The Nanny State is defined as a government that makes personal and private decisions for people that might otherwise make for themselves. This sounds like the elaborate welfare model of Western Europe, and our President's model for our future.
We know this model is not working out so well for Western Europe, especially Greece, Italy, Spain and Portugal. Their day of reckoning is now. For too long their productivity has not matched their spending so they just charged the deficit to their kid's credit cards. Sound familiar? Now they are sub-prime borrowers, so the "vig" (loan shark term for interest) has become unaffordable. How do they climb out of this hole that they have been digging for so many years?
Unlike our Central Bank (The Federal Reserve), which has printed trillions of dollars, and artificially and temporarily kept our interest rates low, their Central Bank does not have the authority to print money. The Maastricht Treaty, which created the Euro Currency forbids The ECB (European Central Bank) from buying their debt. The German people have long memories of their post WW1 inflation. Therefore, Western Europe does not have a solution using monetary policy.
President Obama has added over $4 trillion to our debt in his almost 3 year presidency. Approximately one half of this amount came from borrowing from investors (banks,individuals,China etc.) other than the Fed. Because the market is still confident in our ability to repay our $15 trillion debt, our interest costs have temporarily stayed low. I emphasize the word temporarily! Unfortunately for Western Europe, the market does not have the same confidence, therefore, they do not have a stimulative fiscal solution. Their only fiscal alternative is to restrictively cut spending, which in the short run would lead to a greater economic slowdown and even more chaos.
They are " between a rock and a hard place", a spot we will find ourselves in sooner than we think.
Thursday, December 15, 2011
Nanny State
The Nanny State is defined as a government that makes personal and private decisions for people that might otherwise make for themselves. This sounds like the elaborate welfare model of Western Europe, and our President's model for our future.
We know this model is not working out so well for Western Europe, especially Greece, Italy, Spain, and Portugal. Their day of reckoning is now. For too long their productivity has not matched their spending so they just charged the deficit to their kid's credit cards. Now they are sub-prime borrowers so the vig (a loan shark term for interest) has become unaffordable. How do they climb out of this hole that they have been digging for so many years?
Unlike our Central Bank ( The Federal Reserve) which has printed trillions of dollars, and artificially and temporarily kept our interest rates low, their Central Bank does not have the authority to print money. The Maastricht Treaty, which created the Euro Currency forbids the ECB (European Central Bank) from buying their debt. The Germans have long memories of their post WW1 inflation. Therefore, Western Europe does not have a
We know this model is not working out so well for Western Europe, especially Greece, Italy, Spain, and Portugal. Their day of reckoning is now. For too long their productivity has not matched their spending so they just charged the deficit to their kid's credit cards. Now they are sub-prime borrowers so the vig (a loan shark term for interest) has become unaffordable. How do they climb out of this hole that they have been digging for so many years?
Unlike our Central Bank ( The Federal Reserve) which has printed trillions of dollars, and artificially and temporarily kept our interest rates low, their Central Bank does not have the authority to print money. The Maastricht Treaty, which created the Euro Currency forbids the ECB (European Central Bank) from buying their debt. The Germans have long memories of their post WW1 inflation. Therefore, Western Europe does not have a
Friday, December 9, 2011
Demand vs. supply
Today Jay Carney, Obama's press spokesman, asked "whatever happened to Republicans being for tax cuts"? He was referring to the Republicans attaching the Keystone Pipeline to the bill to extend the payroll tax cuts. Obama demanded there be no attachments. Most Republicans and some Democrats in Congress are supply-siders. They want to increase taxes or tax revenue not by cutting taxes, but by cutting marginal tax rates. Mr. Carney knows the difference. Payroll tax cuts (Keynesian) may give the economy a temporary boost, but it will be just that, temporary.
Friday, December 2, 2011
Ask but don't tell
I agree with President Obama on how to pay for extending the payroll tax cut. I think he should ask a few hundred thousand millionaires and billionaires to pay their fair share by paying a 3.5% surcharge on their total income. I just don't think he should tell or force them to do it. I'm sure Buffett would agree.
Sunday, November 20, 2011
Who is lazy?
President Obama recently said that we Americans have gotten lazy, and that we have lost our creativity. Sadly, he uttered these words on foreign soil. What he should understand but doesn't, is we are not lazy, and we are not stupid. We are just plain frustrated. We have a leadership vacuum. We question our future even though all obstacles to our growth are obvious and controllable.
What will our tax rates be in 2013? What will be the cost of Obamacare if proven constitutional, or not repealed? Will Green energy, which is laughingly uncompetitive with fossil fuels (especially natural gas) still be subsidized by the American taxpayer? Will Dodd-Frank, Sarbanes Oxley, and our cumbersome, inefficient tax code be with us? Will we ever have a financial road map, called a budget, passed by this democratic senate? After all, it has almost been 3 years. How many draconian regulations are imbedded in legislation already on the books that have not seen the light of day? How does one invest, take risks, and create jobs with so many unknowns?
There is a economic theory called The Rational Expectationists Theory that I think explains our current behavior which our President refers to as laziness. The R E believe that it is harmful for the government to try to influence output, employment, and prices through fiscal (gov spending and tax) and monetary (controlling the money supply) policies. Having experienced past policies (mostly Keynesian), we, the R E, have learned what to expect, and we will change our behavior (investing, saving, spending) therefore making these government influences ineffective.
For a basic example, take the Federal Reserve. It has added 3 trillion dollars to it's balance sheet. (I find it interesting that the stock market has recovered about 3 trillion dollars since it's 2008 low). The Federal Reserve is currently funding one half of our 1.4 trillion dollar deficit. With these facts, how does an R E invest? Buying gold might give one some protection from the Fed printing all those falling in value dollars. But what are the negative economic effects of accumulating gold? Franklin Roosevelt once said in one of his "fireside chats" with the American people, that "hoarding had become an exceedingly unfashionable pastime." He was pleading with the people to take their money out of hiding and deposit it in the banking system so that the economy could multiply. To help accomplish this, he created the FDIC. Buying gold has the same negative effects of hoarding because it defeats what The Fed is trying to accomplish, which is to grow the money supply to stimulate growth and jobs.
In my opinion, most of us are Rational Expectationists. We will start taking risks, creating new products, ideas, hiring new workers, and therefore increase our national income when we have the confidence that America will again become Reagan's "Shining City Upon A Hill." When we restore our rightful place in the world as the country with the most economic freedom.
No, the American people are not lazy, and have not lost their creativity, but the same cannot be said for our leaders. Our President and The Bernank have tried the same old tired solutions and their outcomes are obvious. Where is their creativity? Where is Obama's leadership? Who is lazy?
Raising tax rates is not the answer because the problem is to much spending. President Reagan in a similar situation cut tax rates and created 19 million jobs. His rationale was that cutting tax rates "starved the tumor of government." Raising tax rates would only result in more spending.
Barak Obama and Ben Bernanke are considered brilliant academics, but as the great philosopher Forest Gump once said " stupid is as stupid does."
Ray Zimmerman
What will our tax rates be in 2013? What will be the cost of Obamacare if proven constitutional, or not repealed? Will Green energy, which is laughingly uncompetitive with fossil fuels (especially natural gas) still be subsidized by the American taxpayer? Will Dodd-Frank, Sarbanes Oxley, and our cumbersome, inefficient tax code be with us? Will we ever have a financial road map, called a budget, passed by this democratic senate? After all, it has almost been 3 years. How many draconian regulations are imbedded in legislation already on the books that have not seen the light of day? How does one invest, take risks, and create jobs with so many unknowns?
There is a economic theory called The Rational Expectationists Theory that I think explains our current behavior which our President refers to as laziness. The R E believe that it is harmful for the government to try to influence output, employment, and prices through fiscal (gov spending and tax) and monetary (controlling the money supply) policies. Having experienced past policies (mostly Keynesian), we, the R E, have learned what to expect, and we will change our behavior (investing, saving, spending) therefore making these government influences ineffective.
For a basic example, take the Federal Reserve. It has added 3 trillion dollars to it's balance sheet. (I find it interesting that the stock market has recovered about 3 trillion dollars since it's 2008 low). The Federal Reserve is currently funding one half of our 1.4 trillion dollar deficit. With these facts, how does an R E invest? Buying gold might give one some protection from the Fed printing all those falling in value dollars. But what are the negative economic effects of accumulating gold? Franklin Roosevelt once said in one of his "fireside chats" with the American people, that "hoarding had become an exceedingly unfashionable pastime." He was pleading with the people to take their money out of hiding and deposit it in the banking system so that the economy could multiply. To help accomplish this, he created the FDIC. Buying gold has the same negative effects of hoarding because it defeats what The Fed is trying to accomplish, which is to grow the money supply to stimulate growth and jobs.
In my opinion, most of us are Rational Expectationists. We will start taking risks, creating new products, ideas, hiring new workers, and therefore increase our national income when we have the confidence that America will again become Reagan's "Shining City Upon A Hill." When we restore our rightful place in the world as the country with the most economic freedom.
No, the American people are not lazy, and have not lost their creativity, but the same cannot be said for our leaders. Our President and The Bernank have tried the same old tired solutions and their outcomes are obvious. Where is their creativity? Where is Obama's leadership? Who is lazy?
Raising tax rates is not the answer because the problem is to much spending. President Reagan in a similar situation cut tax rates and created 19 million jobs. His rationale was that cutting tax rates "starved the tumor of government." Raising tax rates would only result in more spending.
Barak Obama and Ben Bernanke are considered brilliant academics, but as the great philosopher Forest Gump once said " stupid is as stupid does."
Ray Zimmerman
Tuesday, September 6, 2011
Buffett and Taxes
Good for Warren Buffett for stirring up the debate on tax policy and it's effects on our economy.
Do higher tax rates affect the behavior of the wealthiest Americans? First, we have to determine who is wealthy. Comparing those making $200,000 with Warren Buffett is a stretch, but for arguments sake, let's stick with the Buffett billionaire universe.
I believe him when he states that imposing higher taxes on him, would not change his behavior. He would still take risks with his capital to create more wealth, and this would accrue to the economy. But is he in the majority of his small universe? If he is in the minority, then his universe's behavior would change to the detriment of the economy. If we broaden the scope to those making $200,000, what would be that ratio? In a perfect world, we could determine the most effective marginal tax rate. It would be a rate that generates the maximum amount of tax revenues without siphoning away incentives to work hard, save, and take risks.
Mr. Buffet ( Berkshire Hathaway) recently invested $5 billion in Bank of America. Because of who he is, he was able to make a unique investment not available to you or me. He purchased preferred stock that yields 6%, and that 6% is 70% tax free. That makes a sweet 11% taxable equivalent. INTERESTING!
Wouldn't you think that instead of campaigning for Obama, he should be an advocate for tax reform? It seems to me that leveling the tax code field is one great "job creating" idea.
Do higher tax rates affect the behavior of the wealthiest Americans? First, we have to determine who is wealthy. Comparing those making $200,000 with Warren Buffett is a stretch, but for arguments sake, let's stick with the Buffett billionaire universe.
I believe him when he states that imposing higher taxes on him, would not change his behavior. He would still take risks with his capital to create more wealth, and this would accrue to the economy. But is he in the majority of his small universe? If he is in the minority, then his universe's behavior would change to the detriment of the economy. If we broaden the scope to those making $200,000, what would be that ratio? In a perfect world, we could determine the most effective marginal tax rate. It would be a rate that generates the maximum amount of tax revenues without siphoning away incentives to work hard, save, and take risks.
Mr. Buffet ( Berkshire Hathaway) recently invested $5 billion in Bank of America. Because of who he is, he was able to make a unique investment not available to you or me. He purchased preferred stock that yields 6%, and that 6% is 70% tax free. That makes a sweet 11% taxable equivalent. INTERESTING!
Wouldn't you think that instead of campaigning for Obama, he should be an advocate for tax reform? It seems to me that leveling the tax code field is one great "job creating" idea.
Sunday, September 4, 2011
Obama's Thursday address
When we think of Ponzi Schemes, we probably think of Bernie Madoff, or how about our Social Security System. What amazes me about Social Security is that future recipients, our kids, know and accept the fact that they are being ripped off ( shame on the past two generations).
But the mother of all Ponzi Schemes is Keynesian Economics.
When I studied and then taught Keynesian Theory, it reminded me of Hans Christian Andersen's "The Emperor Has No Clothes". (that individually it defied common sense but
collectively it is rationalized as being factual).
Let me try to explain current Keynesian thought. They claim that our unemployment problem is due to a lack of demand. (Wow! Now there's a scoop) They want the government to begin a new stimulus to create aggregate demand, which will encourage the huge amount of corporate money presently sitting on the sidelines to be invested, and therefore create jobs. How do they plan to accomplish this? Simple! We will borrow from the Chinese and everyone else, and solicit the Federal Reserve to print another trillion or so. And most importantly stick our kids with the bill. (again shame on us). They contend that this will kick in the magical Keynesian multiplier, and our national income (GDP) will exponentially increase and so will employment.
It is interesting to note the lack of the multiplier effect with the last $800 billion stimulus. I guess they're taking a "mulligan". Probably the same people who believe in this nonsense also believe in the "tooth fairy", or that enhanced interrogation does not work.
Unfortunately, the President will offer Keynesian solutions in his Thursday night speech because he worships at the altar of big government, and his passion is the redistribution of wealth, not it's creation. His ideology overwhelms his intellect.
If he really wants another term, he has to start by restoring the confidence that has been lost because of his antipathy for the business community, and because of the unknown cost of the barriers to business he has created. He needs to advocate long term structural reform. He should begin with the tax code, and also call for a regulation holiday. Better yet, Sarbanes Oxley, Dodd-Frank, and Obamacare should be repealed. He could start by being a cheer-LEADER for the private side, especially entrepreneurial startups. That is where the jobs are! These reforms would be a good beginning in the battle to reverse our present malaise.
Winston Churchill once said, "America will always do the right thing after it has tried everything else". Well, he never met Barak Obama.
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