All questions about whether Congress should spend more money on any new programs were answered this week. All such discussions should end and the nation should be focused on the number one problem that literally threatens our national security and survival as a nation. With a single document this week, the Congressional Budget Office (CBO) has likely altered the course of all international business, foreign government currency rates, the ability of the US to borrow on the international markets, and our own government’s outlook for financial stability. That is an astonishing accomplishment for a single report. While not entirely unexpected by most in the financial community, the CBO just announced that the White House projections for the size of the governments accumulated budget deficits during the next 10 years, were misstated by two trillion dollars. Let me write that out in zeros. That is $2,000,000,000,000. An error of that size is literally inconceivable. In fact, it is unlikely that it was an error, but an intentional misstatement of our massive problem as the White House and Congress raced to get their healthcare and other budget agenda items passed before the Congressional recess and before the CBO could release this news to the nation.
The current US debt currently stands at $11.7 trillion dollars. The new CBO report estimate is that projected spending will create another $9 trillion that must be financed in the next 10 years. If that requires the government to borrow the money and add to the current staggering debt, it is estimated that just the interest on that debt would be more than $500,000,000,000 with interest payments to China alone approaching $1 billion a week. Let me remind readers that the worth of the entire countries production is only around $14.7 trillion. That is everything the nation produces. In 1975 the entire national budget was only $279 billion. The nation had budget surpluses until 1983. With the massive growth of federal spending in this decade, Congress has managed to dispense totally with any of the rules of financial responsibility. Congress and the Administration have gone on an unprecedented spending orgy which has created a situation that threatens economic collapse within the US, and a domino to other countries.
In practical terms, what does all this mean? It means devaluation of the US dollar against most other currencies. It means massive inflation of all imported goods. Several senior financial executives of some of the major international corporations have said that they are currently revising their business models to provide alternative strategies. Rather than converting their foreign currencies to dollars and transferring them to US holdings, money is being maintained in foreign currencies and left in countries where they are earned. Capital investments are being diverted to other countries where they can earn more and have less risk of devaluation. This means jobs go with it. That in turn will further undermine the country’s ability to recover or to pay down the deficits, and that could then become a downward spiral. Most law makers are not financial experts and far too many in Congress have no business training at all. Most have no concept of the problems they are creating or their impacts. They don’t even comprehend the enormity of these numbers, yet they go on naively spending as though the national treasury was their personal bottomless pit of gold. This is coming to end, with or without their help. The numbers simply won’t allow it and the outcomes are certain if the spending continues. It is quite simply unsustainable. The question now is, “What will happen to us”?
We must ask ourselves whether we are going to allow the lunatic fringe of our society to force us into national bankruptcy. There is only one course and it is now or later, but later could be a very bleak scenario. The country always seems to have to be faced with disaster before they react, but in this case it will be too late. It is not too late to prevent a financial collapse, but even now the choices will be difficult and severe. We must stop contributing to the debt, even a little, and start to pay it down. We are already past the point of letting the next Congress and Administration deal with the problem. It is exactly like our financial positions when we allow ourselves to go into debt beyond our ability to pay. This is real and it is now. The future of our country is now at stake and the stakes are enormous. This is about our national security and survival. Our voices must be heard and they had better be heard in the next elections or we will soon be discussing our own personal financial survival.
Tuesday, August 25, 2009
Monday, August 17, 2009
Getting To the Root Causes of Rising Fuel Prices
I agree with the criticism of many who want Congress and the Administration to stop oil speculators from running up prices in the world oil markets. New regulations, over speculators in all of the commodities markets, are long overdue. However, the abuse by speculators goes beyond the manipulation of oil prices. Critics are correct that this particular market has been especially abused, but I fear that many in the media may have been mislead by information that has been being drummed into the public realm by numerous interests groups from the oil industry, from financial houses, and from environmental groups who seem to tailcoat on the first two groups.
The price of crude oil sold by producers is one issue, but the bottom-line issue is what refined products cost the consumer and whether consumers are being treated fairly in terms of price. The last piece of that question is somewhat subjective, but there are reasonability tests that can be applied. Let me start with the assumption that the US must produce more oil in order to have an impact on prices. It often not clear to me if the media’s issue is oil or refined gasoline prices at the pump. Either way, producing more oil domestically has little to do with oil prices or prices at the pump. While the focus of some in the media has been on speculators, it is not true that producing more natural gas, coal, oil, or even wood from American land will necessarily affect the cost of those products to consumers. Power plants in the South, like those in South Carolina, burn coal from Brazil while China is keeping West Virginia mines operating. Producers of any product seek the lowest raw material costs they can find from any place in the world they can find it. The big picture issue is whether supply is meeting demand on a world scale or at least within a regional one where the cost of transport does not offset the cost of local products. For example, if Brazil can produce and ship coal cheaper than American mines can, then industry will buy from Brazil. In the case of oil, there are now just five major oil companies who represent most of the gasoline sold in this country. They pump the majority of their own oil from their own wells in this country, Canada, Mexico, and other places in the world. They just pay the countries for the right to pump it out. They will send to and use in their own refineries the oil that is the cheapest to produce and will sell to others that which they can get more money. When a company requires more than they can produce themselves or it is cheaper to buy from others, then they will supplement it from the cheapest sources. Producing more Alaska oil may only cause more sales to the Asian countries, just as it doesn’t all come here now.
While oil is destined to run out some day, there is no credible evidence anywhere that there are true shortages of either oil or refined products. Producers are meeting all consumer demands, therefore pumping more oil that cannot be consumed only means producers must store it or find some other consumer markets for it. It is far cheaper to leave it in the ground if it can be obtained elsewhere for less. This is a fairly complicated issue, but like so many that become political, no one seems interested in the root causes for escalating prices. Instead, they look at the symptoms and discuss various options that help individual interest groups. I hear no one even discussing the problem with the formation of oligopolies in the oil industry or various other industry segments. If the media was really curious, I would suggest looking at the huge number of mergers and acquisitions that have taken place in American industry over the last 25 years. Why aren’t journalists questioning the market share of some of these huge businesses and the level of control they have over the price to consumers. Most of these numbers are available through various government websites.
Yes, speculators have been and are a problem as far as running up oil prices, but they may have had less impact on oil company costs and subsequent price at the pump than some think. Speculation has clearly impacted the price of oil that companies must buy to supplement their own crude oil production, but not all of it. Having tracked this since the early 90s we have frequently seen that world spot oil prices do not correlate well with price at the pump. There is a variety of other issues in this complex equation, but I hear very little discussion of them beyond political talking points. I would encourage journalists in particular to be a little more curious beyond the comments from the talking heads on TV and from columnists.
The price of crude oil sold by producers is one issue, but the bottom-line issue is what refined products cost the consumer and whether consumers are being treated fairly in terms of price. The last piece of that question is somewhat subjective, but there are reasonability tests that can be applied. Let me start with the assumption that the US must produce more oil in order to have an impact on prices. It often not clear to me if the media’s issue is oil or refined gasoline prices at the pump. Either way, producing more oil domestically has little to do with oil prices or prices at the pump. While the focus of some in the media has been on speculators, it is not true that producing more natural gas, coal, oil, or even wood from American land will necessarily affect the cost of those products to consumers. Power plants in the South, like those in South Carolina, burn coal from Brazil while China is keeping West Virginia mines operating. Producers of any product seek the lowest raw material costs they can find from any place in the world they can find it. The big picture issue is whether supply is meeting demand on a world scale or at least within a regional one where the cost of transport does not offset the cost of local products. For example, if Brazil can produce and ship coal cheaper than American mines can, then industry will buy from Brazil. In the case of oil, there are now just five major oil companies who represent most of the gasoline sold in this country. They pump the majority of their own oil from their own wells in this country, Canada, Mexico, and other places in the world. They just pay the countries for the right to pump it out. They will send to and use in their own refineries the oil that is the cheapest to produce and will sell to others that which they can get more money. When a company requires more than they can produce themselves or it is cheaper to buy from others, then they will supplement it from the cheapest sources. Producing more Alaska oil may only cause more sales to the Asian countries, just as it doesn’t all come here now.
While oil is destined to run out some day, there is no credible evidence anywhere that there are true shortages of either oil or refined products. Producers are meeting all consumer demands, therefore pumping more oil that cannot be consumed only means producers must store it or find some other consumer markets for it. It is far cheaper to leave it in the ground if it can be obtained elsewhere for less. This is a fairly complicated issue, but like so many that become political, no one seems interested in the root causes for escalating prices. Instead, they look at the symptoms and discuss various options that help individual interest groups. I hear no one even discussing the problem with the formation of oligopolies in the oil industry or various other industry segments. If the media was really curious, I would suggest looking at the huge number of mergers and acquisitions that have taken place in American industry over the last 25 years. Why aren’t journalists questioning the market share of some of these huge businesses and the level of control they have over the price to consumers. Most of these numbers are available through various government websites.
Yes, speculators have been and are a problem as far as running up oil prices, but they may have had less impact on oil company costs and subsequent price at the pump than some think. Speculation has clearly impacted the price of oil that companies must buy to supplement their own crude oil production, but not all of it. Having tracked this since the early 90s we have frequently seen that world spot oil prices do not correlate well with price at the pump. There is a variety of other issues in this complex equation, but I hear very little discussion of them beyond political talking points. I would encourage journalists in particular to be a little more curious beyond the comments from the talking heads on TV and from columnists.
Restoring Consumer Confidence Should Be Job One
We can talk about job creation all day among ourselves, but virtually every CEO and senior business executive I know is either in a wait and see posture or is still planning further employee reductions. Business is not the leader in the economy, nor is government. The engine and driving force of the economy remains the consumer. The Consumer Confidence Index (CCI) is once again retreating. Congress had talked it down for two years, it took a short upswing after the election, but the public is again becoming skeptical. The CCI has always been the best predictor of the economy and correlates nearly perfectly with the production output. Jobs will not return to the nation until the public's confidence in the country returns. As long as the media, politicians, and other pundits constantly chant the negative and convince people of the terrible dilemma they are in, the CCI will stay down, consumers will retreat from spending, and business will continue to layoff, not invest, or hire.
Political leaders must put aside their political objectives and take every opportunity to talk about the positive potentials for recovery. It is not possible for government to tax and spend its way into prosperity. The numbers don't work that way. As most economists know, 60% of the economy is consumer spending and 10% is business spending which is also entirely dependent on the consumer portion. That is 70% of the economy. All levels of government represent the remaining 30%, but even with deficit spending these onetime discretionary portions cannot change the economic direction. Government spending requires extracting money from the 70% consumer and business sectors, leaving them with less to spend or invest. Congress is trying to follow a nonsense scenario.
The focus of leadership must first be to encourage our citizens and find ways to give them more to spend. Taxing more and talking of gloom and doom will only prolong this recession. We can all do more to encourage leaders to be more encouraging. One of our biggest problems lies with state legislators who have become complicit by accepting federal money, sacrificing state sovereignty, and not standing up against federal intrusion into all of our lives.
Political leaders must put aside their political objectives and take every opportunity to talk about the positive potentials for recovery. It is not possible for government to tax and spend its way into prosperity. The numbers don't work that way. As most economists know, 60% of the economy is consumer spending and 10% is business spending which is also entirely dependent on the consumer portion. That is 70% of the economy. All levels of government represent the remaining 30%, but even with deficit spending these onetime discretionary portions cannot change the economic direction. Government spending requires extracting money from the 70% consumer and business sectors, leaving them with less to spend or invest. Congress is trying to follow a nonsense scenario.
The focus of leadership must first be to encourage our citizens and find ways to give them more to spend. Taxing more and talking of gloom and doom will only prolong this recession. We can all do more to encourage leaders to be more encouraging. One of our biggest problems lies with state legislators who have become complicit by accepting federal money, sacrificing state sovereignty, and not standing up against federal intrusion into all of our lives.
Monday, August 10, 2009
It Is Time to Reform Congress
When the first Congress of the United States was elected and convened, it was comprised entirely of average working citizens. Granted many, especially in the Senate, were among the wealthier land owners, but still the vast majority was citizens who saw the position as a part time job. Compensation for their service was trivial and they viewed it as an honor to serve the public good. As the years have rolled by, members of Congress in both the House and Senate found more and more ways to reward themselves and fewer and fewer went home to their main occupations. Today, we have a Congress of career politicians who now see advancement through seniority and have created all manner of personal perks that the founders could never have imagined. All of this career building has been done under the banner of the growing complexity of a government that must deal with international and domestic issues daily. One might think that is true, but is it?
If we look around the country, nearly all of the state governments have part time legislatures. The elected state legislators work only part time for 3 or 4 months out of the year, yet they can handle state business, often while still endlessly debating seeming silly legislation. In one of our largest and most populist states, Texas, legislators meet no more than 140 days only every other year. Now that clearly does not equate to the federal government which covers all national and international issues, but it causes people to wonder what Congressmen are doing.
In the 60s and 70s, the House met on an average of 162 days. In the 80s and 90s it went down to 139 days. In 1948, that session of Congress which was labeled the “Do Nothing Congress”, met for a total of 248 days. The second session of the 109th Congress may prove to be the laziest and worst Congress in our nation’s history by meeting only 218 days in the House and Senate combined. The current estimate is that the House in 2009 will have met no more than 93 days. That is less time than the state legislators, yet they are collecting their paychecks for only 3 months of work, not to mention having chauffeured luxury limos, private jets to take them on junkets, free meals, full pensions, health benefits better than most in the public, and various other Congressional perks. To be fair, Congressmen do spend more time on official business than just attending the floor sessions, but how much real time. Yes, there are committee meetings, but how often are they held and for how long? There is some preparation, but how much? Obama claimed to head a committee that never held a single meeting. Yes, there official functions, but what kind, how much business is really conducted, and for how long? When these are pursued in detail, we usually find that real working time is very small and social gathering is huge. Some Congressmen seem to be professional party goers.
Like all government reform, its genesis will not come from within Congress. There is simply no incentive. It will only be when the American public finally cries enough and demands that candidates running for election will support change. There are probably way too many other issues to divert the public’s attention now, but eventually these abuses of the public’s money and trust must be corrected. The time is growing very near.
More on Congressional abuse in a coming article. Stayed tuned.
If we look around the country, nearly all of the state governments have part time legislatures. The elected state legislators work only part time for 3 or 4 months out of the year, yet they can handle state business, often while still endlessly debating seeming silly legislation. In one of our largest and most populist states, Texas, legislators meet no more than 140 days only every other year. Now that clearly does not equate to the federal government which covers all national and international issues, but it causes people to wonder what Congressmen are doing.
In the 60s and 70s, the House met on an average of 162 days. In the 80s and 90s it went down to 139 days. In 1948, that session of Congress which was labeled the “Do Nothing Congress”, met for a total of 248 days. The second session of the 109th Congress may prove to be the laziest and worst Congress in our nation’s history by meeting only 218 days in the House and Senate combined. The current estimate is that the House in 2009 will have met no more than 93 days. That is less time than the state legislators, yet they are collecting their paychecks for only 3 months of work, not to mention having chauffeured luxury limos, private jets to take them on junkets, free meals, full pensions, health benefits better than most in the public, and various other Congressional perks. To be fair, Congressmen do spend more time on official business than just attending the floor sessions, but how much real time. Yes, there are committee meetings, but how often are they held and for how long? There is some preparation, but how much? Obama claimed to head a committee that never held a single meeting. Yes, there official functions, but what kind, how much business is really conducted, and for how long? When these are pursued in detail, we usually find that real working time is very small and social gathering is huge. Some Congressmen seem to be professional party goers.
Like all government reform, its genesis will not come from within Congress. There is simply no incentive. It will only be when the American public finally cries enough and demands that candidates running for election will support change. There are probably way too many other issues to divert the public’s attention now, but eventually these abuses of the public’s money and trust must be corrected. The time is growing very near.
More on Congressional abuse in a coming article. Stayed tuned.
Wednesday, August 5, 2009
We Get What We Vote For
In a recent article, columnist Michael Barron wrote that with the nationalization of the car companies, banks, and other businesses, we may be entering an era of "gangster government." That was his term for the way the Obama administration has been trampling on the rights of private enterprises. He was referring to the way some members of the administration and Congresses, such as Barney Frank, have directly intervened with car manufacturers by insisting on restoring dealer franchises to their friends. There is clearly a problem when the federal government can force businesses to reverse business decisions to help politically connected people, while excluding those who aren’t. When Mr. Frank and others say they see no problem and are just helping constituents, there is obviously something wrong with their moral compass. What is going on in the country when millions of people can continue to support members of Congress who lie, cheat, steal, and commit all manner of other crimes? Have Americans become so hardened and cynical about this kind of behavior that they have begun to accept as the price we must pay?
Over and over, we see the hypocrisy of so many members of Congress. We hear talking heads on television try to dismiss charges as just politics. We hear politicians try to blame the other guy for doing what they themselves are caught doing. They try to argue, “Yes, but the other party is doing it too,” as though that made it acceptable. The White House Press Secretary dismissed the protest of all the citizens across the country that opposed the proposed healthcare bill as manufactured protest by big business. The sliminess of national politics has become so bad that we no longer believe any of our leaders. Many elected officials themselves now acknowledge this as part of the game and feel they have no choice but to fight back using the same tactics. So America, what is the answer?
The answer to the problem lies with the American voter. They can either accept this abuse, the lies, the scandals, and the stealing of their freedom, or they can stand up for what is right and vote these people out. Americans must stop whining and complaining about what is wrong and fix it at the polls. If they don’t like what these people do, then they clearly have the option to remove them. Until that day comes, Americans will get more of the same. We get exactly what we vote for.
Over and over, we see the hypocrisy of so many members of Congress. We hear talking heads on television try to dismiss charges as just politics. We hear politicians try to blame the other guy for doing what they themselves are caught doing. They try to argue, “Yes, but the other party is doing it too,” as though that made it acceptable. The White House Press Secretary dismissed the protest of all the citizens across the country that opposed the proposed healthcare bill as manufactured protest by big business. The sliminess of national politics has become so bad that we no longer believe any of our leaders. Many elected officials themselves now acknowledge this as part of the game and feel they have no choice but to fight back using the same tactics. So America, what is the answer?
The answer to the problem lies with the American voter. They can either accept this abuse, the lies, the scandals, and the stealing of their freedom, or they can stand up for what is right and vote these people out. Americans must stop whining and complaining about what is wrong and fix it at the polls. If they don’t like what these people do, then they clearly have the option to remove them. Until that day comes, Americans will get more of the same. We get exactly what we vote for.
Monday, August 3, 2009
Science Drivel in American Universities
While scanning the TV channels his afternoon, I came across a science channel that was talking about theories on time and the laws of physics. I watched it for a few minutes until they started talking about a bunch of nonsense theories being put forward by several college professors. Essentially these guys were suggesting that we can learn to travel back and forth in time as though it was movie to be played. One at the University of Connecticut claims he is building a time machine. I decided to check this out and sure enough, this so-called physicist is on their teaching staff and is supposedly conducting such experiments. Any real physicist knows that these ideas have nothing to do with Einstein's theories of relativity or time dilation. It is just science fiction and there is absolutely nothing in the standard model of physics that would allow this to happen, in fact it is prohibited by several laws including the first law of thermal dynamics. Further it is a misunderstanding of the very concepts of time, which is a measurement of motion, not a destination or place.
I know this is a ramble, but I am constantly disturbed by the absurd level of incompetence that universities hire in so many fields. Where do these people come from and why don't they get weeded out early in the process. Is management so incompetent themselves that they can't tell fraud from fact? Parents are spending small fortunes on their children's education. They should be demanding that they get excellence, not moronic drivel. University presidents should be held accountable for their personnel and when they sell junk to the public, they should be financially responsible. Educating our youth is critical to the future of our country. Parents and students deserve the best and should be insisting on it.
I know this is a ramble, but I am constantly disturbed by the absurd level of incompetence that universities hire in so many fields. Where do these people come from and why don't they get weeded out early in the process. Is management so incompetent themselves that they can't tell fraud from fact? Parents are spending small fortunes on their children's education. They should be demanding that they get excellence, not moronic drivel. University presidents should be held accountable for their personnel and when they sell junk to the public, they should be financially responsible. Educating our youth is critical to the future of our country. Parents and students deserve the best and should be insisting on it.
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