Are You 67% Better Off Than You Were?

Politicians often ask you if you are better of than you were 4 or 8 years ago.

I was reading some campaign rhetoric this weekend and I was amused by the fact that there are still rabid calls to "keep the Bush tax cuts" and it got me to wondering who this is really going to benefit.  We all know that the US has gone 40% more in debt than when Bush took office and, obviously, inflation is out of control, especially for the things we import, like commodities.

Since core inflation is "under control," what that means is that the price of goods and services we produce in this country are not demanding more money, even with the drastic dollar deflation, and, in terms of foreign currency, we are being paid only 2/3 of what we got paid for the same amount of work or production as we did in 2000.

Now, intuitively, you may think that if the dollar has declined 40%, you need 40% more money to offset the loss but that is not the case…  40% off of 100 leaves you with 60 but – to get back to 100 – you need to multiply 60 by 1.67!  This is why we try not to lose money in the markets, once you lose more than 20%, you need to do better than 30% just to get your money back.

So if you had a net worth of $10M in 2000 and voted for George Bush (or, if you lived in Florida, if you did not fully punch your chad for Gore) because you liked his tax cuts, the question you have to ask yourself is if you are 67% better off now than you were then.  If you do not now have $16.7M from a $10M start, then you have lost ground.  The money you worked for your entire life, not to mention the value of other assets you may have like homes, boats, cars, stocks… has been discounted by 40% over the past 7 years of Bush economic policy.

That’s why the stock market, already trading flat to 2000 levels, is much further down than you think as the Dow valued in Euros is actually already down to 6,807!  This is not a math trick – a share of IBM stock (flat at $120 since 2000) that bought you 4 barrels of oil when Bush took office, now does not even buy you a single barrel of oil.  Even a share of XOM, which is an oil company, hasn’t kept up with inflation going from 1.5 barrels of oil at $40 in 2000 to 0.62 barrels of oil today.

The "good" news is that 7,000 was our big break-out level on the Dow back in 1997 and we held the 7,000 line in 2002, despite 9/11 so, effectively, we are back to our 9/11 lows on a dollar-adjusted basis – one would think things can’t get much worse but we do have 6 more months to go…

It is very obvious to poor, working class and middle class people that their situation has become desperate in the past few years bur it amazes me how delusional the rich and the super rich are about their situation.  Here is a list of the Super Rich from the Forbes 400 lists of 2000 and 2007 along with their dollar-adjusted wealth:

It is interesting to note that the people who got rich building corporations by working hard for many years were punished while investors and speculators were rewarded under the Bush administration.  Is this the America we are really trying to build?   Are these the values for the new America?

Warren Buffet had challenged rich Americans on the Forbes 400 list to disprove his claim that “the average tax rate paid by the Forbes 400 billionaires is lower than the average tax rate of their receptionists“.  In fact, Buffet revealed that the average tax rate for employees in his office is 32.9%, while he paid 17.7% of his income as taxes. Putting his money where his mouth is, Buffet said that if any Forbes 400 people can disprove his claim he would donate a million dollars to a charity of this person’s chosing.  In case you are wondering, Buffet does his own taxes, doesn’t use an accountant and does not employ any tax shelter strategies.

This is not a problem we are going to be able to spend our way out of folks.  Unless you are in the investing class, then you should be gravely concerned about what is happening to this country and our currency and the more money that funnels its way into the hands of speculators, the more money gets put into the things they speculate on, which raises the cost of those things – is that really such a complicated concept for Congress to grasp? 

I would urge voters out there to take a few minutes and perform a simple calculation as to how much better off you really are than you were in 2000.  Multiply your own net worth by 60% and compare that to where you were at the turn of the decade or, if you think you are "above" petty dollar concerns, then calculate your relative wealth in gold, oil, Mercedes, Rolex, Ritz-Carlton… whatever makes you happy and think about whether massive government debt and a devalued currency is really what you are looking for in an economic policy for the next 4 years.  And it”s not just the Presidency, without Congress and the Senate we will have just 4 more years of endless bickering and this country is way too far off course to let ourselves drift aimlessly for another 4 years.

This is not one of those things that is out of our control, the value of the US dollar is a direct result of a combination of the credit-worthiness of this country (ie. spend within our means, raise the taxes we need) and the money supply as influenced by Fed Policy.  As we allow oil prices to climb out of control we flood the planet with $11.9Bn a day that are required to buy the world’s 85M daily barrels.  That’s double the rate at which dollars were exchanged for oil last year and other commodities have kept pace as well and those are all dollars that are printed here, sent out of the country and burned up in someone’s gas tank.

What do you think a dollar is worth when the world burns 12 Billion of them every day?