Resistance Begins at Ohm!

Friday, February 27, 2009

So, is there an end to the money?

Would not seem that way...

You know there has to be an end - the value is the same, it's just the number slices in the pie, the number of bills in the bank. We consumed a lot of pie in the form of lost market and real estate equity. Printing more money is just like selling more slices out of what's left. Twenty tickets or 120 tickets, the pie is the same. Eventually, a slice isn't worth the energy required to transfer from fork to mouth. The end.

A thought exersize on the price of debt

Using a well respected web-based resource to perform the regression ( and using the following assumptions:
National debt (2/26/09 based on debt clock) 10,844,284,645,794 or $10,844 billion
Interest rate .03 or 3% (you know it can't stay at zero and expect anyone to buy treasury bonds, do you???)

(I didn't want to freak out bankrate, so honestly, I just cut out the last NINE, count 'em 9 numbers IN FRONT, yessiree, of the decimal point)

Results: at 3% interest (you should be so lucky) and 3% minimum payment:
Time to pay the total debt: 160 years
Total interest: 970 billion
Principle: 10,844 billion or 10.8 trillion
Total of payments: 11,814 billion or 11.8 trillion

Results at 6% interest (more likely where we are going) and 3% minimum payment
Time to pay the total debt: 175 years
Total interest: 2,134 billion or 2.1 trillion
Principle: 10,844 billion or 10.8 trillion
Total of payments: 12,978 billion or 12.9 trillion

Oh wait, you can't afford any payment because you can't cover your day to day costs - you are still racking up debt on your credit cards. Let the good times roll....

A reality check and the math of money

Oxymoron: 401k / assets

Oxymoron: real estate / equity

Oxymoron: rich / Americans - if we could deduct our loses from our income taxes over the next 5 years

Oxymorons: rich / Americans and middle class / Americans, after we pay for this $&!* (See mathematics item 3)

Maybe we're just plain morons - afterall we voted for this crew.

Mathematics: You could spend a million dollars a day, every day, since Christ was born, and you could still not pay for the economic recovery plan.

The new era of responsibility budget will cost each taxpayer (who paid income tax in 2007) $25,573. Note that is a 1 year budget. Another oxymoron: responsibility / 2010 budget

Taking the entire taxable income, a tax rate of 100%, of everyone earning more than $75,000 (in 2006, mind you, last year for granular data and a very good year) would have barely yielded enough to cover the $4 trillion Congress will spend in 2010.

That's why they need what's left of your 401k, too. Next they will be encumbering your real estate assets to pay for your neighbors deficit. Oh wait, they already did that, didn't they. That's why you don't have equity anymore.

Sunday, February 15, 2009

Well I suppose there is some good news...

Social Security is more solvent?
If the value of most peoples' 401K or other equity-based retirement funds is down by 40%, that's a lot fewer people who can afford to retire and live on social security instead. I mean, I would defer my benefit and then get a bigger monthly payment later if I know I can't afford not to work anyway.

Folks counting on guaranteed distributions aren't going to be too happy either. Assuming that the funds behind your benefit are still solvent next year, let alone when you retire, inflation in the next few years is going to eat your lunch and dinner, so to speak.

Fact is, people wise enough to know Social Security is anything but secure have been lured into stashing their hard earned income into investment and retirement accounts with government incentives (pre-tax when contributed) and employer matches. Hey easy enough for the employer since once they make the contribution, they are done with their obligations. But for the most part, your employer's contribution has been erased in the last 6 months, and probably a lot of your account earnings as well. The rub is that you can't take what is left of your money out without paying a mean penalty of another 20%.

In some cases, people have been investing their earnings in guaranteed benefit accounts or annuities. Eliminating 40-50% of the value of those plans sets you the employee back unless you can to retire now and can take your one-time distribution. Because the funds themselves are going to sustain only half the people in retirement. Think about it, basically there is nothing but principle left and the principle will be reduced by the next wave of retirees, leaving nothing to pay you, let alone invest for your retirement.

The US has committed itself to a massive expenditure of money with no long range value or equity. Paying for things like healthcare, unemployment and food stamps, as noble as it may sound, is an operational expense, not a captital investment. We don't have the money, we won't have the money anytime in the forseeable future, and there isn't a return on investment where no investment is made.

US plans to do to raise the cash by selling treasury bonds. With the interest rate so low at the moment, and with the equity markets already in the tank, those bonds aren't looking too attractive. So the federal reserve is planning on printing up a whole bunch of money to buy the US debt. Now that sounds ludicrous on the face of it. The inevitable result is that interest rates must go up.

Let's say you had a 100 gold pieces and you wanted to sell a hundred shares at 1 goober each. Your plan is to trade the goobers for dollars. But wait, you need 200 dollars. Just because you need sell another 100 shares doesn't make the gold pieces worth anymore. It just makes your goobers worth less - by half. Same deal as the federal reserve and treasury bonds. Your goobers are going to be worth less at the end of this spending spree. When the dollar is worth less, it's called inflation and we're in for a an ugly bout of it.

If you needed a few hundred thousand, no one would lend you money and your bank account was dry, would you just print more checks?

So much for that guaranteed benefit. It gets wiped out by inflation.

I wonder if it has occurred to the politicians that there aren't any rich people left to tax? We didn't spread the wealth around, we spread the poorth.

Saturday, February 14, 2009

Here's some change I could believe in

When a company falls on difficult times, one of the things that seems to happen is they reduce their staff and workers. The remaining workers need to find ways to continue to do a good job or risk that their job would be eliminated as well. Wall street, and the media normally congratulate the CEO for making this type of "tough decision", and his board of directors gives him a big bonus.

Our government should not be immune from similar risks.

Therefore: Reduce the House of Representatives from the current 435 members to 218 members and Senate members from 100 to 50 (one per State). Also reduce remaining staff by 25%.

Accomplish this over the next 8 years. (two steps / two elections) and of course this would require some redistricting.

Some Yearly Monetary Gains Include:

$44,108,400 for elimination of base pay for congress. (267 members X $165,200 pay / member / yr.)

$97,175,000 for elimination of the above people's staff. (estimate $1.3 Million in staff per each member of the House, and $3 Million in staff per each member of the Senate every year)

$240,294 for the reduction in remaining staff by 25%.

$7,500,000,000 reduction in pork barrel ear-marks each year. (those members whose jobs are gone. Current estimates for total government pork earmarks are at $15 Billion / yr )

The remaining representatives would need to work smarter and would need to improve efficiencies. It might even be in their best interests to work together for the good of our country?

We may also expect that smaller committees might lead to a more efficient resolution of issues as well. It might even be easier to keep track of what your representative is doing.

Congress has more tools available to do their jobs than it had back in 1911 when the current number of representatives was established. (telephone, computers, cell phones to name a few)

Congress did not hesitate to head home when it was a holiday, when the nation needed a real fix to the economic problems. Also, we have 3 senators that have not been doing their jobs for the past 18+ months (on the campaign trail) and still they all have been accepting full pay. These facts alone support a reduction in senators & congress.

Summary of opportunity:

$ 44,108,400 reduction of congress members.

$282,100, 000 for elimination of the reduced house member staff.

$150,000,000 for elimination of reduced senate member staff.

$59,675,000 for 25% reduction of staff for remaining house members.

$37,500,000 for 25% reduction of staff for remaining senate members.

$7,500,000,000 reduction in pork added to bills by the reduction of congress members.

$8,073,383,400 per year, estimated total savings. (that's 8-BILLION just to start!)

Big business does these types of cuts all the time.

If Congresspersons were required to serve 20, 25 or 30 years (like everyone else) in order to collect retirement benefits there is no telling how much we would save. Now they get full retirement after serving only ONE term.

National Debt vs Deficit

I thought the deficit in 2008 was $455 million? Well, no actually, that was just the shortfall between revenue (what came in) and expenditures (what went out). The annual deficit includes off-budget commitments for things like federal emergency aid or much of the costs for the wars in Iraq or Afghanistan. It doesn't include things that were authorized but not yet spend like TARP, or money the government borrowed and guaranteed in prior years.

The national debt includes the shortfalls from 2008 and all of the prior years. It also includes the $4.5 trillion or so that is held by the public in securities such as Treasury bills, savings bonds, state and local government securities. Neither the deficit nor the national debt reported by the Congressional budget office take into account entitlements due in future years. They do not include the potential liabilities for Freddie Mac, Fannie Mae, pension benefits guarantee or Federal deposit insurance corp, beyond what has already been explicitly funded. One reason is because the liabilities are not actually known.

Just for the heck of it, let's put this in terms that represent a more or less typical American family.

Let's say in 2008, you earned $100,000 and you owed $75,000 not counting your 30 year mortgage of $650,000. At the end of 2009, you make about $97,000 and you owe about $95,000. Your interest rate is going to increase a couple of percentage points, let's say from 8% to 10% and your loan repayment plan is for 10 years (e.g., a 10 year T-bill) Your monthly loan payment is $1321.00 and your mortgage is $3691.00. Together, your loans are $5012. Your monthly income is $5254 after 35% in taxes. You have $242 to live on (food, utilities, gas, healthcare, entertainment) per month, meaning you will be running a deficit again this year, probably about another $10,000 on your credit cards.

(Oh, and you are obviously not putting any money aside for your retirement. Plus your house is now worth about $500,000, meaning you couldn't sell it if you wanted to.)

Do you see a problem with this trend? What is your answer, spend (borrow) another $20,000? Do you think anyone would lend it to you?

How big is the national debt

Bigger than the gross domestic product of the entire world!
Your share? $216,666.00 not counting the stimulus bill, TARP II or the federal reserve loans which are also close to a $trillion.

Assumptions: 300,000,000 US citizens, $65,000,000,000,000 of debt including entitlements that have been paid for and earned, but not paid out.

This article explains pretty clearly (IMNSHO) just exactly what the United States owes, and just how bad it is getting.

The national debt today:

I've heard about the national debt my whole life, what is the big deal? The US has had a debt every year since it borrowed money to pay for the revolutionary war. The debt made some pretty big jumps along the way to fund things like wars and the last depression/recovery. Remember, the debt we are talking about here does not include any future payments for social security, medicare or other federal retirement benefits. Between 1980 (around the time the national debt crossed the landmark $1 trillion level) and 1990, the debt more than tripled. Fifteen years later in 2005, it was 8.7 times the 1980 total at a bit less than 8 trillion. Since 2005, it has increased another 2.8 trillion or 11.5 times the total debt in 1980.

These numbers don't look anything like $216,666 per person to me, so why should I be concerned? Again, the national debt reported by the Congressional Budget Office does not include the future liabilities for social security, medicare, government guarantees and other federal retirement programs for veterans and civilian employees. Yet, the money collected for these programs is used directly to pay for expenses in the same year they are collected (stolen) from you.

Aren't entitlements just money that the government gives away to people? I mean, if we don't have the money, we just won't give it away, right? No, most of the entitlements the government owes are the ones that its citizens have already paid for through payroll taxes for social security and medicare. In other words, the government has already collected the money from its citizens and owes it back to the very same citizens, by law.