Friday, January 21, 2011

My View

Random ruminations from your resident curmudgeon...

We often hear that inflation is tame and that prices are not rising. This is a function of how the Bureau of Labor Statistics calculates inflation, and is divorced from reality. If you have bought groceries or filled up your car, you know that prices are on the rise. The Producer Price Index, a measure of price increases at the wholesale level, was up 4% for the full year in 2010, yet all calculations of inflation exclude those the food and energy component. The stated inflation increase for 2010 was .02%. Know that the U.S. government has skin in the game and wants to keep the calculation of inflation as low as possible since many of the entitlement programs have payment adjustments that are tied to inflation. It is true that many retail categories have not shown price increases over the past two years; however, these tend to be in items that are considered discretionary purchases by consumers. Necessities, such as food, energy, and healthcare, are showing substantial price increases, and these increases squeeze an already cash strapped consumer. Rising prices serve as a de facto tax on consumers and further drains disposable income that could be spent in other areas. The economy will continue to limp along as consumers spend more on necessities, which will prolong the recession in which we find ourselves.

I heard that women like "six packs". I have been drinking them for years, but it's not working.

A quiet crisis is developing in our states. Cumulatively, U.S. public pensions face a $2.5 trillion dollar shortfall, and the repercussions for state government will be dramatic. The size of the problem is astounding. For instance, Illinois faces and unfunded pension liability of $80 billion dollars; the state of Pennsylvania had to advance the City of Harrisburg money to avoid a default on their bonds because of paying existing pension obligations; and the State of New Jersey has estimated that their pension liabilities will rise from $54 billion to $180 billion over the next 30 years. These dire scenarios mean that states will be forced to make draconian cuts to services, raise taxes, sell assets, or some combination of these options. This problem has two root causes: overly generous pension benefits that were handed out during good economic times; and an unrealistic expectation of returns on invested pension assets. Many states assume an average annual return of 8% on their investments.  The bond market is already pricing in the fear of defaults on municipal debt. For the first time in two years, the interest rate on a 30 year tax free municipal bond has topped 5%. It would behoove all of us to pay attention to what is happening with the finances of our city, county, and state, because we as taxpayers will be called upon to bail out the financial ineptness of our elected leaders.

I told my wife I would go through anything for her. She said, "How about the door?"

The vitriol directed at President Obama from the his political base when he extended the Bush tax cuts another two years was, in a word, stunning. Perhaps no one on the left epitomized the anger, and more importantly the attitude of the left, than Richard Trumka, the President of the AFL-CIO. Here is Trumka's money quote,

"The tax cut deal rewards Republican obstructionism by giving the wealthy the tax breaks they demanded. It throws away precious resources needed for investments in jobs and our economy on upper income tax cuts..."

The audacity of that statement is beyond the pale. Trumka has voiced what many on the left feel: a deep hatred for the wealth that people have worked for and accumulated. According to Trumka, and those who occupy the left side of the political spectrum, some people have too much money and it should be taken and divided up among those who have not earned it. In the lefts world view, apparently those who have wealth have not worked for it and don't deserve to have what they have earned. Allowing people to keep more of what they have earned "throws away" resources? Trumka and his acolytes that espouse this type of philosophy are loathsome and beyond contempt.

Stress: the confusion created when one's mind overrides the desire to choke or beat the living crap out of someone who desperately needs it.

And that, my friends, is my view.

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