Latest Economic, Trends, Opinions, And Statistics, October, 2012 - Part 2: Too Much Uncertainty, Too Many Regulations and Taxes, Too Little Leadership

Yesterday we reviewed the latest economic and financial trends using Associated Press reports and Bankrupting America’s website, focusing on the latest unemployment numbers. While the typical, limited measure of unemployment surprisingly decreased by .3%, there were many other reasons for concern.

For instance, this measure of unemployment does not account for those Americans that have become so discouraged from their job hunting that they dropped out of the workforce or take into account Americans that are underemployed relative to what they want to do. That measure is almost 15% and is higher now than when Obama took office and since the recession ended.

There were other stats and trends we covered yesterday from these two sources that were also trending down or poorly. Today, we will focus on the opinions and views of those in the economic and financial industries to see what they are forecasting and touch on some other sources of economic dodata:

- Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland confirmed some of our discussion points we made yesterday regarding the latest unemployment results. While the economy added a net 114,000 jobs in September and the Bureau of Labor Statistics reported that total employment rose by 873,000 in September, much of that increase was because 582,000 Americans took part-time positions because of slack business conditions or those jobs were the only work they could find.

He also reported that if the same number of Americans were still in the job market today vs. January, 2009 rather than having dropped out of the job market because of discouraging job hunt results, we would be at 9.7-9.8% unemployment, not 7.8%. 

- According to a Moneynews October 5, 2012 article, BlackRock CEO Larry Fink does not expect a full blown real estate housing recovery until later in 2013 despite the latest small, but encouraging signs in the industry. However, the fast approaching fiscal cliff and other economic maladies could delay the recovery even more.

- An October 3, 2012 Bloomberg news article quoted Nobel laureate Paul Krugman’s assessment “the United States and the European Union are “nowhere close to ending” the financial crisis and German-led austerity efforts may lead to a 1930s-style economic depression.”

- In an October 3, 2012 Moneynews article, John Berlau a senior fellow for finance and access to capital at the Competitive Enterprises Group, asserted his opinion that the third round of the Fed’s quantitative easing effort is very dangerous and could lead to higher unemployment and soaring inflation. As you may know, the first two rounds of quantitative easing, the equivalent of printing money out of thin air, injected $2.3 TRILLION into the economy without making much of a dent in unemployment or economic conditions.

The Fed is now pumping upwards of $40 billion a month into the economy with its latest easing program. Berlau believes that even if money is available to lend by the banks as a result of the easing efforts, it will not find a home since there is not $40 billion worth of loans and mortgages to be found each month. As a result, the money stays in the banks’ reserves.

He attributes a lot of this lack of demand to the fact that legislation like Dodd-Frank, Sarbannes-Oxley, and Obama Care have injected so much uncertainty and over regulation into the market that people are not sure what the future holds and are holding back from spending, investing, opening new businesses, etc.

He worries that these TRILLIONS of dollars could spike inflation and weaken the dollar so much that investment and economic growth, and the related employment picture could all hit us at the same time, resulting in the stagflation scenario of the Carter era: high inflation AND high unemployment. His remedy: delay or repeal Obama Care, Dodd-Frank, and other regulations to allow the economy to have some certainty and some freedom to grow on its own.

- In a Bloomberg news article from October 3, 2012, also related to the Fed’s quantitative easy, Lawrence Goodman, president of the center for Financial Stability, stated that “the Federal Reserve’s promise to hold borrowing costs at record lows into 2015 risks a loss of its credibility and a downward spiral in financial markets.”

He went on to say: "If rates edge higher due to factors such as inflation or credit issues, then the Fed will suffer a loss of its reputational state and that could have complications all across the yield curve. That can happen quickly and can unleash a forceful slide in the market and could thrust the economy back into recession.”

Seems there is a whole lot of downside to this third round of quantitative easing with little or no long term upside being espoused by anyone. It comes off as a desperation move by the Fed in the absence of the political class doing their job of managing our economic policies and affairs.

- In an October 3, 2012 article from Reuters, the world economy will take at least 10 years to emerge from the financial crisis that began in 2008, according to an International Monetary Fund Chief Economist Olivier Blanchard interview. He probably correctly pointed out that Japan’s economy will need decades to heal, the United States has serious fiscal problems, the Chinese economy is slowing, and in order for Europe to get out of its economic funk, Germany and its citizens will have to make some serious sacrifices on inflation and bailouts, not necessarily a guaranteed outcome.

- In an October 2, 2012 Moneynews interview, real estate billionaire Sam Zell asserted that the stock market, as measured by the Dow, should really be at the 9,000 level, not the current 13,000+ level because of the following negative factors:

• The Fed’s quantitative easing is giving stocks a temporary boost, as expected, but that effect will wear off shortly.
• The Fed’s printing of money is stoking inflation fears, causing potential home owners purchases and business expansion efforts to be delayed.
• The uncertainty about future tax levels and the so-called fiscal cliff are giving consumers and business no confidence in the future, restricting spending and investment.
• Investors are chasing a small number of stocks, e.g. Apple, which is driving up the overall stock market indices, but that limited range of stock options is also risky and could result in a significant drop if and when enthusiasm for those stocks wavers.
• Too many regulations, both now, and planned by the Obama administration if it stays in place, are also stifling business and economic growth.

Are we starting to see a pattern here? Too many taxes. Too much uncertainty. Too many regulations. Too little confidence in what the political class and the Fed are doing?

- In an October 2, 2012 Reuters article, Bill Gross, founder and co-chief investment officer of bond giant Pimco, stated that he believes that the United States could soon look like Greece in a few years if it does not get its fiscal house in order.

By his estimation, the U.S. must cut spending or raise taxes by 11 percent of gross domestic product over the next five to 10 years in order to preserve its role as financial safe haven or suffer some dire financial pains and anguish: "If we continue to close our eyes to existing 8 percent of GDP deficits, which, when including Social Security, Medicaid and Medicare liabilities, compose an average estimated 11 percent annual 'fiscal gap,' then we will begin to resemble Greece before the turn of the next decade.

While he feels that the U.S. is the best of the bad investment options in the world today, he did have two good visuals to represent where we are today and where we might be going from an economic perspective. Regarding today’s investment environment, the U.S. is the “cleanest dirtiest” shirt on the investment rack. We may not be good, but we are at least temporarily the best.

However, is we continue with our “crystal meth-like” addiction to out of control spending, someone, somewhere is eventually going to clean their shirts and leave the U.S. for better investment opportunities elsewhere in the world.

- In a September 28, 2012 Reuters article, Dallas Fed President Richard Fisher stated: "We've had a recovery that is quite disappointing.” The man is good at stating the obvious but went on to say why the recovery from the recession has been so bad. He attributed the bad economic news and recovery to the uncertainty on tax policy and regulation, "All the monetary accommodation in the world" will not get businesses hiring again.

Are we really starting to see a trend here among the experts? Too much uncertainty. Too little confidence in our economic, financial, and political leadership. Too many taxes. Too little clarity on taxes. Too many regulations. Is it any surprise that most of our economic performance, outlook, and confidence is so sour?

- The website, Bankrupting America, correctly reported on October 2, 2012, that the Federal government should have passed the standard, annual twelve appropriations bills that are needed to fund the Federal government by October 1. October 1 is important because that begins the government’s fiscal year.

Unfortunately, Congress fell a little short of that mandated goal of twelve, having passed exactly none. The House of Representatives, under Republican control, managed to pass six of the twelve. The Senate, under Democratic control, managed to pass none. Thus, the government will continue to limp along with a “continuing spending resolution” but without a budget for the next six months.

Is it any wonder that American citizens and American businesses have so little confidence in our political leadership of today, a group of people that cannot even pass a budget? And with little confidence comes little spending and investment and less economic growth.

Pathetic bunch of so-called leaders. No wonder we have a national debt of over $16 TRILLION, the politicians in Washington cannot even agree on a budget, never mind living within one.

That’s enough bad news for now. Despicably bad economic behavior and performance from everyone in Washington. Three steps from “Love My Country, Loathe My Government are needed to get this fiscal house in order:

Step 1


We invite all readers of this blog to visit our new website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

The United States Of Purple's website also provides you the formal opportunity to sign a petition to begin the process of implementing a Constitutional amendment to impose fixed term limits on all Federally elected politicians. Only by turning out the existing political class can we have a chance of addressing and finally resolving the major issues of our times.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at www.loathemygovernment.com. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedomfor both yourselves and others everyday.

Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment

Why Medicare and Social Security Are Doomed - The $222 TRILLION Dollar Conversation Romney and Obama Should Be Having

We are still in the middle of what I call "silly season" when it comes to politics and elections. Politicians and their respective advocates in the media talk about trivia, inane issues and other silly stuff that really will have no impact on the lives of most Americans as we go forward.

The Washington Post two weeks ago did a 700 word article on the clothes that Paul Ryan wore at some campaign appearances that week and how well those clothes fit him. Joe Biden was put in political "time out" for a few weeks because he continues to have foot in mouth disease. The Obama camp insists that Romney release his tax returns while the President's school records continue to be a secret and the tax returns of most members of Congress are also a mystery.

Trivial matters in a time of dire national issues. Let's do a quick review of the country's economic straits that adults should be talking about vs. the relatively minor issues that our politicians talk about, issues that we have covered extensively in past posts:

• Our national debt is about to hit $16 TRILLION. If spread out equally across all U.S. households, every American household would have to pay about $140,000 each to cover the debt nut. And under Obama, this debt is growing over a TRILLION dollars a year relative to a year's worth of government tax and fee collection.
• Social Security is currently in a negative cash flow situation and will continue in that situation for decades to come as the Baby Boomers retire. A negative cash flow situation means that the Social Security process is now, and will continue, to pay out more in benefits than it collects in tax revenue.
• The Social Security trust fund still does not exist as a source of wealth. It only exists as a cruel accounting hoax, a set of financial IOUs that the Treasury says it owes the Social Security Administration with no tangible assets of wealth to back up those IOUs.
• For the first time in the history of the Social Security program, and going forward, an average American will pay more into the Social Security process than he or she can expect to get back in benefits, making it one of the worst retirement programs imaginable.
• Medicare is quickly eating up more and more of the country's tax wealth and Obama Care will hasten the fiscal collapse of the program since it plans to arbitrarily reduce future Medicare budgets by over $700 billion, without resolving the underlying causes of our high health care costs as a nation.
• According to Forbes magazine, the total wealth of the 400 wealthiest Americans is just over $2 TRILLION, which means that confiscating the TOTAL wealth of the richest Americans will come nowhere close to significantly reducing the ever rising national debt or Social Security and Medicare shortfalls.
• According to the latest available IRS tax summary data, if the government taxed millionaire earners at 100% of their annual adjusted gross income, i.e. confiscating everything they earned, it would not come close to covering one year's worth of Obama's deficit spending budget.
• Of course, you could only do this confiscation once since no one in the country would ever work hard again if they knew the Federal government was going to confiscate everything they earned.

The country is in this dire fiscal situation and the Washington Post is worried about a politician's wardrobe. But we are really not in this dire situation listed above....it is far worst, as described by the latest long range estimates from the Congressional Budget Office (CBO), as analyzed by Boston University Professor Lawrence Kotlikoff. His analysis, summarized in a simple to understand, detailed, and horrifying essay by Gary North, can be read at:

 http://lewrockwell.com/north/north1186.html

The following points from the analysis highlight our dangerous plight:

• Professor Lawrence Kotlikoff of Boston University used data and statistics from the Congressional Budget Office relative to the financials of Social Security, Medicare, and our national debt in his analysis.
• Early this month, Kotlikoff and financial writer Scott Burns published their analysis of the unfunded liabilities of the Federal government.
• According to the figures issued by the Congressional Budget Office and Kotlikoff's analysis, he came to the conclusion that there had been a year over year increase in unfunded Federal liabilities of $11 trillion over the preceding twelve months.
• This is about ten times larger than the "official" Federal deficit in the past year, an official deficit that only measures the short term, annual shortfall of government revenue vs. government spending.
• Kotlikoff estimates the total liability of the Federal government to Americans that is not funded at the present time is now $222 trillion for the next 75 years, the official Medicare timeline for long term planning.
• Again, this is an increase of about $11 trillion in just the past year, according to Kotlikoff's analyses.
• His analysis means that the Federal government would have to set aside $222 trillion today, invest this money in projects that will pay a positive rate of return to cover the financing of this $222 trillion liability debt for the next 75 years.
• Thus, consider this dilemma: the Federal government is currently incurring annual deficits of about $1.2 trillion, it annually spends about $3.7 trillion but it needs to have $222 trillion immediately to invest in private markets to cover Social Security, Medicare, and other government debt.
• The math is not looking good, especially when you throw in the fact that the TOTAL production of wealth every year in the U.S. is only about $15 trillion.
• Consider this other dilemma: our political class was incapable of closing an annual operating deficit of just over a trillion dollars. How in the world can we expect them to close a $222 trillion liability shortfall?
• Another dilemma: If the Federal government actually wanted to set aside $222 trillion today to cover the promises it has made to every American, every American household would have to put up, on average, $1.9 million each. Not going to happen.
• Even if this analysis is off by half, that the unfunded liabilities are only $111 trillion, there is still no way, even with the size of our economy, that this country can fulfill the promises that past politicians have made.

We could go on doing math based on his analysis forever but those scenarios are never going to happen since the Federal government, the dollar, and our democracy will crash long before those liabilities all come due since our economy cannot possibly pay for all entitlement promises the political class has made over the past few decades.

Consider some other factors that will contribute to our doom and gloom scenario:

- According to an article in the May 25, 2012 issue of The Week magazine, even with Obama Care in effect, a married couple on average can expect to pay $240,000 in their retirement years to pay for Medicare premiums, co-pays, deductibles and other health care expenses. This is a 4% increase over the previous year. Thus, it will be difficult to ask American households to cough up $1.9 million each to cover the $222 TRILLION in unfunded liabilities if they have to put up almost a quarter million dollars for their own health care.

- Still do not believe we are in the midst of gloom and doom regarding Social Security? Consider an article in the June 4, 2012 issue of Business Week, "A Massive Program On The Verge Of Collapse." Social Security also has a disability program in addition to its retirement fund. According to the article, the Social Security disability fund will go cash flow negative by 2016, at which time taxes collected will only cover about 79% of the need.

The article clearly points out that both major political parties have done nothing to much acknowledge the problem never mind resolving the issue. The article also points out that the government is so dysfunctional that it has been unable to clear a backlog of over 1 million potential fraud cases.

- A Moneynews article from August 16, 2012 reported on the most recent Treasury Department analysis which showed the following profile of our debt relative to international entities:

• The amount of national debt owned by foreign entities was just over $5 TRILLION, about a 66% increase in just three years.
• The Chinese now hold $1.1643 trillion in U.S. government debt, which is down from $1.3149 trillion in just the past year.
• The Japanese ownership of our national debt is $1.1193 trillion.

While these two countries currently hold a lot of our debt, we probably cannot rely on them to continue financing our insane deficit spending. First, China has reduced its holdings more than 11% in just twelve months. Second, both of these countries have rapidly aging populations and will have massive spending needs of their own to handle their domestic increases in the cost of supporting their elderly populations. Thus, they are unlikely to be a source of funding for the $222 trillion needed to fund our liabilities.

So, American households will have their own expenses to cover and cannot be relied on to raise $222 trillion of wealth. Our two biggest foreign bankrollers, China and Japan, will likely turn inward to service their aging populations and not continue funding our spending addiction. Our own wealthy cannot come close to funding these unfunded liabilities even if the Federal government confiscated all of their wealth and all of their earnings.

Our political class and media worry about ill fitting clothes, personal college records, personal income tax returns, and other extremely trivial issues. Real leaders would step forward and level with the America people: "The U.S. Federal government has made promises to you that are impossible to meet. Thus, as a nation, these are the steps that need to be taken, the sacrifices that need to be made to guarantee that those most in need of help get what we can afford to give them while the rest of America will have to do with less."

What are the odds that anyone in the current political class has the courage to stand up and make that statement and back it up with a cogent, fair, logical, and financially sound plan to get us through this dilemma? In my view, the odds of that not happening might actually exceed the size of the national debt these same people have created. Despicable from a leadership perspective.

But there might be a way to get through the gloom and doom. We would recommend starting with four steps from "Love My Country, Loathe My Government:"

1. Step 10 would reduce the Social Security tax rate but uncap the maximum amount taxed and apply the tax to all forms of income in order to make the application of the tax fairer across all income levels.
2. Step 11 would raise the retirement age to 70, with a hardship exception, to delay payments to Americans who can afford to wait a little while for their Social Security payments.
3. Step 12 would block all Americans from receiving a Social Security check if their net worth, not income, exceeded $3 million. People like Trump, Gates, Buffet, etc. can afford to live comfortably without a Social Security check, enabling the system to better serve the truly needy.
4. Step 1 would reduce government spending 10% a year for five straight years to finally get us to a balanced budget. You cannot start paying down your debt until you get to a balanced budget. We have discussed many, many ways and analyses that have already been put forth to accomplish this relatively easy task, assuming some courage on behalf of our politicians.

Other necessary steps would include the following:

• Implement the National Bounty System as outlined in the following post:
• http://loathemygovernment.blogspot.com/2012/05/national-bounty-system-fixing.html, finally start tracking down and prosecuting the criminal elements that defraud Social Security, Medicare, and Medicaid of over  $200 billion every year. 
• Repeal Obama Care and start over, putting forth a rational, cost efficient plan that actually looks at the true root causes of our ever escalating health care costs rather than just creating another massive, expensive, and ineffective  government bureaucracy like Obama Care.
• Find a way to overhaul Medicare that reduces costs and puts the health care decisions of individuals back into their own hands rather than the hands of unelected bureaucrats. A good starting point for an adult discussion would be with Paul Ryan's plan to overhaul Medicare.

If we do not have the needed adult discussion, we will continue to live with the gloom and doom disaster of Social Security and Medicare collapsing followed by our currency cratering and then the end of our democracy.

Oh, yes, there is another way to avoid the gloom and doom. Do not get old and do not get sick. Have a nice day!

Please visit our Presidential website, "The United States Of Purple," at:

http://www.unitedstatesofpurple.com/

The United States of Purple is a new grass roots approach to filling the office of President of The United States by focusing on the restoration of freedom in the United States, focusing on problem solving skills and results vs. personal political enrichment, and imposing term limits on all future Federal politicians. No more red states, no more blue states, just one United States Of America under the banner of Purple.

Our book, "Love My Country, Loathe My Government - Fifty First Steps To Restoring Our Freedom And Destroying The American Political Class" is now available at http://www.loathemygovernment.com/. It is also available online at Amazon and Barnes and Noble. Please pass our message of freedom onward. Let your friends and family know about our websites and blogs, ask your library to carry the book, and respect freedom for both yourselves and others everyday.

Please visit the following sites for freedom:

http://www.cato.org/
http://www.robertringer.com/
http://realpolichick.blogspot.com/
http://www.flipcongress2010.com/
http://www.reason.com/
http://www.repealamendment/