The Economy and Inflation

A 2003 report by the Federal Reserve calculated the effects of government debt and its impact on long-term interest rates. It was done before the current deep recession and weak “recovery”and the efforts of the Obama Administration.

The report concluded: "A percentage point increase in the projected deficit-to-GDP ratio raises the 10-year bond rate expected to prevail five years into the future by 20 to 40 basis points. Similarly, a percentage point increase in the projected debt-to-GDP ratio raises future interest rates by about 4 to 5 basis points."

In other words, the effect of inflation in the form of higher interest costs.

Inflation induced by heavy deficits does not arise rapidly during a recession, but it jump-starts once recovery gets going. Then it quickly gets out of hand.

All the theory economists use as remedies get stymied by politicians who know the medicine will cause economic belt-tightening. Those remedies will be be over-ruled by political considerations.

The present Greek debacle is the perfect example of what happens when belt-tightening is avoided too long.

The Dubious Wisdom of Crowds

The assumption that the masses can be correct may arise from a theory that there is a certain wisdom in crowds. There has been some limited research on this to explain how a form of futures market can explain, for example, how the public could predict future election winners.

Practical results from the use of such theory has been non=existent. No real futures market has ever resulted from past attempts to implement such theories.

The problem here is that if crowds were prescient, there would be no booms and busts and no economic manias as have existed over past centuries. All securities markets would then be predicable.

On the contrary, evidence over the years suggests the opposite; crowds are invariably wrong.

Institutional Investors as Corporate Managers

Why should mutual fund managers and other institutional investors intimately direct corporate management of the companies in which they invest? That function is far different from their job of selecting securities. They have little time or the ability to attempt to get too close to be involved.

I know that the job of an investment manager is to pick good corporate management. But that can be superficial at best. To truly evaluate what is good or what is bad management takes lots of on-the-site inspection and knowledge with which fund managers are not equipped. They may say they have that ability, but that would be mostly conjecture.

Despite this, there is a constant clamor from groups, usually with little business acumen, who insist that institutional investors, including mutual fund managers, micro manage each and every investment they make. That is an impossibility.

Another reason I suggest investment in funds that track indexes. (See the Earl J Weinreb NewsHole® comments.)

Government Stimulus Sleight of Hand

Funds removed from one pocket and placed into another pocket of your pants, is the same money. The amount is the same, no matter what pocket it comes from.

In the same way, money can be substituted from one pocket of government to the other, to hide the source of funding.

It adds up to the same total outlay.

What the government in Washington called stimulus funds, for the most part, became slush funds. for use by its politically-preferred state governments. These states used the money, to a great extent, to help balance its own budget deficits.

The reason state budgets are so out of hand can be attributed primarily to their unionized pension obligations. It is estimated this is a major, ticking financial time bomb, waiting for more government bailouts under various guises.

Taxpayers who cannot recognize stimulus sleight of hand will be taken as suckers again. And again. And again.

The Waste of College Attendance

Colleges have financial motives to admit dumb high school school “grads.”. The U.S. Department of Education statistics indicate that three quarters of high school students who graduate in the bottom 40% of their classes still get to attend college.

Most never graduate college, though they may spend as much as eight years, and more, in school. And, they often leave in heavy debt.

What is more, few of these students get jobs that ever require a college education. Their efforts simply wast precious time and money.

Medicare, Medicaid and Social Security of the Future

By 2050, Social Security, Medicare and Medicaid, will take up nearly the entire federal budget. By 2080, Medicare alone will comprise the entire federal outlay.

There will have to be drastic corrections done by our politicians but many, primarily on the left, prefer to defer taking on the problem. It does point up government stupidity today, created for us, our children and grandchildren.The left has made a bankrupt system for us and our descendants. Solutions can only involve less services, reduced benefits, rationing and higher taxes, as well as inflation we have never experienced before.

The College Education Fantasy

The college system does more for colleges, teachers and staff, on balance, than it does for a large portion of their consumers.

Only 40% of two million college freshmen graduate in four years; 45% never graduate. And graduates are ill-prepared for careers.

Forget about education. The experience helps parents boast that their kids went to college, and it does the same for the dropouts themselves. They generally never have to mention whether they ever did earn a degree or job skills.

Or whether or not their major was medicine or “communications,” or a form of physical ed. Whatever the major, it frequently fails to prepare a student for a worthwhile job.