I would say I am surprised at how the tea party has exploded in popularity with the public, until I remember what the Federal government did to cause it. Naturally, many patriots finally had enough and revolted.
I voted for Dwight Eisenhower in 1956, and have never looked back, until now. The national GOP, in my humble opinion, is no longer the representative of the conservative common man which it had always tried to be, and still pretends it is. I am a dues paying member of the Morgan GOP, but blind allegiance and financial contribution to any national party because you think they are pursuing your ideals alone is what got us here. On the other hand, the Democrat Party is certainly not representing any tax-paying citizen either. Wake up America!
Dwight Eisenhower, a military genius, warned us in his departing speech as President, to beware of the military/industrial complex, who, perhaps with all good intentions, would become so powerful in the name of national defense; that they would in effect, control the country’s economy and direction. Whatever you believe in terms of government’s role among its citizens; rest assured there is a counterpart in the other party who believes you are nothing but a complete radical, and is willing to invest and work to stop you. This is what drives the funding of both parties and keeps them both alive and strong. Both of them send the same message, and both succeed with it. Send me money, because the other guy is the bogeyman!
Both parties now belong to the money, and the grassroots needs to face it. Washington is run by lobbyists, who are paid by people wanting special legislation for their own selfish interests. Many fired elected representatives simply graduate to lobbying, probably at higher pay. And I am talking about both parties. Yet, I predict the tea party will never be able to acquire control of the Republican Party, and they certainly won’t gain control of the Democrat party. I also predict that no third political party will ever supplant either of the other two, whose main objective is to see who will get to control and spend the money. The third party always costs one side or the other an election, but never wins one itself. What then can the tea party do to help?
Today 40% of every dollar the Congress appropriates is borrowed money. Now Ben Bernanke says he is going to print even more artificial dough; by buying back the same debt the Treasury has already issued, from the banks who bought it from them in the first place, with more counterfeit fiat money. This is inflation personified! The US dollar continues to sink to a new low in the index basket comparing it to other major currencies --- 77 cents against the average basket of international currencies.
I watched Republican minority leader John Boehner earlier this year on television in Pennsylvania, where he said: “We need to tell the nation we are broke, and tell them Social Security retirement age needs to go up to age 70, and further it needs to be means tested. This means if you have worked your tail off to accumulate any assets of your own, you will be denied SS. This is from the man who wants to be the next Speaker of the House. One of the possible solutions, I would offer for the SS problem, is not to raise the retirement age, but to remove the SS tax cap on all income above the present $106,000 annual limit. Most Americans pay SS tax on every dollar they make. But the man, or woman who makes $1 million per year, pays SS tax on only 10% of his income. If you agree, please let all three of your elected Federal representatives know how you feel!
I watched Senator Corker (R-Tennessee), whom I personally like, tell CNBC last Friday morning that everything was on the table, including means testing for SS, which means if you make too much in retirement, you will not ever get it Yes, I can live without it, but I paid for it for 51 years, and I feel I am due it.
Don’t think they will never do means testing. Already Medicare premiums are means tested. I have never made over $250,000 annually in my life. But I was told two years ago my Medicare premiums were going up because my retirement income was too high, and they did go up. But the national GOP wants to tell us a tax increase for those making over $250,000 in annual income will penalize nearly every small business in America. How many small businesses do you know who really “net” over $250,000 a year? I ran a small business for 40 years, and I never did. But I can tell you there are thousands of Wall Street financiers who do. And they are saying to both parties, “If you take my money, you darn sure better not raise my taxes, and I have plenty of money to give.” The Wall Street cats play the middle income class against the poor among us, and laugh all the way to the bank.
You may not know the average 2009 income of the top 25 hedge fund managers, who are largely responsible for the mortgage debacle which caused our recent economic collapse, was over $1 billion each. Why are they partially responsible? Because when Greenspan kept rates at one per cent for eighteen months after 9/11, they said to the money market, “This one per cent is killing us. Figure out how to get us ten per cent return, and we will buy as much as you can provide.” Some unscrupulous mortgage brokers, with Barney Frank’s encouragement, figured how to do it. Make ten per cent mortgages to people who can’t pay, and don’t care; but they will sign anything if you tell them they are getting a house with no money down. These fund managers each made one billion with a “B.” The poor beggars only averaged $464 million each in 2008, a really bad year because of the crash. Before the crash in 2007, they averaged $900 million each. So they, alone in America, are better off already than they were before the crash. Yet, their income tax rate on all this earned income is 15% capital gains, because of a huge tax loophole called “carried interests.” The national GOP will not even consider talking about changing it, even entirely apart from the Bush tax cuts, which are a separate issue.
Two years ago, Goldman-Sachs was on the verge of being broke, and they borrowed $5 billion at 10% interest from Warren Buffett, America’s second richest man, to gain capital. Now the government has bailed out all the Wall Street cats. And Goldman is now sitting on $390 billion in net liquid cash, and wants to pay Buffett back early, even with a penalty. They already paid back TARP, because they wanted out from under any government scrutiny on their payroll bonuses.
Meanwhile, the government is bragging now about how the TARP program is actually returning $25 billion profit to the government. Good, but they say nothing about the estimated 154 Billion dollar bail-out cost of AIG Insurance. Nor did they mention Fanny and Freddy at a bail-out cost of from possibly 221 Billion to 363 Billion
This bailout is what allowed AIG to pay off all the billions of dollars of insurance Goldman had bought from them on this crappy mortgage mess, by purchasing credit default swaps from AIG. Without the insurance being paid them, Goldman was in danger of collapse. But now, thanks to you and me, and the money we borrowed to rescue AIG; Goldman is in great shape, and has no supervision over how many billion dollar bonuses they pay.
What then, do I see as the answer? The tea party can make a real difference! It needs to continue to grow, and to organize and focus itself nationally, so that it will have real clout. It should not spend all its efforts on individual races. Then it needs to have a national convention, not for naming candidates; its sole purpose to prepare a slate of demands for the 2012 Federal election platform planks. It needs to divest itself of its Republican bias, and present to both major parties the opportunity to endorse its platforms and objectives, with the pledge that whichever party embraces the most points from the tea party platform, will be assured the support of the tea party across the board. Let’s hope at least one of the parties would recognize the threat and awaken to reality. There are more us of than there are of them, and to quote---we are mad as hell, and we are not going to take it anymore.
One more thing about the FAIR TAX and I am through. I truly believe the ultra rich are actually providing the money to support this movement because of the enormous benefits it will mean to them. Please stop and think about it. It makes no difference to the ultra rich whether the FAIR TAX is 23%, 29%, or 35%. They will save either way because it is only charged on what you spend. The average American will pay that rate on nearly every dollar he makes, allowing that he may be lucky enough to save 10% of his income. Do you think the average billionaire, making $1 billion per year, is actually going to spend anywhere near that much on consumer purchases, even including his multi-million dollar mansion? But he will be taxed only on what he spends, not his investments.
Steve Forbes had it nearly right. We need instead a flat tax, with no deductions, including church or home interest, so that everyone, including the richest and the poorest, does pay their fair share. And if the poorest, who are nearly totally subsidized by the government, knew they had to pay a fair share, there would be less demand for government services, and fewer votes could be bought by political parties with a promise to pay. I highly suspect if every one paid just 15% flat tax, we could fund a decent Federal budget, as opposed to a FAIR TAX of between 23 and 35 per cent on consumer purchases only.
We can not win by helping one party. Only by playing the two major parties against each other for election, will those of us who call ourselves patriots have any chance to really make a difference.
Thursday, October 28, 2010
Wednesday, July 7, 2010
WHAT NOW?
There is an old stock market mantra, “Sell in May and go away.” It could not be more true this year. In the last 2 months, the Dow is down more than ten per cent, or $1,200. Volatility is increasing, up or down over $200 in a given day. The stock market is saying, look out below. If it goes as low as $9,600; look out below ‘til we reach $9,000 and possibly $8,700.
These are the reasons why. One, the recent recovery was paid for with borrowed stimulus money, over $2 trillion in government spending. Now the money is running out.
Two, despite everything Washington has tried to do, about ten per cent of normal workers are trying to get by without a paycheck. And our conservative Republican friends, who let Wall Street out of the corral without a whimper, causing a housing debacle; are reluctant to extend any unemployment benefits, saying we cannot afford it. What can we afford? And John Boehner, House Minority leader, says retirement age should go up to seventy, and means testing should prohibit Social Security checks to those who have been wise enough to set aside their own capital.
Three, while we were once the world’s largest producer, we are now the world’s largest consumer. And now we are failing in that, too. Our economy is now seventy per cent consumer spending, and they are becoming scared again and cutting back purchases.
Four, the housing debacle, first home values fall since the great depression, was helped somewhat by the promised $8,000 government check for buying. Now its over, and sales are down and foreclosures are going up.
Five, many states are drowning in fiscal deficits, and unlike the US government, they can’t print money. The fifty state cumulative deficit is about $127 billion. New York, California and a few others are about to sink. Not to mention the underfunding of their defined benefit guaranteed employee pension plans.
Six, the sovereign debt crisis of individual nations; beginning in Europe with Greece, is just a harbinger of what will happen when it finally reaches us. The dollar will lose its status as the world reserve currency, eventually to be replaced with the Chinese yuan. China has the world’s largest natural gold reserves, and yet has just made a deal to buy most of an American company’s gold production.
The only way I see the US is going to be able to repay our debts is devalue the dollar and repay with cheaper dollars. This means eventually, inflation is going to raise its ugly head with a vengeance.
What can you do to fight it? While it won’t help the economy, try to set aside some savings. Consider a purchase of gold or silver. If you have any long term loans, consider refinancing them now while interest rates are at a pretty good low. Send John Boehner a first class letter telling him what you think about his Social Security proposal. And be careful for whom you vote in July and November.
There is an old stock market mantra, “Sell in May and go away.” It could not be more true this year. In the last 2 months, the Dow is down more than ten per cent, or $1,200. Volatility is increasing, up or down over $200 in a given day. The stock market is saying, look out below. If it goes as low as $9,600; look out below ‘til we reach $9,000 and possibly $8,700.
These are the reasons why. One, the recent recovery was paid for with borrowed stimulus money, over $2 trillion in government spending. Now the money is running out.
Two, despite everything Washington has tried to do, about ten per cent of normal workers are trying to get by without a paycheck. And our conservative Republican friends, who let Wall Street out of the corral without a whimper, causing a housing debacle; are reluctant to extend any unemployment benefits, saying we cannot afford it. What can we afford? And John Boehner, House Minority leader, says retirement age should go up to seventy, and means testing should prohibit Social Security checks to those who have been wise enough to set aside their own capital.
Three, while we were once the world’s largest producer, we are now the world’s largest consumer. And now we are failing in that, too. Our economy is now seventy per cent consumer spending, and they are becoming scared again and cutting back purchases.
Four, the housing debacle, first home values fall since the great depression, was helped somewhat by the promised $8,000 government check for buying. Now its over, and sales are down and foreclosures are going up.
Five, many states are drowning in fiscal deficits, and unlike the US government, they can’t print money. The fifty state cumulative deficit is about $127 billion. New York, California and a few others are about to sink. Not to mention the underfunding of their defined benefit guaranteed employee pension plans.
Six, the sovereign debt crisis of individual nations; beginning in Europe with Greece, is just a harbinger of what will happen when it finally reaches us. The dollar will lose its status as the world reserve currency, eventually to be replaced with the Chinese yuan. China has the world’s largest natural gold reserves, and yet has just made a deal to buy most of an American company’s gold production.
The only way I see the US is going to be able to repay our debts is devalue the dollar and repay with cheaper dollars. This means eventually, inflation is going to raise its ugly head with a vengeance.
What can you do to fight it? While it won’t help the economy, try to set aside some savings. Consider a purchase of gold or silver. If you have any long term loans, consider refinancing them now while interest rates are at a pretty good low. Send John Boehner a first class letter telling him what you think about his Social Security proposal. And be careful for whom you vote in July and November.
Monday, September 21, 2009
DOLLAR VALUE
The recent TEA (Taxed enough already) parties around the nation culminating with one in Washington, DC showed that most Americans are sick of the way the Federal government is continuing to take more and more of our hard earned income to pay for government expenditures (or at least use it for down payments on more financed borrowing). Unfortunately, what most Americans don’t realize is that we are mad about only the part of the iceberg above water, while 90% more lurks underneath the deep.
Fed Chairman Ben Bernanke advises us that we have probably seen the worst of the “recession”, and that things are looking up. From a purely “nominal” point of view, he is probably right. We may see GDP growth in this quarter and the next. Unemployment may be close to peaking, with gradual improvement into the distant future. But at what cost?
Governments can play with money supply, and they can play with interest rates. This is the method just recently used to prevent the US sky from falling in, with repercussions heard around the world. They can even play with the values of previous metals, by selling from their own stock, or even leasing their own stock to others. But they cannot really totally control the value of precious metals as compared to the value of paper money.
Incidentally, you should know that the US, richest nation in the world after World War II, held 20,000 metric tons of gold, and it was the backing for our paper money. Because we agreed in 1944, at an international conference in Bretton Woods, New Hampshire; to redeem dollars for gold to anybody in the world, the world considered the US dollar king of the hill. By the time LBJ decided to win the war in Viet Nam, while he won the battle against domestic poverty at the same time; the world decided they would rather hold gold than US dollars. They required us to give them 12,000 metric tons of our gold, leaving us only 8,000 metric tons. And history records LBJ lost both wars. Finally, Richard Nixon had to tell the world we could no longer redeem dollars with gold, lest we give away all we held, and we went off the gold standard.
Now our dollar is worth only what the rest of the world believes it is worth. Because Nixon made a deal with Saudi Arabia to require all oil sales to be paid for in US dollars, for 30 years, the dollar held up pretty well from the outside view, as compared to other world currencies. But when Nixon refused to redeem dollars, he also began to allow private ownership of gold, which FDR had confiscated during the depression, and private ownership led to real market prices.
Since the depths of the depression in 1932, the dollar has lost 98% of its purchasing power. Put another way, two pennies in the depression would buy the equivalent of what one dollar buys today. You laugh at your grandpa for making $2,000 per year, but if you are not making over $100,000 per year, he was better off than you are! At the same time, gold soared in value by 4,300 per cent. Put another way, $100,000 cash in 1932 is really worth $2,000 today. $100,000 gold in 1932 is now worth well over $4.3 million in paper dollars.
The dollar index compares the dollar to a basket of other world currencies. The US dollar is now at 76 cents, just 5 points away from its all time low, and headed lower. The Fed is now buying US bonds, which is the equivalent of you loaning yourself money. How long can it last? This is why I still call for a march on Washington for July 4, 2010.We absolutely must save our Republic.
Fed Chairman Ben Bernanke advises us that we have probably seen the worst of the “recession”, and that things are looking up. From a purely “nominal” point of view, he is probably right. We may see GDP growth in this quarter and the next. Unemployment may be close to peaking, with gradual improvement into the distant future. But at what cost?
Governments can play with money supply, and they can play with interest rates. This is the method just recently used to prevent the US sky from falling in, with repercussions heard around the world. They can even play with the values of previous metals, by selling from their own stock, or even leasing their own stock to others. But they cannot really totally control the value of precious metals as compared to the value of paper money.
Incidentally, you should know that the US, richest nation in the world after World War II, held 20,000 metric tons of gold, and it was the backing for our paper money. Because we agreed in 1944, at an international conference in Bretton Woods, New Hampshire; to redeem dollars for gold to anybody in the world, the world considered the US dollar king of the hill. By the time LBJ decided to win the war in Viet Nam, while he won the battle against domestic poverty at the same time; the world decided they would rather hold gold than US dollars. They required us to give them 12,000 metric tons of our gold, leaving us only 8,000 metric tons. And history records LBJ lost both wars. Finally, Richard Nixon had to tell the world we could no longer redeem dollars with gold, lest we give away all we held, and we went off the gold standard.
Now our dollar is worth only what the rest of the world believes it is worth. Because Nixon made a deal with Saudi Arabia to require all oil sales to be paid for in US dollars, for 30 years, the dollar held up pretty well from the outside view, as compared to other world currencies. But when Nixon refused to redeem dollars, he also began to allow private ownership of gold, which FDR had confiscated during the depression, and private ownership led to real market prices.
Since the depths of the depression in 1932, the dollar has lost 98% of its purchasing power. Put another way, two pennies in the depression would buy the equivalent of what one dollar buys today. You laugh at your grandpa for making $2,000 per year, but if you are not making over $100,000 per year, he was better off than you are! At the same time, gold soared in value by 4,300 per cent. Put another way, $100,000 cash in 1932 is really worth $2,000 today. $100,000 gold in 1932 is now worth well over $4.3 million in paper dollars.
The dollar index compares the dollar to a basket of other world currencies. The US dollar is now at 76 cents, just 5 points away from its all time low, and headed lower. The Fed is now buying US bonds, which is the equivalent of you loaning yourself money. How long can it last? This is why I still call for a march on Washington for July 4, 2010.We absolutely must save our Republic.
Thursday, March 5, 2009
I WISH PRESIDENT OBAMA WELL
I wish President Obama well, I really do. And I think he won the presidency with good intentions to change Washington for the benefit of most average Americans. But it seems he has already begun to come under the influence of special interests, which would protect their own turf at the expense of the general populace.
On May 15, 2008, when gasoline was heading toward $4 plus per gallon, I wrote that we had enough oil shale reserve in the Rocky Mountain States to provide our domestic gasoline needs for 110 years, over 2.5 trillion potential gallons. The problem is designing an efficient way to separate the oil from the rock. Royal Dutch Shell Oil led the way, and has made tremendous strides toward solving this problem. But with the national gas price now averaging under $2 per gallon, new Energy Secretary Ken Salazar has just reversed plans to lease oil shale land in Colorado, Utah and Wyoming. The nation loses, and the environmental groups, who oppose any oil shale development, win. I see this as a major mistake.
On another vein, we face a frozen banking system, which I acknowledge was allowed to develop by the Bush administration. Interest rates, which were kept too low for too long, brought into being complex mortgage backed securities to satisfy the demand of greedy investors for higher returns. When greedy investment bankers figured how to package bad mortgages into securities rated AAA investment grade; greedy mortgage brokers figured ways to approve unconscionable loans, and the die was cast for a disaster. And it does not help our national reputation that these products were sold to investors all over the world. This is one reason the remaining world is in worse financial shape than we are. But, our banking system is still frozen, and the federal government has already invested over $200 billion of taxpayer money into the largest banks in America, with no appreciable results. Furthermore, all the dying investment banks suddenly became commercial bank holding companies, so they could line up at the same trough.
Now, the Obama administration has announced a new “stress test” for the 19 largest bank holding companies, which hold assets of $100 billion or more each. There are two criteria used for the test. One assumes the economy will continue at its lackluster pace through 2010, and the second presumes things will worsen, with housing values falling another 29%, while unemployment rises to over 10%. This second scenario is probably a good idea. After the stress tests, Treasury Secretary Timothy Geithner will advise these banks how much new capital is required, and give them six months to raise it privately. If they can’t raise it, more of our tax money will go into buying 9% interest bearing preferred stock, which can be converted into common stock. The funds would come from the second half of the original $700 billion TARP plan. Every effort is being made to call this something other than nationalization.
I stated in a September column that our TARP money should be invested only in saving our commercial banks, which hold our hard earned money, rather than investment banks and insurance companies. The government has tried to do both.
It is imperative we learn from the mistakes of Japan in the 1990’s. They allowed their banks to carry bad real estate paper on the books as good assets for over ten years, before they finally wrote off about 96 trillion yen, or the equivalent of nearly 20% of their gross annual domestic output. During that delay, their stock index fell about 75%, and real estate prices declined for 15 straight years. We don’t want such results.
When the tests are completed, and the nation’s capital is invested, these bad investments must be written off the books. Only then, can we start building toward recovery.
On May 15, 2008, when gasoline was heading toward $4 plus per gallon, I wrote that we had enough oil shale reserve in the Rocky Mountain States to provide our domestic gasoline needs for 110 years, over 2.5 trillion potential gallons. The problem is designing an efficient way to separate the oil from the rock. Royal Dutch Shell Oil led the way, and has made tremendous strides toward solving this problem. But with the national gas price now averaging under $2 per gallon, new Energy Secretary Ken Salazar has just reversed plans to lease oil shale land in Colorado, Utah and Wyoming. The nation loses, and the environmental groups, who oppose any oil shale development, win. I see this as a major mistake.
On another vein, we face a frozen banking system, which I acknowledge was allowed to develop by the Bush administration. Interest rates, which were kept too low for too long, brought into being complex mortgage backed securities to satisfy the demand of greedy investors for higher returns. When greedy investment bankers figured how to package bad mortgages into securities rated AAA investment grade; greedy mortgage brokers figured ways to approve unconscionable loans, and the die was cast for a disaster. And it does not help our national reputation that these products were sold to investors all over the world. This is one reason the remaining world is in worse financial shape than we are. But, our banking system is still frozen, and the federal government has already invested over $200 billion of taxpayer money into the largest banks in America, with no appreciable results. Furthermore, all the dying investment banks suddenly became commercial bank holding companies, so they could line up at the same trough.
Now, the Obama administration has announced a new “stress test” for the 19 largest bank holding companies, which hold assets of $100 billion or more each. There are two criteria used for the test. One assumes the economy will continue at its lackluster pace through 2010, and the second presumes things will worsen, with housing values falling another 29%, while unemployment rises to over 10%. This second scenario is probably a good idea. After the stress tests, Treasury Secretary Timothy Geithner will advise these banks how much new capital is required, and give them six months to raise it privately. If they can’t raise it, more of our tax money will go into buying 9% interest bearing preferred stock, which can be converted into common stock. The funds would come from the second half of the original $700 billion TARP plan. Every effort is being made to call this something other than nationalization.
I stated in a September column that our TARP money should be invested only in saving our commercial banks, which hold our hard earned money, rather than investment banks and insurance companies. The government has tried to do both.
It is imperative we learn from the mistakes of Japan in the 1990’s. They allowed their banks to carry bad real estate paper on the books as good assets for over ten years, before they finally wrote off about 96 trillion yen, or the equivalent of nearly 20% of their gross annual domestic output. During that delay, their stock index fell about 75%, and real estate prices declined for 15 straight years. We don’t want such results.
When the tests are completed, and the nation’s capital is invested, these bad investments must be written off the books. Only then, can we start building toward recovery.
Monday, February 23, 2009
SOLVE THE HOUSING CRISIS
The Warren Plan
On October 9, 2008, I offered my suggestion to assuage the tremendous housing deflation problem which our nation faces, the real epicenter of the extended economic recession (?) which continues to grow daily. According to the National Association of Realtors, the median home price nationwide in February was down 12 per cent from one year ago. But declines of more than 30 per cent were found in California, Michigan, Arizona and Nevada. The biggest drop, more than 50 per cent, was in Ft. Myers, Florida. We can argue among ourselves as to whether tax dollars should be used to help some who made extremely unwise financial decisions, but meanwhile the house burns down around us.
My solution was for the government to actually use tax dollars to reduce troubled loan principal up to 20 per cent, provided the lender in control would voluntarily cut the interest rate, make it a fixed rate, and extend the term of the loan, to bring the monthly payment down to around 31% of monthly income. In the past, this front end ratio was always used for loan approval; but was combined with a back end ratio of 38 per cent, when all other monthly household credit obligations were included.
Unlike the Obama plan, the government would be secured in most instances under my plan. The distressed homeowner would have to give the government a second note and security deed for the amount of aid tendered, payable no later than ten years, or upon sale, if earlier, with 3 per cent simple interest to accrue. According to economists, the national inflation rate from 1970 to 2000 was about 5 per cent per year. Thus, in ten years, with the recession stopped, we should expect a 50 per cent increase in home values from today. If, in the unlikely event the home value had not increased enough to pay the entire government debt upon sale, the excess balance would be forgiven. If my math is correct, $700 billion, which made up the original TARP, would have funded up to $83,400 principal reduction each (20% of the $417,000 Fannie Mae nationwide maximum loan limit) to as many as 8,400,000 homeowners. I don’t think that many are in trouble, and further, most don’t need that much relief. According to the Washington Post, less than 3 million mortgages are now past due. If we relieved only 3 million homeowners, the original TARP would have funded up to $233,000 principal reduction each.
Instead, the Obama plan calls for the lender to eat the principal cost of getting the front end mortgage ratio alone down to 38 per cent of monthly income, and the government will eat the principal cost to bring the front end mortgage ratio alone down further to 31 per cent of monthly income. (Think of all the accounting jobs we will create.) All other household debt, the back end ratio, will not be affected. (Expect another plan later to handle that.) The loan servicers will get a flat $1,000 bonus for every loan which they renegotiate, and another $1,000 per year for three years if the borrower remains current. The lender gets a $1500 bonus, and the servicer gets another $500 bonus, if they renegotiate prior to a delinquency. In addition, the borrower gets a $1,000 annual bonus for 5 years if he makes his payments, and does not walk away.
Finally, the Obama government is injecting another $400 billion into Fannie Mae and Freddie Mac, the former government-sponsored mortgage buying enterprises which are now government owned mortgage buying enterprises. This new $400 billion would fund another 1,716,000 homeowners with $233,000 up front principal reduction. But, regretfully, my solution would not substantially grow the bureaucracy, nor would it pay the greedy lenders who initiated the problem, so it is out of the question. Furthermore, it is just much too simple to come out of the federal government.
Soon, I will be circulating a petition to elect me lifetime benevolent dictator of our nation. If you are willing to sign, please let me know.
On October 9, 2008, I offered my suggestion to assuage the tremendous housing deflation problem which our nation faces, the real epicenter of the extended economic recession (?) which continues to grow daily. According to the National Association of Realtors, the median home price nationwide in February was down 12 per cent from one year ago. But declines of more than 30 per cent were found in California, Michigan, Arizona and Nevada. The biggest drop, more than 50 per cent, was in Ft. Myers, Florida. We can argue among ourselves as to whether tax dollars should be used to help some who made extremely unwise financial decisions, but meanwhile the house burns down around us.
My solution was for the government to actually use tax dollars to reduce troubled loan principal up to 20 per cent, provided the lender in control would voluntarily cut the interest rate, make it a fixed rate, and extend the term of the loan, to bring the monthly payment down to around 31% of monthly income. In the past, this front end ratio was always used for loan approval; but was combined with a back end ratio of 38 per cent, when all other monthly household credit obligations were included.
Unlike the Obama plan, the government would be secured in most instances under my plan. The distressed homeowner would have to give the government a second note and security deed for the amount of aid tendered, payable no later than ten years, or upon sale, if earlier, with 3 per cent simple interest to accrue. According to economists, the national inflation rate from 1970 to 2000 was about 5 per cent per year. Thus, in ten years, with the recession stopped, we should expect a 50 per cent increase in home values from today. If, in the unlikely event the home value had not increased enough to pay the entire government debt upon sale, the excess balance would be forgiven. If my math is correct, $700 billion, which made up the original TARP, would have funded up to $83,400 principal reduction each (20% of the $417,000 Fannie Mae nationwide maximum loan limit) to as many as 8,400,000 homeowners. I don’t think that many are in trouble, and further, most don’t need that much relief. According to the Washington Post, less than 3 million mortgages are now past due. If we relieved only 3 million homeowners, the original TARP would have funded up to $233,000 principal reduction each.
Instead, the Obama plan calls for the lender to eat the principal cost of getting the front end mortgage ratio alone down to 38 per cent of monthly income, and the government will eat the principal cost to bring the front end mortgage ratio alone down further to 31 per cent of monthly income. (Think of all the accounting jobs we will create.) All other household debt, the back end ratio, will not be affected. (Expect another plan later to handle that.) The loan servicers will get a flat $1,000 bonus for every loan which they renegotiate, and another $1,000 per year for three years if the borrower remains current. The lender gets a $1500 bonus, and the servicer gets another $500 bonus, if they renegotiate prior to a delinquency. In addition, the borrower gets a $1,000 annual bonus for 5 years if he makes his payments, and does not walk away.
Finally, the Obama government is injecting another $400 billion into Fannie Mae and Freddie Mac, the former government-sponsored mortgage buying enterprises which are now government owned mortgage buying enterprises. This new $400 billion would fund another 1,716,000 homeowners with $233,000 up front principal reduction. But, regretfully, my solution would not substantially grow the bureaucracy, nor would it pay the greedy lenders who initiated the problem, so it is out of the question. Furthermore, it is just much too simple to come out of the federal government.
Soon, I will be circulating a petition to elect me lifetime benevolent dictator of our nation. If you are willing to sign, please let me know.
Wednesday, December 17, 2008
$8 TRILLION DEBT?
Last week I reminded you of my prediction this recession was starting last December, largely because the consumer, who was 71% of our gross domestic product, was tapped out. His credit card limit was maxxed, and his home equity line of credit was maxxed. I am still pulling for Ben Bernanke, but I have given up on Hank Paulson. He sold Congress a $700 billion bailout fund to buy troubled mortgage assets, and used half the money to bailout Wall Street and the banks, recently saying he was through—leave it to Obama. None of the money has gone to buying mortgages. And FDIC Chairwoman Sheila Bair has been begging for authority to do so. Meanwhile, it is rumored that Obama’s pick for Treasury, Timothy Geithner, wants to get rid of her, because she is not a “team player.”
In addition, Christopher Cox at the SEC has not restored the naked short selling rule or the “uptick” rule to Wall St.; and there is no more discussion of all the reasons why banks and investment houses should not be one and the same. I guess there is no need now, because all the former investment houses are now banks, or bank holding companies. This could not have happened except as a result of Congress under Clinton repealing the Glass-Steagall Act, which had been around since the depression. The investment houses, combined with Greenspan’s low 1% interest rate for 18 months following nine-eleven, were the origin of this whole debacle. Now, the investment houses are becoming our banks, and they want all our demand deposits, on which they usually don’t pay interest.
We raised the US debt limit from $10 trillion to $11.3 trillion to accommodate the bailout. But, since then, the government has loaned, invested or committed to over $7 trillion more, bringing the total to another $8 trillion just this year. That amount equals over half of our annual domestic production. If all that is expended, the total debt is going to be four times what it was just in 2000. According to The Bullion Buzz, a combination of spending on the New Deal, the Marshall Plan, Korea, Viet Nam, Iraq, NASA, the race to the moon, the S& L bailout, and even throwing in the Louisiana Purchase don’t total half of $8 trillion. Remember, a trillion is a million times a million. And the Detroit three auto manufacturers are still begging. As my old granddaddy used to say, “You can’t drink yourself sober, and you can’t spend yourself rich.”
Yet, surprisingly, our dollar has had a recent rally against all other currencies. Why? Because all the rest of the world were growing economies based on sales to the US for practically everything we need. Now, their economies are tanking because our purchases are way down, and they don’t have enough internal demand for their production. Thus, their currencies are experiencing depreciation. You might say they are at least temporarily in worse shape than we are. Still, Japan and China are lending us the money to stay in business. When they have to use their money to bolster their own internal economy, their purchases of our debt are going to suffer. When that finally happens, our dollar value will suffer, and gold and silver will rise in value. Inflation will be rampant.
According to the US Government General Accounting Office (the Comptroller) the TARP plan administrators have failed to figure out how to make sure financial firms receiving billions of dollars of Federal funds are complying with limits on executive compensation and dividend payments. Does that surprise you? Incidentally, did I ever mention that Section 202 of the bailout bill, as passed, raises the “biodiesel” tax credit from fifty cents to $1 per gallon and amends it to “liquid fuel”? This is the income tax credit given producers for mixing bio and petroleum fuels, which they are then free to sell abroad to other countries. The same credit which raised the price of corn sky high. What has that got to do with troubled mortgages? It just represents the enormous pork packed into this bill.
President Obama was elected by promising to bring us change. Let’s hope it is change for the better. So far it looks like more of the same Washington merry-go-round.
In addition, Christopher Cox at the SEC has not restored the naked short selling rule or the “uptick” rule to Wall St.; and there is no more discussion of all the reasons why banks and investment houses should not be one and the same. I guess there is no need now, because all the former investment houses are now banks, or bank holding companies. This could not have happened except as a result of Congress under Clinton repealing the Glass-Steagall Act, which had been around since the depression. The investment houses, combined with Greenspan’s low 1% interest rate for 18 months following nine-eleven, were the origin of this whole debacle. Now, the investment houses are becoming our banks, and they want all our demand deposits, on which they usually don’t pay interest.
We raised the US debt limit from $10 trillion to $11.3 trillion to accommodate the bailout. But, since then, the government has loaned, invested or committed to over $7 trillion more, bringing the total to another $8 trillion just this year. That amount equals over half of our annual domestic production. If all that is expended, the total debt is going to be four times what it was just in 2000. According to The Bullion Buzz, a combination of spending on the New Deal, the Marshall Plan, Korea, Viet Nam, Iraq, NASA, the race to the moon, the S& L bailout, and even throwing in the Louisiana Purchase don’t total half of $8 trillion. Remember, a trillion is a million times a million. And the Detroit three auto manufacturers are still begging. As my old granddaddy used to say, “You can’t drink yourself sober, and you can’t spend yourself rich.”
Yet, surprisingly, our dollar has had a recent rally against all other currencies. Why? Because all the rest of the world were growing economies based on sales to the US for practically everything we need. Now, their economies are tanking because our purchases are way down, and they don’t have enough internal demand for their production. Thus, their currencies are experiencing depreciation. You might say they are at least temporarily in worse shape than we are. Still, Japan and China are lending us the money to stay in business. When they have to use their money to bolster their own internal economy, their purchases of our debt are going to suffer. When that finally happens, our dollar value will suffer, and gold and silver will rise in value. Inflation will be rampant.
According to the US Government General Accounting Office (the Comptroller) the TARP plan administrators have failed to figure out how to make sure financial firms receiving billions of dollars of Federal funds are complying with limits on executive compensation and dividend payments. Does that surprise you? Incidentally, did I ever mention that Section 202 of the bailout bill, as passed, raises the “biodiesel” tax credit from fifty cents to $1 per gallon and amends it to “liquid fuel”? This is the income tax credit given producers for mixing bio and petroleum fuels, which they are then free to sell abroad to other countries. The same credit which raised the price of corn sky high. What has that got to do with troubled mortgages? It just represents the enormous pork packed into this bill.
President Obama was elected by promising to bring us change. Let’s hope it is change for the better. So far it looks like more of the same Washington merry-go-round.
I TOLD YOU SO
This is a reprint of an article written last December, though it was not published until January 8. Today’s news reports that the National Bureau of Economic Research stated today that the economy reached a peak in December 2007, and has been declining since.
Now I am predicting the next six months will make the last three months look like good times, in spite of last week’s bear market rally. From last December---
It’s time to build up your cash. As I predicted earlier, foreign nationals are buying us out, lock stock and barrel. Because of the sub-prime mortgage debacle, Morgan-Stanley has sold a $5 billion stake to Chinese interests. Merrill Lynch, likewise, sold $6.2 billion equity to Singapore interests. Recently Citigroup sold a $7.5 billion interest to Middle Eastern country Abu Dhabi. These interests are selling us more in petroleum or consumer goods than we can export to them, and using the surplus of our own money to purchase our country.
We were the world’s leading producer country from the time of the Second World War to the middle 1960’s. Since then, we have become the world’s leading consumer, and it is the consumer spender who has kept our economy afloat, making up a staggering 71% of our gross domestic product. Too much of this spending has been done through plastic credit cards. For many years, the increase in home values enabled consumers to pay off staggering credit card balances through increasing their home equity debt. Now, because of the sub-prime mortgage crisis, decreasing home values largely block this method of rescue. As a result, credit card accounts which are 30 days behind has jumped 26% to $17.3 billion. Those 90 days behind have jumped 50% over one year ago. Actual defaults have risen 18% to almost $961 million, according to the SEC.
The Conference Board publishes the Consumer Confidence Index, and Leading Economic Indicators, in an effort to predict the future economy. Usually, 3 consecutive months in the negative indicates a coming recession. October and November were both negative. When the 6 months cumulative total goes below a -1%, this also indicates recession. The 6 months cumulative total for November was -1.2%. Unless Santa Claus spends himself crazy for December, the future looks grim.
Does any of this interest you, or are you more concerned about who wins “Dancing with the Stars, or who is victorious in the Super Bowl? Our forefathers established and left us the greatest country in world history. Most of us have children or grandchildren who must look to us for their legacy. Are we going to fail them? When in 2000, the US voted 46% of the eligible population, we ranked about 139th out of 171 countries. Australia voted closer to 95%.
If you don’t vote, you have no right to complain. But worse than that, you will have no place to look for economic rescue. We must return this country to its founding principles. Next year is a presidential election year. Casting an ignorant vote is as bad as not voting. You have plenty of time to do an in depth study of all the eligible candidates. I urge you to get busy.
Now I am predicting the next six months will make the last three months look like good times, in spite of last week’s bear market rally. From last December---
It’s time to build up your cash. As I predicted earlier, foreign nationals are buying us out, lock stock and barrel. Because of the sub-prime mortgage debacle, Morgan-Stanley has sold a $5 billion stake to Chinese interests. Merrill Lynch, likewise, sold $6.2 billion equity to Singapore interests. Recently Citigroup sold a $7.5 billion interest to Middle Eastern country Abu Dhabi. These interests are selling us more in petroleum or consumer goods than we can export to them, and using the surplus of our own money to purchase our country.
We were the world’s leading producer country from the time of the Second World War to the middle 1960’s. Since then, we have become the world’s leading consumer, and it is the consumer spender who has kept our economy afloat, making up a staggering 71% of our gross domestic product. Too much of this spending has been done through plastic credit cards. For many years, the increase in home values enabled consumers to pay off staggering credit card balances through increasing their home equity debt. Now, because of the sub-prime mortgage crisis, decreasing home values largely block this method of rescue. As a result, credit card accounts which are 30 days behind has jumped 26% to $17.3 billion. Those 90 days behind have jumped 50% over one year ago. Actual defaults have risen 18% to almost $961 million, according to the SEC.
The Conference Board publishes the Consumer Confidence Index, and Leading Economic Indicators, in an effort to predict the future economy. Usually, 3 consecutive months in the negative indicates a coming recession. October and November were both negative. When the 6 months cumulative total goes below a -1%, this also indicates recession. The 6 months cumulative total for November was -1.2%. Unless Santa Claus spends himself crazy for December, the future looks grim.
Does any of this interest you, or are you more concerned about who wins “Dancing with the Stars, or who is victorious in the Super Bowl? Our forefathers established and left us the greatest country in world history. Most of us have children or grandchildren who must look to us for their legacy. Are we going to fail them? When in 2000, the US voted 46% of the eligible population, we ranked about 139th out of 171 countries. Australia voted closer to 95%.
If you don’t vote, you have no right to complain. But worse than that, you will have no place to look for economic rescue. We must return this country to its founding principles. Next year is a presidential election year. Casting an ignorant vote is as bad as not voting. You have plenty of time to do an in depth study of all the eligible candidates. I urge you to get busy.
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