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March 15, 2009
Issue 37  -  Nanny Nation

We are fast approaching the day when there won’t be enough time to reverse the slide to socialism that this country is currently traversing.  Most people either don't care or are incapable of comprehending the dire circumstances this country faces in the coming years.  We have turned softer, and heavier, each year.  Less fit both physically and mentally.  Serenaded by the call of the "boob tube", as my mother as always called.  The idiot box now is used to lead, mislead and cajole the masses to all sorts of nonsense.

I was listening C-span this past week and ignorance of the callers was astounding.  Listeners of talk radio are, at the very least, more engaged then the general public.  I would hope that would make them a little better at seeing through the game. Unfortunately, with few exceptions this isn’t the case. 

The show featured conservative Republican Senator Chuck Grassley and he was taking questions about the spending bills going through congress.  The first caller was a 50 something male, who said that he was trying to retire and that the stock market collapse had made it tenuous at best. His idea was to have a new government program for “guys like him” which would enable him to retire.  Now I don’t know about you, but a program to help people who are gambling, and he WAS gambling as any financial advisor or book will tell you to reduce stock exposure as you approach retirement, recoup their losses is not something I’m backing.  Why should tax payers subsidize "guys like him" just because they are close to retirement.  Not to mention he was under 60 years old.

Another caller, this time a female, thought that the government should start a program (noticing a pattern here?) whereby 1-2% loans would be offered to people to help them pay down their debts!  Does she not realize that this would be borrowed money?  Does she think the government has its own money?  Borrowing money from China at 3%, to loan to the general public at 1% doesn’t make a whole lot of sense.  Unless, that is, you think of the government as a parent.  This is where we sit today with a growing proportion of the populous think this way.

Senator Grassley, who is relatively bright, also didn’t seem to understand basic economics when he said, “We need to get people spending again.”  Spending got us to this position so there is no way MORE spending will solve this problem.  We need to build up SAVINGS, replenish our stocks and get ready for a new up cycle.  Spending when you don't have money is always a bad idea.  Too bad congress doesn’t get this. 

The public is becoming more and more dependent on ole Uncle Sam:

“Record 31.8 million on food stamps

Government shows increase of 700,000 food stamp recipients in a singlemonth.

March 5, 2009:4:00 PM ET

WASHINGTON (Reuters) -- A record 31.8 million Americans received food stampsat the latest count, an increase of 700,000 people in one month with the UnitedStates in recession, government figuresshowed Thursday.

Food stamps, which help poor people buy groceries, are the major U.S.anti-hunger program, forecast to cost at least $51 billion in this fiscal year ending Sept. 30, up $10 billion from fiscal 2008.

"A weakened economy means that many more individuals are turning to SNAP/food stamps," said the Food Research and ActionCenter. Last summer food stamps were renamed the Supplemental Nutrition Assistance Program, or SNAP.The average food stamp benefit is $115 a month for individuals and $255 a month per household.

Enrollment for food stamps in December was up 2.2% from the previous month with increases in all but three states. Ohio had the largest increase among large states, up 3.4%, to 1.26 million people. Texas had the largest enrollment, 3.05 million, up 1.8%.

The previous record for food stamp enrollment was 31.6 million last September, which included "disaster" stamps for states hit by hurricanes and floods.

In April, food stamp benefits will increase temporarily by13% under provisions of the recently enacted economic stimulus law. Ellen Vollenger of the Food Research and ActionCenter said some families will see increases of $80 a month."

One in ten families rely on Uncle Sam to eat!  This is even before the full brunt of the housing collapse takes place.  Here is an updated chart on mortgage resets which I talked about here.”
As you can see, mortgage resets are in a lull.  Once the new wave starts we are in deep trouble.  That is what the Fed is so terrified about.  The food stamps numbers are only going to rise.   How did we get to this position? It has been a gradual process.  As the government takes over more and more responsibilities, like Fannie and Freddie basically running the mortgage market, the average citizen starts to rely more and more on the government for the necessities of life.  This ultimately breaks the family unit down and minimizes it.  This is perfectly highlighted in this story:

 “North Carolina Judge Ordered Homeschool Mom to Place Kids in Public School

A judge has ordered a mom to place her three home-schooled children in public school – even though the kids were excelling.

North Carolina Judge Ned Mangum told Venessa Mills, who was in the middle ofa divorce battle, that public school will "challenge the ideas you've taught them."

Robyn Williams, a fellow home school mom and former public school teacher, is frustrated by the judge's order and worries about the rights of other home-schooling families.

"The judge clearly disregarded all of the evidence and decided to legislate from the bench," she said. "My friend, Venessa Mills, just had her right to home school stripped away.

"It's an attack on home-schooling. Clearly this judge is biased against it, and it's infringing on our American freedom to home school. … We're just looking for justice here."

On March 24, North Carolina homeschoolers will rally at the state capitol to show their support for home education. — Josh Montez”

So now judges know what is best for your kids.  The longer this nonsense is allowed to continue, the less chance there is for stopping it without major political upheaval.  The American people just sit in front of their televisions and soak in the “message”.  Buy this, you need that, you are incomplete without this new gizmo.  These messages are beat into us day after day.  People don’t read anymore.  They get headlines and what the main stream media deems important. More often than not, that involves what Madonna is wearing or who Jennifer Aniston is hanging out with. This does not bode well for raising the awareness of the population to a level of competence and self reliance.

Our government was set up to empower individuals.  The current track is to empower the government.  How have they used this power?  Oh, that’s right they bought AIG (practically) and that’s worked out well right? From GATA:

“AIG Told U.S. FailureWould Cripple World’s Banks, Money Funds

March 9 (Bloomberg) -- American International Group Inc. appealed for its fourth U.S. rescue by telling regulators the company’s collapse could cripple money-marketfunds, force European banks to raise capital, cause competing life insurers to fail and wipe out the taxpayers’ stake in the firm.

AIG needed immediate help from the Federal Reserve and Treasury to prevent a"catastrophic" collapse that would be worse for markets than the demise last year of Lehman Brothers Holdings Inc., according to a 21-page draft AIG presentation dated Feb. 26, labeled as "strictly confidential"and circulated among federal and state regulators.

"What happens to AIG has the potential to trigger a cascading set of further failures which cannot be stopped except by extraordinary means,’’ said the presentation by New York- based AIG. "Insurance is the oxygen of the free enterprise system. Without the promise of protection against life’sadversities, the fundamentals of capitalism are undermined.’’

Regulators revised AIG’s bailout last week to ease loan terms and extend $30 billion in fresh capital after the firm posted a $61.7 billion fourth-quarter loss, the worst in U.S. corporate history. Lawmakers are reluctant to give more support beyond the package already in place, worth about $160 billion, because they say regulators haven’t given enough detail about how the funds are beingused or when the bailouts will end.

The Fed is "asking for an open-ended check’’ and is "not going toget" it, Senator Robert Menendez, a New Jersey Democrat, said last week in Congressional hearings.

Global Impact

AIG warned of turmoil around the globe if the government allowed the insurer to fail, adding "it is questionable whether the economy could tolerate another shock to the system that a failure of AIG would produce." The value of the U.S. dollar might fall, Treasury borrowing costs could rise andthe agency would face "doubts about the ability of the U.S. to support itsbanking system," according to the presentation, parts of which were reported earlier by the New York Times.

Under the scenarios sketched by AIG, European banks that bought credit-default swaps might need to raise $10 billion in capital and could face rating downgrades. Life insurance customers, their faith shaken in the industry, would redeem some of their $19 trillion in
U.S. policies, overwhelming firms already weakened by thecredit crisis, AIG said.

The $38 billion in support provided by the firm to money- market funds would bein jeopardy, AIG said, possibly forcing some to "break the buck.’’ Theterm refers to a money fund that suffers losses so large that it must pay investors less than the traditional $1-a-share value that gives the short-termfunds their reputation for safety.

Overseas Seizures

Outside the U.S., where AIG operates in more than 140 countries, a collapse could lead to the "immediate seizure’’ of its businesses by regulators andcould impair "the entire insurance industry within certain regions,’’ the presentation said, which added that its conclusions were "speculative’’and a matter of judgment.

"Who knows if what they’re saying is true?’’ said Phillip Phan, professorof management at the
Johns Hopkins Carey BusinessSchool in Baltimore. "A lot of it sounds like conjecture, that if AIG collapses the rest of the industry will, too. It’s a way of creating acrisis atmosphere and the sense you have to respond quickly.’’

AIG’s latest rescue package includes equity, new credit and lower interestrates on existing loans designed to keep it in business. Federal ReserveChairman Ben S. Bernanke and Treasury Secretary Timothy Geithner have said thegovernment must prop up AIG to avoid damaging the financial system.

Fed spokeswoman Michelle Smith said the central bank "came to its conclusions based on our own analysis." Christina Pretto, an AIG spokeswoman and Isaac Baker of the Treasury didn’t immediately have a comment.

Bailout Beneficiaries

New York Insurance Superintendent Eric Dinallo said at a March 5 hearing he’dreceived the presentation.

The document doesn’t say which other companies have benefited from AIG’s repeated rescues. Goldman Sachs Group Inc. and Deutsche Bank AG were among atleast two dozen financial institutions that were paid $50 billion from thebailout funds received by AIG, the Wall Street Journal reported, citing aconfidential document and people familiar with the matter whom it didn’tidentify.

Goldman and Deutsche got about $6 billion each between September and December,the Journal said. Merrill Lynch & Co., Societe Generale SA, Morgan Stanley, Royal Bank of Scotland Group Plc and HSBC Holdings Plc were othercounterparties that also received payments, the newspaper said, citing the document.

Taxpayer Wipeout

AIG’s presentation said that without more U.S. help, investment losses wouldmean "AIG will not be able to repay its obligations" and that cash previously provided by the U.S., which controls a 79.9 percent stake in the insurer, could be lost. Chief Executive Officer Edward Liddy, who took over thetop job in September, has vowed that AIG will repay all of its debts to taxpayers.

At AIG itself, failure could have led to dismissals from its workforce of 116,000,the document said. At that level, the staff is unchanged from the end of 2007before AIG’s bailout. The global credit crunch has led to at least 284,000 jobcuts at the rest of the world’s financial companies, according to Bloomberg data.

The insurer’s first bailout package, crafted last September, later grew to $150 billion. After failing to sell enough subsidiaries to repay the government, AIGhad to turn to
U.S. taxpayers again. The company may need more support if financial markets don’t improve, the Treasury and Federal Reserve said last week in a joint statement.


Our team sees it this way…

Isn’t this expected? Now AIG threatens the world! Either pay them more or else! What a bunch of crooks! I say let’s cut our losses and demand immediate payment of all loans! They gambled and lost on their derivative bets and expect us to pay for their losses.”

 Yeah, that worked out great.  This is completely without precedent.  The government’s takeover of whole companies is totally outside the bounds of the Constitution.  Remember we essentially OWN them.  What is the difference between that and the Communist Soviet Union?  Nothing.

Now the President wants to add another government program:

“Obama’s Health Plan Challengedby Senate Budget Chief (Update1) By Aliza Marcus

March 12 (Bloomberg) -- President Barack Obama’s proposal for spending $634 billion on revamping care threatens to expand a “bloated” system, the chairman of the Senate Budget Committeesaid.

“This is an area that gives many of us great pause, because we are already spending one in every six dollars in this economy on health care,” Senator KentConrad, the committee chairman and a North Dakota Democrat, said today at a hearing today of his committee.

Obama presented a budget plan to Congress last month seeking $634 billionover 10 years to begin to provide everyone in the U.S.affordable health coverage. Republican lawmakers have attacked the proposal foradding money to an already-costly medical system just as the trying to pull itself out of a recession. Conrad made clear Democrats sharethe concerns.

“We’ve already got a bloated system,” Conrad said at today’s hearing, where Treasury Secretary TimothyGeithnertestified about the administration’s spending blueprint for U.S.departments and agencies.

Obama has said that covering everyone and bringing down medical costs arenecessary to strengthen the economy. He also has said more money will be neededto finish the job, leaving the specific changes to Congress. Health economists estimate the cost of covering everyone in the U.S.would be at least $1 trillion over 10 years.

‘Exploding’ Cost

“You’re exploding the size of health-care spending, on top of thehealth-care spending which already exceeds any other industrialized country in the world by about 5 percent,” said Senator JuddGreggof New Hampshire, the ranking Republican on the committee. “There’s no discipline there.”

Money to revamp the health system could come from savings by using electronic health records and boosting quality of care, Obama said during hiscampaign.

This got a boost in the stimulus package, which the president signed Feb.17. The measure allocated $20 billion to encourage adoption of computerized records and gave $1 billion to research the comparative effectiveness of medical treatments. Both may save money later on, according to the Congressional Budget Office, an arm of Congress.

About 30 percent of the $2.5 trillion the projected to spend on health care this year may be “wasted” because of unneeded treatments, White House budget director PeterOrszagtold the Senate Finance Committee on March 10.

Health-care costs and practices can vary wildly across the country and more care isn’t always better, according to the Dartmouth Institute for HealthPolicy and Clinical Practice, part of DartmouthCollege, in Hanover,New Hampshire, whose Dartmouth Atlas projectstudies this.

“We know there is room for dramatic savings, and still have quality health-care outcomes,” Conrad said.”

This spending of money we don’t have is just idiotic.  We are broke already and people want to add programs?  Is common sense gone?  Is simple arithmetic beyond their grasp?  We can’t continue on this path of Papa Government taking care of all our needs. 
Now factor this little tidbit in from GATA:
Income tax payments, withholdings, way off

Just out this morning:

February 2009 (in millions)br> Federal Individual Income Tax payments: 8717 vs. 24400, off 64% year over year;
Federal Individual Income Tax withholdings: 74704 vs. 88646, off 16% year over year.

Bill: This is an unmitigated disaster. Income tax revenue to the Federal Government is collapsing. The budget deficit is going to continue to accelerate to the upside. The two trillion dollar shortfall that President Obama’s economic team says we will have for 2009 looks like a fantasy now.

Tax revenues are collapsing. That's just what we need.  Deficits will now explode.  We are raising taxes during a recession/depression and that will only make things much worse.  Couple that with a growing trend of increased government employment and the system is approaching unsustainability. This chart from



Now this chart stops at 2006 and I can assure you that an updated graph today would show a line shooting to the moon as the only category of labor that has been increasing over the past year is government employment.  Add in jobs that aren’t directly government, but in all reality are government, such as Beltway contractors and this number is much higher.  In fact, it is estimated that here are only 100 million NON government paid workers in the United States. If this is close than the 5 trillion dollars of excess spending that Obama is proposing would be $50,000 for each one of those tax payers.  Remember, if you work or are paid by the government, like me, you are technically a liability.  You don’t contribute ANY taxes to the system because any taxes you “paid” came from other tax payers. 

Continuing with the nanny nation idea, Obama is proposing to cover all Americans with some type of health care. This is completely the wrong way to go about this.  First the only other government run medical program, Medicare, is a complete fiscal disaster.  In fact most government agencies turn into huge inefficient bureaucracies.  Maybe this one will buck the trend but call me skeptical.  I think it will probably end up something like this:



The caption is missing from the photo: “What with budget over runs and deficits I can only see one solution.  We’re going to have to lay off Andre.”

Government is just not constructed to be efficient.  Congress is SET UP to be inefficient so crazy ideas and bills are harder to get passed. Obama has also reversed many of Clinton’s welfare reforms which will only increase that segment of dependents.  You can’t reward bad behavior.  People do what you reward, it’s that simple.  The mortgage bailout provisions of the budget actually pay someone $1,000 just for paying the new lower rate mortgage for 12 months!  Why does someone who screwed up and bought too big a house get paid to pay his obligations?  Oh, and he can get the $1,000 for up to 5years.  That is asinine.  Where is the reward for thrift and doing the right thing?  In a nanny nation, none of that matters.  Politicians just want to create more voters who depend on them so they get reelected. 

A few words on the stock market and economy. First look at this chart from contrary investor:

Now CFOs are the chief financial officers of companies.  They handle the finances and are probably even more aware than the CEO of the condition of the company.  We are going no where as an economy until these guys see some positive signs and right now we are at the bottom.  As you can see stocks pretty much follow this outlook.  Caution is still warranted in the stock market.  We could see a bump though and I will let you know if I get back in.

Here’s a chart I’ve been looking for all year:


 The black line shows stock returns with reinvested dividends.  The blue line shows stock returns without dividends.  If you look close you will see that without dividends stock investors haven’t made any money in the market since1960. That is without dividends, but still a remarkable story.  I guess the long run can be VERRRRRRRRRRRY LOOOOOOOONNNNG.  LOL.

I’ll close with a picture that perfectly exemplifies the average American and their interest in knowing the truth:

If things get bad enough this will change, but I don’t see the balance tipping yet.  Hopefully it won’t have to get too bad before the American spirit is once again awakened from its apathetic slumber.  Have a great week!