Tuesday, January 13, 2009

What is the True Cost of the Iraq War?

Charlie on WOWO had a guest on speaking about the cost of the IRAQ war and the potential Peace Dividend when the U.S. pulls out. The value thrown out was $300 to $500 Million a day. This is somewhere between $100 Billion and $180 billion a year.

When figuring the cost of the war, how do they do it? Do they do it similar to business practice where a company charges a product line the cost of the building, utilities, labor material, etc? In this case the fixed costs are quite large whether you build a product or not. The military trains and pays personnel daily regardless if they are fighting or sitting in a barracks. They pay to move ships, planes and equipment around the world in peace time. So what is the cost of the war in Iraq? Does it include the cost of wages paid to personnel? If so, would these people be paid anyway? The only ones who would not have been paid are reservists.

Training is a big part of being prepared. During peace time, the navy has ships at sea, the air force have planes flying and the army move tanks and trucks around. Is there an increase in fuel consumption during war, yes? But should the cost of the war be based on all consumables and wages paid in that arena or should the cost be the difference between what would have been spent and what was spent between peace time and war?

I have no idea how the cost is calculated, but I am sure there are two sides; one trying to low ball the cost and the other trying to make the bill as large as possible. I doubt we will ever be able to calculate the cost of the Iraq war.

BSA Klondike Derby

The Boy Scouts have their Klondike derby this coming weekend. I remember these events as being cold and tiring. We would hope for snow so that pulling a wooden sled with gear would be easier. One event was a race. I can still visualize lots of sleds on a line and pulling it to the finish line. I cannot remember if we had to have anyone in the sled, but it seems we had to have one person, usually our smallest patrol member.

The Klondike always had first aid, fire building and some lashing test. My patrol was always good with fire building. We used flint and steel along with a wad of dryer lint. We were also good at building something from poles using lashings. Most scouts all knew first aid so there was no gain or loss in this event.

At some point in time, the Klondike cooked a big kettle of soup. Each scout was to bring a soup to throw into the big kettle. Normally the weather on the day of the Klondike is cold and the soup was great! It was hot and after being in the cold for hours running around, it truly hit the spot. This year however, I read that the big kettle of soup is no longer on the menu, but each patrol is to cook a meal and based on its complexity will be awarded points. Call me old fashioned, but I like the big pot of soup. On a cold day, after running several miles pulling a sled, hot soup hits the spot. Complexity on this type of day is not in the spirit of the Klondike where space and weight were limited. A meal had to be simple and filling. I practice KISS, keep it simple stupid. Complexity can be a benchmark for the spring or fall camporees.

OBama Criticizes Bush on TARP bailout

Obama recently criticized President Bush for not doing a better job of tracking where the first $350 Billion of the TARP money went. Am I ignorant or is Obama who is ignorant on whose responsibility it is to specify tracking metrics, bench marks and other criteria when creating legislation? The legislature’s responsibility is to pass legislation. This legislation needs to be thought out. Some basic questions need to be:

What is the purpose of the legislation?
Is this a proper roll for US Taxpayers Money?
How do we measure the success or failure of the legislation (benchmarks)?
Who shall be placed in charge of tracking and measuring the success or failure of the legislation?

The legislature then votes on the written legislation. If there are differences between the house and senate versions, then a committee is formed to resolve those differences and both houses then vote again on the final bill. If approved by majority vote, the bill then goes to the executive branch (President of the United States) for signature. The president can veto a bill by two methods; letting it die (not signing it after some amount of time) or actually vetoing it. If the president vetoes the bill the legislature can over ride the veto by voting again and have a 2/3rds’ majority in favor of the bill.

Based on this, the executive branch does not make legislation nor does it place benchmarks on any legislation passed. It is the responsibility of the legislature to write the bill identifying how the bill is to be implemented. How did Obama vote on the TARP Bill? Did Obama vote present, neither for nor against? If so then he is no different than those who do not vote: you have no right to complain if you did not exercise your right to vote and voice your opinion. If you voted for the bill, then why did you vote for a bill that had no benchmarks? If Obama voted against the bill, then he has a right to complain about the lack of tracking, but it is not President Bush’s fault, but rather those like Congressman Souder’s who voted for the TARP Bailout.

Tuesday, January 06, 2009

What constitutes a Budget Surplus?

Governor Danials used the phrase “We Balanced Indiana’s Budget” many times. However, is this a true statement? The Unemployment fund was rich in cash five years ago, but after increasing the benefit in1993 without increasing the tax, the fund is now exhausted and we have borrowed $45 million from the U.S. Treasury at 4.5%. Indiana most likely see an escalation in borrowing since unemployment is rising, employment is decreasing and benefit duration is increasing.

A balance budget is simply not one year, but spans a number of years. During the good years, you do not cut taxes, but store the surplus for when the economy drowns as is the case now. Last summer Danials was proposing a 15% rainy day fund. I said 15% was way too low! During a down turn such as now, sale tax revenues drop (that was the reason for property tax revenues), employment taxes decrease due to increased unemployment, income tax revenues drop because wages stagnate and workers are laid off and service costs increase. Instead of 15%, how about a 100% surplus! You could see revenues drop by 30% to 40% in a recession and take 18 months to begin to recover. The problem with the Danials “business” plan is that it relies on good times and does not factor in bad times.

In summary a balanced budget in my opinion is accomplishes one thing. During good times you run a hefty surplus so that during bad times you can continue services without raising taxes. When the economy finally improves your reserve is near zero and you build it back up during the good times.

Writing Skills and Blogging

Blogging may be the best thing to have come along to improve writing skills in a long time. How many people who blog write letters, editorials, reports, etc on a routine basis? It may be that only those who participate in blogs, were individuals with good writing skills. However, for me, my writing has always been a challenge. Sure I have written technical reports with thousands of pages, but they are dry and un interesting. Come to think, my writing may not have improved at all with blogging.

Blogging allows a person to express their thoughts. Clear and concise writing is best in blogging. Leo Morris does a great job, short, sweet and to the point. He is able to convey what he wants to communicate in few words. This keeps people interested.

However, I myself, cannot not even come up with a 1 minute sound bite. As one person wrote, no wonder I do not use radio or TV, there is no such thing as a 60 minute sound bite.

However, I feel blogging has helped me to write more concisely on more topics than ever before. Do you feel blogging to be beneficial to your writing skills?

Obama Administration criticizes Bush Administration

Today the soon to be Obama Administration has come out saying the Bush Administration has left the economy in ruins. In many ways this is correct. The objection I have is that they continue to say the 2008 deficit was $470 billion when in reality it was over $700 Billion before any bailouts. Again our elected representatives have brain washed the media and many of Americans into using the Unified Budget Number. In 1983 Congress passed legislation making it illegal for government agencies to report a unified budget. The reason was it masked the true size of deficits and uses surpluses from dedicated tax sources such as Social Security, Medicare (no surplus for the past three years), and government agency trust fund interest to offset the interest paid. However, the national debt is the true barometer of the national debt.

How much debt can the U.S. economy support? I think we are at its limit now. 52 years of continual deficits and the next couple years look like a minimum of $1 trillion + each. Obama criticizes others for increasing the debt; I wonder how he is planning to do all he says he will without doubling it.

I hate to even suggest it, but it may be the best thing for the U.S. Economy could be high inflation. High inflation will allow us to pay off current debt with inflated dollars. The bad thing is we would have to pay it all off before it comes due or we would be unable to fund any new debt while at the same time seeing the value of our wages drop.

Monday, January 05, 2009

Andrew Biggs, is an individual I spoke with about SS back in 1998. He had read a paper I wrote on “Why Economic Growth was bad for Social Security.” At the time he did not understand the relationship between wage growth, initial SS-OASI benefit and U.S. Treasury rates. In the past few years the Wage Growth replacement index has been given a lot of press. Many have finally realized that the initial SS-OASI benefit grows just as fast as the U.S. Average Wage Growth. This means there is no way for SS-OASI revenues to “grow” faster than liabilities. In fact the higher the U.S. Wage Growth, the smaller the spread between the U.S. Treasury Rate and Wage Growth, subsequently less work is done by any Social Security Trust fund.

I came across a blog by Andrew Bigg’s. I find his information for the most part wrong with bits of truth. President Bush appointed him as Deputy Commissioner of Social Security some time back. For those who are interested in the Social Security Debate, this may be a good place to stay current with the ideas being thrown around.

In my opinion this blog and its participants seem to accept the notion that Social Security is a bad deal for current workers. They realize the early participants received more in benefits than their payroll taxes could have paid. Diamond and Orszag call this the "legacy debt."As a result, current and future participants will have to collect $17 trillion less in benefits than they'll pay in taxes. In other words, this $17 trillion is a "pure tax," meaning that we'll pay that amount in but receive no benefits back in return.” Instead of tackling the problem and fixing, they are suggesting we bend over.

I have noticed that I am being censored with my comments. Andrew has a tendency to jump to conclusions. I posted a mathematical analysis yesterday in reply to one of his posts and it does not appear. I have found three of my comments missing. I must have struck a nerve.

The New Developing Subprime Market

We have all heard about the subprime mortgage debacle where many were able to borrow money that otherwise would not have been able to based on “normal” credit scores or ability to repay the low. Most if not all of these types of loans were Adjustable Rate Mortgages (ARM). They start out at a low finance rate for five years and then adjust yearly based on the US Treasury Rate. Generally, the rate five years later is higher than the original rate.

The subprime market was just that, mortgages below prime for five years and then jump to current adjustable rates five years later. These borrowers were approved based on the subprime rate, but would have been denied credit based on their income and debt based on the prime rate which they must now pay.

The U.S. Treasury as of August 2008 had a total debt of about $9.8 Trillion. The cost to taxpayer to finance this debt is over $540 Billion a year! The cost to pay the interest consumes over 45% of every single Federal Income Tax dollar paid. However, in 2008 the US Government decided to borrow $810 Billion to bailout banks, another $700 billion to bail out credit card, student loans and small business. They borrowed even more to do other non government things. The short term good thing is it is at 0 to 0.25% cost. The very bad thing is this new debt comes due in five years. What will the U.S. Treasury Rates be like then? Will the national debt have risen to $20 Trillion? Will interest rates rise back to 5% or will they be 10%? At 5% the cost to the taxpayer would be over $1 Trillion a year. This would consume nearly every single penny we pay in federal income taxes. We as a nation will either have to default on the debt or raise taxes by 100% while cutting all discretionary spending.

To make it more personal the cost to each family, each year, could be $10,000!!! AT 10%, the cost could be $20,000 per American Family each and every year and this does not include paying ANY PRINCIPAL!!

Is this any different than the subprime mortgage market? How can the US government be treated any different than any other entity when it comes to credit worthiness?

NBC-33 Debate poll results from 2002