Privatized Social Security?

Recently, Republican Presidential Candidate Fred Thompson has become outspoken on the Social Security issue. In one of the rare cases where a politician musters up enough courage to discuss one of the premier dilemmas facing American society, Thompson seems to be on the right track. Instead of relying on increasing taxes in order to boost account values like Senator Clinton has suggested, Thompson began talk of privatizing Social Security and allowing individual Americans to save their money as they so chose via an investment vehicle (likely a 401(k) or something similar).

When asked his main thoughts behind the process, Thompson replied with a refreshing remark. "The American people are smart", said Thompson reflecting on U.S. citizen's abilities to invest themselves. How about that? A politician that has faith in the American people to choose and dictate their own prosperous future.

Contrast Thompson's pro-individual comments to those of Hilary Clinton's latest speech, in which she mandated, "When I am president, we'll have our priorities in order. We will return to fiscal responsibility and fair tax policies first, and then we will address the long-term challenges facing Social Security."

With an overwhelming lead in the Democratic Primary's early polls, I worry for the country with her pro-tax hike mentality, something a fragile economy wouldn't take kindly to. What happened to the pro-growth Democrats like Kennedy? Maybe Hilary should consult someone with experience in the position, someone who understood that tax hikes were detrimental to the economy. Say her husband, Bill.

(Chile)ng Economic Trials

In a recent Wall Street Journal column, a reporter chronicled the upcoming problems the Chilean economy faces. Like several other developing nations, Chile's economy seems to have become over-reliant on a single industry. In this specific case, Chile's recent economic boom has been fueled largely by mining commodities, especially considering how copper has tripled in the past 5 years or so.

However, Chile is dissimilar in the methods it has taken to combat the volatility derived from commodity markets by using investment techniques on a percentage of revenue generated from taxes on the economy. With tax revenues higher during years of commodity price increases, Chile has been able to develop a system that invests a percentage of taxes during this period into foreign investments such as government bonds. Although it would generally be wiser of them to place this money in equities, I applaud the finance and economics ministries for even coming up with such an idea that generates guaranteed return on money they don't need to spend.

By hedging against these fluctuations in Chile's economy, stability and long-term upward growth can more easily be secured. Many of the dividends and repayment of these funds will be invested into innovation so that the country becomes competitive in other sectors such as Technology, Financial Services and Consumer Products. All too often, developing countries focus on short-term profits, economic growth and end up spending instead of accruing or building their wealth. You will be hard pressed to find any country that has a better long-term economic strategy and focus on innovation and techonological improvement then Chile.

As with any government, the diffulty to balance the budget always poses a threat and concern among politicians and citizens. Chile's comprehension of the peaks and valleys associated with commodity dependence help create barriers against recession or stagflation. There are always issues and programs that need financial support, but tighter spending leads to a more balanced budget and higher levels of fiscal responsibility. Maybe US Politicians can learn something from our Chilean allies.



Note: GDP for Chile rises significantly after 2002.

Grading the Democratic Debate (All Participats)

Hilary Clinton - D

Sen. Clinton did nothing short of disappoint me when I already have little respect and confidence in her. Instead of providing unique solutions to the questions and problems posed, she spend most of her air time lashing out on the Bush Administration. Although I am not a fan of many Bush policies, Clinton needed to use this time to impress those who aren't sold on her instead of using her breath for her personal vendetta.

Why does she despise the Bush Administration so much? Yes, he supposedly lied to the American public. But then again, didn't her own husband do the same? He turned out to be quite a solid President, despite failing to get most of his agenda passed through Congress. You have to assume that the White House received the same intelligence as Congress when this Iraq situation began, a war she voted for originally. She also voted for the invasion of Afghanistan, yet seems to regret most of her votes. Instead of blaming others for her mistakes and flawed political record, it would have been much nicer to see her come out firing with some good ideas and a sound political platform, neither of which we received from her tonight. She also showed her anti-free trade platform with her ideas of protectionism and regulation to run the country from the economy to health care. Clinton was even more vague on her health care plans then Obama, but at least she didn't say she wanted to hike taxes outright. Last I checked, we weren't in a communist country Senator Clinton!

Even worse, she still comes off negatively in many American's mind. I can't put my finger on exactly what it is, but she seems snobby, arrogant, and obnoxious. A poster on a forum I read suggested her tone as caustic and explained, " For starters, as a male, she comes off as the type of wife that most men don't want. Not that she is a strong female, that's cool, she just comes off as a caustic female. She just doesn't come off as a very nice lady. I don't think I'd want her in my circle of friends."

Maybe this criticism is unfair, but it seems apparent with 40%+ of the public disliking her, she has a real mountain to climb. Other candidates like Obama and Edwards seem to be more likable, similar to how the public perceived Bill Clinton and George W. Bush during campaigns. If the Dems want a real shot at winning, I'm convinced they need to run either Obama or Edwards instead of another Kerry or Gore (though he obviously could/should have won).

Barack Obama - A-/B+

Obama was solid tonight. He once again spoke elegantly and showed reasons why he could be a successful President. Instead of bashing the current administration, Obama gave some resounding solutions and unique, detailed initiatives he would like to help pass. Additionally, he seemed to have sound balance in his foreign policy stance. Although he wants a quick troop withdrawal, he understands the fundamental problems of the Middle East well and redirected an attack on a quote the moderator tried to tie onto Palestinian sympathy. Despite his campaign aimed further left then Clinton, he seems more eager to work with both sides of Congress and you get the feeling that the Republicans will have higher respect for him as President.

Obama was very vague on his funding of the proposed universal health care which he supports. Subsidies are a distinct possibility, as is the improvement of inefficient health care services. Although I like the idea of private health care due to the enormous amount of potential problems it might bring.

John Edwards - A-/B+

Overall, Edwards almost stole the show. Despite seemingly fewer questions, he actually answered more conservatively then either Obama or Clinton. That fact is interesting because he was supposed to be running the campaign furthest to the left. You have to wonder if his ads will focus on that profile while his debates and speeches will try and attract more moderate Dems and even liberal Republicans.

What really impressed me with Edwards was his composure. Calm and collected, he delivered detailed, well-pronounced (although he has that southern accent) replies. He reminded me some of Bill Clinton, although not quite as friendly. However, he still was much more appealing then Hilary in terms of vocals.

Edwards best answer of the night was his abortion response. Although Edwards clearly stated that he was pro-choice, he appealed towards the middle and even the Republican side of the line almost perfectly. He conceded that the issue is very personal and important to most voters, claiming we need to accept everyone's opinion on the situation. That type of sympathy appeal was not made by Clinton and might prove to come back and hurt her chances of ultimately winning both the Primary and Presidency, should she advance.

Had Edwards not suggested raising taxes to fund his universal health care program, he may have received a better grade. Once he uttered repealing the Bush tax cuts, it was a huge hit to his camp right away. With the economy and stock market performing like it is, tax increases could cause severe, detrimental damage.

Bill Richardson - B

Richardson looked goofy and almost as if he was trying too hard at times. His speaking was decent, but not good. His hand gestures were almost a little too overwhelming for me. He definitely gained credibility by standing up for his own personal views and opinions, not necessarily those associated with his party. He announced that he was pro-gun control, would use the military if necessary, and has been a known supply-sider when it comes to economics.

In addition, Richardson looked solid on some key aspects of current political issues. First, Richardson displayed his prowess and experience in foreign policy by answering several questions and making it a point to mention his work in that area of the political sphere. The moderator pointed out he received 4 Nobel Peace Prize nominations and Richardson himself further pointed out his familiarity with foreign diplomacy when referenced his work with North Korea.

Lastly, Richardson may be aided by his role as Governor instead of Senator. Like he vehemently explained, he deals with these decisions and issues first-hand, on a daily basis in New Mexico. That type of pressure and the need for quick, decisive action sometimes is harder for Senators since they are transitioning roles.

Joe Biden - D+

Biden did not leave much of a mark on this debate. He had a personal "attack" if you will that he failed to respond to, rendering him as defenseless. Unlike Obama and even Clinton to some extent, Biden didn't defend his name. Although he isn't really a lasting 2008 candidate, moves like that might cost him in the future. Also in the last half, like Hilary, he focused more on attacking the Bush Administration instead of responding with thorough, sound answers.

Dennis Kucinich - D

Give me a break. This guy might be the biggest pushover in the history of Washington. How he landed a seat is beyond me. He was basically against anything militaristic in nature. He solely desires to rely on diplomacy to solve foreign issues. Apparently Rep. Kucinich doesn't understand that terrorists do not negotiate and even if they do, they cannot be trusted. He sounds like the type of politicians who belong in France. Appeasement is not the answer, just ask those French cowards. Germany used them for years in the early half of the 19th Century. The leaders we are dealing with in North Korea, Iran and terrorist organizations are replicas of Hitler. We can all thank god that Mr. Kucinich won't be the President anytime in his life, except maybe for a local committee.

Mike Gravel - F

Who is this guy? I can honestly say that Sen. Gravel would not have been elected in any other state except Alaska. They must really be desperate or maybe they don't care much up there. Instead of answering questions, Gravel bashed his counterparts for this and that. On top of that, he yelled the moderator for asking too few questions to him, proclaiming his seniority. Maybe if he realized how unimportant he is to the Democratic Presidential Campaign he would understand. Gravel is an absolute joke.

Chris Dodd - B

Dodd has some good experience at it showed. For someone who has been in the political realm as long as he has, public speaking should be easy and it showed. He has some sound responses to questions and actually solidified himself as a leader in the Democratic party. He was for civil unions, but not gay marriage.

Could Protectionism Actually Hurt the Dollar?

Although some Democrats claim to be in favor of protectionism to help bolster the U.S. Dollar and curb outsourcing and the trade deficit, John Rutledge, former Reagan Economic Advisor and current President of Rutledge Capital, says it may actually cause an inverse affect. Over the past year, the U.S. Dollar Index has declined sharply while falling substantially against the Euro, Pound and Chinese Yuan. The important aspect to note in these declines against other notable currencies is that only the Yen and Yuan have a significant impact on the U.S. economy because China and Japan are two of our prime exporters and trade partners. Europe and England fail to pose nearly the threat that Japan and China do should the U.S. Dollar really free-fall against those currencies, which essentially would drive up inflation.

Democrats believe protectionism will help maintain the value of the U.S. Dollar, when in fact, the opposite needs to happen to help control outsourcing and decrease the number of imports into the U.S. If the Dollar falls significantly against the Yuan and Yen, manufacturing and production in the United States will ultimately become cheaper and in theory, our manufacturing sector will actually begin to expand again to adequately supply the public with their needed goods and services. However, the only possible scenario for the USD to decline drastically enough against the Yen and Yuan is free market forces, not government regulation or policy-making.

Additionally, Rutledge went on to explain that the USD should stabilize vs. the Yuan and maintain its success with the Yen. His theory for the slowing of the USD decline against the Chinese currency was based on increased speculation on the Yuan and the theory that recent run-ups by the monetary unit have created a bubble that will likely burst at some point in the next couple years. Keeping the USD strong against the Yuan will be key for controlling inflationary pressure in the economy, but likely will continue to contribute to outsourcing and a lack of trade balance with China.

The solution to this dilemma is simple; let the Yuan run its course and lower corporate tax rates in the U.S. to make business investment and production more attractive.

Did Alan Greenspan Ruin the Current U.S. Economy?

During the tenure of Alan Greenspan, from 1987-2006, the U.S. economy grew significantly. Although these gains helped solidify America as the unquestioned global leader in finance, production, and wealth, it came with a stiff price. We are only beginning to realize the affect of Mr. Greenspan's focus on short-term monetary and fiscal policies that dominated during his last four to five years.

There is certainly no question that Mr. Greenspan maintained stability in the economy from his entrance during Reagan's Presidency to the end of Clinton's. However, the effects of Greenspan's economic policies are certainly being felt. Outsourcing, weakness in the U.S. Dollar, an inverted yield curve, high inflation and repercussions from an unnecessary housing bubble are all presently hampering the American economy.

Despite obvious flaws in Greenspan's policies, he won't get all of the blame. Natural factors, decisions of other leaders, and actions taken by other countries or parties outside of Greenspan's control played a significant role. But, these outside factors surely could have been combated in a more effective manner by our former head of the Federal Reserve.

The 2008 election is critical to the importance of our free market, capitalistic economy. Some Democratic Presidential and Congressional candidates such as Hilary Clinton are proposing protectionism to try and combat outsourcing and trade deficits. This type of legislation will surely put our economy into a slump. Any economist who completely dismisses outsourcing as at least a minor problem does not view economics in an objective light. However, outsourcing really stems from our protectionist approach to the U.S. Dollar in the late 90s and early part of this decade. High costs for merchandise in the U.S. force countries who import American goods to look elsewhere for goods of similar quality and value. Part of this outsourcing problem cannot be directly tied to Greenspan, who has limited control over the wage inflation and more importantly benefits received by U.S. workers. Labor Unions, health care costs, and a variety of other issues compound the actions of Greenspan to intensify the outsourcing effect. Nevertheless, Greenspan's continuous use of short-term methods to boost the U.S. Dollar or maintain its high levels against other global currencies are linked directly to our current outsourcing problem.

Along with outsourcing, Greenspan's short-term bolstering of the strength for the U.S. Dollar has contributed to its current struggles. Money supply was not properly utilized to preserve a stable Dollar, as it has shown with the decline against the Euro from 1.12USD/1E to .75USD/1E. The Dollar's substantial drop has occurred during times of economic prosperity across the globe, including both the U.S. and Europe. A weak dollar hurts the wealth of the nation and also disrupts tourism and travel overseas. Over-tightening and protectionist measures on the dollar generally hamper the economy, as evidenced by our rapid growth in the late 1990s, followed by the recession of 2001-2.

Current threats of recession are also correlated to Greenspan's poor handling of the Fed's interest rate control. Following the recession in our economy, the Fed made multiple, massive rate cuts. These cuts were detrimental for two reasons: they caused the housing bubble of 2003-6 and created an inverted yield curve for treasury bonds. With interest rate cuts in 2002 and 2003 to ultra-low levels, the Fed produced a housing boom that is still affecting us today. By over-cutting, Greenspan generated too much liquidity for the marketplace, thus ensuring heavy asset investment of all sorts. The problem with this massive amount of liquidity was that it was coupled with extremely low interest rates. Housing was the obvious choice for investors and the immediate boom that followed was one of unsustainable proportions. I thought that the Fed was supposed to curb growth in order to control volatility, peaks and troughs, and ultimately enable growth longevity. Apparently I was wrong.

Another key consequence of cutting rates too low was the mishandling of temporary debt vs. long-term debt. One of the main reasons the U.S. Treasuries are considered sound investments is not only because of the "guaranteed return", but also the decency of that return. However, when Greenspan cut rates, they targeted long-term rates in too many cases. This poor action spawned an environment where short-term rates actually exceed long-term returns. Why would an investor tie his capital up longer if he can't get a higher rate? While Sen. Clinton preaches her worries about China and other countries controlling high amounts of U.S. debt, she need not look further to blame then our own Federal Reserve and Treasury Department. Now, America needs to pay off China & Co.'s borrowed money faster then normal. This is the type of action that creates political instability. In addition, the theory of the inverted yield curve suggests there will be a significant slowdown or potential recession. Investors in long-term yields are demanding lower rates because they fear the economy will plummet and those rates will actually decline even more as GDP growth and inflation fall. But, what happens if inflation doesn't decline like was previously expected? So far, inflation has actually been prevalent as evidenced by the commodity gains and our economy might enter the dreaded environment dubbed "stagflation".

As if his horrible policies weren't enough, Greenspan came out not long after the huge February correction and predicted a recession was "likely". Despite his retiree status, Greenspan sent more fear through the minds of consumers, investors, and businesses alike. Conveniently, after the stock market (and economy to an extent) rebounded and stayed its upward course, Greenspan came out again and denounced his previous prediction.

Hopefully that was the last we will hear from Greenspan, unfortunately, I wouldn’t count on it.