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People asking questions lost in confusion,U.
Well I tell them there's no problem,
Only solutions,
Well they shake their heads and they look at me as if I've lost my mind,
I tell them there's no hurry...
I'm just sitting here doing time,
I'm just sitting here watching the wheels go round and round,
I really love to watch them roll,
No longer riding on the merry-go-round,
I just had to let it go.

(John Lennon, Watching the Wheels)

Barack Obama is the President-elect of the United States of America. I do not envy him. He has a few problems to deal with. It would be beneficial for him to take the wise advice of John Lennon. He needs to slow down and not let the extremists in his party push him to hurry and make short term oriented decisions. His legacy will depend on his solutions to major issues, that will impact our country decades after his presidency. Ronald Reagan bravely made a decision early in his Presidency to support Paul Volcker’s tough economic medicine of high interest rates to kill inflation, knowing that it would cause a deep recession. He knew that what mattered was how the economy looked in 1984, when he ran for re-election. Mr. Obama will need to get off the merry-go-round of the political campaign and false promises. Short-term stimulus packages are the solution of weak minded politicians, like George Bush, Nancy Pelosi and Chris Dodd. Long-term thinking is what is required at this juncture of history.

The U.S. financial system is like a heart attack patient. Joe America (financial system) ate fast food (spent more than he made) at every meal, didn’t exercise (ran up debt), and worked late (didn’t save) at the office 6 days per week for the last 30 years. This ultimately led to a massive heart attack (worldwide financial crisis) and the patient has been kept alive through tremendous doses of drugs  (interest rate cuts, Federal Reserve injections) and quadruple bypass surgery (bank, insurance company and car company bailouts) to keep the blood (money) flowing to the heart.

The Chief Surgeon (President Obama) now needs to convince the patient (America) to change his ways and eat right (spend less than you make), exercise (reduce debt) and live a more balanced stress free life (save for the future). If the patient hangs around with the same crowd (Nancy Pelosi, Barney Frank & Congress) and goes back to the old lifestyle (spend & borrow), it will be only a matter of time before he has a relapse (another financial crisis) and dies (collapse of capitalism). It is essential that the Chief Surgeon (President Obama) take the long view (farther than the next election) and lead the patient (America) to do the right thing (live within its means).

Barack Obama ran one of the best Presidential campaigns in history. At his first press conference after the victory, he looked a bit lost. It reminded me of the final scene in the movie The Candidate when Robert Redford’s character has just surprisingly won his Senate campaign and says:

What do we do now?

Hopefully, one of Mr. Obama’s brighter economic advisors, such as Paul Volcker, will sit him down before the inauguration and explain to him that the United States has no money. We are broke. Not only do we have no money, we owe $10.6 trillion for things we have already done, and $53 trillion for things we have committed to. Adding to these deficits will not be beneficial. He doesn’t have to look back too far in history to see what happened the last time interest rates were at 1%, tax rebates were sent out to consumers, and government spending was ramped up. These actions after 9/11 led to the near collapse of our system. It is time for sacrifice, reduced expectations and some real blunt talk about the future. We did not get in this predicament because American consumers and the Government didn’t spend enough or because banks and credit card companies didn’t lend enough.

5% Solution

Tax cuts for 95% of Americans was a great campaign slogan. Forget it. Mr. Obama can not and should not follow through on this promise. I have no problem with him following through with a tax increase on the top 5% of earners. It is true that the top 5% pay 60% of the taxes. It is also true that the vast majority of these people are hard working, productive people who employ a huge number of Americans. These hard working people should be particularly angry with the small number of greedy, corrupt, gambling CEOs of large banks, investment banks and mortgage companies who raped and pillaged their way through our economic system. The American public is outraged at the immoral behavior of these highly educated MBA scumbags who sacrificed thousands of employees and billions of shareholder wealth for their own enrichment. A partial list of these excessive risk addicts, their compensation and impact on America follows:

click to enlarge images

One glance at this chart and you can see why the vast majority of Americans are furious and would like to deal out physical retribution to these villains. The reason that Mr. Obama’s populist pledge to increase taxes on only the top 5% of earners resonated with so many Americans is the men listed above. Angelo Mozilo was selling his company stock so fast during the summer before his company collapsed, that he had to skip multiple sessions at his tanning salon. These 7 CEOs robbed $1.4 billion of compensation from their companies, while leading those companies to losses of $64 billion and inflicting 75% to 100% losses to shareholders. At least 123,000 workers, with families & children have lost or will lose their jobs due to CEO greed, incompetence, reckless risk taking, and hubris. Watching Dick Fuld tell Congress he deserved the $354 million of compensation, after he destroyed the lives of so many Lehman Brother employees is beyond comprehension. So, I say go ahead and increase taxes on the top 5% of earners. Blame the greedy CEOs for this increase. If you happen to fall in this top 5% and run into one of these CEOs at your country club, spit in their eye and tell them thanks.

Tax Solutions

Mr. Obama needs to understand the meaning of the number above. The National Debt of the United States is $10.6 trillion. We have spent $10.6 trillion more than we have collected. This is $100,000 owed by every household in America. The annual deficit will reach $1 trillion in Mr. Obama’s 1st year on the job. For some perspective - we will add to the debt above at a rate of: $2.7 billion per day; $114 million per hour; $1.9 million per minute; $32,000 per second. How any politician can consider tax cuts in this situation is beyond comprehension. The size of government must be reduced in order to make a dent in this debt. During the campaign, Mr. Obama promised a tax cut for 95% of Americans. The problem is that 40% of Americans pay no Federal income tax. This “tax cut” would just be another version of the Bush rebate checks. They do nothing to benefit the country. What we do know is that people with a better education make more money. Wouldn’t it be a more worthwhile effort to try and move some of the 40% of people who pay no taxes into the 60% of taxpayers? Use some of the taxes collected from Angelo Mozilo and increase financial aid for college students.

Forget the stimulus packages, Mr. Obama. You don’t have to run again until 2012. Do the tough stuff now. My preference would be scraping all 66,000 pages of the tax code. Impose a national sales tax. We consume like no nation on earth. Tax consumption and reward savings. This is a simple solution, so it doesn’t have a chance. Our shallow politicians would lose the levers of their power. Now that gasoline has dropped back toward $2.00 per gallon, our strategic thinking Congressmen believe our energy problems are over. They are dead wrong. By 2013 we will no longer be supplied with the 1.7 million barrels of oil per day from Mexico, as their major oil field goes dry. Long term for a Congressman is next week. Now that the pressure is off, Mr. Obama should propose a $1.00 per gallon tax. Tax consumption, not investment. The $130 billion of annual revenue would be used to rebuild and repair our crumbling infrastructure. We could rebuild 156,000 structurally deficient bridges, replace millions of miles of ancient pipes under our streets, and overhaul the overburdened power grid, while creating millions of new jobs. Everyone would like to hurt the Tools who drive Lincoln Navigators with Save the Environment license plates.

Housing Solution

The solution to the housing crisis is detailed in the charts below. The average price of a house in California dropped 40.9% in September. Amazingly, home sales increased by 96.7%. Capitalism worked without a government bureaucrat instructing everyone what they should do. When prices fall far enough, all houses will sell.

The Democrats, and even some Republicans, seem to think that we need to stabilize home prices. That is a ridiculous idea. Home prices need to fall to their natural level of affordability. If the government attempts to artificially prop up home prices, the market will not recover for a decade. If we let supply, demand, and price work its magic, the housing market will be stabilized by 2011. The top 10 cities in the U.S. are expected to see significant declines in 2009. These price decreases will ultimately lead to higher sales. Artificially keeping prices higher through government intervention will deny affordable housing to future buyers.

Based on the chart below, prices have a long way to go before reaching an equilibrium level.

Foreclosures are currently running at an annual rate of close to 2 million. There are approximately 2.3 million vacant houses in the United States. Close to 15% of all homes (approximately 11 million homes) in the U.S. have a mortgage balance that is higher than their value. There are thousands of adjustable rate mortgages that will reset in 2009. The lowlife politicians who make it sound like a foreclosure is the end of the world are wrong. If you cannot afford your mortgage payment, you should not own a home. My solution for someone who is losing their home to foreclosure is: RENT! There are 4 million vacant rental units in the U.S. Rent for a few years, save your money until you have a 20% down payment and then buy a home you can afford this time.

Bailout Solutions

Bailing out banks, insurance companies, and now car companies is a bastardization of our capitalist system. The $850 billion bank bailout was supposed to bring confidence back to our financial system and allow banks to lend. The markets were so confident with the actions of our “leaders” that it has declined 17% since President Bush showed so much courage by signing a bill. We are now propping up banks that should have gone bankrupt. It is good to see we’ve learned the lessons of Japan’s miss steps, and have made the identical mistakes they made in the 1990s. Zombie banks that will not lend are the result of government intervention with the natural process of capitalism. The supposed excuse for “saving” Bear Stearns and AIG was the systematic risk. These lowlife shallow bureaucrats don’t even bother with this fake argument anymore. What systematic risk is posed by letting General Motors, Ford, or Capital One go bankrupt? Bankruptcy is an essential part of capitalism. These companies would not liquidate, they would downsize and restructure. Stockholders would be wiped out, bondholders would lose money, workers would be fired, inefficient plants would be closed, union contracts would be renegotiated and leaner more competitive companies would resurface.

Instead, Congress will pour billions of our grandchildren’s tax money into these bloated companies, while retaining their short-sighted, worthless management. This is the same management that staked their companies on trucks and SUVs. There are 251 million passenger vehicles in the U.S., an average of 2.4 vehicles per household in the U.S. GM and Ford have been horribly run for decades. How could people who reached the top management of these companies extrapolate the 17 million annual sales pace of 2005? Don’t they get paid millions to think strategically? Sales trends are currently 11 million. Both GM & Ford are burning through billions of cash per month. GM will run out of cash in 2 months. The message we send to banks and all large companies when taxpayers bail them out is that bad decisions, excessive risk taking and poor planning has no consequences. The Democratic Congressional leaders will say that we need to save these “essential” companies. The truth is that they will bail out these companies as a payoff for Union votes during the election. As millions of average Americans lose their jobs and see Corporations and CEOs bailed out, they are angrier thanthey have been since the 1970’s. People in this country are feeling a mixture of hopelessness, fear, anger and denial.

Congressional Solution

Mr. Obama should tell the big mouths in Congress to shut up. Nancy Pelosi, Barney Frank and Harry Reid should not and cannot set the agenda for his Presidency. Congress has earned its 17% approval rating. I’d like to meet someone from the 17% to see if they are mentally defective. During the two months before taking the reins of government, I would suggest that Mr. Obama read the writings of some of our Founding Fathers to gain some wisdom. I recommend Thomas Paine and Thomas Jefferson.

Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one. (Thomas Paine) 

I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them. (Thomas Jefferson)

He who is the author of a war lets loose the whole contagion of hell and opens a vein that bleeds a nation to death. (Thomas Paine)

Mr. Obama needs to think long-term and ignore short-term popular decision making. He needs to scrap what isn’t working. The American people do not need to be taken care of. We spend $56 billion annually on a Department of Education that has led us to the 25th position in the world in scores for math and science. If a Department fails, it should be scrapped. We spend $25 billion annually on the Department of Energy with the result being no strategic plan for our energy future. We spend $67 billion annually on the Department of Transportation resulting in 156,000 structurally deficient bridges. These expenditures appear to be just pouring money down a rat hole. More government bureaucracy will not solve our long-term issues. Outside the box thinking is required.

Expanding government is not possible. We have a $10.6 trillion debt, with $53 trillion of unfunded liabilities looming in the near future. We cannot grow our way out of these problems. We must cut spending, cut benefits and generate more revenue. It is disingenuous to blame FDR for all of our unfunded liability problems. George W. Bush, Mr. Fiscal responsibility himself, signed an expansion of the Medicare program in 2006 that has committed far more money than FDR did with Social Security in 1937. Both parties are great at spending our money without making the hard choices of cutting something or increasing taxes. Increasing spending without a plan to pay for it is a tax on future generations, and is immoral.

Winding down our two wars would save the country $150 billion per year. Billions would be saved by withdrawing the 57,000 military personnel in Germany, 33,000 in Japan and thousands more in another 115 countries throughout the world. Our vast overseas military empire cannot be supported if we want to pay for our domestic obligations.

Imagine

John Lennon was murdered on December 8, 1980. He was truly a gentle soul. The country was in the midst of a terrible recession in 1980. His lyrics were hopeful and optimistic. His brutal death seemed to usher in a more divisive, materialistic, greedy, selfish, consumer society. Lennon’s lyrics from his song, Imagine, are farther from today’s reality than ever before.

Imagine no possessions
I wonder if you can
No need for greed or hunger
A brotherhood of man
Imagine all the people
Sharing all the world...
You may say I'm a dreamer
But I'm not the only one
I hope someday you'll join us
And the world will live as one

(John Lennon, Imagine)

The spirit of change that has swept the country offers us a chance to imagine how our country could be.

  • Imagine Washington DC not being dominated by lobbyists, lawyers, PACs, money, lifetime bureaucrats, media consultants and political hacks.
  • Imagine a Congress that operated under term limits so that high quality people ran for election, knowing that they were giving the country six years of service, rather than seeking a lifetime profession.
  • Imagine a President who understands history, our Constitution, and makes decisions based on facts, rather than ideology.
  • Imagine a President who would tell the American people the truth, not just what they want to hear.
  • Imagine a President that will surround himself with smart, honest, non-partisan advisors.
  • Imagine a government that did not spend more money than it brought into its coffers.
  • Imagine a government that would get rid of Departments that did not accomplish what they were supposed to do.
  • Imagine a government that allowed its citizens to have liberty, freedom of speech, and freedom to live their lives as they choose.
  • Imagine a country that was respected throughout the world because of its principles, actions, and example.
  • Imagine CEOs who led by example, managed for the long-term, made ethical decisions, and were satisfied with compensation 20 times the average worker, rather than 500 times the average worker.
  • Imagine a financial system that allowed failure and did not reward poor decision making.
  • Imagine a government that did not bailout companies that should be in bankruptcy.
  • Imagine a financial system that did not depend on a Federal Reserve to print money in order to keep the Ponzi scheme going, while devaluing the dollar.
  • Imagine a currency backed by gold that would automatically restrict overspending by Congress.
  • Imagine a military that was used to protect our country, rather than start pre-emptive wars.
  • Imagine what could be accomplished if 50% of the $1.4 trillion annual military related budget was redirected to debt reduction, energy independence, and infrastructure rebuilding.
  • Imagine a “Manhattan Project” to develop new energy sources which would eliminate the $700 billion per year that we send overseas for foreign oil.
  • Imagine the number of high paying jobs that would be created rebuilding the crumbling infrastructure of the United States.
  • Imagine the number of jobs that could be created by building nuclear power plants, wind farms, and converting vehicles to natural gas.
  • Imagine a simple tax system based on a national sales tax, rather than taxing earnings and investment.
  • Imagine Americans who lived within their means, used debt only for long-term assets, and saved for their retirement.
  • Imagine Americans who were satisfied with what they have, rather than desiring what their neighbor has.
  • Imagine a country where home prices were low enough that someone with an average income could buy a home with 20% down.
  • Imagine a country where two cars per household were satisfactory.
  • Imagine an education system that produced the best and brightest students in the world.
  • Imagine parents who demanded excellence in school, rather than excellence on the playing field.
  • Imagine that Americans treated their fellow man with civility, honesty, trust and openness.
  • Imagine Americans giving more to deserving charities than they spend on Ipods and HDTVs.
  • Imagine a world where people respected all religions and didn’t vilify those with different beliefs.
  • Imagine a society where people listened to other opinions, debated issues without screaming, and compromised for the overall benefit of society.
  • Imagine that your voice counts, your actions matter, and your opinions are heard.
  • Imagine a brotherhood of man where all children did not go to sleep hungry, did not die from common illnesses, and had the love of a family.

I believe that the internet can be used to spread the message of the people. I leave you with more words of wisdom from a Founding Father.

“One man with courage is a majority.”  (Thomas Jefferson)

Source: U.S. Economy: There Are No Problems, Only Solutions