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If Money Morning's Keith Fitz-Gerald were granted an audience with U.S. President Barack Obama and Federal Reserve Chairman Ben S. Bernanke, the one message he'd deliver is this: It's time to stop the gravy train and reform the U.S. financial system once and for all.
In fact, this may be our last chance.
"If I had the chance to sit down with President Obama and Fed Chairman Bernanke, I would offer [them an] eight-point plan that's designed to increase growth, provide jobs and increase America's international competitiveness," says Fitz-Gerald, a well-known commentator and bestselling author who is Money Morning's chief investment strategist.
In this second installment of a two-part interview with Money Morning Executive Editor William Patalon III, Fitz-Gerald took the time to outline that eight-point rescue plan for the U.S. economy. In that plan, the changes Fitz-Gerald calls for include:
- Cuts in federal spending.
- Pension reforms at all levels.
- A halt to weak-dollar policies.
- And a realization by Washington that it's time to take China much more seriously.
In Part I of this interview, which appeared yesterday (Thursday), Fitz-Gerald assessed the health of the U.S. and global economies, provided his outlook for the U.S. stock market and for commodity prices, and even offered an investment strategy for 2011.
The highlights of Part II follow below. And if you missed Part I, you can access yesterday's story by clicking here.
Money Morning (Q): In Part I of this interview, we covered a lot of ground, talking about the outlook for stocks, commodities and even the U.S. economy. Speaking of the economy, it's clear that we've reached a critical point with regard to debt - and by a critical point, I mean that it seems to be now or never if we're going to actually do something about U.S. government debt levels. I know from our many talks that you agree. If you could sit down with U.S. President Barack Obama, and U.S. Federal Reserve Chairman Ben S. Bernanke, what advice would you give them? What kind of a game plan would you sketch out?
Keith Fitz-Gerald: I've actually been waiting for a question just like this for awhile now, Bill. Thanks for asking. If I had the chance to sit down with President Obama and Fed Chairman Bernanke, I would offer the following eight-point plan that's designed to increase growth, provide jobs and increase America's international competitiveness:
- Stop the weak-U.S. dollar policies that have drawn the ire of nations around the world - and for which China is openly deriding us. These policies are encouraging rampant-interest-rate speculation, increasing oil prices (which are priced in dollars) and undermining our currency - none of which are conducive to a vibrant economy. Raise the benchmark Fed Funds rate immediately, then peg it to something like oil or gold or some combination of currencies plus natural resources. This will remove uncertainty and immediately show governments and investors around the world that the dollar does, indeed, matter and that their faith in our debt is not misplaced. Weak money is the enemy and it craters the very middle class our government says that it's trying to protect.
- Speaking of which, by focusing on preserving capital instead of putting it to work, the government has created a punitive atmosphere for the small businesses in this country, which make up a huge percentage of our economy. They've also punished those who have been prudent with their money, while involuntarily redistributing wealth to those who haven't. This has got to stop: A country that erodes economic initiative erodes its own wealth. That's been very well documented through history, and is beyond dispute.
- Outlaw non-deliverable credit default swaps (CDS) and force Wall Street to act in the best interests of the customer, instead of in its own. Thanks to huge conflicts of interest - as well as a toothless regulatory structure - Wall Street is actually depriving Main Street of huge amounts of money and opportunity, while enriching itself.
- Quit bailing out companies that should fail. History is littered with the bones of failed companies. Whenever I hear the term "too big to fail," I want to ask our leaders why they didn't use the anti-monopoly statutes already on the books to keep companies from reaching the point where their failure could actually damage the economy - meaning that they have to be rescued. The sad result of this is that the risks are more concentrated now than they ever have been. And bonuses are bigger than ever for a very select few of Wall Street's modern-day buccaneers.
- Simplify our tax code. At 8 million lines, it's totally out of control and impenetrable to businesses and individuals alike - not to mention cumbersome and expensive to deal with. A simpler tax code would encourage more investment, would lead to higher profits ... and would result in greater job creation.
- Privatize Social Security. Where is it written that the government is the risk-taker of last resort? And for all those Americans who are worried that Social Security might go bankrupt ... well, I've got news for you - it's already there.
- Slash federal spending. There's a longtime axiom among professional traders: Big Government = Small Wallets. Pure and simple. There is no such thing as a multiplier effect and every government dollar spent actually replaces a dollar from the private sector. The very notion that the government can spend money more efficiently than private enterprise is badly flawed and robs this country of wealth at all levels. If the government's "investment multiplier" actually worked, our economy would be screaming along at 5% to 8% or more.
- Stop the freeloading and engage in immediate pension reform. We cannot live on free money forever, which is why we've got to push federal, state and local pensions into 401(k)-like systems. The very notion of a lifetime pension is not only preposterous, but robs the system of badly needed wealth in the process - perhaps Congress is nervous about this because it's another case of what's good for the goose is not good for the gander. Congressional members have a really fat pension as it is.On that note, I want to offer one final observation. The president and various members of the political establishment have often said that like American families who have had to sacrifice, the government must also. Then, President Obama announces a spending freeze at current levels, which are up 25% over the last two years and congressional aides announce that the 2011 budget deficit may hit $1.5 trillion, up from $1.3 trillion. To politicians, not increasing their spending of your money, that is apparently the real sacrifice.
But here's the thing ...
You don't have to be a victim.
If you follow our lead, you'll be among the small group of investors who make a great deal of money in the new-reality markets - such as the "BEE" markets that Fitz-Gerald referred to in today's interview. There are major profits to be made - even with investments that will enable you to navigate this unsettling economic storm. And these investments will even help you reach a welcome port on the other side of this historic squall.
To find out about these opportunities - and about the investments that Fitz-Gerald is recommending right now - check out the "2011 Investor's Forecast" issue published by our monthly affiliate newsletter, The Money Map Report.
If you are already an MMR subscriber, you already have this issue in hand, and can access this report by clicking here and then using your password. That will provide MMR subscribers with access to Fitz-Gerald's recommendations in the "Forecast" issue.
Money Morning readers who are interested in finding out more about our forecast issue can do so by clicking here.
Look at it this way: When oil reaches $150 a barrel and gasoline costs more than $5 a gallon, the economic pain experienced by most consumers will be intense. But for smart investors, the profit potential will be immense.
Which group would you rather be part of?
]News and Related Story Links:
- Money Morning Interview With CIO Keith Fitz-Gerald (Part I of II):
Commodities, "BEE" Markets and Multinational Stocks Are Best Investments For 2011. - Money Morning Special Report:
State of the Union: Why You Should Fear America's "Sputnik Moment." - The Geiger Index:
Official Website. - Wikipedia:
Social Security. - WhiteHouse.gov:
U.S. President Barack Obama. - Social Security Online:
Cost of Living Adjustments. - Wikipedia:
Peak Oil. - Money Morning "Outlook 2011" Economic Forecast Series:
Gold Price Forecast: Four Reasons the "Yellow Metal" Will Hit $1,900 an Ounce in 2011. - Money Morning "Outlook 2001" Economic Forecast Series:
Outlook 2008: How to Profit When Oil Bubbles Up Above the $100 Level. - Money Morning Special Report:
Credit Default Swaps: A $50 Trillion Problem. - SeekingAlpha.com:
Forget BRICs, Try Killer BEEs: The Next Group of Big Emerging Economies. - CNNMoney.com:
Congress' Pensions: Nice and Secure.
Very sensible advice, Keith. But do you really believe that – save revolution – US politicians will grab the message? This stupid weak dollar and irresponsible fiscal policy has gone on for 30 years now, despite many warnings issued both from inside the US and from abroad.
The privileges of being the issuer of a reserve currency have been abused of beyond all reason and I reckon the US citizens would finally be better off by seeing it abandoned. I am sure that a majority of Main Street Americans would subscribe to a more reasonable financial policy, but to do that, the present political personnel in its great majority would have to be replaced.
I agree with everything except privatizing social security. Too many Americans are simply not capable of managing money for their future. Many are so busy managing their own jobs and families that they don't have time or knowledge, but, remember, 50% of the population is in the lower half of the bell curve of IQ. Similarly, many older Americans suffer from dementia–hardly a formula for rational investment decisions. Money managers are willing (and eager) to take control of people's finances, but in a low interest rate environment, the fees can eat away at returns so that what is left is inadequate for supporting a person who has worked all his life, and tried to save for retirement. The money managers make out, but the investor does not.
I already subscribe to Money Map Report, energy advantage, inner energy advantage and Merchant bank report by Martin Hutchinson. I only have so many dollars to invest in each recommendation?? I have already invested approx $70000. I only have approx. $20000. left to invest so I am concerned that the profit margin won't left me invest in many more stocks. So how does a person keep growing his portfolio as not every recommendation that you people suggest is profitable. I would like to grow this portfolio to a million dollars in a year or two? Is that possible w/your recommendations???
I enjoyed the article by Keith Fitz-Gerald and good to see he mentioned tax reform. but he did not go far enough and there is a solution. It is called the FairTax Bill, HR 25 / S13 now in the Ways and Means Committee. It is only 133 pages long and eliminates some 67,500 pages of old tax code. You can read it on the Internet.
The FairTax was not created by politicians and lobbyists but by private citizens with $22 million in research to develop a solution to our present tax code mess.
The FairTax eliminates the IRS, business and personal income taxes, capital gains tax, estate tax, self employment tax and the payroll taxes of Medicare and Social Security. To raise the same total tax revenue one national progress consumption/sales tax of $.23 within the dollar, called the FairTax, would be collected by each of the 50 States for the Federal Government. The FairTax is progressive because the monthly tax rebate would untax all US Citizens up to their necessity or subsistence level spending. The rich would pay more tax and at a higher rate as the spend to enjoy their wealth. The FairTax greatly reduces hidden business taxes ($.22 in each dollar) now passed on as higher prices and finally paid by the final consumer. Taking business taxes out of the our pricing system will make US products and services more competitive in the World markets, create new jobs and attract some $12 trillion in offshore capital to our economy. Change the tax code to the FairTax and you get a huge "no cost and debt free" stimulus package.
Some other FairTax benefits:
Stops punishing good behavior with taxes on income, savings, capital gains and investments Stops rewarding bad behavior with tax deductions on debt
Get your whole paycheck, no Federal withholding and increases disposable income
Gain back your lost financial and economic freedoms
Encourages conservation
Takes taxing power from politicians and lobbyist to punish and reward, hide and disguise and divide and conquer.
Taxes the underground economy to expand the tax base by $1.5 trillion
Takes two to cheat, the buyer and seller
Eliminates wasteful tax records keeping and filings, estimates $300 -$500 Billion
Eliminates 170 million annual income tax fillings and replaced with collections by 20 million businesses
We want and need your help and support. The FairTax is the right and Patriot bill for our country.
Educate and Register
Paul Livingston
FairTax volunteer
904-735-7565
Those 8 are excellent.
We need a 9th. Health care.
The problem with health care is that it is medical care for profit, not health care.
For much of the economy the profit motive, with regulation, is valid. Health is not one of them.
A monopoly is proof of inadequate regulation in any case.
Rule: If one can profit from disease, there will be more disease – and cures will be (are now) suppressed! (Proven, cancer & CVD).
Medicine is NOT health. Drugs, surgery and radiation do not promote health but endanger it. They are all toxic or invasive and damaging. Medicine has ONE valid theater of operation – trauma and crisis, not degenerative or metabolic disease.
In 2005 or so, the top 10 Big Pharma companies in the Fortune 500 made more money than the other 490 companies COMBINED! That includes giants like GE. Pharma's gianormous profits are society's skyrocketing medical costs. It's that simple. They need competition from real health alternatives, i.e. non-medical natural treatments pushed to the forefront as primary. And they do work, without nasty side effects.
MOST health issues are due to nutritional, bio-mechanical and lifestyle issues.
Some 80% of new visits to a MD are for back pain!!.
The cost effective specialists in that area are chiropractors and osteopaths, not MDs.
Several studies have proven it, including one from the US government (AHCPR in 1994).
The Wilk's case before the Supreme Court has proven the AMA guilty of illegal trust activities and that they " had engaged in "lawless" behavior in instituting a nationwide boycott of doctors of chiropractic". It continues today as bias and systematic defamation.
9) Abolish the monopoly of health care by the Medical Industry (AMA) and Big Pharma.
Remove FDA authority over all non-medical treatments and supplements.
Do not allow the FDA to encroach on health care or define health as only a medical jurisdiction, outside of trauma and crisis.
Abolish monopoly in health insurance by carriers such Blue Cross whose MD management is biased against non-medical treatment such as chiropractic and naturopathic. Every company offering medical insurance must also offer health insurance (non-medical) that includes as a minimum:- naturopathic, osteopathic, chiropractic and physiotherapy rehab. The insurer staff must not be staffed by MDs who, by med school training, are biased pro-medicine.
MDs cannot be primary health care givers, UNLESS it is a trauma or crisis event.
Primary health care givers must in future be naturopaths, osteopaths and chiropractors. These should refer to MDs as required.
No foreign treaty (foreign authority, such as UN or WTO) may override the DHSEA act of 1994 or control domestic health.
(A ND has much the same rigorous training as a MD, except nutrition replaces drugs and surgery
NASA used an ND for the astronauts in the Apollo program.)
So why do we need politicians at all?
Was it not, that every party thinks it acts on behalf of all to their own advantage? So, as long as we have a supercritical system, the system needs corrections. If you leave the system as it is, all the people would be equal but dead – like nature proofs. A Superior life form takes over and after short only ruins are left behind. AS LONG AS EVERYBODY ONLY MINDS WHAT IS GOOD FOR HIM/HERES AND NOBODY FEELS RESPONSIBLE FOR ALL – THE PLACE IS DOOMED!
So it should be – 50% is your achievement and the other half is the achievement of the consumer and fellowman. So you have achieved 150%. You made money by taking risks for the benefit of others and others awarded you by using our products. Both have to pay taxes at equal terms. The problem is WHO took more advantage from the system? The doer or the taker? If you keep on looking at the world as you mentioned in your statement – you do not need the takers because you unify the doer and the taker.
So the taker will not need you and you do not need taker. But you will not let go of the taker because he is the only one that can help you make money, besides your fellow doers.
If you where an honest mind, you would only play with the doers and leave the takers alone.
The problem is that there are too many doers. The wolfs wouldn't have enough pray. And now you would be in the same situation as the takers – the doers start their own destruction.
Thats why the money you earn is not your money – its the achievement of all.
I know that you THINK you are smart and that you can smarten the takers out, isn't it?
The problem is you will only have as much in your pocket as you have real partners and not doers. The doers will eat your own children.
So to prevent this – our ant sisters(Greece) already had to accept that you need to prevent this incident namely the fact THAT YOU ARE ALREADY EATING THE SOAP MADE OUT OF YOUR OWN CHILDREN WITHOUT NOTICING IT.
For this reason we have politics that you do not forget that it is about balances an not checks!
There is an immediate need to to prop up the dollar. Many of us are losing our purchasing power in foreign countrys. In the last month alone, we have seen a 10 percent in prices because of the weakening dollar. This has to stop. America dollar has always been the standard worldwide, lets return the dollar to were it should be.
After studying Keith's suggestions carefully, I can not disagree with all his proposed solutions.
Government spending does increase jobs and cutting government spending cuts out jobs. During the depression the huge unemployed were given jobs with CCC and WPA, so if nothing else, these people weren't homeless and begging for food from people. It would be a good idea to get poor city teenagers out in the country planting trees or food crops. That would be a government expense.
Markets have destroyed large portions of American investment, and greedy Wall Street has brought our country to its knees financially. The markets have gone nowhere for years. In this environment you want to take a very successful program, Social Security, and feed it to the Wall Street wolves? Government has done many things correctly for America, including landing on the moon which revolutionized many industries and the Interstate road network which put an end to privatized rail expansion. Social Security is one of those successful programs, now 75 years old and quite solvent – government just needs to raise the income cap to solve any future problems.
Medicare is another success story, without which most seniors would be without health insurance. No private company offers health insurance to anyone over 65, so what's the idiotic talk about vouchers, so easy for a Legislator to flap about with guaranteed lifetime care? I totally agree with statements about Big-PHarma being the major culprit behind our out-of-sight health care costs. Marketing of pharmaceuticals raises the overhead of drug costs up to 30 percent, passed on to Americans by constantly rising health insurance premiums. Medicare needs the ability to negotiate drug costs.
Social Security and Medicare are the bedrock needs of America that only government can provide. Their efficiency is paramount to their success.
$5 per gallon gasoline ain't all that bad….Canadians pay equivalent of $4.60 per gallon right now already. Quit complainin'
I agree with everything apart from priatizing social security. I'm an Australian I have a US partner, I spend half the year in the US. Your health system is privatly run and look at the mess thats in.
The cost of health care in the US is 3 times the cost per capita as it in Australia or any first world country. If its one coversation piece I have with Americans it about healthcare, their fear of healthcare in the US. I would hate to get sick in the US. There is no perfect healthcare system in the world but your systerm is the worst of any first world country
[The problem with health care is that it is medical care for profit, not health care.]
Sure, but why stop there. Why not eliminate profit from every human endeavor.
Get a grip.
If you want to fix health care, act locally.
Start eating actual FOOD, get off your arse and exercise.
will that eliminate all risk of health problems?
no.
But you'lll avoid 80% of the problems.
Keith makes some perfectly sensible points, but:
@Ms. Friedemann and Mr. Lund: No. I am old enough to recall speaking to dozens of elders about the Depression. People starved. They lost their teeth, and their children died. My grandparents lost their teeth and their health, my father in law lost his colon. Millions lost their homes, their jobs, and their land. And the government wiped out more farmers than the dust bowl. Just as every car sold under cash for clunkers cost the taxpayers far more than the relatively well to do purchasers: So too, the CCC and WPA projects employed a much smaller number than those who were left unemployed. No doubt where you learned the false statements in your post: I was told the same by government indoctrinators. These falsehoods are reinforced by destroying anyone in Academe who challenges the system.
Government destroys jobs and prosperity and in doing so often enriches its cronies and special interests. Only by cutting government can a society prosper. It is so now, it has been so, and it will ever be so. Kind of like plants need sunshine, humans need freedom.
Neither Social Security nor Medicare are successful. Rather these programs are financed by stealing from younger workers who will never recoup their losses, and technology may fail to bail out the younger people because economic failure may prevent more of the poor from accessing reasonable healthcare. Instead, these programs have been part of the problem, driving up the price of healthcare, and hiding the impact of rising costs. See Mr. Hippocrates' post. While not entirely rational, he is correct in the sense that healthcare has become a profit only enterprise.
@Hippo: The solution is not to finance any "healthcare" which no Senator can sue into oblivion. Instead, everyone should either pay for their own healthcare, purchase their own catastrophe insurance, or join a medical cost share program. Having government run the system will surely eliminate all non-allopathic medicine: In fact, I would predict that the only "alternative medicine" permitted by government is that which can conclusively be demonstrated to be quackery.
Keith should qualify his comment on "privatizing" Social Security. Certainly, we should not do so while continuing to allow Wall Street to have a monopoly on the investments, are allowed to profit on the huge money stream, play derivatives on the stream, create Rube Goldberg instruments to hide the poor assets, and then get bailed out without so much as one perp walk for committing fraud at common law.
A better solution would be to 1) criminalize crime (as in Breach of Fiduciary Duty), and 2) back up small private holdings with anti-crime insurance including a perp walk, bankruptcy and street sweeping in an orange jumpsuit for every "Genius" who reinvents Ponzi's, LBO's, LTCM's, Derivatives frauds, and other such schemes.
I propose that if a Criminal invents a Fraud which has not thoroughly predicted by Charles Mackay, he/they should be sentenced to fill the seat of the politician(s) on the Senate Finance Committee, and the politicians can serve his sentence.
That'd stop it. (Of course, the Second coming is more likely, or possibly the election of 100 people randomly selected from a phone book.)
Keep up the good work MM – topeka
A true free market-system is made up of small companies, compared to their markets(say 5%), who can not influence prices to any great extent. Furthermore no laws should give priviledges to one over the other(every company equal rights) and consumers must have freedom of choice, speech and law access, to express companies accountability.
Ofcourse Adam Smith, said this a long time ago…
In the US this is clearly not the case, specially not the financial Goldman sachs cartel, who likes to finance Wars.
Cut US goverment spending? Start with the CIA, FBI and the US militairy. That would be huge, and also safeguard international free markets and prosperity in Africa, which a dying continent.
Oh Keith….There you go again…
I don't believe the US tax system is punitive to small business. I own a small business and though I am not wealthy, I am profitable. I don't believe what is asked of me for tax obligations is extreme at all. My background is Canadian, and I'm sure it would cost more to operate there. Or any other desirable civilized country I can think of.
Also, I am scared of what would happened if the US Auto companies were forced to liquidate. 1 in 10 US jobs are directly or indirectly tied to the automotive industry. Glass, electronics, components, truck and rail transportation, sales, marketing, distribution, mining, etc. Get the idea?
And your memory is short. After the debacle of '08, you seriously want to privatize Social Security? Enough said.
Also, government pensions aren't preposterous. Please understand that an administrative assistant doesn't get what a senator does. Nowhere near. And government employees pay into the pension system. It isn't freeloading. Maybe you are the one who is freeloading?
If we had the reasonable tax levels that were in force during the Clinton administration, and no involvement in useless expensive wars, I believe we would be in much better shape today. Ah yes, the Clinton "surplus years"!
A closing thought: Everything from Communist China should have a 30% tariff attached to compensate for the artificial yuan manipulation. They aren't playing fair with US industry. We can compete if the playing field is even.
America's economic woes are primarily the resullt of extending itself too much for too longer. The entire nation, from govenments to corporations and citizens, have been spending beyond their means. To reduce the nation's debt, the US Government should put in place policies which will encourage savings and investments. Meanwhile, America should re-assess its military strategy and policy and should scale down its global military sepnding.
On the social security question let me recommend the Canadian split-level system. Old folks who fall below the poverty line receive "Old Age Security," which is like US Social Security –a transfer payment system paid out of current tax revenues. In addition, for those who have spent their lives in gainful employment, there is the (obligatory) Canada Pension Plan, an independent contributory system the capital of which is managed by professional money managers and whose payouts are set by a board of actuaries rather than by politicians.
In addition, there are employer pensions, and the tax system encourages private, 401k-like nest-egging up to 25,000 tax-sheltered, tax-deferrred dollars a year.
Nobody will ever succeed in privatizing Social Security, but there are many options for privatizing much else and for restricting access to the Social Security system.
You don't even touch on our military posture and the ongoing wars in Iraq and Afghanistan. These dysunctional wars have been bleeding our treasury and eliminating them would go far toward balancing the budget by themselves.
How about a policy that would help restore real income gains for the middle class? Then evreybody could pay slightly more taxes to help with the budget deficit. Growing our way out of this mess by working towards higher wages for the middle class seems like a sensible thing to do.
No major quarrel with Keith's 8 points, the problem is that they have a snowballs chance in Hades of ever being implemented as long as our political and monetary systems are not reformed.
Bankers and politicians hate the restrictions that a gold standard would impose upon them. How can they BUY VOTES by promising things they can only deliver by running deficits? They do it through "printing press money" that is NOT "credit" as is currently advertised by government wonks as being needed to the tune of $100 million. What the fractional reserve banking system offers is not credit but instead MORE DEBT through fiat currencies that have to be BORROWED into existence, to be paid back (if ever) with interest, which is simply a recipe for perpetual debt, the cruelest form of slavery ever devised.
The proposed solutions omitted any direct mention of Medicare and Medicaid, which with DOD, comprise the largest spending programs. If the writer is afraid to mention them, can you blame the politicians from trying to fix them. Two comments may suffice. One from a prominent Democrat senator, who stated that Congress knows the problem, but "you have to understand that the first obligation of a politician is to get re-elected." The second is POGO's famous remark, "we have met the enemy and they is us."
What about a Corporate flat tax. Based on revenue. No deductions for investment, factory upgrades, employee training, nothing. Maybe corporations to small business will spend their money on improving productivity, making a better mouse trap, rather than lawyers or tax accountants?
There are no qualifications for voting.If you think that there are too many incompetent workers,remember that these workers are actually trained in and/or have some experience in whatever job they have.Now imagine how qualified the average voter is.Is it any wonder that this country is so screwed up when most voters have no clue about the issues and aren't really interested in learning about them.They end up voting for the best salesman or whomever promises them the most something for nothing.They vote their emotions.Use the vote to steal from someone else for their benefit.I'm afraid there isn't a lot of hope.Just take care of yourself and help others that deserve help.