Thursday, June 2, 2011

My View

Random ruminations from your resident curmudgeon...

We are all feeling the pain at the pump when we gas up our cars. Regular unleaded gasoline is averaging $3.89 per gallon nationally, and fueling our vehicles takes more money out of our pockets, money that could be spent in other areas of the economy. The current whipping boy for higher gasoline prices is the nameless, faceless entity known as "speculators". This group is blamed for driving fuel prices higher and in turn damaging our economy. But are they? Forget for just a moment our inept national energy policy (We have a national energy policy??). Instead, focus for a moment on the dollars that you are using to by gas. Our monetary policy in this country over the past three years has been to indiscriminately print dollars. Lots of them. WARNING: an economics lesson is forthcoming. When you create more of any good, the value of that good will generally decline. This has happened to our dollar. How bad is it? If we kept our dollar on the gold standard, which means that we simply back our dollars with gold, the price of gas- and food and other commodities- would be substantially lower. How much lower? If our dollar was backed with gold, gas would average approximately $1.36 a gallon for regular unleaded today, according to Bill O'Connell of All American Blogger. On a historical basis, using a dollar backed by gold, gasoline prices have risen, but not exorbitantly. What has happened to all of us is that we are being punished at the pump because of Washington printing more dollars and in turn cheapening their value. This is the direct effect of the inability of our leaders in Washington being unable to control their spending and printing more dollars to pay for that spending.

Marriage is a lot like a deck of cards: in the beginning all you need is two hearts and a diamond. After a few years, all you will want is a club and a spade.

The markets were roiled earlier this week by some very weak housing numbers. According to the Case Shiller Index of housing prices, home prices fell 1.9% in the first quarter of 2011. With this decline, housing prices in the United States have now cumulatively fallen more than they did during the Great Depression. During the Great Depression, home prices fell by 31%; currently home prices have fallen from their peak in 2007 by 33%. There are two scary aspects of this decline. First, it took 19 years for home prices to recover to pre-Great Depression levels. Many "experts" believe that the current decline in home prices will reverse relatively quickly. I do not. Widespread negative equity for many homeowners paired with a weak employment outlook will serve to constrain home prices. Second, prices may have more to fall before they eventually stabilize. There are numerous foreclosed properties that are currently not on the market. When this inventory hits the market, it will have the effect of holding down prices. Further, there are approximately 16 million homeowners that still occupy their homes that are "underwater", that is, they owe more than the home is worth. One has to expect some of those homes, perhaps a large number of them, will find their way back on the market via foreclosure or short sale. It would be reasonable to expect a further decline in home prices, which will weigh down the economy and delay a consistent and solid recovery.

When choosing a path in life, it is always wise to avoid the psychopaths.

There is no denying that our taxes are going up next year. The two year extension of the Bush tax cuts will expire at the end of this year, and Congress will be forced to raise taxes to pay for their profligate spending. How much will taxes rise? It is anyone's guess, but Democrats in Washington have proposed raising taxes on families that make more than $250,000 and individuals that make more than $200,000. They have also proposed phasing out certain deductions that we can now claim. If their proposal passes, the effective income tax on families and individuals that cross these thresholds will rise to 41.5%. But this is Washington, and our legislators are not going to stop there. Add in 3.4% in Medicare tax for "high income earners"- those that are above the aforementioned income levels. President Obama has proposed eliminating the income ceiling on Social Security taxes, currently capped at $106,800, which will add another 10.1% to the top tax rates. This will take the top federal income tax take to 58% of your income, and that is before any state or local taxes are assessed. Now it would be easy to say that these rates apply only to the top earners, but be assured that rising rates will affect all of us at all income levels, and the effect will be stunning and painful. If Washington does not change its ways- quickly- you and I will be paying dearly for their lack of fiscal discipline.

I would watch NASCAR if the drivers had as much to drink as the fans.

And that, my friends, is my view.

No comments:

Post a Comment