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Community Movie Night

2011-10-14T13:18:36Z

The Wharton Gladden Foundation and Nature's Select is inviting the regional community to a free movie night at the BB&T Ballpark - Saturday, October 15. We are expecting a crowd of over 2,500 people that will include families, friends, community leaders, and many more. I visited my friends at the Fox 8 studio to briefly discuss the community movie night and encourage their audience to come out for a fun night at the ballpark - to support our local charities.

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U.S. Economy: "Trends and Future Outlook"

2011-09-17T21:39:30Z

The domestic and global economy is recovering from one of the greatest economic downturns since "The Great Depression" of the 1930's. The U.S. economy and capital markets remain fragile, the labor market is frozen, and banks are gradually coming off life support.

When will the economy resume normal growth? Will companies restart hiring in 2012? How will government policy impact business? Algenon will answer these questions and many more in this comprehensive analysis of current trends and future prospects for the national and local economy.

Review & Commentary: The American Jobs Act

2011-09-16T15:23:00Z

Coming under great pressure from the right and left, President Obama this week held a Joint Session of Congress to unveil his plan to get America back to work and the economy growing – The American Jobs Act. The announcement came the same week that Lehman Brothers failed three years ago and virtually collapsed the entire financial system triggering a global economic downturn. Undoubtedly, critics are wondering where this plan was during Mr. Obama’s first 100 days in office, but clearly he had other priorities.

I received a copy of the plan on Wednesday and after a thorough review it left me feeling unimpressed. First, I must applaud Mr. Obama simply for the effort that went into coming up with “something” and placing it on the table. However, the plan that he presented reveals a President that is clearly out of his element, and attached to unsustainable solutions – spending increases along with temporary and targeted tax cuts. Obama has a flawed belief that by pulling this or that policy lever, by extending this program or cutting that tax for a year, the Administration can stimulate the $15 trillion U.S. economy to grow.

The President’s plan will expand the payroll tax cut passed last year – providing a $1,500 tax cut to the typical American family – and costing the Treasury about $115 billion. These cuts have largely failed to stimulate demand because most Americans are using the extra cash to deleverage and pay off debt, so extending the tax cut would likely fail to have an impact on private sector job creation. As stimulus goes, it makes much more sense to incentivize workers to work by cutting the payroll tax than paying people for not working by extending unemployment benefits again.

Mr. Obama hopes to cut the payroll tax in half for 98% of businesses, while providing a payroll tax holiday for added workers. Both measures are decent policy proposals during a normal economic recovery, but there is nothing normal about this recovery. Companies are not expanding payrolls because new regulations are creating uncertainty, hiring costs are rising, and generally there is a lack of demand to justify more production. Employer payroll tax cuts will not address those issues. Furthermore, the tax cut is temporary; employers are not likely to add workers based on lower tax costs if they know those costs are going to rise in a year. Most companies will pocket the tax cut to build cash reserves or possibly make capital investments.

These temporary tax cuts will show up as a temporary blip in consumer spending and GDP, but they will not change incentives to work, consume or invest and promote long-term growth. Other ideas put forth by the President include – extending accelerated depreciation into 2012 and regulatory reductions for start-up companies – both are good recommendations and should be implemented.

Obama called on Congress to provide hiring tax credits for veterans and long-term unemployed workers. Both are noble goals, but Obama fails to understand that temporary measures never create sustainable outcomes. Moreover, this Administration is seemingly obsessed with picking winners and losers. Employers will hire the best and brightest talent for an available position based on need, so targeted incentives do very little to create jobs. Resources allocated for these tax credits would go farther if utilized to create a comprehensive job training program, and then veteran and unemployed workers would have an option to acquire the required experience to fill open skilled labor positions.

In 2009, the President warned the country about deteriorating roads, failing bridges, and obsolescent schools. Congress passed the American Recovery and Reinvestment Act and appropriated $787.5 billion for fiscal stimulus, but the Democrats in Congress only allocated 5% of the bill to infrastructural spending. Now, the President is back center stage, and sounding the alarm that our bridges and schools are falling down – more “shovel-ready” projects.

Obama’s jobs plan call for the modernization of 35,000 schools across America and the creation of a bipartisan National Infrastructure Bank. No one can deny that America is long overdue on making investments to strengthen the country’s network of roads, bridges, highways, waterways, airports, and nuclear facilities. However, the historical track record of GSE’s or government sponsored-enterprises are peppered with unintended consequences, does anyone recall Fannie Mae and Freddie Mac. Not to mention, other countries that have experimented with infrastructure banks have discovered they are rife with corruption, overspending, and crony capitalism.

Exploring the use of public-private-partnerships or P3’s would be a far better approach. For example, a private developer could acquire the land to build an elementary school, and then lease that facility to the local school system. That would reduce costs to the taxpayers and mitigate risks associated with the land acquisition, development, and building construction. Other examples might include a private investment company taking over an airport, implementing a significant capital improvement plan, and then reselling the facility back to the public.

The largest disappointment was Obama’s failure to develop a method to pay for his $400 billion misguided jobs bill. In true Obama form, the President delegated the nasty job of wading in the legislative details to Congress, he instructed the Joint Deficit Reduction Committee to find additional cuts to pay for the plan.

After passing a plethora of bills that have failed the American people - $787.5 billion stimulus bill, $3 billion for “cash for clunkers”, “cash for caulkers”, credit card price controls, Detroit bailouts, Build America Bonds, jobless benefits for a record 99 weeks, ObamaCare, and Dodd-Frank. Mr. Obama himself still fails to clearly understand the role of the President is to lead and not follow on policymaking. Is it time for “change”?

To grow the economy and restart private sector hiring, the President should focus on a major overhaul of the tax code, and reforms should be broad-based, immediate, and permanent. Obama will have to take on the uncomfortable task of reforming entitlement programs – Social Security, Medicare, and Medicaid. The Administration should complete a honest appraisal of every government agency – Department of Justice, Energy, Transportation, Commerce, and the list goes on – reforming those with high scores of ineffectiveness. Congress will need to make significant reforms to regulations – Sarbanes-Oxley immediately comes to mind. Lastly, the President must demand that we place education at the front and center of any jobs program, improving our k-12 system nationally will provide future generations with a higher quality education – and that means more options to be a positive contributor to the success of America.

NPR Interview with Kathryn Mobley

2011-09-16T00:21:00Z

Kathryn Mobley invited me on her show to discuss the importance of having a personal philosophy. We discussed my belief that positive choices lead to positive outcomes, I shared my philosophy about personal finance - "Keys to Money Mastery", and talked about "LOCKING IN" success through self-discipline. I enjoyed visiting the show and engaging in a discussion about restoring personal responsibility and freedom. I simply hope our conversation empowered someone that has loss hope to remember they have to power to make new choices, achieve new outcomes, and change their circumstances.

Play this podcast of NPR and listen to the interview.

2012: Cash for President ???

2011-09-07T22:24:49Z

I spend a great amount of time studying history, analyzing policymakers, and I dare to say even criticizing the performance of our elected leaders. Routinely, organizations will invite me to speak about the economy and American politics, and I must admit that I get a sense of fulfillment from sharing knowledge and discussing ideas that will improve our country. Recently, I was approached by a young lady after giving a talk about the economy, and she had clearly grown frustrated with my plethora of critiques for the current administration. She challenged me to offer my own economic recovery plan, so of course, I had to follow through.

The year is 2012 and the Republican from North Carolina has just become the 45th President of the United States …

Education

Improving the education system is the single most important action that government can take to grow our economy, stimulate private sector jobs, and develop a prosperous nation. Our society has moved dramatically away from an economy that is powered by agriculture and manufacturing, which means that workers must have the required experience to compete for the skilled and highly educated jobs of the future.

The k-12 education system in America is inefficient and largely ineffective, which requires policymakers to make tough decisions about reform. We have created a system with far too much bureaucracy, where the federal government places unfunded mandates upon the states, and then state governments place further controls on local school boards. The Department of Education should only focus on maintaining a national standard, so that boys and girls in North Carolina are just as educated as boys and girls in California.

Moreover, the role of state government should be reduced, and local school boards should have full autonomy in how they operate their schools, as long as national standards are not being circumvented. The teachers unions must come to realize that the success of our children is the most important outcome when it comes to education, which requires compensation that is based on merit and performance, not tenure.

We must work carefully with graduating high school seniors to help them make decisions on the next phase in their life. Several decades ago, we wrongfully promoted the message that everyone must go to a four-year college and that propaganda has resulted in a deficit of skilled labor and a misallocation of resources. Some college graduates fail to utilize their degrees because they were never originally committed to the idea. We have a network of community colleges that stand ready to train the workers of the future in computer technology, high-skilled manufacturing, and biotechnology – these are the industries of the future.

Economic Development

We must repeal the Bush era Sarbanes-Oxley accounting rules, which will provide immediate relief to our small and medium-sized businesses. We must repeal the Obama era Dodd-Frank financial regulation, which will lessen burdensome regulations placed on the financial sector and allow them to better serve consumer and business customers. We must repeal ObamaCare, which does little to bend the exploding cost curve in healthcare, and replace with reforms that will not only focus on access to health insurance, but also will bring down healthcare costs through enhanced prevention, policy options, and tort reform.

The current tax system is too complicated and rife with loopholes that unevenly benefit taxpayers. We should flatten tax rates by removing all loopholes, credits, and subsidies – for example tax carve outs for mortgage interest, municipal bonds, child credits, and energy subsidies would all be gone. In addition, we would end the double tax on capital gains and dividends, by expunging them from the tax code along with the Alternative Minimum Tax. The corporate tax rate would be lowered from 35% (the highest in the world), and American companies would be taxed on a territorial system that would no longer incentivize firms to leave capital parked in foreign countries.

We must develop a credible immigration strategy that encourages foreign graduates of American colleges to remain in our country as entrepreneurs and create jobs. The best colleges in the world are located in the United States and international students travel here to receive a world class education, but we lose those graduates because we lack a sound immigration policy.

We must rein in overzealous bureaucrats at the Environmental Protection Agency, Food and Drug Administration, Justice Department, and the National Labor Relations Board. These agencies serve as “job killers” with overly burdensome regulations and they often block companies from expanding, which further drives American companies to offshore jobs. We will work with the Department of Energy to develop a comprehensive energy plan that recognizes coal supplies our baseload, but we will look at innovative ways to integrate natural gas, wind, and solar, while expanding domestic drilling.

Fiscal Policy

There are large disagreements about the severity of America’s fiscal situation, but we understand that America must clean up its house if we are to meet our future promises. Between 1960-2008, the federal budget hovered in the range of 17.7% - 21.8% of GDP; it was 18.5% during the Bush Administration (despite tax cuts and two ongoing wars). Even during 2008 when the economy contracted severely, federal tax revenue still came in around 17.5%. The size of the federal budget reached 25% of GDP during the Obama Administration, so we must reduce federal outlays to meet the historic reality – public spending should not surpass 18%-20% of GDP. Reduced spending combined with policies that stimulate economic growth and tax receipts will erase our never-ending budget deficits – while easing debt-to-GDP from 97% to a more comfortable range of 55%-60%.

There is absolutely no way to rein in federal spending and the long-term public debt without reforming entitlement programs such as Social Security, Medicare, and Medicaid. LBJ projected that Medicare’s budget would reach $12 billion in 1990, but instead the budget hit $110 billion – a gross miscalculation to say the least. Today, Social Security, Medicare, and Medicaid make up 60% of the federal budget and growing. Interest on the national debt chews up another 10%, spending on national defense gobbles up around 20%, and then federal agencies require around 15% to operate. Therefore, it is impossible to bend the rising cost curve on government expenditures without restructuring America’s most treasured programs.

I hope you have enjoyed reviewing my plan and read it with some sense of humor. However, the reality is that America is facing unprecedented challenges, but not unconquerable obstacles. We face nothing that cannot be solved or overcome, but our struggles require leadership, vision, and a plan.

U.S. Financial Crisis: "S&P Downgrades U.S. Credit Rating"

2011-08-07T23:35:33Z

Alexander Hamilton established the “full faith and credit” of the U.S. in 1790 when he pushed to have the newly created U.S. Treasury to assume and repay debts that states incurred during the fight to win our independence from Britain. Subsequent administrations have made sure to preserve the longstanding guarantee on the public debt, with only one small black mark on Uncle Sam’s impeccable credit, a 1970 debt-ceiling argument that delayed a few payments.

Standard & Poor’s, a credit ratings firm, recently shook the global financial system when they removed for the first time the triple-A rating the U.S. has held for 70 years. S&P downgraded long-term U.S. debt to AA+, a score that sounds good, but ranks below more than a dozen countries, placing the U.S. on par with Belgium and New Zealand. S&P left the triple-A sovereign credit rating of France, U.K., and Germany unchanged despite ongoing problems in their domestic banks and mounting sovereign debt issues that could harm the global financial system. S&P’s decision sparked a firestorm of negative reactions from Obama Administration officials and a flurry of questions from investors and analysts both curious to know what motivated the ratings firm to adopt a “negative outlook”.

S&P officials stated in a press release that the recent “debt deal” in Washington that ended the impasse on whether to raise the country’s statutory debt-limit fell short of the ratings firm’s expectation of what is needed to “stabilize the government’s medium-term debt dynamics.” In other words, S&P expected Congress to develop a fiscal austerity program that would cut more than the agreed upon $2.4 trillion over 10 years, officials were hoping for a minimum of $4 trillion in cuts according to the release. More striking is the ratings firm disclosure that the “political instability” in Washington was a significant driver in their decision-making. Apparently, the U.S. is not only suffering from a “fiscal deficit”, but we also are being severely handicapped by a “leadership deficit”.

Although rival ratings firms Moody’s Investors Services and Fitch Ratings have maintained their respective top-credit ratings for U.S. debt, the downgrade could have a psychological effect and other unintended consequences. Investors’ faith in the American political system is at an all-time low and that deterioration could accelerate as a result of the debt downgrade. States, municipalities, companies, and consumers could all see their borrowing costs increase after credit markets adjust for the paradigm shift on U.S. public debt.

Various types of debt, including mortgages, car loans, and student loans are pegged to the price that Uncle Sam pays to borrow money. U.S. Treasuries are largely considered a safe-haven, so interest rates have been historically low, allowing the U.S. government to finance large budget deficits and a burgeoning public debt. However, investors could begin to demand more return on their investment, if they perceive the U.S. to be a riskier bet – possibly triggering a .50 bps increase in current yields.

Other concerns are centered on our international neighbors and their appetite for U.S. debt. In 1945, foreign countries owned just 1% of U.S. Treasuries; today they own a record high of 46%. In particular China, the world’s largest foreign holder of U.S. Treasuries, currently the Chinese hold 9.5% of the country’s total outstanding debt.

Many predict that China might become more attracted to other countries that have maintained their stellar triple-A credit ratings – Canada and Australia. Largely unlikely considering the size of their public debt markets when compared to the existing $9.8 trillion market for U.S. sovereign debt. The ongoing economic challenges in Europe and other parts of the world should keep U.S. Treasury debt attractive for the foreseeable future.

More importantly, the Federal Reserve, FDIC, and other federal banking regulators have signaled the downgrade would not affect risk-based capital requirements for U.S. banks – the liquidity cushion banks must reserve to protect against potential credit losses. Banks hold an estimated $4 trillion worth of U.S. Treasuries that are pledged as collateral against outstanding loans. S&P left the U.S. short-term credit rating unchanged, so the downgrade is less likely to have a substantive impact to money market funds that hold some $1.3 trillion in U.S. Treasury bills. Any impact to these critical components could have triggered a broad market selloff to raise cash to meet margin calls – recreating the 2008 Lehman Brothers crisis.

Undoubtedly, the real story behind the downgrade to U.S. debt is the view by S&P officials that the “effectiveness, stability, and predictability of American policymaking and political institutions have weakened at a time of ongoing fiscal and economic challenges”, many are criticizing the S&P for highlighting political challenges while choosing not to focus solely on Uncle Sam’s unquestionable ability to repay the escalating public debt. However, the ratings firm decision to highlight the “leadership deficit” in Washington is appropriate, and I hope that elected officials pay close to attention to their assessment.

Maintaining the trust of lenders, investors, and taxpayers require our elected representatives to make difficult choices, to place “service above self”, and lead on those critical issues mostly affecting the nation. The American political system is greatly divided and in dire need of leadership to break the political brinkmanship that is restraining economic growth, preventing stability, and harming America’s standing in the world. “Can’t we all just get along?”

U.S. Financial Crisis: "$2.4 Trillion Debt-Limit Deal"

2011-08-01T19:24:05Z

President Obama and congressional leaders Sunday night reached a compromise to raise the federal debt-limit that includes curbs to government spending but no new taxes, breaking the partisan brinkmanship that nearly resulted in a government default. Over the past several weeks, lawmakers in Washington have been consumed by a self-created crisis that has shaken the entire nation – Main Street and Wall Street. The U.S. Treasury is set to run out of cash to meet its obligation on August 2 if Congress fails to approve a routine increase to the federal debt-limit that would allow the government to continue borrowing, avert a credit default, and avoid the economic consequences from no action.

I joined Republican lawmakers on a private phone conference to learn more about the mechanics of the debt-limit agreement and its implications on the country. The one-hour phone call revealed that the debt compromise has something for everyone to hate, which means in my opinion, that the deal is a good compromise.

President Obama is authorized to increase the $14.29 trillion debt-limit in two stages by at least $2.1 trillion and possibly as much as $2.4 trillion, eliminating the need for further increases until after the 2012 elections. Congress would immediately increase the federal debt-limit $900 billion in exchange for immediate 10-year discretionary spending caps of $917 billion; balanced between defense and non-defense spending. U.S. Treasury would gain access to $400 billion in fresh borrowing capacity immediately. The other $500 billion would come later this fall, barring two-thirds of the members of both chambers of Congress do not object. Secretary Geithner will have cash to pay bills through early 2012.

Rightfully, lawmakers did not front load the caps in government spending, so the impact to the fragile economy will be less than significant. However, the plan would reduce domestic discretionary spending to the lowest level since the Eisenhower Administration, including cuts of $350 billion to the Pentagon – the first defense cut since the 1990’s. Extending the debt-limit beyond the election cycle will remove economic uncertainty, reduce the probability of a credit downgrade, and eliminate a key headwind to the economic recovery.

Bi-partisan committee of twelve Republicans and Democrats tasked with identifying an additional $1.5 trillion in deficit reduction over 10 years, including from entitlement and tax reform. Committee is required to report legislation by November 23, 2011 and Congress is required to vote on Committee recommendations by December 23, 2011. If the Committee fails to agree to a “balanced deficit reduction” plan, then an automatic “trigger” will reduce government spending beginning in 2013 by at least $1.2 trillion beyond the discretionary caps – split 50/50 between domestic and defense spending. The automatic trigger would exclude coveted programs such as Social Security, Medicare beneficiaries, Medicaid, and any low-income schemes.

The automatic “trigger” built into the plan will provide a strong enforcement mechanism to lawmakers from both sides of the aisle. If the bi-partisan fiscal committee approved no action, the “trigger” would automatically add nearly $500 billion in defense cuts on top of the previous cuts to the Pentagon, at the same time, the “trigger” would make deep cuts to infrastructure and education spending. That outcome would be unacceptable to Republicans and Democrats. One key point is that the fiscal committee’s failure to develop a bi-partisan plan would not automatically “trigger” revenue increases; however the Bush tax cuts are set to expire January 1, 2013, the same date the “trigger” would go into effect. I anticipate these two combined events will force lawmakers to reduce the deficit and balance spending priorities.

Other less notable features in the agreement were included to “sweeten” the pot. In an effort to win support from tea party-aligned conservatives, Democrats agreed to stage a vote on a balanced-budget amendment. Republican leaders agreed to include funding to protect Obama’s commitment to financial aid for college students; the compromise provides specific protection in the discretionary budget to ensure that sufficient funding will be available. President Obama failed to secure other top priorities from Republican deficit hawks, including a fresh round of stimulus to revive the waning economy and an end to tax breaks for “big oil” and “corporate jet owners”.

Undoubtedly, the compromise to raise the federal debt-limit is a victory for those fighting to reduce the size of government. In the past, raising the cap on the public debt was a routine exercise, but conservatives placed the issue on center stage by refusing to increase the debt-limit without meaningful curbs to the size of government. Moreover, conservative deficit hawks achieved their objective with no immediate tax increases, no small achievement when you consider that Democrats control the Senate and the White House.

Many to the far right will denounce the deal without considering that the plan makes the biggest dent in government spending in 15 years, with more cuts likely next year. Liberals will howl about the reductions to government agencies and programs. Personally, I believe more needs to be done to restructure Social Security, Medicaid, Medicare, and our antiquated tax code. However, Washington is fundamentally broken, and you cannot fix everything at one time. Republicans and Democrats should pass this bi-partisan plan, avoid credit default, and continue the challenging work of developing a fiscal austerity program that places the country on a sustainable path to economic stability and growth.

U.S. Financial Crisis: "Deficits, Debt, and Default"

2011-07-28T15:11:22Z

This summer has been one of the hottest on record in Washington, D.C., but unlike past summers, Uncle Sam is more responsible than Mother Nature for the unbearable heat in the Capitol City. The public debt has taken center stage over the last two months as leaders in Washington feverishly debate competing plans to raise the national debt ceiling before the country runs out of cash on August 2. The fact that America has never actually defaulted on its public debt is worth noting. Every major media outlet in America is covering the runaway train that could destroy the fragile economic recovery, so terms such as “deficits, debt ceiling, and default” are routinely being tossed around on cable news programs. For most Americans, the debate over the summer is their first time hearing these terms, and they can barely digest how we even reached this point in our country. I have been receiving a flood of emails, phone calls, and questions about the national debt and any potential consequences that Americans could suffer in the event that our elected officials cannot agree to a bi-partisan solution.

The U.S. Treasury currently has the ability to borrow $14.29 trillion to fund a variety of America’s obligations and commitments, but the country is on the path to surpass that number August 2. Technically the country defaulted in May, but Secretary Geithner has been deploying creative accounting methods to pay bills since then. Increasing the debt ceiling would not alter or create new obligations for the country; the act simply permits the U.S. Treasury to fund those obligations that Congress has already committed to appropriating. However, the American people would like to know how our country accrued so much public debt and who actually holds those bonds.

The fact of the matter is that America has always been in debt. Before the first session of the U.S. Congress came to a close, the public debt stood at more than $75 million, and since that time it has been paid off only once in American history. In 1835, President Andrew Jackson paid off the entire national debt, when he effectively shut down the Second Bank of the United States. Subsequently, the actions that Jackson took would cause the Panic of 1837, and a severely deep depression until 1844.

The U.S. Treasury piles up national debt for a variety of reasons, but the one reason that has the limelight in today’s debate – overspending has led to annual budget deficits. Those never-ending deficits lead to massive public debt and a real overhang in our domestic economy. Mr. Obama has become the “poster boy” for conservative deficit hawks. However, history reveals that overspending is not exclusive to Democrats or Republicans. Between 1960 and 2008, government spending as a share of the economy has bounced around within a fairly narrow range of between 17.7% and 21.8%, and we increased the national debt ceiling 78 times. Ronald Reagan started his term with total debt outstanding of $930 million and increased total debt to $2.7 trillion. Bush '41 started his term with outstanding debt of $2.7 trillion and increased the total debt to $4 trillion. Clinton started with total debt of $4 trillion and increased the total debt to $5.6 trillion. Bush '43 started out at $5.6 trillion and pushed the total debt outstanding to $10 trillion.

Currently, government spending hovers around 25% of GDP with the U.S. Treasury collecting tax revenue around 15% of GDP, and the public debt is $14.2 trillion. The “crowding out effect” of $4.2 trillion of borrowing since 2009, when Obama took office, is that investors are buying Treasury bills instead of investing in the next Google, Microsoft, Wal-Mart, or biotech company, which harms new job creation.

The wide gap between government spending and tax revenue is sounding alarms throughout the country. Elected leaders have drawn a line in the sand and some are on the side of dramatic spending cuts to close the gap while others demand more revenue to regain control of the federal budget. Both camps happen to be right on the issue, but they have failed to compromise and develop a plan that will achieve both goals. The U.S. Treasury is collecting the least amount of revenue in 50 years, but it has nothing to do with tax rates being low. As recently as 2007, the current tax structure raised 18.5% of GDP in revenue, which is slightly above the modern historical average. Even in 2008, when the economy contracted, federal tax receipts still came in at 17.5% of GDP. On the other hand, only a third of the current federal budget deficit is related to new domestic spending. Undoubtedly, the deficit problem is invariably connected to rising borrowing costs and the mediocre economic recovery, and truly has less to do with spending and tax receipts.

There is widespread debate about who serves as banker to the United States. The media pundits enjoy making wild claims such as the Japanese and Chinese are our “bankers”, so one day they could arbitrarily destroy America by dumping our bonds or forcing the American people to “work” for them. However, this conventional wisdom does not bear out when you consider some surprising facts. The reality is that, as of last year, China held 9.5 percent of the country’s total outstanding debt. The largest lender to the U.S. Treasury is the American people – we own 42% of the public debt in the form of Treasury bills and bonds held in our pension funds, endowments, 401(K)s, IRAs, mutual funds, etc. Around $4.6 Trillion or a third of the public debt is actually held by the government itself. Almost 18% of the outstanding Treasury bills are currently in the Social Security trust fund.

The real concern is not who is holding our debt, but instead what if investors begin to demand a higher interest rate on those holdings. At present, the average cost of Treasury borrowing is 2.5%, but the average cost over the last two decades was 5.7%. Should we ramp up to the higher number, annual interest payments would be roughly $420 billion higher in 2014, thus further “crowding out” fundamental government programs – education, defense, and entitlements.

The current state of America’s finances is a dire situation and the challenge in Washington to develop a comprehensive solution is critical. The President and Congress must lead on this issue because the consequences of inaction will severely affect all Americans – not just those wearing “blue” or “red”. If the country fails to meet its financial obligations, then the fallout will be far worse than the effects of the 2008 financial crisis when Lehman defaulted. The aftermath from that company blowing up ravaged credit markets, and then proliferated to money markets shocking the entire financial system. States, local municipalities, corporate, and consumer borrowers would all see borrowing costs rise sharply, leading to reductions in spending and investment, which would trigger new job losses on a significant scale.

Default would have prolonged and far-reaching negative consequences on the safe-haven status of U.S. Treasuries and the American dollar. Currently, international investors and sovereign-wealth funds soak up our bonds in public auctions because of the vast liquidity in our debt market and the historical stability of American debt and currency. Pension funds and endowments in the U.S. that are required to hold AAA rated bonds might be forced to unload the public debt if our bonds were to be downgraded due to no increase in the debt ceiling or failure to agree to a plan that places the country on a sustainable path to reduce national deficits and total debt. U.S. commercial banks hold $1.6 Trillion of government debt and they use Treasuries as collateral for short-term borrowing. A downgrade to U.S. government debt could force them to put up larger amounts of collateral, effectively raising their cost of borrowing.

Finally, Secretary Geithner could find it difficult to mail the 80 Million checks scheduled to go out every month to military families, retirees, disabled Americans, and government contractors, when he loses 40% of the money that is typically available to the Treasury to fund government operations.

Uncle Sam must get its house in order before the pending calamity of inaction reaches the kitchen tables of American families. In good faith, we all have elected our leaders to lead, and to place their service to this great country ahead of any selfish ideology or partisan solutions.

Tom Joyner Morning Show - "Keys to Money Mastery"

2011-07-10T01:29:50Z

Many Americans feel controlled by their money, which results in low self-confidence and a "poverty mentality". I recently appeared on the "Tom Joyner Morning Show" to give listeners my five common sense principles on how to manage money and build wealth.

Play this podcast of "Community Focus" and listen to my five keys.

Homelessness in America

2011-06-05T21:11:25Z

I grew up in a small “shotgun house” on Liberty Street in East Winston-Salem. The block that I called home also provided a “home” for men that had no address of their own. Homeless men peppered the corners that were less than 100 feet from my back porch. We had very little in terms of money, food, and other “niceties” growing up in that tiny house on Liberty Street. However, I had the rare opportunity to have two amazing people in my life that understood that wealth came in forms other than money and material possessions. These two people were rich in love, humility, sacrifice, simplicity, courage, and gratitude. My grandparents, Annie Irene Wharton and Franklin Gladden, exemplified these principles and demonstrated to me how to serve others. I love them both for their many contributions and I strive to live a life centered on the values that my grandparents modeled daily with excellence.

Although we had few resources to care for ourselves, I can vividly recall days when I would come home to witness my grandmother feeding these “corner guys” in our kitchen. My natural reaction was to question my grandmother’s judgment and compassion toward these men considered to be the least of us. She would always respond by reminding me that we could easily be in the same circumstance that had fallen upon these unfortunate men. My grandfather would chime in and echo that “all situations are temporary” and that each of us could simply be one choice away from being on the streets. I had no way of realizing the powerful lesson that I was absorbing, but those acts of kindness and generosity with no expectation for anything in return sowed seeds of greatness into my spirit. In that tiny house on Liberty Street, my grandparents helped me to understand the importance of human dignity in the world, and that all of us are entitled to basic resources – food, clothing, and shelter.

Most are surprised when I share that America has the highest rate of poverty amongst the world’s richest countries, 13% of Americans live in poverty, including one in five children. Sadly, families with children comprise one of the fastest growing segments of the homeless population today, 42% of homeless children are under the age of 6. Around 2 million additional American children will fall victim to the foreclosure crisis over the next two years. Who would have imagined anyone could be homeless in a country that boasts a $14 Trillion economy?

Unfortunately, many of us choose to ignore this growing epidemic in our country, or we mistakenly assume that chronic homelessness only affects those addicted to illegal substances and/or suffering from mental health illnesses. Many of us have family and friends that have been homeless or close to living on the street, but we might not be aware of their testimony. In fact, almost 60% of Americans will spend at least one year below the poverty line at some point between ages 25 and 75.

The idea that chronic homelessness is isolated to the “big cities” could not be further from the truth and the data shows that large and small communities suffer from a growing homeless population. In my local area of Forsyth County, well over 2,100 different people experienced homelessness in the last year and 1300 families with 2400 children were recorded as being homeless in the state of North Carolina during 2010. There is no city or county anywhere in the United States where a worker making the minimum wage can afford a fair market rate one-bedroom apartment, and then consider the cost of rent and utilities for a typical two-bedroom apartment increased 41% from 2000 to 2009.

In 2009, my grandfather and best friend past away, so I created the Wharton Gladden Foundation in honor of my grandparents. The foundation has a strategic mission to help change communities across the world by providing existing non-profits with financial and technical support to enhance programs devoted to serving the homeless, domestic violence victims, and substance abuse patients.

Recently, the Wharton Gladden Foundation produced a documentary about three homeless people in Winston-Salem, and we have been screening the short film to create awareness of this insidious cancer eroding the social capital of American communities. Our goal is to help others become more aware of the true causes of chronic homelessness and to encourage donations of time, talent, and treasure to the foundation’s special causes.

I invite you to take four minutes and learn more about Joanna, Mary, and Romanlus…

Algenon Cash Appointed to Piedmont Club Board of Governors

2011-05-15T02:44:00Z

Algenon Cash, managing director of Wharton Gladden & Company, has been appointed to the Board of Governors for the Piedmont Club where he will serve as chair of the Membership Council. Algenon’s responsibility will include leading the “Inaugural Membership Campaign” to generate 100 new members.

The campaign kicked off on March 1 with an open house that attracted over 200 guests and generated over 50 new members in one night. “Relationships drive success and the Club has provided me with high quality networking for many years. I am excited about the new energy at the Club and I look forward to continuing my service to the members,” said Cash.

“Algenon displays a tremendous understanding of the inherent value of being a member of the Piedmont Club. He also possesses such outstanding communication skills that he gets others energized with his enthusiasm. He is a leader of great vision and influence and his appointment to the Board of Governors was a very positive decision on behalf of the membership of the Club,” said Peter Grzan, General Manager of the Piedmont Club.

Cash joined the club in 2003 and has contributed greatly to the accelerating growth of the Piedmont Club ever since. He developed the Young Professional Committee to help lower the barrier of entry for other rising leaders. In addition, Algenon created the Piedmont Real Estate Council, and hosts monthly programs that educate and empower. “The seminars that Algenon has created and promoted for the last three years have extended the Club’s outreach into the community at-large,” said Judy Sutherin, Membership Director of the Piedmont Club.

“Piedmont Club members are the beneficiaries of the tremendous energy and passion which Algenon brings to everything he does; above all, he is using his wisdom and experience to help introduce the benefits of the Club to others,” said Sutherin.

Piedmont Club is recognized as the leading business club in the North Carolina Triad Region. The Club maintains this position by continuing to provide the highest level of quality in social entertainment, food service, and business networking. The Club is a place of pride and prestige where a diverse community comes together to enhance their business, social and cultural lives. “Awareness of information and emerging trends are critical keys to achieving success and I believe that my purpose is to help others improve through the sharing of knowledge” said Cash.

GOP Politics Could Derail the Economic Recovery

2010-11-24T21:35:00Z

Newly elected House and Senate Republicans have started arriving in Washington to attend freshmen orientation, select Congressional offices, and to interact with the leadership. The drapes in most offices have not been hung, but these unseasoned GOP lawmakers are beginning to understand some of the monumental challenges that will be on the legislative agenda in 2011. The priority issue and the one that most campaigns adopted during the 2010 mid-term elections is the state of America’s fiscal health. The evidence of an economic recovery is becoming clearer daily, but the federal government’s annual budget deficit is around $1.4 trillion and the national debt is growing closer to $14 trillion. The limit on Uncle Sam’s credit card is currently $14.3 trillion.

House Minority Leader John Boehner, who is slated to become House Speaker in January, has been talking to incoming members of the House GOP about the need to raise the federal debt ceiling early next year. However, most of these unaccustomed members made commitments to their Tea Party base of supporters that they would oppose any increase to the ceiling. Undoubtedly, voters will be watching closely to see if those campaign promises are upheld, and recently elected lawmakers fearful of losing their new posts in 2012 will do all they can to keep those commitments.

Several of these lawmakers are officially on record saying they would not vote to raise the federal debt ceiling, but the decision is centered on ideology and has less to do with pragmatism. America must rein in federal spending and voters expressed that concern on November 2, but freshly elected leaders that are heading to Congress should be careful not to obstruct the economic recovery for the sole purpose of scoring political points. Whether they like it or not, America has obligations, and we elect leaders to embrace the responsibility to lead on tough issues. Voting against an increase in the nation’s debt ceiling would be an excellent tactical move, but the decision would be void of any leadership. We need leaders that will develop a comprehensive plan to reduce federal debt, control annual expenditures, reform costly entitlement programs, and incentivize economic growth.

Unfortunately, the fight could become more about politics and less about the economic well-being of America. I firmly agree with the virgin GOP lawmakers that federal spending is largely out of control and we must put the country on a fiscal austerity plan that will encourage private sector growth and economic prosperity. Federal spending in America is now hovering around 25% of GDP and tax revenue is at 15% of GDP, which has placed the country on an unsustainable path that will lead to less economic security. However, the economic recovery is in jeopardy of being destabilized by ill-timed government policy.

The inexperienced House and Senate GOP lawmakers do not have to search far to see a preview of what is to come if they decide to play "party politics". The Asian financial crisis that started in July 1997 eventually caused the Russian debt crisis in 1998, because the world is interdependent. Financial contagion is a real issue in a world that has become increasingly globalized and interconnected. The recent worldwide slowdown in production was largely driven by the American housing crisis and the subsequent credit crisis in our financial system. If an increase in the current debt limit does not pass, then it would suggest the country may not meet its financial obligations and that would severely cripple the worldwide financial system, ravage the bond market, impair the U.S. dollar, and frighten away foreign investment in U.S. assets. America would enter an economic winter that we have not seen since the famed "Great Depression".

Many of the Tea Party backed candidates promised voters they would oppose any increase to the federal debt ceiling, but I hope they show the same courage that former President George Bush (41) demonstrated in the early 90’s. Bush attracted voters on the campaign trail with a simple slogan – "No New Taxes." However, the deficits leftover from the Reagan Administration placed unpredicted pressure on the first term President to make a choice between campaign rhetoric and fiscal responsibility. Thankfully, Bush chose to lead on the issue and placed the country on a path to fiscal prosperity by approving a wide-range of tax increases, which ultimately benefited the Clinton Administration in ways that are often ignored. Bush’s political base skewered him for the decision and he failed to win a second term, but in my opinion, Bush rightfully placed the American people before "party politics".

Tom Joyner Morning Show - "Personal Finance Tips"

2010-11-14T23:08:00Z

The "Great Recession" caused tremendous loss in the lives of individuals and families across the country. People have loss their jobs, homes, cars, and self-confidence. Americans feel financially insecure and many are searching for ideas that will help them to clean up their "financial house". I recently appeared on the "Tom Joyner Morning Show" to give listeners some tips on how to measure if they are financially healthy.

Play this podcast of "Community Focus" and listen to my personal finance tips.

Who will pay to rebuild Uncle Sam’s house?

2010-11-07T22:48:00Z

Republicans are still celebrating their greatest mid-term election victory in 72 years, but Democrats are gearing up for a fight over who will pay to rebuild Uncle Sam’s house. The federal government’s budget is in disarray with annual deficits hitting $1.4 trillion and the national debt hovering around $14 trillion. Democrats think 98% of Americans should not pay higher taxes; the Republicans say 100% should not. In 2001 and 2003, George Bush made broad-based tax cuts, but those cuts are set to expire soon and everyone’s taxes will rise sharply on January 1st unless Congress intervenes. Unfortunately, the debate is becoming more about politics and populist anger towards one class of citizens, and less about stabilizing the federal government’s budget and creating an environment that fosters private sector growth.

Democrats largely believe that Wall Street’s excesses caused the "Great Recession", so higher taxes on high-earners are part of the solution. That is why Obama, Pelosi, and Reid’s top priority before the mid-terms were to ensure that the Bush tax cuts expire at the end of this year for households earning more than $250,000, but are extended for everyone else. This misguided strategy will place pressure on an economy that is slowly recovering from a deep financial crisis. Tax hikes that are ill-timed can tip weak economies back into recession, which America experienced in 1937 during the protracted "Great Depression". Higher taxes on the most productive earners combined with waning fiscal stimulus and looming budget deficits at the state and local level, will make an anemic growth rate weaker still.

The argument between both parties is trivial and rife with politics because the actual money at stake is, in the larger scheme, miniscule. Raising taxes on the top 2% of earners, as the Democrats proposes, would bring in $34 billion next year: about enough to cover nine days’ worth of the federal deficit. Tax revenue is expected to rise to 19.6% of GDP in 2020 if all the tax cuts are extended; raising rates on top earners would lift the ratio to only 20%. Federal spending is projected to reach 24% of GDP in 2020, so both proposals fail to bridge the gap between spending and taxes.

Republicans are convinced that voters restored them to power with a "mandate" to reduce government spending and prevent unnecessary tax increases. GOP leaders such as Boehner and Cantor argue that government is too big and the budget must be reengineered to reduce the amount of private sector resources that are being devoured. The popular idea that America is already paying too much in taxes does not bear out in the numbers, taxes this year will come to less than 15% of GDP, the lowest share since 1950. Republicans have done well at expressing the people’s frustration with government, while failing to clarify how they would make fundamental "course directions" that will have a real impact on the size of government.

Mr. Boehner has proposed to roll back government spending to its level in 2008, but this would require more than just terminating Mr. Obama’s policies. Government began growing under the Bush Administration, largely because the public wanted much more security, entitlements, and regulation. Mr. Bush beefed up domestic security, entered two wars, passed an enormous prescription drug benefit for seniors, and agreed to saddle companies with the Sarbanes-Oxley Act when the public demanded a response to corporate excesses spurred by the collapse of Enron and WorldCom. All of this was done magically without raising taxes.

Federal spending shot up from 21% of GDP during the final year of the Bush Administration to 25% in 2009. However, the same trend occurred in almost every rich country across the world, for the same reason – bail outs, stimulus, and a smaller GDP. Mr. Geithner cannot sell taxpayer investments in banks and car companies fast enough, so much of the spending incurred during 2009 is starting to wind down. Other leaders in the GOP proclaim that repealing ObamaCare would impact government spending, but that assertion is disingenuous. Obama’s healthcare reform plan does not contribute to spending, but an ageing population with more retirement and health needs combined with rising interest on the national debt are the primary culprits.

Analyzing the federal government’s budget reveals that 70% of taxpayer’s money goes to Social Security, Medicare, Medicaid, and interest on the national debt. The remaining portion is gobbled up by the Department of Defense, Education, Transportation, Veteran’s Administration, FBI, DEA, etc. The pork barrel projects that routinely embarrass members of Congress year after year account for less than 1% of the entire budget. Republicans will have to make some unprecedented choices if they plan to balance the budget through spending cuts alone.

Democrats will have to face the reality that raising taxes on the rich alone will not fix the deficit. At some point, Republican leaders will have to be honest with the party base and brace them for higher taxes. Both parties are waiting for a bi-partisan debt commission to release their recommendations on December 1. I am not convinced that either party will have the courage to ignore politics and implement the proposals that will restore economic prosperity. Voters must hold elected leaders accountable to campaign promises. America needs a genuine austerity program that will give comfort to the international community while providing certainty to bond and currency markets. Both Government belt tightening and more tax revenue as a share of GDP will be needed if we want to get Uncle Sam’s house back in order.

Obama to America: "I feel bad"

2010-11-04T04:14:00Z

November 2 proved to exceed the predictions of most pollsters, strategists, and pundits when American voters took Democrats to the “woodshed” for their mismanagement of the economy and the people’s treasury. Republicans won over 60 seats in the House and picked up a handful of new seats in the Senate. Certainly the tidal wave of Tea Party support this year was a powerful driver in the election, but ultimately, it was Independents and their disgust with a slow economy that gave the GOP the greatest victory during mid-term elections in the last 50 years. Democrats attracted votes from over 50% of Independents in 2008, but now they are largely breaking towards the GOP and it is largely understood Independent votes can swing elections. Appearing chastised and defeated at a press conference earlier today, Mr. Obama told the American people – “I feel bad”.

I think most political experts would agree that the outcome of the mid-term elections was largely a referendum against Obama and how he has governed the country during the first two years of his administration. Rightfully, Obama admitted that he feels a sense of sorrow for all those in his party that were fired on November 2, but he still appeared to be disconnected from the reality that his political agenda was the primary cause. Mr. Obama defended the choices that he has made in the last two years while stating that he would be more open to compromise on issues moving forward. Of course, it is too early to tell if Obama will move to the center as Clinton did in 1994, but I think the majority of voters would like Obama to focus on building consensus and not ramming through legislation.

Tea Party activists have not only changed the political landscape in Washington, but they have fundamentally transformed the Republican Party. Taking a page from Mr. Obama’s 2008 campaign playbook, Tea Party activists have energized the GOP base at the grassroots level, which has not been done since 2000 during the Bush Campaign, and 1984 during Regan’s bid for reelection. However, Reagan and Bush utilized social conservatives to dominate the grassroots of the party. Today, the Tea Party controls the grassroots, and they are fiscal conservatives and free-market supporters. Social issues such as abortion, guns, and gay marriage are not on the Tea Party agenda.

I am not arguing that Tea Party activists are not social conservatives, but they have made a conscience decision not to allow social issues to dominate their agenda. Reducing federal government intrusion, promoting economic liberty and the need for fiscal austerity measures are the issues that are energizing the base. The Tea Party has effectively attracted Independents, Democrats, Libertarians, and Republicans to unite against Obama’s agenda. The direct impact from the creation of this “big tent” has led to major victories in battleground states such as Ohio, Wisconsin, Pennsylvania, New York, and many more states that were once considered “blue”.

Democrats in Washington are not the only ones with a “red backside” after November 2, but it is also worth noting that the Republicans managed to capture 10 Governor Mansions and now they control 30 out of 50 states. In addition, the GOP turned 19 state legislatures from blue to red, in North Carolina the Republicans are in control of the entire General Assembly for the first time in 112 years. The sea wave of change across the country will have real consequences when voting districts are redrawn next year. Not to mention, the GOP will have an extensive infrastructure in a number of battleground states when the 2012 election cycle comes around.

One other dynamic emerged November 2 and that was the lack of support from young and minority voters. The message of “hope” and “change” galvanized them to help Obama capture the White House, but in the latest election they decided to stay home. The number of votes casted for Democrats from the group was down over 10% respectively. Another more important fact is that older and white voters are also deserting Obama and his party, which means the probability that Republicans can hold Obama to one-term, has increased dramatically.

Most Americans are now wondering what will be the direct impact of the election. Will the Republicans repeal and replace ObamaCare? Will they cut spending and how? Will they compromise to prevent gridlock? Many questions are being tossed around on the cable news shows, but it is far too early to see the implications of the shift in legislative power.

Repealing ObamaCare will be a large challenge since the Democrats still control the Senate and Mr. Obama has a veto pen that he is itching to use. More viable options might be to focus on selective provisions and then work to make bi-partisan improvements. Regaining control of the federal government’s budget is top of mind for all voters and they will watch the Republicans closely to see if they “walk their talk”. Congress will have to get serious about spending cuts, which mean entitlement programs such as Social Security, Medicare, and Medicaid, which is increasingly eating up most of the resources, must be reformed. All options should be on the table – increasing the retirement age, restructuring benefits, and any other uncomfortable decisions that will allow us to rein in spending. Yes, even departments that are typically considered “untouchable” such as the Department of Education, Defense, and others must be closely examined to create greater effectiveness and efficiency. Republicans will also have to prescribe a dose of medicine that most voters do not want – tax increases. The dirty secret is that Congress cannot balance the budget without movement on both options – spending and taxation.

Concerns about job creation and the domestic economy are on the minds of liberal and conservative voters. Unfortunately, the stagnation in the American economy will not be solved by one election. We are recovering from a massive lockup in our financial system that was driven by too much debt and easy access to credit. Companies and individuals are still repairing balance sheets. Job creation will not restart until consumer demand picks up and is sustainable. Unemployment appears that it will remain uncomfortably high through 2011 as municipal and state governments deal with looming budget deficits that require tough reductions in government spending. Leaders in Washington should be honest with America and explain to them that our economy will muddle along for the next few years before entering another significant expansionary cycle and bring the jobless rate down to more a comfortable range.

Republicans are riding a wave of optimism and they rightfully feel that voters are sending them to Washington with a mandate to “change the course”. I hope they fulfill the enormous expectations that voters have placed upon them. Americans are in great pain and many feel a deep sense of hopelessness. The majority of America has no feeling of financial or job security, and many are suffering from the loss of homes, cars, and confidence. There have been no other times since the “Great Depression” that our country desired sincere leadership in the midst of economic crisis. Americans do not care about the petty issues that separate lawmakers; they just want leadership and solutions. Voters want leaders that will place their needs before party interests, special interests, and more importantly self-interest. The founding fathers were brilliant thinkers and created a government that allows for a peaceful revolution every two years. I hope the GOP will exceed the desire of voters, but if not, then they may be the party that receives the next “shellacking”.