Archive for category Deficit
August Reno Hayek Meeting: Nevada Hurting
I am late in thanking Randy York for the excellent discussion of Nevada’s deficit difficulties. Randy as president of the NV Manufacturers Association well knows the gravity of the over spending over the last several years and the temptation to add new taxes so that it can continue. Those potential taxes whether corporate income, gross receipts or the so-called Texas franchise tax will further hobble Nevada businesses.
Randy got everyone’s attention with some recent economic headlines: gaming revenues down, A&E layoffs, land prices and real estate valuations plummet. The state leads the nation in unemployment; Lyon County’s rate is up at 18.5%. And predictions for job growth will be down for many years. With the $3.2 Billion deficit in mind the state’s budget director Andrew Clinger said you would have to cut everything but education (55% of the budget) to balance the budget.
The Democratic majority typically favors tax increases or new taxes to protect coveted programs and insure public sector jobs. Steven Horsford, the senate majority leader has proposed a 50-50 deal, $1.5 Billion in taxes and $1.5 Billion in cuts. Problem here is the lack of detail and the temporariness of cuts against the permanence of taxes. With over half the legislature being public employees, it is difficult to see how devastating tax increases will not come about. And, it is not as if those public employee salaries and benefits are cheap. Randy showed compensation charts that make NV look like Bell CA!
Simply put, more government, more spending and more taxes will drive businesses from NV and further tank the economy. The only way to guard against this is to elect conservative candidates who will block tax increases and insist on expense reductions and government efficiency.
Randy listed key Assembly and Senate races: Assembly: District and conservative candidate: 5th-Williams, 13th-Hammond, 21st-Sherwood, 22nd-Stewart, 23rd-Woodbury, 27th-Jurado, 29th-Hill, 31st-Thompson, and 40th-Livermore. Senate: 2nd-Gustavson, 5th-Roberson, and 8th-Cegavske.
There has been some sentiment in our membership for a more active role in addressing the issues we discuss. Indeed, our tag line for the Reno Hayek Symposium is: “Articulating conservative solutions to current issues & supporting their intelligent champions.” As Randy ably pointed out, now is the time to support conservative candidates. To that end, we will have special meet and greet candidate interviews between now and the November election. The object is to raise money and where feasible offer “boots on the ground” help to get these folks elected. We will have both email and web notices of upcoming opportunities.
I also want to thank John Dunn for his NV4CFE (Yucca) update, Tom Gurnee for his China business comments, and Jerry O’Driscoll for expanding his recent WSJ article on the balance sheet recession.
Finally Joe Morabito announced a key federal race fund-raiser for Dr. Joe Heck who is running against Dina Titus; this will be held at his home on September 24th. RSVP to Nicole at 702-614-5900 or nsarouphim@gmail.com.
Are Low Rates Counterproductive?
Posted by Tom in Centrally Managed Economy, Deficit, Fed, Financial Policy, Monetary Policy, National Debt on August 12, 2010
John Michaelson’s WSJ post, “The High Costs of Very Low Interest Rates,” presents the dark side of the Fed’s current policy. In it he makes the following points:
- low rates mean low earnings on savings giving consumers less to spend,
- folks close to retirement need to save more to get expected earnings,
- corporate pension plans need to fund more to make up for low earnings, which reduces money available for investment, and
- banks can borrow at zero and buy US bonds at a risk free return, so they do not lend to businesses for investment and job creation.
What’s sad is that the Fed has not learned from Japan’s lost decade experience. In 1990 following the burst of the credit bubble, Japan dropped it rate to an unprecedented .25% It’s government then borrowed to create massive “stimulus.” This froze out private borrowing, investment and consumption creating the lost decade.
Does any of this sound familiar?
I recommend the full article linked above.
Finally A Stimulus That Has Its Intended Effect
Posted by Tom in Deficit, Democrats, National Debt, Nevada, State Finances, Stimulus/Bailout, Unions on August 11, 2010
What is this latest $26 Billion stimulus, is it number 5 or 6? I’ve lost count. But this one you can bet will work effectively to accomplish its intended purpose…..to buy votes for Comrade Obama and his leftist cronies. It goes directly to the public employee unions, specifically the teachers. That increases union dues which in turn increases political donations. This stimulus rewards spendthrift states–takes from fiscally responsible states like Indiana and gives to bankrupt states like New York and California. Seems we find the most registered Democrats in those fiscally irresponsible states!
Today’s WSJ pens a great editorial on the subject, “Stimulus Pushers.” As the title suggests, Hussein Obama is the dope pusher further addicting these leftists spendthrifts with a high powered dose of bailout. The addicts don’t care about the hidden costs or the consequences; they just want the fix.
A few principled governors like Haley Barbour of Mississippi are pushing back. The federal government is hijacking state budgets. Rick Perry of Texas is in disfavor with the DC crowd so Texas gets penalized in the legislation. What’s astounding in this is the sheer hubris, the sheer abuse of power with the simple justification that the leftists have the power.
Two points are clear: One, this stimulus only postpones the day of reckoning for these bankrupt states. And, two, these parasites if left unchecked will eventually kill the host—the private sector that pays taxes will no longer be able to afford the excessive pay and benefits sucked up by the public sector. Atlas will indeed shrug!
For Nevadans, Reid must go, and the Pelosi’s democratic lackeys must be defeated. By piling up deficits and debt they are stealing from our children and grandchildren, the height of immorality!
The Past, A Prologue
Posted by Tom in Centrally Managed Economy, Deficit, Democrats, National Debt, Statism on August 3, 2010
My friend Ron Tomsic sent this cartoon from the Chicago Tribune, dated April 20th 1934. Note the plan of action in the lower left hand corner.
Those who forget history are doomed to repeat it!
Deflation, A Self Fulfilling Prophesy?
Posted by Tom in Business, Centrally Managed Economy, Deficit, Fed, Financial Policy, Monetary Policy, National Debt, Nationalized Health Care, Taxation on August 3, 2010
When Bill Gross, the bond guru manager of Pimco Total Return Fund, says “it’s happening,” he brings credibility to the deflation first scenario, that is deflation before inflation. According to yesterday’s WSJ article many fund managers are loading up on US Government bonds and hedging stocks. Others expect the Fed to come to the rescue. The Fed has limited options since it has interest rates near zero. According to another WSJ report these options are “unorthodox!” As the Fed mulls these, it may spook investors and highlight the weakness in the economy. So when the Fed is playing offense in trying to reflate the economy, savvy investors might conclude as Gross did that it’s time to play defense. Typically these “unorthodox” measures mean increasing the money supply by buying bank assets good and bad, bonds and mortgage backed securities. Problem is that there are not too many bullets left in the Fed’s arsenal.
To cap matters off, vis a vis the “self fulfilling prophesy,” today’s WSJ leads the front page with “Fed Mulls Symbolic Shift” that is using cash from maturities to buy additional assets instead of letting its portfolio shrink to a stable economy level. The Fed’s $2.3 Trillion portfolio has nearly tripled in size since 2007!
So, what to do? If prices are going to be lower tomorrow, why buy today? And this, ad infinitum! Couple this with Hussein Obama’s proposed tax increases, the pile on of entitlement deficits from Obamacare, and the great uncertainty posed by the regulatory bureaucracy, and you get a bleak picture.
Hope I’m wrong!
July Hayek Dinner: State of the Economy
Posted by Tom in Centrally Managed Economy, Deficit, Economics, Employment, Financial Crisis, Financial Policy, Government Regulation, Individual Freedom, Monetary Policy, National Character, National Debt, Statism, Yucca Mountain on July 21, 2010
Our thanks to Tom Cargill for the excellent presentation last evening and to Jerry O’Driscoll for arranging the meeting in my absence.
Jerry opened with a snapshot on employment trends from selected countries since 2008. The US is at the bottom of the pile and trending down!
Tom picked it up from there with a quick look back on the first decade of this century focusing on four remarkable points: 1. US homeland is vulnerable to attack since 911; the first since the war of 1812. 2. Critics of the market are strong despite the increase in standard of living in the last quarter century. 3. Failures of the welfare state notwithstanding, the US is moving toward socialism. And, 4. the political force toward socialism can be traced to our current great recession.
Technically, the recession is still in full force. The question is what kind of recovery will come, weak flat “U” or “J,” or a double dip. Ten key points are apparent:
- the US has not seen more economic, financial, and political distress since the Great Depression.
- our recession was not caused by market failure but mainly by government failure, both monetary with low rates too long and fiscally with housing policies of Fannie-Freddie.
- yet, the public hypnotized by Obama rhetoric believes market failure was the cause.
- admittedly, the $700 billion financial bailout was necessary to prevent a liquidity crisis.
- but the five “stimulus” packages ignored history and had a negative effect, negative Keynesian multiplier, on the GDP. Wasteful spending directed to leftist programs.
- while we now see some GDP growth, the private sector is not creating jobs and budget pressures will force a decline in public sector employment.
- the private market is not creating jobs due to the great uncertainty of the rules of the game; we are going to state directed allocation of resources not market directed allocation.
- Adam Smith calls man an economic animal, “truck, barter, and exchange” but the uncertainty of the rules creates inefficiencies that lower growth potential.
- the economic game becomes even more uncertain because of the greater role of government; what happens to the chess game if it is announced in the middle of the game that there will be a rule change; Obama is regularly announcing rule changes to come!
- QED, the most likely “recovery” is a flat “J” over the next several years with a chance of a double dip.
Tom now thinks the chance of a double dip is 50/50, an increase from his earlier thinking. Potential economic shocks which will push toward a double dip are: the dramatic increase in taxes next year, and the questionable stability of the European Union. The current divergence in fiscal policy between the overspending US and the rapid austerity in Europe may well be a third negative shock. Tom concluded saying that only a change in the US congress and administration will offer hope of a solid recovery.
We thank Beth Powers and her crew for her comments and patriotic efforts with LibertyInAmerica.org. Please consider a donation to help continue the fine bus treck.
John Dunn provided a positive report on Yucca mountain efforts, see NV4CFE.org.
Finally, our thanks to Mike Herring for treating the group to dinner and drinks, this an an inducement to make contributions to Sharron Angle’s campaign to retire Dirty Harry.
Nevada-Just Fell Off the Turnip Truck
Nevada is the sucker state, the dummy state that gets conned by every one else. But it’s the Democrats and Harry Reid’s one of the worst, who promote the con artist and take advantage of the poor constituents in Nevada. Here are a few examples:
- Nevada is ranked at or near the botton of all states in federal spending in the state. For every one dollar in federal taxes sent to Washington, Nevada gets only 65 cents in federal spending. Thanks Harry, you’re doing a bang up job.
- Nevada has the highest unemployment rate in the nation at 13.7%, higher than Michigan the home of Government Motors! I guess Nevada taxpayers should be happy that Obama and Reid purchased a car company for them in Michigan.
- Of course, old Harry does his best to kill jobs in Nevada. Besides supporting the Community Organizer in Chief while the latter slams gaming in Las Vegas, Harry has done his best to kill Yucca Mountain along with all the storage, reprocessing, electrical production and research jobs that could bring new industry to this state. Way to go Reid.
- And this, as if the Nevada world isn’t upside down enough, Nevada Tops the List on Federal Lobbyist Spending, Near the Bottom On Returns, a Sean Whaley post showing how really stupid our politicians are. Seems that state agencies spent $1.7 million in taxpayer money last year and got virtually nothing for it. Nevada ranked number 7 of the 900 government entities lobbying in DC. Given the fact that your senior senator is doing nothing for you but killing jobs, an argument can be made for such gross extravagance.
The worst thing about Harry though is that he is stealing from my children and grandchildren, stealing their future by crushing them in unsustainable debt, Obamacare and Multi-Stimulus bills being prime examples. This is the height of inter-generational immorality.
Ya know, Harry has done more for Nebraska with the “Cornhusker Kickback” than he has for Nevada!
The sooner we rid ourselves of this pond scum, the better off we will be.
Art Laffer’s Lesson in Economics
Posted by Tom in Centrally Managed Economy, Deficit, Economics, Entitlements, National Debt, Stimulus/Bailout on July 8, 2010
Hussein Obama wants to borrow another $50 Billion on the backs of our grandchildren to extend unemployment benefits. Hasn’t worked so far but Obama wants to keep trying! Art Laffer says it reduces incentives to find work.
In a well-reasoned WSJ op ed, Unemployment Benefits Aren’t Stimulus, Laffer shows that welfare makes work less attractive. Historically he charts the unemployment rate against the unemployment benefits:
“While the unemployed may spend more as a result of higher unemployment benefits, those people from whom the resources are taken will spend less. In an economy, the income effects from a transfer payment always sum to zero. Quite simply, there is no stimulus from higher unemployment benefits.
“Given the massive inefficiencies the government creates in securing resources from the private sector, there may also be a large negative income effect over wide ranges of stimulus spending. This is the proverbial “toll for the troll.” These massive inefficiencies could lead to lower output.
“To see these effects clearly, imagine a two person economy in which one of the two people is paid for being unemployed. From whom do you think the unemployment benefits are taken? The other person obviously. While the one person who is unemployed may “buy” more as a result of unemployment benefits, the other person from whom the unemployment sums are taken will “buy” less. There is no stimulus for the economy.”
Art concludes by saying the $3.6 Trillion already spent would have better been used as an 18 month tax holiday! I disagree with this, time limited tax relief begets time distorted economic activity. Permanent entitlement cuts along with permanent tax cuts are what’s needed to restore economic and fiscal sanity.
US Deficit-Debt and the European Debt Quiz
Posted by Tom in Deficit, Economics, Europe, Financial Crisis, Financial Policy, Humor, Monetary Policy, National Debt on May 27, 2010
It’s rare to see a thoughtful economic comment in the liberal NYT, but David Einhorn penned one yesterday with Easy Money, Hard Truths. In it he suggests that our grandchildren will not need to face the day of reckoning caused by our unmanageable deficits and debt simply because we will face it ahead of them. The future, though, is no less grim for them.
“Public sector jobs used to offer greater job security but lower pay. Not anymore. In 2008, according to the Cato Institute, the average federal civilian salary with benefits was $119,982, compared with $59,909 for the average private sector worker; the disparity has grown enormously over the last decade.
“The question we need to ask is this: If we don’t change direction, how long can we travel down this path without having a crisis? The answer lies in two critical issues. First, how long will the capital markets continue to finance government borrowings that may be refinanced but never repaid on reasonable terms? And second, to what extent can obligations that are not financed through traditional fiscal means be satisfied through central bank monetization of debts — that is, by the printing of money?”
A rather humorous take on the question is given by a couple of Aussie satirists, John Clarke and Bryan Dawe, who take on a timely quiz show Q&A on the European debt crisis.
Remember those last words, “laughing as you sink!”
Did You Really Think Your Investment in “Solyndra” Was a Good One?
Posted by Tom in Deficit, Economics, Energy Facts & Policies, Stimulus/Bailout on May 26, 2010
Didn’t know you invested in Solyndra? Well if your if you are one of that small class of current taxpayers, or you have children, or grandchildren who will be smothered by Obamadebt, you have indeed invested in Solyndra.
You should perhaps know a few facts about Solyndra: It is a solar-panel manufacturer in Fremont, California. It has a new partially constructed facility that will provide 3000 temporary construction jobs in Fremont and it is expected to provide 1000 production jobs. It has accumulated debt of $557 million and paid for the new plant with $535 million of last year’s $787 billion stimulus package. Oh, by the why, Price Waterhouse & Coopers the auditor questions its ability “to continue as a going concern.”
Now, do you expect an equity return on that investment? That is a return commensurate with the high risk nature of the investment? You shouldn’t because while you have supplied the bulk of the capital it is in the form of debt. If anything you will get a debt return despite your equity type risk. The real return if any is ever made will go to the equity investors.
Now, a couple more facts: The sun doesn’t always shine on solar panels. To date solar panel generated electricity needs taxpayer subsidy to make any economic sense whatsoever. (So you and yours will also subsidize Solyndra’s customers, for which you will only get billed!) And, I saved the best for last: Hussein Obama visited Solyndra’s plant today, as an adjunct to his trip to generate bucks for Barbara Boxer’s senate campaign. (See: Debra Saunders’s The Obama Mantra: Bill, Baby, Bill in the May 27th RCP.)
Still feel good about that investment?