Amendment 1 101

Two things that may surprise you to know:
1.) I am not a resident of the state of North Carolina.
2.) I am not a homosexual.

So why am I about to write my first blog in 8 months about Amendment 101? Because even though I have about as much interest in this issue as I do dipping my balls in battery acid, I suppose really don't want to be the only person who hasn't expressed an opinion about something that probably will never affect them in any meaningful way.

It started on Facebook
My first exposure to "Amendment One" came when a friend of mine (who thankfully is at a minimum a North Carolina resident) shared this on their Facebook wall:

Like all good propaganda pieces, it does a fantastic job of framing the question on its own terms and ignoring its own hypocrisy (Really, you're going to speak about people's rights but reach a possible conclusion that someone is not entitled to the most basic right of them all? Just shows to go ya!)

Like all matters geared towards stirring up the simple minded; I gave it all the thought and consideration I could muster before returning to something far more important to me, playing NCAA Football on my X-box or double-fisting Doritos Tacos and Mountain Dew. With classes finishing up and final exams underway, I really didn't give it a second thought until yesterday.


OMGZ DA PEEPLES OF NC R TEH STOOPIDS + HATEFUL! I CAN'T BELIEVE THEY ARE SO MEAN AND DUM! :(

This obviously is something of an oversimplification, but after reading it all day long (mostly from people who I KNOW are not residents of North Carolina and I'm fairly certain are not homosexual), that's eventually how it started to come across.

Now full of frustration and outrage; I decided that I should go find out what everyone has their panties in a wad about. After trekking through the blogosphere; I finally found this on ballotpedia:

North Carolina Same-Sex Marriage, Amendment 1

From this page, it conveniently has the ballot language actual North Carolina voters saw and the text proposed to be added to the N.C. State Constitution:

Ballot Language: Constitutional amendment to provide that marriage between one man and one woman is the only domestic legal union that shall be valid or recognized in this State.

So North Carolina is not going to recognize any other domestic unions? Only a man and a woman? Not a man and a piano? Not a woman and a lava lamp (which actually sounds kind of hot when I put words to paper about it)?  Man and woman only. Gotcha. Notice that this ballot does not say that all other "don't call it a marriage" is a sin, an abomination and that all homosexuals are condemned to a life of hellfire, it says that other unions are not legally recognized in the state of North Carolina...(we'll come back to this, so pay attention.)

Constitutional Language: Sec. 6. Marriage
Marriage between one man and one woman is the only domestic legal union that shall be valid or recognized in this State. This section does not prohibit a private party from entering into contracts with another private party; nor does this section prohibit courts from adjudicating the rights of private parties pursuant to such contracts.

Okay, so we repeat the ballot language. Then we get into . . . you've got to be shitting me! Contract law? Everyone has got their assholes puckered up over fucking contract law! Where's the outrage over THAT little nugget; that this oh so sacred institution of two separate entities coming together to form one is basically boiled down to a business transaction.

And therein lies the rub. The simple fact of the matter is that North Carolina doesn't want the logistical headache of implementing all the special cases that come with "legally recognizing" a legal marriage. Traditional marriage is nice, simple, clean. Easy to give them a small simple tax break for buying a house and spitting out a couple of kids. When you open up the door that says "marriage" can now be between any two consenting adults, well that just makes it a gigantic quagmire of bureaucracy.

In other words: It's not an issue of morality, it's an issue of paperwork, nothing more, nothing less!

And while we're on the subject:

Love and Marriage, Goes Together Like Two Sole-Proprietorships in a Domestic Merger.
When did we get this idea that for a marriage to be considered valid, it had to be recognized by anybody but God and the two entities within that marriage? Isn't one of the great love stories of our time "True Romance" based upon a marriage of two people swearing their love for one another before God on a bridge with nobody else around for miles in any direction? Clearly they have no concern over whether their marriage is "legally recognized by the state" or not (as they have so much respect for laws and authority in that film anyway), yet their marriage is a perfectly happy one. Why? Because they love each other and have compatible life structure, that's all that is needed to make "marriage" work.

But for reasons that other people have committed to paper in much better ways in other venues; this most basic private arrangement has become an extremely social issue. Suddenly because I'm (legally) married, I'm entitled to a better tax rate, I'm entitled to cheaper benefits. My private life has social consequences. At the end of the day; THIS is why people are pissed off. 

You're Here, You're Queer, I Don't Give Two Shits!
"A person is smart. People are dumb, panicky dangerous animals and you know it" - Agent K "Men in Black"

Here's my problem with most homosexual issues; (Read as "I really want to do this, but I can't because I am GAY") they are based in the premise that being a homosexual is their sole identifying characteristic and it trumps all over aspect of life. For example:

"I want to serve in the military, but I can't because I'm GAY"
"I want to get (legally) married, but I can't because I'm GAY"
"My life partner and I want to move to North Carolina but we can't because we're GAY"

Let me be perfectly clear on this; homosexuality is NOT a lifestyle choice; because as my homosexual friends tell me early and often, if I could choose to be gay, I could do very well for myself. However, letting your homosexuality be your sole social identifier that trumps all others IS a lifestyle choice.

This is an economics blog, economics is all about trade-offs and choices. Which is more important to you:

- Being openly gay, or serving in the military? Choose one (not necessary anymore, but still)
- Being gay and living with a compatible partner or doing so and getting "marriage" benefits?
- Doing the above, and living in North Carolina/any other state that doesn't recognize non-traditional marriage.

Life is about choices, whether straight, gay, or asexual, nobody can have it all.

Fair? Who's the Fucking Nihilist Here? What Are You a Bunch of Fucking Crybabies?
Ask any 4 year old if life is "fair" and they should tell you without hesitation the answer because their parent will tell them early and often that it isn't. For example, I know that there will be more than a couple of people who will label me as ignorant (despite showing and citing my research above), stupid (yes, I have a 3.05 GPA with almost 200 undergraduate level credit hours at a major university, I'm clearly a moron), homophobe (I'm not afraid of homosexuality, I'm indifferent towards it) based solely on the worlds I've written in this piece. Is that fair? Probably not. Does it matter to me? Not even a little bit. Fortunately for me, I'm not alone.

As I've said before; this blog is NOT about ideology, it's about data. Fortunately, one other piece of information my friends at ballotpedia provided was the voting results on Amendment 1. See below:

Amendment 1
Result		Votes	Percentage
a Yes		1,303,952	61.05%
No		831,788	38.95%

 As you can see, the people who voted, chose overwhelmingly in favor of the issue. However; what about the people who DIDN'T vote?

1,303,952 + 831,788= 2,135,740. According to Google, the population of the state of North Carolina (as of 2011 data) is 9,656,401. When we adjust our results for this data, the results are even more revealing. as apparently 7,520,661 citizens of the great state of North Carolina decided that they didn't care one way or the other about this issue.

Are they all ignorant, stupid, homophobes and/or religious zealots? Hell, is it even conceivable that all of them are STRAIGHT? Seven and a half million people and not a single homosexual? It seems statistically unlikely* Why this matter is of grave importance, so much so that straight people from other states feel the need to judge and insult complete strangers through blogs and social media for allowing their populace to democratically decide the laws of their land; as granted by the 10th Amendment by the United States Constitution while 7.5 MILLION North Carolina residents decided to do something else.

But that's okay, they are all stupid hick zealot homophobes right? Must be. It couldn't be that they have better things to do than worry about what a complete stranger thinks about them or what their state or is saying about them on Facebook. Maybe...

But one thing is certain; by not voting, they clearly don't give a shit about something that certainly would affect them in . The real question is; why do you?

*- According to About.com, a conservative estimate of "alternative lifestyles (GLBT)" is about 3.8% of a given population. This means that in North Carolina, a safe estimate would be 285,786 who did not participate in the voting.

Occupy Hoovervilles

Unless you've been living under a rock for the last several weeks; you've been exposed to the latest battlefront in the class warfare between the haves and the have nots commonly referred to as "Occupy Wall St." If for some reason you haven't been paying attention; here is the closest thing I've found to a mission statement from www.occupywallst.org.

"Occupy Wall Street is a people-powered movement that began on September 17, 2011 in Liberty Square in Manhattan’s Financial District, and has spread to over 100 cities in the United States and actions in over 1,500 cities globally. #OWS is fighting back against the corrosive power of major banks and multinational corporations over the democratic process, and the role of Wall Street in creating an economic collapse that has caused the greatest recession in generations. The movement is inspired by popular uprisings in Egypt and Tunisia, and aims to expose how the richest 1% of people are writing the rules of an unfair global economy that is foreclosing on our future."
 
I've read that gibberish several times now, and I'll be damned if I can find anything in that word salad that even remotely resembles anything that isn't a jingo laden talking point, but what I take away from it is essentially that the entities that have the wealth are the ones who can effectively peddle influence and power within society. Upon putting this thought from virtual pen to virtual paper; two questions arise:

1.) In exactly what developed and generally wealthy society has this NOT been true?
2.) What exactly would you suggest we do about it?

The answer to the first one is largely rhetorical, because in the history of Western Civilization I cannot think a single instance where wealth and power were not highly correlated (which is why my PERSONAL ideology is one based in individual people developing their OWN wealth and power base, but that's another blog for another day). However, the answer to question two; once all is said and done has only one solution*...the mass redistribution of wealth.

Let me be clear, when I say "mass redistribution of wealth" I mean exactly that. You see; have nots have been pissed off at haves ever since the first cow farmer traded for a long horn. There is a lot of money and power to be made by continually pointing out that there is always someone who has more than you; and despite what your mother told you when you were seven "It's not fair" IS a valid argument when the issue at stake is microeconomics.

The Raw Data
From www.usdebtclock.org as of this writing:
- M2 Money Supply: $9,435,272,000,000
- US Gross Domestic Product: $14,979,449,000,000
- US Total Debt: $54,562,973,000,000
- US Population: 312,471,569
- US Households: 82,384,689

For our purposes, we'll consider M2 Money Supply to be the liquid dollar value of all Cash-Cash equivalent assets held within U.S. borders, and Gross Domestic Product as its usual income/standard of living corollary. Both numbers are rounded (along with Total Debt) to the 1 millions position for calculations purposes.

Economic Reset Button:
Now that we've pulled our data, lets redistribute some wealth. Let's start with the fun stuff; the cash!

M2$S/USPop = $9,435,272,000,000/312,471,569 = $30,195.62 per person.
M2$S/USH = $9,435,272,000,000/82,384,689 = $114,527.00 per household.

Now, with these to simple equations (which BTW, are effective corollaries for individual and household GROSS worth), we have already determined our own inequality. Households are defined and determined from Census data; and as most know, my household consists of only myself...do I get a check for $30,195.62 or do I get a check for $114,527.00? Meanwhile, a household with 4 or more persons; presumably some of them under the age of 18, and thus not legally adults, meaning the "head of household" could feasibly end up with custodial custody of $30k*number of persons within the household.

Now, if we're going to socialize our assets, we must also socialize our liabilities. After all, we're all in this together.

USTD/USPop =$54,562,973,000,000/312,471,569 = $174,617.40 debt per person
USTD/USH = $54,562,973,000,000/82,384,689 = $662,295.07 debt per household

Wow, this shouldn't surprise me (since I did a whole series on the major debt problem in this country on the macro level, but I had NO idea that there was such a discrepancy at the microlevel). Again, these calculations are corollaries for per capita averages; meaning if your personal/household numbers are BELOW the above, congratulations, you're better than average. 

So we now have our new GROSS worth per person/household, and our debt per person/household;  lets calculate our new NET worth (Gross worth - debts).

M2/Capita - Debt/Capita = $30,195.62 - $174,617.40 =  -$144,421.78 per capita net worth.
M2/Household - Debt/household = $114,527.00 - $662,295.07 = -$547,768.07

Doing the math this way, are you better off? Lets run the checklist:

Who Loses in our Robin Hood Game?
As an individual, is your gross worth more than $30,195.62? 
Is your household gross worth more than $114,527.00?
As an individual, is your debt LESS than $174,617.40?
Is your household debt LESS than $662,295.07? (this number still blows my mind)

And finally...

Is your personal net worth more than -$144,421.78 (BTW, if you have a job and a car, it probably is)
Is your household net worth more than -$547,768.07 (if you own the computer you are reading this blog on, it is essentially mathematically impossible for you, your household, and your entire EXTENDED FAMILY to have a net worth of NEGATIVE A HALF MILLION DOLLARS COMBINED!) 

But wait, there's more!
Notice the mathematics above only considers fixed assets; we're not considering income. So let's do that really quickly.

USGDP/Capita = $14,979,449,000,000//312,471,569 = $47,938.60 per person
USGDP/Household = $14,979,449,000,000/82,384,689 = $181,823.21 per household.

Now, this is more than likely where movements like Occupy Wall St, gain their steam and following; because I know several people who live in households not earning 181k, and several individuals not earning 48k. It's that evil 1% who is skewing the data upwards; real people don't make that much money. So lets reconsider what effects our redistribution of wealth with have on the income situation in America:

USGDP*/Capita = $0/312,471,569 = $0.00 per person
USGDP*/household = *0/312,471,569 = $0.00 per person.

Some of you out there are surely screaming loudly at your monitors at my calculations above. Allow me to enlighten you. Producers need resources to produce goods to bring to market. However, we have literally just reallocated every cash equivalent resource in America; this means that the producers will only be able to sell the goods they currently hold in inventory; and hopefully they can earn enough from those sales to meet their payroll at the end of the week to keep the employees producing the NEXT batch of inventory to sell so they can meet another payroll; and so on and so forth.

The Tank Says This...
So let's consider what "Occupy Wall St" is actually clamoring for. Stealing from any one person who happens to have more than 30,000 in the bank or family with 115,000 in nominal terms; burdening EVERYONE with numbers that ensure every single person will get slapped with 176,000 in individual debt and over a HALF OF A MILLION dollars in household debt. This of course, by definition means that the net worth of every person/household in America will be decimated, but not to worry because every American company will have to shut down because they have no cash to pay their workers with. Sure everyone will essentially be bankrupt, but at least the crushing grip of poverty is "equal"

I propose this. Our founding fathers boldly declared that "All men are created equal". That statement means only one thing to me; we all come into the world cold, naked and screaming; after that what we do with it is up to us. Rather than standing out on the sidewalk holding a sign and tweeting all day, invest in yourself, go to trade school; develop a skill. If you lack the skill set to be a productive member of society in the year of our Lord 2011; then that is unfortunate; but the law of the jungle has always been to weed out the weak; and the day is fast approaching when you chomp down entirely too hard on the hand that feeds you; and the response is going to be for that hand to make a fist...then for you it's all downhill from there. You'll have a choice to make, evolve or perish.

Because after all, life isn't fair.

The Blog every American who thinks Elizabeth Warren speaks to (or better yet, FOR) them needs to see..

FULL DISCLOSURE: As many who know me are aware, I lean largely conservative in my political ideology; however I have long since placed my politics behind my ability to think, to reason, and most of all to do basic mathematics. If the sentiments I express here echo those of someone else in the pundit sphere (Limbaugh, Beck, O'Reilly, Savage etc.) It's sheer coincidence. I am many things; but I do not blindly follow zealotry; nor do I plagiarize for that matter. Anyway, on to the blog.

If you have a Facebook account, you've more than likely seen someone link to a picture from left wing political website www.moveon.org that details "The Elizabeth Warren Quote Every American Needs to See." The quote itself follows below:

"There's nobody in this country who got rich on his own. Nobody. You built a factory out there - Good for you. But I want to be clear. You moved your goods to market on roads the rest of us paid for. You hired workers the rest of us paid to educate. You were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn't have to worry that marauding bands would come and seize everything at your factory... Now look. You built a factory and it turned into something terrific or a great idea - God bless! Keep a big hunk of it. But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."

I copied and pasted because I really didn't feel like giving moveon.org any more hits than were necessary, but if anyone wants to double check me and verify my transcription, be my guest. It's copied verbatim from here.

Most of the people I've seen linking to this quotation seem to be in support of it. After all, what isn't to support. The greedy, evil factory owner making millions of profits off the sweat of the brow and the back of the overworked, underpaid proletariat of Karl Marx. It's a good story; which sadly is ruined by Mrs. Warren's completely ineffective word choice, sentence structure; ideology; and of course, those silly little things called FACTS that always ruin good stories.

Because it would be far too cumbersome and probably devolve into gibberish to respond to the entire statement at once; let's break it down into pieces and go from there.

"There's nobody on this country who got rich on his own."
This of course, is a true statement, if in no other sense but the literal one. It's quite the safe assumption that (insert rich person here) was  brought into this world by way of his mother who copulated with his father, and of course the birth was performed by a doctor and a medical staff; so that's at least 3 or more people that already the rich person is aided by; never mind a life long journey from crapping in a diaper and napping to becoming a titan of industry assisted by professors; friends, family, business partners, whatever. It is literally impossible to do anything in this world with out the assistance of one other person; because frankly, you come into this world indebted to at least 3 people. So the appropriate response to this statement is "Yeah, so what?"

"Nobody."

Don't sentences need to be at least two words long? A noun and a verb. Granted I don't have a law degree from Rutgers; but I do remember 3rd grade English.

"You built a factory out there - Good for you."

Actually, good for everybody. The factory is presumably going to make things right? In order to make things we need to purchase raw materials and equipment from distributors so that's good for them. We need to hire skilled labor to transform those raw materials into said final product so we can sell it; so it's good for the new employees' family who were living on the breadline yesterday. We're going to sell our product to someone right? That's good for either the merchants who sell our goods AND the general public at large who now has another product choice in an open marketplace. More choices generally means higher elasticity; higher elasticity means LOWER PRICES. In the grand scheme of things, the owner of the factory is actually the guy who gets hurt the most in the short run; but we'll come back to that later.

"But I want to be clear."

Sounds like a plan to me Beth; I'm assuming what follows will be very basic, simple premises that will not at all be contradictory or confusing. Let's see what you got.

"You moved your goods to market on roads the rest of us paid for."

I'm more than half way through my second year of business administration studies and I've studied the different forms businesses can be formed under many, MANY times at this point; I completely missed the type of business that not only was completely exempt from state and local taxes; but also granted the FOUNDER of the company the same exemption on a personal level.

Roads are considered a common good. They are non-exclusive and rival. This means that essentially an entity cannot provide them to one without providing them to many; but as anyone who has sat in rush hour traffic in a major metro will tell you, the more people that use them, the less surplus each individual has in terms of their usage. To put it another way, I enjoy using the roads more when it's wide open and I can do 80 miles an hour with nobody within a half mile of either bumper than I do sitting at a dead stop for half hour boxed in by cars on every side of me. Though my usage of the good can be affected; my costs are not. . . .regardless of whether or not I build a factory.

"You hired workers the rest of us paid to educate."
Oh, you want to recognize that fact now do you? You are acknowledging that my factory does in fact create those jobs that you love to harp and screech about because you think the world owes you a living? Okay, just checking.

The argument in general remains the same; I'm still not sure how opening my factory means I'm not paying my state and local taxes that go to pay for these schools. However, I am more than a little curious what makes you think that Education should be a common good in this country anyway.

By definition; "education" is a private transaction. Think of it this way; you want to learn karate, the piano, salsa dancing, etc; you enroll in a class, you pay the instructor, and you have gained the skills. Very simple, very basic, very PRIVATE transaction. Education is of course in a free market, a private good in that I can provide the service/have it provided to me (exclusive) and rival in that the quality of education I'm going to receive has correlation to the amount of persons I am sharing the good with; meaning my use of the good effects someone else's use in another way. Given that you work at Harvard (a private school), you should certainly not need me to explain this to you.

The fact that our employees not only WANT, but given our economy now; we NEED skilled labor is the major reason we've transformed education from a private good to a common one. The simple fact of the matter is that there is a massive correlation between the education level of our workforce and the performance of our economy; that correlation is only growing as the competitive advantages grow for China, Japan, India and all the other countries we have make our cheap crap while we're busy building Space Shuttles, Airplanes and providing services to the rest of the world. Those workers need we hired not only went to school, they performed, went further than they had to, developed a skill set, and continued performing AFTER they were hired. However, without my factory here to hire them; they would just be very educated people still living in log cabins and foraging for food in the wilderness.

"You were safe in your factory because of police forces and fire forces that the rest of us paid for."
Again with the us vs them. You know Beth, a more cynical person would think that you were subtly hinting that because I decided to create a business that I cease being a private citizen of the state and town I live in. Of course, this is rubbish; I'm still paying their salaries (and in some cases, I'm doing so voluntarily) as both services could be considered private goods under the right circumstances. If you don't believe me, pick out any Bond movie at random and consider the amount of evil henchmen surrounding the villain at all times. As for the fire department; there literally is nothing stopping them from ignoring the alarm; or even better yet, driving to the fire in question, and watching it burn. What I'm getting at Beth is that this statement is absolutely irrelevant rubbish and you know it.

"You didn't have to worry that marauding bands would come and seize everything at your factory..."
Yeah; it's called an alarm system at least and a completely competent security force at most. The only people I'm worried about seizing anything from my factory are the government who are hell bent on making it impossible to conduct business in a profitable manor; if for no reason then I get a lecture from some Harvard dingbat lawyer who wants to make sure every American person gives me a guilt trip for having the audacity to think that I should be entitled to see a return on my investment of time, resources and risk; because we all know that if *I* should see a profit, that makes me a whole other kind of evil. . .

"Now look. You built a factory and it turned into something terrific or a great idea - God bless!"
I told you earlier, my factory didn't have to be "turned into something terrific" it just had to meet its intended purpose. The "great idea" is not a product of the factory, the factory is a product of the idea. If I create a factory to produce tuna fish flavored gummy bears; I'm probably not going to be in business very long. My responsibility as an entrepreneur is to create, develop and bring to market something that people want and need enough that they will pay for me to continue making it. That would be how an economy WORKS. People are willing to pay Y for good X; I need to be able to MAKE AND SELL Y for some number greater than X and less than or equal to Y. If I can do that, I can stay in business. Not a real difficult idea. And don't get me wrong, as much as I love God and appreciate the many blessings he bestows upon us all daily; a good idea and sound business plans can succeed in spite of him (remember, it's data kids, not ideology).

"Keep a big hunk of it." 
Thanks, I appreciate you letting me keep a bunch of my earnings after I'm the one who came up with the idea for the product. The one who obtained, budgeted and utilized the resources in an efficient and effective manner. The one built the team around me (after all, nobody gets rich alone, remember) who implemented and perfected this plan. Finally, I especially thank you for letting me keep a "big hunk" of my earnings because I'm the one who takes all the RISK!

If I'm a small entrepreneur and my idea tanks; I still owe the bank for my start up loan. I still owe rent to the landlord for my office for the terms of my lease. I still have to make payments on my equipment that I used. If starting a business were as easy as you make it out to be Mrs. Warren; then everyone would send in an application, file their DBA tomorrow and just wait for the checks to roll in, and based on the current unemployment numbers, that's NOT how it is. So again, thank you so much for giving me permission to keep a big hunk of my money that I earned; now kindly feel free to kiss my ass.

"But part of the underlying social contract is you take a hunk of that and pay forward for the next kid who comes along."
I'm curious as to why the quote cuts off here, because frankly I really want to see what her ideas for "paying forward" include. Whatever they are, they seem to be inferred that the societal positives of creating unemployment and lowering prices on a good/service that (by definition) people want and need. It also has to be something in addition to the LONG RUN cumulative benefits that come from the free market. . .

Suppose in my factory I hire a machinist who was previously working as a part-time fry cook at McDonald's. My full time position doubles his workload and quadruples his pay. Now because he was skilled labor who has left an underemployment position to one that is commensurate with his skill level; he has more income to spend and save in his personal budget. Because he was diligent with his budgeting and savings; his son goes to Georgia Tech instead of Pellisippi State and earns his masters degree in engineering; then HE opens his own factory; meaning the process continues.

The Tank Says This:

Like most others who share her world view; Mrs. Warren is more than content to espouse class warfare and jealousy than to face the simple fact that we all make choices in our lives and that the greatest correlation in the history of statistics is the one between risk and reward. The one major criteria in the fry cook example above is that he has to have the appropriate skills to take the machinists job in the first place. This means he took RISK in educating himself in a skill that might someday not be marketable. This means *I* took a RISK (in addition to all the others listed above) in hiring him even with the skill set, because how do I know his skills are still applicable; or he's not become resentful or turned to drugs and alcohol? If he works out, great! If not, I risk ruining my product, or creating a poor work environment on my production floor. If it works out, we both win; if it doesn't we both lose.

So for all of her bile, venom, and (in this case, LITERAL) "us vs them" propaganda; there is actually more teamwork in the workplace than there is in this mindset. The next time you cash your paycheck; remember exactly what you did to EARN it. It's not charity, your employer isn't giving it to you because of some "social contract" they are giving it to you because you traded your time and your skill set for an agreed upon amount. If this makes you mad; then don't be mad at the bosses who are providing you with a way to earn a living and put food on the table; be mad at yourself; then take action to do something about it so you can help yourself, and really pay it forward by helping everyone else too.

The Debt Ceiling: Life at the Intersection of Metaphors and Mathematics (The Aftermath)

Far and away, the question I get asked about the downgrade is what does it mean for us in real terms. Like everything else in economics; it requires some explanation and will get you at the end of the day to the trademark economist answer of "it depends."

In Part Two of this series; we broke down the budget in terms of what it would be like if the government were a single household unit living off tax revenue as income and spending money through budgeted expenditures. Because we were spending more than we were collecting in tax revenue; the difference was made up by borrowing. Now, in the aftermath of the downgrade is where it's important to know exactly how we "borrow" money.

Unlike you and I, countries and businesses don't REALLY borrow from each other on handshakes and promises to pick up the first round next time; there has to be a paper trail. As such; federal governments and other business entities issue bonds to account for how much they owe. As some of you may remember from 6th grade Civics class; anyone can buy a bond (you, me, the shady guy that hangs out in your bushes while you shower, and of course, other countries). So, when we say that "China loaned us $100,000 last week"; that means they bought $100,000 of our bonds. Now, for their $100,000 in cash we receive today; they receive some amount that is based on a ratio of time and interest defined in the terms outlined at the time of purchase.

For example. Let's say the above Chinese $100,000 loan is comprised of the purchase entirely in 10-year treasury bonds. The current rate (as of this writing) for that instrument is 2.565%. Therefore, the Chinese can exchange those bonds for $125,650 on August 7, 2021. However, the major distinction between a stock and a bond is that the Chinese can also redeem their bonds for the actual accrued value at anytime before the maturity date. Unlike stocks, Bonds have no risk of loss of principle. If the Chinese wanted to do so; they could buy the bonds today and redeem them tomorrow to earn a whopping $7.26 on their investment; but they'll never LOSE money on the deal (so long as the issuer of the bond remains in existence and doesn't welch on the debt.) This is why bonds are considered a "safe" investment tool.

Now, also like corporations; governments credit worthiness isn't really determined by cash-flow and budgeting issues (at least, not directly). As anybody who has taken a survey level accounting course will tell you; it's more about your general business viability (are you selling a product that people want to buy and doing so in a way that you are profitable long term) that determines if you are a good credit risk or not. Much like Experian, Equifax, and Transunion maintain and evaluate the credit worthiness of private individuals for lenders to determine amounts and rates for mortgages, auto loans, and credit card payments; governments and businesses are monitored and evaluated by Moody's, Fitch and (the folks of the hour) Standard and Poor's (S&P)

Let's consider our previous example:


We've discussed in depth HOW the debt issue got so out of hand so quickly; what we've not really touched on is WHY it was able to happen. Our hypothetical private individual used to symbolize the US was clearly outspending his means; but we never really touched on how they got in that mess in the first place. Imagine if you will that there someone out there in the world who is so credit worthy that lender's from Portland, Oregon to Portland, Maine would send them pre-activated, ready to use unlimited lines of credit on a near daily basis. This man had a good history of paying his bills on time and in fact, lived in the nicest house in the neighborhood. The neighbors who like him, love him, but those who don't; despise his decadent arrogance (but they don't count, because the rest of the neighborhood doesn't care much about them anyway). Anyway; the long and short of the story is that this man has never had a problem securing credit when he needs it; and never really had a problem paying what he owes; because of these two things, he's really stopped keeping a budget all together and is just kind of "winging it" figuring that any problems would work themselves out in time. This cycle went on in perpetuity. . . until it didn't anymore. Things started to go bad for this man; and rather than step back, get serious about getting his financial house in order; he doubled down on borrowing to try and stimulate his household budget. Finally, after about 3 years of this, one of the three credit bureaus dropped his credit score from 850 to 823. (There are 20 levels on the S&P rating system, for those wondering where that number came from). After this happens; as you can imagine; the pre-approved card offers STILL rolled in on a daily basis. However, the man now was puzzled to see that he could no longer just swipe the card and start spending; he had to call and activate it. Even more confusing was the interest rates he was having to pay to use the credit lines. Instead of 2-3% the rates were now 4.5% - 6% (side note, these numbers are completely made up; but I assume in the ball park for what a lender would charge a super-prime credit score individual). In short; the man had just as many people willing to lend him money; but he was having to jump through a few more hoops (and pay a LOT more money) to do it.

Are you starting to get it?
So just like our hypothetical man above; the United States has had one of the three credit monitoring services (called rating services in the treasury world) ding our score. By their completely arbitrary standards and algorithms, they have determined that our financial situation is not as good now as it was the last time they reviewed it; and therefore they are reporting to the World at large that IN THEIR OPINION, they believe that our treasury bonds are more risky now than they were previously. This is important because the whole reason to buy bonds over stocks is to purchase that security against default. With greater RISK of loss, a greater REWARD (called a RETURN in the financial world) is expected.

As such, investors (who tend to have a crazy tendency to base their evaluations in data rather than the promises of politics); are going to expect to be compensated at a higher rate for the money they are parting with today. At a AAA level, meaning the safest haven possible; you can get away with a 2.565% interest rate in a global economic trough; however now that the instrument is slightly less secure; I'll need to be compensated a a higher rate to be motivated to purchase the instrument. What this boils down to for the United States Federal Government at the end of the day is that it plain and simple is going to cost them more to use that increase in the debt ceiling they worked so hard to get. After all; with out it, we ran the risk of being downgraded. . .

(end of Part 4)

 (Author's Note: I really was planning for part 4 to be the end of the series; just like I planned for part 3 to be the end of it before that, but this issue is obviously so timely and relevant for everyone right now who I assume cares enough about these matters to read this blog; so plans change. However, I promise that Part 5 WILL wrap this series up and we'll move on to other matters. I have a good 5-7 blogs I want to write that have been percolating for a while now, and I also know exactly how I want the conclusion to this series to end. My hope is to post it Wednesday or Thursday of this week and then we'll move forward. Thank you all for your support in this endeavor. As passionate as I am about these topics, writing 2500 words is a monstrous investment in time and energy; so your feedback and your spreading the word makes it all worth it. I appreciate it and I appreciate you all. . . Tank)

The Debt Ceiling: Life at the Intersection of Metaphors and Mathematics (Part 3)

When last we left:
Earlier this summer; our "Debt Ceiling" was reached and breached, this effectively means that our government is much like our hypothetical single citizen at the end of part two who is literally now spending NONE of his cash on his monthly budget; as it is all going to pay his existing expenditures. In a real world example; this would be equivalent to someone who is literally living off of his maxed out credit card, he pays his entire paycheck to the credit card company each and every month; which gives him a little bit more room to spend until the next pay day. I believe the fancy pants common sense term for this is "buying time." However, as anyone who spent the better part of their mid-late 20's without a line of credit from the First Parental Bank will tell you, this shell game can only go on so long; because we are still outliving and outspending our income; eventually we can't pay enough to the credit card company to make sure our bills all get paid by credit card. If you believe U.S. Secretary of Treasury Timothy Geithner, then the United States as an entity cannot keep playing THEIR shell game of debt and income past August 2nd, 2011.


One of the ominous and scary words that the talking heads on the moving picture box likes to throw around during this discussion is "default," At the end of the day, "defaulting" is just a fancy pants term for a welch. You said you'd pay and you are not going to. It's an extremely common occurrence when you spend money you don't have. I realize it's a pretty complex idea; but it seems to be one that allegedly smart people (Sean Hannity I'm looking at you) seem to have trouble grasping. If you have promised to pay something and you don't have the money to do it; so you don't, THAT is a default.

The political game of football going around is that the zealots on the left believe that default will mean complete economic collapse and financial Armageddon. Meanwhile, the zealots on the right (again, I'm looking at you Hannity) are going so far as to say that this is unrealistic fear-mongering and default is not even remotely close to a possibility. I actually saw Stuart Varney claim that their was a distinct possibility that the Federal Reserve would FLOAT our payments and essentially let the defaulted payments BOUNCE. With a straight face and being deadly serious, a supposedly learned "businessman" said that we're going to have our bank keep our currency and good faith from being worthless by essentially sweeping the issue under the rug; completely oblivious to the fact that doing so would only accelerate the process we're in this discussion to try and prevent.

So who isn't getting paid?
Remember in part one I pulled the data so we had a constant reference point. Here's where we put it to use; because the question now becomes who does NOT get paid without a debt ceiling increase. Lets look at the bills we have to pay from largest to smallest (note, if you want more information on WHAT these programs are; either wait for my forthcoming, in-depth blogs on each, or Google them, at the moment I'm trying to plow through the math:

1. Medicare/Medicaid:
Annualized Costs (as of May 19, 2011): $813,270,000,000.00.  Medicare is far and away our largest budgetary item and our gravest spending concern going forward; as the above number is a whopping 23% of all spending and an even MORE whopping 37% of all revenue collected.


2. Social Security Recipients:
Annualized Costs (as of May 19, 2011): $710,944,000,000.00 In Medicare/Medicaid, I used the words "far and away", but Social Security looks pretty close; what gives? Quite simply, the rate of persons using Social Security is high and rapidly growing; but not NEARLY at the rate Medicare/Medicaid. One of the major arguments of both Obamacare and the Paul Ryan budget plan is that the sheer level of both estimated usage and the level of frauds and inefficiencies within the program itself from both a supplier and a consumer standpoint will have the rate of growth increase very rapidly. Though Social Security is a flawed program with tremendous costs today (20% of all spending, 33% of revenue); it's costs and implementation are largely static and manageable for the time being. The biggest concern is the baby boom generation who is about to begin collecting benefits and we simply do not have the workforce (Unemployment would have to drop to zero tomorrow and stay there for the next 20 years or so to even be close to making the program sustainable in its current form).

Has anyone else noticed, that we've already spent 70% of our tax revenue collected in these two programs?

3) Defense:
Annualized Costs (as of May 19, 2011): $697,797,000,000.00 There is a strong tradition of military service within my family and several of my friends; and there is very little that stirs the emotions within the fiber of every American more than our brave fighting men and women who devote their lives to protecting our freedoms. However, as you've guessed by now; the spending is NOT in line with our revenue. Defense spending is also 20% of our total spending; but it is only 32% of our total revenue collected. (yay rounding). So yes, not only do our brave fighting men and women have to leave their loved ones and put their lives on the line on a daily basis; they officially put us over the top on our cash holdings and we have to start borrowing to keep them functional; but what's even better is that they are also the largest DISCRETIONARY expenditure on the books; which means they are usually the first place cuts come from when budget time rolls around. (I'll discuss this more in detail later)

Again, please note from this point forward; please note that we are OUT of cash revenue; meaning we are borrowing 100% of the funds to pay for every initiative that follows:

4. Income Security (disability and unemployment benefits)
Annualized Costs (as of May 19, 2011): $426,907,000,000.00. This is pretty self explanatory; so not a lot of elaboration will follow. This number is 12% of all spending and 19% of total revenue. However, in the interest of fairness; this number is the ONE number that is dropping (I assume as people's 99 weeks of unemployment benefits run out); but doing some quick calculations shows that the percentages don't have any significant change.

5. Interest on existing debt
Annualized Costs (as of May 19, 2011): $207,709,000,000.00 Again, this is pretty simple idea. We've borrowed and continue to borrow; here's the money it costs us to borrow money. If it makes it more simple to understand, think of it in terms of your credit card's interest rate; as for the purposes of our discussion (at this point anyway), they are the same thing, so as of right now; our interest rate is 5.8% of our total spending; and 9.5% of our total revenue.

6. Federal Pensions and Benefits:
Annualized Costs (as of May 19, 2011): $207,327,000,000.00 I've been largely successful keeping my political opinions and thoughts out of the thoughts I've placed here; but you can probably imagine how I feel about the fact that veterans health care and retirement benefits are apparently grouped with congressmen and women's retirement nest egg. I guess I'll let you all decide how you feel about this number being 5.8% of all of our spending and 9.5% of our revenue.

7. Everything Else
Annualized Costs (as of May 19, 2011): $488,424,000,000. This number is calculated by subtracting the sum total of the above "Big 6" items from the Total Spending annualized budget. (Total Spending-Big 6). This number translates to 15% of total spending and 22% of total revenue.

Number 7 is also  where a lot of the "Tea Party" logos, ethos and pathos come from. Literally ANYTHING you want to talk about funding with government funds that's not included in the Big 6 can be easily paid for with only 22% of the amount of money that the United States had collected as of May 19th, 2011; meaning the remaining 78% could be used to either pay down the debt, return to the taxpayer, or some combination of the two. If you want to go full-monty Libertarian; you could argue that by the time you trim some serious fat off of "everything else" you could easily cut that number in half; if not more. However, this blog isn't in the business of speculating; we deal in data; not ideology.

And therein lies the rub. . .
Of our 6 largest single budget item allocations; the 3 highest are costing us more than the rest of our government combined. This entire "crisis" is based on the fact that someone is not going to get paid if we can't keep racking up debt; therefore we have to decide how we are going to allocate our funding going forward; but of course, that's a whole other story.

(end of Part 3)

The Debt Ceiling: Life at the Intersection of Metaphors and Mathematics (Part 2)

In case you missed part one of this series, enjoy the link below:

Previously on The Tank Says. . . . 

As we pointed out, the United States Federal government is borrowing (by my math; this varies by who rounds where etc.) 38 cents out of every dollar it is spending. For this part of the series, let's use the following logic to put this in real-life, micro level terms:

-Per Capita GDP is usually around $40,000.00; we'll consider this 36,000 for mathematical purposes.
-Monthly balanced annual budgeting = 36,000.00/12 = $3,000.00/month
-Applying Federal Government Style budgeting: 3,000*.62 = $1860.00, 3,000*.38= $1,140.00

So for our purposes; this household is burning through every cent of the 1860.00 they earn in cash (which in terms of gross income assuming a 160 hour work weeks is only 11.25/hour) then running up an additional 1,140.00 in borrowed funds (keeping with the household example; we'll consider this revolving debt such as Credit Cards or a HELOC). Current credit card debt in the United States (as of this writing) is approximately $800,189,000,000.000; which when divided by our population number of $311,384,344 gives us a value of approximately $2,569.78 in credit card debt per U.S. Citizen. For the sake of mathematics we will round this up to $3,000. All three credit bureaus consider carrying balances that are less than half the total limit = good credit score worthy; so lets double this number and say that our household credit card has a $6,000 limit. Now, finally lets finally multiply our $6,000 limit times four (as www,CreditCards.com lists that most American households have 3.5 cards per household. by doing this math; we now have our personal credit limit (aka our Debt Ceiling) at $24,000.

Now, let's just reset out household spending situation:
- We're budgeting to spend $36,000/year or $3,000/month
- We have enough cash to to spend $22,320/year or $1,860/month
- To make up the difference; we have to borrow $13,680/year or $1,140.00/month.
- The amount we can borrow is capped at $24,000.00

For our purposes, let's begin this budget with a starting debt of $0.00 (something that has never been true in the history of United States; BTW) and for mathematical purposes; we'll ignore the interest on the debt; as it is factored into our cash expenditures on the back end. (In other words, we have to make a minimum payment every month with Credit Card Debt; since we're in a zero sum situation with our cash expenditures; the two effectively cancel each other out in this example.)

So, we have $24,000.00 we can borrow and we are doing so at $1,140.00/month. Some 3rd grade math tells us that 24,000.00/1,140 = 21 months is the longest we can operate on these terms. The fancy-pants economics term for this is "unsustainable"; as in operating within this system cannot continue in perpetuity; and in fact will likely overheat and collapse upon itself.

Let's put this unsustainable system in terms of a lifetime:
- Average projected life expectancy in 2010 (per the most recent Census data) is 78 years of age.
- We'll deduct the first 22 years of life as "growing up" for a person who completes college.
- We'll also deduct the last 13 years of life as "Social Security/Medicaid/Medicare" golden parachute years.
-78-(22+13)=78-35= 43 "productive" years 
-43*12= 516 months; (21/516)*100 = 4.07%.

Bottom line: if a real person were to implement the same budgeting system that our Federal Government is currently using and current mathematical data and projections; it would be possible for a whopping 4% of their productive lives.

Operating under these terms now has us in a very real situation in terms of our Federal Budget. Essentially; what we're doing at the moment is consistently paying down our debts as tax revenues roll in to LITERALLY is to buy more time. In addition to doing so we're also constantly doing balance transfers across our 4 cards to keep everyone paid until we find someone to give us access to more borrowing power (imagine one or more credit cards giving us a credit limit increase) just to keep the lights on until we can really get serious about finding a better way. But that's a whole other story. . . .

(end of part two)

The Debt Ceiling: Life at the Intersection of Metaphors and Mathematics (Part 1)

"You can do the math a thousand ways but you can't erase the facts - "Pink - "I'm Not Dead"

"In God we trust; everyone else must bring data" - W. Edwards Deming - "Out of the Crisis"

The above quotes are some of my favorite ideals as it relates to mathematics; and as such they are fitting starting points for this first part of my "Life at the Intersection of Metaphors and Mathematics" This series (not sure how many parts it will be yet); is inspired out of two simple premises:

1.) America is operating at a level that is completely unsustainable based on the level of revenue collected and the amount of budgeted expenditure.
2.) The spin doctoring from politicians, lobbyists, and many media outlets with regards to item #1 is irresponsible and reprehensible.

Pick a newscaster or a politician and play the drunken blame game; I'm not listing any of the idiocy here because frankly this post is long enough for me to split as it is, and I try my best to make a habit of ignoring idiocy whenever possible. I only mention the practice at all to tell you that the words found throughout this series will not come from opinions based rhetoric or naive idealism; it's going to be pragmatic reality. In other words; we're not going to talk about how things SHOULD be; we're going to talk about how things ARE and what we need to do to keep them this way.


The Ground Rules (aka"raw Data")

- All numbers are being pulled from The United States Debt Clock as of May 19, 2011 in U.S. Dollars.
- All dollar values are rounded to the single millions position.
- The National Debt is a lifetime; gross amount. All other amounts are annualized for fiscal year 2011
- All census/quantitative data is exact as of the time of review for this writing.
- The Monetary Data being used is as follows:
National Debt: $14 trillion, 386 billion, 370 million ($14,386,370,000,000.00)
Federal Spending: 3 trillion, 552 billion, 378 million. ($3,552,378,000,000.00)
Federal Revenue (Taxes Collected): 2 trillion, 187 billion, 242 million ($2,187,242,000,000.00)
Federal Deficit (calculated from above):  1 trillion, 365 billion, 135 million ($1,365,135,000,000.00)
M2 Money Supply: 9 trillion, 68 billion 453 million ($9,068,453,000,000.00)
The Big 6:(see itemized list below): 3 trillion, 63 billion, 954 million
1. Medicare/Medicaid - 813 billion, 270 million ($813,270,000,000.00)
2. Social Security - 710 billion, 944 million, ($710,944,000,000.00)
3. Defense - 697 billion, 797 million, ($697,797,000,000.00)
4. Income Security (i.e. Unemployment): 426 billion, 907 million ($426,907,000,000.00)
5. Interest on National Debt: 207 billion, 709 million ($207,709,000,000.00)
6. Federal Pensions and Benefits: 207 billion, 327 million ($207,327,000,000.00)
-The Census/Quantitative data being used is as follows:
U.S. Population: Three hundred eleven million: (311,384,344)
U.S. Taxpayers: One hundred eleven million; (111,403,195)
U.S. Households: Eighty-One million (81,940,278)
U.S. Retirees and Disability Benefit recipients: Sixty-Five million (65,315,100)
U.S. Food Stamp recipients: Forty-Three million (43,939,257)

A little perspective:
After all that raw data; lets step back and put the situation in terms that actually mean something. The choice to round the the monetary numbers to the single millions position was a calculated move for reasons both practical (as it is the best place to do the math) and psychological; as it is a number that all of us can relate to. 

An average ordinary "millionaire" seems to be the person at the crux of the issue from those on the opposing sides. One side operates under a premise that millionaires are soulless; evil people who have prospered by the broken backs and sweat covered brows of the average working man; and has since bought and sold the government to keep their ill gotten gains to themselves for as long as possible. The other side espouses that the millionaires are the lifeblood of existence; "When is the last time a poor person hired someone" they scream loudly and proudly. They are the beneficiaries of mathematics and SOMEONE making the most of the opportunities and gifts bestowed upon them; after all; we all come into the world cold, naked and hungry; and it usually gets worse from there. The one thing that everyone can agree on is that one million dollars is a lot of money; yet it is the absolute smallest amount we are considering for our analysis.

America's Budget
Any financial person worth his salt will tell you the single most important aspect of fiscal success is the budget. A thoughtful; well planned and executed budget will all but guarantee prosperity while a poor budget or a great budget that goes ignored will most assuredly result in poverty for someone that doesn't inherit or win wealth.

For our purposes a budget is very simply a written accounting of X (How much money we have coming in over (Z) period of time vs Y (How much money we are spending over (Z) period of time. Budgets exist in 3 states; a surplus (X-Y>0), a deficit (X-Y<0) or balanced (X-Y=0). The number one objective for almost any financial planner is to balance a budget (as most folks with money issues are operating at a deficit) and slowly grow a surplus. If we take this same approach with the United States of America's budget; here is what we find:

Revenue - Spending = $2,187,242,000,000.00 - $3,552,378,000,000.00 = $ -1,365,135,000,000.00

In plain English; we are spending $1,365,135,000,000.00 more over the course of (Z) than we are earning. (Remember, Z=fiscal year 2011). In terms of percentages; ([R/{R-S}]*100) our deficit is a whopping 62.4% of our revenue generation; meaning to pay all the bills we have racked up in our daily operations, we need to borrow 37.6% of what we are spending.

Put it another way, in real world terms; how long do you think you could survive if you spent every penny you earned; then borrowed another 38% on your credit cards to keep your household functioning; how long could you make it operating that way? What would you do when you couldn't borrow anymore?

This is the question that the United States of America will soon have to answer. . .

(end of Part One)