The housing crisis in terms even a Harvard grad can understand

And in terms that Jeff Foxworthy might understand.

If you can't make the mortgage payment on your house, you just may be trailer park trash.

Exponential

As seen at NEI Nuclear Notes.



Obviously missing from the presentation is the rate of increase of debt under a Democratic administration.

Throw the challenge flag

Time out Nancy, Harry, and Barack. Go to your rooms. Now think hard about paying for your past excesses. Don't come back out until you've come up with a plan for a solution. And don't even think about buying more goodies for your friends.

It is not just Prime Minister Limbaugh and other conservative commentators who are critical of the Democrats' pork filled "stimulus" bill. The Chinese are starting to balk at buying our debt, and now the international community has checked in from Davos (this from Charlie Sykes).

The rest of the world is starting to wonder. Interesting that the Times didn't run stories like this BEFORE the House vote.

DAVOS, Switzerland — Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all.

Few people attending the World Economic Forum question the need to kick-start America’s economy, the world’s largest, with a package that could reach $1 trillion over two years. But the long-term fallout from increased borrowing by the federal government, and its potential to drive up inflation and interest rates around the world, seems to getting more attention here than in Washington.

As someone who is more conservative with my finances that I am politically (yes, really), this troubles me. I intend to leave my children and grandchildren with some sort of nest egg, even if this means working until I die.

But our national leaders have no sense of fiscal discipline. Here we are in a time when federal and state budgets are grossly out of balance and we also owe massive debt. Yet, instead of reducing expenditures and raising revenues to pay off old bills, they have gone on a wild new spending spree.

The Republicans are not much better. Although past experience has shown that lower tax rates will increase taxes collected, I think everyone in government needs to step back, get it's own house in order and let the rest of the nation sort itself out.

My real issue with the current U.S. economy is that a nation cannot pay its way out of debt by creating valueless goods and services. Entrepreneurs should not be rewarded for creating useless stuff like Starbucks, subprime mortgages, web ads and "alternative" energy. Likewise, government should not be throwing money to promote these products; or at arts giveaways, condoms, and other unneeded pork.

We need to get back to producing good and services that are of value and that are in demand by other nations. To achieve this, the following will help.

• Develop, utilize and export the vast natural resources of the United States.
• Take the onerous restrictions off of U.S. manufacturing. Tightening environmental restrictions on U.S. industry results in an overall dirtier planet. The Obama administration's Out of sight, out of mind environmental policies are a planetary disaster.
• Stop wasting grain to make inferior biofuels for U.S. consumption and export this grain as food instead. Food is more valuable than fuel.
  
• Greenhouse gases - don't make me laugh.
  

We can't spend, tax or regulate our way out of this financial mess. We need to innovate and produce more to become more prosperous. Only this will solve our underlying fiscal problems.

McMahon Today

I've already implemented the suggested strategy. Forget retirement, spend it now!

Parts of the economy don't suck

IBD tells us that some sources of power are just more farts in the wind.

The domestic auto industry isn't the only uncompetitive industry that seems to require life-sustaining transfusions of government cash to stay in business. Alternative energy sources have relied on such subsidies, called "investments," for years.

Yet in President-elect Obama's announcement of his energy team, we were told "the foundations of our energy independence" lie in "the power of wind and solar." Except that for these alternative sources there's been a severe power shortage.

After decades of tax credits and subsidies, wind provides only about 1% of our electricity. By comparison, coal provides 49%, natural gas 22%, nuclear power 19% and hydroelectric 7%.

Wind power is currently uncompetitive. As the Atlanta Journal-Constitution reported recently: "In 1999, 2001 and 2003, when Congress temporarily killed the credits, the number of new turbines dropped dramatically." These subsidies will be renewed in the new administration, but to "invest" in wind and solar to replace fossil fuels will be expensive.

IBD continues.

Meanwhile, nuclear power is making a comeback despite regulatory and environmental roadblocks, and little federal help. It is spending its own money to invest in clean energy for the future.

The hysteria after Three Mile Island, where no one suffered any harm, shut down the American nuclear power industry and caused our nuclear manufacturing base to atrophy. The overhyped event at Chernobyl was more an indictment of Russian technology than of nuclear power. Yet the damage was done.

Until recently, there was no domestic capacity to manufacture the huge components needed to build nuclear reactors. Global nuclear giant Areva and Northrop Grumman Shipbuilding are partnering to start building heavy nuclear components. The U.S. had very little enrichment capacity. Now, two new facilities are under construction, with two more planned.

"While visions of 'green jobs' dance in the heads of Washington bureaucrats," notes Jack Spencer of the Heritage Foundation. "The nuclear industry is creating thousands of high-skill, high-paying jobs."

Westinghouse, for one example, has already created more than 3,000 jobs and expects to add 2,900 for a development in Louisiana that will be used to construct modules for new nuclear plants.

Each new reactor will employ 1,400 to 1,800 people during construction, rising to as high as 2,400 jobs as the facility is built. During operation, a nuclear plant typically has a skilled work force of between 400 and 700 employees.

Business has never been better for engineering consulting in the nuclear industry. More work is available than we can handle and we will post a record profit in 2008. By a factor of three!

All of this with construction of the next generation of reactors still years away.

Let the good times roll.

Thank you Nobel Laureate Gore.

Barack Obama - Economic Ignoramus

In contemplating Barack Obama's possible actions to address the economy there is one thing that he could immediately do to reassure and strengthen our financial markets. If he made a statement that the Obama Administration will make the 2001 and 2003 tax cuts permanent, it would provide significant economic stimulus. Tom Blumer wrote on the matter of Obama making the tax cuts permanent and abandoning his plans to destroy domestic oil production.

If Obama doesn’t currently signal and then carry through on forgetting about his punitive tax plans and/or foolishly locks up fuel resources, the fuel-price stimulus just noted will go away. Any other so-called stimulus coming out of Washington won’t be of much ongoing value to the long-term health of the overall economy. If fuel prices will head back up, or if Obama’s campaign tax promises are carried out, businessmen and entrepreneurs will continue to play it close to the vest by avoiding hiring and capital investment.

The new president and his party have worked tirelessly to talk down, and take down, the economy for years. They finally succeeded doing so sometime in June, creating the current POR (Pelosi-Obama-Reid) Economy — soon to be known, barring an unlikely fourth quarter turnaround, as the Pelosi-Obama-Reid Recession. Unlike them, I want the US to prosper no matter who’s in charge. Following the suggestions just outlined will bring prosperity back.

I believe, however, that Obama will continue with his plans to further manipulate the tax code to achieve his idea of redistributive tax nirvana. It is telling to watch Obama respond to Charlie Gibson after Gibson carefully explains how our economy previously responded to reduced capital gains tax rates by collecting a greater amount of total taxes.



Obama does not even acknowledge what Gibson explained for almost one minute. He instead goes directly to talking about fairness, punitive measures against hedge fund managers, and how he needs to raise capital gains tax rates to finance health care and other giveaways. Gibson and the compliant media never challenged Obama on this change of subject or pointed out his economic ignorance. It is crystal clear that Mr. Obama does not understand basic economic theory or the demonstrated effect of the Laffer Curve for over a quarter century.

This was not an isolated incident, as Obama reinforces the fact that he is economically ignorant in the famous dialog with Joe the Plumber.



"Spread the wealth around" is his response to Joe, showing that he believes that economics is a zero-sum game. He thinks he can simply take "wealth" (actually meaning income) from those earning more and give it to those earning little or nothing without affecting the economy or reducing the overall amount of taxes collected. For our next President, it is all about punishing those that do well and rewarding those who do not try.

The question that should have been asked by Charlie or by Joe was, "Mr. Obama, it has been repeatedly demonstrated that when taxes are raised on the affluent, not only do they end up with less money, but the government also receives less taxes to spread to the needy and the number of needy also increases. With these facts in mind, how is raising taxes on the affluent fair to anyone?"

This type of economic ignorance is not unusual for many who major in the arts or letters when in college. These individuals gravitate to these soft majors in part because they have little or no aptitude for math and science. Obama fits this profile, which could be one more reason he will not release his college transcripts. More evidence ...



This Obama gaffe was blamed on ad libbing or poor preparation. But I think his staff prepared him well with this talking point, but his brain could not process math and economics which led to his awful verbal stumble.

I worry that despite have a large group of informed economic advisers, many coming from Bill Clinton's pro-growth administration, Barack Obama will be unable to mentally process their arguments. He will govern based on his feelings, which may be appropriate for preschoolers, but is dangerous for an adult in the office of the President.

Viral email

My wife received this from her (former Obama supporting) girlfriend.

Today on my way to lunch I passed a homeless guy with a sign that read "Vote Obama, I need the money." I laughed.

Once in the restaurant my server had on a "Obama 08" tie, again I laughed as he had given away his political preference--just imagine the coincidence.

When the bill came I decided not to tip the server and explained to him that I was exploring the Obama redistribution of wealth concept. He stood there in disbelief while I told him that I was going to redistribute his tip to someone who I deemed more in need--the homeless guy outside. The server angrily stormed from my sight.

I went outside, gave the homeless guy $10 and told him to thank the server inside as I've decided he could use the money more. The homeless guy was grateful.

At the end of my rather unscientific redistribution experiment I realized the homeless guy was grateful for the money he did not earn, but the waiter was pretty angry that I gave away the money he did earn even though the actual recipient needed money more.

I guess redistribution of wealth is an easier thing to swallow in concept than in practical application.

Frankly, I am tempted to try something similar if Milwaukee County approves their increased sales tax.

Since the only thing I buy in Milwaukee versus surrounding counties is restaurant food, I have some control of the situation. I will just deduct the extra 1% sales tax from the tip I leave my server. I end up spending no more than I would now, the server has no idea that I shorted her or him, and Milwaukee County collects the extra 1% sales tax.

I call that a WIN - WIN - WIN.

$2.50/gallon gas - Updated

Was I dreaming when I heard Neil Cavuto verbally sparring with a DNC spokes-ditz on Friday about a Democrat plan to reduce the price of gas?

Their plan is to reduce the price of gasoline by mandating it sell for no more than $2.50 per gallon.

The closest I could find about this is Cavuto's commentary.

UPDATE: Mrs. Headless found my answer.

With gas prices hitting new record highs nearly every day, Congressman Maurice Hinchey says its time for the federal government to step in and get prices back under control.

At a Binghamton gas station Thursday, Hinchey discussed several proposals to combat the problem. One bill Hinchey is working on would give the president the authority to set a temporary cap on gas prices at $2.49 a gallon, a big reduction from the current national average of $3.95. Hinchey says oil companies are already making such high profits that they could easily deal with the reduction.

"We're going to be introducing legislation over the course of the next couple of weeks in the Congress to give the president the right to step forward and say wait a minute, Mr. Oil Companies, your profits are too high, you're exploiting the people of this country too much, we're going to allow you to continue to make profits but we're going to stop the increase in those profits and put a cap on the price of gasoline," said Hinchey.

Brilliant. Absolutely brilliant, I say. Why don't the Republicans have leaders with this kind of economic gravitas?

But why stop there? I liked gas prices during the Clinton administration even better. We need to mandate a maximum gas price of 90 cents per gallon. Go for it, Congressman Hinchey.

Not feeling stimulated - Updated

DIRECT DEPOSIT

Last two SSN digits:	Payments will be transmitted no later than (and received by the end of the day of):
00 through 20	May 2
21 through 75	May 9
76 through 99	May 16

According to this schedule, I should have been stimulated on May 9. Nothing yet. The online calculator says that I have money coming to me.

Maybe they'll mail me a check by June 27.

UPDATE: I screwed myself. I had my tax refund split between two accounts, which means I get the stimulus payment as a check, not a direct deposit. That means a wait of over 1-1/2 months longer.

The market responds

This is bad news for Wisconsin's economy, but a good sign for motor fuel consumers.

More than 750 workers at the General Motors sport utility vehicle factory in Janesville are expected to lose their jobs when the nation's largest carmaker eliminates one of its two shifts in July.

The cuts represent the most dramatic impact yet of record-high oil and gasoline prices on Wisconsin's economy.

The factory is one of four GM plants that will see jobs cut. The automaker says it has far too much production capacity compared with customer demand for large SUVs and pickup trucks.

"The market has dramatically softened in our large SUV and full-size pickup truck segments," GM spokesman Chris Lee said. "That's basically why we made the call."

This downturn in sales of gas guzzlers is evidence that the market is responding to $3+ gasoline prices. Reduced demand will follow, leading to lower, or at least slower growing, gas prices.

Ken Hendricks - Create Jobs, Eliminate Waste, Preserve Value

I had never heard of Ken Hendricks before the announcement of his death on Friday.

"Two point six billion," says Hendricks, shaking his head. Then he chuckles. "It's not even real," continues the CEO, chairman, and sole owner of ABC Supply. "The money doesn't mean a damn thing."

Following up on a tip from Belling caller "Brian in New Berlin" I searched out the Inc.com article that accompanied the naming of Mr. Hendricks as Inc.'s 2006 Entrepreneur of the Year. What a contrast to this story.

Bonuses on Wall Street surge 14 percent

NEW YORK (AP) -- This might have been one of Wall Street's most dismal years in a decade, but that hasn't stopped bonus checks from rising an average of 14 percent.

Four of the biggest U.S. investment banks - Goldman Sachs Group Inc., Morgan Stanley, Lehman Brothers Holdings Inc. and Bear Stearns Cos. - will pay out about $49.6 billion in compensation this year. Of that, bonuses are traditionally estimated to represent 60 percent, or almost $30 billion.

But that might not sit well with investors who held on to investment bank stocks this year - and watched them plunge by up to 45 percent. Investment houses have been slammed by the credit crisis, and top executives this past week said they've yet to see a bottom.

It is clear from the Inc.com article that Mr. Hendricks was from the old school of business, the one where people worked for the love of accomplishment, that being reward enough. He was certainly wealthy, but he was not about huge bonuses or selling out for that big payday. He created his wealth as a byproduct of creating jobs for the people he could see that needed them. He didn't pinch pennies to put in his pocket, but to keep his many businesses running to pay his employees.

In Hendricks's worldview there are two unalloyed blessings: family and a good day's work for a good day's pay. "My whole life is about trying to treat the working man fairly and give him a good opportunity," he had said the day before while driving me past the packed parking lot at one of his plants. "If you've got a job you have pride. You can dream. You can go home and talk about your kids going to college."

What a difference from those in the Wall Street bonus article. People who have never put anyone to work, but skim billions off the top of our economy.

This country needs more Ken Hendricks. What a huge loss to his family, his employees, and the Beloit area.

Read the article.

ARM's are good

I just watched Charlie Sykes' Sunday morning show, which included the doughy hack from the Shepard Express vilifying adjustable rate mortgages and suggesting that they be eliminated. What a financial moron.

I had an ARM for the 2nd half 1990's and held it until the summer of 2005. During that time, I took advantage of declining interest rates, with my adjusted mortgage rate falling below 3% for some years. It was a beautiful thing.

When mortgage rates began to turn around, I locked a fixed rate mortgage at less than 5%, another beautiful thing.

Anyone financially ignorant enough to choose an ARM at a time of historically low fixed rate mortgages deserves what they got. They do not deserve to keep that home that they cannot afford.

Do I smell a class action?

Risk and reward go hand in hand.

That is the one lesson that anyone enrolled in Mr. O'Meara's Security Analysis class will never forget. If you desire a larger return on your investment, you must make a riskier investment. Likewise, if you desire a larger home than you can afford, you must take a riskier mortgage. But federal officials have taken action to rewrite this equation; reducing the risk for adjustable rate mortgage holders by reducing the reward to the lenders for those mortgage loans.

The Bush administration reached an agreement with the mortgage industry on Wednesday on a plan to freeze interest rates for up to five years for a portion of the two million homeowners who bought houses in the last few years with subprime loans.

The plan, hammered out after weeks of talks among Treasury Department officials, mortgage lenders and Wall Street firms, would allow distressed borrowers who are current on their payments to keep their low introductory rates and escape an increase of 30 percent or more in their monthly payments when the rates expire.

So reports the NY Times. Captain Morrison opines.

Thus endeth the free market. A free market doesn't just involve consumers, but also producers, who need to earn a competitive profit in order to stay viable and continue to produce. Lenders sell ARMs with an eye to long-term profits by offering very thin margins for themselves on the front end. If they cannot adjust the rates of these ARMs on schedule when the price of money rises, then they lose the profit on which they have planned.

What does that do to the market? The producers -- lenders, in this case -- have to either raise prices or restrict production. In this market, it means that credit tightens and people who may have been able to get home loans will get rejected instead. ARMs will almost certainly decrease, if not disappear altogether. Some may find that appealing -- but it will exclude many potential homebuyers from entering the market. That will increase the downward pressure on home valuations, already a major problem in this economy.

I might be wrong, but it was my understanding that Wall Street doesn't own these mortgages, they sell these mortgages. Sell them to investors like you and me.

I own a variety of mortgage securities by way of mutual funds, and I expect that my portfolio includes some of these subprime loans. I do not agree that the agreed-upon interest rates in these mortgage contracts should be ignored and forgiven for the next 5 years. The highly-paid professionals that I pay to manage these investments were the one's who made that decision.

By agreeing to freeze interest rates on my mortgage loan investments, my investment managers have violated their fiduciary duty to their investors. I will not be the only one to notice this. There are also legal experts on Wall Street who make a living on the misdeeds of investment managers.

Is this good news? - Updated

Assets in college savings plans grow 2.1%

Assets in Wisconsin's state-sponsored college saving programs grew 2.1% in the third quarter to stand at $2.195 billion, according to data from the State Treasurer's office. Of that total, $1.229 billion was in 138,790 EdVest accounts with the rest in 90,583 Tomorrow's Scholar accounts. (By Avrum D. Lank)

First, I do hope that our Treasurer is as good with the balance sheets of billion dollar education investments as she was with balancing her Boston Store cash drawer each night.

Now just for fun, let me do some cyphering. 2.1% in the 3rd quarter is around 8-1/2% growth in a year. Not a bad return for these conservative investments. That may just keep enough ahead of inflation for these families to have substantial nest eggs when junior heads off to college ...........

Er, sratch that.

Data point #1: UW-Madison 2006-2007 Tuition $6,730.24

Data point #2: UW-Madison 2007-2008 Tuition $7,188.40

A tuition increase of 6.8%, yields a net educational investment gain of about 1.7%. It also seems that 2007 has been a very good year for investments (my 401(k) sure thinks so!). So when I throw in some average years and some bad years with this good year, these educational investment programs may barely keep up with the exponential cost of a college education in Wisconsin.

My advise to these families: Potawotami Bingo Casino. Your chances of successfully funding that education are about the same, but you can have a lot of fun with the Potowatomi's.

Can someone tell me again why UW costs went up 7% since last year?

Disclaimer: I'm just an engineer with a MBA, so take these results with a grain of salt.

Update: Dang, I am good. Those tuition numbers are for my daughter. I didn't realize that JSOnline had an article on rising in-state tuition running on the same webpage as Mr. Lank's piece on the savings programs.

Over the past decade, however, Wisconsin's public-school tuition - not including fees - has more than doubled for in-state undergraduates, including those attending the state's two-year colleges.

Between 1997-'98 and this year, annual tuition rose from $2,860 to $6,330 at the University of Wisconsin-Madison and from $2,847 to $6,191 at UW-Milwaukee.

Tuition at the state's four-year universities not including Madison and Milwaukee rose on average from $2,312 to $4,819.

Late Homework

I crunched these numbers last October, but I never bothered to blog them. I had my memory jogged by this Charlie Sykes podcast on the consequences of the Wisconsin Supreme Court race on the business climate in the state. I believe this information is still relevant and is still disturbing.

In June 2006, Sykes wrote about business expansion data published by Site Selection magazine comparing business expansions in Wisconsin with four neighboring states.

Last year, there were 55 announcements of new manufacturing plants in Illinois; there were 72 in Michigan, 35 in Minnesota, and 34 in Iowa.

In Wisconsin, there was a grand total of five.

According to a report for Competitive Wisconsin released last month, Wisconsin lagged behind the rest of the Midwest across the board.

In 2005, there were 75 announcements by companies that they were expanding their manufacturing operations in Illinois; 180 expansions announced in Michigan, 36 in Minnesota, and 64 in Iowa.

In Wisconsin? Six.

It actually gets worse. When announcements of other business investments and expansions are also included, Illinois saw 510 announcements of business expansion; Michigan 505; Minnesota 176, Iowa 135, and Wisconsin…a mere 15.

What’s wrong with this picture?

The answer is that more is wrong than Sykes thinks.

The raw data from Site Selection fails to tell the whole story. To do that, the data needs to be normalized by population to better compare the performance of large states like Illinois, with smaller states such as Iowa; and the 2005 numbers needs to be separated from 2003 & 2004. The results look like this.

When the data is processed, it shows that Wisconsin lagged it's neighboring states in business announcements in 2003 and 2004, with only about half the number of the four state average and about two-thirds of the next worst state.

But in 2005, the wheels fell off for Wisconsin business. While the neighboring states showed modest growth for both the average, plus 6%, and worst case, plus 9%; Wisconsin had a 90% reduction of business announcements. Wisconsin went from 56% of the four state growth average to 6% of that average in just one year.

What changed? We are much the same tax hell and have the same regulatory and environmental disincentives for business expansions as before. The difference is the Wisconsin Supreme Court's rulings lifting liability limits and lowering the bar to prove liability.

In siting a new or expanding business, the risks and consequences of being sued apparently do matter.

Bipartisan solution to Social Security reform

Last night at Boots and Sabers, Owen pointed out this post by WILLisms showing the performance of a theoretical personal account had Congress reformed Social Security in 2005. Owen's conclusion:

Note: This is a bipartisan failure. Neither party has done squat about it.

But there was a bipartisan solution in 2005. Being an email hoarder, I never deleted the email exchange that hammered out the agreement.

The solution was developed in the course of four hours between me and my leftie friend. My leftie friend's credentials:

• Has aways voted Democratic
• Union member
• State government employee
• Works in Madison
• Adores Jim Doyle

I could go on. Here is the historic exchange.

-----Original Message-----
From: Headless Blogger
Sent: Tuesday, February 22, 2005 8:56 AM
To: Leftie Friend; Innocent Bystander
Subject: A different way to look at things

A couple observations from Thomas Sowell:

"Raising Social Security taxes today will not leave a dime more to pay pensions to future retirees. Right now there is more money coming into the system than is going out -- and the difference gets spent on other things. Higher taxes now would mean a bigger excess to be spent on other things, leaving nothing more for the future."·

"People who oppose the privatization of Social Security call it "a risky scheme." But is anything more risky than turning money over to politicians and hoping that they won't spend it before you retire? They have been spending the "trust fund" for decades."

-----Original Message-----
From: Leftie Friend
Sent: Tuesday, February 22, 2005 9:04 AM
To: Headless Blogger; Innocent Bystander
Subject: RE: A different way to look at things

He's right in many ways. What they should do is stop raiding it and then use professional investment boards to invest a portion of the total fund not on an individual basis but as a whole. Just like many states do with their pension funds i.e. Wisconsin State Investment Board. That would address all of the concerns about the personal accounts.

-----Original Message-----
From: HB
Sent: Tuesday, February 22, 2005 9:40 AM
To: LF; IB
Subject: RE: A different way to look at things

Your idea would be a good start (I still believe that higher SS taxes and lower payouts to rich guys --- like you & me --- are inevitably needed to balance things), but then someone will raise the concern about the government investing in private markets and disrupting market forces. The Trust Fund could be turned over to private investment firms to get around that. Someone else could also claim that it is still "a risky scheme."

I agree that your plan does the same as the private accounts, but the private accounts make future raises in SS taxes an easier sell to the public.

Your plan also requires a change in the law that requires all excess SS funds to be "invested" in Gov't securities (i.e., spent now on other things). This may be Al Gore's Lock Box idea, if so, he did a lousy job of selling it.

-----Original Message-----
From: LF
Sent: Tuesday, February 22, 2005 9:53 AM
To: HB; IB
Subject: RE: A different way to look at things

I think it was Al's idea. Like most Democrats, he's a poor salesman. I think it has to be a government investment board with GAO/DOJ oversight, too much chance of abuse otherwise.

-----Original Message-----
From: HB
Sent: Tuesday, February 22, 2005 10:34 AM
To: LF; IB
Subject: RE: A different way to look at things

The oversight is not a big deal, they can just do it like they do with the current Federal retirement program (their version of the 401(k)).

Re: Al being a salesman --- it is a lot easier to sell "Private Accounts" than a "Government Controlled Lock Box" to the majority of Americans (51% to 48% when we last checked in November 2004).

Another point, regarding Privatization (or your Gov't controlled account - let's call it the "Investment Option"): Since (by law) the "SS Trust Fund" is comprised solely of US government securities, the "Trust Fund" is nothing but a promise made by the government to tax future taxpayers. These taxes will be used to pay back the moneys (with interest) which were collected from current taxes to pay future retirement benefits (& spent by Washington on other things). The Investment Option removes these funds from use by the government for pork and other spending (name your own pet peeve here) and forces Congress to raise current taxes if they want to maintain their current levels of spending.

-----Original Message-----
From: LF
Sent: Tuesday, February 22, 2005 10:54 AM
To: HB; IB
Subject: RE: A different way to look at things

You got it. This is just another way to shrink the federal budget or balloon the deficit.

-----Original Message-----
From: HB
Sent: Tuesday, February 22, 2005 11:09 AM
To: LF; IBSubject:
RE: A different way to look at things

Are we agreeing?

Seriously, if "WE" can agree on this, we might have come up with a way to sell it to both Congress and the Prez. I think our only disagreement is whether there are to be Private or Government accounts. Is this something that could be left as a choice to each citizen (you are pro-choice!)?

They could choose from A, B or C:

A) Remain in current SS system (for codgers like the Innocent Bystander)
B) Join government controlled investment system (for the risk-adverse)
C) Establish Private SS Retirement Account (for gamblers)

I'll forward this thread to Paul Ryan.

-----Original Message-----
From: LF
Sent: Tuesday, February 22, 2005 11:38 AM
To: HB; IB
Subject: RE: A different way to look at things

I think option B is the only choice so the system is even for everyone and more importantly to minimize future law suits. Include all of the Senators/Representatives.

-----Original Message-----
From: HB
Sent: Tuesday, February 22, 2005 12:11 PM
To: LF; IB
Subject: RE: A different way to look at things

I think I see your point, but we have to get away from the current system of benefits, because a Ponzi Scheme cannot be indefinitely self-sustaining.

How about a government controlled investment fund, with two options?

A) Current defined benefit plan for codgers (with a means test and increased taxation).
B) A defined contribution plan for younger workers, with asset ownership by the worker of their portion of the government fund.

-----Original Message-----
From: LF
Sent: Tuesday, February 22, 2005 12:59 PM
To: HB; IB
Subject: RE: A different way to look at things

Sounds reasonable. My state pension is similar to choice B. I have two fund choices to put it in, a fixed rate fund (The ten-year (compounded) average annual Fixed Trust Fund effective rate is 11.3%) or a variable rate fund (The ten-year (compounded) average annual Variable Trust Fund effective rate is 10.7%). For 2004, the fixed effective rate is 8.5% and the variable effective rate is 12%. These returns are after management fees are taken out. I do 50% for both for investment diversity reasons. Not the greatest returns, but very consistent over the long term.

-----End of Email Thread-----


I forgot to forward the thread to Congressman Ryan. It is my fault this solution was never implemented.

Time to take away the credit cards

The Journal Sentinel reports today that Wisconsin is out of control financially.

The state's financial books show that Wisconsin ended the last fiscal year with a $2.15 billion deficit, under accounting principles that are standard for private companies, according to a report that the Wisconsin Taxpayers Alliance released Friday.

Alliance President Todd Berry said the report represented a truer picture of state finances than what was shown with the method mandated under the state constitution and favored by elected officials for years. Using the state's measure, Wisconsin posted a $49.2 million balance for the fiscal year that ended on June 30.

"It's safe to say we're in the worst financial position of any state in the country," Berry said.

As much as I dislike the thought of additional taxes to try to pay this off, it is inevitable. With the governor and legislators that were just elected, the next two years will be open season for tax increases in Wisconsin.

But can't they at least try to keep it from getting worse? Some basic financial planning advise should be heeded before any taxing authority in Wisconsin applies for another proverbial credit card. Do not get locked into additional spending until you pay off your current liabilities.

Wisconsin is not in adequate financial condition to begin another spending spree.

Is gas tax indexing needed in Wisconsin?
A flagrant act of something

According to Wisconsin’s DOT, motor fuel tax indexing is needed because (my emphasis added):

Indexing inflation-proofs Wisconsin's gas tax

• The largest source of revenue for the Transportation Fund is the state gas tax.
• Unlike sales tax and income tax revenues, which both go into the General Fund, there is no natural growth in state gas tax revenue.
  o The flat “per gallon” rate does not change, even as the price of gasoline rises.
• To help transportation revenue grow with the economy, the Legislature created an annual indexing adjustment beginning in 1985.
• Indexing originally called for the state gas tax to be adjusted annually on April 1 based on inflation and overall fuel consumption.
  o In 1997, the Legislature removed the consumption factor.
• Indexing is now based on changes in the Consumer Price Index.
  o Sometimes indexing can result in an adjustment downward, which leads to a reduction in the state gas tax. This occurred in 1989 and 1994.
  o While indexing usually increases the gas tax rate slightly, the difference is minor when compared to frequent price jumps at the gas pump.

I had my doubts about "no index = no tax growth." I know for a fact that since 1985: I am driving more; I have more drivers in my household; I am driving less efficient vehicles (I sure miss that Renault Encore); and I’m driving faster, hence burning even more fuel. I am fairly certain that the same holds true for the majority of Americans, and made the following statement before any research:

I think the automatic rate increase is only a small piece of the equation, because more drivers are driving more miles in less efficient vehicles. I am confident that the amount of taxes collected has increased dramatically more than the gas tax indexing would indicate. I also suspect that these numbers are kept hidden to suppress an even larger taxpayer revolt.

A look at the facts. According to DOT (see Table 1 on page 2), total motor fuel tax revenues were $528 Million in 1990 and the motor fuel tax was adjusted to $0.215/gallon on April 1 of that year. They also say that in 2005, the motor fuel tax was adjusted to $0.299/gallon. That is a large increase (39.1%), and has resulted in an additional $206M in revenues for 2005 versus 1990, for a total of $735M. I will admit that this is not unreasonable, an increase of about 40% is needed to “help transportation revenue grow with the economy” especially since “there is no natural growth in state gas tax revenue.”

A look at the rest of the facts. Looking further, I find DOT stating that revenues for 2005 are $984M, not the $735M I computed. Where did that additional $250M come from? Perhaps the result of “more drivers are driving more miles in less efficient vehicles.”

THE BIG LIE. DOT says that there is no natural growth in state gas tax revenue. This is not spin, it is contrary to their own facts. DOT’s data show that motor fuel revenues would have grown from $528M in 1990 to $778M in 2005 without any indexing of motor fuel taxes. That is an increase of 47.3%. This increase due to natural growth is more than the increase of motor fuel tax revenues due to indexing and greater than the rate of inflation. DOT hid this fact and misled the public in their 2005 Press Release, even with 20 years of their own tax collection data available.

We’ve been duped and lied to. I expect better from my public servants (yes, even Jim Doyle and his administration). Here’s my other idea from yesterday:

Here's a crazy proposal, index gas taxes collected to inflation. If state collections increase faster than inflation, reduce the gas tax for the following year. Watch the roadbuilders and their legislative whores gag on that one.

After reviewing the data, that proposal is overly conservative. I've revised it to something more reasonable:

The motor fuel tax shall be rolled back to a level such that total tax revenues for 2005 will equate to an increase of 39.1% over 1990 revenues.

By my computations, a decrease in the fuel tax from $0.299 to $0.178 per gallon will accomplish this.

Let the revolt begin.