FedUpUSA

Archive for July, 2011

Obama’s speech was replete with exactly what you would expect, from blaming Bush to blaming corporate jets to all out class warfare on the rich. But one thing he said that I found more offensive than any of it was when he was speaking directly to the American people, not in some interview, but in an address to the nation in which he lied directly to the faces of senior citizens, if you will, suggesting they may not get their social security checks if we don’t raise the debt ceiling and we in turn default. Honestly, if there was a new low that Obama could sink to, then he did tonight. Here’s the super short video so you can see for yourself:

He’s just a despicable human being to do this. It’s one thing to lie in an interview, but to lie directly to the American people in his nationwide address – I just don’t think I’ve ever seen this level of evil in the White House.

Now here is why I am so adamant about this being a lie from the pit of hell. We all know that social security checks will go out, but we may not all know exactly why. Let’s just say for the sake of argument that we hit the debt ceiling and there isn’t enough tax payer money to cover social security checks. It doesn’t matter because checks will still go out. Why you ask? Well thanks to Mark Levin’s interview with Mike McConnell tonight, we can answer that question:

Levin: First of all you wrote a piece Contrary to the President, Social Security Checks Are Not At Risk. Can you explain why that’s the case?

McConnell: Well that’s true because of the existence of the Social Security trust fund which holds some 2.4 trillion dollars in US Treasury securities for the purpose of paying off Social Security claims. Now in general that doesn’t really help our budget situation but it does mean that the debt ceiling is not a problem for Social Security.

Because if we were to hit the debt ceiling, all that the Social Security trustees need to do is to turn it some of their treasury securities for cash, which they could then use to pay of their obligations. And as they do that, that will lower the total number of US Treasuries outstanding and thus the Treasury can just turn right around and simultaneously sell new bonds to other people to make that up and that would not violate the debt ceiling.

So basically the Treasury securities can be turned in for cash and the Treasury will just re-sell them to make up that money. It’s that simple. And this isn’t rocket science in the White House. The Treasury knows this and Obama knows this as well and yet he is still willing to lie directly to the American people. I’m sorry, but where I come from we call that pure evil.

***

As promised you can watch Obama’s full speech here. But be careful because blood may shoot directly out of your eyes.

The Right Scoop

Unfortunately the reaction overnight in the market makes clear exactly what is believed about the so-called “debt reduction” plans on both the left and right – that is, they’re lies.

The talking heads are all fawning over the fact that there is no “fear” represented in stocks.  Well that may be true and it may not, but it certainly isn’t when it comes to the dollar – down 0.6% with the decline being triggered by the Obama speech last night.

When all is said and done if this gets legs – and I suspect it will – we’re in big trouble.

You have about 2 cents – down to roughly 71.50 – before all-time low support is violated.  The premise that such a move will not come when, not if, the downgrade occurs is rather magical thinking, no?

The issue is not “avoiding a default” because no default is going to occur.  We have enough tax revenue to pay the interest due; ergo, there is no default.  What we’re actually arguing over here is when and how the “free stuff” folks will stop getting their 80 million checks (they mathematically can’t keep getting them on a forward basis.)

There are two choices:

1. We have an honest conversation and debate with the American people and determine both what we want in services from the government and pair each of those services with tax revenues that pay for the service in the present time. That which we refuse to pay for we cannot have.  Not by loading things onto tomorrow via borrowing, but by current tax revenues.  This will inevitably result in a ~15-20% reduction in GDP because that current GDP represented by the “hot checks” is false – it is being borrowed into existence so the government can “spread it around” without being able to fund it via current production in the economy.
2. We refuse to have that conversation and continue to play politics with the issue, promising people their 80 million checks when we know we don’t have the money to cash them.  This, incidentally, is a felony when you or I do it (writing rubber checks) but as with most things when Congress does it there’s no cop around to arrest the perpetrators and toss ‘em in the clink.  In this case the downgrades will come sequentially and borrowing costs will go up until we stop and we will not have the benefit of that debate.  Those costs will go up slowly at first, perhaps in an imperceptible fashion initially, but then, without warning, it will come all at once exactly as occurred in Greece, Iceland, Ireland and elsewhere.

There are many who argue that America is “exceptional” and that this can’t happen to us.  I assure you – it both can and will.  In fact it is a certainty should we choose path #2 over path #1, exactly as it is if you personally choose that path when your income is impaired and fail to find a new job.

There are many who say that a sovereign nation that controls its own currency cannot go bankrupt as it can simply print whatever it wants.  This is factually true but ridiculously and intentionally misleading.  While it is true that The Fed can “QE forever” to avoid a technical bankruptcy there is no avoiding the outcome.

Let us presume there are $10,000 in the world and there are also 10,000 bushels of corn.  That’s the entire economy.  In such an economy each bushel of corn has an imputed price of $1.

Now let’s “print” another $10,000.  There are now $20,000 and 10,000 bushels of corn.  It’s obvious to anyone who thinks about this for more than 5 seconds that each bushel of corn now costs $2.  The change in price is inevitable because the divisor has changed due to your act of printing more money.

While it is true that the United States can “technically” avoid bankruptcy the fact of the matter is that for you, I, Grandma and Grandpa that technicality has nothing to do with our reality.  Dilution of the monetary base – that is, changing the divisor – will inevitably show up in the prices you pay.  The purchasing power of your dollars will be debased, and due to the fact that we refuse to close our borders to unfair trade practices the value of your labor on the world market is free to fall to that of a subsistence farmer in India or China!

These are our choices folks.  Both outcomes are ugly, but the second is more ugly.  We have created a monstrously-distorted mess in our economy through the abuse of leverage on a serial basis and have spent the last 30 years lying to ourselves about alleged “economic growth” that never really happened.

Make no mistake folks – we’re in trouble, and lots of it.  But you wouldn’t know it from the people today, who are entirely-focused on whether Treasury coupon payments will get made next week.  That’s idiotic, as those payments will be made.  There’s more than enough tax revenue to cover it.

The real issue is the above debate and yet neither side of the political aisle will show up to have that debate with the public and resolve the underlying problem.

This is what our political parties are doing, and this is how it’s going to end.

The time to be prepared is now.

The Market-Ticker

Discussion (registration required to post)

PAY THEM IN QUARTERS!!

While I realize that there is currently a law limiting the currency the US Treasury can issue, I think if it’s one thing we’ve learned in the past 4 years, it is that laws can be changed.  This time, let’s change one that will actually be GOOD for the people and the country!

We MUST stop having our monetary system based on DEBT!  It is pure insanity that no one can be paid in anything other than DEBT for their hard work and production.  It is time that we actually issue currency based upon production, as our Founding Fathers intended.

Article I, Section 8, Clause 5

[The Congress shall have the power to] coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures.

I’m not seeing anything there that requires that a PRIVATE banking institution be empowered to issue our money based on demand for DEBT.  Are you?  Issuance of debt-backed currency only drives us deeper into debt because the money created to pay off the debt is borrowed into existence and creates MORE DEBT.  See the problem?

Stop the insanity NOW!

If you’d like to learn more about how a REAL production-backed monetary system would work, you can watch The Secret of Oz on our Educational Videos page.

It’s a good thing I don’t have a baseball bat – or 5-iron – handy around here, or I’d be stimulating the economy buying a new TV this afternoon.

The abovementioned clowns are, as I write this, on CNBS and basically everywhere else throwing the old blame game around again – stating that it’s all the Republican’s fault.

Well, here’s the reality folks:

• The Democrats have not agreed to actually cut spending.  As in right now, today, and in FY 2012 forward.  All their alleged “cuts” are to pull defense funding and nothing else, and is predicated on ending the wars in Afghanistan and Iraq, both of which the Democrats said they would do when Obama was inaugurated two years ago and did not. So why should we believe any of those spending reductions will happen now?  If you’re going to make them then make them today.
• There are no specifics on discretionary spending cuts.  No actual items identified.
• Their final “funny math” is to presume they will get reduced interest payments, which now means they’re presuming they’ll have a 3% 10 year treasury rate for the foreseeable future! Well that’s utter and complete crap.  If the economy recovers they won’t have that, and if it doesn’t then they’ll get the rate but won’t get the tax revenues.  Either way it’s a lie.

The problem for the Republicans is that they haven’t put forth a credible plan either.  They’re not talking about actually cutting spending – they too are talking about trying to jigger military “cuts” down the road along with other funny math.  Even “Cut, Cap and Balance” is a scam in that it claims less than $200 billion in actual spending reductions for FY2012 and fails to identify where the actual cuts are going to come from or what baseline is being used.

May I remind everyone that the deficit for the calendar year 2010 was $1,700 billion? That is, $200 billion is immaterial and does exactly nothing toward moving the budget toward sustainability – that is, balance.  Neither does $2 trillion over ten years which is that same $200 billion.

To be credible we need $700 billion in cuts for FY2012 and another $700 billion the next year, with an automatic across-the-board, no-exceptions trigger of 20% out of every program in each case if the Congress fails to perform in either year.

Horse trade all you want, but this is what you arrive at – a real $700 billion less in spending for FY2012 than you had in FY2011 inclusive of all supplementals and other gimmicks. Then you have to do it again in FY2013.

And yeah, I know this will hit the economy.  That’s unavoidable.

Tell the truth or get the hell out of town and let some people come into that cesspool called “Washington DC” that both can and will.

Does inflation even matter?  The growing secrecy of the CPI and how average Americans face budget squeezes through financial maneuvering and the chained CPI.

Things seem to be progressively getting worse for the middle class as most of the debt ceiling talks revolve on sticking it to working Americans as if they were financially able to handle any more austerity moving forward.  While the too big to fail banks swim around in pools of bailout money like Scrooge McDuck both sides seek to squeeze more pennies out of working class Americans.  One way that the middle class has been hammered over the past few decades comes from the way we measure inflation.  The CPI measure through the Bureau of Labor and Statistics does not even examine actual home ownership carrying costs and uses a very open method of calculating home costs by using an owner’s equivalent of rent.  This is why during the most obvious housing bubble in history home prices seemed to be increasing at a moderate pace according to the CPI while the more accurate Case Shiller Index was registering annual increases of 15 percent or more.  This is important because so much rides on accurately measuring inflation in our country and more is trying to be done to stifle information that reflects the real changes to our overall economy.

Inflation growing slowly if we exclude food and energy

I always find it amazing how some pundits like to remove food and energy from measuring the CPI yet so much spending goes into these two items.  This is also important since stagnant paychecks don’t go as far in covering these monthly budget needs.  As we go forward we start getting a more inaccurate perception of inflation.  For example, housing is the biggest item in the CPI because most Americans spend the largest amount of money on housing per month.  So with that said, you would expect an accurate reflection in the CPI for housing.  But if we look at the CPI housing measure versus the Case Shiller Index we realize a serious problem is occurring:

Read the rest at My Budget 360

And now for Fox News…

Many families in this great country have been forced to look at their monthly budgets and see where they can make cuts. Maybe they can spend a little less on food, eating more vegetables than meat one week or maybe they need to cancel cable or forgo their summer vacations. Maybe they even need to look at the future and cut back on contributing to their retirements or their kid’s college savings account. Some folks sadly have to dig even deeper and give up essentials. All of it is painful!

What the vast majority of financially hurting families don’t do every month is go on a shopping spree at the mall, take a trip to Vegas, or spend simply open up a new credit card to allow for more debt.  And those families who do have debt problems from bad decisions in the past are trying to rectify it by cutting spending and paying off that debt. That’s just how a household budget works.

All true.  But note this down a bit in the article:

A balanced budget amendment is where it needs to start. This kind of Constitutional amendment must be passed by a two-thirds majority in both houses of Congress and then be ratified by three-quarters of the states. Philosophically, conservatives and liberals are at an impasse when it comes to government spending but this is no longer about ideological views. This debate is about the very survival of our nation.

You’re correct.  But you’re not admitting to what has to happen to fix it, which is why there’s no clarion call to do so.  As is next explained:

A balanced budget amendment increases certainty in the markets and facilitates job growth, which is desperately needed in this country.  Our latest numbers of 9.2% unemployment show only part of the story.  These figures represent the folks still looking, not the people on welfare or the ones that have taken a part-time job just get to off unemployment.

And they will, for a period of time, get worse when we balance the budget.

Not better, worse.  This is unavoidable.

The President and Congress must follow the example of many of the families in America who understand that they cannot spend and borrow in endless rotation. It’s time gentlemen, to put on your big boy pants and make the tough decisions about government spending.  American families are with you.

Are they?

That’s an open question, but a critical one.  See, when you lose your job and keep borrowing, you still have your iPhone, your Netflix, your $100+/month cable bill, and you still eat out every second night.  You blow money like crazy, and it still feels good.

But when you stop doing that the guy on the corner who made your pizza goes broke and loses his job.  The cell company loses the income from your lack of spending.  Apple doesn’t make as much money, and may make none at all.  Netflix doesn’t either.  Nor does the cable company.

The entire premise of the alleged “recovery”, in the words of Ben Bernanke, has been about pumping asset prices.  But they won’t remain “pumped” when we take our medicine.  They’ll go down.

A lot.

How much?  Oh that’s easy – we know for a fact what the minimum contraction will be.  It’s right here:

That’s about 12% of GDP or about $1.8 trillion dollars.

Why?  Because GDP is simply defined as “C + I + G + (x – i)”, and “G” is government spending.  Decrease it by that 12% of GDP and GDP falls by (at least) 12%.  This is simple math – subtraction.

Yes, we need to do this.  Yes, people will raise hell.  But it will make, at least for a short time, unemployment worse and pain will increase among Americans.  We will not buy those iPhones and cable TV and nights out at the bistro, and the follow-on effects cannot be avoided.

The problem with everyone pontificating on this is that nobody – other than I – is talking about what happens when, not if, we take our medicine.  See, we must at some point.  But as the chart makes clear up above we’ve been in an economic Depression we have refused to admit to for the last three years, just as someone on a monstrous multi-year bender will refuse to admit they’re addicted to some substance.

It doesn’t matter if you want to admit it or not, however.  Just as the boozer is destroying his liver, we’re destroying our nation’s vitality.  We’re way, way into the hole at this point - we not only made ruinous choices in the 2003, we compounded them into the 08-2011 timeframe.

It has to stop, but Peggy and the other pundits must – I repeat MUST – stand and tell the truth to the American people.  This is going to suck.  It needs to be accompanied with changes in trade policy, our medical system, energy policy, immigration policy and tax policy and all of them must be debated and fixed to provide some mitigation to the inevitable destruction that will come with this adjustment.

We’re now seeing the first part in the media – pundits of various stripes saying that we need to “eat our peas.”  What they’re not, however, saying (thus far) is what the inevitable outcome in the short term will be of doing so.

We must not only talk about these facts we must accept them and tell our elected leaders that even though we understand that this pain will come, we choose the pain because it is less-damaging than what will happen if we don’t deal with the problem now, just as we screwed ourselves by refusing to deal with it in 2001 and then again in 2007.