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December 06, 2012

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CLARIFICATION: My inflation figures are based on gasoline prices and corn. I am not claiming inflation to actually be 25% on all essentials of living. That being said we have a sad labor market so labor inflation for wages is probably negative except for government workers. Housing inflation is probably negative. Real estate is probably negative for land. Interest rates have declined. Despite a huge run up in the past 3 years stock prices are over 5 years about even which reflects the printing of money and the interest reductions on bonds and mortgages. The Fed policies are designed to force people into riskier investments namely stocks versus fed bonds. It seems to be working for institutions but they are certainly favoring the blue chip high dividend stocks. The individual investor is still withdrawing from the stock market. I have no idea where they are putting their savings. I guess as an older American I remember the days of the inflated Lira and Peso when the governments of Italy and Mexico had the presses running day and night. We continue to move in that direction. The $4 Trillion Fed balance sheet I guess is composed of short term higher interest bonds, mortgage backed securities, perhaps some GM and AIG stock and now long term bonds. It seems to be a very uncertain debate on how the Fed will ever, if ever, unwind that portfolio and more importantly what impact that would have on the future economy. But, you can just add it to the $16T debt we now owe making it $20T and then add $1T for the money to be printed in 2013 and see what our children face. So, we will sit at about $21T in debt as we head into 2014.

SCARY?---what is incredibly scary is the debate or secret negotiations going on to solve the fiscal cliff. They are calling the "Grand Bargain" they are looking for a "Grand" solution but in fact a $4T bargain cuts $400B a year off the deficit leaving a deficit of about $900B a year. Even achieving that will put the debt at around $20T plus the $5T on fed books by the time Obama leaves office in 2016. And, that is only true if somehow we can avoid another recession while cutting the "growth" of spending by $400B a year.

STILL NOT SCARED? We have not even factored in the actual cost of the Obamacare act yet. Yesterday 18 Democratic Senators, yes Democratic Senators--those who favor taxing everything--called on Obama to rescind the tax on Medical device manufacturers contained in the bill. Interesting isn't it that Democratic Senators like to tax all the rest of us and pass on there deficits to the responsible Republican states but PLEASE DON'T tax the companies in their states. And their logic? These taxes WILL KILL JOBS! Huh?Wasn't that Romney's line? I hope all 18 of them are up for election in 2014. But, then if they are you can bet Obama will heed their call.

$4.0 TRILLION ! Have yet to hear Mr Bernanke explain this little catastrophe. The 'Left' assuredly is most eager to explain the cumulative effects of 'greenhouse gases' on air and sea ( as it should be). What about this $4.0 trillion ? Portions of this will be leveraged. Couldn't this be proven, therefore, to be in violation of 'loan equity requirement' law ? With probably $0.00 net of the $4 Trl. being retired every year, we have arrived at approx 25% of our GDP to be counterfeited and in circulation.
How long before this 25% becomes an 'Inflation' and 'Base Line' Budget factor ? Bill M. says we've suffered a 100% commodities increase in 4 years. Seems to fit: 4 yr X 25% =100% ?

$1 TRILLION MORE--pass the sauce please. Here come the Feds one more time. With about $4 Trillion on the Fed balance sheets of printed money and running low on short term bonds to purchase, the Fed annonced today they will print an additional $1 Trillion dollars in 2013. No longer do we need to call it a "TWIST" now that the Dems are back in we will just call it what it is money printing to pay for the deficits that no one seems to be willing to address even at the edge of the fiscal cliff and mired in a 2% GDP growth. And, the market loves it I guess. More hidden inflation making American dollars cheaper. It's catching on worldwide. In the Obama years the world's economies have now printed $11 TRILLION dollars in a competition to see who can devalue their currency the fastest. And, we call China currency manipulators? What do we call Europe and the Fed?

Anyone on fixed incomes or saving money is being taken to the cleaners by an administration determined to expand government without revenues, GDP growth or budget constraints. The inflation in food, taxes,energy and raw materials is there whether you can easily see it or not. Gasoline and food doubled in 4 years. If the money printing continues then gasoline will be in the $7 range and corn in the $15 range by 2016. Why do you think the cost of healthcare continues it's double digit rise?

Meanwhile AVON layed off 1500 today. Blamed it on poor sales in Argentina and other foreign countries.

THE AUTOMATIC +7% 'BASE LINE' is the Question. Has Boehner included one of the biggest solvency threats into the negotiations ? Has he tried to enforce the Budget Requirement Law ? If the Republicans pass up opportunities at critical junctures; they are disregarding
another NEGOTIATING LESSON. Come forward with terms that expose the fraud you are dealing with. 50% of the people believe this President's intentions include the Nation's Welbeing.

AMAZING--Obama rushes to Michigan to try and stave off the Republican move to make Michigan a right to work state. Then rushes back to DC to tell us all that he won the election and that was a referendum on his tax the rich policies. Well if that was true for him then Michigan's move to a Republican legislature and Governor must have been a referendum for Right to work laws.

On the national scene we are seeing the frustration of Liberal pushes based on a Presidential victory. But, down at the state and local level the Republican Governors are beginning to make themselves heard and are making moves to change the fiscal landscape for the better. Sorry California,Illinois and New York that you can't join in. Perhaps the Governors will have to lead by example before we can get a national election of responsible leaders.

But, in the end it appears a deal will be structured by the 15th so they can all go home and then return to vote it through after Christmas. the real question is what will a DEAL look like? A tin can or a grand bargain?

SOMETHING FOR NOTHING---is it surprising that 60% of Americans think we should raise taxes on the upper 2% but not on them? If the same people were asked if they thought it would be a good idea for President Obama to ask the banks to give them a checking account with $1000 in it for Christmas I think that they would be for that as well. After all free Healthcare is coming. Free food stamps. Free unemployment subsidies. Free childcare. etc. The game of giving things away and taking from the better off is just a political con game designed to divide us into the dependent and the targeted classes. Young people who cannot find work in a down beaten economic system are now lining up for governemnt jobs and why not? Look at these statistics:

During these hard times, there are thousands of government employees who still earn great, big salaries – many of them hundreds of thousands more than the $400,000 Obama pulls down each year. In 2009, 347 Texas state employees earned more than the president; 53 of them made more than $600,000. In New York, 35 employees were paid over $400k last year. Since 2005, the number of Federal employees earning $150,000 plus has jumped tenfold: going from 12,399 to 171,689. Much of the increase has been in medicine. Doctors at veterans hospitals and prisons averaged $179,500 in 2010, up from $111,000 in 2005.

HARVARD SAID WHAT ? Talk about thinking 'Chess' during the 'Poker Game'. Prof. Harvey Mansfield in a DEC 1 WSJ 'Opinion'."If Republicans can get ENTITLEMENTS to be UNDERSTOOD no longer as irrevocable but as open to negotiation and to political DISPUTE and to reform, then I think they can accomplish something". (end quote)
He also refers to the Democratic Party as "The European Party". Added, that he has seen first hand that our young Liberal students are in danger of becomming the small thinking 'European Styled Student'.
THE UNDERPINNING CAUTION: SECULARISM BREEDS DEPENDENCY.

Insightrul posting, Bill. Alan Simpson has recently stated, on numerous occasions, that recalcitrance of the AARP (on the entitlement side) and Tea Party (on the fiscal side) were representative of the obstacles to a Grand Agreement between the Democrats and Republicans on the debt and budget issues. John Boehner has been consolidating his ability to deliver a deal by adjusting Committee assignment and through his letter to Obama (as you note). Now, seeing the trend toward the "practical", our Senator Jim DeMint has decided that the platform (and salary?) offered by The Heritage Foundation is his better option. Our local pundits uniformly predict that Governor Haley will appoint Representative Tim Scott to replace DeMint. Tim is my congressman and I have gone to a number of his events. He is a self-made businessman, long-term member of Council, conservative (socially and fiscally), but practical (not an idealogue). He has achieved all this as an African-American is a highly caucasian district.

The Republican Party seems to be over grieving the last election and positioning itself in a more practical manner. Lets hope that the Democrats try to reach over the aisle in a manner more constructive than the rediculous position posed by Tim Gaithner. If not, I am 100% behind a Republican position, after offering Obama the tax increase he has demanded, to walk away and let Obama and Reid/Pelosi, et al, own the consequences. Spending cuts are essential, even if painful to some of Obama's constituents. And, why would Congress surrender its Constitutional role in budget matters?

As an aside, I saw a Pennsylvania State Government press release that the breakeven point between working, and living on entitlements, was in the $57,000 range for a single mother of two. This "reality" seems well understood by many in our society. Should this balance be adjusted? Romney probably was right that this Pennsylvania mother, paying no taxes, but collecting $57,000 in entitlements, was more likely than not to vote Democrat and keep the spigot fully open.

MORE NEXT WEEK---I'll have more on the economy and healthcare next week but I could not pass on todays' unemployment nubers and consumer sentiment.

1. Unemployment--jobs 146,000. But--ooops revised preelection numbers for October and September DOWN 60,000 or so. Political games?

2. Unemployemnt falls to 7.7%? Oooops mostly because thousands of people once again stopped looking. State of Penssylvania announced yesterday that it is better to make $29,000 (mother of two) and be classified as poor than it is to earn $69,000 and out of the poor category. What a country we have. As a headhunter I have seen this all the way back to 1974.

3. Consumer sentiment placed at 84.5 in October and November PLUNGES to 74 this week.

And all the while we are being told how good things are getting! Are we fools? The elction proved we probably are.

Stay tuned.

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