Saturday, August 13, 2011

2011- Record Temperatures in Oklahoma

This will definitely be a summer to remember. A lot of days were over 100F and many mornings in the upper 80's. But let us look at the year altogether. This really has nothing to do with government, just found it interesting to research.
In total, February 2011 has 3 of the record warmest low temperature days in Oklahoma City on the 17th, 19th and 20th.
This year’s heat has set 14 record highs and tied 6 more for a total of 20 record highs. This is the most record highs for any one year! 1936 only has 11 record highs and tied for 1 more for a total of 12. Interestingly, 1911 and 2011 together have the most record highs with 32 combined. Yes, 1911 also hold 11 record highs and tied for 1 more (with this year) for a total of 12. Is this that “100 year heat wave”? Even 1980 with its record number of days over 100 did not set as many record high temps. July 2011 is the hottest month on record in Oklahoma with an average 89.1F. Oklahoma's statewide average temperature was the warmest monthly statewide average temperature on record for any state during any month. Yes, we’re number 1!
Remember that on February 10 of this year that Bartlesville's temperature dropped to -28 degrees on Thursday, setting a new, all-time record low for Oklahoma. Not more than a couple hours after that report, the Oklahoma Mesonet reported that Nowata hit a low of -31.
Record cold temperatures were reached during the February cold snap. In Oklahoma City the temperature dropped from 5 degrees above zero at 6 a.m. to 5 degrees below zero at 7 a.m. This was the first time the temperature fell below since 1996, 15 years ago.
On February 1, the official snowfall observation at Will Rogers World Airport in Oklahoma City was 12.1 inches. Most of the snow fell on the February 1st with when 11.8 inches was recorded, with the other 0.3 inches falling during the late hours of January 31st. The 11.8-inch total broke the calendar day record, which was previously 5.5 inches set in 1913. The total also broke the all-time February daily snowfall record, which was previously 6.5 inches set in 1987.
Fresh on the heels of the record-setting blizzard that occurred from January 31-February 1, 2011, another significant winter storm affected the southern Plains On February 8-9 2011. Snowfall totals reached a foot over parts of northern Oklahoma, with widespread totals of 4 to 8 inches over the northern 2/3 of Oklahoma.
The storm added to the already impressive seasonal snowfall totals across Oklahoma and western north Texas. Oklahoma City has already surpassed the previous snowfall record for February, and was 8th on the list for snowiest seasons. What makes this even more impressive is that over a 10-day period, two snow storms had deposited over 18 inches of snow at Will Rogers World Airport.
This has been an interesting year climatologically speaking.

Friday, August 12, 2011

Appeals Court Rules Obamacare Unconstitutional

Jeremy Pelofsky and James Vicini
August 12, 2011

WASHINGTON (Reuters) – President Barack Obama’s healthcare law suffered a setback Friday when a U.S. appeals court ruled that it was unconstitutional to require all Americans to buy insurance or face a penalty.
The Appeals Court for the 11th Circuit, based in Atlanta, found that Congress exceeded its authority by requiring Americans to buy coverage, but also reversed a lower court decision that threw out the entire healthcare law.
The legality of the individual mandate, a cornerstone of the healthcare law, is widely expected to be decided by the U.S. Supreme Court. Opponents have argued that without the mandate, which goes into effect in 2014, the entire law falls.
The law, adopted by Congress in 2010 after a bruising battle, is expected to be a major political issue in the 2012 elections as Obama seeks another term in office and as all the major Republican presidential candidates have opposed it.
Read the entire 304 page court decision here.

Wednesday, August 10, 2011

The Budget Control Act of 2011 – What Cuts?

In July 2011 a story that ran in a number of places headlined “Obama’s not Bluffing, Social Security and Military Checks are in danger”.  First the story implies that Medicaid, Medicare, social security and other programs will have no money to pay for all of the outlays. This story also tells us that taxes are too low. They said “Federal and state taxes combined are at their lowest as a percentage of the GDP since the 1950s.” We are told, in essence to stop whining about taxes. “America is trying to run a 21st Century economy on tax rates from the late 50s while whining we pay too much.”
President Obama said in an interview with CBS Evening News anchor Scott Pelley, “I cannot guarantee that those checks go out on August 3rd if we haven't resolved this issue. Because there may simply not be the money in the coffers to do it.” Adding “This is not just a matter of Social Security checks. These are veterans’ checks, these are folks on disability and their checks. There are about 70 million checks that go out.”
Rueters reported on July 15 2011 that “Ratings agency Standard & Poor’s has warned there is a one-in-two chance it could cut the United States’ prized triple-A rating if a deal on raising the government’s debt ceiling is not agreed soon.”  Adding in the story “The S&P warning comes just a day after Moody's Investors Service warned the U.S. may lose its top-notch credit rating in the next few weeks if lawmakers fail to increase the country's legal borrowing limit of $14.3 trillion and the government misses debt payments.” This has happened anyway. Actually S&P warned that if a small deal was reached that would also lead to a downgrade.
Did we get a small agreement?
The S&P Report on the credit downgrade seems to think so. The report states “Even assuming that at least $2.1 trillion of the spending reductions the act envisages are implemented, we maintain our view that the U.S. net general government debt burden (all levels of government combined, excluding liquid financial assets) will likely continue to grow. Under our revised base case fiscal scenario--which we consider to be consistent with a 'AA+' long-term rating and a negative outlook--we now project that net general government debt would rise from an estimated 74% of GDP by the end of 2011 to 79% in 2015 and 85% by 2021. Even the projected 2015 ratio of sovereign indebtedness is high in relation to those of peer credits and, as noted, would continue to rise under the act's revised policy settings.”
H.R.2693 or the Budget Control Act of 2011 actually increases spending. The cuts are not declines in current spending; they are cuts in the increases of future spending. As Ron Paul put it “This is akin to a family ‘saving’ $100,000 in expenses by deciding not to buy a Lamborghini, and instead getting a fully loaded Mercedes, when really their budget dictates that they need to stick with their perfectly serviceable Honda.”
According to John Boehner’s website, “The final agreement is the same as the House-passed bill by including spending cuts that would exceed the amount of the increased debt authority granted to the President.  The bill would cut and cap discretionary spending immediately, saving $917 billion over 10 years – as certified by the nonpartisan Congressional Budget Office CBO) – and raise the debt ceiling by less – $900 billion – to approximately February.  Congress must vote to cut spending FIRST.  Then, the President may ask for debt authority of up to $900 billion, which will be subject to a vote of disapproval by the House and Senate that can be vetoed by the President.”
According to the Whitehouse Office of Management and Budget (OMB) report, spending is projected to increase.
Fiscal Year
Surplus or Deficit (−)
2011 estimate
2012 estimate
2013 estimate
2014 estimate
2015 estimate
2016 estimate

In Billions of Dollars
The table above shows projected income, expenses and deficits for the next 6 years.  Clearly spending cuts are not in the budget. The increase in receipts is primarily based on the “Bush Tax Cuts” ending.  AS we can see, the spending is projected to decrease slightly, from $3.8 trillion in FY 2011 to $3.72 in FY 2012 then grow again for the next three years. According to these estimates, a total of $5.4 trillion in deficits will be incurred during this period.  Even if the new super-committee were to get cuts of $1.5 trillion over the next ten years, the first six of that will still have around $4 trillion in deficit spending. Again, how is this spending cuts?
The answer is that in FY 2011 the spending is projected to be 75% more than income. In six years, FY 2016 the spending is “only” projected to be 17% more than income. Spending will not be cut in a real manner, only the amount of “borrowed” money will decrease. Of course, the deficit spending will allow the total debt to grow, but this is about deficits, right?
Another OMB Projects the debt over this same period to grow as well.
Fiscal Year
Gross Federal Debt
Less: Held by Federal Government Accounts
2011 estimate
2012 estimate
2013 estimate
2014 estimate
2015 estimate
2016 estimate

In Millions of Dollars
The gross debt is projected to grow to $20 trillion by FY 2016. The debt will grow from 102% of GDP in FY 2011 to 105% in FY 2016. Even using the governments own figures the Budget Control Act falls short of controlling the spending in the budget.
Granted, actually cutting the spending is not as easy as you or I would have it. First, the “detailed” budget has thousands of line items and each or those have many more sub-categories.  Coming soon we will have a breakdown of where this money is being spent.

Tuesday, August 9, 2011

The Budget Control Act of 2011 – Tax Talk

Whenever you see big drama unfolding in congress it is a good question to ask what are they really doing?
 First let us look at some of the talk prior to the legislation. In the President’s address to the nation on July 25, 2011 tax cuts are implied to be the main reason we are in the situation. He said “In the year 2000, the government had a budget surplus.  But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug program were simply added to our nation’s credit card.”
Notice the remarks that we had a surplus, spent the money on tax cuts and, as he said “As a result, the deficit was on track to top $1 trillion the year I took office.”
There is a graphic that they use to tell us where the debt came from. See it here. Notice it also begins and ends with a discussion of how tax cuts have caused the increased debt.
It seems as though we are being set up to allow the “Bush tax cuts” to expire in 2012. That is the end of next year, after the elections of course.
Agreed, there are many large corporations that need to actually pay taxes or at least an equal proportion to smaller companies. Shared Sacrifice post covers some of the amazing freebies the right companies receive.
In the S&P Report on the credit downgrade, is a mention of taxes. "Compared with previous projections, our revised base case scenario now assumes that the 2001 and 2003 tax cuts, due to expire by the end of 2012, remain in place. We have changed our assumption on this because the majority of Republicans in Congress continue to resist any measure that would raise revenues, a position we believe Congress reinforced by passing the act."
The report goes on to say "Our revised upside scenario--which, other things being equal, we view as consistent with the outlook on the 'AA+' long-term rating being revised to stable--retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating." It almost seems as if they are saying that if taxes do not increase, the rating will drop again.
This point is reiterated more clearly in the overview of the report which states "if the recommendations of the Congressional Joint Select Committee on Deficit Reduction--independently or coupled with other initiatives, such as the lapsing of the 2001 and 2003 tax cuts for high earners--lead to fiscal consolidation measures beyond the minimum mandated, and we believe they are likely to slow the deterioration of the government's debt dynamics, the long-term rating could stabilize at 'AA+'."
"The president has been clear that he's not going to sign an extension of the Bush tax cuts for the wealthy. So absent any kind of comprehensive tax reform, you have $800 billion, roughly, of revenue that's going to be gained through the expiration of those tax cuts," a White House official said.
On the July 10 2011 Face the Nation show, Bill Nelson, D-FL said of the deficits "It's basically a fall-off of revenues and an increase in spending. So you got to correct that imbalance; otherwise you're not doing real deficit reduction." He went on to say “you have to acknowledge that part of our deficit problem was the huge Bush tax cuts in the early part of the decade. What was handed off to the new administration of over a trillion dollars of annual deficit that accounted for almost half of it. If you're going to be real about the numbers, you're going to have to address these kinds of things."
In response Sen. Jeff Sessions, R-Ala said "The revenue went up every single year after those tax cuts were put in. The revenue is down now because of the low economy ... It's not because taxes have been cut in recent years. It's because people are not making money. They're not paying as much taxes. So increasing taxes on that weakened economy is not the way to increase revenue. "
According to the Whitehouse Office of Management and Budget it is true that tax revenue as a percentage of GDP as declined. The change (while moving slightly up or down within the range) went from 19.5% of GDP in FY 2001 to an estimated 14.4% in 2011. The GDP itself declined for two years after 2001 and then rose again for the next four years until the GDP declined again for two years and then rose again while government spending has increased over the same period of time.
What we are being told is that taxes need to increase to compensate for the massive spending increases. This same Whitehouse report shows that, I believe a more important number, spending as a percent of income has dramatically increased. In FY 2001 the government spent 93.6% of income. In 2011 it is estimated to be 175.6% of income. The last time the gap between income and expense was this wide was WWII! Even if there were a $950 billion dollar increase as mentioned in the S&P Report for FY 2011, we would still be $605 billion in the red.
Let us say you are sell cars and in 2001 you “only” spent 93% of your total income. During this past 10 years your income has been up and down slightly, as one would expect with changes in economic conditions. However, during this same period you spend more than you make by increasing margins for cable TV, new cars, boats, homes, cost of living etc. until you spend almost double your salary.  Is the problem that your boss did not pay you commensurate to your spending or because you failed to spend in line with your income?

Monday, August 1, 2011

About the National Debt

We hear a lot about our national debt lately. We are told more revenue (which means taxes and fees) and cutting spending will pay of the debt. This is a lie. While we definitely need to downsize government and cut spending, that alone will not do it.
When the government wants more money, the U.S. government swaps U.S. Treasury bonds for "Federal Reserve notes", thus creating more government debt.  Usually the money isn't even printed up - most of the time it is just electronically credited to the government.  The Federal Reserve creates these "Federal Reserve notes" out of thin air.  These Federal Reserve notes are backed by nothing and have no intrinsic value of their own.
The Federal Reserve then sells these U.S. Treasury bonds to investors, other nations (such as China) or sometimes they "sell" them back to themselves.  In fact, the Federal Reserve has been gobbling up a whole lot of U.S. Treasuries lately.  Some refer to this as "monetizing the debt", but that is not quite an accurate statement. That is, when the government gets $10 billion from the Federal Reserve there is interest on the money.
To put it another way, every dollar created is created with debt owed. The rate of return or how much extra you get back on a 10 year treasury bond is about 4.5%. That is $45 million on that ten billion the government had created. The rates of return on treasuries vary depending on the treasury maturity length.  To simply state it, every dollar in circulation has a percentage of debt that is owed by the government. And since the government debt is ours, we owe this debt.
When the Federal Reserve creates money this way, it does not also create the money to pay the interest on the debt that has been created.  Eventually this puts pressure on the U.S. government to borrow even more money to keep the game going.  So what this creates is a spiral where the U.S. government must keep borrowing increasingly larger amounts of money, where the money supply is endlessly expanding and where the value of the U.S. dollar is destined to continue going down forever.
According to Treasury Direct, the June 2011 interest on outstanding debt is $110,536,850,221.63! The total interest expense for fiscal year 2011 on outstanding debt is $385,871,949,498.62. That is over $385 billion dollars. This equals about 3% interest.
The following table shows the amount of interest only paid on the debt since 2000.
Total Interest Paid on National Debt

When you take the $3.465 trillion spent in 2010 that is 12% that went to interest alone on the $14 trillion debt at roughly 2.7% annually.
Another way that money comes into existence with debt is Fractional Reserve Banking. According to the New York Federal Reserve Bank, fractional reserve banking can be explained this way-
"If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money ($100+$90+81+$72.90+...=$1,000)." If a bank then has a $1 million in deposits they can loan out up to $10 million. All of this is at interest.
There is also a 9:1 ratio with money deposited in the central bank. That means that if a bank deposits $10,000 in the central bank they can loan up to $90,000 on that money. The 1:9 ratio then follows each time the credit from those loans are credited to a bank; say $15,000 for a car, the bank receiving the money can make the loan of $13,500 on that $15,000 deposit. It follows, the more money that is loaned on credit, the more money in the supply, all of this money is created as debt. And all of it with interest on the original principal created out of nothing.
As you see, not only is the amount of the debt our public servants accumulated beyond repayment, as long as the money is created as debt, with interest due, we can never pay off the debt.  What would happen if the debt were paid off?
Let us pretend that the US sold Alaska and Hawaii for $14 trillion and paid the debt in full. This would cause a sharp contraction in the money supply. It would cause a $14 trillion contraction which would lead to deflation.  Prices would drop as would paychecks. And since there would be less total money there would be fewer loans. This would lead to business, state, cities and federal government being short on cash and credit. This is clearly an oversimplification, since much of this money is held by external governments. However, this shows that we cannot just pay it all off.
If the pay off were slow, then deflation would in turn be slow. This would allow for a more realistic adjustment and more money to be created by private debt. That is debt such as you and I have on our mortgages, cars and credit cards.
So is there a way out of this mess?
The book, "The History of the Money Changers” is a concise and good overview for beginners. It also reaches the same conclusions that Bill Still and many others have reached. The writer states that Milton Friedman came up with the same conclusion. That conclusion is that a public debt-free currency like the Greenback is issued by the U.S. Treasury and used to pay off the national debt as fractional reserve banking is ended.
In my research, I have discovered those critics who currently condemn the monetary system almost universally suggest that the only solution is to restore a gold backed currency. I don’t think any readers of this timeline can be in any doubt, that such a system will be open to abuse by those very people who abuse it today. Indeed if we introduced a currency backed by chairs, I believe we would find ourselves with nothing to sit on!
The only monetary system that seems to have worked in history is one which is backed by the goodwill of a government and is debt free, such as President Lincoln’s, “Greenbacks.” Fortunately, the Nobel Peace Prize winning economist, Milton Friedman came up with an ingenious solution of wresting back control of the money supply from the bankers, paying off all outstanding debt, and preventing inflation or deflation whilst this process is completed. I summarize this below.
Using America as the example here, Friedman suggests that debt free United States notes be issued to pay off the United States Bonds (debts) on the open market. In conjunction with this, the reserve requirements of the day to day bank the regular person banks with be proportionally raised so the amount of money in circulation remains constant.
As those people holding bonds are paid off in United States notes, they will deposit the money in the bank they bank with, thus making available the currency then needed by these banks to increase their reserves. Once all these United States bonds are paid off with United States notes, the banks will be at 100% reserve banking instead of the fractional reserve system and then fractional reserve banking can be outlawed.
If necessary, the remaining liabilities of financial institutions could be assumed or acquired by the United States government in a one-off operation. Therefore these institutions would eventually be paid off with United States notes for the purpose of keeping the total money supply stable.
The Federal Reserve Act of 1913 and the National Banking Act of 1864 must also be repealed and all monetary power transferred back to the Treasury Department. The effects of this will be seen very soon by the average person as their taxes would start to go down as they would no longer be paying interest on debt based money to a handful of central bankers.
A law must be passed to ensure that no banker or any person in any way affiliated with financial institutions, be allowed to regulate banking. Also the United States must withdraw from all international debt based central banking operations ie. the IMF; the BIS; and the World Bank.
If all the countries of the world adopted the conclusions above, then humanity will at last be free of these central bankers and their debt based currency. It’s a lovely idea, but first we have to get it past our corrupt politicians many of whom are quite aware of the scam that plays us on a daily basis, however rather than do the job we have elected them to do, they keep their mouths shut and instead look after themselves and their families, whilst the rest of us continue to be exploited.”
– Andrew Hitchcock, “History of the Money Changers”

However, it will not be easy or safe to end the central bank. In 1791 the First Bank of the United States was formed but intense opposition to foreign ownership by President Jefferson and others helped kill it by 1811. A Second Bank of the United States was formed in 1816 and this time they secured a 20-year charter. However, President Andrew Jackson was also opposed to foreign ownership and withdrew the federal deposits in 1832 as part of his plan to kill the bank charter in 1836.
An attempt to assassinate Jackson in 1834 left him wounded but more determined than ever to stop the central bank. Thirty years later President Lincoln refused to pay international bankers extremely high interest rates during the Civil War and ordered the printing of government bonds. With the help of Russian Czar Alexander II who also blocked a similar national bank from being set up in Russia by the international bankers they were able to survive the economic squeeze.
Both Lincoln and Alexander II were assassinated. In 1881 James Garfield became president and he was dedicated to restoring the right of the federal government to issue money like Lincoln did in the Civil War and he was also assassinated.
Years later John F. Kennedy opposed a private national bank and was assassinated in 1963 and Ronald Reagan opposed a private national bank and in 1981 an attempt was made to assassinate him. Coincidence or not the opposition to a privately owned national bank was a common characteristic to all these successful assassinations and assassination attempts.
Additionally, the banks can call in the loans and quit making new ones contracting the money supply as we seen in the Great Depression.  The difference with the plan noted above, the government could actually print enough debt free money to help offset the problems that would be found.
As President Lincoln said “The money powers prey upon the nation in times of peace and conspire against it in times of adversity. The banking powers are more despotic than a monarchy, more insolent than autocracy, more selfish than bureaucracy. They denounce as public enemies all who question their methods or throw light upon their crimes. I have two great enemies, the Southern Army in front of me and the bankers in the rear. Of the two, the one at my rear is my greatest foe. Corporations have been enthroned, and an era of corruption in high places will follow. The money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few, and the Republic is destroyed."