trillion is similar to the size of the subprime mortgage market back in 2008. And delinquency rates are rising, now at 11.5% according to Federal Reserve data.

Plus, it’s simply astonishing that so much of the federal government’s asset base is tantamount to indentured servitude as young people pay off expensive university degrees that barely land them jobs making coffee at Starbucks.

On the other side of the equation are a reported $21.5 trillion in liabilities, giving the government an official net worth of negative $18.2 trillion.

This is down from last year’s negative $17.7 trillion and $16.9 trillion the year prior. It just keeps getting worse.

But there’s one thing that’s even more incredible about all of this.

You see, each year these financial statements are audited by the government’s in-house agency known as the Government Accountability Office (GAO).

All big companies do this. They publish financial statements, which are then reviewed by an independent audit firm.  Auditors are a critical component of the financial reporting process.  It’s their responsibility to make sure that shareholders and the public can have confidence in a company’s financial statements.

When Apple publishes an annual report, auditors go through all the books of the company and make sure that management is accurately representing the company’s true condition.

Thus when an auditor issues a failing grade, or what’s known as a qualified opinion, there’s usually hell to pay.  At the very hint of impropriety a company’s stock price will tank immediately. People get fired. SEC investigations are launched.

And now based on US securities law and section 404 of the Sarbanes-Oxley Act from 2002, senior executives can face criminal charges if their companies receive a failing grade from their auditors.

This is serious stuff.

Yet year after year the GAO gives the federal government a failing grade in its audit report of America’s financial statements.

In this latest report, not only did the GAO chastise the federal government for its “unsustainable fiscal path”, but they state that the federal government consistently fails to prepare “reliable and complete financial information– both for individual federal entities and for the federal government as a whole.”

The Department of Defense, Department of Housing and Urban Development, and the Department of Agriculture are all singled out for their failure to prepare complete and accurate financial statements.  This is corroborated by a report published last year stating that the Defense Department has somehow “misplaced” $8.5 trillion of taxpayer money over the last 20 years.

The GAO cites other material weaknesses in the government’s reporting of supposed cost reductions in Medicare and Social Security.  In all, the GAO calculates that these financial uncertainties total $27.9 trillion, suggesting that the government’s true financial condition is far worse than reported.

Bottom line– if this were a private company, Barack Obama and Jack Lew would be wearing dayglo orange jumpsuits in court while facing felony fraud charges.

It’s not just the $18.2 trillion in negative net worth. Or the $41+ trillion (by their own calculations) in the Social Security shortfall.  It’s the fact that they can’t even stand in front of the American people with an honest accounting of how pitiful the financial situation really is.

The government of the United States is totally, desperately, hopelessly bankrupt. And they become even more insolvent with each passing year.

Nearly every single dominant superpower throughout history was eventually consumed by its unsustainable finances. And in their decline from power, bankrupt governments rely on a simple playbook to desperately try to maintain the status quo by every means available.

They destroy freedom. They impose a police and surveillance state. They seize assets. They wage campaigns of violence and intimidation.  They impose capital controls. Cash controls. People controls. Whatever it takes.

This time is not different. The finances of the US government are obvious, as is the trend.
We’re not talking about what ‘might happen’ or ‘could happen’. We’re talking about what IS happening. 

Sanity 2016

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Cancer and Politics…….

I have thought about this topic since June 16, 2015, when I was told I had one of the rarest form of cancers on earth………….cardiac sarcoma…..cancer of the heart.

I was floored by the news.  I was 47 years old in good physical shape, married for 23 years to the most amazing women on the planet, had two young sons 11 and 13, and I was a political snob thought I knew it all.golfday

I was convinced if there was a political problem, I had the answer, if there was an economic problem then the boobs in Washington were just dunces and corny capitalist that didn’t give a damn about the little guy.

Then, I became the little guy.  Trapped in health care system that doesn’t work unless you work it.  It doesn’t care about your blood cell counts, it doesn’t care about your next chemotherapy cycle, nor does it care about advanced treatments.

It cares about what someone else is willing to pay…aka insurance companies or Obamacare…whatever.

My wife and I researched, studied, and learned all we could about the cancer I was facing and thank God we did, because the healthcare industry sure as hell didn’t know what to do.

I entered chemotherapy in mid July 2015 and my world was changed forever. I hated the process of healthcare, I hated the hoops I had to jump through, and I hated the system as a whole.  Then, I meet the most amazing women in the nurses on the oncology ward of Baptist East Hospital.  They took me in as family, cared for me as one of their own, and their compassion renewed a lost faith in the good in people.

I have spent  7 months with these amazing people and counting and I have come to the conclusion that the compassion, caring, and love these people have given me is what we are destined to be on this planet.

Earth isn’t our last stop…………..the nurses at Baptist East taught me that……it is just a jumping off point to a better place.

Back to politics, Trump isn’t the answer, nor is Cruz, or The Bern…………….we are the answer.  Ignore the insults, put down the partisan crap, realize that in the end all you have is your family, your memories, and not much else.

Who the hell is President…………doesn’t really mean that much….enjoy the beauty of the people around you, enjoy their differences, and most of all enjoy today because God doesn’t promise you tomorrow and when you worry there may be no tomorrows that actually means something.

 

Yes………..I have turned into a squish………SQUISHY-dory-28086706-500-260

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A Cashless World….Think I’m Crazy…Think Again

atomic-bomb-explosion-1951

 

This is starting to become very concerning. 

The momentum to “ban cash”, and in particular high denomination notes like the 500 euro and $100 bills, is seriously picking up steam.

On Monday the European Central Bank President emphatically disclosed that he is strongly considering phasing out the 500 euro note.

Yesterday, former US Treasury Secretary Larry Summers published an op-ed in the Washington Post about getting rid of the $100 bill.

Prominent economists and banks have joined the refrain and called for an end to cash in recent months.

The reasoning is almost always the same: cash is something that only criminals, terrorists, and tax cheats use.

In his op-ed, Summers refers to a new Harvard research paper entitled: “Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes”.

That title pretty much sums up the conventional thinking. And the paper goes on to propose abolishing, among others, 500 euro and $100 bills.

The authors claim that “without being able to use high denomination notes, those engaged in illicit activities – the ‘bad guys’ of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their ‘business models’.”

Personally I find this comical.

I can just imagine a bunch of bureaucrats and policy wonks sitting in a room pretending to know anything about criminal activity.

It’s total nonsense. As long as there has been human civilization there has been crime. Crime pre-dates cash. And it will exist long after they attempt to ban it.

Perhaps even more hilarious is that many of these bankrupt governments have become so desperate for economic growth that they now count illegal drug activity and prostitution in their GDP calculations, both of which are typically transacted in cash.

So, ironically, by banning cash these governments will end up reducing their own GDP figures.

What’s really behind this? Why is there such a big movement to ban something that is used for felonious purposes by just a fraction of a percent of the population?

Cash, it turns out, is the Achilles’ Heel of the financial system.

Central banks around the world have kept interest rates at near-zero levels for nearly eight years now.

And despite having created massive bubbles and enabled extraordinary amounts of debt, their policies aren’t working.

Especially in Europe, the hope of stoking economic growth and even the sickening goal of inflation has failed.

So naturally, since what they’ve been trying hasn’t worked, their response is to continue trying the same thing… and more of it.

Interest rates across the European continent are now negative.

Japanese interest rates are now negative.

And even in the United States, the Federal Reserve has acknowledged that negative interest rates are being considered.

They have no other choice; raising rates will bankrupt the governments they support and derail any fledgling economic growth.

Look at how low interest rates are in the US– and yet 4th quarter GDP practically ground to a halt. They simply cannot afford to raise rates.

As global economic weakness continues to play out, central banks will have no other option but to take interest rates even further into negative territory.

That said, negative interest rates will be the destruction of the financial system.

Because sooner or later, if banks have to pay negative wholesale interest rates to each other and to the central bank, then eventually they’ll have to pass those negative rates on to their customers.

Many banks have already started doing this, especially on larger depositors.

We’ve seen this in Europe where some banks charge their customers negative interest to save money, and in some extraordinary circumstances, pay other customers to borrow money.

It’s total madness.

There’s a certain point, however, when interest rates become so negative that no rational person would hold money in the banking system.

Eventually people will realize that they’re better off withdrawing their money and holding physical cash.

Sure, cash doesn’t pay any interest. But it doesn’t cost any either.

If you have a $200,000 in your savings account at negative 1%, you’d have to pay the bank $2,000 each year.  Clearly it would make more sense to buy a safe and hold most of that money in cash.

Problem is, the banks don’t have the money. For starters, there’s literally not enough cash in the entire financial system to pay out more than a fraction of all bank deposits.

More importantly, banks especially in the US and Europe are extremely illiquid.

They invest the vast majority of your deposit in illiquid loans or securities of dubious long-term value, whatever the latest stupid investment fad happens to be.

And many banks have been engaging in a substantial balance sheet shift, rotating bonds from what’s called “Available for Sale” to “Hold to Maturity”.

This is an accounting trick used to hide losses in their bond portfolios. But it also means they have less liquidity available to support bank customer withdrawal requests.

The natural side effect of negative interest rates is pushing people to hold money outside of the banking system.

Yet it’s clear that a surge of withdrawal requests would bring down that system.

Banks don’t want that to happen. Governments don’t want that to happen.

But since central banks have no other choice than to continue imposing negative interest rates, the only logical option is to ban cash and force consumers to hold their money within the banking system.

Make no mistake, this is absolutely a form of capital controls. And it’s coming soon to a banking system near you. Just because you live in the United States you are not immune.  It is coming for you as well!

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Capitalism…….Works Every Time its Tried

7634159_GFrom time to time we need to remind ourselves the amazing efficiency of capitalism, especially in our current political climate.

Capitalism is a system according to which capital is owned by private citizens, who in turn determine its price and flow by interacting with one another. Capitalism implies that private citizens get to keep most of the fruits of their labor or the profitability of their capital. Capitalism is neither a “state of nature” nor a primitive scrum. It works by creating value for owners and for society while being acceptable to the citizenry, even those without capital, but only with appropriate rules of fairness and honesty.  The proper combination will direct society that individual freedom to own property leads to the most efficient allocation of resources, which in turn results in the highest economic growth and prosperity. Capitalism is never perfect, but the closer society adheres to its general principles, the better it is for the population at large.

If you take away these elements and put the bulk of power in a society in the hands of a central authority, bureaucracy or The Federal Reserve Bank, then all of the natural imperfections of human decision-making – including the problem of unintended consequences, the inability of central planners ever to have enough information to make wise decisions about the allocation of resources across an entire society, corruption, arrogance, and the fallibility of human nature – are exacerbated and concentrated. It is no surprise that governments does almost everything worse than the private sector, and that private philanthropy has created so much more societal value per unit of human effort and wealth than governments has in terms of efficiently and creatively addressing problems.

When the governmental impulse is to make all major decisions for people and control almost every aspect of their lives, the “cost” is inefficiency, ineffectiveness, unfairness and tyranny…..see Venezuela, Greece, Spain, the old Soviet Union, etc….  Having the government choose winners and losers does not lead to better or fairer results than allowing merit and private effort to dictate those outcomes. When it is time to take an action related to life, health, work and career, there is no reason to prefer a government decision over a private decision. The distortions imposed by governments’ exercising control over things that do not need to be controlled by governments are almost without end. Shortages and inflation are traditional consequences of controlling prices. Poor growth, emigration and job losses are the repercussions of making the economic environment unattractive for employers and employees by taxation, regulation, corruption, disdain for the rule of law, and rigid employment policies. It is no accident that the more government does, and the more control government has or is given over people’s lives, the greater the level of corruption and cronyism – especially in those countries that have “for the greater good” as their rallying cry.

The Founder’s thoughts on government’s role in the economy can be summed up with three simple principles.

  • The first principle is private ownership. Government must define who owns what, allow property to be used as each owner deems best, encourage widespread ownership among citizens, and protect property against infringements by others, including unjust infringement by government itself.
  • The second principle of sound policy is market freedom. With some exceptions, everyone must be free to sell anything to anyone at any time or place at any mutually agreeable price. Government must define and enforce contracts. Means of transportation must be available to all on the same terms.
  • The third principle is reliable money. To facilitate market transactions, there must be a medium of exchange whose value is reasonably constant and certain.

Oh how far we have strayed……………..just some thoughts for millennials to consider, not to mention The Bern and The Hill.

 

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Debt, Debt Everywhere…..$19 Trillion and Counting

On October 22, 1981, the national debt in the United States of America hit $1 trillion for the first time in history.

It had taken the US federal government over two centuries to reach that mark. And in that period, America had won its independence and built a nation from scratch. We created an army and a navy, and used them both to aggressively expand the nation’s domain. 

We fought an incredibly bloody civil war in dispute over the most fundamental concepts of freedom.  We engaged in worldwide imperialism, stretching the country’s influence to faraway overseas colonies. 

We suffered through the Great Depression and introduced one of the most expensive public spending programs in history.

We fought two world wars and defeated the Nazis.

We developed nuclear technology. We sent people into space.

And all of that– across over two centuries of US history– collectively registered one trillion dollars in debt. More than half of that period was an era devoid of any income tax whatsoever!

Yet despite taking two centuries to hit $1 trillion in debt, it took just a few decades to add another $9 trillion, growing the debt ten fold.

On September 30, 2008 the debt crossed the $10 trillion mark for the first time. And it’s never looked back since.

Now, in that 27-year period from 1981 ($1 trillion in debt) to 2008 ($10 trillion in debt), one could argue that the US had defeated the Soviet Union making the world “safe for democracy”.

We waged war in the Middle East multiple times on multiple fronts.

We waged the War on (of) Terror.

And when financial crisis struck yet again, we bailed out the US banking system.

Look, I disagree with the vast majority of this spending.

It turns my stomach to think about all the debt that was accumulated to bail out irresponsible banks, wage wars, or engage in genocide.

But even though I don’t agree with all of it, it’s at least clear where the money went.

For the first $1 trillion in debt, there were some pretty tangible results. Independence. Defeating the Nazis. Etc. Big stuff. There was some return on that investment.

For the next $9 trillion, you could at least argue that there were some actual results, like vanquishing the Soviet Union.  Today, less than eight years after hitting $10 trillion, the US government reports that it hit the $19 trillion mark (which technically happened on Friday). 

But what do they have to show for it?

It’s not like anyone defeated the Nazis or Soviet Union over the last 8 years.

By 2008 the banks had been bailed out, and the world had supposedly been saved.

Where did all the money go? What real, tangible results do we possible have to justify the last $9 trillion in debt?

Even more strikingly, compare the first trillion dollars in debt, which took two centuries to accumulate versus the most recent trillion which took 14 months.

What grand act took place in the last 14 months to justify another trillion dollars in debt? Nothing.

Yet in the past 14 months, both the Disability Trust Fund and the Highway Trust Fund ran out of cash.

And the Federal Reserve became insolvent on a mark to market basis.

It’s extraordinary. We have reached such diminishing returns now that they can manage to squander a TRILLION dollars and have absolutely nothing to show for it.

To me, that’s the scariest part of the debt story.

It’s not the total amount of the debt.

It’s how quickly and easily we can fritter away $1 trillion dollars on absolutely nothing without any trace of benefit.

It doesn’t take a rocket scientist to see where this is going. In fact, even the government knows where this is going.

The Congressional Budget Office recently reported that government debt will reach $30 trillion within a decade.

Given that it took them just 9 years to rack up the last $10 trillion, I’m sure that’ll happen much more quickly than they expect.

But whether you decide to believe me or the government, either way it’s clear that this is only going to get much worse.

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The Hawkeye Caulkeye

Pretty much sums it up….

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