Saturday, August 28, 2010

Long Term Consequences On Government Decisions.

When government passes bills the consequences are often not seen for years, in fact when they are truly felt very few will ever understand the connection the consequences have with the legislation. Most will never know, no less understand what happened and why. This is why it is so dangerous and frightening to see these massive unread bills get through. Who knows what and when the consequences will be?

Let's look back to two major changes that came about in 1973 that we are truly feeling the consequences of now, but will even more so in the next few years. One was a legislative change with the ERISA laws, the other a Supreme Court Decision Roe v Wade. It would have been difficult in 1973 to see the profound ramifications these two decisions would cause in our lives, or that they in any way related to each other. However, together they have helped create a perfect storm for our seniors.

The ERISA laws dealt with changing the retirement plans of our nation's employees, it allowed companies to shed the cost of creating and funding the defined benefit plans our grandparents retired on, the proverbial gold watch and company fixed retirement program. This is when we as a nation changed from the defined benefit plans to defined contribution plans and a self-funded retirement of IRA's, Keoghs, SEPs, and 401ks. We forced everyday Americans to become investors however we never got around to teaching them how. This is what has created our retail investment industry of prepackaged mutual funds and fund managers and what has pushed the Dow to record levels for years.

When these new defined contribution plans went into effect the IRS wanted to know when they would see their taxes on those deferred income deposits, so the law spelled it out. When you turn 70 and one half years old, by law, you must start withdrawing money from you retirement accounts if you need it or not so that money can become taxable. The Required Minimum Distribution or RMD is calculated by age and amount in the fund. See below.

"The table shown below is the Uniform Lifetime Table, the most commonly used of three life-expectancy charts that help retirement account holders figure mandatory distributions. The other tables are for beneficiaries of retirement funds and account holders who have much younger spouses.

Joe Retiree, who is 80, a widower and whose IRA was worth $100,000 at the end of last year would use the Uniform Lifetime Table. It indicates a distribution period of 18.7 years for an 80-year-old. Therefore, Joe must take out at least $5,348 this year ($100,000 divided by 18.7).

To calculate the year's minimum distribution amount, take the age of the retiree and find the corresponding distribution period. Then divide the value of the IRA by the distribution period to find the required minimum distribution.

Required minimum IRA distributions

Age of retiree Distribution period (in years) Age of retiree Distribution period (in years)
70 27.4 93 9.6
71 26.5 94 9.1
72 25.6 95 8.6
73 24.7 96 8.1
74 23.8 97 7.6
75 22.9 98 7.1
76 22.0 99 6.7
77 21.2 100 6.3
78 20.3 101 5.9
79 19.5 102 5.5
80 18.7 103 5.2
81 17.9 104 4.9
82 17.1 105 4.5
83 16.3 106 4.2
84 15.5 107 3.9
85 14.8 108 3.7
86 14.1 109 3.4
87 13.4 110 3.1
88 12.7 111 2.9
89 12.0 112 2.6
90 11.4 113 2.4
91 10.8 114 2.1
92 10.2 115 or older 1.9 "

Now how does this impact us today?

The baby boomers have been the driving force of our economy since their birth and will continue to be for some time. In 2012 the first birth year of baby boomers will turn 70.5 years old and required by law to start their RMDs. If you look at the above chart you can see that they will be in their peak RMD years pulling their money out of the market through their 401ks and IRAs. That birth year will add 2.5 million people to the RMD requirements. Then for the each of the next 18 years 2.5 million more will join them pulling out their RMDs. This will have to create an impact on the stock market with all of these people cashing in with a smaller pool of younger workers putting in. Another question is how long will the younger workers keep putting money in if the market falls due to all of those RMDs.

Compounding our situation is the baby boomer drain on the Social Security program. When it was founded it was there were nearly thirty people paying into the system for every one who received benefits. The average length of time Americans were on Social Security was eighteen months from the date they retired until they passed away. Today, we are at about three people paying in for each who is taking benefits, and the average life expectancy is continuing to expand adding further strain on the system. Maybe that is the real idea behind Obamacare, shortening those lifespans to save money. In 2022 the Social Security program will be operating on a one to one ration, with only one paying in for each one drawing out. That was when most expected it to bankrupt, however this year it is already bleeding negative cash flow twelve years earlier than thought.

Also in 1973 Roe v Wade became law by Judicial mandate, I know that isn't how laws are supposed to be made, but let's not focus on that right now. What does Roe v Wade have to do with the Social Security and ERISA laws? It is simple math, those two programs are crashing due to the massive baby boomer generation pushing them over the edge. However, if we had not had Roe v Wade there would be 49,551,703 more Americans who would have been born since 1973. Those people would be working, buying homes, cars, clothes, and making defined contributions into their own IRAs and 401ks and having their income taxed for the Social Security program. If these babies weren't aborted we wouldn't be looking at the financial abyss facing us in the next few years.

So okay, these are the numbers, and they don't look good, what should we do about it?
Let me suggest looking to history once again to where a great deal of wealth was made. As the stock market fell, as millions of homes, land, and businesses were foreclosed, those who had money, or at least access to money, bought land. They bought Real Estate, there is only a finite amount, there will never be any more available than there is today. With prices and interest rates at the lowest we have seen in several decades, anyone who can purchase is setting themselves up for a ride on the inflation train when we actually start into recovery. Once again there will be massive fortunes made buying Real Estate. Just a tip, do as you see fit.

Saturday, August 14, 2010

The Cordoba Initiative, What Does That Mean?

The phrase and underlying belief that for anyone who doesn't know history will be doomed to repeat it is playing out in our daily news today. Unfortunately, most of us have missed it by not knowing the significant history of it. I must admit that I missed it as well. That is in regard to the Cordoba Initiative Mosque near Ground Zero.

The discussion on this ranges from that it is insensitive to that it's their Constitutional right to freedom of religion to build it where ever they please. The discussion goes back in forth on who is this Imam, who is behind the finances, and how we must protect the rights of those we disagree with, to protect our own through our Constitution. However, were is the discussion of the meaning on the name, the history behind this name, and the obvious intersection with this location for this mosque?

The site of the 9/11 World Trade Center attack in NYC has been made into a permanent memorial in remembrance of the more than 2500 people that died there. This is not uncommon for our culture to honor those who have fallen with memorials, creating a sacred ground. For many of the family members this is a sacred grave site, as their loved ones bodies were never recovered, as they were incinerated into only ashes and those ashes are mixed into the soil there.

Now a Muslim group has bought property within 2 blocks of this site. There intention is to tear down the existing building and to erect a 13 story Mosque and Islamic Center. The cost of this project will be approximately 100 million dollars, money which was donated by persons whom wish their identity to remain anonymous. The name of this project is The Cordoba Initiative. An Inman, named Inman Farouk Abdul Rauf, is in charge of the project and he has been linked to terrorist groups outside
the US. He refuses to label Hamas as a terrorist organization, he has blamed America as responsible at least in part for the 9/11 attack, as well as for the existence of Osama bin Ladin.

The name they chose for this project, Cordoba Initiative, is an
interesting chose. For those who are not students of history, Cordoba is
a city in Spain. During the time of the Crusades it was one of Spain's
greatest cultural centers. The Moors, which were a group of Muslims from
North Africa invaded Spain beheading all infidels (non-Muslim
believers), captured Cordoba, converted it to their city and turned the
city's well known Catholic cathedral into a mosque.

Throughout history Muslims have been known to capture territory and always convert the most prized Christian churches into mosques. It is no accident that this
NYC Islamic Center is being called the Cordoba Initiative. They are
claiming a victory of 9/11 and creating their own memorial. In that culture their memorials are not in honor of the dead, but to display their victory over those who were defeated.

Mayor Bloomberg and the city council of NYC have approved the project, and made the statement that it symbolized the religious freedom allowed in America. The Governor of New York and others have offered to find another location for this center, which actual might be a more prime location, but would allow the mosque to be built where it would not be offensive to the 9/11 survivors. The Cordoba Initiative group
refused to relocate.

Last night Obama held a celebration of Ramadan (Friday 8/13),the Muslims most holy holiday, at the White House. At that time he made a statement welcoming the building of the Islamic Center in NYC, on it's chosen location near the 9/11 WTC Memorial.

Also Obama is paying Inman Rauf's way, as a representative of the US State Department as a representative of the Muslim faith in the US, on a trip to Qatar, Bahrain, and the United Arab Emirate. Supposedly Inman Rauf is not to conduct any fund raising on this trip. This is Your tax dollar at work!

Do you suppose this location might have been chosen so that those family members and other Americans who go to Ground Zero to show respect for those who died at the WTC must hear a "celebration of victory over them" every time the Muslim call for prayer is chanted 5 times day from the new mosque, which could be heard at the WTC Memorial?

Does this information help make this less about is it insensitive or should we embrace their rights, and more about why they want to do this? It does to me.

Sunday, August 1, 2010

Jefferson and Madison on Secession and Nullification

There is far too much chatter today among far too many people advocating either secession or nullification regarding the protest of an overreaching federal government. I share the frustration, and the temptation to just tell them to pound sand feels good. However, if we actually played either of those cards it would end our Republic, it would destroy that which we claim we treasure our, Constitution, our very free and independent Republic. Either nullification or secession would create anarchy. It is not Constitutional no matter what anyone tells you, no where will you find any such provision.

This is the story where these ideas first came up, where those who try to spin this story as proof that it was part of the founder's Constitution. Even as you read this you will learn that those players were working to make political hay, and even Jefferson who was pushing the envelope said he was totally against the idea of secession. At least learn the history.

When the Federalist's during the John Adams administration passed the Alien and Sedition Acts, it created a firestorm with the Republican Party led by Thomas Jefferson, Adams's Vice President.

Jefferson with his ally James Madison, the author of the United States Constitution and co-leader of the Republican Party developed their party's strategy. Jefferson drafted resolutions boldly claiming the constitutional authority of the individual states to declare the Alien and Sedition Acts not only unconstitutional but null and void.

In his original draft of what became the Kentucky Resolutions, Jefferson began with the unexpected proposition that the states in the union were not obligated to give blind obeisance to the federal government. He followed that initial statement with the critical constitutional premise that the union was a compact among the individual states.

Under the compact, the federal government was assigned certain explicit powers; all other government authority necessarily remained with the states. Because the constitution was derived from the compact among the states, Jefferson concluded that each state retained the right to judge for itself whether an act of Congress was unconstitutional. When an act of Congress was unconstitutional, as Jefferson believed the Alien and Sedition Acts were, redress was left for the states.

The states, through their elected representatives in Congress, could of course, fight for the repeal of unconstitutional legislation. But, as Jefferson well knew, repeal of the Alien and Sedition Acts was unlikely in the Federalist-controlled Congress. As an alternative to congressional repeal, Jefferson claimed that the individual states could declare the Alien and Sedition Acts unconstitutional and null and void.

Jefferson wrote that, "where powers are assumed which have not been delegated, a nullification of the act is the rightful remedy; every state has a natural right in cases not within the compact, to nullify of their own authority all assumptions of powers by others within their limits." Although his resolutions were drafted for a single state legislature, Jefferson invited others states to "concur in declaring these acts void and of no force" and to prohibit the application of any other legislation "not plainly and intentionally authorized by the Constitution" within their respective states.

Jefferson gave the draft to his neighbor and confidant, Wilson Cary Nicholas, who passed it on to John Breckinridge, a Kentucky legislator and loyal Republican. Both men were sworn to secrecy in protecting Jefferson's identity as the author. By the time the Kentucky legislature passed the resolutions in revised form on November 10th, Jefferson's most controversial proposal, that Kentucky act upon the declaration that the Alien and Sedition laws were null and void, was eliminated. Significantly, the Kentucky legislature's relatively moderate remedy was to work with other states assemblies for the repeal of the Alien and Sedition Acts.

Madison's companion resolutions passed by the Virginia legislature in December did not contain Jefferson's provisions justifying a declaration by the state that the federal legislation was null and void. Madison, in fact, disagreed with Jefferson on that critical point as well as the exact nature of the constitutional compact. Of course Madison disagreed with much of Jefferson's ideas on the Constitution, he hid Jefferson's beliefs that each generation should have a revolution every twenty years, that no generation should be forced to live under the rules set forth by the previous generation for years to protect Jefferson from scorn.

Madison conceded that states joined together to form the union, but he was not convinced, as Jefferson was, that the Constitution allowed a state to declare an act of Congress null and void. He was not even certain that a state was the ultimate judge of the constitutionality of a congressional act, nor did he demand that the states redress what he considered an unconstitutional act. Madison's Virginia Resolutions called for congressional repeal of the Alien and Sedition Acts.

In preparing the Republican response to the Alien and Sedition Acts, Jefferson had, characteristically, worked simultaneously on two distinct levels; the philosophical and the pragmatic. At the theoretical level, Jefferson could proclaim the most radical constitutional position, as he did in his original resolutions.

Taken literally, such a state's rights position justified the most extreme political measures, even secession. However, Jefferson strongly opposed any secessionist movement, calming distraught colleagues such as another state's rights advocate, Virginia's John Taylor, who had raised the possibility of Virginia's and North Carolina's withdrawing from the union in 1798.

Admitting that the crisis was serious, Jefferson nonetheless told Taylor, "In every free and deliberating society, there must, from the nature of man, be opposite parties and violent dissensions and discords; and one of these for the most part, must prevail over the other for a longer or shorter time. Perhaps this party division is necessary to induce each to watch and relate to the people the proceedings of the others." Jefferson concluded his letter to Taylor optimistically: "A little patience, and we shall see the reign of witches pass over, their spells dissolved, and the people recovering their true sight, restoring the government to it's true principles."

It is these resolutions by Jefferson that gave credence to a constitutional claim, highly controversial in 1798 and yet two centuries since, that the states through their legislatures, possessed a sovereignty under the Constitution comparable in scope and authority to that of the federal government.

However, when reviewing the words of Madison, the Father of the Constitution, and even the words of the most radical Jefferson, neither believed for a moment that secession was a constitutional option.