Thinking is not optional

When will it end? Not in my lifetime is my view. I’m 64, but I expect to live a long time. So, what am I saying?  Our country is addicted to government bailouts, believing we’ll gain more than we lose in the process or that everyone will win, despite the obvious HUGE government deficits that are now happening and will happen in the future. These bailouts are REAL debt. You may have benefited from ‘cash for clunkers’ or the first-time home owner credit, but somebody has to pay for the billions of dollars spent on these programs. Just today, I hear the U.S. Post Office needs another $4 billion dollar bailout. I also hear the first-time home buyer credit may well be extended. More debt for all of us. I know you still think you probably win in this long list of government interventions into the economy. Maybe you do, maybe you don’t, but somebody must pay in the end. Maybe the Japanese and Chinese will continue to buy our debt and lose money as the U.S. dollar continues to depreciate, but, even if they do, inflation wipes out the value of our savings and the debt burden we pass on to future Americans, think about your kids and  their kids, will become even more onerous despite inflation. Our debt burden is raising much faster than inflation and will continue to do so in the next few years at least so inflation, if it happens,  will not lower our National debt burden. What happens if we fall into the pattern Japan has experienced with low inflation or even slight deflation year after year and slow growth?  Our debt burden becomes ever more onerous in this scenario.

I see no easy solution. Assuming we actually turn things around, there will be lots of financial pain in America even if we start taking what I believe to be the proper steps, i.e. get government out of economics. The most likely steps we will see are MORE government intervention into the economy; this will only lead to more pain in the future for ALL of us, including our kids and other future generations of Americans.

‘Quality of life’ is a nebulous concept, but I’ll bet our future holds less quality than we currently have, even if we start taking the proper steps to turn things around. The only question is how much pain we must endure to right our ship. I’d rather take the pain now and save our country from much greater pain down the road even if that might not be until I’m gone.

Many economists with great credentials are now saying the US is entering a new period of economic reality.  I’d tell you who they are, but that might imply they agree with my conclusions which is not my objective. I respect these individuals and their opinions, but my conclusions are my own and should not be interpreted as representing anyone’s opinion but mine. Nevertheless, I must at least state their projected economic reality.

“The New Normal” economic reality that I hear projected is for the USA to experience a significant period of years with lower GDP growth, higher unemployment rates, and potentially higher inflation rates than we have experienced over the last 20-30 years. Think about the 1970s in the US.  Maybe this next period will be similar, somewhat less severe, or potentially more severe in terms of overall economic statistics compared to the late 1970s and early 1980s. If you haven’t heard of the misery index, the sum of the unemployment and inflation rates, you will hear about it more and more in the future in my opinion, and not just from me. When Jimmy Carter won the election in 1976, this index was over 13%. When Jimmy Carter lost to Ronald Reagan in the 1980 election, the misery index  was almost 22%. The economists I’ve been following recently have not mentioned the misery index yet, but if unemployment continues up as expected by almost everyone for at least 6+ more months and inflation goes up, quite possible with the current quantitative easing (aka printing money) the Federal Reserve is engaged in, I believe economists and the media will again start talking about the misery index.

Currently the misery index is less than 13% even though unemployment is now 9.4%. It may take a while before the misery index hits 13% or beyond, that’s a good thing, but I believe the USA will see 13% and higher in the misery index, perhaps before the 2012 elections.

Today, the Supreme Court of the USA decided to pass on even reviewing the current Chrysler deal which has been questioned by many pension funds who hold (now worthless) Chrysler senior debt. Our judicial system has now completely caved on contract law, not raising even a meager voice of objection to the current stampede of smothering individual rights, property rights, and now contract law by the current administration and congress.

Congress and the executive branch now have all the legal precedent they need  to use all their power to implement whatever program(s) they wish. It’s now clear the Supreme Court is no longer a force to consider in whatever policies the administration or congressional branches decide to pursue.

If you didn’t believe my prior post yesterday, I hope you now realize socialism is HERE and growing day-by-day in the USA.

Today’s Supreme Court decision to ‘take a hike’  instead of actually addressing the obvious legal issues in the Chrysler deal simply illustrates how far we are down the road to total loss of individual rights, property rights, and rule-of-law.

Our congress and executive branches now have a gigantic ‘blank check’ to do as they wish without worrying about the judicial system getting in their way.

You may have thought I was kidding or too dramatic yesterday about mob rule now in control. Think again (or just think this time).

Almost no one seems to object to the current government policies of economic intervention into our economy and the inevitable destruction of individual rights it has already brought us and the future prospects of even more loss of economic and personal freedom as our federal deficits grow out of control.  Our country is no better, and probably worse, than almost every country in the world at this point in terms of  recognizing, preserving, and/or enhancing individual rights.  Say what?

I know you just want to keep your job and maybe get the government to lower interest rates so you can buy, refinance, or sell a home. You want the government to stimulate the economy to help in some respect, perhaps multiple respects. The cost of letting the government into economics isn’t the nirvana John Maynard Keynes would like you to believe, despite the love his policies have in our government these days regardless of most political persuasions.  Keynes lovely economic theory is but a grand smoke screen that governments have used for 70+ years to justify intervention into the economy which means taking money from some group of people, might be the rich, might be those who DON’T live in California in the near future, who knows who next year, to benefit some other group of people, presumably those who will vote for the current political party in power in the next election. This is mob rule and the end is not pretty.

Wake up America, and the rest of the world for that matter.  Socialism is HERE and growing. Don’t be naive and think you or your grandkids will win in the end.

How about those credit card companies, always changing the fine print, the rates, the fees, and the rules. Congress and Obama have certainly changed the way credit card companies will operate. Credit card annual fees will likely go up for everyone, credit limits will likely be reduced for almost everyone, fewer people will even be able to obtain a new credit card.  These are but a few consequences of what the new legislation will do in my opinion.

What gives Obama or Congress the right to dictate terms of private contracts? By the way, these are voluntary private contracts. Nobody forces you to accept the terms credit card companies offer.  Inability to obtain credit from any other source does not entitle you or our government to dictate ANY of the terms of credit you may need or want.  Our government now believes it needs to interfere in economics at almost every level, on behalf of workers, consumers, anybody that breathes and may have a vote. This is mass rule that completely ignores contract law,  individual rights, and property rights. This administration has already ignored contract law in the Chrysler ‘bailout’ and appears to be doing the same in the GM ‘bailout’, so passing a law that dictates many terms for credit card companies seems like just the next step. These are dangerous steps for our personal freedom, property rights, and ability to limit government intervention in our lives.

I didn’t like many of the terms credit card companies imposed, but I chose to accept them and do my best to minimize the cost. Our government has done many of the same practices recently, i.e. changing rates, changing fees, changing contract law at their whim, making changes retroactive. A big difference, however, is that the government has the big stick we can’t ignore. Who is more dangerous to our future, credit card companies or our Federal government?

Fiat Capitalism, unrelated to the Fiat automotive company, is the grand experiment we in the US are now undergoing.  You could call it socialism, fascism, or something else. I may not be the first to use the phrase “Fiat Capitalism”, so my apologies to those who may have coined the phrase before me.  I define “Fiat Capitalism” as any and all interventions by our federal or state governments  into economics, i.e. imposing laws, edicts, fiats, or ‘moral suasion’, that interfere with free-market economics between individuals and/or businesses and/or businesses with individuals.

In my view, fiat capitalism is an oxymoron. You can’t have capitalism, i.e. free market capitalism, when the government changes the rules of economics for businesses and/or individuals. To be clear, government should protect individual rights by protecting people from force or fraud, enforcing contracts, but should not be involved in setting ANY economic policy, nor religious policy for that matter. Not only should church and state be completely separate, but also economics and state.  “Fiat Capitalism” can’t really exist for long. What we are now seeing in the US will lead to a more complete,  more consistent  social system, i.e. socialism, fascism, or worse unless we all decide we own our lives and accept responsibility for our lives and decide the government must get out of economics and religion and restrict itself to protecting individual rights, stopping force or fraud by individuals , businesses, terrorists or foreign governments. I’ll do my best to explain.

For 100 years at least in my opinion, our government, regardless of which party Republicans or Democrats had a majority in government, has been  slowly, and now more quickly under Obama, pushing the government into more and more control of economics as well as civil liberties. This intervention into economics  and personal liberties by our government is growing day-by-day. I find this scary as well as a disaster for my economic future as well as my personal freedom. I’m sure I’ll miss some intervention into our lives, but I will mention as many of the latest ones as I can in the rest of this article.

I’d like to start with the Federal Reserve. This entity has existed since 1914. I believe it was and is a total mistake. The Federal Reserve has dictated short -term interest rates for almost 100 years. Fed policies are now being questioned by many economists, especially about Fed policy since 2000. Has the Fed helped or hurt our economy in the short-term or even long-term? It certainly affects our economy over time, I can’t argue against that. What I do question, “Is this necessary? Has it really worked? What are the individual right consequences?”.  My answers are , “No, No, Bad.”  Now the Fed is using new unconventional measures called ‘quantitative easing’ after having already lowered short-term interest rates for borrowing overnight from the Fed to essentially zero.  Out of short-term options, the USA Fed has decided to go outward and beyond any previous Fed. Sounds like Star Trek to me, but not with the same hopeful outcome. Quantitative easing is the politically correct term these days for ‘printing money’, except they don’t really print new 10’s, 20’s, 100’s, etc. The Fed just gives themselves new reserves, then they use those reserves to buy whatever they wish. Right now they have been buying longer term Treasury bonds, i.e. monitizing the new and/or old debt floated by the Treasury to cover our Federal budget deficits.  The hope by the Fed is to keep long term Treasury bond rates low, while the Fed also buys FHA mortgage backed securities obligations so mortgage rates for home owners, whether new buyers or just people hoping to refinance, will also stay low to help the US home market. This is TOTAL market manipulation. The Fed does this while complaining about the private sector lendors almost at every level.  You may actually be helped by one of the Fed’s programs in the short-term, but at what cost? Most people don’t think this far. This is government intervention to the 3rd degree in economics, which means your individual rights are being violated. The government wants you to believe that, net-net, you win by government intervention into economics via the Fed and its current programs. I disagree on every level. You MAY win in this or that particular government program, but you lose individual rights and, likely, you LOSE net-net even just considering economics. Whether you win or lose now based on government intervention into the economy, you lose individual rights and you, or your descendents, will have to deal with the gigantic deficits our state and federal governments are now ensuring in the future for us or beyond besides the loss of individual freedoms. Government intervention into economics not only abrogates individual rights short-term and long-term,  but it insures worse overall outcomes for everyone compared to free-market economics where the government restricts itself to maintaining individual rights, enforcing contracts, and protecting everyone , individuals and business alike, from force or fraud whether from domestic or external perpetrators.  Its obvious our government entities haven’t done a good job of protecting us from fraud, not only from individuals and their financial institutions, but also from those that have done ‘naked shorting’ of stocks, i.e. selling shares of stock that haven’t been borrowed and won’t be borrowed, basically faking new stock.  Instead of focusing on the things the government should be doing, our government is expanding its intervention into economics and hence negating individual rights at an ever expanding pace and sphere of control.

Our legislative and executive branches are busy loaning money to banks, auto companies, insurance companies, home owners, and probably others I don’t know about at the moment. These loans have restrictions as you might expect beyond normal loan terms from private enterprise.  I don’t agree with many of these restrictions, but I can understand why many people think they are reasonable. That’s a discussion for another day perhaps. What is very new and scary to me are the changes in the restrictions or ‘rules’ the government is making almost daily, some retroactive. This is fiat rule with many bad consequences, but that also is a discussion for another day. What is NOW happening is the government suggesting it will make some of these rules apply to banks and/or other businesses that did NOT accept TARP money. Isn’t it bad enough the government is telling banks/businesses what compensation they can pay, what excursions are ‘frivolous’ , etc.  for those that have taken (some were forced to ‘take’) government money, but now our government is starting to float ‘guidelines’ that will apply to other banks/businesses.

Our government is also doing something else that is just as bad or worse. The government is now ignoring contract law. The Chrysler ‘deal’ was completely done by the government from what I know. Bond holders who had a first lien on all company assets have been told they will get only about 10 cents on the dollar while other junior lenders get considerably more than that and the unions even more as a percentage of the newly restructured company. The government, according to the lawyer representing the senior bond lenders, has used outright intimidation, e.g. “We’ll use the press corp to obliterate your reputation”, to force these stake holders to accept the government’s deal. What’s even worse is that the government labelling of these people  as speculators at best (really they are institutions that manage your money and mine) has lead others to issue death threats to these people representing bond lenders. Not only are the senior lenders contract rights being ignored, but their individual rights and freedom are now at the whim of government and thugs acting on what they perceive as the “OK” from our government.

This grand experiment is getting out of hand. Contract law is being ignored,  individual rights turned into a whim of the government instead of inalienable, and control of / responsibility for our lives no longer ours. The social agenda of our current administration, fully backed by control of both houses of congress, adored and promoted relentlessly by most of the media while denegrating or worse  any opposition point of view will lead to a nation of  ‘one for all and all for none’. I hope Americans wake up and stop this slippery slide down a very dangerous slope.

What? Please stay with me while I do my best to explain the current love affair by most people on Wall Street, aka money managers, mutual fund managers, market analysts, whatever their title and where ever their actual location, with any economic statistic that seems to suggest, “Things are leveling off!”. Once you understand the context and what they are really saying, you’ll have a much better chance to decide for yourself if our economy is really improving.

First Derivative. Any statistic, whether it relates to the economy or any other realm, has several basic properties. The first basic property we apply to any statistic is whether it is up or down from the last data point. Sometimes we use, by convention, last month’s data point if we are looking at an economic statistic. Other times we compare the new data point to the same data point one year ago, again for an economic statistic. These comparisons of economic data, whether compared month-to-month or year-to-year are the first derivative.  They tell us the change and/or the percentage change for the statistic compared to last month or last year. Because economic statistics have seasonality, i.e. month-to-month variations related to the time of year independent of overall economic trends, I prefer comparing year-to-year comparisons for economic statistics.  Beware of month-to-month economic statistics spread by almost everyone, including the above mentioned Wall Street types as well as the media outlets. Often they state a new data point without telling you what the comparison data point really is, e.g.  “Sales are up 1%!” They fail to tell you whether they are talking month-to-month, year-to-year, decade-to decade, or even something else as they wish . Listener beware.

OK, you now know the first derivative for any statistic and specifically for economic statistics.

The Second Derivative. What’s this?  Looking at an economic statistic again, the second derivative is simply comparing the current month-to-month or year-to-year percentage change in the data point versus last month’s or last quarter’s or last year’s month-to-month, quarter-to-quarter or year-to-year percentage change. Again, be aware of the what’s being compared. I prefer year-to-year comparisons for all economic statistics, but regardless of the comparison you might prefer, you must make sure you know what’s being compared. If I state, for example, “Today we learned that unemployment is slowing!” What am I really saying?  Hard to know based on what was said.  What can be known is that this is a second derivative statement, i.e. implying a percentage comparison between the new data point and a previous one, although we have no idea what comparison is really being made.  Is this a month-to-month percentage comparison in unemployment change or year-to-year or even something else? Blank. Without a context my assertion  about unemployment slowing is meaningless.  Hopefully you will be told the context; if not, recognize what you just heard is likely to be just an example of how ’statistics often lie’. Statistics don’t lie, but people often use statistics without context to make their point. Again, listener beware. To make progress here we must all be active listeners, asking the questions left unanswered by whomever is giving us some statistic, especially economic statistics. Hopefully you now understand what I said about unemployment slowing was without a context. Let me modify what I meant to say, ” Unemployment is slowing because today’s data shows 8.8% unemployment, versus 8.5% unemployment last  month and 8.0% two months ago.”  This, at least, gives you some context for my assertion.  This is still a month-to-month comparison, so its not my preferred way of stating economic statistics, but at least its better than no context at all.  So now you should know what  “Unemployment is slowing!” is trying to say and what questions haven’t been answered by the commentator, regardless of his or her position or title.  What is the modified unemployment statement really saying?

The Second Derivative Fixation. The point of this article is to make you understand that most Wall Street people, as defined above, are now using second derivative statistics to make themselves, and hopefully you, more bullish about our economy.  Using the above example of hypothetical unemployment data, the data series show unemployment percentages, as they are defined,  are currently 8.8% vs 8.5% last month vs 8.0% two months ago.  The rate of change month-to-month is SLOWING. What? Well, to be clear, unemployment is still growing (to be exact employment is still declining on a percentage basis compared to previous month’s data points),  but the RATE of decline is slowing, at least according to this series of data points. Are things really getting better? No, not based on this statistic, but they seem to suggest that the plunge we have experienced in our economy may not be continuing at the same pace. I recognize this is slightly better than the rate of decline accelerating, but our economy still has not hit bottom. The assumption by people that are fixated on second derivative economic statistics getting ‘better’ is that this new ‘trend’ will continue without pause or reversal and hence our economy will actually be expanding in terms of GDP later this year with employment,  i.e. positive job growth, to follow soon thereafter. Wall Street and the media love to push this optimistic view, almost without exception. Are they wrong? Maybe, maybe not this time. The keywords are ‘this time’. Maybe the improvement in second derivative economic statistics will continue and, hence, at some point GDP then employment will get better. I certainly hope and believe things will get better, but I won’t be using an improvement in the rate of decline as telling me its time to bet the farm on the stock market or will lead to, necessarily, a real improvement in our GDP and employment any time soon.  Trends last only as long as they last. Even Yogi knows that, even if he stated it as, “It ain’t over till its over!”

One Possible Analogy. OK, here goes. This isn’t pleasant, but, if we bend the laws of physics a bit, we can imagine someone jumping out of a window, accelerating downward toward the street, then, ignoring the laws of physics, suddenly start slowing down en route to the street below. They are still falling, but their speed of descent is actually slowing down. I admit I’m bending the laws of physics here, but the analogy is similar to the current economic statistics. The rate of decline is slowing, but we are still falling. If I carry this analogy to the limit, our jumper will hit bottom, eventually I hope, without getting killed. I hope the same for our economy, but the rate of decline improving (declining?) doesn’t mean we’ve hit bottom yet, nor does it tell us how well we’ll feel once we get there.

One of the important themes for current State governments as well as our Federal government at the moment is to decide, on your behalf and mine, what is in our best interest. Personally I believe my life belongs to me and whatever I choose for myself, whether considered incorrect by anyone else including anyone in our government, is my choice, regardless unless I use force or fraud against others. My life is mine; my body is mine.

I, for one, didn’t vote for any of the current government programs that interfere in economics and, hence, individual rights, but, in  full disclosure, I am a beneficiary of some government programs, such as Social Security.  I’m just trying to get back the money, in real terms, that I contributed between age 16 and 62, the last 38+ years at a full-time tech job for a large IT company. I paid  everything the government asked; I’m now just trying to get retribution even though I disagree with the idea of the program. No State or National government entity should be involved in economics, nor, more importantly, be trying to tell me what to do with my life or body. I recognize the rights of others, so I know I can’t use force or fraud in any form to harm others, but I DO believe I have a right to choose what I do, how I spend my money, how I live, i.e. how I choose to express my individual rights, as long as I respect the same rights for others.

Our government, at the moment, in some states and certainly at the national level, doesn’t agree. Currently, many State governments, as well as our National government, think its their job and/or duty to dictate certain aspects of our lives. There are very few questions being raised about the various governments intruding into our lives; I believe the time is NOW to rethink this intrusion of government into our lives. Our current government policies, at the State as well as the Federal level, limit our individual rights and thus make us less and less individuals, and more just pawns in their game.

What am I really talking about?  There are many things our State and Federal governments are doing that clearly violate individual rights, our life, and our right to pursue our own interests that don’t violate the rights of other individuals.  Such as, for example, the cities in the US that have banned smoking within restaurants. I don’t smoke, but I believe any business owner has property rights, so I believe it is his or her decision as the business owner to decide if they wish to allow or prohibit smoking on their property.  If government at any level decides for them, then property rights and hence the right to life, if you actually understand the consequences, are lost. Another example, perhaps just as current, are the laws being imposed by some municipalities that dictate against trans fat in fast food or some other ingredient in whatever. This is Nanny State personified. Whether these ingredients or behavior are ‘harmful’ is not a decision to be made by any government. Only people and governments that believe government should be involved in economics and human behavior accept these ideas. Many people think a Nanny State is good and/or needed; I think its the antithesis of what this country needs.These are but two simple examples of government gone wild, i.e. government destroying individual rights and thus destroying our right to life, liberty, and individual choice in our own interest that honors the same choices for others while preserving property rights.

Nanny States may seem innocuous, but I wouldn’t bet my life on it.

Individual rights and government involvement in economics and/or religion for that matter don’t mix.  Make your choice.

You may think you know the ‘truth’ just as I do, but neither I, nor you, have any right to impose our views on others.

My point, again, is that you and I BOTH have equal rights; I should not be able to impose my views on you and you have no right to impose, i.e. force by law, your views regarding economics or religion on me. My life and body are mine; yours are yours.

Nanny States are just the beginning of the end for individual rights and hence the right to life.

Suddenly, without regard for those that might be affected, our government  did a gigantic flyby over lower Manhattan yesterday, including an escort of several fighter jets, all for a gigantic photo op. At what cost?

Obama has claimed outrage and will investigate. Perhaps true, but that ignores the fact that he knew this would happen, OR that he DIDN’T know it would happen.   Whether Obama knew or didn’t know about this photo op, he is responsible. This is where the buck stops in terms of executive operations of our government. At the President. This comment is about just one incident, but the general principle applies to all preceding Presidents of our great country as well.

Obama, perhaps, REALLY didn’t know about the flyby. I don’t see that as an excuse.

Was this event below the level of importance to inform the President or the Mayor of  NYC? The people of Manhattan have endured enough, as have we all. The Mayor of NYC, Micheal Bloomberg, was not amused to say the least. Many Americans were not amused as well.

Perhaps Obama was unaware, but, given the sensitivity of people in NYC and all Americans in general, this is an example of government not doing the job of protecting all Americans from force or fraud and, instead, pursuing its own interests.

Update as of May 11, 2009:  Obama has accepted the resignation of the official that authorized the Manhattan fly-by which implies Obama didn’t or probably didn’t know about the fly-by ahead of time. If that’s the case we have government officials taking liberties beyond their authority or Obama delegating too much or too much to the wrong people. This incident just raises my distrust of government bureaucracy at any level.

For centuries, the battle of morality was fought between those who claimed that your life belongs to God and those who claimed that it belongs to your neighbors - between those who preached that the good is self-sacrifice for the sake of ghosts in heaven and those who preached that the good is self-sacrifice for the sake of incompetents on earth. And no one came to say that your life belongs to you and that the good is to live it.

–Atlas Shrugged