The Greek Debt Crisis And How It Can Impact Your 401k

If you have been paying attention to the news then you most certainly have heard about the Greek debt crisis and have probably noticed the coinciding drop of our own stock market. What's the connection? Is there a connection? The simple answer is yes, there is a very important and critical connection. So, what's going to happen? That is the million dollar question. Is it possible that everything will work out in the European Union and that they will successfully deal with the Greek debt issue? Sure. One thing I have learned is that you should never underestimate the resourcefulness and determination of market forces to stabilize potentially damaging situations. However, what's more interesting, and scary, is what the situation in Greece is showing us.

The situation in Greece is fairly simple. Like nearly all other European Union member countries, Greece has a socialist society. By socialist I simply mean that the government provides cradle to grave benefits for its citizens which are paid for with pretty steep tax rates. When the global market melted down, so too did corporate and personal income tax payments. Greece, much like the US, ramped up spending and debt with the assumption that revenue from taxes would keep increasing. Well, we all know what happened. Greece now lacks the money necessary to make the interest payments on their outstanding debt and is relying on the EU to bail them out (write them a check for $12 billion to make their immediate payments). The problem is that Greece will be in the same situation 60 days from now. The long and short of it is that if Greece defaults it will send shock waves through the banks that own Greek debt could create a crisis much like the collapse of Lehman Brothers. The most concerning aspect of this is that there are several other EU countries that are in similar shape. Actually, the most concerning thing is that the US is in similar shape. So, what does this say about the market and your 401k?

There are 2 ways to deal with the problems that Greece, the entire EU, and the US are currently dealing with. The first method is to monetize the debt. This means simply that you print money to pay off your debts. Monetizing the debt is precisely what we, along with the EU, have been doing. The hope here is that the increase in the money supply that is caused by all of the printing will feed into the economy and will result in greater tax revenues which will enable the government to slowly and gradually balance the budget. Well, as we all know, the economy is not cooperating. The only other way to fix the problem is to drastically cut budgets. Politicians in the US and abroad refuse to do this as providing expensive social services has served as the most effective way to stay in office. Basically, the problem is quickly coming to a head and the governments around the world, including ours, are running out of time. At some point, the printing will have to stop. When this occurs, the economy and the society, as we are seeing happen in Greece, behaves much like an addict coming off heroine. Riots break out and social services come to a grinding halt. As you can imagine, this has devastating effects on the stock market as commerce is gravely hindered. Markets crash.

Now, this may be a worse case scenario but it is all too possible. Basically, now is not the time to be aggressive. Investors should be focused on preserving principal rather than making profits. Commodities have taken a bit of a hit lately but stick with them. If you don't own gold in your portfolio, buy some. Gold stocks are taking a hit right now along with the rest of the market. However, they are suffering from guilt by association. Gold is the one thing that has held up, nearly unscathed, during this recent market downturn. Gold stocks will bounce back as soon as the market realizes that they are being unfairly punished. In fact, the mining sector may be the only sector to garner healthy profits in the months to come. As the fears of default and more money printing build, gold will continue to rise as it is seen as the only way to hide from the wide spread currency devaluation. 

Once again, if you have any questions or would like further information on how to protect your investments, never hesitate to email me. If I can't help you I can certainly direct you to someone who can. Best of luck

The Real Reasons Our Economy Is Not Recovering

Although my wife may ardently disagree, sometimes I don’t like being right. If you look over the older posts on this blog, you will see that I was claiming quite some time ago that the story of “Recovery” that the administration was trying to sell was complete garbage. There is no recovery. The only thing that has improved is the stock market and that has been because Wall Street thinks things are going to get better. The market is now overvalued and has pulled back significantly because it is realizing that it had greatly overestimated the recovery. So, in this entry, I will attempt to explain why I believed there was no recovery and there will be no recovery until we change course. Most “financial experts” will disagree with my premise, just as they disagreed when I said housing was going to crash; just like they disagreed when I said we should be buying gold; just like they disagreed when I said silver was overvalued; and just like they disagreed when I said “stimulus” wouldn’t work. Please do not interpret what I am saying as bragging. Rather, I am attempting to illustrate that by deploying common sense and basic reason, we can all outsmart the “experts” who are usually too smart by half. I am no genius; I can assure you. I’m just the guy in the back of the crowd who is attempting to point out that the king simply isn’t wearing any clothes.

 Once again, this is not a political critique. I ABSOLUTELY disagree with anyone claiming that Obama and/or his administration were lying about the recovery. I am quite certain that they did and still do believe they are on track and taking the necessary actions to get us back on track. The reason I am so confident that Obama, Bernanke and the rest of their ilk are sincere is because I have spent quite a bit of time in the collegiate economics circles. My time at a certain unnamed mutual fund company had me submerged in the theories of academic types who accept Keynesian (if you are reading this blog for the first time and are unfamiliar with Keynesian economics, we discuss it at great length in previous posts) economics as gospel. They all live in an echo chamber, horrifically afraid to go against the grade lest their colleagues and contemporaries think less of them. To me, the problem is simple: the Fed began pumping money into the economy in an effort to buoy the banks and the financial system at large. None of the underlying problems that created the mess were dealt with. So, surprise surprise, companies have accumulated large piles of cash and have trimmed costs WHEREVER possible. They aren’t dumb. They realize that money is cheap right now. Interest rates will be moving up in the near future which makes borrowing money more expensive. CEO’s get paid based on their company’s profitability. As cash gets more and more expensive to borrow that large stock pile will become increasingly valuable and let them take advantage of opportunistic situations, such as mergers and acquisitions. That is how they will increase their working force and grow the business. The economy and the consumer are in trouble right now, you know it and so do they. Herein lies the problem with trying to spend your way out of this mess. The underlying issues that are prolonging—unemployment and housing—are actually getting worse. The only way to get housing to stabilize is to improve the employment picture. The only way to improve the employment picture is to give companies an incentive to hire. How would you do that? Well, I believe the most effective way to do that is to lower tax rates on corporations. Hear me out here. If we just give companies money to “stimulate” them, they will do what they are currently doing which is sit on it. If you give them tax breaks instead, they are forced to transact more business. The only way to take advantage of a tax break is by making money. Also, that cut in taxes has made transacting business less expensive as those tax savings drop right to the bottom line. Well, we all know companies and CEOs are greedy. So, that greed will drive them to exploit that tax cut as much as possible (transact more business) which will require them to hire more people. It is the only way to grow profits and for CEOs to hit their bonus targets. By pumping money, we are rewarding companies for sitting still and cutting costs. By cutting taxes, only the companies who transact more business will make more money.

Let me state plainly that I am not advocating getting rid of taxes. Furthermore, the answer isn’t ALWAYS just cutting taxes. Taxes are really a balancing act. For instance, most people think that increasing tax rates will increase government revenue. Well, if the tax rate was 100% the government would receive no revenue. In other words, if you had to pay 100% of your income to the government you would most likely quit working. The flip side of that argument is if the tax rate was 0%, the government would receive no revenue either. The trick is finding the sweet spot, and I can assure you that right now, with this economy on the ropes, that sweet spot is not higher. Consider this: would the government make more money with 100 people paying 50% of their income in taxes or with 120 people paying 40%? It’s not even close. We must find that sweet spot and let the free market do what it has proven it can do time and time again. The free market has created more wealth and raised the global standard of living more than any other social or financial system in the history of mankind. Why do we doubt it now?                             

I hope people took my advice and took some profits in the last few months. I may be wrong, but I believe this market could keep heading south in a big way. We are keeping cash on hand and holding on to our gold positions. As I suspected, silver has come back down to earth. I continue to love dividend stocks as long as your cash position is big enough. Oil could be under some pressure, but I really think it is a compelling buying opportunity at 90 or below. I really believe that we will see another round of quantitative easing and look for gold to go much higher. It may get a bit pinched in the short term, but it should do well over the longer term.

To Those Who Paid The Ultimate Price: A Thank You

Please have the patience to read this entire entry and take the time to contemplate it upon finishing. If you must, skip the next paragraph as it is merely an introduction.

I have succumbed to the seemingly inevitable fate of nearly all those who begin writing blogs or journals: life got in the way. Well, I'm back with a renewed dedication that is equal parts excitement and obligation. I began this blog not because I am foolish/arrogant enough to believe that anyone needs my words or insight. I simply wanted to record the abhorrent fiscal and social policies of the day with the hope of once and for all answering one of the most pertinent and consequential questions of our time: can government and her policies save and keep this great nation or will they usher in its demise? If I can help or inform anyone along the way then that would be an added bonus. So, as most of you know, markets are closed today. On this Memorial Day, I would like to take this opportunity to dedicate this "comeback" entry to the courageous and selfless warriors who have so willingly sacrificed their freedom, future, life, and American dream in order to protect all of those things for people they have never/never will meet. Thank you.

As I sipped my coffee this morning my wind wandered, thinking about the meaning of this day. I wondered how many others were doing the same. Disappointment set in. For far too many, this day bookends a 3 day hiatus from monotony and obligation. It's for baseball and barbeques, for yard work too long passed over. The more responsible and "patriotic" among us may proudly display a "Thanks to all who have served" as our status on Facebook. I demean none of these observances as I am actually pleased that such uniquely American pieces of our culture have been graphed onto this most hallowed day. But, as I looked at my daughter playing at my feet, I couldn't help but think of the generations of fathers who proudly handed over the privilege/right to watch their own children grow in exchange for the hope, just the hope, that their children wouldn't need to consider paying such a price. Too often, we as Americans are the "Sunshine Patriots and Summer Soldiers" that Thomas Paine so eloquently lamented. We love our country and her ardent and noble protectors on Memorial Day. We may even tear up a bit as we dutifully and intently listen to our National Anthem serving as the preface for the sporting event we attend on the eleventh day of September each year. Do such emotions flood over us on June 11th? Does such pride and allegiance drive us to tears on November 11th or Labor Day? Does our tearful admiration rise to the surface while we hurriedly pass by an impeccably organized and camouflaged clad young adult in the airport as we indignantly rush to our gate, righteously angered at the 15 minute delay that is jeopardizing our connection flight home? Do we, for that matter, consider exactly to what foreign and inhospitable hell hole this young warrior is traveling to, our flight home serving simply as the first leg of a journey that could quite possibly be their final destination? I say this not to apply the leverage and pressure of guilt, or extol my own virtue of not succumbing to such short sighted and selfish oversights; for such observations are possible ONLY through experience and self examination, as I too am guilty of these selfish oversights. I say this because I fear that far too many of us in this culture have been lulled into a self focused and historically inaccurate understanding of what exactly this America is. We believe that America IS the freedom of speech, the right to a fair wage and paid for medical care. We bluntly and universally speak of our "rights" and entitlements as if they were an inheritance, a currency awarded to all who had the good sense and foresight to be born here. We debate and question war and violence as they are clearly the arcane tools of our less evolved, albeit brave and dedicated, predecessors. However, at the very least and to our credit, we will agree and state with a tone of patriotic sophistication that our uniformed guardians have "preserved and protected" the liberty we so enjoy and too often abuse or under-appreciate. Yet far too rarely we recognize those breathing and living uniformed Talismen of freedom for what they are. Those young soldiers aren't the protectors of America; they are America. Unlike nearly every other country on the face of this earth, America is not the natural evolution of a geographically concentrated race or culture. We are a people of different descent, different creeds and cultures, ironically bound together in an inner-dependent community that is based on the very freedom that has enabled our individuality and self determination. Uniquely, America was birthed of blood and conflict. We are the adopted children of armed engagements and fierce battle. We are the barefooted 16 year old boy that fought through the ravages of starvation and dysentery to march toward Princeton through a freezing winter storm on a Christmas night in 1776, resigned to death, but determined to die standing up in what was seen at that time as being the final gasp of our all too young Revolution. We are the brothers who spilled each others blood on the fields of Antietam and Gettysburg. America is not the result of such men, it is these very men. America is not freedom or opportunity. Rather, freedom and opportunity are the offspring, the result, of the ultimate price that so many young men and women selflessly paid. America is selflessness, courage, conviction, blood, and sacrifice. Freedom and liberty are merely the miraculous benefit that blossomed from the bloody soil that served as the final resting place for our best and most courageous. Don't let this definition of what we are get lost or contorted. Teach your children of the sacrifice and unmitigated tragedy that gave birth to the freedom that they will grow and prosper in. And, when you see a soldier or think of one on hallowed days like today, don't thank them or shed tears for what they have done. Thank them and cry appreciatively for what they ARE. They are America. Freedom, Life, Liberty and the pursuit of happiness are merely their byproduct. Thank You to all who have served and/or paid the ultimate price. As for me and my family, we will never forget and will fervently attempt to be ever mindful of the price you have so selflessly paid so others might enjoy the life that you forfeited. May God Bless You and may you forever Rest in Peace.

Gold, Budgets, and Down Grades...Oh My!

What a week!! S&P (Standard & Poors), a company that specializes in assigning credit ratings to corporations and companies (sort of like a Free Credit Report.com for big companies and governments), came out this week and officially stated that the future outlook for the US is negative. This means that they see problems in the future as it relates to our country being able to pay its debts! My use of exclamation marks are to express my amazement, not to celebrate or underscore my unbridled enthusiasm at the impending fiscal disaster we are facing. But come on, this is historic stuff. I understand that it's scary and disheartening, but we are firsthand witnesses to unprecedented economic occurances. In addition to the S&P downgrade, the head of HSBC bank came out this week and stated plainly that Americans are in debt denial. I know I have promised to avoid politics but all of these historic developments have forced my hand. We as a country, must wake up to the fact that we are out of money. We owe nearly 15 trillion dollars and are forced to pay interest on that ghastly amount every year. We are adding to that debt to the tune of 1.6 trillion a year. You are going to hear so much political nonsense on both sides of the aisle as it relates to this budget issue. The truth is simple: cutting spending isn't cruel, mean, heartless, greedy, or unfair. Reducing our spending is a necessity. Let me ask you a simple question: what good are we to ANY ONE of our downtrodden or needy citizens if we default on our loans and experience catastrophic fiscal collapse? This is not a political issue. It's a reality issue. Anyone that tells you ANYTHING else is either uninformed, illiterate, dishonest, or attempting to use this disaster as political leverage. Focusing on any other issues in the political arena at the moment would be the equivalent of arguing about the color of paint on the walls while the house is on fire. Both parties must get serious about this issue unless they want to relegate the US to third world status. It really is that simple.

Despite all of this bad news, the market goes up. It may sound strange, but the market is going up because of our problems, not despite them. The weaker the dollar gets, the more investors will migrate from federal and municipal bonds into stocks with the hope of making money faster than our currency is depreciating. Also, many money managers, myself included, are terrified of the unavoidable interest rate hikes that are coming our way. You see, as the dollar continues to weaken, the fed will be forced to raise rates to keep our debt attractive. In an effort to get out ahead of this, we are abandoning our bonds and migrating to stocks and commodities. This migration is forcing the market higher.

I cannot tell you how many times I have been laughed at over the past five years whenever I expressed my belief that gold would rise to $2,000 an ounce. Well, we have hit $1,500. I have talked about gold ad nauseum in this blog so I will keep it short. This meteoric rise is simply due to the diluted US dollar. I'm not forecasting $5,000 gold. However, I'm certainly not confident in our politicians' intestinal fortitude that will be needed to reign in this riotous spending. Until that happens, stay long gold. This same scenario holds true for oil. While the threat of Middle East unrest resulting in supply disruptions has certainly propelled oil higher, the falling dollar was already pushing it in that direction.

If you want to be a real market geek, pay attention to the VIX going forward. Just type in VIX in whatever tool you use to look up stock market prices. The VIX is the volatility index. It measures the number of Put option contracts that are being purchased. Put option contracts are just instruments that pay off in the event that a stock goes down. It's like placing a bet that a stock is going to lose. The VIX is historically low which has me worried. As Warren Buffet says, "be greedy when everyone else is afraid, be afraid when everyone else is greedy." This economy and country are on very shaky ground and everyone is being VERY greedy. I'm not freaking out and selling every stock we own. However, we continue to proceed with caution.

Where's The Recovery???

Here's a challenge: turn on any news channel or stock market show and see if you can go five minutes without hearing some Ivy League blue blood opining about this incredible bull market and the continuing recovery. They cite earnings, balance sheets, employment numbers, and a plethora of other "Wall Street" stats. It's actually pretty convincing, at least until you talk to your neighbor who hasn't worked in ten months and who is raiding his IRA in a futile attempt to keep his house out of foreclosure. So, why the huge discrepency? Why is this magical land of 7 figure bonuses and penthouses overlooking Central Park that we call Wall Street seem to be swimming in cash while the rest of us are hawking family heirlooms so we can afford to fill our gas tanks? Before I attempt to answer that question, lets go over what has been taking place in the market.

For the most part, stocks continue to go up. The relentless upward trend continues but is failing to keep up with rising commodity prices such as gold, oil, timber, silver, and natural gas. As I have said before, this trend will continue as long governments, namely ours, continue to print money and devalue our currency. Personally, I don't see any sign of the money printing subsiding. We continue to love gold and oil. Natural gas seems to be gaining some momentum as our brilliant politicians begin to reluctantly accept the fact that wind and solar technology are nowhere near being able to power this country. Domestically, the US has more natural gas than the Middle East has in oil reserves. What fuel, other than natural gas, do you know of that you can burn in your home 24 hours a day without sacrificing the quality of the air that your family breathes? Natural gas is clean and is just as effective in providing power as coal and gasoline. Natural gas will be a vital part of our energy independence going forward. Silver continues to move sharply upward as investors continue to believe it is undervalued compared to gold. Be careful with silver. Rising inflation should push silver higher but don't expect it to keep up with gold. A lot of people out there are misunderstanding the difference between the two metals. Gold is being traded and treated as if it were an actual currency. It is seen as a shelter from all of the currency devaluation. Silver may go higher for many of the same fundamentals that are pushing gold higher. However, simply put, silver isn't gold. When the proverbial excrement hits the fan, governments and institutions want to own gold. Gold is in much shorter supply than silver and is a hallowed and intimate aspect of both Chinese and Indian cultures. Gold is the true currency hedge. Be wary of higher silver prices. In my humble opinion, silver is riding golds coat tails. Companies will begin to announce first quarter earnings in the near future. I'm paying close attention as I believe that these higher commodity prices will begin to erode corporate earnings. In the short term, I expect this market to continue to drift upward. BUT, I'm being very careful as global conflict and rising material costs could bring an ugly and sudden end to the party.

So, where is the recovery? Why are companies posting record profits while the rest of us are sucking wind? Well, in an attempt to "save" the economy, the government has been pumping unheard of amounts of cash into the market. Why isn't this money filtering down to the average worker? Well, if someone handed you a million bucks right now, would you be lending it out or purchasing businesses in this market? I certainly would not. I would be investing in inflation proof assets and staying liquid in case this economy and market takes another tumble. Well, corporations are doing just that. Business is just as hazardous and precarious as it was 3 years ago. Costs are going up and tax rates are just as penal as they were before the crash. Washington, in their infinite wisdom, have stuffed the pockets of corporations hoping that money would filter down and feed into the economy while taking no measures to decrease the cost and risk of doing business. In my humble opinion, we would have been much better off cutting corporate taxes and employment taxes. This would make the cost of doing business much less and encourage companies to actually do more business and make more money. In other words, to benefit from lower taxes a company MUST do more business. In order to do more business you have to hire more people. As companies begin hiring more people, they begin to compete for talent and are forced to raise wages to stay competitive. Corporate America would still be able, through lower costs, to build up the large cash stores they currently enjoy but only by actually doing more business. As it currently stands, they have all the cash WITHOUT having to take the risk and do anymore business. Essentially, this money pumping is actually preventing corporations from hiring and expanding; they simply don't need to. Many of the politicians claim we can't afford more tax cuts. Well, that is true only because we have spent ourselves into oblivion through all of this "stimulus" spending. If we are going to spend the money one way or the other, why not spend it in a way that actually encourages investment and expansion rather than hoarding? But, now I'm assuming that politicians actually make sense and are capable of making rational decisions. Who's the idiot now??

What's A Deficit?

And I'm back. I'm sure you all were waiting with baited breath, relentlessly checking the blog for my latest post. Or not. Anyway, I had the pleasure of being a stay-at-home mom last week as my wife was out of town on business. Needless to say, the blog was the furthest thing from my mind. We had a great time, but it was truly a baptism by fire! Much respect to all of the mothers out there--especially my wife (my wife added everything after the hyphen).

Now to the markets. We have seen a healthy comeback from the lows of the Japanese disaster. However, proceed with caution. Volumes (the number of shares traded on a given day) are very low. This is telling me that despite the rising stock prices, real conviction is lacking, and the market is moving north in a subtle manor. Historically speaking, light volumes are often followed by very sharp declines but not always. Something I found very telling were the earnings that were reported by Nike. Nike has been a solid mover and earnings producer throughout the recovery. Nike shares were pounded when they reported earnings that were significantly less than analysts' expectations. Nike cited higher input costs (oil, cotton, dye, energy, etc.) as being the main reason for the earnings' miss. This is precisely what I have been worried about. It will be very tough for companies to keep increasing profits (higher profits = higher stock prices) when they can no longer cut costs (jobs), and the materials that are necessary to produce their goods are more expensive. As for me and mine, we are cautiously moving forward--never hestitating to take profits. A wise man once said, "It's impossible to go broke taking profits."

So what's a deficit? That could quite possibly be the most often thought yet never spoken question. We constantly hear people talking about government deficits and debts; I have referenced them myself in previous posts. I realize that I have mounted my soap box and addressed this in previous entries, but I believe I failed in explaining in simple terms exactly what "deficit" means. It is vitally important that we all understand what a deficit is and what it means. I will do my best to explain: simply put, a deficit--as it relates to government spending--is the amount of the budget we are forced to borrow. Government generates "revenues" (I hate using the word revenue when it pertains to taxing the public) through income taxes, fines, permits, etc. Currently, government revenues are somewhere around $1.6 trillion a year. Our budget is around $3 trillion a year. That difference is made up through borrowing. The vast majority of that borrowing is done through issuing bonds. So, our deficit is $1.4 trillion this year alone. That breaks down to about $4 billion per day going directly on the proverbial credit card. Numbers this big are staggering--almost incomprehensible to the human mind. Our national debt is a whisper from $15 trillion. Next year, our debt will reach 100% of our GDP (Gross Domestic Product - the number that represents the total output of the U.S. economy) for the first time in our country's history. I truly believe it is important to understand the fiscal and political trends in any economy before you can put your money to work and invest. The question we should all be asking is this: how much debt can we handle? This is not a political question as neither party seems to show any real commitment to restoring fiscal sanity. However, it is a question that will impact all of our lives and our ability to provide for our families. Knowledge is power. Hopefully, when you understand the terms and parameters of the discussion, you will be able to sift through all of the noise out there and be able to make an informed decision.

On another note, I still have not received a single question. Email me directly with any topics that you would like me to address. All questions are confidential, and I will not use any names. Trust me, I have plenty of topics swirling around in my overactive mind. However, I would much rather address questions or concerns that you have.

Why The Unions Are So Upset

I REALLY want to talk about the union situations in Wisconsin and Michigan (and coming to a state near you, mark my words). They need to be addressed because they are intimately tied to what is going on in the markets and our economy. So, I am going to. First, let's discuss what is happening in the markets in general.

Confession: when I said in the Sunday post that it was a big week for the market and that we were really close to a big pull back, I was cheating a little bit. Before I wrote the post, I was on the internet watching the opening of the Nikkei (Japanese stock market). I saw Japanese stocks getting pummeled. When you add that to what is going on in the Middle East, it seemed simple: this market was going to shrug off this bad news as it has been doing for nearly two years, or we were finally going to see some reality set in. We were down huge early today and bounced back pretty remarkably. We did post an ugly loss, but we actually made up more than 50% of the losses that the market was showing this morning. I cannot reiterate this enough. This is not the market in which to learn how to trade stocks. I promise you that I am not saying this simply because it is what I do for a living. I'm saying it because it's scaring me too! The swings are SO violent and normal information is no longer driving the markets. We have reached a breaking point. The market wants to move violently upward or downward. It just hasn't made up its mind which one. Let's keep a good amount of cash on hand, earn our dividends, and see where this thing goes. Keep your eye on the action this week. I look at Friday as a HUGE hallmark for things to come. If we close Friday higher than we are now, I look for us to move substantially higher. Likewise, if we close lower I will expect that trend to continue into next week.

Now to the Unions. We have all seen the stories and news casts from Wisconsin, the debate raging on whether or not we should limit the rights of labor unions to use collective bargaining. It is important to point out that collective bargaining itself is not on trial. Collective bargaining for state employees is the issue. The issue can be boiled down to this: do state employees have the same right or ability to make demands when they are being paid with tax payers dollars? Interestingly enough, Federal employees gave up the right to collective bargaining in 1979 because the federal government decided it was not fair to have unrestrained bargaining over tax payer dollars. So, why are the state employees putting up such a fight? Well, I'm gonna give you my unadulterated view of this whole thing. States cannot carry the burden that all of these mandatory raises, paid vacation hours, deluxe health insurance, and pension plans. That is not an opinion. Can you afford to pay more taxes? How much will be enough? Now, here is where I differ from many people that hold that same view. Is this problem the union's fault? Are we really going to lay this monumental fiscal disaster at the feet of the middle class government worker that has served us all for their entire career? Truly, the union's have a great point. For the last 40 years, the value of a union wage has been diluted and eroded. However, this dilution is not because of  unsubstantial "COLAs" (cost of living adjustments) or insufficient wages. Ironically, the fiscal handicap of the modern day government union member,--or any union member for that matter--can be laid at the feet of the very politicians who claim to be "fighting" for unions. The greatest tax and monetary blow to the working middle class is the depreciation of our currency. As the dollar falls, goods such as oil, corn, plastic, gas, lumber, copper, wheat, coffee, sugar, cotton, and nearly everything else we consume, increases drastically in price. The upper class is able to offset such increases through investments and economic growth. Your average middle class union worker lacks the readily accessible 100k to purchase oil futures and benefit from a weakening dollar. The very politicians who have lobbied for increased government spending and "programs" have unwittingly undermined the foundation of our middle class. A middle class union member used to own a home and two cars. Now, a union wage gets you a mortgage that's underwater and a car payment that's double than what you paid in rent on your first apartment. Inflation is insidious and truly is the greatest tax on the middle class. In fact, it is decimating our middle class as we speak. Perhaps government cut backs and fiscal restraint won't ruin the middle class or the union family; it may be their only hope.