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Thursday, October 4, 2012

Post-debate Analysis

We tried not to watch the first Presidential Debate... we really did..

Our goal is not to be a political blog and end up alienating 50% of our readership with each posting depending on who we are skewering.   But we Are an economics/finance blog so ultimately we decided to watch after it was over via the internet and give commentary/criticisms when necessary.

So that means we're not interested in evaluating body language, posture or vocal tone.  And we don't care who had the most funny one-liners or 'zingers'.  And we don't care who "won"..  We only care about what was said and refuting when necessary.

The first 15 minutes of the debate after opening introductions were about taxes.  Both candidates bragged about lowering taxes, especially for the middle-class.   Every election, candidates pander to them and this was no different.

Romney promised to lower taxes for the middle class if elected and Obama proudly declared he reduced their tax burden by on average $3,600 a family. And according to the President this was 'good' because it meant to paraphrase, people had money to go buy a car.
Now before we get into that, let's briefly address the absurdity of both candidates who dare to insult the intelligence by saying you can reduce the deficit and lower taxes at same time.

1) When you lower taxes, you're lowering the income the government takes in which is to be used to pay down the deficit

2) The Federal Govt. gives money to the states; the less taxes taken in, the less that can be given.  And guess who makes up the difference?  YOU!!  Higher property taxes, drivers licence fees, increased state sales taxes, etc..

3) The deficit is only a fraction of the overall debt.  No one talks about lowering That monster.

Quickie example #1:  You owe $20k on a credit card and monthly payments are $400.  The $20k is your Debt.  The $400 is your Deficit. So if you are trying to make budgetary adjustments simply to afford to pay down the deficit (like sending a monthly check for $405) imagine how bad it is that you can't even begin to control the ultimate debt load

Quickie Example #2:  You work a job that brings in $3000 a month.  After all bills are paid, you are still in the hole by $400 each month.  How do you get your finances in order?  Do you cut back your workload so only bringing in $2500??  No.. well why as a Fed Government, would you tackle debt by reducing income (tax breaks)?
Now unless one is to buy a hunk-a-junk, $3,600 is no where close to what is needed to buy a car, especially a new one.  What the President is speaking of without outright saying it, is motivating people to use their savings to spend on big-ticket items which require debt.

This is very important.  This nation; global finance in itself can not function without populaces of every race, color and creed getting themselves into more and more debt.

If the President wanted to help the middle class afford automobiles, he wouldn't have instituted 'Cash for Clunkers' which took perfectly functional used automobiles off the road in exchange for $$ to be used towards a new vehicle (4-6yrs of auto loan debt) and artificially pushed up resale values of used vehicles not officially 'clunker' yet.

In addition, since the US government basically took over General Motors and bailed them out, they could have supplemented the cost of owning new vehicles by $3-5k per car which would mean buyers would get that savings.  Instead, GM raised the prices of their cars by about 4% then a year later took some of those profits to build and complete a GM factory in China.

Continuing the debate, the two candidates also proudly state in agreement the corporate tax rate is too high and wish to lower it to 25% or so..  Huh??!!!   You G-d Damn kidding us?  Who would have thought a Democrat would be advocating That??  Unless of course the person is a Wall Street Democrat instead of a True Dem which looks at corporations with healthy skepticism.
 So anyways, guess how much General Electric paid in corporate taxes last year?   Zero.  Guess how much Goldman Sachs paid in corporate taxes last year?  Right again.. Zero!

So 25% reduction in taxes from zero is...?

The corporations should be paying more taxes... much, Much more.. And if one is to give them tax breaks it should be ONLY after they've expanded hiring of non-temp workers.  Once the corps do that, then you reward them.. and not a moment before.

During the last part of the opening exchange, Obama and Romney go back and forth on Romney wanting large tax cuts across the board including making the Bush tax cut permanent.    We agree Mr President.. the Bush tax cut should End.  But wait.. who extended it.. Twice?  You Sir.

And who pushed for a payroll tax cut so that workers could keep an extra $20/wk in their pocket?  You did, Sir.. But wait.. where does that payroll tax normally go?  Yes- Social Security.  And that means?  Yep-- Its pushing Social Security even closer to ultimate insolvency just so people can live in the 'now' and be able afford an extra carton of cigarettes or shitty Starbucks brand mocha frappa latte coffees!

Back to the debate..

The topic is now on small businesses and tax cuts.. I won't go into all the he said/he said.. Let's just say both are wrong and misguided.
If a President wants to help small businesses, its not by playing with tax rates.  Its by establishing policies that take the burden off their operating costs.  For example, most small businesses do not have the budgetary means to hire new workers and certainly no resources to train.

But if the government stepped in with Apprentice programs that matched salary dollar for dollar for the first 24 months of employment, it means a company with the budget to hire 2 new workers, can now hire 4.   One million small businesses x 4 new hires = 4 million new workers.

Another way to alleviate the financial burden would be for the government to offer either grants or extremely-low interest loans to both start-up and in-existence businesses with brick & mortar locations to help struggling businesses refinance from the burden or borrowing costs from previous loans from banks.

And we won't even get into the conundrum of how a small business selling hardware or electronics is supposed to compete on a level playing field with the Wal-Marts of the world undercutting prices at every turn?

Instead the candidates talk about tax cuts..  pathetic.

Luckily because we're watching this on the internet vs live TV, we can quickly fast-foward a half hour or so where the new topic is Medicare and Social Security.

Both candidates say the other will cut into the programs and hurt the elderly.  And the ObamaCare v RomneyCare debate is argued out on the stage.
When you get beyond what the candidates say or promise, the unfortunate reality is that as the number of enrollees expand, and as elderly live longer lives (which is a good thing) and less and less younger to middle age people can find work which through their wages pay for the programs,  the math adds up to a situation of eventual insolvency.

Of course by rights, Social Security should never be insolvent.. that was the purpose of President Reagan creating a Soc. Sec payroll tax in the early 80s.  But every President from Reagan to Obama then used that excess to pay for other programs (For instance, Reagan took from the fund to pay for defense spending after all his tax cuts lefts tremendous gaps in tax revenue, and Pres Clinton used the Soc Sec fund to pay the deficit down and Obama has given all workers a Soc Sec tax-holiday for the last year)

So because of these little tricks and schemes, Social Security is running at a loss when it should be funded at a surplus.

If the goal is to save Social Security and Medicare , its going to be via increasing the overall workforce, and not simply with worthless temp or fast food jobs.  The more someone makes, the more the payroll taxes and thus the more revenue to keep the social safety net programs afloat.

Another 20min or so into the debate, the topic of bank bailouts is brought up.  The President defended it essentially arguing it prevented a Great Depression.  Romney pointed out that while the 'Too Bigs' were bailed, over 215 small to medium banks went under.

Lets' talk about bailouts for a moment-- in a truly Capitalistic society which this nation proudly postulates itself as being, there are No bailouts of anyone.. EVER!  You thrive and survive or fail and collapse on your own.  And if you do fail, there are others ready to step in and pick up the slack to make a better product or service in the marketplace.
And currently there are protective remedies in place for those businesses who do collapse-- its called Chapter 13 bankruptcy.

Instead, a special class was created-- untouchables.   And no matter what deviance and malfeasance these shit banks and other financial institutions get themselves into, they know now they possess a perpetual 'Get out of Jail Free' card.

Think of it like this-- you're at a casino playing roulette.  If you win, you keep your winnings.  If you lose, the house will reimburse you.  All this does is encourage speculative betting and irresponsibility at the roulette wheel.  And why not?  Its not your money you're gambling with is it?

What should have happened four years ago was this--

1) All the banks who were insolvent were to be Nationalized before failing outright.  Then the government over the span of a couple years, breaks the 'Too Bigs' up into 'baby banks' much like the government once did to Standard Oil in the 1900's and Ma Bell in the early 1980s.

2) The auto industry is not bailed out-- not one penny.  The car makers are FORCED to lower the prices of their cars and if they refuse, they're completely gone.  This especially the case if the government was to make it as difficult as possible for buyers to secure auto financing to twist the manufacturers and dealers to provide more affordable prices.
Remember, Ford Motors never asked for a bailout. And many foreign makes like Nissan, Toyota and BMW have plants in the US using American workers to assemble their automobiles.  So if Chrysler and GM capitulated rather than offer customers vehicles at a fair price, you still would have an auto industry.  And like mentioned in point #1, there's always someone else who steps into the void to fill the need.    That's true capitalism.

3)  In terms of mortgages, all APR loans should have been declared null and void, and thus force all mortgage lenders to renegotiate all mortgages with fixed low rates and clearly defined monthly payments and time frames to distressed homeowners.

At the very least, it would have kept a dramatic percentage of future home delinquents in their homes, continuing to make monthly payments and maintaining the home's upkeep.  And if a percentage of homeowners still had to walk away , it would have sped up the race to the 'bottom' of what home prices were to be so a real, sustainable housing recovery would be beginning.

The remainder of the debate was pretty much addressing the same talking points addressed above..

Presidential debates are not football games.. and the question of 'who won?' shouldn't matter to prospective voters who genuinely care on the issues and seek to muddle through the myriad of bullshit to find clarity of ideas and policy.
The truth is that the President has been a failure and we don't believe Romney's ideas are not going to be that much better.  Economically, the two are so similarly positioned to the pro-Wall Street fiscal 'right', its jarring.

 If you want differences, look to social issues and foreign policy.  And the candidate who best represents your beliefs is the man you should support and vote for..

And that's the closest to an endorsement for either candidate you will get from us at 'Ants & Grasshoppers'