Monday, December 28, 2009


Chuck Cooper - Health Bill Fallout

Thanks to the health insurance bill, it sure looks like it is going to be difficult for any Democrat to be reelected November 2, 2010. Ten months is probably enough time for the various stakeholders to understand, or exaggerate, the effects on them of whatever compromise the House and the Senate come up with. As evidence of this, let's tote up what groups might be "all wee-weed up"over the bill, to adopt President Obama's delightful phrase.

First, the are some sizeable groups we can feel pretty sure about. People on medicare already realize that nothing good is going to come of it, whether it is limits on benefits or increased co-payments, and surely will vote to "keep your government hands off my Medicare!" Those on medicaid, likewise.

The largest group that already has insurance are those that have coverage through their employment. The President has said "if you like your health care plan, you'll be able to keep your health care plan, period." He later clarified that, saying he meant that the government won't take you plan away, not that no one would. The problem, of course, is that no matter what the final bill does to penalize employers who terminate their coverage, whether a tax or a payment to the employee, it is almost certain to cost less than continuing their plan does, if not this year, then the next. The major barrier to termination of employer plans has been the inability of the employees to secure coverage elsewhere on a reasonable basis. That solved, employers will head for the exit. The uncertainty is whether this will be under way by November 2, 2010 enough such that employees generally realize what Congress has wrought. Boy, are they going to be wee-weed. You would expect the republicans to make it a campaign issue.

OK, what about the beneficiaries of this legislation? The currently uninsured. The ones that are now required to purchase health insurance whether they want it or not. Or pay the penalty. You can divide these folks into three groups. The ones that can afford insurance but would rather spend their money elsewhere, those that think they can't afford it but the government thinks they can, and those that will get the purchase subsidized to some extent. I think we can safely put the first two groups in the ungrateful wee wee catagory. But surely we can count on the third catagory to show a little gratitude? These folks will be entitled to receive taxpayer help. However, as a group these folks haven't proved to be very good at figuring out how to maximize the benefits they already qualify for, such as food stamps, even without the intricities of applying for insurance. Depending on what the government decides to do about rounding them up and forcing them to obtain coverage, we might expect a goodly portion of these folks to either fall through the cracks, or join the wee-weed ranks.

So how do we see the politics here? Since the bills have been adopted with straight party line votes, all the credit goes to the Democrats. Not even the normal level of confusion here. So who will the wee-weed folks be voting for in a little less than 10 months? And do you think the Republicans might campaign on the repeal platform? Sometimes it isn't over even when it's over.

Sunday, August 23, 2009


Gordy Ringoen - The Coming Third Political Party

Thanks for the question re.a third party to the left. I have dropped that comment a few times and no one has ever asked me what I mean. Although there is no evidence, that I am aware of, that would indicate that there is any veracity to my position, let me try to explain my thought process.

First, historically, our two party system tends to be pretty much centrist. It usually is pretty easy for anyone to get 45-49% of the votes on any major issue or for a politician to get similar numbers. The key to victory is to get the 51-56%. The deal breaker votes are decided by the centrist swing voters. There are not enough votes at the extreme right or left to carry the day.

This general proposition has totally broken down. The Republicans are dominated by the fringe right with probably no more than 20-25% of the electorate in their camp. They show no interest in actually governing but merely to play politics for power. The fear and divisiveness themes just don’t resonate with the majority of the population as we saw in the last election. Similarly, in the 1930’s, I have read, the Republican’s dropped to a mere 16 Senators. They will not moderate in the foreseeable future because the primaries are controlled by the extreme right.

The weakness of the Republicans threatens our two part system. Without two viable parties, there is no real choice. That is the recipe for destruction of a Democracy.

The Democrats, on the other hand, are pretty much politics as usual. They are dominated by the money from the same special interest groups that fund the Republicans. They are very reticent to bite the hand that feeds them as we see in the mollification of defense contractors, health insurance companies, pharmaceuticals, energy companies, and of course, the fount of all things financial, Wall Street.

Though they at least have some interest in governing, it is subordinate to their own well being and re-election which is funded by special interests.

Now, how does this fit with the general population? Not well I think. Congress has an approval rating in the area of 15%. Pundits discount this as irrelevant because it includes both parties. This is to miss the point that there is an incredible dissatisfaction as to how both parties are actually governing. It should be a warning sign that there is the possibility of a major political earth quake.

My smug Republican friends delight in the falling poll numbers for Obama, as to say, “We told you so.” They think that people are rejecting his leftist leaning programs. The fact is, those that are becoming dissatisfied are unhappy because he has not been progressive enough. He has not delivered on the “Change” that he promised. And, there is scant evidence that he or the Democratic Congress is going to meet the challenges we face as a nation.
Let’s look at some of the issues that the progressive members of our society, and, I believe, the majority of the population wants addressed:

1. Stop unnecessary wars. Although Iraq seems to be winding down, there have been no compelling reasons given as to why we continue to escalate in Afghanistan.

2. Our world, as we know it, will not survive unless we address global warming.

3. The world is running out of oil! We use 24% of the world’s oil, and our economy and standard of living will crumble in the near future unless we address the issue now.

4. We will have a $1.8+ trillion deficit this year. With uncontrolled deficits our currency will ultimately crack and then forget about having 24% of the worlds‘s oil to consume and foreigners subsidizing our profligacy.

5. Accountability for the laws broken in starting the war in Iraq, torture, and extra-legal spying on citizens.

6. The distorted distribution of wealth in favor of the rich.

7. Sensible laws, reflecting the social values of the majority, regarding gay rights, illegal drugs, and guns.

8. Regulate our financial markets and stop giving billions to Wall Street for “our own good.”

9. And, of course reducing the costs of medical care and providing health care for everyone.

I doubt that either of the existing parties is going to address these essential issues facing our country in a meaningful way.

The millions of grass roots supporters that supported Obama will ultimately rise up and a new “Progressive Party’ will evolve.

To disclose my political affiliations, I was a Registered Republican for 40 years and now am Independent.


Thursday, June 25, 2009


Chuck Cooper - God's Approach to Evolution

My clarification of the whole evolution debate below was incited by the following fulmination by Lola LeMieux Kindley, upon her discovery that I think evolution is cool. "SO YOU THINK YOU CAN GET SOMETHING FROM NOTHING BY ADDING TIME? And you actually give the time of day to Dawkins and his other cohort, both of them being reduced to hypothesizing aliens planting seeds to account for life on this planet. Cooper, whatever it is you are hooked on, it is certainly not legitimate science. And The Blind Watchmaker is SO last year!"
Clearly, it would not be appropriate for me to apologize for evolution. In fact I would be scared to because God did it. What some do not realize is that ALL religions, including science and those funny 5000 year guys, agree on evolution. You see, God did it. Where you get the appearance of respectful dissent is with the differing opinion about how far back God stood when he kicked off evolution. Was it way back with a piece of RNA maybe, letting everything proceed on its own from there? Now He could have if He wanted to, you betcha! He is that good! OR, did He do hands on all the way up to the species level? Could have, just to make people feel better, not having to feel related to monkeys, or worse, fish! Fish for God's sake. You would have to respect the consideration. Now some even say He stood back only 5000 years ago, and planted a bunch of fossils just to kid around with the science types. Kind of like a divine Easter egg hunt. Who doesn't enjoy those? Now all agree that from whereever God chose to stand at the kick-off, He did expect to help those animals and plants who helped themselves, that is, if you had a better set up for reproduction than the other guy's kit, there was going to be more of you than them. Think about it. Nobody, regardless of their religion, expects God to sit there and decide what color every little bunny's fur is going to be. Much less, some moth hanging out on a tree trunk. So, it is all about where He stood, and like an 800 pound gorilla, He stood exactly where He wanted. So no reason for us to get all jiggy about it. Good for Him!

Most readers will recognize that my points were extensively debated by Isaac Newton and Gottfried Leibniz, who did get jiggy about it. Their calculus established the extremes of the view. It was before Darwin, and they ignored the 5000 year guys.


Darryl Johnson - Trouble in Thailand

Thais celebrate their traditional New Year on April 13 with solemn ceremonies in the morning followed by a wet and wild festival of water throwing later. The water must be clean and it’s all good fun.

This year the scene was very different, with crowds of red-shirted youths confronting uniformed troops, throwing petrol bombs and sending unmanned busses careening towards buildings and crowds. Fortunately, the number of dead and injured is reportedly small, due to the restraint shown by the troops. The mob attacked the Prime Minister’s car and called on him to resign and call new elections. But the PM, Abhisit Vejjajiva, has shown no intention to step down, having just come to office in December; instead, he declared a state of emergency in Bangkok and five neighboring provinces and ordered the armed forces and the police to restore order. Several of the ringleaders were detained while most of the rest were given free one-way rides back to their homes.

Why this uncharacteristic violence in the streets of Bangkok? First, there is the former Prime Minister, Thaksin Shinawatra, who was overthrown by a military coup in September, 2006, after allegedly using his official position for personal gain. Thaksin was first elected in 2001 on a platform of cheap health care, a revolving credit program for villages, a pause in the collection of land taxes, and a village craft program. Although he was one of the wealthiest people in the country, he reached out to the poorest and they rewarded him with their votes in 2001 and again in his sweeping re-election in 2005. He called himself a “CEO” manager, ruling efficiently if not always cleanly. But Thaksin was not popular in Bangkok because he was seen as an upstart who did not play by the traditional Thai political or social rules, and his policy initiatives were condemned as “populist.” His downfall came after his family conveniently sold their shares in the family-owned telecom company to the Singapore sovereign wealth fund for $1.9 billion, virtually tax free. Now living in exile, he has telephoned his followers in Thailand on several occasions, most recently last weekend when he called for “revolution.” Needless to say, this call did not get a warm reception with the current government.

Prime Minister Abhisit, a British-born and British-educated lawyer, is the latest in a string of successors to Thaksin, the first two of whom were seen as proxies for Thaksin, and served for only a few months before being driven from office by anti-Thaksin demonstrators. Abhisit, by contrast, is the head of the former opposition Democrat Party, and is the very image of a sophisticated leader. But his Democrat Party has had trouble getting votes outside of Bangkok and the near South. His coalition therefore includes local leaders whose loyalty is suspect – some of them previously served under Thaksin. Since he took office in December, Abhisit’s troubles have intensified with almost daily demonstrations by thousands of roving young men who support Thaksin and claim to support democracy. For Abhisit, one big problem is the sagging economy, which has been hurt by the financial crisis in the US and declining trade with most of Thailand’s trade partners, including China. In a major embarrassment for a country that prides itself on its hospitality, Abhisit was forced to cancel the recent meeting of the leaders of the ten countries that make up the Association of Southeast Asian Nations (ASEAN), plus leaders from China, Japan and Korea, and the UN Secretary General. This event was supposed to be a combination of work and play at one of Thailand’s many high-end resorts. But demonstrators broke through the police lines and into the conference site, forcing the delegates to flee for their safety, some by helicopter.

The role of the Palace is also important but opaque. Thais of all political stripes revere their King, who will turn 82 in December. The anti-Thaksin pro-royalist demonstrators have worn yellow shirts because that is the King’s color. Their opponents have worn red shirts and wrapped themselves in the national flag – red, white and blue stripes. Thaksin and some of his followers reportedly believe that the Palace, and some members of the King’s Privy Council, supported the September 2006 coup. But others deny that there was any such collusion. While the King has acted as a peacemaker during previous periods of political tension, notably in 1992, his powers are moral, not political or managerial; he reigns but does not rule.

What are the prospects for Thailand now? In the near-term, order will be restored, by force if necessary. But the military does not want to take power again and will probably support the Abhisit government. They will also make every effort to keep Thaksin out. But the deep divisions in Thai society which have been laid bare by these demonstrations will take considerable time to heal. And the Land of Smiles is not smiling at the start of this New Year.

Darryl N. Johnson served as American Ambassador to Thailand 2001-2004. He is a graduate of the University of Washington and currently teaches part time at the Henry M. Jackson School of International Studies.

Wednesday, June 24, 2009


Lola LeMieux Kindley - Importance of Defining Evil

A response I wrote to a friend who had forwarded the article reviewing the speech by Charles Krauthammer.

I remember vividly, in fact it was one of the defining moments of my life, listening to the uprising in Hungary, mostly from students. They had finally fallen back to a broadcasting station as their last refuge and were broadcasting desperate requests to the world to help in their fight for freedom. And then the voices went silent.

In Prague, I noticed lots of little niches in buildings mostly in the Old Town and across the Vltava in Lesser Town, with candles burning. I couldn't understand the language, but it soon became clear that they were memorials to people who died facing the Soviet tanks in 1968, when they, too, thought they could grasp freedom. Almost all of the birth-death dates indicated teenagers to young twenties.

I am sickened by the response to those courageous voices in Iran. They already know what the authorities do to dissidents, but they are in the streets, nevertheless. Today I also received an email with a summary of a speech by Charles Krauthammer, measured, objective and analytical, but the person who heard him quoted him as saying that Obama is not only narcissistic, he also sees himself as the global leader of opinion and policy, rather than merely as president of the U.S. That's how it seems to me. So with the North Korean ship steaming illegally to Burma/Myanmar and the people dying in the streets of Iran, he equivocates over whether or not he still invites Iranian diplomatic personnel to U.S. embassies to celebrate the Fourth of July, for heaven's sake! I remember a trip to Vermont when a person from the plant spoke, as if he had witnessed it himself, of the streams in the fields around us running red with the blood of the colonists fighting for freedom. And this administration wants to welcome these butchers to celebrate the history of freedom and self-rule and human dignity on our national holiday?
Actually, I began comparing Chamberlain first to Carter, then to Clinton, and certainly to Obama.

Friday, March 06, 2009


Chuck Cooper - How to Make a Small Fortune in the Stock Market

You may need this. The answer to the above is of course to start with a large fortune. Gordy is exactly right, as usual, in his investment approach. Now he tells us. And if you are one of those genius types who have been all in cash since the middle of 2007, you don't need any help. Just be sure you spread it around to fully insured accounts, or to money market accounts where "breaking the buck" means you only get back $.99. I could live with that.

But if you have been invested in just about anything, you may be wondering what happened to half of your capital. And what do you do now to a. get back your loses, or b. keep from losing the other half. For the first, my advice is to eat lots of fruits and vegetables, lose weight, no smoking of course, and be sure to take at least one drink of alcohol every day. The goal is to live long enough to see the markets come back. History, if you take a look at my previous post, shows it never takes much over ten years, and could be a lot quicker with all this stimulus package spending. From my lips to God's ears.

So what should you do in the meantime? Most experts advise not to panic and start selling your investments out of fear that they will go lower. No one knows whether we are close to a bottom or not. If it is just the flip of a coin, you might as well avoid the transaction cost. I think of investment shuffling the same way as switching lines in the grocery store, and you know how that works out.

That is not very helpful, so back to those folks that are in cash or near cash, or treasuries. You need to keep the funds safe, but now doesn't seem to be the time to be buying treasuries or anything long term. Interest rates are probably as low as they can get, and normally when agressive fiscal policy puts pile of cash into the system, the pressure is for rates to go up. For one thing, you would think the Chinese are getting tired of funding our deficits at a negative return. You don't have to be an expert to figure that if they ever stop buying, it is Katy bar the door.

Have a nice day.


Gordy Ringoen - So, What’s One To Do?

The first rule of investing is like the first rule of the Hippocratic Oath: First, do no harm!
Or, in investing parlance: First, do not lose your capital!

In these times, preservation of capital is easier said than done. The hardest part may be psychological because it requires a dynamic tension between conflicting risks. There is no simple position to protect against all risks. All positions will not be profitable, but the objective is to not make profits but to protect the lion share of capital.

This discussion has to do with financial capital only. It does relate to real estate, collectibles or operating businesses. It is also from the perspective of someone of my generation who is essentially living off his capital. It would be different for investors in other circumstance.

Ben Bernanke in his college text defines risk as “the possibility that the actual return received on an asset will be substantially different from the expected return.” This is like saying that the risk of walking across the Bayshore Freeway in rush hour is that you may not make it to the other side. No, the risk is that you may never have a chance to ever walk anywhere again. So it is with the financial risk, it is not that you don’t get the expected return, but that you lose your capital and can not invest again.

As a prerequisite to examining investment alternatives, it is important to understand the risks we are trying to protect against. From my view, currently, the following are the risks that exist:

Nominal Risks: Nominal risks are simply the mark to market value of assets. This is the risk that is familiar to all. This is the risk that turned to loss for those that still own AIG or Citi stock selling for less than $1 or worthless Lehman bonds.

However, just looking at price can be misleading. For example, if you are able to buy stocks, as an inflation hedge, and even if they work, you may find it difficult maintain your capital because the inflation appreciation is taxed. The worst case would be inflation appreciation in a retirement account, at death, where the taxes will be able to take up to 75% of the appreciation.

On the other hand, in certain instances, the decline of nominal value can be beneficial. For example, if you have assets that you wish to pass on in an estate, like a house, you might want the nominal value to decline to reduce inheritance tax and to minimize the step up appraised value for property tax purposes.

The point is that capital gains taxes, regular income taxes for higher income brackets, and estate taxes are all going to rise in the years ahead and should be taken into account and not just nominal gains or losses.

However, the major concern today is that stocks and bonds may continue to fall as financial excesses are wrung out of the system and the world economy continues to deteriorate.

2. Currency Risk: This is the risk that the value of $US may be less in the future. You may be able to maintain the nominal value of your portfolio but it may not be worth much or, possibly nothing, in purchasing power because of inflation or government action. It can also occur because other nations handle their economic problems more efficiently and their currencies appreciate against the $US. And, finally the most serious circumstance could arise from the governments inability to reverse the economic fall, and faced between financial collapse and uncontrolled inflation, they effectively declare default on $US financial obligations and establish a new monetary regime. No one knows how that would be effected, but it would likely put all $US obligations in work out mode and a new, “blue money” would be established with built in safeguards to give it credibility. All commerce would be in “blue money” and, over time, our “green money” could be converted to the new money on a greatly discounted basis. Though this scenario would seem to be so remote that it should not be considered, it is instructive to remember that it would have seemed just as outrageous a few months ago that Citi and BofA were insolvent and may require nationalization, Fanny and Freddy would need to be taken over and Lehman would go broke. Until we some economic progress or we can see a semblance of a program that will lead us out of the morass, this possibility should be taken into account.

3. Liquidity Risk: This is the risk that your assets can not be sold, or the risk that you may not be able to buy what you want when you want. For example, during the Katrina disaster, only $US could be used for goods and services. No one would take a check and credit cards were not operational. The boat people from Vietnam could only buy passage with gold. Some security positions deposited at Lehman are still frozen since their bankruptcy. Two NY Yankee baseball players said that they are unable to pay any bills because they are part of the $50 billion money market freeze at Stanford’s bank. Currently, it is extremely difficult to buy gold coins with any currency. During times of financial turmoil, currency withdrawals can be restricted and currency conversion freezes are frequently instituted. On the other hand, you can’t use cash to buy an airplane ticket, some gas stations won’t take cash at night and many businesses will not take a bill larger than $20. Until recently, this was a risk not worthy of much thought. But, “times, they are a changing.”

4. Counter-party Risk: This is the risk that the party you deal with may not be able to meet its obligations to you. In nearly all of the financial assets in your portfolio, someone has promised something. The Lehman bankruptcy illustrated the risk of these promises. Many margin customers stood to lose the equity in their accounts because they became a general creditor to Lehman and had no rights to the securities in their accounts. Some of the products Lehman sold were represented to be secured by underlying assets but were only worthless general creditor promises from Lehman. Adjustable rate preferreds, which were marketed as money market alternatives, by many firms, lost much of their value and became illiquid when the brokerage firms failed to roll the securities. The Madoff swindle illustrates the dangers of a money manager that also acts as their own clearing firm.

Let us look at some asset classes and how they may help us reduce the risks to a portfolio:

1. Nominal Risk:
a. Cash Currency: The perfect protection against nominal loss and has certain advantages and disadvantages. It seems prudent to have some on hand for special circumstances.
b. Treasury Bills: It is near 100% protection for nominal loss.
c. Treasury Bonds: They too, have 100% protection against nominal loss when held to maturity but can suffer nominal mark to market loss if interest rates rise.
d. Bank Deposits: Near 100% protection when covered by FDIC. Although, the FDIC funds will likely be exhausted, it can be assumed that the government will honor their obligations.
e. Money Market Funds: These are a little more problematical. The government seems to indicate that they are going to back them, but to date; their actual promises are very weak. Government Funds are, for the most part, more secure than Commercial or Muni funds. Many of these funds would have immediate problems if the government was not supporting the commercial paper market.
f. Muni Bonds: These are subject to loss with falling interest rates but the even greater concern is their credit quality. Many, are rated highly because they are insured. But now, without government support, the insurance can not be relied upon. Most municipalities are experiencing financial weakening because of the poor economy. It is a market for experts.
g. Sovereign Debt: This is the equivalent of other nations Treasuries. The nominal value is near 100%, but only in their currency. They can have large nominal risk to a $US portfolio because of currency fluctuations.
h. Commercial Bonds: Some risks from both interest rates and credit quality. An asset class for experts.
i. Common Stocks: High volatility and price risk. A speculation. A market for experts.
j. Gold: High volatility and price risk. A speculation. It can be argued that there is not much value in “expertise” in this asset class.
k. Other Commodities: High volatility and price risk.

2. Currency Risk:
a. Cash Currency: No protection.
b. Treasury Bills: No protection.
c. Treasury Bonds: No protection.
d. Bank Deposits: No protection.
e. Money Market Funds: No protection.
f. Muni Bonds: No protection.
g. Sovereign Debt: A range of possibilities from no protection to total protection.
h. Commercial Bonds: No protection.
i. Common Stocks: Fairly good protection except in extreme conditions where there may be no protection.
j. Gold: Likely very good protection.
k. Commodities: Likely very good protection.

3. Liquidity Risk:
a. Cash Currency: Excellent in some circumstances and limited protection in others. May be restricted or difficult to obtain in quantity.
b. Treasury Bills: Excellent liquidity.
c. Treasury Bonds: Excellent liquidity.
d. Bank Deposits: Good liquidity. May be restricted in times of crisis.
e. Money Market funds: Fair to Good liquidity. May be restricted because of financial market problems.
f. Muni Bonds: Fair liquidity. Costly to sell and markets may be very thin or non-existent at times.
g. Sovereign Debt: Highly liquid in developed countries. Purchases may be restricted in stressful times because of currency controls.
h. Commercial Bonds: Fair liquidity. Markets can dry up during times of financial stress.
i. Common Stocks: Liquidity good under most circumstances.
j. Gold: Physical gold usually easy to sell if there are no government restrictions, sometimes, like now, may be difficult to buy. It can be the most liquid medium of exchange during severe financial circumstances. Its ownership or trading frequently is controlled by governments during financial turmoil. Normally, paper gold positions can be taken through ETF’s or Futures Contracts which are usually very liquid.
k. Commodities: Physical positions of commodities are impractical. Positions can be taken in ETF’s and Futures Contracts.

3. Counter Party Risk:
There is severe counter party risk from any financial institution that does not have specific government back up like FDIC. Margin accounts can be of particular risk. All securities possible should be in the “cash account.” Commodity Futures Contracts are at risk but are unlikely to be allowed to fail.

Cash and physical gold have no counter party risk but may be difficult to secure and transport.

Treasuries that are not on margin are very secure.

Absent fraud, stocks and bonds, not on margin, are quite secure.

4. Analysis:

It is clear that many of the portfolio alternatives are in conflict from a reduction of risk perspective. Each has its advantages and disadvantages. The key is to have the proper mix to prevent major loss of capital under any circumstances. The mix should be adjusted as circumstances change.

Based on current circumstances a portfolio might look as follows:

1. A cash currency position sufficient for emergencies only.
2. A physical gold position of 5-15% of the total financial portfolio. It would be a core position that would be kept under all circumstances. It is expensive to trade and can be difficult to accumulate so it is not appropriate for speculation. Once acquired, it has the advantages that no taxes are paid on appreciation until it is sold. It is also the only fungible physical asset for which its existence is not in a computer somewhere. It earns nothing, so it is not part of an earnings portfolio. Its only purpose is for belts and suspenders financial security. Although, it is pretty.
3. Money Market Funds: Sufficient levels to pay bills and satisfy operating needs. It is not a place to park excess capital.
4. Treasuries: The place to put excess capital and can be 40-80% of the portfolio.
5. Sovereign Debt: An amount ranging from 20-60% of the financial portfolio diversified in politically stable countries like Germany, Canada, and Switzerland. The positions are moderately expensive to put on and should be considered core positions. No taxes are due on appreciation until they are converted back to $US. The foreign funds can be transferred out of the country with little difficulty if desired. The positions need to be established in advance of major $US problems because currency controls might be instituted. During strong $US markets, the positions can be hedged by shorting currency futures contracts. During $US weakness, the hedges are removed.
6. Stocks and Bonds: They really don’t have a place in a portfolio with its prime objective of capital preservation during turbulent times such as now.
7. Commodities: Positions in commodities, including metals, oil, agricultural products, and currencies can be established at low cost as conditions warrant with a notational values of from 0-50% of the financial portfolio. They require no portfolio investment if done through futures contracts though they do require collateral which can be Treasury Bills. Or, they can be executed through ETF’s which require an investment.
8. Debt pay off: The most conservative investment is to pay off any outstanding debt. It is risk-less. Further, the interest saved will be greater than the interest earned on risk averse investments.

Friday, February 27, 2009


Chuck Cooper - Dreams of my Father's Depression

Gordy offers an excellent assessment of the situation, prompting me to this thought experiment. Suppose that all of a sudden people stopped buying stuff that they don’t need? The car can run another year or two, the old TV still runs, clothes, well, you get the idea. Life goes on without all that stuff, with no great hit to the pursuit of happiness.

Unfortunately, things aren’t that rosy. You can do without stuff, but not without a job. Consumer demand collapses, businesses lay off workers, and scared people reduce “needs” to the real basics. That is the downward spiral you are reading about now. People aren’t going to start buying what they don’t need until something arrests the spiral. How do we do that?

For the various reasons Gordy lists, this could be the big one. Bigger than 1982. Maybe more like the 1930s. We know what it took to end that one. Or like the panic of 1873, which if you read about it, sounds very familiar. Or the panic of 1893. Over expansion and bubbles. Each of those depressions lasted the better part of a decade, and ended only with events that led to large infusions of capital. Huge farm exports and the Klondike gold rush, respectively, were major factors in turning the corner.
Speaking of WWII, that huge government spending for which ended the great depression, wasn't that producing stuff that was promptly shipped overseas to get destroyed? From a purely economic standpoint, pretty much like digging holes and then filling them back in, only without the pain. It worked. Could all that quibbling about the details of the stimulus package be missing the point?

A little history study might quiet the critics of the massive deficit spending now getting under way. Dreams of our fathers.


Gordy Ringoen - Stimulus, Bailouts and Such

A friend from Canada, who is an astute third party observer, asked me my thoughts regarding Larry Flint’s request for a bail out of the porn industry. My response was it had no chance because the Repubs would filibuster such “wasteful spending.” On the other hand, if it were structured to give credits to red blooded tax payers for internet “special services” and called it a “tax cut” it would have a good chance. I decided to amplify my thoughts beyond this important subject.

Brief History: First there came the sub-prime mortgages losses for financial institutions beginning in early 2008. It resulted in more than $500 billion in bank losses. This translated into more than $3 trillion contraction in loan capacity.

The losses and shrinking loan capacity led to illiquidity in the financial markets. Secretary Paulson asked for “standby” authority which was to give the markets “confidence.” No such luck, the markets began freezing out Fanny and Freddy. To stop their collapse, the government guaranteed $10 trillion of their paper (an amount equal to the total US debt at the time). Next was Bear Stearns which was forced into a shotgun marriage. The Treasury decided it couldn’t save Merrill and Lehman simultaneously. Bye, bye Lehman. Enter AIG, WAMU, Wachovia, Citi, and Bof A- the blackest of holes with more to come.

Paulson got on his knees and begged Nancy Pelosie to save the Union by giving him a discretionary account of $700 billion to buy toxic mortgage loans from failing institutions. He got the first installment of $350 billion. After a couple of weeks he realized this was a nonstarter. He then determined that putting the money into capital of the financial institutions would be more efficient. It could possibly be leveraged up to 10 times in loans by the banks. Nice hypothecation, but the banks merely used the capital to improve their capital structure while continuing to restrict credit.

Meanwhile, the world was also suffering a huge $US liquidity crisis. The LIBOR market, the international lending of $US, became illiquid for a number weeks in the fall of 2008. The Fed opened up its balance sheet for the world's Central Bankers to avert the crisis. The Fed expanded its balance sheet by $2.3 trillion. We don’t know where this money has actually gone because they won’t tell us. They say that if we knew, we might think someone was in trouble. You think?

Meanwhile, the rest of the economy began to catch up with the financial markets by falling off the cliff. More than1.5 million jobs were lost during the last three months of the year while foreclosures exploded. The Government went on holiday for three months waiting for a new administration.

Enter Obama. After haggling with Congress, he will have affected a nearly $800 billion stimulus program to get the economy moving and create 4 million jobs, or so we hope. There is about $600 billion in actual spending stimulus which amounts to less than 1/3 of the economic contraction expected in 2009. It is not nearly enough to jump start the economy, but it is a start. There will be more to come.

Meanwhile, Tim Geithner unveiled the Treasury program which would put $100 billion of capital into financial institutions which might generate $1 trillion in loans. Also, it would purchase $1 trillion of bad loans. Essentially, it is a “Paulson 2” plan, albeit with promised better record keeping and oversight. In any event, what it actually means is still a mystery since so little of the details have been disclosed. We assume that there are details.

The Fed, not to be left out, will increase credit for business and consumers from $200 billion to $1 trillion.

So, now we are caught up. Make sense? Of course not. All we can say for sure is that there is a big problem and we are throwing tons of money at it.

Political Response: There are four basic responses available to the government:

Spending to increase demand in the economy.
Tax cuts to stimulate demand.
Government purchase of bad loans.
Government injection of capital directly into business or guarantee of their debts.

Unfortunately, the responses thus far have been jumbled with only partial disclosure and shockingly little oversight. But, perhaps the most alarming aspect is a lack of coherent objectives and plan.

Economic Stimulus

The fundamental requirements of a sound economic stimulus program would be that the spending of taxpayer money, or cutting taxes, which is financially equivalent, has sound objectives in one of the following ways:

1. Spending would ideally be an investment in our economy. An investment where the principle and a fair return is expected. Investment in education, health care, infrastructure, technology, environment, R&D, and energy independence could all qualify as sound investments.

2. Spending for consumption is more problematical. It may be justified on a social basis. Unemployment insurance, food stamps, and medical care can constitute money well spent. Increases in defense spending and wars may be justified for protection or political reasons but not as an efficient stimulus.

3. Tax cuts are hard to justify on a stimulus basis. Tax cuts for corporations would tend to be the least rewarding. Although it can be argued that our corporate tax rates are higher than most competing countries, the argument is misleading. The net taxes paid by corporations as a percent of government revenues has been declining for decades because of loopholes in the tax system. Though stated rates are high, actual tax payments are low. Further, corporate tax cuts would tend to benefit the largest, established companies which tend to be poor engines for economic growth. For the past 30 years, the Fortune 500 companies have had a net decline in jobs. They have had net capital investment loss when comparing stock buy backs and dividends vs. capital raised. They have traded higher stock prices for shrinking their capital base. Nearly 18% of job creation is from start up companies that make up only about .2% of our total economy. They have minimal tax bills.

A tax cut for individuals from a stimulas standpoint are at best marginal and at worst highly inefficient. Tax cuts for individuals will likely be used to pay down debt or increase consumption. There is nothing in current behavior that suggests that individual tax cuts would be invested for long term economic benefits. A recent report says there has been no net savings since 2000. The loss of revenue would increase long term government debt but would not provide long term economic benefits.

Middle class tax cuts can be argued on a social basis. The working class has been effectively saddled with a 14% social security sur tax and do not benefit from the 15% capital gains taxes. Social justice it may be, but not an efficient stimulus.

In summary, an economic spending stimulus program is pretty straight forward. A prudent program will provide near term economic gains. It will be paid for by increased debt, but will bear economic fruits in the future which will allow for an increase in future taxes.

There is a contingent that thinks that all government spending is bad and all tax cuts are good. As Jon Stewart says, “20% of all dentists say that sugar gum is good for your teeth.”


Bailouts are much more problematic. Bailouts socialize overvalued debt, provide government funded equity for private firms, or simply nationalize businesses.

The reason that bailouts are needed is that the financial claims are not supported by assets or income generating power. In other words, the debt is overvalued. And, there is insufficient confidence in the private sector to make investment. The fundamental question is under what circumstances is a government bailout justified?

It is important to understand the circumstances that created the problem in the first place so that any program will not merely aggravate the situation. There are essentially three fundamental causes;

1. Mal- Investment: There has been excess construction of houses in marginal locations at prices that can not be afforded by the working populace. Probably too much has been invested in such things as leisure industries including resort development, casinos, cruise ships, and sports stadiums. Insufficient or ill-conceived investment in the automobile industry that produces only marginally competitive autos. And, perhaps the greatest distortion of all exists in the finance industry. This industry, before the recent market declines, had profits and market value of more than 20% of the Fortune 500 companies. This is a head scratching tariff to our producing economy for only moving money and credit from A to B.

2. Over Consumption: We essentially consume more than we produce. That is to say that we have no savings and consequentially no domestically generated investment. The net investment we do have has come from abroad. It is economically impossible to consume your way to long term prosperity.

3. Excessive Credit: Before the recent problems, public and private debt totaled more than 360% of our GDP. This compares to 160% in 1929 before the Great Depression. This is an amount that can not be sustained and will not be paid in kind because of a lack of economic capacity and unwillingness to service the debts on the part of the borrowers. This credit explosion triggered the mal-investment and over-consumption as previously mentioned. It also inflated the prices of real estate and financial assets above their economic value.

So, how big is the problem? Nouriel Roubini, of Stern School at NYU, who has been prescient regarding recent economic events, has recently estimated that the losses to financial institutions will be $3.6 trillion. The previous forecast was $1- 2 trillion. Approximately half the loss will be in banks which have only $1.4 trillion in equity leaving them with a negative net worth of $400 billion if he is correct.

To reduce the debt to GDP ratio to 1929 levels would require more than $25 trillion destruction in financial assets. This would result in a horrendous blow to the balance sheets of the 20% of the families with the vast majority of financial assets, but it would be even worse for the workers with no financial back up.

Oh, and lest we forget, there are $55 trillion Credit Default Swaps as part of the $550 trillion derivative market. The derivative market is 10x the total world’s GDP. Alan Greenspan told us in the past that derivatives reduced risk. It would be helpful for him to step forward now and explain how that is so. We could use some risk reduction.

The potential derivative losses may simply crush the financial system if the winners are allowed to pursue their gains. AIG might provide systemic risk to the financial system by itself. The debacle is a direct result of deregulation of financial institutions and non-regulation of the derivative markets.

And, the problems are not only a domestic issue. The Director of National Intelligence recently warned Congress that the world financial collapse poses the greatest risk to US security - replacing terrorism as the primary threat. It is forecast that 50 million jobs will be lost worldwide in 2009 causing much social unrest.

Government Guidelines: The following are things the government must do to improve their programs to alleviate the crisis.

1. Congress needs to take a crash course in economics and address the issues instead of ideology.

2. It must initiate actions that will avert systemic liquidity collapses and bankruptcies that would precipitate a chain reaction throughout the economy.

3. It must provide the necessary finance to ensure that the economy can function while nudging it into more productive ways. Meanwhile, it must protect families from catastrophic hardship for those caught in the maelstrom.

4. It must resist pressures from asset owners to monetize their overvalued financial assets. It has been said that “in a bull markets everyone is a capitalist and everyone becomes a socialist in bear markets.” Former free market advocates in finance have elbowed their way to the front of the bailout line.

Major Government Alternatives

1. Continue the patchwork programs to meet the immediate crisis, while ignoring the fundamental problems in hopes that we can muddle our way through. The first problem with this approach is that it may not work. Circumstances, delayed, or ineffective programs may simply be overwhelmed and the entire financial system collapses. We have been perilously close to this condition since September, 2008 and the overall situation continues to deteriorate. Secondly, without a plan and controls, the largess of spending and guarantees could lead to catastrophic hyper inflation. Thirdly, even if we were to avoid the extremes, it would likely provide a drag on the economy that could last for decades. Japan’s “lost decade,” which is now going on 20 years provides a lesson on muddling through without taking the necessary financial hits to let the economy reset.

2. An even more ominous approach would be for the government to inflate its way out of the problems by simply monetizing the bad debts and spending until the economy restarts. This would undoubtedly destroy the $US and could set off a chain reaction leading to hyperinflation which could threaten our very political system. Though no one would suggest this approach, if government would bailout everyone screaming for help, it could happen in any event. As we remember, Napoleon, Lenin, Hitler, and Mao all sprung from the ashes of hyperinflation.

3. A more thoughtful approach would be to have an objective of deflating the bloated financial claims through the markets while providing the stimulus, guarantees, and restructuring necessary to avoid collapse. This would be a tricky, politically difficult task requiring many and varying measures as required as events unfold. This would require a series of better alternative decisions and not some grand, overriding program. Perhaps, we have the economic minds in Obama, Tim Geithner, Ben Bernanke, Larry Lindsay, and Paul Volker to work us through the problems. And, we hope Obama has the leadership, political skills, and will to put the programs in place. It is encouraging to see that there are initial steps in analyzing the problems of the banking and auto industries rather than simply showing thumbs up or thumbs down on throwing more money at them. At first look, the mortgage rescue program seems well thought out.

4. Recently, there are thoughtful people coming forward with specific approach recommendations. George Soros has made specific recommendations regarding the mortgage system, recapitalization of banks, energy policy, and international financial reform . Nouriel Roubini proposes nationalizing the banking system. Paul Krugman continually suggests dramatic, far reaching economic programs including significantly expanding spending stimulus. All of these plans have a high cost and will inflict much economic pain.

According to the Federal Reserve, nearly 23% of “financial wealth” has already disappeared. Much more is to be lost. There will be many more bankruptcies and many more job losses. Much of these losses are necessary to reset the economy. The forecast of economic turnaround later this year is a pipe dream.

Further, we will have large dislocations. Many jobs will never return. There will likely be huge reductions in finance, some manufacturing, and service industries. But, most importantly, it will reset our economy to more productive pursuits and reset the financial system so that it is a support system for the real economy rather than its driver. It will encourage thrift and tend to reverse the unhealthy distribution of wealth which is a requirement in a democracy.
No one knows how this economic situation is going to play out. We are still in the early stages, and things are still very unstable. Unforcastable future events will likely surprise on the downside for a while yet.

From an individual standpoint, it is a time for extreme caution. The safest investment is to pay down outstanding debt. It is the only riskless investment and it will reduce an interest cost that is higher than can be earned from other low risk investments. The volatility and potential downside for stocks and bonds qualify them as high risk at this time. Hedges against the devaluation of the $US are volatile and may be difficult to execute, but should be considered. Or, so I say, which may be wrong.

The economic problems are perhaps the biggest in our history, but we have had greater problems as a nation in the past and have not only survived, but have improved our circumstance through creative destruction. It will be accomplished this time by clear thinking on all of our parts and demanding the same of our leaders.

gordy ringoen 2/19/09

Saturday, October 11, 2008


Lola LeMieux Kindley - The Bail Out of America

[From a discussion of the proposed Bush administration $700 billion bail out]
I'm with the vast majority of Congressional Republicans and the constituents who are writing in to say Hell, No. My reason is the preservation of the free market, but I'm also astonished to the degree of flabbergastation that the administration would propose a "solution" that puts control of the markets and ergo the economy in the hands of ONE MAN, with, it appears, very little accountability. What! Don't these guys read fairy tales? The Brothers Grimm and Anderson and the global folklore would tell them this is folly.

I heard a great quote from Tocqueville last week: he felt the essence of the American character was two-fold, the demand for freedom and the demand for equality. He perceived that they are mutually self-destructive, and the battle for supremacy between the two values would end with the demand for equality dominant. I think Tocqueville was not only insightful but prescient about the long term outworking of the indicators he was observing, and I think he was right about the conflict between the desires for freedom and equality. Since I am the first person in my father's family to graduate from high school, one would expect that I would come down on the side of equality, but in fact, I find the way this desire manifests itself in the last half of the 20th and the early 21st centuries repugnant. I want the freedom to pursue what I believe I can achieve, on my own merit and with my own effort. I don't want the demeaning, condescending paternalism of fudging the standards and skewing the standards to be the factor that accounts for my achievements. I certainly don't want the implication that I can't measure up, unless standards are lower for me than for those who "can;" I don't want the expectation of whining and protests of "unfair and unjust inequality," if I do not in fact measure up. And I mourn what I perceive as the loss of the boisterous, maybe unsophisticated, can-do attitude that allowed the can't-do rest of the world t laugh at Americans.

Wednesday, September 17, 2008


Darryl Johnson - Service in the Philippines

I served as ambassador in the Philippines for three months in mid-1985, having been called back from retirement to fill in there. We had a terrific time, but the situation is discouraging -- way too many people in too little space, and limited economic opportunities. One niche they do have, however, is a significant number of people who speak good "Murrican English." This was one part of our colonial heritage -- together with excellent golf courses. As a result, one of the top business sectors is call-back centers. They are second only to India is the number of such facilities. And by the way, the biggest one is at what used to be Clark Air Force Base. The base is long gone, partly the result of failed negotiations in the latter part of the Marcos era, but mainly the result of the volcano, Mt. Pinatubo, which destroyed large parts of the base in about 1989(?). We have no bases in the Philippines now, not Clark and not Subic Bay Naval Base, and we have no permanently-stationed troops there at all (although we do have fairly extensive military assistance programs). On other related topics, Tagalog is the official national language, but it is mainly spoken in Luzon, the largest island, where Manila is located. But it is not widely spoken in the more remote islands, including Mindanao, which has been the home of most o f the security problems in recent decades, dating back long before 9/11 and the current Global War on Terror (also known as GWOT). In my three months in the Phils, I went to Mindanao five times, including Davao and Zamboanga. All of these visits were for the dedication of US-Philippine assistance projects -- new schools in remote strongholds of some of the real baddies, or small bridges to help farmers, or community education/training programs, or rural housing and agriculture projects. Most of these areas have had large Muslim minorities, or in some cases majorities, for centuries, and they were never fully assimilated into predominantly Catholic Philippine culture. Which reminds me of a cliche Filippinos say about themselves, and the cultural influences of their two colonial overlords, the Spanish and the Americans: they say they lived in a convent for 300 years, and in Hollywood for 50.

Zamboanga is a pleasant tropical city of about 300,000 located on the far southwest corner of the island of Mindanao, the largest of the Philippine islands (Luzon has a much larger population, and is about the same size). It is close to the farthest reaches of the Philippines, Indonesia and Malaysia, and the small islands west of Zamboanga (Basilan, Jolo and others) have been terrorist havens for decades. The US supports Philippine efforts to build schools and medical clinics and bridges and docks and other infrastructure to encourage loyalty -- or at least passive acceptance -- toward the Manila government, which is a long ways away, literally and figuratively. These efforts have been somewhat effective, in part because the terrorists (the Abu Sayaf Group, the Moro National Liberation Front, Jamma Islamiya) are really brutal, but mainly because people want to be on the winning side. As for scenes from the colonial era in the Philippines that resemble The Ugly American (which was actually set in Thailand, by the way), the impression is accurate up to a point. But it is also true that Filipinos love Americans. One question I got numerous times was, "Why can't we become the 51st state?" The week I arrived, I presided over a movie premier about a daring rescue operation in the latter days of WWII, where Filipino guides helped untrained Americans liberate, with zero casualties, a Japanese POW camp holding 600 Americans and a few Aussies. It's a true story which virtually all Filipinos know. But I had never heard of it. There are examples of shared American and Filipino history all over the place, and MacArthur lives, from Corregidor to Leyte Gulf to the Manila Hotel! Unfortunately for those who have to live with today's realities rather than yesterday's dreams, the population (90 m) is far in excess of the economic or political capacity to support or govern, and the Philippines has gone from being the richest country in East Asia after WWII to being one of the poorest. President Arroyo enjoys very little respect, especially conpared to her movie star predecessor, Erap Estrada, who made little effort to govern, and to his predecessor, Gen. Fidel Ramos, who remains very popular. The society is very hierarchical, with a few hundred people at the top (mostly educated in the US) and millions at the bottom. In sum, it's a fine place to visit, but a somewht uncomfortable place to live.

Webmaster note: Darryl Johnson is a former U.S. Ambassador to Lithuania, Thailand and the Philippines, and current director of the American Institute of Taiwan.

Friday, September 12, 2008


Chuck Cooper comments to previous post

On Gordy's post:

Excellent, and as expected, I totally agree with the policies implied in your questions. Also about income taxes. I would like to discuss a couple of points. I don’t believe we can foist any of our debt, i.e. excess consumption, onto the next generation. As you point out, we can only consume today’s resources. While it is inherent in your third point about how government “pays” for expenditures, in my view it matters not whether it is printed money or borrowed money. The result is inflation, the least equitable tax of all. As you say, there is no free lunch. You can’t even steal it. If we just “borrowed” from ourselves, the result is clear enough. When we borrow from foreign countries, it gets a bit more complicated. We send them dollars or debt (not sure there is any difference) and they send us goods. Then the trade deficit eats away the value of the dollar. If we can keep that going forever (ignoring the other problems that this creates) we have successfully stolen goods from the foreign countries. You would think that after a while it is going to dawn on them that all those “sales” that keep things humming in their factories are only beneficial if they are paid for. There are indications now that China is catching on.

The Bush tax cuts were irresponsible, and his only excuse is ignorance and demonstrated incompetence. So sad that McCain thinks he has to switch to match the irresponsibility to get elected. Like all the rest of his positions, which used to make him appear to be a valid alternative. However, as long as the voters can be distracted by the fun stuff like lipstick on a pig, I fear it all may work. All you have to do is fool some of the people some of the time. Too bad.

I think I have voted Republican most of the time, but what I don’t understand is these people that will vote Republican all of the time, no matter who is running. There is something bad wrong with them. Particularly this time.

Gordy response:

Thanks for your insightful comments. You hit on a very cogent point. Printing money and and creating credit is all the same. I usually avoid this argument because nearly all economic theory claims that only money matters and credit can be ignored. If you look in the index of any of Milton Friedman's books, "credit" is not to be found. It is not even to be found in Bernanke's textbook which is used by more than 250 college Economic professors.

I think we underestimate the acuity of the Chinese. They have over $1 trillion of our debt which they have accumulated through balance of trade surpluses with us. They know, as we know, that they will not be paid back in equal value. On the other hand, look what they have accomplished. They have built an economic juggernaut while literally obliterating many of our industries, encouraged us to over-consume, thus reducing our investment, contributed greatly to our bloated financial system and have weakened the $US as a reserve currency. Let's say the lose 1/2 of the value. Compare this cost to what we get for the same amount in our middle-east wars. I think they may have made a pretty good investment. Further, they have solved a demographic problem. They had 90 million people added to their workforce in the last 15 years. It gave them something to do. As you noted, it is begining to change. They have their industries, they have our money, and they are going to lose 85 million workers over the next 15 years as their population ages. As a friend, who used to be in the import business told me this week, we had better get used to going barefoot because we have no shoe manufacturers left.

I think the Super Collider is absolutely fascinating. I think they are going to prove my theory about the creation of our universe. It was created by a highschool student as his science project in a universe in a different dimension. He slammed a couple of his or her atoms together and a tiny bit migrated to our 4 dimensional reality. That was the seed for the big bang. From then on its all history.

I haven't reconciled this theory with the NW Indian belief that a raven, picked up a stone, flew too close to the sun, dropped it and it became our earth. But, give me time. It seems to make as much sense as other explanations I have heard.


Gordy Ringoen - Tax Politics

In a few weeks, we will be voting in the most important election in our lifetime. There is much discussion about the relatively inconsequential personal issues of race, gender, and social status. In spite of the noise and spin, there are major issues, including:

Whether we should have an energy policy that includes consumption as well as non petroleum based energy sources or just drill, drill, drill.
Whether we should advance our interests in the world primarily through negotiation or through the threat and actual use of force.
Whether we should expeditiously end the wars in which we are engaged, or should they be continued indefinitely until some sort of victory is defined and accomplished.
Whether we should engage in other pre-emptive wars.
Whether we should have a policy and actions to limit greenhouse gasses.
Whether we support or deny equal pay for equal work and whether women should have the right to choose abortion.
Whether we should teach religious based doctrines such as “creationism” and “abstinence only” in our public schools.
Whether spying on citizens without warrant or probable cause is acceptable.
Whether we accept torture as an interrogation tool.
Whether we support Habeas Corpus for all people under our control.
Whether the Federal Government should contravene state and local government’s laws regarding environmental and social issues such as marijuana restrictions, gay unions, and gun control.
Whether we should support stem-cell research.
Who we wish to fill the vacancies of likely two and, possibly three, of the more liberal Supreme Court judges. A shift to the right would undoubtedly reverse Roe vs. Wade and would likely have impact on Freedom of Speech, Separation of Powers, and Habeas Corpus.
Whether tax cuts and free markets alone will reverse our economic and financial woes.
Whether the solution to immigration is higher fences, more border patrol, and incarcerations or developing polices which take into account our benefits vs. our costs of immigration and addressing the root causes.
Whether we should adopt policies and programs to provide health care for the nearly 50 million that have no medical insurance.

This is not an exhaustive list but does highlight some of the more important issues. They are reasonably easy to understand and everyone can make up their own minds where they stand on these issues.

The one important issue that there seems to be a great deal of misinformation about is taxes. Many of my peers claim that taxes are their number one issue. Obama would raise them while McCain wants to lower them. I suspect some of the people that take that position are really using it as an excuse to justify their vote for McCain while the real reasons lie elsewhere. It would be similar to the Palin nomination which may be an excuse to vote against Obama, but is not a rational reason to vote for Mc Cain.

None-the-less, there are many whose primary issue is taxes which I will discuss.

First, much of the campaign rhetoric can be ignored. McCain says that Obama will raise taxes while he will lower them. Obama says his tax proposal would lower taxes for 95% of the people. The New York Times last week said, after analyzing both positions, that there is little material difference.

McCain infers that tax cuts can be funded by eliminating earmarks. Earmarks are special projects authorized by Congress and approved by the president. They allow Congressmen to show their constituents that they are looking out for their interests in Washington. Some are worthwhile projects, while others, like the “bridge to nowhere,” are not so good. In any event, the people in the receiving districts love them as do the politicians who fight for them. They help them get re-elected. Sarah Palin needn’t apologize for trying to get plums for her constituents, but it is ingenious to claim that she is opposed to earmarks because she switched her support for the “bridge to nowhere” after it was dead in Congress. And, even though she said “no thanks” to the bridge after it was dead, she did not return the money, but rather, used it for other pork barrel projects.

Let’s put earmarks into perspective, they amount to about $18 billion per year or a little more than ½ % of Federal expenditures. They are relatively inconsequential and are not going away. The president has little influence over them and it is not a rational presidential campaign issue. Presidential, “line item veto,” which will not happen, would only further politicize the process.

So let’s finally get down to the meat of the issue, income taxes, higher or lower?

Let’s first look at a macro-economic view. It is forecast that our total goods and services to be produced in the U. S. over the next year will be approximately $15 trillion. Government expenditures, not including wars, will be about 21% of that amount. As you can see, from an economic standpoint, government expenditures are coming out of the economy on a current basis. It doesn’t matter whether it is surgery for a Medicare patient or a bomb that explodes in Iraq. The economic cost is the year in which it is spent or used. The economic cost of a war is the year in which it is fought. That which is spent on a war is production of goods and services that could have presumably been channeled to some other useful purpose either by government or the private sector.

Notice, from an economic standpoint, there is no consideration as to how the Government gets the money to pay for its expenditures.

So, how does the government pay for its expenditures?

It can tax it citizens and corporations.
It can issue IOU’s (Treasuries) to its citizens.
It can issue IOU’s to the Federal Reserve which, in effect, prints money to pay for them.
It can borrow from foreigners.

Those are essentially the only material choices.

The question is what is the best mix of these choices for the long term economic benefit of our country and, for us as and our families individually?

In looking at the list above, there are really two fundamental choices, taxing or deficit financing, as items 2-4 are all related to borrowing. The projected Budget for 2009 is a historic high Federal deficit of $480 billion, not including the cost of our wars which will add another $180 billion or more, plus, the likely elimination of the alternative minimum tax at $60 billion, and the cost of financial bailouts. It amounts to more than $2,000 per person in the U.S.

The projected taxes for the 2009 Budget includes $1,259 billion income taxes, $949 billion in Social Security taxes, and $339 billion in corporate taxes. You will note that Social Security taxes are just government revenues, like any other, and are not set aside for Social Security benefits.

It is fundamental to our tax system that it be equitable and just. Everyone can decide whether, a 13.5% Social Security sur-tax, beyond normal income tax, which falls almost exclusively on workers, is appropriate. Or, that a maximum of 15% capital gains tax which overwhelmingly favors the rich, meets those criteria. An early issue for the next president will be decision to continue the Bush tax cuts beyond their scheduled expiration in 2010. Continuation of the tax cuts will add $1 trillion to our Federal deficits over the ensuing four years. Fifty-two per cent of the tax cuts will go to the top 1% of incomes.

So, if the economic costs of government expenditures are the same, regardless of how they are paid, why not just tax and be done with it? Well, the problem with taxes is that you know specifically who, when, and how the bill is being paid. That is both its advantage and disadvantage.

Paying for Government expenditures with debt gives the immediate impression that no one will have to pay, but the reality is someone will pay, you just don’t know who, how, or when. Most economists complain that future generations are going to have to pay off our debts. Why would we expect that the next generations will become our economic slaves by taxing themselves of their production to pay for Treasuries that we issued to ourselves and foreigners? In other words, they think that our generation can consume everything we produce and then consume what the next generation produces. Not likely. How do our progeny walk away from these obligations? They simply deficit spend and inflate just as we have done. They will do exactly as we have taught them to do. Unfortunately, for the holders of those Treasuries, their purchasing power will fall. Future generations will diminish the value of the Treasuries we have issued through continued inflationary policies.

But, the more urgent problem with the deficits is that it destroys our economy. As the Government increases its share of the economy, individuals increase their debt to maintain their standard of living. The increase in debt in both the private and public sectors without corresponding increases in the real economy causes inflation in asset prices. The increase in prices of securities and real estate gives confidence to borrow and consume even more. This has incredibly spiraled without restrictions to the point where we have a negative economic savings rate and hence negative investment. With negative investment in education, infrastructure, and capital equipment there is continued economic gloom as far as the eye can see.

Further, the asset appreciation we have enjoyed in real estate and securities prices is nothing more than fool’s gold as we have not built the foundation for a strong economy. It is relatively easy to fool ourselves for a while, but it is impossible to change the basic economics of bad policy. Either through inflation or deflation the value of the asset claims on our economy will be diminished in value to the level that the real economy can support them. Sorry, there is no free lunch.

The deficits also lead to the unsustainable and equally dangerous balance of trade deficits which can be visited at another time as well as whether more deficits in the future will stimulate the economy or will be a further drag.

In summary, Federal deficits are destroying our economy for following generations and may not even spare us from the collapse of the prices we use to measure our personal wealth.

In short, we should not succumb to the siren song of lower taxes but, rather, that we need to equitably increase taxes to shrink our disastrous deficits. And, that those expenditures which are made are done judiciously, in the best interest of the country, today, and in the future. Only when this happens will we be on the road to true economic recovery.

For those, who still take a “me first” approach and think that lower taxes are in their personal best interest, they should look at their portfolios and compare their recent debt induced performance compared to the tax savings they hope to gain in the future.

Finally, for my generation, who inherited a healthy and robust economy which we have dissipated through profligate use of resources, over consumption, and insufficient investment, while allowing a grotesque, bloated, and distended financial system to evolve, we need to use our remaining time and energy to force the economic, financial, and fiscal changes necessary for the economic wellbeing of our children and grandchildren. And, it starts with our choices in the coming election.

gordy ringoen


Thursday, June 28, 2007


Margie Martini Jones - Title IX

Times have changed for the better!! We have gone from intermurals for girls' athletics to my daughters being able to compete in sports with some equal support with the boys. My youngest daughter, Barbara, was always being challenged by boys in swimming who did not know she was a competitive swimmer and she usually beat them! One great story in my family is about my sister Judi who graduated from Glacier High. She was a cheerleader there and later her daughter Marcy was a cheerleader at Kennedy High. Now her granddaughter is a junior and an athlete. She was asked if she wanted to be a cheerleader and carry on the dynasty and said "never". I say "hooray for Title IX

Tuesday, May 15, 2007


Chuck Cooper - Global Warming - What, Me Worry?

Now that the Intergovernmental Panel on Climate Change has issued its report that the likelihood is between 90% and 99% that human generated greenhouse gas has been the dominant cause of observed global warming over the last 50 years, I have decided to quit listening to the nuts and give a little thought to how it will affect me. I decided to limit my worries to the next 20 years or so, as my children are both worriers and will be able to carry on by themselves.

In Waco, where there is usually at least 30 days over 100 degrees, and several at 108, I have decided that an extra 4 or 5 degrees won’t matter much, and in fact may be offset by the increased range and frequency of the hurricanes. We usually get some rainfall from those, and once in a while a doosy. My spell checker thinks that should be “dooly”, but we almost never get those. So ok there. Some people worry about the increased tornados, but obviously don’t understand odds.

In Evergreen (actually Kittredge to be exact) it used to be dry until May, which was the snowiest month. The reason is the rain shadow from the Rockies. When it was cold it caused the clouds to unload on the western side. The last few years have had much more snow in the mid winter, and have been wetter. This year was very wet and the snows came heavy early. The forests here are reminiscent of those of the Cascades, in that you have mostly Douglas Fir on the west side, and mostly Ponderosa Pine on the east side. Doug likes more water than Ponder. Here we have currently about 90% Ponder and 10% Doug. As we get wetter, as the Rockies get warmer in the winter, I would expect the ratio to shift in favor of Doug. I personally like Doug more anyway, so I should be all right here also. If I start seeing mangrove, I plan to write my Congressman to see if the government shouldn’t join the rest of the countries in the world in recognizing the problem and trying to take some action. Well, to be fair, it isn’t just the Bush administration, France is with us on that one. Gives you kind of a warm feeling.

Friday, December 08, 2006



Like it or not, if you are on the stand alone Medicare drug plan, the odds are that you should change your provider for next year. Open enrollment ends December 31. Use the government web site to compare your current plan with the competitors. Just because your plan was among the cheapest for 2006 doesn’t mean it is going to be close to cheapest for 2007. It sure looks like some of the cheapest plans are playing catch-up, relying on your inertia to keep you with them as they raise the price.

Here are some tips.

1.Don’t trust the reenrollment material your present carrier sent you. The “plan improvements” may be a slightly lower premium and a lower deductible, and a doubled co-pay. See those smiling people on the brochure? They are insurance company stockholders.

2. Don’t overemphasize the deductible. If you are going to reach the donut hole, the amount of the deductible is irrelevant. It is pay me now or pay me later. The major item is almost always the co-pay, not the deductible or the premium. And of course, only the total annual cost shown on the government web site matters.

3. Don’t enter all your drugs on the web site, just the expensive ones. Remember the counter-intuitive fact that the amount you pay, the co-pay, counts toward the maximum annual coverage. The generics that you can get at Wal-Mart or Target for $4 should not be purchased on your insurance, so they shouldn’t enter into your decision making on the web site.

4. Whether or not you are switching plans, if you are not in the donut hole refill all the prescriptions you can before year end. It is almost certain to cost more next year, and there is always the chance that a change in your prescriptions, or their cost, will subject you to the donut hole next year. December counts against this year, January the next year. If the computer rejects you as too early, call them to find out when you can refill. It may be before December 31. Better yet, sometimes they will fill it early and just send you a nasty letter.

5. If you are uncertain about something, email me. I only know my own little corner of this, but I can poke around the internet. Google seems to have an answer for everything. And I have a good friend who is a pharmacist. Warning- while there is no charge, you will probably be pestered for a bio.

Think of this process as a fun thing, like using coupons.

Wednesday, October 25, 2006


Deanne Blakley-Bellemans - MY LIFE AS AN OPOSSUM HUNTER

If you saw me, you'd probably say, that I don't look like an opossum hunter. But then again I'm a chef and they say that I don't look like a chef either. One of my daughters said I look like a wife. Well, I'm here to tell you, I'm not one of those either! Because if I was a wife, I wouldn't be hunting opossums, simple really! Husbands are prone to saying things like, stay back he's got fifty razor sharp teeth, and a very nasty disposition! I can see that silly, so what else is new? All the while he's brandishing a shotgun in his underwear, while bouncing on the bed, trying to take aim! WHOA, Frank Buck take it easy, it's just a little one (the opossum, what were you thinking?)!

Now that brings up the question, which would I rather live with? Opossums hands down! They're quiet most of the time, never bounce on beds with shotguns, just rustle about under the bed, or under something else, if it's not the bed room type. I'm actually of the opinion that they just come to have a little fun, and maybe eat a little cat food! But I digress.

The first thing I did when I moved into my mother’s former house was to dig a pond. Did you know that raccoons and opossums love ponds? When I caught my first opossum I was really trying to catch a raccoon, but opossums come out earlier in the evening than raccoons, who also just want to come in and have a little cat food. They mostly use the cat door, while the cats say, come on in make your self at home, we have fifty pounds of food in the garage, can we get you some more? Maybe it is self preservation technique; it does seem to work for them. And Opossums, well, cats can't seem to even see them. They say things to each other like, OPOSSUMS no, I don't see no OPOSSUMS! I'm about this time screeching for them to give me a hand and we'll be able to get this varmint out of here. Now the cats seem to think this whole routine quite amusing, and in that rather superior way they have, even seem to enjoy it!

So while trying to catch a raccoon, I caught my first opossum. I set out the have-a-heart trap, baited it with peanut butter on toast, and a little tuna, (I'm a chef, remember) I never go out and see what I've trapped at night, just wait for morning to confront a really mad beast, so imagine my surprise when my raccoon is an opossum! Never having seen an opossum in my yard before, I did the kind thing, I let it go! The next night, same thing, no raccoon just another opossum, different color this time. Well, I'm starting to catch on now, and this one is going to that "better place for opossums" that I've decided to use for opossum removal. So with gloves on, I pick up the trap, trot out the car, pop it into the trunk, and drive to that "better place for opossums." Getting an opossum out of a trap sounds like a simple little job, doesn't it? This place used to be a neighborhood, but all the houses have been removed, and it's kinda spooky, in fact to me it looks like a perfect place for a murder! Now my imagination is working overtime, and I can't get the damn opossum out of the cage, he's hanging on with his tail and all four feet, all the while playing opossum with me! I shake it, I bang it, now I'm getting right up close and personal with this thing and ugly, man you should have seen it and it does have a bunch of nasty teeth, mind you I didn't have time to count them. Finely out he flies and beetles off into the underbrush!

That was opossum number two. Opossums number three and four just stopped by for a short visit, and I was able to just shoo them out the door. Now when you have an opossum in the house, people just look at you and say, well aren't going to get it out? Like maybe I invited it in? I look back at them and say, "it's an opossum" as they look right back with blank stares, uncomprehending. What do opossums do? Right, play opossum and if it doesn't want to be found you won't find it! Number five was in the house for fourteen days. I didn't know he was there for some of those days, but when a vase was pushed over in the middle of the night while he was looking for H20 we met face to face in the dinning room. As I looked wildly around for something to trap it in, we both moved at the same time. As it raced upstairs I shouted “NO!” and dashed after it. Gone, just gone. The next day I'm out getting another trap. I thought a squirrel cage would do the trick, wrong! I kept catching it but the tail didn't fit in the cage. Back to get a bigger trap, now this one was big enough to catch a cougar, presto at 1:44 AM I've got him! According to plan he also goes to that "better place for opossums" I go off to watch fireworks!

Now with past experience such as it was, this year I realized that opossums seemed to be coming and going at will. Another mystery here at the ranch, how were they getting in? Number six made nightly forays under the bed, and as it made so much noise I thought it must be a mouse. I moved the bed, searched under everything, rushed out and a bought two mouse traps, baited one with cheese and waited for tomorrow to come! Hum, it took the cheese, sprang the trap, next baited with peanut butter, now it's taken the trap! Sooner or later it will dawn on me, that “it" is back! Coming around the corner, late one night I come face to face with one sitting on the washer, now I'm dressed for bed, but this is a golden opportunity. I cast around looking for something to put him in, grab my new picnic basket, and garden gloves, as I reach for him, my mantra is, you can touch him, sure you can, just as I reach out, it dawns on me, what am I going to with him if I do actually touch him? How am I going to keep it in the basket while I get dressed and drive it to that "better place for opossums"? With that thought, he's gone down behind the washer, mystery solved! They're just walking right in, coming through the dryer vent and that means they're under the house too! Woe is me, nothing's going right, right now so I get someone to come over and move the washer/drier, fix the hose and now, I think I'm back in business!
But I'm not the one in business, the little varmints just pushed the hose aside again and we're back to square one!

Morning dawned early, 5 AM to be precise, stuff is falling over, with eyes tightly closed, I pretend I don't hear anything. But I have a nagging feeling that I've been here before, I'm right I have! It's another opossum, in the kitchen, a small one, this is really way too much, enough of this wildlife game! This one actually seems to like games, he's pushed every box of tea in the house and some jars, off a shelf in the kitchen! When I finally stagger into the kitchen, it's now chowing down on cat food and doesn't seem to be afraid of me! It looked at me and went beetling off under the cupboards, well of coarse it did, have you seen me at 5 AM? This must be a plague of opossums; does the Bible mention anything like that? I don't think this one is the one on the washer, I think it's a different color, well at that early hour, who would actually know what color it was? So if the one on the washer, was number six, this might or might not be number seven, but who's counting?

The next night, I check to see if anybody is in the kitchen before bed, two boxes of tea are down, and then I'm eye to eye with him in a cupboard! So I got into my opossum fight gear, nightgown, purple gloves and broom, and start removing dishes one by one. All the while he's hissing and being in general a pretty nasty piece of work! About now I'm remembering what my friend Sam said about not, I repeat not, touching it, because it could take off a hand! Lacking a gun I had to go with what I had, it turned out that a broom wasn't going to do me any good right now, so I went with the yard stick! He didn't want to go, and he fought me all the way, finely I gave it a mighty poke, it grabbed the yard stick and hung on like a fish, so I fished him out and on to the floor! He made a dash for the under the, cupboards, but this was a well thought out plan and I had stuffed the holes with towels, so shouting all the while, I poked him right out the door! Number six/seven was barely out the door and number, let’s say eight, is already here!

I had the grand total of twenty-three hours, opossum-less, why is this happening? I haven't seen this one, but I know for sure it's coming in the drier vent! I had wedged the laundry area door shut, and today it was open, so maybe it's a bigger one, now that is scary! It's his move, so back to the waiting game! Or it could be number six returned and I gave him such a thrashing too. I thought he would be in Texas by now! Why me, why opossums, lots and lots of opossums, why?
When I moved into my mothers house I didn't know that I was creating prime opossum habitant, my mother never mentioned opossums! Wait! The cat is behaving strangely; maybe, just maybe she's decided to help me out here and is indicating that an opossum is under the sofa! This maybe the break I've been waiting for, wish me luck! Armed with my trusty yard stick, I'm going down stairs and look under the sofa. Wrong again!

I've wedged everything I can find around the washer/drier, hot water tank. When number nine comes back, he'll be trapped in this small area, no run of the house for this guy! And he comes every night, and every night we do battle, me with the yardstick, I whack at him trying to discourage him from coming in. I just want it gone; we do this for a week! On Saturday my ten and twelve year old grand girls come, we're going off to see pug puppy's and swim at a cousin's pool. Before I leave I check on the opossum booby trap, I open the door and there it is, and it's making a nest out of some of my insulation! I slam the door quickly. I think about it, and call the girls so they can see it, we peek at it, then I open the door all the way, nothing, it doesn't run or hide, so we hatch a plan, Abby, an ace goalie in soccer will guard the way into the rest of the house. Kate will hold the lid of the canning kettle, we have no trap, so have to go with what we have, and that is very large canning kettle. I have the kettle, the yardstick, and the purple garden gloves. I start with trying to just push it in to the kettle, it plays dead, so I reach for it, as I touch it, all hell breaks loose, it moves, we all start yelling, with a mighty whack it's in the kettle, Kate slams the lid on, we got him! While we're getting our selves out the door, Abby sits on the kettle to make sure it doesn't get out. We take it to that "better place for opossums"! The girls don't like the place, so we walk around with the kettle looking for an even "better place for opossums" in the "better place for opossums"! Now you'd think the thing would just dash right out, but no, now it doesn't want to get out of the kettle. Finally we overturn it, give it big thump, and number nine's now in a "better place for opossums".

Number ten? Number ten lives in a little house in the garden I bought for the cats, who though it a very funny idea, and while they were being rude, yukking it up about cathouses in general and how they would never use it, I told them they were ingrates and stashed it on the side of the house. Number ten seems to love it and I love the idea that we both have a house of our own and if she will stay in her house and not in mine, we'll get along fine.

Now about those raccoons....

Thursday, August 24, 2006



When I got up to the UW in fall of '56, I heard a guy named Sonny James on the radio do a song called 'Young Love'. It was the first song I ever learned on a guitar. There was a guy in my fraternity that played Elvis' 'Don't Be Cruel' almost as well as Elvis did. So I got a 'Silvertone' guitar from Sears for about $10 and asked him to teach me how to play. He told me it's not really that easy and with secondary activities such as attending classes, studying, housework, hazing (including paddles in those days), pledge training, etc. there was very little time for sleep let alone learning how to play a somewhat difficult, chordal musical instrument. Well, sleep was deemed least important so that's what went first.

Music was a high priority activity in the Sigma Chi house then and there was an upper-classman named Jack Owens, who played a 4-string tenor guitar and he and 2 other Sigs, with bongo drums, played Calypso music at functions and they had a 3-nights-a-week gig at a place downtown called the Colony Club doing Harry Belefonte. I had been drafted as a member of our renowned 12-man-chorus by then, an acappella group, and we won many awards all up and down the west coast as well as at the UW for our presentations thanks to our musical director, John Iverson, a prominent Seattle attorney since about 1962. We had some exceptional vocal talent in all four voice parts, (they made me sing 2nd tenor and told me not to sing too loudly but I could reach the high notes in those days. Maybe my voice hadn't changed yet. I only had to shave about twice a week.) David Richdale, a member of the Calypso group, also a prominent Seattle attorney, and John Iverson had satin voices for the 1st tenor parts and we had a couple of deep, clear, bassos, and 'Ed Ames' baritones.

About that time, a guy named Buddy Knox came out with a song called 'Party Doll' and, by now, I had learned about 3 cowboy chords and, by beating a flat pick back and forth across the strings, I was rockin' and rollin', (or so I thought. It sounded good to me anyway and it got me a lot of attention at parties that I had never received before when I wasn't on a baseball field.) Not long afterward, the Kingston trio came on the scene and the folk era was born again. Everyone wanted to play their songs and we formed a group that could come pretty close. Then we heard those Fiji boys serenading our Kappas one night and realized, 'Wow, they're better than we are.' And they were. They became the Brothers Four. I knew them all and still catch their act once in a while although only one of the original members are left. I meant to ask Gordy Ringoen about them at the reunion but never got around to it. He and Roger Jenkins were Fijis at the UW.

I got busy trying to get a degree and get on with what I really wanted to do in flight school so, as a result, my music suffered. (Some people thought it had always suffered and still does.) After I had my wings, my first operational assignment was to McGuire AFB in NJ. One week-end Marilyn and I met some friends from pilot training in NYC and were strolling past a coffee house in Greenwich Village one summer afternoon when I heard some music coming from within that mesmerized me. Two guys and a blond girl were playing folk music and the guys were playing guitars with their fingers. It was the summer of 1962 and I had never heard anything that sounded that good. These guys could make two guitars sound like a whole orchestra. It wasn't long after that that I realized I had happened upon Peter, Paul and Mary. In those days, there weren't any books or music teachers that could show you how to play guitar finger-style unless you wanted to devote yourself to formal training in classical guitar or hang around Washington Square and smoke pot. My squadron commander would have frowned on the latter activity and I didn't have time for the former so it took me the next 20 years to figure out some semblance of finger style guitar. I'm still trying to figure it out as my fingers become more arthritic, my voice more crackly, and my memory less astute but, it keeps me entertained while, at the same time, it drives Marilyn up the wall.

When Jim Croce, Gordon Lightfoot and James Taylor were so popular, I wanted to learn as much of their material as I could. Their music wasn't just wonderful to listen to but it was all original. They not only performed it; they wrote it. Amazing! Croce was my favorite and he was really on his way up when he was killed in the plane crash in '73. Seems that happens to a lot of popular young musicians.

Clint Eastwood said in a rare interview, "When you get old, play some golf to develop patience, speak softly, and learn to play some music." I haven't mastered any of them yet, but I'm still working on it. I want to be just like him when I grow up.

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