If You Liked The Housing Bubble, You Will LOVE the Stock Market Bubble !!!

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Today, we had a preview of what a stock market bubble looks like………..but first lets take a trip down memory lane to the housing bubble.

The prices kept soaring and soaring with no end in sight, and no one asked why.  The government thought that owning a house was great…….regardless of your financial capability.  They relaxed mortgage requirements  and we wound up with NINJA loans – that was a loan to a person with NO INCOME, NO JOB, AND NO ASSETS.  But as they like to say on TV, wait there is more……….the mortgages were then bundled and sold as investments to banks.  Shortly thereafter as people defaulted on their loans came the bank bailouts.

The price of housing no longer soared and started to decrease as the bubble burst.  This snowballed as more loans defaulted.  Today, after four years, we are still trying to recover from this government induced recession.

Now……….we have a glimpse of the future.  The Federal Reserve Bank, under the direction of Chairman Ben Bernake, has been printing and spending money, trying to prop up our failing economy for years – currently spending $85 Billion/month buying up government securities and mortgages.  In the process, interest rates were intentionally kept low, and retirees found they could no longer live on interest from their bonds.  They were forced to the only thing available, the volatile stock market.

The stock market has been increasing, in spite of, not because of, the President’s economic policies.  The quantitative easing and other programs initiated by the Federal Reserve Bank, and the President’s taxing programs have failed to reignite our economy.

Today, what we saw today is just a preview of the coming attractions.  When Ben Bernake spoke, the market initially rose 154 points.  However, when Ben said that they were reviewing their policies and procedures, no actual word that they were ending their support to the economy, just that they were looking at it, that was enough.  The market dropped a total of 276 points, before it caught its breath and recovered a few points to close down 80 points from its opening..

When Chairman Bernake actually says he will stop printing, the stock market, which has been propped up by various spending programs, will experience a reversal as people move from the volitive stock market to more stable investment vehicles.

Sooner or later, next week, next month, next year, or some time in the future, the financial support to the market will cease……….and when it does, that old axiom of what goes up, must eventually come down, will apply to the stock market.  Hang on because it will make the Wild Ride of Mr. Toad look like a walk in the park.

- Bob Hancock

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That Fiat Currency – It’s Not An Italian Sports Car

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Yes, that fiat currency is really the currency of the United States.  Fiat currency is  money that is declared legal tender by the government, but not backed by gold, silver, or another precious commodity.  There are several unique features of fiat currency.

    1. The value of the money is set by the government and does not change when the price of gold or silver changes. 
    2. There are no restrictions on the amount of money you can print and place in circulation.
    3. It does not cost the government any more to print a $10,000.00 bill than to print a $1.00 bill.  The only difference is the amount of money placed in circulation.
    4. The government can add too much money to circulation and create inflation.  The buying power of the dollar then decreases and the costs of goods increase.  

Following are some unique features of currency on a monetary standard such as gold or silver:

    1. The price of the commodity that backs the currency sets the value of the money.
    2. You are restricted to printing and placing in circulation no more money than the value of your reserve holdings.

Whether operating on the gold or silver standard, or operating as a fiat currency, the government can always remove money from circulation, inducing deflation which results in lower prices.

Yes, the United States has gold reserves at Fort Knox, KY, and there are gold, silver and other precious metal holdings in other banks around the country, but these holdings are not used as backup for the currency our country has printed and placed in circulation.  The money is backed only by the word of the government.  

The biggest problem with a fiat currency is the tendency of the government to print too much money, thereby increasing debt to unmanageable levels.  This can lead to inflation, hyperinflation or fiscal collapse of the money.  

The question must be asked:  How long can we continue to spend with nothing backing up our currency?

A common thread throughout the history of our country has been the stability of our money and now, even this is threatened by people who cannot control their urge to print and spend more money than the government takes in.  The future of our country and our dollar depends upon a return to fiscal sanity……….by not spending more money than we have………

- Bob Hancock

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The War On Retirees – When Will It End???

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The concept of retirement is very simple, have enough money so that you can stop working, and live off of your money. One method is to have enough money (inheritance or winning the lottery) that you do not need to worry about living off the interest, knowing that each month, you will have less total money than the preceding month.

If you do not meet this criteria, then you need to have a personal retirement savings account you control. If you do not have a personal retirement savings account, you may have a defined benefit plan (federal, state, county & city governments), a 401K (defined contribution plan) or similar plan, or count on Social Security. All of these professional plans have fund managers who are paid to achieve the maximum return for the money invested. All retirement funds whether personal or managed are all equally affected by interest rates.

Interest rates are the problem. Interest rates are artificially low, by order of the Chairman of the Federal Reserve Bank, Ben Bernake (not subject to control by the President) who said that interest rates will stay at or near zero until the unemployment rate decreases to 6.5 percent. The current unemployment rate is 7.6 percent; however, this too is artificially low due to the large number of people who have dropped out of the work force and are no longer looking for a job. Without the reduction in people looking for work, the unemployment rate would be over 11%.

This means that ALL retirement funds whether public or private are NOT earning sufficient interest to make payments to all of their payees, and are dipping into the principle each and every month. The end result is less money in each and every fund, every month.

It is no longer possible to live off of the interest from your retirement savings. The defined pension plans are grossly underfunded and seeking bailouts. The choices for our senior citizens are few, continue to work, knowing that you are getting older, your health is steadily decreasing, and you are facing more competition from younger workers…..or dip into your ever diminishing retirement savings accounts, hoping that your money outlasts your life. There are no winners in this situation. All of this amounts to a war on retirees.

The future is not bright for retiree funds. So far the President has shown no inclination to make changes in his fiscal policies which are contributing to the high unemployment and the Chairman of the Federal Reserve Bank is equally unwilling to change his interest rate policy.

Retirement is often described as our “Golden Years.” The direct policies of President Obama and Chairman Bernake have turned them into the SURVIVAL YEARS – How do I survive in a world of diminishing money and increasing prices……and most importantly, what happens when they run out of money?

When will it end? Not until the current politicians are replaced with people whose policies are not at war with retirees. Remember, your retirement depends upon your vote!

- Bob Hancock

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Who Has The Courage To Lead ???

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We now have a real life scenario of brinksmanship unfolding on the Korean Peninsula which calls for a leader. The man-child ruler for life of the hermit kingdom of North Korea, Kim Jong Un, is threatening war. He said he has cancelled the armistice signed with South Korea in 1953, disconnected the hot line between North and South Korea, and has threatened to shoot nuclear tipped rockets at the United States.

Most people who are knowledgeable of the situation say that North Korea is playing a high stakes game of blackmail, looking for United States concessions of fuel and food for his starving people in return for reducing their aggressive stance. The United States has previously granted these concessions to his father Kim Jong Il, and his grandfather, Kim Il Song, the founder of North Korea. Unfortunately, the promises were always short lived and North Korea always resumed its aggressive stance.

The problem for the rest of the world is that Kim Jong Un is young and totally untested. His survival depends upon him prevailing in any negotiations or actions, particularly with his military. The nearby countries most affected by his aggression also have new and untried leaders, including Japan (4 months), South Korea (2 months), and China (1 month).

China, which has previously held a very short leash on North Korea has so far failed to restrain them. South Korea continues to feel the thumb of North Korean aggression and is prepared to retaliate should any aggression be initiated. Japan is also on an elevated alert as North Korea has previously fired missiles over the sovereign Japanese territory. The United States has deployed a Guided Missile ship with anti-missile capability off the coast of North Korea, and recently both F-22s fighters and B-2 bombers joined a recent South Korean military exercise.

The military of all these countries are on heightened alert. The gun of war is cocked and there are multiple fingers on and around the trigger. Keeping troops on heightened alert status for extended periods of time is both fatiguing and dangerous. Simple mistakes and minor errors take on new interpretations, and judgements are no longer reliable.

Will this situation become the start of major conflict or will it just be a forgotten blip in the history of the world? Can aggression be shut off once started? The simple answer is yes; however, the complex question is how long will it take and what will it cost in men, resources, and national pride. These are important questions that people need to think about. What will happen next? How do we exhibit good judgement when we are prodded into a war we do not want?

Leo Tolstoy, the author of War and Peace had it correct when he said, “The strongest of all warriors are these two — Time and Patience.” Now is the time for all concerned to show these traits. When will the leader appear?

- Bob Hancock

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Brainwashing Factories, It’s Our Schools, And It’s All About Guns

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One definition of brainwashing from the Merriam-Webster online dictionary is: “a forcible indoctrination to induce someone to give up basic political, social, or religious beliefs and attitudes and to accept contrasting regimented ideas.” The term was first used during the Korean War, when American Prisoner of War captives were subjected to thought control by their Chinese Communist and North Korean Communist captors.

Two great literary classics that exemplify examples of brainwashing are “1984″ by George Orwell, and “The Children’s Story” by James Clavell. In “1984″, the people were controlled by brainwashing. “The Children’s Story” takes place after our country was defeated by war. A new teacher from the conquering forces reshapes the children’s minds to follow the thoughts of the new ruling masters in less than 30 minutes.

Today, the schools of our country are brainwashing children to believe that guns are evil and should be banned. We hear of small children being suspended for such mundane things as shaping a pop-tart to look like a gun by biting it, or playing cops and robbers, using fingers to simulate a gun, or threatening to shoot a classmate with a bubble gun. Parents had to first remove plastic toy soldiers on top of cupcakes to distribute the cupcakes to a class.

The punishment inflicted so outweighs the offenses as to be laughable. A pop-tart, a bubble gun, a pointed finger, or toy soldiers on cupcakes, do not turn you into a terrorist, yet the school authorities are insisting upon draconian punishment. These children lack the reasoning skills of adults, yet they are being subjected to adult style punishment. Suspensions can stay in school records all the way through college, and into the job market.

Today’s educators are insensitive to the real world around them. The amount of gun violence on television, in video games, and movies today is at a record high. When the children act out what they see, the educators immediately impose their draconian punishment with zero common sense. These anti-gun biased educators expect children to live in the sterile gun free world of political correctness. The message is very clear and always the same – STAY AWAY FROM GUNS – GUNS ARE EVIL – WE CONTROL YOUR FUTURE – IF YOU DO NOT DO AS WE SAY, WE WILL SUSPEND OR WORSE YET EXPELL YOU – WE DON’T CARE THAT YOU DON’T UNDERSTAND THE PUNISHMENT.

The results of today’s educational system produce mindless automatons speaking and believing the government’s pablum. This can only cease when parents take an active role in their children’s education. Banning guns is not the answer – until we are willing to address the root causes of violence nothing will change.

F. Scott Fitzgerald, American author said it best when he said: “…Either you think – or else others have to think for you and take power from you, pervert and discipline your natural tastes, civilize and sterilize you….”

- Bob Hancock

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The Pain Of Sequestration – It’s Real and It’s INTENTIONAL !!!

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Al Capone is dead and buried, but Chicago style politics still exists, and now its on the Potomac. Al Capone’s gang enjoyed inflicting pain upon whoever he disagreed with or wanted to intimidate. Now, President Obama, a product of Chicago’s rough and tumble, take no prisoners style of politics, is making the spending cuts of sequestration as painful as possible for everyone.

The most important thing you need to know is: The Republicans have offered multiple ways to ease the pain of the spending cuts without increasing taxes and President Obama has refused them all, even saying he would veto any such bill. At the recent Governor’s conference, when asked by Governor Nikki Haley (R-SC) if he could cut spending two percent, the president replied “NO.”

The President’s aim is to put maximum pressure on the Republicans, to bring them to their knees before the altar of unlimited spending, increasing debt, and increasing taxes (revenues) for everyone. The President has initiated a scorched earth policy against the Republicans, demonizing them at every turn. Every time he speaks, he reminds us that those evil Republicans are protecting rich fat cats from paying their fair share in taxes, making the middle class pay more.

The President is fighting for his political life. If the sequestration cuts are not painful enough, the public will learn to accept them and larger cuts will appear. The President must keep the pain high to achieve his goal. We see this with the release of criminal illegal aliens, even before the start of sequestration, just to prove a point.

This is a battle between two competing political philosophies that will shape the future of our country: 1 – Continue to tax and spend more, increasing our debt, until we no longer can pay for it, risking a fiscal collapse. 2 – Cut spending now, painful yes, but not nearly as painful as waiting, knowing that every day we wait increases the pain we must suffer.

Who will win? Pay attention, the answer is still being written.

- Bob Hancock

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Sequestration – The High Level Game of “Chicken” Continues !!!

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Sequestration, a product of the Budget Control Act of 2011, was designed to bring about VERY PAINFUL cuts in all areas unless an agreement could be reached on the budget. On September 12, 2012, President Obama said he would veto any bill that stopped the automatic spending cuts contained in sequestration. Now, on February 19, 2013, President Obama described the cuts in detail with a doom and gloom speech, pleading that they not be implemented.

Spending will be cut across the board because the legislation does not allow for transfer of funds between budget accounts, the various sub-groups within government agencies. This was intentional, to make the cuts as painful as possible. The cuts must come from ALL budget accounts. The transfer of funds from non-critical accounts to critical accounts is NOT allowed. For example, funds in a maintenance account, even if not needed now, could not be transferred to another account used to retain people and pay their salaries.

To stop sequestration, both houses of Congress need to pass a bill allowing for agency discretion in the transfer of funds between budget accounts, and have the President sign it. This would allow the spending cuts to take place, but without the disastrous consequences now being predicted. Both the House and Senate have submitted plans to stop sequestration. However, nothing has been acted upon outside of the chamber where they were created.

Most importantly, sequestrations does NOT cut spending, it only slows the rate of spending growth to a lower level. When finished, the federal debt will be higher, and government agencies will still have more money to spend than they did before.

So now we have a high level game of “chicken” between the Democrats and the Republicans. Who will blink first? The Democrats will not accept anything that removes the pain of sequestration. They want to impose the maximum pain possible to induce the Republicans to accept more taxes to pay for their ever expanding government. The Republicans have already approved a large tax increase which was immediately spent, much of it on “pork”, and now want “real” spending cuts. They believe that sequestration, as painful as it will be is the only way to stop the spending juggernaut of the Obama administration.

Prime Minister Winston Churchill summed it up very nicely when he said, “…Courage is what it takes to stand up and speak; courage is also what it takes to sit down and listen….”

- Bob Hancock

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Political Math 101 – Or Why The Debt Keeps Increasing

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Political math is the art of increasing spending and debt, and then calling it a spending cut.

The American Taxpayer Relief Act of 2012 (H.R. 8) was signed into law on January 2, 2013. It included tax increases (revenues) of about $62 Billion a year.

On January 6, 2013, the Hurricane Sandy Relief Act (H.R. 41) was signed into law, with spending of $9.7 Billion.

On February 1, 2013, the Hurricane Sandy Emergency Supplemental Appropriations bill (H.R. 152) was signed into law, with spending of $50.5 Billion.

The total spending on Hurricane Sandy is now $60.2 Billion. This leaves $1.8 Billion left over from the American Taxpayer Relief Act of 2012. In 30 days we have raised $62 Billion, and then spent $60.2 Billion. At current government spending levels, the $1.8 Billion would last about 4 hours. In addition, the majority of the spending was not directly related to Hurricane Sandy and could be considered “Pork Barrel Spending.”

Now, we have Sequestration – $85 Billion dollars in mandatory spending cuts this year are about to take place. It has already been delayed once, and politicians are scrambling to defer it again. The most recent proposal would increase taxes and cut spending by $110 Billion over 10 years or only $11 Billion a year. In reality, this is just slowing the rate of growth, but not stopping spending and debt increases. None of the spending cuts being proposed are even taking a look at or reforming the big three programs which drive our debt: Medicare, Medicaid, and Social Security.

Keynesian economists believe government spending is supposed to have a greater value of return than the money spent. This philosophy is why the people who are making economic decisions for our Country see no problem with continuing to spend and increase our debt. They are awaiting that moment when our revenues will start to increase and the Country climbs out of debt without cutting spending. So they keep on spending……and spending……and spending, knowing that the recovery is just around the corner.

With our debt over $16.5 Trillion, we must ask: What will happen next? Do we get an economic recovery without cutting spending……..or do we run out of money and credit with a default on our debt? The results of an economic default would be a total disaster to our Country, yet the spending continues unabated – What will happen next?

- Bob Hancock

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Is Sequestration REALLY Necessary?

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Sequestration, a program is mandatory spending cuts is a product of the Budget Control Act of 2011, was implemented on August 2, 2011, and is now the law of the land. Its January 2, 2013 implementation date has now been moved to March 1, 2013. It was supposed to be so horrible that neither party would want it to take place. However, both major political parties signed off on the plan and now there is a battle over how to stop those mandatory spending cuts. Like all things connected with the government, there is also a large list of exemptions (programs that are exempt from sequestration). Included in this list is Social Security payments, Medicaid, all programs run by the Veterans Administration, and Federal Government Administrative costs. Medicare could be cut a maximum of 2 percent.

Who gets hit with the cutbacks? Half of the cuts will come from only one agency, Defense, which represents about 17 percent of the total budget. The remainder of the cuts will come from the other government agencies/programs that are not exempt from sequestration.

Our spending problems are not confined to one political party. In 71 of the last 82 years, the federal government has spent more money than it has taken in. According to the Wall Street Journal, from 2008 to 2013, discretionary spending has increased 13.9 percent for defense and 16.6 percent for domestic programs. We have had Trillion dollar deficits for each of the last four years. Whether you believe we have a spending problem or not, the effect of all this spending is now being felt by our Nation’s defense. The U.S. Navy cancelled the recent deployment of an aircraft carrier to the Persian Gulf and also postponed the refueling of another nuclear power aircraft carrier, all due to lack of money. The U.S. Army is also cutting combat training above the squad level, and expects to have 500 less aircrews than planned. All military training and operations are being reduced…..all this in a time of increased world tensions.

To prevent sequestration from taking place, all we have to do is cut $85 Billion this year from a budget of $3.8 Trillion, or a cut of about 2.4 percent from the total budget. The problem is that our elected leaders are more interested in holding onto their sacred cows (directed spending) which ensures their reelection, rather than doing what is right for the Country. Sequestration is real, but the question that must be asked, is why can’t our politicians find a way to make the cuts needed to prevent it from happening? As the politicians dig in their heels to hold their positions, the Country’s defenses are truly going to suffer. Let’s hope that they come to their senses before its too late.

Its time for President Obama, the House of Representatives, and the Senate to display the leadership displayed by our founding fathers, by putting the needs of the Country first. We don’t want to become a Banana Republic – We want to remain a strong Country, a Republic, with a moral foundation.

- Bob Hancock

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Why Does The Government Say That Social Security Is NOT A Ponzi Scheme ?

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According to the Government, Ponzi schemes are illegal. Simply put, a Ponzi scheme uses funds received from new investors to pay off earlier investors. As you run out of new investors, the scheme collapses.

When private citizens set up an investment program where the funds from new investors are used to make payments to earlier investors, the people are arrested and prosecuted for running a Ponzi scheme. In Ponzi schemes, the details of the financing are kept hidden from the investor. If they did not do this, investors would not invest.

The Government runs a retirement program called Social Security. The Social Security tax that you pay as a worker is NOT placed in an account with your name on it. These funds are used to make Social Security payments to CURRENT retirees, with any excess money used to purchase Government securities, as required by law. Each year, the Social Security Administration publishes a report which details the amount of money received and how it was spent.

Social Security has sometimes been described as an intergenerational wealth transfer program from one generation (current workers) to another generation (retired workers). However, none of this changes the fact that current workers are NOT paying into their retirement fund, they are paying for the Social Security checks that go to older retirees.

Is Social Security a Ponzi scheme? That depends upon your view point! It appears in this case that Government can do things with impunity while private citizens would be arrested and prosecuted. When it comes to defining the rules, it is definitely much nicer to be the Government than the private citizen.

- Bob Hancock

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