05/29/09 thoughts

America Is Broke
A domestic “Nixon goes to China” moment.

By Deroy Murdock

‘We’re out of money,” President Obama admitted. “We’re operating in deep deficits,” he said in a May 23 C-SPAN interview. While Obama is refreshingly realistic, he resembles a man who strolls into a bar, sees that his wallet is empty, then slaps a round of drinks for everyone onto his wheezing credit card. Rather than use America’s rapidly deteriorating public finances to restore fiscal discipline after G. W. Bush’s deplorable spend-o-rama, Obama is digging America into a deeper hole — not with a shovel, but with a backhoe. If he continues, the ensuing canyon walls will collapse and crush us.

Look how spectacularly Washington squanders your money:

General Motors recently requested $2.6 billion in fresh bailout money. On May 22, Washington gave GM $4 billion, 154 percent of what it wanted. Worse yet, this gift arrived just days before GM was expected to declare bankruptcy. The Treasury might as well have deposited $4 billion into the nearest landfill.

The so-called Bridge to Software is an $11 million taxpayer-funded project in Redmond, Wash. This landscaped bridge, pedestrian walkway, and bike lane will connect the east and west campuses of Microsoft — a company with $20 billion in cash. Meanwhile, as CBS News reports, the 76-year-old South Park Bridge carries 20,000 people daily and scores 4 out of 100 on a government-safety scale. (Before it collapsed in 2007, Minneapolis’s Mississippi River Bridge earned a 40.) Its repair remains unfunded. Washington is utterly incapable of setting priorities, or of barring the wealthy from the trough.

Across the entire budget, such lunacy soon spells fiscal doom.

Thanks to recession-driven revenue shortfalls and the endless Bush-Obama bailouts and stimuli, the federal deficit will explode from 2008’s $458 billion to at least $1.84 trillion in 2009. Despite the mid-month tax collections, the federal government finished with an April deficit for the first time in 26 years. Washington incinerated all those hard-earned tax payments within a fortnight.

Last year was the first in which Medicare disbursements outran revenues. Medicare is expected to go kaput in 2017, two years sooner than had been predicted. Come 2016, Social Security checks similarly will outpace the payroll taxes that fund them.

Publicly held debt’s share of Gross Domestic Product has soared from 33 percent in 2001 to 44 percent in 2008 and will hit 77 percent in 2013, Standard & Poor forecasts. Federal IOUs total $8 trillion. Beyond that, $45 trillion in unfunded liabilities constitute a long-term Red River on the national ledger. Financial analysts warn that America could lose its sterling AAA bond rating. Atop international humiliation, this would subject both government and consumers to higher interest rates as U.S. bonds grow riskier.

Washington has greeted all of this, not by cutting outlays, but by monetizing them. As commentator Glenn Beck puts it: “We’ve gone from tax-and-spend to tax-and-print.”

Obama now faces a domestic “Nixon goes to China” moment that could transform him into one of America’s finest presidents or convert him into Jimmy Carter II.

Just as Richard Nixon’s anti-Communist record gave him the latitude to re-engage Mao’s China, Obama’s solid-Left credentials grant him the leeway to padlock dozens of government agencies, terminate hundreds of federal programs, and finally slay the entitlement monsters that will devour this republic. Obama can do this without becoming paralyzed by liberal catcalls about feeding Granny to crocodiles. A few concrete steps would help Obama succeed.

Obama should implement zero-based budgeting. Every federal commission, agency, and department should justify its spending from the first dollar up, rather than simply ladle fresh cash onto last year’s often bloated and duplicative budget.

Why, for instance, does Uncle Sam still run the $166 million Tennessee Valley Authority and the $958 million Rural Utilities Service, now that Appalachia has electricity? Similarly, must every program at the departments of Commerce, Housing, and Transportation remain immortal?

Each federal transfer and entitlement payment should be affluence-tested. Poor people without options should keep vital assistance. The middle class should get middling help, at best. And the wealthy finally should be told to fend for themselves — from subsidized “farmers” who inhabit Manhattan’s luxury co-ops, to millionaire seniors on subsidized pharmaceuticals, to CEOs swimming laps in bailout money.

Finally, if Washington cannot cut the federal budget, its growth at least should not exceed inflation. According to the Heritage Foundation’s Brian Riedl, had fiscal bedwetter George W. Bush’s total expenditures merely matched inflation, $3.3 trillion would have gone unspent, averaging some $400 billion annually.

President Obama did not groom himself to become the elegant, eloquent man who steered America into a fiscal Grand Canyon. Instead, he should harness his intellect and charisma to retreat from the precipice. He has just enough time, if he U-turns right now.

— Deroy Murdock is a columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution at Stanford University.

...

Urban Survival...

Psst! Want a Car Negotiator?

I didn't mean to start of what should be happy friday as a grouch, so if surly, sour, and real bothers you, go hit some infotainment site. I'm in a grouchy mood. Why? You wanna know why? I'll tell you why...

The headlines are pretty grim around the GM story. "GM suppliers face new threat as bankruptcy looms for Automaker" reports Bloomberg this morning. And it looks like it could be filed as early as Monday.

Now, I'll tell you what stumps me - and it has bothered me about the AIG deal, too. When the public puts in piles of dough - and in GM's case, you and me put up the dough - and in any other kind of company I've ever read about, that would buy us (taxpayers) control of the Board of Directors who in turn call the shots in concert with the CEO, right?.

I usually won't go name-calling. I usually try to stay above such trivialities and leave that to the overly rabid right. But just between you and me, if a company's board of directors oversees a decline of stock price from over $38 a share to just over a buck at the close yesterday, should they...you know...be replaced?

Oh sure, I know what the excusifications will be - "Oh these guys all know the car industry" might be proposed. Oh? How many billions have they lost again? They don't know jack.

"Oh, we want to preserve stability" might be another. Yeah, like tell that to the millions impacted by their wisdom and who are taking gunpoint vacation time this summer because the company has been run into the ground.

I don't know why the government doesn't just come in and sweep it clean. Down here in East Texas, $70-billion confers serious ass-kicking rights. But not so, apparently, in 'politically correct land' inside the Beltway. Are you kidding?

For the roughly $70 billion plus this steaming lump is going to cost us all (roughly $228.76 for every man, woman, and child in America, by the way), can we please - pretty please with sugar on it - find a new group of Deciders in the board room; people with vision. Ever hear of a concept called 'getting ahead of the curve' instead of being run over by it?

Because the folks who build the cars aren't to blame for GM's failure. It's an outmoded, heavy into denial decision-making process and upper management style that has failed and I want no part of my $228.76 that I've got as skin in this game going in any form - options, stock, travel, or cash - to the people who didn't see it coming and haven't 'gotten it' since the rice burners came to America 40 years ago and kicked our ass.

Like I said: I won't name call here, but look up the Greek word "idios" in the dictionary and read on a ways from there. You following me?

At current prices, I figure I own 200-shares of GM - and do everyone in America.

---

As I've said before, the fact that GM isn't looking at a whole inside-out change to something like Harley-Davidson's org chart and ethics, dims my faith in the country's future, not to mention what democracy puts in office in terms of 'best and brightest' may not be that.

I may be a small-time consultant, but look at the motivation and strategy guys like Evan Carmichael come up with as building blocks for success at Harley:

• Innovation

• Exhibition

• Dedication

• Passion

• and Branding

Think more focus could have helped GM if they'd gotten massively proactive? Until recently you know, reports are the GM Board was meeting once a month. Now at least, they are meeting several times a week. Better late than never? I won't touch that bet.

May I make a modest suggestion to the Obama car trouble team and the GM board? Find the "designated smart guy" inside of Harley Davidson and get his butt on the next plane to Motown. Is he there yet? Then resign.

Oh, and tell those people in Washington I want my share certificates for both AIG and GM. Don't like holding things in 'street' name. I know how that works., LOL.

Sound far out? Not as far out as this "Germany calls on Clinton to resolve GM fight. "

Selling Green

I see where Nancy Pelosi has time to be in China talking to kids about the need to go green.

WTH? Don't we have a few more pressing issues that demand action here in the USA? I mean GM's about to go toes up, we're a couple of months out from the commercial real estate meltdown and she's talking global warming on what sounds like a Gore-Lite tour in a country which is already not very trusting of us since our dollar's tanking sooner than later (which is why gold is up today, BTW).

Glad I don't live in her district, for damn sure. No, instead I live in the district of a poster-boy for the credit card industry, but that's another rant for another day.

Might I ask that Ms Pelosi come back to America and get to work on headlines like "Leap in U.S. debt hits taxpayers with 12% more read ink"?

USA Today figures the US federal government debt is $546,668 per household. Oh? Does $211,068 per person feel any better?

I'm ticked and I want the 'old ways' gone NOW. But I ain't your problem Madam Speaker. Nope. Your problem is that you ain't 'getting it' about how mad the average American is and since the Bush administration drove the country into the front of this Depression, 5.7 million people have lost their jobs and there are right now - today - nearly 14 million people unemployed. That's your problem right there. That and pitchforks.

So let me ask again more politely: Madam Speaker: What the hell are you talking to school kids in China for? Who bought your plane ticket, anyway?

NK's Newest

Another day, another missile - and this one with enough range to get to most of South Korea from the North. The West has raised its alert status to Defcon 2 in the region - just short of going into butt-kick mode.

05/27/09 thoughts

I read an interesting article, and then read the comments. I got heated, and decided to add my own.

Comment that set me off:

aj May 27, 2009 10:20 PM GMT Karl, Well said. BTW, Obama is not a deception. He is the best president so far. Also, we as parents are emphaszing too much on leadership and that is what we get.. leaders.. but bad leaders.. So, all the real nice jobs, like Engineering design, Computer programming, Genetic Engineering are all going to those bright and well educated Asians. Asian parents teach hardwork and team work. We are deliberately taking our kids out of global competition all in the name of "Leadership education"

My Response:

George May 27, 2009 11:50 PM GMT @ aj, Sorry for my emotionally charged response. That said, you are an idiot. HOW ON EARTH could you make a ridiculously bold statement like Obama "is the best president so far."? He has been in office for 4 months. He was a huge part of the political system that got us into this mess, and under his "leadership" we have gotten empty promises, impossible mandates, unprecedented government expansion, and a debt burden that WILL DESTROY the US in its present form. I bet on everything I own that this is just the beginning. We will have a new Constitution, or an entirely new economic policy within 5 years. It would not surprise me if the US no longer exists at all by 2020. Sorry I got on a rant, the point is do not plan on a "Savior President" to make everything ok. I don't believe a single thing Obama says; he is a shining example of a Liberal Elite. I think he is what is wrong with America personified. However, we are all entitled to our own opinions. I believe personal responsibility is the only thing that will save this Nation, but I also believe that our country is too far into the life cycle of a Empire to have enough people willing to take personal responsibility.

Are we really a Nation with people this ignorant? America has ALWAYS made leaders. It is why we ARE leaders in everything. Americans are great because we have vision! Americans are great because we have the BALLS to take an idea and FORCE it into something that can be used, be profited from, or otherwise add value. We are the people that LEAD. We have been for the past 200 years. Fuck this guy. I still am having a hard time with this one...

Another good article today

The Tapeworm in the Stock Market

...

Urban Survival...

Sorry About Coffee

Not to begin at the end here, but have you been watching the December coffee prices over on the commodity side of things? (Link to a chart here). Back in March at the life of contract lows, coffee was under $113. Now, as the close yesterday, it was up over $140. I may not be completely awake yet, since caffeinated miracle juice is just now going to work, but that works out to pretty close to 24% inflation. Oh, did I mention that's for six months?

Let's see how that would annualize, shall we? OK, forget it if you're not up to it. We;ll say something over 50% if the rate of increase were to continue. And there are lots of other commodities which are showing pretty hefty implied inflations.

So much so, in fact, that Dr. Marc Faber of the "Gloom Boom, & Doom Report" is telling Bloomberg that US inflation will approach Zimbabwe levels. Unfortunately, I can't fault his logic.

When a country gets into the position that the US is now in - namely buying its debt from itself to keep that dollar from tanking - it's a sure sign that big changes in the value of the dollar are ahead.

While its true that gold took a bit of a beat down on Tuesday, a simple look at the calendar will explain what was going on: It was end of contract time and it's normal lately to see prices drop around delivery time. Does that mean inflation risk is gone? You are kidding, right?

Then there's the little matter of Consumer Confidence which came out Tuesday higher than expected. Want a simple explanation of what's going on right now? The strong hands may be selling to the weak.

If you look at a three-month chart over at Yahoo Finance, you'll see that 8,574 is the overhead resistance level. About the least surprising outcome for the market here over the next week or two - at least to my way of looking at it - would be to see a rally at the open this morning - momentum follow-through - and then a mid-session reversal as the market runs out of motivation.

Existing Home Sales are due out this morning - and these, coupled with data tomorrow on the new unemployment claims - which may be higher than anticipated - and then Friday's GDP numbers all set us up for the real biggies to come next week when we get Personal Incomes on Monday and then next Friday we see the new monthly unemployment numbers which I'm throwing a dart at 9.3% on right now.

If the home sales are good, we might get a double top off that 8,574 level. If they're bad, nervousness in general could re-enter the market; so many people have turned bullish lately (mostly without solid thinking, I'd add) that it wouldn't surprise me in the least.

There is one thing to keep an eye on, though. That's how inflation will work on the sales of American retailers. We know that retail has been having a very tough go of things, but when the figures come out be sure when you're looking at same-store sales, that you add in something for an inflation correction. I get a kick out of seeing reports like 'same-store sales are up 2%" and then when exploring the data finding that it's not been inflation corrected. So that with 2 1/2% inflation, a 2% increase in dollars handled really means on a constant-dollar basis, sales are down half a percent - that kind of thing - using imaginary numbers to make the point.

But it illustrates how most folks are led around blindly on matters about money. Scary stuff, to be sure. But, with a little deliberate and clear thinking, one can see that the only way out of this mess will be inflation - eventually - as long as the government can get its hands on paper and ink. Which is why Marc Faber's comments about Zimbabwe here may be spot on.

What'll be interesting to watch is to see how many people will be ready for it. With all the ways folks can hedge by simple means: Drive a high mileage car to keep energy costs low, plant a garden to hedge food costs, and work extra-hard to increase your chances of keeping your job if you have one - all that stuff seems to sneak up on people.

I'm always amazed by the number of folks who prepare resumes only after being fired, too. Seems we live in a reactive rather than proactive mental construct. Which, when you think about it, is why most people are where they are now.

...

Tennessee Gun Laws

Forgot to mention that folks in Tennessee have a new law that says if a person legally possesses a gun they will NOT have it seized in any period of martial law. RFO (right frigging on...) Someone learned something from KatRita, huh?