Oil Prices…Ugh!

About a week ago, I discussed how Obama’s release of our strategic petroleum reserves was idiotic and would have no long term benefit.  Well, in just a week, the price of oil is already going up again (is now a good time to say, “I told you so?”).  Consider this another Obama “stimulus” that did not stimulate anything but more debt.

The price of gas is up $0.80 per gallon from the same week last year.  When Obama took office in 2009, the price per gallon was at $1.84.  The average price per gallon is now at $3.55, a 92.9% increase in gas prices.

The White House has given two responses to the high gas prices:

1. Excuses – President Obama blamed the wars in the Middle East and Japan earthquake.
2. Aspirations – President Obama said green energy is the solution, but that infrastructure will not be set up in a long time.

The only thing the White House has not offered…a solution.

President Obama uses Strategic Petroleum Reserve (Doh!)

President Obama recently announced that they will be using 30 million barrels from our Strategic Petroleum Reserve (SPR) to try to lower gas prices.  The Strategic Petroleum Reserve is meant for our military in case of a sudden war or for some tragic event happens, that is why it is called ‘strategic,’ and ‘reserve.’

Secretary of Energy Steven Chu said the release was “intended to complement the production increases recently announced by a number of major oil producing countries.”  In short, they wanted to show OPEC and other oil producing countries that we don’t need their oil because we have our own.  This is hopes to spur production, increasing supply, and lowering the cost.

I don’t think this threat scared OPEC.  First, they know that we are not giving out permits quickly to drill for our own oil because the President believes drilling is bad for the environment.  Instead, we are paying billions to Brazil to drill their oil and I believe the President’s energy policy is to rely on Brazilian oil.  I am still not sure why it is okay for them to drill but not us.

Second, with the amount of petroleum that we use in the United States, 30 million barrels will only last our country 1.5 days.  So, while you may get excited to see prices going down a little bit, this release is definitely a short term solution.  President Obama wants to show the American people that he is doing something about the oil prices.

Like jobs, he doesn’t have a plan for long-term success.  In jobs, he just threw a bunch of money at it to stimulate the economy.  The economy never really got stimulated.  For oil, it looks like he is doing the same thing – throwing money at it to stimulate other countries to produce oil.  Look for oil prices to stay around where they are at right now.  Do not be fooled by short term gains at the expense of our strategic reserve!

The Nanny State is Hurting America

I am opposed to Nanny State policies (policies that are uninvited state intervention) it for three main reasons: it takes away personal freedoms by getting involved in areas unnecessarily, because arrogant politicians think that they can run my life better than I can and mainly, it produces no consequences.

Government Gets Involved in Areas it Does NOT Need to be:

This past week, it was announced that cigarette packs are going to have graphic pictures to deter people from smoking. Do people not know that smoking is bad for you?  What percent of smokers are going to see the picture and be shocked by the possibility of poor health caused by cigarettes?  This example shows that the government assumes that we are all 10 year olds that could be influenced by a picture.  Here are more examples of the government intervening on daily decisions:

In New York, they have talked about removing trans fats and/or salt at restaurants.  There has been talk of a “fat tax” in some places around the country, which would be a higher sales tax rate on foods that are high in fat.  Medicare recently decided to cover obesity, which mean American tax payers could be paying for obese people’s stomach stapling surgeries, diet plans, and nutritional counseling.

In San Francisco, they are looking to ban people from getting circumcised and ban gold fish ownership within city boundaries, being that it is mean to put gold fish in a bowl.

Every state but one requires you to wear a seat belt.  Every state but three requires a helmet for some or all people on a motorcycle.  In 2000, the Consumer Product Safety Commission banned a certain car seat not because it wasn’t safe, but because it was too safe and they argued it could lull parents into a false sense of security.

Many cities around the country have banned smoking in restaurants.

We have federalized airport security with TSA agents (who will be voting to unionize soon, so don’t expect that line to be moving any faster anytime soon).

We are forced to pay social security taxes, but have no say on how the money is invested (mainly because it is not invested).

Arrogant Politicians:

Why do our politicians think they know how to live our lives better than we do? Why do they think their job is to tell us what to eat or what kind of car to drive?  When I see politicians like Anthony Wiener, I wonder what makes him think he can run my life if he cannot run his own!

No Consequences:

In short, people should have the right to be stupid and the right to fail, so long as they have to face the consequences of their actions.  Right now, 49% of Americans do not pay federal income tax, many because they are “poor.” So what are the consequences of being poor right now in America, according to government reports on people classified as “poor” by the Census Bureau:

Looking above, over 50% have two or more tv’s and over 50% have cable!  I am pretty sure having cable television isn’t a right protected in the Constitution.  In a typical poor family, the family works 16 hours per week.  If they were able to move it up to 40 hours a week (or 2 parents at 20 hours each), 75% of poor children would officially move out of poverty.  Nanny State policies, although many well intentioned, have unintended negative consequences.  When an item is free that others have to pay for, more and more people will gravitate towards the free item.  Why work 40 hours when you can work 16 hours and get the rest of the money from the government?

The Real Bad Guys – Colleges & Universities

Whenever things go bad, people start pointing fingers.  You have seen fingers pointed at Wall Street, big oil companies, and Washington.  The truth is that we have all played a small part in this recession.  However, I want to talk about the detriment that our universities are having on our economy and society.

At a macro level, economics is the study of production, distribution, and consumption of goods and services.  To have a strong economy, you need people capable of producing and purchasing goods.  Are our universities creating producers and purchasers of goods?

The first item I want to talk about is the increased cost of tuition over time:

College tuition is increasing at an exponential rate.  This is causing an increase in college debt.  The average student debt went from $12,750 in 1996 to $23,200 in 2008, nearly doubling.  In just four years (2004 to 2008), there was a 24% increase in debt.  In 2008, 67% of students graduating from four year colleges and universities had student loans.

It used to be that if you got a college degree, you were guaranteed a job.  The cost was little for school and the benefit great.  The cost is no longer little and the guarantee for a job is gone.  Unemployment is high right now, despite numerous job openings.  The big problem is that we have few people with the skill set needed for the jobs that are available (mainly technical skills).

There is a new lower class and middle class developing.  The new lower class contains people who spent a lot of money on a degree they cannot do anything with or that is for a low paying job.  Many social workers now have masters degrees and while that helps them make a difference, financially, it puts them in a tough spot.  Even if they file for bankruptcy, that does not relieve them of their college debt typically.

The new middle class are being called by some as HENRY’s (High Earning Not Rich Yet).  HENRY’s are people with nice paying jobs, but loads of student debt; student debt has even surpassed credit card debt.  Because they are high earners, they are paying high taxes.  With the combination of high taxes and high school loan payments, the new middle class has decreased purchasing power.  Many can take up to 20 years to pay off all of their school debt.

I do believe there is a need for a great education at a low cost that has to be filled.  Public universities, like the federal government, have a spending problem.  Their simple solution to making their budget is to pass their cost onto their students, who really have no power.  Before, I mentioned that there was a 24% increase in tuition costs in a four year span.  Do you think a freshmen student in 2004 saw a 24% increase in value in his degree by the time he was a senior?  Public universities need to stop spending money on items that do not add value and provide a basic education that prepares students for the real world.

I do not see long-term growth in our country without tackling the costs of universities.  Our young adults are starting life behind financially with degrees that are offering declining value.

How’d We Get into this Budget Mess?

Making a budget is kind of like trying to lose weight.  If you have ever tried to lose weight, you will find there are a million ways to do so.  You can try this work out or that, this diet or that, or this tool (such as a lap band) or that.  Because all these different options make different people money, the options become more complex.  However, the equation is pretty easy: if you burn more calories than you eat, you’ll lose weight.

Just as money confuses losing weight, politics/power ruin efficient and effective government in Washington.  Government budgets are easy – spend less than you receive.  There are a lot of ways to do that, but we’re still not there.  Instead, games have been played by the Democrats to force Republicans to make the cuts so the Democrats can brand them as the bad guys and try to keep the power through irresponsible governing, inaction, and deceit.

Luckily, there are conservative blogs like this one that tell you the real story about the budget!

Let me walk you through how we got into this budget mess:

• Federal Gov’t’s fiscal year is October-September.  Last year, the Democrats (who owned the House, Senate, and Presidency) did not pass a budget before the year started.
• After Democrats lost the election, they passed a budget during the lame duck session (time between election and when election winners take office in January), but the budget was only to last until March 8.
• When Republicans took over the House, they passed their own budget for the rest of the year that had $61 billion in cuts to discretionary spending (which had seen an 83% increase under Obama).
• The Senate is supposed to either pass it or pass their version of it and send it back to the House (to begin the negotiating process).  After about 1.5 months, the Senate didn’t pass anything.
• Approaching a deadline, Republicans in the House extended the budget for another two weeks to give Democrats time to either pass their budget or create their own budget.
• The Republicans made an offer, but Democrats didn’t like it.
• President Obama sends VP Biden to met with the House leadership – Biden has one meeting and then leaves the country for two weeks.
• Approaching another deadline, the Republicans extend the budget another 3 weeks.
• This Friday, we are now facing yet another deadline and the Democrats still haven’t proposed anything.  There is even Democrat leaders on record saying they are hoping for a shut down to make Republicans look bad.
• On Tuesday, President Obama had one meeting to discuss the budget and then he left town.
• Today (Wednesday), most likely bothered by the bad press, President Obama decided to come back and now had another meeting tonight.  Earliest reports indicate they didn’t reach a decision and are talking about another extension to give them more time to figure out the budget.

A few facts to think about:

• Republicans’ $61 billion in cuts proposal in a $3.5 trillion budget is about 1.7% of the budget.
• The $3.5 trillion budget has a $1.65 trillion deficit – $61 billion is about 3.7% of just the annual deficit.
• It took 3 deadlines before President Obama decided to step in.

Democrats have had every opportunity to make a budget and they have not.  If there is a shut down, it is the Democrats fault.  It is amazing that the Democrats still own the Senate and the White House and we don’t know their plan.  Even more amazing is that instead of the Senate passing their own version and starting the debate publicly, 3 people (Obama, Boehner, and Reid) have to sit in private to negotiate a $3.5 trillion budget.  Where are the elected officials from other states?

On the bright side, although the Democrats did not pass a budget on time last year, Republican Paul Ryan has already proposed a budget for next year that actually tries to curb spending.  I am still waiting to hear a real Democrat plan…if they have one.

Revolutions Around the World

There are some amazing things going on right now around the world.  Young people everywhere are standing up for their rights.  President Bush once said, “I believe all these things because freedom is not America’s gift to the world, it is the Almighty God’s gift to every man and woman in this world.”  I believe people around the world have an innate longing for freedom.  They are sick of being told what to do, sick of being oppressed, and sick of not having a voice.  The big question for us is, “What is America’s role in this?”

It is very difficult to understand what we should do because truthfully we don’t know a lot about the groups that are revolting and what they stand for.  You can listen to the media, but a lot of their information has been formulated in the last few weeks as they try to figure out what’s going on over there.  From everything I have read, the only common denominator is that people in these countries were miserable and decided to demand change.

Some conservative blogs say we need to get in there and make sure we get the “right” leader.  The United States is already gearing up militarily to enforce a no fly zone in Libya.  However, no revolution will be as genuine and hold as much historical value if the revolution has a “Made in the USA” stamp on it.  Like capitalism, sometimes you have to go through some bad times to get to the good times.

So what should we do?  I think we need to be prepared to partner with any leaders that can overhaul a government and be ready to talk about democracy.  Too many times we’ve been too involved in trying to prop up the “right” leader who will work with us.  The problem is that power corrupts, so even if they are working with us, it doesn’t necessarily make them the best leader for their country (take Egypt for example).  The only thing that we can do is hope for, push for, and help promote democracies.

Imagine a radical Islamic group is part of democratic process.  As radical as they may be, as soon as they have to start negotiating with those people they disagree with, certain successions begin to happen.  People complain about our democratic system as being slow at times, but all the checks and balances prevent radicalism and promote conversation and the open discussion of ideas.

Our goal should not be to prop up the “right” leader but to promote democracy and shake the hands of those brave enough to stand up for what they believe in.  Obviously, this subject is much more confusing than this small article gives it credit, but history has taught us that we haven’t been successful when we try to prop up the “right” leader, getting involved militarily costs us a lot of money [that we don’t have], and revolutions have more impact when there is sacrifice.

Spending Cuts in Washington – It Has to Hurt – Part 2

My last article talked about why we need to make cuts that hurt.  This article takes another look closer at where the revenue comes from and how our government spends their money.  When you want to solve a problem, the first step is to figure out the “as-is.”  In short, understand the situation and the problem before you make decisions based on feelings rather than factual information.

I want to show you where we get our money from and how we spend it:

What you need to know:

• In 2010, our government spent $3.456 trillion and had $2.162 trillion in revenue, creating a $1.294 trillion deficit.
• To break even, we would’ve had to reduce our spending by 37% or increase our revenue (taxes) by 60%!
• Social Security/Social Insurance revenue is $865 billion and spending on Social Security/Medicare/Medicaid is $1.494 trillion, creating a $629 billion shortfall in those few programs alone.
• Medicare/Medicaid spending in 2007 was $599 billion and in 2010, it was $793 billion, a $194 billion (32%) increase in just 3 years.
• When Social Security started, there were roughly 30 employees for every retiree, and now there is approximately 2 employees for every retiree, creating budget shortfalls.

Now that you understand the problem a little bit more, do you believe President Obama’s spending freeze is going balance our budget?  Even if we froze our discretionary spending, the increases in Medicare/Medicaid alone are going to bankrupt us.

As you look for 2012 Presidential and Congressional candidates, look for those people that are saying outrageous things because they are probably the ones that really get it.

Spending Cuts in Washington – It Has to Hurt

Really…are we still talking about the spending in Washington?  I know it is more complex than this, but essentially we are spending more than we are earning.  There is fear of a government shut down in early March because we are running out of money because Democrats aren’t willing to make tough cuts to the budget.

On February 5, 2010, I wrote an article with a catchy name, “House Raises Debt Limit” that discussed how Congress raised their debt limit to $14.3 trillion (only a year later, Democrats want to increase it again).  When Congress voted for it last year, every Republican in the House and Senate voted not to increase the debt limit in addition to the 30 Democrats in the House that didn’t want to raise the debt limit.

The Democrats had an entire year to figure out a budget that would not cause a shut down, but they refused to do so.  Instead, they decided to make Republicans offer budget cuts and then attack them for being mean or unfair.

In 2001, our debt was $5.1 trillion – in just 10 years, our government has essentially tripled our debt.  President Obama’s response – a spending freeze.  When he first got into office, he ran a massive deficit and now he wants to freeze the spending at a level that adds $trillions to our debt every year.

Looking at our budget, 63% of our budget is Medicare, Social Security, and Defense.  Even if our government cut all discretionary spending, with the increases in Medicare and Social Security alone, by 2020 we’d still have a $600 billion annual budget shortfall.

The government has to attack all areas, but no one wants to make cuts.  Agriculture wants to keep up their subsidies, Education always says they need more money, Social Security doesn’t want to stop paying people, and the list goes on.  Spending cuts are not going to be easy – you know we are going down the right path when the spending cuts hurt because to get down to where we need to be, it is going to have to hurt!

The Problem with Social Security

There is going to be a lot of debate about Social Security because it costs us a lot of money.  For this posting though, I just want to focus on the incentive of Social Security.  As I look at how our government spends money, I often look at what incentives they are giving citizens through their policies.  For example, Welfare gives an incentive to be unemployed (if you do not work, you get money – that is an incentive), tax deductions for charitable giving gives an incentive to give money to non-profits.  What incentive does Social Security give?

I believe the Social Security system gives people an incentive not to think about money for retirement.  The “feeling” of Social Security (which is more important than its actuality) is that you will have this nest egg waiting for you when you retire at age 65 years old.  Wealth Builder magazines’ poll showed that 80% of Americans think their standard of living will go up at retirement.

The first thing that most people don’t know is that we have a retirement crisis in America.  A study done by Bankrate.com showed that more than 70% of Americans do not believe they’ll retire with dignity.

According to a USA Today study on people 65 years old, 97% can’t write a check for $600, 54% are still working, and just 3% are financially secure.  Further, bankruptcies for those 65 years and older went up 244% in a ten year period.

If we did not have Social Security, people would have an incentive to figure out a plan themselves in the private world.  They would most likely realize that they don’t know how to buy a stock, bond, mutual fund, or invest in an IRA without some professional help.  That would give them an incentive to sit down with a professional, who would need to understand what their goals are for retirement.  Once they found out their goals, they’d understand what it takes to make those goals and have about a much better chance of retiring with dignity.

What are people’s current retirement plans?  There was a study done by the Consumer Federation of America asking people earning less than $35,000/year how’d they save $500,000 for retirement and 40% said the lottery.  The lottery is another government program that gives people incentive not to save and to throw away their money.

I get passionate about this subject because I care about people and our government is hurting people and filling them with false hopes.  Let me say that again, our government is hurting people by giving them incentives to make poor life decisions.  I am not saying that tomorrow we should write a bill to end Social Security because too many people are relying on Social Security’s promise.  I do believe we should immediately write a bill that phases it out over the next several years so that people have an incentive to come up with their own plan.

I also believe that all State governments should get rid of the lottery, even though it earns revenue pretty easily.  The benefits do not outweigh the negatives because even the winners always seem to go bankrupt.

It is funny how so many people complain about the government overspending and then they look at their own finances and they have a mortgage, car loans, student loans, and credit card debt.  To make a difference, you have to be different.  Start by getting on top of your debt.  The statistics for this posting were found in the book, “The Total Money Makeover” (pg. 153-154) by Dave Ramsey.  If you have debt and are looking for a good financial plan, I would recommend his book.

Why Everyone Needs to Pay Taxes

As you can tell, I am kind on a tax binge right now – I just wrote about the fair and flat tax systems and why I think they could make a good hybrid system.  I want to clarify that the reason I want everyone to pay taxes is not because I hate the poor, but because they need to be part of the system.

In Greece this past year, their country essentially went bankrupt.  Germany and other EU countries decided to help bail them out under some conditions.  Most of the conditions were getting rid of their entitlement program, including their public healthcare system, because it was costing them so much money.

Tim Pawlenty put it great in his new book, “Courage to Stand” (page ix), “There were protests and riots in the streets as a populace so addicted to entitlements and living the good life off the government dole faced the harsh reality that they might have to sacrifice what the government had promised them–because the government simply had no more money to pay for it.”

The citizens of Greece did not understand that the money did not fall from the sky.  You do not understand the value of something if you do not have to pay for it.  I valued my law school degree over my elementary education because I am still paying for my law school.

We vote for people we think will spend America’s money the way we think fit.  If you are not paying anything into the system, it is going to affect how you want that money to be spent.  Even if it is just $100 a year, I think it is important that people pay something so it prompts them to ask, “What are they doing with all my money?”