Our government thinks that the American dream is home ownership, a college education for everyone. and of course, health care taxes for everyone (under the age of 65).
We just went through a housing bubble crash. Notice the people that sold their homes got cash and the people who bought them got a house they couldn’t afford. So if you paid nothing down and moved in, the term “Underwater” kind of evokes sympathy from the reader, but in most cases it didn’t cost much to move in. In fact, to rent out here, you need first and last month’s rent which is about $3,500. So for as little as $1,500 you can still buy a home out here.
I was listening to Gov. Huckabee on FOX yesterday and he question the current government policy of lowering credit requirements for new home buyers; “Weren’t low down payments the cause of the housing bubble?” Well, kind of, but the government is in a situation where selling these foreclosures to someone new, improves their balance sheet somewhat (since they already own them). The worse that can happen is that they get the house back. The real problem is the financing.
Before the crash, the banks packaged and sold this “toxic waste” (that’s what the banks called the stuff) to investors. Now that won’t happen in today’s market for two reasons, everyone knows the stuff is bad already, and you could get some jail time for selling it. Now you see why Bernanke is buying real estate paper. Once the Fed purchases the paper, Fannie and Freddie have more money to offer for home loans. Taking advantage of the American dream of home ownership, the government transfers these foreclosures to our unsuspecting kids. The average home buyer is not interested in the cost, only the monthly payments. The higher the price, the more the homeowner pays in property taxes. “Oh Goodie” says Uncle Sam.
Here is where it gets interesting. Student loans offer a method to increase the amount of debt owed by our kids. Remember the dreams we had of future success after completing college? It’s a little like buying 100K in lottery tickets. You’ll read about the winners. I’ve known people who’ve had 30K in Visa debts and that is about where the debt goes from being manageable to unmanageable. At that point they file for bankruptcy. And of course with the student loans, bankruptcy is not an option.
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During tough times, the amount owed on a student loan could double in just 12 years. This is where home ownership and a wife that wants to stick around, are all part of a meaningless dream world that will fall apart. Too many debts will kill any marriage ever made. There is a way to escape this trap that Congress overlooked. Move to another country like Australia (sshhh that’s a secret).
Then on top of that I was doing my taxes and looking at what I, the wife and son pay for health care coverage combining our payments with our employers—about 20K. And this is just basic coverage. Obama care hasn’t even really kicked in yet. Why do I get the feeling that we will be paying a lot more real soon?
Let’s get rid of Fannie and Freddie. We don’t need to save homeowners who have no skin in the game. Give our kids a shot at a home that has a reasonable price tag. Modify student loans so bankruptcy is an option. Teach the lenders not to fiddle with kids right out of high school. It’s literally a license to steal from those too inexperienced to know what they are signing. As for Obama care, this law eliminates the decision many families made about what they considered necessary, like auto or health insurance. Why worry about your right to bear arms when the government can tell you what you are going to buy with your paycheck?
Do you get the feeling that all of this government help we’re getting is making things a lot worse?
We have a government that has successfully screwed up the housing market by trashing the bond market interest rates. The student loan program works for all the wrong reasons. It reminds me of those “fog a mirror“ real estate loans. The good thing, when your two years of unemployment runs out, your student loan will put food on the table for four more years--Then apply for your passport (wink wink).
Look for the work week to be shortened to 32 hours (to get more people covered by Obamacare). And of course Congress will have to raise the minimum wage by $4 per hour so workers don’t starve to death making their mandatory health care payment. On top of that, the government will probably lay off all of the people responsible for managing these programs to teach us a lesson for wanting leaner government (it gets meaner as it gets leaner). All of this lends more credence to the saying, “The road to hell is paved with good intentions.” This isn't the hike we signed up for. "We are not out of the woods yet" and Obama can't smell the smoke.
Monday, April 08, 2013
Sunday, March 31, 2013
What Seems So Clear On A Personal Level
Each of us if left to solve the world’s problems would have the job done in weeks or maybe a few months at most. The trouble is our solutions are not the same as what your neighbor might offer. What we have in Congress are a bunch of “do gooders” who want to solve world hunger and give everyone Democracy. Each solution to a problem creates new problems.
On a world level, providing food for everyone is a noble gesture, with unexpected results. World population would increase as a result and the demand for resources would be taxed even more. Feed the world now, only to have many more hungry people in the future willing to die for the resources we were willing to share with them in the past (Japan entered WWII in a quest for resources). Of course another problem of not feeding these future starving masses is that they become incubators for diseases not even in existence yet.
Take Obama- care is it really total health care? Is there any mention of dental work, hearing aids and eye glasses? How about rest homes for the elderly? No, we are only covering health care from age 0 to age 65. What is covered right now is pretty straight forward. You get shot by the police, you have no medical bills to pay. New cancer treatment drugs are $2,000 per day (what if you need the drug in order to live another 5 years?). What happens if some new miracle drug extends life another 20 years? The plan in place has no adjustment to what entitlements each individual in his or her life is entitled to over their lifetime.
Social Security was supposed to solve the problem of old people dying destitute. They didn’t have to depend on their kids for support. Of course where does the government get the money from to pay retirement benefits? You guessed it, your kids. Social Security coupled with health care along with advances in health care has created a new problem; old people living past their retirement savings. This is an individual issue. The real group issue that seems far removed from the problem is that these social programs are spending our government into the poor house.
Then there is government thinking verses the group think of providing services to all in need. The government created Social Security in order to be able to tax people through their employers. The initial payouts were small but the taxes raised were huge. Seriously, folks, do you honestly think that employers pay half of your Social Security and offer free health care? If you are self-employed, you know the answer both questions. Obama care wasn’t made to provide health care, it was designed to pay for the health care already in place being paid for by government. In essence, the age group from 18 to 45 will be taxed to cover this new “benefit.” Notice the individual envisions a health care plan, whereas to the government, this is a tax based revenue stream. Remember Social Security and Obama Care are not entitlements, only a promise of future benefits. The Supreme Court has ruled both are taxes.
What we all need to realize, when we talk on an issue of government spending or health care, we are all on a different page, the topic joins us together as a group. Our mental vision of the plan fails us only when our individual expectations are not met. And that’s what happens in a Democracy. The problem is, when you redefine it and make it even fairer, you are now defining socialism.
We know that we are headed off the cliff and each and every one of us has a solution that could stop that from happening. The trouble is, the group solution is to use the processes already in place. It kind of like buying a car with 5 other people; you want a sun roof and someone else wants ashtrays and cup holder for his beer. The car you end up “buying” isn’t the one you had envisioned—in fact, it is far from it.
In a Democracy, we need to define the government’s contract to each individual on an equal personal basis. If we define the contract on need for the individual and consider it a blank check, there is unlimited liability for the government and this smacks of socialism.
To sum it all up, we are leaning to live with inflation and the new government programs. Ask yourself one question, “Are they going to make a larger bill for currency, like a $1,000 dollar bill. The gas pumps still won’t take $50 or $100 bills, maybe it is time for reality to kick in. Where can you go on a twenty dollar bill? What's really intensely clear on a personal level, the advent of a $1,000 dollar bill would confirm our suspicions about what Congress has been doing to us. Of course, forgive me, it's just my imagination running wild again.
On a world level, providing food for everyone is a noble gesture, with unexpected results. World population would increase as a result and the demand for resources would be taxed even more. Feed the world now, only to have many more hungry people in the future willing to die for the resources we were willing to share with them in the past (Japan entered WWII in a quest for resources). Of course another problem of not feeding these future starving masses is that they become incubators for diseases not even in existence yet.
Take Obama- care is it really total health care? Is there any mention of dental work, hearing aids and eye glasses? How about rest homes for the elderly? No, we are only covering health care from age 0 to age 65. What is covered right now is pretty straight forward. You get shot by the police, you have no medical bills to pay. New cancer treatment drugs are $2,000 per day (what if you need the drug in order to live another 5 years?). What happens if some new miracle drug extends life another 20 years? The plan in place has no adjustment to what entitlements each individual in his or her life is entitled to over their lifetime.
Social Security was supposed to solve the problem of old people dying destitute. They didn’t have to depend on their kids for support. Of course where does the government get the money from to pay retirement benefits? You guessed it, your kids. Social Security coupled with health care along with advances in health care has created a new problem; old people living past their retirement savings. This is an individual issue. The real group issue that seems far removed from the problem is that these social programs are spending our government into the poor house.
Then there is government thinking verses the group think of providing services to all in need. The government created Social Security in order to be able to tax people through their employers. The initial payouts were small but the taxes raised were huge. Seriously, folks, do you honestly think that employers pay half of your Social Security and offer free health care? If you are self-employed, you know the answer both questions. Obama care wasn’t made to provide health care, it was designed to pay for the health care already in place being paid for by government. In essence, the age group from 18 to 45 will be taxed to cover this new “benefit.” Notice the individual envisions a health care plan, whereas to the government, this is a tax based revenue stream. Remember Social Security and Obama Care are not entitlements, only a promise of future benefits. The Supreme Court has ruled both are taxes.
What we all need to realize, when we talk on an issue of government spending or health care, we are all on a different page, the topic joins us together as a group. Our mental vision of the plan fails us only when our individual expectations are not met. And that’s what happens in a Democracy. The problem is, when you redefine it and make it even fairer, you are now defining socialism.
We know that we are headed off the cliff and each and every one of us has a solution that could stop that from happening. The trouble is, the group solution is to use the processes already in place. It kind of like buying a car with 5 other people; you want a sun roof and someone else wants ashtrays and cup holder for his beer. The car you end up “buying” isn’t the one you had envisioned—in fact, it is far from it.
In a Democracy, we need to define the government’s contract to each individual on an equal personal basis. If we define the contract on need for the individual and consider it a blank check, there is unlimited liability for the government and this smacks of socialism.
To sum it all up, we are leaning to live with inflation and the new government programs. Ask yourself one question, “Are they going to make a larger bill for currency, like a $1,000 dollar bill. The gas pumps still won’t take $50 or $100 bills, maybe it is time for reality to kick in. Where can you go on a twenty dollar bill? What's really intensely clear on a personal level, the advent of a $1,000 dollar bill would confirm our suspicions about what Congress has been doing to us. Of course, forgive me, it's just my imagination running wild again.
Monday, March 25, 2013
Recession What Recession?
The City of Stockton is headed to bankruptcy court. The real question arises, is the State of California responsible for debts or long term contracts entered into by the cities? Retirement benefits come to mind.
Chicago is closing 54 schools in face of a 1 billion dollar deficit. Is the money saved going to be spent on students in other schools as has been suggested? (Insert howling laughter here) On top of that, the state of Illinois is broke; their retirement fund is 100 billion underfunded. A state can’t file for bankruptcy, but that is no big deal. You can’t sue them to get your money either. So if (more likely when) Illinois reneges on its debts, it’s the note holder that has the problem. You’ll probably get your money given time, lots of it. Mississippi discharged a 100 year old debt a few years back.
Detroit is on the verge of Bankruptcy with no solution in sight. Obama claims the recession ended two years ago. He saved the auto industry, but it couldn’t have been in Detroit. Being successful in that city is measured by how many bags of recyclable cans you have tied to your shopping cart. Of course a municipal-bankruptcy filing by Detroit would be the largest such filing in U.S. history.
These three cities also have other problems. Major city infrastructure funding has been cut drastically. Police, fire and other government services have been cut to the bone. Downsizing the labor force will not cut fixed costs. The cities are committed to future fixed cost spending as far as 20 years out. And a lot of it is funding for retirement. When a city implements draconian measures to cut costs, the inhabitants start voting with their feet.
The recession is over and things are getting better? When’s the last time we had 3 cities on the verge of bankruptcy? (Hint: not in my lifetime) These problems are serious and are being swept under the rug. You must admit the phrase “We’re not out of the woods yet,” sounds a tad better than “We’re in the grips of a Great Depression.” No need to panic the sheeple feeding on Ben's freshly printed green dollars.
Chicago is closing 54 schools in face of a 1 billion dollar deficit. Is the money saved going to be spent on students in other schools as has been suggested? (Insert howling laughter here) On top of that, the state of Illinois is broke; their retirement fund is 100 billion underfunded. A state can’t file for bankruptcy, but that is no big deal. You can’t sue them to get your money either. So if (more likely when) Illinois reneges on its debts, it’s the note holder that has the problem. You’ll probably get your money given time, lots of it. Mississippi discharged a 100 year old debt a few years back.
Detroit is on the verge of Bankruptcy with no solution in sight. Obama claims the recession ended two years ago. He saved the auto industry, but it couldn’t have been in Detroit. Being successful in that city is measured by how many bags of recyclable cans you have tied to your shopping cart. Of course a municipal-bankruptcy filing by Detroit would be the largest such filing in U.S. history.
These three cities also have other problems. Major city infrastructure funding has been cut drastically. Police, fire and other government services have been cut to the bone. Downsizing the labor force will not cut fixed costs. The cities are committed to future fixed cost spending as far as 20 years out. And a lot of it is funding for retirement. When a city implements draconian measures to cut costs, the inhabitants start voting with their feet.
The recession is over and things are getting better? When’s the last time we had 3 cities on the verge of bankruptcy? (Hint: not in my lifetime) These problems are serious and are being swept under the rug. You must admit the phrase “We’re not out of the woods yet,” sounds a tad better than “We’re in the grips of a Great Depression.” No need to panic the sheeple feeding on Ben's freshly printed green dollars.
Sunday, March 17, 2013
Muddled Thinking
A lot of what we are currently experiencing has to do with solutions to problems that are not well thought out or the solution has unintended consequences or ridiculous expectations.
You read the paper and find out that home ownership is down. Or that money is on the sideline in the stock market waiting to jump in. Let’s examine it another way. Every home in America is owned by someone, and not everyone is responsible enough to be a home owner. Every stock or bond in existence is owned by someone, just like every ounce of platinum, gold, and silver. The idea that people are buying means little unless they are selling a lot of something else or borrowing to do it. If there is too much supply, prices go down. And vice versa, if there is too little supply, prices tend to go up.
In real estate in California, the supply is drying up in the rich areas. The house that you paid one million for in 2008 is now selling for 700k and you aren’t about to put it on the market at a loss. The current very low interest rates will sustain the 700k price, but not the one million dollar one. Plus, houses are not really appreciating. The current low rate implies higher rates in the future (especially if government funding of home loans stops). This could in turn affect the amount of house one could afford buy. The max monthly payment in relation to household earnings determines housing prices. This isn’t 2007 where people were lined up to buy a home with “liar loans.” Housing prices are not jumping through the roof, just a gentle trickle of people that feel the need for home ownership (the nesting instinct). Question, what makes this real estate market different from that of 2007. Answer government financing.
The phrase “tax the rich,” got some real meaning this week. Cypress is about to tax savings in the bank. 9.9 percent of funds over 100K and 6.7 for funds under that. It raises the question, “Is holding currency a better bet than money in the bank?” And of course the answer is yes. Look for Spain and Italy to have a run on the banks. I would expect people to convert the currency to gold; rats love to make nests out of paper, which could be worse than any tax. Printing currency has the same effect as a tax, but takes a couple of years to take full effect; this is faster and prevents flight or conversion of bank held dollars.
In our country, the Federal Reserve printed currency to cover bank losses. Cypress has no central bank that can print currency to guarantee their banks. The European Central bank could be considered the lender of last resort, but they are not a bottomless money pit. Reality sets in for them next Tuesday. Their two biggest banks fail or they rip off the retirees. This taxing ploy is a little like using a lit match to find a gas leak. You’ll find the leak, and also make the nightly news.
Congress wants us to grow corn and turn it into ethanol to put into our cars. We use to be the top of the food chain, and now automobiles are? Talk about worthless legislation. The Federal tax subsidies insure that this program will continue. One problem, the gasoline producers don’t have to sell their product here, they can sell it overseas without adding ethanol. Do the math, jump through hoops or sell to a straight shooter like Europe.
There are motions afoot to link gasoline taxes to inflation. The state instead of charging “X” tax per gallon, wants to charge according to the sales price charged for a gallon of gas. If our government is going to print dollars, don’t expect city and state to sit idly by and watch their purchasing power from tax revenues decrease.
What can we deduce from all of this? Legislative controls only change our approach to the problem; the issues that caused it have not gone away.
Cypress will be an interesting event to watch unfold. How can Cypress socialize the banks and penalize the people who saved all of their life? If it teaches only one lesson, gold and silver have no government to answer to; financial freedom is money in the bank only as long as the government says so. Where too from here? Good question.
You read the paper and find out that home ownership is down. Or that money is on the sideline in the stock market waiting to jump in. Let’s examine it another way. Every home in America is owned by someone, and not everyone is responsible enough to be a home owner. Every stock or bond in existence is owned by someone, just like every ounce of platinum, gold, and silver. The idea that people are buying means little unless they are selling a lot of something else or borrowing to do it. If there is too much supply, prices go down. And vice versa, if there is too little supply, prices tend to go up.
In real estate in California, the supply is drying up in the rich areas. The house that you paid one million for in 2008 is now selling for 700k and you aren’t about to put it on the market at a loss. The current very low interest rates will sustain the 700k price, but not the one million dollar one. Plus, houses are not really appreciating. The current low rate implies higher rates in the future (especially if government funding of home loans stops). This could in turn affect the amount of house one could afford buy. The max monthly payment in relation to household earnings determines housing prices. This isn’t 2007 where people were lined up to buy a home with “liar loans.” Housing prices are not jumping through the roof, just a gentle trickle of people that feel the need for home ownership (the nesting instinct). Question, what makes this real estate market different from that of 2007. Answer government financing.
The phrase “tax the rich,” got some real meaning this week. Cypress is about to tax savings in the bank. 9.9 percent of funds over 100K and 6.7 for funds under that. It raises the question, “Is holding currency a better bet than money in the bank?” And of course the answer is yes. Look for Spain and Italy to have a run on the banks. I would expect people to convert the currency to gold; rats love to make nests out of paper, which could be worse than any tax. Printing currency has the same effect as a tax, but takes a couple of years to take full effect; this is faster and prevents flight or conversion of bank held dollars.
In our country, the Federal Reserve printed currency to cover bank losses. Cypress has no central bank that can print currency to guarantee their banks. The European Central bank could be considered the lender of last resort, but they are not a bottomless money pit. Reality sets in for them next Tuesday. Their two biggest banks fail or they rip off the retirees. This taxing ploy is a little like using a lit match to find a gas leak. You’ll find the leak, and also make the nightly news.
Congress wants us to grow corn and turn it into ethanol to put into our cars. We use to be the top of the food chain, and now automobiles are? Talk about worthless legislation. The Federal tax subsidies insure that this program will continue. One problem, the gasoline producers don’t have to sell their product here, they can sell it overseas without adding ethanol. Do the math, jump through hoops or sell to a straight shooter like Europe.
There are motions afoot to link gasoline taxes to inflation. The state instead of charging “X” tax per gallon, wants to charge according to the sales price charged for a gallon of gas. If our government is going to print dollars, don’t expect city and state to sit idly by and watch their purchasing power from tax revenues decrease.
What can we deduce from all of this? Legislative controls only change our approach to the problem; the issues that caused it have not gone away.
Cypress will be an interesting event to watch unfold. How can Cypress socialize the banks and penalize the people who saved all of their life? If it teaches only one lesson, gold and silver have no government to answer to; financial freedom is money in the bank only as long as the government says so. Where too from here? Good question.
Sunday, March 10, 2013
The Federal Reserve’s Conundrum
The commodities markets have just about played out and the bond market can’t go much lower. Real estate is no buy, unless you want to finance it with nothing down. It looks like stocks market is the last gambling parlor with any real action.
The Federal Reserve is buying bonds to prop up the real estate market. This has in effect kept interest rates very low and it’s doing a very good job of goosing the housing market even with the baby boomers selling and downsizing. The trouble is, people are starting to sell bonds and buy stocks. Interest rates can only remain this low if the Fed buys all bonds presented at par. This is not a bad deal for bond sellers. A buy and sell price that are different implies risk in the market. With a locked interest rate, the buyer is guaranteed the same price when he sells. You have to marvel at the liquidity of bonds, there is no risk.
There is one problem. The bond market is 10 times bigger than the stock market. What happens when a large majority of people make the decision to sell bonds and buy stocks? It’s a little like the passenger ferry many years back in India where two star-crossed lovers decided to commit suicide--their parents wouldn’t let them marry. All the passengers rushed to one side of the boat to watch them jump. The ferry rolled over and drowned hundreds of people. Kind of gives new meaning to the phrase “Misery loves company.”
Ben Bernanke faces a similar situation. Does he buy all bonds presented and trash the currency or let the rising interest rates trash the bond and the real estate market? The stock brokerage houses loan money at prime plus 1 ½ percent. And they don’t care who they borrow it from. Ben’s dollars are as good as anyone else’s. And if stocks are going up, the interest paid by the “investor” is a cost of doing business. All it would take, to start the ball rolling, is for Google to jump up a couple of hundred dollars a share. The Internet is this new frontier with values expanding geometrically. It’s an opiated dream of possible future returns; hold on for a wild ride —the South Sea bubble comes to mind.
We know one thing for sure, the baby boomers, with cash in the bank, ready for retirement, are sick and tired of ¼ of 1 percent interest on their savings. This investment “ferry” is going to rock and roll --—over.
What can Bernanke do? Will he allow rates to rise or endeavor to keep them fixed? The Bernanke conundrum. Remember one thing; an economist can’t predict the future they can only explain, the why of what happened--after the fact.
Welcome to Wall Street, "Faites vos jeux." Let's give the dice a roll. I get the feeling that we've been here before---maybe in a previous life.
The Federal Reserve is buying bonds to prop up the real estate market. This has in effect kept interest rates very low and it’s doing a very good job of goosing the housing market even with the baby boomers selling and downsizing. The trouble is, people are starting to sell bonds and buy stocks. Interest rates can only remain this low if the Fed buys all bonds presented at par. This is not a bad deal for bond sellers. A buy and sell price that are different implies risk in the market. With a locked interest rate, the buyer is guaranteed the same price when he sells. You have to marvel at the liquidity of bonds, there is no risk.
There is one problem. The bond market is 10 times bigger than the stock market. What happens when a large majority of people make the decision to sell bonds and buy stocks? It’s a little like the passenger ferry many years back in India where two star-crossed lovers decided to commit suicide--their parents wouldn’t let them marry. All the passengers rushed to one side of the boat to watch them jump. The ferry rolled over and drowned hundreds of people. Kind of gives new meaning to the phrase “Misery loves company.”
Ben Bernanke faces a similar situation. Does he buy all bonds presented and trash the currency or let the rising interest rates trash the bond and the real estate market? The stock brokerage houses loan money at prime plus 1 ½ percent. And they don’t care who they borrow it from. Ben’s dollars are as good as anyone else’s. And if stocks are going up, the interest paid by the “investor” is a cost of doing business. All it would take, to start the ball rolling, is for Google to jump up a couple of hundred dollars a share. The Internet is this new frontier with values expanding geometrically. It’s an opiated dream of possible future returns; hold on for a wild ride —the South Sea bubble comes to mind.
We know one thing for sure, the baby boomers, with cash in the bank, ready for retirement, are sick and tired of ¼ of 1 percent interest on their savings. This investment “ferry” is going to rock and roll --—over.
What can Bernanke do? Will he allow rates to rise or endeavor to keep them fixed? The Bernanke conundrum. Remember one thing; an economist can’t predict the future they can only explain, the why of what happened--after the fact.
Welcome to Wall Street, "Faites vos jeux." Let's give the dice a roll. I get the feeling that we've been here before---maybe in a previous life.
Sunday, March 03, 2013
The Misallocation of Resources
This news release the other day leaves room for thought.
Bernanke claims to have studied the Great Depression at length, and so have I. His method for our recovery is not one I agree with. We survived the Great Depression. The major cause was a misallocation of resources. One sector of the economy took off and everyone piled on trying to get rich. And then it collapsed. It took quite a while for the economy to return to normal.
In Africa 40 years ago there was a cattle boom. The more cattle you owned the wealthier you were perceived to be. As the cattle population increased over time, more and more resources were devoted to feeding them. All it took was a drought and, the cost of hay skyrocketed. Most farmers found that they could no longer afford to feed their herds, let alone sell them to someone else. The cattle market collapsed. A lot of the livestock died from starvation. From there, families starved to death. Notice, it wasn’t a shortage of food that killed the people, it was a misallocation of resources. Their apparent cattle wealth disappeared, and they had little if any savings to buy food with.
We are trying to recover from a misallocation of resources in the real estate market. Guess what--- the government is not going to let the market collapse, just because people spent too much money on it ---they are going to keep it going. In Africa, the government could have stepped in and provided food for the cattle, but it wouldn’t have solved the problem. Resources would have been expended on items that were economically unfeasible. This is what our government has done to the housing bubble. It has enabled more resources to be spent on a project that has no real return. Notice that as long as the real price for raising cattle or real estate is subsidized by government forces, the market cannot return to normal. The government subsidies insure that the misallocation of resources will continue.
The questions that need to be asked, are; “Where does the Federal Reserve get the written authority to buy 85 billion dollars’ worth of bonds each month?” and “Where does the Federal Reserve get the mandate to set interest rates?”. We are talking about a government agency that has the ability to spend trillions of dollars a year, saving the banks and the housing market from ruin, on the assumption that this “herd of cattle can be fed” and sold later for the dollars loaned earlier. This is a government agency that has the ability to spend more in one year than Congress has funds to spend from taxes collected.
It comes to mind that we have a 85 billion dollar sequestration for a year that appears to be a real monkey wrench in the economy. And here's the Federal Reserve with that same amount for a monthly allowance with which to purchase bonds.--must be my imagination.
People over a lifetime saved their earnings for retirement expecting interest rates would reflect risk in the market. Does the Federal Reserve have the right to artificially manipulate interest rates to support this misallocation of resources? The Federal Reserve has saved the banking system and now they are working on Fannie and Freddie. Failure is rewarded with bailouts and individual risk is eliminated with government guarantees. Without the Federal Reserve interference, interest rates would be able to return to normal levels. That would be too bad for the housing market, but then maybe our kids could afford to buy a home, and Grandpa and Grandma, might get some real interest paid on their savings. Let’s return risk to our markets and reward success --- unfortunately Ben's going to save that real estate market, and avoid a Great Depression. Ben's got some great deals on 100 acre "farms" inside the city limits of Detroit and they're already zoned residential.
Bernanke said the Fed's policies mirror what other central banks around the world are doing.Interest rates are usually an expression of future risk. The more risk, the higher the rate charged. Interest rates are also a function of “you want it now" (three dollars now for five dollars on pay day). You either save up and pay cash or you borrow funds at some cost, to reward those who saved the money you are borrowing. The present rates are low only because of government intervention in the markets.
"Long-term interest rates in the major industrial countries are low for a good reason: Inflation is low and stable and, given expectations of weak growth, expected real short rates are low," he said.
Bernanke claims to have studied the Great Depression at length, and so have I. His method for our recovery is not one I agree with. We survived the Great Depression. The major cause was a misallocation of resources. One sector of the economy took off and everyone piled on trying to get rich. And then it collapsed. It took quite a while for the economy to return to normal.
In Africa 40 years ago there was a cattle boom. The more cattle you owned the wealthier you were perceived to be. As the cattle population increased over time, more and more resources were devoted to feeding them. All it took was a drought and, the cost of hay skyrocketed. Most farmers found that they could no longer afford to feed their herds, let alone sell them to someone else. The cattle market collapsed. A lot of the livestock died from starvation. From there, families starved to death. Notice, it wasn’t a shortage of food that killed the people, it was a misallocation of resources. Their apparent cattle wealth disappeared, and they had little if any savings to buy food with.
We are trying to recover from a misallocation of resources in the real estate market. Guess what--- the government is not going to let the market collapse, just because people spent too much money on it ---they are going to keep it going. In Africa, the government could have stepped in and provided food for the cattle, but it wouldn’t have solved the problem. Resources would have been expended on items that were economically unfeasible. This is what our government has done to the housing bubble. It has enabled more resources to be spent on a project that has no real return. Notice that as long as the real price for raising cattle or real estate is subsidized by government forces, the market cannot return to normal. The government subsidies insure that the misallocation of resources will continue.
The questions that need to be asked, are; “Where does the Federal Reserve get the written authority to buy 85 billion dollars’ worth of bonds each month?” and “Where does the Federal Reserve get the mandate to set interest rates?”. We are talking about a government agency that has the ability to spend trillions of dollars a year, saving the banks and the housing market from ruin, on the assumption that this “herd of cattle can be fed” and sold later for the dollars loaned earlier. This is a government agency that has the ability to spend more in one year than Congress has funds to spend from taxes collected.
It comes to mind that we have a 85 billion dollar sequestration for a year that appears to be a real monkey wrench in the economy. And here's the Federal Reserve with that same amount for a monthly allowance with which to purchase bonds.--must be my imagination.
People over a lifetime saved their earnings for retirement expecting interest rates would reflect risk in the market. Does the Federal Reserve have the right to artificially manipulate interest rates to support this misallocation of resources? The Federal Reserve has saved the banking system and now they are working on Fannie and Freddie. Failure is rewarded with bailouts and individual risk is eliminated with government guarantees. Without the Federal Reserve interference, interest rates would be able to return to normal levels. That would be too bad for the housing market, but then maybe our kids could afford to buy a home, and Grandpa and Grandma, might get some real interest paid on their savings. Let’s return risk to our markets and reward success --- unfortunately Ben's going to save that real estate market, and avoid a Great Depression. Ben's got some great deals on 100 acre "farms" inside the city limits of Detroit and they're already zoned residential.
Monday, February 25, 2013
Sequestration, Where is the Reality?
We hear people in government running around like Chicken Little yelling “the sky is falling,” over this sequestration. They’re claiming that the government is going to have to lay off thousands of people. Let’s see if I have this right, Congress is borrowing or printing 1.5 trillion this year to balance the budget and they cut 85 billion dollars of it? Then there is Ben Bernanke buying 85 billion dollars a month of real estate equity using “creative bookkeeping.”
Obama said again today, “The rich must pay their fair share.” I think they already do. The rich aren’t building businesses in the USA, they have moved overseas to increase their profit margin and reduce their labor costs. This country wasn’t built by stupid people but it kind of looks like its run by stupid people.
Every government agency has a budget, and at the end of the year, if they don’t spend it, they have to turn it back in to the government. Have you ever heard of any part of the government returning money because they didn’t have anything to spend it on? What would happen if instead of each department trying to spend the money, the person in charge got 20 percent of the budget not spent, as a year-end bonus split with the people under him?
When you examine government, it is not designed to cut costs, where is the incentive? They won’t go bankrupt. It’s not like they have to make a profit. Plus there is no accountability to the taxpayers.
My question: If 85 billion in cuts is going to upset the apple cart, then why are we spending 1.5 trillion more than we take in in taxes? What makes the 85 billion in cuts painful, but the 1.5 trillion in extra spending that is borrowed money, painless? Of course, if Congress doesn’t plan to pay back any of the 16 trillion dollars; I can see where the 85 billion is a real setback to their spending programs. They went to the trouble to print it and now they’re told they can’t spend it.
When funding is cut to a government agency, you get the negative get-even feedback "How dare Congress cut our budget, we will cut services that will maximize taxpayer discomfort." There is no Gung-ho push of a "Can Do" attitude, we end up getting, it's "My way or the highway." Common sense suggests if Congress cuts the funding, the government should cut the bureaucratic enforcement that goes with it, it's called downsizing. However, if a government agency wants to impress how important their part of the bureaucracy is, they don't downsize, they enforce the regulations more vigorously with less man power. The kids on the free lunch program can throw away their 35 cent apple every day while you wait in longer lines to check on to your flight---they win if you get upset, go figure!
Obama said again today, “The rich must pay their fair share.” I think they already do. The rich aren’t building businesses in the USA, they have moved overseas to increase their profit margin and reduce their labor costs. This country wasn’t built by stupid people but it kind of looks like its run by stupid people.
Every government agency has a budget, and at the end of the year, if they don’t spend it, they have to turn it back in to the government. Have you ever heard of any part of the government returning money because they didn’t have anything to spend it on? What would happen if instead of each department trying to spend the money, the person in charge got 20 percent of the budget not spent, as a year-end bonus split with the people under him?
When you examine government, it is not designed to cut costs, where is the incentive? They won’t go bankrupt. It’s not like they have to make a profit. Plus there is no accountability to the taxpayers.
My question: If 85 billion in cuts is going to upset the apple cart, then why are we spending 1.5 trillion more than we take in in taxes? What makes the 85 billion in cuts painful, but the 1.5 trillion in extra spending that is borrowed money, painless? Of course, if Congress doesn’t plan to pay back any of the 16 trillion dollars; I can see where the 85 billion is a real setback to their spending programs. They went to the trouble to print it and now they’re told they can’t spend it.
When funding is cut to a government agency, you get the negative get-even feedback "How dare Congress cut our budget, we will cut services that will maximize taxpayer discomfort." There is no Gung-ho push of a "Can Do" attitude, we end up getting, it's "My way or the highway." Common sense suggests if Congress cuts the funding, the government should cut the bureaucratic enforcement that goes with it, it's called downsizing. However, if a government agency wants to impress how important their part of the bureaucracy is, they don't downsize, they enforce the regulations more vigorously with less man power. The kids on the free lunch program can throw away their 35 cent apple every day while you wait in longer lines to check on to your flight---they win if you get upset, go figure!
Wednesday, February 20, 2013
The Birdseed Indicator
I go to the pet store every three weeks to buy millet sprays for my Parakeet. Last year they were 3 for a dollar. This year the price went up to 45 cents a spray. Today they were 95 cents each. The treat part of my parakeet’s food budget has jumped from 17 dollars up to 52 dollars a year. I only paid 12 dollars for the bird, but the concept that the 52 dollars is just for bird seed, makes me see the world in a different light.
Of course, this must be a special case, and we should disregard the data. But what’s my reaction? The special treats for bird just aren’t going to happen as often anymore. The pet store raised their prices and now the bird has to make do with two sprigs of millet a month (Bird gets a tray of regular seed also, so he’s doing OK-- The millet is just his snack food)(Republicans don't starve their pets by waiting for handouts like Democrats)--(I'm joking here).
We’re not getting rid of the parakeet, but we will probably get rid of our cable TV. They want 15 dollars a month for 7 Spanish stations and 6 infomercial stations. I don’t speak Spanish, and this is supposed to the United States (figure that out). I can get PBS and the three news channels with just a TV antenna. What we are really looking at here is the fact; we are getting less for the same amount of money. Not to mention a reduction in the quality of the product being sold.
Of course, not everything is depreciating. I had a bunch of old gold and silver items that I’ve had for many years. A gold dental crown, two gold rings and a gold chain (20 grams in all) and about 3 ounces of scrap silver, like cuff links and tie clasps and took it down to the local coin dealer and got about $650 dollars which I converted to 20 silver maple leafs. My wife was so impressed; that she rummaged through her old junk jewelry (the stuff you get for Christmas) and we took that down and got another 20 silver maple leafs. It’s kind of surprising to see what you have just lying around the house that you wouldn’t think twice about.
Below is a picture that has been circulating around that I found humorous. Some of you have may have already seen it. It tends to suggest that there is a certain frustration with the way Congress is malfunctioning as of late.
I think we can readily agree that the present government doesn’t want to link COLAs to the price of millet for my parakeet. So from a government perspective, a bird in the hand will end up costing a lot more than two in the bush (from the Bush dynasty). On a positive note, the country can’t be going to the dogs, if we are too poor to afford bird seed ---Stand-by everyone, Obama will save us,---the question is, “Save us from what?”
Of course, this must be a special case, and we should disregard the data. But what’s my reaction? The special treats for bird just aren’t going to happen as often anymore. The pet store raised their prices and now the bird has to make do with two sprigs of millet a month (Bird gets a tray of regular seed also, so he’s doing OK-- The millet is just his snack food)(Republicans don't starve their pets by waiting for handouts like Democrats)--(I'm joking here).
We’re not getting rid of the parakeet, but we will probably get rid of our cable TV. They want 15 dollars a month for 7 Spanish stations and 6 infomercial stations. I don’t speak Spanish, and this is supposed to the United States (figure that out). I can get PBS and the three news channels with just a TV antenna. What we are really looking at here is the fact; we are getting less for the same amount of money. Not to mention a reduction in the quality of the product being sold.
Of course, not everything is depreciating. I had a bunch of old gold and silver items that I’ve had for many years. A gold dental crown, two gold rings and a gold chain (20 grams in all) and about 3 ounces of scrap silver, like cuff links and tie clasps and took it down to the local coin dealer and got about $650 dollars which I converted to 20 silver maple leafs. My wife was so impressed; that she rummaged through her old junk jewelry (the stuff you get for Christmas) and we took that down and got another 20 silver maple leafs. It’s kind of surprising to see what you have just lying around the house that you wouldn’t think twice about.
Below is a picture that has been circulating around that I found humorous. Some of you have may have already seen it. It tends to suggest that there is a certain frustration with the way Congress is malfunctioning as of late.
I think we can readily agree that the present government doesn’t want to link COLAs to the price of millet for my parakeet. So from a government perspective, a bird in the hand will end up costing a lot more than two in the bush (from the Bush dynasty). On a positive note, the country can’t be going to the dogs, if we are too poor to afford bird seed ---Stand-by everyone, Obama will save us,---the question is, “Save us from what?”
Sunday, February 10, 2013
The Coming State of the Union Speech.
The Republicans in Congress are in a bad position. Whatever happens to the country, it will be their fault no matter what and the Democrats know it. Obama in his State of the Union speech will cover Immigration, gun control, jobs and the economy. His main theme will be “And by God, if the Republicans will work with us, we can get things done.” He got his health care through without Republican help; why does he need their help now? It brings to mind the phrase "It's payback time!"
Immigration reform will get some applause. Financing it would almost be impossible. These 11 million illegal immigrants if given the rights to stay would qualify for health care, food stamps and SSI at retirement age. They certainly wouldn’t be losing any retirement benefits from their home country. Of course when Congress finds out that they underestimated the number of illegals, by about 10 million, what's next? ---Online registration for citizenship? (Get them vote ready for the next election)
Employment is up; even the gangs in Chicago have over 300 positions to fill. These gang bangers will really appreciate the new health care plan coming out. You get pumped full of lead, you won’t need to worry about medical bills, and the hospital won’t either. Gang bangers will turn into hospital meal tickets; every procedure in the books will be run on them, before they’re mobile enough to escape (but I digress).
As for the economy, Obama will point out that we’re not out of the woods yet (yawn). My wife’s and I each have $200 less a month in our take home pay after the Social Security reset. That's about $4,800 of consumption that isn't going to happen for an economy in recession. On the plus side, the food stamp program is a tremendous success, they have renamed it to SNAP (I’m not kidding) (Supplementary Nutritional Assistance Program). So I guess Obama can claim to have put a little SNAP into the economy without stretching the truth.
It will be talk, pause and applause, over and over again. This is definitely not a beer, pizza, and chicken wing event.
Obama’s State of the Union speech will be followed by a Clint Eastwood special “The Republican Rebuttal” staring Florida's Senator, Marco Rubio (It won’t be as funny as the last one; I think they sold the chair).
If we review the Presidents last four years, a lot of Obama’s cabinet has moved on. It tends to suggest that these people felt their input wasn’t of much value and/or four more years of the same thing just wasn’t worth it (we’re not talking 20k a year jobs either). It will be interesting to take note of what is not talked about next Tuesday. The people who have left the oval circle are tight lipped. I guess the thought of a drone circling the house might keep it that way.
Immigration reform will get some applause. Financing it would almost be impossible. These 11 million illegal immigrants if given the rights to stay would qualify for health care, food stamps and SSI at retirement age. They certainly wouldn’t be losing any retirement benefits from their home country. Of course when Congress finds out that they underestimated the number of illegals, by about 10 million, what's next? ---Online registration for citizenship? (Get them vote ready for the next election)
Employment is up; even the gangs in Chicago have over 300 positions to fill. These gang bangers will really appreciate the new health care plan coming out. You get pumped full of lead, you won’t need to worry about medical bills, and the hospital won’t either. Gang bangers will turn into hospital meal tickets; every procedure in the books will be run on them, before they’re mobile enough to escape (but I digress).
As for the economy, Obama will point out that we’re not out of the woods yet (yawn). My wife’s and I each have $200 less a month in our take home pay after the Social Security reset. That's about $4,800 of consumption that isn't going to happen for an economy in recession. On the plus side, the food stamp program is a tremendous success, they have renamed it to SNAP (I’m not kidding) (Supplementary Nutritional Assistance Program). So I guess Obama can claim to have put a little SNAP into the economy without stretching the truth.
It will be talk, pause and applause, over and over again. This is definitely not a beer, pizza, and chicken wing event.
Obama’s State of the Union speech will be followed by a Clint Eastwood special “The Republican Rebuttal” staring Florida's Senator, Marco Rubio (It won’t be as funny as the last one; I think they sold the chair).
If we review the Presidents last four years, a lot of Obama’s cabinet has moved on. It tends to suggest that these people felt their input wasn’t of much value and/or four more years of the same thing just wasn’t worth it (we’re not talking 20k a year jobs either). It will be interesting to take note of what is not talked about next Tuesday. The people who have left the oval circle are tight lipped. I guess the thought of a drone circling the house might keep it that way.
Sunday, February 03, 2013
We Haven't Hit Bottom Yet
I was listening to Suze Orman the other day. She was advising retirees to buy stocks with dividend yields to supplement their retirement income, since the bond market is returning so little interest. It kind of caught me by surprise. To paraphrase her, you need to take some risk on stocks because the return on bonds coupled with inflation forces the retirees to dip into their principle for living expenses.
The real estate market kind of bit the dust a while back, and there are still millions underwater wishing to unload their burden on some greater fool. I’ve mentioned before that rich people don’t have to wait for a good economy to buy a home, so no wonder home prices are rising. These people aren’t buying starter homes either (which would lower the housing price average).
The bond market has gotten so risk-less, that investors are almost paying borrowers to borrow money. Kind of reminds you of that company Solyndra that went BK, even with a Presidential endorsement. They didn't run out of money, they ran out of ideas on how to spend it.
The only real investment game left to play is the stock market. Our market in six years has risen up from 7,000 to 14,000. You kind of have to ask yourself, “Where’s all the good news that made this happen?”
In the 1929 crash, we had new and growing companies on the horizon, the light bulb (GE), radio (RCA), the automobile, the airplane, electricity, indoor plumbing, washing machines, cash registers, telephones (ATT) and more. RCA went from $18 dollars a share in 1924 to over $500 in 1929 and back to less than $3 per share in 1932. And that was when $750 dollars was a year's wages.
The years 1926 thru 1929 were miserable years as far as our economy was doing, but yet the stock market went up. Reality finally set in unannounced. See below graph for stock performance in the 1930’s.
Our present economy is a mess while the stock market is hitting new highs. Several countries are repatriating their gold stored abroad. Kind of makes you wonder what to expect even if things start to improve.
The really big thing to watch this year is the tax increases. Will they bring in the expected revenue? The answer is probably a big NO. That's what happened in the 1930’s when taxes were raised. So we get to experience what our grandfathers lived through. And remember, this time it will truly be different; it’s me, not my grandpa paying the bills.
Priceline looks like a good buy, 100 shares is only $68,000 and that's cheaper than 100 Google at $78,000. Maybe I should wait awhile; they could drop a bit like RCA did, way back when.
The real estate market kind of bit the dust a while back, and there are still millions underwater wishing to unload their burden on some greater fool. I’ve mentioned before that rich people don’t have to wait for a good economy to buy a home, so no wonder home prices are rising. These people aren’t buying starter homes either (which would lower the housing price average).
The bond market has gotten so risk-less, that investors are almost paying borrowers to borrow money. Kind of reminds you of that company Solyndra that went BK, even with a Presidential endorsement. They didn't run out of money, they ran out of ideas on how to spend it.
The only real investment game left to play is the stock market. Our market in six years has risen up from 7,000 to 14,000. You kind of have to ask yourself, “Where’s all the good news that made this happen?”
In the 1929 crash, we had new and growing companies on the horizon, the light bulb (GE), radio (RCA), the automobile, the airplane, electricity, indoor plumbing, washing machines, cash registers, telephones (ATT) and more. RCA went from $18 dollars a share in 1924 to over $500 in 1929 and back to less than $3 per share in 1932. And that was when $750 dollars was a year's wages.
The years 1926 thru 1929 were miserable years as far as our economy was doing, but yet the stock market went up. Reality finally set in unannounced. See below graph for stock performance in the 1930’s.
Our present economy is a mess while the stock market is hitting new highs. Several countries are repatriating their gold stored abroad. Kind of makes you wonder what to expect even if things start to improve.
The really big thing to watch this year is the tax increases. Will they bring in the expected revenue? The answer is probably a big NO. That's what happened in the 1930’s when taxes were raised. So we get to experience what our grandfathers lived through. And remember, this time it will truly be different; it’s me, not my grandpa paying the bills.
Priceline looks like a good buy, 100 shares is only $68,000 and that's cheaper than 100 Google at $78,000. Maybe I should wait awhile; they could drop a bit like RCA did, way back when.
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