Eurozone Agreement, Maybe
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12/09/11

European Leaders met last night and today in Brussels, Belgium.  Thursday night’s negotiations went late in the night to gain an agreement from all 17 nations in the eurozone monetary union plus six of the EU countries that do not use the Euro.  This morning three of the hold out countries agreed in principal, leaving Britain as the only holdout.

France and Germany declared victory for the eurozone and British Prime Minister David Cameron held out because of a financial transaction tax that is part of the agreement.  As a financial center, London would be particularly hurt by a transaction tax.  Reuters reports that financial services make up roughly 10% of Britain’s economy.  Yesterday marked the 20th anniversary of the Maastricht Summit in Brussels, when European leaders negotiated the treaty by the same name that created the euro.  Britain never joined the eurozone monetary union, either.

Negotiations will occur over the next three months with a signing hoped for in March of 2012.  The proposed agreement will cap the European Stability Mechanism at 500 billion euros ($666 billion dollars), provide for bailout decisions by an 85% super-majority rather than the current unanimous vote, and budget review by a eurozone commission with rules on excessive deficits.

Discussions were for a 3% annual budget deficit limit and a requirement for member country constitutions to include balanced budget language.  The market has greeted this with enthusiasm and is rallying this morning.  We are not convinced it will last but sunny days should be enjoyed!

President Obama brought his populist message to Kansas this week.  It is a rare opportunity to see a sitting President in our state, and I thought about going to see the president.  Our state is in “fly-over” country, one that is safely in the “R” column, and only has four votes in the Electoral College.  There are few reasons for candidates or presidents to visit.

I thought about going to see the president, about the same way I thought about getting up at four a.m. to go shopping on Black Friday!  I would rather take a beating in the front yard.  The president has seized the political initiative by pressuring the “do nothing” republicans in congress to pass an extension to unemployment benefits and lowering the contribution level on Social Security before the end of the year.

Harry Reid has vowed to keep congress in session until they pass a bill as the president demands.  First let’s understand what the president wants.  The White House wants to continue unemployment benefits for up to 99 weeks after a person loses their job.  Social Security contributions were cut last December from the normal 6.2% to 4.2% on earned income for employees.  Contributions for employers stayed at 6.2%.  Both of these programs end on 12/31.  Benefits will be ended for those unemployed for over 26 weeks and social security paycheck deductions will go back to 6.2%.

The president reminds me of a kid running for sixth grade class president.  When asked what he will do as president….he says “FREE Ice Cream.”  The other little girl talks about asking the principal for better toys for recess and less homework…but FREE ice cream attracts voters so the little boy wins.  He tells the class after the election they can’t have free ice cream because he doesn’t have any money, but he is still class president.  The kids think he is the greatest because he tried to get free ice cream.

Pretty soon, bond buyers are going to tell the U.S. there is no more FREE ice cream.  But for now he is still president.

Here is a way to give the president what he wants.  Republicans should agree to cut Social Security contributions by employees AND employers to 4.2%…permanently.  This would mean the total money set aside for retirement would equal 8.4% of earned income.  Congress can pay for this by raising the income level subject to the deduction to $200,000.  This works if it goes into 401k accounts rather than the rat-hole Ponzi scheme the government has been running for the last 70 years.  When citizens opt out of Social Security the liability for future payments is erased.  Let’s find out if he really wants a tax cut for American workers.

The legislation should also increase the retirement age one year immediately and an additional year every three years until the benefit age equals the average life expectancy in the U.S.  By offering citizens a lower tax rate for social security and the independence of 401k savings accounts that were funded out of payroll deductions and employer contributions conservatives would allow citizens to assume responsibility for themselves.

Conservatives could easily extend benefits to those unemployed over 26 weeks, if they move to one of the three states with an unemployment rate under 5%.  Those states are N. Dakota (3.5%), Nebraska (4.2%), and S. Dakota (4.5%).  Checks could be picked up at the state unemployment offices in the respective states with proof of residence.  I am sure the unemployed folks in Florida would enjoy the seasonal changes in weather in any one of these states.  Just to assist travel plans, I checked the weather in Williston, North Dakota.  The high today is a balmy 19 degrees and minus 4 degrees tonight.

Quote:
Big banks are the state apparatus which we need to bring about socialism, and which we take ready made from capitalism... A single state bank, the biggest of the big, with branches in every rural district, in every factory, will constitute as much as nine-tenths of the socialist apparatus. This will be... so to speak, something in the nature of the skeleton of socialist society.—Lenin

Mailbag:
My Dad was stationed at Hickam AFB, Honolulu, Hawaii, from 1954 to 1961. Pearl Harbor was still fresh in the minds of the military and residents. The building on base where my dad worked still had bullet holes in it resulting from the attack.  It’s a shame the government schools don’t teach our children history.---Buy, Sell, Hold subscriber G.C.

John’s reply:  They do teach history…but you might not recognize it.  I was reading the top secret invasion plans (Operation Downfall) to end the war with Japan.  The pentagon expected one million American casualties in the fight, PLUS Japanese soldiers and civilians, and we have people that question the morality of the U.S. using the Atomic Bomb?  The Atomic Archive estimates total casualties in Hiroshima and Nagasaki at 199,000.  More Japanese than that would have been killed in traditional warfare.

John

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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