United Liberty

During the debate over health care, stimulus programs and generally more government spending, it’s easy to overlook the long-term economic issues. CNN Money highlights the fiscal issues presented by Medicare and Social Security, though not the long-term unfunded liabilities, and the cost of bailouts that are ticking time bombs for the country:

The first is the debt held by the public. That’s money owed to those who have bought U.S. Treasurys, most notably big bond mutual funds and foreign governments. Debt held by the public today is roughly $8 trillion and rising.

The second number is the money the federal government owes to government trust funds, such as those for Medicare and Social Security. The government has used revenue collected for those programs to cover other outlays. Currently, the debt to the trust funds is approaching $5 trillion.

The two combined is the total gross debt that’s accounted for. But deficit hawks also worry about what’s not on the books.
[…]
“Our budget doesn’t have Fannie Mae and Freddie Mac on it, even though it’s owned lock, stock and barrel by the American taxpayer,” said Rudolph Penner, a former director of the Congressional Budget Office (CBO) during a conference held by the Peterson-Pew Commission on Budget Reform.

Last year, the CBO did start to account for both companies as if they were federal agencies on the budget. But the White House Budget Office only includes some potential costs because the future of the two companies is still under consideration. Last week, a Republican congressman introduced a bill that would require the two agencies be put on the budget.

I know what you’re thinking: man that Pete is a positive guy. I like to describe myself as realistic, with a bit of fatalism throw in. Either way, I find it hard to look at the economic landscape and have any hope. It is especially dreadful when politicians have to get re-
elected, AND said politicians consult certain “economists”.

Economists have for years looked at what is happening in a society and sought to come up with solutions as to how an economic crisis can be “fixed”. The problem is, like in all fields, you have good economists, and you have the not so good (The latter seem to be the ones that always find their way onto the public payroll).

In extremely broad terms economists can be split into two categories:

If you are a student of American history your eyes should be opening as to which economist is most often chosen by our elected officials. The real question is “why”?

Well, why wouldn’t a politician pick economist #2?

We often hear Blue Dog Democrats referred to as “fiscal conservatives” and we’re told about their concerns about the budget deficits.The guys over at National Taxpayers Union have put together a spreadsheet showing how Blue Dogs or otherwise vulnerable districts have voted on TARP, the auto bailout, the “stimulus,” the budget and ObamaCare (among a few other votes).

If you live in one of these districts, I’d encourage you to support their opponent in 2010. These Blue Dogs are not fiscal conservatives. They are part of the Culture of Debt in Washington, DC.

Over the last few months, I’ve not been surprised to read that recent events have thrown a bit of doubt on the Efficient Markets [EM] theory. As defined in an article this weekend in the Financial Times, EM is “the theory … that market participants are governed by rational expectations and markets are self-correcting.”

If I understand this theory correctly, the correlation in practicality is that the most prudent long-term investment portfolio for the modest, ordinary investor, i.e. the one with the best risk-security ratio, would be something with a lot of Dow-type common stocks, because the collective markets take all factors into account quicker than any individual can do it.

Part III

In Tuesday’s post, Part I of this series, I told you about economist Edward C. Harwood’s 1928 prediction of the 1929 Great Depression in published and unpublished articles. He saw imbalances in the banking sector that were leading us into a breakdown of the economy through a misuse of the banking system.

In Part II of the series, I gave Harwood’s description of sound commercial banking, as read in an unpublished article entitled “A Sharp Distinction Should be Made Between Capital Funds and Commercial Credit.” He uses the metaphor of characters in a play. Let me remind you of their names: The Earners, the Investor, the Manufacturer, the Retailer, and the Bank. I recommend that you read Parts I and II first, so that you can make better sense of what follows.

According to a recent report released by Chicago based research and consulting organization Spectrem Group, examining the effects the recent market downturn has had on America’s affluent, the number of American households with a networth over $1,000,000 has declined dramatically since 2007.

While this statistic is not a direct measure of inequality, this drop in the number of millionaires will inevitably have a significant effect in bringing down total inequality in our economic system.

For most investable assets, the market has been in a 25 year bubble, instigated by the poor monetary, regulatory, and fiscal policies created by our goverment and the institutions (i.e., the Fed) that closely surround it. This bubble artificially created a greater number of affluent than the economy would naturally support, and which could no longer be sustained once the bubble popped.