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Tuesday, October 30, 2012

"Bill" Board Day 10 – Brother, can you spare a dime


First, I must make an admission. The advertisement for this billboard was placed in August 2012.  At that time, the United States had experienced 43 months of unemployment over 8.0%. In fact, the August number was 8.1%  Knowing that this billboard was going to run in October and November, I stuck my neck out and projected that we would sustain one more month of unemployment over 8.1%, so I went for it.  I was wrong: the official number in September was 7.8%!  Congratulations, Mr. President! As you recently stated, unemployment has reached the “lowest level since you took office.”  The problem is that unemployment was 7.8% when you took office, almost four years ago.

Several other problems with the unemployment number concern me.  First, the Bureau of Labor Statistics this week stated that because of Hurricane Sandy, they are not going to release the unemployment data for October until after the election.  I may be a little gun shy when it comes to the President’s promises, but this sounds like an attempt to not release a bad number before the election.  You know, Mr. President, you promised if we bought into stimulus, TARP, quantitative easing … those things that increased our debt almost $5T … unemployment would return to 5.6%.  But what we have is an unemployment rate that is no different than the day you took office, which you characterize in a manner that makes it appear that you are responsible for the great progress in unemployment reduction.

Second, the September data is circumspect.  The raw employment level of the Household Survey -- the number which gets seasonally adjusted and then goes into the unemployment rate calculation --appears to be unreasonably high. If it is off, the unemployment rate is skewed downward. History suggests we have a problem (see graphic).

The August-to-September change, +775,000, was the largest upward August-September change in the history of the Household Survey. It was the largest difference between the Household Survey and the Establishment Survey (August-September change) in the history of the Household Survey. In fact, it was the only time ever that the Household Survey showed a greater increase in September than the Establishment Survey. Based on the previous 64 years (and assuming August-September changes are independent of each other year-to-year), the chances of seeing an increase that big in the Household Survey in September was 0.14%. That is well outside most reasonable statistical "confidence intervals."

The reported data is wildly inconsistent with GDP growth as well, reported as 1.3% in the second quarter, and in decline over the past two years. Creating the level of monthly jobs reported would reflect economic growth 3 to 4 times as large.

In short, most statisticians would say these results are statistically unlikely. I ask again: why is the October data not being released?

Last, the unemployment rate calculation suffers from another structural weakness. It is defined as the number of unemployed workers divided by the total labor force. Persons who stop looking for work drop out of both the numerator and denominator of this calculation, which improves the number.  For example, suppose we are crazy enough to re-elect this administration, and we end up with two unemployed persons looking for work and a total labor force of three. The unemployment rate is 2/3 or 66.7%.  Suppose the next month, one of the 2 unemployed persons -- an old guy like me -- has been looking for work for 1 year and it just is not promising, so I drop out of the workforce (viz., stop looking for work).  Under this scenario, the unemployment rate is calculated as ½ or 50%!  Magically, unemployment has gone down almost 17% in one month. 

According to Peter Ferrara, Director of Entitlement and Budget Policy for the Heartland Institute, writing in Forbes magazine, the real unemployment rate is about 14.3%.   In addition, the jobs being created are not replacing the incomes of the jobs being lost. As economist John Lott reported at FoxNews.com on October 3, “Mid-wage occupations accounted for 60% of the jobs lost during the recession, but low-wage occupations accounted for 58% of hiring during the recovery.” As a result, since President Obama entered office, annual median household income has declined by $4,019, or 7.3%. Moreover, the decline has been greater since the recession supposedly ended in June, 2009, than it was during the recession. In the three years from June, 2009, until June, 2012, median household income declined by 6%.  Clearly, the President’s so-called “policies” are not working.

My advice: if you want an economy that is less encumbered by bureaucracy, regulation, and lack of accountability and might actually create an economic environment that supports job growth, you best elect someone who has actually created jobs before. Barack Obama is not that guy.
 
Vote November 6th.

Monday, October 29, 2012

“Bill” Board Days 8 and 9 – If it isn’t visible, it does not get managed


There is an old saying in business, “If it is not visible, it will not get managed.”  What is true in business is absolutely true in government, with one minor difference. Business proactively identifies relevant metrics that drive the business’s performance, assess its performance against them, and sets goals to improve. Politicians, on the other hand, want to hide from the American people performance metrics that, if made visible, will be a threat to their re-election.  So it is with debt.

Two types of “debt” are measured: national debt and total debt.  National debt is the financial obligation that has been created, over the country’s history, by spending more over time than is collected in tax receipts (viz., accumulated deficits). This is the “visible” debt metric we see in the news.  Total debt includes the National debt as well as debt which we are obligated by law to pay, but has not yet been incurred (i.e., social security, Medicare for Baby Boomers who have yet to retire but will).  This is the “invisible” debt metric the politicians do not want the American people to see.

While National debt ($16.2T as of this writing), in and of itself, is problematic and a current concern, the fact is the Total Debt ($58.6T) is a true measure of the larger problem that must be solved.  Fortunately, for the American citizen, these metrics can be accessed at http://usdebtclock.org.

So why should you care?  If you have a family, the total debt per family, as of this writing, is $702,000.  This represents future benefits which the government has promised you and the rest of America and must be paid for through either taxes or borrowing. So let’s assume: (1) the debt is fixed (it is not: it was $684,000 in July 2012 when the billboard advertisement was placed and $702,000 as of October 28, 2012); (2) your family has to pay for its portion of the debt over the next 20 years (one generation); and (3) the interest rate is at the current rate of about 3%, compounded monthly. In this case, your family will have to pay $3,884 dollars per month or $932,160 over 20 years!

Does that sound like a scenario for which you are ready to sign up?  Well, then you won’t like the real scenario.  The average interest rate on the debt since 2000 has been approximately 4.7% versus the current rate of approximately 3%.  Under this interest rate scenario, your family will pay $4,499 per month or $1,079,932 over the 20 year period. Your share of the debt just grew approximately $148,000. Do you believe interest rates are not going to increase? I don’t.

To make my point, the median family income in the United States (viz., half of the families in America make more than this and half make less) is approximately $50,000.  This means that under the most reasonable scenario (4.7% interest), the median family (before taxes) will have to pay ALL of its income (and a little bit more) to simply amortize its share of the debt that will be incurred to pay for the family’s benefits that have been promised to them by less than forthright politicians.

The obvious question is “if this is not a sustainable path, how have we made it work to date?”  Good question. 

First, we do it through promotion of egalitarianism and progressive taxation, promising benefits to all people but shifting the burden to pay from those who cannot (viz., the bottom 50%) to those who can (viz., the top 50%).  This works for a while until those who vote for a living outnumber those who work for a living. When this point is crossed, those who vote can always demand more services, for which they are unable to pay. At some point the so-called “rich” cannot pay either, less money is invested to grow the economy and more to support social programs. The system collapses.  I believe our country is close to this point. Fifty-three percent of Americans pay for 100% of all income tax collected. That means 47% pay no income taxes (the taxes that pay for defense, all government with the exception of entitlements, and interest on the debt), but enjoy all the benefits of a free society.  Is that ethical?  Is that fair?  This question is clearly a subject for another blog.

Second, we can borrow money from our children by placing the debt on them or borrow from foreign governments, which over time will demand higher and higher interest rates to service a debt that they perceive to be at risk. Can you say Portugal, Italy, Greece, and Spain?

Last, when all of the above does not work, the government prints paper money to pay off current obligations (i.e., TARP, quantitative easing, et cetera). This paper money has no intrinsic value because its creation is not associated with the creation of a product or performance of a service that adds value to the economy. Its ultimate effect is to devalue the currency. Your 401K and savings are worth less.  In fact, as the printed currency enters the economy, you have more “dollars” chasing the same level of goods and services, and if not controlled, can lead to inflation and increased interest rates, further exacerbating the downward spiral of the economy. 

Electing a new president is not going to magically eliminate these problems.  However, the first step in solving a problem is to recognize you have one.  The current administration either does not recognize a problem exists, or it does not care.  In either case, my solution is to eliminate at least one variable by replacing the current President with someone who has an actual track record of dealing with large company, big program financial turnarounds.

Vote November 6th.

Sunday, October 28, 2012

“Bill” Board Day 7 – Proverbs 22:7b … and the borrower becomes the lender’s slave


In 2011, the government collected $2.3T in tax receipts and spent $3.6T. The difference -- $1.3T (~ 40% of expenditures) -- had to be borrowed.  The interest on the debt in 2011 was $454B.

What happens if we continue to tinker around the edges and basically do nothing about our profligate spending? What if we continue with the policies proposed by the Obama administration?

The answer is not pretty (See graphic below).  Extending the analogy I started in the prior post where I compared the federal government’s fiscal policy to that of a household, over the next four years, our household’s debt will climb from $150,000 to $228,201.


Our household income will increase from $23,000 to $31,614, but we will have to borrow an additional $8,699 per year (a total of $21,699) to cover our actual expenditures of $53,313. Our actual income will be sufficient only to pay for our fixed costs (viz., government entitlements) and some small part of the credit card interest (viz., interest on the debt). The borrower becomes the lender’s slave.

For those who are interested, the model I used to project these results made these assumptions:

·       Government expenditures were divided into four categories: entitlements, defense, all other government, and interest on the debt.

·       Sequestration was assumed to occur in 2013 and is represented as a 5% cut in defense and a 5% cut in other government spending.

·       The model assumes the debt as of 2011 is $15T.  This does not account for off balance sheet liabilities, which place the debt at between $60T and $100T.  Some sources have it as high as $120T.

·       The federal budget is assumed to grow at a rate of inflation of 2.5% per year.  Note, my understanding is that anything less than a 4% to 7% growth rate in Washington is considered a cut.

·       Boomers are retiring. As a proxy to determine growth in benefits, which will be a function of the growth in number in this age group and inflation (assumed at 2.5% per year), I calculated the following:

-       Number over 65 eligible to receive benefits in 2010 = 40M, Number in 2030 = 72M (US Census Bureau)

-       Currently average SSA monthly benefit is $1,200 per month[1] ($14K per year) (SSA).

-       Estimated benefit in 2010 = 40M * $14,000 = $560B

-       Estimated benefit in 2030 = 72M * $14,000 * (1.025)^20 = $1,650B

-       Annual growth rate is found by solving the equation $1,650B = $560B * (1+X)^20 or X = 5.6%.

·       The model assumes that GDP growth and Tax Revenues as a function of GDP fall within historical values.  In other words, both the economy and the tax structure, based upon their intrinsic nature, can only produce numbers that are supported by historical experience. The numbers I used were taken from the White House website on the budget and delimited to the years 1950 through 2011.  

I consider these to be reasonable assumptions, given our track record to date.  What I do not consider reasonable is our President’s penchant to continue to borrow money we do not have to pay for programs that we cannot afford, many of which are not constitutionally mandated.

When your ship is flooding, your focus is to stop the flooding.  When your business is failing, you put the right people in place to understand and correct the problems.  When your country is failing, you elect new leadership.

Vote November 6th.


 

“Bill” Board Days 4-6: If you can’t pay for it, put it on your credit card


As of Fiscal 2011, the last full fiscal year for which data is available and published on the White House website, America borrowed 40 cents on every dollar it spent. The deficit (viz., the amount of money the government spends less the amount of money it took in as tax receipts) in 2011 was the second largest in history: $1.298T.  Expenditures in 2011 represented 24.1% of Gross Domestic Product (viz., GDP, the value of all goods and services produced by the United States –  the highest expenditure rate in the post-World War II era.

More problematic is the fact this is not just a single event: it is a trend.  The Obama administration owns the record for the largest deficits in the history of the United States: $1.416T (2009, the largest); $1.298T (2011, 2nd largest); $1.294T (2010, 3rd largest). While warning of the dangers of deficit spending and promising to cut our deficit in half during his first term (the deficit was $458B in 2008), the President has in fact almost tripled that number.

Since 2008, the Obama administration added almost $5T in debt (viz., accumulated deficits).  This increase, over a period of 3 years, is approximately equal to 50% of the US Debt that was held by the treasury when the President entered office.  Think about that:  it took the country from 1789 to 2008 to accumulate $10T in debt.  It took the President 3 years to increase it to $15T.

To make the point, refer to the following graphic, which illustrates the administration’s profligate spending in terms the average American can understand: a household budget.


If the government were a household, it would be earning $23,000 per year but spending $36,000 per year.  The $13,000 shortfall (deficit) would be put on the household credit card, which already carries a balance of $150,000.  Current annual credit card interest payments are $2,500 and will grow as the balance grows and interest rates go up. 

Any person who runs a household knows this financial situation is unsustainable. So why does the President continue to “invest” (e.g., spend) even when he has stated that “we will not and cannot sustain deficits like this without end?” I do not know. Perhaps this is answer we should demand from him after he is defeated at the ballot box on November 6th.

Vote November 6th.

Saturday, October 27, 2012

“Bill” Board Day 3 – Need a job, better find one close to home


Energy is the lifeblood of modern business and civil society.  Energy comes in many forms, but none so useful as oil which can be used in many different applications, the most important of which is transportation. Oil’s liquid form, stable properties, and higher heating value allow it to be used in ships, airplanes, trains, trucks, tractors, automobiles, and other vehicles and tools. Gasoline, a petroleum product, fuels the cars we drive to work and the tractors that grow our food.  So, when the price of gasoline goes up, so does the price of everything else. If you are driving around every day, looking for a job, better find one close to home!

Since 2009, according to the Bureau of Labor Statistics, the average price for unleaded regular gasoline has increased from $1.787 per gallon in January 2009 to $3.451 per gallon in July 2012 (the most recent data at the time of the advertisement’s creation).  This is an increase of 93%. Stated differently, if your family is a two income family that drives two vehicles a total of 19,850 miles per year (family average, 2009, according to the Department of Energy) at an average of between 19 and 23 miles per gallon (assume 21 mpg), then your additional cost in 2012 is $1,573 per year.

But, $1,573 per year is just the direct, visible cost of this increase in gas price.  Everything you buy is transported.  The indirect cost is reflected in increased prices in food, clothing, and other material goods.  Those price increases are the subject of another “Bill” board. 

Feeling better about your situation?  Depressed?  Hold on, don’t run out of energy or enthusiasm yet.  There is more to be revealed … unfortunately, most of it is not good.

November 6th can come soon enough.

“Bill” Board Day 2 – If you don’t work, you don’t eat


Since the Obama administration took office, we have lost 5-million net jobs.  If you don’t work, you don’t eat.  Well not exactly.  In America, if you don’t work, you go on government assistance.

At the time of this billboard advertisement’s creation (August, 2012), available data from the US Census Bureau’s Community Survey (DP03) reported that over the period October,2008 (beginning Fiscal 2009), through September, 2010 (end Fiscal 2010), SNAP (food stamp) participation in Virginia Beach had increased from 4,562 families to 7,582 families or 65%.  Further investigation of Virginia Department of Social Services records over the period ending September 2008 through September 2012 show family participation in SNAP growing from 5,816 to 13,844 families or 138%.  Whichever number you choose to believe, it is still large and indicative of a society that at some point cannot sustain itself, even at the most basic level of human significance – providing food for one’s own family.

Extrapolating this to the federal level, according to the US Department of Agriculture SNAP monthly report statistics, at the end of Fiscal 2008 (September 30, 2008), the number of SNAP recipients was 28,223,000.  As of July 2012, that number stands at 46,681,833, an increase of 18,458,833 or 65%.   So, Virginia Beach is simply a microcosm of the larger nation.

To make the point, if we have 23 million people who are either unemployed, underemployed, or have dropped out of the workforce (should be employed) standing 3 feet apart, that unemployment line would stretch half-way around the world.  Now imagine a second line of twice that number, standing in a line that circles the globe, waiting for the soup kitchen to open.  Fortunately, because of technology, we do not have to witness this every day: the government simply issues checks and gives out debit cards.  But I bet if we did have to see this every day, it would change our minds about the current administration and who should hold the highest office in the United States.

“Give a man a fish and he will eat for a day. Teach a man to fish and he will eat for a lifetime.” - Confuscius

Friday, October 26, 2012

“Bill” Board No. 1 – You can’t tax people who do not have a job


The president wants to raise taxes on the so-called “wealthy”in order to feed his penchant for “investing.” He calls it investing, but the truth is investing is really nothing more than spending that “hopes” for an uncertain return. Failure is characterized by the investor being left only with “change.”

One can argue whether what we have seen so far from this administration is investing or spending or if his strategy to tax the wealthy will work (and I do, see the blog post Presidential Bull vs. Chicago Bulls), what is irrefutable is that if jobs are not being created, in the long run you have no business and no wealthy employers to tax. You must tax everyone at a uniformly higher rate to generate equal or greater tax receipts.


So what does the jobs picture really look like? Contrary to the administration’s assertion that everything in the job market is rosy – the president claims to have created 5 million new private sector jobs – the actual job statistics tell another story and it is recorded in the blog post The Truth of the Matter Is.

The bottom line is this: the Wall Street Journal reported in the May 5-6, 2012, weekend edition, “Nearly three years into the [Obama] recovery, the U.S. still employs five million fewer workers than before the recession.” Compare and contrast this to the Reagan recovery in the 1980s, three years after that recession ended. Millions more people wanted to work than before the recession started. Despite a large influx of new job seekers, the unemployment rate fell from 10.8 percent at the end of 1982 to 7.2 percent by the presidential election in 1984. Compare Regan’s second year (September 1983) results to President Obama’s third year (April 2012) results in which 115,000 new jobs were created: Reagan’s economy created 1.1 million jobs in that one month alone, 10 times as much.

One last fact: 23 million people are either unemployed or have dropped out of the job market because they cannot find work. If these people were to stand in an unemployment line, 3 feet apart, the line would stretch half way around the world. It is my hope and prayer today that you are not one of those unfortunate citizens, but if the current administration remains in office I believe the line – over time – in actual numbers will grow larger and there will be fewer “wealthy” people willing or able to subsidize them.

"Bill" Boards

 

Well, it is presidential election season again.  But, this election season is unlike any other.  I truly believe it is the most important presidential election in my life time; perhaps, the most important presidential election in the history of the United States.   It will define whether America remains a constitutional republic or goes the way of Europe and becomes a social democracy … or something worse. The outcomes are consequential.  Will we continue to see God as the grantor of our individual freedom and inherent rights or will He be replaced by the state?

Such a historic moment deserves special attention. So I and several of my conservative friends have decided to rent billboard space across Hampton Roads to chronicle the failure of the first four years in this new experiment the current President has euphemistically referred to as “Hope and Change.”  Unfortunately, the record is better characterized as “Hype and Shame.”

Now, I know many may not agree with that assessment.  And while I recognize and respect the right of my fellow citizens on the left to their own opinion, their opinion is not consistent with the facts.   As Yogi Berra famously stated, “It ain’t bragging if it is in the record book.”  I assume the corollary is also true, it is bragging if it is not in the record book.
Because the media has chosen to either ignore or mischaracterize the administration’s record, I and my fellow patriots have taken it upon ourselves to bear one more cost  – in essence a voluntary tax –  in order to set the record straight: we are personally funding a number of billboards across Hampton Roads to promote what we believe to be a more accurate accounting of the current administration’s failures.
The billboard advertisements are not cheap, but neither is serfdom.  My messages – one per day for fourteen days – will be appearing on a billboard proximate to Rip Rap Road, in Hampton, just before you enter the Hampton Roads Bridge Tunnel headed east bound.  Subsequent blog posts will explain the source and background of the message. I hope all those sitting in eastbound traffic, after work, think and reflect on the message they see. For at least 53% of you who pay 100% of all income taxes in America, I think you will find it to be a “Cliff Notes” version (pardon the double entendre) of the price of “Hope and Change.”  For others, it will be a improvisation of the old Dire Strait’s hit but with a new title: “Money Ain’t for Nothing, but the Checks are for Free.”
As for me, I will enjoy my first Amendment Rights, while I still have them.

Remember ...

"You're entitled to your own opinion, but you're not entitled to your own facts," Sen. Daniel Patrick Moynihan.

"Against public stupidity, the gods themselves are powerless." Schiller.

“Who controls the past controls the future. Who controls the present controls the past.” – George Orwell, 1984

"Statistics are no substitute for judgement," Henry Clay

"The problem with socialism is that you eventually run out of other peoples' money," Margaret Thatcher