You may recall from previous postings that I have urged folks to be prepared to take care of themselves and their families in the event of a natural disaster. Americans typically take it for granted that the government will be there for them. After all that is why we pay taxes.
As someone who is a strong Libertarian, I feel just the opposite. The government does not have the ability to take care of us. They cannot protect us from terrorists, that cannot protect us from nature, and they certainly do not have the ability to rescue us when one of these events occurs in our neighborhood.
You must be able to take care of yourselves. That is the bottom line.
As proof of this I offer you today a link to an article about the current state of the City of New Orleans. Over the past several weeks we have watched as Israel bombed Lebanon back to the stone age. Images from Beirut were shocking, but it is nothing compared to the conditions along the gulf coast.
The water system wastes 80 million gallons of water a day due to leaky pipes, the medical system is in shambles, housing is non-existent, and only half of the homes in New Orleans have electricity. Most of the area still looks like a war zone. Not a single dollar of federal housing rehab money has made it to any individual in Louisiana.
The article is too long to post here, but it is well worth the time it takes to read it. You will be appalled.
Here's the link: http://www.counterpunch.org/quigley08222006.html
Wednesday, August 23, 2006
Tuesday, August 22, 2006
Recession Watch
One of the most accurate predictors of coming recession is the yield curve. History tells us that when the yield curve inverts, that is, the short term rates are higher than long term rates, we typically see a recession sometime in the following 12 to 18 months.
The yield curve has been flattening since spring and has flirted with with inversion on at least one other occasion. Today, the yield curve has been inverted for a full week. The magic number is somewhere around 20 days. What this means is that the longer the yield curve stays inverted, the higher the probability of a recession.
Another study looks at the spread between the 10 year and three month interest rates. Currently we are already at a 50% probability of recession. If the spread widens to -.16% the probability increases to 100%.
Now compare that with Fed. Chairman Bernanke's comments back in March. He claimed that we should not pay attention to the yield curve. That in the current economic climate, he does not feel that we are entering a period of time that could see a major recession.
So, here we are today. I and several like me believe that sometime before the end of 2007 we will see recession in the U.S. Bernanke, the Chairman of the Federal Reserve does not. Care to wager who will be right?
If I were you, I would adjust my portfolios to a more defensive posture going into the fall and winter months. Actually, I have already done that.
The yield curve has been flattening since spring and has flirted with with inversion on at least one other occasion. Today, the yield curve has been inverted for a full week. The magic number is somewhere around 20 days. What this means is that the longer the yield curve stays inverted, the higher the probability of a recession.
Another study looks at the spread between the 10 year and three month interest rates. Currently we are already at a 50% probability of recession. If the spread widens to -.16% the probability increases to 100%.
Now compare that with Fed. Chairman Bernanke's comments back in March. He claimed that we should not pay attention to the yield curve. That in the current economic climate, he does not feel that we are entering a period of time that could see a major recession.
So, here we are today. I and several like me believe that sometime before the end of 2007 we will see recession in the U.S. Bernanke, the Chairman of the Federal Reserve does not. Care to wager who will be right?
If I were you, I would adjust my portfolios to a more defensive posture going into the fall and winter months. Actually, I have already done that.
Thursday, August 17, 2006
U.S. Bankruptcy Within A Generation
Just in case you thought that I make this stuff up, I decided to reprint this article from NewsMax. An interview with David Walker, the U.S. Comptroller General. In the interview, he points out some sobering facts about the country's debt level and the drastic measures that need to be taken in order to head off a national bankruptcy.
When news like this comes from the people in charge of keeping tabs on the country, instead of common folks like me, it tends to cause one to pause and give serious thought to just where we are headed as a country.
Reprinted from NewsMax.com
U.S. Comptroller General Warns the Nation of Economic Calamity
Dave Eberhart, NewsMax.com
Thursday, Aug. 3, 2006
The Comptroller General of the United States warns the nation will go broke within a generation - unless it takes radical steps now to rein in out-of-control federal spending.
In an exclusive interview with NewsMax, Comptroller David M. Walker, explained his mission: Save America from the brink of financial disaster.
Walker has revealed America's collision course in computer simulations that show balancing the budget in 2040 (under the status quo of spending like there's no tomorrow) could require cutting total federal spending by an incredible 60 percent - or raising federal taxes 200 percent over today's level.
Serving a 15-year appointed term that began when he took his oath of office on Nov. 9, 1998, this no-nonsense certified public accountant is the nation's chief accountability officer and head of the U.S. Government Accountability Office (GAO).
Walker has won plaudits from both Republicans and Democrats for his no-nonsense straight talk about the nation's growing long-term fiscal challenge.
In his wide-ranging interview with NewsMax, Walker offered a candid assessment of the problems and risks facing Americans over the next several decades.
Among his key assessments:
Prescription Drugs:: Walker says that the prescription drug plan is the "poster case for what is wrong with Washington."
He notes that when Congress first took up the matter of Medicare prescription drugs, estimates placed the cost at $300 billion.
But he argues that both Congress and the administration simply downplayed or ignored the true costs of the program. Today, the nation will have to pay out for the program $8 trillion-plus in current dollar terms.
Walker also detailed that when the Medicare actuary of the Center for Medicare/Medicaid Services calculated the true costs of the program, he "was told he could not tell the Congress or else he might lose his job."
"That not only was unethical but it was illegal, and nobody has been held accountable for it," an angry Walker said.
Defense Budget: Walker argues that Defense Department simply is out of control and that basic rules of accountability don't apply.
He said that although it received a whopping $500 billion in appropriations, the Defense Department "is the only agency in the federal government that cannot adequately account for its assets and its expenditures - and cannot withstand an outside financial statement audit."
Walker grades the agency with a "D" on "economy, efficiency, transparency, and accountability." He added, "And it has not been held accountable."
The Nation's Debt: Walker says the United States risks losing its pre-eminence around the globe because of its growing status as a debtor nation.
He ominously notes that "last year was the first year since 1933 that Americans spent more money than they took home and, as you probably recall, 1933 was not a good year for the United States."
Because the United States has to rely on foreign central banks to finance its deficits, it places itself in a high-risk situation.
"It means that other players hold an increasing percentage of our nation's mortgage; and it means the debt service is going to go overseas rather than domestic; and it means that we will have less leverage on them with regard to economic, foreign policy and national security issues - and they will have more leverage on us."
Entitlements: The United States must rein in entitlement programs or face economic woes, he argues.
Walker says that today the United States is "about 3 percent short of the GDP between what we are taking in and what we are spending, and it is going to get worse when the [baby] boomers start to retire - primarily because of entitlement programs.
"You can't solve the problem without fundamental reform of the entitlement programs. Medicare is going to require much more dramatic and fundamental reforms than Social Security because the problem is six to seven times greater than Social Security.
"It is going to take entitlement reform; it is going to take spend constraint; and it is going to take some revenue enhancements."
Walker's Mission
Walker's frequent refrain is simply, "The status quo is not an option!"
He's been telling his story to Congress, the media, and anyone else who will listen
.
His globetrotting has included speaking appearances at Gresham College London, England; the London School of Economics; the Atlanta Rotary Club; the National Press Foundation; and the National Conference of State Legislatures - just to name a few.
Walker likes slide shows – to better facilitate the ominous graphs and charts that highlight his message.
The long-term modeling that is at the heart of his warning is adapted from work done at the Federal Reserve Bank of New York and the various new estimates that become available from the Congressional Budget Office and from the Social Security and Medicare Trustees.
Walker is not overly impressed with the recently touted spurt of economic growth and its accompanying windfall of unexpected federal revenues.
"Faster economic growth can help, but it cannot solve the problem," the straight-shooting former public trustee for Social Security and Medicare emphasizes.
Here's where Walker typically clicks on one of his attention-grabbing slides on the subject.
The audience digests as the GAO chief reads from the screen:
Closing the current long-term fiscal gap based on reasonable assumptions would require real average annual economic growth in the double-digit range every year for the next 75 years.
During the 1990s, the economy grew at an average 3.2 percent per year.
"We cannot simply grow our way out of this problem," he announces somberly.
When playing to a home crowd of working stiffs, Walker follows with another body blow that penetrates the reality world of mom and pop: It's called, benignly enough, "Our Total Fiscal Burden." But when broken down as to show the impact on every man, woman, and child in the country, it can knock the wind from the collective lungs.
Up pops another eye-widening slide:
Total fiscal exposures: $46.4 trillion.
Total household net worth: $51.1 trillion.
Burden/net worth ratio: 91 percent.
Forget the accounting jargon; what's my personal bill for my government's runaway spending?
As if to say "Glad you asked that," there follows the grim tally:
Per person: $156,000.
Per full-time worker: $375,000.
Per household: $411,000.
Gee, that sounds a bit extreme. Can our pocketbooks handle that tab?
Just how extreme is explained by the next slide:
Median U.S. household income: $44,389.
Disposable personal income per capita: $30,431
.
After learning that we are a wee bit short on the greenbacks, Walker switches back to the macro-picture, revealing yet another disturbing picture:
"The United States may be the only superpower, but compared to most other OECD countries [countries belonging to the Organization for Economic Co-operation and Development] on selected key economic, social, and environmental indicators, on average, the U.S. ranks 16 out of 28," announces Walker to an accompanying slide.
Included in those OECD indicators are such down-to-earth items as quality of life, education, and prices.
Walker, the author of "Retirement Security: Understanding and Planning Your Financial Future," is for sure no administration spinner.
He will tell you that he is only following a grand tradition of the non-partisan GAO, which for more than a decade has published the results of its long-term budget simulations in reports and testimonies.
Well, at least some of the states are doing well these days - those increased property values and all . . .
Don't get too wound up on that front, warns Walker. States are reeling under their own fiscal challenges, including unsustainable Medicaid cost increases; unfunded liabilities of state retirement systems; education funding squeezed by competing demands; infrastructure maintenance and expansion needs given unparalleled sprawl and congestion; and - lest we forget - emergency preparedness response and recovery needs.
The bottom line, according to Walker: "We must make tough choices, and the sooner the better."
The chief financial overseer advises that a multipronged approach is needed:
Revise existing budget processes and financial reporting requirements.
Restructure existing entitlement programs.
Re-examine the base of discretionary and other spending.
Review and revise tax policy and enforcement programs - including tax expenditures.
"Everything must be on the table," says Walker.
While not pleased with the pace of action to date, Walker does see some progress. He happily points out that the White House now "readily acknowledge now that we face a huge long-range structural deficit that has to be addressed."
Meanwhile, beating the drum for fiscal reform is but one facet of the immense GAO workload.
Walker's agency must advise not only Congress, but the heads of executive agencies -- such as Homeland Security, the Environmental Protection Agency, the Department of Defense, and Health and Human Services -- about making government more effective and responsive.
To do the job, Walker heads up some 3,200 employees and manages a budget of $474.5 million.
At the end of fiscal 2005, 85 percent of the 1,752 recommendations the GAO made in fiscal year 2001 had been implemented, notes the agency. But is the all-important keeper of the federal purse strings, the Congress, reacting to Walker's big-picture warnings of fiscal crisis ahead?
For the answer to that, see the NewsMax interview with U.S. Comptroller General David M. Walker.
When news like this comes from the people in charge of keeping tabs on the country, instead of common folks like me, it tends to cause one to pause and give serious thought to just where we are headed as a country.
Reprinted from NewsMax.com
U.S. Comptroller General Warns the Nation of Economic Calamity
Dave Eberhart, NewsMax.com
Thursday, Aug. 3, 2006
The Comptroller General of the United States warns the nation will go broke within a generation - unless it takes radical steps now to rein in out-of-control federal spending.
In an exclusive interview with NewsMax, Comptroller David M. Walker, explained his mission: Save America from the brink of financial disaster.
Walker has revealed America's collision course in computer simulations that show balancing the budget in 2040 (under the status quo of spending like there's no tomorrow) could require cutting total federal spending by an incredible 60 percent - or raising federal taxes 200 percent over today's level.
Serving a 15-year appointed term that began when he took his oath of office on Nov. 9, 1998, this no-nonsense certified public accountant is the nation's chief accountability officer and head of the U.S. Government Accountability Office (GAO).
Walker has won plaudits from both Republicans and Democrats for his no-nonsense straight talk about the nation's growing long-term fiscal challenge.
In his wide-ranging interview with NewsMax, Walker offered a candid assessment of the problems and risks facing Americans over the next several decades.
Among his key assessments:
Prescription Drugs:: Walker says that the prescription drug plan is the "poster case for what is wrong with Washington."
He notes that when Congress first took up the matter of Medicare prescription drugs, estimates placed the cost at $300 billion.
But he argues that both Congress and the administration simply downplayed or ignored the true costs of the program. Today, the nation will have to pay out for the program $8 trillion-plus in current dollar terms.
Walker also detailed that when the Medicare actuary of the Center for Medicare/Medicaid Services calculated the true costs of the program, he "was told he could not tell the Congress or else he might lose his job."
"That not only was unethical but it was illegal, and nobody has been held accountable for it," an angry Walker said.
Defense Budget: Walker argues that Defense Department simply is out of control and that basic rules of accountability don't apply.
He said that although it received a whopping $500 billion in appropriations, the Defense Department "is the only agency in the federal government that cannot adequately account for its assets and its expenditures - and cannot withstand an outside financial statement audit."
Walker grades the agency with a "D" on "economy, efficiency, transparency, and accountability." He added, "And it has not been held accountable."
The Nation's Debt: Walker says the United States risks losing its pre-eminence around the globe because of its growing status as a debtor nation.
He ominously notes that "last year was the first year since 1933 that Americans spent more money than they took home and, as you probably recall, 1933 was not a good year for the United States."
Because the United States has to rely on foreign central banks to finance its deficits, it places itself in a high-risk situation.
"It means that other players hold an increasing percentage of our nation's mortgage; and it means the debt service is going to go overseas rather than domestic; and it means that we will have less leverage on them with regard to economic, foreign policy and national security issues - and they will have more leverage on us."
Entitlements: The United States must rein in entitlement programs or face economic woes, he argues.
Walker says that today the United States is "about 3 percent short of the GDP between what we are taking in and what we are spending, and it is going to get worse when the [baby] boomers start to retire - primarily because of entitlement programs.
"You can't solve the problem without fundamental reform of the entitlement programs. Medicare is going to require much more dramatic and fundamental reforms than Social Security because the problem is six to seven times greater than Social Security.
"It is going to take entitlement reform; it is going to take spend constraint; and it is going to take some revenue enhancements."
Walker's Mission
Walker's frequent refrain is simply, "The status quo is not an option!"
He's been telling his story to Congress, the media, and anyone else who will listen
.
His globetrotting has included speaking appearances at Gresham College London, England; the London School of Economics; the Atlanta Rotary Club; the National Press Foundation; and the National Conference of State Legislatures - just to name a few.
Walker likes slide shows – to better facilitate the ominous graphs and charts that highlight his message.
The long-term modeling that is at the heart of his warning is adapted from work done at the Federal Reserve Bank of New York and the various new estimates that become available from the Congressional Budget Office and from the Social Security and Medicare Trustees.
Walker is not overly impressed with the recently touted spurt of economic growth and its accompanying windfall of unexpected federal revenues.
"Faster economic growth can help, but it cannot solve the problem," the straight-shooting former public trustee for Social Security and Medicare emphasizes.
Here's where Walker typically clicks on one of his attention-grabbing slides on the subject.
The audience digests as the GAO chief reads from the screen:
Closing the current long-term fiscal gap based on reasonable assumptions would require real average annual economic growth in the double-digit range every year for the next 75 years.
During the 1990s, the economy grew at an average 3.2 percent per year.
"We cannot simply grow our way out of this problem," he announces somberly.
When playing to a home crowd of working stiffs, Walker follows with another body blow that penetrates the reality world of mom and pop: It's called, benignly enough, "Our Total Fiscal Burden." But when broken down as to show the impact on every man, woman, and child in the country, it can knock the wind from the collective lungs.
Up pops another eye-widening slide:
Total fiscal exposures: $46.4 trillion.
Total household net worth: $51.1 trillion.
Burden/net worth ratio: 91 percent.
Forget the accounting jargon; what's my personal bill for my government's runaway spending?
As if to say "Glad you asked that," there follows the grim tally:
Per person: $156,000.
Per full-time worker: $375,000.
Per household: $411,000.
Gee, that sounds a bit extreme. Can our pocketbooks handle that tab?
Just how extreme is explained by the next slide:
Median U.S. household income: $44,389.
Disposable personal income per capita: $30,431
.
After learning that we are a wee bit short on the greenbacks, Walker switches back to the macro-picture, revealing yet another disturbing picture:
"The United States may be the only superpower, but compared to most other OECD countries [countries belonging to the Organization for Economic Co-operation and Development] on selected key economic, social, and environmental indicators, on average, the U.S. ranks 16 out of 28," announces Walker to an accompanying slide.
Included in those OECD indicators are such down-to-earth items as quality of life, education, and prices.
Walker, the author of "Retirement Security: Understanding and Planning Your Financial Future," is for sure no administration spinner.
He will tell you that he is only following a grand tradition of the non-partisan GAO, which for more than a decade has published the results of its long-term budget simulations in reports and testimonies.
Well, at least some of the states are doing well these days - those increased property values and all . . .
Don't get too wound up on that front, warns Walker. States are reeling under their own fiscal challenges, including unsustainable Medicaid cost increases; unfunded liabilities of state retirement systems; education funding squeezed by competing demands; infrastructure maintenance and expansion needs given unparalleled sprawl and congestion; and - lest we forget - emergency preparedness response and recovery needs.
The bottom line, according to Walker: "We must make tough choices, and the sooner the better."
The chief financial overseer advises that a multipronged approach is needed:
Revise existing budget processes and financial reporting requirements.
Restructure existing entitlement programs.
Re-examine the base of discretionary and other spending.
Review and revise tax policy and enforcement programs - including tax expenditures.
"Everything must be on the table," says Walker.
While not pleased with the pace of action to date, Walker does see some progress. He happily points out that the White House now "readily acknowledge now that we face a huge long-range structural deficit that has to be addressed."
Meanwhile, beating the drum for fiscal reform is but one facet of the immense GAO workload.
Walker's agency must advise not only Congress, but the heads of executive agencies -- such as Homeland Security, the Environmental Protection Agency, the Department of Defense, and Health and Human Services -- about making government more effective and responsive.
To do the job, Walker heads up some 3,200 employees and manages a budget of $474.5 million.
At the end of fiscal 2005, 85 percent of the 1,752 recommendations the GAO made in fiscal year 2001 had been implemented, notes the agency. But is the all-important keeper of the federal purse strings, the Congress, reacting to Walker's big-picture warnings of fiscal crisis ahead?
For the answer to that, see the NewsMax interview with U.S. Comptroller General David M. Walker.
Wednesday, August 16, 2006
Pension Plan Changes Coming Your Way
President Bush is expected soon to sign into law a bill that overhauls the country's pension plan laws.
How will this affect you? Let's take a look. First of all, a defined benefit pension plan is one that guarantees a specific benefit for life. For example, you work for 30 years for a company and at age 50 you can retire and receive 75% of your pay. If you are in any type of pension plan that uses a similar type of formula to determine a monthly benefit, then you are in a defined benefit plan. Social Security is a defined benefit plan in that they send you a statement every year telling you what your monthly benefit will be when you retire.
The problem with defined benefit plans is that they are hard to fund. During booming bull markets, the plans are flush with cash, but during bear markets they become under funded. They are great for current retirees. They are receiving a monthly check that is indexed to the annual cost of living index or COLA.
The dark side is simply as more people reach retirement age and that number is growing by the millions every year, these plans cannot handle the increase in numbers, especially in light of the fact that the stock markets have barely made it back to their levels of 2000. That means for most of these pension plans, they have not made any money for over six years. Their plans have not yet recovered to their pre-2000 funding levels.
What this means is that companies and organizations that offer these types of plans need a way out. Enter the new pension bill that allows companies to convert their plans to a cash balance plan. This means the money you pay in is the money you get when you retire. That is a far stretch from the old plans.
This bill was tested in a court case involving IBM. The claimants believed that changing the plan discriminated against older workers. A U.S. appeals court overturned a lower court ruling and ruled in IBM's favor. This paves the way for the conversion to cash balance plans across the country.
Since 1985 the number of defined benefit plans insured by the U.S. Pension Benefit Guaranty Corporation (PBGC) has declined from 114,500 to less than 32,000. You can expect to see that number much lower in the coming years.
Diversify you retirement income. It is the only way to protect yourself from financial catastrophe.
How will this affect you? Let's take a look. First of all, a defined benefit pension plan is one that guarantees a specific benefit for life. For example, you work for 30 years for a company and at age 50 you can retire and receive 75% of your pay. If you are in any type of pension plan that uses a similar type of formula to determine a monthly benefit, then you are in a defined benefit plan. Social Security is a defined benefit plan in that they send you a statement every year telling you what your monthly benefit will be when you retire.
The problem with defined benefit plans is that they are hard to fund. During booming bull markets, the plans are flush with cash, but during bear markets they become under funded. They are great for current retirees. They are receiving a monthly check that is indexed to the annual cost of living index or COLA.
The dark side is simply as more people reach retirement age and that number is growing by the millions every year, these plans cannot handle the increase in numbers, especially in light of the fact that the stock markets have barely made it back to their levels of 2000. That means for most of these pension plans, they have not made any money for over six years. Their plans have not yet recovered to their pre-2000 funding levels.
What this means is that companies and organizations that offer these types of plans need a way out. Enter the new pension bill that allows companies to convert their plans to a cash balance plan. This means the money you pay in is the money you get when you retire. That is a far stretch from the old plans.
This bill was tested in a court case involving IBM. The claimants believed that changing the plan discriminated against older workers. A U.S. appeals court overturned a lower court ruling and ruled in IBM's favor. This paves the way for the conversion to cash balance plans across the country.
Since 1985 the number of defined benefit plans insured by the U.S. Pension Benefit Guaranty Corporation (PBGC) has declined from 114,500 to less than 32,000. You can expect to see that number much lower in the coming years.
Diversify you retirement income. It is the only way to protect yourself from financial catastrophe.
Thursday, August 10, 2006
Backed Into A Corner
What do you do, as a country, when you have inflated your currency to the point that it is almost worthless, your leaders are involved in the most aggressive empire building campaign since Napoleon, manufacturing is fleeing the country at an alarming rate, and countries who have been loaning us money at a rate of better than $2 billion per day are starting to get cold feet?
It certainly seems like a rough spot to be in. Our international bullying has irreparably damaged our image around the world. When things go sour here in our country, and believe me they will, who will come to our rescue? My fear is that no one will. They will turn their backs on the US, not wanting to get dragged down with us.
You think the depression of the 1930's was bad, you ain't seen nothing yet.
So, our leaders have to be aware of the problems facing us and yet they seem to calm and cool on the surface. When Mexico and Argentina suffered from currency collapse, we, along with the IMF stepped in and bailed them out. But we did it with conditions and those conditions were most unpleasant for the general populations. Are we going to allow the IMF to come in and tell us what to do? I think not.
Here is a little hint of what may be cooking on the back burner over in Washington. It seems that we have had several groups studying the possibility of some sort of North American Union. One such organization is the Security and Prosperity Partnership of North American. (www.ssp.gov) They are looking at ways to facilitate the flow of goods, services, and capital between the US, Mexico, and Canada.
An agreement between George Bush, Vincente Fox, and former Canadian Prime Minister Paul Martin in March of 2005 to form this union using Executive Orders and Agreements rather than go through the treaty process, which would require congressional approval.
There is even talk about a new currency called the "Amero," which would replace the dollar. The plan is to have this new union in place by 2010. That's three years away folks.
Now, think about this. In our mad rush to control dwindling resources around the world and build a global empire, we have in effect, destroyed our currency and bankrupted our country. It is just a matter of time before the rest of the world gets the picture, but in the end, we will be able to cancel our debts and convert to a new currency by forming this union.
So it seems the "powers that be" have it all planned out. A way to get rid of debt that we will never be able to repay, move to a new currency that will be on a par with the euro, and build a trading block that rivals any around the world.
But there is always a cost. According to Jerome R. Corsi, the United States will surrender its Constitution and the authority of a North American court and some form of parliamentary body would supercede our nation-state prerogatives. Corsi who has a Ph.D. from Harvard is author of several books, including "Unfit for Command: Swift Boat Veterans Speak Out Against John Kerry", "Black Gold Stranglehold: the Myth of Scarcity and the Politics of Oil", "Atomic Iran: How the Terrorist Regime Bought the Bomb and American Politicians" and most recently, "Minutemen: The Battle to Secure America's Borders."
So you can see that as a nation we appear to be backed into a financial corner, but our leaders may have one last trick up their sleave.
It certainly seems like a rough spot to be in. Our international bullying has irreparably damaged our image around the world. When things go sour here in our country, and believe me they will, who will come to our rescue? My fear is that no one will. They will turn their backs on the US, not wanting to get dragged down with us.
You think the depression of the 1930's was bad, you ain't seen nothing yet.
So, our leaders have to be aware of the problems facing us and yet they seem to calm and cool on the surface. When Mexico and Argentina suffered from currency collapse, we, along with the IMF stepped in and bailed them out. But we did it with conditions and those conditions were most unpleasant for the general populations. Are we going to allow the IMF to come in and tell us what to do? I think not.
Here is a little hint of what may be cooking on the back burner over in Washington. It seems that we have had several groups studying the possibility of some sort of North American Union. One such organization is the Security and Prosperity Partnership of North American. (www.ssp.gov) They are looking at ways to facilitate the flow of goods, services, and capital between the US, Mexico, and Canada.
An agreement between George Bush, Vincente Fox, and former Canadian Prime Minister Paul Martin in March of 2005 to form this union using Executive Orders and Agreements rather than go through the treaty process, which would require congressional approval.
There is even talk about a new currency called the "Amero," which would replace the dollar. The plan is to have this new union in place by 2010. That's three years away folks.
Now, think about this. In our mad rush to control dwindling resources around the world and build a global empire, we have in effect, destroyed our currency and bankrupted our country. It is just a matter of time before the rest of the world gets the picture, but in the end, we will be able to cancel our debts and convert to a new currency by forming this union.
So it seems the "powers that be" have it all planned out. A way to get rid of debt that we will never be able to repay, move to a new currency that will be on a par with the euro, and build a trading block that rivals any around the world.
But there is always a cost. According to Jerome R. Corsi, the United States will surrender its Constitution and the authority of a North American court and some form of parliamentary body would supercede our nation-state prerogatives. Corsi who has a Ph.D. from Harvard is author of several books, including "Unfit for Command: Swift Boat Veterans Speak Out Against John Kerry", "Black Gold Stranglehold: the Myth of Scarcity and the Politics of Oil", "Atomic Iran: How the Terrorist Regime Bought the Bomb and American Politicians" and most recently, "Minutemen: The Battle to Secure America's Borders."
So you can see that as a nation we appear to be backed into a financial corner, but our leaders may have one last trick up their sleave.
Friday, August 04, 2006
Minimum Wage, Why?
The news this morning tells us that congress killed the minimum wage bill that would have raised the minimum wage by $2.10 over the next two years. Many people are up in arms over this news. Minimum wage hasn't increase for over a decade, but is this news bad?
The minimum wage was established with the Fair Labor Standards Act of 1938. It was sold to Americans as a way to guarantee entry-level workers a fair wage. The real reason the minimum wage was established was to help hide the currency inflation that was already underway in this country. Remember that the Federal Reserve was established in 1913 and America was in the middle of a depression.
The government under Roosevelt was spending money on government programs in order to provide jobs for unemployed Americans and there were a lot of them. Something in the neighborhood of 25% of all Americans were out of work in the 1930's as a result of the depression.
As I have mentioned many times here, the government has over the years, maintained a policy of moderate inflation of the money supply. And as you know if you have been a reader of these pages, if you increase the supply of dollars, you reduce the purchasing power of the dollar and prices increase. The minimum wage laws were put into place to help the common worker maintain their standard of living in the face of a constant currency devaluation.
What most people today do not understand is that raising the minimum wage causes a whole host of problems, none of which are pleasant. Let's take for example a plan in Chicago to require "bog box" stores (Wal-Mart, Sears, Kmart, etc.) to pay a minimum wage of $10 per hour plus $3 dollars per hour in benefits. The government in Illinois has called this a "living wage." Yes, you can certainly live better on $10 an hour than on $5.25 an hour, but what will happen is that those stores will only hire one person instead of two. You will end up with fewer stockers, fewer checkers, and longer lines. You will also end up with higher prices.
You see, these benefits have to be paid for somehow. The government expects the stores to pay and the only way they can is by doing one or both of the things above.
The bottom line is government intervention never works. It causes problems in other areas. The latest unemployment figures look fairly good until you look at the U-6 rate. This is the rate of unemployed plus underemployed. Underemployed workers are those with college degrees that cannot find work in their fields and as a result go to work at low-level jobs like convenience store clerks or burger flippers. That U-6 rate is running 8.8%.
If you increase the minimum wage, the U-6 rate will increase into double digits and the costs of goods that you and I buy will increase by double digits.
So, what is the solution? The solution is to start reducing the supply of currency to cause deflation instead of inflation. I know Mr. Bernanke has set his heels against deflation. He will fight it to the bitter end and believe me, it will be a bitter end. He was quoted as saying he would drop money from helicopters in an effort to fight deflation.
The government has made deflation out to be a bad thing, but it is not. Deflation is not depression and don't let anyone tell you that it is. It means that the money you earn today will have the same or more value tomorrow. It means that saving money would be rewarded, not with just interest, but with currency appreciation. It means that your retirement accounts that were based on a currency 20 years ago will have equal or greater value when you are ready to retire. You would no longer have to worry about the purchasing power of your defined benefit pension plan. In a word, you could enjoy your retirement years.
Does that sound like a bad thing? Of course not, but the government does not want the value of our money to increase because they have borrowed so much money from the world that they would go broke paying it back in dollars that are worth more instead of less. I have news for the government they are already broke.
If the government raises the minimum wage it will not create a living wage, it will create more price inflation and we will all be worse off, not better off. Let's let the markets decide a fair wage.
The minimum wage was established with the Fair Labor Standards Act of 1938. It was sold to Americans as a way to guarantee entry-level workers a fair wage. The real reason the minimum wage was established was to help hide the currency inflation that was already underway in this country. Remember that the Federal Reserve was established in 1913 and America was in the middle of a depression.
The government under Roosevelt was spending money on government programs in order to provide jobs for unemployed Americans and there were a lot of them. Something in the neighborhood of 25% of all Americans were out of work in the 1930's as a result of the depression.
As I have mentioned many times here, the government has over the years, maintained a policy of moderate inflation of the money supply. And as you know if you have been a reader of these pages, if you increase the supply of dollars, you reduce the purchasing power of the dollar and prices increase. The minimum wage laws were put into place to help the common worker maintain their standard of living in the face of a constant currency devaluation.
What most people today do not understand is that raising the minimum wage causes a whole host of problems, none of which are pleasant. Let's take for example a plan in Chicago to require "bog box" stores (Wal-Mart, Sears, Kmart, etc.) to pay a minimum wage of $10 per hour plus $3 dollars per hour in benefits. The government in Illinois has called this a "living wage." Yes, you can certainly live better on $10 an hour than on $5.25 an hour, but what will happen is that those stores will only hire one person instead of two. You will end up with fewer stockers, fewer checkers, and longer lines. You will also end up with higher prices.
You see, these benefits have to be paid for somehow. The government expects the stores to pay and the only way they can is by doing one or both of the things above.
The bottom line is government intervention never works. It causes problems in other areas. The latest unemployment figures look fairly good until you look at the U-6 rate. This is the rate of unemployed plus underemployed. Underemployed workers are those with college degrees that cannot find work in their fields and as a result go to work at low-level jobs like convenience store clerks or burger flippers. That U-6 rate is running 8.8%.
If you increase the minimum wage, the U-6 rate will increase into double digits and the costs of goods that you and I buy will increase by double digits.
So, what is the solution? The solution is to start reducing the supply of currency to cause deflation instead of inflation. I know Mr. Bernanke has set his heels against deflation. He will fight it to the bitter end and believe me, it will be a bitter end. He was quoted as saying he would drop money from helicopters in an effort to fight deflation.
The government has made deflation out to be a bad thing, but it is not. Deflation is not depression and don't let anyone tell you that it is. It means that the money you earn today will have the same or more value tomorrow. It means that saving money would be rewarded, not with just interest, but with currency appreciation. It means that your retirement accounts that were based on a currency 20 years ago will have equal or greater value when you are ready to retire. You would no longer have to worry about the purchasing power of your defined benefit pension plan. In a word, you could enjoy your retirement years.
Does that sound like a bad thing? Of course not, but the government does not want the value of our money to increase because they have borrowed so much money from the world that they would go broke paying it back in dollars that are worth more instead of less. I have news for the government they are already broke.
If the government raises the minimum wage it will not create a living wage, it will create more price inflation and we will all be worse off, not better off. Let's let the markets decide a fair wage.
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