President Obama is Exasperated with the Republicans for not giving him Absolute Power

Posted by PITHOCRATES - October 6th, 2013

Week in Review

Barack Obama promised in the 2008 presidential campaign that there weren’t any blue states or red states, only purple states.  That he would be the president for all Americans.  And that they would all work together.  Democrats and Republicans.  After the election (and the Democrats won the House and Senate) Eric Cantor (Republican) met with President Obama to work together on the stimulus bill.  When discussing the merits of a small business tax cut President Obama had had enough and said, “Elections have consequences, and at the end of the day, I won.”  And because he had won the election the Republicans could go [deleted expletive] themselves.

Okay, so elections have consequences.  And the winners can do whatever they please.  Apparently.  Well, the Republicans won enough elections to hold the House in the 2012 elections.  So they don’t have to bend willingly to the executive branch of government according to the Obama doctrine.  Which really annoys the president (see Obama Says He’s Exasperated With House Republican Faction by Roxana Tiron, Kathleen Hunter & Michael C. Bender posted 10/2/2013 on Bloomberg).

President Barack Obama, declaring himself “exasperated,” said he won’t negotiate with Republicans on the U.S. budget until they reopen the government and raise the debt ceiling without conditions…

Michael Steel, a spokesman for Boehner, said negotiating after Democrats get what they want is “not much of an offer…”

Both sides are jockeying for the political high ground in the standoff. Democrats said the nation was being taken hostage by the Republicans’ Tea Party faction, while the Republicans faulted Senate Democrats and Obama for being unwilling to negotiate over any proposal to delay or curtail the health-care act, which opened for insurance enrollment yesterday…

The U.S. budget deficit in June was 4.3 percent of gross domestic product, down from 10.1 percent in February 2010 and the narrowest since November 2008, when Obama was elected to his first term, according to data compiled by Bloomberg from the Treasury Department and the Bureau of Economic Analysis.

The House of Representatives is the people’s house.  It’s not the king’s Privy Council.  Or an extension of the executive branch.  Exasperated?  Sorry President Obama.  You are not a king.  You do not wield absolute power.

Since President Obama took office he has run record deficits.  And raised the national debt to record levels.  That’s one of the reasons for the Republican opposition to Obamacare.  The nation can’t afford it.  Because it won’t be deficit neutral.  The CBO has revised the cost of Obamacare to be three times what the Democrats said it would originally cost.  To sneak it by the people.  Lying to them that they were going to get more for less.  When in fact they’re going to get less for more.  The people understand this.  Which is why they are mad as hell and are urging their representatives to do everything to prevent Obamacare from both destroying the American health care system and bankrupting the United States.

Exasperated?  It is the American people who are exasperated with a president that continues to govern against their will.

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Like Greece Japan looks forward to the Economic Stimulus from Hosting the Olympics

Posted by PITHOCRATES - September 15th, 2013

Week in Review

During the Eighties Japan was an economic powerhouse.  The government partnered with business.  Creating what became known as Japan Inc.  It was the way of the future.  Way better than free market capitalism.  Because smart government people were tweaking the free market.  Making it better.  Or so they thought.  All that tweaking came in the form of a credit expansion.  Which created a huge asset bubble.  And when it burst Japan fell into a deflationary spiral.  Through their Lost Decade.  The Nineties.  And beyond.

Tired of sluggish economic growth since their Lost Decade their prime minister, Shinzō Abe, returned to the ways of their past.  And starting pumping yen into the economy like there is no tomorrow.  And the economy has turned.  Of course, the economy was going gangbusters before it collapsed into its deflationary spiral. So this spurt of economic activity may be nothing but that.  A spurt.  And sluggish economic growth will return.  With more inflation to wring out of the economy.  And this will probably not make things better (see Hopes Japan’s win to host Olympics could kickstart the economy by Bill Birtles posted 9/10/2013 on Radio Australia).

Japan could get an economic boost from hosting the 2020 Olympics in Tokyo…

As Japan begins its largest project in 42 years in preparation for the Olympics, there is still plenty left to do.

Just last week, Abe’s government pledged $US500 million to fix Fukushima.

In addition, Japan faces the problem of massive debt and an ageing population.

Prime Minister Shinzo Abe will also need to take a call on raising the country’s sales tax.

The Chief Economist at RBS Securities, Junko Nishioka, says for now though, keeping spending under control will be a priority for the country of about 130 million.

Greece was talking the same way in the run-up to the 2004 Summer Games.  Where Greece went on an expansionary binge.  Then came the Great Recession.  Greek economic activity fell.  As did their tax revenue.  All the while they had a new boatload of debt on the books from the Olympics.  They had to borrow money to pay for what their tax revenue did not.  Borrowing more and more increased their debt.  And their borrowing costs.  Until they could borrow no more. Kicking off the Eurozone sovereign debt crisis.  And an economic malaise that continues to this day.

So with Japan’s past history and Greece’s past history a surge in more spending to get ready for the Olympics is not likely to solve any problems.  Or bring back Japan Inc.  As this kind of spending has a history of causing problems more than solving problems.

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China’s Continuing Credit Expansion is Starting to Worry the IMF

Posted by PITHOCRATES - September 15th, 2013

Week in Review

As the U.S. fiscal year draws to a close the Republicans and Democrats are digging in their heels over the upcoming debt ceiling debate.  The Republicans want to cut spending and taxes to rein in out-of-control spending.  So they don’t have to keep borrowing money.  Running up the national debt.  The Democrats, on the other hand, say, “Who cares about the debt?  We’ll be dead and buried when the nation collapses under the weight of this mammoth debt load.  As long as we get what we want why should we care about future generations?”  At least, that’s what their actions say.

A lot of leading economists on the left, Keynesians economists, see no problem in running up the debt.  Print that money, they say.  Keep that expansion growing.  What could possibly go wrong?  Especially when the federal government has the power to print money?  Just look at what the Japanese did in the Eighties.  And what the Chinese are doing now (see As the West Faltered, China’s Growth Was Fueled by Debt by Christina Larson posted 9/12/2013 on Bloomberg Businessweek).

As demand for Chinese exports diminished in the wake of the financial meltdown, the Chinese economy kept humming at more than 9 percent annual gross domestic product growth each year from 2008 to 2011. The trick? “A huge monetary expansion and lending boom,” says Patrick Chovanec, chief strategist at Silvercrest Asset Management and a former professor at Tsinghua University’s School of Economics and Management in Beijing. With bank lending restrictions loosened in late 2008, “Total debt accelerated from 148 percent to 205 percent of GDP over 2008-12,” according to a May 2013 report from research firm CLSA Asia-Pacific Markets. When Beijing tried to rein in the banks beginning in late 2010, shadow banking—lending outside the formal sector—exploded. Today “China is addicted to debt to fuel growth,” according to the CLSA report, with the economy hampered by “high debt and huge excess capacity with only 60 percent utilization.”

The Beijing-based firm J. Capital Research dubbed 2012 the “Year of the (White) Elephant” in a report detailing some of China’s questionable infrastructure build-out. To take one example, 70 percent of the country’s airports lose money, yet more are being built in small and remote cities. At the shiny new Karamay Airport in far western Xinjiang province, there are four check-in counters serving two flights daily. Local governments have splurged on “new towns” and “special zones,” many of which have already fallen into disrepair. The $5 million Changchun Zhenzhuxi Park, intended as a scenic area, is now a large public garbage dump, as the local landscaping bureau never agreed to provide maintenance. Near the southern city of Hangzhou, a forlorn replica of the Eiffel Tower overlooks a faux Paris—the ersatz arrondissement attracted hardly any residents, and local media have dubbed it a ghost town.

“In China, you often hear people say they’re building for the future,” explains Chovanec. “But if you build something and it’s empty for 20 years, does that make any sense? By that point, it may already be falling apart.”

The classic Keynesian argument for economic stimulus is the one about paying people to dig a ditch.  Then paying them to fill in the ditch they just dug.  The ditch itself having no economic value.  But the people digging it and filling it in do.  For they will take their earnings and spend it in the economy.  But the fallacy of this argument is that money given to the ditch-diggers and the fillers-in could have been spent on something else that does have economic value.  Money that was pulled out of the private sector economy via taxation.  Or money that was borrowed adding to the national debt.  And increasing the interest expense of the nation.  Which negates any stimulus.

If that money was invested to expand a business that was struggling to keep up with demand that money would have created a return on investment.  That would last long after the people who built the expansion spent their wages.  This is why Keynesian stimulus doesn’t work.  It is at best temporary.  While the long-term costs are not.  It’s like getting a 30-year loan to by a new car.  If you finance $35,000 over 5 years at a 4.5% annual interest rate your car payment will be $652.51 and the total interest you’ll pay will be $4,018.95.  That’s $39,018.95 ($35,000 + 4,018.95) of other stuff you won’t be able to buy because of buying this car.  If you extend that loan to 30 years your car payment will fall to $177.34.  But you will be paying that for 30 years.  Perhaps 20-25 years longer than you will actually use that car.  Worse, the total interest expense will be $23,620.24 over those 30 years.  That’s $58,620.24 ($35,000 + 23,620.24) of stuff you won’t be able to buy because of buying this car.  Increasing the total cost of that car by 50.2%.

This is why Keynesian stimulus does not work.  Building stuff just to build stuff even when that stuff isn’t needed will have long-term costs beyond any stimulus it provides.  And when you have a “high debt and huge excess capacity with only 60 percent utilization” bad things will be coming (see IMF WARNS: China Is Taking Ever Greater Risks And Putting The Financial System In Danger by Ambrose Evans-Pritchard, The Telegraph, posted 9/13/2013 on Business Insider).

The International Monetary Fund has warned that China is taking ever greater risks as surging credit endangers the financial system, and called for far-reaching reforms to wean the economy off excess investment…

The country has relied on loan growth to keep the economy firing on all cylinders but the law of diminishing returns has set in, with the each yuan of extra debt yielding just 0.20 yuan of economic growth, compared with 0.85 five years ago. Credit of all types has risen from $9 trillion to $23 trillion in five years, pushing the total to 200pc of GDP, much higher than in emerging market peers…

China’s investment rate is the world’s highest at almost 50pc of GDP, an effect largely caused by the structure of the state behemoths that gobble up credit. This has led to massive over-capacity and wastage.

“Existing distortions direct the flow of credit toward local governments and state-owned enterprises rather to households, perpetuating high investment, misallocation of resources, and low private consumption. A broad package of reforms is needed,” said the IMF.

Just like the miracle of Japan Inc. couldn’t last neither will China Inc. last.  Japan Inc. put Japan into a deflationary spiral in the Nineties that hasn’t quite yet ended.  Chances are that China’s deflationary spiral will be worse.  Which is what happens after every Keynesian credit expansion.  And the greater the credit expansion the more painful the contraction.  And with half of all Chinese spending being government spending financed by printing money the Chinese contraction promises to be a spectacular one.  And with them being a primary holder of US treasury debt their problems will ricochet through the world economy.  Hence the IMF warning.

Bad things are coming thanks to Keynesian economics.  Governments should have learned by now.  As Keynesian economics turned a recession into the Great Depression.  It gave us stagflation and misery in the Seventies.  It gave the Japanese their Lost Decade (though that decade actually was closer 2-3 decades).  It caused Greece’s economic collapse.  The Eurozone crisis.  And gave the U.S. record deficits and debt under President Obama.

The history is replete with examples of Keynesian failures.  But governments refuse to learn these lessons of history.  Why?  Because Keynesian economics empowers the growth of Big Government.  Something free market capitalism just won’t do.  Which is why communists (China), socialists (the European social democracies) and liberal Democrats (in the United States) all embrace Keynesian economics and relentlessly attack free market capitalism as corrupt and unfair.  Despite people enjoying the greatest liberty and economic prosperity under free market capitalism (Great Britain, the United States, Canada, Australia, Hong Kong, Taiwan, South Korea, etc.).  While suffering the most oppression and poverty under communism and socialism (Nazi Germany, the Soviet Union, the communist countries behind the Iron Curtain in Eastern Europe, the People’s Republic of China under Mao, North Korea, Cuba, etc.).

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Canadian Public Sector Workers average 18.2 Paid Sick Days a Year

Posted by PITHOCRATES - June 15th, 2013

Week in Review

Nations around the world are suffering financial crises due to the costs of their public sectors.  Which they pay for by taxing the private sector.  Even though people in the private sector don’t enjoy anywhere near the generous benefits the public sector enjoys (see Government to target public service’s sick days in next round of bargaining by BILL CURRY posted 6/10/2013 on The Globe and Mail).

The Conservative government is putting public-service unions on notice that sick days will be targeted in the next round of collective bargaining.

Treasury Board president Tony Clement said the government wants to move away from the current rules, where workers can use up to 15 paid sick days and five family days a year, in addition to vacation time.

The Minister stopped short of accusing public servants of abusing the system, but questioned why the federal absentee rate is higher than that of other governments and the private sector, where he said the average number of sick days is 6.7.

“Look, I think that the great majority of public servants are, when they take time off, they are sick. But there’s no question that the rate of sick leave, when you’re looking at 18.2 days as an average in a year, is well beyond not only private sector norms but other public-sector norms,” Mr. Clement said Monday at a news conference on Parliament Hill…

Union leaders also took issue with comparisons of public- and private-sector absenteeism, arguing the private sector does not document sick days in the same way as governments do…

“Mental illness, stress, anxiety, depression were not admitted to or acknowledged,” he said. “Cancer was much less treatable than it is today. So the workplace has changed dramatically in the past 40 years, but the disability management system has not. Employees are getting lost or forgotten in the system.”

Yes, we admit and acknowledge those illnesses more today than we used to.  And we do treat cancer more than we once did.  However, these illnesses do not affect the public sector differently than they affect the private sector.  So if the private sector is averaging 8.7 sick days there is no reason why the public sector should be averaging 18.2 sick days.  On top of 5 family days.  Holidays.  And vacation time.

One of the arguments for a single-payer health care system in the United States is that people will be healthier.  With access to health care doctors will catch disease early and stop it in its tracks.  Now either the Canadians are milking the system or a single-payer health care system doesn’t make people healthier.

If the organization a person works for can get by for a month (after you add together all that paid time off) without that person being there chances are that they can get by the other 11 months of the year without that person being there.  Which is why you don’t see 18.2 sick says in the private sector.  Because it’s too great a cost burden to pay people for not working.  As private sector employers can’t just raise their prices to cover this cost.  Whereas the government can raise taxes.  Or print money.

But there even is a limit for government, too.  As we can see by the Eurozone sovereign debt crisis.  And the need to cut back on generous sick pay in Canada.  Higher taxes reduce economic activity.  Which reduces government revenues.  Which they make up with borrowing.  Until they suffer a sovereign debt crisis.  Like in the Eurozone.  Where a country is so deep in debt that no one wants to loan them anymore.  For it is unlikely that a nation so deep in debt will ever repay that debt.  Which is why these generous public sector benefits are simply not sustainable.  When you can no longer tax or borrow you have but one option left.  You have to cut costs.  And the public sector will have to live more like the private sector.  Less exalted and privileged.  As public servants should.

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Public Sector Costs are Bankrupting Detroit and Illinois

Posted by PITHOCRATES - June 8th, 2013

Week in Review

Public sector pay and benefits are crushing state governments and cities.  The City of Detroit is probably going to file bankruptcy.  And the State of Illinois just saw its bond rating cut (see Illinois Bond Grade Cut as Lawmakers Can’t Fix Pensions by Tim Jones & Brian Chappatta posted 6/3/2013 on Bloomberg).

Illinois had its credit rating cut one level after lawmakers failed to restructure state pensions saddled with almost $100 billion in unfunded liabilities…

The retirement systems cover state workers, teachers, university employees, judges and lawmakers…

“It is disgraceful that this year’s legislative session ended without a new pension plan,” Treasurer Dan Rutherford, a 58-year-old Republican who is running for governor in 2014, said in a statement. The failure “costs the state millions of dollars each day, plus these downgrades could continue to make borrowing additional funds even more expensive…”

Illinois’s growing pension deficit is “unsustainable,” Fitch analysts led by Karen Krop, a senior director in New York, said in a statement. The inaction by lawmakers raises questions about the state’s ability to deal with “numerous fiscal challenges.” They also cited a growing backlog of unpaid bills and borrowing to cover operational costs, indicating another cut may be forthcoming.

These public sector workers have pay and benefit packages unlike those in the private sector.  Which has to pay for the pay and benefits of both the private and public sectors.  So they keep raising taxes on individuals and businesses.  And our politicians never worry about the long-term consequences.  But they can only tax so much.  People can only pay so much in taxes before they can no longer pay their own bills.  So they start borrowing.  And the more they borrow the more risky they are to loan money to.  The more in debt they go and the greater their spending obligations the higher the interest rates they have to pay to get investors to take a chance on buying their bonds.  Because there’s a very good chance something like this will happen (see Detroit to offer creditors less than 10 percent of what city owes -report by Steve Neavling posted 6/7/2013 on Reuters).

Detroit Emergency Manager Kevyn Orr plans to deliver grim news to the city’s creditors next week: Take less than 10 percent of what the city owes or risk losing it all in a bankruptcy proceeding, the Detroit Free Press reported on Friday…

In his report, Orr stated that the city has run annual deficits of $100 million and more since 2008. Detroit is believed to owe about $17 billion in debts and liabilities.

So on the one hand they beg and plead for investors to loan them money.  So they can pay the overwhelming costs of their public sector in the face of a shrinking tax base.  And then when their finances get so bad that they can’t even service their debt any more they say, “Thank you for your money when we could not raise any ourselves.  And because you took that great risk for us we will reward you by screwing you out of 90 cents of every dollar you loaned us.  But stick around after the bankruptcy.  For once we shed this debt we will need to borrow more to pay for the overwhelming costs of our public sector.”

Detroit had annual deficits of $100 million.  Illinois has $100 billion in unfunded liabilities.  Is it any wonder Fitch lowered their bond rating?  For the state of Illinois has a greater financial problem than the City of Detroit has.  The State of Michigan gave Detroit an emergency manager to fix their problems.  They even offered to buy a city park.  Belle Isle.  To help Detroit get out of the mess they put themselves into.  But Illinois cannot help Illinois.  Only the federal government can.  But will they?  If they do you know California will demand a bailout, too.  As will every other state and city with a crushing public sector cost will.  But the federal government can’t bail out everyone.  Not when they have their own trillion dollar deficit problem to fix.

No.  There is only one way to fix the problems these cities and states are having.  They have to cut their public sector costs.  Which means someone else besides the bondholders will have to take a haircut to put these states and cities back into the black.  Meaning the public sector can no longer enjoy the kind of benefits people in the private sector haven’t enjoyed in decades.

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Student Loan Payments are Overdue because Universities sold Students Costly Degrees with no Market Value

Posted by PITHOCRATES - May 26th, 2013

Week in Review

American companies have difficulty in filling positions requiring strong science, technology, engineering, and mathematics (STEM) skills.  So they turn to foreigners.  And the H-1B visas (see H-1B Visas and the STEM Shortage by Jonathan Rothwell and Neil G. Ruiz posted 5/10/2013 on Brookings).  Which means our colleges and universities aren’t producing enough of these STEM graduates.  Instead, what they are producing is a lot of people who can’t get a job.  And probably will never be able to repay their student loan (see Overdue Student Loans Reach Record as U.S. Graduates Seek Jobs by John Hechinger posted 5/23/2013 on Bloomberg).

Overdue student loans reached an all-time high as students struggle to find work after college, according to a government report renewing alarms about the rising burden of higher-education debt.

Eleven percent of student loans were seriously delinquent — at least 90 days past due — in the third quarter of 2012, compared with 6 percent in the first quarter of 2003, according to the report by the U.S. Education Department. Almost 30 percent of 20- to 24-year-olds aren’t employed or in school, the study found.

The research is being released amid concern in Congress and President Barack Obama’s administration about rising college costs and $1 trillion in outstanding student loans, the largest category of consumer debt besides mortgages.

So our colleges and universities pocketed a cool $1 trillion in return for giving our kids degrees that have little market value.  At least 30% of those degrees.  A trillion the U.S. taxpayer will probably end up eating.  Just like they had to eat the subprime mortgage mess.  Which begs the question.  Why are our colleges and universities selling our kids degrees that can’t help them land a job?  And don’t say it’s just the economy.  While the bad economy plays a part it doesn’t explain all those H-1B visas.  What these visas tell us is our colleges and universities are screwing us.  By conning our kids to go into great debt for worthless degrees just to bring hundreds of billions into their campuses.

If anyone bails out this student loan debt it should be those responsible for it.  The ones who sold our kids these worthless degrees.  In fact, in the future, we need to make some kind of eligibility scoring system for student loans.  Based on a survey of who businesses are hiring.  Those they’re hiring most (like those with STEM skills) should be eligible for the greatest student loan amounts at the best interest rates.  Because these graduates are most likely to get a job commensurate with their education.  And will be able to easily repay their student loans.  While those who businesses are hiring least (like those getting degrees in gender studies or drama) should be eligible for the smallest loan amounts and pay the highest interest rates.  Or simply denied any student loans.  Because they will be the least likely to get a job.  And will have the most trouble repaying their loan.

For those who feel they must have these degrees with no current market value to enrich the American tapestry they can still get these degrees.  They just need to pay for them out of pocket.  Or have their parents pay for them.  Which shouldn’t be a problem.  For they can demand colleges and universities lower the tuition costs for these degrees with no current market value.  I mean, why should they be charging so much and put a student into so much debt for a degree that won’t improve his or her economic position.  Which is the ultimate reason we go to college.  So we can earn a bigger paycheck.  Even the drama students dream of going to Hollywood where they can be rich and famous.

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No Money for White House Tours but Plenty of Money to give Illegal Aliens Food Stamps

Posted by PITHOCRATES - April 28th, 2013

Week in Review

The sequester has hit America hard.  A reduction in the growth of future expenditures has caused the White House to stop public tours of the people’s house.  And it caused the furlough of numerous air traffic controllers.  Leading to long lines at airports.  And cancelled flights.  That just shows you how painful a cut in the growth rate of future expenditures can be.  They caused cuts in actual current spending.  Because there is just not an extra dime the government can spare to keep the White House open for tours.  Or to keep air traffic controllers at their jobs.  But there’s tons of spare cash lying around for this apparently (see Shocking US government leaflet tells Mexican immigrants they can collect food stamp benefits without admitting they’re in the country illegally posted 4/26/2013 on the Daily Mail).

A Spanish-language leaflet that the U.S. Department of Agriculture has provided to the Mexican Embassy in Washington advises border-crossing Mexicans that they can collect taxpayer-funded food stamp benefits for their children without admitting that they’re illegal immigrants.

Underlined and in boldface type, the document tells immigrants who are unlawfully in the United States that, ‘You need not divulge information regarding your immigration status in seeking this benefit for your children.’

The Agriculture Department says SNAP benefits are only to be distributed to U.S. citizens and other legal residents. On its website, it acknowledges an education ‘partnership’ with the Mexican government, but insists that its aim is to help educate only ‘eligible Mexican nationals living in the United States’ about nutrition benefits for which they might qualify.

Judicial Watch obtained the Spanish language leaflet through a Freedom of Information Act request. An attached email dates the document to March 2009, just months after President Barack Obama took office.

In an email, a spokesperson for the SNAP program told The Daily Caller, which first reported on the leaflet, that “non-citizens who are unlawfully present, are not, nor have they ever been, eligible to receive Supplemental Nutrition Assistance Program (SNAP) benefits…

And in a March 2012 communication, Judicial Watch said, the USDA asked the Mexican Embassy to approve a letter addressed to that country’s 50 consulates. That letter encouraged staff at those Mexican diplomatic missions to learn in another webinar how to encourage more of ‘the needy families that the consulates serve’ to enroll in the SNAP program.

Judicial Watch said Thursday that the 2012 document did not discriminate between legal US residents and illegal immigrants.

So Americans can’t visit the White House.  And can’t get on an airplane because the sequester cancelled that flight.  But we can have illegal immigrants who are non-citizens in the country unlawfully sign up for food stamps.  Kind of tells you where the administration is when it comes to immigration reform.  Instead of controlling the border they’re telling them to come on up.  Free food stamps for everyone.  But you may not be able to catch a flight once you’re in the country.  Or visit the White House.  For these costs are too great to include in the current budget.

Is it me?  Or is there something wrong with that?

Why are they doing this?  Simple.  These aren’t illegal aliens waiting for a pathway to citizenship.  These are future Democrat voters.  And President Obama wants them voting in U.S. elections as soon as possible.  For with only about 20% of the population identifying themselves as liberals while some 40% identify themselves as conservative they have to buy as many votes as they can.  And they’re hoping these soon-to-be citizens will remember who their benefactor was when they enter the voting booth.  To tip the balance of power towards the Democrats.  So they can enact their liberal agenda the majority of the people don’t want.  That’s why.

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Employers aren’t hiring College Graduates because of their Worthless Degrees

Posted by PITHOCRATES - April 28th, 2013

Week in Review

Going to college is a special time in a young person’s life.  For it marks their entry into the true world of partying.  Where life on campus is nothing but a party.  And these parties are so good that people actually rank colleges by their partying greatness.  To help students choose the right school for their partying needs.  For no student wants to go to the local community college.  And still live at home.  I mean, what fun is that?

No.  They want to go to another state.  Out from underneath the disapproving eyes of their parents.  Who are more times than not footing the bill.  And no doubt remember what they did while in college.  And sigh.  But they hope and pray that their kids will take some time from their partying to study.  So they can get a good job when they graduate.  Which isn’t easy in a bad economy.  Especially when, it appears, these kids spend more time partying than hitting the books (see Job Picture Looks Bleak for 2013 College Grads by Mark Koba posted 4/26/2013 on CNBC).

NACE [National Association of Colleges and Employers] said employment areas with the greatest demand for this year’s graduates include business, engineering, computer sciences and accounting.

One reason there may not be so many grads hired is that many employers don’t believe college graduates are trained properly.

A survey of 500 hiring managers by recruitment firm Adecco, found that a majority—66 percent— believe new college graduates are not prepared for the workforce after leaving college. Fifty-eight percent said they were not planning to hire entry level graduates this year, and among those managers hiring, 69 percent said they plan to bring on only one or two candidates.

“Too many students are graduating with a weak background in science and math,” said Mauri Ditzler, president of Monmouth College…

A frequent mistake graduates make that keeps them from getting even an interview is spelling…

This is sad.  For you don’t even need to know how to spell to spell well.  For there is a button on all word processors and email editors.  It’s a remarkable button.  If you click on it something magical happens.  It checks your spelling.  Pity our college graduates aren’t learning this in college.  Or that they are just too lazy to click on it.

So what is Mom and Dad getting for all that money they spent sending their kid to college?  Which can be anywhere around $165,000 per kid for a 4-year degree out of state.  In truth few parents can pony up this kind of money.  So students make their way to the financial aid department on campus.  And borrow enough to buy a house.  In exchange for a degree that their college told them will lead to great riches.  And they did that with a straight face.

The reason employers aren’t hiring a lot of college graduates is because of the degrees a lot of them are getting.  And they’re not the hard ones.  For that would get in the way of all their partying.  If you look at the undergraduate degree programs for any college in a warm climate with a good party reputation you will see degrees in academic fields like African-American Studies; American Indian Studies; Anthropology; Art History; Communication; Comparative Literature; French & Francophone Studies; Lesbian, Gay, Bisexual, and Transgender Studies; Musicology; Philosophy; Poetry; Women’s Studies.  Etc.  A degree costing a student about $165,000 in student loan debt.  Require little science and math.  And isn’t likely to land you a job interview for someone looking for someone with math and science skills.  Which is who a lot of employers want to hire these days.

These colleges are heaping enormous amounts of debt on our kids.  For a degree that can never earn the kind of money that can pay back that student loan.  And this mounting student loan debt will probably be the last straw that will bankrupt the country.  For it already exceeds a trillion dollars.  And it grows still.  Money that went to these universities and colleges.  Providing generous pay and benefit packages.  And some very nice perks.  Living in the fantasyland of a college campus.  Shielded from the real world.  Some in higher education are acquiring great wealth at the expense of our children.  And the future financial wellbeing of our country.  As our kids will struggle to pay off these loans.  And when they can’t get a job in their field of study they’ll end up taking a job some place they didn’t need that $165,000 degree to get.

This is a tragedy of epic proportions.  Sooner or later government will have to force these colleges to put their money where their mouth is.  To make them accountable.  Before they bankrupt the country.  For anyone paying for college with a student loan they need to enroll only those students who can complete a program with a degree that has true market value.  Who can graduate and get a job with a pay level commensurate with their degree.  If the number of students who can’t falls below, say, 90%, then the college has to start refunding tuition.  For a job poorly done.  It’s only fair.  For they are the only ones who get paid so well for doing such a terrible job.  Giving their graduates degrees with no true market value.

Critics will scream this is not fair.  For we will lose the richness of our culture by not having degree programs in all those other fields that don’t have true market value.  But a degree with no market value is a worthless degree.  And if these worthless degrees are so important to the culture of the country then let the students who want them pay for these degrees with their own money.  And have the college charge less for them if they don’t have true market value.  For if a degree doesn’t have any market value why in the world are they charging $165,000 for them in the first place?

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The EU will have to find another way to Confiscate Private Sector Wealth because the ETS is Kaput

Posted by PITHOCRATES - April 20th, 2013

Week in Review

The Emissions Trading Scheme (ETS) was the European Union’s (EU’s) way of combating global warming.  By making carbon emitters pay for their carbon emissions.  But Europe is mired in recession.  And the Eurozone is suffering a sovereign debt crisis.  Which hasn’t helped to pull Europe out of recession.  And it appears that the economic reality in Europe is dooming the ETS (see If Carbon Markets Can’t Work in Europe, Can They Work Anywhere? by Bryan Walsh posted 4/17/2013 on Time).

But the ETS—and carbon trading more generally—is not doing well, and its problems are taking some of the green shine off of Europe. Since its launch the ETS has struggled, with the price of carbon falling as the 2008 recession and overly generous carbon allowances undercut the market. In the ETS business are given free allowances to emit carbon—too many free allowances mean they don’t need to reduce their carbon emissions much, which erodes the demand for additional carbon allowances on the market and causes the price to drop. Prices fell from 25 euros a ton in 2008 to just 5 euros a ton in February. There was a way to fix this—take 900 million tons of carbon allowances off the market now and reintroduce them in five years time, when policymakers hoped the economy would be stronger and demand would be greater. As anyone who’s taken Econ 101 would know, artificially reducing the supply of carbon allowances in such a drastic way—something called “backloading”— should force the price back up.

But on April 16, the European Parliament surprised observers by voting down the backloading plan. In turn, the European carbon market collapsed, with the price of a carbon allowance falling by more than 40% over the day. “We have reached the stage where the EU ETS has ceased to be an effective environmental policy,” Anthony Hobley, the head of climate change practice at the London law firm Norton Rose, told the New York Times. The ETS is a mess.

Backloading failed because even in very green Europe, economic concerns seemed to trump environmental ones. European Parliamentary members worried that any action that would cause the price of carbon to rise would add to European industry’s already high energy costs.

This should make China happy.  For there was no way no how they were going to pay for the carbon emissions from their airplanes entering European airspace.  In fact they warned they would cancel their Airbus orders and give them to Boeing if the Europeans tried to force them to help bail out the Eurozone in their sovereign debt crisis.  For this was what the ETS would ultimately do.  Transfer great amounts of wealth from the private sector to the public sector.  Which would have gone a long way in helping the Eurozone to continue to spend money they don’t have.

The ETS was nothing but a new tax on business.  Cloaked in the guise of making the world a better—and greener—place.  But the EU is suffering economically.  A large part of the sovereign debt crisis is due to having less economic activity to tax.  So the EU needs to improve the economy.  So they can generate more tax revenue from the current tax rates.  But increasing taxes on the carbon emitters will not help businesses.  It will only increase the cost of business.  Increasing their prices.  Making them less competitive in the market place.  Reducing their sales.  And killing jobs.  Which will generate even less tax revenue from the current tax rates.

The problem in the EU is not global warming.  Or insufficient tax revenue.  They have a spending problem.  This is what caused their deficits.  That gave them their soaring debt.  Just like every other nation that ever suffered a debt crisis.  Including the U.S.  Trying to fix a spending problem with more taxes just doesn’t work.  Only a cut in spending can fix a spending problem.  It’s not like the old chicken and egg question.  Excessive and unsustainable spending always comes before a debt crisis.  Always.

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More of the Same from the Fed means more Housing Bubbles and Great Recessions

Posted by PITHOCRATES - April 14th, 2013

Week in Review

Those who wanted to get away from the United States’ limited government past and grow government had to do away with the gold standard.  Those who favored a large and expansive federal government needed fiat money.  They needed the power to print money at will.  To fund deficits when they continually spend more than they have.  Despite continuously raising taxes.  When Nixon decoupled the dollar from gold in 1971 the fiat money people got their way.  Now the Keynesians could tax, borrow, print and spend to their heart’s content.  With the federal government in the driver’s seat of the U.S. economy.  With their Keynesian economists advising them.  Who said government spending was just as good as private spending.  So go ahead and tax, borrow and print.  Because all you need to create economic activity is to print money.

Of course they couldn’t have been more wrong.  As the Seventies proved.  Printing money just created inflation.  Higher prices.  And asset bubbles.  With no corresponding economic activity.  Instead there was stagflation.  And a high misery index (the inflation rate added to the unemployment rate).  Because there is more to economic activity than monetary policy.  Tax rates and regulations matter a whole heck of a lot, too.  As well as a stable currency.  Not one being depreciated away with double-digit inflation.  Rich people may get richer buying and selling real estate and stocks during periods of high inflation but working class people just see both their paycheck and savings lose purchasing power.

It was these Keynesian policies that caused the S&L Crisis.  The dot-com bubble.  And the subprime mortgage crisis.  Giving is the Great Recession.  The worst recession since the Great Depression.  But have we learned anything from these failed policies of the past?  Apparently not (see Blind Faith In The Fed Is Not Enough by Comstock Partners posted 4/12/2013 on Business Insider).

The move of the S&P 500 into new all-time highs is based on neither the economy, nor earnings, nor value, but almost completely on the blind faith that the Fed can single-handedly flood the market with enough funds to keep the illusion going.  In this sense the similarity of the current stock market to the dot-com bubble of the late 1990s or the housing bubble ending in 2007 is glaring…

Real consumer spending has been growing at a mediocre 2% rate over the past year despite growth of only 0.9% in real disposable income over the same period.  This was accomplished mainly by decreasing the savings rate to only 2.6% in February, compared to rates of 7%-to-11% in more prosperous times.  With employment growth diminishing and the negative effects of the January tax increases and the sequester yet to kick in, consumer spending is likely to slow markedly in the period ahead.  While March year-over-year comparisons may benefit from an earlier Easter, the reverse will probably be true in April.  Keep in mind, too, our over-riding theme that consumers, still burdened with most of the debt built up in the housing boom, are in no shape to jump-start their spending…

In sum, the lack of support from the economy, earnings or valuation leaves the Fed as the only game in town.  Although the old adage says “Don’t fight the Fed”, it did pay to fight the Fed in 2001 and 2002 and again from late 2007 to early 2009.  In our view, the Fed can only try to offset the tightness coming from the fiscal side, but cannot get the economy growing on a sustainable basis.

The only real growth we had was from a tax cut.  Surprise, surprise.  Of course that cut in the tax rate of the Social Security payroll tax decreased the Social Security surplus.  Moving the Social Security funding crisis up in time.  That along with Medicare and whatever Obamacare will do will cause a financial crisis this country has yet to see.  Which will cause great suffering.  Particularly because people are saving less because they have less.  Which is the only way they can compensate for the horrible economy President Obama and his Keynesian advisors are giving us.  So they won’t have private savings to replace their Social Security benefits that the government will spend long before they retire.

And what does the government do?  Why, spend more, of course.  Because of the sweet nothings their Keynesian advisors are whispering into their ears.  Saying the things big government types want to hear.  Spend more.  It’s good for the economy.  If you wonder what got Greece into the mess they’re in this is it.  Spending.  And anti-business policies to pull more wealth out of the private sector so the government can spend it.

All the countries reeling in the Eurozone sovereign debt crisis are there for the same reason.  None of them got into the mess they’re in because they had low taxes and low regulatory costs.  Because countries with business-friendly environments create private sector jobs.  And private sector jobs don’t cost the government anything.  So they don’t have to tax, borrow, print and spend like they do when they listen to their Keynesian advisors.  Because that is what causes chronic deficits to fund.  And growing national debts.  Things that don’t happen when you leave the economy in the private sector.

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