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July 28, 2011

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WHEN OUR LEADERS PLAY-----

Immediately after agreeing on something bipartisan the Leaders began to publically hassle over taxes, the rich, spending cuts, the commission, the FAA--back to politics at a time the nation needs leadership. Obama heads to a party where he soaks the rich for $38,000 a plate to watch him rip the rich, the corporations and worst of all---in shirt sleeves, with a big grin on his face he announces: I told you that we would bring change but you need patince. It's going to take longer---meaning 4 more years! Does he really think that will bring smiles to Independents faces?

Today the market kicked their collective asses and ours along with it. These amatuer games at a time of stress are so dangerous. Syria is about to explode. Iran is meddeling in Pakistan, iraq and Afghanistan. The European markets are in turmiol. Japan is devaluing it's currency. And, our leaders are headed home for a month. the President's laughing. HELP!

PLUMBING IS A BUSINESS AND A TRADE-----

Flyover--too many people get the idea you have to go to college and become a doctor or a lawyer to be labeled an American success. Nothing could be further from the truth. That's why there are so many small business owners in America. The richest among us are often college dropouts who came up with an idea and took it to market. Bill Gates comes to mind. My son is a volunteer fire fighter. He goes to college part time working on his Fire Science Degree. Every once in a while he risks his life for no money. And, every once in a while he saves someone. He is a full time plumber as well and for a 23 year old he earns decent money. He drives a real nice new truck. Many of his high school friends who went directly to college are now home with their degrees and looking for work or under employed. They may have had a different view of him when he chose plumbing over full time college but not now. He has 4 years of experience and more than 6000 hours of fire fighting. He has a cool girl fiend and the freedom to do what he wants. And, as he tells it: "I make a living off everyone else's crap!" But, the truth is unless he owns a plumbing operation it is a temporary place to be while he matures, gets experience, finishes his degree and decides what he want to do next. What I know about him is he has a great personality, he never turns down a job 24 hours a day, he takes charge,he's learning a lot of common sense engineering on pipeline, pumps, compressors, water lines, etc. If you were in trouble he would find a way to help whether you were in a fire, a car wreck or stranded on the highway. He's one of those guys who always stops. So he is learning the service business in jobs that require a lot and get lttle respect. That's a long story to say there is no disrespect in doing what you need to do to keep going, to learn and to feed your kids. American movies are all about that stuff so why should everyday people not be appreciated for doing it? It is said that for every successful sales person 7 other people are employed. Sales is a profession that has with it that disgusting reputation of the used car guy. But, in truth ethical and talented sales people drive companies to greatness and are the basis for the capitalist markets. Throughout this recession most of our assignments have been to find business developers, a fancy title for sales people. No one needs another accountant, or engineer. But, when revenues are down everyone needs a successful sales person. SO the first thing I tell people who are having trouble finding work is learn to sell. It not only provides you with income, benefits and dignity, it will if you are successful give you security and maximize your income. Selling is not easy but it is not impossible either. Most rich people sell to get there. Most small business owners sell at least at the start and when times get tough. So anyone out of work should consider learning to sell. Services and products with higher margins are best but not always. As a plumber you are in a market that is not going away. And emergencies always occur. As you know if you are willing to respond to emergencies then you are setting yourself up for repeat sales and referral sales. That customer will use you again and tell other people to use you. Your life will begin to get hectic but you revenues will go up. Selling is all about performance and backing up what you sell. But it is always there. It always pays for success. It is not easy but the two traits that count the most are the guts to sell and the honesty to perform.

Now back to your question what do I think of the debt ceiling deal? It was better than no deal. After the hype by the extremists in both parties, the market was going to tank and still might but the one thing it did for the country is to get the deficit issue on the table and the public aware of the potential problem. It scared most of us. Whenever politicians argue the employers and consumers hold back. In the quarter of the 2010 elections with the economy beginning to grow all of a sudden employers held off hiring and interviewing. In January we started back and the first quarter saw increases in hiring all over the country. We even started getting assignments for engineers and CFO's--a sign of economic pick up. But, mostly we were looking for sales people still. Then as the threat of default came along we saw 2 months of arguing and employers started holding back once again. Now we have a 1000 point drop in the DOW and people are feeling like 2008 once again. Baby boomers may put off retiring another year. The threat of higher interest rates will slow down confidence and if credit card interest rates go up then small businesses will get hit as well as consumers. My bet is that the recovery is coming, Slow but coming. Gas prices have dropped 50 cents. Interest rates have been low for 3 years. There is a lot of captial on the sidelines ready to come in. We are actually seeing a lot of mergers and acquisitions. Those result in layoffs for the first year or so but then they result in stronger companies and less weak ones. Higher margins. So I am cautiously optimistic. I think it will be slow as we watch the politicians argue over the commission work to define the next trillion in cuts and tax increases. The results of the election will determine a lot. If Romney wins and the Republicans get the Senate we should see a business friendly environment. If Obama wins and the Dems hold the Senate then we are going to see more debt, tax increases and a regulatory move against businesses. Plus, the healthcare programs will kick in likely triggering more people dumped on the medicare system. The wars also will determine a lot. If the wars end then the defense budget can be cut by a few hundred billion. That will help financially but if Obama stays in he will likely fight to spend the money rather than cut the deficit. That's my crystal ball for today flyover.

Would be interested in Bill McCormick's take on this debt ceiling deal and why companies will continue to lay off folks. If it had gone the other way, would more people be hiring? Ohio is in trouble, big time! Some of those recent hires are my buddies who are taking jobs greeting at spots like Wal-Mart - and da--- grateful for them. A couple have temporary things doing lawn work (until weather changes) and my wife is back in school part time trying to learn how to repair computers. Nobody is really complaining but life, as we knew it, not there anymore. Fortunately, for me, pipes contiue to break and no one is hiring union plumbers because of their high wages so I get jobs. Charging less than before but still get jobs.

ONE MORE OPPORTUNITY, ONE MORE DISAPPOINTMENT.

Ronald Reagan he is not. They may picture him on magazine covers with Ron Reagan, he may study the man but Reagan he is not. His abiliy to speak is first class. His ability to rally and motivate is nonexistant.

Emerging from the White house into the Rose garden with the perfect opportunity to let the nation know that we have just seen a bipartisan solution to a series of problems that need to be solved for America to stabalize and put Americans back to work, he fumbles. He , the "I" man quickly reverts to his blame the rich, tax cuts coming for the middleclass, "I" will now focus on jobs speech. One we have been hearing since 2006 when he first began his campaign. We need to rebuild our roads he says. That will put our construction workers back to work. He just spent a trillion dollars of which he gave $31B to roads and bridges above what is normally spent. We cannot let unemployment benefits lapse, he says. He spent $311B on unemployment benefits now extended to 99 weeks. He has been President for 134 weeks. If he has his way he will pay unemployed people to be out of work for 8 years. He did say he wants Congress to fund his trade deals. As with GE, once America sells it's products overseas it then moves the production overseas and the jobs go with it. I have a friend who now imports windmill parts for the windfarms in Iowa from:---yep China. How's that alternative energy green job stimulus program working out? It's called reverse balance of payments. Instead of drilling for oil we now pay to import green parts.

I know hundreds of business people and I only know two that have corporate jets. Few have yachts. Actually the biggest yacht owner I know of is a Senator from Massachusettes. Can we get off the stupid games --corprate jets and yacht tax loopholes are not going to balance the budget. If we lower the middle class taxes what will we get? More people paying no tax. The solution is two fold and this President better get to it: get the economy going by getting out of the way and get a solution to big 3: Reform Medicare, Social security and welfare. The President not only pays people not to work but he encourages them not to work by always referring to the creation of "good Jobs" rather than "jobs". If the only job you want people to leave unemployemnt for is your definition of a good job then why do we need open borders and more immigrants to take those lousy construction jobs while others wait on unemployment for the "good" green jobs to come along?

It's too late for me to say stop the campaigning and lead, Mr President, because I now know leadership is something missing from the skill set. What a shame and what an opportunity missed for America to come together. If only Colin Powell would have run for President.

A DECADE Of WAR--and--?

Let's look at the real math: There are 4 key years. In 2001, the base year, we were attacked and the war on Terror began. Ten years later much like Vietnam it still rages, much of it hidden. In 2006 the Democrats arguing against the war took control of Congress and the nation's spending. In 2009 Obama took office and Democrats had free reign over the spending and accellerated it. Today, 2011, having expanded one war, initiated a war in Libya and failed to end the war in Iraq (yet) we have enacted healthcare, funded Union pensions and said we were stimulating the economy with a Trillion $ to prime the pump. Along the way someone, probably both Bush and Obama loaned the Fed $750B TARP to save the banks--most of that money has either not been used or has been repaid. That was a long preface to this:

In 2001 Federal Spending looked roughly like this: $1.8T total. $366B for Defense, $475B for Pensions,$389B for Healthcare,$64B for Education, $189B for Welfare, $54B for roads and $206B for interest. We had a surplus of $125B. Total Revenue of $1.9T. Today we look like this: $3.8T Total spending. $965B for Defense, $800B for Pensions, $882B for Healthcare, $130B for Education, $500B for Welfare, $95B for Roads, and $210B for interest. The deficit is $1.6T. Revenue of $2.2T. So ten years later we are spending $2T more a year. Of that, $600B is for Defense, $325B for Pensions and $500B for Healthcare. That accounts for $1.4T of the $2T increase. Welfare is up $311B. Now compare those numbers to the things we think we need to invest in: Roads up $51B, Education up $66B. Pocket change. In essence we are borrowing to pay for War, Social Security, Medicare and Welfare. Looking for the $1T stimulus money? Let's see in 2010 we increased welfare $85B and another $85B in 2011. SO perhaps $170B went to welfare. Infrastructure was increased $14B in 2010 (not many shovel ready projects I guess) and then another $17B in 2010. So Infrastructure got $31B of the Trillion. Education went up $49B in 2010 and $39B in 2011 for a total of $90B. That's $270B. Now you would have thought with all the talk that the Feds gave the dollars to the states for roads and bridges. However, the annual contribution of the Feds to the states for infrastructure was basically $50B a year since 2006 and during 2008-2011 remained at $51B. Looking at the numbers the only place the stimulus money could have been allocated to any extent is pensions which grew $159B in those years and healthcare which grew $210B in those years. So if anyone is wondering why the stimulus bill did not work well it's because as far as I can tell most of the money was spent on welfare,unemplyment benefits ,pensions and healthcare. Hardly job creating opportunities. No wonder the Governor of Pennsylvania was calling for Billions more to be spent on infrastructure.

So here we are in some gigantic national emergency hyped to the limit by the extremists in both parties. The truth is the Democrats used the stimulus to bail out unions, pay extended unemployment beneftis, save teachers jobs , etc and little to stimulate jobs. As far as tax revenues they gave away billions in cash for junkers, first time home buyer credits, energy credits and then complained when republicans opposed tax increases to fund them. All politics on both sides. WWII lasted 6 years and the USA increased defense spending to 40% of GDP but that war ended. This one is not likely to end. So, the country has to figure out how to budget in this new world. A world in which social security, defense and medicare cost $2.7T a year alone. Add $500k for welfare and you have $3.2T to fund. Interest on the national debt made out to be a giant eater of the budget is still only $200B. A mere fraction of the problem. To fund $3.2T we would basically have to increase taxes 50%. And, we still have not figured in any government for other things. The problem and the solution is clear: social security and healthcare and welfare benefits must be addressed and reformed. Defense must be carefully analyzed and planned out. The STRATEGIC forces of the country are in my mind way too large for the threats given modern technology. We no longer need all that redundancy of 1000 of missiles and tens of thousands of nuclear warheads. They are now accurate to a foot, survivable to target and manueverable. The country has switched in this war on terror to a strategy of premptive strikes. Identify the threat, locate it and strike no matter where they are. We openly hit targets in Yemen,Iraq,Afghanistan, Pakistan and Libya. In a more clandestine fashion we operate in cyberspace, Samolia, Europe, etc. So it must be to survive this war. I no longer do these analyses. But I'm sure they are done. It remains for the politicians to catch up to the Generals, the CIA , the Homeland Security planners. Politicians must address entitlements and soon. In this country we focus on social issues and war far more than we focus on creating a healthy environment for business to throve and invest and create jobs. So, Harrycat, in some ways I agree with you that the math is wrong. But, as Bill commented this isn't about the debt it is about the budget and the tough questions not being addressed. Or perhaps they are: the penalty of the second round of cuts are Defense and Medicare. Two of the four legs we need to address. Perhaps next we'll consider welfare and social security as well. Let's hope we are finally seeing the emergence of bipartisan approaches to these problems. Sorry for the length of this piece.

What is your source for future expenditure by the Federal government? They are not in agreement with the Congressional Budget Office projections.

Back to my HS math where I learned of second derivatives. This isn't about the debt; it isn't even about the increase in debt. It is about the rate of increase in the debt. With debt at $14.3 trillion now, approval to increase it to $16.7 next year, and a trillion or so per year until interest payments to the Chinese crowd everything else out of the budget. That, my friend, is not manufactured.

RAISED WITHOUT MUCH FUSS----

It could be Harrycat that that is exactly how we got to this point. Perhaps the guys issuing the credit card should have fussed a little more.

Cap, Cut & Balance had no chance of passage, so it was wise not to waste time on it. Perhaps now that this manufactured crisis is behind us (although not voted at the moment of writing this) we can get on with the business of the country. I say "manufactured" because the debt ceiling has been raised MANY times under both Rep and Dem without much fuss.

Many problems with this weeks post and comments.
First, item no. 3 ("quantum increase" in spending by Obama). Your calculations are based on percentage of GDP. We must recognize that GDP has taken a 5.1% drop as a result of the current recession. With that in the mix your evaluation of spending to GDP, while mathematically correct, is very misleading.

A major element of Obama's spending is stimulus spending totaling $1.36 trillion. Most economists agree that stimulus spending during a recession is the right thing to do. Also, it is a one time event, not a systemic increase. Again, your statement re: "quantum increase" is greatly misleading.

Evaluations of the Bush era and Obama's spending projections to 2017 show that under Bush the deficit increase by $5.07 trillion and are projected to increase under Obama by $1.44 trillion. While that increase is not sustainable, it is far less than under Bush. Where was the deficit concern and anger when Bush put us in this hole? Oh yes, "deficits don't matter". It is hypocrasy to have supported the spending under Bush and now find fault with Obama's attempt to clean up the mess (two wars, massive tax cuts, etc.), or is it only about defeating Obama at ANY cost.

I do not believe that there is, or ever will be, a national consensus for a balanced budget amendment to the Constitution. Constraining the government to that extent would lead to disaster and I believe most taxpayers see it that way.

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