State of the Union Trend Analysis

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Last night President Obama urged law makers to redouble their efforts in putting money into roads, education, research, fuel efficient cars, and public transportation. Yet, in the same speech he also called for a domestic spending freeze for the next five years. Only in Washington D.C. can you call for a spending freeze and  spending increases in the same speech.

One thing we really liked was President Obama’s decision to follow the lead of House Speaker John Boehner in not passing any bill with earmarks. Though we are naturally skeptical of any promises from Washington, this may be one that has a chance of being kept since both sides will be trying to impress the 2012 electorate on who is going to be tougher on wasteful spending. If the House Speaker follows through with his promise, then President Obama should never have to worry about vetoing a bill because of earmarks. Of course, with President Obama saying that he would veto any bill that includes earmarks, he certainly raised the stakes for Mr. Boehner. Any bill with earmarks at this point will get a lot of media attention and could be a death blow if it came from the republicans, since the tea party that swept them into office is very critical of any spending coming out of Washington. Imagine a scenario where the conservative party proposes a bill with earmarks only to have it vetoed by President Obama. This would most likely destroy Tea Party support for the republican party, which is why we see this as the first promise in decades that may actually be fulfilled by our politicians.

Social Security was mentioned, but only in passing, the typical call for an unknown solution was made, but nothing was said about raising the retirement age, partial privatization, opt out options, or cutting benefits. FutureMoneyTrends.com has zero faith in our politicians to reform our entitlement programs that if left unchanged will eventually bankrupt our nation. Currently, in order to pretend that the system works, the government is borrowing 42 cents for every dollar it spends. According to economist John WIlliams from ShadowStats.com, seniors are already being screwed because of the changes in the way we calculate CPI. John Williams points out that the cost of living indicator has now turned into the cost of survival; even as costs are rising for food and energy, the government finds a way to report little to no price inflation. According to Shadowstats.com, if the government accurately accounted for price inflation, social security payments would have to be 40% higher than they are today. Not accounting for real inflation also fudges our GDP numbers including projections that the congressional budget office uses. This is one of the reasons most bills in congress, like healthcare reform, are completely bogus when it comes to cost. Using government statistics and projections is like putting vaseline on your eyes and then describing what’s in front of you. Remember, when Medicare was created in 1966 the government estimated that the cost in 1990 would reach $12 billion per year. The actual cost in 1990 ended up being $107 billion, the government was off by 792% and today Medicare costs over $400 billion annually. Remember, we are now at a point where even if Americans were taxed at 100% of their incomes, the government would still not be able to balance the budget.  Unfortunately, the cuts that need to be made have almost no chance of happening in our opinion, and as of last night, the cuts that are needed are not even being discussed.

So far, Wall Street is taking last night’s speech quite well, mainly because of the calls to lower corporate tax rates making the U.S. more business friendly. The U.S. currently has the highest corporate tax rates in the industrialized world and hasn’t lowered rates for 25 years. FutureMoneyTrends.com believes even something as simple as this will not happen since the President also called for the reduction in corporate tax loopholes prior to any tax cuts. Loopholes lead to big money and big money leads to our politicians’ re-election campaigns, so any tax reform is probably not coming anytime soon.

Earnings that have been reported so far have mostly been disappointing, yet Wall Street continues to shake off the bad news. A FOMC statement is expected later today with no changes to QE2 or interest rates. It will be interesting to see what the Fed has to say about price inflation. Several companies, including McDonalds, have recently announced that they can no longer absorb wholesale price inflation and will begin to raise prices for customers. Of course, the Fed can always just blame the weather on rising gas, food, healthcare, tuition, and other costs faced by consumers who live in a non-core inflation world.

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