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Economic Stimulus
Bailout. Economic stimulus. Derivatives. Depression. Recession. Rampant inflation. Deflation. Stagflation. Economic collapse. Buy gold. Spend money. Save money. Layoffs. Unemployment. Foreclosure. Lending freeze. The worst since the great depression. The worst since 1982. Uncharted waters. These are the buzzwords of the day. Yes, we have problems. However, everybody is trying to talk their way around the fact that nobody knows what the F*** to do! And the public? Nobody knows what is going to happen so they do nothing. Better to do nothing than throw good money after bad.


OK. It is time to forget about the uncharted grand schemes that are sopping up money like a dried-out sponge. Money that will wind up putting the average citizen deeply into debt for generations while padding the pockets of the fat cats that allowed themselves to be the economic prostitutes of a Congress that bought votes with bad legislation intended to play to a liberal agenda (Sarbanes Oxley and the CRA). Yes, Congress is the real culprit in this whole mess. Congress played puppet master to Wall Street, dangling the carrot of public funds and the stick of noxious regulations and legal recrimination. So the donkeys of Wall Street did what any sensible jackass would do, they took the carrots. And they got even richer. Now, Congress is doing what every puppet master does, it is protecting its puppet. Regardless of how much politicians denounce Wall Street greed, Congress needs Wall Street to be its beard as much as kingpins need street dealers and pimps need their girls. Congress depends upon Wall Street to implement legislative direction and move the money. It is estimated that $240 billion of the first $350 billion of TARP funds has gone to shoring up the quasi-governmental organizations Fannie Mae and Freddie Mac. Now argue that Congress isn't the biggest Mack-daddy on the block.


Let's get back to basics so America can recover from this legislative morass.


First, a few truths that remain as true as day following night. You can bemoan, curse and deny as much as you want, this is the way it is.
- In times of regulatory uncertainty, people tend to stand pat, wait and see.
- The US economy is 70% public, 10% corporate and 20% government. Government gets its 20% from the other 80%
- Entitlement spending is an ineffective form of government spending, if the purpose is to boost gross domestic production (GDP). Entitlement spending is an expense, not an investment. Entitlement spending is like paying rent. It provides for an immediate use but does not give a return.
- Ice-core samples show that our climate change is cyclical and is no more pronounced than prior cycles. The 500 million plus years of ice-core data show that the earth has been COOLING for the past 100 million years. As a fluctuation in this cooling trend, the earth has been warming for the past 50,000 years. Recall what you learned in grammar school: the melting of the glaciers that covered North America 50,000 years ago; flooding of the Bearing straits 25,000 years ago; the great flood 10,000 years ago - which "sank" the English Channel, 'Atlantis' and the civilization in the Caribbean. Yes, our cycle is similar to past cycles, only not quite as severe. The good news, Earth is approaching the turning point of the current cycle and will soon start cooling again. The bad news? Glaciers will cover North America 50,000 years from now, just as it was 50,000 years ago. Should we worry about that? NO! We are all going to be dead long before that happens. The Al Gore of 25,000 years from now can hype the shrinking oceans of the coming ice age. Do you know why? Because there is nothing that man can do to change the natural cycles of the solar system.
- Anthropogenic climate change is not real. It does not happen. The amount of carbon waste produced by all of mankind is only 6% to 8% of total atmospheric waste. Nature, itself, produces 92% to 94% of the carbon waste, each year, which goes into the atmosphere. Of anthropogenic production, about 70% is due to production of goods and only 30% utilized as energy sources (to fuel vehicles and produce electricity). The USA produces about 25% of that 6 to 8% of anthropogenic carbon waste. Even if the USA stopped all production of goods and consumption of fuel, it would only reduce atmospheric waste by 1.5 to 2%. That's right. If EVERYONE in ALL the USA quit driving ENTIRELY, turned off ALL industry, turned off ALL machines, gave up ALL electricity and essentially moved to the woods and lived off berries, there would be a less than 2% reduction in atmospheric carbon. Regardless of how much some environmentalists want just that, it is not going to happen. Most of the world does not like living in the woods eating berries. They would prefer to come inside with the lights and air-conditioning.
- Conversely, the USA hydrocarbon use for fuel is increased by 10%, the atmospheric carbon waste will only increase by 0.05 to 0.06% [ 0.1 increase * 0.3 waste due to fuel usage * {1.5 to 2%} anthropogenic carbon waste in atmosphere = 0.05 to 0.06%]
- Irrespective of proponents who tout various alternative concepts such as magnet motors, plasma energy, jet packs, wind power, solar and zero point energy, automotive engineers opine that there will not be a commercial alternative to the internal combustion engine for the foreseeable 20 years. Sure, there are going to be modifications but the basic block will remain. Electric vehicles? No, there is not a viable energy source available. Moreover, the electricity required to run electric vehicles consume as much energy as conventional vehicles. You may have heard that over the lifetime of production and utilization, a Prius consumes more energy than a Hummer. While we can delude ourselves with the wonderfulness of 'green', the sum energy consumption cannot be cheated.
- People are more important than plants and other animals.


All right, after you digest the above and get tired of arguing about what should be rather than accepting what cannot be changed, we can proceed (yes, the Serenity Prayer is good advice even for atheists).


Current proposals for economic stimuli are not going to work. Fulfillment of campaign promises and socialist agendas is not economic stimulus. These should be subjected to the normal political process, not masqueraded as economic stimulus.


It is imperative that the uncharted speculations be abandoned in favor of the tried and true. It is time to return to the fundamentals that allowed production of the magnitude and greatness of this country. Over the past few decades, America has flirted with derivatives and attempted to become a derivative society, trading on the work of others rather than relying upon fundamentals. America has come to rely upon non-US oil, production of goods in China and third world countries. Increasingly, the USA has tried to become an information society, keeping its hands clean while relying upon production from others. Socially, the derivative mentality is an entitlement mentality: government gives me money and I am not concerned where and how government gets the money. This was expressed, in part, as the sub-prime crisis. Congress, with the CRA, forced lending to non-credit worthy borrowers who subsequently defaulted. Wall Street, though the creative genius of people who wanted to make money, found ways to generate the lending that Congress demanded. They did it with derivatives: collateralized debt obligations, debt guarantees and other fictions that found a commercial value based upon the control of fundamental investments rather than the fundamentals themselves. Success only depended upon everyone making payments on time. When that failed, the derivatives failed. They were, in effect, nothing more than accounting entries used to balance books and transfer funds. No one expected a massive cash call in a short period. However, that is what happened after President Bush signed the ethanol fuel mandate: sky rocketing fuel and food prices. What followed was a collapse the housing market that deprived the economy of construction employment income. Mortgage payments failed. Then derivatives failed and there was not just a pebble causing a ripple across a large economic pond but a fat man canon balling into a small economic pool. A splash swamping the derivative obligations throughout the world. Now, government is trying to put the splash back into the pool. It is not going to happen.


The current stimulus proposals are doomed to failure because they continue to rely upon derivatives rather than fundamentals. It is fundamental that government funds its 20% of the economy by skimming money from the public and corporations. If there is a government shortfall, it borrows or just prints more money - which means the government is still taking money from the private sector by reducing the value of privately held funds. Even government borrowing exacerbates the skimming because government pays interest on its borrowing. Government now pays almost a third of what it collects to pay for interest on past borrowings (total accumulated debt; not yearly budget 'deficits'). Think about it, if government was not paying a third of its tax collections on interest, it could provide the SAME services and benefits with the private sector paying a third LESS in taxes. Stimulus proposals are going to increase total debt. If the trend continues, government will be paying half its revenue to debt service - interest on the money that it has borrowed. Fundamental math says at that level, government is going to have to collect twice as much in taxes as it actually costs to provide services and entitlements.


It is also fundamental that government is not going to improve the private sector by giving money to portions of the private sector. As history teaches, when government puts people on the dole, it removes those people from wealth creation. That segment does not produce wealth; does not pay taxes; and becomes net consumers, rather than producers of wealth. As the consuming segment expands, it reduces the portion producing and, eventually, the producers will collapse under the weight of consumption. This, in part, is the reason that entitlements do not add to the GDP.


The greatest failure of the last administration was the President's failure to lead through long-term strategy. Yearly short-term compromise over long term planning led to massive government spending. Had the spending been paid for out of taxation, it might have been understandable. However, the President allowed the spending by borrowing. The real expense is not just the yearly deficit but the total increase over time as interest is paid on borrowed funds.


So what do we do?


Government must stop the yearly crapshoot of spending, and develop a long-term strategy. What is long term? Engineering economics look at 40-year lifetimes for projects and return on investments. Government should develop a strategy for at least one engineering lifetime, preferably two. We need to develop and mandate a strategy for the remainder of the twenty first century. That's right, a 90 year plan. The strategy must be sufficiently fundamental to provide guidance yet not try to micro-manage every facet of every individual. It must be a strategy for the country, not a guarantee for every individual. Yes, there will be intervening contingencies over the next 90 years that we will not and cannot anticipate today. They will be dealt with as part of the normal legislative process as they arise. It may seem redundant to point out that a fundamental strategy must address societal fundamentals. Nevertheless, that means a national government strategy must NOT concern itself with daily needs.


What is fundamental? It has been said that the only certainties in life are death and taxes. To enjoy that interval between birth and death, all living require energy. Energy is the fundamental expenditure of all who (or which) live. Expenditure must be met by an income. The body needs, at its most basic: oxygen, water and food to survive. Fundamentally, a person must earn food and water. Next, people need shelter to allow survival in temperature extremes. This is most obvious comparing polar ice zones to equatorial tropics. While you may not have to live in a house at the equator, you will quickly die if left exposed at the poles. By extension, clothing is individual portable shelter. The farther one is from the equator, the greater the requirement. Energy is required for movement. Duh! Everybody knows that you burn more energy running than walking and even more than just sitting. While everyone can try to provide for all of their own needs, economics demonstrate that processes are more efficient when individuals specialize production. Of course, this requires transportation of products, which leads to commercial transactions. As society demonstrates, this leads to interdependence and the greater the interdependence, the greater the specialization. Eventually, this leads to communal developments, towns, cities and even shopping malls. This is the fundamental difference between living in New York and a hut at the equator. An individual living in an equatorial hut is a jack-of-all-trades, producing his own food, and so consumed with providing for the totality of personal needs that there is little or no capacity for commerce. Compare this to someone living in New York. The New Yorker specializes work, paying others to produce outside of his own specialty. The specialization allows greater efficiency of effort, allowing more product for commerce, hence the creation of wealth. To utilize that wealth, it must be transported to others for their consumption. The point of this exercise is to show that the fundamental of society is energy. Whether to produce food or transport specialty production, society requires energy.


Now, let us consider commerce. Since our wealth builders want to exchange some of their production for other things, they need a mechanism to effect this exchange. That is currency, money. Our money, the dollar, allows people a convenient means of exchange between not just two individuals but individuals all over the world. People are willing to exchange their production for dollars because they know everybody will accept the dollar to pay for a product. This willingness to exchange good for dollars is based upon a confidence that the dollar will retain its value over an extended period and that it is universally accepted. This is the function of government, to provide stability of currency and to facilitate commerce. Government must also be an arbiter of disputes and protect the individual producers from those who would try to take wealth by force. No individual can provide all of these functions, thus the requirement for taxes. Government should not take an individual's production or wealth just to give it to another individual or group out of a sense of spreading the wealth around. One need not look far to see that governments that depended upon a forced distribution of wealth never succeeded. In the USA, founding colonists such as Jamestown demonstrate that people do not exert themselves if they are not able to retain the fruit of their own labor.


Many will agree that commerce is most efficient when the private sector is allowed to produce, keep and spend its own wealth. Taxation is a necessary overhead to wealth creation, an expense for the private sector, not a means of wealth creation. Governments that extract taxes for the purpose of distribution of wealth always fail because they destroy private initiative. Placing people on the dole removes them from the group striving for wealth production. This is human nature. Even now, there are people who are intentionally placing themselves into mortgage default in order to take advantage of proposed government mortgage relief.


Where is all of this going? The best economic plan for the USA is to address energy. Since every one must consume energy for as long as they live, energy will have the greatest impact on both the quality and expense of life. Government policy regarding energy is no different from taxation. If government increases the cost of energy through either policy or taxation, the effect is a regressive taxation on the least wealthy of the private sector because the minimum energy required per individual is a greater percentage of a poor person's assets than it is of a rich person's assets. An energy policy that makes energy inexpensive assists the poor person by making food and transportation less expensive. This frees up the poor's income to provide for other expenses, maybe even pay for mortgages and health care.


A long-term strategic plan will provide reassurance and will allow individuals to make buying decisions like cars and houses and furniture. It will allow businesses and corporations to make the decisions necessary to expand their own business, thus spurring employment. What sane business person would undertake a project when the President says that the cost of fuel is going to bankrupt you?


In 2006, David Neeleman, JetBlue CEO, touted a project to convert coal to oil with a break-even point at $35 a barrel. Others have proposed biomass to oil processes with similar break-evens. The reason that no-one has pursued these ventures to date is the fear that OPEC will drop oil prices and crush the industry, as happened in the late 1970's and 1980's. OPEC dropped prices to the $10 a barrel range to make USA oil production non-feasible. Once USA production was abandoned, oil prizes again rose. In June, 2009, Sen. Chuck Shumer (D. NY), while expressing outrage about then rising oil prices, said that the 'agreement was that the US would protect the Saudi's and they would provide cheap oil'. It is time that agreement was dropped. The Saudi's have abandoned any pretense of cheap oil and have funded Whabist groups and training which have the express objective of destroying the west and the USA.


While anthropogenic global warming is a hoax, there are valid reasons to minimize or eliminate hydrocarbon wastes. These relate to clean air and elimination of smog, to promote respiratory health. However, hydrocarbon usage and consequent waste cannot be eliminated precipitously due to hydrocarbon's overwhelming benefit to society and the absence of an available alternative. To allow sufficient time for research, development and implementation of new technologies, hydrocarbons will be utilized until January 1, 2100. After January 1, 2100, no fuel nor energy production may be sourced by coal nor hydrocarbons. No imports will be allowed from any country that uses coal or hydrocarbons as a fuel source.


The allowable volume of strategic petroleum reserves (SPR) will be increased to 1.5 billion barrels of sweet crude and one billion barrels sour crude, immediately. The Federal Government may purchase an unlimited amount of domestically produced sweet crude oil at $40 per barrel. Foreign oil will not be purchased for the SPR. Price will be escalated at one-half the rate of the Social Security Cost of living percentage increase per annum. This value will be known as the Federal price per barrel (FPPB). The Federal government may compel domestic oil producers to sell up to 25% of their production to the SPR at the prevailing FPPB, based upon the prior calendar year's production for that oil producer. The SPR is not required to purchase a specific amount of crude in any calendar year but may be compelled to purchase crude from a domestic crude oil producer at the FPPB.


The Secretary of Energy may release crude oil from the SPR down to 250 million barrels of sweet crude, when market price is more than 10% greater than the prevailing FPPB.


The SPR will be gradually depleted during the decade from 2090 to 2100.


Regulations regarding oil exploration and development will be simplified and the regulatory process will be streamlined to effect a goal of the USA being a net exporter of oil by 2020.


The ethanol-fuel mandate will be repealed.


The intent of this strategy is to have the SPR act as a buffer for energy prices and to maintain the price of crude at a commercially viable level for the producer while at the same time enhancing and promoting the affordability of energy for private consumers. Conceptually, this is akin to a Federal Reserve to control energy similar to the Federal Reserve Bank's control of the money supply.


By reducing energy costs, transportation and food become more affordable for all, making all consumer goods more affordable. This is the least regressive of any plan that can be implemented. It will provide the greatest relief for the poorest of the private sector while at the same time spurring industry to produce and expand. A major advantage of this plan is that there is minimal expense to the Federal government. Funds expended to purchase oil will only be required when there is an attack on the domestic oil industry by foreign sources. At the same time, oil speculation and gouging will be ameliorated by the energy reserve's ability to sell oil from the SPR when prices exceed 110% of the FPPB.


Most importantly, this strategy obviates the promulgation of a dole state economy by encouraging individual wealth creation through reducing the cost of business, thereby promoting individual entrepreneurship.
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The ramblings of an old coot who knows that no one is going to pay any attention to what he says. But, say it he will because when it`s too late, people will say, `why didn`t you tell us, why didn`t you say something` and I can say, `I did, you didn`t listen`

So, these will be the warnings of one too old for you to hear, too resolute for you to heed. It will be easy to ignore me. You`ll say that I`m a racist or a bigot, a redneck or a right wing extremist, just don`t say that I didn`t warn you.

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