PAUL  KRUGMAN IS RIGHT? 

 WAIT HE’S LEFT, BUT HE’S RIGHT, er, CORRECT? WHAT’S GOING ON HERE!?!

Back in January, the NHTPP sent out an email alerting us to keep our representatives on a Conservative path.  A very astute Patriot, Greg S., sent us an email with Krugman’s editorial of that day, and asked for our comment, which we did. 

Now, I want to share all of this with you. I have hopefully corrected some spelling despite my own flaws in spelling, and have done minor editing for brevity.  The full versions can be found on our webpage.

Greg wrote us:

I read this article and I’m wondering if you would have a comment or rebuttal.  I’m no economist, nor am I a PHd, but from what I understand, this guy seems somewhat mistaken.  But, I’d like to get information from someone not so “slanted”.

Krugman’s article, The Texas Omen

Our Response:

I too am NOT a PhD or economist either.  Worse yet, I am not a fan of Krugman.  But, this time he is correct! He is perhaps not correct in his last couple of lines and no doubt his solution, when he proposes it and his idea of how we got in this mess would probably not be the same as mine, he is nevertheless correct that we are in debt.

The dirty little political secret, that no politician wants to have to get out, is that in this country, we are in debt at almost every single level of government.  You don’t necessarily hear about it as much on the campaign trail, because they are all doing it!  If there is one thing every politician of all political persuasions agrees, is that they love to spend our money and think it is their duty to do so.  It is an unwritten political rule to not sell each out in this regard.

It is not that the Tea Parties have not been getting this message out, but it has taken the country years to get into this mess and will take years to get us out, and that is only if we start now. There are so many problems and so many issues, that the TP’s can only scratch the surface of a few!  And unfortunately, major ones are left untouched. Not because we ignore them though.

On Monday, in our own House, current House Speaker Joe Straus may get re-appointed to his Speaker seat.  He is a liberal republican, elected in 2009 as Speaker by Democrats and liberal Republicans, defying the Republican house majority and the voters of this state!  It just might happen again on Monday with the Republican Caucus vote, maybe, and the overall vote on Tuesday.  All three of our representatives in Montgomery County intend to vote for the liberal Straus, despite their constituents pleadings.

But back to the budget and our shortfalls.  Our governments, Texas included, are built around financial deception.

A friend of mine has said it best and I will quote him instead of trying to write my own words.

“The western world, America and Texas has led the way in excessive spending, borrowing and artificial prosperity all of which comes to an end when some small glitch in our plans occurs.”

“Earlier this year I learned the truth about Texas debt. Contrary to the assertions of our governor and legislature, Texas is not the paragon of financial virtue it claims to be with a low $33 Billion in debt, but rather Texas is the fifth most indebted state owing $298 Billion dollars in bonded indebtedness. That amounts to more than $10,000 for each and every Texan.”

Let me hit closer to home as well, “In Montgomery County today all the debt of all our different units of government, county, cities, MUDs, ISDs etc exceeds $4.6 billion dollars. Those are 4.6 billion reasons that the people of Montgomery County should be concerned about local government and the willingness of elected officials to place our Life, Liberty and property at risk to the bond merchants. Sadly, most of our fellow citizens are unaware of the massive debt situation in this county or they are too busy making a living, working to make ends meet and pay that property tax bill that come due each year.”

You see our government hides behind bonds and voter apathy, denial and just plain busy lifestyles.  It is not an indictment of us the voter, it is just a matter of fact.  The real indictment is the lying and deception of our local officials.

Understand, the Tea Party movement was bred from the disgust at government and primarily at the SPINELESS ATTITUDE OF REPUBLICANS, much like those in Mont. Cnty!  We expect things like this from the left.  We don’t like it, but we expect it.  We do NOT expect our Republican representatives at all levels of government to cower and go along with it, especially when they hold majorities.

We have excessive spending on schools (and unfortunately, NOT the education part), roads we don’t need or can’t be funded, buildings that “can’t wait”, positions that are ludicrous, salaries increasing in the bureaucracy and so much more.  The Republican Party of Montgomery County is a joke and the list is endless.

The job we voters have now is ONLY JUST BEGINNING!  It’s a long road.

Paul Kregman is right (well, he’s left, but you know what I mean) and that pains me.  But it doesn’t pain me more than to hear our own brethren on the right, pretend everything is all right.  Attack them on principle and they will come after you on personal.  But that is the political game isn’t it?

Texas is indeed well off, but understand our life blood is oil and energy (and of course the great people that comprise this state).  The federal government knows this.  Why do you think the moratorium on drilling?  Why do you think an ever growing, unfettered EPA with constant, although less publicized, attacks on the state?

Oil stops flowing, our world comes crashing down.

Kregman is correct again, this country revolves around Texas right now.  Where is the leadership?

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Bankruptcy  101…why Arizona did the right thing!!

 It’s easy to dismiss  individual programs that benefit non-citizens until they’re  put together and this picture emerges.  Someone did a  lot of research to put together all of this data. Often  these programs are buried within other programs making them  difficult to find. 

A Real Eye Opener …  WHY is  the USA BANKRUPT?  war  and the war on terror that is bankrupting us. “alternative” (and obviously more factual) reasons with references: $11 Billion to  $22 billion is spent on welfare to illegal aliens each year  by state governments. Verify 
at: http://www.fairus.org/site/PageServer?pagename=iic_immigrationissuecenters7fd8 <http://www.fairus.org/site/PageServer?pagename=iic_immigrationissuecenters7fd8%3E;; 

2.  $2.2  Billion dollars a year is spent on food assistance programs  such as food stamps, WIC, and free school lunches for  illegal aliens. Verify 
at: http://www.cis.org/articles/2004/fiscalexec.HTML <http://www.cis.org/articles/2004/fiscalexec.HTML%3E; 
Verify at:  
http://www.cis.org/articles/2004/fiscalexec.HTML <http://www.cis.org/articles/2004/fiscalexec.HTML%3E;  $12 Billion  dollars a year is spent on primary and secondary school education  for children here illegally and they cannot speak a word of  English! Verify 
at: http://transcripts.cnn.com/TRANscriptS/0604/01/ldt..0.HTML

You think the war in  Iraq   was  costing us too much?  Read this:

We have been  hammered with the propaganda that it was the  Iraq

Here are 14

1.

3.$2.5 Billion  dollars a year is spent on Medicaid for illegal aliens.  

4.

5. $17 Billion  dollars a year is spent for education for the American-born  children of illegal aliens, known as anchor  babies. Verify 
at http://transcripts.cnn.com/TRANscriptS/0604/01/ldt.01.HTML 

 
6. $3 Million  Dollars a DAY is spent to incarcerate illegal aliens. Verify at:  
http://transcripts.cnn.com/%20TRANscriptS/0604/01/ldt.01.HTML

 
7. 30% percent  of all Federal Prison inmates are illegal  aliens. Verify 
at: http://transcripts.CNN.com/TRANscriptS/0604/01/ldt.01.HTML<http://transcripts/..cnn.com/TRANscriptS/0604/01/ldt.01.HTML%

8.  $90 Billion  Dollars a year is spent on illegal aliens for Welfare &  social services by the American  taxpayers. Verify 
at:

9.  $200  Billion dollars a year in suppressed American wages are  caused by the illegal aliens.

10.  The illegal  aliens in the United States  have a crime rate that’s two and a  half times that of white non-illegal aliens.  In  particular, their children are going to make a huge  additional crime problem in the US. 

11.  During the  year of 2005 there were 4 to 10 MILLION illegal aliens that  crossed our Southern Border also, as many as 19,500 illegal  aliens 
from Terrorist Countries. Millions of pounds of  drugs, cocaine, meth, heroin and marijuana, crossed into the  US  from the Southern  border. Verify 
at: Homeland Security  Report:annually over a five year  period. Verify 
at: http://www.nationalpolicyinstitute..org/PDF/deportation.PDF

 <; 
14.  The  Dark Side of Illegal Immigration: Nearly One million sex  crimes Committed by Illegal Immigrants In The United  States. 

13.  In 2006,  illegal aliens sent home $45 BILLION in remittances to their  countries of origin.

12.  The  National policy Institute estimated that the total cost of  mass deportation would be between $206 and $230 billion or  an average cost of between $41 and $46 billion 

The total cost is a whopping 

STATE BANKRUPTCY

The Next Big Bailout?

Recent headlines in Financial Times read, “Congress Moves to Allow State Bankruptcy”. While the economy continues to improve little by little, the crisis among state and local government actually appears to be getting worse. How bad is it? As the Financial Times reports, the U.S. House of Representatives has actually considered amending the bankruptcy code to allow for the bankruptcy of a state!

As the law stands now, individuals, companies, and municipal bodies can use the bankruptcy code to eliminate or modify their debts, but states cannot. States are presumed to have enough taxing power to make good on their obligations – even if it means giving their residents a good squeeze.

Something’s Changed

The House’s recent move is an admission that this no longer holds – the states have debts that are simply un-payable! And what does that have to do with those citizens who live in states that are in good financial condition? Trick question: there are NONE! Every state in these United States is scrambling to figure out how to handle their budget deficits and debt problems.

On the upside, if a large state like California were to declare bankruptcy, the taxpayers of the state would be spared years of painful austerity, and the Federal government would be spared the costs of a major bailout. But the bondholders, many of whom are regular Americans living off of the bond interest, would see their wealth evaporate and their retirements wrecked. The same would be true of municipal workers, who would likely see their generous pension and health benefits scaled back or lost altogether. While it may be true that many state workers enjoy benefits that are arguably too high (at  least relative to their counterparts in the private sector), but tell that to the 60-year-old lifetime state employee who now has to move in with his kids because the state failed to deliver what it promised.

The possibility of bankruptcy could also cause bond yields to soar, as investors would demand a greater return for shouldering the risk of bonds. Higher yields in turn means more funds dedicated to paying interest, cutting further into operations and services provided by the state.

Let them fail?

So, while some might advocate throwing the bondholders under the bus and encouraging highly indebted states to declare bankruptcy, this may not be the easy way out that they imagine. It also seems unreasonable for us to ‘spread the wealth around’ – again – by having the Federal government further impoverish all the citizenry by printing more money to bail out individual states. This is going to be very interesting to watch and painful for many states’ citizens to endure.

Is it likely that a U.S. state will go bankrupt? It can’t be ruled out, yet I don’t imagine it will be widespread either. The Pew Center on the States, a research group, has estimated a funding gap for pension, healthcare and other non-pension benefits of at least $1 trillion. It’s hard to imagine that getting paid as planned, so something certainly will have to change.

What about your investments, what should you do now in light of all of this? Since there is effectively no ‘insurance’ agency on municipal bonds, we have to be very careful to consider the risk of default – not getting your money back. So make absolutely certain that someone has taken another look at the holdings, or the holdings inside your mutual fund, to check for the overall risk of the bonds defaulting. In addition, we’re at record low interest rates with rates certain to head higher at some point. This is important because when interest rates begin to move higher, holders of existing bonds have a very real risk of seeing their values decline – significantly. More significantly with the longer term bonds, which most buy because they offer higher rates.

What Next?

Whether actual bankruptcy happens or not, a couple things are clear. Americans will have to depend on themselves and their families in the future more than ever to meet their retirement needs. The government – federal, state, or local – will not have the funds to help you. (Read the last sentence again.) At the root of the problem, and the solution, seems to be a recurrent theme that our society needs to address. Who is responsible for your future and well-being? This seems like an easy question to answer, but it is tough to ‘live’. When it’s YOUR benefits that get cut or YOUR state and local services that are trimmed away, it’s not quite so simple.

I fear that we have grown too accustomed to our simple luxuries; I would submit that our problem is our wealth. It has blinded us for decades to most everything that really matters. Can we find our way back? If so, it’s a journey that begins with y-o-u.

The better you plan today, the better positioned you will be in the future. Please feel free to call if I can offer a complimentary second opinion or retirement strategy.

For more information and tips about retirement, register online at www.CraigWear.com for our complimentary newsletter entitled, “The Retirement Compass.”

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Craig Wear, CFP®, is an investment advisor representative of

Game Plan Advisors, Inc., a registered investment advisor.

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