Friday, February 18, 2011

My View

Random ruminations from your resident curmudgeon...

Remember when you and I bought General Motors? You know, that $50 billion dollar taxpayer bailout that was was arranged against your will and as a sop to the United Auto Workers for their support of Obama in the Presidential election. Ever wonder how your investment is doing? Currently, GM stock is trading for $36.58, which is about half the price it needs to trade at for the full $50 billion to be repaid to the American taxpayer. To pay back the government- and you and me- the stock has to increase in value, and this will occur as the company eliminates wasteful spending, operates more efficiently and cost effectively, and sells more cars thereby increasing their profitability. That is how it is done in the real world. But this ain't the real world folks, at least not when it comes to the UAW and their inter-relationship with Democrats in Washington. GM senior management will receive bonuses that approach 50% of their base salary; mid-level managers will receive 15-20% of their salary as a bonus; and salaried workers not in the management ranks are to receive upwards of $10,000. Republican Senator Chuck Grassley had this to say about the bonus program, "(the bonus program) sends a message that those in charge take shareholders, in this case the taxpayers, for a sucker." Ya think, Chuck? Doesn't matter to the UAW. According to their President, Bob King, the union wants to "reclaim" some of the concessions that auto workers made to help the company survive. Uh, Bobby, you only survived because your pals in Washington took money out of my pocket and the pocket of American taxpayer to bail out the company you and your union helped to bankrupt. It bears watching the relationship of the unions and the Democrats. The American taxpayer is going to get burnt on this bailout.

Forget world peace, I would just like people to visualize using their turn signal.

President Obama introduced his budget on Monday, and the annual brawl over funding pet programs and giving lip service to debt reduction has begun. Most of us pay scant attention to these budget battles, but I would encourage all of you to get engaged in this one. This budget will be particularly important, because it is going to be indicative of our seriousness as a nation to bringing order to our fiscal house. Politicians on both sides of the aisle are going to have to set aside partisan interests and for the first time in a long time put the interests of our nation above their party. This will mean that Washington has to critically assess every government program for cost effectiveness and not be afraid to eliminate or severely curtail funding for those that do not work optimally. And as a nation we must address out of control entitlement spending. This is painful for politicians and unpopular with many folks, but here is the bottom line: our nation is bankrupt. We will run a deficit this year of $1.5 trillion dollars. And it is only getting worse. Eliminating fraud, waste, and unnecessary government spending are essential and needed, but if were are really serious about reining in debt and making our financial future more secure, we are going to have to reform our entitlement programs as well.

Do you think the famous painter Van Gogh also had an ear for music?

Our national debt at the end of our fiscal year on June 30, will be just under $16 trillion dollars. While that is staggering, also remember that we are paying interest on our debt. When an investor buys a Treasury Bill, our government pays them an agreed upon rate of return for a specified period of time. There are many considerations about our nations financial situation, but I want to point out two salient items that frame the difficult spot in which we find ourselves. First, we all know that the Chinese government holds approximately $2.5 trillion of our debt, and as a nation we pay the Chinese nearly $700 billion dollars a year in interest payments. What is the Chinese government doing with this money that we send to them. Funding a massive buildup of their military hardware and developing new military technology. Remember about a month ago when the Chinese Air Force unveiled a new stealth aircraft and how our military and intelligence agencies were caught off guard? Well, we- you and me- helped to pay for that new piece of weaponry. Our tax dollars flow to the holders of our debt to pay our interest obligations, and our dollars are being used to help fund a new world super power. That is the real consequence of the United States being a debtor nation- our wealth is flowing outside our borders and funding enterprises that may not be in our best interests. That other point? Just this: we have a record amount of debt and it has been issued in a record low interest rate environment. What happens if interest rates- and they will- rise? For every 1% increase in interest rates, our country will pay an additional $140 billion annually in interest rate expenses at our present level of debt. These are two aspects of our fiscal crisis that have serious implications for our national security and our standard of living.

Curiosity killed the cat, but for a while I was a suspect.

And that, my friends, is my view.

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