Leonesmoneymonitormonthly's Blog

Hi All, my name is Ed Leone. I have been a clinical practicing dentist for the past 38 years (need a dentist www.leonedmddentalcare.com) with a very high level of interest in financial matters over the years. In 2005 I gained a professional studies certificate in financial planning and in 2009 and MBA in financial planning. You will learn after reading this blog that I am an expert in only one thing-my opinion. The purpose of this blog is to share information and to get your feedback. If you would like to contact me over blog issues or financial planning issues leonee@vzw.blackberry.net.

     Last month I talked about my short-term optimism over an economic recovery in our country. It is apparent to me that in spite of the continued road blocks which the US Congress has put in the way of business expansion, the business cycle is strong enough at this point in the acceleration phase to over come these head winds. The US Congress still needs to create an environment where business can be willing to take risk and be innovative. We need to see reductions in the tax structure, further committment to free trade internationally and reduced competition for available capital from government. If these steps are not taken, I fear that our economic grow will be severely slowed. So far, the Congress and the Executive have adopted fiscal policies which are Keynesian in nature only. We have not learned a thing from observing the past 20 years of economic strife suffered in Japan. Upon their banking collapse over real estate around 1990, the Japanese government chose to follow a path of continuing short-term stimulus make work projects and expanded government debt to the point that the government debt in Japan is at 120% of GDP. Not only is economic recovery still crawling along due to retention of toxic assets in bank portfolios (which are still slowly being reduced), but both federal and private pension funds are so poorly funded due to cost shifting to other areas of business expense and government services, that many Japanese citizens have had their retirement benefits severely reduced or taken from them.  Government stimulus does not create long-term employment situations which will lead to increased consumption and the flow of currency through the economy. When the stimulus from government ends, so does the jobs available.  We need to enhance business activity. The concept of expanding US Government debt by instituting new federal programs and then trying to pay off the debt with such mechanisms as a federal sales tax (Value Added Tax) and the inflation effect of monetizing the debt will put us in a very poor condition .  According to Bloomberg Business Week, there is $3.2 trillion sitting in money market funds that could be redeployed with the proper monetary and fiscal incentives to grow this economy.  Let’s just see where the future takes us.

 For the record:

DJIA     11008.61

NASDAQ     2461.19

S&P 500     1186.68

Sugested Reading   “Yes, You Can Still Retire Comfortably”  by Ben Stein and Phil De Muth

Hi all, my name is Ed Leone. I have been a clinical practicing dentist for the past 38 years (need a dentist www.leonedmddentalcare.com) with a high level of interest in financial affairs. In 2005, I achieved a professional studies certificate in financial planning and in 2009 an MBA in financial planning. You will learn as you read that I am an expert in only one thing– my opinion. It is the purpose of this blog to share information and opinions. If you want to contact me over blog or financial planning issues   –   leonee@vzw.blackberry.net.

Regarding my March question, I believe that we are on a road to financial disaster as a society and a country. The health care reform vote on Sunday March 22 is continuing evidence of this trend in my opinion.  According to Jia Lynn Yang of Yahoo Finance, the health care reform strategy is a back-door tax. The legislation increases payroll taxes and transforms this tax into an income tax for high income earners. It also diverts taxes intended to support medicare to other health care initiatives. Taxes on capital gains and dividends will increase along with taxation on medical devices. Shawn Tully also of Yahoo Finance, explains that CBO (Congressional Budget Office) calculations are misleading in that one would interpret that their statements show a decrease in the deficit by $118 billion over ten years. This does not mean that debt will be lowered. CBO says the by 2020, federal debt will grow to 90% of GDP and that one in six dollars of Federal revenue will go to pay the interest on that debt. Government will have to borrow 40% of every dollar of new spending.  State governments and their citizens will find themselves burdened with much higher tax rates according to Michael Regan to fund the unintended consequences to states of this legislation.  The cartoon displayed bellow  appeared in the Chicago Tribune in 1934. Will we ever learn the lessons of history?

We clearly need to have the US Treasury and the Congress create an atmosphere of stability and discipline for our currency, even if it means going back to the gold standard. This is the only way to assure that we will establish a growing economy where business can take risk and be innovative while government must find ways to pay for the programs it develops without borrowing or printing money. Economic and market influences need to take center stage in government decision-making while politics is set aside. Richard Hoey of BNY Mellon tells us that the strongest economies in 2010 and 2011 will display three characteristics:

1. public policy which places high priority on economic growth relative to other objectives

2. no significant debt overhang

3. rising productivity of the workforce due to the diffusion of modern technology and business practices.

Will the US display these characteristics and grow the economy? It is my opinion given what is going on in European countries such as Portugal, Ireland, Italy, Greece and Spain with their government debt, high unemployment rates and restrictive government policies, that the US will fare well in its economic growth when compared to other economies globally in spite of our government’s inaction in setting forth tax structure and regulation which will stimulate business. Our economic momentum should be strong enough to move upward while government continues to present economic road blocks. This is a short-term prospective on my part. We will likely see economic growth, but at a slower rate than is usual for recovery from recession cycles historically. Our ability to sustain a growth pattern will depend heavily on a renewal of government policy which is favorable to business and free market principles.

For the Record March 24, 2010

DOW   10,838.8

NASDAQ   2,400.72

S&P 500   1,168.18

Recommended reading:   “How Capitalism Will Save Us”  by Steve Forbes and Elizabeth Ames