WHAT IS IT LIKE TO BE POOR?

WHAT'S FAIR?
I've been thinking about how our President continually describes people in the US as though they are treated unfairly and they don't receive everything they deserve.  Mr. Obama often suggests that "those people should pay their fair share", and I guess the assumption by folks that listen and believe his comments must believe that the "fair share" will somehow be spent on funding services for others, perhaps even themselves.

As readers know, I am absolutely fine with wealthy people paying taxes, I just want someone to tell me where the limits of "fair share" are and then make a constitutional amendment to mandate that taxation cannot ever exceed "fair share".  What I'm getting at is that Obama's "fair share" today may be 50% of earned income or 60%, but we all know that the amount will go up in time as entitlement programs and benefit services skyrocket and the need for revenue increases dramatically in the future.  In other words, without some cap, there will always be someone that thinks those rich folks don't contribute enough to the poor people.

WHAT'S IT LIKE?
I often wonder about the lives of the needy in our country as I tend to pay attention to the amount of services that are available to low income earners because my health insurance business often allows me to speak with desperate people that have no income that need medical care.  In my practice I am able to guide them to services and programs in our state that are available at low or no cost to provide medical care.  As I educate myself on these topics, I often find other services that are made available to our poor and down on their luck citizens.

WHAT CAN YOU GET FOR BEING POOR?
A recent article I found summarizes one program that I've known about for some time called the Lifeline program where people below the poverty level can obtain cell phones or phone lines.  The "grant" provided in this plan will cover about 250 cell phone minutes per month for free to the qualified user.  I found this program because I saw a commercial on television that was advertising to seniors and suggested that they could qualify for a free cell phone!

WASHINGTON FOOTS THE CELL PHONE BILL FOR OUR POOR

Obviously a program like this was started with great intentions, but as you read the article, you will find that there is some segment of the recipients of the program that have the services, but don't qualify, or have obtained cell phones at multiple carriers, therefore abusing the free system.  Ultimately those in either camp are stealing from the US taxpayer and our government oversight is clearly lacking.  As a cell phone or land line user, you pay significant taxes each month to fund this program, you should know about it and should be pissed off that the government assumes there is about $200 million in theft or mismanagement going on in this $1.6 billion program.

Ok, cell phones are paid for and we know that food stamps are available through the SNAP Program that I report on monthly. (See the most recent post where I outline that 46 million of our fellow citizens are receiving benefits - WHAT'S UP WITH THE PO' FOLK?).  We know that states offer Medicaid services for health insurance for low income earners.  We also have heard about housing benefits for those that live in low-income housing (section 8 housing).  Essentially, I'm painting the picture here that many of the basic and not-so basic needs of a person are being met for individuals and families that are below the poverty line in the USA.

Let's dig a bit deeper then and examine the life style of our poor.  I recently found a book that reveals several key statistics about our poorest and highlights while they are "relatively poor" they do live quite comfortable lives.  The life-style of many of these people is not quite like the poverty-stricken, dirty, and hunger-ridden life we might expect.  Scott Rasmussen's book, "The People's Money: How Voters Will Balance The Budget and Eliminate the Federal Debt", highlights some facts that illuminate just how well off our poor really are. - WHAT IS POVERTY IN THE US?

FOOD PROGRAMS -

• Parent report they have kids that go hungry  - (only .25% of US homes)

• 1% of households report that they miss a meal in the day

CAR OWNERSHIP -

• 70% report they own a car

• 30% report they own two or more cars!

CABLE TV

• 63% state that they have cable tv or some other tv service

Rasmussen highlights other items like the fact that 23% use TIVO, 50% have a computer, and 53% have a gaming system.  I guess where he is going here is that these are absolutely not necessary and they are considered luxury items....if you are really poor.  I don't really get to worked up about these, but I do get fired up about cable tv subscriptions.  Both car ownership and cable tv come along with monthly costs.  Clearly car insurance is expensive, but you can use a car to work and pull yourself out of poverty.  Unfortunately, cable tv expenses for our least fortunate is not defensible and is really the thing that makes me the most angry.  Cable bills can range from $50 to $200 a month and this service has become a "right" for our poor.  I've met and counseled many struggling families that need assistance with budgeting and debt management.  One of the first items I challenge them to cut is cable and you can't believe the resistance that I receive.  Perhaps I am nuts, but people that are poor don't "deserve" cable television, it is a luxury and that income could be spent wisely on anything else!

WANT THE BOOK?
Buy the book by Scott Rasmussen from our Amazon Link - The People's Money
(Oh yes, and if you buy anything from Amazon, please go through our search box at the upper right hand of our page!)

US POVERTY RATES BY RACIAL MAKEUP - http://ardd.sph.umich.edu/about_diabetes_disparities.html

• 25.9 percent for American Indians
• 25.8 percent for African-Americans
• 25.3 percent for Hispanics
• 9.4  percent for non-Hispanic whites.

CORPORATE PROFIT MAXIMIZATION
Unfortunately, we are a nation of entrepreneurs.  (I don't really mean unfortunately in that sense, I mean that we are so good at it we tend to over do it).  Because we have a system where the great big generous government will meet our poor's needs, we have created an incentive for corporations and organizations to try to maximize sales to the beneficiaries of these governmental services, that often could care less if there is waste or fraud involved.  We've seen this example with the Scooter Store, a Texas wheel chair company that misled senior citizens and filed many false Medicare claims.
http://www.justice.gov/opa/pr/2007/May/07_civ_344.html  Ultimately the Scooter Store paid millions to the federal government and the cause of the problem comes back to the fact that the users of the services didn't pay for them!  When you are spending your own money, you actually care how much things cost.

By creating programs that are paid for and "monitored" by the federal government, cell phone companies advertise heavily and attempt to maximize the number of folks using the "free" system.  This is why the Lifeline program is full of waste, companies are marketing to the user, not the payer, and in this case the payer has no limit on how much they will spend.  While I expect more from businesses and owners, you can't help but to admire a firm that recognizes there is an untapped opportunity to harvest gains in the business landscape by exploiting the demands of users who will not pay for the services.

MEETING ALL NEEDS WILL MAKE KEEP SOME PORTION OF PEOPLE.....POOR FOR EVERMORE
Is the welfare life a good life?  I don't think so, but maybe it is compared to working hard and receiving little or no incremental benefit for your labor.  In other words, if I find a job paying $8 an hour and I have to pay for my own cell phone, food, rent, and other basics by myself with no assistance, I may have a bit more money, but I'm worn out and haven't made any real growth.  I can imagine that this is the logical exercise that many participants go through when evaluating their decision to find a job or two or three.  If you are killing yourself and you are worse off compared to receiving benefits and not working, you'd probably make the rational choice to make less or give less effort.  I think this is the problem with making benefits so generous, it clouds the decision making process and makes the decision less clear cut.

The killer here is that if you provide just enough subsistence benefit to placate some people you will create generations of poor that learn to "work the system" and never get out.  I think the best example of this was New Orleans before Hurricane Katrina.  There were many families with three and four generations receiving benefits from governmental agencies providing for all of their needs.  This corruption of the system ultimately hurt an entire city of people that were stuck in a system of poverty for years and years.  Rather than changing the system and educating the public there, we created a legion of benefit experts that could exploit all of the provisions of social security benefits, welfare benefits and all other types of assistance.  Ultimately, the creation of an entire class of people in the USA that receive subsistence help forever was not the design of the safety net system.

BEING POOR....SHOULD SUCK
Finally, I know that this post may be perceived as a "rich goat" not wanting to share his money with the poor guy, and frankly it isn't.  What this post is about is that we as a nation need to determine what level of life-style we will support for our poorest men, women, and children.  If we decide that at x-income level we will provide food, shelter, healthcare, cellphone, cable television, and a car, we are going to actually attract a whole lot of people that decide that level of "minimum life-style" seems quite fine.  Bad incentives often result in poor outcomes.  For example, if we pay women more section 8 housing allowances, SNAP dollars, and other benefits based on the number of children they have, we'll probably end up with more poor children!

I'm attacking the notion that poverty should be comfortable.  Being poor sucks,.....and it should stink enough to prod the marginally poor to improve, work hard, and strive to become productive.  The problem with an ever-increasing demand for the rich to provide their "fair-share" through taxation is that government mechanism for that payment process is inefficient and sucks away a large amount of resources in waste (federal government cost, fraud, and time).  Federal programs have a tendency to get larger and larger and the aim of the programs should be to be so successful that their use declines.

Unfortunately we don't see declining participation in these programs as free money usually only attracts more and more free money takers.  I'd have less of a problem with many of these programs if they were tied to technical and vocational job training certification programs.  We hear from our large manufacturing employers that the skills they need are not met here in the USA and therefore they go to emerging countries to set up plants to find that skilled labor force.  Why not make technical job training programs mandatory to receive housing, SNAP, cellphone, or medicare benefits?  Why not make the poor life-style with paid housing, healthcare benefits, two cars, cable, a DVD player, game system, VCR, and monthly food payments a temporary program that lifts people up into the next group of earners and make a life long stay in an impoverished state a little less attractive?

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/ 

WHAT DID THOSE FINANCIAL TERRORISTS GET?

$3,850,000,000,000

As we come to the end of the debt ceiling debacle for 2011 and 2012 it is important to highlight what our fine leaders and representatives accomplished for us hard working folk.  I only want to highlight the key points and I'll add some thoughts below the summary.  In addition, I'll talk about market direction in the TRADING UPDATE section.

DEBT CEILING HIGHLIGHTS -

• The compromise allows the debt ceiling to increase by as much as $2.4 trillion dollars in total. Included is an immediate increase of $400 billion dollars. President Obama would be permitted to request another $500 billion increase in the coming months, which Congress could vote to disallow by a veto proof two-thirds margin. A further increase of between $1.2 trillion and $1.5 trillion would be available after a special committee identifies matching levels of additional spending cuts.
• The agreement calls for cuts of more than $900 billion over ten years in spending from programs, agencies and day-to-day spending. It would include security-related and non-security-related cuts. According to the Congressional Budget Office, "discretionary" spending would be decreased by $21 billion in 2012 and $42 billion in 2013.
• The agreement creates a 12-person House and Senate special committee to identify further spending cuts. The committee must complete its work by Thanksgiving - November 23 - and Congress must hold an up or down vote on the committee recommendations by December 23. The committee could overhaul the tax code or find savings in benefit programs like Medicaid, Medicare or Social Security. Congress could not modify the committee's recommendation.
• Should the special committee deadlock or should Congress reject the committee's recommendations, then automatic across the board spending cuts of at least $1.2 trillion would go into effect.
• The agreement requires that the House of Representatives and the Senate vote on a Balanced Budget Amendment to the Constitution, although its passage is not guaranteed.
• The deal also includes changes to Pell Grants and student loan programs. Pell Grants will receive a $17 billion increase for low-income college students, which will be financed by the elimination of subsidized student loans for most graduate students

Ok, here's a little refresher before we get started.  The 2011 budget is slated to be a total of $3.85 Trillion and of that it includes borrowing almost half of the sum to meet those requirements.  That borrowing represents a $1.65 TRILLION deficit.  Stated another way, we are spending almost double what we are bring in.

OVERVIEW -
I'm fine with bullet one where they parse out the amounts over time.  Clearly the President got what he wanted which was a deal to get him through the 2012 election cycle.  Hasn't the guy ever heard about serving the public?  Who cares about the election, fix the problem!

Cuts of $900 Billion in ten years are a complete farce.  There are so many problems with the approach that these clowns took with this deal it is simply appalling.  First 2012 and 2013 cuts amount to around $70 Billion.  These are cuts that likely will happen, but amount to about 2% of the freaking budget!  Who runs a budget like this?  In other words, this $900 Billion is a complete joke.

The Special Committee is something that I feel is dangerous.  While I like the idea of a group getting together to actually work AND having their ideas implemented, it is dangerous in terms of who will be on the committee and who won't.  Effectively we already know that to be considered for the committee you must  have voted "YES" for the debt ceiling agreement.  That means that many of the fiscal conservatives in Congress will not be allowed to participate.  Ron Paul and others that actually vote based on conviction will be excluded, and he is exactly the one person that should be on the panel.

I do like that cuts will be enacted and if not, across the board cuts will come.  This is REALLY what has the Democrats shaking in their boots.  If the Republican caucus really wants to find cuts they can simply vote the recommendations down and the hammer will come.  Of course we all know that the Republicans talk a good game but don't really have a real desire to change anything so we'll see some other compromise that will keep the status-quo going for a little while longer till the house of cards completely implodes.

The Balanced Budget piece has no teeth.  It is interesting that almost all politicians say that they want a balanced budget, but somehow it never gets put to a vote.  My guess is that we'll have about 99% absenteeism on the day that vote is held.  That issue is one where everyone likes to affirm it, but no one wants it really.  If we had a balanced budget amendment, the government ponzi scheme would face limits and that can't be good for anyone that derives power from an unlimited and insatiable government.

Finally, the Pell Grant thing is also pretty laughable.  We are going to continue down the road of getting our young folks all going to college so they can get in line with the other unemployed folks with useless liberal arts degrees.  I actually would support this measure IF and only if Congress required these students to self-fund their expenses until they actually received their degrees (yes loans, working, etc) to make the cost to taxpayers riskless.  Second, the government Pell grants would only reimburse students that earned degrees in engineering, science, and other hard-core programs that were technical in nature.  Upon earning degree AND working for 2 years in the field the Pell grant would pay off or reimburse a student for books and tuition up to a maximum amount.  This would ensure that the taxpayer only pays for success and doesn't pay for Jimmy to "find himself in college" and also makes sure that the graduates that earned the degrees are employable contributors to society.  While it sounds tough, too bad.  WE HAVE ENOUGH UNEMPLOYED LAWYERS, LIBERAL ARTS LOSERS, AND DROP OUTS in this program, enough is enough.  It is our money and it is time to demand responsible stewardship of it.

And yes, all of those scientists could work to create the next generation of these (see video below) which just happen to be some of the coolest planes ever.  I really put them here to show you what $1.5 Billion will get you.  Now contemplate this, you could buy 650 of these awesome flying wings for just under 1 trillion.  My guess is that when all is said and done, we won't have anything to show for our use of $1 trillion in deficit spending this year, so if I have to spend an extra trillion or two I'd rather have the B-2s.

WHO WON?

My first take on this deal is that the Democrats won.  Yes the media is howling and stating that the Republicans won and the Tea Party members are terrorists, but that is foolish.  The Republicans caved just like I said they would.  Essentially they could have gotten anything they wanted if they were willing to push things to the limit, they weren't.  The President gets to push this issue out past 2012 so he can concentrate on the election and continue telling everyone that he inherited a financial mess.

While the Tea Party may have scored some points by getting the balanced budget onto the map and even getting the special subcommittee to make cuts, they have allowed themselves to be characterized as a radical fringe group of nut jobs willing to take down the USA to accomplish their goals.  They need to be more forceful and vocal stating that they love this country and that the politicians on the left and right simply are part of the political class that could care less about the nation and its people.  They must state this emphatically every time and demand recognition that the past policies of Bush and Obama are failures and don't work.  The liberals hate the Tea Party and attempt to label them and marginalize them in order to attempt to make others discount them.  It has worked so far, but they must fight on.

Unfortunately Republicans are the the guys that are attempting to play the game of politics the best.  You can see it in the old veterans.  They are loving having a "bad cop" group that they can blame for being on the fringe and then they can go to their constituents and blame the liberal left.  They proudly sit in the middle playing both sides off each other.  I can tell they believe that they will rise to power in 2012.  The problem is though that many of us recognize this game and the time for life-long politicians is waning.  We need leaders that make hard choices and choose the side of long term financial strength for our country rather than another election cycle victory. 

Here is a list of those that voted for and against the bill in Congress -

Here is a list of those that voted for and against the bill in the Senate -

I will do a trading update this evening.  Please drop by again to view this post.  http://www.goatmug.blogspot.com/

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.blogspot.com/