Never let a good crisis go to waste - Rahm Emanuel

Its been a while since I have written an entry here. A lot has happened in the past several months since I have written here. One being the Greek credit crisis that threatened to cripple a country, or even a currency union, ran its course. Coincidentally, in a previous entry, I used Greece as an example of an economy the US should not try to emulate because of its overly generous entitlement programs. The US government responded to this crisis by expanding entitlement programs and ballooning the deficit to dangerous levels. Regardless of all that has happened I am most concerned about the new “Financial Overhaul” bill that is almost assured to be signed into law very soon.

I will be the first to say, not all of these provisions are bad. I have to give credit where credit is due. First, and foremost, I think that complex derivatives need to be traded on exchanges rather than in back room deals. This will allow a market to factor the risk of these assets rather than a rating agency or a bank executive. It will allow the purchasers to gain a better understanding of what products in this high risk category are available, from different underwriters, in a side to side comparison, rather than from a biased bank “salesperson”. This is the main benefit I see offered in this bill.

The first problem I have with this bill is the fact that the government will now have the ability to dismantle a “failing” company that has the “ability to affect the economy”. What large company failure would not "effect the economy"? This bill leaves enough ambiguity to allow the government to seize a company that may not actually be on the brink of failure. This, oddly enough, is not the main problem I have with this bill. I was completely stunned when I read that the cost of dismantling one of these failing businesses would be shared by industry peers, regardless of if they contributed to the failure. This is one of the most illogical ideas to have ever come out of our capital, which let’s face it, is known for coming up with awful ideas. Without this legislation the Fed stepped in and brokered deals to sell off failing companies. Granted, shareholders got pennies on the dollar compared to share prices from only one week prior. Regardless, the Fed was able to broker a deal for Bear Stearns and Merrill Lynch, with only one large brokerage firm failure, Lehman Brothers.

Lets apply these rules to the 2008 crisis, which this bill claims it could have prevented. First, Bear Stearns shares plummet. The government decides it is a “failing” firm. Associates from an inefficient and inexperienced government body fill the company’s Manhattan offices and begin to decide how to divide the company up. Merrill Lynch, Lehman Brothers, Goldman Sachs, etc. all receive an invoice to cover the costs of bailing out out Bear Stearns. Keep in mind this makes them financially liable for bad decisions they had input in making. Also, these firms were all experiencing financial troubles at the time, and could not rightfully afford to pay for a liquidation of this size. The added financial liability could have accelerated the demise of these companies, allowing the government to step in and liquidate them as well. If this bill was in effect during the 2008 crisis I believe Merrill and Bear would not have been able to weather the storm long enough to be bought out while they were still intact. Goldman Sachs would probably be the last American owned large brokerage firm on Wall Street.

In all fairness this bill does provide much needed tougher regulations on complex derivatives, but it will actually encourage risky activity. For example, if your local government came to your house and said, if your neighbor goes bankrupt you and your neighbors are going to have to contribute funds to pay off his debts, but conversely the same goes for you. Well you may feel like being liable for someone else’s poor decisions is unfair, but you go on with your life. That is, until your neighbor backs a 40 foot boat into his driveway. You know he clearly cant afford this, so you have to make a decision. Either you can sit around and wait for him to default, and pay the associated costs, or you can buy your own boat that you know you cannot afford. Because after all if you default first he is on the line, and you will have all the fun times on your new boat regardless of what happens in the future.

The same goes for Wall Street. If firm one is making 30% return on investment in risky assets, compared to firm two's 15% ROI in blue chips and other safe investments there is no incentive for firm two to stay in these safer assets. The firm making 15% knows it will be liable for the costs of the poor decisions of the now more profitable company, so it leaves little incentive to continue to invest conservatively. One by one large Wall Street firms will begin to invest more and more heavily in risky assets creating a bubble and eventual collapse. This is exactly what happened in 2008 with sub-prime mortgage backed securities, and this bill seems to assure it will happen again.

Lastly, and maybe most importantly, this bill has the potential to shift risky, but ultimately highly profitable, trading transactions overseas. Most low-regulation countries do not have the infrastructure, or the talent, to be the “headquarters” for these risky derivatives. There are, however, a few that do. Singapore, Hong Kong, and New Zealand are the only “countries” (Hong Kong has been a semi-autonomous region of China since 1997) rated higher on the World Bank’s Ease of Doing Business Index then the United States. Of these three “countries” New Zealand would probably not have the talent required to host these activities. Singapore and Hong Kong are not only capable, but more than willing to host businesses fleeing from more highly regulated Western countries. Granted both are situated in important waterways. This characteristic is part of the reason for their wealth, but look at all the other poorer nations that surround them that could be just as important. When China was considerably less wealthy, Hong Kong was booming, becoming one of the richest cities in the world. China chose an isolationist approach, while Hong Kong welcomed Western businesses and gave them a very low tax, low regulation environment to in which to operate. This approach clearly encouraged growth, attracted businesses and wealth. Ironically, the same “regulated free market” principles that made United States the wealthiest country in the world are now what threaten to take business, jobs, and wealth away from it.

The Road to Hell is Paved with Good Intentions

"The Road to Hell is Paved with Good Intentions"
16th Century Proverb

The countless calls for “no new taxes on the middle class” sound especially familiar for most Americans this year. They were common of platforms on both sides of the political spectrum during last year’s election run. What if I told you that the government confiscated an extra 25% of your income in the form taxes this year? Not a 25% increase in taxes in the traditional sense, but the government actually took 25% of your income directly from you before you even had the chance to account for it. You may challenge me at first and recommend I see a professional. But don’t go calling for a straight jacket just yet. The ever weakening dollar has wreaked havoc throughout multiple financial systems. Mostly in Asia, central banks have been aggressively fighting the dollar’s decline, with nominal success at best. Russia and China, large buyers of US Dollar denominated securities, have already warned the US government they may intervene if the current financial policies become the status quo.

Yet the question remains, how did the government confiscate one quarter of your income without you noticing? One word: Inflation. If measured in terms of Euros, the American GDP per capita has decreased by an absurd 25% over the past year. This means the average American can by 75% of the same basket of goods they bought last year. The Euro is plagued by the same stresses as the US Dollar. The European Union is a net energy importer, so the rising price of oil will also have a negative effect on the Euro. The EU has a developed banking sector similar to that of the United States, so Europe is far from exempt from the financial troubles that are currently plaguing the financial markets and banks in America. Some may try to explain this decline in GDP per capita (in Euros) as being a side effect of the GDP decline we have seen over the past two years. To this I would reply the European Union has also experienced downward pressure on its GDP. Many EU member states have seen a sharp decrease in their respective GDP’s as well as enormous strains on their banking sectors. If the Euro if facing the same uphill battle as the Dollar, what is causing the Dollar to lose value while the Euro, as well as many other currencies, remain relatively stable?

I believe Milton Friedman said it best when he stated, “inflation is always, and everywhere, a monetary phenomenon”. What he means when he says this is that there has never been a case, throughout history, where inflation was not coupled with an increase in the monetary stock of a specific economy. The common scapegoats for inflation are labor unions, OPEC, and corporate price fixing. While these organizations can and do influence prices in their respective industries they lack the basic component to create inflation, the ability to increase the monetary stock, i.e. to print money.

When new money is injected into the financial system it translates into more orders for businesses. This gives a false sense of prosperity immediately following a sharp increase in the monetary stock. After businesses realize the increased demand was inflationary, via higher wage demands and the increase in the cost of raw materials, they will be forced to react. The surge of orders will subside. Workers will need to be laid off, and the business will need to be restructured. All just to get right back where they started.

If inflation can be so detrimental to a society, then why is it used so often to fund government projects? It is used because it is largely under the radar of the average taxpayer. Of course people notice prices increase on the products they buy everyday, but do they really know why? The fact that the government can create money on demand means that “tax” increases do not have to be voted on, therefore pro-inflation representatives enjoy virtually 100% immunity during their next election run. The green bills in your pocket are losing value as you read this, but did you ever think it was due to Washington bureaucracy and increased government spending? Most people would probably say no. Also, the United States, as well as most of the Western World, has a tiered tax system. That is, when a person’s income increases, in terms of Dollars (or Euros, Pounds, etc.), they can be pushed into a higher tax bracket. Assume an average worker received a raise exactly equal to inflation for 10 years. He would have the same purchasing power as when he started working 10 years prior, but would undoubtedly be making more in terms of Dollars. If his higher income pushed him into a higher tax bracket, his real income would have actually decreased. He would be paying a higher tax rate on income that would otherwise afford him the same standard of living as before. Because of this, on average, a 10% increase in inflation will tend to produce roughly a 15% increase in gross tax receipts. It must also be noted that almost every government employee receives an annual “cost of living adjustment” (i.e. inflation adjustment) to their salaries.

The reason I chose the 16th century proverb for the title of this entry is because the government will usually ignore the negative effects of inflation because government representatives believe that the good encompassed in the current bill they are pushing will outweigh the negative consequences of inflation. This mentality is getting much more aggressive with the recent bills passed from September 2008 until now. These bills represent trillions of “new dollars” being spent on supposedly noble and necessary causes. What is truly scary is the fact that because the previous stimulus packages did not work, the general assumption in Washington is that we must have spent too little too slowly. This is after our projected deficit for 2009 was recently increased to 1.6 trillion dollars, or an outrageous 11.5% of our projected 2009 GDP.

I was unable to find a case that contradicts Friedman’s statement, “inflation is always, and everywhere, a monetary phenomenon”. This, coupled with the countless irrefutable examples Milton Friedman presents in Free to Choose, as well as other works, leads me to believe that Milton Friedman was an expert on how monetary policies effect inflation. If this is the case, I am left wondering when the US will be starring down the barrel of a warning Mr. Friedman expressed in Free to Choose; “Inflation is a disease, a dangerous and sometimes fatal disease, a disease that if not checked in time can destroy a society.” Hopefully our Washington bureaucrats will wake up before the United States can be cited as an example of how this last quotation is unequivocally correct as well.

Borders and Billionaires

Of the Americans on the Forbes list of the top 50 richest people, 35% inherited their wealth, with 65% being self-made. If you treat the beneficiaries of the Walton and Mars fortunes as each one entity then only 19% of Americans on the list inherited their fortunes, an astounding 81% could claim they became one of the 50 richest people within their lifetimes. In Europe*, there are no cases, in the top 50, where an original singular fortune has been dispersed to multiple beneficiaries. Many may consider this "fudging" numbers, but the Walton and Mars fortunes started out as singular self made fortunes. Due to the absence of European fortunes being disbursed to multiple beneficiaries on the top 50, I believe considering the Walton and Mars fortunes each one fortune offers a more parallel comparison. Either way, 17 Americans made it on the list of top 50 richest people within their lifetimes. This is of a total of 26 Americans on the list.

In the case of Europe, 69% of the billionaires on the top 50 list have inherited their fortunes, with a mere 31% being self-made. Only 4 Europeans on the top 50 can claim they are "self-made". This is a total of 13 Europeans total on the list. Despite the fact that the EU has roughly 63% greater population than the US, it only has half the number of billionaires in the top 50. If one were to adjust the European figures to reflect the population advantage, the EU would have 1.5 self-made billionaires and 3.3 who inherited their fortunes. This would put their total close to 5. I realize this is not the most traditional way to look at these statistics, but rationally, one would expect that if the other powerful Western democracy has 63% more people, in all likelihood they should have a 63% greater share of the Top 50.

There are two reasons that could cause this. First, Americans might be better educated. This is not the case. In fact, there are countless excellent business schools throughout Europe, many providing top notch educations. Education is highly subsidized in Europe and therefore many Europeans continue their education after high school. If education is not the cause another source of this disparity could be taxation and the overall European business environment. There are a few European nations listed in prominent slots on the Ease of Doing Business Index, (published by the World Bank) but there is not a singular set of policies applicable to all bloc nations. This means, in the EU, there are some countries where doing business is easy and others that are bureaucratic and expensive. Only Singapore and New Zealand place higher on this index than the US. With pending regulations and an overall more hostile business environment I would not be surprised to see the US begin to slide down the rankings by the next time this report is published.

There is a strong correlation between high GDP per capita and nations in the top slots of The Ease of Doing Business Index. For instance the average GDP per capita (adjusted for purchasing power) is 35% higher in the top ten countries on the index compared to the countries listed from 10 to 20. Providing a low tax, low corruption, anti-bureaucratic platform to run a business is the best way to pull a country out of poverty. Unfortunately the two powerful Western democracies seem to be reversing this trend. The EU is taking the lead with the US following in the name of emulating the "progressive European ideology". If a prominent spot on the Ease of Doing Business Index can attract businesses, jobs, and wealth to a particular country, slipping down this index can just as easily drive them out.

Taxation policies and overall business climate do not only influence the actions of businesses, but individuals as well. A good example is the European self-made billionaire, Ingvar Kamprad. He was born in Sweden and founded IKEA there. He has lived in Switzerland since the 1970's due to tax reasons. IKEA is now owned by a holding company in the Netherlands, reportedly also for tax reasons. This is a perfect example of how individuals and businesses will tend to migrate from hostile environments to more favorable ones. I believe Adrian Rogers said it best when he described the effects of high taxes and government bureaucracy on individuals:

"You cannot legislate the poor into prosperity by legislating the wealthy out of prosperity. What one person receives without working for, another person must work for without receiving. The government cannot give to anybody anything that the government does not first take from somebody else. When half of the people get the idea that they do not have to work because the other half is going to take care of them, and when the other half gets the idea that it does no good to work because somebody else is going to get what they work for, that my dear friend, is the beginning of the end of any nation. You cannot multiply wealth by dividing it."

The point of this entry is not to be condescending toward Europe, or Europeans in general. Many people believe the European model is one the US should emulate. The above statistics should show that creating a welfare state robs people of their ability to become wealthy. Many will say that no person deserves the above level of affluence, and therefore restrictive legislation is a good thing. If a nation takes away the prospect of becoming successful many individuals will abandon risky plans that could be highly rewarding for themselves and society overall. Would one quit his job to start a business if he would only be marginally better off IF he succeeded? Also, please see my earlier post, A Look Into the Future, to see what astronomical funding hurdles these welfare states are facing in coming years. Statistics, above and otherwise, show that economies perform best with minimal government interference. If our current trajectory continues it is very possible for the US to become a quasi-welfare state within the next decade. This will rob Americans of their ability to become independently successful, it will snuff out entrepreneurial spirit, and most of all it will create a future budget crisis to the extent we have never seen. Many "grass-is-greener" Americans point to the benefits Europeans enjoy, but fail to grasp the financial implications of said benefits. Not one European nation has solved the problem of their ballooning public services costs because to suggest cutting benefits is career suicide for any European politician. Europe can expect massive social unrest when these benefit providers implode, I hope US politicians do not RSVP for the same party.

*For this entry consider "Europe" and "European" to refer to the European Union and its member states.

When Failure Got a Promotion

GM accepted a total of $50 Billion in bailout money before going bankrupt. I remember times in my youth (i.e. anytime prior to 2008) when this was still considered a large amount of money. GM promised that with some operating income to hold it over for a few months it would be able to avoid bankruptcy. This, according to GM, would enable it to protect its bondholders, shareholders, and other stakeholders such as the UAW from a detrimental bankruptcy filing.

This is an interesting case to watch considering the future implications it will have. For instance, which stakeholders, at least according to this administration, take precedence over the others? As it looks now the answer to that question is clear, the UAW. Bondholders and equity shareholders are left to feed off the scraps of a company driven into the ground by poor management and the very organization set to run the “new GM”. Despite the fact that GM owed the bondholders roughly 35% more than the UAW, bondholders are only getting a 10% stake in the company. Via a new employee benefit plan, the UAW has already received $2.5 Billion in stimulus money, will receive another $6.5 Billion in preferred shares, and an astounding 17.5% stake in the new company. The only shareholder with a larger stake is the US taxpayer, with roughly 60%.

This is a very scary precedent. The nationalization of GM has shown the emphasis on contractual law that, in the past, was used to dictate who received compensation in the case of a bankruptcy, has been thrown out the window. It has been replaced by a system of government bureaucracy, wasted taxpayer dollars, and personal preferences. Upon taking control of GM, the government immediately fired the CEO, a person that could be considered largely to blame for the company’s woes. The other party responsible for GM’s downfall, the UAW, got a promotion. The lack of public or media outrage is chilling. If GM was a litmus test for how the public would react to a Chavez style takeover on US soil, I would say the government passed with flying colors.

The government wanted to help “protect GM from bankruptcy” to safeguard their brand image. GM stated that consumers would not have wanted to buy a GM product if the company went through bankruptcy. US consumers have not quit flying United after their bankruptcy, and in fact are getting accustomed to large companies going bankrupt. Therefore, if GM filed a traditional Chapter 11 would their sales suffer? Maybe a little. Will GM's sales suffer after the government sank 50 Billion taxpayer dollars into them, trampled on bondholder rights, fired the CEO, and handed over the controlling (non public) stake to the union responsible for the company's failure? Absolutely.

The End of Dollar Dominance?

Nouriel Roubini, an economist at New York University recently had a piece published in the New York Times about how our current poor financial actions can, and will, effect us in the future. He has been a very vocal critic of running our deficits through the roof and expanding our national debt. In our government, Mr. Roubini's warnings mostly fall on deaf ears. His predictions have not changed the course of government spending, or helped politicians become aware of what consequences our ballooning national debt will have.

Recently the treasury decided to "print" money to pay some of our national debt. This action infuriated China which is the largest holder of US Treasury securities and dollar denominated debt. China had every right to be angry considering these actions devalued its dollar assets largely overnight. This caused China to begin petitioning the World Bank and the International Monetary Fund to create a new global reserve currency that is not denominated by the dollar, but rather a basket of minor reserve currencies, i.e. the euro, pound, frank, etc. If this took place it would make financing our debt much more expensive, and the debt itself much less liquid.

China's own currency, the renminbi, could start to threaten the dollar as the trade currency of choice starting with Asia. As Mr. Roubini states, China's balance sheet is much healthier than ours. The main obstacle blocking the renminbi's ascension to a global reserve currency is the restrictive Chinese economic regulations. China's government appears to notice these roadblocks and will almost surely exploit them during this turbulent time for the dollar. Many holders of dollar denominated debt are worried what consequences the current administration's actions will have on their assets. They are weary about holding the assets they have, let alone purchasing any new securities the treasury will sell on the open market to finance the astronomical government spending of 2008 and 2009.

These above reasons will give China an opening to advertise the renminbi as a trade alternative to the dollar. China has close to $2 Trillion of foreign reserves to defend the renminbi in a worst case scenario situation. They also have a low deficit, a current account surplus, and a far smaller debt to GDP ratio than the US. The dollar will not be replaced as the reserve currency of choice tomorrow, but the American government and Americans in general need to begin to realize that our actions today are much more complex then a simple debtor/creditor relationship. If we continue to ignore this simple fact we may inflict an irreversible blow to the dollar that will forever change how the world finances trade and stores wealth in the future.

A Look into the Future

The Telegraph reported that the the UK recently announced its plans to increase the "pension age" (the British version of Social Security) to 70 years old. This is in an attempt to bring the national debt back down to 40% of GDP. The US national debt is currently at 79% of GDP! To do this the British government would have to raise the tax rate by 15% on top of the already high tax rate imposed on the British public. According to the National Institute of Economic and Social Research the tax rate will still have to be increased by roughly 8% even with the age increase. This does not take into account the bloated pension payments that will be necessary when an aging population reaches retirement age, or the fact that the UK is continually accepting immigrants that tend to subscribe the the overgenerous European welfare system. The UK government has one more option, curb spending. This option is political suicide for any European politician who dares to state the need to cut government spending, and therefore government programs. Europeans are very attached to their benefits and are reluctant to give them up, even if said benefits are stifling economic growth.

What this means for the US
Because of the fact that our national debt is considerably higher than most other developed nations we will have to make these same decisions eventually. The US seems to be leaning toward more government funded programs and higher taxation. Even if the taxes are differed and these programs are paid for with new debt, taxpayers will eventually have to foot the bill. The downside of financing these programs with debt is the fact that this debt will be added to our already astronomical outstanding debt, and new taxes will eventually have to cover the programs and the associated interest payments. Using Greece as an example, the "old-age dependency ratio" or the number of workers compared to the number of retired people is currently at 3. By 2050 it will be 1.6 according to the Bank of Greece. More importantly pension payments are expected to rise from 12.4% of GDP in 2005 (already a huge figure) to 22.6% of GDP in 2050. This does not take into account government funded health care, welfare, or other outrageously high government expenditures.

If we continue to follow the path we are on we will inevitably be stuck in the same situation many European governments are ignoring. Any rational person can see that without major reform in Europe this situation is not likely to end well. Overall even an extremely conservative estimate would put total Greek government payouts at 35% of GDP in 2050. If this is the case the taxes associated with these payments will cause most businesses to leave Greece for less fiscally restrictive countries, thus starting a domino effect of tax increases and lost commerce (assuming no one will lend to a country paying out 1/3 to 1/2 of its GDP in government benefits). Greece's Eurozone neighbors are not likely to have the capital to bail out their fellow EU member due to the fact that most will be dealing with similar problems of their own.

If we continue to follow the path that so many European nations have walked down not only will we be setting ourselves up for failure, but we will increase our tax rate and national debt significantly. This model is not sustainable and will therefore have to be reformed in the future, forcing people who paid into the system when they were young to loose all their "guaranteed" benefits when they grow older. If governments refuse to reform their social systems, the required payments threaten to topple what is left of the free market system where such generous programs exist, including here.

Missing the Mark

The current administration is not oblivious to the fact that we are either going to have to raise taxes or cut spending. Obama has stated, "If we confront this crisis without also confronting the deficits that helped cause it, we risk sinking into another crisis down the road," he has said. "As our interest payments rise, our obligations come due, confidence in our economy erodes and our children and our grandchildren are unable to pursue their dreams because they are saddled with our debts." (http://online.wsj.com/article/SB123921904349802157.html). He now faces a tough decision. Do we continue recapitalizing firms or do we try to cut our spending as to not burden our children with our debts?

I personally do not believe that this has to be a unilateral proposition. If wise investments are made with our money we may actually put future generations in a better financial position. This all depends on the strings that are attached to this stimulus package. The government needs to walk a fine line between meddling in the day to day activities of the business, and protecting taxpayer assets. The government should specify what these funds are intended for, but refrain from making management decisions that should be left up to the companies themselves.

To keep spending in check the government should be investing in our core institutional structures, banking first, then focus on a few other key industries. These industries should have something to do with our national safety or core economic activities. We should not be subsidizing companies that want to continue paying employees $80,000 per year to bolt wheels on a car. All of the earmarks in this bill are not being invested into institutions that can offer us a future return. The money will be spent in specific industries and a dime will not make it back to most taxpayers. Many people will say that because of this spending jobs will be created in these sectors. No reports or studies have been done on what effects this money will have. It was allocated for political reasons and our national debt burden will suffer because of it.

Intro

Intro

I am a full time college student that also works full time. I am fed up with the amount of spending the Bush administration has done throughout his term in office, and the amount of money the Obama administration has spent since he has taken office. I am concerned about my country's financial well being and stability that may be affected by the large amount of our debt outstanding. Most of all, as this site's URL states, "printing money", or "borrowing" funds from a federal institution to purchase newly issued treasury securities will ultimately lead to a weaker dollar and higher inflation. This is money that my generation (as well as those following) are going to have to repay along with astronomical interest expenses. This is on top of the huge expenses my generation is already destined to deal with, Social Security, Medicare, and Disability benefits as baby boomers age and near retirement.

Today's Market

If the current financial failures have shown us anything it should be that behind an institution's rock solid facade its structure might be crumbling (i.e. AIG, Citibank, Bear Stearns, Lehman Brothers). Many of these company's experienced a shock to their balance sheets when what they thought were assets immediately convertible into cash, i.e. "cash equivalents", lost most of their value. Their stocks went into a sharp decline. Because the hardest hit were institutional investors, they began to sell off other assets, i.e. stocks and bonds, to compensate for the holes in their balance sheets. This caused a sharp drop in stock prices across all industries and markets. I am not advocating keeping 40% of a company's assets in cash, but the days of 100:1 leverage ratios need to end. What many people and companies forget during boom times is that leverage can also work in the opposite direction.

I will not lay all the blame on the executives because I believe that they truly thought they were investing in cash equivalents. That being said they had complete control over the leverage ratios their companies were using to magnify their profits. There is not one culprit that caused this problem, but someone is going to have to pay. As it looks right now, it is going to be the American taxpayer: you, me, your children, and many future generations. Also, many of the assets these troubled firms financed or insured are foreign assets or entities. Have any foreign governments we have helped repeatedly in the past offered to assist us in recapitalizing these failing multinational institutions? Absolutely not. As of now the only people holding the invoice that reads PAYABLE UPON RECEIPT: $11,000,000,000,000.00 seem to be the US taxpayers. Whats more disturbing is that this number is only set to get bigger.

Steve