By Edward Leone Jr. DMD MBA RFC
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And the beat goes on. Hopefully we have all submitted our 1040 form for the 2010 year on time or filed for an extension. Conflict internationally is spreading to more muslim countries while the US Congress debates budget reductions, tax reform and the debt ceiling. Along with all of this, we have the revelation of the President’s birth certificate and the political comedy surrounding this issue. More and more it is becoming apparent that our government is on the verge of dysfunction in my opinion. Those whom we send to Washington D C to represent us seem to forget why they are there from time to time. Much of the problem with the Congress and the executive has to do with members’ focus. The main focus is raising money for reelection efforts. This activity goes on from day one in the life of a member of Congress and never seems to end. I wonder sometimes what is the difference between a contribution to my congressman and a bribe to a government official in China, Mexico or Afghanistan. The indebtedness that members of Congress and the executive have to donors has created a paralysis within the body and within the system. The main driver of the decisions made in the Congress is money. This causes much of what goes on there to be suspect in my opinion. We are seeing this problem in real-time with the activities occurring as a result of labor unions’ influence on the Congress and state legislatures due to labors’ financial support of politicians. Politicians vote benefits to public union members without consideration for appropriate funding on a regular basis. This trend is very apparent given the financial condition of many government entities as a result of reduced revenue flows. The money is just not there to support these benefits and was not adequately provided from the institution of many of these benefit programs. Many individuals who counted on the integrity and reliability of their government employer, will be disappointed. The solution to this dynamic escapes me. Do any of you have a suggestion?
I picked up on a study done by Fidelity which should interest every reader because you are near or at the age or have parents who are. Fidelity says that a 65-year-old couple will spend $230,000 in out-of-pocket healthcare costs into their future. 31% will go toward Medicare Part B and D premiums, 45% toward noncovered expenses and 24% for noncovered prescription expenses. If you have the time, prepare for this. If your family members cannot, help them.
I find the rhetoric on alternative energy sources very entertaining sometimes. If we dedicate ourselves to focus on the facts, we will continue to have a realistic view of what is represented as economic benefit of a green future. Bloomberg News proudly pronounces that large photovoltaic projects will cost $1.45 a watt to build by 2020. This represents a 50% decline in costs over current expense. The fact is that coal generated power costs 7 cents per kilowatt-hour while natural gas generation costs 6 cents per-kilowatt hour as compared to 22.3 cents per-killowatt hour for solar. It seems to me that we have a long way to go before solar is cost-effective even if the capital investment for installation decreases by 50% over the next ten years.
I admit to the reader a very negative attitude toward government at present along with great criticism of public policy initiatives that are currently being generated, but do not apologize for such a posture. Part of the mission of this blog is to share information from sources which most readers do not usually access or even recognize in order to give a rounded prospective on the economic environment. Many of us are having a difficult time trying to plan future strategies for our personal economic well-being and for the prosperity of our business interests. Part of the problem is the misinformation from which most of us base our judgments and projections. I know that I promised to cover Social Security, retirement savings issues and insurance and bank savings products and will do so in future writings, but this last piece for this blog was just too good to pass up or delay. Investopedia’s Financial Edge recently talked about the ” 5 Government Statistics You Can’t Trust”:
1. Unemployment—–The quoted rate is not accurate because it does not include those who are unemployed and so discourage with their failure to gain employment that they have stopped looking. This index is under reported.
2. Inflation—–The collection of goods on which price inflation is based continues to change. Current calculations take into consideration the substitution philosophy which states that as certain items get more expensive, people will substitute less expensive items. This clearly understates the true nature of inflation.
3. Gross domestic Product—–On the positive side, household work, volunteerism and the underground economy are not counted while on the negative side, the cost of crime and natural disasters is not counted. What does an accurate GDP look like?
4. Retail Sales—-This index follows dollar value of sales and not changes in unit volume. Therefore, inventory turnover which is a driver for fabrication is a missing element. Increasing sales could just be a product of inflation.
5. Deficit Accounting—–The US Government uses a cash accounting system rather than the accrual accounting system used by businesses. The 2010 deficit was calculated as $1.3trillion under the cash system while if accrual under GAAP was used, it would be $2.1trillion. Deficits are clearly understated. Would you invest in a corporation that did its accounting this way?
It appears that economic reporting by government is not truly representative of actual conditions. Be critical! Ask questions and do you own analysis before taking action!!
For The Record:
DJIA 12810.54
NASDQ 2873.54
S&P 500 1363.61
Suggested Reading: “Race For Relevance” By Coerver and Byers
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