My Views

A

AFterburner

Some of you may remember me from the "NQ Trades" journal that I started during the summer of 2003. Anyway, I was recently trying to find something that I had written, and I decided that it might be a worthwhile endeavor to compile these journal entries into a PDF file. I figure that other people may be interested in this as well, so the finished product is now available for download at my website.

http://www.pactamerica.com/pdf/NQTrades.pdf

I felt that it was in my best interest to quit trading (at least temporarily), so I have been pursuing other activities. I am now working as a welder, and I continue to work on my plan for Social Security reform in my spare time. I recently started writing some articles for a union publication (I am now a member of the UAW), and I will post them below.

I am really quite disappointed in the lack of response my reform proposal has generated. I have been working on this issue for over nine months now without any assistance. I am doing everything I can to promote my ideas, but my best efforts seem to be getting me nowhere. I was even working 70-80 hour weeks at my job so that I could afford to place some newspaper ads for my website. Unfortunately, my attempts seem to have failed.

I don't understand America anymore (maybe I never did). I am gladly willing to put on protective welding gear and then work 12 hour days, 7 day weeks in the summer heat just for the chance to reach someone with my ideas, but people are simply too busy enjoying themselves to even listen.

I believe that all Americans should make sacrifices for the good of our country. However, while I admire the courage and dedication to duty shown by our men and women in uniform, I am filled with uncertainties about this war. If I am less of a man because of these doubts, so be it. I simply feel called to serve in a different way. That is the reason I have chosen to use my talents for the purpose of creating a practical solution for Social Security reform.

Our nation is faced with many problems, but how will they be solved unless bold men and women of vision take action?

I can say nothing else.
 
Nature’s Lesson

Some of my favorite childhood memories involve my experiences in the Boy Scouts of America. In fact, this is the time of year when our troop would head off to summer camp for a week filled with fun and adventure. While my knot tying skills are not what they used to be, I still remember many of the lessons that I learned as a Boy Scout. For example, I was taught that each creature has a profound impact on its environment, and that the conservation of our natural resources is vital to our long-term survival and success. With these thoughts in mind, I think that nature could teach America a lesson about sound fiscal policy.

The ring-necked pheasant did not originate in America; it is a Chinese immigrant bird. While pheasants are quite beautiful, they engage in the nasty habit of parasitic egg dumping. This means that a pheasant often lays its eggs in another bird’s nest and then allows that bird to unknowingly incubate the pheasant eggs. The principal target of this parasitic practice is the American prairie chicken. The average incubation period for a prairie chicken egg is 25 days, while a pheasant egg takes only 23 days to hatch. Unfortunately, a prairie chicken will typically abandon its nest immediately after the hatch in order to take the baby chicks to a safer location. Since the pheasant eggs hatch before her own do, the prairie chicken unknowingly leaves her unborn chicks behind to die. The mother hen is then tricked into raising the pheasants instead of caring for her own young. Because of these scheming pheasants, those poor prairie chicken eggs never even had a chance. As a result, the greater prairie chicken is now virtually extinct in Illinois. While other factors did cause significant population declines, the prairie chicken population was not completely decimated until the introduction of these immigrant pheasants.

I sincerely hope that the American people will not fall victim to the same practices that wiped out the prairie chicken. Americans already know that many of the goods we purchase are being manufactured in China. However, most Americans will be shocked to learn that China also holds a significant portion of our national debt. The U.S. Treasury estimates that China currently owns $230.4 billion worth of treasury securities. To put this in perspective, American citizens collectively own only $204.3 billion in U.S. Savings Bonds. Therefore, it seems that the Chinese government has made a larger investment in our future than we have. It cheapens the value of the American Democracy to be so heavily dependent upon foreign governments, and our forefathers would be extremely disappointed to know that we are now indebted to a Communist country.

I believe that once certain issues have been addressed, our two countries will be able to peacefully coexist. However, the American government cannot continue to cater to the needs of the Chinese people at the expense of the American people. It makes absolutely no sense for our taxpayers to pay high rates of interest on foreign held bonds when elderly Americans on fixed incomes are barely earning any interest at all on their savings. Unfortunately, these seniors have recently been forced to dip into their hard-earned savings in order to supplement their modest Social Security benefits. Americans need to realize that foreigners are placing their eggs in our nests. Our own nest eggs are being destroyed while other nations grow rich at our expense.

During the recent Social Security debate, there was one question that was neither asked nor answered. How does Congress intend to pay back the money that it borrowed from the Social Security trust fund? Despite what several politicians have tried to claim, the Baby Boom generation will not bankrupt Social Security. Many years ago, these workers realized that their upcoming retirements would place excessive strain on the Social Security system, so they devised a plan to avoid burdening the next generation. They agreed to pay additional taxes over the course of their careers in order to establish the Social Security trust fund, and this money was to be used to help finance their eventual retirements. However, politicians decided that it would be easier to borrow from Social Security than to balance the budget, so Congress spent the entire $1.598 trillion trust fund.

Instead of addressing this issue, some politicians would rather borrow even more money from Social Security in order to invest in the stock market. Such drastic reform is unnecessary, and it will do nothing to solve the actual problem. After all, the only crisis facing Social Security is the fact that the trust fund must soon be repaid. We should not leave this all-important task to chance, nor should we ask the Chinese government to finance our retirements. Congress needs to start thinking about how to repay the Social Security trust fund, and they should stop asking stockbrokers for advice. Maybe they should just ask a Boy Scout, because he will tell them the simple truth. Be Prepared.
 
Quote from AFterburner:

The U.S. Treasury estimates that China currently owns $230.4 billion worth of treasury securities. To put this in perspective, American citizens collectively own only $204.3 billion in U.S. Savings Bonds. Therefore, it seems that the Chinese government has made a larger investment in our future than we have.
More...

Obviously the value of treasury securities owned by wealthy American bondholders exceeds this figure, but this statement was meant to reference middle class Americans.
 
National Debt or National Disaster?

The national debt now amounts to over $7.8 trillion. A trillion is one of those numbers that is almost too large to comprehend, but the following conversion may help. One trillion dollars is enough money to make one million people millionaires.

Unfortunately, the national debt is not the money that we own, but the money that we owe. According to the U.S. Census Bureau, our country is home to slightly less than 300 million people, so our national debt breaks down to over $26,500 for every man, woman, and child living in America. While politicians are often fond of quoting these figures for their own political gain, they never actually bother to explain the details. Americans need to learn the truth about our national debt.

Despite the obvious problems associated with debt, politicians often seem unconcerned by their current spending habits. While not every politician feels this way, there have always been politicians who have catered to the needs of a select few at the expense of the many. It’s no secret that running for public office requires a lot of money, and corporations are often the major campaign contributors. Even those candidates with the best of intentions find themselves making compromises and concessions in order to secure adequate campaign financing.

Once in office, these politicians are forced to create spending packages for the corporations that helped them get there. In order to support these lucrative contracts, the government must then issue interest-bearing debt. Further compounding the problem is the fact that many treasury securities earn high rates of interest, and government bonds are viewed as a risk free investment. Therefore, if our country were not in debt, many wealthy Americans would have no safe place to invest their money.

As unbelievable as it may seem, many politicians are unaware of the fact that the national debt is rapidly becoming a national disaster. This is because they have been trained to view the national debt in terms of the gross domestic product (GDP). The GDP represents the total value of our country’s industrial production, and this figure is typically used to measure the growth of our economy. In 2004, our national debt amounted to 63.7% of the GDP, and since this percentage remained within historical averages, Congress was able to justify its massive deficit spending. However, referring to the national debt in terms of GDP is a dangerous accounting trick.

To better illustrate this point, it would help to look at the financial statements of the Big Three automakers. For the trailing twelve months, General Motors had gross revenue totaling $190.72 billion. In comparison, Ford produced $173.74 billion and Chrysler $170.44 billion. Judging by these figures, it would be easy to assume that General Motors was making the most money. After all, GM produced $16.98 billion more than its nearest competitor, and that is a tremendous amount of money. However, the value of production does not matter nearly as much as the profit gained from that production. Even though General Motors had the largest revenue, it had a negative profit margin, and this means that the company actually lost money. During this same time period, Ford had a profit margin of 1.46% compared to a 1.66% profit margin for Chrysler. Therefore, while Chrysler had the lowest total revenue, it also made the largest actual profit.

While the Big Three are not doing particularly well right now, neither is our country. The value of our domestic production continues to grow, but as a country, we have a negative profit margin due to our rapidly expanding trade deficit. Global competition has pushed corporate profit margins down to almost ridiculous levels, and even though our productivity is increasing, we do not benefit from this production as much as we once did.

Furthermore, by viewing our national debt behind the mask of production, we are only deceiving ourselves. After all, we cannot use the GDP to repay this debt; we can only use the profit derived from this production. Calculating this profit is not as difficult as it may seem, because income taxes are applied against profit, not production. Since taxes are the main source of government revenue anyway, this is the only logical way to assess our national debt.

For fiscal year 2004, the federal government collected $809.0 billion in individual income taxes and $189.4 billion in corporate income taxes. The government does collect additional taxes for programs such as Social Security and Medicare, but this money has technically been allotted for a specific purpose.
Nevertheless, these taxes are automatically included in the budget, and a single accounting entry allowed the government to “borrow” $198.7 billion from these programs in 2004.

Soon enough, the government will no longer be able to “borrow” money from Social Security, so it does not make sense to include this surplus in the debt analysis. Therefore, government revenue totaled $1,146.8 billion in 2004. While that number is impressive, the interest expense on the national debt amounted to $321.6 billion for the year, and this means that 28.0% of our available tax revenue went towards paying the interest on the national debt. Personally, I find this fact rather alarming. In fact, it no longer seems like such a good idea to compare our national debt to the GDP, because this has given us a false sense of security.

Furthermore, if Social Security faces an upcoming financing crisis, then the entire government faces the same financing crisis. When the Baby Boom generation retires, there will be a significant decline in the amount of income tax revenue collected. Therefore, it is imperative that we act now to reduce our record budget deficits and take control of our rapidly expanding national debt. Not to mention that politicians have been able to hide the deficit problem by “borrowing” from Social Security, but in a few short years, Social Security will be the one that needs to do the borrowing.

Since the solvency of our government is largely dependent upon the solvency of our workers, the best way to fix our budget problems is to fix the economy. If American workers have better jobs that pay higher incomes, they will also pay higher income taxes. Therefore, the solution is not to raise taxes, but to raise incomes.

American corporations should stop trying to compete for the lowest price, and start trying to compete for value. In an effort to lower costs, corporations started moving their manufacturing bases overseas to capitalize on cheap foreign labor. Unfortunately, other corporations were then forced to adopt similar practices in order to remain competitive in the marketplace.

Consequently, many American workers lost and will continue to lose good paying jobs, and they will no longer have the purchasing power that they once did. The end result is that consumers are more price-conscious than ever before, and this continues to drive down profit margins and force corporations to outsource even more jobs. However, this practice has proven to be very shortsighted.

Our country must promote strong American industrial production, and the government should do everything in its power to protect American jobs and American workers. This does not mean that we should resort to outright protectionism, because there are still many opportunities for profit in the global marketplace. We simply need to focus our attention on profit margins rather than production levels. We need to work smarter, not harder.
 
I think many of you may be interested in the concept presented on this page.

http://www.pactamerica.com/wageswap.htm

Unfortunately, I have not had the time to provide a thorough explanation, but hopefully the basic principle makes sense.

The determining factor involves the decline in the workers to beneficiaries ratio.

This will cause substantial negative money flow out of the stock market as people begin to liquidate their portfolios in order to finance their retirements. In fact, the positive money flow from the working Baby Boom generation is one of the reasons that stocks became overvalued from a value perspective.

While the retirement of the Baby Boom generation should have a negative impact upon stock prices, it may actually accelerate wage growth.

During the course of a working career, people traditionally earn promotions that in turn increase their incomes. It should go without saying that the higher paying jobs are usually held by the more experienced workers.

However, many companies will soon face a problem of demographics. They will need to fill the positions of the retiring Baby Boom generation, and this should create strong demand for qualified younger workers. If the economy is handled in an intelligent manner, this could actually accelerate wage growth. This is because the working generation will be in a position to earn promotions at a much faster rate than previous generations.

From a Social Security standpoint, wages will probably provide a better return on investment than stocks after adjusting for the cost of transistional borrowing. Therefore, it actually makes more sense to stick with the traditional pay-as-you-go system while making provisions for the future.

Another point to consider is the fact that most people rebalance their portfolios as they near a retirement age. This typically involves switching to more conservative investments such as bonds. Therefore, there will soon be many people looking for fixed income investments, and this should create additional demand for my proposal to refinance the national debt.

I hope these ideas are relatively easy to grasp. Thank you for considering my viewpoints.
 
Quote from AFterburner:

The determining factor involves the decline in the workers to beneficiaries ratio.

This will cause substantial negative money flow out of the stock market as people begin to liquidate their portfolios in order to finance their retirements. In fact, the positive money flow from the working Baby Boom generation is one of the reasons that stocks became overvalued from a value perspective.
More...

Looks like the best time to buy stocks would be in the next 10-15 years. :)
 
Good work, but if you want to get people interested you have to get some special interests on board to fund the promotion and lobbying of your plan. Of course by the time they get done with it you will not even recognize it.

What you have failed to understand is that the way things work in the good old US of A is that people (groups) take their self interest and work from that point and fashion some policy and then spin it so that the politicians will be able to look good when they sell it to their constituents. Very rarely does policy stem from what is actually a logical plan to promote the greater good which is why things are so screwed up.

True campaign finance reform may go some way to helping the situation.

God bless us all and especially the unsung heroes like you my friend who care enough to give up your time and make an effort to do something to fix the problems that you see. Don't give up but get smart and learn to use the system or the frustration may get to you in the end.

unmetneeds.com
vfw.org
 
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