THIRTY DAYS OF REVELATION

August 5, 2011: The past thirty days have clearly revealed just how deficient the office of the Presidency is in executing its managerial responsibilities. After observing this President’s approach to leadership during his time in office, one has to admit, however, that he has extraordinary oratory skills for inspiring a certain segment of our society to intellectually and emotionally embrace his words as being the truth. In public polls, close to 90 percent of the Black Community, a large majority of the Hispanic community, many academics, numerous people in the entertainment business, and all but a few members of the Media not only voted for him in 2008 but most continue to voice unquestioned support now in 2011. They still admire and support his vision of the future and how America should be governed to achieve that goal. He came into the office saying we are going to give people hope and create real change in the way this Country has been governed. I believed that while this was an admirable goal, I thought it simplistic let alone an ambiguous plan to change America. In his campaign he voiced what could be considered as principles of a radical agenda for that change. The more I heard him speak, the more I became quite anxious that this man had too little managerial skills, let alone experience to run such a complex institution as the Presidency and its Administrative body. He has shown this to be true in many ways since that election.

Two months before the election, the financial markets collapsed and any credibility earned by President Bush for his controversial actions to protect America from security risks the country faced from Al Qaeda, and Iraq’s President Saddam Hussein evaporated. Barack Obama became President helped inmeasurably by the large number of young people organized via the Internet who voted for the first time. The fixed demographic imbalance of his constituency also gave him a numerical advantage that the Republican candidate John McCain could not overcome. Thus the first black person ever to hold the Office of the President of the United States was elected. He surrounded himself with advisers who by any definition were economic socialists who voiced radical ideas. Over the next year, by the force and influence of the Bully Pulpit he made inspirational speeches aimed at the middle and lower classes of society claiming that they deserved better services from the Government for health care, funding student education, along with protection from their being exploited by credit card companies and other financial companies. Time and again he would point out that big corporations and the wealthy (defined as anyone making over $250,000 a year) had been primary beneficiaries of the Bush 2003 Tax Reduction bill at the expense of the poor and the needy who were unable to pay for services all citizens had a right to receive. The message gained traction among liberal thinkers and was well received by his constituency and the members of the media. With the new Democratic majorities in both the Senate and the House of Representatives, President Obama‘s inspirational remarks made an impact upon the Democratic members of Congress. After a year of debate, along with mixed public opinion, major health care legislation was passed by the Congress mandating coverage for every citizen either through their employer, private purchase or by participation in a Government option. It was called “Obama Care”. It was extremely complex legislation that challenged the understanding of everyone, even those who had voted for it. This mammoth Bill along with an equally complex Bill to create a Consumer Protection Agency and provide Financial regulatory reform were the products of legislative committees and had little or no critical input from the President or his Administration except to cheer Congress on. Up until the November 2010 election, Nancy Pelosi controlled the Democrat caucus and Harry Reid did likewise in the Senate. Proposals for some new spending program may have been suggested by the President but the Administration had little if any part in drafting the legislation therefor and the Republicans were not consulted on much of anything. The President and his Secretary of the Treasury produced no credible budget for operating the Government. Expenditures rose to 25.5% of Gross Domestic Product (GDP) while Revenues languished at or below 15%. The economy was barely operating at levels which generated any growth in jobs and unemployment continued to be over 9.1% of the labor force. In 2009, the total National Debt was pressing against its statutory limit of $10 Trillion Dollars, and Congress without much controversy passed legislation to raise the debt limit to $14.3 Trillion. This was done by the Democratic majority with some small but reluctant help from a few of the Republican minority. The congress had been periodically raising the statuary debt limit whenever necessary to fund the Nation’s debt so this act was not thought unusual. Bud then came the election of 2010 and 84 new Republican Representatives were elected to the House, largely composed of a group who called themselves members of the “Tea Party” wing of the Republican Party. This huge swing in balance of the two parties was the result of voters becoming horrified by the rising debt level and accelerated rate of government spending. In this environment, the majority in the House passed to the Republicans. The Republicans offered a new plan for addressing the entitlement programs and reducing the deficit spending that had reached over $1.5 Trillion in early 2011. Concerned that any increase in income tax rates would damage any hope for recovery in the economy, the Republican House held firm in their insistence that government expenditures be reduced and entitlement programs be reformed. The Republicans passed a Bill calling for restructuring programs for Medicare and Social Security for those 55 years of age and under. The plan was sent over to the Senate where Harry Reid tabled it thus refusing to have it discussed and the President began demagoguery. Instead of cutting spending, the President kept making speeches calling for increasing taxes on the wealthy, you know, those who make more than $250,000. Since their plan was dead on arrival in the Senate, the Republicans offered several other plans among which was one called: “Cut, Cap and Balance”. It allegedly would balance the budget in 8 years. The President offered no specific plan but did throw out statements to the media that suggested he was prepared to reform Medicare and Social Security if combined with a tax increase on the “wealthy” which he suggested would reduce the budget deficit by $4+ Trillion over the next ten years. When the House Leadership asked the President to prepare and submit something in writing that the Republicans could study, the President ignored them.

From this point in April, until Saturday, August 30th, the President and leaders in the House and Senate spent many hours in what was said to be serious negotiations for the purpose of reaching an agreement for how to reduce spending and set in motion a plan to get the government back on a track toward a balanced budget. But such meetings seemed more for the purpose of showing the President seeming to be in charge of negotiating sessions where leaders of different persuasions were exchanging their views and trying to work out a credible solution. During these meetings President Obama showed his inability to address this managerial problem. He spoke on TV frequently, too frequently, voicing the same message; “wealthy individuals were not paying their fair share and in some cases American corporations were not paying any tax at all. Many corporations had large profits overseas and they should be forced to repatriate them so they can be taxed here in America”. He claimed “the millionaires and billionaires should pay more so as to provide balance to solve the deficit problem. The President spoke at frequent press conferences, public meetings and on TV from the White House. He made Lots of inspirational chatter but no structure and no delegation for subordinates in the Administration or leaders in the Senate and House to negotiate real agreements representing a compromise or if that was not available, something real to go to the public with and obtain their support. On Saturday, July 30th, three days before the Treasury would have to refinance some $400 billion in debt, the Speaker of the House decided to sit down with Harry Reid, the Majority leader in the Senate, in order to work out an agreement based on compromise. The President became a bystander. The two leaders came to an agreement that satisfied neither but resulted in a bill that passed both government bodies to increase the debt limit beyond the 2012 election subject to certain specific current reductions in spending and the formation of a bi-partisan committee to formulate a plan to reduce government spending by $1 to $1.5 Trillion over ten years. In other words “Kick the Can down the Road again”. The Democrats got the extention beyond the next election and the Republicans got no tax increases. The American investor got the shaft.

Following the passage of the Bill to increase the debt limit, the stock markets around the world went into a tailspin and today, Standard and Poor Credit Rating Agency downgraded U.S. Treasury Debt from AAA to AA+. Imagine, the first President in History underwhich the Nation’s credit rating was reduced. That is shameful!. Most people including your’s truly will worry about the implications of this, whether it will seriously affect the interest rate the U.S. will have to pay on its Treasury obligations or the cost of interest on mortgages, etc.. Furthermore while I worry whether or not a serious double dip recession might develop with even more serious loss of jobs, I feel a sense of relief that given his performance, and demonstrated managerial incompetence, it is highly unlikely that this President will serve more than one term as the leader of America and the free world.

One Man’s Opinion–Bud Brewer

THE US GOVERNMENT SHOULD BE SPENDING MORE NOT LESS?

July 25, 2011: According to Robert Reich, an Economics Professor at the University of California, “the U.S. should be spending more money and not cutting its outflows to get the economy going again.” He compares today with the period following the Great Depression when America spent huge amounts of money financing World War II and the 100% mobilization of its people toward victory. Thus, he says, “we emerged from this period with rising employment, and a dynamic economy. We should be doing the same thing today not cutting spending.”

I believe some of what he says is true but like so many who express Liberal thought, comparing today to the period following the “Great Depression” when the massive government spending during World War II pulled America back to full employment and economic growth, there was a single and common purpose for every individual– winning the war! There was no discretionary consumer market driving employment. There was only one principal source of capital-U.S. Treasury using borrowed funds from its citizens, War bonds, Savings bonds, etc. The GDP was made up mostly of materials for war and the labor costs were a small fraction of those costs. What really turned our economy around happened after the war when the Marshall Plan (a real government investment) was put into effect creating a decade of substantial foreign demand for goods and services America supplied utilizing the knowledge and skill of humans anxious to rebuild their private lives. This plan was initiated at the same time as America was converting its massive manufacturing plants and trained labor back to peace driven economy. The pent up demand by its citizens and those in Europe having buying power from savings built up during the war created a huge consumer demand for the new technologies, automobiles and housing following 5-7 years of austere living standards forced by the war.

The U.S. Government did create useful institutions to provide guarantees backing up loans made by banks and private mortgage companies to finance home purchases. The GI Bill was a modest program ($90 per month) for helping veterans get an education was constructive toward further long term growth of our economy. But there is no real comparison of that period with today’s world. In this Global economy, funding massive excessive entitlements to those who would otherwise have to be dependent upon their personal responsibility or that of their family is helping to bankrupt the Country and Government has not only become too big it is terribly inefficient and wasteful. Corporate managements are confused and uncertain of what this government is going to do next to constrain their otherwise normal aspirations to grow their companies. The unknown costs of Obama’s healthcare and consumer protection legislation is making them defensive. It isn’t lack of demand for their product that is causing them not to increase employment and expand operations. Many corporations are showing record revenues. With foreign markets surging ahead in less regulated environments, they can focus their expansion by investing in those emerging countries. Their ability to produce the same or a higher level of domestic production with fewer employers is due to the technology that has been developed in recent years and is contributing to lower employment yet higher productivity.

The real bugaboo in the domestic economy is the real estate market and its affect upon new home construction industry, a large employer of middle and lower skilled labor. All this, is the consequence of a Real Estate speculative bubble caused by both government and the financial mortgage industries responding to unrealistic expectations of individual home buyers. This housing industry will have to find its base before that part of our economy gets back on a “new Normal” path and the building trades start hiring again. No matter how much you throw at the housing market, it will not stick until the Market clears.
Government spending more and more in excess of its revenue is exacerbating the problem. We are in for a very difficult time. Hopefully President Obama and his advisors like Professor Reich will be retired next year from influencing the path to our eventual recovery.

One Man’s Opinion-Bud Brewer

HOW TO RAISE YOUR CREDIT RATING

July 11,2011: When I took a money and banking course in college, the professor used to claim that in order for the America (or any developed country for that matter) to keep its currency sound and respected by trading nations all over the world, the U.S. Secretary of the Treasury has to make sure that we never default on an obligation to pay the interest or principal due on our Treasury bonds or Treasury bills. He said that the American Dollar was the basic currency of the world markets. Commodities were always traded in dollars and almost every country’s banking reserves were in dollars as well as their own currency. How did the U.S. Dollar and the Treasury obligation get to be so respected? For a number of years up until 1971 the dollar was backed by Gold and until then the paper currency had language on its face that referred to it as a Gold certificate. Some of our currency was also backed by Silver and some of the paper currency had language calling it a Silver certificate. Given that America had the World’s largest deposit of Gold in the famous “Fort Knox”, business people all over the world felt secure that if they transacted business in U.S. Dollars, their counterparty would always accept the paper they agreed to deliver since it had this conversion privilege. During the past 40 years, our currency has been based not on a specified amount of Gold but solely on the full faith and credit of the U.S. Treasury. Since the Treasury is the repository for taxes paid by American Citizens based on individual and corporation’s earnings and the Gross National Product of American business and its tax base is several times the size of any other country, that term “Full Faith and Credit” really means the Full Faith and Credit of the American people.

As American politics became more entitlement oriented and Members of Congress as well as the then current President, governed more for re-election than assuring our national security or building a stronger free market capitalistic business environment, the Nation’s debt has grown from a modest percentage of GNP reached in the 1970s to over $14 Trillion. Of that amount $4 Trillion has been added in the past two years. Even though American taxpayers have paid $2.5-2.8 Trillion dollars in personal and corporate income taxes each year since Obama took office, Government spending has been over $1.5 Trillion more than revenues thus producing the largest deficit spending in history. The National debt is forcast to be $20 Trillion by the end of this decade.

The Secretary of Treasury, Tim Geithner, was on Meet the Press yesterday and in response to questions regarding what the Administration is going to do if the House and Senate will not authorize another increase in the Current National Debt limit imposed by Congress over and over again during the past 30 years, his answer was as incredible as is the fact that our elected officials seem to think that there is no constraint as to how much debt they may force upon the people of this Nation. He stated “the debt limit must be raised or a fiscal calamity will occur. The credit rating agencies would lower the United States’ current AAA credit rating thus causing a collapse in Treasury Bond values and equity markets all over the World.” He says “the only way we can prevent our loss of that high credit rating and the ability to fund the rollover of our debt and continue to meet our obligations to all parties doing business with the Government or depending on checks it issues every day is to increase our borrowing from citizens, corporate investors, and foreign countries with positive trade balances.” What did he say? The way to maintain or improve one’s credit rating is to increase our borrowing? Does that make sense? Tell me, exactly how does our credit rating improve when our debt to income ratio spirals upward. If that is how our international rating agencies determine whether a debtor can pay its obligations, our financial markets all over the world are over pricing sovereign debt of every Nation far above a fair value based on common sense. All those poor individual hard working citizens whose mortgages and credit card obligations have gotten out of control during this recession should request higher limits on their credit cards, be able to get second trust deed notes on their underwater property or should be issued new cards like our Treasury Secretary is doing to solve their cash flow problems.

God help us and preserve us from these politicians who are in the process of systematically destroying the economic foundation of our country.

One Man’s Opinion – Bud Brewer

The Transition to a Global Economy

>July 6,2011: As readers of this Blog are aware, I make it a habit to watch or review CNBC’s early morning show called ‘Squawk Box’ with hosts Joe Kernen, Becky Quick, and Carl Quinlanilla. Sometimes it is composed of routine business information but more normally, it has guests that are really knowledgeable about how the world of business works and what role politics has in influencing it. This morning was one of those sessions. The guest host for the three hour session was Jeremy Siegel, a professor at the Wharton School of Business. Known for a more optimistic outlook for common stocks than many investors today, Jeremy said that he believes the U.S economy could grow as much as 3-3.5% annual rate in the second half of 2011. He felt that in addition to a generally weak housing market, much of the headwind thus far in 2011 is being caused by the higher than expected price of oil largely due to the rising demand from emerging nations, but that it is coming down. He noted that while riding in elevators these days you don’t hear too much about how much one had to pay for gas that morning, so the consumer is getting used to paying higher prices for gasoline. Professor Siegel feels the combination of the shock of gas prices along with the Tsunami and earthquake in Japan were probably the primary causes of the weaker than expected consumer demand for the first half of the year. But while he feels the consumer will increase his spending during the second half of the year, there is something else going on that most investors probably have not included as a factor in their economic expectations. While a large number of individuals are feeling less well off as their household balance sheet and net worth has been clobbered by the collapse in real estate values and higher than normal unemployment, the big multi-national corporations have been experiencing sharply higher net earnings. How does this happen? The primary reason, as stated here before is the increased productivity resulting from worker layoffs during the 2009-2010 recessions. Even though corporate revenues have not generally risen too much, profits have soared as sharply lower labor costs resulted in expanding margins. The big corporations have been building huge cash reserves and/or sharply de-leveraging their balance sheets. But something else is going on according to Professor Siegel. As the American Baby Boomer generation reaches retirement age, they are starting to transition out of the work force and will begin to sell stocks to finance their retirement. Consumer demand will reflect a somewhat lower level for the good life as it is replaced by a smaller generation earning less due to somewhat lower skills. This means that domestic life styles will stabilize at best and possibly decline somewhat on average over the next decade or two.

All the time this is happening here in the U.S. our healthy major multinational corporations will enjoy increasing demand for their output from the conversion of emerging market households transitioning from savers to consumers. In countries like India, China, Brazil and Russia, known as the BRIC nations, the populations currently saves as much as 40% of their Gross Domestic Product. As the citizens of these countries with their populations of 2-3 Billion people begin to upgrade their life styles from poverty levels to just less poor than previously, the suppliers of products, and services to them will begin to experience an upsurge in business and production. This economic expansion will create jobs for more and more of their huge populations. This major shift in economic output will come partly from U.S. producers located in this country but increasingly will come from those same corporations operating in countries all around the world. As a result, unemployment in the United States will continue to be higher than historical norms. Pressure will be generated by more and more of the American voters casting their ballots for Senators and Representative promising to redistribute wealth from those that are benefitting from this Global economic transition to those who see themselves as victims of it. The executives in multinational corporations are and will be compensated as global managers while the domestic worker will be paid salaries influenced largely by lower average global wage rates for the same work. If, as is certain to occur, the pressure put on the politicians to legislate tax rates that are punitive to the global managers, they simply will move to a country that has more moderate tax rates. If the U.S. Government adopts punitive tax policies affecting the successful global corporations, they also will simply move their operations to more accommodating countries.

China -The “Silky Sullivan” Economy

American Transition to Hispanic Majority

June 6, 2011: According to the May 13, 2010 Pew Research study, “some 41% of Hispanics ages 20 and older in the United States do not have a regular high school diploma, versus 23% of comparably aged blacks and 14% of whites”

If the ethnic majority in the United States is becoming Hispanic as forecast by University of Reno professor, Emma Sepulveda in her June 5th column in the Reno Gazette Journal, I suspect the future for scientific discovery and high technology development in the United States will be severely diminished. The retirement of the Baby Boomers and their replacement in the workforce by this new more liberal or social leaning Hispanic majority in the next decade will likely cause the United States to regress toward becoming a second class country. It is a virtual certainty that lessening of knowledge and technical abilities of this changing demographic configuration will exacerbate the problem of funding the entitlement programs put in place over the past fifty years let alone enable the financial maintenance of our citizen’s relatively high standard of living.

Former Chairman of the Federal Reserve Bank, Alan Greenspan, said last week that he believes we must go back to the Clinton tax rates because he is scared to death of what might happen if the U.S. defaults on its sovereign Treasury debt. The fear of this occurrence has also caused increased anxiety on the part of investors. With the current amount of its national debt hovering just below that critical level, unless the Congress raises the debt limit for issuance of Treasury obligations by the United States, the country will be forced to default on at least some of its sovereign debt now totaling over $14.3 Trillion Dollars. Most parties I speak with or listen to say that it is unthinkable for the Republicans and Democrats in Congress and the President of the U.S. to let this happen therefore I must assume it will not happen. A seemingly reasonable proposal to reduce spending for entitlements was introduced last month by Wisconsin Representative Paul Ryan. It passed in the House of Representatives but it failed in the Senate and has no support by the Administration. In spite of general agreement that entitlement spending must come under control, in a recent Fox News poll, 92% of those voters polled stated that they didn’t want Congress to change or modify the Medicare, Medicaid or Social Security entitlement programs, all of which will have to be cut or severely changed to prevent ultimate default, the timely raise in the debt limit notwithstanding. With a constituency that expresses this conviction, it is no wonder why Congress, always with an eye out for re-election, has failed to act on the modification of or reduction in spending for entitlement benefits.

The effect upon the future growth of the U.S. economy by the confluence of these two probabilities: 1. little or no political support for reduction in entitlement spending and, 2. the changes in ethnic configuration and earning power skills of the American work force, threatens the fiscal ability of America’s corporations and small businesses to both grow in value and fund the social entitlements programs voted for by both Parties over the past 50 years. This surely means that a seminal event is occurring or has occurred and the investment opportunities in America and among all developed markets will be severely restricted by the needs of governments therein to fund their social service oriented budgets. Global growth will come primarily among the business organizations originating in or transferring assets to emerging nation markets where consumer basic needs are growing and operating and tax inhibitions remain relatively low.

Gordon Crawford, an investment portfolio manager for 40 years with Capital Research and Investment company said late last year, “Over the next 20 years, I think as much as 70% of the incremental growth in the global economy will occur in emerging markets…That’s where the people are. That’s where the unmet needs are.” While diversification is always a must, investors will be well served to reach out and allocate their assets so as to benefit from the likely impact of such dynamic shifts in economic trends as commented upon here.

One Man’s Opinion— Bud Brewer

Distorted Economic and Political Principles

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The Calculus of Economic Armegedon

April 17,2011: On today’s Meet the Press program, after interviewing Treasury Secretary Tim Geithner, the Host, David Gregory, led a general discussion among five people including Alan Greenspan, and four others, most of whom really didn’t have an original or rational thought nor I suspect really understand how the economy works.

But I was struck by what Alan Greenspan had to say about the current fiscal crisis and what if any effect the Bernanke Monetary policy was having upon economic recovery, and the ability of the American Economic System to fund the projected level of its treasured entitlements.
The Treasury Secretary had said, referring to private economists, he thinks that unemployment could get to 8 percent or below by the end of 2012 which even at that level seems to be persistently high rate of unemployment. But Gregory stated that “even with this number of people out of work, look at the performance of the stock market while President Obama’s been President. The Dow Jones Index is up from 7949 in 2009 to over 12,000. And as you, Doctor Greenspan, always say on this program, that’s real money, that’s real wealth, and yet we have persistently high unemployment. What is your view? What is the outlook you’re seeing?”

Greenspan said that “the main reason that the stock market and assets in general came off their low in March of 2009 was that productivity improved very dramatically in the business sector. That meant that earnings and cash flow would be engendered in a very substantial amount, which pushed stock prices up to an extent that coupled with their increased contributions, 401(k) s added a trillion dollars to the actual net worth of the individual households that owned them. And they are very big spenders, and that has been a very big factor in keeping the economy going up.”

When asked, when will these companies start spending their cash and creating jobs, Greenspan responded, “The problem basically is that there was a contradiction in those who say that you want one and not the other. What is happening now is that we are beginning to see that productivity growth flatten out, and that is where all those jobs are coming from recently. Increasing productivity, by definition means you are producing more goods with lesser employees. And so that, if you’re asking me where’s the unemployment rate going to be, I would say it’s going to depend on two things. One, there’s a lot of headwinds that are hitting the economy now and slowing it down, and we are in a soft patch. In all likelihood, we will recover out of that. But what I find bothersome is that profit margins are now beginning to tilt downward, and unless we get the momentum that occurs when cash flows are rising and stock prices and equity values are moving on the economy as a whole, we’re going to have some tough problems ahead.”

Gregory asked: “Do you worry about inflation? Do you worry about the Federal Reserve? There is a lot of criticism going around that the Fed is doing too much to prop up the economy, too much money floating around in the system. Inflation or higher interest rates, what do you see?” Greenspan responded, “I think they are fully aware of the fact that they are going to have to withdraw almost all of that excess liquidity to get a stable system going. At the moment, I don’t think it’s had very much of an effect on the economy. I think it’s bloated the balance sheet of the Federal Reserve and bloated the balance sheets of commercial banks that hold deposits at the Federal Reserve. But there is no real evidence yet that those monies are going out and circulating in the economy and being a driving force there”.

Gregory asked, “Dr Greenspan, this budget debate that we’re talking about, what’s realistic in an election year framework? Being serious about Medicare or entitlements? Tax reform? What do you think is possible? Greenspan replied: “You are asking me a political question.” Gregory said “right, but I like to put you on the spot like that.”

Now here is the most important thing Dr. Greenspan said and I am stunned that no one in the media seemed to be picking up on it so far. He said:

“As I watch what’s going on, we have to remember that over the next 10 years or so we’re going to find that the baby boom generation, highly skilled, highly educated, is going to fade from the scene. It’s going to be replaced by a slightly smaller sized generation who are now in school and creating grades which don’t make us look very good in the international spectrum. This means that we are probably dealing with an economy which isn’t going to grow fast enough or create much real resources to fund the entitlement programs that we have already put in place. I don’t consider the issue of cutting back entitlement spending as essentially something which is new. I don’t think we could afford them in the first place. We’re really canceling something which didn’t exist. I believe the Bush tax cuts should be allowed to expire for all taxpayers not just those upper income earners.”

I believe that Greenspan has the most credible reputation of any economist that has dared to say by implication that the Entitlement Program Society promoted by our politically motivated government representatives and supported by a large segment of our citizens is threatening the future wellbeing of all Americans. The system must be changed. Even then, this government may have to reform the tax system so much in order to make it more “simple and fair” (Meaning the wealthy pay World War II rates) that it will introduce the consequences of the Laffer Curve on the actual gross tax receipts it generates. If it doesn’t deal with the bloated Defense Department spending and this President’s unfathomable Foreign Policy along with projected liabilities of the entitlement programs of Medicare, Medicaid, Social Security and others including the new Obama Health Care program, the National debt burden will take an ever increasing portion of those tax receipts thus reducing funding of other desirable and necessary government services. The political pressure to raise more tax revenue will, according the IMF, begin to have a negative effect upon the recovery of the economy thus as Dr. Laffer opines, push net tax revenue even lower. It is just a fact that unless we do this, our Federal Budget will continue to grow by trillion dollar deficits for the foreseeable future and that will put measurable pressure upon the U. S. Dollar based standard of living that has been so beneficial to the American Culture for the better part of the last century.

One Man’s Opinion-Bud Brewer

THE PHILOSOPHY OF BUDGETING

April 13, 2011: No individual family can expect to remain solvent unless they develop a plan to allocate the income available to them over a variety of expected obligations they incur to maintain their life style. Typical needs are food and shelter, transportation, clothing, education, etc. A corporation has the same obligation, a financial plan to disburse its revenue over an array of expenditures like payroll, marketing, general overhead, etc. When individuals or companies make a judgment (correctly perceived or not) that they need to have a bigger house or bigger car or the corporation decides to acquire another company or move into larger facilities, they have to find a means to finance their higher expenses. To obtain the capital necessary to pay for these additions to their balance sheet, it is normal to seek a mortgage or bank loan collateralized by the new asset or by a general claim against their assets. Before doing this most of us will be certain that we will be able to meet the new debt service or we will risk the consequences of a default. Therefore individual and corporate managements normally will resist making purchases or investments that require them to take on an amount of debt that might threaten their continued economic viability and soundness. The threat of bankruptcy, loss of treasured assets or equity interests in a company in the case of a corporation provides a discipline that motivates the average individual or corporate manager to eschew getting over extended in their financial obligations.

Now let’s look at governments, especially our Federal Government, but State Governments too. Our Congressional Representatives, those who manage the distribution or allocation of our tax dollars, do not feel any constraint against voting for spending programs to provide perceived benefits to those who they have concluded have a need, any need. Such needs as the operational costs of running the government, including the Administration and offices of so called Czars appointed by the President, the White House, various Department Secretaries, the cost for Congress, the Supreme Court and Foreign Diplomat Offices, etc. Add to that the costs for retirement benefits provided under the Social Security Act, health care provided seniors under Medicare and Medicare D, Medicaid Grants, loan guarantees for housing provided by Fanny Mae or Freddie Mack, Student Loans, Pel Grants, Welfare Payments, Food Stamps, Public Broadcasting, etc, etc, etc. The list goes on and on. Then there is the military as run by the Defense Department. While all these perceived needs by one group or the other may in fact be constructive use of tax dollars in and of themselves, there is no effort to prioritize the actual or potential expenditures in accord with the amount of tax revenue available to pay for all of them. Individuals have to prioritize their expenses. Corporations have to prioritize their spending of available cash flow. But the Congress does not have to consider prioritizing the expenditure of tax dollar revenue. The House just votes to fund programs on a simple test of “it might be beneficial to someone and it will look good on my record when I run for re-election”. To fund excessive spending, they borrow money and issue I.O.Us with full faith and credit of the United States to back them up. Since there is no end of needs wanted by an increasing portion of our citizens we now have reached a point where government spends 26% of our Gross National Product while tax and fee revenues are only 16% of GNP (The historical norm is 19%). And this annual deficit is growing. So what can be done to correct or at least reverse this trend so that the U.S. will not face some sort of financial disaster like event?

I think the solution is simple but hard to do. Congress or the American citizens need to pass a constitutional amendment that forbids the appropriation of monies to any project that, the funding thereof will cause that year’s expenditures to exceed the total revenue received from taxes and other fees available. Crazy you say? Why can’t we run our government in the same manner as we have to run our own household? Obviously we would have to provide for the possibility that an exception to this discipline could come up. But in that case, we should have to put in place an emergency surtax of some kind payable by every citizen including those dependent upon government entitlement payments for their support. If the government initiates a military action, the cost of that adventure shouldl be assessed to each in a progressive rate of their income or benefit received.

In order to get from here ($1.7 Trillion current deficit) to there, we first need to revise all entitlement programs in order to phase them out or reduce their rate of growth in various ways by “means testing”, more rigid administration for fraud and abuse, etc. As and if excess tax revenue begins to be available, new replacement programs may be approved that are compatible with prospective tax revenue in the future. This will not be achieved without some pain experienced across the spectrum of tax payers and those receiving entitlements. Nevertheless, if we try to solve the problem by burdening the most productive with all of the cost, we will evolve into class warfare and solve nothing on our way to financial Armageddon.

One Man’s Opinion—Bud Brewer
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Managing Assets to Protect Real Value

March 15,2011:I just got off a telephone conference call with a major professional money manager. The speakers tried to address the economic effect of the earthquake and tsunami that occurred in Japan and the impact that it would have upon many sectors of the Global economy. While subsequent declines in Japanese stocks could present buying opportunities, the largest impact was said implicitly to be upon the attitude of private individuals, government representatives and the champions of Nuclear Power who were beginning to believe that Nuclear Power was a large part of the answer to our energy problems. For the foreseeable future a sharp reversal of progress in the use thereof was predicted. Extensive comments were presented about how the expansion of the world’s middle class offered very positive growth in the GDP for emerging and developed countries around the world. About this time every listener must have had a warm and fuzzy feeling about the potential for their portfolio.