Start the Presses!

Ben Bernanke has launched QE3, the latest effort to goose the economy with a constant infusion of freshly-printed cash.  In related news, the US credit rating was downgraded to AA- the following day.  One wonders why Bernanke would seek to print more money when the previous two printings demonstrably failed to get the economy rolling.

Though printing money doesn't do much good for the economy, it does wonders for the stock market.  Yes, no sooner had the Fed Chairman announced QE3 than stocks began to climb.  Though more people than ever before own stocks, the majority of them are still owned by a small slice of Americans in the upper income brackets.  So, one might say this is a boon to the rich more than anyone else.  But that's beside the point.  The Dow Jones has long been associated with the state of the economy.  If the Dow is climbing, the economy must be doing well.  No, not necessarily but it makes for a great sound bite.  It is easier to say the economy is roaring back if you can point to a rising stock market.

 

There is more than enough money already sitting out there but banks aren't lending it and businesses aren't spending it.  There is too much uncertainty which is preventing the money from flowing.  Taxmageddon - the expiration of the Bush tax cuts and the imposition of some Obamacare taxes - is just over three months away.  Obamacare is not yet fully-implemented and the associated costs are still not known.  In a recent speech, Obama promised to follow FDR's experimentation to repair the economy; FDR presided over the Great Depression and, despite what everyone on the left says, exacerbated it with his experimentation.  Economic recoveries never took long until government tried to help.

 

In a funny scene in Around the World in 80 Days (the one with Jackie Chan), Phileas tries to help in a fight by offering advice.  Jackie is getting beaten and finally cries, "Stop helping me!"  That's what we need to say to government.

Arab Winter

Shortly after his inauguration, President Obama went to Cairo and announced a new beginning with the Arab world.  His predecessor had been arrogant and didn't understand the Muslim world.  Obama had grown up in Malaysia and been exposed to Islam.  He would bring about excellent relations with the Arab world.  After nearly 4 years of the Obama foreign policy, how are things?

Egypt, an ally since 1970, is in the process of turning into the next Iran.  Despite all the cheerleading from last year and claims from both Republicans and Democrats that Democracy was on the march in the Middle East, the Middle East is instead in flames.  Embassies have been attacked in Egypt, Tunisia, Libya, Sudan, and Yemen.  Protests are much more widespread.  The administration proclaims that it is because of a movie that is insulting to Islam.  Less frequently mentioned is the video released on September 10th by the head of al Qaeda calling for revenge against the Americans killing of the number 2 man at al Qaeda, who happened to be Libyan.  Hmmm.  Also not pointed out much is that we had intel of planned attacks on embassies a couple of days earlier.  The administration declared that is wasn't actionable.  Hmmm.

Almost coincident with this, I saw a clip on CBS that was trouncing President Bush for not acting on the August 6th Presidential Daily Brief (PDB) that indicated that bin Laden was determined to strike in the US.  No specific targets had been provided which made it difficult to respond effectively.  Now, if it had said embassies in the Middle East would be targeted, that would have been actionable.  You know, you could have embassy staff on extra alert, beef up security, practice evacuation procedures, and so forth.  Though exactly that intel came in, we did nothing.

Then we have the interesting news that says Obama misses roughly half of the PDBs.  If Bush had done that, he would have been excoriated by the press.  Hardly a peep with Obama.

Obama's foreign policy can be summed up in five words: Osama bin Laden is dead.  Everything else is in shambles.  Our allies have been treated badly (Israel, Britain, Poland) in an effort to win over our adversaries (Russia, Iran).  While Obama hesitated in backing a revolution against a known enemy - Iran, he jumped on the bandwagon for a revolution against a longtime ally - Egypt.  Yes, dictators have been dislodged but what is replacing them?  Jihadist Islamist is what.  That's going from bad to worse.  Unfortunately for Obama, the inevitable blow up of his policy is kicking in just as the election looms.

Also disappointing was Secretary Clinton's comments on the death of Ambassador Stevens.  To hear her tell it, she doesn't know the facts on the ground in Libya.  It was widely reported that some of the rebels during last year's uprising were from al Qaeda.  Throughout the Arab Spring, there has been this crazy notion that people living under the iron thumb of dictators in Islamic countries would suddenly become secular democrats.  It is amazing how many people in high office are surprised that it isn't working out that way.  These people need to read some history books.

Random Thoughts

Michelle's Recollections

 

You see, even though back then Barack was a Senator and a presidential candidate…to me, he was still the guy who’d picked me up for our dates in a car that was so rusted out, I could actually see the pavement going by through a hole in the passenger side door…he was the guy whose proudest possession was a coffee table he’d found in a dumpster, and whose only pair of decent shoes was half a size too small.

First Lady Michelle Obama

That is what Ms. Obama said in her speech last night but I find myself disbelieving.  Michelle and Barack met in 1989, 6 years after he had graduated Columbia.  He was attending Harvard at the time (1988 to 1991) where he got his J.D.  Michelle had graduated Princeton and then got her JD at Harvard in 1988 but she was interested in dating a man who couldn't get shoes that fit?  On another point, they met while he was working at a law firm in Chicago; what did he wear there?  My grandfather detested lawyers but he'd probably agree they dressed well.  If I knew a guy who graduated from an Ivy League school and was proud of furniture acquired from a dumpster, I'd tell him to stop screwing up his life.  Maybe Michelle did exactly that.

 

Tax Now or Tax Later

 

I listen to EconTalk, a podcast by Russ Roberts of George Mason University.  He recently had a discussion that explained how government can pay for things by taxing now or by borrowing which amounts to taxing later.  Our skyrocketing debt (broke $16 trillion) indicates which path has been chosen.  The people who are enjoying the current benefits are deferring the costs to future taxpayers.  Sometimes, that is appropriate.  For instance, borrowing money to build a school that those future taxpayers will attend could be argued to be reasonable.  Borrowing money to pay for healthcare, retirement, food stamps, and other ephemeral social programs is not reasonable.  Politicians love funding through borrowing because it allows them to have the benefit of spending without the penalty of taxes.  Unfortunately, the bill eventually comes due for those future taxpayers as Greece is discovering.

 

The Race Card

 

Back when Obama was elected, I celebrated one thing: Racism in America had finally been purged.  Sadly, it turns out that I was completely wrong.  Now everything is racism.  It is racist to point out that the debt has soared under Obama.  It is racist to mention Chicago in relation to Obama's campaign.  It is racist to call Obama the Food Stamp President though Food Stamp use has gone from 30 million to 46 million people.  Chris Matthews is foaming at the mouth with constant allegations of racism.  I have had a family member imply I was racist for opposing Obama.  The point of the racism charge is to silence the opposition but with its frequent use, it is becoming a punch line.

 

Voter ID

 

Democrats are opposed to Voter ID laws, claiming that they will disenfranchise minorities and the elderly.  In other news, the Democratic Convention in Charlotte requires photo ID to enter.

 

Booing God

 

The Democratic Platform had purged any mention of God.  This did not play well so the platform was rewritten to include God.  There was a floor vote that required a two-thirds majority to put God back in the platform.  Watching the vote, it is obvious that that bar was not met.  Nonetheless, the motion was declared successful and there was much booing from half the delegates.

 

Can't have an Empty Chair

 

Obama's planned acceptance speech at a 70,000 seat stadium was nixed in favor of the 20,000 seat auditorium of the convention.  It is said that potential inclement weather is to blame.  Republicans are saying that Obama can no longer fill a 70,000 seat stadium and empty seats would recall Clint Eastwood's conversation with an empty chair.  I am skeptical of the weather claim.  Obama should pray for a hard rain tomorrow night to bolster the claim.  A sunny day will look bad.

Neil Armstrong, RIP

The first man to set foot on the moon has died.  Neil Armstrong landed on the moon in July of 1969 when I was 2 years old and Nixon was 6 months into his first term.  The last moon landing took place in December of 1972 when I was 5 and Nixon was finishing his first term.  No one has gone beyond low earth orbit since then.

President George W. Bush proposed to go to Mars and the Constellation program was born.  The plan was to return to capsules - like Mercury, Gemini, and Apollo - when the shuttle was retired.  We would return to the moon as a way station to Mars.  In the wake of the financial panic of 2008 and the funding issues of government, Obama canceled Constellation in 2010.  Rather than the moon, we could perhaps try for an asteroid.  Much as I admire cutting government budgets, it is hard to swallow when the President found nearly a trillion dollars for his failed stimulus and has run trillion dollar deficits every year he has been President.  NASA's budget is around $20 billion a year, a pittance.

I have often said that government does not invest but, in the case of NASA, I may be wrong.  The technological achievements of the space program brought a great many new products to the consumer, Tang being the least of them.  Certainly, NASA has more long term benefits than food stamps ($71 billion) or Ethanol subsidies ($6 billion).

Neil Armstrong and many other astronauts from the Golden Age of the US Space Program spoke out in opposition to Obama's plan to dump Constellation.  Armstrong, who became something of a recluse after he left NASA, was a rarity on the national stage so his comments on this had added weight.  Nonetheless, Constellation was ended.

 

The US had unquestioned dominance in space and it has been abandoned.  SpaceX and its Dragon may provide another means to get to the International Space Station but the moon and Mars are unlikely in the near future.  Whereas Columbus was followed by the likes of Drake, Magellan, and Cook, Armstrong and the Apollo astronauts have seen 40 years of nothing.  The giants of the US Space Program are dying and there is no one to replace them.

Debt Crisis dependent on Income

Recently, I have noticed comparisons between Reagan and Obama with the handling of their respective economies.  By some graphs, Obama compares favorably.  For example, Reagan grew the debt by 70% in his first term and almost tripled it by the end of his second term.  By contrast, Obama has increased the debt about 60%.  But this is only half of the story.  It is like learning that Tom has $5 million in debt but not knowing his income.  If his income is $10 million a year, then his debt is very low but if his income is $100,000, he is in serious trouble.  With that in mind, let's look at the income side of Reagan vs. Obama.

In Reagan's first term, the economy grew about 40%.  Yes, the growth in debt outpaced GDP but the debt was only 40% of the economy; the GDP was nearly $4 trillion while debt was $1.6 trillion.  By 1988, the debt had grown to $2.6 trillion, which was 51% of the economy.  Not good, but not a crisis.  The trajectory was in the wrong direction.  Whereas the increase in debt under Reagan was mitigated by GDP growth, Obama has had an anemic expansion of only 7% since 2008.  Thus, his comparatively lesser increase in debt is not offset by economic growth.

Looking at spending, Reagan saw a 44% expansion in the government at the end of his first term.  A large part of that was his military buildup for the Cold War but there was a lot of other spending as well.  Obama is only spending 20% more than was spent in 2008.  That makes Obama sound downright conservative.  But, taking into account the growth in income, Reagan's expansion was only moderately larger than his 41% growth rate whereas Obama's government expansion triples his 7%.  As obvious as it sounds, more income allows for more spending.  Reagan had more income while Obama doesn't.

So, looking only at one aspect, one might commend Obama for holding the growth of debt and federal spending below Reagan.  Image that Fred and Joe both make $50K a year.  Four years later, Joe has $200K in debt while Fred only has $150K in debt.  Sounds like Fred is the responsible one, right?  Until you learn that Joe got a promotion and makes $100K a year while Fred was downsized and now only makes $30K a year.  Joe's debt is double his income while Fred's is catastrophic at 500% of his income.  Changes the story, doesn't it.

Obama has had the misfortune of bad timing. Reagan had room to grow the debt; it was only 33% of the GDP when he inherited the Carter economy. Obama had little room for debt expansion since it was already at 70% and has rocketed over 100% during his term. Moreover, the Baby Boomer retirement is at hand and the income streams of Social Security and Medicare are starting to reverse course.  However, he knew this from the start and wanted the job anyway.

We’ve made sure to do everything we can to dig ourselves out of this incredible hole that I inherited.

Barack Obama, February 23, 2012

The buck stops here.

Harry S Truman

Debt Crisis Ignored by Democrats

I check the US Debt Clock (link in the left column) about once a week.  I first learned of it in November of 2009, when US debt broke $12 trillion, per citizen debt was $39,000, and per taxpayer debt was $111,000.  Things are much worse now:

• US National Debt: $15.7 trillion (source: US Treasury)
• Gross Debt to GDP Ratio: 104% (US Treasury)
• Debt per citizen: $50,827 (US Treasury)
• Debt per Taxpayer: $139,890 (US Treasury; Federal Reserve)
• Budget Deficit: $1.27 trillion (Congressional Budget Office)
• Net Interest on the Debt: $225 billion a year (US Treasury)
• Social Security Liability: $15.8 trillion (Federal Reserve)
• Prescription Drug Liability: $21 trillion (Federal Reserve)
• Medicare Liability: $83 trillion (Federal Reserve)
• US Unfunded Liabilities: $120 trillion (Federal Reserve)
• Liability per Taxpayer: $1,052,598 (Federal Reserve)

These are dire numbers that don't include a fully implemented Obamacare.  The anemic economy, high unemployment, and expanded use of social services make the situation that much worse.  VP nominee Paul Ryan proposed a plan to bring this under control, making spending sustainable.  He has been savaged as a radical and extremist by President Obama and the Democrats.  The President has proposed raising taxes on those making $250K or more a year, which might sate the class warriors but will do nothing for the debt crisis.

According to the numbers, my 6 week-old sons are each $51K in hock and it will get vastly worse when they become taxpayers: $1.2 million.  None of these social programs will survive long enough for them to benefit; in fact, on the current trajectory, they won't survive for me to benefit.  They will pay for them though, through high taxes or a crippled economy.

Government Involvement is Bad for Business

I said, I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back.  Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.

Barack Obama

Obama said this with the belief that he saved the auto industry.  But at what cost?  The federal government wrote a check for just shy of $80 billion.  Of that, only $35 billion has been repaid and $7 billion was written off as a loss.  GM stock has lost a third of its value since the special bankruptcy, putting it at just over $20 a share.  For taxpayers to breakeven, that needs to reach $51 a share.  The Volt, Obama's car of the future, has a sales record like the Edsel despite a $7,500 government subsidy for those who buy it.  Though GM posted a profit last year, it paid negative taxes thanks to a special tax break, courtesy of the US government.  The 'success' of the US auto industry is being financed by the taxpayer, not the car buyer.  However, since the bottom has not yet fallen out, it is being proclaimed as a success but the market knows better (i.e. the stock price is falling).  By comparison, Ford (which didn't get a bailout) had $8.8 billion in profits in 2011.

Rather than seek to aid private companies with federal bailouts at taxpayer expense, maybe the President could work on the US Postal Service which has so far lost $11.6 billion this year.  Or maybe he could look into Amtrak food service which is somehow losing $80 million a year despite selling soda for $2 and hamburgers for $9.50.  Or perhaps he could look at that trillion dollar a year deficit.  All of these are legitimately within his purview.

Government is ill-suited to running a business because it has no interest in the bottom line.  Everywhere that government has sought to run business, shortages are common, poor quality is typical, and taxpayer bailouts inevitable.  Without profit motive, cost containment goes out the window.  Without competition, quality falls.  If government was capable of running an efficient business, Europe would not be in such financial trouble, the Soviet Union would still be a going concern, and Cuba would be overrun with immigrants seeking the good life.