Thursday, May 31, 2012

My View

Random ruminations from your resident curmudgeon...

We hear a lot of numbers thrown out about our deficit and the overall financial condition of our country. Here are some numbers that every citizen should keep in mind, and these numbers are frightening. The U. S. government exempts itself from the accounting standards that every company in this country has to follow to comply with our complex tax laws. Why is this important? Because it allows the government to report, with a straight face, that our current deficit is ONLY $1.5 trillion dollars. However, because the federal government does not follow generally accepted accounting principles, it does not have to account for future retirement benefits that it owes. If the government accounted for those liabilities like every company has to do, this deficit number changes. Our annual deficit would be $5 trillion, not the $1.5 trillion that is commonly reported. Now consider this: according to an article in USA Today, the typical American household would have to pay $42,000 in taxes annually to eliminate the real annual deficit of $5 trillion dollars. Keep in mind that the average per household income in the United States is $49,000. What this means is that the ability to solve our dire national financial crisis is not dependent on solely raising taxes. The amount that would have to be collected from taxpayers would wipe out most households. Seeing these numbers puts our situation in very clear terms, and until those in Washington acknowledge this, viable solutions will not be forthcoming. It is obvious by looking at these numbers that government has to shrink if we are going to work our way out of this mess. Ask yourself how many leaders in Washington are proposing serious cuts to government spending. And therein lies the crux of the financial problems that we face as a nation.

Things are so uneventful in my world, that when I die, I hope someone else's life flashes before my eyes.

If you have been watching what is happening in Europe, and specifically in Greece and Spain, you are seeing a slow motion train wreck from a financial standpoint. As these two economies teeter on the brink of collapse, businesses and individuals that are smart and are able are moving currency and assets out of those countries. This is being done to preserve capital and to keep those assets from being devalued by a conversion away from the Euro and back to sovereign currency. This can be done because these nations currently allow for the free flow of capital across national borders, and it is a reasonable reaction to this situation. If Greece, for instance, pulls out of the European Union and goes back to the drachma, the value of funds held in Greek banks will fall dramatically as the drachma is valued against global currencies. So prudent people and businesses have been withdrawing currency and moving to countries that are stable. What does this have to do with us in the United States? Two Congressmen, Barney Frank and Sander Levin, have sent a letter to Treasury Secretary Tim Geithner recommending greater capital controls for the United States. Simply put, their recommendation is to limit the movement of dollars and investments to destinations outside the U.S.If these capital controls are implemented, Americans are restricted to the type of investments they can make- specifically in investing in stable, growing companies and economies outside the U. S.- and are subject to the madness that is U.S. monetary policy. If the government continues to print and weaken the dollar, Americans buying power will be diminished and they will have limited options to preserve their wealth. This quiet maneuver to limit our financial flexibility, if enacted, could have dangerous consequences for all of us.

My wife says I keep pushing her buttons. She is right, but unfortunately, I cannot find the mute button.

One year ago, Wisconsin enacted reforms that limited the collective bargaining rights of government workers, brought reforms to the state's underwater pension system, and gave government workers the right to refuse to join a union. This unleashed  the ire of unions in the state, and they have made it their goal to oust Governor Scott Walker. They are failing, as it appears that Walker will continue as Governor. The public sector unions have have claimed that the reforms were onerous and were unfair to government workers. But were they? Here are the facts. Before the reforms, Wisconsin state workers received health benefits 2.3 and pension benefits 5.7 times greater than comparably compensated private sector workers. After the reforms were enacted, state employees receive health benefits 2 times greater and pension benefits 4.5 times greater than private sector employees. Before the reforms, state employees received total compensation (salary and benefits) was 29% higher than comparable private sector employees; after the reforms, 22% higher. The reforms asked the state workers to contribute a modest 5.8% of their salary to their pensions and 12.6% of their salary to health care benefits. Onerous? I think not. Wisconsin's state workers enjoyed- and continue to enjoy- very generous benefits paid by the taxpayer and totally disconnected from economic reality. So when you hear about this skirmish in Wisconsin, think about how much you pay as a private sector employee for your benefits and realize that these union contracts have been incredibly generous. Asking sate employees to pay a small portion toward their excellent benefits package is anything but onerous.

You should never run away from your problems. Unless your problem is being chased by a bear.

And that, my friends, is my view.

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