Friday, September 27, 2013

My View

Random ruminations from your resident curmudgeon...

The socialized healthcare debacle known as Obamacare is scheduled to be implemented October 1st. Obamacare was never about providing quality healthcare to this country. It was a blatant power grab by those on the Left and in Washington. And while we can rail against this disaster, I want to focus on one aspect  that has not received much attention: the fact that Congress has opted out of this mess and will continue under their own private healthcare plan. Because of pressure from Congressional leaders, the White House carved out a special exemption from Obamacare for Congress and their staff, the very people who authored this law. The hypocrisy of this maneuver is breathtaking and is symptomatic of the disconnect between those in Washington and the American people. So when we evaluate the costly and devastating effects of Obamacare on our individual situation, know that although we may lose our insurance coverage and be forced into this plan, Congress will not. Our premiums may rise astronomically, but they will not for Congress. We may not be able to keep our doctor, but Congressmen will. In the Federalist Papers, number 57, James Madison wrote of Congress, "They can make no law which will not have its full operation on themselves and their friends, as well as on the great mass of society." You would think that our nation's elected leaders would be prepared to cope with the effects of the law they authored. You would think wrong. And until we as voters and taxpayers force Congress to change this mindset, we will continue to have an increasingly disconnected leadership that will take advantage of the electorate.

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

One of the founding principles of capitalism is that capital (money) in a free market economy is allocated efficiently and to where it can get the best return relative to the risk associated with the use of that capital. Why bring this up? Remember in 2010 when Blockbuster Video filed bankruptcy? Once a hot growth company, the market for entertainment changed and delivery systems (such as Netflix or on demand movies) become more accessible. Blockbuster could not adapt and they went out of business. Capital deployed by investors was removed and reallocated to other areas (efficiency) that had better opportunities for growth (return). Think back five years ago, and recall that our country was entering a "financial crisis" as we say major banks like Lehman Brothers, Bear Stearns, and Citigroup collapsing. These banks got into trouble because they ineffectively deployed the capital that was entrusted to them. Unlike Blockbuster, these banks were bailed out in one form or fashion by taxpayer dollars. This began the phenomenon known as "too big too fail" regarding the largest banks in our nation. On the surface, that may sound like a good idea, but know this: when we as a country remove the risk from the market, we no longer efficiently allocate capital. In fact we let these institutions destroy capital. Citi has been bailed out by the government five times over the last 22 years. That means that you and I are paying for the bad business decisions and inefficient capital allocation of its management. And unlike the situation with Blockbuster, the federal government chose to step in and redeem the mistakes of Citi's management.  In recent years, the government has done the same thing for Chrysler, GM, and numerous other companies. I for one do not want the folks in Washington picking the winners and losers in our economy. Neither should you.

I would give my right arm to be ambidextrous.

The short term effect of the Federal Reserve printing trillions of dollars (quantitative easing) has been to lower interest rates, which has been good for the housing market, and to boost the stock market. Since the Fed began printing dollars, we have added a staggering $3.6 trillion in new debt. At the same time we have accumulated this new debt, interest rates on that debt have averaged a historic low of 2.4%, according to the Congressional Budget Office. So while we as a country have added a record amount of debt since 2008, we have not felt a significantly negative impact because of the low interest rate environment created by the Fed. But what happens if rates normalize? The average interest rate paid on our Treasury bills and  bonds (our debt) over the last 20 years is 5.7%. The current level of debt held by the public today is $12.2 trillion dollars. The CBO estimates it will be $16.6 trillion by 2020 at our current rate of spending. If we keep spending and if rates rise over that period, then by 2020, we will owe approximately $930 billion in interest on our debt. So what, you say? Consider that the IRS collects between $1.1 to $1.3 trillion annually in taxes and you can see that the majority of tax collections will go toward paying just the interest payments on our debt. Think this will create chaos when we cannot pay our military or fund social security obligations? Friends, this train is coming down the track, and the wreck is going to be spectacularly disastrous. Prepare yourself.

It's a small world, but I wouldn't want to have to paint it.

And that, my friends, is my view.

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