Saturday, April 23, 2011

Oh To See Ourselves as Others See Us!

I am not saying these two advisers are right but they lay out a rational case to support their views.

Wiedemer, in his very simple way, explains why the 'recovery' is based largely on government and FED stimulation and the recovery is an historically weak one at best.

Advani's argument about a declining dollar is based on his reading of what others have been doing as a result of what Wiedemer is saying.

Robert Burns was right when he wrote a poem stating it is often easier for others to see us than for us to see ourselves.

So who got stimulated and who did the stimulating about which Obama now complains - it's the flim flam man himself! Instead of being president Obama should be selling siding and 'shingles' can be painful.(See 1 below.)

The 'Recovery' Is 100 Percent Fake
By Robert Wiedemer

The recovery is a fake. It is COMPLETELY a result of massive increases in government borrowing.

The cheerleaders like to tell you that the economy has rebounded. We had government stimulus earlier, but now animal spirits have taken over and it is running on its own. Hah! The recovery is ONLY stimulus.

Let’s look at the numbers:

In 2007, the GDP was $14.0 trillion.

In 2010, the GDP was $14.6 trillion.

That’s a net increase of $600 billion — $600 billion in 3 years is not good, but it is a rebound that is at least slightly above inflation.

However, let’s compare that to the increase in government borrowing.

In 2007, the U.S. government borrowed and spent $163 billion.

In 2010, the U.S. government borrowed and spent almost $1.4 TRILLION.

That’s a net increase of over $1.2 trillion.

The ENTIRE increase in our GDP can be attributed to the increase in government spending. In fact, the increase in government spending is almost TWO TIMES the increase in our GDP.

That means the economy is doing very poorly indeed. Without massive increases in government borrowing and spending, there would be no recovery at all.

As a final note of how much the U.S. government has increased its borrowing and spending, in February 2011 alone we borrowed and spent $222 billion. That’s almost 40percent more than in ALL of 2007.

About the Author: Robert Wiedemer
Robert Wiedemer is a managing director of Absolute Investment Management, an investment-advisory firm for individuals with more than $80 million under management. He is a regular contributor to Financial Intelligence Report, the flagship investment newsletter of Newsmax Media.
Global Tide Turns Stronger Against US Dollar
By Ashish Advani

I woke up in a cold sweat this morning at about 4 a.m. Slightly disorientated, I tried to get my bearings as the nightmare that I was having seemed surreal.

I had a nightmare that the world was conspiring against the United States and that we had the makings of doomsday scenario beginning to play out.

As I collected my wits about me, I realized to my dismay that the doom surrounding me related to the news I had heard over the past few days. It was real — and the perfect storm was developing in front of my eyes.

Before you wonder what I am talking about, I am referring to the perfect storm developing against the U.S. dollar and what its consequences will unleash upon us.

I have been talking to you about inflation in the country and how it will eat us alive. A direct factor leading to this is the gradual but definite devaluation of the U.S. dollar we are witnessing. What hasn’t been very clear in the media around the United States is the direct and dangerous steps being taken by various countries to undermine the dollar.

Did you know that China has been actively promoting the renminbi (locally known as the Yuan) in its trading relationships? While this is not a threat by itself, but when we understand the consequence of such action in relation to the weakening dollar, it scares me.

China has, since late 2008, been steadily and steadfastly signing bi-lateral currency swap contracts with its larger trading partners. A bi-lateral currency swap means that the two countries would conduct trade with each other in local currencies and eliminate any U.S. dollar (or any other third currency) between themselves. So if China buys oil from Brazil, the price will not be settled in U.S. dollars.

China has signed such bi-lateral currency swaps with South Korea, Hong Kong, Malaysia, Indonesia, Thailand, Singapore, New Zealand, Russia, Uzbekistan, Iceland, Argentina and Brazil. I apologize if I have missed any other country that has already turned their back on the U.S. dollar already – not.

As if that was not enough insult, the BRICS countries (Brazil, Russia, India, China and the new shining member in this group – South Africa) have started flexing their muscle. In a significant step toward enhanced economic cooperation, the BRICS, on April 14, signed an agreement that will enable them to provide credit to each other in local currencies and collaborate in capital markets and other financial services. With 42 percent of the world’s population and 18 percent of the world’s GDP, the groups’ strength cannot be discounted.

The entire premise of being against the U.S. dollar is based on the argument that the dollar rose to its prominence at the end of World War II, and the economic reality to today’s world has changed enough that the dollar cannot continue to remain the reserve currency.

The volatility in the commodities priced in U.S. dollars cannot be denied, nor can the inherent internal weakness of the dollar (unsustainable deficits).

I am having a hard time defending their views and I am seeing the global traders sell the U.S. dollar virtually every day.

If this was all not bad enough, gold hit $1,500 per ounce while silver is knocking the door of $45 an ounce.

While the news is not new to us, Standard and Poor’s (S&P) finally awoke from its slumber and stated the most obvious truth. The U.S. sovereign debt rating is under review and the outlook on the U.S. debt is negative.

Really? Thank you Mr. Johnny Come Lately …

Frankly, I have exited the U.S. dollar years ago and have been investing in various currencies and stock markets around the globe. I strongly recommend you do the same, dear reader.
The CIA's unmanned robot program continues to kill innocent Pakistani civilians on a random basis but no utterance from the UN, no call for a commission to investigate, not a peep fom the BBC, peaceniks around the world or the liberal media and press but were the same true of Israel the cacophony would be deafening.

I understand the CIA's desire to target terrorists and more power to them. I am simply pointing out that the world is two faced when it comes to Israel's defensive response as opposed to others.
Obama is all for fairness but when he spouts his inflammatory nonsense he does not apply that standard to himself.

Tax the filthy rich, most of whom do work for their rewards.

Yes, even tax them out of existence and you will still have government deficits, poverty and those incapable of doing for themselves.

Yes, the disparity between the rich and poor grows as government expands and progressives seldom question whether there is a correlation.

Yes, most understand an educated and motivated citizenry is the answer but telling that would be unfair according to Obama's re-election strategy.

Yes, government has a legitimate role to play but choking off initiative is not the answer.

Government should see itself as a role model. Government should set the societal tone. Thus, when government fails in its responsibility to that society, that society is most likely going to fail over time.

The tea leaves are there for all to see and that is the "Tea Party" message plain and simple.

Fairness is that wonderful mythical, ephemeral goal of dreamers, bureaucrats and progressives. What is most unfair about fairness doctrines is they seldom, if ever are achieved, their pursuit if back breakingly costly and produces inefficiency and disunity. So much for fairness gibberish. (See 2 below.)
1)This is the clear presentation of the job creation results by the Obama stimulus program.

Budgets do not come from the White House. They come from Congress, and the party that controlled Congress since January, 2007, is the Democrat Party. They controlled the budget process for FY 2008 and FY 2009, as well as FY 2010 and FY 2011. In that first year, they had to contend with George Bush, which caused them to compromise on spending, when Bush somewhat belatedly got tough on spending increases.

For FY 2009, though, Nancy Pelosi and Harry Reid bypassed George Bush entirely, passing continuing resolutions to keep government runni ng until Barack Obama could take office. At that time, they passed a massive omnibus spending bill to complete the FY 2009 budgets.

And where was Barack Obama during this time? He was a member of that very Congress that passed all of these massive spending bills, and he signed the omnibus bill as President to complete FY 2009. Let's remember what the deficits looked like during that period: (See below)

If the Democrats inherited any deficit, it was the FY 2007 deficit, the last of the Republican budgets. That deficit was the lowest in five years and the fourth straight decline in deficit spending. After that, Democrats in Congress took control of spending, and that includes Barack Obama, who voted for the budgets. If Obama inherited anything, he inherited it from himself.

In a nutshell, what Obama is saying is, "I inherited a deficit that I voted for and then I voted to expand that deficit four-fold since taking office on January 20th, 2008."
2)Obama says it’s only ‘fair’ to raise taxes on the rich. He’s wrong.
By Arthur C. Brooks

President Obama’s criticisms of the Republican budget proposal put forward by Rep. Paul Ryan of Wisconsin center on one main objection: It is unfair.

The Ryan plan is based on three premises. First, our economy is headed for a predictable disaster because of the ruinous levels of government spending. (Standard & Poors’ decision this week to downgrade its outlook for U.S. debt only confirms this worry.) Second, we already have one of the highest corporate tax rates in the world, and we can’t load more income taxes onto entrepreneurs without expecting collateral harm to jobs and economic growth. Third, therefore, we must cut spending and reform entitlements, and this would necessarily affect the nearly 70 percent of Americans who take more from the government than they pay in taxes.

The president isn’t buying it. “There’s nothing serious about a plan that claims to reduce the deficit by spending a trillion dollars on tax cuts for millionaires and billionaires,” he said in a speech on April 13. Knowing that some polls show support for tax increases, he also complained that, over the past decade, “the top 1 percent saw their income rise by an average of more than a quarter of a million dollars each. And that’s who needs to pay less taxes?” And in his town hall meeting Wednesday, he called for a tax code that is “fair and simple,” proposed spending cuts that are “fair” and ask for shared responsibility, and concluded that he wants to “live in a society that’s fair.”

While conservatives have criticized the economic principles and class-baiting cadences of Obama’s budget rhetoric, no one has answered his fundamental charge that the Ryan plan is unfair. Conservatives have long stayed away from fairness debates, preferring to build unemotional arguments on the right angles of economic efficiency. This is a lost opportunity. Advocates for limited government can win the fairness argument in a walk.

For years, economists have conducted experiments to study attitudes about economic fairness. One such experiment is the “ultimatum game.” Two strangers are asked to split $10. One is given the $10 and instructed to choose how much to offer the other. Say you and I are the players, and I offer you $3, meaning I would keep $7 for myself. If you accept my offer, we both keep the respective amounts. If you reject it, we both leave empty-handed.

Economic theory predicts that you should accept any positive offer — even one penny — because it’s better than nothing. But, of course, that’s wrong. If the offer seems too unfair, you’ll walk away out of spite and punish me for my selfishness. In the United States, games like this have an average offer of about $4, and offers are accepted about 85 percent of the time.

Note that merit is not part of the experiment; nobody earned the $10. When we bring merit into the mix, the results change. Another experiment shows this by asking subjects to imagine they are lying on a hot beach, craving a cold beer. Would they be willing to pay more, less or the same for their favorite beer if it were purchased from an upscale resort hotel versus from a run-down grocery store?

It turns out that people are willing to pay up to 77 percent more to buy the beer from the fine hotel. A reasonable interpretation is that if you have high prices because you run a nicer business with higher costs, people believe it is fair for you to charge them more than if you have low costs and worse service. An additional inference is that it would seem unfair to force the hotel to lower its prices just because the grocery store charges less.

In general, when resources are perceived as unearned, people think it fair that they be split up somewhat evenly. But when merit is involved, people believe it is fair to reward it with more money. This exemplifies the two most common definitions of economic “fairness” in public policy. The $10 game involves redistributive fairness; the beach-beer experiment reveals meritocratic fairness.

Public opinion studies show that Americans tend to prefer beer on the beach. In 2006, the World Values Survey asked a large sample of Americans to imagine two secretaries with the same job but one earning considerably more. However, the higher-paid secretary is “quicker, more efficient and more reliable.” The survey asked whether a pay difference between the two was fair. About 89 percent said the gap was fair, while about 11 percent said it was unfair.

Of course, for this example to translate into a fair economic system, both secretaries must have the opportunity to develop their skills. It’s not fair at all if the less-effective secretary couldn’t go to school and doesn’t know how to read.

And so it is in our country. If opportunity in America is a sham — if the system is rigged and some people get the breaks only for reasons of luck, birth, or discrimination — then merit is fictitious and redistribution brings greater fairness. But if America is an opportunity society — if you have the chance to work harder, get more education and innovate — then rewarding merit is fair, and it is fair for some to make more money than others.

Most Americans believe we live in an opportunity society. The General Social Survey has asked Americans since 1973 to answer whether people get ahead because of “their own hard work” or because of “lucky breaks and help from other people.” For four decades, 60 to 70 percent of Americans have said “hard work,” while never more than 16 percent have said “lucky breaks.”

It’s hardly a shock that seven in 10 Americans believe in the American dream. If you descended from immigrants, ask yourself: Why did my ancestors come here? I suspect it wasn’t to find a fairer system of forced income redistribution. It was to find a place where they could get a fair shake, where they could start their own business, and where hard work and good ideas would be rewarded.

Politicians have denied the core American belief in opportunity at their peril. In 1972, Democratic presidential candidate George McGovern delivered a campaign speech to blue-collar workers at a rubber factory near Akron, Ohio. He announced his plan to raise estate taxes to dramatically reduce inheritances and to redistribute the money to people like those assembled. He felt sure his message would resonate with his working-class audience.

Instead, he was booed.

You may be thinking that, yes, opportunity is real in America, but it’s certainly not the only thing. Luck, discrimination and birth affect life outcomes, too. In my case, I was born into a family with little money but was lucky to have parents who valued honesty, thrift and education. Others weren’t so lucky.

Good parents are one kind of luck. Studies have emerged showing that life is easier for beautiful women and tall men who don’t lose their hair. And even if you’re short, bald and unattractive, you can still game the system. We have all had lazy colleagues who have brown-nosed their way to some success, with less merit than us.

Since equality of opportunity is not universal, doesn’t this invalidate — or at least weaken — the romantic notion of meritocratic fairness? Of course not. You’re living in a dream world (or you have tenure) if you really believe merit doesn’t matter. Everyone can think of times when things went well as a direct result of hard work. We can also come up with cases in which we were punished at work or in life for laziness, incompetence, free-riding or stupidity.

And even if only a portion of the outcomes in life were due to merit, we should still gear our system to the part that is under our control. Otherwise, we have no incentive to be industrious, honest, innovative and optimistic — and there’s no reason to teach these values to our kids, either.

Most important, if we reject the ideals of opportunity and meritocratic fairness, we will end up with a system where outcomes are simply based on luck or political power — it would become a self-fulfilling prophecy. In a 2005 study published in the American Economic Review, economists at Harvard University and the Massachusetts Institute of Technology studied 29 countries and showed that a belief in luck over merit was strongly linked to the level of taxation and spending on social programs. Furthermore, they showed that the more citizens believed in a merit-based system, the more their public policies produced such a system.

In contrast, when populations believed that outcomes are a product of luck, birth, connections, or corruption, the people demanded more distortions to the free-enterprise system and ended up with a system that only affirmed their anxieties.

When politicians argue that, for the sake of fairness, we must raise taxes on the entrepreneurial class — and make those “millionaires and billionaires” bring us a few state-subsidized beers on the beach — they are unwittingly undermining the possibility of achieving the opportunity society they regret not having.

We are not a perfect opportunity society in the United States. But if we want to approach that ideal, we must define fairness as meritocracy, embrace a system that rewards merit, and work tirelessly for true equal opportunity. The system that makes this possible, of course, is free enterprise. When I work harder or longer hours in the free-enterprise system, I am generally paid more than if I work less in the same job. Investments in my education translate into market rewards. Clever ideas usually garner more rewards than bad ones, as judged not by a politburo, but by citizens in the marketplace.

There is certainly a role for government in this system. Private markets can fail due to monopolies (which eliminate competition), externalities (such as pollution), the need for public goods (such as education, which is indispensable in an opportunity society), corruption and crime. Furthermore, most economists agree that some social safety net is appropriate in a civilized society. When the government focuses on these things, it assists the free-enterprise system.

But when a government that has overspent for years turns to tax increases instead of spending cuts simply for the sake of “fairness,” it weakens free enterprise, lowers opportunity and impoverishes us in many ways.

And that is simply unfair.

Arthur C. Brooks is president of the American Enterprise Institute and author of “The Battle: How the Fight Between Free Enterprise and Big Government Will Shape America’s Future.”

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