Captain Capitalist

Vulture Capitalism?

2012-01-17T17:34:00.000-08:00

Newt Gingrich and Rick Perry have decided that it's politically expedient at the moment to attack their primary opponent, Mitt Romney on the grounds that he and the company he once ran, Bain Capital, engaged in "vulture capitalism". That is, they bought companies, closed them down, laid off their workers and sold off the assets for a profit. It's a shame they've decided to go down this road, and equally disturbing that Romney's defense is fairly tepid at best. It illustrates that the candidates either don't understand the principals of capitalism and free markets or they don't really believe in them. Neither one is a good scenario.

Let's first go to the fundamental issue. Companies are not created for the purpose of creating jobs. Successful, growing companies do tend to create jobs, but that's not their primary function. They're created to make money for their owners. That's not only a selfish pursuit on the part of the owners, it's essential for the survival of the company. Proponents of a government based economy don't relate to this because it doesn't apply in that realm. Our federal government takes in $2 trillion a year and spends $3.6 trillion. No problem in their minds. In fact, they'd like to spend even more. So far, no consequences, no worries. That's not the case in the private sector.

The "vulture capitalism" scenario stems from a company who's business model isn't working. The company does, however, have assets. If you can buy the company for less than the value of the liquidated assets, you can make money. To do this, you have to win a bidding war against others with either the same idea or who believe they can make the company work. In any case, it's up to the seller who's bid gets accepted, and up to the new owners what happens next. Kmart was purchased in bankruptcy by a group of investors who sought to profit from the company's real estate holdings. Shortly thereafter, the real estate market plummeted. The government did not step in to rescue the investors and the public did not clamor for such a rescue. There is only an outcry when such moves are successful.

The basic truth is that capitalism is based on selfishness. That's why it works. The net result of free market capitalism is that more people experience more benefit than from any other economic system ever tried. The reason is that people will pay you to help them, whether it's through the provision of a useful product or a service. To pursue ones selfish goals, one must figure out how to help people profitably, not because your aim is necessarily helping people, but because people aren't going to pay you for nothing (unless you're in government). The uncomfortable part about free market capitalism is that in some cases, bad things happen to good people. People make mistakes or just experience bad luck. Of course people can and do come to the aid of other people who are down on their luck. Problems arise when they try to get government to prevent bad luck and poor decisions from happening in the first place. They continue to believe the market can be controlled. If we just add the right mix of rules, regulations and limitations, we can have orderly prosperity. We can't and we wont.

Free markets are based on parallel processing dynamics. They express the cumulative result of billions and billions of individual decisions made by freely associating individuals in the absence of force. Central control destroys that dynamic. Out of the box ideas are not tried because they are not allowed. Big chances are not taken because the punishment for success exceeds any possible reward. Ideas are evaluated by a handful of pre-selected officials rather than by each individual according to their own judgement. Capital doesn't flow to innovation. It flows to the proverbial mattress, a.k.a. Treasury Securities.

If you believe in free markets you have to let them be free markets. If someone buys a company and decides to close it down and sell of the assets, for whatever reason, that's their prerogative. The trade-off in being an employee is steady paycheck, no liability. The downside is that the company you work for does not belong to you. If we continue down the road of holding up decisions about how to use private property, including companies, to government scrutiny and approval, "vulture capitalism" will be all we'll have left. Because the economy will be littered with the carcasses of ideas that had nowhere to grow.

The viscous cycle of international debt. How will it end?

2011-12-14T11:29:00.000-08:00

Many have predicted in recent years, that the international debt bubble would lead to global inflation and sky high interest rates. So far, this has not happened. What's going on? Well, the debt has been propped up by more debt. How and when it ends is anybody's guess.

The European Union had yet another emergency summit and came up with yet another set of proposed solutions. Okay, not really solutions, but delays. One plan involves individual nations in the Euro group lending money to the International Monetary Fund (IMF), who would then make loans to troubled countries like Greece, Italy and Spain in return for assurances that they get their cash flow under control. This gets around an EU rule that does not permit European central banks to loan directly to member countries. It also takes the risk for such loans out of the hands of the EU central banks and places it instead with the IMF, which includes the U.S..

Another plan is to create new European Union rules that mandate certain budget constraints and has automatic penalties for violators. In exchange the European Central Bank would more aggressively buy member country bonds, keeping interest rates lower while they try to get their budgets under control. The details of the new rules and the automatic penalties have been conveniently delayed until at least March of 2012.

The reason for all this debt on top of debt is that the world's economies cannot support higher tax rates. Even if they imposed them, they'd actually lose revenue due to a further decrease in economic activity.

So why don't countries just print more money instead of borrowing? Well, the U.S. and the EU could certainly do that, and to some extent they have. In the U.S. we've had several rounds of what's called "Quantitative Easing" or QE. Essentially, the Federal Reserve creates new money and uses it to buy U.S. Treasuries (debt). So far, the demand for dollars has outpaced the production of new dollars and has not yet lead to inflation. So why has all this debt not caused massive inflation yet? Because the debt is still being primarily addressed with more debt.

Japan has a debt to Gross Domestic Product (total amount of goods and services produced in a year) of over 200%, yet their currency remains strong. This is because they continue to borrow and investors continue to lend. As long as Japan keeps issuing more debt, investors will seek Japanese currency to lend them. The same is true in the U.S.. The large banks and institutions continue to roll over profits and even proceeds from Treasury securities sales, back into Treasuries. They see few alternatives in the private sector, so they are even willing to loan the U.S. government money at zero percent interest for very short terms, and recently even at below zero which means they're willing to pay to keep their money safe until better days. Dollars flow from central banks to large organizations, corporations and countries, right back to the central banks. It's not showing up in the marketplace.

This only comes to an end when countries move from primarily borrowing to cover debt to printing instead. If the U.S. for example, suddenly decided to print their way out of debt, the institutions that had been investing in Treasuries would be forced to park their dollars elsewhere. If those trillions actually find their way to the private sector economy, inflation could pick up in a hurry and you could see "panic buying". That is, people would be desperate to exchange their currency for something, anything, that they can expect to hold it's value better. The value of the currency plummets and the price of everything skyrockets.

This obviously would be devastating for anyone on a fixed income. Additionally, the main tool used to counter inflation is higher interest rates, clobbering anyone with variable interest rate debt.

Another solution would be for countries to default, or not pay some or all of their outstanding debt. This is a no go, because most of that debt has been used as collateral for more debt. Hence a default on $100 could cause the elimination of many times that amount in capital. Economies would come to a complete standstill.

Of course governments could also drastically cut spending and embrace free market policies which would stimulate private sector earning and therefore tax revenues. This is not likely either because most of the powers that be don't believe in the free market. They cling to the belief that government can and must control the way resources are allocated and distributed. Leaving such important decisions in the hands of individuals is out of the question.

So at what point does it become necessary to stop borrowing and start printing with reckless abandon? I don't know. Maybe never. The central banks can continue with Quantitative Easing without causing inflation, as long as they do so at a pace that encourages investors to send that money right back to the Treasury markets. A sudden increase in private sector investment and economic activity would actually work against this plan, since it would take dollars away from Treasury investments, causing interest rates to spike, which might just prompt increased currency production. Absent some new innovation in the private sector that would cause such a thing, it's really up to the patience of the people. How long will the populace tolerate the continued downgrade of most of their standards of living while all the currency stays in the government/institution merry-go-round?

If hyper-inflation does come to pass, the good news is that it does eventually come to an end. It really is just another form of default, but the losses are spread out among the entire population rather than just among bondholders. It's nasty. It's tragic, and it can lead to lots more bad decisions if we're not careful, but it may just be the only real solution.

The Politics of Personal Destruction explained

2011-11-14T16:19:00.000-08:00

This is not an opinion. It's a fact. Progressives or liberals or whatever you want to call collectivists this week, often employ the tactic of totally smearing an adversary in the media, regardless of any factual basis for the negativity. Free Market Capitalists almost never engage in this particular tactic, at least not without evidence.

Why is that? First you must understand that the philosophical tug-o-war going on in this country is not simply about different means to a common goal. The goals are very different. The Progressives would like to bring about a top-down society. One in which the government directs the flow of resources, human and material. They decide what kind of jobs people ought to have, what they should make, how they should spend their time, etc. It's all for the greater good of society as a whole. The individual is insignificant compared to the whole.

Free Market Capitalism is about free people engaging in free trade in the absence of force. The individual is the center of the free market universe. Society is the cumulative result of billions of individual decisions. It is not above the individual because it is not an entity unto itself. It would be meaningless without the individual.

The two models obviously cannot exist in the same place at the same time. They are polar opposites. We are nearing a point in history where one or the other is going to win out. People need to choose sides. The political arena has never been uglier and it's going to get worse.

But back to the smear campaign element. Herman Cain has been accused of sexual harrassment and essentially assualt, by women (at least the one's who's names have been revealed) with a history of making such claims against employers. The harrassment claims were investigated and found baseless. The ridiculous Gloria Allred stunt doesn't even merit analysis. Yet NBC, MSNBC, CNN and others can't stop repeating the charges and commenting on them as if they actually happened. Why? Because they are in the Progressive camp. Remember, the individual doesn't matter. They are working for the greater good. So what if Herman Cain and his family are destroyed? The important thing is that Progressives retain power, for the good of us all.

No doubt the Free Market Capitalist crowd will be fighting passionately as well, and they may very well employ some dirty tricks, but they generally will not destroy someone personally with information they know to be false. This is simply because it's a different mindset. The individual does matter. The individual is essential. The individual is not disposable.

Don't take my word for it. Watch and evaluate yourself. Keep in mind, the fact that a lie has been repeated a million times does not constitute proof (they will be repeated at least that many times. This is not a new tactic.) Use logic and objectivity. Evaluate facts, not emotions. Use common sense. Use a variety of information sources.

Why do I think it's important to point out the brutal tactics of the Progressives? Because they appear to be working and awareness is the only countermeasure.

How bureaucracy poisons an economy

2011-10-29T15:55:00.000-07:00

We all know government paperwork costs businesses money. But the government can print more money. It's not always the best yardstick by which to measure cost and value. As the government prints more, it becomes less valuable. A more consistent and meaningful approach is to use the measure that gives money its ultimate value. Time.

You may be familiar with the term "opportunity cost" as it's used in economics. If not, in a nutshell, it means that every dollar you spend on something is a dollar that is no longer available for something else. For example if a vendor is selling apples and pears for $1 each, and you only have $1, if you buy the apple, it cost you the opportunity to buy a pear.

It works the same for time. You only have 24 hours in a day. Less than that in a work day. Every hour you spend on one task is an hour that is no longer available for any other task.

According to the US Census Bureau, in 2007 there were 7.7 million firms with employees in the United States. Forcing one employee at each firm to spend 10 minutes on non-productive paperwork or procedures costs the economy 1.28 million man hours. That's 617 man-work years. Put another way, an unproductive 10 minute mandate on business costs the equivalent of hiring a crew of 617 people, full time, for a full year. What could you accomplish with that kind of manpower? And that's 10 minutes a year. Ten minutes a week and you've got a good sized army at your disposal. Ten minutes a day and you're rivaling economies of entire cities.

What is the average number of minutes spent at your business, filling out paperwork that you would not do if it were not mandated by some level of government? Multiply that by 7.7 million. We're already slowing ourselves down enough and some politicians want to add more dead-weight to the system.

When you hear of a new regulation or requirement and it's sold as something that only takes a few minutes, or the cost is negligible, think of it in terms of the cumulative waste of productive activity across the board. The free market is an expression of the cumulative effect of countless individual decisions and the productive moments of millions and millions of individuals. Taking man-hours out of the system removes value from the economy. Who do you think is a better judge of what an employee should be working on from 2pm to 3pm? The employer or the employee, or some a group of government bureaucrats?

Catastrophe is vital to a free market system

2011-10-25T18:26:00.000-07:00

Greece is broke and owes more than anyone believes it can ever pay back. They got there on sales of bonds to investors, which include nations, banks, businesses, organizations and individuals. These investors fear the consequences of having to actually realize the losses they've incurred. It's a very similar scenario to the pre-TARP days here in the United States. The investors argue that it would not just be a financial loss to them, but a shock to the whole system as a consequence of their failure. They hope the general fear will be equal to their own and everyone will work to cushion the blow. Cushioning the blow means transferring the loss to the general public to the largest extent possible.

This has worked in the sense that large businesses have been spared the calamity of letting nature run its course, and the system is in a long term funk rather than getting a short term wallup. The problem is that the bad ideas don't get the drubbing they deserve. The status quo, which failed, is kept alive. Nothing is learned. Innovation is not incentivized. Proven failures in policy are kept in place and even expanded upon. No pain, no gain.

Physical pain, is in one regard, a warning to the occupant of the body: "Don't do that." or "Don't do that again". It has a purpose. In fact a human, on it's own, without the capacity to feel pain would not likely live very long. Even mental pain and regret serve a purpose. The message is: "That course of action was a mistake. Don't do it again."

Fiscal pain serves a similar purpose in the market place. At the transaction level, if a consumer feels like he or she got less value than he or she anticipated, that's regret and will prevent the consumer from buying the product or service again. Bad value propositions die out over time. Now if the government stepped in and offered to pay half the purchase price for you, you might change your assessment of the value proposition, and the bad model is saved. Incompetence, deception, low quality, bad ideas are kept alive and well.

At the government level, the same dynamic is at work. Their ability to borrow is based on the market's confidence in their ability to make good on the bonds over time. If the bonds are backstopped, guaranteed or insured by a group of other governments, investors need not worry about whether or not the system of government can produce a viable, vibrant economy. Succeed or fail, they're going to get paid. Failed policies live on. Unsustainable governments are sustained. Bad ideas are reinforced.

The marketplace of ideas is directly connected to the actual marketplace. You have to acknowledge and remove the trash periodically or you will simply wallow in trash. Free market forces are very efficient at spotlighting the trash. Committees, elected or otherwise, are not. In fact, many governments prefer to deny the existence of trash to having to actually point it out or acknowledge it. Care free investors enable this approach. Investors are care free when taxpayers absorb their losses.

Imagine if investors actually had to consider whether or not a system of government would produce happy, productive citizens with a desire to excel. The only way to get that back into the equation is to take away the safety nets. Pain hurts. That's why it's effective. Making ourselves numb is not a path to a better future.

How taxes regulations and madates kill an economy

2011-10-04T17:12:00.000-07:00

You may know intuitively, that taxes and price controls and government mandates are bad for economic growth. But, do you know the mechanics of how they strangle an economy? It's really not that complicated, but experts like to use the lingo of the industry to make themselves sound much smarter than you. Here's an explanation in plain English.

Suppose you have a watchamacallit and I don't. You feel that watchamacallit is worth 20 cents. I believe it's worth 23 cents. There's a potential for a transaction there, created by our slight disagreement over the value of the watchamacallit. I could pay you anywhere from 20 to 23 cents and we'd both feel like it was a fair deal. Now suppose the government imposes a 5 cent tax on watchamacallits. To get the 20 cents you would need to feel good about parting ways with it, I'd have to pay you at least 25 cents. But I only think it's worth 23 cents. Transaction killed. Transactions that don't happen, don't show up in government statistics.

A tax of 1 or 2 cents may not have killed our transaction. There was still enough room in our margin of disagreement to make a deal. But when government gets too big, and demands too much, many transactions die and they get nothing.

Any third party mandate that adds cost to a transaction is a potential deal killer. Value is subjective. The point at which a transaction dies is totally up to the opinion of the buyer and the seller. You can't pass a law that makes me believe a whatchamacallit is worth more than I believe it's worth, and without putting a gun to your head, I can't make you accept less than you're willing to accept. Even if I put the gun to your head, how enthusiastic are you going to be about producing more whatchamacallits from that point forward?

Free markets means free people engaging in free trade in the absence of force. That last bit is why we need government. Yes, it has to be paid for, but the cost has to be low enough and the interference in the marketplace minimal enough that it doesn't kill the deal.

This is why companies go offshore. This is why small businesses don't expand. Third party add-ons make the risk/reward ratio too high. The government is trying to control too much, provide too much, take care of too much. It just costs too much. To add insult to injury, they aren't very good at it either.

Is the stock market going out of style?

2011-08-22T19:07:00.000-07:00

With the economy in rough shape and uncertainty in the marketplace, it’s no wonder that individual investors are frustrated with the stock market these days. But if the stock market is going to be a reliable venue for growing and storing wealth over the long term, there are issues that go much deeper than the current economic climate that may need to be addressed.

Let’s look at the performance of the most widely known index, The DOW Industrials over the past 100 years. During that time the index has risen from around 100 points to around 10,000 points. That’s 100 times your money! Pretty good right? Actually, that’s just about a 4% annual rate of interest, before adjusting for inflation. If you could go back in time 100 years and invest $1,000, you might do just as well or better if you bought $1,000 worth of actual quality baskets rather than a basket of quality stocks.

Stocks had a momentus run between about 1985 and 1998. During that period, if you had bought at the lows and got out at the high, you’d have made a whopping 18% annual return. This was the advent of the internet age. All of a sudden information was cheap and easily obtainable. Commissions plummetted as internet trading houses like E-Trade and Ameritrade hit the scene. There was an explosion of individual investing. Prices soared, new companies took off like rockets. Then, of course, the bubble burst. It took a while for the individual investor to regain confidence and get back in the game, but back they came. Prices began to rise again. Then, of course, the housing bubble burst. Now, just three years later, the market is approaching 10,000 again. This time on the way down.

Not only are prices on the way down, but trading volume has actually been in a declining trend for the past two years. There’s good reason to be concerned. The very nature of the market has changed as much as the economy with the advancement of technology.

The vast majority of today’s trading volume is generated by computer programs called “quants” These programs make automatic, instantaneous transactions based on whatever data the programmers designed it to monitor. They look at trading data and try to find patterns. Some are even programmed to learn from their mistakes and make adjustments on the fly. Of course, much of that trading data is generated by other computer program trades. The result is that you have computer programs responding to the decisions of other computer programs. In the extreme you get situations like the “flash crash” of May 2010 when many large company’s stocks actually traded for $.01 (the exchanges later cancelled most of those trades). But how much does this type of trading effect stock prices when it’s not expressed in the extreme? The answer is nobody knows.

Stock prices are subjective. You can look at historical averages, but there is no price that any stock is “supposed to be” at on any given day or minute. These quant trades account for around 70% of daily volume. Most of the rest is day-trading, hedge funds and professional equities traders with outlooks of around 18 months. The traditional buy and hold investor, saving for retirement or school makes up just about 5% on any given day. The more computerized trading based on trading data takes place, the more divorced a company’s stock price becomes from any consideration of its business model or performance. Stocks go up because they go up and they go down because they go down. Moves in both directions are magnified as computerized triggers are set off. This is heaven for day traders, not so much for the passive investor.

I don’t believe the stock market is going to go away anymore than I believe lottery tickets or Las Vegas casinos are going to go away. But buying and holding equity in widely-held, publicly traded companies may not be a wise long-term investment strategy anymore. That’s not to say people wont make money. But predictability and connection to events on the ground is going out the window. Even a ban on computerized trading would only mean that you’d have to input the computer generated trade manually rather than automatically. You can’t put this genie back in the bottle.

Don’t take this as investment advice or a prediction of where the DOW is going to go in the future. But it is information you might want to consider and talk over with your investment advisor before deciding what to do with your hard earned savings.

Buffet and Stien miss the point on taxes

2011-08-17T18:43:00.000-07:00

Both Warren Buffet and Ben Stien have advocated higher taxes on the rich lately. I suppose they see this as very humanitarian, to offer to pay more of your own, and lots of others income for your country. Enabling incompetence is not a virtuous endeavor. These gentlemen are only looking at cost and ignoring value.

The message that sends to government is that doing a lousy job will not slow down your growth. We don't want you to finance the growth of failure. If the government can actually balance budgets and is limited in size, and therefore scope, one might make the case for budget increases. That's how it works in the real world. You don't expand failing divisions. You don't promote people who don't actually advance toward a desired goal. You don't put fuel in a broken truck.

Downsize, clean house, start acting like you have some value as an employee of the biggest market force in the world, then we can talk about govt taking on more responsibility. That's many years down the road.

A perspective on the decline of manufacturing in the U.S.

2011-07-31T11:21:00.000-07:00

You don't have to be an economist to understand that something is seriously, systemically wrong with the manufacturing industry in the United States. Consider the demise of the Great Lakes region in terms of employment and manufacturing.

First, you have to understand that the cheapest, most reliable way to transport tonnage over large distances is over water, if possible. If you have access to the Great Lakes, you have a direct water route to both international and domestic markets through the Atlantic and the Mississippi. This is a huge competitive advantage. How much extra costs do you have to pile on before that advantage evaporates? I don't have an exact number, but I know we've surpassed it. I know because people and companies are leaving the area and are not being replaced.

You can argue about the causes, but an exodus from an area that should be a geographic no-brainer from a manufacturer's point of view is an undeniable symptom that something is very wrong. The status quo is a loser.

I think we're finally getting to a point in our national conversation where things are becoming evident in terms everyone can clearly understand; dollars and cents. Good ideas attract cash. Bad ideas repel it.

Could a balanced budget send the U.S. economy to new highs?

2011-07-24T09:48:00.000-07:00

You may find all the talk about Federal deficits and National debt boring or tedious, but something of pretty heavy global historic significance is taking place before our eyes. I find it fascinating.

The country is in the midst of deciding whether to limit the size and cost of Federal government or to continue to leave the upper limits an open question. Regardless of what you believe the government should or should not provide, a growing number of people are making those provisions contingent on operating within a budget. Even tithing is set, in most cases, at 10%. If religions can set a limit on how much they ask from their members, why can’t the government? The other option is to implement the programs and address the priorities you’ve decided to advance and worry about the fiscal consequences later.

If the United States actually implements a credible, feasible plan to get to and stay at a balanced budget, we will have achieved a level of fiscal strength unmatched around the globe. Europe’s string of bail out packages is just stall tactics. They have not addressed the underlying problems. Much of China’s growth has come from construction of cities that nobody lives in, highways nobody drives and mass transit systems they can’t maintain. This makes their numbers look good today, but they will be liabilities in the future.

A Constitutional amendment requiring a balanced budget is a must. Congress cannot write a law that binds a future Congress. Membership in Congress rolls over every two years. A plan that spans decades doesn’t stand a chance if it relies on the support of new members through several election cycles. They have to be bound by the Constitution. They could still over-ride spending limits with a ⅔ majority in case of emergency.

The underlying issue is that America may put fiscal and economic strength ahead of social and political agendas in the priority list. This would be a break from global consensus and a giant leap ahead of the pack for the United States.

Here we go again - European 3 card Monty

2011-07-12T19:34:00.000-07:00

When is a default not a default? When it's a buyback!

The new, old strategy for dealing with Greece's debt problem is for the European Financial Stability Facility (aka taxpayer funded pile of money) to buy Greek bonds on the secondary market, then allow Greece to pay back less than the face amount of the bonds or "retire them at a discount".

This is really a variation on the "Special Purpose Facility" scheme in which a quasi-private entity is formed, which owns Greek bonds. The former bondholders are now shareholders in this entity and the entity is backed up by guarantees from the European Central Bank. In both scenarios, the end game is to relieve the bondholders (the folks who actually made the investments) from risk and instead, place the risk on European taxpayers (who had nothing to do with the bond purchase decisions).

To put the buyback program in perspective, let's say Bob and John are coworkers of yours. Bob owes John $100. It's beginning to look like Bob wont be able to pay it all back. Your boss steps in and buys the debt from John (so now Bob owes your boss $100). Then your boss tells Bob he only has to pay back $45 and takes the difference ($55) out of your paycheck.

Sound ridiculous? That's essentially what's being proposed. And if it works over there, they'll do it over here.

Minimum wage = Minimum opportunity

2011-06-14T16:23:00.000-07:00

Recently, some friends and I were having a bit of a debate over the minimum wage. It actually came up during a discussion of a $900,000 federal grant that was given to a local organization to train 720 youngsters in “soft job skills” aka basic customer service. The idea is to provide them with at least the bare essentials of workplace behavior so they might stand a better chance of gaining employment. A worthy goal, but it got me to thinking why such a program was necessary. The answer was obvious.

Colorado’s minimum wage is currently $7.36/hour. When you factor in unemployment insurance, workers comp and payroll taxes, it’s closer to $9/hour. Now consider a 15, 16 or 17 year-old starting their very first job. They aren’t familiar with any workplace, never mind yours, or the equipment, the procedures, basic workplace etiquette; they are essentially clueless. It’s likely going to take a month on the job before they are productive enough to justify even $9/hour and you’re only going to have them for 3 months total.

The investment in training a brand spanking new entrant into the job market might make sense at say $5.50/hour. At $7.36, it’s a much bigger risk. This is why unemployment among teenagers is around 25%. The math just doesn’t make sense.

The opposition comes from the notion that nobody can live on $5.50/hour or even $7.36/hour. But that’s a straw man. The entry-level wage isn’t intended to be a living wage. Most teenagers are looking for some spending money. A low-paying summer job gives them valuable experience so they can get a better, higher paying job next year and it keeps them in iPhones, concerts and their favorite jeans over the summer.

In the longer term, the ability to fill very low skill positions with very low paid workers enables businesses to expand and provide better jobs. The workers gain experience which they can use to get better jobs. The alternative is what we have now. Those jobs simply don’t exist and junior sits on the couch playing video games at Mom and Dad’s expense, gaining zero work experience. The business can only hire employees who are ready and able to produce on day one, i.e. experienced employees. There is no room for entry-level.

I know the intentions of those who favor mandated wages are noble, but the results are in. It’s not a matter of opinion. It’s a matter of fact. When you remove the bottom rungs on the ladder of opportunity, there are people who just can’t get on it. There aren’t enough federal programs in the world to fill the void.

America at a crossroads? or have we already crossed the event horizon?

2011-05-31T19:07:00.000-07:00

For a while there, it looked as though there might be a chance that the United States would do what was necessary to get back to some sort of fiscal sanity....for a while there.

Today we still have our $14+ trillion dollar national debt, trillion dollar deficits as far as the eye can see and, perhaps more importantly, something like $57 trillion in unfunded liabilities, that is, money we've promised to pay out in entitlements that nobody has a clue where it's going to come from.

Paul Ryan and friends proposed to cut the growth of Medicare at least, by block granting fixed amounts to the states. You would have thought he proposed internment camps for the elderly. "Hands off Medicare" is the popular chant. I don't imagine Social Security reform is going to fare any better. Lest you think that government will be forced to make reforms just in the nick of time, consider Eastern Airlines. Unions knew full well that if they didn't make major concessions the company would go under. They didn't, it did. In the case of the auto industry, the government took the companies from the rightful owners, the bondholders, and just gave it to the unions. No incentive for concessions there. It's not just unions. It's everyone that get some kind of check from the government, and boy there are a lot of them.

Americans still like to think in terms of the land of the free, home of the brave, baseball, apple pie, etc., but they also seem to want to continue to work toward a society where everyone's basic needs are taken care of by somebody else. This has never worked and never will, but that's not slowing down the movement. Americans are looking for that fairy tale hybrid of capitalism and socialism. They want the vitality, innovation, creation, wealth and productivity of capitalism, with the carefree security of cradle to grave socialism. I guess the hope is that there are enough people who are genetically inclined to produce and excel, regardless of incentive or motivation, that they will deliver enough to take care of everyone else. It's a fairy tale.

It's entirely possible that hundreds of years from now, the decline and fall of the United States of America will be marked as beginning around 2007. I hope that I'm wrong, but I don't see any popular movement that would change it. No China is not going to be the new global superpower either. In fact, the alleged economic behemoth wont even be able to produce enough electricity to keep their own factories operational this summer. They have tightly controlled the power industry to the point that it's tied up in knots and they have no idea how to fix it. Getting out of the way is not on the proposed solutions list. I think a rudderless, backwards world economy is the more likely scenario for quite a while.

I don't know exactly what the future will bring in my lifetime. But I do know that, in general, the American public is not in the mood for limited government and real free markets and politicians are not going to do anything long term or substantial without the express consent of the voters.

I'm beginning to feel that we are not, as many like to say, at a "crossroads", a point where we can determine whether we're headed for greater prosperity or history's dust bin. We may have already crossed the event horizon into the black hole of "something for nothing" land. We're just too close to the situation to see it clearly.

Jefferson the American Prophet

2011-05-16T19:08:00.000-07:00

Among the many inspirational and insightful quotes collected for Brett Sizemore's book 'Here's a Straw, Suck it Up.' is this gem from Thomas Jefferson in 1802 that's eerily relevant today:

"Banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and the corporations that will grow up around them, will deprive the people of all their property until their children wake up homeless..."

Here's how that works. First, consider the purchase of a home. Now hold the value of the home constant and consider it is the value of the currency that fluctuates. During a time of inflation, or rapidly rising home prices, you buy your house (with a mortgage) at $200,000 with the expectation that prices will continue to rise. Now, deflation hits the housing market instead. Prices fall. Your house is now worth $100,000. You were counting on rising home prices to allow you to take out a mortgage to cover your other bills. Now you can't afford the payments and you can't sell the house for enough to cover the mortgage.

Whether you foreclose or walk away, the bank gets the house back. Not only that, they were insured against losses with companies like AIG, so they also get the other $100k. On paper it looks as though the bank just broke even, or took a loss after expenses. In reality, if we're still keeping the value of the house constant, they started with the house, ended with the house + $100k minus expenses and insurance premiums. They did fine. The fluctuating value of the dollar is a smoke screen.

In the simplified scenario above, a number of players are inclusive in "the bank". I don't believe banks and real estate financing are inherently evil, but they are susceptible to great abuse if customers are not wary.

Banks give currency value in that they provide an orderly, secure delivery and storage system. They are run by human beings, who must not be entrusted with all our cash unsupervised and unchallenged. Trust, but verify.

The recipe is simple: Inflate, Deflate, Repeat.

The oil pantry effect

2011-05-13T10:36:00.000-07:00

Crude oil supplies are plentiful. Use has not spiked, yet prices did? What's going on?

Well, the common explanation is "speculators". But, I'm familiar enough with speculation to know that paper trading of commodities one never takes delivery on cannot cause sustained price increases. It must be something else. So what?

What do you do if you believe food prices are going to go up substantially in the near future? You stock up your pantry and your freezer. I have to believe that large corporations and governments that consume a lot of petrol do the same.

The U.S. government publicly discloses figures for the U.S. strategic oil reserves, but private companies, the military and most other governments do not. If they see uncertainty ahead in the market, it is only prudent that they fill their reserve storage. This would explain how you get a spike in prices even without a spike in actual usage.

It also explains why the price of crude sometimes falls like a rock. When end users stop filling reserves, demand falls. If they actually start drawing from them for their day to day use, demand plummets. Prices follow.

This is the most logical and simple explanation for the behavior of oil prices, and according to Occum's razor, the most likely.

What you're really up against

2011-04-28T20:00:00.000-07:00

Recently a friend of mine called, very upset at something he had just read. In the newest Superman comic, the Man of Steel will allegedly renounce his American citizenship. So much for Truth, Justice and the American Way. He was also irked by the fact that while we put moratoriums on drilling for oil in the U.S., we have actually proposed subsidizing drilling in Brazil, and a number of other policies and trends that seem to be leading to the decline of the U.S.. Has the world gone mad?

As I explained to him, when you understand the game plan, it all makes perfect sense. I used to think the differences between free market capitalists and Progressives was simply a disagreement in how to reach a common goal; a better quality of life for everyone. I have come to learn that this is not the case. Progressives believe that the world would be a better place if the production and distribution of its resources were overseen by an elite group of our best and brightest (as determined by Progressives) rather than by the cumulative effect of individuals making decisions on their own. The world being a better place, in their minds, is not contingent on improving anyone's quality of life. It's all about fairness and sustainability. If everyone lives in squalor, that's okay, as long as it's fair and sustainable.

In fact, worrying about the happiness of any one individual, especially yourself, is not only frowned upon, it's heresy. One should derive satisfaction and fulfillment only from the knowledge that you have served the collective well. Praise is heaped on those who demonstrate the least concern for their own well being. After all, the self is irrelevant. Unfairness must be wiped out wherever it is found. Evidence of unfairness is when one person has more success or more material goods or is generally happier than another. Obviously the fact that one person is less successful than another is clear evidence that they are disadvantaged. The playing field must be leveled. This is not done by providing opportunities for the latter, but by removing "advantages" from the former.

Top priority is given to the well being of the planet, the environment, wildlife, "society", culture. You are not even on the list. One big stumbling block is the image of the United States of America. The country was founded on the idea that the state exists solely for the protection of the individual. That the state is accountable to the individual. That the individual trumps the mob. This is all counter to Progressive thinking. The fact that a country based on such beliefs became and remains the world's top super power is a problem. That's what the Progressive movement is currently trying to rectify. Statements that countries like China and India may overtake the United States in terms of world economic power are not dire predictions to Progressives, they are goals, and short-term goals at that.

The next time you start scratching your head when policies enacted in the name of fixing a problem obviously just make it worse, remember this post. The premise that we all have the same goals in mind, just different opinions on how to get there, is a false one. Worse yet, those working for central control will not advocate for it honestly or out loud. But their actions speak volumes.

The Speculator Myth

2011-04-18T18:06:00.001-07:00

Oil and gas prices are on the rise once again, and once again fingers are being pointed at those nasty speculators. What's a speculator? A gambler, really.

It's someone who buys contracts to buy oil or other commodities at a certain price within a certain period of time (i.e. oil futures contracts), in the hopes that they can resell them at a higher price. Two important things to keep in mind: The speculator has no intention of ever taking delivery and the contracts expire. If you can't get the price you're looking for by expiration time, you take delivery or take the loss. In the speculator's case, you take the loss. They have nowhere to put all that oil and they don't have the cash to actually buy all the oil they bought options on.

The refrain is that speculators "drive up the prices". How would one drive up prices? By paying increasingly higher prices for the contracts. Intentionally paying above market prices for anything is a good way to go broke fast. Speculators take advantage of short term fears, supply interruptions, knee jerk reactions, by trying to get in the market before prices rise, or at least well before they peak. Speculators also make bets that the price of oil will fall, but that doesn't seem to bother anyone.

The role of the speculator in the marketplace is to provide liquidity. That is, if you want to buy or sell a contract, you don't have to wait until an end user wants to buy or a producer wants to sell. There's always a speculator ready to buy or sell at most any point in the trading day. Speculation is risky, by definition and can only affect prices over a very short term. Ultimately prices are determined by supply and demand.

So why is oil soaring when supply is plentiful? Because we import most of our oil from producers who aren't terribly interested in our financial well being. They decide how much to pull out of the ground and make available for sale on any given day. We curtail production in the U.S. and then complain that we're being gouged by the Saudi's, the Iranians, the Venezuelans, the Libyans and all the other folks we've handed control of the market over to. We don't want to drill for oil, use coal, nobody wants a windmill farm in their neighborhood, or solar panels, or a nuclear plant. We seem to subsidize only alternatives that have no chance of viability in the marketplace and penalize or criminalize energy sources that are proven to work. Nobody can make the case that ethanol laden gas is a better product than non-ethanol laden gas or that the ethanol program is a success, or that it even makes sense. Yet it continues. Enabling more drilling is shunned because it can "take years" to develop a field. We'll still need oil in "years" and we're not getting any closer to it by continuing to put it off.

If the price of oil and gas is causing you grief, Washington D.C. is your problem, not the speculators or even the Saudi's. Then again, as one reader helped point out, politicians and bureaucrats do what the polls tell them to do. So I guess we're the real culprits.

Can the private sector grow while government shrinks?

2011-04-17T18:58:00.000-07:00

The Federal Government and the states are in a financial pickle, to be sure. That's not going to end any time soon. However, the conversation in Washington D.C. and in state capitals around the country these days is about how to cut and how much to cut. It's no longer about new government programs and increased spending. From the standpoint of the business community, the worst may be over.

Whoever wins the next election, it's not likely to be the candidate or party that promises continued deficits and bigger government. Politicians down to the local level are now seeking ways to encourage and incentivize small business. Many of them still don't really understand or trust the free market, but at least they're now giving it a look. That's a positive development.

The health care law is not likely to survive intact and may well be scrapped and replaced altogether. A Constitutional amendment requiring a balanced budget was a pipe dream just a short time ago. Now it is at least a real possibility.

Growing government sucks resources from the private sector, not the least of which are human resources. When government increases its payroll, a lot of talented, creative people wind up in less than productive jobs. When the unemployment checks run out and the government's not hiring, people find another way to make a living, whether it's considering employment they had previously shunned, trying something completely new and out of their comfort zone or starting their own business.

They also start paying closer attention to how government affects the marketplace. Not everyone comes to the same conclusions, but more people really paying attention means we have a better chance of getting it right over time.

There is new technology coming to market now and in the near future that can spawn a new run in productivity and economic activity. The new political reality may well inspire cash-heavy companies and even shoe-string entrepreneurs to get back in the game. Inspiring people to take a chance with their assets, talents, ideas, time and effort doesn't require waiting until conditions are ideal. There just has to be a light at the end of the tunnel. If the business community gets a sense that their efforts wont be wasted, real recovery will take hold.

We could be at the beginning of an odd situation. One in which the private sector is growing and thriving while the public sector continues to struggle with the financial mess they've made of their budgets. Will the public keep up the pressure for fiscal discipline in a healthy private sector environment? I don't know. The big government proponents will no doubt argue that their big spending caused the recovery, not the anticipation of its ending. Will that spin sell? I don't know. It has in the past, but there are a lot more people tuned in these days.

My sense is that, at least in the near term, tax hikes, increased regulation and more government are a no go. Americans have no more stomach for stimulus and bail outs and subsidies. I wont say the era of big government is over just yet, but it's looking tired and starting to get wobbly. I think we have better economic weather ahead. I hope we will take this opportunity to better educate the younger generations, not only in reading, writing and 'rithmatic, but also in the role of government, the art of civil discourse and debate, the meaning of freedom and the consequences that come with it and the mechanics of the free market.

The Failure of Statism - Again

2011-03-26T09:51:00.000-07:00

Turmoil in the Middle East has resulted in the fall of governments in Egypt, Tunisia, probably in Libya and Yemen, possibly in Bahrain, Syria, maybe even Iran and more. Protests continue in Greece, London, Portugal and other EU nations. Here in the United States, actions to curb union power in Ohio, Wisconsin, Indiana and Michigan have sparked unrest. Is there a common thread? Yes. Statism or collectivism, has once again proven unsustainable.

Whether it comes about through military coup or democratic elections, the underlying principals of statism, or collectivism are the same. The central authority, which produces nothing, takes from some and redistributes to others. The idea is that a small group of knowledgeable, wise, benevolent overseers can more efficiently and fairly distribute the fruits of the labor of the general population for the benefit of all. Overseers can be unions, elected officials, kings or dictators, but the promise is the same.

It has proven to be a compelling proposal. It’s failed a number of times, yet people still gravitate to it. The idea that you can contribute a little and have all your worries and cares tended to by someone else seems to be quite attractive. In fact people are even willing to give up quite a bit of their own personal freedom in exchange for such security, if you can deliver. Therein lies the rub.

The upheaval in the Middle East is not centered on religion or ethnicity or even political philosophy. It stems from shortages of food, employment, basic services and all the things the totalitarian governments there have promised to deliver. After decades of living under oppression, the people there have finally determined that it’s not working. They don’t necessarily have a new system in mind. They just know the current one is no good.

In the case of EU democracies, politicians have gotten themselves elected by continually promising more and more from government in the form of services, employment, pensions, housing, job security and other entitlements. Now they’re at a point where even the politicians have to admit that they can’t deliver what they promised. People are angry. They are actually demanding a continuation of the status quo, which is impossible. Something’s going to give.

In the U.S., the Great Lakes States were once the center of global manufacturing. There was lots of money and there were lots of jobs, but all was not well. Workers were getting a raw deal. Enter the unions. For a small fee, the union would advocate on your behalf in negotiations with management. This seemed to make perfect sense, until they evolved far beyond employee advocacy organizations. Unions began offering benefits in addition to advocacy. This costs money. Dues went up. They further evolved to take on political advocacy. The idea was that what they couldn’t achieve at the negotiating table, they could accomplish through legislation. They increasingly got involved in funding political campaigns. Of course, the very notion that a group of union representatives can better select your government representatives than you can, assumes that your life is primarily about your work; the work you do for the collective. If you prefer a different candidate, well, you’re just not a team player. As unions increased the mandates on producers, producers left the states and/or the country, seeking more affordable locales and workforces. Some went out of business. All turned increasingly to automation. The more expensive humans become, the more affordable machines become by comparison. The union movement sought more fertile grounds in the public sector. That worked out great for awhile, as the public trough seemed bottomless. It’s not, and once again they and their membership have to tangle with the reality that they cannot possibly deliver on their promise.

The alternative to the collective is self-reliance and a government that provides an infrastructure that makes it possible. Government can remove the threat of force from transactions so that a free market can be developed based on the cumulative decisions of individuals engaging in free trade. Government can also serve as arbiter between parties who disagree in good faith as to whether or not one or the other has upheld their agreement. There’s no guarantee that you’ll get what you want or even what you need, but there’s no fees for empty promises involved either, and contrary to popular belief, charity still takes place and even thrives within free markets.

I don’t know if the current global turmoil will result in a shift away from statism and collectives and toward self-reliance and limited government or if people will opt for a “new and improved” brand of collectivism. I’m inclined to think that most people still hold out hope for state-provided, cradle to grave security, no matter how many times its futility is demonstrated. I do know for certain that if you expect bigger, more pervasive governance to improve your quality of life, you’re going to be sorely disappointed. As Plato put it, you’ve got to tend your own garden.

Free idea - thumb drive vending machines

2011-03-06T16:21:00.001-08:00

Here's yet another great idea that I don't have the resources to pursue. I would sign up or the service if it existed however. It involves actually stripping away functionality of existing hardware and software, so it can't be that tough.

First, invent the machine (I'll get to the parameters here in a minute). Next, deploy them around your test market as kiosks or boxes (like a Redbox) in very high traffic, public venues. You, the owner, can log into the machine and upload new files. Users can download files for free, onto a thumb drive. That's basically the extent of the parameters for the machine -a hard drive with monitor, secure upload, users can view icons and/or thumbnails and download only.

Revenue would come from local magazines, publications, artists, who want to make their material available to locals, free from the clutter of the web. It's the new info-tech equivalent of the free publication rack. It would also make electronic media readily accessible, even to people with low quality or no Internet access. But perhaps more importantly, it's a means of spotlighting and promoting locally produced digital content.

You'd probably have to pay for space or split revenue for kiosk placement. You'd also have to track downloads individually and collectively so you have compelling numbers to show potential customers (content creators). It's not without risk, as you may have to offer the service free until you can demonstrate effectiveness.

Have at it.

Why the change in Facebook's news feed?

2011-02-14T16:50:00.000-08:00

Although I only have a few hundred followers or 'likes' between my personal and business pages on Facebook. I had resolved to work harder on them, because I recognized great potential value there. Now, Facebook has removed most of that value, and I believe it was deliberate.

Until recently, when you made a post to your Facebook page (business or personal) it would show up on all your friends news feeds, unless they went to the extra effort of blocking you. The significance of this for a business owner is huge. If you have a business page with several thousand followers or 'likes', you could reach the same size audience as a good sized direct mail campaign, at no charge. The fine folks at Facebook must have realized this and decided they needed to put a stop to it immediately.

Now, your news feed on Facebook will only show updates from people with whom you've had some interaction recently (a post on their wall, message or something). You can change the setting so that you'll see all of the posts on your personal page, but there's no fixing the business page, and most people will likely go on using the default setting, having little interest in or knowledge of the omni-setting.

I guess Facebook believes they'll sell more ads if they severely limit their users' ability to communicate for free. Maybe they're right, but I doubt it. My own use of Facebook, as a form of business communication, will likely drop off instead of increasing, as it has now lost much of its potential value. Well, there's still Twitter, and Facebook has now created an opening for an ambitious potential competitor. I really can't argue about the price, but I don't believe the gatekeeper mentality will serve Facebook or its users well in the long run.

The Case for Democracy

2011-02-08T13:09:00.001-08:00

The situation in Egypt has put U.S. policy around the world under the microscope once again. People are rallying in the streets, demanding freedom and democracy. Surely, the land of the free and the home of the brave must support that. But wait, the current autocratic leader has been a good friend to the U.S. for thirty years. In return we helped them build a very formidable military machine. The waters are quite muddy.

Some argue that we should tread lightly. If true democracy comes to Egypt, we may wind up with a regime similar to that in Iran or Gaza. The problem with those comparisons is that Iran is far from a true democracy and the thugs in Gaza still rule largely through intimidation.

Free democracy is about more than one citizen; one vote. Freedom of assembly, speech, freedom of the press and rule of law are all absolute requirements. These are the freedoms that guarantee that even if good ideas are put down today and bad ideas are implemented, the good will be back and the bad will fall by the wayside. The power of the people to communicate, observe, evaluate and speak out is what keeps a society moving forward.

We should not be concerned about who might come to power in a free and fair election in countries like Egypt. We should concern ourselves with whether or not their next election and the one after that, and the one after that will also be free and fair and whether the people will be able to interact and speak freely in between.

The United States is at its best when it is a beacon of freedom and hope, not simply an instrument of preserving order. It should always be our position that governments, including their militaries, are servants of the people and that church and state be separate. We may not be able to dictate these things, but we can voice and promote them at every opportunity. The separation of church and state is not ant-religion, it’s anti-autocracy. After all, if someone who claims to speak for God or Allah, is in charge, what’s the check on his or her power? The rule of law must apply equally to all citizens of all religions or no religion. It is not the role of government to determine God’s or Allah’s will, but to protect the rights of individuals on Earth.

We need not be hostile toward countries or populations that don’t exhibit our values, but neither need we be shy or apologetic about what our values and beliefs are. As for me, I don’t believe that the people of the Middle East or Northern Africa or anywhere else are genetically pre-disposed to autocracy and/or theocracy. It may take them generations to work it out, but if we help them keep free, open, honest conversation going, they will work it out. In the tug-o-war between freedom and order, order has been vastly over-rated I think. I hope that U.S. foreign policy starts trending more American in the future.

Why isn't oil soaring on MIddle East unrest?

2011-02-04T08:12:00.000-08:00

Before things blew up in Egypt, pundits and market mavens were predicting $100/barrel, even $200/barrel oil coming very soon. Two weeks into the uprising in the country that controls the Suez Canal, oil has barely budged and is currently at around $90. What's the deal?

Well, perception and emotion can be very powerful, but reality usually wins, especially in a market that's as "just in time" as the petrol market. It's much cheaper to leave oil in the ground than it is to store it, long term, in tanks above ground. For that reason, there's not a lot of "extra" petrol sitting around, so when you get a spike in demand, you can get a rapid spike in price as immediately available supplies dry up. By the same token, if demand drops even a bit, you can find yourself with a lot of excess inventory and nowhere to put it. Prices can drop just as fast as supply is unloaded on the cheap.

There is a threat of supply cut off, but it hasn't yet materialized. In addition, the historic cold snap in the U.S. has caused thousands of flight cancellations, school cancellations, business closings and has kept a lot of people who would otherwise be traveling, hunkered down at the house. The increase in energy being used for heat is not offsetting the huge amounts of petrol that are not being used for transportation.

If the situation in Egypt simmers down without anyone disrupting operations at the Canal (and there doesn't seem to be any party that would benefit from such a move), expect to see oil drop 5-10% in a hurry. If the canal is shut down, a huge spike up, and in the meantime a very gradual downward trend as what is actually happening slightly beats out what might happen.

Republicans should take the bait on the President's tax code proposal

2010-12-10T17:35:00.000-08:00

Never mind the controversy over extending the Bush tax cuts. I think the much more intriguing development regarding taxes was President Obama's proposal to simplify the tax code. The knee jerk reaction from opposition politicians and pundits may be "What's he really up to?" The better approach is "Let's do it!"

The President has proposed just 3 tax rates ranging from around 8% to 24% as well as a cut in the corporate tax rate. This would be offset by eliminating deductions and loopholes, including the sacred cow; mortgage interest deduction. I think that's a giant step in the right direction.

The mortgage interest deduction, like so many other deductions, credits and exemptions, is designed to short circuit market forces and influence behavior. This is a tactic that true free market proponents should oppose anyway. The mortgage interest deduction is based on the flawed premise that everyone should own a home. Furthermore, it doesn't encourage home ownership, it simply encourages mortgages. After all, once your mortgage is paid off, you no longer get the deduction. Will doing away with the deduction hurt home prices? Probably. Homes values will be based on a home's value, rather than on a combination of the value of the home and the value of a tax deduction. That's not a bad thing in the long run.

I would propose a new deduction however, for medical expenses. This should be a straightforward deduction and not some convoluted scheme based on a qualified account with restricted access. This could open a whole new field for lenders. If you have to take out a 20 year loan to pay for your surgery, at least you can take a tax deduction for the payments - interest and principal.

I would stand firm against any form of consumption tax whether it be on just gas or broader, unless it completely replaces every other tax. Even then, I would wait for a constitutional amendment forbidding the return of the income and payroll taxes.

The average American doesn't have the time or the resources to wade through our current 10,000+ page monstrosity of a tax code looking for exemptions, loopholes and credits. Free market proponents should applaud a tax system that doesn't attempt to influence where, when and how you direct your resources. The government's role is to be referee, not chaperon. Imagine what might happen to productivity if big business made investment decisions based on what consumers want and need rather than on what the government would like them to blow money on.

I'm willing to give the President the benefit of the doubt and assume he has determined that the American people aren't interested in a care-taker government and has decided to change course. Regardless of what may or may not be going on in his head or in backroom discussions with advisers, he has tossed a ball to limited government proponents. Take it and run with it. Never mind who might get the credit or benefit politically. The only way it results in a second term for President Obama is if the U.S. prospers as a result. Is that so bad? Do the right thing. You might be surprised at the results.

Gold Play

2010-12-01T11:38:00.000-08:00

With gold making another run for $1400/oz, should you start buying some if you haven't already? If you already own some, should you start selling? When it comes to policy and politics, I rarely, if ever find myself in agreement with multi-billionaire investor, George Soros, but when it comes to the gold market, I believe he's got this one right. He may be evil from my socio-economic perspective, but he's not stupid.

Soros has called gold "the ultimate bubble" and is, in fact, gradually reducing his holdings. He has wisely, not predicted a top or a time frame for a decline. Bubbles are by nature, unpredictable. I'm not going to call a top either, but there are some fundamental things you should know about gold if you're going to play the game.

It's often said that gold has "intrinsic value". That is, that it has value apart from speculative trading or as a currency. That's true. It has intrinsic value to those who actually consume it, like jewelers and space craft manufacturers. But the market price, at the moment, is not being driven by consumers. It's being driven by investors/speculators and that portion of the price is entirely subjective. Contrary to the old real estate adage, they are producing more gold and very little of it is actually consumed. In fact, one could say the only gold that's truly consumed is that small fraction of production that gets shot into space. Much of it is now being purchased by people who just want to store it, or have someone else store it, simply to make them feel better.

At some point, the guru of the week is going to tell folks it's time to sell. Who is everyone going to sell to? It could be days, weeks or years, but when gold falls it's going to fall fast and far. You may be waiting for a "top". So are millions of other people. Good luck with that. At least it looks cool.

So, what should you be investing in? I'm not an investment adviser, so take this as the opinion of just another member of the Peanut Gallery, but if I were trying to preserve currency, I'd buy inflation adjusted Treasuries. If I'm trying to preserve wealth, I'm buying things that I, or my heirs, can actually use regardless of the economic situation. After all, the true value of wealth lies in how it contributes to your quality of life. That's a call only you can make.

Our day of reckoning may never come

2010-11-16T23:07:00.000-08:00

Everyone likes to talk about our nation’s deficit, the national debt, unfunded liabilities. Politicians and pundits declare the situation unsustainable and predict dire consequences for inaction. Yet, inaction continues. I believe that in many cases, individuals in a position to fight for change decline to do so because they believe that eventually, things will come to a head and we’ll be forced, as a nation, to take drastic action. There will be a day of reckoning. A day when we wont be able to take another step, or draw another breath, without first fixing our financial problems. Unfortunately, it’s probably not going to go down that way.

The evidence is all around us. There has been no reckoning in North Korea, Cuba, Venezuela, Burma, Somalia. These and other chronically impoverished nations illustrate that things are never so bad that they can’t get worse. Even in countries where people resort to eating tree bark to try to avoid starvation or sell their own organs to pay back loan sharks, the powers that be remain the powers that be.

So how do you break the will of an entire nation’s population and keep it broken from generation to generation? There are many variations on the theme, but generally speaking, you convince people that self-interest is not only insignificant, but immoral. You sell them on the idea that they exist to serve others, which by definition is everyone except themselves. Then you become the interpreter, communicator and executor of exactly what “others” need them to do.

You can’t do it all at once. Especially if a country has had a taste of free market success. You start out small, with the simple idea that sharing is better than not sharing. Then you make sharing mandatory, through the tax code. Then you just continue to increase the amount of mandatory sharing, being careful to bestow the fruits of the sharing on people who are supportive of your agenda. By the time they realize that there’s very little left to share, you are in control of all the nation’s critical resources and much of the population is convinced that their own personal well being is not important anyway.

It’s also helpful to convince the population that the situation is much better than it really is, or that relatively speaking, they are doing alright. You do this with propaganda, misinformation and censorship. This worked pretty well for the Soviet Union for a long time. Then the fax machine came along and ruined everything. People behind the iron curtain started getting news about all the cool goodies in the west they didn’t have access to. However, if the developed world sinks into the muck of stagnation and mediocrity together, what are we going to compare our situation with? Future generations may just conclude that whatever they’ve got is as good as it gets.

Left to their own devices, individuals don’t operate exclusively in self-interest mode or common good mode. We switch from one to the other and back again as the situation changes from minute to minute, day to day, year to year. But the default mode has to be self-interest. We have real life case study after real life case study to show that making the common good paramount and imposing it from a central authority leads to nothing but misery. Yet we continue to pursue it because it’s what we’ve been taught in school, in church, at work, by just about everyone in a position of authority since the day we were born.

The collectivist movement is like carbon monoxide; sucking the life from the blissfully unaware. If we continue down this path there wont be a big climactic crash. There wont be an “I told you so.” moment. We will simply drift farther and farther down in quality of life as our sense of self and the will to fight for it gradually fade away. I guess the good news is that civilization wont last forever powered by a bunch of dull drones. It too will fade away, new alliances will be made and new societies will arise, but we’re talking centuries, not decades.

The alternative is to demand that the government take less and do less; a lot less. I don’t mean just not asking for more. I mean demanding less, because there will be resistance from those who actually want to promote that downward spiral. They honestly think it’s best for humankind to live as more of an orderly hive than a bunch of selfish individuals. Ironically, selfishness is the only thing that can save us from ourselves at this point.

How to manage inflation

2010-11-10T13:31:00.000-08:00

With the Federal Reserve "monetizing the debt" or printing money and buying up Treasury securities from banks, it's time once again to review inflation strategy. Let's assume for the sake of this article that we're going to get an inflationary period in the near future. Maybe we will, maybe we wont, but let's just say we will. How do you deal with it? There are things that both retailers and consumers can do to cushion the blow.

First let's look at retailers. Assume that each time you place an order for inventory, it's going to be a little more expensive. For the sake of simplicity, let's say you normally keep a one-week supply of inventory on hand. Bump that up to about 8 weeks and keep it there. Why? Because once you've got that overstock, when you place your next one-week order and you see the price has gone up, you can raise your retail price on your entire stock and maintain a decent margin. You also will have the option of holding off on a price increase for a week or two and perhaps undercut your competitors for a bit. When the inflationary cycle dies down, and it will, and you notice prices haven't gone up for a few weeks running, start reducing your orders and getting back down to normal inventory levels. This is why inflation tends to drop off quickly when it's run its course. A lot of retailers will be doing the same thing and orders to suppliers will suddenly drop off a cliff. Your margin on your most recent purchases will be smaller, but your older stock should help make up for that. You'll also have a chance to build up some cash, since you'll have several weeks of smaller than normal inventory outlays.

What about the consumer? Well, retailers that employ the above strategy are going to be taking advantage of some nice profit margins on many of their products. They'll want to entice you into the store by offering "loss leaders". That is, they'll be willing to offer a few items at or even below cost in the hopes that you'll buy a few of the more pricey items while you're there. If you want to be thrifty, be flexible. Stock up on those loss leaders. Different stores will have different items on sale, so you may want to shop at several. You may also want to adjust to the idea that you may be having chicken for dinner 4 times in a week. An inflationary period is no time to be finicky. Take what they're giving. Stock up on sale items. If you don't have a pantry, make one. It might be a good idea to get a big freezer if you've got the room. You can apply the same strategy to more than just groceries. If the home improvement store has a super-sale on something related to a project you were planning on getting to "one of these days", jump on it. Your new kitchen faucet is still going to be worth one kitchen faucet no matter where inflation goes.

If you're on a fixed income, you may want to look for free-lance opportunities to supplement your income for a while. However, be careful. Fully investigate any offer before you sign on. There will be plenty of scammers trying to take advantage of consumer anxiety. If a deal sounds too good to be true, it is.

The most important thing to remember is Don't Panic! Keep a cool head and look for opportunities rather than obstacles. An inflationary spiral is a readjustment in the value of currency due to gross budget mismanagement. It wont last forever and you can navigate it. Knee-jerk reactions to this kind of financial upheaval almost always makes the situation worse. Politicians and policy wonks will be calling for things like price and wage controls. Don't go for it. Getting our currency situation back under control is going to be bitter medicine, but tighter government control over the free market is just snake oil. It's okay to be angry and frustrated and hold our leaders to account, but blame the player, not the game.

De-Mystifying the Secret

2010-10-23T15:15:00.000-07:00

You’ve probably heard about the book/DVD/program called The Secret. Essentially it seems to suggest that achieving whatever goals you may have for yourself, your business or your personal life is a simple matter of having the right state of mind. It all seems very mystical and magical. I have a simpler, I think more rational approach to the phenomenon, which I wont call The Secret, because I’m sure that’s been trademarked and mine is a variation on the theme.

I do believe that it works and I believe I know why and how it works. The good news is, it’s not magic and with some practice, anyone can do it. My take is that it’s a kind of “top of the mind marketing” campaign. Your goals are the product and your subconscious is the target demographic.

It may be due to personal experience or a product of observation, but we often end up hard wired to believe that lofty goals are unachievable. Only a lucky few actually achieve the great things they set out to achieve. As a consequence we set the bar low. We immediately think of the obstacles to our success rather than the possibilities. The cumulative effect of our resultant behavior based on these underlying assumptions is that we don’t achieve what we want.

It’s not as easy as just making up your mind that you want to be a millionaire. You have to really sell the idea to yourself. Look at how companies like Coke, Pepsi, Google advertise their product and stay “top of the mind” with consumers. They splash their logos everywhere. They make you aware of who they are and what they have to offer and they keep you aware. You may not even notice the number of times you see a particular logo during the course of a day, but your subconscious brain sees it, and stores it, and eventually can influence you to act on it. That’s what you have to do with your goals.

Write them down. Believe you’re going to achieve them. Post them where you’ll see them every day whether you’re looking for them or not. Put a note on the fridge, on your computer monitor, above the stove. Set targets and regularly evaluate how you’re doing. The idea is to make spotting and taking advantage of opportunities to advance toward your goals automatic.

Your subconscious does not make things happen. However, you are bombarded with sensory information every minute of every day. You notice some things more than others. The collection of data that you choose to hold on to and process determines how you perceive the world, your day, your life. If you make yourself more receptive to input that will be of value to you in achieving the things you want, you will become more aware of opportunities and circumstances that you had been oblivious to before. Instead of unconsciously working against yourself, you’ll wind up unconsciously working for yourself. That’s why it seems like magic. You make better decisions which take you in the right direction without having to consciously process the information.

When Michael Jordan would drive the lane and make impossible slam dunk shots that thrilled millions, he didn’t ponder every step and measure every muscle movement. Constant practice, desire and confidence made it second nature. See goal; score goal. The subconscious and muscle memory did the rest with no overt input from Mike. Why did the tongue have to be hanging out from one side? Who cares? Don’t over-think it. Be the Michael Jordan of your destiny. Step one of course, is to decide what it is you really want and stop telling yourself you can’t do it. Then constantly remind yourself what you’re working for.

The more conventional approach to goal setting is to set aside some time to develop a plan and work on it at specific times while doing specific tasks. What percentage of your waking hours does that represent? If you can actually hard wire your brain to work on your goals full time like a software program running in the background, you can greatly increase the odds of success. The worst possible outcome is that you go about your day with a positive attitude and you don’t get a million dollars. What have you lost?

America Needs a Rival

2010-08-28T22:34:00.001-07:00

I've often wondered over the years, why no other country has ever really tried to 'out-America' America. After all, the whole freedom and capitalism thing worked out pretty well for us for a long time. I imagined it might be because nobody wanted to look as though they were sucking up to the top dog. Well, now that America is in a bit of an economic pickle and continues to wander away from free market principals while expanding government at a break neck pace, how 'bout somebody stepping up?

Let's just go ahead and call the race to mediocrity a 38-way tie and get back to trying to out-do each other. A little less civility and a little more fierce competition is what's called for at the moment. Countries within the former Soviet Bloc were able to look to the U.S. and say, 'There is a better way.' Who will our grandchildren point to as they stand in line for their weekly toilet paper ration? Will they come to believe that's as good as it gets?

Yes, the United States is in desperate need of an aggressive competitor in the economic arena. And no, I don't call remaining stagnant for so long that an oppressive dictatorship actually catches up and passes us (China) aggressive competition. That's just pathetic.

C'mon world. This is your big chance.

Where's the Inflation At?

2010-08-16T12:59:00.001-07:00

If you were to tell an economist, who had been sleeping in a cave for the past decade or so, that the United States was now $13 trillion in debt, running $1.4 trillion deficits and that the Fed was engaged in “quantitative easing” (creating more money), he or she would likely guess that we also had runaway inflation and sky high interest rates. We don’t, and it’s not because of anything the government’s doing. In fact, although they wont say it out loud, they’d like to see some inflation to help alleviate their debt problem. Instead, deflation now seems more likely. So where’s the inflation?

Inflation is a loss in purchasing power of the dollar. In the past this has occurred when there were more dollars in circulation than the economic activity at the time necessitated. We have an economic slump going on in much of the developed world, but we also have a massive number of newcomers to the world economy who value a buck much more than we do. Their influence seems to be making itself known in the form of deflationary pressure. With today’s technology, goods, services and information travel around the world more frequently and faster than ever before. Most people on Earth live far below the level of income of the average American or European. Even in China, the average annual income is $3,600. It’s much lower in other countries. If you’re running a global corporation, the $5 you take in selling a tall latte in a paper cup can buy you 20 man/hours of labor in some countries. Hence, the competition for dollars among international corporations is still fierce and will remain so as long as this wage disparity exists. That is likely to go on for many many years. Sorry Federal Government. No, inflation for you.

Does that mean our government will collapse under its debt? No. It means the government is going to have to hold its spending level steady or lower it for a decade or decades. Now, if a developing country or two became strong and vibrant enough to create a new currency that was widely accepted across the globe, that could be a game changer. But for the time being, the world is short on currency and that means the value of what’s out there is going to go up (deflation) not down (inflation) even in the face of massive debt held by the issuers. Ultimately, when we get closer to parity in global living standards and wages, countries with massive debts will face hyper-inflation. For now, it looks like that will be a challenge for a later generation.

Information control is bad economic policy

2010-08-12T20:29:00.000-07:00

The Chinese want increased ability to censor Google, Saudi Arabia, the UAE, India and other countries have recently threatened to cut off Blackberry service if they don't get access to encrypted customer information and communication. They claim they need access and censorship for national and regional security. But it could prove to be an economy killer.

Information is perhaps the most closely guarded asset global corporations have. If they can't trust that their information is safe, especially in countries where piracy is already a problem, they may ultimately decide that the risk of losing precious intellectual property is not worth the potential reward of establishing themselves in emerging markets.

Countries and regimes that work too hard to control information may or may not achieve increased security, but they will not achieve increased prosperity in the long run. Entrepreneurs, risk takers, producers will go where the risk/reward equation makes the most sense. Nobody wants to see the fruits of their labor simply taken from them, without warning or compensation. Not even in the name of security.

Governments and by extension the populations that enable them to remain in power, must decide if they want a vibrant economy because their government needs money to enforce control or because they want a higher living standard for individuals within the country. Order and control are not virtuous ends in and of themselves. They can be a consequence of good policy, as a happy and satisfied population can be peaceful and orderly. They are not primary goals. Any idiot with a weapon can impose order. It takes wisdom and leadership to enable and inspire creativity, production, trade and freedom.

Too Many Economists Spoil...Everything

2010-08-10T18:13:00.000-07:00

Ask 3 or 4 economists what’s in store for us given the national debt, the recession and other current data and you may get 3 or 4 different answers. Why? Because predicting human behavior via a reliable mathematical formula is a pipe dream. People’s behavior changes as their experience, knowledge and awareness changes and the behavior of people is ultimately what economics is all about. There are also opposing forces within our financial system which ebb and flow from day to day, week to week and year to year.

You may have heard the financial collapse in late 2008 caused a “liquidity crisis”. That’s because most of the money we use in every day transactions is not actually Treasury issued U.S. dollars. It’s I.O.U.’s from banks to other banks. The amount of I.O.U.’s any bank can have outstanding is dependent on their deposits and other assets. If someone fails to pay back a loan, it has an exponential effect on the amount of money a bank is allowed to loan out. Your $1 default can cost the bank $10 or more in available cash flow. That’s why a default rate of 5, 6 or 7% can be enough to make a bank insolvent.

The Federal Reserve has attempted to counter the loss in total currency resulting from defaults by engaging in “quantitative easing” which is a cool way of saying “creating money out of thin air”. They don’t even go to the trouble of printing it. It’s just an adjustment to the balance sheet. They use this new money to buy assets like Treasuries and corporate bonds from banks, which gives them more cash, which they can leverage to make more loans using something called the “deposit multiplier”.

Countering the Fed’s counter measures is America’s increased savings rate. As people grow more and more skeptical of our government’s ability to competently manage the nation’s business, they start squirreling away cash. They borrow less and some even horde cash at home, rather than in banks. Remember, the bank can loan out several times the amount of money you deposit, so if you put $1 under your mattress instead of in your bank account, the bank loses several dollars in potential cash flow.

Another factor at work in the economy is the fact that profits from the financial markets have accounted for as much as 41% of corporate earnings in recent years. Financial sector profits come largely from fees on transactions (as does government tax revenues). Fewer transactions means fewer opportunities for fees. Hence both the banks and the government have a vested interest in creating more transactions, whether they lead to any actual added value or not. They view any activity as stimulus, when in reality, much of it is just waste.

Ultimately you create a thriving economy when you give people incentive to work harder and/or smarter to create value for one another. You have to make trade easier and more rewarding at all levels, from individual to small business to mega corporation. Creating more money, more rules and new fees isn’t going to get us there. The best thing the government can do for the economy right now is to quit trying to direct it and just sit back and observe for a while. Trust in the cumulative effect of individual decisions. You’ll be amazed at how efficient it really is.

Market solutions don't need Washington D.C.'s approval or even involvement

2010-07-21T13:12:00.000-07:00

The credit crunch continues. One in seven homeowners with a mortgage are behind on their payments. Foreclosure rates are still at historic highs and government programs to help alleviate the problem aren’t working.

There are some common sense approaches to the credit problem though, that don’t require government involvement or taxpayer dollars. Many lenders, regulators and politicians are just making the issue more complicated than it needs to be.

Lenders want to protect their investments. They have no vested interest in seeing people tossed out of their homes just for the sake of tossing them out of their homes. What if they could protect their interests and equity without an eviction?

If someone is several payments behind on their mortgage, they are likely going to lose any claim to the house. Since they had borrowed against the value of the home, they really aren’t losing anything as far as assets go. They never really owned it. The heartbreak and upheaval comes from having to pack up and move, and having to do so while one’s access to credit is non existent. What if the lender agreed to finance the arrears over a period of years while allowing the customer to rent the home at current market rates? The customer would give up any claim to the home, pay back the arrears over time and must make timely rent payments. The bank doesn’t have to go through the expense of foreclosure, maintains a revenue stream from the property and retains all its equity in the property.

What if lenders could make it easier to avoid getting behind in the first place? My very first loan was for an old VW Bug I bought when I joined the Army. My credit union had a policy of offering a “skip a payment” option each December to help customers free up some cash for Christmas. It’s not as generous as it may sound. The lender just extends the life of the loan by a month and actually ends up making more money than they would have if you didn’t skip a payment. The customer gets to have a Christmas budget without ever having “saved up”. This doesn’t have to be a Christmas thing. What if borrowers could earn a “skip a payment” option every twelve months (use it or lose it, you can’t skip two payments in any given 12 month period)? This would help mortgage holders when things get really tight. It just might give them the breathing room they need to get through a tough time. Again, the lender is just deferring the payment and getting some extra interest in the process. If it prevents a foreclosure, they come out way ahead.

Why aren’t more of these types of solutions employed? Well, because lawmakers and executives who spend too much time in meetings tend to think the worst of the “average American”. Thus, policy is developed based on the what the very worst among us might do. To be fair, HOA’s and other civillian oversight organizations display the same tendencies. The fact is, most people are good people. A bit less paranoia in the marketplace could serve us all very well.

Of course, not all bad cash flow situations can be salvaged. Sometimes you just have to take your licks. However, with a bit of creative thinking and cooperation rather than panic, lenders and borrowers can work together to serve their own interests without relying on legislation and mandates. Finding ways to minimize trauma while protecting your interests can be good for business in the short, medium and long term. How long do you think a customer will remember that you could have forced them out of their home, but chose not to?

iPhone 4 problems solved!

2010-07-17T11:33:00.001-07:00

Nuff said

Who decides what businesses are desirable?

2010-06-03T19:08:00.001-07:00

There is a heated debate going on in the City of Fountain, Colorado right now over whether or not to allow medical marijuana dispensaries to operate within the city limits and under what conditions. Several groups have been informally polling and speaking with business people and the general public, to get an idea where they stand on the issue.

As a local business owner, I was asked if I thought having a medical marijuana dispensaries open nearby would help, or hurt my business. I found the question not only leading, but very disturbing. It illustrates an attitude and modis operandi that’s all too typical among people who see more and more government control as a virtuous goal.

The problem I have with the question is that it assumes that I, as a local, existing business, can work with the government to ban undesirable businesses from opening nearby. That’s a very convenient way to keep out indirect competitors. Should a local phone store like Cricket or Verizon and their neighbors have a say in whether or not an electronics store can open near them? Could shopping center owners influence what businesses can open nearby. What if you’re trying to open near a large shopping center, but not renting from that center? Do you think the landlord my have some influence over his or her tennents?

But doesn’t a neighborhood or community have the right to decide what kind of businesses should operate in their area. The do and they exercise it every day. It’s called commerce. Businesses can’t survive, never mind thrive, without customers. You cast your vote every time you make, or don’t make a purchase. A factory, nationwide Internet business or businesses where the customer base doesn’t reside nearby is a different animal, but that’s not what was being discussed here. A business that relies mainly on a local customer base must have their support, as expressed by their purchases.

Taking market forces out of the equation, by making it subject to a political vote or government policy, is the kind of “business/government/community based” approach to commerce that leads to the multi-billion dollar lobbying industry. Businesses don’t compete in the marketplace, they compete in the legislature. They don’t pour resources into research, development, cost cutting and generally adding value, they pour resources into political action committees, community focus groups, polling companies and marketing material and campaigns aimed at influencing a political outcome. As it turns out, when you get large enough in terms of cash flow, it’s more cost efficient to eliminate potential rivals through legislation than to actually compete with them.

An incredible number of medical marijuana dispensaries have opened throughout the state in recent months. I fully expect the marketplace to dispense with most of them. There are a few more expenses involved in owning and operating a commercial, retail store in a highly competitive atmosphere than there are in selling dope out of your basement. Suddenly you have rent, utilities, signage, taxes, employees and there are six other guys in a two mile radius, openly enticing your customers to buy from them. Sure was nice when you were the only guy they knew that sold pot.

But if you have the know-how and the discipline to pull it off, you have a consistent local customer base, and you’re operating a legal business, who am I to say you shouldn’t exist? The legitimate issue for government is to determine whether or not there is a direct public safety issue and if so, make that case to the public. Whether or not a local retailer has the support of the public will be determined when/if they open for business.

Open letter to Republican Incumbents

2010-05-18T16:25:00.001-07:00

You may have noticed that there is a wave of angry voters out there. If you are in danger of losing your job, you may believe it's unfair; that your voting record demonstrates you are not part of the problem. I believe many of you still don't understand what all the fuss is about. Let me try to clarify.

The frustrated masses are not just Tea Party members. There are also frustrated individuals who prefer not to march under anyone's banner (myself included). We believe that this country is facing not only fiscal and economic disaster, but social disaster. Every time the government passes a new regulation, mandate, fee, or takes on some new role with respect to individuals, companies or organizations, we lose a little more individual freedom. We don't want you to take care of us. We just want to be able to interact with one another in the absence of force. We don't want you to make change painless. We want you to do the right thing.

Perhaps your voting record is immaculate. Maybe you've said and written all the right things during the course of your career. What were the results? We don't have time for another group of well intentioned politicians to do their very best and come up short...again. We're not interested in politicians that want to appease those who want less government while also appeasing those who want more government. It's not enough to be opposed to toxic policies. Stop them. When two sides advocate diametrically opposed philosophies of the role of government, you can't ride the fence. Pick a side and play to win. I don't know what you can do between now and your next election to convince the voters that you will reduce the size, scope and cost of government, but that's what we demand. As the great philosopher, Yoda, said "Do or do not. There is no try."

The Tea Party is not your enemy. Reality is.

Is sovereign currency about to go out of style?

2010-05-12T19:12:00.000-07:00

Gold has been doing very well lately. As people lose confidence in global currencies, they hedge their bets by buying gold. Gold isn’t patented to any one country and so isn’t dependent on the competence of any government. The drawback is that it isn’t widely accepted as currency. That may be about to change.

in 2009, Thomas Geissler, the chief executive of TG-Gold-Super-Markt in Germany, rolled out a vending machine that dispenses small gold bars and coins. He’s since upgraded it to be able to update the price of gold every two minutes and has installed one in the prestigious Emirates Palace hotel in Abu Dhabi on a day when gold reached another all-time high.

The trouble with world currencies is that the only difference between a dollar bill and a Treasury bill is that one has an expiration date, and you get an interest premium to compensate for it. So when a government issues new debt (which they’ve all been doing a lot of lately) they are essentially creating new money. They’re adding new supply while demand is waning.

Central banks have been able to keep currencies relatively stable with respect to each other by buying and selling one another’s currency to achieve specific target ranges. They have not been able to hold their own against gold. While production does increase supply, demand is strong and growing. It may hit a tipping point if and when some major company or organization starts accepting, then demanding gold as payment.

A convenient way to acquire gold currency, such as Mr. Geissler’s “Gold to Go” machines, might just be a catalyst to creating a new global currency, which would be terrible news for existing global currencies.

Defending the Euro

2010-05-10T21:27:00.000-07:00

I just sent this as an email FoxBusiness.com. I thought it would make a good post as well.

Wouldn't it have been better in terms of the value of the Euro as a currency if they had let Greece default (or restructure)? A country's currency is only as valuable as the world perceives it to be. A lot of that has to do with supply control.

I would be more impressed if the Euro-zone had told Greece "No, you can't have more Euro's, find another way." Even had Greece been forced to restructure its debt, that would demonstrate a failed business model, not a failed currency. In fact, the currency was too valuable to just give away.

I would think that would have increased the value of the Euro in the longer term. They haven't propped up the currency. They're trying to prop up a nanny state. I assume because they just don't want to believe it doesn't work.

The Cape Wind debacle

2010-04-29T07:48:00.000-07:00

Cape Wind demonstrates that wind and solar are not the answer to our energy Jones.

The Obama administration recently approved America’s first off-shore wind farm, dubbed Cape Wind, off the coast of Cape Cod. This comes after 10 years of mandatory study, review and battling opposition groups. But opponents vow to continue to fight on grounds ranging from historic and cultural preservation to aesthetics, to safety. Similar arguments have held up solar and wind projects across the country.

It’s not just a matter of time. These delays, court battles, mandatory studies and public relations battles cost tens of millions of dollars which must be recovered somehow. If and when a project actually gets done, the cost will have to be built in to utility bills.

Wind and solar farms take up a lot of square miles. It appears there simply is not enough non-contested area on land or sea to even put a dent in our energy needs. Even individuals installing solar panels on their homes, must do battle with neighbors who want to plant or keep their trees.

The Cape Wind project would be 130 giant wind turbines, each 400 feet tall, and would hopefully provide 75% of the power requirements for Cape Cod. Now imagine what it would take to provide even 10% of the power requirements for Manhattan. Solar isn’t any more practical. If you wanted to use solar farms to supply the power needs for New York City, you’d have to cover most of upstate NY with solar panels. It’s just not going to happen.

Everyone likes the warm, fuzzy feeling they get when they talk about “clean” energy, but few want the means of production located anywhere near them. That being the case, perhaps we should stop throwing money down these black holes and look for solutions that have a snowballs chance of seeing the light of day. There are other options. Perhaps the most promising is algae to fuel. Algae farms can be located anywhere that has access to sunlight and carbon dioxide. You don’t even need clean water. Yet for some reason, approaches that are doomed to fail seem to garner all the taxpayer “investment” dollars. This is not an energy policy. It’s a bureaucrat and attorney jobs program.

So you've just been force-fed health care "reform". Now what?

2010-03-29T17:09:00.000-07:00

Well, the debate is over. The big health care reform bill is now the law of the land. Like most Congressmen, I can't wait to see what they've done. No more predictions, no more theories. Nothing left to do but watch. Either everything is going to be great...or it's not.

We can still theorize and predict spin and tactics though. Step one was to go public with nasty emails, making it seem as though a bunch of psychos suddenly have come out of the closet to threaten Democrats. The only problem is that lawmakers on both sides of the aisle, and pundits and news anchors, have been getting nasty emails and phone calls as far back as anyone can remember. Both parties received their share in recent weeks and the Sergeant at Arms for the House of Representatives stated there has been no notable increase recently. So why all the commotion? The idea was to make it look as though those who opposed this bill are very bad people.

Next, it's time to demonize corporations again. AT&T, Verizon, Caterpillar and others have announced that they'll be taking big charges against earnings and possibly cutting benefits, jobs or both. Now there are calls for Congressional hearings to make the CEO's of these companies explain themselves. I'll save you the trouble. When a socialist leaning lawmaker sees a company post a $3 billion dollar profit, they think "Well, they can certainly afford a $1 billion, new expense." In reality, if you reduce a company's earnings potential by 33%, you reduce the value of the company by 33% and the stock price will eventually reflect that. It is the job of management to maintain and grow earnings on behalf of the shareholders or owners (the guys they work for). Naturally, they have to take defensive action.

This will be portrayed as "putting profit before the welfare of employees". Maybe that's so, but why do people start and invest in companies? To provide for employees? No, they do it to make money. They pay employees to help them make money, not just for the sake of paying employees. Why do you get up every morning and go to work at the chip assembly plant? Because you feel some duty to humanity to provide them with computer chips? No, you do it to make money. In fact, if you're taking home more than you need to just barely stay alive, you're being greedy as well.

That's where this is going. Once the profit has been removed from business, you're next. Your government will decide how much you need and deserve and that's all you're going to get. Then they'll be flying around in their private jets, meeting at the best of hotels with their entourages in tow, thinking of just the right words to use to convince you how much better life is than it was before.

How “exceptionalism” killed the American experiment

2010-03-21T19:54:00.000-07:00

Our founding fathers embarked on a great experiment when they created the United States of America. What if the individual citizens held all the power? What if government were required to be responsive and accountable to its citizens? What if individual rights trumped the interests of the state? What if individuals were free to pursue happiness by their own definition. Of course, with individual freedom comes individual responsibility. Hence we started making exceptions.

Over the decades and centuries we decided that individuals are responsible for themselves, except that we’ll have Social Security, and welfare, and Medicare and Medicaid and unemployment insurance and a host of other safety nets, grants and entitlements. Individuals are free to enjoy their private property except when doing so conflicts with the “general welfare”. For example if society can make better use of your land than you by building a new road, or even a shopping center, you’ll just have to give it up for the greater good. Individuals shall be free to engage in trade, except that they’ll do so in pre-designated zones, and collect the proper taxes and pay various fees, and obtain proper licenses and comply with the appropriate regulations. Citizens have the right to bear arms, except when they don’t. Taxes shall be imposed in a uniform manner, except when the government decides to use tax credits, penalties, incentives and varying rates to influence behavior.

Now we’ve made the ultimate exception by deciding that the government is responsible for ensuring everyone gets health care. In this debate, the cost, whether or not to cover abortion, tax rates, fees and other clauses were really side issues. The underlying issue is power. The government now has legitimate justification to regulate every aspect of your life. If we’re all providing for each others health care, anything that might impact the cost or delivery of health care becomes everyones business. The food you eat, the car you drive, the recreation you engage in all have the potential to do me financial harm in the form of increasing health care costs and so I now have a vested interest in them. It’s now up to the government to ensure that the impact of your activities on me is minimized. Your activities will have to be monitored and regulated. Think this is hyperbole? When the President signs the bill on Tuesday, the IRS will officially be in charge of monitoring whether or not you have the proper health care plan, and doling out penalties if you don't.

We are in the midst of a substantial shift, from a society that put the individual on top, to one in which the individual is irrelevant. Society is no longer a tool for the individual to make use of when and if he or she chooses. It is now a master to be nurtured, fed and obeyed. You are called upon to “serve something higher than yourself”. After all, your self is insignificant. It’s others that matter. Others means everyone except you. We still choose our leaders in democratic elections. But, those leaders are now charged with serving the greater good through the power of the state, not with protecting the rights of any individual. Individuals are expendable.

Many people are very pleased with this evolution. They believe that a collectivist society can work if it’s implemented correctly and gradually. To me, it’s like a kid believing that if they move their finger to the hot stove slowly enough, it wont burn this time. People gravitate towards the socialist ideal because they believe that somehow, they’re personally going to come out ahead. All you have to do to get things from “society” is demonstrate that you’re more needy than others. Predictably socialism has demonstrated a great capacity to increase neediness. I don’t believe that the results at this latest attempt to create a collectivist Utopia will prove to be an exception.

Was it the spending or the war that ended the Great Depression

2010-03-07T09:03:00.000-08:00

With our national debt currently at around 86% of Gross Domestic Product and rising, many are concerned about the fiscal future of our country. Others point to the 1940's, when spending on World War II skyrocketed national debt to 120% of GDP and pulled us out of the Great Depression. They credit massive government spending with saving the economy.

If you look only at the statistics, that's true. But you have to put the spending in context. World War II was an endeavor that most individuals in the country had to be personally involved in. Millions of able bodied adult males were drafted and the women worked the factory jobs. We didn't have drones, satellites and assembly line robots. We had to use people. As a result, a huge segment of the population was taken out of its comfort zone and exposed to new ideas, new people, new places. It was a nation-wide life changing phenomenon even greater than the internet.

The massive spending was not on "make-work" projects. We needed specific things for our very survival. We needed air craft carriers, ships, vehicles, bombs. We had to reverse engineer whatever the enemy came up with. We needed to do it better and throw it right back at them. It was a highly motivated population working at absolutely necessary endeavors. We were not building bridges to nowhere, studying ketchup flow or planting flowers in the highway medians, just to keep people busy.

All of these things together created a huge jump in productivity and we were able to overcome the massive debt we had created. We are in a very different circumstance today. Spending alone will not fix our economy any more than recruiting one member of the New Orleans Saints will get you a Super Bowl win next year.

Perhaps fending off an invasion of extra-terrestrial invaders could have a similar impact. But, I don't think banking on that scenario is a good idea. It's time to reign in the government and its spending and remove the overhanging burden of massive debt from the marketplace.

The Day After

2010-02-26T21:09:00.000-08:00

The US national debt is currently about $12.4 trillion. Interest on the debt is about $.2 trillion annually. Actual federal tax revenue is about $2.1 trillion, while the budget is over $3.5 trillion. To bring the budget in balance immediately would require an across the board cut of at least 33% in federal spending.

Federal spending has increased on average about 8% over the past decade, while average annual GDP growth is closer to 3%. National debt is now almost 87% of GDP and rising. No one is proposing any real reduction in federal spending. In fact, many are pushing for more. A lot more.

It was once conceivable that we could grow our way out of this situation. But the growth rate required to keep up with government spending trends would spur skyrocketing interest rates, which would cause the deficit to spiral out of control at an even faster clip.

At this point, you have to believe one of two things. The government will muster the political courage to make massive cuts in spending or the failure of this government is imminent. It might be next week. It might be in 20 years, but without a sea change in policy, behavior and the philosophy of the government’s role in society, it’s not a question of if it will collapse, just when.

Right now, politicians are playing fiscal hot potato. The hope is that they can continue as is until they are out of office and safely retired. The next crew will figure something out. But the next crew will be the same personalities in different suits.

All I can recommend is that you ground yourself in your principals. There will be a day after. There may be no avoiding the train wreck, but you control how you’ll respond to it. Make it something future generations can be proud of.

Ramsay's Record

2010-02-12T20:27:00.000-08:00

On Ramsay's Kitchen Nightmares, Chef Gordon Ramsay comes into a troubled restaurant and tries to get it turned around. No matter how dreadful the situation, he always seems to end his week long project with a successful relaunch and a staff committed to doing things right from now on. But what happens after he leaves?

I got curious when I watched the J. Willy's episode and later the Fiesta Sunrise episode and thought "There's no way this place is still open." I was right. As it turns out, roughly two thirds of the restaurants featured on Kitchen Nightmares, in 5 seasons in the UK and now in its 3d season in the U.S., have either closed or changed ownership. Some have pointed to these stats as evidence of failure on Ramsay's part. I beg to differ.

First of all, the vast majority of the restaurants featured on the show have one foot in the grave when he walks in the door. The fact that 1/3 of them have survived is really quite impressive. The thing that gave me the willies about J. Willy's, was that it appeared to me that the owner was simply banking on the publicity from the show to make him rich. Of course everyone smiled for the cameras, put on a good show and pledged to take Ramsay's advice to heart. Publicity wont make your food taste good. It wont make people okay with waiting too long for sub-par food at inflated prices. You have to continue to execute and provide value. Incredibly, although J. Willy's closed down, there's still a website that encourages people to "invest" in the brand name sauce that Ramsay developed for the restaurant to try to save their sorry behinds.

In the case of Fiesta Sunrise, Vick was clueless when Ramsay got there and just as clueless when he left. Yes, they had a good night, new furniture, flashy new signage and cleaned the place up. But then, they handed the reins back to Vick. But at that point I don't think Warren Buffet could have made it work. The place had 120 seats, a 90k a month break even point and was 850k in debt. Do the math. They would have had to fill the place, twice over, every day, 7 days a week, 365 days a year for about 10 years to pay off that debt.

Ramsay doesn't provide salvation. He provides a fighting chance. He goes into places that are on death's door and gives them the insight and opportunity to work their way back. But, the same people who drove it into the ground are responsible for turning it around after their one-week crash course in restaurant and business management. It's a long shot to say the least. I'd wager that his 30+% success rate is about 29% better than the results would have been without him.

Creating work vs. creating wealth

2010-02-08T16:23:00.001-08:00

I saw a report some years back that studied the correlation between average global temperatures, as determined by ice core samples, and global economic activity (sorry I couldn't find it online). The conclusion was that there is a direct connection. Lower temperatures directly correspond to less trade. Higher temperatures directly correspond to increased trade.

Part of that may be psychological. People may be more sluggish and less productive when they're colder, but a big part of it is how resources are expended. One might think that snowstorms and cold weather are job creators and thus, good for the economy. But while colder temps may require more work, that work does not result in more wealth.

When you create something that is worth more than the sum of its parts, you have created wealth. Tie a rock to a stick and you have a hammer or an axe, worth more than a rock plus a stick plus some binding. When you provide a service that makes someone else more productive, you create wealth. If you deliver something for me, allowing me to continue to work on something more valuable than what I'm paying you, you have added value.

When I have to spend twice as much on snow removal this year as I did last year, that's not a creation of wealth, it's a transfer, and there is a net loss in the process. You get my money, but you have expenses, and in the end, the result is at best, a return to pre-storm status quo. No value has been added in comparison to last year.

This is a dynamic that the current crop of economic eggheads in Washington D.C. completely misses. They believe that any transfer of money is good for the economy. They don't recognize any difference between paying people to dig holes, then fill them back in and paying someone for something that's worth more to the recipient than it is to the provider. The latter is how free markets work. Both parties voluntarily enter into a transaction that leaves each with more value than they started with. The former is central control. It serves to keep people busy and has the added benefit of generating tax revenue, since whenever money changes hands in this country, it's usually subject to some sort of tax. It does not create wealth, it consumes it.

The challenge for the government now is not to "put people to work", but to enable wealth creation by allowing individuals to reap the rewards of their good ideas and hard work. To do that, they must enable individuals to choose what to spend their money on and when. They must also allow producers to offer their goods and services at market determined prices, with minimal government interference.

This is in direct contradiction to the nature of most politicians. They generally seek more control, not less. As long as this is the case, the global economic cooling trend will continue.

What will the U.S. debt lead to?

2010-02-04T10:41:00.000-08:00

The problem people are having in getting their heads around what a $13 trillion dollar debt means, with deficits running 30 - 40% of the total federal budget, is that we're in uncharted waters. This is a level of fiscally throwing caution to the wind that the world has never seen before. It's hard to say what might result from this because there's no example to look back on.

There may not be a historically significant example, but I do have a personal annectdote that may apply. Back in my younger days, I liked to play poker with the guys at work. Sometimes we'd get a bit carried away and the pots would get pretty big. We began to exchange "markers" or I.O.U.'s, which we agreed would only be collected upon at the poker table. We didn't want to take anyone's grocery money after all. However, if you had outstanding "markers" you didn't get to leave the table with any cash. You had to pay down what you could before calling it a night.

This went on for a while, and worked out pretty well, until one evening when the pots got really out of hand. I was having a winning night, and many of my colleagues were trying to make all their losses up in one hand. Long story short, I wound up with something like $13 million in "markers". Everyone was having a good laugh and decided that of course, we should just throw these markers out. I said I had no problem with that provided that the $600 or so of markers I had outstanding before that night's game were also thrown out. This caused a big uproar of protest. So I said I'd honor my $600 in markers if those who owed me the $13 million honored theirs. The markers were all thrown out. We dispensed with the marker system and started playing cash only.

The level of U.S. debt is beginning to approach the level of ridiculousness of my $13 million in markers. Other countries are in a similar pickle. In the end we may have to employ a solution similar to the one my poker buddies and I came up with. Clear the books, call it even and start over with a new system. This would cause the most heart ache at the millionaire and billionaire level, so it will be avoided as long as possible. But, it seems we're all playing with funny money already. It's just a matter of time before the major players have to acknowledge it.

How more money in campaigns could make for smarter voters

2010-02-02T17:40:00.000-08:00

So Bill O'Rielly and John Stassel are arguing the merits of the Supreme Court's decision to strike down a key element of Campaign Finance law. That is, the Supreme Court has determined that Congress cannot limit the amount of money that corporations, unions or organizations spend to get out a political message.

Stassel stood up for free speech, but missed the main point. O'Rielly expressed concern that a foreign government could funnel big dollars into the U.S. for political purposes. That's true. But to assume that the American voter (it's still one man, one vote) is going to go for whatever idea has the most money behind it, is insulting. Suppose a law were proposed that each Thursday, every man, woman and child in America smash their own thumb with a hammer. Now suppose the Chinese government spends $100 billion promoting it. Would you vote for it? What if the ads were really funny?

Here's an idea for real campaign finance reform. What if individuals actually paid attention to what they were voting on? What if they educated themselves with regard to the underlying principals of the issue? What if they actually evaluated a candidate's competence for the job they're seeking?

We have a choice here. Dispense with freedom of speech, because we fear some may speak too much, or make more thoughtful decisions on an individual basis. The latter could actually make us all wiser and wouldn't cost us a dime.

The Global Casino

2010-02-02T11:42:00.000-08:00

In thinking about the direction that global markets are heading, it occurred to me that they are increasingly operating in an environment very similar to what you see in a casino.

Government needs producers, entrepreneurs, people willing to take risks. These are the people that fund everything else. They are the players. The government is the house. The house always gets a cut. In fact in government, the cut is much bigger than in the casino. Whether you win, lose or draw, you'll pay through license fees, taxes on employees, unemployment insurance, workers compensation, use taxes and other fees. If you win, you pay even more, through income and capital gains taxes.

In a casino, you have the dealer watching the players, someone else watches the dealer. Someone else watches the watcher, and so on. Government is very much the same. There are a myriad of departments, agencies and employees who's ultimate purpose is to monitor the free market players.

Whether it's government or the casino, the system is designed so that the house always wins over time. At least in the casino, you only pay when you lose (and if you play long enough, you always lose). In the market place, you pay to play all the time.

The difference is that in the casino model, players go outside the casino and earn more money, so they can come and play another day. There is no system outside the reach of government where players can accumulate wealth to spend in the marketplace.

We are now in a situation where 50% of the country pays no income tax and the top 1% pays more than the bottom 95%. The number of watchers continues to increase as the pool of players gets smaller. Obviously this is not sustainable. As government seeks to limit risk, it also limits reward. The game becomes less rewarding and less fun. Fewer individuals are interested in playing. At the same time, more and more people are dependent on the house's take. The house keeps promising more while taking in less.

How long can this model continue? Well, I don't see any indications out of Washington or on the world stage that we're going to change direction, so I suppose we're about to find out.

All tax cuts are not created equal

2010-02-01T16:33:00.000-08:00

The theme for the week in Washington D.C. is jobs, jobs, jobs. That's a good thing right? Well, the solutions may just be worse than the problem. A variety of tax cuts and new spending programs are being discussed and proposed. Most of them are of the targeted variety. There is nothing more un-American than a targeted tax cut.

Under some of the ideas being kicked around, if you hire new workers, you get a tax break. If you just keep the ones you have, you don't. If you're a company that wants to make monorails, you'll get government money. If you make something else, you don't. If you buy a new house, you get a tax cut. If you're just trying to keep the one you have, you don't. You get the idea.

The President just submitted a $3.8 trillion budget. That means our federal government's expenditures are now approaching 30% of the total goods and services produced in this country. What they don't own, they want to control. One way to exercise control over things you don't own is through the tax code. You take from those who aren't behaving according to the master plan, and give to those who are.

According to the Heritage Foundation and Wall Street Journal's Index of Economic Freedom, the United States has fallen to 8th place in the world, behind Hong Kong and even Canada. We now rank as "mostly free".

Perhaps it's the sheer size of government that leads inevitably to more and more government control. Money is power and nobody has more of it to throw around than the U.S. government. The progressive movement has a vision, whereby we all happily work at our appointed duties and contribute to the greater good of society as determined by those smarter and wiser than a mere citizen. The ultimate goal is similar to the society depicted in Star Trek and other sci-fi favorites, where the ugliness of capitalism, free markets and even currency have been dispensed with in favor of dedication to duty. The only difference between a hard core communist and a progressive is how we get from point a to point b. Communists prefer armed conflict followed by a 'transition period', where progressives believe legislation, policy and executive order will gradually move society where they want it to be.

Maybe we'll embrace individual freedom before it all comes to a head, maybe we wont. Whether we move toward a more collectivist society via warfare or policy initiatives, the movement will not end well. It never does.

Brown beats Coakley, the Massachusetts....whatever

2010-01-19T20:40:00.001-08:00

Maybe the people of Massachusetts were expressing a referendum on the policies of the administration and its allies in Congress. Maybe it was just a case of a horrible candidate versus a decent candidate. Maybe they weren’t aware of the impact this election may have had on all of our futures. It doesn’t matter. The result is the same. I’m sure there are opinion pieces and articles across the web and in the media with titles like “The Boston Massacre”, “The Shot Heard ‘Round the World....”Something....something....something...Boston Tea Party” and other historical references meant to evoke images of a revolutionary event in Massachusetts. It’s predicable, but in this case, not unwarranted. In fact, I’d like to see this event get a name all its own. I wont presume to provide one here, but I will give a description of what I saw. Maybe someone else can name it.

The group that took control of both houses of Congress, and the White House in 2008 was not just the Democrats. It is a particular faction of the Democrat party. Some would call them liberal or progressives, but those are labels, and labels can change. The important thing is the vision. This faction truly believes that a central authority, comprised of the best and the brightest (as determined by the best and the brightest), could better provide for everyones needs and desires than a free market. The only things standing in the way are the Constitution and the free markets.

The previous administration handed them control of the finincial industry, the auto industry and had already declared a financial disaster looming, of ?Biblical proportions. They had a blank check for both cash and legislation. They belonged to the party that had veto-proof majorities in the House and the Senate, had the majority of Governors, many major media outlets in their corner and the full support of most of Hollywood and University staff.

Then, liberal lion, Senator Ted Kennedy dies. A temporary seat warmer is appointed to save a spot for the Democrat that will be chosen by the party machinery to take Senator Kennedy’s place. The honor is given to Martha Coakley, a loyal soldier who will vote exactly as she is supposed to. It’s not as if the Republicans are going to present a challenge in Masschusetts. But alas, Coakley turns out to be a train wreck. She runs a horrible campaign and manages to verbally offend almost every interest group in the state. Her record as attorney general was less than stellar. Meanwhile, back at the Republican camp. There’s no point wasting a big name contender on this race. Republicans aren’t going to win the Kennedy seat. Go ahead and let an actual human being carry the banner. As it turned out, Scott Brown did strike a chord with real people. So much so that he breezed past the Democrat before the party knew what hit them.

The Repoblicans have not taken over Congress. But the one-party super majority is over. Republicans can’t be completely ignored and perhaps more importantly, Democrats are going to take a much closer look at the what’s going on within their own party.

What if the administration and its allies had proceeded without hinderance? The President promised to “fundamentally transform America”. We had administration officials suggesting that the media be much more tightly controlled. Chavez’s takeover of Venezuela was praised as a great achievement. Chairman Mao was quoted as a favorite philosopher. I don’t think most people pay near as much attention to these things as I do. I’m just telling you what I saw. Many new policy initiatives have been killed before they got off the ground, simply because people found out about them, and to date, we still have freedom of speech. We the people still have weapons at our disposal. The most formidable are awareness and the truth. Bad ideas are not exclusive to one party. We must pay attention and hold our elected officials accountable, regardless of party. This election was one in a series of roadblocks on the way to Utopia, and it’s a doozy. But it was close.

Government oversight of the nation’s health care industry was the holy grail. There’s an old American saying; “Your right to swing your arms stops at my nose.”. It means that if your behavior does me no harm, I have no legitimate objection. It’s a Cliff Notes version of individual rights in a free society. If you make health care a national mandate, to be provided by the government, you have provided a “legitimate objection” for just about any behavior. If everyone is being taxed to provide for everyone’s health care, than everyone’s behavior has a direct impact on the financial welfare of everyone else. It would be lawsuit heaven and a license for the government to legislate everything.

I’ve often said in my posts, although I didn’t like the way the country was headed, I remain optimistic because this country has the capacity to turn on a dime. I think we’re making that pivot. Enough people at least agreed that something is not right, that they broke party ranks and decided to pull the hand break.

This battle, that many are still unaware of, is not between Republicans and Democrats. It’s between individualists and collectivists. The collectivists are vastly outnumbered, but they had stealth going for them. The problem is, once you reach the top, you can’t operate in the shadows anymore, and ultimately, the people still rule here.

Thank you Massachusettes.

Haiti Relief Requests Illustrate Core Capitalist Principal

2010-01-16T14:48:00.000-08:00

Both government and private relief agencies are asking people to send aid to Haiti in the form of cash, rather than stuff. Why? Because, especially in a situation where the distribution channels are tough at best and non-existent at worst, it's far more efficient to have the end user determine what they need than to deliver goods and hope they can make use of them.

This is true of non-profits and government agencies handling a catastrophe and it's true of individuals in a free market. Keeping the focus on Haiti and natural disasters, perhaps we could see a new type of disaster relief organization emerge.

What if there were a non-profit relief agency who's mission were to enable commerce at the street level? It could provide things like safe storage for goods and currency; a safe place to buy and sell goods, where you could set up a table or a box, display your goods and not have to worry about getting beat up or shot; safe transportation; safe meeting areas, some kind of dispute resolution service and other things we often take for granted that would enable trade at an individual level. It could work closely with government and other relief agencies to police fraud and theft in its marketplace(s). Essentially, it would be a security service, but primarily focused on securing safe, free trade among individuals.

This would not take the place of other forms of relief, it would be in addition to it. Of course, you couldn't cover the whole country rapidly. But even a single, safe marketplace would enhance the efficient distribution of basic necessities and other goods.

Markets and economies are all about trade and resource distribution. Disaster relief efforts have demonstrated that the more options you put in the hands of the end user, the better the result and the more efficient the distribution. Government, non-profits and free markets all have legitimate, productive roles in a free society. We need to unleash the potential of free trade at all levels, not to the exclusion of everything else, but for the benefit of everything else.

Time to embrace proper profiling at U.S. airports

2010-01-05T18:20:00.000-08:00

Is there any bigger prize for a Jihadist terrorist than an Isreali plane or airport? Probably not. Yet, in thirty years there has not been a successful attack on an El Al plane nor has a plane from the Tel Aviv airport been hijacked. One would think that in a post-9/11 world, we might want to consult with Isreali airport security and see if we could pick up some pointers.

However, there is a great fear of profiling here in the USA. I don’t believe it’s so much a matter of being afraid of being labelled “racist” as the fear of liability. Isreali airport security profiliing is not about race. It’s about behavior. Obviously a 22-year old from Saudi is going to attract a bit more attention than a 64-year old Irishman. But the Isreali’s don’t strip search every 20 something Arab. It’s not necessary and would only serve to alienate paying customers. What they do focus on is conversation, speech patterns, facial expressions, eye movement, body language. Security is both uniformed and covert. Agents engage people in trivial conversation. They are trained to be attentive to things that don’t make sense. Ask a similar question twice during the course of a lengthy conversation. Get two different answers. That’s a red flag. It’s similar to the type of security at major casinos. Everyone is being watched by someone, yet most aren’t conscious of it.

So why don’t we employ some of the same techniques here??Because it would necessitate the most feared thing in the American system of justice; the judgment call. Here in the most litigious society on Earth, the most dangerous thing you can do is employ logic and reason on your own. In Isreal, if you’re pulled out of line and subjected to higher scrutiny and turn out to be innocent, you get your things together and proceed to your flight. Here, you call your attorney and start preparing the lawsuit, and you’ll probably win or at least settle out of court. So, we attempt to make all security procedures a matter of uncontestable fact checking or strict adherance to detailed procedures. We confiscate shampoo, remove shoes and ban nail clippers. Furthermore, there’s no rhyme or reason to who we subject to higher scrutiny. The more random the better. We don’t want to be accused of singling somebody out. Then we’d have to explain our reasoning. Reasoning is frowned upon.

The other drawback is training. You can’t just hire somebody off the street, give them a two-week orientation and expect them to be an expert profiler. Learning to read the “tells” of a would-be terrorist takes continous and long-term training, as well as sound reasoning ability. It’s expensive and time consuming. High tech equipment is also expensive, but much easier to deploy quickly. That’s why it is favored. Also, there is less liability exposure from a false positive from a machine, than from a human being.

Another, I think lesser, factor is that there are a lot of people in America who have convinced themselves that the Jihadists only want to destroy us because they don’t really understand us. It’s an appealing prospect. It simplifies the situation considerably. All we have to do is show the Jihadists how cool we really are, and everything will be groovy. The fact is, the Jihadists see the direction that the “civilized” countries are taking the world in and they don’t like it one bit. If Mr. Rogers were our president, they’d still want to take him out. Democracy, equal rights, tolerance of opposing views and lifestyles are simply not consistent with the world they’d like to create, and they never will be. Lax security in the name of demonstrating our civility is just going to get more people killed.

We can effectively employ profiling without being racist and without turning air travel into shear torture. We need to consult with our Isreali friends, casino security experts and perhaps some of the most successful poker players in the world. Bombs don’t blow up planes. Crazy people do.

DMV Purgatory, a health care reform preview?

2010-01-04T15:15:00.001-08:00

I decided to go register my new (used) Jeep today. I figured an hour or so, early in the afternoon, leaving plenty of time for other errands. So my son Max and I headed out. There was a line going out the door. I got number 708. They were on number 640 at the time, and there were two other, higher priority categories; military and renewals.

Before I start venting, let me be clear. This is not about the folks who work at the DMV. It's just an illustration of the nature of an operation in which customer service is of no consequence. There's no downside to frustrated customers. It's not like you can take your business elsewhere.

Anyway, after an hour and a half of waiting, I noticed the ATM machine. Why is there an ATM machine in here? These guys take in hundreds of dollars per minute. They must take plastic. I'd better ask. Nope. Only cash or checks, but don't worry, there's an ATM. It's not actually working, but if it were.... No problem. At the rate they were going I could drive to any ATM in the state and still be back before my number was called. So, off to the nearest gas station. The first one's ATM was also out of service. The second one worked. Back to the DMV. They had served exactly one more person in my category by the time I got back. Another hour and a half and my number finally got called. I felt like I'd won the lotto. That is, until the nice lady informed me that I needed to get a VIN verification first, since I bought a car with out of state plates. "Don't worry", she assured me, "we're open until 5pm". So, off to the nearest car dealership for a VIN verification. What does that entail? Well, the nice young lady copied some information from my title (the same title I had handed the lady at the DMV) onto a different piece of paper, asked me to read off my odometer numbers and charged my $20. She never so much as popped the hood. Back to the DMV. At least I didn't have to wait in line again. Just three hours and 45 minutes after my arrival, I left with my new plates. The title will arrive by mail in 6-8 weeks. Total cost, about $140 (the car is 16 years old).

How would a for-profit, competitive environment have been different? First of all, there were about 6 to 8 unmanned stations. A competitive enterprise would have done the math and figured that if each employee is taking in well over $1,000 per hour, and you have room for more employees, it's probably worth the expense. Also, how about on-site VIN verification. It's a five minute transaction at $20/pop. Mo money, mo money, mo money. These things even make sense from a political standpoint. How much productivity (and therefore tax revenue) is lost due to people spending half a workday at the DMV?

I suppose there's an upside, if we turn health care into a non-profit bureaucracy. We wont have to worry about people running to the hospital or the doctor's office every time they have the sniffles. If it's as torturous as the DMV, they'll have to drag people to their health care provider, kicking and screaming, or wait until they lose consciousness.

Is Wall Street slitting its own throat?

2009-12-26T09:01:00.000-08:00

So, I'm watching the FOX business block, and the champions and defenders of free market capitalism each dutifully rail against government excess, new regulations, subsidies and take-overs. Yet in the final two-minutes, when it's time to recommend a stock, they invariably select a company that stands to benefit from new regulation, government excess and take-overs.

In 2009 we got bail outs, stimulus, a tripling of the deficit, industry take-overs, cap and trade passed the house, the health care take-over passed both houses of Congress and the market soared.

It seems as if the top 20% of earners in this country actually believes that they can keep on truckin' without the bottom 80%. Their words say to the government "No, no, no." but their actions say "Go, go, go.".

The overt defenders of the new world order can't even bring themselves to decry multi-million dollar get-aways for government employees to hang around hotels and talk about their new contracts. The bribery that takes place in legislation is brushed off as "business as usual" which means, we shouldn't care. All news is good news so long as their favored party remains in charge. It reminds me of the prisoner in "Life of Brian" hanging upside down in shackles, talking about how great the Romans are.

I think that most people know that we are totally abandoning the founding principals of the United States. Many will even state opposition to it if you ask them. However, many of the same people believe they're going to benefit somehow in the short term, so they don't put up much of a fuss about it.

My optimistic side likes to point out that we still have the capacity to turn things around on a dime in this country. My pessimistic side observes that Rome was not destroyed in a day. There were multiple generations of misery before the once mighty empire finally dissipated onto the ash-heap of history. Are we headed for a similar fate? It's entirely possible.

I would urge all you market moguls to put your money where your principals are. Never mind the short-term trade and invest in freedom, or at least refrain from investing in statism. Money talks. Speak up!

The New Transparency of Government

2009-12-23T13:32:00.000-08:00

During the presidential campaign of 2008, Barack Obama promised a new era of transparency in government. He said that bills would be debated in the open, even on CSPAN. Everyone would have their due input and the public would be able to witness the process from beginning to end. Well, it hasn't exactly gone down that way, but thanks to ever progressing communication and information technology, the motives and character of our elected officials has never been more transparent.

2009 was the year of the crisis. Every major piece of legislation was an emergency. So much so that they had to be written behind closed doors by a handful of chosen legislators and policy makers. When they were finally released, there was no time for debate, or even for most members of Congress to read the bills before voting on them. Stimulus, bail outs, climate change and health care were all deemed way too important to be subjected to the whims of the common citizen.

This approach may have worked in the past. There was a time, not so long ago, when there were only three major television networks. Each had a half hour of national news per night, airing at roughly the same time. The average American was provided perhaps ten minutes of information per day on what was happening in Washington D.C.. Today, you can literally keep tabs on our elected officials 24/7. Deals might be made in private, but the fact that the deal making is happening is as plain as day. Whether its scientists fudging data to promote their pre-conceived conclusions or Congress members getting huge paydays for their states in exchange for their votes, the public is fully aware and tuned in and none too happy about it.

Big government proponents are embarking on a power grab agenda. The plan was to rush everything through so that, by the time Joe Six Pack realized what was happening, the deals would be done, the game would be changed, and eventually we'd all get used to the idea that the government is going to tell us what to do and when and how to do it. The problem they're having is that tactics that worked even 3 or 4 years ago, no longer work today. Releasing an important piece of news on Friday evening no longer means it wont garner major scrutiny. You can't just make ridiculous statements like the center of the Earth is "millions of degrees" or the polar ice cap is going to "disappear within 7 years" and not expect people to take 5 minutes on Google to check your facts. You can't just tell people "Relax, we know what we're doing" and hope we don't ask for details. Technology has made it possible for government to disseminate information to almost everyone in real time, and we want to know exactly what they're up to.

Despite their best efforts, our government is becoming more and more transparent. They are currently promoting government by the state, of the state and for the state. This aggression will not stand. George Orwell had it backwards. Big Brother, we're watching you.

The Latest on the Global Warming scam

2009-11-11T12:52:00.000-08:00

Reality has taken another swipe at the religion of Global Warming. The Global Warming cult is not just annoying, they may potentially deal a devastating blow to economies and freedom worldwide based on the premise that man-made carbon emmisions are building up in the atmosphere and bringing about catastrophic global warming. Mother nature begs to differ.

A new study published online in Geophysical Research Letters, states: “New data show that the balance between the airborne and the absorbed fraction of carbon dioxide has stayed approximately constant since 1850, despite emissions of carbon dioxide having risen from about 2 billion tons a year in 1850 to 35 billion tons a year now.”

In plain English, the oceans and land are absorbing our carbon emissions as fast as we can put them out. The catastophic greenhouse scenario is not happening. From PhysOrg.com: “The strength of the new study, published online in Geophysical Research Letters, is that it rests solely on measurements and statistical data, including historical records extracted from Antarctic ice, and does not rely on computations with complex climate models.”

In other words this study deals with reality, whereas the nightmare scenarios are based on commonly held belief.

There is some confusion among scientists, particularly those seeking new grants to combat global warming, as to why the atmosphere is not absorbing the CO2. I’m not a scientist, but I know that mixtures have saturation points. When you stir salt into a glass of water, and continue to add salt, there will come a point where the salt will no longer dissolve into the mixture and you’ll simply get a bunch of salt resting on the bottom of the glass. My unprofessional guess would be that the atmosphere has absorbed about all the CO2 it is capable of absorbing. That’s a good thing. The Earth is recycling our carbon for us.

As you read this, the United Nations is conducting a Climate Change Conference, where world leaders will debate what to do about the non-existent build up of CO2 in the atmosphere. Proposals include payments from countries like the United States to developing countries which emit less carbon; a carbon-debt system, which would be enforced by a newly formed, unelected, global governing body. Here at home, Congress is attempting to pass the infamous “Cap and Trade” bill, which will enrich traders, at our expense, and accomplish very little else.

It’s not that good information is not available to the powers that be. Global Warming or Climate Change is just the most recent vehicle to drive the real agenda; world government. If this crisis comes apart at the seams, they’ll find a new one. It’s never been about protecting you. It’s always been about controlling you.

More info: http://www.physorg.com/news177059550.html

Capping executive pay, You asked for it.

2009-10-24T07:43:00.000-07:00

The federal government’s new Pay Czar, Kenneth Feinberg, has determiined that executives at several bailed out firms must take substantial pay cuts. This has predictably sparked a heated debate about whether the government should be involved in pay decisions and what constitutes “excessive pay”. I believe Wall Street has made its own bed, and now must lie in it.

When firms accept themselves as “too big to fail” and take money from taxpayers through the federal government, they lose any right to make free market arguments. These firms turned their backs on the free market system because they didn’t want to face the pain of failure. Now they have to accept their new masters.

Will government meddling and bureaucracy make the situations at these companies worse? Probably. Will talent walk away? Of course. Then again, it was the alleged “best and brightest” that helped create this fiasco. What about “mission creep”? What if the government decides to cap pay at companies that weren’t bailed out? The optimum time to put the brakes on the government takeover of the free market was before they started doling out TARP loans. Where were the shouts from the free market champions back then?

Eventually the government will wind down its takeover of big business because it will fail. Whether it’s this administration or the next one, reality will set in over time. For now, we’ll get a demonstration of what happens when entrepreneurs are replaced with czars and committees. I believe individuals are entitled to every dime they can make honestly in the free market, but I also believe that individuals and companies have to take the consequences of their actions and inactions. If you want out from under the thumb of the government, give the money back or find a new career.

No More "Lesser of two evils"

2009-10-19T13:15:00.000-07:00

The Republican Party may have thought it had a great ally in the "Tea Party" movement. However, they're beginning to learn that opposition to liberal Democrats does not automatically mean support for Republicans.

The most obvious illustration is the race in N.Y. for the 23d Congressional District seat up for grabs this November. A liberal Republican, Dierdre Scozzafava, is vying for the seat against Democrat Bill Owens and Conservative candidate Doug Hoffman. While old-guard Republicans like Newt Gingrich are supporting Scozzafava, many of the "Tea Partyers" and conservatives such as Dick Army, are supporting Hoffman. Critics say that by splitting the vote between Hoffman and Scozzafava, the third party supporters may be handing the Democrat a win in a traditional Republican stronghold.

The fact that Republicans would even make that argument is a sign that they still don't understand what's going on out in the real world. People who are concerned about ever-growing government, outlandish spending, runaway deficits and the destruction of the free market system, don't give a hoot about the welfare of any political party. They want to vote for individuals who will work for what they believe in. Voting for the lesser of evils is no longer tolerable.

The grass roots rebellion that has become known as the Tea Party movement is comprised of individuals looking at the long term and not liking what they see. They see a real crisis upon us right now. They aren't interested in the numbers game played by the ruling parties in Washington D.C.. They want credibility, accountability, commitment.

I tend to agree with this sentiment. We are always told that it is our duty as a citizen to vote. However, if I don't like the choices put in front of me, I believe the better option is to not vote. Maybe we have to take another step or two in the wrong direction before we move to the right track. If one or both major parties becomes extinct in the process, so be it. If Republicans think that conservatives, capitalists, libertarians and independents have nowhere else to go, they're wrong...dead wrong.

America, you ignorant slut!

2009-09-09T21:58:00.000-07:00

President Obama addresses Congress on health care, 9/9/09

President Obama addressed both houses of Congress tonight in a speech intended to boost support for his health care proposals. If you expected him to state that he’d heard the voices of the opposition and is willing to consider alternatives, you were sorely disappointed. Here is the complete text of the speech. From NYTimes.com.

In it, he implies that fierce opposition to the plan stems mainly from people bent on stopping reform in any incarnation for their own greedy and/or evil purposes. Others are either ignorant, mislead, paranoid idealogues or some combination of the above.

The reason the health care debate has been so intense is that it goes to a very fundamental issue. At the foundation of the argument is whether or not it is the proper role of government to take direct responsibility for the health and welfare of its citizens. Proponents believe it is. Opponents believe it is not. When proponents start with that premise and envision the future it will bring, they see Utopia. When opponents do the same, they see disaster.

When the President tugs at our heart strings and appeals for compassion in the form of support for his plan, it’s not touching, it’s insulting. It’s insulting because it assumes that a reasonable, compassionate, thinking adult can’t possibly be against a caretaker government. Of course if you believe a caretaker government will lead to widespread misery, supporting one wouldn’t be very compassionate, would it?

Both sides of the issue believe they are right. Both cannot be right. There are undecideds and “don’t knows” but there is no middle ground. So, where do we go from here? We could start by taking on the fundamental issue instead of dressing it up as health care reform and dancing around it. This is about collectivism versus individualism. If you have confidence in your convictions, call them by their name and let’s have the debate.

Premature Indoctrination

2009-09-03T17:50:00.000-07:00

Turning a capitalist democracy into a socialist autocracy is no easy task. It can be done. But, it takes cunning, planning and lots of patience. The movement was well underway in this country, but the left may have tried to implement the final phase a decade or two too soon. Now they have to try to pull it off in broad daylight before an unreceptive audience.

Before you can put absolute power in the hands of a few for the good of all, you must first lay the groundwork; set the tone, create the proper atmosphere. You need allies in the education sector. You need allies in the media. You need to get big companies on board. All that was done fairly successfully over the past several decades. However, before you can make the final play, you must have the majority of the population at the point where they’re ready to throw up their hands and say “anything is better than this”.

Higher education is staffed mainly with leftists. No problems there. Major media outlets are dutifully providing the right coverage. In fact, the CEO of General Electric (owner of NBC) is now on the board of the New York Federal Reserve and is a chief Obama economic advisor. Everything’s going well there. Big businesses don’t mind tight regulation and expensive mandates. It keeps the competition down. Keeping up the guise of capitalistic activity also allows for blaming capitalism for everyone’s woes when the time comes to make the big switch. Everything looked to be in place. The public was dissatisfied with the status quo. The left made its move.

The Feds took over the mortgage industry, the financial industry, the auto industry, but health care was a bridge too far. The problem is, they misread the mood of the public. We were annoyed, angry, maybe even outraged, but we weren’t miserable. We were outraged at the players, not the game.

Now the White House is staffed with people who openly supported communism not twenty years ago, but twenty weeks ago. They were feeling confident their time had come. No need to hide the agenda anymore!

But the people aren’t buying it. The genie can’t be put back in the bottle. They have to try to play this out. Obama has to either embrace capitalism and free markets, which he will not do, or go down with the ship.

However it goes from here, we’ll still have massive deficits and a debt that can only be dealt with by inflation of epic proportions. Will we take it on the chin and get back to free people, freely associating in free markets or will be all become willing servants of a great society? I’m betting on the former.

China, Apple and the economics of free

2009-08-29T17:54:00.000-07:00

Apple recently announced that it has reached a deal to bring the iPhone and its Apps Store to China. This is a very interesting and potentially very insightful proving ground for technology and economics which was actually made possible by the Chinese government keeping the masses poor.

The iPhone handsets will be purchased by China Unicom, who will not share subscription revenue with Apple. This means, for Apple to capitalize on this opportunity to reach such a huge market, they have to sell Apps, lots and lots of Apps.

But, that huge marketplace is made up mainly of very low income individuals. Apple, and its army of application developers must come up with highly desired software at a price point that’s agreeable to poor people. In many cases that price point may be zero, or close to zero. The game will be to figure out how to get a little money from an enormous amount of people, consistently. New streams of revenue related to applications may have to subsidize the production and distribution of the applications. It could be advertising, data collection, storage, establishing networks, or some function nobody has imagined yet. There are further challenges. The iPhones in China will not be WiFi enabled. It sounds like a tough bed to grow in, but the parallel processing nature of the world of iPhone application development should make it up to the challenge.

Some believe the “economics of free” is a threat to capitalism. It’s not. Capitalists adapt and continue to find ways to improve their own lot by improving the lot of others. Government can change the rules, but they can’t kill the game. That’s because capitalism takes advantage of and works with human nature, whereas socialism aims to suppress it.

Of course, I don’t endorse repressive dictatorships as a means of market-testing ideas, but there it is. Americans, through commerce, have the opportunity to try to improve the quality of life of people across the globe, under severe restriction. Demonstration of the power of free markets and free people is a far more effective tool than either diplomacy or force in making the most of such an opportunity.

It's the volume stupid!

2009-08-13T17:41:00.001-07:00

In response to lower revenues and budget shortfalls due to the recession, many state and local governments and agencies have resorted to raising fees, taxes, fines and whatever else they can think of. In my neck of the woods, the City of Fountain is contemplating a sales tax increase to pay for infrastructure projects. While I applaud the proponents for getting their plan before the public well in advance of even attempting to get it on the ballot, I think the focus is in the wrong direction.

It seems to me a better strategy would be to look for ways to increase sales volume rather than the sales tax rate. Government should be looking for opportunities to get out of the way. If government needs to cut spending, how about cutting in areas that make doing business cumbersome. Look for paperwork to eliminate, outdated or unnecessary codes or regulations. Less bureaucracy means fewer man hours. There's your savings.

Yes, that would mean a reduction in government's work force, but I believe those jobs would be made up many times over in a more vibrant private sector. Business doesn't want advisory boards, cheerleaders, commissions or more government assistance. It just wants you out of the way.

Cash for Clunkers for housing?

2009-08-08T09:41:00.000-07:00

The Senate has added another $2 billion to the Cash for Clunkers program. This is in addition to the original $1 billion allocated to the program. In all, that's enough to subsidize the purchase of about 750,000 new cars. The program was originally supposed to run through November, but consumers jumped on the deal and even with the new money, it will probably be done within a week or so.

A major component of the program is that the cars traded in to qualify for the rebate must be destroyed. This takes used cars off the road and is allegedly good for the environment (although I don't know if building an entirely new car uses less energy than just keeping your old one). If this program is deemed a success, why not apply it in other areas?

In the housing market, we could reduce inventories and increase energy efficiency by offering a $20,000 rebate on the purchase of a new house when you agree to have your current home destroyed. It would be the end of the housing glut right? One could also apply it to electronics. Smash your old TV, get $100 off a new one. This could be the silver bullet we've been looking for. To get out of an economic downturn, all the government has to do is pay people to destroy their stuff and buy new stuff! It could be applied to services as well. Throw some mud on your car and the government will give you a voucher toward a car wash. Bring a steak to a restaurant and get a voucher toward a meal, providing the steak is destroyed. Show proof that you've destroyed an mp3 file and get half off your next song purchase. Divorce your spouse and get $3,000 toward your next wedding.

This does more than create economic activity. It allows the government to determine which economic activity to create. Instead of individuals running around allocating resources all willy nilly, the much more intelligent and wise experts in Washington D.C. can ensure that you're spending your money on what's best for society as a whole and not just wasting it on yourself and your family.

Sure it will be expensive, but with the government's new policy of actually printing on both sides of paper, the raw materials cost of printing more money should come down. No problem there. Crank up the presses!

Sorry Big Brother, Technology Favors Freedom

2009-08-07T10:47:00.000-07:00

Some politicians have had more success than others putting new information and communication technology to work for themselves. Ron Paul has used the internet very effectively to get out his message. Obama far out-manuevered his opponents on the net as well. Until recently, it was a matter of being the first to know what was available and how to use it. All that is about to change.

The internet, Twitter, Facebook, MySpace and other mass collaboration/communication networks are no longer a mystery to any one group of activists. In fact, the ability to communicate in real time with like minded people across the country and across the globe has made activists out of people who never felt like they had any control over the social-political landscape. This is bad news for collectivists and statists.

The new reality is that interest groups no longer need be a formal organization or even come with a long term commitment. Like minded individuals can band together for a rally this afternoon, and be on opposite sides of a different barricade later the same evening.

This type of "free radical" association favors those who tend to frown on central control in general. For people who truly value the preservation of individuality, free association and free markets, this mode of operating is right in their wheelhouse. It's actually a real life demonstration of the principals they espouse.

The White House is frantically trying to put the genie back in the bottle in response to the ad hoc association of people opposed to the health care overhaul. They've put out a call for people to report "fishy" information put out in emails, blog posts, even casual conversation. If they think that's going to stifle open communication, they couldn't be more wrong. I imagine the inbox at "flag@whitehouse.gov" contains more angry and sarcastic emails than "fishiness" reports.

Monitoring and manipulating groups of neatly organized citizens is far easier than trying to corral 300,000,000 "free radicals". Some are panicked by the emerging social trends enabled by mass communication technology. They would refer to it as chaos. I believe the founders would refer to it as beautiful.

Gangland and Politics

2009-07-09T23:49:00.000-07:00

I watch a lot of History Channel's Gangland. I also watch a lot of news. Today, I connected some dots:

How political parties are like gangs

Recruit the needy. Gang members tend to be individuals looking for something to belong to; a family. Politicians, for the most part, are individuals who crave acceptance and approval.

You have to get "beaten in". We call this non-stop barrage of vicious attacks being "vetted by the media". It's a rite of passage. If you survive, your in. If you don't, your out.

Parties stake out territories, just as gangs do. Look at the boundaries of electoral districts. They are designed to favor the incumbents.

Currency transactions are hidden through money laundering. Both gangs and politicians trade in cash and favors and are very careful not to explicitly connect the payment to the deed.

Constantly looking to expand their territory. Being powerful within a single country is not enough. There is a growing "global community" movement, which of course is administered by a level of government above sovereign nations.

Prey on the weak of will. Gangster deal in vices like drugs and prostitution. Politicians deal in vices like government assistance, contracts and subsidies. In both cases, once you become dependent, they own you.

Both gangs and political parties are self-perpetuating and are not dependent on any particular individual for their long-term survival. Police infiltrate gangs with multi-year sting operations, resulting in hundreds of arrests and convictions, and they keep coming back strong. Political parties also have their purges and downfalls, but a new crop of power hungry recruits is always there to take it to a new level.

For the most part, neither gangs nor political parties go directly after the strong of will. Their prey consists of those who are attracted to bright shiny objects; fame, "free" money, drugs, crime, the need to be accepted by a group. Things generally go badly for both when they try to force their world on people who have no interest in it. Political parties have avoided a lot of potential bad blood by directing the cash flow to their organizations through employers. You get paid less, but you don't notice. You just focus on the net take home, and you feel good about the refund check that comes every year because they took a little extra from you each pay period.

Both gangs and political parties prefer to operate in an atmosphere of chaos. There has to be some degree of order, so there will always be someone to rob. But you also want to avoid facing any consequences for your actions. Creating chaos in the political world is simply a matter of expanding "grey areas" and becoming very adept at the art of rationalization and pragmatism. In fact, pragmatism (changing your code of behavior to suit your circumstances) is openly heralded as a virtue among politicians. Actually establishing a core set of beliefs and striving to live by them makes you an "idealogue" which is an insult in the political world. They've sold this mindset to the public at large, and for the most part, we bought it. It's very appealing after all. Rather than feeling bad about your missteps and moments of weakness, you talk yourself into seeing them as virtuous. Others, who do the same, are not going to argue with you, no matter how ridiculous the justification.

So the formula goes something like this: Recruit the needy (emotionally speaking). Create a common bond through trauma. Prey on the weak. Avoid direct confrontation with the strong. Promote ambiguity and chaos and attack any attempt to promote logic and reason as a means of arriving at an objective truth. Distasteful as it is, it seems to be working so far.

New Gallup poll says 'A pox on both your houses.'

2009-06-30T17:36:00.000-07:00

A new poll posted on Gallup.com today states:

"A Gallup Poll finds a statistically significant increase since last year in the percentage of Americans who describe the Democratic Party's views as being "too liberal," from 39% to 46%. This is the largest percentage saying so since November 1994, after the party's losses in that year's midterm elections."

It goes on...

"Notably, there has been no change over the past year in the percentage of Americans who say the Republican Party is "too conservative," though the 43% who say the party leans too far to the right matches the historical high mark set last year."

So record high numbers of respondents believe the Democrats are too liberal and the Republicans are too conservative. So ideally, they move closer to each other and become "just right", right? Wrong.

We don't need Republicans to become more like Democrats or vice versa. The big lie is that solutions to the problems facing this country lie somewhere along a straight line between the two major parties. In reality, both parties agendas are more like a plate of spaghetti that occasionally intersects with the truth.

The common thread between most politicians of all persuasions is control. Republicans generally believe we should all adhere to Judeo-Christian values and that they should be institutionalized to a large extent. Democrats tend to believe that we are all each others keepers and the good of the community and society should be paramount. Both parties seem to believe that the preservation of the "too big to fail" trumps free market principals. Americans believe none of it.

Government's job is to enable us to freely associate in the absence of force. It is not to mold us into the people they want us to be. We don't have to all get on the same page. In fact, that is the antithesis of what this country is about. This is a nation where people of all kinds of beliefs, with all kinds of personalities and backgrounds find a way to live, work and play in relative peace. This is not accomplished through conformity. It's accomplished by eliminating the requirement for conformity except that we agree not to initiate force against one another.

We don't need Democrats to get more Republican or Republicans to become more like Democrats. We need both parties to get out of our face.

Why I didn't buy a GM car

2009-06-21T09:12:00.000-07:00

sumitted by Nathan Thompson

First, the United Auto Workers Union has strangled the life out of GM. There are too many unproductive people being kept on the payroll, and GM isn't permitted to lay any of them off unless they shell out a year or two's worth of income and benefits to the layed-off employee. Retirees receive almost full wages and benefits, even many years after having retired. The executives of GM paid themselves millions in bonuses even while the company lost money on every vehicle. They allowed the company to amass over $170 Billion in debt.

This debt was purchased by pension funds, insurance companies, and investors who believed in GM and were willing to trust their money and future incomes to this giant of American industry. Now, those investors have just had their money stolen from them, by way of the Obama administration and the bankruptcy court. Bondholders have always been first in line when a company goes bankrupt, and the bondholders get their money first. This has been true since the beginning of capitalism. But now, bondholders are toast. They were put at the END of the line (illegally), behind the UAW labor union and Uncle Sam himself. This massive theft from bondholders should be a warning to anyone who thinks free-market capitalism still works for the common man. GM ran itself just like our government does. It borrowed more and more, even while revenues and market share shrank and shrank. If you want to know how the government intends to pay off all of its treasury bond debt, look no further than how it just treated GM bondholders.

So, why didn't I buy a GM car instead of a new Kia this month? As an American shouldn't I have "rushed to the aid of fellow citizens" by supporting GM? Heck no, GM is toast, and so is the broken system of debt issuance for our government. I don't run MY business this way, and I DO NOT support a system where Peter is robbed so that Paul can continue to do the same ole' same ole'. No, in fact I'll NEVER buy another GM, even though I already own three. I'm pissed off at how they have enabled the biggest and best car company in the world to turn into a poorly run operation that doesn't honor its debts. I'm proud to be an American: I PAY my debts; all of them. If GM doesn't, then I will not support them by buying their vehicles. Nor will I continue to purchase T-Bills or treasury bonds from the US Treasury Dept. I will sell any I hold, and instead, send the money to KIA to pay for my new car, which incidentally, is thousands of dollars lower in cost than the GM, with twice the warranty. Besides the IRS, the only government agency I will voluntarily surrender my hard-earned dollars to is the US Mint. At least they will exchange your devalued currency for real money, silver and gold coins, that never lose their value and represent honest money unencumbered by debt. Wake up America! First, they screwed up the mortgage industry and housing. Then, they wrecked the banks. Then, they caused a stock market collapse. Then, they took over the auto industry. They have consistently strangled the domestic oil industry. Now, commercial real estate is collapsing, and the insurance industry is reeling. Now they want to screw up the health care industry. How much longer until they mess up the farming industry and decimate our food supply. I don't know about you, but I'm buying canned food as fast as I cash my paycheck, because I don't trust these guys anymore. I have lost faith in the ability of the American government to simply do what is right for tax-paying citizens.

Goodbye GM. You had your moment in the sun. Goodbye American economy. You killed the golden goose. Now it is time for we citizens to stand on our own and protect our own families from the excesses of our government!
Respectfully submitted,

Nathan Thompson
citizen, Fountain, CO

Obama Day on ABC

2009-06-18T10:35:00.000-07:00

June 24th is going to be Obama Day on ABC. The network will team up with the White House to broadcast a "debate" on health care on four of their news programs: Good Morning America,” “World News,” “Primetime” and “Nightline.”

No Republicans were invited to participate, at least not any party leaders. There many be some grass roots types present in the audience at the town hall event on "Primetime", or perhaps in the audience or as pundits on the other shows. We'll have to wait and see what they dish up for us.

Politicians, media critics and even other media outlets have criticized the arrangement for being one-sided. Personally, I believe that if ABC or any other network wants to go on a full out Obama promotional campaign, they should be able to do so. My concern is that they promote it as "news". I believe that's deceptive advertising and smacks of Soviet style media. Also, while I don't believe in limiting free speech through campaign finance rules, if they are going to apply to one, they should apply to all. If the Obama administration is going to get hours of free advertising on a major network, it should come under the same scrutiny and regulation that it would for any other candidate or party.

I wont declare journalism dead, as others have. It just doesn't show up very often on the major broadcast networks anymore. If you look hard enough, you can find it elsewhere. I don't even mind entire networks being in the tank for a candidate or party, so long as their open about it. Instead of reigning in the broadcast networks, how about taking the shackles off completely? Do away with campaign finance "reform". Let the money go where it wants to go. Let everyone get their message out as far and wide as they are able. Instead of more government money for campaigns, zero government money for campaigns.

The caveats would be that although you can get as much funding as you're able from wherever you are able, you must fully disclose who and where it came from. If your network is going to support one candidate or party over another, you must clearly state such.

I don't believe that most people are so easily manipulated that they are going to change their vote or their opinion because one person or another had a poster in the right place at the right time or because a morning show host expressed his or her approval of an issue or candidate. As long as speech is free and honest and force and intimidation are kept out of the mix, Americans will get it right eventually.

As evidenced by the controversy generated over ABC's programming, this story is really more about presentation than health care. Regardless of where individuals stand on a particular issue or candidate, nobody likes to feel like they are being "played".

For more info: RBR.com

The new American Civil War

2009-06-13T10:51:00.000-07:00

Once again America finds itself in a war in which, like pre-9/11, one side is mostly unaware they are even engaged. It's a battle for control over the allocation of resources, human and otherwise. It pits the free market against big government and some of the biggest players on the free market side are actually aiding and abetting their rival.

Ideally, in the free market world, the allocation of resource is accomplished by the cumulative effect of billions of individual decisions made every day. Corporations are headed by boards and management which is directly accountable to shareholders, customers, suppliers and associates. They are graded with every purchase decision and their performance is measured in profits. The model is subject to a vote every business minute of every day.

In the big government world, resources are allocated by a select group of bureaucrats, appointed by leaders who are only periodically accountable to voters. The deck is stacked in favor of incumbents through constant and free exposure and they are supported by an underlying bureaucracy that is accountable only to itself. There is no instantaneous measure of efficiency in particular sectors, only the general measures of the economy, based on data compiled by the bureaucracy.

For a time, it looked like the free market had the upper hand. The largest corporations were getting larger. Companies like WalMart were actually able to roll out their own, private sector prescription drug programs. Companies like Google were able to turn the internet into a powerful means of information exchange and storage. If things continued down this path, private sector companies would eventually be more relevant than the government. Something had to be done.

The big victory for big government was in pressuring financial institutions to make loans to individuals based on neighborhoods and ethnicity rather than credit risk. They enabled them to re-package these high risk loans into derivatives and sell them to the taxpayers via Freddie Mac and Fannie Mae, who turned around and sold them to private institutions. Soon, even financial institutions that were not subject to government arm twisting were getting in on the free money orgy. It spread like a cancer, until the whole thing blew up. Of course, rather than let these now huge financial institutions fail, big government saved them. The financial industry surrendered before they even knew they were in a fight.

The auto industry take-over has been in the works for decades. While pundits argue over whether the demise was due to the unions or poor management, few ask the real relevant question: Why has there been no competitive new car company established since around 1935? It's been about 75 years since a newcomer has appeared on the scene. Again, the industry was complicit in its own demise. They went along with ever increasing regulation in the name of safety, fuel efficiency and workers rights. They made compliance so expensive and time consuming that starting a new American car company became a fiscal impossibility. In ensuring that they'd have no competition, they made a deal with the Devil. The Devil won.

Doctors are beginning to wake up to the fact that they too are in a fight for their own survival. But it may already be too late. They were all for third party pay because it ensured that they would be compensated for their work. Everyone would pay and they wouldn't have to spend time on collections. They could negotiate with a few insurance companies rather than individual patients. It would be great! Now the demands on their time are cutting into their income generating capacity. The need to order tests for everything to avoid liability, has vast resources tied up in CYA activities rather than actual health care. Malpractice insurance has gone through the roof. The insurance companies that they negotiate with fund the campaigns of the big government folks who set the rules. Game over.

The FDA has taken control of the tobacco industry, to thunderous applause. There's talk of new regulation of the food we eat, the beverages we drink and of course, big government is going to save us from global warming by taxing us all on carbon emissions, even as global temperatures are falling. Of course, they can show data to the contrary, but as the now infamous fraud known as the "hockey stick" graph demonstrates, they can produce data to demonstrate that the moon is made of green cheese if they want to.

We have the capacity to fight back. Nothing stirs a politician more than an angry mob. The people can demand their freedom back and if they put up a united front, defeat big government. The problem for free market proponents is that either the people and the corporations are unaware that they are under attack, or individuals and individual corporations still believe that they can personally benefit from big government somehow. If it's the latter, the war is over.

How to Play Inflation

2009-06-02T18:23:00.000-07:00

The federal government is going to need to borrow at least $1.8 trillion by October of this year. The national debt is growing and there seems no end in sight. Many people believe that this will lead to inflation as the value of the dollar drops. There are those who believe this will not happen. They point to Japan, where the supply of money increased, but since economic activity remained depressed, inflation never took hold. Inflation is actually the more optimistic view, so I'm going to go with that one. What strategies can one employ to navigate an inflationary environment?

I'm not a financial advisor, so I wont get into specific investment advice, but there are some general approaches one can take that make sense when the value of the dollar is falling. The most obvious is, if you have variable rate debt, fix it. Certainty may come at a bit of a premium, but it's tough to manage your cash flow when your debt payments are continually on the rise. Whether it's a revolving balance on your credit cards or an adjustable rate mortgage, talk to your lender of choice and see about taking some of that risk out of the equation.

Invest in yourself. If you've been considering making home improvements "someday", today might be a good day. If you believe the value of a dollar is going to drop faster than the value of a new deck, and you were going to get a deck anyway, you may as well make the swap. After all, you can't barbecue on pile of dollars. One great home improvement idea is the creation of a pantry, if you don't already have one. It can be as simple as putting up some shelves and it gives you the capacity to take advantage of "loss leaders" or specials on non-perishable items. Education is always a great investment. To get the most bang for your buck, choose an educational path that you're really interested in and can get passionate about. Tools also make good sense. Having the means to build, fix and maintain things on your own can save you a lot of money in the long run. Home improvement stores often offer free classes in construction, installation and repair techniques.

Invest in your business. If you're a business owner, an inflationary period can be a good time to get at that paint job you've been putting off, upgrade signage, shelves and equipment. Again, you're swapping cash for something you expect to hold its value longer. The government is inevitably going to attack its deficit with higher taxes, so investing in tax deductible improvements makes good sense. Also, we are going to come out of this situation at some point. Making improvements now will put you in a stronger position when the economy rights itself. If you believe inflation is coming and will be around for a while you may also want to get away from "just-in-time" inventory management. If you're only carrying a few weeks inventory, you'll just barely be able to keep up with rising prices. If you have the space and fairly consistent demand, going to a several month inventory strategy can help you stay ahead of the game.

Obviously you don't want to blow your life savings just because the dollar is falling. As I said, I'm not going to offer specific advice as to what to do with your long-term wealth. I will say, however, that if you believe that inflation is inevitable and your financial advisor doesn't, you need a new advisor. I could be wrong of course. Ultimately, it's your money and your call. Just be sure you and your fiduciary partners are on the same page.

Railing against the powers that be for financial mismanagement is your right as an American. It can make you feel better and it makes for good water-cooler conversation, but you still have to deal with the reality of the situation. Generally speaking, the keyword for our times is Value. Don't just spend. Spend wisely.

The inflation solution

2009-05-19T22:47:00.000-07:00

There is a situation developing that I believe is inevitable, that people should be aware of, and that the government will not tell you about. It's not a conspiracy. It's just very unpleasant, very unfair and unavoidable. They have to maintain "plausible deniability". That is, when it comes to pass, they have to be able to claim they didn't see it coming, or better yet, blame it on the other party. The good news is, as painful as it may be, it will not be the end of the world as we know it.

I'm referring to inflation. Not garden variety inflation, but hyper-inflation. The government currently owes about 8 times what it collects in revenues in a year. This year, they will spend more than twice what they take in, further adding to the debt. That's like a household that takes home $50,000/year after taxes, carrying $400,000 in debt and adding more than $50,000/year in additional debt. Such a household would eventually declare bankruptcy. The government doesn't have that option. There is no entity large enough to absorb a $12 trillion loss on our behalf. Raising taxes would result in a smaller number of people paying higher tax rates on less income. The net return to the Treasury would actually fall. That's not going to work. We could drastically cut government spending, but we already have so much mandatory spending in the form of entitlements already owed, that that's not a workable solution either. The final option, the only one left, is to devalue the currency to the point that $12 trillion is no longer a big number.

Here's how it works. Let's go back to our $50,000/year household. Now let's assume that their income keeps up with inflation and that they are able to stop or slow their accumulation of new debt. Now inflation goes ballistic; let's say 1,000% in a year. Now the household income is $5 million/year and the debt is still around $400,000. Their financial situation is much more manageable. Sure, a loaf of bread now costs about $1,000, but as a percentage of their income, it's about what it was last year. That's the government's out, although you will never hear them say it out loud. I don't know exactly when, but it's going to happen because there's no alternative.

Of course most people's income will not keep up with inflation. Therein lies the pain and the injustice. Under such a scenario, people on a fixed income and people who cannot simply demand a raise and get one, would essentially experience a cut in pay every payday until the inflation cycle is over. None of this was their fault, yet they will take the brunt of the damage. That's why you will not get "fair warning" from the government.

The good news is, hyper-inflation can come and go relatively quickly. Eventually, the government's balance sheet will become sustainable and the money supply will be brought back under control. Wages and prices will adjust and we can move forward again. It's a bit like discovering that the only way to get back to the tropical beach is by wading through a half mile of four foot deep hot tar. It's not going to be pleasant, but we'll get there, because that's where we want to be. In the meantime, we can face what's coming without fear, do everything we can to ensure everyone makes it across and it would be helpful if our elected and appointed officials would quit blowing smoke and treat us like full grown adults, capable of handling the truth.

Fuel efficiency and processing speeds - the new CAFE standards

2009-05-19T17:38:00.001-07:00

President Obama announced new fuel efficiency standards for the American Automobile industry, suggesting that something must be done about the fact that we have not seen the kind of progress in fuel efficiency in cars that we've seen with processing speeds in computers.

That's an interesting comparison. Let's look at it more closely. The computer industry was never given government mandates on processing speeds. Computers have improved exponentially due to increasing demands from customers combined with fierce competition. Software and hardware engineers do not have a powerful union. They either continue to produce new innovations or they lose their jobs.

In the auto industry, there are a very limited number of competitors. Volumes of regulations and government mandates keep it that way. The general mindset for a union labor force is "how do we get more to do less?" That's not a commentary on the quality of the people. It's the nature of a system that makes management and employees adversaries.

Government getting ahead of the free market and declaring on the public's behalf what they want and what they shall get will never lead to better products.

Hopefully, Silicon Valley will make the whole issue obsolete at some point by coming through with technology that makes the new government targets look like child's play. That is, unless the government decides to help them too.

We Don't Need Another Hero

2009-04-15T18:57:00.000-07:00

For years, a certain constituency of Americans has been vastly under-served and under-represented. While they may disagree on a number of issues, the members of this constituency agree on a few fundamental things. One is that massive government debt will be a severe burden on future generations and that it is immoral to attempt to improve our short-term circumstances by knowingly jeopardizing our children and grandchildren. Another, related idea is that it is not the role of government to shield us from the consequences of misfortune or poor judgment, but to uphold our rights as we sort it out ourselves. It's a constituency that believes government's role in the life of the individual should be limited, as should it's budget. Issues thus far not involved in this coalition include abortion, gay rights, global warming and other hotly contested subjects that are left for another venue and another group.

This constituency has been left asking "Who will champion our cause? Where's the next Ronald Reagan? Who will defend our position?" Well, on April 15th 2009, they stopped asking and started defending themselves.

The problem with putting your fate in the hands of a political party is that they are really not sets of ideas, they are infrastructures for accomplishing a task; winning elections. As a party, they don't promote a limited scope of ideas or single issues, they adopt a number of issues and positions based partly on commonly held beliefs and partly on political expediency.

The Republican Party has spoken up for limited government and fiscal discipline, but has not lived up to the hype. Also, people who believe in capitalism, limited government and fiscal restraint, but don't tow the party line on other issues are ostracized. The same dynamic takes place in the Democrat party. You have to buy the whole package.

Whether you're liberal or conservative; capitalist, socialist or communist, you have to admire a group that refused to give up when a leader failed to emerge. The followers have become the leaders. This is in clear evidence as conservative politicians and pundits are now falling all over themselves trying to connect themselves to this movement.

I would caution members of this coalition not to allow it to get hijacked by a political party or to try to expand it to cover more issues. This is a unique movement of individuals promoting a specific set of ideas upon which they agree. At stake is whether future generations will work for the state or the state will work for them. Other issues can wait for another day, another rally, a different coalition, a different movement. No one who believes in ensuring the freedom of our descendants need be excluded because they also believe in something else. If we protect and respect each others individuality, we can work everything else out in time.

An economic highway to hell?

2009-03-28T09:41:00.001-07:00

Will big government snuff out the recovery?

There have been small signs that the economy is ready to turn the corner on the downward part of the current economic cycle. Banks are talking about repaying TARP funds, the growth in unemployment has at least leveled off. Home sales, while still dismal, actually rose last month. One would expect the next leg to be increased lending by the banks as they come out of defensive mode and get back to competing for profits.

However, in the name of saving the economy the government is installing some huge circuit breakers on any up cycle in the economy. The deficit is nearly $2 trillion dollars. The stimulus package contained massive amounts of new, permanent spending. Much of the aid that was given to states and municipalities is covered by the federal government in the first years, but requires them to continue the spending in later years on their own. Increasing taxes can be politically tough. Expect to see higher fees, surcharges, licensing requirements and other forms of revenue collection by governments on all levels. Businesses could be forced to lay off workers or even go out of business due to their requirement to subsidize the unemployed.

Even as more and more scientists around the world warm up to the notion that the Earth's climate is far more dependent on the activity or lack of it, on the Sun than on man-made carbon emissions, and that we are far more likely to experience the ravages of global cooling in the coming decades than global warming it's full steam ahead for global warming advocates. The government is proposing a "cap and trade" system to regulate carbon emissions. Going over your carbon limit will necessitate that you buy "carbon credits" perhaps from companies that come in under their limit. Whether companies pay through the nose for the credits, spend more on technology to reduce their emissions, move overseas, or just close their doors, the cost of producing just about everything in this country is going to go up if this is enacted. There is nothing stimulating about it. Even if it worked exactly as intended and we go to a completely carbon free energy environment, the government will have received countless billions of dollars from carbon credits which may become obsolete. Do you think they're just going to shrug off all that revenue? They will tax the sun if that what it takes to keep the cash flow going.

Some kind of nationalized health care system may soon be coming our way, as well as increased government control over large businesses, the risks they take, the salaries the pay out, the investments they make. I've worked with civil servants. They're fine human beings. But among the rank and file, the bragging that goes on around the water cooler is about who gets paid the most to do the least. Those are the heros. Those are the one's the others look up to. That's what you shoot for. It's a bit different for celebrity civil servants of course, but they come and go. Most of the work is done by career folks with zero profit incentive. The path to advancement is based mainly on how many people you supervise and how big a budget you oversee. The incentives are to get more people in your department spending as much as possible. It doesn't really matter what they spend it on or how they spend their day, so long as it looks good on paper.

Even government leaders in Switzerland, France and England are now publicly voicing concern over runaway government spending in the U.S. Why do they care? Because if we go down, they go down. They know that big government is not the answer, it's a poison. We have been subsidizing big governments in Europe for decades. They don't want to see that cash cow disappear. The Czech premier got it right when he said that trying to spend our way out of recession puts us on the Highway to Hell, which, as you know is paved with good intentions. He actually said "way to hell" but later stated his comments were inspired by an AC/DC concert he had recently attended.

We all want a better country, a better world, but we're going the wrong way.

The Tea Party mentality

2009-03-25T06:37:00.000-07:00

Tea Parties are popping up across the country. People see the government getting bigger, deficits ballooning. They're worried. They're angry. They're frustrated. Perhaps you're among them. If you think the country is moving in the wrong direction and you want to effectively communicate that, you first have to understand why. You have to have a firm grasp of the fundamental principals your seeking to promote. So what are they?

This is not about Republican or Democrat. This is about capitalism, free markets and free people.

Leaders in both major political parties have advanced the notion that capitalism is a necessary evil, evil being the key word. We're taught that selfishness is bad; that one should always serve a cause "higher than yourself". All of this is dead wrong.

Capitalism is not primarily about money. It's about making your self your top priority. Advancing your agenda. Setting your own priorities. Big government proponents want you to serve a purpose "higher than yourself". They don't even really care what that purpose is. The key is to convince you that you should subjegate yourself to something else; society, country, others. Others, by definition, is everyone except you. Once I've convinced you that you are not worthy of your own efforts and attention, I can set myself up as a representative of the higher, more worthy cause. Now I can use your own guilt to take your time, your labor, your intelligence and direct them toward my agenda. After all, working for me makes you a better person.

The truth is that when you take care of yourself, I don't have to. Your neighbors don't have to, your family and friends don't have to. You become an asset rather than a burden. If you regard yourself as a good person, capable of determining right from wrong and pursuing right, why would you not trust in your own priorities? Three hundred million individuals all focused on being the best person, by their own yardstick, that they can be is what will uplift this nation. Three hundred million people looking for direction from self-annointed leaders will not.

Support whatever cause you please. Help anyone you want. But you determine the who, what, where, why, when and for how long. Be your own cause and keep in mind that there is no cause higher than your self. Your integrity is your greatest asset. Your agenda matters. You matter. Know who you are. Know what you believe. Believe what you know. Take care of yourself.

We all want a better country; a better world. The basic conflict is whether you get there by empowering your self or surrendering your self. I submit that surrender is not the answer.

The hope from audacity

2009-03-07T07:23:00.001-08:00

If government spending and increasing fees and taxes have you scared, take heart. It seems even some liberal democrats are experiencing sticker shock. Senator Fiengold is among those who can't digest the amount of pork in the omnibus spending bill. The 9,000 earmarks have been excused by the administration and members of Congress because it was written last year. I guess if the robbery was planned in advance, it's okay.

But it's not flying with all members of Congress or the American public and the bill could well be headed for failure. This could be a hopeful sign that the general public is ready to get angry. Angry voters scare politicians and sometimes even force them to do the right thing. "Tea parties" are cropping up all over the country and some wealthier Americans are "going Galt". That's a reference to a character in Ayn Rand's 'Atlas Shrugged' who called a general strike among top producers. In real life, people are intentionally reducing their income to avoid becoming targets of a starving government spending monster.

It's not all about the money. People generally don't like being manipulated and they don't like the idea of working their tails off for "others" (others, by definition being anyone but you).

It may seem like the government is a runaway train when it comes to driving us deeper into debt and recession, but there is still hope. This country has the capacity to turn on a dime. The question is, are people willing to face some pain now, or would they risk putting future generations in an impossible fiscal situation in a pathetic attempt to soften the blow?

Give the people what they want

2009-02-28T08:52:00.001-08:00

Perhaps we have to lose everything before we can begin to get it back.

I have been frustrated over the years by the fact that capitalists have not done much to defend or communicate their beliefs. Maybe they don't understand them themselves. Capitalism is not all about money. It's about freedom and creativity and an economic system that compliments human nature rather than trying to suppress it.

However, I'm beginning to believe that there might be some wisdom in standing down and letting the people have what they think they want. What they think they want is security. They want to be fed, housed and cared for. They don't want to have to stress and worry about how to take care of themselves and their families. They believe that the government can make this happen.

The fact is, the more the government takes over the functions of the free market, the worse our economic situation is going to get. Incentives for producers are rapidly disappearing. The level of government debt is getting so enormous that any sector, industry, company or individual that has a degree of success better than average is going to be targeted a revenue source. Eventually, we may indeed all be more equal. We will be equally poor. We will have a Soviet style society where toilet paper is a hot commodity. Health care will be free, and dangerous. You will be employed, but the government will tell you where you'll work, what you'll produce and to what specifications. This will come about as more and more industries are "temporarily" nationalized for the public good.

But, enough with the dire predictions. There's nothing left to do now but watch it play out. This is what the people demanded. I believe we will find out fairly quickly if what they thought they wanted was what they really wanted. You can have all the security you asked for. All it will cost you is your self.

The fig leaf of "regulation"

2009-02-25T17:31:00.000-08:00

In his recent address to a joint session of Congress, one of the things President Obama pointed to as causing our current financial crisis was "the gutting of regulations". That's a nice generalization and it conveniently gets everyone off the hook, as it implies that everyone responsible was operating within the law.

In fact the catalyst for this crisis was what has become known as "toxic assets". That is, complicated derivatives based on very risky loans made to high risk individuals. Evidently these investment products, which were largely purchased by major financial institutions, were so complicated that even the buyers weren't and aren't sure how they work or what they're really worth.

Who designed these derivatives? I mean, specifically, what are their names? Who marketed them? What about the "best and brightest" CEO's and execs in the banking industry that bought them without knowing what they were buying? Who made these purchase decisions? What are their names and how do they explain their actions? Where was Congressional and federal oversight when these derivatives were being created and sold? How do you get approval to market an investment vehicle nobody understands?

I submit there are players who knew full well this thing was going to blow up, but laundered the make up of the derivatives and stroked their politicians so well they were able to successfully dupe the whole country out of trillions of dollars. Who knew what and when did they know it?

We may never know the answers to these questions because the Bush administration and then the Obama administration as well as Congress called for trillions of taxpayer dollars to bury the problem rather than a full investigation to unmask it. The federal government could have allowed the major banks to fail (creating a huge opportunity for others), let the consequences play out and expose and hold accountable the individuals who, over decades, concocted this Ponzi scheme. Instead, they took the cowards' way out. They criticize entire classes of people and industries because a true search for the truth might leave them fully exposed. They generically call for "stricter regulations" because they don't want an investigation. They hope to pass this off as a natural consequence of capitalism and "too free" markets rather than a continuing deception. If they get away with it, and they probably will, it will happen again, and again, and again.

Don't throw out the baby with the bathwater

2009-01-31T12:04:00.000-08:00

I don't expect the economic stimulus package, in any form, to save the economy. In fact, I expect the financial situation in this country to get worse; much worse. This is when we find out who we really are. Take away all of our goodies, our easy money, our leisurely comforts and what do you have left? What does it mean to be an American?

I submit that the thing that most ties us together is our Constitution and especially the Bill of Rights. It is the Covenant we have made with each other; our Ten Commandments.

The first thing we have to realize is that we absolutely can survive incompetence in government and even the total collapse of our financial and monetary system. It's okay to get angry, but don't panic. Our principals have not failed us. Our representatives have. We can replace our representatives without abandoning our principals. If we have to start from square one with our financial/monetary structure, we can do that too, but let's not tear up the foundation.

There is a fundamental battle going on between those who believe government's role is to enable opportunity and those who believe government's role is to direct the allocation of resources and provide for the basic needs of the people. The latter sounds more compassionate and has also been proven time and time again to be an abysmal failure. You can't redistribute wealth if you destroy the incentive to create wealth.

The Constitution and the Bill of Rights were designed to ensure that we never lose focus of the fact that the individual is the driver of economic success. Society is our servant, not our master. We engage it when and if it suits us, not because we are compelled to by a central authority. Government's job is to take the use or threat of force out of individual interactions, not to micro-manage those interactions.

We are at a turning point in history. We can make yet another amazing comeback or we can dive into the abyss. It's time to go back to the basics. A clear understanding of the ideals that made this the greatest country on Earth to date is essential to keeping it that way.

The best government stimulus plan; stand down

2009-01-23T16:08:00.000-08:00

from Examiner.com

Ronald Reagan was right when he said the scariest words a person can hear are "I'm from the government, and I'm here to help."

If you hold government action on the economy in check, market cycles are fairly predictable. Low interest rates, falling real estate prices, companies going out of business, leads healthy companies and entrepreneurs to snap up assets on the cheap. Some people take huge losses, while others take advantage of huge opportunities and the new growth cycle begins. That's not happening today. The reason is that government has come to the rescue. In doing so it has caused so much uncertainty in the marketplace that making major investments in new projects and ideas at this point would be irresponsible and dangerous.

Nobody wants to commit sizable amounts of time resources and money into a company or project, only to find out six months later that the government has decided to subsidize a competing company or project. Who wants to hire 1,000 new workers only to find out later that their unemployment insurance has doubled and new benefits have been mandated. You don't want to borrow a lot of money right now and then have to refinance it in an environment of sky-rocketing interest rates due to runaway government debt.

Winners and losers, or at least survivors and non-survivors, are increasingly being selected by a handful of government policy makers rather than by 300 million individual consumers. Believe it or not, the mob is much easier to predict and more efficient at directing resources than any Washington committee, no matter how many degrees they have hanging on the wall.

If the government truly wants to help, they need to stand down. Have some faith in the American people. We can work this out. The road to the next Great Depression is paved with good intentions. Pull over and let us drive for a while.

Why soaking the rich doesn't work

2008-12-24T10:43:00.000-08:00

The current path of our federal government's budget could lead you to two possible longer term resolutions. One is that hyper-inflation will bring the government's balance sheet back in line by devaluing the outstanding debt. Another is substantially higher taxes fill the spending to revenue gap.

Who will be taxed? Not the middle class. That would be political suicide. The wealthy are the natural target. It sounds good. They've got the money. They'll never miss it. But, reality doesn't always cooperate with the plan on paper.

Let's suppose I'm a rich guy. I make widgets. I don't make widgets because I need the money. I could retire now and live very well for the rest of my life. I make widgets because making mountains of money is something I enjoy and happen to have a knack for. I've decided that if I'm going to go to the trouble of making widgets, I want at least a 50% mark-up. Widgets cost me $20 to manufacture, so I sell them for $30 right? Wait, there's taxes. If my tax rate is 25% I have to make about $13.35 to clear $10, so my price is $33.35.

Now my tax rate is raised to 50%. Now I have to make $20 to clear $10, so guess what? Widgets just went up to $40. Fewer people may buy at that price, but remember, I don't need the money. I set the terms for the kind of return I want. I cut production and employees and simply make fewer widgets at a higher price.

On paper you're taxing my income. In reality, you're still paying the bill, no matter how low your tax rate is. Bigger government will always cost you more. There are ways to make it difficult to track, but the buck always comes from you.

Everybody Back in the Pool!

2008-12-05T16:02:00.001-08:00

This was a terrible week for the market in terms of news. Tens of thousands of new layoffs were announced. The jobs report was abysmal. Foreclosures are up. Home sales continue to fall and the Big 3 are back in DC, hat in hand. Yet, the indices not only held, but added to gains made last week. In the lingo of the Great Depression era that's so often alluded to these days "What gives?"

It's not that big a mystery if you don't try to over-think it. The Fed has been injecting trillions of dollars in new currency into the markets to replace the "toxic assets" that banks had been trading, until they realized they were toxic. There has not been a corresponding increase in the amount of corporate equities in circulation. The supply of one currency went way up. The other remained constant. The value of the dollar is simply falling with respect to equities as the market adjusts to the new currency mix.

No, this doesn't mean we're about to have a thriving, healthy economic recovery. It just means stock prices may spike, which may simply be a prelude to inflation throughout the economy.

Who's to blame for our economic situation? I blame Star Trek!

2008-11-29T20:01:00.001-08:00

In a free market environment, people try to better themselves by finding ways to create value for others. That is, they create something, be it a product or a service, that is of more value to someone else than it is to them. Then they trade. Some ideas succeed. Some fail. It's an evolutionary process of natural selection that brings to market the things people most want at prices they're willing to pay.

In the United States today, we increasingly look to the government to provide the things we want. We also look to them to take the pain away from trying and failing. We've subverted the evolutionary process. Even politicians who once championed capitalism and limited government have gotten on the bandwagon. The government now owns stakes in banks, insurance companies and soon, the auto makers. In exchange for the cash infusions, government will have a say in how the companies are run, who they hire, what they produce and how much they'll make. There is no longer a debate as to whether or not the government should ensure everyone gets health care. There's just some disagreement as to the terms. Worrying about the national debt is not even on anyone's radar in this new paradigm.

How did we get here? Well, I blame sci-fi, at least in part. Science fiction has the ability to stir our imaginations. Some of the nifty devices used on shows like Star Trek have actually been produced and are in every day use (automatic doors, "communicators"). There have been many positive influences. But one thing most every popular science fiction drama has in common is a view of the future built by the government. Nobody uses cash in Star Trek. Everyone simply does their duty and is happy to do it. We see the dozen or so folks who get to go on the occasional adventure, but I can't help but wonder about the other 400 who simply do their jobs, day in and day out, and never get paid. All their needs are met by the Federation. Once in a while a "capitalist" type will appear on an episode, but they are backward, goofy, greedy and usually ugly comic relief.

The Stargate series is no better. The government is engaged in inter-gallactic trade and diplomacy on the taxpayers dime. Not only does the general public not know anything about it, they have no direct access to any of the benefits or technology. Yet the government forces that carry on this clandestine operation are the heroes.

There wasn't much mention of the common man in Star Wars, outside of the bar scenes, but there again the main characters who were engaged in private commerce were depicted as selfish, greedy, unreliable and eventually saw the error of their ways.

We have been sold a vision of a Utopian future without free markets, without capitalism, without the free association of independent individuals. Of course the message is subtle and packaged with lots of explosions and drama sprinkled with comedy, but it's there and it's effective.

We are reaching for Never Never Land; a future that will never come to pass because the fact is that an economic system based on resource allocation determined by an elite group, even a democratically elected elite group will never achieve the efficiency and genius of a system based on resource allocation by the cumulative effects of free individuals making voluntary decisions in a free market.

If we truly want to go where no man has gone before, we're not going to get there in a government chartered bus.

Too Big To Fail

2008-11-24T21:43:00.001-08:00

One by one the CINO's are showing their true colors: Capitalists In Name Only.

The bail outs continue. Now it's Citigroup. The standard line is "I don't like it, but we had to do it." or "Yes it makes me angry that we're in this situation, but we have no choice." What does that mean exactly? That we've gone so far toward the China model that there's no turning back? If these entities are too big to fail now, what happens when we've consolidated power in just a few of them and they begin to fail again? I'll tell you what happens. We exercise the warrants that the "taxpayers" are going to receive in exchange for this round of bailouts. A warrant is an option to buy stock in the future at a fixed price. It's supposed to ensure that if and when these companies become profitable, the government can recoup some of its investment by selling the warrants. What will actually happen is the failing business models will continue to fail and the government will not sell the warrants but exercise them. That is, buy the stock, giving the companies another cash infusion and the government a seat on the board. In the name of negotiating on behalf of the taxpayer, of course they'll negotiate a lower exercise price. (write that down, you heard it here first).

The government will have a major equity stake in banks, insurers, the auto industry, more control over the health care industry and of course, the alternative energy initiatives are not going to be without strings attached.

The collectivists have won the war without firing a shot because most of the capitalists still aren't even aware that there was a war.

Whistling past the graveyard

2008-11-18T22:18:00.000-08:00

The economy continues to slow even as the Fed cuts interest rates and injects capital into the banking system. Other industries are likely to get low interest loans and other forms of capital infusion as well. Why isn't all this "economic stimulus" causing optimism and rising prices on the stock exchanges? Because none of it addresses the real problems, which are only getting worse.

You stimulate economic activity not by manipulating data and artificially inflating the numbers, but by making it easier and more rewarding to take risks in the market place. That is not happening. Business is continually being curtailed by more and more regulation and mandates. Next on the agenda is some kind of universal health care, which will be the responsibility of employers. Man made global warming is no longer permitted to be questioned and more regulation, mandates and subsidies will be coming our way from the priests and priestesses of that cult. Minimum wage will be increased, this time probably with some kind of automated increase for inflation. The new administration has said that more funding for education "can't wait", although they've yet to connect throwing piles of money into the system with smarter students. There will be infrastructure spending as well as more subsidies for alternative energy. The federal deficit is completely out of control, so anyone who does manage to achieve some measure of success will be immediately targeted as a revenue source for the government. Those who keep their income low enough, will get a check.

As government doles out cash to struggling industries, it also gains more control. The cash comes with strings. Professional campaigners and attorneys will be making human resource and production decisions on behalf of some of the largest corporations in the country. The people who brought you Amtrak, the DMV and the Postal Service will soon be calling the shots for the major banks, insurance companies and auto makers. The Postal Service, has a federally protected monopoly on first class mail delivery, yet consistently cites cash flow shortages as an excuse for every rising prices, and now will be conducting the first layoffs in its history. That's the level of competence we're empowering.

The small business community is being zoned, taxed and regulated out of existence while large box stores gain multi-year exemptions from the taxes everyone else must make up. This, in spite of the fact that small business accounts for the vast majority of new job creation. Politicians pay lip service to small business, even as they are strangling it.

If you wonder how this mingling of government and big business, along with near zero interest rates and frequent cash infusions might play out, look at Japan. They've been following the same program for over a decade, with no success. Entrepreneurship is out. Bureaucracy is in. We're well on our way to becoming a fascist nation, but nobody's calling it that, probably because most don't really know what it means. Fascism is when producers still get to own their businesses, on paper, but the government dictates what will be produced, how it will be produced, where and when it will be distributed and at what cost. This is being done through subsidy, regulation and the tax code, rather than outright proclamation, but the nature is the same.

TIme for a New Tea Party

2008-11-15T07:58:00.000-08:00

(A Guest Post by Wifezilla)

Taxes are the life blood of the government. Unfortunately, government treats tax money like a teenager treats your refrigerator. It grabs whatever it wants, doesn't care if there is anything left for any other members of the family, and constantly whines for more. No matter which party a politician claims to belong to, there always seems to be a reason the government needs your money more than you do. The only way I can see to change the situation is to cut off their allowance so to speak.

Reforming our government because of taxes is not a new concept. Our founding fathers let England know how they felt about taxes when they dumped crate after crate of tea in to Boston Harbor back in 1773. Lacking a ship, a harbor and only having a small stash of Celestial Seasonings Bengal Spice herbal tea that I would rather not part with, I decided to find a slightly different way to protest taxes and the government waste of those tax dollars.

Below is a list of ways that you can cut off or reduce the flow of your money in to the pockets of politicians.

1. Drive a fuel efficient car.
A large chunk of the price of a gallon of gas is taxes. In Colorado, between state and federal taxes, you pay approximately 58¢/gallon which is abut 25% of the cost of each gallon of gas. The more fuel efficient your car is, the less money you pay for taxes. Driving a motorcycle or scooter will cut your gas costs down even more. If you can't afford to switch cars or a motorcycle is impractical in your situation, make sure the car you do have is in top condition. By keeping the oil changed, your tires properly inflated, and keeping your air filter changed, you can increase your fuel efficiency and reduce the amount of taxes you give to the government. Even something as simple as keeping your car washed can increase your fuel efficiency by up to 7%. http://www.edmunds.com/reviews/list/top10/103164/article.html

2. Buy fresh, whole foods.
Though it varies from state to state (or even town to town), usually fresh whole foods meant for home consumption are not taxed. Restaurant food and convenience foods are. By eating food you cook yourself, not only will you be healthier, you will avoiding giving money to wasteful politicians.

You may even want to consider planting your own garden. Foods that are shipped in to your local store gets taxed in many hidden ways. From the fuel taxes paid on the truck that ships it, to sales taxes paid on the pesticides that were dumped on the crops, there is money being taken at every step. What happens to that tax money? According to Citizens Against Government Waste, $1,529,220 was spent last year on an Appalachian Fruit Lab. The government also spent $188,000 on a Lobster Institute in Maine. http://www.cagw.org/site/PageServer?pagename=reports_pigbook2008

3. Learn to use Craigslist
Craigslist.com may be best know for their colorful personal ads, but it is much more than a way to plan a "casual encounter". It is a giant local tax-free garage sale without all the sitting at the end of your driveway hoping you don't get rained on. Neither buyers or sellers pay fees to use the site or list items for sale. Most items show photos and it makes it easy to shop as well as to sell your items. There is no telling how much longer a service like this will remain tax-free, but it still is as of now so use it to your advantage. Of course, if you are a "SWM in 2 BDSM seeking same", you can always shop for true love at the same time you shop for a slightly used lawn mower.

4. Buy new online
Online sales across state lines are not subject to sales tax....yet. Sure, you will pay shipping fees, but if you shop carefully, you can find sites with flat rate shipping or reduced shipping fees for larger purchases. Two examples of sites with great shipping policies are Netrition.com and Overstock.com. Netrition sells health food and charges a flat $4.95 regardless of how much you buy or how much it weighs. Overstock sells a large variety of items from furniture to clothing to jewelry, electronics and more. They often feature $1 shipping or provide free shipping options.

5. Shop thrift stores
While you still pay sales tax at a thrift store, your overall bill will be much smaller than it will be if you purchase items new. Since the bill is smaller, the amount of money you pay to greedy government spend-aholics will also be lower. Besides, thrift stores purchases also give you a chance to help the needy. The Salvation Army, Disabled American Veterans, and ARC thrift stores are all run by charitable organizations.

6. Stop smoking
Cigarettes are one of the most taxed items available. The national average with state and federal taxes is 98 cents per pack. If you stop smoking, you stop giving money away that will be blown on studying cow flatulence, or the mating habits of the Northern snail darter. If you aren't ready to kick the nicotine habit just yet, consider switching to smoking a pipe or buying loose tobacco and rolling your own. Pipe tobacco and loose tobacco is much less expensive than pre-made cigarettes, so switching to these will mean less money for programs like the $492,000 Rocky Flats Cold War museum. http://earmarks.omb.gov/2008-earmarks/earmark_284289.html

7. Brew your own beer and wine
Like cigarettes, beer and wine are easy tax target for tax takers. Brewing beer and wine is a fun hobby that also lets you deprive politicians of your hard-earned money. The highest taxes are reserved for liquor. From 50-80% of the cost of a bottle of hooch is tax. Unfortunately, while brewing your own beer and wine for private consumption is perfectly legal, it is illegal to distill your own spirits.

8. Go to garage sales
In most communities, people who hold the occasional garage sale are not required to collect sales tax. While more time consuming that popping in to your local Walmart, garage sales give you the opportunity to legally avoid paying sales tax and find unique, one-of-a-kind items. Along with listings in your local paper, Craigslist.com is a great source for garage sale listings. Since they allow posting for free and picture uploads, you can often get a more detailed list of items available at any particular sale. Veteran garage salers plan a route of 4 or 5 sales they want to hit and shop early for the best selection.

9. Shop for lower sales tax rates.
A short drive can make quite a difference in the final price you pay for an item. If you are near a state or county border, check to see what the sales tax rate are in the next taxing district. In the Security/Widefield area South of Colorado Springs, CO, shopping at Walmart means you pay 6.9% sales tax between federal, state and City of Fountain Sales tax. Shopping at Ross less than 2 minutes away you pay only 3.9% since it is located in unincorporated El Paso County. In some areas, it pays to cross state lines. While the state of Washington charges a 6.5% sales tax, you pay zero in Oregon.

10. Make less money
The more money you make in salary, the more the government wants to take away. Working overtime usually results in very little extra take home pay for you but a big bonus for the government. If you are sick and tired of being sucked dry by government vampires, you may want to take a serious look at your income and lifestyle. Are you sacrificing valuable time with your children in order to make more money and buy more"stuff"? If you are married, can you and your spouse get by on one income instead of two? By simplifying your life, not only do you give the tax monster the brush off, you may reduce your stress level, make more time for your family, and gain peace of mind.

Parents.com ( http://www.parents.com/app/stayathomecalculator/) has a nifty "Stay at Home Calculator" that lets you figure out if having one of the spouses leave the work force is feasible. Often times the person bringing in the second income finds out that their $20/hour job is actually only netting them $1.75/hour after deducting day care costs, commuting expenses, business meals, dry cleaning bills, taxes, etc...

11. Move!
Some towns and states have moved from the category of excessively taxes to downright business and worker hostile. MSN money lists the best and worst states for taxes in this article http://articles.moneycentral.msn.com/Taxes/Advice/TheBestAndWorstStatesForTaxes.aspx?page=1

According to MSN, "The state in which residents pay the most in combined state, local and federal taxes, per capita, is Connecticut (38.3%), followed by New York (37.1%), New Jersey (35.6%) and Nevada (35.2%). Oklahoma residents pay the least (27.8%), followed by those in Alabama (28.0%) and Alaska (28.1%)."

Any state or town that thinks you are their own personal cash cow doesn't deserve to have you. Take yourself and your family to an area of the country that appreciates your hard work, values your individual freedoms, and realizes that while government is necessary, it doesn't have to be oppressive or intrusive.

Then What?
It would be hard to see an immediate effect of people actively engaging in a tax protest of this sort, but the economic slow down we have seen in the past six months does give us some clues. Many cities and states are reporting reduced income due to lower sales tax collections. They have cut budgets while upping traffic enforcement in an effort to generate more revenue. State governments are also conducting random sales tax inspections at business locations.

In New York City , it was recently announced that Mayor Bloomberg is considering a 15% personal income tax hike on New York City residents. Also under consideration are cutting 3,000 jobs, canceling the January Police Academy class, cutting school budgets, rescinding previously passed tax cuts, increasing fees and fines, all in an effort to address a 4 billion (Yes, BILLION...with a B) budget shortfall over the next 2 years.

According to the Daily News, "The proposed increase in personal income tax would hit the middle class, costing those who earn $50,000 to $90,000 about $116 to $356 more next year, according to City Hall's estimates.

Bloomberg's latest fiscal blueprint is the harshest since he coped with a post-9/11 budget fiasco, causing him to hike property taxes 18.5% and temporarily raise income and sales tax."

Now, higher taxes and more fees hardly sounds like a good result to a personal tax protest, but this is only a short term result. What it is really doing is forcing politicians to show their true colors. Mayor Bloomberg, who was once a Democrat, was elected to office as a Republican after switching parties in 2001. Republicans are SUPPOSED to be the party of smaller government and lower taxes. Even with a small reduction in staff, the fact that taxes on INCOME are even on the agenda shows you where he really stands.

Instead of worrying about your carbon footprint, start worrying about your tax footprint. Denying the government vampires a steady supply of taxpayer blood reduces the likelihood vampires will be running for office in the future. Like an alcoholic, you won't be able to get them to stop drinking, but you are under no obligation to continue buying them booze.

Obama takes a jab at Rand

2008-11-01T10:04:00.000-07:00

If you listened to one of Obama's rally speeches yesterday, you may have heard the phrase "I don't know when they decided that selfishness was a virtue...". To most, this little phrase would not strike them as anything terribly significant. But to a student of capitalism, it was an obvious burn.

Obama has two masters degrees. He chooses his words carefully. He is, no doubt, familiar with the work and writings of Ayn Rand. Rand was a champion of capitalism and authored many books, fiction and non-fiction. One of them elaborated specifically on a fundamental principal of capitalism: "The Virtue of Selfishness".

The burn is perhaps well deserved. Capitalists have done such a lousy job of communicating and selling their ideas that most people are totally unaware of the work of one of capitalism's greatest advocates. They have a vague idea of what capitalism means...sort of, but few can define it with any real clarity.

Ayn Rand did a good job of illustrating capitalist principals, but she did so in a language, tone and manner that was largely directed at academia. Her non-fiction was quite dry and employed vocabulary the average working stiff would probably not be familiar with. Her signature novel "Atlas Shrugged" was very lengthy and included a several hundred page monologue that beat the reader over the head with the point of the book, if they took the time to endure it. She also incorporated capitalism into her brand name philosophy: Objectivism, which has unfortunately evolved into a kind of cult or religion of its own, which is ironic, since she was staunchly opposed to religion. That was another error I think. She suggested that capitalists must all be atheists. Marketing to a population that is over 95% theist and telling them that to truly enjoy your product they need to abandon their religion, is a non-starter. The only principals we need to agree on are that people should be free to pursue voluntary associations and mutually agreed upon transactions in the absence of force, deception or intimidation. That no man has a right to the time, resources and/or talents of another, and that society is a convenience item, created by and for individuals to make use of when and if they so desire. It is not a super-entity to be worshiped and served.

The point here is not to dog Ayn Rand, but to emphasize that the battlefield of ideas is not in the halls of academia, but on the streets of Anytown. It's in the bowling alleys, the pizza joints, the laundramats and the cafeterias. The left realized that very early on. They have always relied on a base of disgruntled working class people who either don't have the time to leisurely pursue scholastic material or don't have access to it. They don't distribute position papers, they spotlight their constituents' lack of wealth, focus blame on their opponents and promise to fix it.

The counter-measure is to take the principals of capitalism and clearly communicate and illustrate them in a language, manner and media that everyone can understand. One of the earliest examples of this is the Ant and the Grasshopper parable. It is probably more widely known than anything Rand ever wrote. It can be read or told in less than 30 minutes, and it clearly illustrates the underlying principal.

The challenge to today's generation of capitalism's advocates: Spot opportunities to illustrate a principal. Speak to your audience, not at them. Don't try to sell the whole package in one sitting. Support one underlying idea at a time. Good ideas resonate. They just need a little reinforcement. Briefly, but effectively reinforcing a single point to a single person can have a lasting ripple effect. The truth is your friend. Be a good friend in return.

As the worm turns...

2008-10-25T14:28:00.000-07:00

Existing home sales were up across the country by 5% in September. Inventories were down to a 9.9 month supply, and that's based on a very lackluster pace. This took place before the bail out package was executed.

I predicted a few weeks back that the recovery in the overall economy will come from the housing market. As banks unload homes from people who couldn't afford them and sell them to people who can, we may be seeing the beginnings of such a recovery.

The model is changing from short term to long term. People with cash on hand and good credit are going to have access to assets at bargain basement prices. Flipping is out. Investment is in. Even if you rent out a home for a bit lower than your current mortgage payment, you're building equity in an asset that's very likely to increase in value while writing off capital improvements and maintenance expenses.

In reviewing the history of the stock market, I find it fascinating how money flow has an uncanny ability to find the most productive path. Like running water or electricity, it takes the path of least resistance. If the stock market proves unproductive, private venture capital will flourish. Risk takers will still take risks. They'll just move to other playing fields.

We could also see a resurgence of the small business community. New tax policy and regulation may reduce the optimum economy of scale for many industries and businesses. Smaller may well be better. Layoffs from mega-corp will also feed this trend as business professionals choose to strike out on their own rather than compete in an oversupplied labor market.

The tricky part is that government will be cash hungry. They will be quick to pounce on any perceived new source of revenue. Entrepreneurs must not only think smaller, but faster. They must be nimble and quick to adjust in an environment where the rules can change at any moment. This favors less reliance on employees and more reliance on outsourcing and strategic alliances with suppliers, distributors and network associates. Iron clad, long term commitments are not a good idea. Voluntary association with people you trust for as long as it serves both parties is where you want to be.

The China Syndrome

2008-10-22T15:41:00.000-07:00

If you want to know where the US is headed economically, take a look at China.

In response to a number of small factory closings in China, their Finance minister was upbeat and stated that they will "clear those birds out of the cage" to make way for bigger and better factories. The people may suffer, but the system will survive. China is the world's poster child for the "public/private partnership" model. They call it capitalism, but it's really fascism. The government determines what will be produced, by whom and how much they will make for doing it.

On a recent episode of Donny Deutch's Big Idea, he and his "capitalist" guests agreed that a new way of thinking is needed; that people need to recognize that it's the system that is the priority, not the individual and his or her personal ambitions.

The sentiment is repeated often by both parties. We are told we need to aspire to "something bigger than ourselves". A more universal call would simply be that we should serve something, anything, other than ourselves.

To the real capitalist, the individual is the foundation for everything. Society is a tool for the convenience of the individual, when and if they decide to engage it. To the collectivist, society is a super entity that demands the devotion of individuals, who are themselves expendable.

The power brokers are attempting to create a brave new world. The system will be the end, rather than the means. The goal is order and stability, not quality of individual life. The individual is insignificant. To think otherwise would be selfish, and selfishness is the ultimate sin in the eyes of the collective.

Naturally, once you've convinced people that they should serve others (by definition, everyone except you), all you need to do is become the authority on what "others" need, when they need it, where it will be delivered, who will produce it and at what cost.

Fixing American Capitalism

2008-10-12T12:26:00.000-07:00

Believe it or not, American capitalists are not that far apart from American communists when it comes to the issue of concern for the individual's ability to participate in the economy. Both would like to see the individual have much more access to "means of production". The difference is that capitalists would like to achieve this by making it easier for the individual to acquire, create and deploy means of production, while the communists would simply take existing means of production from those who have it and give them to those who don't.

There are serious flaws in the American system. What we need to do is not eliminate risk, but make it easier and more rewarding to take risk. The biggest barriers exist at the bottom of the income scale. Well meaning programs and policies have made it increasingly difficult to go from poor to rich. First and most obvious is simply the paperwork, taxes and regulatory requirements involved in starting even the smallest business. This can be intimidating, even when it is affordable. The more serious problem is that the system is not seamless. When you reach a certain level of income, the rules change. You no longer qualify for this, and you are now subject to that. When you reach a certain level of employees you no longer fall under this set of rules, but that one. Taxes you were exempt from last week, suddenly apply. The result is, if you're not ready to grow by a giant leap, you're better off not growing at all.

A federal sales tax that would replace all of the existing taxes would be a great step in eliminating many of these issues. The tax rate may be steep, around 22%, but it would be predictable and consistent. Collecting and paying sales tax is also very simple. You don't have to hire an accountant or financial expert. Filling out the form and writing the check takes about 10 minutes.

Regulation must also be addressed. The rules governing business should be consistent from the lemonade stand, right up to the Cisco's and the GM's. You shouldn't have hire a team of Phd's to take your business to the next level. There is a difference between publicly traded and privately held companies however. If you're going to offer a stake in your company to the public, the public has a right to know exactly how you're deploying their investment. If you don't want to be under that kind of scrutiny, stay private.

Ironically, big powerful companies get bigger and more powerful because of legislation designed to keep them in check. Intense regulation wards off competition who either don't understand it or can't afford to comply with it. The emphasis needs to shift from paranoia toward the very big, to enabling the very small. Stop trying to reign in Big Blue and instead, take the shackles off Bob's Hardware.

The fact that a ridiculously high percentage of taxes are paid by a ridiculously small portion of the population points out the fact that we need to increase the ranks of the rich. We need to do so by making it easier to move from the bottom to the top, rather than simply trying to make the bottom more comfortable. As we are about to find out, relying on 5% of the people to produce for the rest of us is an unsustainable situation. Put the other 95% in a position to produce by really setting loose the power of the marketplace.

Next Step? Don't Panic!

2008-10-11T08:56:00.000-07:00

World financial markets are in turmoil. The economic future is uncertain to say the least. Our "leaders" seem clueless. What do we do? Well, first and foremost recognize that your biggest enemy is fear. Fear leads to panic and anxiety. Panic and anxiety lead to poor decisions. If you must be emotional, trade your fear for anger. Anger can at least lead to justice. Justice good. Panic bad.

How do you get past the fear and anxiety? One effective technique is to imagine the worst case scenario and accept it as a real possibility. Then, recognize that if that scenario comes to pass, you will deal with it. Work to avoid it, but don't fear it. The best you can do is the best you can do. Success tastes much sweeter when you're well aware that failure is distinct possibility.

The world economy has been fueled largely by money that didn't really exist. That reality is hitting home right now. Governments are trying to perpetuate the fraud, and they'll be somewhat successful among the companies that they view as important. Most of us don't fit the bill. We'll be left to fend for ourselves. This may make you angry, and at some point lead to calls for justice, but the truth is, fending for ourselves is what we should be doing. It would just be nicer if it applied from top to bottom.

There's only one real way to right this situation. Come up with a viable plan to pay your debts. If it can't be done, file the bankruptcy and get the fairy tale off everyone's books so we can get back to dealing with reality. There's no shame in trying and failing, only in not trying. Failure is not the end, it's a new beginning. Your real assets can never be taken away from you. Those are: the wisdom that comes from knowledge and experience, the imagination that leads to new ideas, the drive to do better and the courage to play hurt.

Now for the good news. This is not 1929. Individuals have access to more information and communication than at any time in history, by a long shot. You can choose to sit and wait for the government to save you and make you feel secure, or you can look around at the needs and wants of your family, friends, neighbors and associates and spot opportunity. Capitalism and the entrepreneurial spirit are not dependent on government. They are personal. You choose whether or not to practice them regardless of what the government does. They may change the rules and throw you some curve balls, but they can't stop you from playing.

Don't look back in despair. Don't look forward in fear. Right your ship. Get your bearings and get on with the journey. Whatever your destination, strive to enjoy the ride.

Where Does the Economy Go From Here?

2008-10-07T17:04:00.000-07:00

Okay, the massive cash infusion through both the bail out plan and the Fed's new lending programs and policies is a done deal. No sense saying it shouldn't be done. It's done. So what happens next?

Well, there's a whole lot more cash in play now. What happens to it depends on government policy. Bad business models and those who loaned money to people with bad business models or unsustainable cash flow situations are still going to fail. There's a lot of short-term pain yet to come. However, if the government simultaneously eases up on taxes and regulation and actually encourages risk taking by increasing potential profit margins, competition will set in for those extra dollars and they will eventually be converted to wealth; new, valuable goods and services. If the government tightens regulation, raises taxes and creates a more hostile business environment, inflation will set it and all that cash will just be devalued to match the available goods and services. As Dan Akroyd said during a Jimmy Carter sketch on Saturday Night Live, "We'll all be millionaires!" Of course the poverty line will be somewhere around $900,000.

It's true, "The only thing we have to fear is, fear itself". If the politicians trust the free market they give lip service to, this downturn will pass in short order. If they react out of panic, things could get ugly.

The health care solution. Are you pondering what I'm pondering?

2008-10-06T21:10:00.001-07:00

Ladies and gentleman, I've asked you here today because opportunity is knocking once again. The public is clamoring for affordable health care and the politicians are pining to give to them. Everyone is looking for a system that will enable each participant to contribute $5 and draw out $500 and by golly we're going to give it to them.

First, we'll get legislation passed that requires everyone to purchase health insurance. We don't want to have the government provide the insurance directly. That would look too much like socialism. We've got to dress this thing up so it looks like a free market. We'll have private insurers sell the policies. They'll have to cover everyone, regardless of income or pre-existing condition. The government will provide subsidies to those who can't afford it. In order to reduce the risk to insurance companies we'll set up a Government Supported Private Entity, a Health Care Insurance Funding Authority. We'll give it a catchy name like Hannah Fay.

Hannah will buy up policies from the insurers. The insurers will simply sell policies and administer claims, which will paid by Hannah, through them, to the providers. Hannah will bundle the policies together and sell bonds backed by the premiums to raise operating capital to pay claims and subsidize more low income policies. We'll sell the bonds to a new kind of financial institution, which we will help create: Health Care Investment Banks. These HCIB's will bundle the bonds and sell shares in them. We'll call those Health Care Backed Securities or HCBS's. These HCBS's will be sold to other financial institutions, pension funds, sovereign wealth funds and the like. The risk will be spread so thin, it'll hardly be noticible.

Our roles? Advisors, consultants, investors. Keep away from the cameras. Stay out of the news. I know what you're thinking. This can't possibly work. Well, that depends on your definition of work. There will be Congressional oversight, but don't worry about that. Politicians are elected on emotion. Most of them wouldn't know a proper balance sheet from the supply side of a mule. Just make sure they get their due in contributions. As for the Wall Street boys, the important ones know the game. They'll get out in plenty of time. Their replacements will be lulled in by huge salaries and bonuses. It's kind of like executive hot potato. It'll be many years before anyone figures out the HCBS's aren't worth the paper their printed on and the health care system doesn't actually have any money. I'll have you out well before then.

Alright, we've got work to do. Set up meetings with your respective politicians, activists and friendly media and let's start leaking this idea out there. Remember, don't attach your name to anything. Present it as something you heard from someone else that you think could be worth looking into. Let the camera junkies do the rest. This meeting never took place. Good luck everyone. This could be the greatest thing since Cap and Trade!

How to Play this Market

2008-10-05T18:52:00.000-07:00

Lessons from '29, The New Deal I and II and The Great Society

image from http://stockcharts.com

This is not intended to be a definitive answer to what causes recessions and depressions and what policy ought to be. It is an observation of what the government did and when in terms of spending and corresponding moves in the stock market.

Immediately following the stock market crash of '29, then President Herbert Hoover was of a mind to let the market sort it out for itself. Most believe this was a big mistake, but in his defense, the market had bottomed and begun to recover by the time he left office. Franklin Roosevelt implemented the first New Deal in 1933. This included short-term measures like jobs creation programs, spending on infrastructure, generally getting money in the hands of the masses. The market responded very well to this. The second new deal was implemented in 1935 and 36 and included support for labor unions, the Social Security Act and the Work Progress Administration (a continuation of the jobs programs from the first New Deal). The market responded positively at first, with a big spike in the DJIA, but that was followed on shortly by just as big a sell-off. While still up substantially from 1933, the net gain in the market from '35 - '38 was nil.

Now take a look at the Great Society programs of 1964, introduced by Lyndon Johnson. This is where Medicaid and Medicare came from, as well as increased education funding. While the Vietnam War slowed down the implementation of these programs, spending on them ballooned under both Nixon and Ford. The market remained flatlined from 1964 until 1984 or so when deregulation seemed to finally spark the next big surge upward.

It seems as though putting money in the hands of individuals can actually have a positive effect. Companies must compete for this money and economic activity increases. When the government gives great big checks to specific industry groups, companies or bureaucracies, the numbers may be big, but the level of economic activity doesn't seem to be enhanced. It's essentially moving money from one account to the other and eliminating all the middle men. The problem is, all those middle men are what makes the wheels of this machine move.

Another way to look at it is in terms of something called the Marginal Propensity to Consume. Essentially, how much of each additional dollar of income is one likely to spend or invest? The answer is different depending on your circumstances. If you've gone without a working washing machine for six months and suddenly have a $500 windfall, you're probably going to go buy a new washing machine. If you're already well-to-do and see tough economic times ahead and get a $500 windfall, you'll probably tuck it away. In other words, if you give poor people money in tough economic times, they're more likely to spend it. If you give rich people money in tough economic times, they're more likely to hoard it. If your goal is to promote economic activity, it would seem to make more sense to give a little money to a lot of people than a lot of money to a few people.

The vast majority of new government spending so far is pegged for specific players in a specific industry. Don't look for a quick turnaround in the overall economy. There will no doubt be another round of "stimulus" out of Washington DC after the election. We're likely to have liberals controlling both the House, the Senate and the White House, with a mandate to spend as much as they want to "fix the economy". How this "stimulus" is doled out will be important. If it goes mainly to individuals to spend as they please, it may have a positive effect. If it goes to organizations and programs aimed at providing non-monetary assistance, it's likely to wind up in some big institutions' bank accounts and very little effect on the economy.

Of course I'd much prefer cutting taxes and spending to ballooning the money supply. Eventually, the hoarders will come out and spend. Why? Because for the real players it's not really about the money. It's about the game. If blowing a wad of cash on some crazy, labor intensive idea is what it takes to get the game going again, that's what they'll do. But it's not my call and that's not going to happen. Whichever way the government goes, the market in the short term should be very volatile. I'm going to bet on big swings up and down and try to have the discipline to periodically take some money off the table.

For the casual investor, I'd go with "dollar cost averaging". That is, put the same amount of money into a diversified fund each month over a long period of time. The only way you lose with that strategy is if the economy stays in the tank for decades, in which case your 401k will probably not be your biggest concern anyway.

Demand Side Economics

2008-10-04T06:43:00.000-07:00

What went wrong with the U.S. economy? Was it corrupt politicians? Greedy speculator? Irresponsible consumers? I don't think so. All of those factors are with us all the time, in good times and in bad. I believe this was a major policy mistake. We did an about face from Supply Side policy and turned to Demand Side.

After 9/11 what did the administration appeal to people to do? Go shopping. Later, to increase home ownership, policies were implemented by Congress and the administration, not to decrease the cost of the home, but to make it easier and cheaper to get the money to buy one. When the economy continued to slow, we were all sent checks from the government and told once again, "go shopping". Now, the government has decided to give banks a massive injection of cash so they can more readily loan it to us so we can all...you guessed it, go shopping. All of these things were aimed at increasing consumer spending without any real market stimulus for doing so.

Ronald Reagan was an advocate of Supply Side economics. The idea is to reduce taxes and regulations on producers. Increased profit margins increased competition and spurred innovation. Consumers bought more because new and better products came on the market at lower prices. Demand went up naturally as the supply of things people actually wanted increased, as did value.

Today, the government will decide which businesses are worthy of a bail out and which aren't. The government will decide through subsidy and tax credits, which products it wants you to buy. The government will decide through regulation and mandate what those products will look like and how they will perform. This does not encourage innovation, it encourages compliance. Demand Side policy will only increase debt and decrease the value of the dollar. The federal government will never go broke. They'll just print more money. Interest rates will soar as lenders attempt to stay ahead of inflation. Prices will soar as retailers attempt to stay ahead of interest rates. We should have learned these lessons in the 70's, but obviously we didn't. Policy makers have gone back to the age old, tried and failed method of fixing problems by throwing cash at them.

The Zuckerman Alternative - to the Bailout

2008-10-02T15:59:00.000-07:00

Mort Zuckerman, magazine editor, publisher, and real estate billionaire, suggested on CNBC today that essentially giving away $700 billion by buying securities nobody else wants, is not the only answer.

If the goal is to sustain the system and inject cash flow, why not simply buy preferred shares in the companies that need it? Of course it would dilute the value of the company's stock. Preserving shareholder value isn't supposed to be the concern of the federal government. That's the company's job and they blew it. The taxpayers' interest is only in the infrastructure.

This is similar to what was done with Freddie, Fannie and AIG and similar to the deal Warren Buffet made with Goldman Sachs.

The companies could have the option to buy back the shares at a 10% premium, otherwise, the feds start selling them on the open market in five years (that bit was my idea).

Instead, the senate loaded up the bailout bill with an additional $150 Billion in special interest favors (who's going to notice a few extra hundred bil?). I hope the House kills this monstrosity so that better options, like Zuckerman's can be considered.

Bi-Partisan Robbery, Senate Passes Bail Out Bill

2008-10-01T19:20:00.000-07:00

A parade of senators, Republican and Democrat are congratulating themselves and each other tonight for passing the $700 billion giveaway to "save the economy". They did throw the common folk a bone in the form of some tax relief. I guess that makes it all okay.

You may be unfamiliar with the meaning of some of the terms and phrases being tossed around in reference to this crisis. Let me clarify some.

"Sub-prime mortgage" - Loans made to people for more than they could possibly pay back, secured by assets that are now worth much less than the loan.

"Mortgage Backed Securities" (MBS) - Essentially, shares of the above mortgages, sold to banks and investment institutions in large bundles.

"The credit markets are clogged" - The banks have no cash. They spent it on these MBS's which had been carried on the balance sheet as "cash equivalents". The problem is, nobody wants to buy them so they aren't really cash equivalents.

"We must free up the credit markets" - We're going to buy these shares of subprime mortgages at a price pulled out of thin air by Henry Paulson.

"We will sell these MBS's back to the open market to redeem the taxpayers' investment" - We're going to sit on these things until the heat is off.

"Doing nothing is not an option" - Doing nothing would cause the markets to take their natural course, exposing the whole convoluted scheme that caused this mess. Politicians would be voted out. Lawsuits would be filed. Voters would be very angry if the truth were to come to light. Best to let it fester for as long as possible.

Yes, Republicans and Democrats have come together in an unprecedented manner to cover their collective behinds. Some voted against the bill, but only after its passage was assured. No member of either party made a serious effort to put a stop to this. I for one will no longer vote for the most competent stooge or the lesser of two evils.

Let me make this absolutely clear for those of you who haven't yet caught on. Your money will be given to banks, so that they can loan it back to you. You will pay your money back to the bank with interest. After the shareholders, employees and execs get their cut, some of the remaining net will be paid back, not to you, but to the government who brokered the transaction. They are, at this moment, on national television praising themselves in the highest terms for pulling this thing off (assuming it passes the House) because they are now 100% convinced that we are indeed, just as stupid as they've always hoped.

A Kinder Gentler Bailout - Why it's important that this one fail too

2008-10-01T06:38:00.000-07:00

The argument among pundits, the administration and Wall Street is that if we do nothing, there will be dire consequences. Therefore, although they all say they hate to do it, they favor and insist on the government bail out. To make it a bit more palatable this time around, they've added increased FDIC insurance and some tax cuts. While the FDIC insurance and the tax cuts are good ideas on their own, the rest of the bill is still bunk.

The government argues that they'll make all their money back and then some. If that were true these securities would not be "toxic waste" on the banks balance sheets. The government is claiming that they, professional bureaucrats, are better suited to value these things than lifelong professional bankers. We have not been told the nature of the "mortgage backed securities". If they are backed by a random hodge-podge of mortgages, I'd say they're probably right. But if that were the case, there would be a market for them. They are obviously backed by mortgages that nobody expects to get paid. As for the underlying real estate, again: which real estate? I can tell you as someone who used to fix houses after people had been evicted, the cost of repossessing and fixing them when added to the loan balance can be far higher than the appraised value of the home, making the mortgage absolutely worthless.

The government also claims that credit will dry up if they don't "inject capital" (give away your money) to the system. In a sense that's true. A good portion of this economy has been built on people buying things they can't afford. That is in danger of coming to an end, or at least being severely curtailed. The economic growth figures aren't going to look so good for a while. People will have to work with their actual income instead of what they expect to earn over the next ten years.

It's important that we allow the market to play this one out for the simple reason that we have to see what happened. We have to unravel this thing so we can learn from the mistakes. It will not cause armageddon, we will not go back to the stone age. I've been flat broke before, it's not as bad as it's cracked up to be. Nobody takes you out back and shoots you for making honest financial bad calls. You just start again and try to be smarter about it going forward.

I don't know if Congress will have the courage to do the right thing. I hope they do. Sweeping the systemic problems under the rug just preserves the mess for another day.

The Deed is Done. Bailout Agreement Reached

2008-09-28T16:46:00.001-07:00

Well, it looked as though Congressional Republicans were going to step up and stand on principal, but as it turned out, they moved a couple of commas around and pretended they looked after your interests. The bailout agreement has been reached and $700 billion tax dollars are about to be given away.

Of course, the healthy banks aren't going to participate. Better to absorb the loss than face the tax and equity consequences of participating in this rip off. The government will get bogus paper, issued by the now government owned Freddie and Fannie, by giving cash to the most incompetent lenders in the market. One of the stipulations in the bill is that the government renegotiate the loans that back this paper. In other words, they've been ordered to take steps to immediately devalue the investment they just made. If you are a mortgage holder and are not behind, you keep the deal you have. If you are in default, you get to negotiate a better deal. What do think that will do to the mortgage market? The feds get warrants in the companies that do participate (again, the weakest in the industry) and they'll have you believe we're all going to come out ahead on this venture.

They may be able to hide the losses since they now will own both the issuing authority and the bogus paper they issued, but you will NEVER see a return on this investment. Recall the Savings and Loan bailout was supposed to cost us around 50 billion dollars. In the end it cost 150 billion and that involved hard assets. There are many more middle men in this deal. Lawyers are going to make money. Taxpayers are going to get squat.

It was all designed to hide the fact that the government essentially ordered the give away of homes. Obama said today that the whole mess "started on Wall Street". Wrong. Wall Street is where it ended. They were the patsies intended to take the fall from the beginning. It started in DC. Now they're all laughing, all the way to the re-election campaign. They not only got away with it. They're going to be hailed as heroes for it.

Help! We're Being Robbed!

2008-09-27T09:38:00.000-07:00

The proposed bail out plan is allegedly making progress this weekend. Leaders of both parties have stated they expect a deal to be voted on Sunday or Monday.

The problem stems from Mortgage Backed Securities and Credit Default Swaps. You don't have to know exactly what these things are. Here's a great analogy:

You own a business. Someone comes to you with what they claim is a great product. You buy the pitch. In fact, you like it so much you borrow against your business to buy a whole warehouse full of this stuff. As it turns out, your customers aren't the least bit interested in what you've just acquired. You have nobody to sell them to. You can't pay back the money you borrowed to purchase the garbage. Sure the garbage has some intrinsic value. The material it's made of has some value if it's recylcable, maybe a penny on the dollar or less.

Instead of allowing nature to take its course, whereby your horrendous error in judgment causes your business to fail, the government steps in and offers to buy your worthless inventory for something like 75 cents on the dollar, with taxpayer money.

The above scenario would never happen in real life. The government doesn't give a damn about the small business, the engine and the real foundation of this economy. They will do exactly what I've described above for the banking community that's currently putting the squeeze on you because the government was complicit in pushing the lousy product that's now on their books.

They will justify it by saying that after they bail out the banks who made the aggregious errors in judgment, these banks will suddenly loosen up credit, lower interest rates and offer you access to cheap money. Do you really believe that?

We're being robbed. It's a bi-partisan robbery. I will not vote for anyone who in any way supports this fraud. Of course that means in the presidential election I'll either be voting for a third party or no one at all. Neither candidate has had the intestinal fortitude to even attempt to put a stop to this.

If this country is to preserve free enterprise, we the people must get angry. The only way to get the stink of fascism off ourselves from the passage of this bill is to toss out anyone who had anything to do with it. Most politicians, including both presidential candidates are completely divorced from your interests. They must be reminded who is really in charge here.