Wednesday, June 22, 2011

Buy, Buy Bonds!

Federal Reserve Chairman Ben Bernanke announced today that the Fed remains on track to withdraw from the Treasury market at the end of the month.  Over the past 8 months the Fed is estimated to have bought about 85% of the U.S. Treasury's securities offerings that were needed to fund government operations.  That was about $600 billion in total under the so-called QE II program.

The big question now is where is the money going to come from to buy the Treasury bonds over the remainder of the year?  Since we are running a deficit of over $1.5 trillion this year that means the Treasury needs to find purchasers for our debt to the tune of $750 billion over the next 6 months.

China stopped buying U.S. Treasuries once the QE II program began.  Will they start buying again?  Russia's central bank recently stated that it has decided to "actively sell US Treasuries".  If they are selling why would they want to buy?  Europe has their own problems with Greece.  Will they be bailing us out at the same time by buying our debt?

John Mauldin's "Outside The Box" newsletter had Simon Turner from Economic & Copper Advisory Services in London as a guest columnist this week.  Here is his take on the end of QEII and it potential ramifications.

The Federal Reserve is likely to sit pat for some months to see how the US economy will be able to perform without the steroids provided by them. Foreign central banks have largely been absent from Treasury auctions. In quarter 1 this year, foreign central banks bought just 16% of the issuances while the Federal Reserve acquired almost 200%, according to Russell Napier. In other words, the Fed’s activities have masked the exodus of foreign central banks including China from these auctions.
If foreign central banks continue to abstain from purchasing US Treasuries, the private sector will have to fund the fiscal deficit, implying quarterly remittances to the US Treasury of some $370bn. The private sector will be able to fund these auctions but at a price. They will demand a higher return on treasury paper and the funding will mean that the free-flow of funds into equity and commodities will come to an end. Many institutions are taking risk off the table.
On our associate’s, WaveTrack International technical work, 10-year US Treasuries should be yielding around 4% later this summer and 6% a year or so later. The repercussions of such a change in the yield structure will have global consequences, not least on stock and commodity markets.
In other words, all signs point for a rough period directly ahead of us.   As I have written over and over, it is time to step up.  However, no one ever wants to take their medicine.  You see it in the Greek streets. You see it in California.  It is no difference in the City of Cincinnati.  That is why I have so much respect for Paul Ryan for being a quarterback rather than a punter. See my post of February 20, 2011.

Turner sees the same looming issues.  He also is not optimistic that we will do what needs to be done until we are in deep crisis. However, if we get our act together and return to the principles that made America great in the first place, there is an excellent opportunity for an American Renaissance.

The USA does not only have a cyclical problem, but a structural one also. The fundamental issue is that sooner rather than later government will be forced to introduce measures that will allow the country to live within its means. It will take a deep crisis before such policies can be put together and passed by the country’s politicians. For instance, a run on the US dollar sometime next year or early in 2013 might do the trick.
Unemployment amongst teenagers has become a serious structural and social problem for the USA in an economy that is becoming dominated by skilled workers. The number of unemployed teenagers (16-19) now totals almost one in four. However, the number of African-American, not seasonally adjusted U-3 unemployment, including both sexes, in the same age group has risen to a stunning 41%, almost every other teenager.
Once Washington puts its act together, (it will have to or else the crisis will get so deep that US markets will become dysfunctional), America will find a large number of companies which had vacated the shores of the USA for China and other parts of Asia returning to their homeland.
There are two main reasons for this change, what we call reverse globalisation. First, manufacturers want their supply chains located close to the market, not on the other side of the world. And second just as important is the cost differential trend which is narrowing together with the increasing logistical costs. It is not only the wage profile looking 10 years forward, but the other costs, such as land, electricity, taxes together with the indirect supply chain cost increases. There is also the reluctance of the system in China to allow foreign companies to gain access to government contracts.
Within a decade, the USA could supplant China as the manufacturing hub of the world. To repeat, big changes will be needed in Washington for this historic development to occur. The changes will not just be on the fiscal side, but the need to offer businesses the right incentives to produce in the USA rather than abroad, the permitting procedures to allow the development of the country’s resources, including oil (the USA could become self-contained), making government less intrusive in households and businesses and so on.
In short, it is putting back in place the principals that made America the great country it once was. Crises produce opportunities and this one is as big as they have been since the USA entered WW11. What is noteworthy is that should America grab its opportunity, it will become self-contained in energy and of course food. What other major power has those valuable twin assets?
We have them.  I just don't understand government policies that don't allow us to take advantage of our assets.  For starters, we need a President that is more interested in developing our energy resources than Brazil's.  It would also help if we did not have the NLRB trying to stop the construction of a new Boeing  plant in South Carolina.

Monday, June 20, 2011

Women's Rights?

I have always thought it ironic that most women's rights advocates are so liberal.  They are generally opposed to most aspects of the War on Terror and efforts to combat Islamist extremists.  This is despite the fact that these Islamic extremists provide almost no rights to women.  In Saudi Arabia, women are not even allowed to drive.  It is as if they cannot see the forest for the trees.

A similar discordance can be found in the ardent pro-choice views of liberal women and what is occurring across the globe with unfettered choice on abortion.  PowerLine  references the book review "War on Girls" in the Wall Street Journal by Jonathan V. Last of Unnatural Selection: Choosing Boys Over Girls, and the Consequences of a World Full of Men by Mara Hvistendahl.

Here is Mr. Last's summary of some of the key points in Hvistendahl's book.
In China, India and numerous other countries (both developing and developed), there are many more men than women, the result of systematic campaigns against baby girls. In "Unnatural Selection," Ms. Hvistendahl reports on this gender imbalance: what it is, how it came to be and what it means for the future.
In nature, 105 boys are born for every 100 girls. This ratio is biologically ironclad. Between 104 and 106 is the normal range, and that's as far as the natural window goes. Any other number is the result of unnatural events.
Yet today in India there are 112 boys born for every 100 girls. In China, the number is 121--though plenty of Chinese towns are over the 150 mark. China's and India's populations are mammoth enough that their outlying sex ratios have skewed the global average to a biologically impossible 107. But the imbalance is not only in Asia. Azerbaijan stands at 115, Georgia at 118 and Armenia at 120.
What is causing the skewed ratio: abortion. If the male number in the sex ratio is above 106, it means that couples are having abortions when they find out the mother is carrying a girl. By Ms. Hvistendahl's counting, there have been so many sex-selective abortions in the past three decades that 163 million girls, who by biological averages should have been born, are missing from the world. Moral horror aside, this is likely to be of very large consequence.
Let that last stat sink in.  Due to sex-selective abortions in the world over the last 3 decades there are 163 million females missing that should have been born!  I don't think you could have a much bigger women's rights issue than that!

Beyond the issue of abortion rights, you also have the issue of what becomes of a society that is so unbalanced between males and females.
Ms. Hvistendahl argues that such imbalances are portents of Very Bad Things to come. "Historically, societies in which men substantially outnumber women are not nice places to live," she writes. "Often they are unstable. Sometimes they are violent." As examples she notes that high sex ratios were at play as far back as the fourth century B.C. in Athens—a particularly bloody time in Greek history—and during China's Taiping Rebellion in the mid-19th century. (Both eras featured widespread female infanticide.) She also notes that the dearth of women along the frontier in the American West probably had a lot to do with its being wild. In 1870, for instance, the sex ratio west of the Mississippi was 125 to 100. In California it was 166 to 100. In Nevada it was 320. In western Kansas, it was 768.
There is indeed compelling evidence of a link between sex ratios and violence. High sex ratios mean that a society is going to have "surplus men"—that is, men with no hope of marrying because there are not enough women. Such men accumulate in the lower classes, where risks of violence are already elevated. And unmarried men with limited incomes tend to make trouble. In Chinese provinces where the sex ratio has spiked, a crime wave has followed. Today in India, the best predictor of violence and crime for any given area is not income but sex ratio.
To give you some perspective of the issue, this chart shows the deficit of women compared to men in the  age 18-23 demographic.  There is about a 10 million deficit in China and 6.5 million deficit in India.

The larger demographic to the early 30's (the prime marrying years) indicates a 30 million deficit of women compared to men.  What do you do with 30 million excess males under the age of 30 in a population with no females to help keep them in line?  I can think of no better place than in an army.  That should give everyone some pause.  Even solidly liberal women's rights advocates.

Sunday, June 19, 2011

AARP Pivots, New Jersey Democrats Show Poise

There were a couple interesting stories last week that indicate that the political winds are changing.

AARP Pivots

First, AARP, the liberal lobbying group and marketing machine announced it was dropping its longstanding opposition to cutting Social Security benefits.  AARP's long-time policy chief, John Rother, seems to have come to the conclusion that entitlement reform is inevitable.  "The ship was sailing.  I wanted to be at the wheel when that happens", he explained.

However, BizzyBlog thinks that perhaps AARP has made the "pivot" to stop membership bleeding.  There is some indication that AARP may have seen a loss of as many as 3 million members over the last few years due to their efforts to kill President Bush's Social Security reform discussion and their heavy support for Obamacare.

I dropped out of AARP soon after joining when I turned age 50 when I saw that the organization was nothing but a direct mail marketing and liberal lobbying firm masquerading as a non-profit senior citizens group.

At that time I did a little research into the origins of AARP and found that the historical background that AARP portrays does not quite tell the true story.  AARP likes to point to Dr. Ethel Percy Andrus, a retired high school principal, as being the founder of AARP.  However, in reality, an insurance salesman named Leonard Davis funded the organization's founding with $50,000 when he saw how useful it could be to sell insurance to senior citizens.  This insurance salesman ultimately saw how profitable this marketing front could be and formed his own insurance company, Colonial Penn, which for many years had the exclusive right to sell insurance to AARP "members".   He built all of this into what ultimately became a fortune that approached $200 million.  Check out this Money article from 1988 for a more balance view than AARP puts forward.

One of my main complaints about AARP over the last decade has been that they could and should have taken the lead in using their scale to negotiate group medical programs for pre-Medicare retirees between the age of 50 and 65.  This would have been consistent with the founding ideals of the organization.  This is the age group that is also most vulnerable in today's health care system from pre-existing condition exclusions and the like.  Instead of working to put a private sector solution together that would benefit their members, they put all of their efforts into a government solution.  A government solution that diminished Medicare benefits to fund the government plan.

Of course, since AARP's largest source of revenues comes from selling Medicare Supplemental policies this will work out just fine for AARP's bottom line.  For every dollar that Medicare does not pay, senior citizens need a supplemental policy to protect against out of pocket costs.  A very convenient windfall for AARP which is happy to sell the added insurance protection!

Democrat Controlled Legislature Poised To Strip Public Employees of Healthcare Bargaining Rights

The second story that caught my eye was the Democrat controlled New Jersey Senate Budget  Committee voted 9-4 that would effectively strip public employees in that state of the right to bargain over healthcare benefits.

The floor votes on this law is scheduled for this week.  Democrats control the Senate 24-16 and the Assembly 47-33.

We can expect a lot of noise out of New Jersey this week.  It will be interesting to see how it plays out. However, when we see the AARP pivoting and New Jersey Democrats poised to take on the public sector unions the political winds are blowing pretty hard.  It may be time to start battening down the hatches in Washington.

Thursday, June 16, 2011

Conan Commencement At Dartmouth

In the Republican Presidential Primary debate this week John King asked each of the candidates some short "this or that" questions.  Blackberry or iPhone?  Elvis or Johnny Cash?  Coke or Pepsi?  He asked Rick Santorum, "Conan or Leno?"  Santorum answered "probably Leno."  If he had seen Conan give the commencement address at Dartmouth last weekend he might have wished he preferred O'Brien.  Worth the time to watch.  A lot of great laughs and a lot of heartfelt advice to boot.

Link to Conan O'Brien Commencement Address at Dartmouth College

Tuesday, June 14, 2011

Where's The Warming, Where's The Oil?

We constantly hear that carbon emissions are responsible for global warming.  However, this report from Hot Air citing an op-ed by James Taylor at Forbes states that carbon emissions over the last decade have exceeded predictions and it should follow that global temperatures should have risen if the global warming theories are correct.

NASA satellite instruments precisely measuring global temperatures show absolutely no warming during the past the past 10 years. This is the case for the Northern Hemisphere mid-latitudes, including the United States. This is the case for the Arctic, where the signs of human-caused global warming are supposed to be first and most powerfully felt. This is the case forglobal sea surface temperatures, which alarmists claim should be sucking up much of the predicted human-induced warming. This is the case for the planet as a whole.
If atmospheric carbon dioxide emissions are the sole or primary driver of global temperatures, then where is all the global warming? We’re talking 10 years of higher-than-expected increases in greenhouse gases, yet 10 years of absolutely no warming. That’s 10 years of nada, nunca, nein, zero, and zilch.

I am not a scientist but I was taught in school that the Scientific Method requires that a proposed hypothesis should be tested and proven with real facts before it is accepted as truth.  If the facts don't back up the hypothesis you don't have anything supported by Science.  What are the facts of the connection between carbon dioxide trends and global warming?  Taylor explains.

Most powerfully, global temperature trends during the twentieth century sharply defied atmospheric carbon dioxide trends. More than half of the warming during the twentieth century occurred prior to the post-World War II economic boom, yet atmospheric carbon dioxide emissions rose minimally during this time. Between 1945 and 1977, atmospheric carbon dioxide levels jumped rapidly, yet global temperatures declined. Only during the last quarter of the century was there an appreciable correlation between greenhouse gas trends and global temperature trends. But that brief correlation has clearly disappeared this century
Which brings us back to the sharp scientific disagreement about whether the earth’s climate is extremely sensitive or merely modestly sensitive to minor variances in the composition of its atmospheric gases. Carbon dioxide comprises far less than 1 percent of the earth’s atmosphere. In fact, we could multiply the amount of carbon dioxide in our atmosphere a full 25 times and it would still equal less than 1 percent of the earth’s atmosphere. The alarmists claim that the minor increase in atmospheric carbon dioxide concentrations during the past 100 years, from roughly 3 parts per 10,000 to roughly 4 parts per 10,000, is causing climate havoc. Real-world temperature data tell us an entirely different story.
While I was reading this article it got me to thinking of what happened to all the oil from last year's Gulf Oil Spill. The oil spill that the mainstream media and environmental groups stated was the worst environmental disaster in U.S. history and would spoil the Gulf for years. This is a post from Ricochet that asked the same question in January, "What happened to the 207 million gallons of oil spilled in the Gulf of Mexico". It cites an article by Brian Palmer of Slate that is certainly no friend of the oil business that has these quotes. 

  • "[T]he vast majority the oil from the Deepwater Horizon spill is already gone."
  • "[E]ven if we halted human activity in the Gulf, natural seeps would still send 42 million gallons of oil coursing from the sea floor into Gulf waters each year."
  • "Because of this constant supply of hydrocarbons, there is always a healthy population of bacteria floating around the Gulf looking for more food. When BP's Macondo well began gushing, the steady drip of nutrients turned into a feeding frenzy."
  • "Within 24 hours of the spill, the number of oil-eating bacteria around the wellhead had grown tenfold."
  • "[T]he overwhelming majority of the Macondo oil was recaptured, burned off, evaporated, flushed out by ocean currents, or eaten by bacteria by the end of July, just two weeks after BP managed to seal off the well. Because the bacteria and cleanup crews worked so quickly and the spill is now so diluted, it's impossible to say exactly what percentage of the original oil is still around, but it's a small fraction."
  • "By most estimations, the right colony of bacteria can break down oil so quickly that within six days the hydrocarbons are undetectable using the best available instruments."
  • "Between July and August, researchers at Lawrence Berkeley National Laboratory took 170 samples of Gulf water, starting at the wellhead and following the oil's likely path for several hundred kilometers. They couldn't find any Macondo oil, which means the concentration was less than two parts per billion."
Article URL: 
I am as concerned about the environment as anyone.  I love the outdoors, the beach, clean water and fresh air.   However, everything in life is balance.  In order to assure ourselves of the cleanest possible environment we could commit ourselves to live in huts and forego every modern convenience.  As civilization has progressed each generation has made a decision on what the balance would be.  All of what we have today is a product of the earth in some way.  Iron ore for steel. Rubber for tires. Lithium for batteries.  Water and trees for paper manufacture.  Oil for plastics.  Each decision is a trade-off.  Our ancestors could have continued to live in the huts and enjoy the scenery.  Fortunately, they didn't.  

My problem with many in the environmental lobby is that there is no balance in their views.  They talk good theory but they bring nothing practical to the table.  We need energy but we can't do any drilling.  Don't think about fracking or nuclear either.  Wind turbines are fine but don't spoil my view.  They also have so little faith in the talents and creativity of mankind.

The bottom line is that God gave us an earth with abundant resources that due to the ingenuity of man has meant continuing advances in our way of life.  I have heard the same refrain my entire life.  Shortly after I graduated from college in the 1970's, at the beginnings of the environmental movement, there was talk of "The Population Bomb". William McGurn in the Wall Street Journal reminds of the history in today's issue.

On the eve of that decade, Stanford University biologist Paul Ehrlich opened his best-selling book "The Population Bomb" with this sunny declaration: "The battle to feed all humanity is over. In the 1970s, the world will undergo famines—hundreds of millions of people are going to starve to death." Of course, nothing of the kind happened.
• The Club of Rome, an international group of academics, scientists and global citizens, commissioned a now-infamous 1972 report called "The Limits to Growth." Like so many others, these scientists informed us that we were running out of . . . well . . . everything.
• Or take Robert McNamara, the "whiz kid" president of Ford Motor Co. Later, as chief of the World Bank, he would throw tens of millions of development dollars into population control because he said—sounding much like Mr. Friedman—the alternative was a world no one would want. If voluntary methods failed, he warned, nations would resort to coercion.
All these things were the received orthodoxies of their day, endorsed by the experts, sustained by the scientists, and challenged by only a few brave souls such as economist Julian Simon. 
Does that sound kind of familiar to the same orthodoxies we hear today about global warming and environmental extremism? McGurn points out that all the fear mongering from that period was flat out wrong. In fact, there were only 3.7 billion on earth in 1970. In 2010, we are almost double that total at close to 7 billion. However, by almost measure, the people of the world are much better off. This is particularly the case with the countries that were the poorest in 1970.
The one difference between the 1970s and today is this: Back then, the worry was that poor nations would never advance. Today we know they can and are developing.
That's precisely the fear: that as people are eating better and living longer and making their way up the ladder, they will want more of the things that we take for granted—cars, air conditioners, refrigerators and so on. Indeed, the really big dreamers might even hope one day to have for their families the kind of carbon-footprint-maximizing manse that Mr. Friedman has for his family in Maryland.
Ironically, by almost any human measure—food consumption, life expectancy, access to clean water, etc.—life is getting better, not worse. So why the recurring predictions of catastrophe? Partly it's because the apostles of population control assume that resources are fixed and immune to human creativity or effort. In this view, human beings are primarily seen as mouths instead of minds.
The 1970s has many ugly legacies. Surely, however, the cruelest was this leading Western export: the idea that the Earth has reached its limit with us, and that the solution is to persuade other folks who don't yet have what we do to lower both their populations and their expectations.
The only "population bomb" that went off is the explosion of additional ingenuity and in the world's standard of living because of the increased talent pool! Why should we think anything will be different in our future? I choose to be an optimist.

Sunday, June 12, 2011

No Ability On Disability

I wrote previously on "Does The Government Have The Ability To Manage Disability?".  Further evidence that it does not is contained in this Wall Street Journal article about a disability claim judge in West Virginia who almost never says no. 

Americans seeking Social Security disability benefits will often appeal to one of 1,500 judges who help administer the program, where the odds of winning are slightly better than even. Unless, that is, they come in front of David B. Daugherty.
[Judge_A1] The Herald-Dispatch
Judge David B. Daugherty
In the fiscal year that ended in September, the administrative law judge, who sits in the impoverished intersection of West Virginia, Kentucky and Ohio, decided 1,284 cases and awarded benefits in all but four. For the first six months of fiscal 2011, Mr. Daugherty approved payments in every one of his 729 decisions, according to the Social Security Administration.
The judge has maintained his near-perfect record despite years of complaints from other judges and staff members. They say he awards benefits too generously and takes cases from other judges without their permission.
This week the Chief Social Security Judge in Huntington, WV who supervises the office where Daugherty is based announced he was stepping down from his post in the wake of the Wall Street Journal article.
In written responses to questions for that article, Mr. Andrus said he was notified on four occasions that Mr. Daugherty had either taken cases assigned to other judges or taken unassigned cases. He issued a written directive April 29 saying the practice must end.
Several people, including former Huntington judge Dan Kemper, said Mr. Andrus and others failed to act earlier because Mr. Daugherty helped the office meet monthly goals.
In his written responses, Mr. Andrus said that "as a supervisor I don't ask judges why they decide cases the way they do. (emphasis added by BeeLine)" In Mr. Daugherty's case, he said, "I believe the numbers speak for themselves."
Does the Government have the ability to manage disability?  I think that is pretty clear.  Case closed on that one.

Thursday, June 9, 2011

The Math Is Easy, Doing It Is Hard

Tim Pawlenty got some attention the last few days with his economic plan.  In a nutshell, his plan is to cut taxes in order to rev up the economy to a 5% growth rate and embark on a 6 year plan to cut spending.  The goal in the spending cuts would be trim 1% per year for 6 years.

Governor Pawlenty is on the right track.  First and foremost, we need a growth economy if we are ever going to dig out of the hole.  It is very difficult to ever balance a government budget with spending cuts.  I did a lot of research on this issue in the the late 1980's when President George H.W. Bush proposed what he called the "flexible" freeze" in the 1988 Presidential campaign.  He took a lot of abuse from the liberal left and the mainstream media about the concept but the numbers do work.  However, rarely is there any political will or leadership to even freeze government spending let alone cut it modestly.  The President Father Bush gave up on negotiating what he needed in spending cuts with the Democrats in Congress and cut a deal with them that included tax increases as part of a grand bargain on the federal budget. 

In doing so he violated his "no new taxes" pledge from the 1988 election.  Of course, he never got anywhere near the spending cuts that the Democrats promised but we got the tax increases.  He lost in 1992 and the Republicans learned to never trust Democrats again.  The result-the budget gridlock we have today where Democrats will never agree to any spending cuts and Republicans will never agree to any tax increases.

Let's look at the hole we are facing right now.  We are expected to have $2.2 trillion in revenues in fiscal 2011.  We are expected to spend $3.8 trillion.  That is a $1.6 trillion deficit.

Revenues grew about 10% per year in the 1970's but revenue growth was closer to 7% per year in the 1980's and 1990's.   Let's look at where revenue can realistically be if we can grow revenues at 7% between now and 2018.  This should be easily achievable under the most conservative economic growth calculations based on history.

Revenue growth @ 7%= $3.5 trillion in 2018

To put this into further context, we brought in $2.5 trillion in receipts in 2008 before the current economic downturn.  From this baseline, to achieve $3.5 trillion in revenues in 2018 only requires a 10-year revenue growth rate of about 3.5%-half the historical rate of revenue growth.  This should be realistic.

Since we are spending $3.8 trillion in 2011 we would have to freeze all spending at 2011 levels and find another $300 billion to cut to bring the budget into balance in 2018.  It sounds pretty simple but it means no spending increases on anything.  If gas prices go up on the gas for the government car, find the money somewhere else in the budget.  The same for food prices for food stamp recipients.  Those new entrants to Social Security and Medicare?  We are glad to have you but current recipients are going to have to take a cut to pay for you.  Pay increase for the military-no way.  We are talking about a total freeze.

If you can get the economic growth rate up so that receipts grow at 10% like they did in the 1960's you have the potential to grow federal receipts to the range of $4.3 trillion by 2018.  This makes the job considerably easier but spending still can only increase at around 1.75% per year.   There must be no growth in any programs except for these small inflation adjustments.  Any new programs are out of the question like health care reform or other extensions of the welfare state.  Most likely, the extra spending room under this scenario would be needed to just pay the increasing interest burden on the national debt.

The simplest way to look at the problem is that we are currently only collecting about 60 cents for every $1.00 we are spending.  We are borrowing (more accurately, printing the money, right now) the rest.  The only way to solve the problem is for revenue to grow faster than spending for an extended period of time.  If  revenues grows 10% next year and we hold spending constant, the 60 cents becomes 70 cents and we are now only borrowing 30 cents to cover the annual shortfall. Do it a second year and you have 77 cents of revenue and you are only borrowing 23 cents.  By the fifth year, you are balanced.  Pawlenty is trying to do this over 6 years.  It is a good goal but most economists think it is overly optimistic.  However, the concept is the sound.  Grow the economy and government receipts much faster than spending.

The bottom line is that we need to get the economy going and we need for it to fuel increased revenue growth to get anywhere near a responsible federal budget.  At the same time, we need to cap total spending where it is for the forseeable future or only allow for increases in the very low single digits. For example, if we can get 7% revenue growth and hold spending to 2% (a 5% differential) we can get there but it would take a little more than 10 years of this type of discipline.

Pawlenty has shown us the path.  The math is easy.  Doing it is hard.  However, we better get on it.  It does not get any easier with every passing day.  It just gets harder and more painful. 

Tuesday, June 7, 2011

This Post Is Definitely Not PC

I have written before about the amazing story of Apple and Steve Jobs.

On Friday, Apple's total stock market capitalization surpassed that of Microsoft and Intel combined!

In 2000, the combined market cap of Microsoft and Intel was over $1 trillion.  Apple was valued at less than $5 billion at the end of that year.  Apple was priced at $317.6 billion on Friday.  Microsoft had a market value of $201.6 billion and Intel was $115.2 billion ($316.8 billion combined).  The chart below shows it the history in graphic detail.

Another way to look at is that Apple has increased in value by more than 60-fold since 2000.  Microsoft and Intel have lost over two-thirds of their value in the same period.  Actually, Microsoft and Intel lost most of their internet bubble value by 2002 and they have been treading water in stock price since that time.

This is reminiscent of the story about RCA stock during the radio bubble.  RCA (the old Radio Corporation of America) was the high-flying stock of the Roaring 1920's.   It was the leading company in the emerging "wireless" communication for the masses era.  The stock appreciated almost 10-fold between 1924 and 1929.  An investor who purchased RCA at its 1929 high had to wait 57 years to recoup their investment.  That is a long time.  I hope the same is not true for the Microsoft and Intel investors of 2000!

Sunday, June 5, 2011

Promoting Or Providing For The General Welfare?

I keep a copy of the United States Constitution close at hand.  It has proven to be one of the most enlightened and enduring documents ever written.  It has been the foundation underlying a government which has proven longer lasting than any other nation now on the earth.  Think about that for a minute.

The United Kingdom, France, Gemany, Italy, Japan, Russia, China, Brazil, Australia.  You could go on and on.  They have all seen major changes in their systems of governments over the last 200+ years.  Some have seen multiple changes. None have endured under a consistent and stable form of government as long as the United States has.  It is a testament to the enlightenment of our Founding Fathers.

Knowing that history and endurance I strongly believe that we are well-advised to not stray too far from the original structure and meaning of the Constitution.  The course of the last 50 years of our history is not terribly comforting on that score.

Consider the preamble...

We the People of the United States, in order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish the Constitution for the United States of America.

A list of these items generally is considered to be based on their relative priorities by the Founders.  First, establish a system of laws and justice, second, insure that people are safe from within, third, provide for a national defense so that citizens are safe from threats from outside the country and, fourth, promote the general welfare of citizens.  Note that the first three are more in the nature of directives-establish, insure and provide.  The fourth, only states that general welfare is to be promoted.

How do these major priorities match up with the U.S. Budget right now?

As I wrote in my post The United States of Redistribution, payments to individuals now makes up about 2/3 of federal spending.  Programs like Social Security, Medicare, Medicaid, food stamps and the like.  That is taking from one person and giving it to another. That has become the principal role of the federal government.  Defense spending is about 20% of the total.  Spending on justice and law enforcement is a mere fraction of the remainder.

It would seem that spending 2/3 of the federal government budget in direct payments to individuals is  way beyond "promoting the general welfare".  Have we gotten a little off track here?

                                                                                      White House 2012 Budget

Friday, June 3, 2011

Jobs, Jobs, Jobs

Isn't it ironic that one of the greatest job producers of the last 35 years was a guy named Jobs?  Apple has 46,600 jobs employees according to the latest public information.  Read an interesting article on the first 10 Apple employees and what they are doing today here.

This graph gives you an idea of job growth in the tech sector since 2008.  Apple has actually increased its workforce from 32,000 to 46,600 since 2008 (a 47% increase in employees).

Against this background we must also look at the abysmal employment numbers that were released today.  Only 54,000 net new jobs were created last month.  Unemployment is back up to 9.1%! Even worse, half of those new jobs were created by one company-McDonald's-according to TheWeekly Standard!  The genius behind McDonald's---Ray Kroc!  Is this a kroc or what?  There really is something to name association when you think about it.

Even more interesting is that McDonald's was one of the high profile companies to receive an Obamacare waiver.  Does this mean that the best way to create jobs is to give every business an Obamacare waiver??

What is very sobering about this month's numbers is it shows just how steep a climb is needed to get out of the economic chasm we are in.  Jonathon Seidl at explains just how bleak the picture looks right now.
Tyler Durden over at Zero Hedge has just published a startling chart that shows how dismal the jobs numbers really are. According to him and his chart, “the simple math indicates that for the US to return to its December 2007 unemployment, when factoring in the natural growth of the labor force of 90k people a month, the economy will need to add 250k jobs a month for the next 66 months.”

This is the chart that Durden prepared.
The jobs picture will continue to be critical as we look to the 2012 elections.  It is going to be a big negative for President Obama if these numbers don't improve significantly. Of course, the Republicans need to find the right candidate.  A good name would help.  Obama has been O-nothing on jobs.  Do we raise Cain about it?  Do we need someone who will insure we all have Pawlenty in our cupboards the next four years?  Will all the Republicans Palin in comparison to Sarah at the end of the day?  Maybe we just need to comMitt to Romney to bring us back to where we need to be.  Of course, Paul could Ryan on everyone's parade if he gets in.  Stay tuned for fun and names!

Wednesday, June 1, 2011

Discouraged and Depressed About DC

May was a lost month for me in blog posts.  I was on the road most of the month with a vacation at the beach the last 10 days.  Blogging does not compare to beaching and golfing.  Time to get back to work and on a BeeLine to giving you the shortest route to what you need to know.

My time away from the blogosphere was partially a function of discouragement.  The debt ceiling limit that I first mentioned in early January came and went with no sense of urgency in Washington. It seems that the Treasury Department has any number of hidden stashes, shell games and other tricks to keep the federal gravy train running.  The new deadline is early August.  The result-kick the can a little further down the road and do as little as possible.  Senate Leader Harry Reid even stated that he sees no reason for the Senate to even present a budget for the coming year.  That makes 2 years in a row that the Democrats in the Senate have not even attempted to put a budget on the table for consideration.  Depressed is a better way to describe my mood after watching these developments.

Look at some of the stats on the economy that were released in the last few days.

  • Private employers added just 38,000 jobs last month compared to a forecast of 175,000
  • Last week applications for unemployment benefits was up to a seasonally adjusted 424,000
  • Housing prices fell in 18 of the 20 cities tracked in the Case Shiller Index.  The index has fallen for 8 consecutive months.  Overall prices are down 33% from the 2006 peak.  That's further than the 31% drop during the Great Depression in the 1930's.
  • 6 million homes have already been foreclosed on.  An additional 4 million mortgage holders today are 90 or more days late on their payments.

Add to this list these 3 stories that I came across over the last few days on the overreaching, overregulating, overseer that government has become in our lives.  This will better explain 3 things to you...
  1. Why your clothes are dirtier than they were 10 years ago-"The Attack of the Washing Machine"
  2. Why you don't want to raise rabbits-"Family Facing $4 Million in Fines for Selling Bunnies"
  3. Why you may want to live in the swamp-"Swamp People, Capitalism and Regulation"
Our priorities in this country are seriously misplaced.  I believe in government.  I believe in promoting the general welfare.  I believe in the values and goals of our Founding Fathers. What we are doing today in Washington is a long, long way from where these ideals were first put to paper.