The Brothers Austrian

A great short article about where stand in historical terms in regards to personal savings rates.

MisesBeliever Uncategorized

A while back President Obama asked his cabinet to cut $100 million in expenditures.   Most people laughed, but some lauded the measure in spite of its token size.

Now, we hear that an Obama supported plan to erase that savings by giving all Federal workers four weeks paid time off after the birth or adoption of a child.  This plan will cost $140 million.  That you can even propose such a ridiculous idea at a time like this is so incredibly maddening and it’s no surprise that I have major issues with this plan.

My qualms center on three main points: 1) four weeks is too long; 2) the employee sacrifices nothing; 3) government has no money for the program.  Of course, the most devastating impact of this legislation may come from the potential it has to set a precedent for future action (in the private sector).

Granted, this is one of many additional expenditures created since the cost cutting news spectacle, but I thought it was illustrative to show just how quickly those savings could be erased.

Teacherman Government Spending cabinet, expenditures, federal workers, obama, paid time off

Pimco’s Gross rightly points out the bond investors should diversify their out of the dollar denominated bonds. I certainly do not disagree to an extent. I see no reason why the standard retail investor should hold a 10% allocation in something like EMB, IGOV, or ISHG. However part me wants to say that I don’t trust the governments of other nations just as much as I don’t trust the U.S. government.  Controlling spending and subsequent deficits is not something any government has ever really been able to do. It’s really just a question of investing in the most productive nation.

Productivity, what a novel thought.

MisesBeliever Government Spending bill gross, bonds, dollar denominated

From 1987 up until the end of Greenspan’s rein in 2006, there was a period of easy money and what Barry Ritholtz called “ultra easy money” which was created by Greenspan flooding the market with easy cash.

Ritholtz points out that yet another ingredient to the crisis pie might have been that there were too few banks and too many giants. You had super mergers in which smaller banks were snatched by the larger banks. One argument is that banking should be done on smaller scale. A scale where the bank manager as a more personal relationship with person he is lending to.

The principal of banking has always been the same throughout history, borrow money cheaply (deposits) and lend it out to someone who will pay as much interest as possible. What we saw develop through the use of technology was a man (or computer software) lend money to man in on Long Island to buy his house without personally verifying the financial standing of the borrower.

Sweet plan, right? The lender is now executive somewhere else and the taxpayer is left holding the ball, the proverbial “Moral Hazard” at its best.

The easy money policy that allowed for super mergers to occur is another example of how Federal Reserve policies often limits competition and encourages malinvestment.

MisesBeliever Federal Reserve, Real Estate banking, barry ritholz, Federal Reserve, greenspan, moral hazard, taxpayer

What haunted Henry Hazlitt, still haunts us today: Governments focusing on only what the immediate effects of a policy will be. He refers to their actions as “half truths”. The seen and unseen. The seen of this bailout is that a few hundred thousand auto workers are still employed and the employees/retirees will have benefits.

The unseen: What about the workers that are not part of the auto industry that did get laid off? What about the worker whose 401k is down 40% with no pension plan? What about the guy who saves and saves and saves, only to have the value of savings dwindle via inflation in order to pay for the bailout of the auto worker (I am sorry let’s be honest here, this is a bailout of a group of people that have political pull, not the saving of a so called iconic “American” industry)?  What about the capital resources that are redirected to the auto sector versus another, more viable sector? What about the effect on bond investors?

In a NYT op-ed piece James Glassman claims that this might  “Drive the bond market to ruin”. This is the what I call the “Obama Button”.  It’s like the reset button. What would happen if we pressed the reset button? Who knows right? All bets are off! If I am a bond investor I have to price in whether or not an industry will be “bailed out”.  While the immediate effect is saving a few hundred thousand jobs, the long term effect is that there will be more market volatility because we never no who is next to be part of our “bailout nation” or even how to price the possibility of a bailout. Will the bailout lead to the bonds being “made whole” like they were for Citigroup or will do I price in huge discount in case the government tries to super cede me in the capital structure (think Chrysler secured bondholders).

MisesBeliever Government Spending, Inflation, Interventionism, Taxes, Uncategorized auto industry, bail out, bond market, citigroup, henry hazlitt, obama button

The Obama administration told the American taypayer this weekend to just accept it.

First and foremost is the acceptance of General Motors bankruptcy.  The American taypayer now has an 60 percent ‘equity’ investment in the company.  Sweeet.

Next, and perhaps the president needed to pad his May expenses a little bit, but his excessive ‘date’ to New York City cost the American taxpayer a pricey penny.  How many press and media members needed to follow this ‘event’?  One, two, ten, one plane full, how about two planes full.  Just accept it.

I couldn’t believe how lame McCain’s celebrity ads were when he ran them during the campaign, but perhaps he was onto something….

Any ideas for what we’re to accept next.

Teacherman Government Spending, Interventionism bankruptcy, general motors, investment, mccain, obama, taxpayer