“Bill” Board – Day 14: turn in your test

Time is up.  Time to decide. Time to turn in your test papers, as my government teacher in the 11^th grade use to say.

This is the last post in this series. The last “Bill” Board for me. I leave you with this thought: words form ideas, ideas drive elections, and elections have consequences. 

In 2008, the words were “hope and change.” Today, the word is “forward.”  Both slogans convey positive ideas, but upon reflection, are nothing more than empty shells into which the average voter can project his or her own meaning.  In 2008, few looked beyond the rhetoric to discover what then Senator Obama and his merry band of “critical theorists” meant by those words.  In the name of political correctness, his ethnicity trumped any serious discussion about his ideology, his circle of friends, or his track record.  Instead, we left it to him to define how those words would “fundamentally transform America.”  We were satisfied to believe, with no basis in fact, that the election of a black President would prove once and for all we had achieved the civil rights era objective of a post-racial America in which, as Barack Obama said, “There is not a Black America and a White America and Latino America and Asian America -- there’s the United States of America.”   Instead, what we elected was the first post-American president, who has accomplished – if nothing else – dividing America by race, by economic class, by religious belief, and by political party. 

As Abraham Lincoln famously stated in his second inaugural address, “A house divided against itself cannot stand,” a fact on which this President is counting – but in a negative sense – to achieve his goal of fundamental transformation.  In his speech, Lincoln made the case that the struggle against slavery would determine the outcome of a free people.  If President Obama were to give Lincoln’s speech, he would make the case that the struggle against our republican form of government will determine the outcome of the socialist / Marxist ideal of a one-world government.  The speech might go something like this:

A house divided against itself cannot stand. I believe this government cannot endure, permanently, half slave [social democracy] and half free [a constitutional republic]. I do not expect the Union to be dissolved — I do not expect the house to fall — but I do expect it will cease to be divided. It will become all one thing or all the other. Either the opponents of slavery [social democracy] will arrest the further spread of it, and place it where the public mind shall rest in the belief that it is in the course of ultimate extinction; or its advocates will push it forward, till it shall become alike lawful in all the States, old as well as new — North as well as South.^[1]

Fortunately for us we do not have to opine about what the President might say. It is 2012, and we have the President’s track record and his own words we can examine.  Here is his track record:

• Net U.S. jobs lost since 2008: up 5 million (“Bill” Board – Day 1)
• Food stamp recipients since 2009: up 65% (“Bill” Board – Day 2)
• Price of gas since 2009: up 93% (“Bill” Board – Day 3)
• 2010 deficit: 3^rd largest in U.S. history - $1.294 Trillion (“Bill” Board – Day 4)
• 2011 deficit: 2^nd largest in U.S. history - $1.298 Trillion (“Bill” Board – Day 5)
• 2009 deficit: largest in U.S. history - $1.416 Trillion (“Bill” Board – Day 6)
• Borrowed federal spending – 40% (“Bill” Board – Day 7)
• Your family’s share of the U.S. Total Debt - $684,000 (“Bill” Board – Day 8)
• Your share of the U.S. Total Debt - $181,000 (“Bill” Board – Day 9)
• Unemployment for 43 months: > 8% (“Bill” Board – Day 10)
• Household net worth: down 35% (“Bill” Board – Day 11)

We also have the President’s own words. In a 2001 WBEZ.FM Chicago Public radio interview, when Mr. Obama – then an Illinois State Senator – said this “… the Supreme Court never ventured into the issues of the redistribution of wealth and the more basic issue of political and economic justice in this society.  … The Warren Court … did not break free of the essential constraints placed by the founding fathers in the constitution.”  President Obama concludes,  “Generally, the constitution is interpreted as a charter of negative liberties, says what the states can’t do to you, says what the federal government can’t do to you, but it doesn’t say what the state government or the federal government must do on your behalf.” 

Taken in its in entirety, the WBEZ interview reveals a President who sees himself and his “coalitions of power” as the mechanism to bring about “fundamental change” to America rather than working through Congress and the Constitution.  The President’s thinking is foreign to me and seems to me to be an abrogation of the constitutional “contract” between the federal government, the states, and most importantly the citizens of the United States.

To me, the choice seems clear. I pray it does for you also.

Turn in your test.  Vote November 6^th.

“Bill Board” Day 13 – Two Clear Choices

The “Bill” Board advertisements over the past two weeks chronicle in numbers failed Obama administration policies and the impact on American families.  His “transformation” of our constitutional republic into a failing social democracy is almost complete. For example, if the Patient Protection Affordable Care Act (viz., Obamacare) is not repealed, fully more than 40% of the American economy will be controlled by the federal government. And, for the first time in American history to be a law-abiding citizen, you will be mandated to buy a product from the government. Sadly, if the government can mandate you to buy healthcare, they can mandate you to do anything.

The choices before us are clear. Do you believe our inherent individual rights come from God and are to be protected by the government, or do you believe they come from the government? Do you believe in the rule of law and that the government can exercise only those specific powers granted it by Article II, Section 8 of the Constitution?  The record shows that our current President does not.

In a 2001 WBEZ.FM Chicago Public radio interview, when Mr. Obama  -- then an Illinois State Senator – said this “… the Supreme Court never ventured into the issues of the redistribution of wealth and the more basic issue of political and economic justice in this society.  … The Warren Court … did not break free of the essential constraints placed by the founding fathers in the constitution.”  President Obama concludes,  “Generally, the constitution is interpreted as a charter of negative liberties, says what the states can’t do to you, says what the federal government can’t do to you, but it doesn’t say what the state government or the federal government must do on your behalf.” 

Taken in its in entirety, the WBEZ interview reveals a President who sees himself and his “coalitions of power” as the mechanism to bring about “fundamental change” to America rather than working through Congress and the Constitution.  The President’s thinking is foreign to me and seems to me to be an abrogation of the constitutional “contract” between the federal government, the states, and most importantly the citizens of the United States.

When historians look back on this election, they will see it as a point of strategic inflection in America’s history: did we meet the challenge and remain a constitutional republic or did we succumb to the socialists’ siren call? I do not know, because I do not hold the future; only God does.  But I do know I have a vote, and I know how I will cast it.

Who and what will you choose?

Vote November 6^th.

“Bill” Board Day 11 – Feel Poorer? It’s because you are poorer.

Four years after the new era of “hope and change” started are you feeling poorer?  Maybe, it is because you are.

In June 2012, the Federal Reserve released its 3-year Survey of Consumer Finance.  The median family net worth in 2010 was $77,300, down from $126,400 in 2007 –levels last seen in 1992. A drop in home prices is a big reason behind this loss.

Moreover, the forced shift to unwilling part time work has contributed to declining real family incomes.  So has the shrinking labor force, with more and more people giving up the search for work.  In August, the labor force participation rate for men was the lowest on record, which goes all the way back to 1948.  The overall labor force participation rate was the lowest since September, 1981, before the Reagan recovery.

In addition, 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%.

Closer to home, in Virginia Beach where I live, using publicly available data for a Virginia Beach family-of-four^[1], over the period 2009 to 2011 (this is the last period for which I did a detailed analysis of the Virginia Beach City budget (2011-2012)), the average Virginia Beach family saw its annual disposable income decrease by $9,500 (14%) and its home’s value decline by up to 17%:^[2]

·       Median Virginia Beach household income decreased from $65,776 to $59,298,^[3] a decrease of approximately $6,000.

·       Gasoline prices increased from $1.88 per gallon to $3.71,^[4] an increase of $1,400 per year. ^[5]

The monthly food budget for a family of four has increased from $770^[6]  to approximately $950 per month,^[7] an annual increase of $2,160. In May 2011, the last month prior to my analysis, food prices soared 3.9 percent, the biggest gain since November 1974.

So, while the median wage earner is struggling, what is the government doing?  The federal government is in gridlock and the Bush Tax cuts look like they will expire. On top of this, the City of Virginia Beach has passed a 2012-2013 budget that raises personal property tax $0.06 per $100 of assessed property value.

If the federal payroll tax break expires this December, and the Bush tax cuts expire Jan. 1, new, higher rates will take effect the following year. Since payroll taxes are deducted from wages every week, the effect there will be immediate, whereas the income tax rate increases only affect income starting in 2013. If employers adjust withholding, the effects could come sooner.

In addition, proposed sequestration cuts will take effect starting in January too, meaning their impact, like the payroll tax cut’s expiration, will be more immediate. The cuts are evenly split, with $27 billion each in 2013 for defense and non-defense spending, plus $12 billion in cuts to Medicare.

Using the Tax Foundation tax calculator, for the average Virginia Beach family (2 wage earners earning about $32,000 each and 2 dependents under 17), expiration of the Bush tax provisions, with no action by the President or Congress, will result in an increase of the family tax bill by $2,200 per year. For a small business owner (S-Corp) making $300,000 per year in business income, the additional tax bill will be an additional $11,000 per year.  Add to this the effect of sequestration on the military in Hampton Roads – fewer jobs – and the effect would be divesting on the economy.

So if you are feeling poorer, you are.  And while you are making cuts to make ends meet, the government is raising taxes and borrowing more to make their ends meet.  When the government taxes and spends, it reduces the capital available to business.  Without capital, business cannot grow.  When businesses do not grow, they do not hire.  Without  jobs, there is nothing to tax.

Vote November 6^th.

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[1] Assumes $12,500 tax burden: federal Income tax (estimated at $4,000), state tax (estimated at $1,500), and employee’s portion of payroll tax (estimated at $3,500), Virginia Beach City Tax ($3,500).  This data was obtained from online tax calculators, federal state, and local websites.

[2] Case Schiller Home Price Index, January 2011

[3] Virginia Beach 2011 – 2012 Proposed Budget Executive Summary

[4] 24 Month Average Retail Gas Prices in Virginia Beach, GasBuddy.com

[5] Assumes 1.5 vehicles in a family, at 10,000 miles per vehicle-year or 15,000 miles at 20 miles per gallon.

[6] Official USDA Food Plans: Cost of Food at Home at Four Levels, U.S. Average, February 2008

[7] USDA Center for Nutrition Policy and Promotion.

"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 6^th.

“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 6^th.

“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 6^th.

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“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, 2^nd largest); $1.294T (2010, 3^rd 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 6^th.

Vote November 6^th.

“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 6^th can come soon enough.