Thursday, April 19, 2012

Financial Advisors Why U No RICH?

I lol'd citizens. I lol'd. Found it here

Salve Citizens of the Republic and denizens of vir sphaera (manosphere).

I want this blog to have a wealth of analysis and information; but my work schedule doesn’t give me a whole lot of time during the week to pump out high quality, well thought out, and insightful work.  I have a bunch of things I want to write about, and I am slowly collecting the information I need to do so.  Reports that shows we really aren’t as dependent on the Middle East for oil as some pundits claim.  Esoteric writings about what really makes a nation powerful. And statistical analysis on what really makes a nation wealthy.  I’ll post those, but during the week I think I will also post up an article that I have read along with my own color commentary. So without further ado here is an article I read on MSN money this morning:

"For all the well-paid analysts and sophisticated computer systems that dominate trading, Wall Street still can't seem to focus on more than one thing at a time.

For now, the focus has returned to the European debt crisis, as the issues that cut down Greece, Portugal and Ireland have hit Spain hard.
But very soon, as Election Day approaches, the attention will turn back to U.S. debt and deficit issues, which, as in Spain, are caused by too much debt and a government trying to avoid its budget-cutting duties. Remember last summer's debt-ceiling debacle and the market meltdown caused partly by the loss of the Treasury's AAA credit rating? Get ready for the sequel.  (Very true though the loss of our triple A credit rating to AA whatever was a joke.  Let me ask you this. Would a person, whose total credit card debt exceeded his income by about 30% or more, qualify for a loan? A few years ago sure, but nowadays, such actions would and should be considered negligent if not criminal)
This time, however, Washington will have to contend not only with its new $16.4 trillion debt ceiling, but with the expiration of a long list of revenue measures (Bush tax cuts, payroll tax holiday and more) and automatic spending cuts that add up to a drag on growth of around 4% of the gross domestic product. (If cutting of a government programs hurt GDP, then was it really necessary? i.e did that growth really exist? Moreover, why do people forget that it isn't like money is being flushed down the toilet? It is simply not being distributed by our government and being kept in the pockets of the people, which is better by the way.  Mises has plenty of articles talking about why this logic is flawed that you should check out. But to put it succinctly, the money that government puts towards economic programs do not go to businesses that are healthy, vibrant, and have good growth prospects.  It goes to old decrepit dinosaurs, that are unable to adapt and change to remain profitable.  Rather than innovate they become rent seekers looking to squeeze every bit of revenue they can.  Which isn't bad in itself, however, rent seekers, like water, seek the path of least resistance.  And that path is government regulation. And when it (money) isn't shifted to the GMs of the world; it is shoveled off to whatever feel good 'green industry' or gee whiz program, in some cases both like electric cars*, that couldn't survive in the market without government support.  If a company cannot survive without government support it is a net drain on the economy pure and simple. Trabant anyone?  After WWII we significantly cut spending, and for a brief time the economy contracted. Yet after the reset phase, and when money started going to productive and profitable sections of the economy instead of our corpulent Federal programs, the economy took off into a sustained economic growth spurt.  Or if you want an even more recent example, look at the Solyndra fiasco.  $ 500 million in loans from the Feds just disappeared before our eyes.)

And unless something is done, it would all happen at once -- risking a new recession outright, since the International Monetary Fund is looking for the U.S. economy to expand by only 2.1% this year and 2.4% in 2013. (We are heading to recession anyways; in fact I would argue we are amidst a depression. Either we get it done now, or put it off until it is way worse later.  Forgive me for getting scatological, but I have a principle that relates quite well. It is the Cogitans Iuvenis principle of delayed diarrhea. I will explain it like so: You know when you get that feeling when your stomach that tells you, that sometime soon, you are going to have an unpleasant experience in the bathroom?  You know you could get it over with now, but you decide to wait and hope it goes away, like bad gas, or Lady Gaga, only it doesn't, it never does, it only gets worse and worse until you finally run into the bathroom, your spchinter bursting at the seams as you barely get your pants undone, and your ass on the toilet as jets of sick leave your anus. You then spend the next fifteen minutes dry crapping and your stomach twisting as it curses you for waiting so long to excrete the bile that festerd in your bowels.  If you had only gone the moment you felt that 'uncomfortable feeling' you would have gotten it out of the way. But you put it off and made it so much worse.  I am sure you have experienced this at one time or another; well the reasoning on the economy is largely the same.  If we had only let the crisis of '08 taken its course we would already have bottomed and entered a new cycle of economic growth, but 4 years later we are still doing the extend and pretend.) 

This is the "fiscal cliff" Federal Reserve Chairman Ben Bernanke has been warning about (I'm more concerned about the fiscal tsunami he is causing that will be far worse than any quake we are going to experience.  Most likely these two events will occur in tandem and will be on a global scale). It's real. It's coming. And soon, it will be all that Wall Street's chatterboxes are talking about.

No more can-kicking

The problem is that we can no longer avoid the hard fiscal choices we've been avoiding (Absolutely) -- a topic I've written about frequently.

We needed meaningful stimulus to boost short-term growth (No) and slash the "cyclical" portion of the deficit related to our mediocre recovery (What?! If our government had a sense of financial responsibility they would have cut their budgets to minimize whatever 'cyclical' growth would be accrued.). Not only would more vigorous growth cut the deficit by increasing tax revenues (True for now, but that doesn't factor in future liabilities like Social Security or Medicaid that is going to rain hellfire upon us all.) and cutting expenditures on things like food stamps, Medicaid and unemployment benefits, it would also clear the way to address the deeper "structural" deficit. (Ok, let me get this straight. Long term debt is bad, but short term debt is good right?  I get the basic concept that you can leverage your growth ability by getting loans for projects that have a net ROI in excess of the loan. It is what we do, well what we should do anyways, in the commercial real estate industry.  However, there are numerous problems with this simplistic line of thinking.  1) There is no such thing as short term spending for the government, it all becomes long term.  The near trillion dollar stimulus was supposed to be short term, however, whenever a politician, like say Mr. Paul, talks about ending this spending it is called irresponsible.  It belies logic, this spending was supposed to be temporary, yet four years later it is still haunting us and has pretty much become just as institutional as say Social Security or military spending.  Now the author of this article might agree with me on the inanity of this thinking, however, he is still wrong.  Point 2:  We are assuming that our spending has an ROI in excess of the interest we are accruing.  It doesn't.  Most of Obamas stimulus was nothing more than a pork barrel wet dream for every leftwing community organizer or bureaucratic lifer out there.  Sometime in the near future I will break out how it was spent, but here is a taste. We spent a grand total of 870 million for small business loans compared to 58 billion given to state governments to shore up their irresponsible budgets.  Seems kind of back asswards doesn't it.  If the problem we were suffering was a liquidity trap, essentially were banks will not lend, then wouldn't it have made more sense to open as much funds as possible to get small businesses going to jump start the economy?  No, apparently the way to prosperity is to make sure no one on the state payroll gets a pay cut or looses their job.)

This is the real crux of the problem. And there are no easy answers. What do we do about out-of-control health care costs? Or a bloated Pentagon budget? Or a share of tax revenue, as a percentage of GDP, that has returned to levels not seen in 60 years? (All true)

The problem is worsened by demographics. More older Americans and fewer young workers to support them will put additional strain on the federal budget. (Translation: Generation Y is screwed.) Any increase in interest rates if the Federal Reserve loses control of inflation (We've already lost control of inflation, we have just been able to use our world reserve status as a means to shunt the effects to other nations. Remember the Arab spring in Egypt?  It was in large part caused by the ever increasing cost of the basics of life.  The original protest in Egypt was about how grain was getting to expensive and it moved from there. This has been going on in China and Latin America as well.  Things are getting more expensive because these developing nations are forced to depreciate their currency so they can keep their 'competitive advantage' in price so America will keep buying their crap.  Well the problem is that by doing so they are eroding their people’s ability to purchase the goods that they need.  It will happen here soon enough.) Will compound the problem via higher payments on existing debt. It's an untenable position.

The White House and Congress have had their chance over the last few years to thread this policy needle, mixing short-term stimulus with medium-term austerity (This again.  It doesn't work that way for the government.  Anything the government proposes becomes a long term project!) and essential reforms. Instead, political bloodlust killed any chance of mindful bipartisanship. (Bipartisanship is the reason we are in this problem) The recommendations of the Simpson-Bowles deficit commission were ignored, and the Congressional Joint Select Committee on Deficit Reduction -- the "supercommittee" -- simply failed to produce results. (Most of the committe members being nothing more than life long politicians.  Evidence being that fix being a pitiful $ 200 billion 'cuts in discretionary spending and other 'cuts' defense procurement and cutting the workforce. Not to mention the laughably fictious idea that they were somehow going to get $ 100 billion in additional tax revenue. Or that they were somehow going to control medicaid costs.  We've been trying to do that for decades and we have failed at it.)

A big part of the reason analysts at Standard & Poor's pulled our AAA rating back in August was our dysfunctional politics. (As opposed to our government spending money like a trailer trash lotto winner on chalupas and game of thrones collector edition dvds?) Democrats and Republicans didn't address the issues. And they didn't merely kick the can down the road -- they held all of us hostage to 11th-hour brinkmanship as the debt ceiling approached to score points with far-left and the far-right extremists. (No they did this to scare sacks like you.  How is raising the debt ceiling good for us. Especially when they pick the limit the same way most Americans pick lotto numbers.  Isn't raising the debt ceiling kind of like saying we are going to default?  I mean, if the debt ceiling is not raised then we would have been completely unable to borrow right?  If we cannot borrow we either cannot fund our government programs, not like that’s a bad thing, or we cannot make our interest payments.  Who do you think they are going to screw over right now?  Are they going to screw over the voters, who can kick the out of office, or the bond holders, many of whom are foreigners? Makes those ten year T-bills with a return rate less than inflation look even better now huh? It's like Melvin getting a loan back from Carlos to pay back Vinney.  If he can't get that loan then Vinny isn’t gonna get his money.  Moreover, guess where most of this debt is going to come from?  You!  That's right. The largest buyer of our debt isn't foreigners but the Federal Reserve.  They are going to print the money to buy this debt, inflating the money supply, decreasing your standard of living while probably increasing our nominal taxable value and just generally fucking you in the ass.)

You see, after years of fiscal irresponsibility, we face an inescapable dilemma: We fly off the fiscal cliff, cutting the deficit by crushing the economy and, like Europe now, repeating the mistakes of the 1937 Great Depression double-dip (The great depression would have been over sooner if we just had left the markets alone); or we swerve, keep our tax cuts and benefits but watch in horror as a lingering deficit doubles the national debt over the next 10 years.

(Keynesian) Economic research suggests both higher debt and deep short-term austerity limit economic growth (Austrian economics says this line of thinking is irrational). So we can pick our poison. You want the hurt now or later? (Considering that rampant government spending is just setting us up for another bubble and following my rule on the delayed diarrhea principle, I'd take my poison now.  The sooner we get this junk out of our system the sooner we can get real economic growth."

All in all this isn’t a terrible article, the author is right about picking our poison.  What really floors me is that individuals in the financial sector, who are supposed to be savvy and intelligent, can still believe this Keynesian nonsense.  We have multiple examples of how deficit spending does not help the economy.  We have the de-mobilization of WWII, where Keynesian economists predicted a return to a depression if we decreased government spending, which never materialized.  And more recently we have the Japanese lost decade. But one thing is true.  Intelligent men will always commit the fallacy that they can control things that are too big for them to control 

 I remember my freshman economics class, taught by a Keynesian of course, and one thing he said to our class remains very salient.  He drew a classic GDP chart and said that government intervention and the federal reserve had been able to decrease the severity and the length of recessions.  At the time it made sense to me. Individuals learn from past mistakes and put in regulations and practices to help us in the future, boy was I foolish.  Most people do not learn from past mistakes, I am looking at you ex-girlfriend from college, and take little note of history.  What is happening to us is really no different than what is happening to Japan, yet these learned men will scrap and prod until they find a superficial difference upon which they can say "This is what caused it, we are different, we didn't/ or did do this."  Our government acted exactly as my professor and all the economists said a government should act, flood the system with money and act decisively.  That was four years ago and things are little better. I wonder now what my econ professor would say to justify his now disprove statement?

If he says we didn't do enough then I am tempted to call our to the lictors to have him banished from the grand forum.

Your Fellow Citizen,

Cogitans Iuvenis

* I have driven electrics cars. It is very cool, and sometime in the future they will become widespread, but I can assure you it is still far too early in the process. Nothing sucks more than to have your car running out of power trying to find one of the few and far between charging stations only to pass 4 or 5 gas stations. And then knowing that if you do find a charging station your stuck for a couple of hours anyways.

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Seattle resident whose real name is Kevin Daniels. This blog covers the following topics, libertarian philosophy, realpolitik, western culture, history and the pursuit of truth from the perspective of a libertarian traditionalist.