Normally this blog deals with the coming Great Depression so foreign policy is a bit of a stretch. We have just helped kill the leader of Libya. Not much of a big deal, but we did it so these people could have Democracy. That country is totally devoid of any social institutions so there will be no Democracy, the guy with the most bullets will be the new President. Of course if your currency becomes suddenly worthless, you are pretty much in the midst of a depression. Life in Libya looks rather brutal for the foreseeable future.
We are getting out of Iraq. Great idea; Christmas comes early for Iran. There is turmoil in Palestine, Jordan and Egypt; Israel could go bananas and nuke Iran or vice versa.
Oil ties the US to the Middle East; water ties the Middle East people to the land. The real key is not oil, but rather water. Iran and Turkey, China and South East Asia, are building dams that could start a war over water; the hell with the people downstream.
Then in Pakistan, we send a woman (Hillary) (where women are considered property) to tell them how to run their government. Great for women’s lib, but who are we kidding, the Pakistanis would like to chain her up in a basement and teach her what the slang term "airtight" means. These people are not going to listen to a woman, more to the point; they feel insulted having to deal with her.
The US press is selling their readers this "goodie two shoes" idealistic policy of spreading Democracy to the world. The reason we lost in Viet Nam, was because the average farmer could point to his family and land, but he could not point to Democracy. Democracy does not come from the masses who have nothing, but rather from those who have a position of wealth that needs to be preserved. Democracy is not an option for the Middle East; they have always taken what they have wanted. Might is right.
U.S foreign policy towards Libya has been very irresponsible; we can't shoot first and then think about it. Getting rid of Qaddafi accomplished nothing. His supply of stinger missiles is now on the auction block. Leaving Iraq without some advisory troops begs Iran to move in. Obama needs to send Hillary home with a box of cigars for Bill. And while he's at it, he mise well paint a bull's eye on Air Force One. The score is Obama 3 Arabs 0. I feel that the game is only pausing for the half time activities. Got Stingers?
Thursday, October 27, 2011
Wednesday, October 19, 2011
This 'Great Depression' Could be Worse
Out here in California lenders are foreclosing quickly on the 300K mansions that originally sold for 100K. They are taking their sweet time on the “million dollar” homes for good reason. The hidden inventory is becoming rather obvious, a lock box on the door handle and a brown lawn.
Many Californians bought their homes and paid them off before the great housing bubble, These people are nearing retirement, and expect a slice of that “Glorious bubble real estate pricing” and its isn’t going to happen. More supply, less demand. Meanwhile, the banks out here, holding real estate, are like chickens sitting on unfertile eggs. Nothing is happening, just a lot of hope that things will improve, if given time.
Realtors drop off lists of homes sold in my area. The lists reflect short sales, regular sales, and REO’s. The short sales and REO’s reflect pretty drastic price drops for the area. The regular sales don’t. What happens here, when a home goes on the foreclosure auction block, auctioneer has an automatic bid from the bank, on money owed. If the bank is the only bidder, the home is theirs. This is counted as a “regular sale.” So if the original owner owed 600k on a first mortgage, with the homes current value at 300k, this would be listed as a sale at 600k to the bank. Hey, that looks great for comps if you are a real estate agent. So when you see the sale price, that the bank paid, that has no real bearing on what the current value is for the home.
What is hurting the banks is a concept labeled “the velocity of money.” When you have a feeding frenzy, you have high velocity. Right now, we have low velocity; no one is begging for a loan, the banks can’t find enough people qualified to loan too. The go-go party years of real estate banking are gone.
Our future looks bleaker than the historical times of the 1930’s and 1940’s. The US was pulled out of the Great Depression by war. When it ended, we were the only supplier of finished goods. The rest of the world had no production capacity to speak of. This time it could be very different, we are not the only global supplier with production capacity in need of buyers to survive.
Once you realize this, the concepts of what are happening in this world leaves doubts as to how a real and acceptable solution is an option. I have questions, but no answers and that is scary. From here you need to tell the wife, the cute student you’ve rented the spare room to will bring in a few dollars. If she calls you a Democrat, you know it isn’t going to float.
Saturday, October 08, 2011
Regulation, A Presidential Cure for the Nation? I think NOT!
I guess if we are going to tar and feather Obama over our hard times, we should probably get it right, on what he did wrong. Our present economic mess has nothing to do with him or his birth certificate issued in Hawaii. His major offense, is in thinking that as President, he can write or dictate our laws and have the Congress pass them. If my memory serves me right, Congress writes the laws, and if they don’t have a 2/3’s majority, the President has to sign it in order for it to become law.
Obama is like a very demanding wife; his way or the highway. Whereas a coy subservient wife gets everything her way indirectly, without the husband even suspecting that he has been manipulated. Obama forced the health care issue through Congress, and now the young get to pay for the health care already promised to the old. You can’t raise taxes in a depression and expect increased revenue. Revenues are dropping even at the current rate of taxation; less and less people are working.
Now there is a call to tax the rich. It sounds so easy and simple. Most of them fill out their own W-2 forms; they can easily hide their earnings. A lot of wealthy people donate to charities and get a tax deduction. They have a choice, give it to the government who will waste it (that's a personal opinion), or give it to a charity and appear to be magnanimous. Look for this loophole to disappear.
Let’s step back for a moment and examine where we are. As a country, we saved nothing for a rainy day. Congress spent every dime collected; they even spent our Social Security funds. Our nation has fallen on hard times caused by economic pursuits that were designed to fail because of human greed. We probably can cite Congress for enjoying the party while it lasted; they were asleep at the switch. They couldn’t afford to pay for infrastructure when times were good and now all of a sudden, it seems like a good idea when the country is broke. Its kind of like having no money to feed the kids and wife, but having 50 dollars for the hooker next door.
Obama’s latest way to save the taxpayer is with more government regulation. The neat thing about this is when you create government regulatory agencies, they get to enforce regulations they feel are necessary without the need for further legislative approval.
The latest idiotic piece of government lunacy revolves around debit card charges. Here we have the Consumer Protection Agency telling banks what they can charge merchants accepting the card. All of a sudden it’s against the law to make a profit? The net effect, Bank of America raises debit card fees $5 a month. Everyone thinks this is outrageous and something needs to be done about it. If you read between the lines, B of A doesn’t want to mess with debit cards anymore. It’s unprofitable for the bank, the customers who use them, are living paycheck to paycheck. It’s a little like what Sprint did when it dumped customers who called the help desk too much. 60 percent of the help calls were from 5% of its customers. B of A won’t lose a dime on the customers who walk.
Government regulation is killing this country. Our captain at the helm is going to save us with more Nazi rules and regulations. It's "full speed ahead, damn Congress and the National Debt." It's a little like a hooker offering customers pills to prevent AIDS. Business couldn't be better. The customers like the added "protection." You kind of have to wonder, how dumb is dumb?
Obama is like a very demanding wife; his way or the highway. Whereas a coy subservient wife gets everything her way indirectly, without the husband even suspecting that he has been manipulated. Obama forced the health care issue through Congress, and now the young get to pay for the health care already promised to the old. You can’t raise taxes in a depression and expect increased revenue. Revenues are dropping even at the current rate of taxation; less and less people are working.
Now there is a call to tax the rich. It sounds so easy and simple. Most of them fill out their own W-2 forms; they can easily hide their earnings. A lot of wealthy people donate to charities and get a tax deduction. They have a choice, give it to the government who will waste it (that's a personal opinion), or give it to a charity and appear to be magnanimous. Look for this loophole to disappear.
Let’s step back for a moment and examine where we are. As a country, we saved nothing for a rainy day. Congress spent every dime collected; they even spent our Social Security funds. Our nation has fallen on hard times caused by economic pursuits that were designed to fail because of human greed. We probably can cite Congress for enjoying the party while it lasted; they were asleep at the switch. They couldn’t afford to pay for infrastructure when times were good and now all of a sudden, it seems like a good idea when the country is broke. Its kind of like having no money to feed the kids and wife, but having 50 dollars for the hooker next door.
Obama’s latest way to save the taxpayer is with more government regulation. The neat thing about this is when you create government regulatory agencies, they get to enforce regulations they feel are necessary without the need for further legislative approval.
The latest idiotic piece of government lunacy revolves around debit card charges. Here we have the Consumer Protection Agency telling banks what they can charge merchants accepting the card. All of a sudden it’s against the law to make a profit? The net effect, Bank of America raises debit card fees $5 a month. Everyone thinks this is outrageous and something needs to be done about it. If you read between the lines, B of A doesn’t want to mess with debit cards anymore. It’s unprofitable for the bank, the customers who use them, are living paycheck to paycheck. It’s a little like what Sprint did when it dumped customers who called the help desk too much. 60 percent of the help calls were from 5% of its customers. B of A won’t lose a dime on the customers who walk.
Government regulation is killing this country. Our captain at the helm is going to save us with more Nazi rules and regulations. It's "full speed ahead, damn Congress and the National Debt." It's a little like a hooker offering customers pills to prevent AIDS. Business couldn't be better. The customers like the added "protection." You kind of have to wonder, how dumb is dumb?
Friday, September 30, 2011
Why A Solution Escapes Us
Here is a Link to a reality that is little appreciated let alone comprehended. It is a rather long winded piece. To quote the articles main thesis:
My grandfather told me way back that discussions around politics and religion were a waste of time, you weren’t going to change anyone’s mind and I tend to agree with him now.
For politics, Congress comes to mind. There is no common ground anymore. Discussions seem to be rally around the flag parties. No mater whose talking, there is a flag behind them. Kind of reminds you of the Nazi party, with flags everywhere. Of course their mission statement was “Let’s get patriotic and kill someone.” It worked great, the three beer arguments just disappeared. If you weren’t paying attention you ended up on a cremation list for the following week.
With religion, the idea that a religious body can preach death and destruction to infidels runs against the grain of decency of everyone in the United States. Of course Allah’s 60 virgins as a reward, is worth it if you buy the whole package. It just goes to show that you can pimp virgins in the afterlife and have takers grabbing a number and dying to wait in line—maybe dying after a wait in line.
What we are looking at, is a world ready for war. Arguing isn’t going to cut it; people are willing to die to convey their beliefs on the assumption that the other party isn’t that gung-ho. The Funny thing is, both sides have no concept of how it will end.
What we need to examine, is the fact that just about everyone up to now, has been getting what they want out of life without compromising their beliefs. That is beginning to change. The economy has been thrown into a dumpster. And if you think about it, people with money can afford to have morals and scruples; lose your wealth and you’ll find how unaffordable principles and ideals are. Political beliefs and moral concepts do not feed a family. We can see the effects of that in the Middle East right now.
The Misconception: When your beliefs are challenged with facts, you alter your opinions and incorporate the new information into your thinking.If you have ever been in a three hour discussions over several beers, you’ll know what I mean. By the end of the night, both of you are more ensconced in your personal beliefs. I use to enter into these discussions figuring that I could change the way people think, and by the end of the night, nothing had changed, but I hadn’t realized that. I’d figured that I had moved them somewhat. Now I know different. Don’t think for one minute that any argument you have, will ever change another person’s opinions, it will only push them to reaffirm and embrace their deep down beliefs.
The Truth: When your deepest convictions are challenged by contradictory evidence, your beliefs get stronger.
My grandfather told me way back that discussions around politics and religion were a waste of time, you weren’t going to change anyone’s mind and I tend to agree with him now.
For politics, Congress comes to mind. There is no common ground anymore. Discussions seem to be rally around the flag parties. No mater whose talking, there is a flag behind them. Kind of reminds you of the Nazi party, with flags everywhere. Of course their mission statement was “Let’s get patriotic and kill someone.” It worked great, the three beer arguments just disappeared. If you weren’t paying attention you ended up on a cremation list for the following week.
With religion, the idea that a religious body can preach death and destruction to infidels runs against the grain of decency of everyone in the United States. Of course Allah’s 60 virgins as a reward, is worth it if you buy the whole package. It just goes to show that you can pimp virgins in the afterlife and have takers grabbing a number and dying to wait in line—maybe dying after a wait in line.
What we are looking at, is a world ready for war. Arguing isn’t going to cut it; people are willing to die to convey their beliefs on the assumption that the other party isn’t that gung-ho. The Funny thing is, both sides have no concept of how it will end.
What we need to examine, is the fact that just about everyone up to now, has been getting what they want out of life without compromising their beliefs. That is beginning to change. The economy has been thrown into a dumpster. And if you think about it, people with money can afford to have morals and scruples; lose your wealth and you’ll find how unaffordable principles and ideals are. Political beliefs and moral concepts do not feed a family. We can see the effects of that in the Middle East right now.
Thursday, September 22, 2011
The Fall and Rise of Greece
Greece is in the middle of political turmoil. It has to move in 4 different directions at once; cut spending, cut benefits, increase taxes, and borrow from the IMF.
The population as a whole has nowhere to turn with all of the political rhetoric, and posturing. Any faith they have had in their Democratic institutions, is gone. In the coming weeks, look for a military takeover of the country.
This would solve all of their problems. Repudiate the debt, go off the Euro, and eliminate any government obligations to present retirees. They will get Greece back to work. The youth will be employed in the military, and since the debts will be gone, reasonable life can begin anew. It’s a little like Iceland, but in this case, it will revolve around military, not civilian rule. With control of the currency, they would be able to offer some sort of retirement benefits to the old, but don’t look for those sacred government pensions of before. You can be nice to old people, but they are too old to do any real harm without the right to vote. Greece will solve its problems and the outside world will not like it.
The IMF and the Federal Reserve think that they can increase world debt and solve the world’s financial problems. They have tied the hands of the politicians; elected officials will be the scape goats for the public anger.
No European country is paying any real money to fix this mess. A dictator will clear out the smoke and mirrors and offer immediate results. For a Greek to wake up and find out that all of their debts are gone, now that’s a bank holiday! Look for a new Greece; it’s a solution that will work for their country. Meanwhile Tim and Ben (the unofficial heads of the IMF) will be prescribing Epsom salt enemas for the rest of the PIIGS and moving them closer to the fan.
The population as a whole has nowhere to turn with all of the political rhetoric, and posturing. Any faith they have had in their Democratic institutions, is gone. In the coming weeks, look for a military takeover of the country.
This would solve all of their problems. Repudiate the debt, go off the Euro, and eliminate any government obligations to present retirees. They will get Greece back to work. The youth will be employed in the military, and since the debts will be gone, reasonable life can begin anew. It’s a little like Iceland, but in this case, it will revolve around military, not civilian rule. With control of the currency, they would be able to offer some sort of retirement benefits to the old, but don’t look for those sacred government pensions of before. You can be nice to old people, but they are too old to do any real harm without the right to vote. Greece will solve its problems and the outside world will not like it.
The IMF and the Federal Reserve think that they can increase world debt and solve the world’s financial problems. They have tied the hands of the politicians; elected officials will be the scape goats for the public anger.
No European country is paying any real money to fix this mess. A dictator will clear out the smoke and mirrors and offer immediate results. For a Greek to wake up and find out that all of their debts are gone, now that’s a bank holiday! Look for a new Greece; it’s a solution that will work for their country. Meanwhile Tim and Ben (the unofficial heads of the IMF) will be prescribing Epsom salt enemas for the rest of the PIIGS and moving them closer to the fan.
Thursday, September 15, 2011
The DOWnward Slide
The Dow is at 11000 and its value represents the increase in value from way back in 1898, when the DJIA was started. It is a great little indicator; it gives the investor some perspective on where he has been and how far he has come. There is one major problem; the index has lost all perspective. It’s up and down movement don’t display current gains and losses; they reflect the historic gains and losses from when the average started.
A little understood concept, stocks bought and sold on Wall Street have nothing to do with the companies that own them. If an investor buys IBM stock, IBM doesn’t give a damn about the transaction. Upon the investors purchase, the transfer agent (another process) notifies IBM that there has been a transfer of ownership of shares to someone new. IBM makes a note that they have a new owner with an address to pay dividends to and also send proxy voting ballots when necessary. Of course if you buy 10 million shares, that’s a horse of different color.
At the present dividend rates, the Dow 30 Stocks are priced well and support their dividend rates. This is their only link to the real world. Stocks out there that pay no dividend are not linked to anything other than the greater fool theory. The South Sea Company bubble of the 1700’s reminds me of Google today (fabulous riches awaited the “well informed” investor).
Where is the money made on Wall Street? It’s in commissions for buying and selling. So a high volume day is one that generates lots of earnings (there is a buy and sell commission for every trade). The question everyone asks on Wall Street is; “How do you make a million dollars in the market?” The answer still is, “Start with two million dollars.”
What will happen to our market in the future? Probably it will be similar to what happened to Japan; their market went from a high of 39,000 in December of 1989 to 8,500 today. It took twenty years, to get there.
When times are tough, there comes the need to raise money for survival. The natural instinct with financial investments is to sell the good stuff and keep the dogs—in the hope they will come back. Of course when things get real bad, everything gets doggy. All of our retirement fund managers are doing just that, holding on to the dogs. It’s the only way for a manager to preserve his job. Sell and you will have nothing left to manage. Investors will move to "better performing funds."
Have you ever noticed that people run out of money very suddenly and become bankrupt (Bernie Madoff comes to mind)? In reality, it is a very slow process that reaches a point to where the individual gives up—that’s the sudden part of it. They really made no mistakes, it’s just that the financial rules changed over time and they didn’t adjust accordingly. They expected the old rules to hold firm.
How will this all end? The stock market is just like the real estate market. With one minor difference, when your neighbor sells his stock, it determines the present value of yours. There is no jingle mail with stocks. Watch for a big drop in stocks not supported by a dividend or ones that cut their dividend.
Of course the downward slide of your stock equity in non dividend stocks will be invisible. The Dow 30 will be untouched. Everyone is investing in exotic trades with more zing (index funds come to mind).
Bernanke and Geithner claim the damage from the PIIGS has been contained while the Treasury is paying zero interest in spite of the 8% inflation rate. This financial Ponzi scheme is worse than the housing crisis back in 2006. It's a little like using a hooker as a last chance sperm donor; it kind of works for all the wrong reasons.
The stock and bond markets are the last game in town, gather 'round and faites vos jeux.
A little understood concept, stocks bought and sold on Wall Street have nothing to do with the companies that own them. If an investor buys IBM stock, IBM doesn’t give a damn about the transaction. Upon the investors purchase, the transfer agent (another process) notifies IBM that there has been a transfer of ownership of shares to someone new. IBM makes a note that they have a new owner with an address to pay dividends to and also send proxy voting ballots when necessary. Of course if you buy 10 million shares, that’s a horse of different color.
At the present dividend rates, the Dow 30 Stocks are priced well and support their dividend rates. This is their only link to the real world. Stocks out there that pay no dividend are not linked to anything other than the greater fool theory. The South Sea Company bubble of the 1700’s reminds me of Google today (fabulous riches awaited the “well informed” investor).
Where is the money made on Wall Street? It’s in commissions for buying and selling. So a high volume day is one that generates lots of earnings (there is a buy and sell commission for every trade). The question everyone asks on Wall Street is; “How do you make a million dollars in the market?” The answer still is, “Start with two million dollars.”
What will happen to our market in the future? Probably it will be similar to what happened to Japan; their market went from a high of 39,000 in December of 1989 to 8,500 today. It took twenty years, to get there.
When times are tough, there comes the need to raise money for survival. The natural instinct with financial investments is to sell the good stuff and keep the dogs—in the hope they will come back. Of course when things get real bad, everything gets doggy. All of our retirement fund managers are doing just that, holding on to the dogs. It’s the only way for a manager to preserve his job. Sell and you will have nothing left to manage. Investors will move to "better performing funds."
Have you ever noticed that people run out of money very suddenly and become bankrupt (Bernie Madoff comes to mind)? In reality, it is a very slow process that reaches a point to where the individual gives up—that’s the sudden part of it. They really made no mistakes, it’s just that the financial rules changed over time and they didn’t adjust accordingly. They expected the old rules to hold firm.
How will this all end? The stock market is just like the real estate market. With one minor difference, when your neighbor sells his stock, it determines the present value of yours. There is no jingle mail with stocks. Watch for a big drop in stocks not supported by a dividend or ones that cut their dividend.
Of course the downward slide of your stock equity in non dividend stocks will be invisible. The Dow 30 will be untouched. Everyone is investing in exotic trades with more zing (index funds come to mind).
Bernanke and Geithner claim the damage from the PIIGS has been contained while the Treasury is paying zero interest in spite of the 8% inflation rate. This financial Ponzi scheme is worse than the housing crisis back in 2006. It's a little like using a hooker as a last chance sperm donor; it kind of works for all the wrong reasons.
The stock and bond markets are the last game in town, gather 'round and faites vos jeux.
Tuesday, September 06, 2011
Things Are Getting Better?
The NY Times ran the following in Monday's paper
On Thursday President Obama will address us on jobs. I’m not sure what he will say. The Postal Service is an American institution, and needs our support like it or not. Government sponsored entities like Fannie and Freddie need to be cut off at the knees. Choices have to be made. And remember, an awful lot of people in California, haven’t made a house payment in two years. It must be nice to be so poor, to be that rich; "Let’s go to the Bahamas this year,Fannie Mae is paying."
US Postal Service Nearing Default as Losses Mount
The United States Postal Service has long lived on the financial edge, but it has never been as close to the precipice as it is today: the agency is so low on cash that it will not be able to make a $5.5 billion payment due this month and may have to shut down entirely this winter unless Congress takes emergency action to stabilize its finances.The idea of laying off 120,000 workers, closing 3,700 locations and eliminate Saturday delivery kind of makes you wonder. If there is a light at the end of the tunnel, what is it, another train? Congress is expected to fix it? I doubt it! This is the first time, in my lifetime, I can remember reading about something so dismal being suggested as a solution. The Post Office’s problems are directly related to the success of the Internet; email vs snail mail.
“Our situation is extremely serious,” the postmaster general, Patrick R. Donahoe, said in an interview. “If Congress doesn’t act, we will default.”
In recent weeks, Mr. Donahoe has been pushing a series of painful cost-cutting measures to erase the agency’s deficit, which will reach $9.2 billion this fiscal year. They include eliminating Saturday mail delivery, closing up to 3,700 postal locations and laying off 120,000 workers — nearly one-fifth of the agency’s work force — despite a no-layoffs clause in the unions’ contracts.
On Thursday President Obama will address us on jobs. I’m not sure what he will say. The Postal Service is an American institution, and needs our support like it or not. Government sponsored entities like Fannie and Freddie need to be cut off at the knees. Choices have to be made. And remember, an awful lot of people in California, haven’t made a house payment in two years. It must be nice to be so poor, to be that rich; "Let’s go to the Bahamas this year,Fannie Mae is paying."
Sunday, August 28, 2011
The Financial Storm Brewing
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.
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 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.
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