Monday, September 12, 2011

Social Security: A High Speed Train to Extinction

There are precious few politicians who want to tell the truth about Social Security. Those who try to are demonized for attacking the elderly and poor. You know, old people will have to choose between eating and filling their drug prescriptions. It is the stuff of political theater.

I believe Social Security on not the third rail in politics, rather it is a high speed train to extinction.

Rick Perry has written a book titled, "Fed Up!: Our Fight to Save America from Washington". In his book he calls Social Security a Ponze scheme.

Is Governor Perry right and if so what should we do about it?

The Securities and Exchange Commission (SEC) defines a Ponzi scheme as follows:
A Ponzi scheme is an investment fraud that involves the payment of purported returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the fraudsters focus on attracting new money to make promised payments to earlier-stage investors and to use for personal expenses, instead of engaging in any legitimate investment activity.

Why do Ponzi schemes collapse?

According to the SEC, "With little or no legitimate earnings, the schemes require a consistent flow of money from new investors to continue. Ponzi schemes tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask to cash out."

The Wall Street Journal September 12th op-ed titled, "Perry, Romney and Social Security", points out, "[T]he Urban Institute estimate[s] that a two-earner couple both earning an average wage who retire in 2010 will get $906,000 in benefits having paid $588,000 in payroll taxes. The same couple who retires in 2030 will get $1.23 million (in constant dollars) while having paid $796,000."

Sounds like the definition of a government run Ponzi scheme, doesn't it?

The WSJ op-ed goes on to state, "Even a pyramid system such as this could be solvent if it took advantage of compound interest. But the overriding problem is that not a dime of the payroll contributions the government collects over a lifetime is saved and invested for a worker's retirement. Social Security's pay-as-you-go financing model means that 12.4% of all wages are transferred to current beneficiaries, the surplus dollars are spent by Congress on other things, and Social Security gets an IOU from the Treasury." [My emphasis]

Sounds like the reason Ponzi schemes collapse, doesn't it?

So what are the solutions? There are four potential solutions: 1) raise payroll taxes; 2) reduce benefits; 3) privatize the system; 4) some combination of 1,2 and 3.

As Florida Senator Marco Rubio points out, "There was no thought given into how this was going to be sustained. When Social Security first started, there was sixteen workers for every retiree. Today there are only three for every retiree and soon there will only be two for every retiree.” Additionally, when Social Security was established the retirement age far exceeded life expectency. That has changed dramatically with seniors living longer and healthier lives, a very good thing. However, this speeds up the Social Security train towards extinction.

Time to put the Social Security train on the right track. To do that politicians need to get off the third rail and get on board or be left behind. Estimates are that Social Security and its sub-programs of Medicare and Medicaid have unfunded liabilities in excess of $200 trillion.

A looming train wreck is inevitable unless and until the train has a new conductor. It appears that conductor is Rick Perry. 

Sunday, September 11, 2011

The Sarasota Herald-Tribune, Damn Lies and Misquoting Marco Rubio

There are lies, damn lies and then there is the Sarasota Herald-Tribune. I just love it when my local paper gets it wrong. In an article by Zac Anderson titled, "Rubio remarks on entitlements: 'weakened us as a people'” is where the big lie is told.

If you read past the lie in the title you will see this is not what Senator Rubio said nor meant.

What Senator actually said was, "Both Republicans and Democrats established a role for government in America that said, yes, we’ll have a free economy, but we will also have a strong government, who through regulations and taxes will control the free economy and through a series of government programs, will take care of those in our society who are falling behind. That was a vision crafted in the twentieth century by our leaders and though it was well intentioned, it was doomed to fail from the start. It was doomed to fail from the start first and foremost because it forgot that the strength of our nation begins with its people and that these programs actually weakened us as a people." [My emphasis]

It is government that has weakened us as a people!

The federal government created programs "for those who are falling behind" and it is that which has "weakened us as a people". For you see government under both parties defined what it is to fall behind and then created programs to help those who fell behind. Do you see what Senator Rubio is saying? Social Security and Medicare are not programs designed for people who are “falling behind.” Simply said:

I (government) define falling behind and then I (government) help those falling behind by bankrupting those I do not define as falling behind via taxes and regulation.

That is Senator Rubio's message.

When Senator Rubio refers to Social Security he is concerned about its funding. This is known as "unfunded mandates". Social Security and Medicaid benefits are mandated by government but the cost of fulfilling these mandates (promises) are unsustainable.Senator Rubio acknowledges what everyone in America knows, "The other thing is that we built a government and its programs without any account whatsoever for how we were going to pay for it," states Senator Rubio.

Senator Rubio goes on to point out, "There was no thought given into how this was going to be sustained. When Social Security first started, there was sixteen workers for every retiree. Today there are only three for every retiree and soon there will only be two for every retiree."

Additionally, when Social Security was enacted the life expectancy of Americans was lower than the age returns on the investment were to be paid out. The Social Security trust fund was used as a piggy bank for government to borrow from to fund - government programs.

The unfunded liabilities for social Social Security, Medicare and Medicade are best represented by the chart below, which appeared in Businessweek:

What Senator Rubio is talking about is the $210 trillion dollar "fiscal gap" shown on the right. What the SH-T is talking about is the $10 trillion of current debt (which has since risen to over $14 trillion).
Dear SH-T: Its the fiscal gap stupid! 
There is simply not enough money coming in to pay the dividends for Social Security and cover the growing costs of Medicare. Not dealing with this cash flow problem now is to doom both programs to extinction. As baby boom seniors enter Social Security at the rate of 10,000 per day the cash flow issue will loom larger and larger. There are simply not enough paying into the system compared to those taking out of the system.

Time to stop lying and tell the truth. Using seniors as a political tool is bad enough but ignoring the long term impact of government weakening us as a people is naive at the least and dangerous at the most.

The SH-T needs to stand for the truth, for it will set them free from their ideology. Americans need to heed Senator Rubio's warnings.
As Albert Einstein said, "Whoever is careless with the truth in small matters cannot be trusted with important matters.

Thursday, September 8, 2011

A Cold Sun, Calories and Feeding the World

John Casey, President of the Space and Science Research Corporation (SSRC), is visiting Tampa today to launch his seminal book on climate change titled "Cold Sun". Additionally, Mr. Casey is holding a press conference to announce opposition to Florida's policies on controlling green house gases and CO2. The SSRC is the leading predictor of climate change, seismic activity and volcanic eruptions using its RC Theory.
In an SSRC letter to Governor Rick Scott Mr. Casey states, "This letter is sent to request that your office take immediate action to terminate any and all initiatives by the State of Florida, including rescission of all past legislation that was based upon the impact on the Earth’s climate by greenhouse gasses caused by human industrial exhaust and other human related activities."
Why would Mr. Casey make such a bold demand?
He does so because policies implemented in Florida, the United States and globally are simply wrong based upon the scientific fact that our Sun is the primary cause of climate change. What makes matters worse is the Sun is going into a scientifically and historically predictable 206 year cyclical "solar hibernation" or what is known as a Dalton Minimum.
What does this have to do with calories and feeding the world? Please bear with me as I explain.
The world's growing population depends on food. Brian M. Carney in his article for theWall Street Journal asks, "Can The World Still Feed Itself?". Mr. Carney interviews Peter Brabeck-Letmathe, Chairman of Nestle' the world's largest food-production company. According to Mr. Brabeck-Letmathe, "Politicians do not understand that between the food market and the energy market, there is a close link." That link is the calorie.
Brian reports, "The energy stored in a bushel of corn can fuel a car or feed a person. And increasingly, thanks to ethanol mandates and subsidies in the U.S. and biofuel incentives in Europe, crops formerly grown for food or livestock feed are being grown for fuel. The U.S. Department of Agriculture's most recent estimate predicts that this year, for the first time, American farmers will harvest more corn for ethanol than for feed. In Europe some 50% of the rapeseed crop is going into biofuel production, according to Mr. Brabeck-Letmathe, while "world-wide about 18% of sugar is being used for biofuel today." [My emphasis]
What does this all mean?
If John Casey is correct in his predictions, and SSRC always is, then cold weather brings with it a shorter growing season and increased demand for fuel to keep people warm. Therefore, we must have policies that increase calories, not decrease the food supply.
This is a serious problem.
Brian in his article points out, "Today, with nearly seven billion mouths to feed, we produce so much food that we think nothing of burning tons of it for fuel. Or at least we think nothing of it in the West. If the price of our breakfast cereal goes up because we're diverting agricultural production to ethanol or bio-diesel, it's an annoyance. But if the price of corn or flour doubles or triples in the Third World, where according to Mr. Brabeck-Letmathe people "are spending 80% of [their] disposable income on food," hundreds of millions of people go hungry. Sometimes, as in the Middle East earlier this year, they revolt."
Mr. Brabeck-Letmathe points out, "What we call today the Arab Spring really started as a protest against ever-increasing food prices."
John Casey in his book "Cold Sun" warns, "A historic reduction in the energy output of the Sun has begun. The most likely outcome from this 'solar hibernation' will be widespread global loss of life and social, economic and political disruption. You must begin to prepare for this life-altering event now!"
How prophetic and how accurate.

Wednesday, September 7, 2011

McConnell Takes Obama to the Woodshed

By Alan Caruba

On Tuesday, Senate Minority Leader, Mitch McConnell (R-KY) gave a response, in advance, to President Obama’s Thursday speech regarding the state of the economy.

“We’ve tried the President’s approach. It’s failed.”

I doubt that Sen. McConnell’s speech received much notice by the mainstream media, but it was as succinct an analysis of why everything the President has done regarding the economy has failed. Reportedly, Obama wants to throw more billions at “recovery.”

Much like the man caught in bed by his wife with someone else, Obama’s approach is “Who are you going to believe? Me or your lying eyes?”

Obama has a very big problem now. Even those who voted for him have removed their rose-colored glasses and concluded that they have mortgaged the present and their future to someone who has no idea how to fix that future. He will do what he has always done. He will blame someone or something else. The Bush administration. A Japanese earthquake. Hurricanes. Bad luck. And this time around, Congress.

Sen. McConnell is no silver-tongued orator. He’s not flashy or charismatic. He is, however, the quintessential conservative politician. In his address on the Senate floor he said, “I don’t think any one of us is under any illusion that the American people were particularly eager to see us come back.” That is refreshing candor.

“After two and a half years of being told that Washington had the answer to everything from the high costs of health care to high unemployment, people have every reason to be skeptical.” If Americans are skeptical of a sharply divided, highly partisan Congress, they are even more skeptical of the President.

“For more than two and a half years, under this administration, Americans have been hearing about the wonders that government spending would do for our economy, and about the dangerous consequences of failing to apply ‘bold’ solutions to big problems.”

Sen. McConnell paused and asked, “And what’s it gotten them?”

One thing Americans know about the Obama “Stimulus” is that there are 1.7 million fewer jobs in America since he signed it. “That’s not the kind of change people voted for three years ago,” said Sen. McConnell.

What, indeed, did people think they were voting for three years ago? Change? Hope? Those aren’t policies, they’re slogans.

What Americans don’t know about the Stimulus, Sen. McConnell noted, was that it is “the one of the single most expensive pieces of legislation Congress has ever approved. The interest payments alone are projected to cost an average of $100 million a day.”

“And here’s what the President told us...the Stimulus would save or create 3.5 million jobs.” As we now know, Obama’s answer to everything is more government. When his programs are criticized his answer is that it’s just politics. No, it is the failure of those programs that is obvious to anyone and everyone.

Sen. McConnell noted the ways, rather than admit failure, Obama has taken, such as agreeing to keep taxes from going up last December, but then he identified the source of our present problems. “The President is forever eager to embrace big proposals whenever government’s at the helm, but when it comes to doing the kind of things job creators really want, he’s suddenly timid. He’ll agree to a tax cut as long as it’s temporary.”

It was a long speech, but Sen. McConnell rounded it out by identifying what can and should be done. He called on the President to send Congress the three trade treaties that have been sitting on his desk for nearly three years. He called for a reform of the budget process and for a balanced budget amendment. He warned against a series of huge and costly regulatory proposals by the Environmental Protection Agency.

“We’ve tried the President’s approach. It’s failed.”

“Millions of Americans are looking for Washington not so much to do more, but for the first time in a long time, to do less—so that they can finally do what it takes to get this economy moving again.”

In the wake of the President’s speech, who are you going to believe? Him? We’ve tried that and it hasn’t worked.

© Alan Caruba, 2011

Tuesday, September 6, 2011

2012: The Year of Electile Dysfunction

Gerald F. Seib in the Wall Street Journal writes, "As dark as the political picture is for President Barack Obama right now, Republicans aren't exactly basking in a healthy glow either, suggesting that some wild and unpredictable political forces have been unleashed across the land."

A friend of mine named this unpredictable political force: Electile Dysfunction.

Gerald goes on to say Bill McInturff, the Republican pollster who conducts surveys for the The Wall Street Journal/NBC News, "thinks the summer's debt-ceiling wrangling may rank right up there with the Iranian hostage crisis, Iraq's invasion of Kuwait, Hurricane Katrina and the collapse of financial markets as a defining political moment."

What is causing this Electile Dysfunction?

The TEA Party and its affiliated organizations. This is clear from the likes of General President of the Teamsters Union Jimmy Hoffa, who had some profane, fightin' words for TEA Party conservatives at a labor rally in Detroit on Labor Day 2011:
"We got to keep an eye on the battle that we face: The war on workers. And you see it everywhere, it is the Tea Party. And you know, there is only one way to beat and win that war. The one thing about working people is we like a good fight. And you know what? They've got a war, they got a war with us and there's only going to be one winner. It's going to be the workers of Michigan, and America. We're going to win that war... President Obama, this is your army. We are ready to march. Let's take these son of bitches out and give America back to an America where we belong."
Ericka Johnson, of, reflecting on Hoffa's comments writes, "Get ready, people: I'd wager this is a mere preview of what we're going to see during Obama's much-heralded 'jobs' speech this week. 'I have no real solutions; I'm going to keep proposing more of the same failing Keynesian nonsense because it fits with my academic, progressive ideologies; none of this is my fault; and the GOP is blocking my every move just to spite me.' Just a guess."

On August 7, 2011 a Rasmussen national telephone survey found that just 17% of Likely U.S. Voters think the federal government today has the consent of the governed.  Sixty-nine percent (69%) believe the government does not have that consent. Fourteen percent (14%) are undecided.

Gerald ends his WSJ column by stating, "The point is simply that the country is in such a state of economic fear and loathing that the forces being unleashed are spinning off in every direction, with unpredictable consequences."

Gird your loins. This is going to be one heck of a ride to November 2012 the year of Electile Dysfunction.

Monday, September 5, 2011

"Grand Theft Auto" - How Auto Dealers Fought Back and Won

By Alan Caruba

We are all aware that one of the bail-outs that occurred on Obama’s watch was the takeover of two of the three major auto manufacturers, General Motors and Chrysler companies. As both faced bankruptcy, the Obama administration stepped in to become the owner of these companies.

Among the first to discover the arrogance and ignorance of those selected to direct its Automotive Task Force were hundreds of dealerships for both companies. On May 14, 2009, Alan Spitzer was among them. He was informed that his company, begun by his grandfather, expanded by his father, and one he expected to hand on to his own children had been arbitrarily disenfranchised by Chrysler.

The worst aspect of this was that, while franchises are protected by state law, federal law trumps this long established business relationship. Chrysler had been instructed to divest itself of a quarter of its dealer network and General Motors was as well. Some 2,000 dealerships were affected by the regimes demands.

As Spitzer and his daughter, Alison, spell out in their new book, “Grand Theft Auto: How Entrepreneurs Fought for the American Dream” (, “Dealers are completely independent business people, not owned by the auto manufacturers as many believe. Dealers are the manufacturer’s only customers. They are the face of their brands. Without them there are no sales.”

One might have thought that the last thing to do would be to decimate a quarter of General Motors and Chrysler’s vast network of dealers, but that is exactly what the Obama task force did “as a condition for securing the federal funding they needed to stay afloat.” While “saving” the companies essentially was a sop to the auto unions, the task force cut loose the dealers who were the lifeblood of the companies, plunging many of them into economic destruction along with their thousands of employees.

Worse yet, “hundreds of franchises were stolen from their rightful owners and re-assigned or ‘gifted’ to other dealers.” Additionally, anyone who owned GM’s and Chrysler’s securities were informed that neither company would honor them under their new management, defrauding them of their investment. Both companies were required to add union representatives to their board of directors.

They had to have been extraordinarily stupid to do this, but the task force did not include a single person with any experience in the auto industry. If they had they would have known that “States earn about 20 percent of their sales tax revenue from auto dealers.” What’s more, “dealerships comprise as much as 7-8 percent of all retail employment.”

Critical to this extraordinarily thuggish decision was the fact that the dealerships did not cost the auto manufacturers one dime. They were given less than a month to close their doors. Contrary to the belief that the decision of who would be closed was not based on their political affiliations. Indeed, there appeared to be no rational reason for who was chosen for destruction.

The takeover was an example of a gangster government intervening in the private sector; making sure to not “let a crisis” go to waste as it pursued its socialist agenda.

For Alan Spitzer, it was apparent that “the only avenue for justice would be for Congress to enact another federal law that, presumably, would leapfrog the bankruptcy statues and overturn the terminations. In my view, these actions represented a threat, not just to the nation’s 18,000 car dealers, but to our entire franchise system that is so fundamental to the way business is conducted in America.”

The most astonishing aspect to Spitzer’s story is that he literally created a grassroots movement to overturn the government’s illegal and outrageous terminations and that he got a bill passed through a bitterly partisan House and Senate!

The grassroots effort “was directly responsible for saving hundreds of dealerships and tens of thousands of jobs,” said Spitzer. In the end, after Obama signed the legislation that was part of a larger bill, Spitzer actually got to meet the President who still did not give any evidence of understanding what his administration had attempted to do.

The GM and Chrysler takeover was just one more example of how ruthless, ignorant, and incompetent the Obama regime has proven to be with its reckless spending and idiotic “cash for clunkers” programs that achieved nothing more than to get the nation’s historic AAA credit rating reduced and lines around employment fairs that stretch to the horizon.

© Alan Caruba, 2011

Dear Mr. President: Focus Your Thursday Speech on Creating Products - Not Jobs

I recently had long conversations with two successful entrepreneurs. One lives in Florida and the other in Missouri. Both are deeply troubled and concerned about the economy. Both had the same message. Its the product, stupid, not the people!

Their point is America needs to be a net producing nation and not a consuming nation. Jobs will not be created unless and until companies, large and small, produce and sell more of their products and related services. To stop the recession business must be set free to manufacture more products to the point that the market demand causes them to hire more people to manufacture more products and related services.

On January 15, 2009 the U.S. Business and Industry Council submitted to President Obama's transition team a report that stated, "America’s economy is in danger because Washington and Wall Street have forgotten the bases for successful capitalism and sustainable prosperity – creating genuine wealth by producing, and thus supporting first-world living standards with earnings. For too long, consuming, borrowing, inflating assets, and reshuffling paper wealth were treated as adequate substitutes." [My emphasis]How prophetic these words are today.

The Business and Industry Council went on to say:

The top priority of any stimulus or economic recovery plan must be refocusing American business on producing the goods and related services that Americans want and that can generate middle-class incomes for the great majority of working families. And if these goods and services are not produced at home, they won’t generate the needed incomes at home.

Achieving this goal requires greatly strengthening domestic manufacturing – which (a) dominates the economy’s genuinely productive segment; and (b) is also the only sector of the economy with a proven record of enabling large numbers of working class Americans to earn middle class wages and benefits."
[My emphasis]

The focus of government on "jobs" is looking at the result rather than the cause of the recession. The less American companies produce the fewer people they need.

Here are just a few of the key points the U.S. Business and Industry Council made:
1. Strategies emphasizing only repairing financial markets and restoring credit flows will simply re-create the house-of-cards, bubble economy that existed prior to the current crisis – in which America and its citizens borrowed and consumed until the bubble burst.
2. There are only three basic ways to create wealth:  manufacturing, resource extraction, and agriculture.
3. “[G]reen manufacturing” does not, as widely assumed, entail that many radically new materials or processes.  It is also susceptible to the same off shoring trends that infect all domestic manufacturing. And many other countries are also pursuing it intensively.
Finally the report warns, "Unless the production and use of domestic goods is maximized in the economy, any federal stimulus programs could primarily reflate the over-borrowing and over-consumption cycle – without repairing the economy."

Simply put Mr. President, It's the product, stupid, not the people." I hope you address ways of making America a net producing nation.