Posted by Michael A. Kamperman on July 24, 2011
America has long been known as a two party democracy. Sometimes we have one party rule, but most of the time we have divided government like we do today. The debt limit debate has revealed this is no longer the case. We are now much more like a country with a parliamentary system where no one party of like minded politicians has a majority. These countries are ruled by coalitions usually unable to make difficult decisions unless absolutely forced to. Sound familiar? The rise of the Tea Party has moved the hard-libetarian-right from a small minority of the Republican Congressional Caucus to a large voting block with power. The Speaker cannot deliver his party without consent of this block. This has been the case for some time in the Democratic Congressional Caucus with the Progressive Coalition. Those not part of these two voting blocks are the moderates, some of which used to be considered as fairly liberal or fairly conservative, but those goal posts have now moved much farther from the center. What the debt-ceiling debate has revealed is the Republicans cannot deliver many votes unless spending cuts are large and revenue increases are minimal, even then they will lose a large chunk of the true Tea Partiers. However, the Democrats cannot deliver many votes to signficantly cut spending unless taxes are raised on the rich, and even then they will lose a large chunk of Progressives. So any “Grand Bargain” will need to come with votes from the middle and there are no longer enough people in the House of Representatives in the middle. The Tea Partiers and the Progressives together outnumber them. So any deal can no longer be “bi-partisan,” which is some for me and some for you. Any deal has to be tilted substantially to either the right of the left. With divided government that his a hard place to get to. So we now have a fractured government led by a President who doesn’t seem to have the skills to navigate such trecherous yet delicate terrain.
Of course no change is much better than the changes the two parties are negotiating. Raising taxes cuts jobs. Cutting spending cuts jobs. And, cutting jobs is the worst policies that can be passed in a middle of a jobs crisis. But in a weird twist no deal would shut down large segments of the government and crash the global economy. So a bad deal is better than no deal. It just goes to show how far we are from actually putting Humpty Dumpty back together again after the economy fell 0ff the wall.
What’s actually so silly about the whole debate of spending cuts versus tax increases is that most of the changes will come after 2012. Yet, after the elections of 2012 everything agreed to today can and probably will be changed. So to shut the government down over so little makes no sense. But that’s the rub. The Tea Partiers care more about their issues than common sense. And the Progressives care more about their issues than common sense. Are we really at the point where our government is about to lose touch with reason and common sense? Yes we are. The very fact we are not talking about jobs means Washington has already lost all sense of reason, since that’s the number one issue facing the country. Never mind that the whole debt limit debate is pointless because the U.S. debt is never a threat since we owe everyone dollars and we control the dollar. Stranger still, the only other industrialized nation to even have a debt ceiling is Denmark. We are arguing about something virtually no one else in the world even considers reasonable, which is a debt ceiling itself.
Posted by Michael A. Kamperman on July 12, 2011
http://www.newstalk1230.com/cc-common/mediaplayer/player.html?redir=yes&mps=TheShaneWarnerMorningShow.php&mid=http://a1135.g.akamai.net/f/1135/18227/1h/cchannel.download.akamai.com/18227/podcast/WACO-TX/KWTX-AM/The Shane Warner Morning Show 0714 8am.mp3?CPROG=PCAST&CPROG=RICHMEDIA&MARKET=WACO-TX&NG_FORMAT=&NG_ID=&OR_NEWSFORMAT=&OWNER=&SERVER_NAME=www.newstalk1230.com&SITE_ID=722&STATION_ID=KWTX-AM&TRACK=
I’ll be a guest on Waco News Talk 1230 AM on Thursday, July 14, @ 8 A.M. central time.
http://www.newstalk1230.com/main.html
My Sunday column in the Waco Tribune Herald was featured on the Shane Warner Moring Show on News Talk 1230 A.M. in Waco. The host talks about the article from the 7 to 13 minute mark in the 6 A.M. hour on Tuesday and from the 30 minute mark until the end of the program in the 8 A.M. hour (mislabled Monday).
http://www.newstalk1230.com/cc-common/podcast.html
Posted by Michael A. Kamperman on July 11, 2011
The following post was published in the Waco Tribune Herald on July 10, 2011.
In a Fourth of July guest column published in the Tribune-Herald and elsewhere, McLennan Community College history teacher Ashley Cruseturner suggested a “Grand Bargain” between Republicans and Democrats that would substantially raise taxes and significantly cut spending to bring the federal deficit into eventual balance, thereby preventing continuous increases in the level of federal debt.
At one point, Cruseturner says, “the United States is hurtling towards an unsustainable national debt debacle . . . we face an existential crisis.” Most people believe that this statement represents truth. However, what it actually represents is myth. According to Modern Monetary Theory, a sovereign nation like the United States that issues debt in its own currency can never become insolvent. Simply put, the United States federal government has the authority to print money any time it needs to. It can never run out of dollars.
Many people acknowledge this fact but argue that increasing the debt to “unsustainable” levels will lead to hyper-inflation and a collapse of the dollar against other currencies. They say we will wind up just like Greece. Despite three years in a row of trillion dollar-plus deficits and the Federal Reserve’s quantitative easing programs, these predictions have yet to become reality.
Unlike our country, Greece does not control its own currency because it adopted the euro. For Greece it is no different than being on the gold standard. Besides, Greece is not even the most indebted modern industrial country in the world. That honor belongs to the country economically most like us — Japan. It owes more than twice what we owe based on per-capita economic output.
Yet Japan has a strong currency. More importantly, Japan has the lowest interest rates in the world with its 10-year government bond yielding a scant 1 percent in interest. No one in the world is worried that Japan cannot or will not pay because Japan owes everyone yen.
What Cruseturner misses is that it is not the debt that represents a threat to our way of life. The threat comes from the medicine he proposes we take for an illness that doesn’t exist. His proposals are straight out of the 19th-century Austrian School of Economics that were wholeheartedly embraced and practiced by Herbert Hoover during the Great Depression. No post-World War II American government has practiced or proposed Hoover-style economics until now. The time to worry about balanced budgets and moral hazard is whenever the economy returns to full employment and is running on all cylinders.
Waco has one of the best Medicaid health clinics in the country in the Family Health Center. Not only is the clinic facing cuts from the state of Texas but now part of the “Grand Bargain” to raise the debt ceiling is cutting more of its funding at the federal level. This makes Waco weaker, not stronger. So does cutting teachers in our local school districts that struggle to educate disadvantaged children. All of these cuts are sold to us by both Democrats and Republicans as necessary based on a myth that is clearly false.
I live in the 21st century, and I do not want 19th-century medicine practiced on me. I also do not want 19th-century economics that similarly recommends cutting and bleeding as the way to make the weak stronger. Our parents and grandparents jettisoned this nonsense, and we need to jettison it too. The medicine we need to heal the economy is the opposite of what Cruseturner proposes. We actually need to lower taxes and increase spending to put the 25 million people in America who want a full-time job but cannot find one back to work.
We also need to fully fund Medicaid, keep our promises to everyone and put our teachers back in the classroom. Because the federal government has the money, the real moral hazard is to dismantle our society to satisfy the false prophets of a myth.
Mike Kamperman, who received his MBA from Baylor University, is president of Prometheus Wealth Management and author of “How America Can Escape the New Great Depression.” He formerly served as vice president of UBS Financial Services, formerly PaineWebber. He lives in McGregor.
Posted by Michael A. Kamperman on July 9, 2011
The unemployment report was abysmal rising to 9.2%. Of course they threw 271,000 people out of the labor force to keep the damage limited. Wages fell and temp0rary workers were let go. Temp workers are the first to get hired in an upturn and the first to get axed in a downturn. The report was before QE2 ended and before Medicaid aid to the states ended. We won’t have those boosters in July. The economy needs a major job boosting stimulus plan and the one with the best chance to pass is a payroll tax cut. We should exempt the first $20,000 in wages from Social Security and Medicare taxes on both the employee and the employer. This would put an extra $125 per month in the hands of all workers earning $20,000 or more. It would cost $300 plus billion to enact. But because employers get it too it would lower their payroll costs freeing up some money for raises and new workers. Importantly, the tax break is only for U.S. workers paying into Social Security and Medicare. Global corporations would not get the tax cut on the jobs they shipped overseas. More importantly, this tax cut would really help small business who hire U.S. workers almost exclusively. This would not create 25 million new jobs, but it would create 3 to 4 million new jobs and that’s a start.
The jobs created by this tax cut would for the most part not be the highly skilled great paying jobs. Those workers and employers don’t really need that much help. But the employees and employers of semi-skilled jobs are the one’s that really need the help. Currently, if one has a college degree and is 25 or over the unemployment rate is 4.4%. For a person 25 or over with a high school diploma and no college the unemplyment rate is 10%. For those with less than a high school diploma the unemployment rate is 14.1%. That doesn’t count the under-employed. All the talk about training people for hard to fill jobs like bio-engineering is a joke when the vast majority of the unemployed have not graduated from High School. We don’t have a structural jobs issue, we have a macro-demand issue.
The $300 plus billion price tag is static, not dynamic. Some of the jobs created will pay more than $20,000 and will contribute both FICA and Income taxes to the Treasury. Many of these jobs will go to people currently receiving unemployment benefits, supplemental nutritional assistance, housing assistance, and Medicaid resulting in enormous savings for all levels of government. Plus, the boost to the economy would increase profits for businesses who pay taxes. Employment has been the backbone of America since people started moving off the farms enmasse 100 hundred years ago. We are not close to coming up with a new system to structure society around. So we better get the old one going again and that means jobs.
Posted by Michael A. Kamperman on June 23, 2011
The Federal Reserve affirmed that it plans to end its QE2 program on June 30. Chairman Bernanke admitted the economy was slower than forecasted. He believes the reasons are temporary and caused by things like the Japanese tsunami and the rise in oil prices. He did say that it is harder to qualify for a mortgatge. But he admits he is not sure about the direction of the economy and the Feds next move depends on the data. Let me assure you the economy is in the ditch and the federal government keeps digging itself into a deeper hole with needless delays in rescuing the economy. I stand by my prediction that before the year is over the Federal Reserve will implement QE3. First and foremost, the economy has slowed markedly in the last couple of months despite the implementation of QE2, which the Fed assumes added 750,000 jobs to the economy. Secondly, the extra Medicaid payments to the states also ends on June 30, along with some other stimulus plan spending. The pink slips are already going out. Plus, the bulk of the layoffs occurred between the fall of 2008 and the fall of 2009. Over the last few months millions of Americans have rolled off extended unemployment benefits with no job in sight. Their spending has also rolled off. And as the Fed Chairman has pointed out, it is harder to qualify for a mortgage in 2011 than it was in 2010. Finally, there is the uncertainty surrounding Greece and our own debt ceiling.
So what solutions are our venerable Washington politicians contemplating to solve these problems? The answer is spending cuts and tax increases. The Republicans want to cut spending now. Simply put, cutting spending means cutting jobs. The Republicans believe the economy will improve from a confident nation knowing Washington has put its house in order. They are wrong. This was tried twice during the Great Depression and failed miserably both times. But the Deomcrats want to raise taxes. Raising taxes does not raise up new tax payers. Part of this is class warfare. But most of it is some misguided notion that because the economy boomed under Bill Clinton and he raised taxes, then that means raising taxes doesn’t hurt economic growth. Simply put, they are wrong. Raising taxes is always a drag on economic growth. Bill Clinton inherited an economy emerging from a recession and he inherited the technology boom of the second half of the 1990′s. President Obama inherited an economy turning into a depression and there is no innovative boom creating millions of good paying jobs and Dellionaires at the present time.
So Bernanke will be back. He will have no choice. Those in positions of power in Washington don’t have a clue as to what to do. Sadly it’s not rocket science. World War II spending brought us out of the last depression. Keynesian economics works. Keynesian economics was the policy of both Republicans and Democrats all the way from World War II until 2008. The Republicans went predominatley Austrian in 2009 and for some strange reason the President has led most of the Democrats to follow them in 2010. Now they are arguing over who will cut the most effectively versus the who will cut the most compassionately. The urge to cut is driven by rhetoric that the bond markets will collapse and we will become Greece if we don’t take action now. The yield on the 10 year Treasury closed at 2.9% despite the collapse of the budget talks this afternoon. The bond markets know we will not become Greece without action, rather we will become Japan. The 10 year Japanese bond yield is around 1%. Japan’s economy is stuck in a deflationary depression. The difference between Greece and Japan is two-fold. First, Japan owes a lot more money and has fewer government owned socialist assets to sell. Second, Japan controls its currency and Greece doesn’t.
Posted by Michael A. Kamperman on June 19, 2011
In less than two weeks the economy will start to run on empty. The gas stations fueling the economic engine will begin to run dry. Significantly, the enhanced Medicaid stimulus payments to the states ends on June 30. This $90 billion support of state budgets will simply be gone. Plus, the Federal Reserve will end quantitative easing II on June 30. Basically the markets will lose $20 billion in extra liquidity per week. The economy is dramatically slowing even with these two support structures still in place. What happens when they end? Other parts of the stimulus program also run out before the end of the year. Unless a new deal is in place extended unemployment benefits are set to run out at the end of 2011. But this is not the only thing we are running out of. Many struggling families have survived the last few years by draining their 401(k)s and IRAs, running up credit card debts, and selling off assets. We don’t know how many families will run out of gas in 2011, but I suspect the number is in the millions. Many of these families are “self employed” running businesses that are no longer providing the family the financial support it needs. Meanwhile, Washington is debating more austerity cuts and convincing one another that the way to create more jobs is to spend less money.
In what economic universe does less demand create more supply? The answer is only in a virtual one. In the real world what drives business confidence it is not a balanced budget or lower taxes, it’s customers. Any business will respond positively to more and more people showing up with cash to spend. Confidence comes from demand. Yet strangely the message of the day is businesses would create more jobs if Washington would just get out of the way and quit the spending. The very spending that is lifting up demand, not dragging it down. Just ask all the school teachers told to hit the pavement this coming fall if federal spending matters.
The debate has moved so far toward the austerity movement that AARP has come out supportive of raising the retirement age as long as their current members get every dime promised to them. Social Security is not in trouble, yet even AARP is folding to the misguided pressure to cut federal spending. The best way to cut the deficit is to create new tax payers that are either sitting at home collecting unemployment benefits or sleeping at home with Mom and Dad. We don’t need to raise taxes. We need to raise taxpayers. The old saying is it takes money to make money. It’s going to take federal spending to create demand to create new taxpayers. Right now the federal government is moving in the opposite direction. Worse, those arguing for more cutting are winning the debate in the minds of the American people. Like in Star Wars, we need an Obi Won to help us.
Posted by Michael A. Kamperman on June 12, 2011
In the rush to cut spending the easiest thing to cut is often infrastrucure spending on roads and waterworks. Projects on the drawiing board are simply delayed. But it is precisely these types of projects that create jobs in the private sector. For the most part governments don’t build bridges, they pay for bridges to be built by the private sector. Not enough attention has been paid to the fact that a lot of government spending directly supports private sector jobs. There is a lot of talk about the 3 million job openings and all the out of work job seekers that don’t have the skills to fill these jobs. But for the most part there are people with the skills to fill almost all of these positions. In an economy with almost 140 million jobs 3 million jobs is only 2% of the workforce and represents natural attrition. There are 25 million people seeking full-time work. The jobs issue is not a structural problem with workers without skills to compete on the global stage. The jobs issue is a demand issue. We need a lot more than 3 million job openings to put 25 million people to work. Tripling infrastructure investments will create well over 1 million jobs and will make our nation safer and more productive.
The narrative about whether or not the debt and the deficit is a threat is critical because the urge is to cut infrastructure spending in Washington rather than increase infrastructure spending to create jobs. No country that owes everyone in their own currency needs to worry about debts and deficits. Japan has the highest debt to GDP ratio in the world, higher than Greece, and yet they enjoy the lowest interest rates in the world because they owe everyone yen.
Unfortunately, the President has bought into the structural unemployment story about job seekers not having the right skills rather than the country not having enough demand for 25 million people. This week another economic adviser has abandoned the President when Austan Goolsbee resigned as the Chairman of the Council of Economic Advisers after only a few months on the job. The reason is there is no policy that can effectively create jobs if the emphasis remains on cutting cutting cutting.
Posted by Michael A. Kamperman on May 31, 2011
According to the Case-Shiller index the housing market has entered a double-dip. Housing prices are now at the low point of the downturn that started four years ago. Apparently this has come as a shock to many including the entire economic team at the White House. But it should not come as a surprise because it is way way too difficult to obtain a mortgage in America. Those who were not expecting this have been asleep at the wheel.
Let me finish telling you the personal story about my daughter and her fiance’s attempts to get a mortgage. The good news is they closed on an FHA loan to buy their first home a few days ago. Now for the rest of the story. They both graduated from Baylor University in May of 2010 and have full-time professional jobs related to their majors. They both have no debt and cash for the down payment. Their income qualifies them for the mortgatge. They both have acceptable credit scores and no marks on their credit. Sounds like a slam dunk right…wrong! FHA has a new requirement that a borrower has to have three credit lines reported to the credit bureaus for two years to qualify for a mortgage. Because they both got their first credit cards a few months ago they don’t qualify. Rent payments can no longer be used as evidence one will pay a mortgage. FHA required they get a co-signer. No problem because his parents were happy to co-sign and were clearly qualified. However, FHA underwriters came back and said the two borrowers were both listed as authorized users on their parents credit cards and woud have to be removed to get their true credit score. When I asked why the explanation was even though they had a co-signor they still needed to have the minimum credit score of 640 to qualify for the loan. I of course asked \”so what’s the co-signer for?\” Basically, the co-signer is required because they didn’t go to Gap and open a store card and use it to purchase a $20 sweater two years ago.
Now this is FHA, the federal agency authorized to assist first-time and low-income home borrowers. We havea single family housing supply nation-wide for 2/3 of American families. There is absolutely no way 2/3 of American households can qualify for a mortgage under current circumstances. The pendulun has swung way way too far in the opposite direction from 5 years ago. Where is the Obama Administration while this goes on. Apparently they are asleep at the wheel. Almost all of Washington participates in group think. This is the process whereby one must acknoweldge conventional wisdom as truth. Right now such wisdom considers the debt and deficit the greatest threat to America. The Chairman of the Joint Chiefs of Staff made just such a statement in Q&A recently before Congressional panels. What qualifies him to render such judgement? Absolutely nothing. What qualifies the President’s economic team to lead us out of the depression? Apparently not much.
Posted by Michael A. Kamperman on May 19, 2011
Nothing has been fixed in this economy, nothing. The job outlook for new college grads is bleak, just like it was in 2009 and 2010. In fact, the New York Times is reporting that only 56% of recent college grads had been employed in a job within one year after graduating. This is any job, including sweeping floors at Walmart or saying would you like fries with that part-time. Only about half of those that found a job were in one that required a college degree. One of the two fields where grads were most likely to find a job requiring a college degree was education. In Texas and elsewhere many education graduates will be lucky to find anything, anywhere, as the kick in the gut comes to State budgets because of the end of the stimulus plan. In contrast, between 2005 to 2007, 90% of all college grads worked in a job within a year of graduation. As if this isn’t bad enough, around 2/3 of all college grads leave college with debt. The NYT estimates the median student graduates with $20,000 in debt. But median means middle and it includes all of the students whose families were able to provide them with a debt free education. The average for those graduating with debt is closer to $30,000. Many graduate owing $50,000 to $100,000 for a Bachelor Degree. Student debt is not eligible for bankruptcy. The crater in the Opportunity Deficit is huge for the young seeking work. We as a society are failing these young people.
The failure starts at the top with the President. The constant claim from the nations elites that we have avoided a Second Great Depression doesn’t make it so. However, these claims remove the sense of urgency to right the ship. We are adrift as a nation. There is no one on the political stage from the center, the left, or the right who is putting forward a plan to end the depression. Plans to cut spending to reduce deficits and debt are not plans to create jobs, because cutting spending means cutting jobs. Just ask all those graduating with a degree in education this year who thought they were entering careers with job security.
The reason we have no plan to end a New Great Depression is our leaders have assured us for years that what happened in the 1930′s couldn’t happen today because of all the safe-guards built into the economy. Hence, there has been no planning for what to do if a depression hit. What planning we did have in the form of Keynesian Economics has been thrown under the bus. We are the victims of our own Pride. Hubris has been our economic downfall. While there is a way out it requires changing the beliefs of the vast majority of the country. Namely, that the national debt is a threat. In essence we are suffering from Y2K hysteria. Almost everyone believed it was real and took actions to prevent having their computer systems stop working at the stroke of midnight on December 31, 1999. In fact, it was hoax. No such threat ever existed. Many many good hearted true believers thought they were doing the right thing by warning the public of the dangers of doing nothing. Almost all of the peope warning about the dangers of the debt are good hearted true believers. It’s just that what they believe in doesn’t exist and convincing them of that is an uphill battle.
Posted by Michael A. Kamperman on May 10, 2011
Every day we get multiple people all over television, the radio, and the newspapers saying how we cannot afford our entitlement programs, how the nation is going broke, and how there is no choice but to make federal spending cuts. Rarely does anyone mention the unemployed anymore. Last year the country seemed in agreement that the most pressing issue was jobs. Now, much of the country has lost interest in the plight of the jobless and are wanting to focus on the deficit and the debt. The unemployed are still just that, unemployed. Yet few seem to understand the reason that we are running such large deficits is because 25 million people who want full-time jobs cannot find them. Additionally, many are in full-time jobs beneath their skill level. Basically, the country is running a massive Opportunity Deficit, and it is this deficit that is the source of the fiscal deficit. If the unemployed returned to good paying jobs tax revenues would roll into Washington and social spending would automatically drop sharply without anyone being cutoff. The main reason for the fiscal deficit is not President Obama’s healthcare plan or stimulus plan, it is not the wars in Afghanistan and Iraq, and it is not President Bush’s tax cuts. All of those reasons combined don’t equal the fiscal cost of the Opportunity Deficit. If Washington would put people back to work in good jobs the fiscal situation would handle itself.
The focus of our leaders should be to do whatever it takes to close and eliminate the Opportunity Deficit. Amazingly, the Congress and the President have all of the tools they need to put people back to work and they refuse to use them. The tool is to actually have the federal government spend money on everything from roads and bridges, to teachers and schools, to research and development, and to anything else it takes to get the unemployed back to work.
The federal government has an unlimited check book and it refuses to take it out. In Texas, the State has $9 billion in a savings account called the Rainy Day Fund and State Representatives and the Governor refuse to use it to avoid laying off Teachers. Are these people crazy? No, they are misinformed. In Texas they seem to believe money has no strong correlation to a good education. In Washington they seem to believe that a government that can print dollars might run out of them. Both beliefs are clearly false, but they persist and exacerbate the Opportunity Deficit. Virtually no one is standing up for those crushed by the Opportunity Deficit with an attitude that we will end that Deficit no matter what it takes. But we will stand up for it here.
