This wasn't posted in July of 2011. It's an interesting perspective, so I hit the "Publish" button today and it marks a return to my posts at this blog:
Here's a link to an article by Robert Samuelson in the Washington Post on July 28, 2011:
Click to go to "Why We Are in This Debt Fix"
Here's an interesting quote from the article. This is about the issues and some of the mythology framing the recent political debate.
"What sustains these contradictions is a mythology holding that, once people hit 65, most become poor. This justifies political dogma among Democrats that resists Social Security or Medicare cuts of even one dollar.
But the premise is wrong. True, some elderly live hand-to-mouth; many more are comfortable, and some are wealthy. The Kaiser Family Foundation reports the following for Medicare beneficiaries in 2010: 25 percent had savings and retirement accounts averaging $207,000 or more; among homeowners (four-fifths of those 65 and older), three-quarters had equity in their houses averaging $132,000; about 25 percent had incomes exceeding $47,000 (that’s for individuals, and couples would be higher)."
The next time someone tells me that they "are living on fixed income" I'll remember that quote.
Monday, April 2, 2012
Sunday, August 7, 2011
US Budget Dilemma, Downgrade and Consequences
I took a one year long hiatus for this blog. Partially because there was really nothing new or significant to post. However, we've entered a new phase in America.
I recently sent an email to an associate. We had been having a conversation about the budget deficit, the leadership deficit at Washington, Federal taxes and entitlements. Here is part of that email:
Well, here we are and S&P did, in fact downgrade the US. Moody's has stated the US outlook is "negative." So What's Next????
The fact is, it’s going to take some political will to solve this. That requires tax increases and entitlement spending freezes or cuts. The sooner the better.
The S&P downgrade was fueled by the realization that this will not happen in the near future. According to S&P, even France has a better outlook than the U.S. at this point. Moody’s has said the outlook is “negative” for the U.S. The ratings agencies do not price U.S. debt; the markets do this. So in some respects I think this is a “non-event.” It is also a moment when U.S. debt was changed from “risk free” to “having some risk.” That is a big deal. Stepping outside the box, I think it’s useful to remember that S&P once downgraded BRK. However, what is significant is the way the politicians handled this, the continuing lack of leadership from the White House, and the post downgrade rhetoric coming out of Washington.
Hmmm, I do have to wonder if President Obama will take to the airwaves and tell us about how this is another "Sputnik Moment" in American history?
What no one in government wants to talk about is the consequence of a protracted 10% unemployment. That has created an incredible government revenue decrease and contributed to the budget shortfall. It’s the #1 reason for the rapidly rising debt. The projections usually include a reduction in unemployment and unemployment benefits payments coupled to rising government revenue. That has not happened, and won’t unless there is a tax increase. Things were bad because of the out of control entitlement spending. Now, with income shortfalls, the financial health of the U.S. is much worse. When politicians pretend the current deficit issue can be dealt with by increasing taxes, they are showing their lack of financial acumen. How do you deal with an economy in which the entitlements are 59% percent and increasing at an alarming rate? Raise total revenue from 25% to 40%? So to be realistic Washington must make significant cuts to entitlements. Certainly more substantial than the amount to be gained by raising taxes.
As is true of other bubbles created by the politicians, the "entitlement bubble" will not go away and can't be taxed away. Not when an increasing percentage of those living in America are moved from the rolls of wage earners to entitlement earners each and every year.
The politicians always pretend the latest stimulus program or whatever will solve the problem, and that “everything will be back to normal” by next year. That of course, allows them to maintain the status quo, and their voter base. They tell us what we want to hear. Now it is to be expected that Democrats will argue that political sabotage by Republicans forced the S&P downgrade, and Republicans will argue that it is because of irresponsible government spending by the Democrats. Individual Americans will pick the argument that best supports their personal financial position, supports their personal lifestyle, and inflicts the pain on others.
Obviously, as far as I am concerned this is all about money, and greed. This pretending also allows Americans to continue on their profligate ways with the assumption that “someone else” (our descendants) can pay the piper.
Politicians made note of what recently happened inNew York
"Jubilant supporters chanted, "Medicare! Medicare!" after Democrat Kathy Hochul shocked the political world with her upset win in a special election in New York's conservative 26th Congressional District, for a seat held by Republicans for all but 16 of the past 154 years."
According to AARP last May, “Democrats see Medicare as winning issue for 2012 election.”
So should I be surprised by the recent shenanigans in Washington? The Democrats telegraphed their position in May. It’s all about votes. As for the AARP statements about SS, I suppose their position that “Social Security doesn't contribute to the deficit, and shouldn't be cut to fix it.” is literally true, but those special federal IOUs aren’t backed by anything but the government’s ability to print money (debase the currency or raise taxes). Recently, the income collected for SS benefits did not match payouts. I suppose these are inconvenient details.
Of course, when revenue falls, spending is supposed to also fall. But not here in the U.S. Not for many families and certainly not for government. Up until recently, home equity and credit cards were personal money printing presses for many people. Unlike the U.S. government, we can’t default on our personal debts unless we find some way to declare bankruptcy. Many have. More will as this economic malaise continues.
The current government solution seems to be to allow inflation to occur and debase the dollar, thereby reducing the consequences of the U.S. debt for the government, and inflating our way out of this dilemma. In fact, at present, the U.S. is only paying interest on the debt equivelant to about 1.5% of GDP, the lowest since 1973. For nearly TWO decades it was above 2.0% and was generally above 3.0% from 1985 to 1997!
Here’s an excerpt of what S&P said in their downgrade. I’m sure you read this, but it’s worth repeating to every American and politician in Washington. S&P is emphasing spending discipline, as in “containment of entitlement spending.” I read their entire statement at the S&P website. Emphasis is mine:
"We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade……Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability…………The outlook on the long-term rating is negative.”
I am absolutely certain this will be resolved, one way or another. First, foreign governments will continue to press to have our debt downgraded. This is one way to increase the yield. So the tug of war is the U.S. debasing the dollar and foreigners including governments and banks, pressing for a change that increases their return. As I recall, 45% of all U.S. debt is held by foreigners.
Of course, the U.S. consumer and savers of U.S. dollars will all suffer.
There is no doubt that the free ride in entitlements will end. Benefit cuts and means testing are inevitable. What is uncertain is how long the politicians can hold out. Holding COLA and other benefit increases at 0% is the other preferred tactic. It has to be this way because of that incredible 59% of the budget for “entitlements” and related social programs. We can end the wars, but that will only buy the U.S at most 5 years, at the rate of medical and cost benefit increases. Ultimately the entire U.S. budget will be consumed. But nearly everyone is in denial about this, just as they were about the housing market, the debt bubble, etc.
Meanwhile, here is what the AARP says on their website about the current battle:
As I stated in my “Reality Check” article, the only option is for individuals to save more for their future. This is a very unpopular choice. In view of the current situation, I have to admit that saving in dollars doesn’t seem to make much sense.
Looking ahead, I can’t see the 20 and 30 year olds of this country paying increased amounts in taxes to fuel my retirement party or to pay for my protracted health care. That party is over. We may resist and the politicians will attempt to avoid but they cannot. The pool of payers is shrinking. We are beyond the tipping point.
The next tax revolt will be age based. So far the talk has been disguised as “rich” versus “poor” but I do think it will get ugly. So far (since about 2005), I’ve been pretty accurate in my assessment of the situation. I think this too will be accurate.
No one will like it. That’s what happens when a really deep financial hole is dug. There are no easy solutions. And no one, except the very rich or politicians can escape the pain. There will be higher taxes, there will be smaller COLA increases for retirees, there will be means testing, medical co-payments will increase, and the costs of everything for everyone will go up. As I said, no one will like this.
How ugly will it really get? I would prefer not to say; besides, I don't have a crystal ball. However, I can say I've been pretty accurate for the past decade. More accurate the the economists, the Fed, and the politicians in Washington. Or perhaps I've simply been more honest.
Of course, the real question is what to do to prepare for this politically inspired future. The truth is, there are no easy answers for individual families. 1) Save more and spend less. 2) Prepare for reduced entitlement payments. 3) Prepare for increased taxes. 4) Prepare for inflation. 5) Prepare for protracted high unemployment; I was expecting another 5-7 years. Now, I think the current situation could span another decade or more. Just as individual investors are leaving the U.S. markets to buy gold or whatever, companies (which are headed by human beings) will make their investments as in building factories, elsewhere. Our work force is no longer the most educated and motivated on the planet. For companies, this shift away from America took a turn when they quietly stored their $Billions in cash overseas (MSFT, AAPL, CSCO, etc. ). Now the move will accelerate.
Note: GE gets the bad press about "low taxes" because it's an old line industrial company. The tech darlings get away with their shenanigans by both politicians and the popular media. I suspect that for the media, it's because of personal bias; a lot of these "journalists" own stock in publicly traded companies. Who is going to be honest enough to hit the companies in which they own stock? Certainly not the popular press.
The wild card in all of this? Europe, which is actually in worse shape than the U.S., overall. That’s why people continue to buy dollars even with all of the shenanigans by the politicians in the U.S. However, should the EU get its act together, or should individuals decide that will happen, then the change for the U.S. will be swift and devastating. I think that's something for Americans to think about.
I recently sent an email to an associate. We had been having a conversation about the budget deficit, the leadership deficit at Washington, Federal taxes and entitlements. Here is part of that email:
"Here’s the current numbers, as a percent of spending of the federal budget. This illuminates some of my recent statements:
Social Security 20%
Miscellaneous Security (Food Stamps, Unemployment Comp) 16%
Social Security 20%
Miscellaneous Security (Food Stamps, Unemployment Comp) 16%
Medicare 13%
Medicaid 10%
All of the above = 59%
Highlights of a few others:
Highlights of a few others:
Defense, including two ongoing wars 20%
All Science, Space and Technology 1%
Servicing the debt 5%
Education 3%
The above is why a credit downgrade of the US is a probable reality. The “social programs” are growing as a percentage of the budget and there is no reduction in sight. As I recall, in 1960 the US spent 20% on social programs and about 50% on defense."
Well, here we are and S&P did, in fact downgrade the US. Moody's has stated the US outlook is "negative." So What's Next????
The fact is, it’s going to take some political will to solve this. That requires tax increases and entitlement spending freezes or cuts. The sooner the better.
The S&P downgrade was fueled by the realization that this will not happen in the near future. According to S&P, even France has a better outlook than the U.S. at this point. Moody’s has said the outlook is “negative” for the U.S. The ratings agencies do not price U.S. debt; the markets do this. So in some respects I think this is a “non-event.” It is also a moment when U.S. debt was changed from “risk free” to “having some risk.” That is a big deal. Stepping outside the box, I think it’s useful to remember that S&P once downgraded BRK. However, what is significant is the way the politicians handled this, the continuing lack of leadership from the White House, and the post downgrade rhetoric coming out of Washington.
Hmmm, I do have to wonder if President Obama will take to the airwaves and tell us about how this is another "Sputnik Moment" in American history?
What no one in government wants to talk about is the consequence of a protracted 10% unemployment. That has created an incredible government revenue decrease and contributed to the budget shortfall. It’s the #1 reason for the rapidly rising debt. The projections usually include a reduction in unemployment and unemployment benefits payments coupled to rising government revenue. That has not happened, and won’t unless there is a tax increase. Things were bad because of the out of control entitlement spending. Now, with income shortfalls, the financial health of the U.S. is much worse. When politicians pretend the current deficit issue can be dealt with by increasing taxes, they are showing their lack of financial acumen. How do you deal with an economy in which the entitlements are 59% percent and increasing at an alarming rate? Raise total revenue from 25% to 40%? So to be realistic Washington must make significant cuts to entitlements. Certainly more substantial than the amount to be gained by raising taxes.
As is true of other bubbles created by the politicians, the "entitlement bubble" will not go away and can't be taxed away. Not when an increasing percentage of those living in America are moved from the rolls of wage earners to entitlement earners each and every year.
The politicians always pretend the latest stimulus program or whatever will solve the problem, and that “everything will be back to normal” by next year. That of course, allows them to maintain the status quo, and their voter base. They tell us what we want to hear. Now it is to be expected that Democrats will argue that political sabotage by Republicans forced the S&P downgrade, and Republicans will argue that it is because of irresponsible government spending by the Democrats. Individual Americans will pick the argument that best supports their personal financial position, supports their personal lifestyle, and inflicts the pain on others.
Obviously, as far as I am concerned this is all about money, and greed. This pretending also allows Americans to continue on their profligate ways with the assumption that “someone else” (our descendants) can pay the piper.
Politicians made note of what recently happened in
"Jubilant supporters chanted, "Medicare! Medicare!" after Democrat Kathy Hochul shocked the political world with her upset win in a special election in New York's conservative 26th Congressional District, for a seat held by Republicans for all but 16 of the past 154 years."
According to AARP last May, “Democrats see Medicare as winning issue for 2012 election.”
So should I be surprised by the recent shenanigans in Washington? The Democrats telegraphed their position in May. It’s all about votes. As for the AARP statements about SS, I suppose their position that “Social Security doesn't contribute to the deficit, and shouldn't be cut to fix it.” is literally true, but those special federal IOUs aren’t backed by anything but the government’s ability to print money (debase the currency or raise taxes). Recently, the income collected for SS benefits did not match payouts. I suppose these are inconvenient details.
Of course, when revenue falls, spending is supposed to also fall. But not here in the U.S. Not for many families and certainly not for government. Up until recently, home equity and credit cards were personal money printing presses for many people. Unlike the U.S. government, we can’t default on our personal debts unless we find some way to declare bankruptcy. Many have. More will as this economic malaise continues.
The current government solution seems to be to allow inflation to occur and debase the dollar, thereby reducing the consequences of the U.S. debt for the government, and inflating our way out of this dilemma. In fact, at present, the U.S. is only paying interest on the debt equivelant to about 1.5% of GDP, the lowest since 1973. For nearly TWO decades it was above 2.0% and was generally above 3.0% from 1985 to 1997!
Here’s an excerpt of what S&P said in their downgrade. I’m sure you read this, but it’s worth repeating to every American and politician in Washington. S&P is emphasing spending discipline, as in “containment of entitlement spending.” I read their entire statement at the S&P website. Emphasis is mine:
"We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade……Republicans and Democrats have only been able to agree to relatively modest savings on discretionary spending while delegating to the Select Committee decisions on more comprehensive measures. It appears that for now, new revenues have dropped down on the menu of policy options. In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability…………The outlook on the long-term rating is negative.”
I am absolutely certain this will be resolved, one way or another. First, foreign governments will continue to press to have our debt downgraded. This is one way to increase the yield. So the tug of war is the U.S. debasing the dollar and foreigners including governments and banks, pressing for a change that increases their return. As I recall, 45% of all U.S. debt is held by foreigners.
Of course, the U.S. consumer and savers of U.S. dollars will all suffer.
There is no doubt that the free ride in entitlements will end. Benefit cuts and means testing are inevitable. What is uncertain is how long the politicians can hold out. Holding COLA and other benefit increases at 0% is the other preferred tactic. It has to be this way because of that incredible 59% of the budget for “entitlements” and related social programs. We can end the wars, but that will only buy the U.S at most 5 years, at the rate of medical and cost benefit increases. Ultimately the entire U.S. budget will be consumed. But nearly everyone is in denial about this, just as they were about the housing market, the debt bubble, etc.
Meanwhile, here is what the AARP says on their website about the current battle:
“AARP CEO A. Barry Rand offered the following statement after the House and Senate passed the Budget Control Act of 2011 to raise the debt ceiling. Throughout the past several months, AARP has been focused on preventing cuts to Social Security and Medicare benefits for the millions of beneficiaries who have paid into the systems over their working lives…..”
As I stated in my “Reality Check” article, the only option is for individuals to save more for their future. This is a very unpopular choice. In view of the current situation, I have to admit that saving in dollars doesn’t seem to make much sense.
Looking ahead, I can’t see the 20 and 30 year olds of this country paying increased amounts in taxes to fuel my retirement party or to pay for my protracted health care. That party is over. We may resist and the politicians will attempt to avoid but they cannot. The pool of payers is shrinking. We are beyond the tipping point.
The next tax revolt will be age based. So far the talk has been disguised as “rich” versus “poor” but I do think it will get ugly. So far (since about 2005), I’ve been pretty accurate in my assessment of the situation. I think this too will be accurate.
No one will like it. That’s what happens when a really deep financial hole is dug. There are no easy solutions. And no one, except the very rich or politicians can escape the pain. There will be higher taxes, there will be smaller COLA increases for retirees, there will be means testing, medical co-payments will increase, and the costs of everything for everyone will go up. As I said, no one will like this.
How ugly will it really get? I would prefer not to say; besides, I don't have a crystal ball. However, I can say I've been pretty accurate for the past decade. More accurate the the economists, the Fed, and the politicians in Washington. Or perhaps I've simply been more honest.
Of course, the real question is what to do to prepare for this politically inspired future. The truth is, there are no easy answers for individual families. 1) Save more and spend less. 2) Prepare for reduced entitlement payments. 3) Prepare for increased taxes. 4) Prepare for inflation. 5) Prepare for protracted high unemployment; I was expecting another 5-7 years. Now, I think the current situation could span another decade or more. Just as individual investors are leaving the U.S. markets to buy gold or whatever, companies (which are headed by human beings) will make their investments as in building factories, elsewhere. Our work force is no longer the most educated and motivated on the planet. For companies, this shift away from America took a turn when they quietly stored their $Billions in cash overseas (MSFT, AAPL, CSCO, etc. ). Now the move will accelerate.
Note: GE gets the bad press about "low taxes" because it's an old line industrial company. The tech darlings get away with their shenanigans by both politicians and the popular media. I suspect that for the media, it's because of personal bias; a lot of these "journalists" own stock in publicly traded companies. Who is going to be honest enough to hit the companies in which they own stock? Certainly not the popular press.
The wild card in all of this? Europe, which is actually in worse shape than the U.S., overall. That’s why people continue to buy dollars even with all of the shenanigans by the politicians in the U.S. However, should the EU get its act together, or should individuals decide that will happen, then the change for the U.S. will be swift and devastating. I think that's something for Americans to think about.
Wednesday, August 25, 2010
Sunday, August 1, 2010
A Reality Check
I sent this to family members, and I share it here:
This is prompted by two emails I recently received, and by two conversations including one with a dear relative, and by the realization that I have to pack for another business trip. It is also prompted by the fact that I returned to Chicago only a few days ago and my spouse has now returned from Dallas, and I will soon be “on the road” again. I am becoming more and more aware that “Life is short” as the saying goes. Perhaps teenagers can afford to pretend that they will live forever. I will not, cannot, and I still have a lot to accomplish on my “to-do list of life”.
This is prompted by two emails I recently received, and by two conversations including one with a dear relative, and by the realization that I have to pack for another business trip. It is also prompted by the fact that I returned to Chicago only a few days ago and my spouse has now returned from Dallas, and I will soon be “on the road” again. I am becoming more and more aware that “Life is short” as the saying goes. Perhaps teenagers can afford to pretend that they will live forever. I will not, cannot, and I still have a lot to accomplish on my “to-do list of life”.
As for the relative referenced above, he is struggling, has continuing difficulties, has made a series of bad decisions spanning 6 years and has also had some misfortune, including timing issues related to the economy. As a result, he has spent more than a few nights in a PADs shelter this year. He has been optimistic throughout and insists that his “modi operandi” is viable and that he will turn things around. That may occur in 2013, but for the immediate future I beg to differ with him, have repeatedly told him so, and have made suggestions. He persists in his path. This is an individual who is educated, very smart and for many years made well into 6 figures a year, each and every year. It is difficult to watch him struggle, persist in his path and to resist change.
We are now about 4 years into a very nasty recession. I use June 2006 as the start date because that is the date that real estate prices began to fall and the economy began to contract. That is also the time at which I first experienced significant change in the business climate.
My spouse and I now know of 7 families of immediate acquaintance who are experiencing acute financial difficulties. By “acute” I mean forced short sale of a home or condo, unemployment for a period exceeding 12 months, etc. We also know of 6 additional families who are experiencing financial difficulties which are also severe, but not quite as distressed. Those families have acknowledged that they are in a “negative cash flow” situation. Which bluntly means, they are living beyond their means and headed for a financial cliff, and a day of reckoning.
To some extent our lives and our life styles are a personal decision on the part of us all. But not entirely. My relative felt he could “beat the odds.” He had a strategy and a plan. It was flawed but possibly capable of success. We discussed this and I told of him of what I perceived were shortcomings. He persisted and he has failed.
I am unwilling to fail. To that extent I will do whatever it takes, and will make and have made, great sacrifices. My spouse will possibly be on this planet for another 40 years. It is essential that we have a financial plan in place to accommodate that life span. To do otherwise is irresponsible on my part, on her part, and dishonors the relationship.
My spouse and I have made a conscious decision to attempt to live within our means. By that, I mean not to spend any more in a calendar year than our net incomes (wages after taxes, rental income, dividends and interest, etc.), and to also save a reasonable amount for retirement and to make concrete plans for that retirement. This requires some sacrifice on both of our parts and also some trade-offs in life style. It also requires decisions that are not popular. We will not and cannot attend every family event or function.
To be blunt, we have not the financial means to do so. Perhaps you do and if so, all I can say is “good for you.”
Let me also state, that that you are free to make any request. However, in any request or negotiation there are three possible responses: accept, counter-offer or decline. I am free to choose any of those responses, but I prefer to counter-offer rather than to decline.
On a personal level, this year we did not meet our financial goals, and had to dip into savings, “but we had a lot of fun and one hell of a party”. Frankly, I am concerned by the possibility of another 4 to 6 years of malaise in this economy, and the impact on those around us. I now wonder and question “are people prepared for this” and “how will people survive?” By survival, I mean can we all maintain our lifestyle, our relationships and our sanity and simultaneously meet our promises and commitments?
I made the decision last year to honor or attempt to honor, requests or invitations that are serious. I cannot honor all requests and invitations and keep my commitments Those commitments have also included an increased level of “giving” in various forms, including consistent gifting to two local churches and several other charities and food pantries, and to distressed family members.
This year, the last of three and one-half college loans that I paid for, were retired. None of these were mine, by the way! The good news: I’m no longer under that specific “financial burden.” So should I now pursue an advanced degree? I think not. I am sufficiently educated to accomplish whatever it is I intend to in this life. Don’t misunderstand. As one who has been committed and lived a life of “continuous improvement” I have no intention of atrophy at this point.
I have the benefit of having struggled for years after a very bad divorce and some very difficult economic times. Do any of you recall the recession of 1981-1984? I actually started and grew a business in the middle of that recession. Just prior to that, I went into the office each week and wondered if each Friday would be my last. That went on in 1977-1978 and prompted me to start my first business. If I was to be “fodder for the cannons” I decided I would choose my own destiny. Business worked but marriage didn’t and after my divorce, I had a maximum of $75 per month for all expenses after rent and electricity. I’ll let you think about what that “disposable” monthly amount of money would mean to your lifestyle. For me, at that time I couldn’t afford a monthly Dunkin’ Donuts, and getting a haircut was a major economic decision!
As a consequence of that experience and the fond memories it includes, the nearly 20 years of “lost life” including the nearly 10 years it took to dig out of that hole, I have vowed never, and I mean NEVER to allow myself to be in that situation ever again. As a result, I am the “hard ass” in my relationship with many people and that includes with my spouse. She knew that when we married. What you see is what you get, and I have been very transparent with her. That is, however, no excuse for any irresponsibility on my part.
I hope that each of you is taking steps to protect your way of life. I suggest you consider where this economy is today and to project that into the future for another four or more years. What would that economic reality mean to you and your loved ones? Do you have a plan in place? Is your plan and lifestyle compatible with that possible reality?
I realize you may not agree with my prognosis. You may prefer to listen to optimists and certain politicians. I suggest that you consider the risk and risk to your family and your relationships that you are taking, should you be incorrect. This is neither about being “wrong” or being “right”. It’s about succeeding and honoring agreements and commitments. I am not willing to take the risk, or to say it another way, there are some risks that are worth taking but this is not one of them. To anyone who thinks they can “beat the odds” I suggest you consider how well you have done in the past four years, since this economic malaise began. Then consider that things might actually get worse.
I am personally very fortunate. I have a loving, compassionate, hard working and successful spouse. We are both like the tortoises in a country of wild hares. My business remains at levels that are adequate. That permits me to flush a certain amount of money each and every year on lifestyle choices. However, I consider certain things to be extraordinary risk taking at this time. Mortgaging ones future is certainly one of them. Five years ago, I might have thought differently, but this is “here and now”. For the Boomers, be prepared for a retirement below that of current seniors. For the GENX group, I suggest you save more as your life style will be significantly less than that of those today in retirement. For GENY, if you don’t save 10 to 15% of your wages for retirement, be prepared to starve.
To use that old Hells Angels’ quote “Life is a bitch and then you die”. Or not, but the choice is ours. If you want to be in a responsible conversation about this, let me know. However, if you want to tell me that I am too pessimistic, etc., then don’t bother. I decided, in 2006 that the economy was headed for disaster and took appropriate steps. If I hadn’t, well, I’d be in the s***hole today. So save your optimism for other gamblers.
Saturday, July 31, 2010
Keeping the Eye on the Ball
I received an email from an associate. The purpose was to quote an article describing the SEC charges against the Wyly brothers. The subject matter of the email was: "SEC's Wyly brothers charges may depress GOP donations - THESE ARE THE TWO A******S WHO FUNDED THE Swift Boat add (sic) against Kerry 6 years ago."
I saw this as a diversion which is not too significant given the severe economic problems currently experienced in this country. The article stated that the Wyly's had given roughly $2.5 million to Republican candidates and committees during the past 20 years.
Here is the substance of my email response, edited slightly for posting here:
"Hmmm. $2.5 million over 20 years. That’s chump change compared to what the bankers have given to politicians – to both presidents and to congress. Here’s a quote from the April 21, 2010 WSJ:
“Since 1990, investment firms and their staff have given a staggering $683 million to federal election campaigns. While Democrats have done better in recent elections, this industry is not partisan: Over two decades the donations have split 51% to Democrats, 48% to Republicans. The GOP got a majority of the money from 1996 through 2004.”
On an unrelated matter, but certainly much more important, as a small business man, I’ve been monitoring the Democratic led congress these past four years, and of course, our current President Obama. So how are they doing? It’s important to me and I would expect, to you, as a small business person. But first, I think it’s useful to look at some government statistics. Small businesses, are businesses with less than 500 workers in the non-farm sector of the economy. This is what the Department of Commerce says about “small businesses”.
Small Businesses in the U.S.:
Currently, Congress is obfuscating over a bill to create a fund of $30 billion for community banks. That money would be made available to banks at very low interest rates by the government. The banks would repackage this, and making a profit, provide loans to “small business”. An additional $5 billion is also to be available as “tax breaks” to small business. However, I understand that $5 billion is for special tax treatment which will actually benefit large businesses, including Airlines and Telecommunications companies. The name “small business” is being used as a smoke screen. It is likely that none of this money will help or be available to the majority of small businesses in this country.
Returning to the issue of priorities in government, in June, President Obama made a big deal about the 80,000 $250 checks he was sending to seniors to help with their medical payments. That’s $1 Billion that was given away. There were no checks for small business or any of the others in the U.S. for whom insurance is not subsidized by the U.S. government, but is paid by employers. Currently, 3.3 of us are working to for each beneficiary. We pay the taxes to provide SS and Medicare benefits to millions. That's a 7.65% tax on each employee, paid for by the small business employer, to the maximum required by law. There's nothing personal here, but it is a tax, and for many employers, that 7.65% could go elsewhere, including to fund their own and employees retirement 401K or SEP-IRA plans.
I hope you are saving a ton for retirement because the till will be dry. The Boomers will retire at standards below those of current seniors. GEN X will see their retirement life style significantly eroded. GEN Y will starve if they don’t save at least 10 to 15% for retirement.
Clearly, one has to have their priorities as a politician. One also has to be a master at obfuscation and misdirection. And they are.
Small businesses are important, it would seem. However, the government gave better than $60 billion to two automobile manufacturers. Twice what it is even offering to all the small businesses in this country. And what is it offering to small business? Low interest loans so we can pay mandatory expenses, such as SS and Medicare taxes!. I’ll spell this out to you. A bailout of big banks and even General Motors and Chrysler, to the tune of about $1 trillion was made by our government, and yet "small business" is being offered loans that amount to about 3 cents on the dollar. That's right, $30 billion is 3/100 of $1 Trillion. That’s real "chump change"!
So where are the politician’s obligations and priorities? It should be obvious.
Of course, none of this may be of interest to you. However, most small business people I talk to are struggling. Small businesses are usually self- funded with credit cards, cash from operations and in the past, from equity loans on homes. These sources of financing have disappeared for most small businesses, as I am sure you are aware. We are now entering the second phase of the recession in which many strapped businesses have exhausted reserves and credit and are failing. Time is and was of the essence. But for the President and Congress time apparently has no meaning and there is no urgency. That's too bad for the country!
If we had 3.3 workers funding each beneficiary of social security and we are at "unofficial" unemployment or underemployment of 15%, then we now have only 2.85 workers per beneficiary. There is now talk in government about "handling deficits" and even more talk about un-affordable entitlement programs. I see this as a shot across the bow of the middle class, and a warning to us. For the Boomers, be prepared for a retirement below that of current seniors. For the GenX group, I suggest you save more as your life style will be significantly less than that of those today in retirement. and the boomers who proceed you. For GenY, if you don’t save 10 to 15% of your wages for retirement, be prepared to starve.
Our leaders and politicians have missed a significant window of opportunity and I am now more pessimistic than I was even one year ago.
I hope you are doing well. My worst-case prognosis for the duration of this recession was “about 10 years”. I now see that more and more economists are aligning with that view. I hope you have a plan of substance. You will need it.
Comments, Corrections, Omissions, References
================================
I've sent abbreviated versions of this to my Congressmen and to the President at the White House. I have asked for a reply and so far, have received one automated response.
I saw this as a diversion which is not too significant given the severe economic problems currently experienced in this country. The article stated that the Wyly's had given roughly $2.5 million to Republican candidates and committees during the past 20 years.
Here is the substance of my email response, edited slightly for posting here:
"Hmmm. $2.5 million over 20 years. That’s chump change compared to what the bankers have given to politicians – to both presidents and to congress. Here’s a quote from the April 21, 2010 WSJ:
“Since 1990, investment firms and their staff have given a staggering $683 million to federal election campaigns. While Democrats have done better in recent elections, this industry is not partisan: Over two decades the donations have split 51% to Democrats, 48% to Republicans. The GOP got a majority of the money from 1996 through 2004.”
On an unrelated matter, but certainly much more important, as a small business man, I’ve been monitoring the Democratic led congress these past four years, and of course, our current President Obama. So how are they doing? It’s important to me and I would expect, to you, as a small business person. But first, I think it’s useful to look at some government statistics. Small businesses, are businesses with less than 500 workers in the non-farm sector of the economy. This is what the Department of Commerce says about “small businesses”.
Small Businesses in the U.S.:
- Represent 99.7 percent of all employer firms.
- Employ just over 50 percent of all private sector employees.
- Pay 44 percent of total U.S. private payroll.
- Have generated 64 percent of net new jobs over the past 15 years.
- Create more than 50 percent of the nonfarm private gross domestic product (GDP).
- Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
- Are 52 percent home-based and 2 percent franchises.
- Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.
- Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.”
Currently, Congress is obfuscating over a bill to create a fund of $30 billion for community banks. That money would be made available to banks at very low interest rates by the government. The banks would repackage this, and making a profit, provide loans to “small business”. An additional $5 billion is also to be available as “tax breaks” to small business. However, I understand that $5 billion is for special tax treatment which will actually benefit large businesses, including Airlines and Telecommunications companies. The name “small business” is being used as a smoke screen. It is likely that none of this money will help or be available to the majority of small businesses in this country.
Returning to the issue of priorities in government, in June, President Obama made a big deal about the 80,000 $250 checks he was sending to seniors to help with their medical payments. That’s $1 Billion that was given away. There were no checks for small business or any of the others in the U.S. for whom insurance is not subsidized by the U.S. government, but is paid by employers. Currently, 3.3 of us are working to for each beneficiary. We pay the taxes to provide SS and Medicare benefits to millions. That's a 7.65% tax on each employee, paid for by the small business employer, to the maximum required by law. There's nothing personal here, but it is a tax, and for many employers, that 7.65% could go elsewhere, including to fund their own and employees retirement 401K or SEP-IRA plans.
I hope you are saving a ton for retirement because the till will be dry. The Boomers will retire at standards below those of current seniors. GEN X will see their retirement life style significantly eroded. GEN Y will starve if they don’t save at least 10 to 15% for retirement.
Clearly, one has to have their priorities as a politician. One also has to be a master at obfuscation and misdirection. And they are.
Small businesses are important, it would seem. However, the government gave better than $60 billion to two automobile manufacturers. Twice what it is even offering to all the small businesses in this country. And what is it offering to small business? Low interest loans so we can pay mandatory expenses, such as SS and Medicare taxes!. I’ll spell this out to you. A bailout of big banks and even General Motors and Chrysler, to the tune of about $1 trillion was made by our government, and yet "small business" is being offered loans that amount to about 3 cents on the dollar. That's right, $30 billion is 3/100 of $1 Trillion. That’s real "chump change"!
So where are the politician’s obligations and priorities? It should be obvious.
Of course, none of this may be of interest to you. However, most small business people I talk to are struggling. Small businesses are usually self- funded with credit cards, cash from operations and in the past, from equity loans on homes. These sources of financing have disappeared for most small businesses, as I am sure you are aware. We are now entering the second phase of the recession in which many strapped businesses have exhausted reserves and credit and are failing. Time is and was of the essence. But for the President and Congress time apparently has no meaning and there is no urgency. That's too bad for the country!
If we had 3.3 workers funding each beneficiary of social security and we are at "unofficial" unemployment or underemployment of 15%, then we now have only 2.85 workers per beneficiary. There is now talk in government about "handling deficits" and even more talk about un-affordable entitlement programs. I see this as a shot across the bow of the middle class, and a warning to us. For the Boomers, be prepared for a retirement below that of current seniors. For the GenX group, I suggest you save more as your life style will be significantly less than that of those today in retirement. and the boomers who proceed you. For GenY, if you don’t save 10 to 15% of your wages for retirement, be prepared to starve.
Our leaders and politicians have missed a significant window of opportunity and I am now more pessimistic than I was even one year ago.
I hope you are doing well. My worst-case prognosis for the duration of this recession was “about 10 years”. I now see that more and more economists are aligning with that view. I hope you have a plan of substance. You will need it.
Comments, Corrections, Omissions, References
================================
I've sent abbreviated versions of this to my Congressmen and to the President at the White House. I have asked for a reply and so far, have received one automated response.
Thursday, July 29, 2010
Why I am less than Optimistic at this time
We are now in a mild recovery for the current recession. So why aren't people dancing in the streets, why is President Obama's approval rating so low (lower than former Pres. Clinton's even today, according to a recently released poll) and why am I turning more pessimistic by the month?
Our government, which is today, the congressional majority led by President Obama and his administration have made many decisions over the past months. Those decisions, it is my opinion, have assured an economic recovery that will be anemic for years. This is not due solely by current government policy but is due to government policy over the past 25 years. The current administration is merely accelerating the demise.
Why am I pessimistic at this time? After four years in the currently Democratically controlled Congress and after two years of "change" what has actually occurred? The country is more divisive than ever. Our government spends $billions on a jobs program called the "transportation security administration" but refuses to protect our nation's borders. We have millions of chronically unemployed, and unemployable. Infrastructure building by the government seems limited to roads and highways. How does that help the construction industry and the carpenters, electricians and plumbers, etc.? If there are any jobs being created, they are in government. Small businesses which are financed through cash flow, credit cards and personal reserves, are being starved.
Here are some sobering statistics on small business:
According to government statistics and documents released by the commerce department, "small business" represents 99.7 percent of all employer firms and:
• Employ just over half of all private sector employees.
• Pay 44 percent of total U.S. private payroll.
• Have generated 64 percent of net new jobs over the past 15 years.
• Create more than half of the nonfarm private gross domestic product (GDP).
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
• Are 52 percent home-based and 2 percent franchises.
• Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.
• Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.
So what is the state of small business today? Another question is "What is government and the Obama Admistration doing to promote and support small business? The President held a meeting in a sandwich shop on Wednesday. Wonderful!
Some other statistics about the role of government in small business. According to the SBA using U.S. Department of Commerce statistics, here is the cost per employee required by firms to comply with U.S. government federal regulations. Small businesses are those with fewer than 20 employees and large businesses are those with greater than 500 employees:
U.S. Gov't Regulations ---Small businesses --- Large businesses
All Federal Regulations ---$7,647 -------------- $5,282
Environmental Regulation - $3,296 -------------- $710
Economic Regulation ------ $2,127 -------------$2,952
Workplace Regulation ------- $928 --------------- $841
Tax Compliance Regulation - $1,304 --------------$780
While America declines, Congress obfuscates and President Obama makes empty promises and sits down to share a sub sandwich with the unsuspecting dolts. $30 billion is promised for community banks as low cost loans for small businesses, but can't get through congress. Another $5.5 billion is earmarked in legislation labelled "Small Business Assistance" and yet, most of that, it seems will go to "big business" including the airlines and telecommunications industry. $30 billion is 3 percent of $1 trillion. That's like 3 cents on the dollar. Chump change for chumps. Yep, my tax dollars at work! We are so easy, aren't we?
Our government, which is today, the congressional majority led by President Obama and his administration have made many decisions over the past months. Those decisions, it is my opinion, have assured an economic recovery that will be anemic for years. This is not due solely by current government policy but is due to government policy over the past 25 years. The current administration is merely accelerating the demise.
Why am I pessimistic at this time? After four years in the currently Democratically controlled Congress and after two years of "change" what has actually occurred? The country is more divisive than ever. Our government spends $billions on a jobs program called the "transportation security administration" but refuses to protect our nation's borders. We have millions of chronically unemployed, and unemployable. Infrastructure building by the government seems limited to roads and highways. How does that help the construction industry and the carpenters, electricians and plumbers, etc.? If there are any jobs being created, they are in government. Small businesses which are financed through cash flow, credit cards and personal reserves, are being starved.
Here are some sobering statistics on small business:
According to government statistics and documents released by the commerce department, "small business" represents 99.7 percent of all employer firms and:
• Employ just over half of all private sector employees.
• Pay 44 percent of total U.S. private payroll.
• Have generated 64 percent of net new jobs over the past 15 years.
• Create more than half of the nonfarm private gross domestic product (GDP).
• Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
• Are 52 percent home-based and 2 percent franchises.
• Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.
• Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.
So what is the state of small business today? Another question is "What is government and the Obama Admistration doing to promote and support small business? The President held a meeting in a sandwich shop on Wednesday. Wonderful!
Some other statistics about the role of government in small business. According to the SBA using U.S. Department of Commerce statistics, here is the cost per employee required by firms to comply with U.S. government federal regulations. Small businesses are those with fewer than 20 employees and large businesses are those with greater than 500 employees:
U.S. Gov't Regulations ---Small businesses --- Large businesses
All Federal Regulations ---$7,647 -------------- $5,282
Environmental Regulation - $3,296 -------------- $710
Economic Regulation ------ $2,127 -------------$2,952
Workplace Regulation ------- $928 --------------- $841
Tax Compliance Regulation - $1,304 --------------$780
While America declines, Congress obfuscates and President Obama makes empty promises and sits down to share a sub sandwich with the unsuspecting dolts. $30 billion is promised for community banks as low cost loans for small businesses, but can't get through congress. Another $5.5 billion is earmarked in legislation labelled "Small Business Assistance" and yet, most of that, it seems will go to "big business" including the airlines and telecommunications industry. $30 billion is 3 percent of $1 trillion. That's like 3 cents on the dollar. Chump change for chumps. Yep, my tax dollars at work! We are so easy, aren't we?
Congress Intends to Help Small Business?
President Obama made a speech earlier this week about "helping small business". The congress has been wrangling over a small business bill that would provide $30 billion in low cost loans to community banks (at 5.0%) that in turn offer loans to small businesses. The bill would also provide about $12 billion in tax breaks. The Republicans in congress have been arguing with the Democrats over the bill, and Republicans say they are being blocked by Democrats from making any changes to the bill.
Let me get this straight. A bailout of big banks and even General Motors, to the tune of about $1 trillion was made by our government, and yet "small business" is being offered loans that amount to about 3 cents on the dollar. That's right, $30 billion is 3/100 of $1 Trillion. Wow, talk about "chump change"!
So much for political help for "small business". Here are some statistics from the U.S. Government Small Business Administration website.
How important are small businesses to the U.S. economy? Small businesses, which are businesses with less than 500 workers in the non-farm sector of the economy:
Let me get this straight. A bailout of big banks and even General Motors, to the tune of about $1 trillion was made by our government, and yet "small business" is being offered loans that amount to about 3 cents on the dollar. That's right, $30 billion is 3/100 of $1 Trillion. Wow, talk about "chump change"!
So much for political help for "small business". Here are some statistics from the U.S. Government Small Business Administration website.
How important are small businesses to the U.S. economy? Small businesses, which are businesses with less than 500 workers in the non-farm sector of the economy:
- Represent 99.7 percent of all employer firms.
- Employ just over 50 percent of all private sector employees.
- Pay 44 percent of total U.S. private payroll.
- Have generated 64 percent of net new jobs over the past 15 years.
- Create more than 50 percent of the nonfarm private gross domestic product (GDP).
- Hire 40 percent of high tech workers (such as scientists, engineers, and computer programmers).
- Are 52 percent home-based and 2 percent franchises.
- Made up 97.3 percent of all identified exporters and produced 30.2 percent of the known export value in FY 2007.
- Produce 13 times more patents per employee than large patenting firms; these patents are twice as likely as large firm patents to be among the one percent most cited.
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