Must See T.V.

Yes, I know, its been over a month since my last post.  Chaos and mayhem reign, while I sit around and watch Rome burn.  Well, almost, actually its just been really busy and I do this for free, so you'll just have to find a way to deal with it in your own way.

While I search for time to compose thought provoking, relevant posts that will have you scratching your head thinking "why do I read this blog?", I wanted to draw your attention to a t.v. segment that will be on 20/20 tonight on ABC.  John Stossel is one of the few main stream media journalists that I respect and he is teaming up with Drew Carey to discuss government involvement in our day to day lives.  They are both libertarians, and as such have some ideas that even I am not fully on board with, but they make you think through the issues.  More and more I find myself agreeing with their line of thinking and when you contrast it with the socialist bent we now have in government, I will take their side every time given a choice between the two.

Anyway, it airs tonight (March 13th) at 10pm EDT/ 9pm CDT (why do they always give both times, as if we don't know how to subtract 1 from another number?...) on your local ABC affiliate.  More details and some clips of the special are available at their website: http://abcnews.go.com/2020

Don't miss it!

Stimulate This!

Well, its about time I am back.  I take a couple weeks off and they try to pass every special interest pet project dreamed up over the last 40 years all at once in the name of economic stimulus.  Folks, don't be fooled by this.  There is very little in this bill that will stimulate anything except more government.

First of all I want to explain the supposed logic behind government spending as a way to jump start the economy.  John Maynard Keynes was a British economist in the early 1900's who believed that economic growth was best managed by government spending, and more specifically deficit spending.  This is in direct contrast to classical economics on which capitalism is based, which states that the market itself, if left unfettered, will create the maximum amount of growth in an economy. Keynes theories were not initially popular among economists, but were widely accepted by bureaucrats, as you might imagine.  The prospect of having the power to decide where other people's money is spent in an economy is a politicians dream.  FDR was a student of Keynes and his New Deal was built on Keynesian theory.  This was the biggest expansion of government in the history of the country and prolonged our recovery from the Great Depression.  Why?  Well when capital is used for things that don't produce wealth (i.e. transfer payments, subsides, etc.) the economy doesn't grow as fast as it would when that money can flow to more efficient uses.  

How do we know what the efficient uses of capital are?  The great thing about economic laws is that they happen naturally.  What do you like to spend money on?  Those are the goods and services that are providing the most benefit to society.  They are the places where the jobs are, and where the opportunity for expansion lies. If the government has to subsidise something, its because no one wants it in its current state.  If no one wants it, then there is no profit being generated to attract investors or participants.  If there are no profits, then there are no jobs created or dividends for stock holders.  

So how does this apply to the current situation?  In an effort to stimulate the economy, our fearless leaders are going to accomplish this goal by spending almost ...Dr. Evil voice... ONE TRILLLLIOONNNN DOOLLARSSSS .../Dr. Evil voice...  But rather than leaving that coin in the taxpayers pockets where we could spend the money on the things we like (efficient uses of capital) they will choose for us.  They claim they are spending it on things that "create jobs". How many jobs has the National Endowment for the Arts created?  They get $50 million.  Jobs from global warming research? $400 million.  And don't forget the factory that is producing the digital television conversion coupons...$650 million.  If you haven't seen fit to get a $40 conversion box for your television already, then who am I to judge...I mean, we've only known about this since 1996.

Even Keynes has got to be rolling over in his grave over this one.  At least he favored spending on public works projects like building roads and bridges.  Only $90 Billion of the $1,000 Billion are earmarked for infrastructure and tax cuts.  The rest is pure, unadulterated pork.  $250 Billion in income transfers, $66 Billion to the Department of Education (the glittering jewels of efficiency that they are), and don't forget $335 million for STD programs.  Do we even want to know what kind of jobs that will create????

They say we get the government we deserve.  I am afraid that the level of ignorance out there with regards to economic principles is so bad that we are on the edge of a precipice from which we may never escape.  What saved our economy from the Great Depression was a world war, I hope it doesn't take anything like that to clean up the mess we are about to create.  The answer to bad government is not more government.  And those chanting their hope for change are like the lemmings running for the cliff.  They won't even know what is happening until its too late. I'm sure some other government official will be there to explain how its the fault of the free market.  Just promise me this...when all of this goes to pot, remember who voted for it and that Keynes is a bad word!

Happy New Year!

Sorry for the slow down, but with the holidays there hasn't been much time for blogging.  And with congress not in session for most of the last month, the economy is not being actively violated, so there hasn't been a lot to post about.  

That time is over however, so I am sure things will get busy again real soon.

Happy New Year everyone, I hope 2009 is your best year ever!

Support Rep. Louis Gohmert's Tax Holiday!!!

Amid the economic illiteracy of Washington D.C. a rational, common sense voice has emerged. Rep. Louis Gohmert of Texas has presented a plan that is a MUCH better use of the bailout funds than the current machinations of Paulson, Pelosi and Reid.  His idea is to take half of the bailout money that has already been approved but not yet spent, approximately $350 Billion, and use it for a tax holiday in January and February 2009.  

Under the plan, all taxpayers would not have to pay income or social security taxes for January and February.  You would bring home your entire paycheck for two months.  Your employer would save the other half of the FICA taxes he pays for you.  This would provide a direct injection into the economy by the forces that matter, the consumer, rather than the governement bureaucrats that couldn't stimulate an economy if they looked like Victoria's Secret models. A tax holiday would have a direct impact on the economy by allowing people to use the extra money to catch up their mortgage, pay off credit cards, start or reinvest in a business, or save it and invest in the stock market which offers some real value right now.  It is a great idea and even though its going to be an uphill battle now that almost everyone on capitol hill are leftists, its important to support good ideas. Supporting failing businesses is not a good idea, returning the money to those who earned it is.  Boosting the economy should not be a partisan issue!

You can read more about the plan on Rep. Gohmert's website.  If you agree with it, please sign the petition and contact your congressman and senators to let them know you want them to give serious consideration to this proposal.

Why Buy the Cow...

when you can get all of the sour milk and an 8% 'steak' for almost the same price?

Another day, another taxpayer bailout of a poorly run financial company.  You would think I was used to it by now, but watching the underpinnings upon which our country was founded get shredded anew each day just never gets old.

This time its Citigroup (C), another firm whose managment made terrible investments in an attempt to compete with other firms making terrible investments, following the lead of terrible government policy.  We've been over this before, but the absurdity keeps reaching new levels.  (Just wait until the socialists are making ALL the decisions!)  

C's market cap, the amount you or I could theorectically buy the company for on the open market, is around $33 Billion.  We as taxpayers are giving C $20 Billion in cash and then guaranteeing around $300 Billion in 'distressed' assets.  'Distressed' is code word for 'crap', a technical financial term meaning taxpayers will end up paying $300 Billion more before its all said and done.  And what do we get for it?  An 8% stake in the company and some vague language about executive compensation.  There should be NO compensation for running a $2,000 Billion company down to $33 Billion.  I do not advocate private ownership by the government, but for the sake of argument in this crazy post-capitalist world, they could have at least owned the entire company for what they are paying. 

This deal is messed up on so many levels.  When you decide that you are no longer going to allow bad businesses to fail, you have to be prepared to deal with the consequences.  Unfortunately, we have an ever growing segment of government that gets absolutely giddy over situations like this.  They can artificially sustain a bad idea, while at the same time getting to berate the executives responsible for the failure on CSPAN and then blaming it all on the free market.

Folks, the free market had nothing to do with this.  Don't let the talking heads convince you otherwise.  The free market would have buried these banks long ago.  The free market would have never allowed these bad mortgages to be made in the first place.  This is the direct result of socialist policy at work and the outcome will be the governement's demand for more of it in the name of cleaning it up.  

Citigroup, its your turn to walk through the Tunnel of Affirmation...

Living In An Obama-Nation

A good friend of mine sent me this video and it got me to thinking about what the next 4 years will really be like from an economic perspective.  I am generally not a gloom and doomer, conspiracy theorist, or all around crackpot...ok, maybe a gloomy conspiracy crackpot, but definitely NOT a doomer theorist, besides, doom science is beyond the scope of this blog.  I do, however, think we need to plan accordingly for what may be a major shift in our economy as a result of significant policy overhauls.

The transformation to socialism has been ongoing since the day President Reagan left office, but the rate of change has accelerated in recent months and will now be full steam ahead without any free market capitalists left in government to put the brakes on.

The automaker bailout failed this week because an odd alignment of interests occured.  The few free market republicans left on capital hill are still around until this lame duck session ends and are doing the right thing in opposing this nonesense.  The dems on the other hand were offended that the CEOs all flew in on their own private jets and so they wanted to stick it to the rich guys by wagging their fingers and telling them to come back in two weeks and beg again.  Had the executives all carpooled from Detroit in a hybrid they would have left on Friday with fat checks in hand.  Be rest assured that after January 20th, the money will freely flow, but in exchange for big government consessions, either in the form of even more regulatory oversight or outright control of the companies.  

And that is only the beginning.  The level of government intrusion into our lives will reach levels not seen since FDR and the New Deal.  Why?  Because the very people responsible for this mess in the first place are the ones now in control of everything.  They refuse to look in the mirror and simply chant their mantra "failed policies of the last 8 years...", implying this is all President Bush's fault.  

The facts are that the first 6 years of the last 8 were a remarkable illustration of the power of free markets.  Across the board tax cuts led to an investment cycle that pulled us out of the mire caused by the market instability in the aftermath of 9/11.  Revenues to the government INCREASED as a result because economic activity increased the tax base.  Unemployment was at record lows. During this time however, government spending outpaced revenue growth. Republicans, in an effort to shake the media created image of cold conservatism, joined the democrats in creating all kinds of new things to spend money on.  

How we got here...

Combined with a low interest rate environment and 'free' government money, getting a mortgage was as easy as talking Nancy Pelosi into a facelift, leading to the latest investment bubble: the housing market.  FannieMae and FreddieMac were at the forefront of the lending craze, using their government endorsed powers to fan the flames.  FNM and FRE were run by democrats that gave money to Chris Dodd and Barney Frank, more democrats, who repeatedly blocked attempts to control the risks assumed by FNM and FRE.  Remember, FNM and FRE are goverment sponsored entities, not private companies, so the backing they recieve from the government gave them an unfair competitive advantage over other financial institutions.  Due to a combination of this artificial edge and the pressure people like Barney Frank put on banks to make riskier loans in the name of "fair housing", led to overleveraged portfolios which were packaged and sold as securities to investment firms like Bear Stearns, Lehman Brothers, and Merrill Lynch.  Do any of those names sound familiar?  This has caused a withdrawal of available credit because other firms have stopped lending in an effort to shore up their own balance sheets.  Its a domino effect that has led to less capital flowing through the marketplace, which has caused people to sell stocks to raise cash or to head off future capital gains tax increases, which has led to a 50% decline in the stock market. Domino after domino falling, all started by the first domino pushed over...government interference in the lending marketplace.  Yet no matter how clear the evidence is, politicians continue to grandstand in front of the cameras, blaming everyone but where the blame should be...squarely on their own shoulders.

Where do we go from here?

Since those that presided over all of this are still in power, now strengthend by larger majorities and a president that will rubber stamp anything they want to do, we need to be ready for some hard times.  I am an optimist in general, so I am not one to say the sky is falling.  But we need to expect a tighter labor market, higher prices, and tighter credit.  Labor will be tight because higher taxes on corporations and small businesses will lead to smaller growth and fewer new hires.  Prices will increase because input costs, including taxes, energy and labor will rise.  With less reinvestment capital available, the crunch on credit will continue.  When the supply of credit decreases, interest rates rise, causing borrowing to be more expensive.  This adminiatration's stated goal of eliminating the coal industry by making it unprofitable, its unwillingness to drill domestically, and its refusal to pursue nuclear energy will by default lead to higher energy prices.  This recent decline in oil prices is a direct result of the public outcry to produce more energy and the expiration of the offshore drilling ban combined with the overall slowdown in demand.  No doubt this ban will be reinstated and Washington DC is now going to be full of deaf ears beholden to the radical environmental lobby.  Their solution will usually include some type of price controls or "windfall profits tax" which will lead to shortages.

The result of all of this will be much higher unemployment, double digit inflation and mortgage rates, and long lines at the gas pumps.  We haven't had things that good since Jimmy Carter was president! Now, don't get me wrong, I hope none of this happens.  I hope that Obama changes his socialist ways and promotes the benefits of the free market.  I hope that Nancy Pelosi and Harry Reid will stop trying to tear down the system that has created the greatest economy in the history of the world and replacing it with a system that has failed every time its been tried.  I also wish I had washboard abs, but we can't have everything we want.  Maybe I could get a referral for Pelosi's  surgeon...

With all of this gloomy conspiracy crackpot talk, you may be asking yourself what a guy like me is doing to plan for this...mainly so you can do the opposite.  I think its extremely important to get out of debt as soon as possible.  Build up an emergency fund of a few months of living expenses in case there is any interruption in employment.  Do not use credit cards for Christmas. Use creativity instead of cash (unless you are sending me a gift, then cash is acceptible).  Live within your means...a novel idea untried in America for quite some time.  I am just offering these as suggestions for making the transition from liberty to socialism as seamless as possible.  It is by no means complete nor is it meant to instill fear or panic in you.  Now excuse me while I go buy guns and canned food before its all gone.

Is it just me...

...or are the Obama yard signs a little creepy?

I know he doesn't have a lot of experience as a politician, but you can't just model your campaign after any old poster design...people might get the wrong idea.