Poverty Time Bomb
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The papers have kept us in stitches today…a ‘Gas Tax Holiday’? Really? Waiting for the showdown between Hillary and Obama…the Fed has created bubble-like conditions in the commodities markets - but Kevin Kerr tells us all is not lost. Buffett tells it like it is…the art world’s big test…and more!
The papers are so full of claptrap and humbug this morning…we don’t know what to laugh at first.
There is Hillary’s proposal for a ‘Gas Tax Holiday,’ for example. The initiative is so absurd that even trained economists can see through it. Alice Rivlin, Bill Clinton’s former budget director said she was “appalled” at what “looked like pandering.” One hundred economists signed an open letter criticizing the proposal - pointing out the obvious, that it would increase driving and divert money now going to the U.S. government to the governments of Arab oil exporters.
Obama has an advantage; Paul Volcker is advising him. So, we can expect a little better. But little better is what we get. Obama proposes a cut in the payroll tax (which finances Social Security) - up to $1,000 - to help families “offset the cost not only of gas, but of food.”
As we have said many times, we never met a tax cut we didn’t like. But what troubles us is: where are the cuts on the other side of the ledger? If Social Security has less money, how will it keep up with baby boomer retirements?
The weekend press tells us that people are beginning to worry about whether they’ll be able to retire at all. The middle class counted on rising house prices. But now house prices are going down. What are they going to do?
They’re going to start saving, is the answer. “Consumers to the sidelines,” says a Wall Street Journal headline. “Americans cutting back for Mothers’ Day,” says a headline in the Los Angeles Times.
You will recall why stocks were certain to go to the moon, dear reader. It was “Dow 36,000″ for sure - because the baby boomers had to put money in stocks so they could retire. When that mirage disappeared, they turned to residential real estate. People figured that they could buy an extra house at the beach. They would enjoy it on weekends and holidays…and then, when the time came to retire…they could sell the main house and live off the proceeds. That strategy too was fine - as long as prices were rising.
And now the boomers find them themselves with no easy way to finance their golden years. (They should have bought gold when we first suggested it!) What can they do? They have to resort to the old-fashioned, tried and true method - thrift and savings.
Here, we will spell it out:
You take the total amount of income, after tax. Then, you subtract the total amount you spend. If the result is a positive number, at least you are headed in the right direction. If it is a negative number, we suggest you apply for a job in government…maybe with the Council of Economic Advisors or the Congressional Budget Office. Besides, the federal retirement system is the most generous one around - outside of Wall Street.
Yes, dear faithful reader…the economy is getting a nip on the derriere. The consumers who spent what they didn’t have are now forced to save the little they do have. Result: the consumer economy is slowing down. The bubble has sprung a leak…and the feds desperately try to keep pumping it up. (More below…)
But forget the math…forget the ledgers…there’s an election to be won…and faint humbug n’er won fair voter. No, the way to win is to go all out…tell the biggest lie possible…promise the moon…and pretend to be something you are completely and emphatically not.
George W. Bush, for example - son of a CIA Chief, Vice President and then U.S. president, educated at Andover, Yale and Harvard, from one of America’s richest, most elite New England families - passed himself off as a straight-talking yahoo in a cowboy hat. Now, both Obama and Hillary are trying to pretend that they feel the working classes’ pain. Hillary appeals to the redneck instinct for toughness; she will “obliterate” Iran if it lays a hand on Israel, she says.
(Why the yahoos from Kentucky should care what goes on between Israel and Iran has never been fully clarified…but in the final days of imperial grandeur no sparrow can fall anywhere in the world without setting off sensors in the Pentagon…and eliciting a rapid response from the military/industrial/political complex!)
Obama, meanwhile, can pretend to be a man of the people too. He drinks beer, when the occasion calls for it… and shoots hoops with the locals. Of course, neither politician would probably give the blue collar workers the time of day were it not for the fact the yahoos are likely to vote tomorrow.
Yes, dear reader, tomorrow is now the big day…the showdown between the two democratic candidates. If Obama wins big…he can say goodbye to Hillary. If the Clintons win big, they could still win the nomination…and probably, the election. At least, that’s what the pundits say…
And so we see how democracy really works…by flimflam and bamboozle.
*** We have set up shop in a café near Auteuil in Paris…copy of the International Herald Tribune in hand…and someone’s wifi connection at our fingertips. It is a delightful spring morning in Paris…the chestnut trees are in flower…birds sing, the sun shines, and beautiful women amble along the sidewalk.
We had a café crème and a croissant…and then, we were enjoying the view so much, we ordered another. The waiter brought a check - the damage was just $15, very reasonable, under the circumstances.
The relevant circumstance is that the price of food is soaring everywhere. The grains are selling near record prices…and so is oil. This is no laughing matter. Food is a relatively minor part of our own family budget; the rising prices are only a nuisance. But a news report from Reuters tells us that 20% of Asians live on less than a dollar a day. Many are farmers with their own local supplies of cheap food. But more and more of them live in cities and pay global prices for their daily bread.
Rising food prices are producing famine-like conditions for many of these poor people. For others, they are wiping out years of financial progress, creating what Reuters calls a “Poverty Time Bomb.”
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Tags: Buffett, commodities bubble, Food Prices, Hillary Clinton, House Prices, Kevin Kerr, Obama, oil, Oil Exporters, Paul Volcker, politics, Retirements, Tax HolidayAbout the Author
Best-selling investment author Bill Bonner is the founder and president of Agora Publishing. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning and three best-selling books, Financial Reckoning Day: Surviving The Soft Depression of the 21st Century, Empire of Debt: The Rise of an Epic Financial Crisis and Mobs, Messiahs and Markets..
The Daily Reckoning offers a "uniquely refreshing" perspective on the global economy, investing and the ability to live well in uncertain times. You will learn what you can expect from today's markets and how to prosper in the face of uncertainty.