Nixon's the One!

In one of the more interesting television commentaries last week, CNN pundit Fareed Zacharia had an interesting take on who is responsible for the nation’s ills: Richard Nixon. I almost fell out of my chair. He claimed that the Watergate scandal changed the culture in Washington. Congress enacted all of these sunshine and disclosure laws requiring the people’s business be done in the light of day instead of in the smoke filled room. All of this disclosure means the public can see how its representatives are actually voting and conducting themselves. This prevents said representatives from obtaining compromise in private where that compromise might cost them the next election back home. Really?

Because I am a true believer in the smoke filled room and power politics, he may be right. This country has moved steadily towards ideologically pure political parties for the past thirty odd years. If you do a timeline, you will probably see the trend towards polarization picked up speed with Nixon’s resignation, and the Carter’s election after Ford pardoned Nixon. That, plus residual distrust in government after the Vietnam War, led to not only institutional changes in Congress relating to how it conducts business and lobbying rules, but to changes in the how Presidential candidates are nominated.  Out with the power politics and in with those annoying primaries where people actually get to vote.

Ideologically pure political parties have long existed in Europe. It works there because the Europeans use a parliamentary system where the victorious party takes control of the entire government. It sinks or swims accordingly. If they don’t do the job, they get the boot. We don’t have that kind of a system. We have a shared power system which can end in deadlock and gridlock. Whether that is good or bad is in the eye of the beholder. The current deficit debate is the result of that system.

I’m not sure anyone wants to go back to the days of cloak room politics. On the other hand, it DID move politics towards moderation. Party bosses picked who they thought could win. In Presidential politics, the nomination would not be clear sometimes for several days, and often not until two in the morning the night of the nominations. Not now, when it’s time for the party convention, you know who the nominee is going to be by simply adding up who won what primary and caucus. Boring.

The voters in the primaries tend to be ideologically pure activists, especially in states with closed primaries. This is aggravated by the movement of many voters from political party identification toward being deemed Independents. That may be noble on the surface, but the vast number of independents who don't participate in the primary process are left with a general election choice of either someone from the right or left more distant from the center than the Indpendents might wish.

At the legislative level, members of the House are particularly open to scrutiny by the political extremes in his/her party that can run a candidate against the incumbent in a primary. And they are up for re-election every two years making them vulnerable when the heat is on. It’s tough to do what’s right for the country when it may or may not coincide with ideologically pure voters at home.

On the other hand, this is a republic. Our representatives are supposed to represent our views in Washington, good, bad or otherwise. That is the eternal dilemma for all politicians. Should I vote my conscience or vote to please my constituents who might not have access to information that I have? That's a tough question.

Political theory aside, its good to know that as our credit rating is about to be downgraded, as we are about to default on our debt, as we fight three wars, as we prepare to deal with Obamacare, we know who to blame. Nixon's the one!  Damn...I should have voted for Hubert Humphrey!

Hidden Inflation: Gold

One of my clients came into the office last week faced with what she perceived to be some financial issues. She was a woman in her early sixties who lived alone, and had run up credit card debt of approximately $10,000.00 and was having difficulty in paying it back. She was receiving unending phone calls and letters. She came to me contemplating bankruptcy.

We sat and looked at her assets. She rented an apartment. She owed money on her car. She had some savings but was reluctant to wipe herself out. On a hunch, I asked her about jewelry. What did she have? I told her to go home and take inventory.

When she returned a few days later, she had a smile on her face that went ear to ear. In her jewelry collection she had numerous gold chains, rings with fake stones, bracelets, earrings, most of which she hadn’t worn for years. Many of the rings were 18 carat, and she told me many of them were forty years old, heavy, and "butt ugly," her words, not mine.

She took them to her local gold dealer, and she walked away with $13,000.00 in cash. Her jewelry box is now substantially emptier, but her debt is paid with some left over. I asked her what she did with the other three grand, and she told me she went and bought some inexpensive costume jewelry but was stylish nonetheless so she could actually wear it.

Those of us who live in the real world, not the Washington DC world, know that there is inflation in the economy. We see it at the gas pump. We see it in the grocery store. We see it in clothing costs. Of course, the government says it isn’t there. What can I say?

But the real inflation is in precious metals. Gold is pushing $1600.00/oz. Silver and platinum are trading at all time highs. Diamonds are going through the roof. If you want to know what your money is worth, a stack of 18 one ounce American Gold Eagle coins is worth $28,000.00. THAT should give you pause. You can hold those one ounce coins in one hand. That is what your money is worth, and it ain't much.

We should be disturbed that countries like China and India have been steadily moving their reserves out of the dollar and into commodities, and making noises about returning to the gold standard in order to protect the value of their assets. Nobody wants to hold debt denominated in currency that is being devalued. Printing currency and excessive debt, whether held by individuals or governments, is inflationary.

While my client’s story is light hearted and interesting, it is also a cautionary tale. Inflation is insidious, especially when it is occurring in an area in which most Americans don’t have any actual experience. Average Americans are not familiar with precious metal commodity markets and don’t hold gold as an investment.

The markets are out of whack. If the world moves to a new reserve currency based on gold or a basket of commodities, we are screwed in a major way. The financial crisis of 2008 will look like a walk in the park.

Energy: The Hole in the Dike

While Obama and Boehner spar over raising the debt ceiling, unemployment continues to go up. While the debt is a small part of the problem, the real problem goes unabated. Once more with feeling, it is energy, energy, energy.

Picture the United States in the 1960’s as a vast reservoir of money sloshing around North America. Then OPEC comes and pokes a hole in the reservoir by violating American anti-trust laws. The money starts to leak out of the reservoir. First a little bit, then more, then even more. By the 1970’s it turns into a crisis, and the government makes a half hearted effort to the plug the hole out from which American money is leaking…except now they are called petro-dollars.

Rather than actually fix the problem, America looks the other way as the government sticks a finger in the dike rather than permanently fix the leak. Over the years, the leak has become bigger and bigger, and the money continued to flow out…until there was no more.

Financial derivatives may have been the tinder that started the financial in September of 2008, but it was the complete draining of money from the reservoir to OPEC that prevented the fire from being put out. The reservoir was empty.

But once again, rather than fix the problem, the Federal Reserve opened the spigots and tried to fill the reservoir with water by pouring money into the dry lake bed. Funny thing, because the hole was still there, the money flowed out of the reservoir as fast as the Federal Reserve could pump it in at the other end. The money was worthless.

And now there is no money. The Fed shut off the tap. And the nation is broke with a national debt equal to the entire GDP of the nation. And so long as we are energy dependant on OPEC, things cannot and will not get better. The reservoir cannot refill itself so long as the leak is still there. We send $1 billion/day to OPEC to pay for our oil. The figure is unfathomable...and the EPA blocks all efforts to plug the hole.

It is fixable.  We can do it.  But our political class seems to be dealing with symptoms, badly I might add, rather than fix the problem. While the national debt and the debt ceiling are important issues, neither can be fixed without first becoming totally energy independent. It would keep the money at home.  The reservoir could fell again…and that would resolve most of the problems.

The largest reserves of natural gas and coal are in the United States. We have the capability of producing safe nuclear energy. The second largest reserve of oil in the world is in Canada, not the mid-east. And we haven’t even begun to touch oil reserves off shore and in Alaska.

Now it is time to cage the environmentalist. Challenge the nation to become energy independent within five years with infrastructure spending to support cars and trucks powered by natural gas, hydrogen, diesel, and electricity. Fund by selling energy bonds to the public, not to China.

This effort will create millions of jobs funded by Americans rather than the Chinese, and make us wealthy and prosperous once again.

It’s time to plug the hole in the dike.

Senate Bill 5

It is the lull before the storm over Ohio Senate Bill 5. The Democratic Party, with much aplomb, had its million signature march in Columbus whereby it presented to the appropriate state officials over a million signatures to repeal Senate Bill 5. Leading the pack were the Democratic Party representatives from the Mahoning Valley. They claim they are fighting for the middle class. That getting this issue on the ballot is a victory for the middle class.

How is this a victory for the middle class? To me, it looks like a victory for public employees. As it stands now, if the vote were held today, Senate Bill 5 would be repealed. On the other hand, when each of the component parts is polled, the public overwhelmingly supports the provisions of Senate Bill 5. Therein lays the challenge for the election. The Republicans must educate the public as to what Senate Bill 5 does. The Democrats must confuse the public with emotion and false information.

This is NOT a referendum on the middle class. At the base level, Senate Bill 5 does the following:

1) Outlaws strikes by public employees.

2) Sets minimum standards for employee contributions to benefit programs, including health care and retirement programs.

3) Introduces merit pay for teachers.

4) Eliminates binding arbitration by third parties in disputes whereby the third party can ignore the current fiscal situation of any government body in dispute resolution. It can’t force a township to put a tax levy on the ballot to fund a labor arbitration award.

5) Comparable salary determinations are eliminated, particularly in university situations. You can no longer base a salary on comparable pay including areas where the cost of living is substantially more than the area in which the university is located. You can’t look to a comparable wage in New York City, with the highest cost of living in America, to justify a similar salary in Youngstown, Ohio, which is among the lowest for cost of living.

Under Senate Bill 5, Ohio public employees will be treated exactly the same as current federal employees, and the same way they were treated in Ohio up until twenty years ago when public employees were granted the right to strike.

At the end of the day, the only folks who will benefit from the repeal of Senate Bill 5 are the public employee unions. And the rest of us will be left to pay the continuing rising cost of local government.

If you voted against the last county sales tax levy; if you voted against the last local police levy; if you voted against the last school levy; if you are tired of levies being place on the ballot over and over and over again after they have been defeated one, twice, and more…then you will vote to retain Senate Bill 5.

Given the history of levies in Mahoning County, my money is on Senate Bill 5 being around for a long time… a million signature march notwithstanding.