The US budget is 3 trillion dollars (I rounded the numbers to keep it simple). We have 300 million in population. Divide the population into the budget and we get a tax bill of $10,000 per person. Through taxes this year, we raised 1.5 trillion, so there is $5,000 loan per person being spent and added to the national debt for each and every one of us. Divide 300 million into the national debt and everyone owes $47,000. So a family of four owes 200K, and will have to pay the interest, but that's another story.
The neat thing about the National debt is that it is inheritable. It’s a weird concept, you die and a newborn somewhere in the US takes over your balance owed ---and you thought Congress didn't know what they were doing. We like to envision our passing where the kids get our assets, and the banks get to fight over our debts --- Not a chance!
Money in the bank is paying zero interest, but at the same time, Gold has gone from $1,000 to $2,000. The pundits suggest that silver and gold coinage is not necessary in today’s world. Of course if you go back 100 years, all of our debts were payable in gold and silver. In 1965 our silver currency was worth more melted down and disappeared from circulation. In 1982 the mint stopped producing copper pennies. The copper in the penny was worth more than its face value. We now have zinc, copper clad pennies. The words "deadbeat superpower" come to mind for some reason. The funny thing about gold and silver, they are a universal currency without a border or the need for a banker.
In 2006 everyone was buying houses with no money down with an 80/20 25/5 interest only loan with no PMI. Today, it is difficult to qualify for a home loan even with a large down payment. Plus the investment qualities of home ownership have evaporated. On top of that, everyone that ever dreamed of owning a home got one; and now they don’t know what to do with it. Real estate is going nowhere, which is kind of an understatement, unless its a mobile home.
A peculiar thing about real estate statistics is that when the market tanks, the average median sale price of housing tends to increase. What happens here, is that the rich buy houses when they feel like it. On the other hand, working stiffs with a poor credit scores can’t even get in the bank door to negotiate a loan. It is the low price homes sales in a good market that drag the median price down. Say normal sales are 10 starter homes to every high priced one. In bad times, the ratio could drop to 2 to 1. The new data would show prices are increasing when in actuality they're not; the number of low price homes in the data has dropped dramatically.
Politicians are commenting about the possibility of a double dip recession. Is the double dip reference, a car salesmen close? Accepting as fact; we have a chance of going back into a recession, implies we've bought the concept, that things have gotten better when they haven’t. The wheels were kicked off of the financial sector back in 2008 and it is not getting better.
We could be in the eye of a financial hurricane. The disaster hits and then calm and sunlight—and a sigh of relief. And then . . . . . . . that monster from your childhood years, that lurked under your bed or in your closet . . . . . . . I think it’s back, you can smell the fear in the air.
Sunday, August 28, 2011
Sunday, August 21, 2011
Government Intervention Is Not A Solution
Election time is approaching (next year). People running for office are pointing out that Obama has not produced enough new jobs for the unemployed. Voting for President is kind of like buying a washer and dryer and expecting the salesman to show up every Saturday to do your laundry.
This whole mess started with a housing boom. I remember back in 1998 selling real estate. We would prequalify buyers before we even showed them a house. If you didn’t have a down payment, your quest for a home went no further. Later, the phrase “fog a mirror “ became popular. When it all collapsed, government stepped in to keep the banks solvent.
As the housing boom took off, there was plenty of employment for everyone and the pay was good. The country was producing more homes than they could consume in 10 years. Everyone that wanted a home had one (or two), with the thought of buying another. Government gleefully raked in the additional taxes created by the economic boom.
Then the party stopped. How was government suppose to pick up the slack? There are no new additional taxes coming in. Tax payments into the government are decreasing and payments out are increasing.
The economic issues we face today stem from the previous mis-allocation of resources. We blindly built and financed too many homes in the name of greed. On top of that, Congress has turned a blind eye to the fiscal bubble created over time with entitlements. Common sense suggests that the debt crisis needs fixing now, but it always gets put off, until after the next election.
We have two real problems, unemployment which is the result of the housing crash. And we have an entitlement bubble that has lead to a crisis over the national debt. In order to stimulate job creation, we need to cut taxes. In order to cover entitlements, we need to raise taxes. If you can’t do either, then it’s time to print more money. Are we rich yet? As the gold bugs have pointed out, you can’t print gold. If you are retired living on a fixed income, you’ll come to find out that the government can’t print food or medicine either.
So when you hear a politician say vote for me, I can create more jobs, he’s not lying; if he wins, he gets a job. Ask yourself one question: Do we really need more government employees? Maybe if we cut government paychecks in half, the problem would solve itself. We could tolerate an inefficient bureaucracy better if we had to pay a lot less for it.
This whole mess started with a housing boom. I remember back in 1998 selling real estate. We would prequalify buyers before we even showed them a house. If you didn’t have a down payment, your quest for a home went no further. Later, the phrase “fog a mirror “ became popular. When it all collapsed, government stepped in to keep the banks solvent.
As the housing boom took off, there was plenty of employment for everyone and the pay was good. The country was producing more homes than they could consume in 10 years. Everyone that wanted a home had one (or two), with the thought of buying another. Government gleefully raked in the additional taxes created by the economic boom.
Then the party stopped. How was government suppose to pick up the slack? There are no new additional taxes coming in. Tax payments into the government are decreasing and payments out are increasing.
The economic issues we face today stem from the previous mis-allocation of resources. We blindly built and financed too many homes in the name of greed. On top of that, Congress has turned a blind eye to the fiscal bubble created over time with entitlements. Common sense suggests that the debt crisis needs fixing now, but it always gets put off, until after the next election.
We have two real problems, unemployment which is the result of the housing crash. And we have an entitlement bubble that has lead to a crisis over the national debt. In order to stimulate job creation, we need to cut taxes. In order to cover entitlements, we need to raise taxes. If you can’t do either, then it’s time to print more money. Are we rich yet? As the gold bugs have pointed out, you can’t print gold. If you are retired living on a fixed income, you’ll come to find out that the government can’t print food or medicine either.
So when you hear a politician say vote for me, I can create more jobs, he’s not lying; if he wins, he gets a job. Ask yourself one question: Do we really need more government employees? Maybe if we cut government paychecks in half, the problem would solve itself. We could tolerate an inefficient bureaucracy better if we had to pay a lot less for it.
Sunday, August 14, 2011
Bernanke the Wizard
Bernanke in remarks to Congress said that he would keep interest rates real low for the next two years. OK, tell me how? The only way to accomplish that is to buy every bond presented for sale on the resale market at full price. I wouldn’t pay full price for anything in this economy, it is counter intuitive. Every banker in town will queue up to the Federal Reserve to unload their dog eared bonds at full price.
People point to Japan over the last 20 years with super low interest rates, but the real game was obfuscated by international trading. The Japanese people were getting zero interest for their deposits but the country’s bankers were buying US Treasuries. These bonds were paying 7 to 8 percent so in actuality, we were subsidizing the banks in Japan. And by God they were patient, we made them whole over a period of two decades. The interest paid help bail out their failing institutions. They loaned us all of their savings for 20 years and we spent every dime. Of course, that’s another story.
Where do people want to put their money now? If you are super rich, it's in T bills. The money is insured by the full faith and credit of the US government. They are not worried about the return on their money, but the return of their money.
Bernanke has taken risk out of the market, all loans are guaranteed. The one market not under his control is stock market. It's looking a little sick lately. The real world is around here somewhere. Let's click some gold coins together and try to wake up--hopefully not in Kansas.
People point to Japan over the last 20 years with super low interest rates, but the real game was obfuscated by international trading. The Japanese people were getting zero interest for their deposits but the country’s bankers were buying US Treasuries. These bonds were paying 7 to 8 percent so in actuality, we were subsidizing the banks in Japan. And by God they were patient, we made them whole over a period of two decades. The interest paid help bail out their failing institutions. They loaned us all of their savings for 20 years and we spent every dime. Of course, that’s another story.
Where do people want to put their money now? If you are super rich, it's in T bills. The money is insured by the full faith and credit of the US government. They are not worried about the return on their money, but the return of their money.
Bernanke has taken risk out of the market, all loans are guaranteed. The one market not under his control is stock market. It's looking a little sick lately. The real world is around here somewhere. Let's click some gold coins together and try to wake up--hopefully not in Kansas.
Saturday, August 06, 2011
When You Thought It Couldn’t Get Any Worse.
Congress just passed the debt ceiling bill. In two years, they get to raise the debt ceiling 2.5 trillion dollars for which they promise to cut the budget by 2.5 trillion over 10 years. What would you say if a College professor announced that he had struck an agreement with the college chancellor; If allowed to molest two students now, he promises to cut down his future molestations by two students over the following 10 years. The analogy is rather obtuse, but Congress needs to stop borrowing. Has anyone accuse Congress of being responsible for inflation? Hell no! The remark “We have always had inflation” sounds more like the punch line to a blond joke. You can’t lose an election pumping printed dollars into the economy.
This increase in the debt ceiling was kind of like an 80 year old man successfully struggling to have a bowel movement. He’s happy, but nobody else knows why, and tomorrow he faces the same problem all over again.
Let’s look one year down the road. Figure a 20 to 40% reduction in taxes collected this year. Of course the States are just doing peachy-keen; California is going to have to start growing pot just to pay their bills. People aren’t buying anything on credit; they are too busy paying off their cards with 20 to 30 percent interest rates. Figure the Federal government will pay out 20 to 30 percent more in benefits next year in unemployment, SSI and other goodies. What does that leave Congress to cut? Put a different way, you have two slices of pie and you need three.
Congress is probably confused about our new bond rating of double A. A triple D is something they can get their hands around; unfortunately credit ratings have little to do with bra sizes.
Monday things may start to deteriorate. Greece is in the cross-hairs; the country is about to implode. Not much of a problem with that, but investors everywhere bought insurance on the impending Greek collapse. The trouble is, the insurance isn’t going to pay; too many policies were sold on that event. From here, insurance on future events could fall apart (Google “Panic 1907 Bucket Shops”). This 50 trillion dollar betting parlor has been writing business worldwide. “Trimming the Hedges” on Wall Street, in the following weeks will not be referring to yard work.
The government references to a possible future double dip recession is to keep everyone from panicking. Yesterday, someone stated that our present housing crisis has surpassed that of the Great Depression. If you read between the lines, they are passing out hand baskets and we have just won a free trip to nowhere or somewhere thereabout.
Things are bad and far worse than any recession of record. Who are we fooling when Congress farts into a bag and claims to have solved our financial problems? People are not stupid, the trouble is, they will all arrive at the same conclusion at the same point in time. This could be shipwreck-week on Wall Street; where everyone tries to sneak for the exits (sssh--don’t tell anyone, it’s a secret).
This increase in the debt ceiling was kind of like an 80 year old man successfully struggling to have a bowel movement. He’s happy, but nobody else knows why, and tomorrow he faces the same problem all over again.
Let’s look one year down the road. Figure a 20 to 40% reduction in taxes collected this year. Of course the States are just doing peachy-keen; California is going to have to start growing pot just to pay their bills. People aren’t buying anything on credit; they are too busy paying off their cards with 20 to 30 percent interest rates. Figure the Federal government will pay out 20 to 30 percent more in benefits next year in unemployment, SSI and other goodies. What does that leave Congress to cut? Put a different way, you have two slices of pie and you need three.
Congress is probably confused about our new bond rating of double A. A triple D is something they can get their hands around; unfortunately credit ratings have little to do with bra sizes.
Monday things may start to deteriorate. Greece is in the cross-hairs; the country is about to implode. Not much of a problem with that, but investors everywhere bought insurance on the impending Greek collapse. The trouble is, the insurance isn’t going to pay; too many policies were sold on that event. From here, insurance on future events could fall apart (Google “Panic 1907 Bucket Shops”). This 50 trillion dollar betting parlor has been writing business worldwide. “Trimming the Hedges” on Wall Street, in the following weeks will not be referring to yard work.
The government references to a possible future double dip recession is to keep everyone from panicking. Yesterday, someone stated that our present housing crisis has surpassed that of the Great Depression. If you read between the lines, they are passing out hand baskets and we have just won a free trip to nowhere or somewhere thereabout.
Things are bad and far worse than any recession of record. Who are we fooling when Congress farts into a bag and claims to have solved our financial problems? People are not stupid, the trouble is, they will all arrive at the same conclusion at the same point in time. This could be shipwreck-week on Wall Street; where everyone tries to sneak for the exits (sssh--don’t tell anyone, it’s a secret).
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