Excerpts from Obama

(HT to Karl Denninger from The Market Ticker)

SANTELLI: Mr. President. If I were to ask an investor would he invest in a company that for every dollar it spent it had to borrow 42 cents, I think that investor would think long and hard. Now if you look at the amount of money the government takes in and the amount of spending, those are pretty much the numbers for our government right now.

Does it bother you that 42 percent of our spending is borrowed even understanding that we have to deficit spend under tough times. How long can the U.S. continue to spend in that fashion without potentially hurting our long time financial health.

OBAMA: Well, it bothers me a lot. It bothered me when I was running for office and it bothered me when I arrived and I had a $1.3 trillion deficit wrapped in a bow and waiting for me in the Oval Office (editorial: note the blame falling to Republicans)

So, the answer to Rick's question is we've got to do something about it. And we have to do something about it fairly rapidly. The first thing you do is not dig it deeper (and that is why we passed a Health Care Bill to bring us further in debt). That's why this tax debate is important. We can't give $700 billion away (as if was your money to start with) to some of America's wealthiest people. We've got to make sure we're responsible for our budget, that's point #1....

The one thing I have to say to the public is that about 60 percent of our budget is entitlements, Social Security, Medicare and Medicaid. And a lot of the discretion I have is somewhat limited on these programs. (i.e. the President will not make changes to these programs as he has no control nor desire to make those tougher changes).

Now part of the reason health-care reform was so important is because the biggest driver of our long term budget deficits is Medicare. If our economy is growing at 2 or 3 or 4 percent, but health care costs are going up 6, or 7 or 8 percent, than the budget will blow up no matter how many cuts I make in other programs. (despite the fact that we are causing enormous pressure for a sustained economic recovery to take place)

---It seems very odd to me that as a nation, we are buying into the very problem that the housing market created over the last 20 years. The problem now is entitlements and no one wants to do anything about it until its too late, which is a way for elected officials then to blame previous administrations about who caused the problem rather than working diligently to fix it before it becomes one. This author is not very happy with the leaders of this country (for sure from an economic standpoint)...

Grace & Peace

PLW

Fractional Reserve Lending

Many people have asked me about how banks have been failing lately in client interviews, etc.

One of the better articles on the subject can be found on one of my links to my blog, Misch's Global Economic Trend Analysis.

The fraud that Misch suggests is, albeit alarming, closer to the truth than I think the government or the banking industry would care to admit.

At the heart of the issue, as Misch suggests, is whether or not the banks can honor their word.

Misch suggest a link to an article by Murray Rothbard, where he quotes: "By the very nature of fractional Reserve Lending, banks cannot honor all its contracts".

In other news, Retail Same Store Sales numbers came in high for the month of September...

Grace & Peace

PLW

Quotable

HT to Vox, this is a timely quote from my June 18th post about Obama's new financial plan seeking to abolish booms and busts...

"The remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the so-called boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and keeping us permanently in a quasi-boom.”- John Maynard Keynes

We're Socialists, its official! (update)

It appears that my fears of caps on compensation have been kept at bay, for now. Here is a recent update on the executive compensation...

Obama Seeks Powers for SEC on Executive Pay, No Outright Caps

This actually makes me pause a bit (and I would welcome some feedback). But, having a securities license myself, I am blown away by the amount of scrutiny, paperwork, and red-tape that I have to go through to simply do my job as a self-employed independent representative. Banks have their own set of hurdles to jump through.

It is almost to a point now that regulators impose so many controls that it ceases to make sense to stay in business. But this isn't new to other industries as well. Take the construction industry. You have all kinds of issues (bonding, licensing, unions, OSHA, etc.) just to operate the business. These controls are hurting our productivity as a nation and will continue to until Congress get's their act together.

Grace & Peace

We're Socialists, its official!

Check out this excerpt from a May 18th Article in Bloomberg:

May 18 (Bloomberg) -- Treasury Secretary Timothy Geithner ruled out setting specific limits for compensation as the Obama administration considers proposals to better align executives’ pay with companies’ long-term performance.

“I don’t think our government should set caps on compensation,” he said in answering questions at an event at the National Press Club today in Washington. “What I think we need to do is make sure we put in place some broad constraints on the incentives compensation systems create.”

Now, look at today's headline in Bloomberg:

U.S. Said to Seek New Powers for SEC Over Banks’ Executive Pay

"...Geithner is scheduled to meet today with SEC Chairman Mary Schapiro, Federal Reserve Governor Daniel Tarullo and executive- compensation specialists at the Treasury.

The Treasury chief said yesterday that the Fed and other bank regulators will define “standards and principles that supervisors would use to help bring about reforms in compensation practices in the financial industry.”

“A centerpiece of sensible reforms will be to tie compensation to better measures of long-term investment and return, and to adjust them to reflect the risk” incurred by executives’ decisions, Geithner said during a hearing at a Senate Appropriations subcommittee.

Changing executive pay practices is part of a broader initiative by President Barack Obama to overhaul U.S. financial rules in the aftermath of the crisis. Obama will unveil his “series of specific proposals” streamlining and reorganizing regulation on June 17, White House spokesman Robert Gibbs said.

This seems strange to me. If I were a bank president and someone said that they were going to cap my compensation, I'm out. I'll go run a hedge fund or I'll start up my own business were there are no caps.

Does the government have this right to dictate to businesses how they can be compensated? Does anyone have the right to tell me how much I will get paid? Only if someone else is paying me, which is precisely why the government required the banks to take the federal TARP dollars. Its not about solvency, its about control.

Grace & Peace

Economics

I recently attended a forum discussing, among other things, stock valuations, mortgage trends, and real estate markets (both commercial and residential).

Here were a couple of takeaways:

• Stocks are closer now to fairly valued. Many people are saying that stocks are very much undervalued, but the question they posed was 'compared to what?'. What I find interesting is that if jobs are disappearing, what is the level at which people will be able to afford to consume? It's economics 101- supply vs. demand.


• Look for a 'V' shaped recovery, but don't be surprised by 'W'. For those of you wondering what I am talking about, many people expect the economy to bounce back as quickly as it has gone down ('V'). But what some analyst are saying is that there will be another recession following this one ('W'). This reasoning is based on the simple question that once all of the cash that is sitting on the sidelines goes into the market, what will stimiulate the economy? We have already printed trillions of dollars with growing unemployment and a disencentive to the rich to make more. One dollar out of every 6 is supporting a government program today. Obama thinks that he can create 600,000 jobs. When? How? Borrowing money from the richest taxpayers? That's not job creation, that is simply 'fuzzy math'. As a nation, we have essentially stopped manufacturing, we have shipped out our industry for cheaper labor, and deviceiveness is the order of our lawmakers today. As a nation, we lack unity, lack production, and still expect a higher standard of living.


• Housing and inflation: Both are a direct result of jobs. On the one hand, housing will support a floor (and we are starting to see it) because of employment. It may loose its footing for the same reason. Inflation is largely income based. If incomes are decreasing, companies will find it difficult to charge more for the same things. One exception to that are short-term economic shocks such as oil and gas spikes.

Anyway, an interesting economics lesson using today's events as a backdrop. What I find encouraging is that despite the negativity and all of the ills that CNBC, CNN, etc. will spout off, we are still the greatest country in the world and account for nearly 35% of the world's GDP (http://www.cia.gov/). China, our closest competition, accounts for only 18.5%.

And finally, despite everything that is happening in the world around us, God still loves us and cares for each of us. That is the truth.

Grace & Peace

Death to Capitalism

Very rarely do I get upset about politics. But the latest dealings of Big Brother has me extremely edgy these days. Here is an excerpt from Bloomberg this morning (talking about the banking industry):

'Once the Treasury has a voting stake, the bank might be pressured to tailor spending or financing decisions to suit partisan policies on the environment or labor issues, said Brown of Second Curve Capital. In recent years, environmental groups have attended Citigroups annual shareholder meeting to rail against financing for mountaintop strip mining.'

(Bloomberg 6/1/09)

Another example from the same article:

'Any government investment in financial institutions raises the prospect of banks being ordered to focus on “state-approved social objectives” instead of increasing earnings, according to a report last week from the Committee on Capital Markets Regulation, a 25-member group of financial-industry executives, lawyers, consultants and academics.'

Lawmakers know that the prospect of less capitalism and more government reliance is a goldmine politically. It guarantees reelection, guarantees positions of power in influencial committees, and guarantees an easy marketing platform. It also gives them another playing field that they have been so against all these years. The same companies that pay a kings ransom for taxes and employ the nations workers are now being controlled by those people. The same people that receive tax-payer money as a basis for their living are effectively taking the profit motive out of everything to promote their socialist and platform goals.

Karl Marx would indeed be proud...

General Motors

Its been all over the news so i thought I should weigh-in on the subject. My Grandmother worked many years as a telephone operator for General Motors in Oklahoma City. Up until last year, she had been receiving a full pension and full health benefits, and has been retired for 25 years (she will be 88 soon).

While this is a very healthy retirement package, its a bit costly and underscores the difficulty these companies face. For GM to simply meet it's pension oblibations per year costs them upwards of $90 Billion (with a 'B'). To put that into perspective, you could buy 100% of GM outstanding stock as of Friday's close for about $500 million.

People will tell you that this a terrible thing that one of the nations Blue Chip companies is going under. With friends in Michigan, I really feel for the people losing jobs, having to sell a house that they can't sell and to find a job when unemployment is rising.

In the end, these last couple of years will underscore the importance of saving for a rainy day, working harder and smarter for the companies we work for, and hopefully, giving God the thanks in all circumstances.

Grace & Peace

Federal Reserve

This is hilarious...and frightening...



(HT to the BloggerBlaster)

Update 5/27/09

The link for this video was found through a blog that I read on occasion. This morning, as I went to make sure that my blog was working, it appears that the Federales have now blocked this video. Rest assured, I will do my best to attempt and locate the actual video and post it this morning...here it is!

Buenos Dias

PLW

Classic Case of Over-reaction

As a parent, it is wise to make sure you don't over-react to things that really bother you (i.e. clothes on the floor, dishes left on the table, bad calls by inept 3rd grade baseball umpires calling your son's strike a ball and losing the game...).

President Obama today has announced that because of a couple of criminals, he should strip the SEC of its duties rather that truly investigate the how and why of the problem and seek to reform. (see article here)

It's similar to instead of trying to correct your child so he/she can learn from their mistake, you send him or her to boarding school and change your address...

Absurd...

Ron Paul

(HT to Vox)

This pretty much sums up my feelings on the economy...



Pray for our soldiers...

Grace & Peace

2009 Economic Predictions

I read other blogs from time to time but here is one that aligns fairly close to my own.

Give it a read...and Happy New Year!

Calafia Beach Pundit

PLW