Savers are Penalized; Debtors are Subsidized

The Federal Reserve is the most abhorrent organization I’ve come to know. If I told you that there exists an organization which can redistribute your wealth on a whim, wouldn’t you be angry? Guess what – there is.

To put it simply, if you, for example, work and save your money as all hard working Americans should do – your dollars will earn hypothetically speaking 5% in the bank. Every year, on all interest you earn, the government will stick its hands in your pocket and take its share on all “taxable income” including interest income. So if you’re in a 33% tax bracket, the government will collect 1.65% of that 5% interest. This leaves you with 3.35%. This 3.35% at least must equal the rate of inflation to maintain its relative value. Otherwise, the dollars you saved in the past will be worth less and less as time goes by. The Government reported the inflation rate last year to be 4.1% - which many claim is a bit on the conservative side. Energy prices alone have gone up 35% and that drives all underlying costs since transportation is a key component. Regardless, lets say for argument sake that this 4.1% inflation rate is correct. That means the dollars in your bank account will have lost value by -0.765% of their initial value. So if you save, you’ll lose money.

The Government essentially incentivizes people to continually spend the money they earn. If you take out loans, most of the time the interest can be deducted off your taxes (ex. Mortagages). So, debt is therefore subsidized by the Government. As an example, and this is a ROUGH calculation (actual calculations are based upon qualifying interest), if the interest rate on a loan is 5.5%, and your tax bracket is 33%, you can deduct 1.8% off that 5.5%, making your loans “actual” interest rate somewhere around 3.7%, which is incidentally below the rate of inflation. This means, essentially, its better to take out debt to pay for things cause it isn’t your money - your paying 3.7% interest on borrowed money whose present value is being deflated by 4.1% a year giving you a net gain of 0.4% in the value of your assets.

If the Government lowers the target rate, essentially you will earn less interest you have in the bank (it lags, but it will eventually catch up). Lower rates lower the cost of borrowing, which in turn increases the demand for loans. What you don’t know is that every time a loan is given, new money is created. The Federal Reserve requires that banks hold, 10% of total deposits in cash (called the “reserve requirement”). Therefore, banks collectively can issue up to 10x their deposit. When someone writes a check based on a loan (For ex, $100) to someone else, that someone else then deposits the money in a bank. The bank then takes the money can loan out 90% of it. Bank B loans $90 out. Bank C can loan $81, Bank D can loan $72.7, etc. Your head is probably spinning by now, but this is how it works. Up to $1000 can be created based on a $100 deposit. Therefore, in the “Stimulus” plan that’s being offered, if the Government issues $600 to every person, the effect on the nation’s money supply is cataclysmic. It begins with the Federal Reserve creating the money out of thin air – almost $150 Billion of new money in exchange for a Government Bond. From that $600 that goes to every taxpayer and whoever else they authorize it to, almost $6000 of new money is created to flood the system. As more money “sloshes” through the system prices rise. Therefore, $150 Billion equals almost $1.5 Trillion Dollars of new money sloshing through the system causing inflation and other price rises. THAT’S WHY THIS ECONOMIC STIMULUS PACKAGE IS A CURSE MORE THAN IT IS A BLESSING. The idea is that as money is loaned out, people buy more and more things. But what it does, essentially, is redistribute additional wealth to banks and financial institutions in the form of additional interest income. Generally, businesses take out these loans for additional investment and continually leveraging debt for profit. Poorer people who spent the money now find themselves in the same predicament they were in before. They can now either take out money to pay for basic things such as food, clothing etc. or have to cut back. Their salaries are for the most part the same or slightly higher. The temptation is that government continues to perpetuate the system giving people handouts and continuing the viscous cycle. It doesn’t work and it will eventually crash and that’s why we need a currency system that’s backed in Gold or Silver or some other tangible asset – it protects the value of your money that you worked hard for. Democrats are not the Poor people’s friend many people make them out to be. They love Government spending and handouts which causes this to occur. The Bush administration has done the same thing at the expense of the American people. People think handouts are good for them, No! It keeps you poor and further redistributes the wealth to upper echelons and financial institutions. That’s why I am against national healthcare plans – it will inject more money into the system causing skyrocketing costs. And Social Security payments won’t keep pace with the rates of inflation either.

I’d rather see lower tax rates that encourage additional business activity beyond banking institutions, lower government spending which brings stability to the money supply, and a sound money system which ensures a solid foundation for an economy to stand on.

Back to the Value of the Dollar

There’s two ways you can tell whether the Dollar is losing value – on a comparative basis when you compare it to the equivalent value of foreign currencies (the exchange rate), and to the cost of goods and services as measured by the Government’s reported Consumer Price Index (available at www.bls.gov).

This is a chart of the US-Euro Exchange Rate. The y-axis represents how many Euro cents is equivalent to a dollar. Where 0.83 Eurocents equaled a dollar 2 years ago, its now worth 0.68 Euro cents – a 20 percent drop. Keep in mind at one point 1.2 Euros equaled a Dollar in 2001. So we’re talking a significant year over year drop. If the trend continues, we’re really headed into serious turmoil.

And as the Federal Reserve cuts interest rates, it increases the supply of US Dollars on the market. The value of the dollar relative to foreign currencies fluctuates based primarily on two factors – supply and demand, and political uncertainty. Therefore, as the Federal Reserve essentially prints more and more money, the supply is increasing relative to world demand. In addition, as the US continues to wage war for whatever reason, the value will continue to decline as that represents political uncertainty. In addition, since the dollar is backed by the US Government, as the US Government continues to take out debt to finance the war and other entitlement expenditures, the value of the Dollar will continue to decline. Similar to the Stock Market, the stock of a company will decline as that company continues to take out debt with no way to pay it off in the future other than to take out additional debt.

Should I reiterate why I support Ron Paul? Its for the reasons above.

Bribing the American People

I am absolutely furious over the ‘stimulus’ package that’s being spearheaded through the US House of Representatives. Essentially, what congress is proposing is nothing more than a bribe to the American people. “Here’s $600, keep believing in the system.” People who didn’t even pay income tax are getting cash. This is nothing less than government acting like Robin Hood bribing the American people for votes and eroding the world’s confidence in the US Dollar. So unprecedented is this act, it concerns me so greatly I can really see the beginning of the end of this Republic.

Rather than cutting spending and thus taxes, the Government will borrow this money to pay you. Eventually, this money will come due. The reason why inflation is rampant is due ot the fact the US dollar is eroding in value. When nothing other than the government backs the currency, the amount of outstanding debt held by the treasury department factors into its overall valuation.

When the value of the US Dollar goes down, costs go up! It’s simple as that. When government injects funny money into the economy, it does no more than a short term effect. Like taking illicit drugs, a temporary ‘high’ will lead to a sudden crash. The Federal Reserve, rather than maintaining the Interest Rates, overnight – decided to lower the inter bank rate by 0.75%. This is an unprecedented rate cut – and sends mixed signals to investors and the world economy. The Federal Reserve broadcasted to the world that there is a significant problem with the US economy, and US Federal Reserve is making some severe reactions to the situation.Congress has given up much authority to the Federal Reserve System that caused this crisis. Setting artificially low interest rates causes the boom-bust cycle we are facing, and it cannot be sustained. Let it be known the Federal Reserve is a quasi-governmental organization, controlled entirely by Presidential appointees and the stockholding Private Member banks. It prints money without the oversight of Congress and in an unconstitutional manner – not backed by any asset of tangible value. The amount of money they are printing today dissuades anyone from saving money and continues an economic system of continuous consumption and increased borrowing. When the bills come due, the system goes bust – and in order to sustain the cycle, the Government is a patch job by injecting money into the system in an attempt to keep it working.

So you might ask how we might get out of this situation? Try clicking this link: http://www.ronpaul2008.com/Prosperity

So much power is held by the President that it is imperative that you seriously consider the effect of your choice on the future of the country. You need to realize the current system is illegal, immoral and unsustainable.

Rescuing the Economy

Over the past week, I’ve listened to much debate regarding how to rescue the economy from an apparent recession. It took them long enough to realize the dire situation we live in, and now I hear the same old solutions proposed once again.

We’ve witnessed “rapid” growth of the economy over the past few years. This was a result of expansionary monetary policy and the creation of easy/free money for lenders to loan. The result is, of course, a flurry of economic activity that made our economy look robust. The Federal Reserve lowered interest rates into oblivion, and offering the ability for people who would otherwise not be able to afford certain effects to suddenly find themselves able to. Most notably was the effect on Real Estate, where in 2001 home prices were rather affordable – in the mid-$200k range in my area, now cost over $400,000 – a price I certainly would be stretched to afford. Those who were given short term, low interest rate mortgages (ARMs), found themselves in a pickle when the rates reset to market after the introductory low rates expired. They could not afford the house they live in when they bought it, and they can’t afford to live in it today.

And what is it I am hearing from the Government? They propose to do the following:

1. Lower interest rates and create additional “stimulus” for people to borrow and buy things.
2. “Save” people who took out loans they can’t afford by “freezing” interest rates at the expense of the taxpayer.
3. Start “handing out” money to people in the form of tax rebates.

The cause of the recession is now being also offered as the solution. The core problem is our monetary system, it has no backing and based on the Government’s decision to increase or contract it through a variety of mechanisms. Therefore, at any time, the Government can decide to inject more money into the system thereby devaluing whatever money you may have in savings. As a result, the costs of goods increase – including basic needs such as food, and shelter. This is called the “inflation tax.”

A good measure to determine whether the value of our currency is being maintained is to compare it to other paperweights such as the Euro, and British pound. Both currencies have appreciated against the dollar upwards of 40-50%. That means the world views our dollars as half as valuable as it once was.

The aforementioned solutions offered by the Government are analogous to short term fix-ups. And essentially the higher we inflate the balloon, the harder it will hit the ground when it bursts. What is needed now, to bring record costs under control, is a recession. Yes, I’m serious. A short-term correction to realign the markets will ensure long term stability. We need to put an instant cap on all spending in order to bolster our currency’s value. The less we spend, the less supply there is relative to the overall global demand. Government can start in-house. We need Government to eliminate every non-sensical department they have created – including the Department of Energy, and the Department of Education. Since when should a Federal Bureaucracy be in charge of the nations’ education? I don’t see the US Government opening up universities, etc. Education should rightfully be left to the local communities and the State to manage. The Government also needs to look at ways of reducing our national deficit and stop the deficit spending. The nation’s taxpayer money generally goes to fueling local pet projects around the country, in some cases researching shrimp in the Gulf of Mexico. All this non-sense does not provide any value whatsoever to individuals such as myself. To please the people, the Government attempts to play Robin Hood by appropriating our taxes in the form of welfare handouts, and sometimes subsidizes “poor” farmers. The Government actually pays farmers not to grow Corn – it was spurred by a Corn surplus and farmer’s were struggling at the time. Uncle Sam bailed them out alright, now we have a shortage since there is a large demand for Corn-based ethanol. Why are your tax dollars being used to pay a farmer out in the Mid-West? He should compete in the free market like the rest of us, if Corn doesn’t pay the bills I’m sure eggplant and a variety of other alternatives will. What really baffles me is what value does the Federal Government provide me at all? Most of the services I use, such as roadways, local protection (police), etc. is rendered and provided by Local and State Government, and not the US Government. And yet, I pay the US Government 2.75 times what I pay Local and State Government (Not including Social Security, throw that in and I pay the Feds 4x that of what I pay the State). I’d rather pay the State than the Federal Government since they provide more direct, locally appropriated services to me.

The Federal Government also subsidizes people to remain on welfare. Essentially, they say “If your income is below this level, we’ll give you food, shelter, etc.” What in turn happens is, people are incentivized to remain “poor.” If they make any more than the poverty guidelines, they lose public benefits. The other day, waiting in line at the Supermarket, I observed a rather dapper individual pay for his groceries with a Food Stamp ATM-type card in Brooklyn. I began noticing almost everyone paid via Food Stamps. This appeared rather odd to me since they all were dressed rather stylishly. Since we left around the same time, I noticed that the individual rode in a late-model BMW automobile. Clearly, this is a misappropriation of my taxpayer dollars. Money is best spent by those who earn it.

I think I’ve made it abundantly clear that you could probably trim the Government’s budget by over 75% and still have no effect on our collective daily lives. The US Government was supposed to provide for only our common interests, limited to “establishing justice, insure domestic tranquility, provide for the common defence, promote the General Welfare, and secure the Blessings of Liberty to ourselves and our Posterity.” How come I feel as if the Government is now providing none of the above?

A return to the free-market is the best solution to our ills. There will be a noticeably more stable economy, where value is protected. Prices will become predictable. Combine this with low taxes and we’ll have a vibrant economy. A main ingredient to a stable free-market economy is an appropriate currency system – and that entails the abolishment of the Federal Reserve. We need a currency that maintains the same value – ie. Gold or Silver as authorized by the US Constitution, or even a restricted paper supply. No Government entity should decide how much money should flow through the system – the result is an uncontrollable mess. With a stable currency system, the free market will assign appropriate interest rates to loans and the Government won’t have to worry about that either. Essentially, the Government won’t have to pull any levers to “stimulate” the economy – it will run perfectly fine on its own.

Mitt Romney Challenged

While Romney was trying to stress that he doesn't ties to lobbyists and as corrupt as other candidates, he didn't expect to be called out by a journalist on the scene. "I don't have lobbyists running my campaign," claimed Romney. Reporter Glen Johnson had none of it, he quickly pointed out that he has a registered lobbyist amoung his highest inner circle. "He doesn't run my campaign." Romney attempted to play a game of semantics and claim only one individual "runs" his campaign. A technicality, yes, but is it honest? No. What about the rest of the campaign staff? When he said he doesn't have "lobbyists" running his campaign, its in the plural sense - which infers that more than one person is in charge of the campaign - and not just the campaign manager. Apparently, an "adviser" isn't a "runner." Very weak argument, Mr. Romney!

Of Free Markets and Medicine

Many people take offense to the “Free Market” directing the cost of medicine. Many people also believe that healthcare and medicine should be managed through a Government agency and provided at no cost to the masses. The problem with this approach is, like with any expenditure, the costs of this system will be paid through an increased tax burden on society. While the approach still seems to be “ideal” to many, the reality is that it results in a less than efficient method of delivering health care.

Those who are fortunate enough to have health insurance have seen their premiums steadily rise over the years. The main issue resulting in these rising premiums is the fact that many individuals are seeking excessive treatment, and most have no regard to the costs of their sessions. Currently, Doctors are running clinics much like businesses – trying to maximize the number of clients they see within a given period of time. The amount of money they receive from Medicaid or Private Insurers does not vary regardless of the face time spent with the patient. On a recent visit to the Doctor’s when I was severely ill with some sort of Flu, Cold-like ailment complete with a severe sore throat, it seemed the best healthcare my PPO insurance could provide me was an hour long wait in the Doctor’s office and a 2-minute “shotgun” diagnosis of my ailment. This quality of healthcare may very well result in “repeat” business since the underlying disease may still exist and cause further complications. In my case, I was told it was a cold and I had to wait it out. On the contrary, it turned out I eventually needed antibiotics to overcome the disease. The current system doesn’t provide quality health care as it is, extending it to everyone doesn’t solve the underlying problem.

Healthcare costs have become excessive since there is no incentive for Doctors to develop a relationship with the customer. Many of them view a patient by the $100 allowance they receive from insurance. The same will be true if the Government extends a healthcare plan to its citizens – only we all will pay for and share in the inefficiency of our current health care system.

It is important to note the Genesis of the system we have today. The current healthcare system was established by Government in the 1970s through the HMO Act. It required all but the smallest employers to extend health care to their employees. When many had a healthcare plan, the abuses of the system began. Health Care costs increased steadily since, and it was all a result of unnecessary Government mandates.

In the system in place prior to the onset of the Act, Doctors had every incentive to maintain quality relationships with their patients since they were in direct employ of the patient and not the insurer or the Government. People who needed medical attention at the time would pay the doctor an affordable fee for their services. People who could not afford medical services would need to frequent the many charity hospitals and clinics that were open at the time. Since Health Care costs ballooned, many of the charity hospitals have had to shut down. And as a result, those who are self-employed or work for small businesses are now stuck in a precarious position – they neither have insurance, nor qualify for Medicaid and cannot afford medical care at today’s costs. Many of them dismiss the need to go to the Doctors altogether. Since the Government provides healthcare to only the poorest of the poor, lower income Americans have greater incentive to remain within the qualifying income categories to insure a continuation of coverage. Thus, the government has created additional burden on taxpayers and has caused people to remain dependent on the system. If Government extends coverage to all individuals who are currently not covered by any insurance, an instant “demand” to the health care system is created and healthcare costs will further rise as a result.

It is very difficult to “fix” our current system since it is a complex mess of government mandates mixed with certain elements of a free market system. The combined result is the worst effects of both systems – skyrocketing costs and less quality service. Many politicians have tried to tackle the issue only find that it is too complex and their “solutions” will cause tremendous harm further exacerbating the problems. People also need to realize that our healthcare system cannot be “nationalized” either – the Government cannot outlaw private healthcare other than its own and force Doctors to work in essence for them directly (Such as France, etc.). Therefore, a novel solution needs to be developed that drives down costs and increases the quality of healthcare we get in this country. No small task, but we need the best minds to start thinking of a viable solution.

To the Military, the candidate who should become our next President is clear.

January 12, 2008

The Men and Women of the United States Army, Marines, Navy and Air Force.

Today, I decided rather than analyzing industries and companies which tell us who we shouldn’t vote for, I decided to analyze the donations of those Men and Women which tell us who we should vote for. These Men and Women have put their lives on the line, and have upheld their pledge to defend the US Constitution.

We must listen to what they have to say and why. They are on the front lines, and they see first hand what’s happening in the War. They should be our primary source of information.

In doing my analysis, I pulled the donations from members of the following military branches – the Army, Air Force, Navy and Marines. They include active service members, retired service members, and even those who have identified themselves as “Disabled.”

Ron Paul	$49,740
Barack Obama	48,078
John S McCain	43,833
Hillary Rodham Clinton	24,020
Fred Dalton Thompson	20,375
Mitt Romney	18,210
Rudolph W Giuliani	12,420
Mike Huckabee	7,650
Bill Richardson	7,575
John Edwards	6,862
Duncan Hunter	6,830
Joseph R Jr Biden	4,475
Samuel Dale Brownback	1,647
Thomas Gerald Tancredo	1,030
Christopher J Dodd	250
Dennis J Kucinich	246
John H Cox	45
Mike Gravel	10

Members of these four military branches have overwhelmingly expressed their support for Ron Paul. He has received more donations than any other candidate, Republican or Democrat, according to the currently available FEC data. This is telling, and it brings a tear to my eye. Ron Paul seemingly is the only candidate who wants our troops back home, and he wants them back right now. Perhaps the American people should take notice.

Waiting for the Motherload - but that doesn't mean I'll stop

I forgot to qualify the information provided in the previous blog posts. It reflects FEC presidential contribution data through the 3rd-Quarter of 2007. What I'm really waiting on is the motherload of data that will become available on January 31st - it will include all contribution data through Dec. 31st of 2007.

For now, I will mine the currently available data to see what it can show us. I'm taking suggestions for corporations/industries/individuals to analyze. Feel free to offer suggestions by leaving me a comment.

Big Pharma

January 11, 2008

Pharmaceuticals.

Commentary: Pharmaceutical companies support national health care plans that pump additional monies into their coffers. Their goal is to lobby Washington to pump more money in the healthcare system at the expense of everyone else who’s seeing their dollar value fall and health care costs increase.

So it’s not surprising to see that the Democratic Candidates, who tout National Healthcare plans, lead the pack in donations:

Hillary Rodham Clinton	$ 49,500
Barack Obama	42,696
Mitt Romney	19,800
Rudolph W Giuliani	16,500
Christopher J Dodd	15,900
John S McCain	11,010
Ron Paul	7,028
Tommy G Thompson	4,800
John Edwards	4,484
Fred Dalton Thompson	4,350
Bill Richardson	1,400
Samuel Dale Brownback	1,250
Joseph R Jr Biden	1,100
Dennis J Kucinich	250

Notable Donors:

LECHLEITER, JOHN C. MR. – The COO of Eli Lilly supports Mitt Romney. Mitt had some ideas regarding mandating health insurance coverage, he implemented the plan in Massachusetts as governor. So it appears he’s also a “friend.”

The rest are assorted. No conclusion can be drawn from these results, I was expecting more. The total donation amount also is relatively low, considering I hit most of the major pharmaceuticals. Hillary Clinton, however, always seems to lead taking money from more executives and managerial level people at various corporations. Her influence is widespread.

Following The Money

OUR FIRST ISSUE:

Following the money.

We performed some data mining and analysis on the campaign contributions to the major presidential candidates. The results were surprising.

Financial Industry.

Commentary: The major investment banks' profits were fueled this year by the lax credit standards in the market. This easy money system was as a result of lax federal reserve policies that benefited major investment banks such as Goldman Sachs, which announced this year $20 Billion in total bonuses to its' employees. Henry Paulson, the current US Secretary of Treasury and ex-Goldman Sachs Chairman and CEO is widely rumored to have been providing Goldman Sachs inside information regarding monetary policy and other federal reserve policies. This information provided Goldman Sachs with the requisite inside information which has led to record profits. We found it to be interesting to find out now which Presidential Candidate the financial services industry supports in an attempt to detect possible future conflicts of interest.

We requested records from the FEC and retrieved all donors whose employers match "Goldman Sachs", "Merrill Lynch", "Morgan Stanley", "Lehman Brothers", and Bear Stearns”. In excess of 2278 employees of these firms donated to Presidential campaigns, the majority of which hold high posts within the organizations.

Here’s the breakdown by candidate, ordered by contribution amount:

Hillary Rodham Clinton	$897,575
Barack Obama	614,564
Rudolph W Giuliani	488,392
Mitt Romney	373,960
John S McCain	302,440
Christopher J Dodd	197,750
John Edwards	130,850
Fred Dalton Thompson	43,050
Bill Richardson	38,650
Joseph R Jr Biden	34,900
Ron Paul	10,200
Mike Huckabee	4,800
Samuel Dale Brownback	2,950
James S III Gilmore	2,300
Duncan Hunter	1,000
Thomas Gerald Tancredo	6,00
Mike Gravel	250

Notable Donors:

Lehman Brothers’ CEO Richard S Fuld donated to four campaigns (Apparently, he’s hedging his bets). Barack Obama, Hillary Clinton, Christopher Dodd and John McCain were all recipients of his charity.

Morgan Stanley’s CEO John Mack is a major Hillary Clinton supporter. Donating twice over the legal Federal maximum of $2300. He’ll need to give back his excess charity.

Lloyd C Blankfein, Chairman and CEO of Goldman Sachs is also a Hillary Clinton Supporter. Hey, she’s the inevitable candidate. Better get on her good side now! He also donated to Dodd.

Merrill Lynch’s CFO Jeffrey Edwards donated to John McCain and Mitt Romney.

Other Notes: Clinton has wide support in the financial services industry. No conclusions can be drawn from this, however, it appears that she most likely will continue this under handed system of easy money.

Tommorow: Analysis of the Pharmaceutical Industry’s top choice. We will continue analyzing campaign contributions industry-by-industry.