Chart of the Day #16

News item: GDP Shows Surprise Drop for US in Fourth Quarter

Apparently, everybody but the economists expected this.

Another 300 million Sandy victims

News item: Emergency funding for Hurricane Sandy plus billions more in unrelated spending cleared its final hurdle Monday after the Senate narrowly voted to approve the massive $50 billion measure. --

The way the math works, my family covered over 800 dollars of this mess. That is on top of the previous 180 billion ($3000 per family) already spent. What did we do to deserve this? We have chosen not to live in hurricane prone areas, or to build our homes and schools on sandy beaches. Still we were assessed $600 and now $166 each to subsidize those who do.

I think it is important for people to be accountable. And they can do so easily, by self-insuring. There are thousands of insurance companies developed to assess this kind of risk, and to charge us more if we build on a beach. But no, that's not enough. We have to rush in with government buckets of dollars and send another 50 billion to rebuild the roller coasters on the east coast.

Hey, what about us? We're now victims of Sandy too. We'd like to claim our $3800 back. Sooner or later, the government is going to have to start justifying these unconstitutional transfers of public money. There should be a website generated, that shows any funding bill  in per capita form. Some examples (based on 300 million verifiable citizens)

Annual Federal spending:
Defense:   About $2467 per capita (probably worth it).
Departments and Agencies: About $2200 per capita (probably not worth it)
Interest Expense: About $1500 per capita (I thought I paid that credit card off)

Total debt: 16.4 trillion : $54,667 per capita.

Would you agree to send over 800 dollars of your money to the east coast? Well, you might, but you would also expect that they will be more careful with the money, and it would not include rebuilding casinos.  As it is, few of us away from New Jersey realize that we were also victims of Sandy.

Chart of the Day #15

Tick, Tick, Tick

Sandy Claws back

News item:  More than two months after hundreds of thousands of homes and businesses in the tristate area were destroyed or damaged by Hurricane Sandy, Republicans in the House of Representatives intentionally killed the $60 billion bill passed by the Senate by refusing to bring it to a vote on New Year’s Day. - The Daily Beast


 I always like to get to the next question, and today, the next question is: HOW did we get to the point where the Federal government is expected to offer free storm insurance to New Jersey? Chris Christie is as bad as any pirate, wanting to have 49 states pay for his cleanup. The guy has some nerve.

Fortunately, the bill was too saturated with pork to make it to the top of the heap of 2012 House bills, so it got shelved for a couple of weeks. For some reason, shelving a spendulus bill that was two months in the making for a couple of weeks is some sort of crime, too. 

What is insidious about this is the assumption that the federal government has any charter here. San Francisco with their earthquake, Chicago with its fire, and Galveston with it's devastating hurricane all did much better by dealing with it locally. Contrast their disasters with Katrina and Sandy, and you can see what I mean. ... that in modern disasters, everyone waits around for the federal money. There's nothing efficient, compassionate, or economically beneficial about this arrangement. Here, we have whole chunks of society waiting for uncle sugar to rebuild their house for them. and indeed, he will. It's expected of a nanny government. The houses will be built on the same shores, and rebuilt again every 25 years when there's another hurricane. Doubt that? Check the construction schedule for the 9th Parish in New Orleans.

If the matter were to be dealt with locally, the people would be persuaded to build on higher ground, and the states resources would be more efficiently used for real assistance. As long as the free money rains down from Washington, nobody will feel the least bit of pressure to fix the roof.

Cliff Notes

(...) wealth is not the same as income. The argument to tax the rich has really meant tax those whose current wage and salary income is high. However, let’s offer the reader a choice—who is richer—the $30 billion-plus portfolio manager or the $1 million salaried worker? The problem is that we are defining rich based on current income without any accounting for wealth. Therefore, it is no surprise that so many billionaires in terms of wealth have no problem raising taxes on the millionaires in terms of income (actually, $200,000 single and $250,000 married couple).  -- Fiscal Cliff and True Reform, Wells Fargo Securities, LLC Economic report, December 18, 2012

I have been a reader of Wells Fargo Securities reports for about 6 months now, and have found every one to have high value. After reading this report, I was no longer concerned about what might happen if we traverse the fiscal cliff (as still seems likely here on New Year's Day). The conclusion that can be drawn is that policy makers are addressing the wrong problem.

Here's a primary viewpoint of the report, which I agree with:

(...) running fiscal policy based  on  the  opinion polls of who should get taxed is not an intelligent form of policymaking. Of course a majority of the opinion favors taxing a minority. This is the worst form of taxing the man behind the tree. As indicated above, the problem is that the tax base has been narrowed too much both in terms of incomes taxed and our definition of rich. Such opinion polls represent the tyranny of the majority for a majority that is unwilling to tax themselves for the benefits they receive.

 The report goes on to emphasize that neither Simpson-Bowles, nor the baseline fiscal cliff scenario addresses the real problem, which is that the promised entitlements require 4% growth in an economy that will max out at 2 percent on into the future. Further, if the debt level does not immediately fall to 90% or less, we're not even going to get that. Simpson-Bowles took Obamacare off the table, and left Social Security and Medicare untouched. As such, it did not address the elephant in the room.

Since the congress that takes over for this one is comprised almost entirely of democrats and republicans, there isn't much we will expect in the way of useful fiscal policy. The problem begins with the two parties arguing over a fallacious pivot point...which is that we should begin confiscating income. Why is that fallacious? Income is the desired result of a growth economy. If policies seek to limit income by taxing it, there will be less growth. When there is less growth, the economic assumptions made that foretell any semblance of stability go out the window.

So, place your bets accordingly. Economic growth of 4% against the headwind of Obamacare, declining demographics, and near certain inflation vs. all that with higher taxes. Happy New Year.