Free Lunch Program - Detroit

This government funded meal of pizza, cherry pie, fruit bar, lettuce and chocolate milk is supposed to help children whose parents cannot afford to pay for their meals.

Let’s take a closer look at what goes into this government funded meal.

• The iceberg lettuce was most likely grown on a megafarm, assisted with herbicides and pesticides.  Large scale factory farms lobby heavily to push small farms and “unregulated” farmers out of business via burdensome regulations or unnecessary licensing.

• The meat, milk and cheese in the lunch are all likely from dairy cows that are housed in a Concentrated Animal Feeding Operation and fed an unnatural diet of grains to make the animal gain weight as fast as possible.  The cow might potentially be fed with growth hormones.  The hormones, in one fashion or another, pass through the child’s body.

• The packaging, dessert wrapping, and utensils are all likely produced by a factory in China. There is a good chance the factory waste will not be disposed of properly. The revenues from the sale of these goods, in some fashion, support the Communist party, which routinely suppresses free speech, civil liberties and opinions critical of the government. The shipping voyage from China burned through finite resources such as oil and gas before reaching their final destination.

• The corn that produced the high fructose corn syrup in the flavored milk, “fruit bar” and cherry pie most likely came from federally subsidized agribusiness enterprises.  The cycle of farm subsidies, campaign contributions and re-electing those who approve farm subsidies allows the cycle of market distortion to continue.  Government chooses to support certain, favored industries which hurts other producers and industries that do not receive those same subsidies.

• The government worker handing out this meal will potentially collect overtime for summer work and, eventually, a pension, which the city receiving this assistance has probably not fully funded. The employee, most likely a union member, will vote for whichever candidate their union has financially supported with tax dollars from the community. The government employee handing out this meal cannot provide the care, attention, and atmosphere of a loving household.

• The child, eating this meal, begins the slow march towards diabetes, cancer and other ailments from eating a lifetime of nutrient-devoid, heavily processed food. Having a diet so high in sugar at such a young age will likely make them less likely to choose healthier food in the long run.

• The wasted food and packaging will finally head to a landfill where it will rot.  The annual cost to simply dispose of wasted food is around $1bn per year.

• To fund this program, the federal government had to borrow the money, tax its citizens or print the money. All monetary costs will most likely be paid by persons other than the beneficiaries of this program.

The producers of this meal will continue to fund the production of unhealthy, environmentally damaging food. They will continue to reinvest their revenues, in some fashion, to expand their enterprise and keep this cycle going.

The consumers of this meal, poor schoolchildren, will learn that free food is a right, provided for by others and not worth enjoying, savoring or preparing.

The parent, absolved of their most basic responsibilities as an adult human, is shielded from the feedback loop of sacrifice, self-reliance, and caring for their young.  They will not have to approach friends, family, a church, or a charitable organization to deal with their realities of being unwilling or unable to feed their own children.

Every decision has consequences, both explicit and implicit. All that matters in life are our decisions.

The consequences of supporting these priorities are profound. Constructive outcomes are totally avoided and destructive choices are encouraged.

The cycle continues.

Attempting to help “feed poor schoolchildren” is making our world poorer, in every possible sense of the word.

Senate Majority Leader Harry Reid plans to win final passage by Dec. 24 now that he secured the vote of his party’s last holdout, Nebraska Senator Ben Nelson.

He finally struck a deal that satisfied his demand to keep U.S. subsidies from being used for abortion and won an agreement for more aid to help Nebraska provide coverage for the uninsured.

Nelson said the language satisfied him, though it drew criticism from antiabortion groups. The Nebraska lawmaker also won another prize, with additional Medicaid costs to his state being absorbed by the federal government.

The agreement came late on Dec. 18 over a handshake.

“It was a pretty powerful moment,” said Reid, a Nevada Democrat. “That’s what this place is built on, handshakes legalized bribery.” (emphasis Inthon)

Upon closer inspection of its “accomplishments”, we discover our government is a transparent kickback machine; something which is manipulated and used to advance one’s career and line one’s pocket.

Governments disintegrate when citizens and lawmakers reject individual, familial and community responsibility and instead believe in the goodness of “free money” (printed up or borrowed, of course) and citizens and lawmakers feel no sense of self-ownership.

What hope remains for the future when there is no incentive to encourage individual responsibility and self-ownership?

Governments stop functioning and cannibalize themselves when politicians shift from representing an informed group of constituents to becoming professional raiders for their financial backers (unions, other politicians or corporate interests).

Takeaway: Have no faith in national politics or national politicians.  Self-reliance and community reliance are more robust and sustainable.

Here are some gems just from the last week alone:

1. Perot Systems FrontRunning – ZeroHedge.
2. Blatant reinflation of housing bubble – Denninger.
3. Corruption at HUD – Karl Denninger.

The SEC was not able to catch a ponzi scheme even after Harry Markopolos delivered it to them on a silver platter. 

Paulson and Bernanke have been incredibly incorrect on their assessment of the health of the US economy.

Choose your sources of information/facts/news very carefully.  Stick with those that are honest enough to state their opinions openly and publish their predictions.

Read what you disagree with before drawing your conclusions.

There is a difference between loyalty and blind loyalty.  Blind loyalty to anything (religion, government, ideology, spouse) is deadly.

Takeaway:  Perpetual reliance on someone else’s seal of approval will rot your brain.  Complacency kills.

Two “answers” which speak volumes of our leaders:

• At 1:12, Jon Stewart asks “Are we broke?”, Goolsbee replies “No”.

Bizarre.  It seems that a country running trillion dollar deficits and unable to function without borrowing money could be classified as “broke”, but not to our leaders.

• At 4:20, Goolsbee says:  “When you’re looking in the face of the next Great Depression that’s not the time to tighten the belt”

Indeed, when has there *ever* been a time when either party thought it would be a good idea to tighten the belt and stop borrowing?  Heaven forbid we curtail spending on military/”the children”/retirees/politically connected segments of the population.

Takeaway:  Leaders will do what it takes (lie, obfuscate, deceive) to accrue political capital.  It is not in their interest to be honest with us, especially when our borrowing/spending based economy relies on confidence that “everything will be ok”.  A system heading over a cliff due to instability cannot be solved with more of the same pathetic ideas (reliance on debt, policy tweaks) that got us here.

For those “economists” who’ve lately been singing his praises on CNBC, all I have to say is this…

It takes a special kind of system (government) to screw up this badly and still be resoundingly supported by its leader.

In his reappointment speech Obama also pledged support for the continued secrecy independence of the Federal Reserve.

How foolish of citizens to inquire where trillions of dollars are being spent… clearly we should trust the former bankers running the Federal Reserve that regulate the banking system. After all, they obviously know what they’re doing.

Instead of perpetuating the broken system financed by politically embedded financial organizations, Obama could have attempted any of the following:

• Raise awareness of the ghastly unaffordable pension schemes which will inevitably crumble
• Strictly enforce FASB mark to market accounting standards instead of allowing companies to use “judgment” to value their toxic assets
• Clamp down on High-Frequency Trading
• Require the FDIC to close and wind down insolvent banks before the government taxpayer-funded safety net has to be used
• Eliminate alphabet soup bailout programs which are forms of corporate welfare
• Demanded transparency for toxic assets which traveled from insolvent banks to taxpayers
• Slash parts of a budget (military, NASA, HUD, etc.) that are so bloated we must borrow billions from foreigners to stay afloat.

Would that severely correct the housing and stock markets? Yes, probably. Can we continue on our current path? No. Will we eventually face unbearable consequences for our decisions? Yes.

Ironically, neither Bernanke nor Obama nor either political party seem to care about the following message:

It is not the responsibility of the Federal Reserve–nor would it be appropriate–to protect lenders and investors from the consequences of their financial decisions. – Ben Bernanke

So, Obama reappointing the guy who didn’t see any of this coming, who bailed out the irresponsible, who continues to provide cover for banks in the hopes that things will return to normal still makes Obama the “man of the people”? Why aren’t those who voted for Obama clamoring that this Bush appointee is more of the same? Why do horrible decisions not matter when *their* party is in charge?

The reappointment of Bernanke does have a silver lining. All the people that bought into the hope proffered in eloquent speeches that government can provide jobs, clean energy, healthcare, education and other goodies will eventually learn a valuable lesson. The love affair Americans have with celebrity, good looks and good speeches and a lack of discourse/intellectual honesty will finally meet its match against a tidal wave of financial reality.

We are witnessing firsthand government selling Hope while funding Grift.

A generation will learn that our government system, like all systems which redistribute power and wealth, is one that is relentlessly gamed and manipulated for the benefit of those in charge.

Takeaway: Strip away the external validation that media/family/friends give to people and institutions and think for yourself.

The obfuscation via government intervention in all its forms (stupendous deficits, subsidies to failed corporations/business models, pork barrel handouts) is one of the factors seducing people into a false sense of complacency that our economy is just fine.  Borrowing money to keep your bills paid might seem ok, until you realize the borrowed money must be paid back with interest.

In less government-dependent/credit-fueled times, a major decision like raising a child was saved up for and anticipated.  Healthcare was funded out of pocket or with straightforward insurance.  Retirement required savings.  Nowadays, our government promises us all these goodies with borrowed money, which we will eventually pay for with interest (assuming the dollar doesn’t collapse first).

In less government-reliant times, there were fewer entitlements, senses of entitlement or bogus lawsuits which now haunt would be doctors and entrepreneurs. Why bother using your MIT degree to start a new business when you can day trade and make the “market more efficient”… hah!

Even the stock market used to be a reasonable measure of future economic value.  Now it is a game profitable game to be played/manipulated with enormous  leverage.  The S&P PE ratio is over 100 according to S&P and the graphical evidence is stunning.  Anyone with their 401(k) invested in stocks is asking to be smoked.  Meanwhile, insiders are bailing out.

I have no desire to go back to days of extreme hardship or give up technology, but it seems the more government obfuscation we allow to seep into our lives, bit by bit, the further we get from the truth and honest consequences of our lifestyles.  A single woman with three kids who is reliant on the state for breakfast and lunch year-round is in a worse off position since the true costs of her lifestyle are not borne by her, but rather, the taxpayer, who is under increasing pressure to stop paying them.  This “help” that the State provides via welfare, subsidized housing and other giveaways are not sustainable and ultimately dangerous for its beneficiary.

If you want to ruin a man, give him everything he wants.  Never let him fail, struggle, grow or mature into a man. – Inthon.com

As a result of government encroachment on all levels of life we are living in delusion about how much things *actually* cost and how they function.  There are now entire families dependent on the government for food assistance, educational assistance, medical assistance and job placement assistance.  This is neither normal nor sustainable.

As the credit-fueled economy inevitably slows down and inflation spike or benefits are cut, there will be a lot of disillusioned, angry and unprepared people.  There have been numerous chances to come clean from politicians, media and leaders.  Instead, all we hear are happy bromides about how things will be back to normal.  The only voices sounding the alarm that the debt-fueled economy is unsustainable are drowned out.

Takeaway:  I hate to be so closed-minded as “government bad” “free market good”, but it is obvious to anyone paying attention that the more we cede our power and money to the government, the less reliant, intelligent, capable, stable and robust we are as a society.

When you see more concern about the desire to uncover the truth than a party “winning” or “being right”, we’ll be on the right track.  The sooner, the better.

When the promises that “Government will provide (insert entitlement here)” go unfulfilled, only then will we realize that costs must be borne by individuals.  A woman with five children can, should and will pay more for healthcare, resources and lifestyle as a result of her actions.

The answer we will learn (the hard way) over the next few years is to stop ceding our power to the Fed, Treasury and governments since we can only rely on ourselves and those around us.

Hopefully, when this realization occurs, we will demand our power back instead giving away more of our rights, liberties and responsibilities.  Only then can the healing begin.

One of the biggest beneficiaries of corporate welfare is Citigroup.  Aside from TARP funds and asset buybacks (taxpayer buying their lousy loans at full value), there are even more nefarious examples of how Citigroup is ripping off the taxpayer.

Below you will find the Standard and Poor’s and Moody’s credit ratings for Citigroup.

Further down, you can see how these rating agencies gave Citigroup very safe ratings days before Citigroup would have gone bankrupt and gone out of business if not for the bailout.

In other words, these rating agencies, Moody’s and S&P, gave Citigroup ratings of AA- and Aa3, respectively, while Citigroup was days away from dying.

In their own words…

Obligations rated Aa are judged to be of high quality and are subject to very low credit risk, but “their susceptibility to long-term risks appears somewhat greater – Moody’s

An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong. – S&P

Current Citigroup ratings - click for a larger view

Moody's ratings for Citigroup - note that the October 2008 bailout just put them on Credit Watch negative until December 2008

S&P's ratings for Citigroup - again, only a slight downgrade before the 10/2008 bailout

You’ll notice that Citigroup’s ratings have never fallen below investment grade.  So, despite needing and continuing to need your tax money to operate, these credit rating agencies never saw the need to downgrade them significantly.

Normally an incompetent credit rating is nothing to get worked up about, however, Citigroup’s bogus credit ratings have consequences that ripple all across the capital markets, which subsequently affect the taxpayer.

Here is how:  With an artificially high credit rating and numerous government handouts, Citigroup’s cost of capital (the rate at which it borrows money), is artificially low. This allows Citigroup to borrow money at artificially low interest rates.

Since its credit rating and government handouts allow it to borrow money very cheaply, it sucks up productive capital from other enterprises competing for capital. This is called “crowding out“.

This means healthier companies and local governments have to pay higher rates of interest to borrow when they issue corporate bonds and municipal bonds, respectively.

Guess who pays the artificially higher interest payments on municipal debt?

The taxpayer.

So, in a sad way, Citigroup gets two forms of corporate welfare.  One is explicit, the other implicit.

Explicitly, your federal taxes pay to keep alive Citigroup via asset buybacks and other federal programs to “save the (inherently flawed!) financial system”

Implicitly, bogus credit ratings and government handouts give Citigroup a facade of safety, allowing it let it borrow cheaply, which force other, legitimate debt issuers (companies and municipalities) to pay more in interest to receive funding.

Even if the federal government were scared of a run on all the banks, they could have easily unwound Citigroup in a reasonable fashion.  They could have zeroed out all the equity (stockholders) and, in an orderly way, liquidated the firm to other institutions which could buy up productive assets cheaply and let the creditors take losses on the parts which no one wanted.

Since Washington is afraid to say no to the financial bozos that own Citigroup stock, this strategy was not employed.  Instead, they are flooding Citigroup with cheap money and hoping the money will be lent out or miraculously make Citigroup solvent.

A free market efficiently allocates capital and provides price transparency which allows individuals to make accurate decisions on how to best maximize their resources.  Government intervention is permanently damaging our economy by obscuring these valuable pricing mechanisms with bailouts, “liquidity facilities” and other forms of corporate welfare.

Intervention via corporate welfare all in the name of helping the little guy is a gross form of statism and market distortion.

Takeaway:  Government intervention to save banks is not a Democrat/Republican issue, it is a right/wrong issue.  More intervention, bailouts and stimuli are not the answer.

Just as a child thinks a safe home, healthy food, running water and electricity are all “free” and “normal”, we as citizens of our country need to take time and ask ourselves what blessings/fortunes we have in our favor and be thankful.

Not only is it important to realize how good we have it, we must also be aware of whether our fortunes are improving or worsening and whether these fortunes are sustainable or fleeting.

• The US has the fortune of having the world’s reserve currency – the dollar.  In times of crisis, the world will, all things equal, dump weaker currencies and buy dollars.  A strong dollar allows us to buy foreign goods (most of what we consume) cheaper.
• The US has never had trouble getting people to purchase our debt.  Foreign governments are always willing to lend us money at very low interest rates.  Only very recently have treasury auctions had weak demand and higher rates of interest have been demanded.   Economic growth is easier when you have plentiful access to credit.
• We issue debt in our own currency, which allows us to “inflate away” our debt. Issuing debt in your own currency allows you to ease the burden of paying your debts by debasing your currency.  If a foreign nation issues debt in US Dollars and their currency loses value, they will sink deeper into debt; having to pay more of their currency to pay off the dollar-denominated debt.
• Immigrants have flocked to America for over 200 years.  We have had the advantage of the smartest, most fearless, hungry people of the entire world coming here to work and be productive.
• The US legal system allows for private property rights, due process, appeals and the notion that you are innocent until proven guilty.
• The United States Constitution calls for three branches of government, each with checks and balances.  It limits federal power and mandates that most decisions be made at the state and local level.

I could go on and on about other geopolitical factors (massive world influence via economic and military spending, easy access to oil, plentiful natural resources), but you get the idea… the US has it made.

For my statements above in bold, let me ask you…

1. How many people realize this and appreciate this?
2. Do you think the average Joe has a clue about any of these incredibly useful, free rides he is getting?

The problem is this:  The above free rides and get-out-of-jail-free cards are things that we should be incredibly grateful for and guard with our lives.  Obviously, many of these are not permanent and will be lost over time. 

If we don’t understand that these privileges we have enjoyed are vanishing before our eyes, we are oblivious to reality and setting ourselves up for massive amounts of pain and suffering.

These facts are not on the minds of the average voter or average American.  We simply do not have awareness or consciousness that these factors have been in our favor for years and that they are not sacrosanct.  Politicians of either party don’t tell us how good we have it or that we’re living beyond our means.  This lack of awareness and intellectual honesty is going to blindside us.

Takeaway:  The handwriting is on the wall for those that care to read it. Think about each of the characteristics above and appreciate what you have.  As the financial crisis worsens and people look to the government to “solve” these problems, you can plan on these privileges disappearing.

Please be advised:

Your job is never safe. – Job safety is a myth. It is a fabrication of politicians who play off financial fears and pin blame on greed, capitalism, large corporations, foreigners, foreign governments… everything except common-sense market forces of individuals wanting to maximize their budget.  Job security is impossible since we are wired to maximize our comfort and, all things aside, get maximum value for our finite wealth.  As a result, we naturally seek to work as little as possible, spend as little as possible, and get as much value possible for our money. Jobs going overseas has little to do with “tax loopholes” and has far more to do with the simple economic fact that, if quality is comparable, people will choose to seek the cheaper good.  When labor is interchangeable, labor will flow in the direction of lowest cost.  As a result, your job is never safe from cheaper, foreign competition.  This is inevitable and no politician can stop it.

Pensions are unsustainable - The notion that you can work for a number of years and then get 80% of your salary paid for by taxpayers and stock market returns is a claim made by politicians who promised this to win votes from beneficiaries of said pensions(government employees:  teachers, PD and FD unions).  Taxpayers have lost their jobs, income, equity valuations and home valuations, which leads to the question… where will this money come from? If you were promised a pension, you need to realize there is only so much in tax revenues the government can suck out of a city and state without killing businesses.  The notion that a tenured public school teacher can retire after 30 years of service (age 55?) and collect $40,000+ annually and health benefits till death is simply not realistic or fair for the taxpayer.  Pensions will be altered; Plan on it.

Foreigners are just like you – Do you think homeless people in India care about your factory closing?  They are far worse off than you will ever be.  A factory moving to India hurts American workers, but helps Indian workers and helps American consumers by allowing them to buy cheaper goods and spend or save the money elsewhere.  All human beings love free markets, low prices and lots of variety as consumers and they love protected markets, controlled prices and barriers to entry as producers.  You can expect the governments of other countries to be as manipulative as possible to meet their countries needs, just like ours.  The IMF, World Bank, UN and other quasi-world governments aren’t going to save your job or magically reverse market trends.

You must learn economics – The government cannot create wealth by printing paper and rolling over its debt.  Wealth only comes from savings and production.  Fighting two wars, underwriting retirement for a whole generation, “free healthcare”, and new infrastructure all need to paid for with real money.  Borrowing money cannot be the only solution to all of our problems.  Living within our means as individuals and as a country is the only way we can survive as a country.

Watch what politicians do, not what they say – Obama voted for 10 out of 11 war funding bills and voted FOR the bank bailout.  No one who voted for Obama can complain about the bailout since they supported someone who took direct action to bailout foolish bankers.  Just like with religion, it is not what you say that counts, it is what you do.  Politicians like to rail against other countries manipulating their currency, however, the US government does the exact same thing.  Bank bailouts, massive interest rate cuts, liquidity injections and excessive borrowing certainly do impact currency levels.  Ignore those who claim otherwise.

Compounding wealth comes from the private sector, not the public sector -  Compounding wealth, innovation and life-improving technologies are not borne out of love for one’s fellow man.  They are generated by hard work and intelligent risk taking with the promise of wealth and money if the good or service serves the consumer as planned.  Profits serve as a feedback loop of how a firm should direct its limited financial resources. Since governments do not have to generate profits to stay in business, there is little need to innovate, take risks, eliminate waste or strive for excellence.  Google, Microsoft, Yahoo, Apple all must come up with new ways to win over customers or they go out of business.  The SEC couldn’t catch Bernie Madoff even when Harry Markopolos did the work for them.  For this, they will get a larger budget and hire more employees.  Screw up in the private sector and you’re gone.  Screw up in the public sector and your budget grows.

Market forces are more powerful than government forces – Markets are an inescapable fact of life.  They are the logical outcome of our human desires to maximize our finite resources.  As such, governments cannot manipulate the economy to have artificial growth without consequences.  A GM, Ford or Chrysler bankruptcy is inevitable.  The government can play tricks like giving everyone money to buy a car, but not without disastrous consequences like devaluing the currency.  Reliance on government is fatal.  If you are currently relying on a government pension, you are rolling the dice.  There can only be so many bailouts before the dollar becomes worthless.

The world does not revolve around you or your industry – Just because your family all worked at the same factory/plant/industry does not entitle you to that job/wage for the rest of your life.  Do you care about Chinese factories shutting down and forcing Chinese workers back to the farms…?  Then don’t expect them to feel the same way about *your* job.

The American lifestyle has been luxurious – Only in America with abundant schools, libraries and food would obesity become a problem.  America is less than 5% of the world’s population and uses over 20% of the world’s energy.  Don’t you think that other countries will want to consume more as they rise out of poverty? Food, energy and resource prices will all encounter increasing demand and a decrease in the American standard of living/consumption should be expected since it is nearly inevitable.  America also has large numbers of thrift stores, widespread internet access, and decent schooling options.  For those who have an ounce of ambition, this is still the best country in the world.

Ignore these warnings at your own peril.

You must embrace reality, before reality embraces you.

For more on reality, read here