Is It Political to Talk About Budgets?

There has been a lot of news of late about the Sequestration.  How does that affect our economy?  And why are decisions being made in the way they seem to be?

First its affect on the economy.  Sequestration has some affect, but at the levels of "savings", those affects should be minor.  Our government practices something called base line budgeting.  A number of years back, base line budgeting made some sense; today not as much.  The base line of a government budget item is what we are spending on it today.  To that inflation is added, as well  projected population growth.  Sounds reasonable, right?  And in most cases it is, however, not all cases.  As an example, according to the government inflation is minimal lately.  So a budget item won't get much bump from that, but it will always get some.  There are items that ebb and flow, depending on what is happening in our country.  As an example, the SNAP (Food Stamp) program is experiencing rapid growth, much more than the rate of inflation or growth in population primarily because of the economy.  Base line budgeting would not take that need in to account either now, or when the economy improves and demand goes down.  So now the program is under funded, and when the base line catches up, it may be over funded.  That means that now, some needy people may not get proper allocations, while later there will be a surplus, which invites waste and fraud.

Sequestration affects the base line.  Most of these items then, are not getting cut, but rather the rate of growth is being deflated.  And depending on where you read the sequestration is well under 5% of outlays. 

The second part of this is why cuts are being made where they are.  Recently, delays have been reported at major air ports because of Sequestration.  Why?  Seems that they are furloughing controllers one day every 2 weeks to get the required cuts.  Assuming that these controllers work 10 days in 14, one day would be 10%, or above the Sequester amount.  Seems to this blogger that there is some sort of craziness going on.

Years ago, I noticed that all government desires to grow.  My sister worked in a local school district.  They had a bond issue on the ballot and said they absolutely needed the money.  The ballot issue failed, and the result was they laid off a number of teachers, my sister included.  When I looked at the structure of the district, it turned out that a much more sane thing to do would be to lay off a couple administrators, leaving class rooms in tact.  But that didn't happen...

Laying off teachers was a way for the district to punish those who voted against the issue.  Today there are districts across the river in Illinois who are looking at ending extracurriculars, or music / Band, instead of going after the real problems.  I guess the theory is that if the parents want those things they will vote more money to the district to spend.



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That is what is happening in the Sequester.  It is a political game of cat and mouse.  One party is trying to lay blame to the other when something goes wrong like the air port delays.  Both parties agreed to the Sequester, it was voted on in both the House and Senate, and signed by the President.  Now both sides are using the people as pawns to push their political desires.  If the people feel pain, maybe we can get more taxes, or maybe we can win more seats, or maybe we can bully the other branch to do what we want.

Hey Democrats!  Hey Republicans!  That is wrong!  And I believe both sides are using the Sequester for political gain.  In the controller example above, $0.05 an hour pay cut would solve the problem.  A nickle an hour, not very much huh.  $2 a week less pay per employee (one less bowl of soup).  They may have to postpone some upgrades in equipment as well, and other administrative procedures.  But over all the effect would be minimal.  But minimal doesn't push the politics...

Spend Wisely! 

Is Gold a Good Investment?

There has been a lot of news lately on the price of precious metals.  Gold in particular has been slumping.  Over the last six months the price has dropped $330 or just over 20%.  It seems that when the economy goes through turmoil, precious metals seem to increase in value.  It is the adage that gold is consistent in supply, and people assume that they can trade gold as they would use money.

In fact at one time, most of the world backed currencies with precious metals.  It is only recently that that has not been the case (like less than 100 years).  So is gold or silver, or any other commodity a good investment?

The answer is it depends, and that is the point when thinking of investing in anything.  Precious metals have always held some value to people, they have never been worth nothing.  However, the price fluctuates just like any other investment, and it is possible to lose money buying these metals.

Much of the fluctuation runs concurrent with the economy.  And we can expect it to lose value if the economy rights itself and moves into the boom phase.  As in the stock market, timing is everything.  The goal is to buy low, and sell high, but how do we know when that happens?  In the 1980s I worked for a large national retailer.  That retailer was the Walmart of its time.  They generally sold merchandise that was a value to their customers, value meaning price and quality.  In the early 1980s, they decided to add gold bars to their inventory, after all the price was skyrocketing.  They ordered the gold, shipped it to the stores only to learn the lesson of dropping prices.  They sat on that gold, hoping it would go back up. 

The point is that by the time most people are aware of a increase in gold prices, the low is already long gone and statistically the risks are higher that they will not make a profit on the investment.  When gold fever hits, the prices are close to falling.  Which in a way explains why the price is dropping now.  Yes gold has value, but that value is different to different people.  Those with little knowledge of the market, are the ones most often hurt by it.  By the time man street sees the run up, it is getting close to the top.  Once at the top the only place to go is down. 

Gold is also affected by currencies.  Inflation in currencies like we are experiencing now will cause the price to go up, but not the value.  It is only keeping pace with the value of the currency.  So if you believe currency inflation will continue, then it is OK to buy gold.  But that will not bring appreciation, if an ounce of gold buys washer dryer set today, it will buy a similar one next year, even though the price of gold may be up, the value would not be.

If on the other hand, you invest in the stock market, or even in real estate, while the price could go to zero, along the way you should receive bonuses based on the productivity of the investment.  In our example that might mean dividends, or rent received on the land.  And, while the price may fluctuate on both those investments, like gold the value should remain constant to the economy, except when the company fails or drought hits.  Both of those are less likely then many would think.  Gold does not produce anything, and actually drags against productivity some, in that you need to store it somewhere, the storage will cost money.



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So is gold a good investment?  Yes if you are a master economist with a God's eye view of the future economy.  Yes if you are lucky.  Yes if you believe the world is dropping into chaos.  No if you want a productive investment that will feed your family, in the case of land, literally.  And land is the ultimate in limited availability, there has been no new land in thousands of years, and that is limited to the total mass of the planet.  

It is good to have a number of different investments, some cash in the bank, some stocks, some in bonds, some land, and yes some precious metals.  The point is to vary what you own to help lessen your hit if a particular investment goes south.  And it is good to not buy because the price is rising, unless you know, through solid research, that the trend will continue.  Or at least that's my belief...

Spend Well!

18% Taxes

Well it's tax day once again.  It seems the President and his party consistently ask that we pay our fair share.  In his most recent budget he makes an argument for more taxes to be collected.  He demonizes the other party (and maybe rightfully so) for not going along with his "revenue enhancements".  The Senate, controlled by his party, has not passed a budget in 5 years.  The Senate leadership wants us to pay our fair share.  The Affordable Health Care Act was supposed to reduce our costs, but now we are seeing that costs are going up, in some states almost double.  And no one, never that I have seen, will show the leadership to define just what the fair share is, just that they aren't paying it.  And the White House released the President's and Vice Presidents tax returns.  Mr. Obama paid 18% of his adjusted gross income in taxes.  Is that his fair share?

Here we have a family that lives rent free in the White House, has free security services, a chef, and has managed to sneak in almost a vacation a month this year, that is regarded as the most powerful man on the planet, and he only paid 18% in taxes.  I wonder if that includes the 5% rebate he is sending in from his salary? 

No matter what, former Presidents seem to do pretty good in retirement.  Just speaking engagements alone should help him put food on the table after he retires in a little over 3 years.  He will keep his security staff.  He will get a generous office budget.  And probably be able to play golf on military bases either free or extremely cheap.  Did I mention he gets a fairly decent retirement income as well?

This is exactly the problem I see with Washington Economics.  It never seems to apply to Washington.  During the current economic morass, Washington's economy has been booming.  A Congressman recently complained that her staff was unable to buy a bowl of soup for lunch.  How many of us would love a bowl of soup for lunch.  Instead we brown bag it to afford the gas to get to work in the first place.

And instead of focusing on the economy, something that is economically sensible, we have to have debates over the 2nd Amendment, or other economically unimportant things.  Note:  I do not think any amendment is unimportant, just from an economic sense, doing their jobs might actually help our situation.

It is not the tax rate that is charged.  And frankly, I don't care that he is paying only 18%, it is the hypocrisy that drives me crazy.  Looking at his family's income we find they showed adjusted gross income of $608,611.  When you look up the tax bracket, that level of income would be taxed at 39.6%.  Yet the President's family paid 18%, or less than half that rate.  Income levels for this percent would be much closer to $80,000 (or almost 8 times less than the President's income).  Why didn't he pay his fair share?  Another reason that tax rates are almost moot is that if the economy is down, so are tax collections, if the economy is up, tax collections go up too, regardless of the rate.

John F. Kennedy argued for lower rates, when the rates were lowered, collections went up, simply because the economy got a bump, remember the 1960s?  Then in 1980, Ronald Reagan argued for tax rate cuts.  When he got them, collections of taxes increased.  In both cases, the economy thrived after a rate cut.  The problem was that in both cases, when additional money came in, it was spent by Congress with no regard to the rainy day.  Remember Lyndon Johnson's war on poverty?  A noble undertaking, but it did little to help the poor.  President Johnson even figured out that the Social Security Trust Fund would be a great way to finance this war, and the other in Vietnam.  This is when they stopped saving money in the Social Security System, and started writing IOU's instead.  If any private equity firm treated 401K money the same way, they would go to prison.



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Is it not time we stopped the income jealousy?  After all, does it really matter what anyone makes, except you?  Is it time to admit that we have a spending problem?  When collections are up, why wasn't some of that money saved for the rainy day?  Then if we need stimulus, it doesn't cause a rapid and dangerous increase in the debt.  If we have saber rattling like now on the Korean peninsula, we could have the money to show our resolve.  If there is a disaster, we can use this fund to help alleviate the suffering.  Do we have to close the White House to tours, or can we find waste elsewhere to cut? 

We will probably never know.  As long as politics of welfare spending gets votes, neither side will have the stomach to change.  As long as the political elite circumvent the law, they will not feel the pain of deciding whether to buy healthier food for their kids, or shoes.  There is no incentive for them to change.  Unless the voters of this great nation make them.  We do have a choice, we can let these royals bankrupt us, or we can demand they steward our money to grow the economy.  Only time will tell.

Spend Well!

Unemployment and Labor Participation

Here's the good news:  Unemployment dropped by 0.1% in a recent report.  The economy added 88,000 jobs.  Seems like it's a good start!  And as mentioned before, it is important to accentuate the positive.  So, I'm sorry dear reader, I must break my own ideal.  The bad news?  A half million people gave up on ever finding a job, and left the labor market.  Labor participation dropped to 67%.  That means 33% (almost one third) of all able bodied people in this country are not actively seeking employment.

Now to be fair, some of that is because they are stay at home parents, or just won the lottery.  But it is not believable that one third of the workforce just won the lottery.  There was a time when a much simpler number was used, and some say more accurate.  The unemployment rate is those able to work compared to the number of workers.  However, back in the 1970's, it was discovered that government could lie, and no one seemed to care.  So today the unemployment rate is those able bodied people minus Those not actively seeking employment then comparing that number ( a much lower ratio) to those employed and then we must seasonally adjust the number. 

Think of the number 500,000 people gave up on finding a job.  Now they don't have unemployment payments.  They are living off the largess of the state.  Drawing food stamps, oh sorry, SNAP benefits.  And other welfare benefits they may qualify for.  Any wonder why we have a deficit problem?

When my children left home, my expenses dropped significantly.  My electric bill lowered, even with increasing rates.  My gas bill lowered.  Food expenses lowered.  They accounted for roughly 1/3 of my household.  Some expenses went down more the 1/3, others were right at that level.  Let's assume for a minute that we could reduce the Federal budget by 1/3, just by getting people to work.  Wat would that do to deficits?  And, lets say, even at current tax rates, taxes collected went up by 1/3.  What would these two things do for our budget? 

The detractors will say that neither of those are achievable.  Perhaps.  But even lesser numbers would help.  1/6th drop in government expenses would make things much easier to handle.  Couple that with a massive effort to weed out waste, and you would have a similar result.  How can we weed out waste?

Why not pay government managers as the private sector does?  Performance bonuses would encourage them to be as productive as possible.  Their income would depend on it.  In an earlier time in my career, I took the civil service exam, to work for state government.  It seemed like it would provide job security.  Have there ever been massive firings?  My income would be comparable to the private sector, but I wouldn't have to manage so hard to achieve it.  I had my family in mind.  9 - 5 Monday through Friday.  Instead, I stayed in the private sector (seems the job I was applying for was no longer civil service, but rather Uncle Joe could be put on the payroll).  I worked 40, 50 even 60 hours a week to make my stores productive.  I trained employees relentlessly.  I expected their productivity.  And they generally liked me for it.  Once, I had to release an employee, because he just couldn't or wouldn't produce.  It was hard for me.  The employee thanked me for at least trying to help.

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Government is not meant to be productive.  It is the least productive segment of our society.  They remove money from the population and spend it to defend our shores, make and fix infrastructure, and yes, help the poor.  That same cash invested in the private sector turns many more times, as companies expand their product line to get more sales.  The profits on those sales is what pays investors, employees, and taxes.  And while I do not wish government to produce profit, there are certainly some things it can do to increase the productivity of its operation.

But the President, or Congress, or State or Local government leaders are least able to find these areas.  But talk to the mid level managers honestly and I'm sure they could point out some savings in every single department.  The old adage of "we have to spend it, or they won't give it to us next year" comes to mind.  If goals were established for the middle managers, and they had the authority to impact day to day operations, do you think they could save the tax payers a few dollars?

Instead our leadership is doubling down on Keynesian economic strategy.  And not caring about jobs.  Instead they are after more benefits, and less liberty by attacking the First and Second Amendment.  Turn loose the private sector.  Some states are turning to precious metals as legal tender.  That is only  feel good measure, it does not address the intrinsic problems with our current economy.

At some point it will be overwhelming, and either we will collapse, or there will be war, either foreign or domestic.  It is inevitable if we continue on this road.  We need answers not rhetoric.

500,000 people gave up.  500,000 people no longer pay taxes.  500,000 additional people receive government benefits.  Sad.

Spend Wisely!

Wow! 5%

There was a story in the news today, President Obama is going to return 5% of his salary to the Treasury.  Big deal!  The President is all about "taxing the rich" and "everyone paying their fair share", but let's look at this magnanimous offer.

In 2009 the President made $5.5 million.  He also lives in public housing costing him very little, is driven around in a limo supplied by the tax payers, flies in an Air Force jet, has no utilities, little food costs and still finds enough money to take a lot of vacations.  In 2010, the President made almost $2 million.  The president's salary is $400,000.  Or just 7% of his total 2009 income.  So he wants to send back 5% of 7%,or $20,000,  hope that doesn't affect his abilities to pay greens fees.

Will $20,000 do anything for the federal employees furloughed due to sequestration?  Will $20,000 do anything to get White House tours back?  Will $20,000 make a dent in the $16 Trillion debt?  The answer is NO. 

Have you ever played the lottery?  The one thing about playing is that before the numbers are drawn, you can fantasize about what you would do with all that money.  In today's world, $20,000 is not even worth the fantasy.  This angers primarily because it is the President and his party that has demonized wealth.  They talk tax hikes for the rich, and spawned the Occupy movement that uses bullhorns to denounce the 1%.  His policies have kept our economy at near recession for 5 years now.  This is the longest period of slow growth since Jimmy Carter's years in the late 1970s.  I have even heard a push for a higher minimum wage, of course that only helps if you are employed.



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I find it galling that the President can make a simple 5% donation to the Treasury, while almost 14% of African-Americans are unemployed, and close to 20% of all Americans are under employed or unemployed.  Keep the 5% Mr. President, but earn it.  Stay home for a couple months to work on our economy.  Work on a realistic budget that stays with in our means as a nation. 

I find it amazing that this President, who has spent over 20% of this year on vacation, to offer a 5% rebate.  This is closing in on the last straw.  I wonder how much longer the people will support this President.  Lack of support will lead to Democrat defeats next year, and a lame duck President moving forward.

The time has come President Obama, man up!  Send it all back!  I once worked for a public corporation, the CEO in 2008 vowed to not take his salary until the company returned to profitability,  can our President find it in his large heart to do the same?

Spend Well!