Posts Tagged ‘Economy’


Houston, We’ve Had A Problem Here!

February 17, 2019

While the problem we face today is not as perilous to life and limb as when Jack Swigert immortalized those words in April of 1970, as Apollo 13 had its cascading failures, we still have an issue that has the potential to lead to a cascading failure of our economy.  Perhaps it is better to put it “America, we have a problem here!”

That problem is our national debt.  The current national debt exceeds $22-trillion. It has never been that high before.  To service the debt (pay the interest and principle we owe) requires more and more of the government’s annual income from taxation.  The more we pay to service the debt, the less there is for things like the military and the other departments of the government.

It is easy to get caught up in pointing fingers at this President or that, one Congress vs. another, but that does nothing to address the issue before us.  We must cut costs AND raise income to reduce the huge debt we owe.  If we wish to avoid a financial crisis such as the one faced by Greece recently, we must address the issue now.

Historically, we’ve used our national debt to spur the economy, and it has worked, but what is too much debt?  At what point is the burden of debt more harmful than the upswing in the economy?  One of the common measures of national debt is as a percentage to Gross Domestic Product (GDP).  When looked at like this, we can see some interesting trends since 1950.

The chart shows the GDP for each President’s last year in office.  Two datasets are used, the first being the actual Last Year In Office (LYIO) and the second being the Last Budget Year (Last BY).  They very slightly and illustrate our National Debt does correlate to the influence of the President.

Here are the percentages using data from the US Bureau of Economic Analysis:

*President Trump’s figures are
estimated for end of 2019

What is interesting is what was going on with the US economy when we increased the percentage of debt to GDP.  When the Great Depression hit, and throughout World War II, we increased our national debt to keep our economy growing.  After the war, we were able to reduce the percentage ratio by controlling spending, keeping revenues high (taxes) and growing the economy and our GDP output.  From President Truman through President Carter, the ratio of National Debt to GDP either went down or took a slight bump (i.e. the Nixon/Ford years) upwards.  Then came President Reagan!

President Reagan had two primary priorities as President.  The first, repair the damage to the office of the president caused by the resignation of President Nixon and Watergate.  Second, stop the Soviet Union’s increasing influence in developing nations.  It is the second priority that had such a drastic effect on our National Debt.

Regardless, if you agree or disagree with President Reagan’s approach to the Debt, in the end, forcing the Soviet Union to match our spending and buildup of our military did have the desired result, their economy collapsed, and the Union fell apart.  Of course, there are a million other contributing factors for the collapse, but the spending is one of the primary factors and certainly drove our National Debt up – way up!

While President H.W. Bush was President in 1991 the Soviet Union formally dissolved, it was at the beginning of his term.  We also fought the Gulf War in 1991, but as wars go, it did not have a huge impact on the National Debt.   At that point, we could have started reducing the Debt but there was a push for “no new taxes” and President Bush’s signing of a modest increase into law cost him his reelection bid and Congress had little incentive to work on the issue and the National Debt went up.

Then it was President Clinton’s turn.  Putting his personal failings aside, his term as President showed it is possible to grow the economy, eliminate the budget deficit and reduce the National Debt percentage when compared to GDP.  We could have used the surplus to reduce the National Debt further by buying back a portion of our debt, much like companies are doing right now with stock buy-backs, instead, it was paid out more like a dividend through a reduction in the tax rate after President Clinton left office.

President George W. Bush entered office and a cacophony of events that upset everything followed.  First, President Bush acted on the surplus in the budget by cutting taxes in Jun of 2001.  Then the 9/11 tragedy happened.  Not only did it cost a considerable number of lives, but it also damaged our economy.  Airlines were the hardest hit, but industry, in general, took a punch and the country was in the mood to give business a break.  That break came in the form of another tax cut in 2003.  So, we began the war with Afghanistan, and while still underway, began one with Iraq, cut taxes and to no one’s surprise, our National Debt increased at a fast pace.  At the same time, the budget deficit returned.

Unlike when FDR battled the Great Depression and World War II, both of which drove up the National Debt, we did not raise taxes to offset the increase in spending.  We financed the increase by selling government securities.  Securities have to be paid for at some point, with interest.  

Also, under President GW Bush, deregulation, which was started by President Clinton, picked up and our financial institutions followed the same type of disastrous path they did in the 1920s.  It all came to a head in 2008 with the worst financial crisis since the Great Depression. 

When President Obama took over, the economy was in the toilet, we were at war, and tax revenues were down.  We needed to jump-start things and it was done with a very large economic stimulus package.  Again, by increasing the National Debt. Again, just like FDR’s various programs, the economy recovered.  Once our economy had legs, we began to reduce the deficit.  At its highest in 2009, it was $1.4-trillion.  In 2013 it was down to $753-billion, or about half of its highest.

It should be noted, to decrease the National Debt requires buying back the debt.  To buy back the debt a surplus is required in the budget.  We will only have a surplus by cutting spending or raising taxes or better yet – both! 

Now it is President Trump’s turn.  Rather than continue to reduce the deficit and working towards reducing the National Debt, we have increased our rate of borrowing money (over $2-trillion since President Trump took office) and we cut taxes again increasing the deficit.  Our National Debt is getting to a dangerously elevated level.

By the end of 2019, our National Debt will be around 109% of our GDP.  When Greece had its financial collapse, their National Debt was 143% of its GDP.   While our economy is much more dynamic than Greece’s, we still need to fix this problem now, before we take on more debt than we can repay.

We are beyond the typical liberal/conservative approaches to governance.  We need to work the problem with every tool we have.  Liberals will not like cuts, conservatives will not like corporate taxes, but both are needed to address this.  What we don’t need is companies, like Amazon, earning billions in profits and paying little to nothing in taxes.  Reports show Amazon will earn about $11.2-billion in profit this year and pay zero in taxes.

To be clear, it is not Amazon’s fault.  They are simply using the tax code to their best abilities.  Which is to be expected from every person and company in the United States.  The problem is we have a Congress and Executive Branch that continue to spend money while lowering taxes.  That must change and change now.  Remember the old axiom “When do you fix the roof?  Before it starts to rain.”  My friends, look to the horizon and see the coming storm.  We need to fix our roof, we need to acknowledge we have a problem.


Gates, Defense Spending and the GDP

May 26, 2011

With his departure as Secretary of Defense coming soon, it is normal for Robert Gates to express his thoughts on the direction his department should go.  Moreover, given his experience under both Republican and Democratic administrations, he is uniquely qualified to put forward ideas devoid of the typical political rhetoric.  He made some qualified comments in a speech hosted by the American Enterprise Institute for Public Policy[1].

Regardless of anyone’s stance on the United State’s involvement in Iraq and Afghanistan, the fact is we are involved and someone has to run the Department of Defense (DoD) during that involvement.  In that capacity, Gates’ performance is a marked improvement over his predecessor, Donald Rumsfeld.  During his tenure, he changed the philosophy of our strategy to one that works to end a conflict as well as reduced waste in spending within the Defense Department.  In other words, Gates is fighting our wars as cost effectively as possible.

In his speech, Secretary Gates points out the need to address the future needs of the military to meet our political goals.  He quotes Winston Churchill with “the price of greatness is responsibility…  [and] the people of the United States cannot escape world responsibility.[2]”  While the sentiment is true, it is more a question of if the United States can afford the price in the first place.  Mr. Gates frames his argument in terms of Gross Domestic Product (GDP).  While that is useful for generalized thinking, it masks the real-world reality he points to in his speech.

Using his GDP comparison is like an individual using his extended family’s purchasing power compared to one of his particular debts.  The amount of production of the US economy does not directly correlate to our level of debt.  A better index compares DoD spending in a particular year to tax revenue for the same year.  Secretary Gates does point this out in his speech DoD spending is less than 15% of federal spending, but couches in the number in the rosier GDP comparison.  Think about it, 15% of our tax revenue goes to military spending.  Using the $540 billion from his speech, that works out to $1,630.00 per citizen last year.  Taken in a vacuum, it is hard to understand the relevance of such numbers.  For that, we need to look at the United States compared to other countries.

Using information gathered from the search site Wolfram Alpha (, the United States, compared to other nations, spends an inordinate amount on defense.  Consider the following:

  • The United States spends 4.5 times as much on defense as China
  • The United States spends more on defense that the next ten highest spenders combined ($420 billion):
 Defense Spending (in billions) Compared to US
 United States  $ 503.40 N/A
 China  $ 114.70 22.79%
 France  $   55.29 10.98%
 United Kingdom  $   53.43 10.61%
 Germany  $   41.80 8.30%
 Japan  $   35.48 7.05%
 Italy  $   31.72 6.30%
 Saudi Arabia  $   30.98 6.15%
 Russia  $   29.81 5.92%
 Brazil  $   27.76 5.51%
  • The United States spends more per capita ($1,630) than any other country in the top twenty ranked by spending:
 Spending Per Capita
 United States  $1,630.00
 Israel  $1,406.00
 Saudi Arabia  $1,180.00
 Greece  $1,091.00
 Australia  $   869.00
 United Kingdom  $   863.00
 France  $   854.00
 Netherlands  $   604.00
 Italy  $   528.00
 Germany  $   509.00
 South Korea  $   486.00
 Canada  $   367.00
 Spain  $   298.00
 Japan  $   279.00
 Turkey  $   254.00
 Russia  $   212.00
 Brazil  $   142.00
 China  $     84.70
 Indonesia  $     36.30
 India  $     18.60
  • Indonesia (the country with the closest population size to the United States) only spends $36.30 per person.  The US ranks third overall behind Qatar ($2,816) and Kuwait ($1,757).
  • The United States maintains military bases in 28 foreign countries around the world (Afghanistan, Australia, Bahrain, Brazil, British Indian Ocean Territory, Bulgaria, Cuba, Germany, Greece, Greenland, Guam, Iraq, Israel, Italy, Japan, Kosovo, Kuwait, Kyrgyzstan, Netherlands, Philippines, Portugal, Qatar, Saudi Arabia, Singapore, South Korea, Spain, Turkey, and the United Kingdom).

Given this data, isolating spending to the United States alone does not paint a complete picture.  Secretary Gates points to the need of a military capable of fighting two simultaneous regional wars.  Perhaps it’s time to evaluate what other countries, out partners in many cases, are and are not doing.  Simply put, we (the United States) can no longer fund a military that serves as a positive externality for the economies with which we compete.

For example, our military spends billions of dollars in the Asiatic region.  We support goals like freedom of access to shipping lanes, mutual defense agreements, and deterrence of piracy.  While there is no question it is in our interest, it is in the interest of China too.  The question becomes why should we pay for something that benefits the Chinese economy.  Furthermore, given that China holds a substantial amount of our public debt, in the form of US Treasury Bonds, China loans us the money with which we finance our military.  This means we are paying for the privilege of defending China’s national interests in their own backyard.

By no means is the positive externality limited to China.  Every country listed above spends less of defense simply because we spend more.  In this regard, the amount of military spending compared to GDP is meaningless.  What matters is the long-term debt to GDP ratio.  In this regard, China is in a much better position to take on more costs in defense than the United States.  China’s debt is estimated at $483.5 billion with a GDP of $5.308 trillion.  The United Stated debt is estimated at $14.03 trillion with a GDP of $15.03 trillion.  China’s debt represents 9.6% of GDP.  The United States’ debt represents 93.47% of GDP. Again, calculations based on Wolfram Alpha search results.

By allowing China to avoid their rightful costs, we strengthen their economy and weaken ours.  They benefit not only by the sweat and labor of our military but also by loaning us the money to protect the region.  This is the aspect Mr. Gates does not directly address in his speech.  It is also the flaw in Mr. Churchill’s quote.  Our responsibility to our greatness does not extend to allow other’s to abdicate theirs at our expense.  Perhaps before Mr. Gates suggests the political strategy for the next decade, he needs to temper his thoughts with another quote, by Stephen Crane:

“A man said to the universe:
“Sir, I exist!”
“However,” replied the universe,
“The fact has not created in me
“A sense of obligation.”[3]

[1] Gates, Robert M. “American Enterprise Institute (Defense Spending).” America in the World: An Address by Secretary of Defense Robert Gates. Wohlstetter Conference Center, Twelfth Floor, AEI, Washington DC. 24 May 2011. Speech.

[2] Churchill, Winston S. “The Price of Greatness.” Welcome to Web. 26 May 2011. <>.

[3] Crane, Stephen. “War Is Kind.” The Literature Network: Online Classic Literature, Poems, and Quotes. Essays & Summaries. Web. 26 May 2011. <>.


Austerity, The Danger in Following the European Roadmap

November 26, 2010

As countries and international governmental organizations (the G20[1], for example) try to recover from the worldwide economic recession, many are calling for austerity measures as a driving force.  While no one can challenge the need for governmental frugality, reducing spending, as the primary means to pay long-term debt, puts a country on the road to economic disaster as well as civil unrest[2].  The situations over the last year in Greece and Ireland come to mind.

Austerity is a fancy term used by politicians and governmental economists meaning to reduce spending and increase fees to pay long-term debt.  We hear the term in news coverage of Europe, more than in the United States.  Unfortunately, here, the idea is gaining traction.  It is the equivalent of thinking you can pay off your home loan buy reducing your electric bill.  While shrinking spending helps and can prevent increasing debt, it generally does not have the heft to make a dent in overall debt load reduction.

While austerity may not seem a bad idea, at face value, a government implements austerity measures when its debt obligation is unsustainable and it has no viable option to increase direct taxes, in other words, the government is near economic collapse.  This is exactly the position Greece found itself in late last year and where Ireland is today.

One of the primary functions of any government is to provide its citizens with services beyond the reach of the individual, a country’s infrastructure, for instance.  Each road we drive and each bridge we cross are examples of how we use our infrastructure daily.  Of course, governments have other obligations to their citizens too; national defense is an obvious one.  The need to maintain our infrastructure and have a solid national defense is easy to understand.  Other programs are not so straightforward.  The social programs we, here in the United States, have are somewhat murky as politicians routinely use them as a political football and it is these social programs, for the most part, people in America have in mind when they talk about undertaking austerity measures.

It is perfectly understandable why people view social programs with an eye towards cutting; after all, they make up about 36% of our national budget.[3] It is common to hear them referred to as “entitlement programs.”  Social programs include Social Security, Medicare, Medicaid, and unemployment benefits.  Other areas of focus, for the austerity crowd, include the Departments of Education, Health and Human Services, as well as others.  Basically, any department or program that deals with the social welfare of the public.

The problem, as citizens in Europe are finding out, is a cut in government services does not improve the economic outlook; it diminishes it.  While government debt is real and very tangible, a nation’s economy is based on more.  A nation’s economy responds to not-so-tangible things like faith that things will improve, or at least remain positive.  A reduction in social services has a chilling effect on its citizen’s outlook.  In turn, that leads to reluctance, on the part of citizens, to spend what little money they have, ending in less economic activity.  Think of it as a downward spiral, the less the government spends on essential services, the more citizens take up the slack.  The more citizens take up the slack, the less money they spend on discretionary items.  The less spent on discretionary items means a drop in sales overall, further reducing the tax base causing the government to make deeper cuts in services and starting the cycle over.  All the while, the overwhelming debt that started the whole mess remains.

In the end, other steps must take place to return an economy to strength.  Reducing the debt is paramount.  The trick is to reassure citizens, and foreign investors that sound policies are in place to reduce debt over time.  Citizens require special reassurance that money taken from them to provide for something like Social Security is not wasted.  We all know the stories about drug addicts using their money from various social programs to purchase drugs or that the ATMs at gambling casinos were accepting unemployment cards intended to pay for essentials.  These issues must be addressed when they happen, but a particular abuse does not diminish the need for a program overall.

Without question, cuts need to occur in every area where we find waste, but a program of austerity is not the answer, especially an austerity program that focuses solely on social programs.  Moreover, we must reevaluate every program and department and define what level of service we, the citizens, expect for our tax dollar.  In the end, we need a government that not only pays its debts but also meets its obligations to the citizens it serves.

Just as the captain of a super-tanker cannot stop her massive ship on a dime, our massive debt will not reduce overnight.  We need policies for long-term sustainability regardless of the cost to current political objectives.  Only then will we successfully navigate the troubled economic waters we face.  Only then will we avoid the troubles Greek citizens are in, Irish citizens are about to entertain and the rest of Europe seems unwilling to recognize.

[1] “G-20 Major Economies.” Wikipedia, the Free Encyclopedia. Web. 26 Nov. 2010. <>.

[2] Evans-Pritchard, Ambrose. “Europe’s Austerity Anger Grows – Telegraph.” – Telegraph Online, Daily Telegraph and Sunday Telegraph – Telegraph. 29 Sept. 2010. Web. 26 Nov. 2010. <>.

[3] “Budget of the United States Government: Main Page.” GPO Access Home Page. Web. 26 Nov. 2010. <>.


Just How Stupid Can We Be?

September 30, 2010

It really turns my stomach to listen to the Tea Party Bund and far-right Republicans rant about taxes.  Don’t get me wrong, taxing people is at best a necessary evil, but what people like Dick Armey, Sara Palin, Karl Rove, Glenn Beck, Mitch McConnell, John Boehner and the rest, are doing is lying to the public.  They simply hope to scare people in an attempt to keep them from understanding just how close Republicans and big business came to destroying the country.  By scaring you, they hope to have another bite at the apple and finish running the country into the ground.

It’s like the nation threw a big party for eight years and ran up a huge bill.  Now that we’ve started to clean up the mess, they want to complain about the cost of the cleaning supplies.  Where were Tea Party Bundists and Republican stalwarts when we spent the nearly ten-trillion[i] in long-term public debt during the Bush years?  No, they want to ignore that and complain about the less that one and a half-trillion President Obama financed the same way to fund programs to stabilize the economy.  While I can admire the gall of these people, I do recognize what it really is, an attempt to shift blame.

Recent news is full of comments about raising taxes.  Representative Boehner, Sara Palin, and the rest of the clan, make comments akin to “you don’t create jobs by taxing job creators.”  I happen to agree with that thought but their lie is President Obama is not talking about taxing job creators; he is talking about taxing the top 2% of income earners at the pre-Bush tax cut levels.  Republicans are fond of pointing out that small business drives our economy and small business is where job growth occurs.  Small business owners do not make the sort of money that would put them in the top 2%.  While small businesses may generate large amounts of money, profits are slim and it’s profit that gets taxed, not gross receipts.

You want to talk about wasteful spending, I’m there.  You want to express the need to control cost – I’ll carry a sign for you.  Now, if you believe the crap these liars promote to give a billionaire a tax break, forget it!  These idiots ran our economy into the ditch.  Even if I don’t agree with President Obama, I am not stupid enough to give the morons that created the problem another shot.  Again, it is small business that drives our economy and that is where tax breaks need to be, not with the super rich and big business.  They, along with their political cronies, are the ones that put us into this mess in the first place, regardless of what Tea Party darlings want us to believe.

I’ve refereed to the Tea Party as a bund; it is one.  Just as the German-American Bund’s goal was to promote Nazi ideals in pre-World War II American[ii], the Tea Party’s goal is to promote its ultra right-wing ideological views with the same propaganda styled tactics.  Grass-roots members buy into the idea of returning to an America that never existed in the first place.  Just as the German-American Bund tried to usurp American history by placing images of George Washington next to a Nazi flag[iii], Tea Party-ists (and Glenn Beck specifically) try to usurp our history by laying claim to our history and tying American ideals to their perverted ideology.

The Tea Party is simply the cutting edge for extreme right-wing ideologues like Dick Armey[iv].  Grassroots members may wish for it to be an organization to return government to the citizens, in reality it is an organization whose sole goal is to return government to the people that nearly destroyed the American dream.  If you buy into the Tea Party Bunt’s rhetoric, you are as misguided as the loyal Americans that believed the Nazi propaganda prevalent before World War II.  Just because you don’t agree with the direction President Obama is pushing policy, you don’t have to buy into this tripe.

[i]“U.S. National Debt Graph: What They Won’t Tell You.” ZFacts on Controversial Topics. Web. 30 Sept. 2010. .

[ii] “German American Bund.” Wikipedia, the Free Encyclopedia. Web. 30 Sept. 2010. <;.

[iii] Color Guard at American Nazi Rally. 1939. Photograph. Bettmann, Manhattan, New York, New York, USA. Corbis Images. Comp. Bettmann/CORBIS. Corbis Corporation. Web. 30 Sept. 2010. .

[iv] “Dick Armey’s Tea-Party Coup.” The Daily Bell. 18 Aug. 2010. Web. 30 Sept. 2010. .


The Mountain, the Radio Station and the Radio

August 16, 2010

Once upon a time their was a radio station.  It was on one side of a mountain and the small town they wished to reach was on the other.  Try as they might, the interference from the mountain seemed too much for the little station to over come.

One day at a marketing meeting, the sales manager complained, “If only those people had their receivers where we could reach them, our sales would increase.”  What the manager failed to understand it is not the responsibility of the radio to receive the signal of the radio station.  In other words, it is the responsibility of the transmitter to remove the interference between it and the receiver.  The station needed to work around the mountain, not the town.  This is the same problem President Obama and the Democrats are failing to deal with.

Currently, our daily intake of news from blogs, broadcasts and, even newspapers are full of negative reports on everything from the Gulf of Mexico oil disaster to the continued lethargic economic recovery.  If Democrats are responding with positive news, like the radio station, the mountain of interference prevents their message from getting through.

For instance, the bailout of General Motors (GM) and Chrysler.  At over $50 billion, it was easy to stand against it, unless you happen to be in the auto industry of course. For the record, I was against it.  Most of that money went to purchase stock and in GM’s case, about $6 billion was an outright loan.  That loan has been paid back (albeit from other government money) and the company just reported it’s second quarter of profits clearing the way for the public sale of stock after its chapter 11 bankruptcy filing; something they must accomplish to buy back the stock the government purchased.  This is good news for tax payers.  It is the only way we will ever see any of the money come back and there is even the possibility for a modest profit.

Why then are we not hearing this from the administration?  It seems they act much like the sales manager by complaining the public is not doing more to get their message, ignoring that it is their responsibility in the first place.  The administration may feel they are communication but the public does not feel the same and in the end, it is public’s opinion that matters.  The din of negative news make a formidable obstacle to say the least but that makes it more important and urgent to hear the administration, and Democratic leadership on action they undertook that is working.  Otherwise, we are left with just the negative.  Is it any wonder President Obama’s approval ratings are low?

Some complain the Republicans are just highlighting the negative to score political points.  That may be, but should we expect them to do otherwise?  It is the job of Democrats to highlight their accomplishments; this is where they really fail.  Of course, President Obama will know he fought the good fight as he packs up and leaves the Whitehouse wondering why the public did not do more to understand what all he accomplished.


The Lunatics Are Running Our Financial Asylum

May 10, 2010

Imagine you work for a big, a very big, company that makes the latest “what’s-it” everybody wants.  While you did not invent it, you did protect it and promote it and made it the thing everyone has to have.  In fact, the company rewarded you by making you the director of the what’s-it division.  Sales are through the roof and life is good.

Good that is until it is discovered the what’s-its fall apart quickly and have no real value.  Sales drop, the price drops, and investors pull out what little value their investments have by selling stock for a loss.  To make matters worse, it seems you hid critical data from shareholders that would have ended the project before the losses occurred.

What are the chances the company will promote you to senior vice-president in charge of quality control and oversight?  Ice has a better chance in hell.  Still, that is exactly what has happened with our financial system.  The people, the very same people that derailed our economy are now responsible for guiding its recovery.  For example, Treasury Secretary Timothy Geithner worked for former Treasury Secretary Robert Rubin who was the driving force that changed the rules for banking (the Glass-Steagall Act[i]) put in place after the Great Depression.

Recently as Secretary, Geithner complained in testimony to the House Committee on Financial Services the Federal Reserve “does not have any legal authority to set or enforce limits on risk taking by a large global financial firm.[ii]”  Of course, he neglected to point out he was part of Rubin’s team behind removing the Federal Reserve’s authority with the repeal of Glass-Steagall.

As if that was not bad enough, Secretary Geithner’s Chief of Staff is Mark Patterson.  According to his biographical information on the Treasury’s website, “Mr. Patterson was a Vice President at Goldman Sachs from 2004 to 2007, and a Managing Director from 2007 to April 2008[iii].”  Goldman Sachs is one of the companies currently under investigation by the Securities and Exchange Commission (SEC) for fraud[iv] and MR. Patterson was one of the men at its helm.  Will the SEC investigate the Treasury Secretary’s Chief of Staff?  How likely is there even to be a criminal investigation?

Next up is Gary Gensler, the Chairman of the Commodity Futures Trading Commission.  According to his biographical information, he was a partner at Goldman Sachs and worked for the firm for eighteen years[v].  Senior partners at Goldman Sacks must still have his cell phone on speed dial.

Another influential power broker on the administration’s payroll is Larry Summers.  Summers currently serves as Director of the National Economic Council as well as being one of President Obama’s closest advisors.  He served as Treasury Secretary from 1999 until 2001.  A recent article in the Washington Post details over $5 million in payments to Mr. Summers over the last year by a hedge fund and over $2.5 million in speaking fees from Wall Street Firms, Goldman Sacks paid him $135,000 for a single day’s work.[vi] In 2008.  If by chance it was an eight-hour day (not likely) that works out to an hourly wage of $16,875.00.  Maybe Goldman Sacks understood that if either of the Democratic candidates won the election, Mr. Summers was more than likely going to have a role to play. Did that have something to do with them paying him more than the median home price in Atlanta, Georgia[vii] just to make a speech?  Of course not!

It is by no means a one-way street as Goldman Sachs’ hiring of President Obama’s former White House counsel, Gregory Craig illustrates.  While no one can question Mr. Craig’s legal abilities, his knowledge of, and contacts within the administration and Democratic circles cannot be a negative regarding his retention as council.

Washington plays the ultimate game of one-upmanship.  During President Bush’s term in office, it was Vice-president Cheney’s close relationship with Halliburton that, at least, appeared to be a conflict of interest.  Now, in President Obama’s administration we see potential conflicts of interest in many departments and areas dealing with finance and specifically with Goldman Sacks.  Conservatives have every right to point this out as liberals raked them over the coals for the very same thing.  It is hypocritical, to say the least, for President Obama to fill his administration with these dupes and villains of Wall Street and claim they have no bias.

It seems Wall Street agrees with President Obama’s campaign slogan of “Yes We Can,” but adds something to it – “Yes we can!  We can rip-off America and get away with it.”  They obviously have the people in place to do just that.

[i] Banking Act of 1933 (1933).  Print.

[ii] “TG-646: Treasury Secretary Tim Geithner Opening Statement as Prepared for Delivery before the House Committee on Financial Services.” United States – Department of The Treasury – Homepage. Web. 10 May 2010. <;.

[iii] “U.S. Treasury – Mark A. Patterson – Chief of Staff to Secretary of the Treasury.” United States – Department of The Treasury – Homepage.  Web. 10 May 2010. <;.

[iv] “SEC Charges Goldman Sachs With Fraud in Structuring and Marketing of CDO Tied to Subprime Mortgages; 2010-59; April 16, 2010.” U.S. Securities and Exchange Commission (Home Page). Web. 10 May 2010. <;.

[v] “Chairman Gary Gensler – CFTC.” U.S. Commodity Futures Trading Commission. Web. 10 May 2010. .

[vi] Rucker, Philip, and Joe Stephens. “White House Economics Aide Summers Discloses Income –” – Nation, World, Technology and Washington Area News and Headlines. Web. 10 May 2010. <;.

[vii] Real Estate Education, Information, Marketing Resources & Much More. Web. 10 May 2010. <;.


Something Has to Change

March 25, 2010

We all know statistics are manipulated by politicians, lobbyists, and pretty much anyone with an agenda, to suit their purpose.  It is one of the generally confusing aspects of arriving at a sense of the truth on where we stand as a nation.  To add to our perplexity, the numbers talked about are so large as to lose all relative meaning.  After all, who’s ever seen a trillion of anything?  For practical purposes, it’s just a number that’s much larger than a billion – another number beyond reasonable use for most of us.

What good is it to state the Department of Defense’s budget in 2007 (click here to see the Office of Management and Budget (OMB) report) was $529 billion?  All we really know is that is a very big number.  Another way to look at the budget is by percentage, rather than by dollars spent.  That same $529 billion works out to be about 17% of the over all federal budget that year.  In looking at it this way, we can ask if 17% is a reasonable portion to apply to national defense.

In answering the portion question, many things come into play, things as current threat, perceived future threat, replacement of ships, tanks and aircraft, and what’s been done before.  Only what’s been done in the past is objective.  Focusing there gives a proper frame of reference over time.  Here is the Defense Department’s percentage every ten years since 1962, the year I was born, taken from the OMB’s 2009 report:

Year             Percentage

1962              46.9%
1972              33.7%
1982              24.2%
1992              20.7%
2002              16.5%
2012(est.)      16.8%

Currently, the Department of Defense takes up about a third as much of the budget compared to 1962.  Returning to that really large number, $529 billion, makes one question just where the other 83% and its huge number go.  Obviously, as the Department of Defense’s portion decreases, other department’s portions increase.

Conservatives are quick to point out that social programs make up the greatest portion of that change.  In fairness, here is the Social Security percentage for the same years:

Year             Percentage

1962              13.4%
1972              17.2%
1982              20.8%
1992              20.4%
2002              22.0%
2012(est.)      22.9%

Looking at it line by line does not tell the true story.  The federal budget has many related areas of spending that the public tends to group together.  To that end, the following graph groups the Department of Defense, Homeland Security, Civil Defense as “defense”; while Education, Health and Human Services, Housing and Urban Development, Veterans Affairs, Social Security (on and off budget) are grouped as “social services.”  The grouping seems the obvious choice but is open to debate.

As the graph illustrates, the trend in social spending is increasing while defense is decreasing.  In other words, the conservatives make a valid point regarding percentage.  In reality, all portions other than social programs are either trending at the same level or decreasing slightly.  Currently, the social services take up 55% of the budget to defense’s 23%.  Together, they take almost 77% of the federal budget leaving only 23% for everything else.  A few examples of “everything else” are the Department of Justice, NASA, Department of Commerce, Treasury, State Department, and Department of Interior.  That is not even close to all of them.

Regardless of a person’s position on healthcare reform, the trend of social services to take a larger and larger portion of the federal budget must be addressed.  As important as healthcare is, so is having bridges that do not collapse.  In the end, along with healthcare reform, we need budget reform.  We need to attack waste in every program funded with federal money.  We need to stop Medicare fraud; we need to stop buying F-22 fighter planes the military does not want or need.

Using the F-22 as an example, congress added about $1.7 billion for seven fighters.  That is less than one-half of one percent of the defense budget but it is also one type of fighter, seems the same thing is happening with the C-17 transport planes.  Even with their declining percentage, there is still room to cut waste.

What about social services, does it really have Medicare fraud?  Of course it does.  Mark Potter of NBC News reported in December of 2007 (click here to read story) that Medicare fraud cost taxpayers $60 billion a year, or $181 for every U.S. citizen.  $60 billion is about 8% of the Social Security budget in total.  A simple solution would be take just one billion from Social Security and use it to hunt down the bastards stealing from us and put them in jail.  Even if only half the money were recovered, it would be well worth it.  Just removing the fraud would pay for an annual doctor’s visit for everyone.

Washington is getting serious about spending a huge amount of money on healthcare reform; we all know the huge amount spent on two wars.  Perhaps just as much effort needs to take place in ensuring tax dollars are not squandered.  While it is easy to support healthcare reform, the voices calling for restraint must be heard as well.  Rather than name calling, it is best to phrase it this way – those seeking healthcare reform are interested in our physical health as a nation; those for restraint are interested in our financial health.  Neither side is wrong and there is plenty of common ground to be found.  Only by seeking that common ground will we provide services we want at a cost we can afford.

Without denying the need for reform in areas of healthcare, cost is a valid concern.  Just as spending all of your paycheck on new tires for your car leaves you without groceries, spending all our tax dollars on healthcare leaves the other departments  without.  Prudence demands we use the money wisely.  One thing all of us should easily agree on is to stop waste, fraud, and abuse of our tax dollars.


The Super Light – Can an LED Save A City?

March 19, 2010

With the economic flat tire we’re running on, we like to think our various government agencies use all the tax money they collect in responsible ways.  The daily federal arguments on spending fill the nightly news with examples that prove this wish wrong and always seem stupidly complex.  Local governments face similar problems but scaled down.  Perhaps local governments are the place to start implementing solutions, as there is even more to paying for common services, like traffic lights, than meets the eye.

Unfortunately, something as simple as traffic lights takes on complexity when viewed at a city or county-wide level.  Everything from availability of replacement bulbs to scheduling maintenance with boom-trucks comes into play.  Of course, when we add cost to the mix, the complexity grows by leaps and bounds.  In the end, cost is the part we, the citizens, are really interested in, being that money out of our pockets pays for it.

The prototypical traffic light uses three halogen light bulbs around 150 watts each, with one of the lights on at all times.  At a standard intersection, there are at least four traffic lights, one for each direction, with many intersections having a good number more.  As cost is our primary concern, let’s put some numbers to it.  In South Carolina; our average cost per kilowatt in 2009 was $0.0553 (Source: U.S. Energy Information Administration (Dec 2009)) .  That means a single 150 watt bulb running continually costs about 20 cents a day.  With each intersection having at least four, that’s 80 cents per day per intersection.  Here is a quick table showing various costs:

Lights per
Daily Monthly Yearly
4 $     0.80 $   23.89 $   290.66
8 $     1.59 $   47.78 $   581.31
12 $     2.39 $   71.67 $   871.97
16 $     3.19 $   95.56 $1,162.63

Extending the figure out for various numbers of intersections:

Number of
Daily Monthly Yearly
100 $      79.63 $    2,388.96 $     29,065.68
500 $     597.24 $  17,917.20 $   217,992.60
1000 $  1,592.64 $  47,779.20 $   581,313.60
5000 $11,944.80 $358,344.00 $4,359,852.00

This is only the cost of electricity.  The average life of a halogen bulb is just over 2,000 hours or less than 90 days meaning each light is replace three or four times a year.  Simply to provide traffic lights, city and county governments face substantial costs.  This is where the LED comes in.

LED stands for Light Emitting Diode.  We have all seen the little red lights on various types of electronic equipment.  Most are LEDs.  While the theory of their use has been around for over 100 years, true practical applications were not developed until the 1970s.  Even then, LEDs lack the intensity for use beyond indication lighting (i.e. showing a status as on or off).  Over the last thirty years, changes in LEDs allow for bright lights in every color of the spectrum.

The LED has many advantages over the incandescent, halogen, and Compact Florescent Light (CFL) style systems.  They use only a fraction of the electricity and last for years, if not decades and they do not have the mercury found in CFLs.  Cities across America are in the process of changing their traffic lights to LED based units.  To produce the same amount of light, as a 150 watt halogen traffic light, requires only 15 watts of LED powered lighting.  Using the same data above:

Lights per

Daily Monthly Yearly
4 $  0.08 $ 2.39 $ 29.07
8 $ 0.16 $ 4.78 $ 58.13
12 $ 0.24 $ 7.17 $ 87.20
16 $ 0.32 $ 9.56 $ 116.26

Again, extending the figures for number of intersections:

Number of Intersections

Daily Monthly Yearly
100 $ 7.96 $ 238.90 $ 2,906.57
500 $ 59.72 $ 1,791.72 $ 21,799.26
1000 $ 159.26 $ 4,777.92 $ 58,131.36
5000 $1,194.48 $ 35,834.40 $ 435,985.20

Producing a savings over halogen bases lighting of:

Number of Intersections

Daily Monthly Yearly
100 $      71.67 $    2,150.06 $     26,159.11
500 $     537.52 $  16,125.48 $   196,193.34
1000 $  1,433.38 $  43,001.28 $   523,182.24
5000 $10,750.32 $322,509.60 $3,923,866.80

These costs only reflect a saving in the electricity.  A halogen light costs around $5.00, for 100 intersections with six lights that works out to $12,000 a year just in bulbs.  Of course, the cost of labor to replace bulbs is saved too.

Thankfully, most cities have all ready replaced or are currently replacing their traffic lights.  The question is what other areas are there to save money.  It must be remembered, when we are talking about a city or county, it is never one light bulb, it’s thousands.  It’s not the 1 cent for a sheet of paper but the $10,000 for a million sheets that becomes an issue.

It is obvious that replacing traffic lights produces savings.  It is one of many examples where savings are found.  Others are less obvious; perhaps reducing the requirements of a procedure or even rethinking the way student report cards are sent to parents will produce savings.  Maybe they won’t, the point is we will not know until we look.  We need to examine everything to ensure the service is in tune with the times and is provided in the most cost-effective manner.

In the end, the LED will not save a city but is simply an example of the type of thinking that will save it.  Every expenditure, to serve the public good, must be questioned.  No one questions the need for traffic lights, but can and do question the cost.  By seeking a less expensive option, local governments are saving real dollars, real tax dollars we do not have to pay.


America’s Gordian Knot

March 1, 2010

To say the United State’s yearly budget is complex qualifies as one of the greatest understatements of all time.  It is a Gordian Knot that ties our nation’s future much as the one Alexander faced tied the ox cart in place in the kingdom of Phrygia.  Unlike Alexander, we cannot simply slice a strand, or perform some other trick, to produce ends; we must unravel ours while maintaining a secure grip upon the cart.  We must unravel the complexity of our budget while meeting its obligations.

There are many ways to think about a budget, the two most familiar ways are like a checkbook or like a credit card.  With a checkbook, maintaining a balance of deposits and withdrawals reflects the available funds.  With a credit card, spending takes place until it reaches a preset limit with payments made periodically that include principal and interests.  In reality, the national budget uses both systems depending on the part of government concerned.  Individual agencies have checkbook budgets that limit spending, the federal government, as a whole, operates on a credit card style system.

Each bill-paying citizen understands the checkbook style of budget management.  While electronic checking replaced the monthly ritual of writing checks at the kitchen table for most of us, the process is still limited to funds available.  Spending has a natural limit.  Credit cards, on the other hand, allow spending to outpace earnings by allowing payments over time.  This only becomes a problem when the monthly payment required rises to a level that available income no longer covers.

The U.S. government brings in money, just like the citizens do paychecks.  The government deposits our taxes and the funds are available to the various government agencies.  If only it ended there, as our government’s spending outpaces the revenue it receives, it turns to the federal equivalent of a credit card – U.S. Treasury Bonds.  There are several forms of treasury securities but for the sake of clarity are described as simply bonds.  The government sells bonds with the promise of paying back the bond’s loan amount with interest over time.  Just as the credit card company sets a limit on a card, Congress sets a limit on amount of bonds the government can sell.  Another way to look at it, they set the limit on how much can be borrowed.  As many “max-out” their credit cards, so does our government.  Our national credit card currently has a limit of $14.3 trillion, or over $42,000 for every man, woman, and child in the U.S.  Congress seems perfectly willing to let the government borrow until we no longer can make the payments.

The question is what to do about it.  How do we pay our obligations and reduce our spending?  First, we must understand where our money goes, all of it.  Then we must set priorities on spending.  Finally, we need to cut out items not required and only provide the necessities.  Just as a married couple seeks financial planning to pull themselves out of debt, we must do the same at the federal level.  What the priorities are is debatable.  What is not is our ability to pay a debt.  Everyone looses if we default on our debt, it would throw the world into financial chaos, to say the least.  At worst, situations could spin out of control leading to war.

The time to address our spending and runaway budget is now.  Everything has to be on the table, their can be no sacred cows.  Several parts of the budget are huge; the 2009 Medicare budget was $420 billion and $219 for Medicaid.  That does not mean every social program needs to be scrapped, it only means we need to look at spending there and control it, rather than having it control us.  To the same end, our military spending totaled about $880 billion, perhaps we need to reduce our military’s footprint around the world.  Do we really need over eighty separate military installations overseas?  That only counts the major ones too.  Obviously, we need some but its time we look at the mission of each and make the hard choice to close the ones that no longer meet our national needs regardless of the effects it may have to established international friendships.  If our friendship is based on the money we spend within their country, it is not much of a friendship in the first place.  The point is we need to look at everything we spend on, no exceptions.

Rather than debate about how we dug this hole, it is better to work our way out.  Spending more money only deepens the hole.  Republican or Democrat, liberal or conservative – it does not matter, everyone should see spending as a knot we must untie.  While we can argue about how we spend money, we can no longer afford to argue about spending more.


Enough Rope

February 4, 2010

My post the other day (click to read) dealt with our huge national debt, how it is no longer a debt we owe ourselves but one we owe to other governments.  Events over the last week brightly illustrate how this affects our foreign policy and ultimately gives control of our economy to other countries, China for example.

According to the U.S. Treasury, we owe China nearly one trillion dollars.  We owe other countries vast sums too, but China holds a larger portion of our debt than any other country.  Moreover, China manufactures a large portion of the goods imported into the United States.  Some economists and political scientists  feel that countries trading goods and owing money to each other provides stability and prevents war.  The theory states economies that are interdependent guide the political process.  Unfortunately, this does not apply evenly to China.  Our relationship is lopsided at best.  While it would hurt China economically to use tools like sanctions to influence U.S. policy, the resulting damage to our own would be much worse.

Last week China began to push the specter of sanctions on Boeing for their involvement in weapons sales the United States government plans with Taiwan.  Although the proposed sale was arranged over two years ago, the government of China picked a time when the United States is viewed as venerable economically to raise the issue.  In other words, they are using our economic troubles as leverage over us.  Regardless, if this is deliberate or just a coincidence, it does not matter; it shows how a foreign government can influence U.S. policy towards a long-standing trading partner for their own gain.

Sanctions are only the first step the government of China has open to them.  We must remember that China does not have a capitalist system of democracy.  The government has direct control of most aspects of commerce and production of goods.  If sanctions do not work, they have the ability to raise prices on the cost of manufacturing further putting pressure on our economy.  If that fails, they still have the economic equivalent of nuclear weapon to throw at us – sell off the U.S. Treasury Bonds they hold for a loss.  Other countries would follow suit for their own protection, leaving the U.S. economy in ruins.  Granted, this is the “worse case” scenario but it is a possibility given the position we are in.

It is time for the United States to reduce the level of foreign investment in our debt.  It creates too great an advantage for other nations.  We do not hold substantial foreign debt of other countries, leaving us with no defense from this weapon – none.  The communist leader Vladimir Lenin said it best, “The Capitalists will sell us the rope with which we will hang them.”  In this case, we sold the Chinese the debt they will cripple our economy with.

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