Economic Forecast

The following predictions are based on a lack of significant world events, such as a major terrorist bombing in the U.S. or an Iranian war. Any events like those immediately changes the scenario to significantly worse than what I am predicting.

The stock market will continue rising through at least October. After that, it will run into a brick wall, as high unemployment will keep demand for consumer goods down, thereby keeping a lid on earnings. Large businesses can only add in so much efficiency before they need sales to improve. Without increasing sales, they will be faced with flat earnings, and the markets will begin to flounder.

In addition, real estate prices will either stay the same or begin to drop this Fall, as the main real estate season has ended. This will add more pressure to the equities markets. Next year will see another round of home foreclosures/defaults, as many adjustable mortgages come up for re-pricing. If the Federal Reserve raises rates at the beginning of 2010, this could impact the mortgage rates, increasing foreclosures and defaults significantly.

Speaking of the Federal Reserve, they are the wild card in the economic deck. If they decide to keep rates too low for all or most of 2010, we could see a short economic recovery accompanied by a huge burst of inflation, which in turn would push us back into recession. On the other hand, if they raise rates too far too fast, it could kill the housing market. This is just speculation on my part, but I would expect the Fed to dip their toe in the pool with a small rate increase in January, just to see what happens. They will follow this with low to medium-size rate increases through June. Then we will see the economic havoc commence.

Specifically, we will see the rise of stagflation. As commodities begin to react to the excessive money supply, their prices will rise significantly. This in turn will bring economic growth to a screeching halt. The Federal Reserve will predictably reduce their rates once more, which will only exacerbate the problem with commodity prices, which in turn will keep the economy in a slump. Ironically, if the Fed would take the opposite approach, they would probably succeed in righting the economic ship eventually, although somewhat painfully at first.

Another aspect which will be ignored will be the tight credit conditions in the banking industry. Mind you, I consider this a good thing. However, when the government increased bank reserve requirements, they created the tight credit we have. Even a light loosening of the credit would allow for some economic growth, however artificial it might be. Without it, expect any economic growth to be small, if there is any at all.

Because of this, the stock market will drop, possibly even crash, in 2010.

Politically, I expect Obama's health care plans to continue to meet stiff opposition in Congress (especially the Senate), as "blue dog" Democrats are confronted with angry constituents who oppose the public option which more liberal Democrats insist upon. However, their opposition won't save them as the economy comes crashing down. The good news is the Democrats will lose control of the House in 2010. The bad news is the Republicans have no better ideas, but at least will stymie Obama's grandiosely stupid plans. On the bright side, with deadlocked and ineffective government, the economy MIGHT be able to gain some traction by 2012, although I doubt it only because the Federal Reserve will continue to feed the stagflation. Expect Obama to be a one-term president, with a massive sweep out of incumbant politicians in 2012.

For the next 4 years, and possibly longer, your best investment bets will be commodities, such as oil and precious metals, and foreign stocks, ETF's, and mutual funds. I personally recommend China, as they seem to be preparing best for what is about to happen, by purchasing precious metals to shore up their currency, as well as turning the direction of their commerce inwards to their domestic economy.

Is Socialism dying?

From Steven Erlanger at the New York Times:

A specter is haunting Europe — the specter of Socialism’s slow collapse.

Even in the midst of one of the greatest challenges to capitalism in 75 years, involving a breakdown of the financial system due to “irrational exuberance,” greed and the weakness of regulatory systems, European Socialist parties and their left-wing cousins have not found a compelling response, let alone taken advantage of the right’s failures.

But is Socialism really dying?

Europe’s center-right parties have embraced many ideas of the left: generous welfare benefits, nationalized health care, sharp restrictions on carbon emissions, the ceding of some sovereignty to the European Union. But they have won votes by promising to deliver more efficiently than the left, while working to lower taxes, improve financial regulation, and grapple with aging populations.

Europe’s conservatives, says Michel Winock, a historian at the Paris Institut d’Études Politiques, “have adapted themselves to modernity.” When Nicolas Sarkozy of France and Germany’s Angela Merkel condemn the excesses of the “Anglo-Saxon model” of capitalism while praising the protective power of the state, they are using Socialist ideas that have become mainstream, he said.

The truth is, the so-called "right" has just adapted their policies to the Socialist ideal. They still have not resolved the inherent problem with Socialism, which was best described by Margaret Thatcher several decades ago:

"Socialist governments traditionally do make a financial mess. They always run out of other people's money."

Socialism never bothers to reconcile the conflict between the welfare state and capitalism, which is necessary to pay for the welfare state. Without the economic growth which capitalism provides, the only way to pay for the welfare state is by printing money, which is the government's equivalent of an individual trying to pay all their expenses by credit card, while not having a job. Without capitalism, there is no tax revenue, and you end up in an old style communist system, where there is no production incentive.

So far, the Socialists have managed to balance their welfare state with their capitalism to avoid the fate of communism. But their growth rates have become anemic as their burdensome tax rates keep capitalism on life support. You cannot take the production of half (or more) of your economy and expect it to grow.

In addition, the more welfare provided, the less incentive there is for people to be productive. Why work when you can get almost as much money on welfare?

Someone has to pay for the welfare state. But what the world's recent economic collapse has taught the Europeans is that their golden goose cannot support their lifestyle of leisure in this modern age of world trade. Between economic pressure, and government taxation, capitalism's golden goose needs some TLC too. If the goose dies, Socialism dies with it, because somebody has to pay the bills.

Drop health care now!

Do you want to know why we have nearly 10% unemployment, with possibly more in the future, as our economy stumbles along like an auto accident survivor? Obama is pulling a Nero by fiddling with health care while our economic Rome is burning. While health care is a large portion of our economy, it is not and nor will it ever be all of it. By ignoring the rest of our economy for the sake of taking over this portion, Obama has brought the rest of our economy to a halt.

Consider what you would do if you owned a small or medium sized business (from which most of our economic growth comes). Would you hire anyone now, knowing the government might require you to provide health insurance to them? Would you expand your operations without knowing what new employees will actually cost you? Would you open a new business in this economy?

The longer Emperor Obama spends on his health care folly, the longer it will take the economy to recover.

MSNBC spins tires for Obama

In trying to provide support for their beloved leader, MSNBC has a headline on their website that blatantly supports Obama's "Smoot-Hawley" tire tariff against China:

With Chinese tires, it's buyer beware
Amid trade tiff over Chinese tire imports, some concerns about quality

Sounds bad, huh? Unfortunately, when you read the article, the information actually supports the quality of all but one Chinese tire manufacturer.

Exhibit A:

Last year the National Highway Traffic Safety Administration launched an investigation into defective tire valve stems produced by a subsidiary of Shanghai Baolong Automotive Corp. The company sold 300 million valve stems which were susceptible to cracking, potentially causing the tire to deflate, a problem which led to one fatality, according to NHTSA.

That is ONE FATALITY out of 300,000,000 valve stems. Please show me an industry that can produce results like that?

Exhibit B:

Two fatalities were attributed to defective tires made by Hangzhou Zhongce Rubber Co. because of tread separation. The tire importer issued a recall for the 450,000 tires it had sold.

TWO FATALITIES out of 450,000 tires sold? If you consider there is an average of 1.5 fatalities per 100,000,000 miles driven in the U.S., and you assume four of those tires were put on every car (meaning 112,500 cars were riding on those tires), and you assume those tires were only supposed to be driven for 10,000 miles (extremely conservative), that means those tires were responsible for 1 fatality for every 562,500,000 miles driven, which is significantly ABOVE the average in the U.S. In fact, I would go so far as to say drivers of cars with those specific Chinese tires on them are actually SAFER than the typical American driver.

Exhibit C:

Consumer Reports magazine tested 23 affordable all-season replacement tires, seven of them made in China, reported Gene Petersen, tire program leader for the magazine. Of those seven, six finished in the top half of the field, he noted.

They included tires from brands such as Toyo, Cooper, Pirelli, and Kumho. “Because these tires are being built with the companies whose names are on the tires, the same specifications that would apply to a tire made in the U.S. would apply to a tire made in China,” said Petersen.

Sounds to me like they are making good quality tires in China.

But wait! Car and Driver Magazine found a bad brand:

But that was seemingly not the case for the Chinese-branded Ling Long tires tested by Car and Driver magazine. The Ling Longs wore a tread pattern identical to that of a popular Yokohama tire, a visible semblance that could cause consumers to assume similarity of performance.

That assumption would be wrong. The magazine found the braking distances and cornering grip were much worse for the Ling Long tires than for any others in the test, requiring an extra 22 feet — one and a half car lengths — to stop from 50 mph than the best tires.

So Car and Driver found one bad tire brand (although we don't know from the MSNBC article whether the test was scientific or not), and MSNBC can happily proclaim "buyer beware" of ALL Chinese tires? Even though Consumer Reports (a far more reputable firm than Car and Driver) found 6 of 7 Chinese tire brands rank in the TOP HALF of 23 different tire brands they tested? Even though the fatality rates for Chinese tires are significantly LESS than the national average for automobile fatalities?

MSNBC is shameless.

Who's Disadvantaged?

Frequently in many domestic political issues, such as the debate over health care, we hear the poor used as an excuse for the institution of progressive political programs. Of course, when people argue against the progressive ideas, they are accused of being insensitive to the poor (that is one of the kinder accusations you are likely to hear from progressives), as if the benefit exists outside of any costs.

Even though progressives don't like to hear about costs, they still happen anyway. Whether you raise taxes, or charge fees, or come up with some clever scheme like cap-and-trade, someone has to pay for it.

One of the most politically popular ways is "soak the rich". Even when wealthy people like Warren Buffett support it, it ignores one economic reality: You are taking money away from economic investments. Economic investments create jobs. The more jobs there are, the lower the unemployment rate, and the greater leverage workers have in obtaining better salaries.

In addition, politicians tend to only soak the rich so much, because if they were to REALLY soak the rich, their campaign donations would drop. So they create oppressive tax rates on one hand, and then add in tons of deductions on the other, to effectively allow the wealthy to protect their money (as well as their future political donations).

Naturally, there is only so much the rich can be soaked. Eventually, they will move their money overseas to tax havens, or find ways around the oppressive taxation. Then the progressives have to move to the next most popular golden goose: Corporations. The only problem with this one is that the added costs to businesses have to come from somewhere. Here are the usual victims:

1. Customers. If a business can raise prices to cover their tax costs, they will. When taxes are levied on all businesses, that is usually what happens since even their competition faces the same increased costs.
2. Employees. The workers are the ones who usually face the axe for the added cost of minimum wage increases (Yes, that is a tax, since government gets it's cut of increased income) and other taxes. If a tax is oppressive enough, and the cost can't be passed along to customers, cutting the workforce is the lazy manager's solution. In addition, some companies will move operations overseas to where the labor costs are cheaper.
3. Inefficiency. Unfortunately, adding efficiency is the hardest thing for any business to do, and in many cases takes longer than the business has to accomplish it before the tax takes effect. Most businesses try to do this anyway just to increase profits, so this isn't usually a viable option.
4. Profits. This is the one progressives shoot for, but is rarely possible with ever-shrinking profit margins. In addition, this ends up hurting the shareholders of public companies, who include many pension funds and 401k funds, paid for by regular workers.
5. The business itself. In cases where none of the above are possible, sometimes the business cannot continue. That means loss of jobs, as well as job opportunities.

The next most politically popular way to acquire funds is simple, yet invisible: Print more money. This solution also has it's limits, in the form of inflation, which causes prices to go up. The voters, thanks to public education, are never smart enough to figure out that the higher prices they are paying are due to the actions of their politicians. The politicians can get away with it by blaming greedy corporations, and no one is any wiser.

Finally, the last solution is to raise taxes on ALL taxpayers. The problem with this solution is the burden it places on average Americans. How are you helping the poor by placing a greater burden on the middle class? How are you helping the poor by making more people poor?

All of these solutions have created one major unseen burden on the American people. Consider a married couple with a child or children. By taking money out of their pockets, whether directly or indirectly, the government makes it more difficult for them to support their family. Eventually, the couple faces a tough economic choice whereby BOTH parents must work, and the child/children must be relegated to daycare. With all the government regulations on daycare centers, plus the high liability insurance costs daycare centers face, daycare has become prohibitively expensive, adding yet another burden on working parents, which means even more time spent working and less time with their children.

At a time when too many parents already spend too little time with their children, we want to add to their economic burden with more government taxes? In the case of health care, we want to shift the high cost of health care from the private sector to the public sector? Economically speaking, the best case scenario is the government takes over health care and cuts costs by cutting the overall quality of health care for all Americans. That is NOT what anyone wants in the health care debate.

This leaves the alternative of shifting the "free buffet" of health care from the private sector, which limits the availability, to the public sector, which will give it away to everyone, who will proceed to take advantage of it, causing the demand to exceed the supply and raising the costs for the public sector, forcing politicians to utilize one of the means I described above in order to pay for the neverending rising health care costs.

Little Johnny can forget about seeing mommy and daddy for now. They will be busy providing health care to the poor.

Laffer's Warning

Economist Arthur Laffer, from the Wall Street Journal today:

In 1930-31, during the Hoover administration and in the midst of an economic collapse, there was a very slight increase in tax rates on personal income at both the lowest and highest brackets. The corporate tax rate was also slightly increased to 12% from 11%. But beginning in 1932 the lowest personal income tax rate was raised to 4% from less than one-half of 1% while the highest rate was raised to 63% from 25%. (That's not a misprint!) The corporate rate was raised to 13.75% from 12%. All sorts of Federal excise taxes too numerous to list were raised as well. The highest inheritance tax rate was also raised in 1932 to 45% from 20% and the gift tax was reinstituted with the highest rate set at 33.5%.

But the tax hikes didn't stop there. In 1934, during the Roosevelt administration, the highest estate tax rate was raised to 60% from 45% and raised again to 70% in 1935. The highest gift tax rate was raised to 45% in 1934 from 33.5% in 1933 and raised again to 52.5% in 1935. The highest corporate tax rate was raised to 15% in 1936 with a surtax on undistributed profits up to 27%. In 1936 the highest personal income tax rate was raised yet again to 79% from 63%—a stifling 216% increase in four years. Finally, in 1937 a 1% employer and a 1% employee tax was placed on all wages up to $3,000.

Because of the number of states and their diversity I'm going to aggregate all state and local taxes and express them as a percentage of GDP. This measure of state tax policy truly understates the state and local tax contribution to the tragedy we call the Great Depression, but I'm sure the reader will get the picture. In 1929, state and local taxes were 7.2% of GDP and then rose to 8.5%, 9.7% and 12.3% for the years 1930, '31 and '32 respectively.

The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I'd give to all who will listen, it is that U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s. Net legislated state-tax increases as a percentage of previous year tax receipts are at 3.1%, their highest level since 1991; the Bush tax cuts are set to expire in 2011; and additional taxes to pay for health-care and the proposed cap-and-trade scheme are on the horizon.

We CANNOT provide health care for 30 million people without raising taxes, either directly or indirectly. Our economy CANNOT afford a tax increase at this time, with nearly 10% unemployment (closer to 20% if you count the underemployed and those who have quit looking for work).

Providing health care for 30 million people doesn't do us any good if they cannot find jobs to pay for simple necessities of life like food.

If Obama is lying about not raising taxes to pay for his health care plan, and I have every reason to believe he is since he has before, then we need to stop this public option nonsense immediately. Frankly, I would even go so far as to end the business deduction for health insurance. But I will settle for simply ending the socialist stupidity from the Democrats.

The Fast Boat to Chinese Stocks

For any of you interested in the Chinese stock market, here is some analysis on some small/micro cap Chinese stocks.

For the record, I prefer stocks with low P/E's (they MUST have positive earnings), low debt, reasonable profit margin, in a good industry with room for growth, with various other criteria depending on the industry (for example, if the company is in a competitive industry, I want to see them turning inventory fast).

My current holdings (in no particular order):

1. AMERICAN ORIENTAL BIOENGINEERING INC (AOB): Chinese pharma.
2. CHINA DIGITAL COMMUNICATIONS GROUP (CMTP): Lithium battery manufacturer. One of my personal favorite stocks which has already made me a lot of money.
3. CHINA SUN GROUP HIGH TECH COMPANY (CSGH): Another battery manufacturer. I am waiting for them to dip so I can buy more, but they never dip enough for me to do it.
4. CHINA INSONLINE CORP (CHIO): Online insurance sales. Trading in a tight range at the moment (between 90 cents and $1.10). Still cheap for the price. When it breaks out, it should break out big.
5. CHINA INFORMATION SECURITY TECHNOLOGY INC (CPBY): Security software development. As the Chinese Internet grows, they can only get richer. Considering they already have government contracts, this is a "money in the bank" stock.
6. CHINA YONGXIN PHARMACEUTICALS INC (CYXN): Chinese pharma.

Now for some other stocks reviews (again in no particular order):

1. China Clean Energy Inc (CCGY): A cash bleeder. I'm not sure there's enough there to allow them to grow, aside from an intriguing business plan. Unfortunately, I'm sure biodiesel is being researched by every oil company on the planet, since adding biodiesel to their current oil reserves is a no-brainer.

2. Puda Coal Inc (PUDZ): If you are looking for coal exposure in the Chinese market, this is a good stock for you. Personally, I am not fond of the coal market. Even so-called "clean" coal is worthless, since the energy output is vastly reduced. In other words, you have to burn more clean coal to get the same energy output you would get from regular coal, which means the clean aspect is negated. This means the future for the coal industry is limited, at best.

3. Telestone Technologies Corp (TSTC): Wireless communications equipment manufacturer. Sounds good, right? Unfortunately, they are only turning inventory a little over 2X, which is low for both the industry (20X) and the sector (13X). While they have little debt and a low P/E, they have to get more efficient in managing their business before I get interested.

4. Perfectenergy Intl Ltd (PFGY): Dead company walking. This company is bleeding cash BAD! Sure they have no debt, but they will need some soon at the rate they are going. SELL!

5. China Growth Development Inc (CGDI): A fascinating little stock. Through one subsidiary, they sell sun care products in Florida. Through another subsidiary, they build and operate commercial real estate in China. A strange combination admittedly, but they make it work. The numbers (from Vanguard):

Price: $0.40
P/E: 7.47
Current ratio: 0.83 (a little light)
Long-term debt to equity: 0
Total debt to equity: 0.16 (outstanding)
ROE: 6.37 (could be better)
Sales vs. 1 year ago quarter: 11.93% higher (good sign)
Price to book: 0.50 (say WHAT?! Amazingly low)
Net profit margin: 17.57% (sweet!)

Although I am not a fan of real estate exposure, commercial real estate would have to drop in China by half for this stock to be reasonably valued. For a 40 cent stock, this one is hugely undervalued. While growth potential is limited, it is definitely a "buy" at this price.

6. China Med Technologies Inc (CMED): This company specializes in in vitro technology. On the plus side, they make a lot of money, and they are growing (sales vs. 1 year ago have increased 92%). On the downside, they lose money overall because of their high debt (54% higher than their assets). If they could get their debt situation cleaned up, this could be a great stock to own. If heavy debt loads don't concern you, this is a solid "buy". But count me out.

7. Jiangbo Pharmaceuticals Inc (JGBO): My jaw hit the floor when I saw the financials on this one. This is the kind of stock where you ask, "Where have you been all my life?" Check out these numbers (from Vanguard):

Price: $10.83
P/E: 5.02
Current ratio: 4.12
Long-term debt to equity: 0.04
Total debt to equity: 0.10
ROE: 38.03 (over twice the ROE for the industry)
Sales vs. 1 year ago quarter: -8.45% (this stock's only downside)
EPS vs. 1 year ago quarter: 4,783.83% (translation: This company has improved their efficiency significantly)
Price to book: 0.99 (in other words, if they liquidated tomorrow, they would still be worth more than their current stock price)
Net profit margin: 24.36% (almost twice the margin for the industry)

Be still my beating heart! I think I am in financial lust.

Fear of Death

From CNN.com (bold parts from quotes added by me):

Research released this week in the American Journal of Public Health estimates that 45,000 deaths per year in the United States are associated with the lack of health insurance. If a person is uninsured, "it means you're at mortal risk," said one of the authors, Dr. David Himmelstein, an associate professor of medicine at Harvard Medical School.

The researchers examined government health surveys from more than 9,000 people aged 17 to 64, taken from 1986-1994, and then followed up through 2000. They determined that the uninsured have a 40 percent higher risk of death than those with private health insurance as a result of being unable to obtain necessary medical care.

I love news stories like this. So those without insurance have a 40% higher risk of death than...100%?

I am sorry to break the news to all of you, but WE WILL ALL DIE. Remember the old saying about "death and taxes"? It is true.

With a 100% certainty of something happening, it is IMPOSSIBLE to go higher.

But let us dig a little deeper into the sob stories portrayed as examples in the article:

For years, Paul Hannum didn't have health insurance while he worked as a freelance cameraman in southern California.

One Sunday, Hannum complained of a stomachache which alarmed his pregnant fiancée, Sarah Percy. "He wasn't a complainer," she said. "He's the type of guy who, if he got a cold, he'll power through it. I never had known him to complain about anything."

Hannum thought he had a stomach flu or food poisoning from bad chicken. On Monday, his brother saw him looking ashen and urged him to go to the hospital. "He had a little girl on the way," his older brother Curtis Hannum said. "He didn't want the added burden of an ER visit to hang on their finances. He thought 'I'll just wait,' and he got worse and worse."

By the time Hannum got to the hospital and was admitted to surgery, it was too late.

Paul Hannum, 45, died on Thursday, August 3, 2006, from a ruptured appendix.

I can relate to this guy, except for one thing: I buy my own catastrophic health insurance policy. That aside, like him, I prefer toughing out little illnesses, because they usually go away. Unlike him, if I know I am sick, I won't use my finances as an excuse not to go to the ER if I have to go.

He died because he was cheap.

For 10 years, Sue Riek suffered from back pain, but couldn't afford medical care.

When a mid-life divorce left her single and without health insurance, Riek started a home-business selling make-up on eBay to support herself and her two daughters.

Riek, who lived in Charlotte, North Carolina, didn't qualify for Medicaid. And she couldn't afford a $5,000 monthly insurance premium, said her eldest daughter, Kaytee Riek.

"I don't know if she felt trapped, but it was a constant in her life -- struggling outside the health care system to exist," her daughter said.

Riek took comfort in her faith and regularly attended church. Then one Sunday, she didn't show up.

The next day, September 3, 2007, her daughter received the call telling her that her 51-year-old mother died from undiagnosed heart disease -- a condition treatable with lifestyle changes, medication and certain medical procedures.

"I feel incredibly strongly that she would still be alive if she had been able to regularly see a doctor," said her daughter.

Anyone remember Jim Fixx? He was a famous runner who died from an undiagnosed heart condition.

There is no guaranty that a doctor would have diagnosed Riek's fatal condition, and there is nothing in the story to indicate that she had any kind of history that would have led a doctor to that diagnosis.

But let us assume for a moment that she would have been diagnosed correctly. Then what? She MIGHT have lived longer (it is still possible she could have succumbed to a heart attack), but not forever.

Elizabeth Machol, 25, told her mother she felt tired. She had just moved into a new apartment in Santa Rosa, California, with her boyfriend and thought the fatigue was from the move and her cat Bert, who would keep her up at night.

Her mother, Marlena Machol told her to go to the doctor's office, but Machol was reluctant. Machol worked at a movie theater and didn't have health insurance. Her parents were still paying her medical bills from a previous condition and she was worried about the cost.

A few days after their phone conversation, Machol collapsed in the bathroom. She never regained consciousness.

One day after her 26th birthday, Machol was declared brain dead.

After signing papers to donate her organs, her parents kissed her face, held her hands and said goodbye to the daughter who had played the violin, organized her own fashion show and taught neighborhood kids how to swim. The coroner's office could not determine the cause of death.

Let me get this straight: A coroner could NOT figure out why she died, yet a doctor MIGHT have been able to if she had gone to see him while she was alive? Considering coroners can be a lot more invasive in their procedures, I find it hard to believe that a doctor would stumble on the proper diagnosis by blind luck.

Death at an early age is always a sad thing. But it provides no excuse to enslave the entire medical profession. Medicine, at it's best, may only extend life, NOT eliminate death.

Thought for the day

"Even though I do not believe we can extend coverage to those who are here illegally, I also don't simply believe we can simply ignore the fact that our immigration system is broken...That's why I strongly support making sure folks who are here legally have access to affordable, quality health insurance under this plan, just like everybody else.

...If anything, this debate underscores the necessity of passing comprehensive immigration reform and resolving the issue of 12 million undocumented people living and working in this country once and for all." - President Barack Obama

I wonder if Obama is really trying to say that 13 year old El Salvadoran prostitutes brought to this country illegally really should have free health care. I am sure ACORN would approve of that.

Too big to succeed? Part II

On Monday, I asked, "A year after the Lehman Brothers failure, and almost a year after the initial TARP program which was rolled out to save our financial industry by saving those businesses which were "too big to fail", one question remains: What was done to prevent this from happening again in the future?"

Today, Foxbusiness.com answers: Nothing at all.

Consider these figures: At the end of 2007, the four biggest U.S. banks -- Citigroup (C: 4.34, 0, 0%), JPMorganChase (JPM: 44.96, 0, 0%), Bank of America (BAC: 17.63, 0, 0%) and Wells Fargo (WFC: 28.82, 0, 0%) -- held 32% of all deposits housed in FDIC-insured banks. By June 30 of 2009 that had climbed to 39%.

And consider the leverage these banks hold over consumer lending in the U.S. According to government data, between them these four banks now issue about half of all mortgages approved and about two-thirds of all credit cards.

All of this begs the question: If these banks were too big to fail a year ago and they’re even bigger now, how is the U.S. any better off today than it was last September, when the collapse of venerable banking giant Lehman Brothers looked like the beginning of the next Great Depression?

And if you think you can trust our government knows what it is doing by allowing these banks to continue with "business as usual", consider Fox Business's analysis:

The problems with "too big to fail," according to those seeking reform, can be broken down into two parts.

First, it is now painfully clear that any single bank whose failure poses a threat to the broader U.S. economy has grown too big for its own good, not to mention that of its clients, as well as the nation.

Second, banks tagged as too big to fail are then free to operate under the assumption that the government will always come to their rescue, a belief that will likely lead to the same risky actions that brought the world’s economy to its knees a year ago.

In other words, there is absolutely NOTHING to encourage these banks to manage their risk. Obama can say that he won't bail them out again, but do you trust a politician to actually take a hard stand based on principle, especially considering he has already supported multiple bailouts? Do you trust Congress not to go screaming for a bailout?

Frankly, this is a MUCH bigger problem than health care in this country. It would take all 30 million uninsured Americans to have catastrophic illnesses tomorrow, to equal the economic devastation of these four banks failing.

President Obama, you are asleep at the wheel. WAKE UP! No matter how much money you get in campaign donations from these banks, if one of them fails, you WILL be held responsible in the next election.

The real ACORN news story

If "guilt by association" would doom a politician, Obama would have been downed by Bill Ayers. So why should a news story about an organization which is connected to Obama, and which receives federal funding undoubtedly thanks to Obama, be close enough to him to be considered politically toxic? As Toby Harnden of Britain's Telegraph explains it:

If there’s one story that’s had it all in the past week it’s the series of undercover reporting stings that have uncovered the true nature of ACORN - the Association of Community Organisations for Reform Now. It’s got sex, misuse of taxpayer funds, the condoning of illegal activity by officials and connections to Barack Obama.

I missed the part in there where this should not be considered news?

Ironically, Jon Stewart of Comedy Central's The Daily Show explains the real ACORN story best:

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
The Audacity of Hos
www.thedailyshow.com
Daily Show Full Episodes Political Humor Healthcare Protests

Yes, the real story is that no one in the alleged Media covered it, except for Fox News.

But let us give credit to the Woodward and Bernstein of our age: James O'Keefe and Hannah Giles at biggovernment.com. Granted, the ACORN story isn't Watergate. But considering the overwhelming majority of our Media couldn't report the ACORN story, even when it was handed to them, do you honestly think they could uncover a Watergate-style story?

Boortz was right

"When Obama becomes our (czar) President any utterance of disapproval with any proposal he floats before the congress will, of course, be racist. It is going to be a fun four years." - Neal Boortz in October 2008

"...Wilson’s shocking disrespect for the office of the president — no Democrat ever shouted “liar” at W. when he was hawking a fake case for war in Iraq — convinced me: Some people just can’t believe a black man is president and will never accept it." - Maureen Dowd (of the New York Times) in September 2009

"I think an overwhelming portion of the intensely demonstrated animosity toward President Barack Obama is based on the fact that he is a black man." - Jimmy Carter in September 2009

"My sense of the teabaggers is more complicated: they are primarily working-class, largely rural and elderly white people. They are freaked by the economy. They are also freaked by the government spending--TARP, the stimulus package etc.--that was necessary to avoid a financial collapse. (I'm not sure Keynes is taught in very many American high schools.) But most of all, they are freaked by an amorphous feeling that they America they imagined they were living in--Sarah Palin's fantasy America--is a different place now, changing for the worse, overrun by furriners of all sorts: Latinos, South Asians, East Asians, homosexuals...to say nothing of liberated, uppity blacks.

In that sense, Barack Obama is the apotheosis of all they fear." - Joe Klein (of Time Magazine) in September 2009

Boortz was right.

Conscripting the doctors

Sheldon Richman may have the best health care post I have read yet, even if it is a bit tongue-in-cheek.

Richman gets to the heart of the matter: Changing the way we pay for health care really does nothing to improve on the current system. As Richman says:

Requiring insurance companies to pay for our medical care misses the point. Where do you think insurance companies get their money? From us! What kind of right to health care is it if we end up paying for it anyway? Obama means well, but his plan is a shell game.

Richman goes on to humorously suggest enslaving the doctors, which is really the inevitable end of the progressive ideal.

But it begs a question: How can progressives claim that health care is important enough to be a "right", and at the same time devalue the providers of that "right"?

Secession

I am tired and frustrated.

I am tired of arguing with people who believe they have a right to health care, even if it means making indentured servants out of the entire medical profession. Even if means ignoring the U.S. Constitution, which guarantees no right to health care, and in fact prohibits the indentured servitude of any person within the medical profession (see the 14th Amendment).

I am tired of being stigmatized as racist simply because I disagree with these fools. I disagreed with them when the president was white (Bill Clinton), and I disagreed with them when the president was Republican (George Bush's expansion of Medicare), and now I disagree with them when the president is black (Barack Obama). Yet I am somehow racist for not wanting to steal the money properly earned by others in order to fund my own health care needs.

I am tired of the assumption of "all southerners are racists", especially from scalawags like Jimmy Carter. I have lived in the north and the south, and racism is actually less common in the south.

I am tired of my tax dollars supporting welfare states in New York and California. I am tired of my tax dollars supporting an education system that does not work. I am tired of my tax dollars supporting the re-election of liberal/socialist senators and representatives via pork.

I am tired of capitalism being bashed for it's failure, while the role of government in our country's economic collapse is given a pass. While capitalism plays off of man's inherent greed in order to function, where does it say that politicians are any less greedy? Yet we ignore how they have set up laws to protect their own plunder?

I am tired of the Media support for the criminals running our country. They happily bash Republicans, then conveniently overlook when Democrats do the same things, or worse.

I am tired of both political parties fighting over HOW they should run our lives, without anyone stopping to ask WHY they should run our lives. For example, why is prostitution illegal in most parts of our country, yet abortion is legal all over our country? I heard a comedian (I forget his name) put it best: Your womb is free, but the state owns your vagina.

I am tired of the Keynesian fallacy that a small group of people located within a central bank can possibly manipulate our economy positively, when an economy involves literally trillions of different transactions every day. Of course, as we have seen, they cannot do this. Yet no one questions this?

I am tired of reliving the Great Depression. First, our economy goes into recession because of the Keynesian fallacy. Now we have to relive Smoot-Hawley too? Obama's decision to institute tire tariffs against China will only lead to a trade war, which will just make a bad economy worse.

I am tired of the war in Afghanistan. How many wars in Afghanistan have to fail before the world's leaders understand that Afghanistan will NEVER have a useful central government? Entering a war in Afghanistan with the hope of setting up a central government there is like the old joke about second marriages: It's the triumph of hope over experience.

I am tired of the federal government. It provides little while demanding a lot.

The union has outlived it's usefullness. Whenever the rest of you get around to realizing that secession would be better for all of us, let me know. I am ready.

The Stupidest Man on the Face of the Earth

What can you say about Ben Bernanke other than the headline above?

On one hand, he says, "The recession is very likely over at this point." On the other hand, he says, unemployment "will be slow to come down...It will come down, but it will take some time." Only a fool could look at rising unemployment rates and think everything is getting better.

If ever there was an argument for disbanding the Federal Reserve and moving to a gold standard, Bernanke is it.

Too big to succeed?

A year after the Lehman Brothers failure, and almost a year after the initial TARP program which was rolled out to save our financial industry by saving those businesses which were "too big to fail", one question remains: What was done to prevent this from happening again in the future?

If a company is "too big to fail", logic dictates that it is simply too big, and needs to be broken up, similar to what happened to AT&T several decades ago. Our government has not only failed to do this, but has instead encouraged the failing businesses to be bought out by other larger businesses (one example being the Merrill Lynch purchase by Bank of America). Instead of breaking up "too big to fail" businesses, we have even bigger "too big to fail" businesses.

One could look at this as a failure of leadership or economic stupidity, but the truth is a far worse thing: These companies are major sources of campaign funding. If they die, politicians will have to find other sources of campaign funding, which won't be nearly as generous. So the politicians happily handed out money they didn't have to these companies to keep them afloat. And now we are stuck with the bill for their largess.

The corruption in the U.S. government has reached astounding levels, where bribes fly back and forth between Wall Street and Washington, and all of it perfectly legal, because the lawmakers have made it legal.

If you think either the Republicans or Democrats are somehow immune to this, just look at the bailouts, which were approved by BOTH parties, and you will see just how deep the money runs in Washington.

It is time to throw out the bums, and I do not mean just the incumbents. I mean the two-party system. If you think you are wasting your vote by voting for a third party, I will tell you that your vote on any Republican or Democrat is just as wasted, because you are voting to maintain Wall Street's hold on power.

Question of the Day

The big question left unanswered from Obama's speech revolves around this statement from Obama:

Reducing the waste and inefficiency in Medicare and Medicaid will pay for most of this plan.

The question, from Arnold Kling at the Atlantic:

And if we don't pass this plan, does he intend to keep the waste and inefficiency, out of spite?

A Deficit of Ideas

The following quotes are from President Obama's speech last night (transcript from Fox News):

Finally, our health care system is placing an unsustainable burden on taxpayers. When health care costs grow at the rate they have, it puts greater pressure on programs like Medicare and Medicaid.

If we do nothing to slow these skyrocketing costs, we will eventually be spending more on Medicare and Medicaid than every other government program combined.

Put simply, our health care problem is our deficit problem. Nothing else even comes close.

No, our deficit problem is irresponsible politicians spending more than they get in tax revenue. Medicare and Medicaid are just two examples.

Medicaid is a welfare program, period. People who get Medicaid aren't paying for it. Even if they did pay taxes previously, that money was long gone by the time they actually received Medicaid benefits, since our politicians don't let money lie there unspent.

As for Medicare, if you think "I paid into it all my life", you are mistaken. You paid a tax, which the politicians spent on current Medicare expenses, and anything left over was spent on whatever else the politicians decided to spend. But you can be certain it was spent.There was no "Medicare lock box" which held your funds. Can you say "ponzi scheme"?

Even if you believe these programs are necessary, it is economically foolish to give away something for nothing. If grocery stores worked this way, would you be getting steak and lobster every night, or just the food you needed? So why would you expect people with no fiscal responsibility for their own health care to get just what they need when they can get far more? When this happens, the cost of health care rises, not only for taxpayers, but for everyone else who uses health care.

So when Obama proposes a plan which offers more free health care to more people, what do you think will happen to the costs?

For example:

[Insurance companies] will no longer be able to place some arbitrary cap on the amount of coverage you can receive in a given year or in a lifetime.

We will place a limit on how much you can be charged for out-of- pocket expenses, because in the United States of America, no one should go broke because they get sick.

And insurance companies will be required to cover, with no extra charge, routine checkups and preventive care, like mammograms and colonoscopies.

Because there's no reason we shouldn't be catching diseases like breast cancer and colon cancer before they get worse.

That makes sense. It saves money, and it saves lives.

A simple question: Does anyone NEED preventive care in order to live? If they don't have the condition, then the answer is no. Do most people have conditions such as breast cancer or colon cancer? Again, the answer is no. So why should we provide free testing for conditions which will not affect the majority of the American public?

Before you call me heartless, consider this: What happens when you get an incurable cancer? You die. What happens if you DON'T get an incurable cancer? You die. What are we preventing by screening people for cancer? In the end, nothing.

Mind you, I am not insensitive to the horrors of cancer. I saw my mother die from it. But shouldn't we find better ways of treating people AFTER they have cancer? Screening for cancer is NOT 100% effective. Tumors will get missed. Unless you plan to screen everyone everyday, you will miss some. It is inevitable.

The most cost effective approach to cancer is to find a cure for those who have it. THAT will save money and lives.

Speaking of cost effective:

Finally, let me discuss an issue that is a great concern to me, to members of this chamber, and to the public, and that's how we pay for this plan.

Now, Here's what you need to know. First, I will not sign a plan that adds one dime to our deficits, either now or in the future.

I will not sign it if it adds one dime to the deficit now or in the future -- period.

I will not sign it if it adds one dime to the deficit now or in the future. Period. And to prove that I'm serious, there will be a provision in this plan that requires us to come forward with more spending cuts if the savings we promise don't materialize.

How can Obama say he won't sign the bill "if it adds one dime to the deficit" in the future, and in the next breath claim there's a provision that requires spending cuts if savings don't materialize? We know how our legislators treat such provisions: They just override them as needed.

Consider our government's debt ceiling, which Obama & Co. are calling for raising once again, this time above $12 trillion (see this link).

Can Obama guaranty that any costs which raise our deficit will result in spending cuts? As Bill Clinton might have said, it depends on how you define "raising the deficit". Which spending do you consider within our current budget, and within our current deficit? Technically speaking, unless the total cost of this program exceeds our ENTIRE budget, then our politicians can say that NONE of it is increasing our deficit. It's all those other things we are already paying for that are above the current costs.

Very clever Obama. But Joe Wilson was right: You're lying.

Death of the Birther Argument

"The resignation over the Labor Day weekend of White House "green jobs" czar Van Jones tells you some interesting things about the Obama administration. One of them is that a man who proclaimed himself a "communist" in the 1990s and signed 9/11 "truther" petitions suggesting Bush administration complicity in the Sept. 11 attacks was considered fit for a White House appointment. Liberal columnists have been attacking Republicans because some of their voters are "birthers," believers in the absurd charge that President Obama was not born in Hawaii and thus is not a natural-born U.S. citizen. But they have failed to identify any "birther" who occupied a position in the Republican firmament comparable to that of "truther" Van Jones in the Obama administration." - Michael Barone (from the Washington Examiner website)

While I disagree with Mr. Barone to an extent, because there are too many Republicans in Congress who have given the "birthers" a bit too much leeway in the political arena, Barone does have a point about the Van Jones appointment being disturbing, and potentially giving more weight to arguments about Obama's connections to communists.

The Failure of Obamanomics

The failure in President Obama's economic plans is pretty easy to spot. From the Innocent Bystanders website, the following chart shows the original unemployment estimates as presented by President Obama to sell his recovery plan, alongside the actual unemployment numbers since then:

Larry Kudlow has a good analysis of the unemployment problem:

This is a big-versus-small-business issue. Sort of the haves versus the have-nots.

The large companies are gradually recovering as a result of major cost-cutting, inventory reduction, and a lean-and-mean return to profitability and high productivity. So the payroll survey registered a 216,000 job loss, the smallest drop in over a year.

The household survey, however, which picks up small, owner-operated, LLC/S-Corp-type businesses, registered a devastating 392,000 job loss, which follows losses of 155,000 and 374,000 in the prior two months. This is the source of the unemployment-rate jump, as 466,000 newly unemployed were scored in the report.

So while the big companies are getting healthier, the smaller firms are being left in the dust. Unfortunately, small businesses provide most of the new job creation in the United States.

While the big businesses get richer, and the small businesses fail, Obama thinks we need a national discussion on health care? Keep in mind, most small businesses provide little or no health insurance for their employees, so health care is not an issue that will help them. In fact, considering one of the provisions of the health care plan was to place a tax on employers who don't provide health insurance, the current plan could actually hurt small businesses even more if Obama doesn't retract that provision.

Back during Bill Clinton's first presidential run, there was a sign in his campaign headquarters which read: "It's the economy, stupid!" Maybe Hillary has an old copy of that sign she could loan to Obama, because he clearly doesn't understand.

Mr. Rogers gets it right

This speaks for itself:


(special thanks to Jill T. for bringing this to my attention)

Death Care

From the Daily Telegraph:

In a letter to The Daily Telegraph, a group of experts who care for the terminally ill claim that some patients are being wrongly judged as close to death.

Under NHS guidance introduced across England to help doctors and medical staff deal with dying patients, they can then have fluid and drugs withdrawn and many are put on continuous sedation until they pass away.

But this approach can also mask the signs that their condition is improving, the experts warn.

As a result the scheme is causing a “national crisis” in patient care, the letter states. It has been signed palliative care experts including Professor Peter Millard, Emeritus Professor of Geriatrics, University of London, Dr Peter Hargreaves, a consultant in Palliative Medicine at St Luke’s cancer centre in Guildford, and four others.

“Forecasting death is an inexact science,”they say. Patients are being diagnosed as being close to death “without regard to the fact that the diagnosis could be wrong.

“As a result a national wave of discontent is building up, as family and friends witness the denial of fluids and food to patients."

This is what happens when politics mixes with medicine. Even if Obama and the Obamacare cheerleaders have no intention of making a healthcare system like Britain's NHS, who is to say we won't see this in the U.S. when our government cannot afford to provide wonderful health care for everyone? What happens when our government has to ration health care because the costs have NOT gone down, and in fact have gone up because everyone starts using health care services like a free buffet?

President Obama can laugh off the "death panels" arguments because that is not his intent. But once government controls health care, and it becomes too expensive to provide everything to everyone, what then? By then, it will become another third rail of American politics, and the politicians will be faced with making hidden sacrifices or raising taxes, just as they have had to do in Britain. When faced with a choice of angering all voters, or killing off a few of the already dying voters, which choice is obvious?

Dead voters can't vote against you.

No Will for Afghanistan

When a major conservative commentator comes out against a war, much like William F. Buckley came out against Iraq, people take notice. Yesterday, George Will did that on Afghanistan.

Unlike Buckley, Will did not reject involvement completely:

Counterinsurgency theory concerning the time and the ratio of forces required to protect the population indicates that, nationwide, Afghanistan would need hundreds of thousands of coalition troops, perhaps for a decade or more. That is inconceivable.

So, instead, forces should be substantially reduced to serve a comprehensively revised policy: America should do only what can be done from offshore, using intelligence, drones, cruise missiles, airstrikes and small, potent special forces units, concentrating on the porous 1,500-mile border with Pakistan, a nation that actually matters.

The main point Will brings to the table is the simple fact that an "effective central government" has never happened in Afghanistan. Even when the Taliban allegedly were "in charge", they weren't. The warlords were.

Are we prepared to dedicate hundreds of thousands of American troops for decades in order to establish an effective central government in a country which has never had one? Remember, this is not Iraq, which has a history of effective central governments.

Frankly, it doesn't matter if we have world support in our efforts in Afghanistan. Bush was wrong to assume we could do in Afghanistan what we did in Iraq. Obama is wrong to assume the same failed policy.

To be a libertarian

This is the best one paragraph summation of libertarianism I have ever read:

"I share the Founders’ vision of limited government and the ability of people to voluntarily join with others to help their communities and themselves. I don’t agree with the conservatives who want government to play the role of morals policemen, and I don’t agree with the nanny state liberals. I’m a libertarian." - John Stossel

The Government Can!

One of the best music videos I have seen in a long time. And it is so true!

Kudos to Tim Hawkins!

See you in September

Some random thoughts on today's news stories:

Gold May Break Out to Record, Grabham Says: Technical Analysis (from Bloomberg.com):
This may include the worst analysis of anything I have read lately. The article begins with:

Gold may advance to a record $1,325 an ounce if it first breaks out of a symmetrical, triangular pattern, a move that may occur in the next one or two weeks, Standard Bank Group Ltd. said, citing trading patterns.

A so-called topside breakout would be indicated by a close at more than $980.85 an ounce, Darran Grabham, the bank’s technical analyst, wrote in a note yesterday. That would signal a short-term bull trend to at least $1,100 an ounce, he said.

Unfortunately, the article reports that Grabham goes on to say:

"...gold may tumble if it declines to less than the support trendline at $935 an ounce, Grabham wrote. “The ensuing sell-off is likely to encounter support around the $906.50 level, before a break lower yields a move to a secondary objective of $890,” he added.

“The minimum target of the triangle is highlighted at $850, with potential for the bear trend to test the corrective low recorded in January,” he wrote.

In summary, Grabham said that gold prices may go up, or gold prices may go down. Brilliant!

Fire Near Los Angeles Spreads in Triple-Digit Heat (from the Wall Street Journal):
Don't we do this every year?

The fact that California likes to protect it's wooded areas from development, keeping them off-limits to zoning, doesn't help. Yes, let us save Bambi, and ignore the fact we are putting thousands of homes and lives at risk. Let's not forget the economic costs of all the annual firefighting operations on an already overextended state budget.

Environmental stupidity at it's finest.

Daily Presidential Tracking Poll (from Rasmussen Reports):
So now Obama's approval rating is down to 45%. At this point, is it safe to add health care to Social Security as "third rails of American politics"?

Go ahead Barack. Keep pushing the health care idea...

WHEN ECONOMISTS ATTACK!
If you don't follow Greg Mankiw or Paul Krugman, you can skip this item. But for those of you who find econo-political debates fascinating...

The latest round between these two economists (in Krugman's case, I use the label "economist" VERY loosely) started Friday when Mankiw posted the following on his blog: "The Least Surprising Correlation of All Time"

Krugman countered with the standard elitist condescension towards the poor, poor, pitiful poor on his blog: "Heredity, environment, justice"

Mankiw counters twice: "And I thought I was being boring" and "Test Scores and Biological Father's Income"
Mankiw is correct in stating that intelligent people, who tend to be wealthier, tend to have more intelligent offspring. The macro data supports his view. Using SAT data broken out by parent's income (as Mankiw does) is a more objective criteria than using college graduation data broken out by parent's income (as Krugman does), since there are fewer external variables to account for in SAT scores. It takes several hours to take the SAT, versus the roughly four years it takes to graduate from college.

Aside from college graduation containing too many variables to be objective, Krugman's example given also has a significant flaw in it: The scores used to determine objective intelligence are 8th grade math scores. This would be fine if all college degrees were based on mathematical ability, but what about other non-math degrees, such as English or History?

With that said, I will admit that I don't reject Krugman's premise entirely. It is certainly possible, and maybe even probable, that children of low income parents who are less intelligent might be less likely to finish college due to financial reasons. But I would think that is because college is more likely to be quite difficult for them, both intellectually and financially. On the other hand, unintelligent wealthy children would only have to face the intellectual hardship of college (even then, only 30% of them graduate, according to the Economic Policy Institute study referenced by Krugman).

The question Krugman fails to ask: Do we REALLY want stupid people graduating from college?