Impetuous Children
Research for Online Investors

by John Dalt

3/15/10

The girls are home from college this week, and the house is full with activity, at least after eleven o’clock in the morning and until midnight.  It seems my daughters have become nocturnal in college.  Thinking about the good times and the difficult times raising kids caused a smile this morning.  My mind wondered back to when they were little, tagging along behind mom and dad.

The market is ready to open down this morning amid concerns over multiple E.U. member country’s debt and China’s flexing their muscles concerning their currency valuation.  A detached view of the markets and world-wide economic mess in many countries leads me to think of the similarity of the hard reality of economic principals and lack of discipline with an impetuous child.

John Maynard Keynes gave governments a free pass with his oft referenced work ‘General Theory.’  No longer would a government official have to stand aside helplessly to let the market determine employment and the cost of goods.  Keynes believed that government could maintain higher employment through money supply manipulation, than a free market would provide without intervention.  If this was done with a deft balance the money would maintain value as the economy grew while avoiding business cycles that resulted in recessions and depressions.

The government would stimulate the economy, and boost unemployment when ‘market forces’ didn’t deal a fair hand to the populace. All things in economics should be orderly, with the invisible hand of government helping to balance the scales.  If real estate is too expensive for some, the central bank will flood the economy with cheap money to hold rates down, allowing citizens to grab their piece of the pie.  If real estate is too cheap, the central bank will flood the economy with cheap money to try to prime the pump and restart the engine.  The government would go into debt rather than let a business cycle cleanse the system, adjusting wages, costs and the prices charged to customers.  One problem that Keynes did not appreciate was that government would never take away the punch bowl.  Every situation required more spending!

After 70 years of practice, are we better off?  Countries around the world are broke or going there.  All because they are not longer allowed to tell their citizens, “NO.”  Citizens, and thus voters, believe they can have it all, cheap goodies, cheap houses, good jobs, cheap money to borrow, and new cars every year.  Governments are now burdened under the bill for the ‘social safety net’ that has developed over the last sixty years of ‘the invisible hand’ of monetarism.

Greece has been in the headlines for the last three weeks as they try to cut their budgets and freeze wages, only to see strikes by the workers saying, “We want it all, don’t take away the ice cream.”  Spain’s unemployment is approaching 20%, a budget deficit estimated at 12.5% of GDP, and non-performing loans are increasing.  Great Britain and the U.S. are faced with similar problems, but have the advantage of sovereign currencies they can inflate to dull the pain.  Moody’s quarterly report on sovereign debt said that “America is closer to the ratings-downgrade danger zone than Spain.”  Fortune magazine covers the Moody’s report under the headline, “No Room for Error on U.S. Debt.”  The U.S. faces interest payments rising above 11% of revenue by 2013  Our debt will have risen to an even higher level than today, and interest rates will increase as investors demand higher returns on their investments.  Interest payments over 10% of government revenue is the point that ratings agencies consider a downgrade, because the debt becomes less affordable and begins to drive budget decisions.

Telling citizens and voters “NO”, is hard for politicians when dealing with spoiled brats that have the right to vote for whoever will promise them the most goodies.  We have been warned about this danger for years, and now it comes into focus.  No one wants to hear the future is going to be tough, will require sacrifice, and we all have to put our shoulder to the wheel.  But that is what must happen if we are ever to get out of the downward spiral we are in.  Only through this kind of action will the U.S. return to leadership in the world.

My wife was a saint in dealing with the girls when they were little, but she just could not discipline them or tell them “NO.”  This chore was always left to dad when I came home from work.  It was hard on me to see the hope and dreams wash from their face when confronted with the hard reality of dad saying NO without appeal.

I remember my Dad seeing one of his grandkids at the grocery store checkout with his mother and asked, “Would you like a quarter for a candy bar?”  The immediate response was, “Thanks granddad, but I could do a lot more good with a dollar!”

What are you telling your political representatives?

To the Mailbag:
“Congress will be voting on the Healthcare Bill.  The media says that it is a battle between Democrats and Republicans, but is it?  What about conservative Democrats who believe not only in social responsibility, but also in fiscal responsibility.  The most recent…cost evaluation says that 42 million wage earners will have a tax increase to provide 13 million…with healthcare.  This tax will extend to the middle class.. There will be a 40% decrease in Medicare benefits, according to the Congressional Budget Office.  Politicians may say what they like, but the facts are the facts.  The cost will be $2 trillion.  The greatest hoax is that workers will be taxed for 4 years in advance of anything being implemented so that the politicians can call it ‘revenue neutral’…there has been nothing said about reducing Medicaid benefits.  Why not?  If you do not support the Bill, call your Representative and let them know…also let your Representative know that you will not vote for them in the November election if they vote for it..  Will it affect the way they vote?  Unfortunately, many of them think they know better than we do or are so tied to their party that they do not care what we want.”---paid up subscriber R.A.

Fight Organized Crime, Re-elect No One!---paid up subscriber G.C.

Don’t argue with an idiot.  He will drag you down to his level, then beat you with experience.---Author unknown.

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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