A Song – Let the Games Begin Friday, Apr 16 2010

Liz and I are partners in a n new mixed martial arts (MMA) promotion company, Inner Circle Promotions, and rather than license existing music I decided to just write  my own.

So here is a song: LetTheGamesBegin.mp3.

The MMA website www.InnerCirclePromotions.com, and our first show, Gladiators 2010 is on June 26, 2010 at the South Broadway Athletic Club in historic Soulard, St. Louis, Missouri.  Our Facebook page is InnerCircle MMA, do you want to be our friend?

The song is simple, it’s just guitar, drums, and some basic electronic effects.  I wrote it with headphones and everyone, Liz, the twins, the dog, and the cat sleeping on the couch.  I need to get a photo of the recording setup (laptop, audio interface, effects setup, tons of cables, electric guitar, a couch full of sleeping people and pets, etc.).

More to come, I want to compose an album called “Songs You Can Fight To”…

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Brother, Can You Spare $90,000? Monday, Mar 22 2010

The national debt is incurred by the Federal government on the part of the citizens.  The citizens are essentially on the hook for the money, payment of interest (and principal, if we ever get back to a budget surplus) on the debt has to come from tax revenues, so you will pay for it.  But only people who are employed pay taxes, so let’s allocate the debt to the employed people; collecting debt from the unemployed, children, and retired people is not feasible or morally acceptable.

There are 138.6 million people working in the United States as of a February 2010 report on employment.  The national debt currently stands at over $12.5 trillion ($12,544,703,929,352.55 to be exact).

So, if you are working, you are on the hook for over $90,000 of our National Debt.  And that’s not all; the Federal government is working hard to maximize your debt by running massive deficits. 

Note:  The deficits aren’t just an Obama thing; Bush started the trend (and the initial bailouts), along with a lot of former Presidents.  Don’t read a political leaning into my statements.  Democrats and Republicans are the same party in my opinion.  Both are pro-war and pro-massive government spending (results speak far louder than words, trillions times more if you ask me…).

So far, during the first five months of the 2010 Federal fiscal year the Federal government has accumulated an additional $655 billion of debt on your behalf, that’s over $4,700 per employed person.  They are on track to borrow over $10,000 this year for you.  That’s the additional equal amount every working person would need to pay in Federal taxes for the government to break even.

Ok.  Maybe it isn’t fair to assign all of this debt to those who are employed.  Let’s include everyone including the unemployed, homeless, children, and the retired.  Let’s have all of America support the debt load.  The current population of the United States is slightly over 307 million.  Using total population including you, your children, retired grandparents, the homeless and destitute, and everyone else, everyone only owes $40,800.  Everyone should be driving a Cadillac Escalade with that type of debt.

2009 was a record debt year for the United States, and so far, we’re 11% ahead of that record in 2010 (2009 deficit 5 months into budget year, $590 billion; in 2010, $655 billion).  We’re certainly winning the debt game!!!

Since 2007, Federal tax receipts are down 17% while spending is up 30%.  Does your family spend more year after year in the face of less income?  Of course not, it would be foolish, it would be reckless to the point of insanity and the end of normalcy for your family.  And yet Washington does just this, building an unimaginable debt that will be carried on the backs of our children and our children’s children for generations to come.

Tax receipts for the first five months of the 2010 Federal fiscal year are down 7.5% from the same period last year.  So the “recovery” doesn’t seem to involve jobs (there’s that high unemployment) or tax revenues rebounding.  I think it’s a bank “recovery” where bailout funds are causing inflation markets (which are quite high to me given the state of things) while the populations effectively faces deflation in housing (dropping values) and inflation in the most important goods (food and energy, natural gas and oil products).

I hate to be such a pessimist, but aside from Ron Paul, there isn’t a single person in Washington pushing for fiscal responsibility.  It’s all spend, spend, spend, with no end, end, end.  If the fools ran their personal finances like they do our country’s they would be out on the street destitute and poor.  Instead they pave our future with debt that will crush any semblance of prosperity and hope for the future.  The national debt is our future, already spent and wasted.

So anyway, brother, sister, can you spare $90,000?  If you wait until the end of the year your share will be over $95,000, so I would suggest paying up now if at all possible.  I’ve got Bill Gates on the phone, willing to donate his entire personal fortune to the National Debt.  His $53 billion fortune only covers 0.42% of the National Debt, so I’m going to have to ask everyone else to pony up for the children’s sake…  It isn’t fair to saddle our children with the sins of our politicians.

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33 Nights in a Tent During 2009 Tuesday, Mar 9 2010

Note:  Click on any photo to see a larger version.

In 2009, I spent 33 nights sleeping in a tent under the stars (or storms).  Camping is my passion, and with my wife’s consent I skipped out of work early many a Friday to slip in a night under fabric, she would join me as was her pleasure.  The lowest temperature was 16 degrees Fahrenheit (Liz wasn’t there, but my friend Chris and my brother-in-law Steve were), the highest in the mid-90s (at which point I employ a battery powered fan).  I want to clear a 100 degree difference in one year at some point, I need to get close to zero for that.

I make it a point to seek out experiences when camping.  So when a large thunderstorm is heading where I like to go, I take off work early and get setup before it hits. My canine camping partner, Orion, a Chocolate Labrador, became pretty used to very close lightning strikes (the sort that raise the hair on your arms).  Half a dozen severe thunderstorms probably hit us during 2009.

Fort Kaskaskia in southern Illinois is my spiritual home in terms of camping.  It is my Eden.  Memories of Kaskaskia is the photo book I put together when it closed for a period in 2008/2009, I’ve printed off near thirty copies, mostly as gifts.  The graveyard is where I commune with the dead.  It was moved from Kaskasia to the fort site when the town flooded due to the Mississippi changing course in 1861.  This is a spot where Illinois is on the west side of the Mississippi.  Many of the graves date back to the 1700s.  Kaskaskia speaks to me; it has pure energy.  And it’s the best overlook of the Mississippi River that I know of in the area.

Here’s the graveyard one morning during a heavy fog, the photo is called Spirits of the Morning:

Here’s a great shot from the lookout at Fort Kaskaskia at sunset:

The most amazing trip of the year was a two-night stay at Hawn State Park with my friend Chris in early February. When we arrived on Friday there were a couple of inches of snow and ice everywhere, but on Saturday it was 70 degrees, we hiked over snow and ice wearing t-shirts and sweating.  Snow banks were beer coolers on the trail…  By Sunday morning all of the snow and ice had melted, we witnessed a season change in one day, from winter into spring.

Here are two photos of the small waterfalls at Hawn State Park (just across from the camping area on the trail).

And in one day, the ice melted and gave way to spring:

I also learned how to take photos through my telescope and took some pretty awesome photos of the moon.  I have a small Meade Schmidt-Cassegrain telescope I picked up on Craigslist for camping.

Here’s a shot of the Crater Eratosthenes taken from St. Francois State Park in Missouri on April 4, 2009 (right of center on the edge of the darkness):

 

My wife authorized the purchase of a new tent early in the year, and I went with an American made four-season instant tent by A-Tuffy (here’s a link to their site http://www.apachetents.com/).  I can put up or take down the tent in under two minutes with the rain fly.  Going into full four-season mode is more work, involving 32 tent stakes if I use all stake points, which I do when a storm or snow is approaching.

The arrival of our twins is going to severely cramp my camping style in 2010.  So I’m shooting for 30 more nights in 2011, after the kids are old enough to join me.  Whether my wife will let me take a one-year old camping in 20 degree weather has yet to be seen, but we already have an outdoor pack-and-play (the bottom is a ground layer tarp, it’s a Graco Sport Pack and Play)…

I believe one hasn’t lived until one has camped and used the cooler as a “heater” to prevent the contents from freezing solid…  And the best tip I learned during the year was from my brother-in-law Steve on the coldest night:  When it is very cold, nest one sleeping bag inside another, this will keep you toasty while everything else is frozen solid.  Being cold sucks, I know this from experience early in the year.

I spent a lot of time reading and writing (by hand, the only time that happens unless I bring the laptop).  I’m half way through Walden by Henry David Thoreau, which I will only read while camping and in a hammock.  I cannot wait to get my kids involved with camping.  I would like to raise them in woods…

Live well to be well.

Later,
Jason

Here’s a complete list of the nights I spent in a tent and where I slept (with some embedded photos):
1.    January 1, 2009 – Hawn State Park
2.    February 10, 2009 – Hawn State Park
3.    February 11, 2009 – Hawn State Park
4.    February 27, 2009 – Hawn State Park
5.    March 7, 2009 – Hawn State Park
6.    March 13, 2009 – Klondike Park
7.    March 14, 2009 – Klondike Park
8.    March 28, 2009 – Klondike Park

Snow falling at night, illuminated with a flash:

9.    March 29, 2009 – Klondike Park
10.    April 3, 2009 – St. Francois State Park
11.    April 4, 2009 – St. Francois State Park
12.    April 10, 2009 – St. Francois State Park

Cool photo of morning fog through the trees:

13.    April 11, 2009 – St. Francois State Park
14.    April 17, 2009 – Onandonga Cave State Park

Great shot of the Meramec River from a bluff:

Sunrise before the rain:

15.    April 23, 2009 – Fort Kaskaskia

Hawks in the clouds:

16.    April 24, 2009 – Fort Kaskaskia
17.    May 15, 2009 – Fort Kaskaskia

Orion hiding in the grass:

18.    May 23, 2009 – Kaskaskia

A great sunset from the Kaskaskia overlook, Waves of Red:

19.    June 19, 2009 – River’s Edge (float trip on the Black River in the Ozarks)
20.    June 20, 2009 – River’s Edge
21.    July 24, 2009 – Fort Kaskaskia
22.    August 29, 2009 – Fort Kaskaskia
23.    September 18, 2009 – Fort Kaskaskia
24.    September 24, 2009 – Fort Kaskaskia (Traditional Music Festival)
25.    September 25, 2009 – Fort Kaskaskia (Music Festival)

Cool silhouette of a couple of musicians jamming at sunset:

Storm coming in at sunset:

26.    September 26, 2009 – Fort Kaskaskia (Music Festival, I’m pretty dirty at this point)
27.    October 2, 2009 – Fort Kaskaskia
28.    October 9, 2009 – Fort Kaskaskia
29.    October 23, 2009 – Fort Kaskaskia
30.    November 20, 2009 – Fort Kaskaskia
31.    December 5, 2009 – Fort Kaskaskia
32.    December 12, 2009 – Fort Kaskaskia
33.    December 26, 2009 – Fort Kaskaskia

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It was a great year…

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The Steps to a Viable Third Party in the United States Thursday, Jan 28 2010

America is approaching the point where the two-party system is going to fall apart and actual choices will become available to the voting public.  Republicans and Democrats differentiate each other via moral issues (abortion, drug control, gun control, etc., things the Federal government of a “free” country shouldn’t interfere with in the first place) while both are pro-massive government and pro-military empire (try and guess five countries where we do not have a military presence, here’s the Base Structure Report which documents military assets and personnel distribution globally – http://www.acq.osd.mil/ie/download/bsr/BSR2008Baseline.pdf).

The bailouts are “Trickle down to the banks” approaches to economic stimulus (Goldman Sachs, AIG, and others should have entered bankruptcy).  The health care bill, as much as I care for the poor through my work at a local food bank, is just more spending.  At this point military and social spending (SS, Medicare, Medicaid, and unemployment) are already higher than Federal tax revenues, not including interest on the debt or any of this discretionary spending Obama’s been spouting off about.  Bankrupt is a word I use to describe the Federal government.

About eight years ago, through discussions with my Constitutional scholar friend and former radio host Lloyd Sloan (The Sloan Ranger), I came up with a concept that would lead to viable third parties in the United States .  My thoughts at the time have played out better than I expected in terms of the major parties fracturing.

In a nutshell, what I hoped would happen is that George Bush Jr. would destroy the Republican party, and the next President, a Democrat, would proceed to do the same to the Democrats.  This would allow third party candidates a foothold in Presidential politics.

And that is what’s happening.  George Bush Jr. was the first step.  To my delight, his efforts were far more successful than I would have ever expected when it came to ripping the Republican party apart.  If he was the best the Republicans had to offer then it is obvious that they don’t have anything to offer…

Then I expected the Democrats would take power, where again, they have been more successful than I envisioned.  President Obama is showing his lack of experience.  The Democratic platform is in reality the same as the Republican — they both follow “spend, spend, spend, war, war, war”.  The recent loss of the Kennedy seat in Massachusetts is a clear sign that things aren’t going as planned for the Democrats.

We’re already seeing grass roots positioning for viable third parties in Ron Paul’s Campaign for Liberty and the Tea Party movement.  At our “State of the State of the Union” lunch today we discussed what’s missing for truly viable third parties to move into the mainstream.  My friend Lloyd mentioned that what’s missing is good front-person politicians.  Ron Paul, while defining and understanding the pertinent issues, isn’t charismatic enough to compete against the well funded primary parties.  I don’t know anything about the Tea Party groups except that the name is poorly chosen given today’s vernacular as far as Tea Baggers goes…  It is a good name symbolically, but in today’s society it’s difficult to take them seriously given the innuendo.

What I see happening is that Obama will falter and be relatively ineffective (which he has been thus far).  The 2010 elections should break up the Democrat majority and effectively bind Obama’s hands for the rest of his first term.  Obama will employ Executive Orders to do things that should be in legislation, which is exactly what Bush did before him.  Obama mentioned this strategy during the State of the Union address.

In the mean time, resentment and anger will continue to build.  New groups will start up and hopefully they coalesce.  My definition of a “viable” third party is the ability to garner 20% of the  popular vote in a Presidential election.  Ross Perot was the last person to pull this off; his was the most effective third party Presidential run in recent history.  It won’t be easy and it might take a couple of additional election cycles, but I’m hopeful that parties come forth supporting real change when it comes to American politics.  Libertarians will continue to be ineffective, and while Ron Paul is associated with the Republicans I don’t think his efforts will be very effective.  The Tea Party people need a better name…

I do fear that once a third party President is elected that the nation will be in such dire financial straits that a successful turnaround may not be possible.  It would not surprise me if the United States defaulted on its debt at some point.  If the Fed raises interest rates it shoots the country in the proverbial foot, as interest on the Federal debt would explode.

I hope for better leadership in America, built on less military conquest and vastly reduced government spending.  Social spending programs have to be reeled in; it’s difficult to say we aren’t a socialist country at this point (and fascist since the banks are running things).  The Republicans and Democrats have to go if the United States is to remain a viable entity into the future.  At this point they are killing the Constitution they made an oath to protect.

Viva la revolution!

Oh, and if I was President, my Federal health plan would be to provide the poor with government funded PRIVATE clinics for basic and preventative care.  The poor currently use the emergency room as their medical system, which is a very expensive approach.  Basic and preventative care would dramatically reduce emergency care costs.  Anyone could use these facilities, why go the doctor for immunization shots?

America is approaching the point where the two-party system is going to fall apart and actual choices will become available to the voting public.  Republicans and Democrats differentiate each other via moral issues (abortion, drug control, gun control, etc., things the Federal government of a “free” country shouldn’t interfere with in the first place) while both are pro-massive government and pro-military empire (try and guess five countries where we do not have a military presence, here’s the Base Structure Report which documents military assets and personnel distribution globally – http://www.acq.osd.mil/ie/download/bsr/BSR2008Baseline.pdf).

The bailouts are “Trickle down to the banks” approaches to economic stimulus (Goldman Sachs, AIG, and others should have entered bankruptcy).  The health care bill, as much as I care for the poor through my work at a local food bank, is just more spending, and at this point military and social spending (SS, Medicare, Medicaid, and unemployment) are already higher than Federal tax revenues, not including interest on the debt or any of this discretionary spending Obama’s been spouting off about.  Bankrupt is a word I use to describe the Federal government.

About eight years ago I came up with a concept that would lead to viable third parties in the United States through discussions with my Constitutional scholar friend and former radio host Lloyd Sloan (The Sloan Ranger).  My thoughts at the time have played out better than I expected in terms of the major parties fracturing.

In a nutshell, what I hoped would happen is that George Bush Jr. would destroy the Republican party and the next President, a Democrat, would proceed to do the same to the Democrats.  This would allow third party candidates a foothold in Presidential politics.

And that’s what’s happening.  George Bush Jr. was the first step.  To my delight, his efforts were far more successful that I would have ever expected when it came to ripping the Republican party apart.  If he was the best the Republicans have to offer then it is obvious that they don’t have anything to offer…

Then I expected the Democrats would take power, which again, they have been more successful that I thought.  President Obama is showing his lack of experience and that the Democrat platform is in reality the same as the Republicans (they both follow “spend, spend, spend, war, war, war”).  The recent loss of the Kennedy seat in Massachusetts is a clear sign that things aren’t going as planned for the democrats.

We’re already seeing the grass roots positioning for viable third parties in Ron Paul’s Campaign for Liberty and the Tea Party movement.  At our “State of the State of the Union” lunch today we discussed what’s missing for truly viable third parties to move into the mainstream.  My friend Lloyd mentioned that what’s missing is good front-person politicians.  Ron Paul, while defining and understanding the pertinent issues, isn’t charismatic enough to compete against the well funded primary parties.  I don’t know anything about the Tea Party groups except that the name a poorly chosen phrase given today’s vernacular as far as Tea Baggers goes…  It is a good name symbolically, but in today’s society it’s difficult to take them seriously given the innuendo.

What I see happening is that Obama will falter and be relatively ineffective (which he has been thus far).  The 2010 elections should break up the Democrat majority and effectively bind Obama’s hands for the rest of his first term.  Obama will employ Executive Orders to do things that should be in legislation, which is exactly what Bush did before him.  Obama mentioned this during the State of the Union address.

In the mean while, resentment and anger will continue to build.  New groups will start up and hopefully they coalesce.  My definition of a “viable” third party is that is needs to be able to get 20% of the popular vote in a Presidential election.  Ross Perot is the last person to pull this off; his was the most effective third party Presidential run in recent history.  It won’t be easy and it might take a couple of additional election cycles, but I’m hopeful that parties come forth supporting real change when it comes to American politics.  Libertarians will continue to be ineffective, and while Ron Paul is associated with the Republicans I don’t think his efforts will be very effective.  The Tea Party people need a better name…

I do fear that once a third party President is elected that the nation will be in such dire financial straits that a successful turnaround may not be possible.  It would not surprise me if the United States defaulted on its debt at some point.  If the Fed raises interest rates it shoots the country in the foot, as interest on the Federal debt would explode.

I hope for better leadership in America, built on less military conquest and vastly reduced government spending.  Social spending programs have to be reeled in; it’s difficult to say we aren’t a socialist country at this point (and fascist since the banks are running things).  The Republicans and Democrats have to go if the United States is to remain a viable entity into the future.  At this point they are killing the Constitution they made an oath to protect.

Viva la revolution!

Oh, and if I was President, my Federal health plan would be to provide the poor with government funded PRIVATE clinics for basic and preventative care.  The poor currently use the emergency room as their medical system, which is a very expensive approach.  Basic and preventative care would dramatically reduce emergency care costs in my opinion.  Anyone could use these facilities, why go the doctor for immunization shots?

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December 2009 – Federal “Monthly Budget Review” Review Thursday, Dec 10 2009

Here’s a PDF link to this article for printing.

Welcome to my “Monthly Budget Review” Review. The Monthly Budget Review is a short monthly report put out by the Congressional Budget Office detailing Federal revenues and outlays. My Review of this Review is designed to highlight certain trends that I consider interesting or disturbing, bringing in additional data from other Federal sources. At the end there’s a data table with values from current and historical Monthly Budget Review documents.

We are two months into the 2010 Federal fiscal year, and it looks like the Federal budget problems are accelerating in a bad way. Borrowing by the Federal government is snowballing due to increased spending and much lower tax receipts.

I predict the 2010 fiscal year Federal budget deficit will be $1.75 trillion on revenues of $1.6 trillion with the United States borrowing to cover more than half of spending. The “official” CBO deficit projection is $1.379 trillion.

Spending on welfare programs consumed 96% of Federal revenues, leaving almost no real revenue to cover defense and all other programs.

The national debt stands at $12,086,172,114,368.23 (that’s $12 trillion and change).

Note: All values and year to year comparisons are for the first two months of the Federal fiscal year for the respective years.

The Chart

Notice how increasing welfare spending has essentially caught up with Federal revenues. 2010 overall spending continues to tower over revenues, spending is more than two times revenues.

Revenues

For the first two months of each fiscal year, from 2008 to 2009 tax revenues dropped 6.4% from $330 billion to $309 billion.  From 2009 to 2010, tax revenues fell a further 13.6% from $309 billion to $267 billion.  Since 2008, tax revenues have fallen over 19%.

Most of the drop in 2010 is due to lower Individual Income tax receipts.  It’s interesting how Corporate tax receipts are negative so far this year.

Outlays

Total outlays during the first two months of each fiscal year dropped from 2009 to 2010, mainly due to lower TARP costs and no payments to GSEs (Government Sponsored Entities such as Freddie Mac, Fannie Mae, Ginnie Mae, FDIC, etc.).

Spending on welfare and other programs increased while defense spending stayed about the same.

Welfare and Defense

I like to analyze welfare and defense spending against tax revenues.  I believe this comparison shines a bright light on the budget issue.  Welfare benefits include Social Security, Medicare, Medicaid, and unemployment.

During the first two months of the 2010 fiscal budget year, welfare outlays have totaled $257 billion on revenues of $267 billion.  So, after welfare, there was $10 billion to spend on everything else before requiring deficit spending.

Defense and welfare outlays combined total $369 billion on $267 billion of revenues, meaning we’ve already deficit financed $102 billion on welfare and defense alone, leaving us to borrow for all other programs (any government organization beginning in “Department of” aside from Defense).

Deficit Projection and Thoughts

Doing a straight line projection based on total revenues and outlays for the first two months of the fiscal year, I predict a 2010 Federal budget deficit of $1.75 trillion.  The Presidential Budget Analysis by the CBO predicts a 2010 Federal deficit of $1.379 trillion.

During the first two months of the 2010 fiscal year the government has had to borrow $292 billion, an average of $146 billion per month, to fund operations.  In order to meet the CBO estimated deficit of $1.379 trillion for the year, the average deficit per month for the rest of the year need to be under $108 billion per month.

During the first two months of the 2010 fiscal year, the Federal government has had to deficit finance 52% of their operations (spending was more than twice revenues).  Two months into the 2007 fiscal budget the government only had to deficit finance 28% of spending.  Even if tax receipts turn around the deficit will continue to rise.  Spending cuts on the level of hundreds of billions will be required to turn this ship around.  Or dramatically higher taxes.

Add Federal health care to this situation and it only looks worse.  Federal Reserve Chairman Ben Bernake has to keep the Federal funds rate near zero or else interest paid on the debt would skyrocket (I consider this the eventual “gotcha” from all of the deficit spending).  Low interest rates make debt cheap if you are a large bank, but it punishes responsible people who try to save.  A moral hazard has been realized.

Two years ago the word trillion wasn’t spoken much by citizens of the United States.  But now it’s an everyday word that illustrates the insane level of reckless government spending.  Aside from defining the magnitude of the Federal deficit, it also represents the number of excuses politicians have for not being fiscally responsible.

Data Sources (Monthly Budget Reviews)

Dec. 2007 MBR – http://www.cbo.gov/ftpdocs/88xx/doc8878/12-2007-MBR.pdf

Dec. 2008 MBR – http://www.cbo.gov/ftpdocs/99xx/doc9941/12-2008-MBR.pdf

Dec. 2009 MBR – http://www.cbo.gov/ftpdocs/108xx/doc10825/12_2009_MBR.pdf

CBO Presidential Budget Analysis – http://www.cbo.gov/ftpdocs/100xx/doc10014/03-20-PresidentBudget.pdf

Treasury Direct – http://www.treasurydirect.gov/NP/BPDLogin?application=np

Data

December 2009 – Federal “Monthly Budget Review” Review
* All values are in billions
* All values represent the first 2 months of the Federal fiscal budget year for each respective year.
Revenues	2007	2008	2009	2010
Individual Income	149	161	146	109
Corporate Income	14	9	2	-8
Social Security	125	131	135	134
Other	26	29	26	32
Totals	314	330	309	267
Outlays
Defense	93	107	112	112
Social Security	92	98	103	114
Medicare	65	71	66	74
Medicaid	31	34	36	45
Unemployment	0	0	10	24
Other Programs	115	130	143	152
Net Interest on Debt	39	44	36	36
TARP	0	0	71	2
Payments to GSEs	0	0	14	0
Totals	435	484	591	559
Analysis
Amount Borrowed to Cover Outlays	121	154	282	292
% of Budget Deficit Financed	28%	32%	48%	52%
Total Welfare Outlays	188	203	215	257
Revenues Remaining after Welfare	126	127	94	10
Total Defense/Welfare Outlays	281	310	327	369
Revenues Remaining after Defense/Welfare	33	20	-18	-102

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It’s the Debt, Stupid Wednesday, Mar 18 2009

Here’s a summary of my thoughts on the macro US economy.

I think the United States is headed for financial Armageddon. It will stem from excessive government debt combined with diminishing Federal tax receipts and increasing costs to service the debt.

First, the projected Federal budget for 2009 is $3 trillion+.

Second, the national debt stands at a little above $11 trillion.

Third, the amount of money paid to service the Federal debt in 2008 was $451 billion (yes, almost half of a trillion dollars), the greatest since at least 1988, probably an all time high. Let’s assume that’s $500 billion in 2009, the cost of simply servicing the debt would be about 1/6th, or close to 17% of the entire Federal budget at $3 trillion.

Forth, the deficit is projected to increase by $1.75 trillion in 2009 (from the first link). The actual “deficient” portion is $1 trillion (the remainder being stimulus), and Obama has said that he plans to halve the deficit to $533 billion by 2013. Doing a straight line analysis from $1 trillion to $533 billion over 4 years and including the additional $750 billion for stimulus shows the deficit increasing by about $4.6 trillion, close to 50% in 4 years.

Fifth, someone has to buy all of this debt. China’s Premier Wen Jiabao last week expressed concern about the safety of their US denominated Treasuries. To quote: “To be honest, I am definitely a little worried.”  In January 2009, net foreign purchases of long term US debt were negative $43 billion.

Sixth, unemployment will continue to rise. Home prices will continue to fall. Auto sales will not recover. The GDP will fall as will tax receipts. We’re facing deflation which is already putting downward pressure on income, and higher unemployment leads directly to less tax income (just the opposite as it increases demand for unemployment which the Feds are already helping states with). The citizens are swamped with debt; growth and prosperity are nostalgia for now. Tax revenues for 2007 were $2.57 trillion, making the interest on the debt close to 20% of income. 2008 and 2009 tax receipts will be lower, the hard part is guessing by how much.

I see three critical factors. The government’s situation involves 1) declining income and 2) enormous amounts of new debt. We know the debt will be growing for years guaranteed. I would say the same for income. 3) Interest rates on the US debt would rise if the US debt is downgraded or if there is a greater perceived risk – this could greatly exacerbate the problems.

Some possible outcomes:

1.   Demand wanes for Federal debt. Right now treasuries are probably the safest US dollar denominated investment. If the government can’t sell its debt, I don’t know what happens. I figure a very quick shutdown of portions of the government and/or a dramatic drop in social entitlements, but I can’t be sure of what the reaction might be (and what is possible).
2.  Caught in a debt trap. I have a hard time seeing the Federal government defaulting on its debt. I could see a situation where we are able to keep right on the edge, like a debted family that lives paycheck to paycheck. Debt holders would simply be sucking up as much of our income tax revenues as possible without the system breaking. This would be a temporary situation and many government services would be shuttered.
3.  Default on Federal Debt. This would represent a whole new ball game. Holding metals would be a sensible choice for this situation, I would recommend that instead of alternative currency denominated investments. Are there any truly “safe” currencies in the world at this time and moving into the future?

All three outcomes would involve a drastic reduction in government services.

Determining how the dollar will react is more complicated and is essentially based on the health of other nations. The past few months have seen the dollar rise against most currencies as they all struggle and the US Treasury is viewed as a safe haven. Any of the three outcomes above would result in heavy downward pressure on the dollar. But if other countries are suffering in the same manner (which seems likely), it might retain parity against other currencies.

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Send Madoff to Guantanamo Bay Wednesday, Mar 18 2009

Bernard Madoff is a financial terrorist. I don’t see any other way of interpreting the situation. I’m most bothered by his being charged with eleven financial related charges (and his wanting to stay out of jail until his sentencing). As I see it, there are thousands of additional criminal charges that still need to be filed, and life in prison should not be his final outcome.

Allow me to briefly cover the criminal charges.

Involuntary Manslaughter - His abuse of trust directly resulted in the suicides of Thierry Magon de la Villehuchet, William Foxton. That’s two charges of involuntary manslaughter of foreign nationals (one French, one British).

Theft – If a charity kept its funds in a cash box and I stole it I would be charged with felony criminal theft. This doesn’t seem too different from what Bernard Madoff did to the over 4,000 entities (individuals, charities, etc.) that lost money “investing” with him. Each client represents one charge, so that’s over 4,000 felony theft charges.

Tax Evasion – The final total of client account “values” was almost $65 billion. The actual amount of money paid in (the basis) was certainly much smaller since the “returns” on the “investments” were higher than possible. The difference between $65 billion and the basis paid in on the accounts represents capital gains taxable money. This no doubt represents billions of dollars in capital gains taxes that will never be collected. Instead, massive losses will be claimed, compounding the tax evasion. And there’s the situation of resolving “profits” paid out to people using other people’s “investment” money. That’s going to cost a bit in terms of IRS resources.

There was a noble solution that Bernard Madoff could have chosen. He could have killed himself the night he told his sons of the scheme, or before. That would have represented true shame for his misdeeds. Instead, he chose the path of the coward.

Should Bernard Madoff spend his last days in jail? No. Justice is not served by his continuing existence. I propose a death sentence by hanging, performed privately for those who lost money investing with him and the families of those who committed suicide because of his actions. He’s a terrorist of the worst ilk, and his type should not be afforded the luxury of witnessing the next day.

Or send Bernard Madoff to Guantanamo Bay until the end of his days. I think that would be fair, treat him like the terrorist that he is.

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A Bailout Plan for Automakers Thursday, Feb 19 2009

Here’s how I would handle the automakers with regards to bailout funds. The key issue is excess capacity. If one automaker was to fall, the other two will have enough excess capacity* combined to fill the gap**. At that point they would be running near or at capacity to fulfill domestic demand and be in a position to thrive rather than wither due to excess competitors or capacity. The remaining companies would be viable in today’s crisis and would expand and grow during a turnaround.

A lot of people would become unemployed. Maybe a million, maybe more. Addressing this will take bailout funds, use the funds to help people rather than support those who got us into this mess in the first place. More on that under the fold.

Now then, for now, do nothing. The trigger point for action is a bankruptcy. The action to take is liquidate.

Once a bankruptcy has occurred get stakeholder buy in for the plan or just do nothing. Stakeholders would be paid as required from the proceeds of the plan.

As for the assets…

Auction vehicle models as packages combined with plant facilities to US owned car interests (other auto manufacturers or private investment groups). Intellectual property and patents should stay in US hands. Complete union renegotiations would occur. This should preserve some jobs.

For viable models and plants that don’t attract outright interest, offer bailout funds and/or attractive financing to the auction process. Bailout funds should be limited to potentially profitable models. Some jobs would be saved.

For plant assets that either don’t attract attention or are obviously unprofitable the plant should close, but the government should assist the asset towards becoming a viable manufacturing facility. Bailout funds and/or preferential financing should be offered to companies that will take on the plant and put it to use. This should support the US manufacturing base and create new jobs.

Completely unwanted plant assets should be auctioned to the public.

All other assets should be sold at auction.

Valuable divisions/groups such as alternative fuel vehicles and design teams could be absorbed by willing takers, possibly including related patents at discounted costs. Including patents to sweeten the deal (tie strings to the employees as part of the deal) should help to preserve some jobs.

The remaining patent portfolio should be auctioned off in a way that maximizes value.

Catastrophic job losses would occur at the corporate level. Plants will shut down as well. Job losses at suppliers and dealerships would be massive. This process is simply “rightsizing” the US auto industry, which is currently fat and bloated, serving a demand level that’s basically fiction.

It is at this point that additional bailout funds are needed. Bailout funds should be used to provide additional unemployment for former employees of the company. As well, bailout funds should be applied to job training and for relocation for the company’s laid off workers.

It is obvious that a bankruptcy and dismantling of major automaker would unduly injure Detroit, Michigan. Companies working directly with the failed company (suppliers, consultants, etc.) should also receive bailout funds for extended unemployment for employees laid off in the city of Detroit and the surrounding suburbs.

A major concern of mine is that the remaining US automakers might be shunned on fears that they might collapse as well. It may seem protectionist, but bailout funds might be needed to temporarily promote purchasing US branded vehicles. Provide the benefit directly to purchasers in the form of a discount or preferential financing. Temporary is the key to this type of benefit, after a period of at most a year the companies will need to stand on their own.

Under this plan the bailout funds would be used for the following purposes:
• Preserve auto manufacturing jobs as possible by subsidizing potentially profitable plant auctions.
• Promote manufacturing jobs where plants fail through funding and financing.
• Provide extended unemployment benefits for laid off workers.
• Provide job training and relation funds to laid off workers
• Provide a temporary incentive to purchase US branded vehicles, supporting the market.

The bailout funds would help the citizens of the United States. Bailout funds would not be used to prop up companies waiting to fail.

Small companies fail. Large companies fail. Enron failed (good riddance) and the world didn’t end. It’s time to let the automakers stand and fail on their own. Until we let one fail the end result is inevitable. One of them will fail.

* General Motors failing would represent a shortfall in excess capacity, but my plan calls for vehicle models and plants to be auctioned and continued as economically viable, so any capacity shortage could be overcome easily.

** Please refer to the graph in my previous post Excess Automakers. Here’s the data I extrapolated from the graph:

	Ford	General Motors	Chrysler	Totals
Capacity	3,300,000	5,000,000	2,900,000	11,200,000
Production	2,300,000	3,200,000	1,900,000	7,400,000
Excess	1,000,000	1,800,000	1,000,000	3,800,000
Production/Capacity	70%	64%	66%	66%

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Excess Automakers – Let One (Or Two ) Fail Wednesday, Feb 18 2009

General Motors and Chrysler are demanding an additional $21 billion in bailout funds. Supposedly this is because car sales have been soft. I guess they don’t realize that this is the new reality, car sales aren’t soft; they are what they are.

The US auto manufactures have been mismanaged for years. General Motors (GM) has effectively been bankrupt since 2006 (when liabilities surpassed assets, never to look back). The big three have more excess capacity than either Ford or Chrysler’s actual production. They stuck with the mantra “American’s want big cars” as the Japanese brands caught up and eclipsed the US brands. In January it was announced that Toyota passed GM as the world’s largest automaker, a title GM had held for 77 years. 77 years.

The light-vehicle excess capacity of the big three is around 3.8 million vehicles per year (see graph below). Let’s assume that all of this excess capacity is sold off to a new car company called Excess Capacity Inc. Once Excess Capacity Inc. completed it’s acquisitions it would have production capacity of 3.8 million vehicles per year. That’s more than the production capacity of Ford or Chrysler, so Excess Capacity Inc. would be the 2nd largest automaker in the US. Yes, the excess capacity of the big three is more than the production of either Ford or Chrysler.

Below is a graph that was printed in the Wall Street Journal on February 8, 2009. It shows North American light-vehicle capacity and production for the big three and Toyota. Ford has reduced capacity as demand slipped, but keeping one million vehicles of excess capacity (a third of total capacity) seems… excessive. General Motors defines futility, keeping production around 5 million in the face of three consecutive drops in annual sales. Chrysler toes a similar line, keeping capacity steady in face of declining demand. Toyota is the only company showing even one year of increased year-over-year sales and very good excess capacity management. That’s right, good management…

Have I mentioned that all three companies have been mismanaged for a while? They built up like sales would grow until the end of time, but it seems the end of their time might come first.

The General Motors bailout is farcical at best. The attempt to reduce unsecured credit from $27.5 billion to $9.2 billion by exchanging bonds for common stock is a lose/lose proposition.

In the bailout of Fannie Mae and Freddie Mac bondholders were all guaranteed while stock holders were left out to dry (Fannie Mae stock, from a October 5, 2007 high of $67.30 fell current $0.57, an over 99% drop). In the case of Fannie/Freddie the debt was “secured”, but possibly through toxic assets. For General Motors, the debt is unsecured, but GM’s balance sheet shows that as of September 30, 2008 GM had equity of -$60 billion. So if the GM declared bankruptcy, the holder’s of the unsecured bonds would get nothing. But if they converted the bonds to common stock and the company went bankrupt they would get… probably nothing.

General Motors is bankrupt. And has been for years. There is only one course of action in my mind.

We should wait until one of the big three goes bankrupt. Auction off the assets to the remaining US automakers, using bailout funds to help with financing. The issue of excess capacity is diminished, and hopefully the remaining two could ramp up production to fill the gap left by the loser. Auction off plant assets to other manufacturers, again possibly using bailout funds to jump start new activities.

All of this hand wringing about massive job losses misses the point that the excess capacity is sapping these companies and represents a massive waste of capital. Excess capacity exists because people are being paid to do nothing. There could easily be a million layoffs getting excess capacity under control, this is just something we will have to live with.

The jobs will be lost one way or another. The real question is how many billions of bailout funds will be wasted getting to this point?

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Fully Debted Saturday, Feb 14 2009

The bailout was supposed to free up debt markets.  Congress wants banks receiving bailout funds to loan the money out (which they aren’t).  But what if the problem isn’t the availability of debt, what if the problem is a lack of people seeking additional debt?

The cornerstone of an economy is the consumer.  There are three types of consumers:  those who are building debt, those who are not seeking additional debt, and those who are ‘Fully Debted” (very high debt payment-to-income ratio).

I don’t think there are many people left in the first category, people are either being fiscally conservative (not seeking additional debt) or they are fully debted.

The housing bubble is the key.  It directly impacted the consumer, unlike other bubbles such as the .Com bust earlier in the century.  Easy lending allowed many people to get fully debted.  People could purchase expensive homes or just take loans against their homes increasing “value”.  Record car sales ruled the day.  Money was everywhere, in greased hands slick with debt.

And the Nation feasted on debt.  The nation’s debt to income ratio skyrocketed to obviously unsustainable levels due to a sharp increase in mortgage debt that started in the late 90’s.

The following graphs were compiled from US Census data.  Consumer debt includes revolving and non-revolving non-mortgage loans (including student loans).  Values are not adjusted for inflation.  Obviously mortgage debt is the problem.

Now they (the “professionals”) say frozen debt markets are the problem, and the bailout is designed to free up the credit markets.

What froze up the debt markets?  Toxic housing debt.  I can’t quantify it, but the total value of mortgages outstanding is trillions higher than total housing value.   Debt markets won’t return to “normal” functioning until the toxic housing debt is resolved.  This brings us back to the consumer, many of whom are holding a mortgage that is either too expensive or is upside down (current value well below the current mortgage).

The consumer is faced with foreclosure.

This is the short circuit in the system.  Massive foreclosures remove millions of people from the debt pool for a period of time.  This fast growing segment of the population can’t grow the economy through debt.

On top of this, people who can afford to be fully debted (house poor) are restricted when it comes to taking on additional debt.  Fully debted people can’t get loans to start small businesses.  They contribute to the economy through debt service.

It’s no wonder that Paulson and crew are now seeking to “help” homeowners facing foreclosure.  Letting everyone fall by the wayside via foreclosure just reduces our ability to be a debtor nation.

What needs to be addressed?  Foreclosures, a population with no access to debt is both interesting and sobering.  Toxic mortgage assets need to be addressed, to help us return to more functional markets.  The Federal funds rate needs to promote savings rather than debt, it should be raised considerably.  This also helps to slow debt creation, which would be a good thing.

http://www.census.gov/compendia/statab/tables/08s0677.xls
http://www.census.gov/compendia/statab/tables/08s1159.xls
http://www.census.gov/compendia/statab/tables/08s1161.xls
Income calculated by multiplying out the number of households by the average household income.

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