George Sarant

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Posts Tagged ‘finance

FEDERAL THEFT

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We live in an upside-down country today where the prudent are penalized and the profligate are rewarded. The traditional wisdom about saving for a rainy day and retirement has virtually been abandoned by the government. By keeping interest rates so low for so long the Federal Reserve has been punishing savers while printing money to satisfy an omnivorous government, which can borrow for virtually nothing and continue to spend beyond its income putting the burden on future generations.

It is also harming the present older generation, particularly those at or near retirement. As one gets older the prudent thing to do is avoid riskier investments and keep money in safer places such as savings accounts. But with interest rates so low the yield is insufficient to provide an adequate income for most people. As a result in order to try and achieve returns that were projected years ago people continue to invest in riskier assets like stocks. Long term this can pay off, but perhaps not in time for retirees.

Policies currently in place basically steal from those who have done the right thing in favor of those who have been profligate or are dependent upon the government for support. This can only get worse down the road as soaring debt leads to hyperinflation and the value of money declines. Inflated currency over centuries has long been the government way to work out debts, which is basically theft from those who have put their trust in it. Thus savers lose either way, with either diminished asset value or low to no returns. The only beneficiaries are the government, all those connected to it financially, and the big banks, which are able to borrow for virtually nothing from the government and earn returns from debt instruments with little risk.

Thus what it cannot get through taxation the government takes anyway through other means. If we are to avoid being left poorer in the future the government must be limited. This means slashing spending, reducing bloated government payrolls, cutting taxes and an end to currency manipulation. It cannot happen too soon.

Written by georgesarant

August 4, 2010 at 7:21 PM

Posted in economy, government

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SETTING REALISTIC BASELINES

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One of the basic problems we face today is that our appetites exceed our resources. Privately we are in debt, often to buy stuff we don’t really need, while publicly we are saddled with increasing public debt for things the government shouldn’t be doing. Americans at least have been paying down personal debt. Unfortunately the same cannot be said for the federal government, which continues to run up record deficits. Many states are in even worse shape because unlike the feds, they cannot print money.

How have we arrived at this juncture? By allowing ourselves to be deluded by the sunshine scenario- that is that things are going well and will only get better so there will be more money in the future. This is how states like New York, California, Illinois, and others have gotten into trouble, along with countries like Greece and countless individuals who have overextended themselves. These states spent every penny of incoming revenue and then some at the height of an economic boom, then filling budget gaps with gimmicks to maintain a level of spending that never should have occurred in the first place. By taking the best case scenario as their baseline they have presumed that things will only get better with more growth generating more revenue. The logic here is that people are making more money so we should increase our cut. When revenues fall short their solution is ever higher taxes rather than spending cuts, which only drives people away if they are lucky enough to be able to move.

The great error here is using the sunshine scenario as a baseline by assuming that henceforth this is the minimum we will take in. As a result these states were thoroughly unprepared for a drop in revenues. The more prudent course would have been to baseline on more conservative assumptions, i.e. what current conditions yield, so that any further increase would ideally then go to tax reductions. The wise course would be to accept the current situation as the new normal, and use it as the baseline for future projections. There is a lesson to be learned here if politicians will adhere to it. Individuals in the U.S. are finally saving and cutting back, which in the real world ought to be a good thing, though some economists think it is bad. But financing the world economy on credit cards is as unsustainable as the current federal deficits we are running. These are also projected on the assumption of future growth. What we need is a zero baseline. That is the only way that government can be contained and get its fiscal house in order. Rather than projecting increasing deficits, we need a deficit reduction plan now. Then perhaps we can begin to align our appetites with our resources.

Written by georgesarant

February 28, 2010 at 3:34 PM

Posted in economy, government

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PUBLIC FINANCE

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Greek civil servants went on strike today to protest government austerity measures. In Greece there are a lot of them; an incredible one out of three Greeks works for the government with cradle to grave security. Among the “austerity” measures being protested today is raising the retirement age to 63 in 2015. This is a sad example of what happens when rampant public spending spins out of control. Public debt is currently more than four times greater than the EU ceiling allows, threatening the entire Euro-zone. Portugal, Spain, Ireland and Italy are almost in as bad shape and the European central bank is struggling to contain the crisis.

This is one of the reasons pressure on the dollar has not been as strong as it might otherwise be, because Europe is in worse shape. But for how long? If we continue to expand public employment and have situations where government employees earning over $100,000 can retire in their 50s with 90% of their salary we are certain to go broke, only there will be no one to bail us out. Gross public debt has risen from 57.4% of GDP in 2001 to an estimated 98.1% in 2010 before exceeding 100% in 2011. This is simply unsustainable.

Worse, this does not include state and local government finances, which in many cases are in dismal shape. There we have a zero-sum game, where raising taxes further does not produce more revenues, but rather refugees. New Jersey lost over 70 billion in wealth over the course of a decade due to people fleeing high taxes. We’re tapped out. No one wants to pay for more government. We need to implement austerity measures now, such as freezing government salaries and employment, raising the retirement age, and cutting spending. That’s only going to happen if we fire the government employees responsible, namely our elected representatives this November. Civilization has learned a great many things from the Greeks in terms of art, science, philosophy, etc., but public finance should not be one of them.

Written by georgesarant

February 10, 2010 at 9:34 PM

Posted in economy, government

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