Wednesday, March 13, 2013 - The World Changes, Some Things Don't

Mark your Calendar, April 5 & 6 and make your reservations for the 2013 Wealth Protection Conference in Tempe, AZ. For conference information visit www.buysilvernow.com or click here or call 480-820-5877. This year's conference features Roger Weigand, Nathan Liles, David Smith, Mark Liebovit, Arch Crawford, Ian McAvity, Bill Tatro, and I will speak on Friday. There is an expanded Q&A session with all speakers on Saturday. I hope you can attend.

The World Changes, Some Things Don't

by Sinclair Noe

DOW + 5 = 14,455
SPX + 2 = 1554
NAS + 2 = 3245
10 YR YLD un = 2.02%
OIL - .03 = 92.51
GOLD – 5.00 = 1588.70
SILV - .23 = 29.02

Today, the chimney billowed white smoke. The Catholic church has a new pope; Cardinal Jorge Bergoglio; he'll be called Francis, and he is from Argentina. This is a big change; a non-European pope. Though there is some controversy, Pope Francis has been described as a modest man, a simple man, very much involved in social justice, and he is known for his service to the poor. The world changes.

Some things don't change. The poor are still poor, the rich are still rich. A new pope doesn't change that. Record highs for the Dow Industrial Average does not change that. The wealthiest 10 percent of households own 80 percent of all corporate stocks.

It is good times for corporate America. Even as corporate profits have rocketed up by 20 percent a year since the end of 2008, the chieftains are still refusing to increase hiring and are holding down wages. As a result, the share of America's total income that goes to workers has now tumbled to the lowest level in nearly half a century. Today's massive backlog of unemployed and underemployed workers allows corporations to bring in hoards of top-quality applicants and literally toy with them. It's now common for a job-seeker to return five, seven, nine or more times to the same company hiring hall for senseless rounds of interviews - only to have the company whimsically decide not to fill the opening at all.

From Google to Starbucks, major corporations have roughly doubled the duration of their interview process in the last two years. The New York Times noted that one fellow seeking a video-editing job was run through a gauntlet of nine interviews and made to undergo a ridiculous battery of psychological and personality exams, along with a math quiz and a spelling test - after which the company simply closed the opening.

Insulting, yes, but expensive, too. The out-of-work interviewee has to pay for producing work samples and cover the cost of everything from dry cleaning to parking fees. The job-dangling corporation, on the other hand, can simply force existing employees to shoulder a heavier load, while it trifles with applicants looking for what is laughingly referred to in CorporateSpeak as "the purple squirrel" - an applicant too qualified to exist.

The world changes, yet it is still full of inequality. Even as the nation’s life expectancy has marched steadily upward, reaching 78.5 years in 2009, a growing body of research shows that those gains are going mostly to those at the upper end of the income ladder. If you have money, you are likely to live longer and healthier.

The tightening economic connection to longevity has profound implications for the debate about trimming the nation’s entitlement programs. Citing rising life expectancy, influential voices including the Simpson-Bowles deficit reduction commission, the Business Roundtable and lawmakers on both sides of the aisle have argued that it makes sense to raise the eligibility age for Social Security and Medicare.

But raising the eligibility ages — currently 65 for Medicare and moving toward 67 for full Social Security benefits — would mean fewer benefits for lower-income workers, who typically die younger than those who make more.

Overall, life expectancy has improved substantially since the first Social Security payments were issued in 1940. Then, a man who made it to 65 could expect to live 12.7 years, compared with 18.6 years in 2010. A woman who turned 65 in 2010 could expect to live 20.7 more years, compared with 14.7 in 1940.

That trend helped persuade lawmakers in 1983 to slowly move the age people could receive full Social Security benefits from 65 to 67, a change that will be complete in 2027. Now, as the cost of providing old-age benefits has emerged as the key driver of the nation’s long-term budget deficit, there is increasing pressure to again raise the retirement age — this time for both Medicare and Social Security.

But given the widening differences in life expectancy for people on opposite ends of the income scale, that would mean a benefit cut that falls heaviest on people who generally are most reliant on Social Security for their retirement income. It doesn’t take a rocket scientist to figure this out You just have to look at the socioeconomic and demographic differences: unemployment, education levels, and income to understand what is going on. This is fueled by poor economics and a lack of access to health insurance and health coverage.

So, this is the backdrop for competing budget plans in Washington. Yesterday, Paul Ryan presented the Republican plan. From the looks of it, the Ryan budget for fiscal year 2014 looks mostly like the Ryan budget for FY2012 and FY2011, with the added extra of banking the tax hikes he didn’t vote for in the fiscal cliff deal. It includes the same vague goal of marginal tax brackets of 10% and 25%, vouchers instead of Medicare, the repeal of Obamacare while keeping the revenue-raisers from Obamacare intact. In a press conference, Ryan explained: “We are not going to give up on destroying the healthcare system.” There are more details, but it really doesn't matter because it will never pass.

More noteworthy is today's budget plan from Senate Democrats. The topline numbers include $1.95 trillion in deficit reduction over 10 year, split between tax hikes and spending cuts, with $100 billion in new spending on a jobs program. This is smaller than Ryan's $5 trillion in cuts, which all come from the spending side.

The spending cuts are divided up this way: $493 billion in domestic savings, including $275 billion in health care cuts that the Democratic source said would not harm seniors or families. Defense spending would be cut by $240 billion in accordance with troop drawdowns from overseas operations. An additional $242 billion in savings come from reduced interest payments.

It’s perhaps possible to come up with $275 billion in health care cuts that “would not harm seniors or families,” but that would have to include reducing payments to stakeholders, something our captured Congress has found nigh impossible, especially when they’ve already handed over the forced market that insurers and hospitals and drug companies accepted as payment for their token give-backs in the Affordable Care Act.

At any rate, discretionary spending is already on a trajectory lower than what we spent as a percentage of GDP in the Eisenhower Administration. The usual argument here is that cuts to social insurance help “protect” the discretionary budget, but they both come up for cuts here.

Meanwhile, the Progressive Caucus issued their own plan. That budget, titled "Back to Work," offers a list of progressive priorities -- a public option for health care, negotiation of Medicare drug prices, a carbon tax, defense cuts, a financial transactions tax, much higher marginal tax rates for millionaires and billionaires, capital gains taxed as ordinary income, and public works projects, among dozens of other ideas.

In the middle of all of this is the White House. And they appear to be engaged in the tactic of saying different things to different audiences. The President said: “My goal is not to chase a balanced budget just for the sake of balance,” and that he’s focused on growing the economy. He also took a few swipes at the big fat target that is the Ryan budget. And then he told Senate Democrats on Tuesday that his budget to be released in April would align closely with their priorities. He also warned that Democrats need to embrace at least some changes to unsustainable entitlement programs in order to achieve their long-term priorities. But Obama acknowledged that Social Security and Medicare, big drivers of federal spending, wouldn’t survive without some changes to save money. Obama added that Republicans must first agree to more revenue hikes before the White House would concede on changes to entitlement programs.

So, we'll start sifting through all the plans and there is a good chance the politicians won't agree on anything, let alone a grand bargain. They have started the discussions at diametrically opposed positions. Delay is itself a policy. Sins of omission may be less visible than those of commission, but they are no less venal for that. Slowly and incrementally, the erosion of public programs triggered by the sequester is beginning to bite. There is no one dramatic moment in that process, of course, just slow death by a thousand cuts. Or they might just crash the government for lack of any better ideas.

So where is the moral outrage when, due to intransigence, the poorest amongst us find their resources diminished, while the profits and incomes of the privileged bounce back as if the past 5 years never happened?

Gandhi was right: Poverty is the worst form of violence. I don't know what the knew pope will say about poverty, but I hope he has studied Gandhi.