Financial Speech for the Ages… Uh Oh!

Well, David Walker has been warning us.  From a fiscal point of view, we as a country are in serious trouble. Last night, someone on Fox News (wish I could remember who) stated that the United States of America may have passed a point of no return.

And now there is this… Richard W. Fisher (President and CEO of the Federal Reserve Bank of Dallas)… We face a national debt of $53 trillion to $58 trillion for social security/medicare/medicaid alone? Ha! Try $99 trillion. Here’s a couple of snippets:

The good news is this Social Security shortfall might be manageable. While the issues regarding Social Security reform are complex, it is at least possible to imagine how Congress might find, within a $14 trillion economy, ways to wrestle with a $13 trillion unfunded liability. The bad news is that Social Security is the lesser of our entitlement worries. It is but the tip of the unfunded liability iceberg. The much bigger concern is Medicare, a program established in 1965, the same prosperous year that Bill Martin cautioned his Columbia University audience to be wary of complacency and storms on the horizon.

and:

Please sit tight while I walk you through the math of Medicare. As you may know, the program comes in three parts: Medicare Part A, which covers hospital stays; Medicare B, which covers doctor visits; and Medicare D, the drug benefit that went into effect just 29 months ago. The infinite-horizon present discounted value of the unfunded liability for Medicare A is $34.4 trillion. The unfunded liability of Medicare B is an additional $34 trillion. The shortfall for Medicare D adds another $17.2 trillion. The total? If you wanted to cover the unfunded liability of all three programs today, you would be stuck with an $85.6 trillion bill. That is more than six times as large as the bill for Social Security. It is more than six times the annual output of the entire U.S. economy.

Look… If you read nothing else this summer, read the transcript (here’s the link again) of Mr. Fisher’s speech.

Alan Speakman

Geronticide… What Krauthammer Missed

There are only two categories of people that cross (s)words with Dr. Charles Krauthammer: geniuses and damned fools. I’m probably now and forever going to embed myself in the latter group. But here goes anyway…

In yesterday’s (March 6) brilliant piece, “The Great Non Sequitur“, Krauthammer missed the true importance and deeply subtle tone of Obama’s (and our society’s) approach to aging – Obama simply sees it as too expensive (and possibly even too inconvenient… See “Soylent Green” and Social Security.) It’s very plain and very simple – under Obama’s plan, there will be four entities that decide health care (especially for our aging society):

• Patient
• Family
• Doctor
• Government (Yeah… The same Gov’ment that can’t even dole out license plates or count votes, and now wants to “help” make life or death decisions.) If the following quote from of all people Sen. Robert Byrd doesn’t scare the snot out of you, nothing will…

“Too often,” Mr. Byrd said in a letter to Mr. Obama, “I have seen these lines of authority and responsibility become tangled and blurred, sometimes purposely, to shield information and to obscure the decision-making process.”

Oh goody.

Put another way, if you can’t afford proper treatment, well then, you’ll get the “proper treatment”… Sucks to be you.

Dr. Krauthammer, you got your diagnosis right, just anemic in its extent…You wrote…

“Clever politics, but intellectually dishonest to the core. Health, education and energy — worthy and weighty as they may be — are not the cause of our financial collapse. And they are not the cure. The fraudulent claim that they are both cause and cure is the rhetorical device by which an ambitious president intends to enact the most radical agenda of social transformation seen in our lifetime.”

Set aside the education and energy for just a moment… Focus on the aging 800 pound gorilla that is Medicaid/Medicare/Social Security…

Obama has a plan, and it probably ain’t going to be what the doctor ordered… Not even you, Dr. Krauthammer.

Alan Speakman

The Tragic Birth and Impecunious Demise of the Greatest Generation

I was watching a pathetic bit of news a couple of nights ago – Right now, about 1,200 members of the military’s “Greatest Generation” are dying per day. That’s probably a good indicator of the mortality rate of their entire generation. And to think what they went through… Some were born into a crushing depression or at least knew of the disaster of WWII at a very young age. But they got us through “The Big War”, rebuilt Europe and Japan, slogged through both the Korean and Viet Nam Wars, created NASA, etc.

So after all that, where is the “Greatest Generation” now, and what are they facing? According to AARP of those Americans aged 65 and older, 59% “found it more difficult to pay for essential items such as food, gas and medicine” due to the economic slowdown. How can that be and just how bad is the economy? How can we put this in perspective for everyone including the folks who saved the world back in the ’40s?

Consider this… According to CNBC, here are the costs (with inflation factored in) of various large U.S. expenditures:

• Hoover Dam: $.782 billion
• Panama Canal: $7.9 billion
• Gulf War I: $98 billion
• Marshall Plan: $115.3 billion
• Louisiana Purchase: $217 billion
• Race to the moon: $237 billion
• Savings and loan crisis: $256 billion
• Korean War: $454 billion
• New Deal: $500 billion
• Gulf War/War On Terror: $597 billion
• Viet Nam War: $698 billion
• All of NASA since it started: $851 billion

All told, the total cost of all those projects comes up to $4031.982 billion dollars or $4,031,982,000,000. (Yeah, that’s four trillion dollars.) But let’s stop right here and explain to Grandpa that according to Jenna Lee on Fox News, the total costs of all the bailouts will be probably add up to something on the order of 6.8 trillion dollars. (CNN paints a less rosy picture at $7,000,000,000,000, but I’ll stick with Ms. Lee’s numbers because I’m an optimist and besides I’ve already done the math based on her calculations. Besides, what’s a couple hundred billion between friends?)

But Grandpa can’t grasp the magnitude of a number like 6.8 trillion dollars. Cripes! All of WWII “only” cost $3.6 trillion by today’s measure. Maybe the following will help you, Gramps: Imagine the U.S. Mint making a new silver dollar of exactly 1″ in diameter. And imagine that we discovered a way to weld those silver dollars edge to edge (not face to face) to make a flat sort of a “silver dollar chain”. So far, so good right?. If we could do that and make it super strong, we could even make our “silver dollar chain” stretch the 240,000 miles to the moon – that’s 15,206,400,000 inches worth of silver dollars or apx. 15.2 billion dollars. But in the scale of the total bailout disaster $15.2 billion is chump change.

Nope… We’ve got to make us another “silver dollar chain” consisting of 15,206,400,000. But that only gets us to a wimpy $30.4 billion. (At least we could place the second chain beside the first and have one monumental “Hot Wheels” track!) “Ummm…” Grand Pappy peevishly asks, “How many ‘15.2 billion dollar silver chains’ to the moon would you fiscally-irresponsible whippersnappers need to cover the cost of the 6.8 trillion dollar bailout?” “Ahhh… Errr… We’d need 447” is our pathetic response. That’s a 2- to 3-lane highway of one-inch silver dollars welded edge to edge stretching from here to the moon.

As frightening as the above sounds, that’s the good news. The bad news is that almost no one dares speak the name of the “S-Squared M-Squared Monster”, (Social Security/Medicare/Medicaid). That beast is going to run up around $50,000,000,000,000 or 50 trillion dollars or a 10-lane “silver dollar chain” highway to the moon. And here’s the kicker… Our GDP is only apx. $12 trillion. Taking into account interest, we’re building an economic bridge to the moon we can’t finish.

You don’t have to be an economist to see the handwriting on the wall… Sooner or later (I’m guessing 2012), it’s all going to fall apart. And fortunately or unfortunately (depending on how you view things), some of the the “Greatest Generation” will have to watch it happen. They came into this world under very tough circumstances, and most likely will leave the same way if they haven’t done so already. And the rest of us will be left behind trying to explain how we failed their legacy in just twenty years – the time span of just one generation.

Alan Speakman

P.S. Somebody… Anybody… Please check my math and facts. Man, I hope I’m wrong on this one.

The Economy, Obama, and the Facts No One Dares to Tell You

For some time, I’ve been ranting about how our new, high-tech, global village was going to slap Americans in the face concerning the relative value of life and labor in this sphere.

Well, given the administration-to-be, it just seems fair to break down the economic numbers and give a “Big Picture” outline the mess Clinton, Bush, and Obama didn’t/doesn’t/won’t have the stomach to warn you about. (Fair warning… These numbers are roughly based on 2005… But it really doesn’t matter – it’s the sheer magnitude that’s staggering. In any event, I’ve documented my sources, and this should offer a good snapshot as to where we are headed.)

The average American will earn about $1.2 million dollars in his (or her) life (http://en.wikipedia.org/wiki/Average_Joe… This round number can easily be corroborated with the fact that the current average American yearly income is $34.5k, and will span 40 years. Yes, that number will change, but so will the cost of staying alive. Again, this is just a snapshot.)

Alrighty then, we’ve got $1.2 million dollars in our “American Citizen Earned Savings Account”. How do we spend it? Well, currently the numbers break down as follows:

Hypothetically, our typical American today will end up spending $300,000 plus in health care over his or her lifetime. So that right there will gobble up 25% of an entire life’s earnings.

What else? Well, simple warmth and shelter will consume another 33%. And then there’s 13% for food, 4% for cloths, and 18% for transportation. (http://www.census.gov/compendia/statab/tables/08s0662.pdf).

So, just surviving will consume 93% of our life’s earnings, or about 1.1 million dollars each. Now comes the fun part – taxes. A decent guesstimate of all taxes paid is 30%. So, “Joe the Sixpack” is spending 123% of his life’s work. Keep in mind that these numbers don’t take into account the cost of children, college, or that sailboat you’ve always wanted. This overextension is why Glenn Beck and Comptroller General David Walker are having a collective kitten in the video below.

The simple fact is that we’re in deep doo dee, and our politicians (including Obama) won’t face it, or at least they won’t talk about it. By 2012, the country will be at least $60,000,000,000,000 in the hole, and only a damned fool would run for office.

Let’s see… Water? Check! MREs? Check! Cabin in woods? Check! Ammunition? Check!

Alan Speakman

The Debate and the Economy

 

Just was listening to a bit of the debate and heard how Obama was going to deal with fixing Social Security.

If the comment wasn’t so absurd and tragic, it would have simply been pathetic.

Let’s see if we can’t put the impending financial disaster in perspective…

The bubble chart above was created in MS PowerPoint (though any number of SW packages can do likewise). But what do the numbers mean? Well, they’re in billions of dollars and represent the following American and U.K. situations:

• The little dot on the bottom represents the $25 billion Bradford and Bingley nationalization
• The $85 billion is destined to AIG
• Two hundred billion (in blue) is for good old Fannie and Freddie
• $215 billion to prop up the flailing British mortgage lender Northern Rock
• Ah, the good stuff… $700,000,000,000.00 for the current U.S. rescue… That’s in red.
• The $2,470 is the entire U.K.’s GDP in billions
• $14,294 is the U.S. GDP in billions
• But what of that monster in the background? What of that $50,000 billion bubble that runs off the screen? That’s the $50 trillion social security disaster that’s waiting for Americans down the road.

The numbers are kind of mind numbing ain’t they? Well, amateur arm-chair astronomy being a hobby of mine, maybe some “planetary perspective” here will help. Speaking in terms of diameter, in the image above, the $200 billion blue orb (aka “Planet Freddie and Fannie”) would be something of the size of the pipsqueak planet Mars in our solar system. The “$700 Billion Bailout” planet in red would represent earth. And the massive $50 trillion outer giant is our sun. Ouch.

Look, I tried to be conservative with the numbers, and yes those numbers are going to change… But the magnitudes are probably correct. It is to scale, and you can easily reproduce it.

My gripe isn’t just with Obama. And it isn’t just with McCain. And it isn’t just with Bush II, or Clinton, or Bush I or… The problem (now a towering disaster) of Social Security and Medicare/Medicaid has been lurking for decades, and our politicians simply keep making empty promises that they’re going to fix it just so they can get elected. It is what it is. Is Glen Beck the only one who gets it?

I apologize for playing the same video or at least pointing to the same video or graphics as in previous posts. But this is important. Truth should be persistent.

Look, fiscally speaking, we’re in a land of hurt, and politicians and talking heads just want to play politics – future be damned. And if you think Obama or McCain is just going to flop down into 1600 and fix this horror, you’re a damned fool. The coming storm is something like America has never seen before.

Oh, the collapse probably won’t happen tomorrow, or even next year. But it will happen. Stars like Obama and McCain may lie, but the numbers never do.

Alan Speakman

Mad as Hell #4: We Might Just Be OK… For a Minute

 

Yeah, the market is up (at this moment it’s up roughly 400 points from the Sept 29 ‘08 10,421.84 low) and Congress seems to be coming to a meeting of the minds for some sort of a bailout package. (Update: Senate just passed Rescue Bill.) And with a little luck, we’re probably going to be fine. Oh, somehow the taxpayers will see tougher times, don’t worry about that. (And if you believe it will only be $700 billion, then you also probably believe that Boston’s “Big Dig” came in on budget too.)

Yes, we’ll probably be fine for a while, but we’re missing the bigger and longer-term issues.

• We’re terribly broke and then some…

• The world is running out of oil. (Notice how Harry Reid tried to sneak in a “no shale oil” provision into the bailout? Ain’t that cute?)
• Our politicians are idiots. (Sorry, that’s terribly insulting to idiots.) During the initial Republican Primary debate, three of the 10 participants (Tom Tancredo of Colorado, Sen. Sam Brownback of Kansas and former Governor Mike Huckabee of Arkansas) clearly stated that they didn’t believe in evolution.

So once again, I hope you join us in ranting that we’re as mad as hell…

Get mad. Stay mad.

Alan Speakman