Sunday, February 26, 2012

Bernanke Laughs All The Way To The Bank Printing Press

Just listening to Fox news:
Oil companies are making money and gas prices are going up. Will the consumer revolt and stop buying gas to teach the oil companies a lesson?
The implication there: “It’s the damn oil companies gouging us, let’s rally around the flag and punish them Rah! Rah! Rah!” Meanwhile Ben Bernanke slides another trillion dollars of printed money into the economy. If you look at oil and gasoline prices in terms of gold and silver prices they haven’t changed much in the last 40 years. Here is a LINK to a Forbes article that should raise your awareness level a tad.

In actuality, the purchasing power of the dollar has fallen 50 percent in the last four years, gas hasn’t doubled in price. Put another way, this was a tax on people with money in the bank; their money lost half of its purchasing power. The Democrats want to tax the rich; I think they are doing an excellent job at it right now. It now takes two billion dollars to buy what one billion bought four years ago. And of course if anyone complains, it’s those damn oil companies gouging us. Plus those rich people weren’t using that second billion anyways, so they’ll never miss it. If you’re rich and retired, just call it “Tough Love.” Our government needs those printed dollars to pay the bills when tax receipts are just not enough to cover expenditures.

Printing dollars, taxes the people with money in the bank invisibly. There are no forms to fill out, everything just costs more. The average person on the street has no concept of printed dollars creating inflation. They want to blame someone for the increased prices, and who do they point to, the supplier of the product, the bankers, and Wall Street.

Some of us know what is going on. The real evil is government printing; they are taxing those that decided to save for retirement. If you have no savings, you have lost none of your wealth. If you work, everything cost more, and without a pay raise, your standard of living suffers.

With interest rates so low, there is no incentive to save. The present increase in consumption is a common sense reflex to very poor interest rates, coupled with inflation. Why wait to buy? It will cost more later! The economy isn’t turning around; this is the last breath before the long pause and downward plunge.

Is the stock market going up because the economy is getting better, or is it because stocks are the only game left in town? There is a big surge into dividend stocks, I wonder why????

Gasoline prices just went up another 25 cents over this weekend. Will Congress do to the oil companies what they did to the Post Office (limit price hikes to inflation)? Instead of the refiners shipping half of their production overseas, they’ll ship all of it. No pay, no play.

When we tax by inflation, we do unquestionable tax the rich. But ask yourself a few questions about this hue and cry to "Tax the rich." Are there many rich people between the ages of 1 to 20? Are there a lot between the ages of 20 and 40? How about between the ages of 40 and 50? Probably most of them fall between 50 and 65 just about at the age people start to get ready for retirement. How did they get rich? They saved for a lifetime. Now Bernanke is going to punish them for being rich---zero interest on their savings and inflation beyond their wildest dreams.

Inflation is kind of like sawing a quarter inch off of grandpa’s walking cane each month. He’ll know something is not right, but he won’t have the foggiest clue as to what the problem is.

Saturday, February 18, 2012

Gas Prices are Increasing--Why???

Somehow the data is getting a little out of whack. Gasoline consumption in the US has decreased markedly. See the chart below. The last two dots tell it all.

This would lead one to believe that oil producers have cut production to keep prices from falling. Less gas is being sold, that implies less oil is being pumped out of the ground. There is one problem, the oil producers have grown accustomed to a lifestyle that did not anticipate cuts in production. Pumping less may keep the price high, but it won’t pay all of the bills.

The last time this happened, the OPEC cartel set quotas for each county, to keep the price of oil from dropping. It didn’t work, the price per barrel of oil fell off of a cliff. Officially, everyone was producing what they were allotted (and a little more on the side that no one knew about).

Prices are rising at the gas pump (4 dollars a gallon today), consumption has dropped and there is very little indication that the oil producers have cut production. It’s a given that refiners are only going to buy as much oil as they can expect to process and sell, while oil producers will tend to pump as long as they can sell their forward production into the futures market. There could be a meltdown in the oil commodities futures pit sometime in the near future.

There is one other possibility; Obama and Bernanke are printing dollars 24/7 and turning our currency into funny money. Below is how it turned out, once upon a time, long long ago . . .

We could be here. Early 2012 is just like early 1922.

You'll wish you had Obamacare if we get to here!

The only drawback to the opiate of printing money, is trying to stop. Either path is possible, my crystal ball is a little to foggy to see clearly. One sure thing, a fifty dollar bill won't fill my gas tank anymore.

Saturday, February 11, 2012

Obama's Plan to Save the "Homeowner" (Note Holder)

Obama and his minions are going to save the underwater home owners. Below is a graph of the distressed home owners from 2006 to the present. 29 percent of these people owe more than the house is worth.

The banks in 2006 were writing loans to anyone who could fog a mirror. An in essence, every loan they wrote was a winner even if the borrower defaulted; the house was worth more than the original note. The banks were nothing more than a machine, taking depositors money, writing a loan, paying the seller his cash and then selling the note to private investors. Repeat cycle again. I wrote a letter to the head of Federal Reserve Allen Greenspan in 2005 complaining about it to no avail (see this link from August 28, 2009). The problem was obvious, home speculation was more profitable than working for a living.

So if we examine these underwater buyers, the phrase comes up “no skin in the game.” Most of these underwater owners had very little or nothing down. The person who made out like a bandit, was the seller, they got cash on the barrel-head. All the new owner did was sign a piece of paper and he was handed the keys.

The phrase “Strategic Default,” is the educated solution to the problem of being underwater. Don’t pay. Pocket the mortgage payment and move when evicted. Many defaulters maintain, “The banks shouldn’t have loaned us the money in the first place.” So better terms and free money from the Federal government are not going to turn their lives around. The average homeowner moves every 5 years and it’s about that time again.

The real question you have to ask is; who is the Obama administration helping, the home owner under water or the “private parties” who hold the notes? The home owner can ride rent free on the home now for almost 2 years in California and in places like New York for a lot longer. We hear the phrase “the poor underwater home owner.” I just don’t see it, the guy bought something for nothing and has decided he paid too much and will walk.

Fannie, Freddie and the FHA, hold a majority of the foreclosures. If marked to market at existing sale prices, they have about a 20% loss. The loss would probably approach 70% if markets were allowed to find their own bottom. Instead of an 800 billion dollar taxpayer bill, it could end up costing many trillions of dollars. The neat thing about letting housing prices hit bottom, our kids could afford to buy a home again.

Just who holds the debt? The banks drop out of the equation. They write home loans and sell them, but they do tend to get nailed on commercial loans. The banks usually have to hold 5 year construction loans, and this is probably what has gotten many a bank in trouble the last three years where the Fed has had to bail them out.

It’s the private investors that hold all of this real estate paper. Insurance companies, mutual funds, and Retirement plans come to mind just to mention a few. These fund managers are wondering where the monthly income they were counting on has gone to? No worry, it's all guaranteed by the taxpayer.

The humorous thing about this whole mess is that the Congress back in the 1930’s passed legislation to prevent this from ever happening again. Then from 1990 to 2003 we got rid of those safeguards. We were smarter now and knew what we were doing. Congress is now replaying the same 1930’s script. Let’s lock the barn door. Why? ---- There is nothing in the barn! Do we really need to protect the consumer? He’s the one who created this mess when he decided to buy a house and get rich. Of course we can wrongly blame the Banksters and Wall Street for our predicament. They supplied the clearing house to securitize our borrowing. But it was individual greed that got us to where we are now. The government couldn't stop you from buying that house in 2006 anymore than they can force you to buy one in 2012.

It’s a little like the problem in Greece, the European countries are not trying to help Greece get out of debt; they want to get paid what they are owed and kick the can down the road a bit further. The only trouble, the can has gotten bigger and heavier--it doesn't kick like it used to.