The Economy Is Improving?

I can’t quite figure it out. It looks like they added more punch to the punch bowl. The party is on again. Housing prices are up 10% and stocks are climbing ever higher. It’s kind of hard to figure out what investor would loan money to home buyers at 3.5 percent interest for 30 years; maybe for one or two years, but not 30. You can get a better return on you dollars in the stock market.

So let’s see how the game works. Ben buys all treasuries and real estate loans presented for sale. This keeps interest rates low. Since the banks are paying very little interest, retirees withdraw their retirement funds and “invest” it in the stock market. This makes stock prices rise and that increases the fervor to put more money in the market. Of course the low interest rate loans stimulate buying stocks on margin and increases commodity speculation. Borrowing a million or two to speculate in the oil market would only cost 30 to 60k per year. Plus it’s a business expense.

Silver and gold are still dropping. The coin dealer I buy silver Maple leafs from, is out again. He can’t seem to order it fast enough. If we’re coming out of a recession, why is a bullion dealer running out of product? It reminds me of a movie theater; if you smell smoke, don’t yell “FIRE” until you get to the exit.

Then we have the health care plan kicking in. The young, if they want coverage, will be $130 a month at a minimum. See the two charts below for pricing in Kalifornia.



The penalty for not buying insurance will be $95 next year and go up to $695 per person in 2016--  to a max of $2085 for a family of three or more. Of course if you earn less than $9,500 a year, there is no fine. I’m not quite sure how this affects the future price of produce harvested in California. But if you do the math, for a family of 4, if the wife can’t make more than $10 per hour, she’s better off economically and financially, sitting home and taking care of the kids, while the husband works. Daycare is not cheap. Notice if you earn less, you qualify for more benefits; whereas if you earn more, you qualify for a heavier dose of taxation.

California announced that they went from a 25 billion dollar deficit to an 851 million surplus in a little more than 2 years. You do have to wonder what they “threw under the bus.” It sounds like someone from Disneyland is doing the state’s accounting. Of course there is not a peep about the state’s unfunded pension liabilities that have topped half a trillion dollars – six times the present state budget (study by Stanford Institute for Economic Research).

The housing bubble is gone. Real estate is being bought as an investment that can return 3 to 6 percent over what the banks pay. What created this was a Federal Reserve policy. They have been buying the real estate paper and the redeemed treasuries – thus keeping interest rates low. It’s a little like squeezing a balloon, it pooches out in another direction. Seniors and investors now see the stock market as the “last bastion of investment” (fancy words for a bubble).

There are two private sector bubbles; the bond market, the stock market, and then there is the national debt. The real question is, which shoe drops first-- -the bond market or the stock market? It’s a 50/50 call. You are going to buy puts either way. It will be a one two punch, one bubble will pop and then the other a little while later. And of course, there is the national debt, whose size nobody can even comprehend.

The one economic condition that could collapse this house of cards is Obama’s health care. What would have gone for vehicle insurance  in many family budgets, will now go for health insurance. One of the things that made America great was the ability of each family to choose what they spent their earning on.  Naturally they neglected saving for retirement and health care in order to give their kids a chance at a better life.   Money used wisely is a tool you use to craft your life like a carpenter building a house.  Each person individually tries to determine their own destiny. So follow the chain: no car insurance---you wreck your car or have it stolen--you lose your job because you can't get to it-- money problems lead to a divorce and drugs,---downhill from there. The poor are being set up for failure. It reminds me of the story about the battle that was lost over a missing nail in a horseshoe.

The real question is this, how do higher taxes and more government regulations induce increased economic prosperity?  Common sense suggests that the people with all of the answers, are part of the problem.  Economic issues are never solved by government, only shifted into another direction. Every student in the US is entitled to a college education with government financing.  If enough people graduate, you might just need a degree to get a job flipping hamburgers.  But I digress; the economy is just doing great. It's the people around me that aren't.