I believe the Federal government has grown out of control, threatening the Rights, Liberties, and Property of the People. This is being done at the Executive, Legislative, and Judicial level. This is in direct opposition to the Constitution and the Founding Fathers vision for the Federal government. Because I believe this, today I exercised my right as a Free Citizen, and did not visit the White House. This was not about politics or party, as in my opinion both parties are responsible for the situation we are in as a country. This was about a choice I had to make as an INDIVIDUAL. This is the only public statement I will be making on this topic. TT

Good for Tim Thomas for making the number one political statement of the year on the eve of President Obama’s State of the Union. Talk about putting a wet blanket on the SOTU. Sorry, Obama, but your performance has been so bad that a pro athlete felt it was his duty to boycott a meeting with you. The Stanley Cup MVP sucked the air out of the room. The liberal media are having a fit. The Boston Globe’s Kevin Paul Dupont was livid. He wrote:

Not a lot has changed in the US over the last two years, although it appears the economic picture is brightening at least a little bit, despite those in charge of our various governmental nuthouses. Unemployment has eased some and the Dow Jones industrial average has improved considerably. Politically, our nation is a mess, but the material Property of the People at least seems to be getting better. Not every house in the Lower 48 is up for short sale.

“Not a lot has changed in the US over the last two years.” What planet is Dupont living on? Yet you could hear crickets when Red Sox owner John Henry and General Manager Theo Epstein chose not to meet President Bush. Where was Dupont then?

Thomas said at the start of the NHL all-star weekend: “I followed my conscience. Everything I said in my statement I believed to be the absolute truth … I don’t think I need to revisit something that I stated so clearly.”

I hope he does someday. Senator John Kerry of Massachusetts attended the Bruins’ visit to the White House. He didn’t want to miss the photo op. Thomas has hit a nerve that he can use to connect with the middle class: the Federal government has grown out of control, threatening the rights, liberties, and property of the people. Why not run for Senate and unseat Kerry?

Indiana Right to Work

All eyes are on Indiana, but not just for the Super Bowl. Indiana is about to become the 23^rd right-to-work state. It will become an island of freedom among the forced-union states of the Midwest. Expect manufacturers to turn their attention to the open-for-business Hoosier State.

A national right-to-work law should be next. Do you really think professional athletes, for example, with their entourage of handlers, need union leaders to negotiate for them? With a national right-to-work law, there probably wouldn’t be a shortened NBA season or an almost-missed NFL season, not to mention past strikes and missed seasons by major-league baseball and the NHL.

Union Pensions in Private Equity

The Wall Street Journal’s Michael Corkery wrote an excellent article titled “Public Pensions Increase Private-Equity Investments” pointing out that public pensions have increased their percentage ownership of the Bain Capitals of the world to fund their retirement. And yet they vilify Mitt Romney. Union leaders are only about reelecting Obama. For leadership, bashing private equity is for the greater good, as long as they are protecting their dues-collecting fiefdom.

Ron Paul and Sound Money

David Malpass points out in his Wall Street Journal op-ed “Ron Paul, the Fed and the Need for a Stable Dollar” that the Fed has destroyed the dollar with gold at $1,700 per ounce. He writes:

Dollar weakness doesn’t work at all for economic well-being. The corollary to the Fed’s policy of manipulating interest rates downward at the expense of savers is declining median incomes. It’s no coincidence that inflation-adjusted median incomes rose in the sound-money booms of the Reagan and Clinton administrations and fell in the weak-dollar busts during the Carter, Bush and Obama years. When the currency weakens, the prices of staples rise faster than wages, hurting all but the rich who buy protection.

The Fed’s weak dollar policy is destroying middle-class savers and those who have been responsible with their money. Malpass continues:

Americans know this is a big problem but can’t stop it. Texas Congressman Ron Paul has created an intensely popular presidential campaign around the need for stable money and limitations on the size (the Fed employs 22,000 people) and power of the Fed.

To arm yourself with more facts, pick up a copy of Paul’s End the Fed.

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“Money’s easy.” That’s the feeling the Obama White House conveys when it burns your money on green pet projects like Solyndra, or when it rejects job-creating projects like the Keystone XL pipeline. It feels thoughtless when the reason for rejecting XL was that they didn’t have enough time to evaluate it. And the White House is offended for being called out on the food stamp boom that’s taking place on its watch.

We’re past the point of the government being too big. The government counts every dollar it spends as if each one brings the same result. That’s wrong. Compare spending on core services such as the maintenance of roads and bridges to the cost of keeping people on the government dole with no incentive to seek or find work for fear of losing their benefits.

The marginal benefit for every dollar spent by government has long been in decline. Yet government GDP stats account for every dollar equally. In reality, the return on government spending is pennies. In The Great Stagnation, Tyler Cowen of the Mercatus Center at George Mason University writes:

A dollar spent on welfare for the poorest is more valuable than a dollar spent extending the program to better-off but still poor cases. And so on. Yet when it comes to national income accounting, and measuring GDP, we are valuing every one of these different expenditures at $1. In our measurements, we are assuming that the quality, importance, and efficacy of government stays constant as the size of government grows.

Over time, an increasing percentage of what we spend on government is spent on optional rather than core services because the core services tend to have been around longer. Another way of putting it is to say that the marginal value of added government, even if positive, falls as government grows larger.

In Rhode Island, roads and bridges can no longer be maintained without higher tolls and taxes. “I’ll tell you, it’s not good,” Governor Chafee said regarding potential cuts and tax increases. Cuts “are going to be very unpopular. You can’t do it all on cuts.” George Nee, president of the Rhode Island AFL-CIO, recently suggested raising the income tax on the state’s wealthy to deal with the crippling local pension plans. Are there any wealthy people left?

Hello? Let’s end the cozy relationship between government and union leadership. They’ve misspent your money and have overpromised on other people’s benefits. Keeping more of your money should be your right. Not theirs.

Earning money is virtuous—someone willingly pays you for your services. Yet that’s too much for some to swallow. It reminds me of big brother bully Jim Taggart in Ayn Rand’s Atlas Shrugged, complaining that his sister, the heroine, Dagny Taggart, is more interested in their business better serving its customer, Ellis Wyatt and that she’s coldhearted because she thinks it’s wrong to take part in developing an underprivileged country that never had a chance.

Dagny responds, “Ellis Wyatt is not asking anybody to give him a chance. And I’m not in business to give chances. I’m running a railroad.” Jim responds later, saying, “That’s an impractical attitude. Selfish greed for profit is a thing of the past. It has been generally conceded that the interests of society as a whole must always be placed first in any business undertaking.” Which is exactly what the government and union leadership continue to do.

Rhode Island’s December unemployment rose to 10.8%, marking the fifth consecutive month of job losses, for a total of 8,500 jobs lost over that time span. In a letter shared with the Governor’s Workforce Board Thursday, Chafee wrote, “I urge you to redouble your efforts to create training and employment strategies and opportunities for unemployed Rhode Islanders.” There goes another $350,000 of the producers’ money.

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On the other end of the spectrum, where unemployment rates are the highest, it probably feels like the recession never ended. These states are Nevada (13%), California (11.3%), Rhode Island (10.5%), Mississippi (10.5%), North Carolina (10%), Illinois (10%), Florida (10%), South Carolina (9.9%), Georgia (9.9%), and Michigan (9.8%). Some of these states may quite possibly be stuck in a death spiral for years to come, but others will be able to rebound. There isn’t a magic bullet per se, but there are tools states can use that are like a flashing neon “Open for Business” sign. One tool is becoming a right-to-work state—meaning it’s illegal to force employees to join a union against their will.

Workers, like money, go where they’re well treated. College grads are moving to right-to-work states. The nine states with the greatest gains in college-educated adult population between 2000 and 2010 are listed below, courtesy of the November-December 2011 National Right to Work Committee Newsletter:

You can see in the table that South Carolina, Florida, North Carolina, and Nevada are among the nine states with the greatest gains in their college-educated adult populations and are right-to-work states. They are also among the states with the highest unemployment numbers that I discussed earlier.

But there’s a reason why Boeing set up its sophisticated 787 Dreamliner manufacturing facilities in South Carolina. Boeing recognizes that it needs workers who cannot be stifled by unions and can work freely to increase their merit-based wages. “The simple fact is, highly educated employees, like other employees, benefit from right-to-work laws,” says Matthew Leen, vice president of the National Right to Work Committee. “Employees of all kinds prefer to live in right-to-work states when they can because living costs are lower and real incomes are higher.”

There are two states that are in the group with the slowest growth in their college-educated adult population from 2000-2010 and the highest unemployment rates: Michigan and Rhode Island. The weak recovery may be self-perpetuating for the weakest states. In his Wall Street Journal piece “No Easy Balm for Joblessness Wounds,” Ben Casselman writes:

Unprecedented rates of long-term unemployment could threaten the economy’s recent gains. Some 5.6 million Americans have been out of work at least six months, 3.9 million of them for a year or more. Research shows that the longer people are unemployed, the less likely they are to find jobs. Economists aren’t sure why—to what degree it’s because workers’ skills deteriorate, or because they find ways to cope and give up looking for work, or whether the stigma of being unemployed for so long makes employers unlikely to hire them—but the effect is the same: Many of the people out of work the longest likely will never work again.

The risk, economists say, is that the U.S. will develop an underclass class of semipermanently unemployed workers, with severe consequences for productivity, public finances and even social stability. Europe, which faced a similar problem in the 1980s, is still dealing with the consequences.

States like South Carolina that are open for business and treat workers well will attract a mobile workforce. Those that are not attractive, like Rhode Island and Michigan, could be left with a non-mobile workforce, saddled with public debt and pension debt they didn’t spend or promise. How they pay it down when so many of the most productive workers have left has yet to be determined.

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As ordered by Congress who is trying to find $36 billion, beginning April 1, Fannie Mae and Freddie Mac will begin a 10-year-long premium-charge increase of 10 basis points on lenders to guarantee principal and interest on home loans. These fees, known as guarantee fees or “g fees,” will no doubt be passed along to borrowers in the form of higher interest rates.

With the stroke of a pen, lawmakers have increased real estate financing costs for the middle class. It is a blatant backdoor tax on the middle class, the main customer for the conventional loans purchased by Fannie Mae and Freddie Mac. President Obama is not only breaking a promise not to increase taxes on the middle class, but is issuing a penalty on savers and those trying to be responsible with their money by investing in a home. This is rotten to the core.

Ten years of “g fees” charged by Fannie Mae and Freddie Mac will be used to fund the government’s payroll tax cut for two months. Now that a precedent is set, what’s to stop the government from coming back again with hat in hand a year or two from now? And now, if an effort is made to wind down Fannie Mae and Freddie Mac, there will be a general revenues shortfall to deal with. It’s unconscionable that Republicans in the House and Senate went along with this boondoggle.

With interest rates for a 30-year mortgage at around 4%, a 10-basis-point increase is a significant extra cost. If lenders pass the cost along as a higher rate of 4.10%, that’s a 2.5% increase. My point: How much government do you want in your house? It’s really a matter of principle.

This is especially hurtful to states that are losing population and jobs faster than the rest of the country. And it’s a direct hit on the saving class and those being responsible with their money, no matter where they live.

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In the Finance section of the profiles of the 39 cities in Rhode Island on the RIP Map, you’ll find a ratio of liabilities calculated by adding debt to pension liabilities and dividing by receipts. The higher the ratio, the less capable a town is of paying its obligations. While the colors on the map reflect the troubling pension situation for the towns of Rhode Island, the (Pension+Debt)/Receipts ratio gives you a broader perspective. For example, you can see that Newport is orange on the map, but so is Scituate. But Newport’s (Pension+Debt)/Receipts ratio is a whopping 324%, while Scituate’s is a still substantial—but not nearly as terrifying—136%. The RIP Map gives you a clear view of how troubled the state’s municipalities really are.

If you live in Rhode Island, take a look at your city/town on the map. If your real estate and/or local taxes are already high and your town is facing a mountain of pension debt, isn’t it time to ask why? One key metric for assessing a town’s deterioration is its population growth over the last 10 years. Fewer people means lower real-estate assessments means higher taxes. It’s a simple business equation.

You can go to the RIP Map and look up your mayor or your town’s equivalent. The contact info is there. Ask them why your town’s finances aren’t what they ought to be. Ask for reasons why. If they don’t know, they should. But since you’re armed with the information on the RIP Map, you can’t simply be pushed off to the side. Intimidation won’t work. It’s time politicians in Rhode Island listen to how bad the numbers really are. And it’s time they do something about it.

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Time has already run out on bankrupt Central Falls, and now East Providence is in a form of receivership due to its pension mess. Central Falls receiver Judge Robert G. Flanders Jr. was forced to slash pensions by as much as 55% over the summer because there was no more money. I’m sure Governor Lincoln Chafee wasn’t thrilled about the negative press from Central Falls and how it reflects upon the state.

Last week a $2.6-million state bailout agreement was signed by Flanders and the director of the state’s Department of Revenue, Rosemary Booth Gallogly. With this agreement, the state is throwing 100 Central Falls retirees a lifeline that, get this, will potentially provide bigger pensions than they were getting before Flanders made the cuts. This is the epitome of the state playing the role of Big Brother. It’s my belief, though it’s only a hunch, that Flanders didn’t want to go along with this deal. It goes against what he’s been doing all along as one of the more vocal opponents to the outright fraud in Central Falls.

Pension abuse is not being dealt with by a bailout. The Providence Journal reports that “Among those who would get a pension bump is Robert J. Levine, a former Central Falls police officer who left the force on a disability pension after six years of service. The city also paid for his law degree. Today, he is a high-profile personal injury lawyer known as ‘The Heavy Hitter,’ who lives in a million-dollar house in East Greenwich. Just 43 years old, Levine would see his tax-free disability pension of $22,133 grow by several thousand dollars.” 

On Monday, Moody’s Investor Services released a report on Rhode Island’s municipalities. It’s truly ugly. The report puts the state as the third most likely to fall into recession in the country. I’ve created a map outlining the pension situation for Rhode Island’s 39 cities—it could pass as the Greek Isles.

The Rhode Island Pensions (RIP) Map illustrates funding ratios per municipality. I use Treasuries as a realistic rate of return—backed by the full-faith-and-credit pledge of the U.S. government (for whatever that’s worth today). This approach matches up liabilities with promises known as a guaranteed rate of return. It’s what I would advise any investor do with a private-sector pension problem. Anyone suggesting otherwise would be laughed out of my office. Most local plans use an 8% rate, and yet the actual average five-year rate of return for them was only 1.97%, according to the Senate Municipal Pensions Study Committee Final Report, published on February 15, 2011, by the Rhode Island Senate Fiscal Office.

More cities and towns will be going the route of Central Falls when they come to grips with a depreciating real-estate tax base, higher borrowing costs resulting from Moody’s downgrades, and mountains of growing pension obligations. Rhode Island can only play lender of last resort for so long, until it’s going to need a bailout of its own.

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