Ken Nelson

We have a choice. We can not print money, and watch the interest we must pay to attract buyers of our government debt skyrocket. Or we can print money and buy the debt ourselves with a resulting drop in the value of the dollar.

The first would cause economic difficulties now, political difficulties now, but ultimately force us to behave financially sane.

The second delays, obscures, and increases the cost of any ultimate solution.  It is the governmental equivalent of borrowing from your already broke 401K.

So naturally, our “esteemed” leaders chose the one that wouldn’t hurt on their watch.

Trouble is… it won’t help. Markets responded and will continue to respond negatively until our government starts to behave financially responsible.

Lumps must be taken, the only question is who and how much. That is the game now. I’d favor something that penalizes the irresponsible and that does not burden our children.

The crisis of government in America is that it does too many things badly instead of doing a few things well.

Russ Roberts
Cafe Hayek

Words for newly elected politicians to consider…

This, long but interesting PDF, by Amity Shlaes is worth your time if you want to understand what is going on and what simple truths we need to return to in order to have a functioning economy AND liberty again.

It is not hard to see some of today’s trou- bles as a repeat of the errors of the 1930s. There is arrogance up top. The federal gov- ernment is dilettantish with money and exhibits disregard and even hostility to all other players. It is only as a result of this that economic recovery seems out of reach.

Read it. Read it all.

And if you don’t… here are the basics:

* property rights

* property rights

* property rights

* economic predictability (no crazy rule changing)

* low taxes

* responsible government INVESTMENT not spending



American Zero

American Heros

Steve Jobs has granted the President an audience. Very kind of him…   Now I like what Steve Jobs has accomplished. I first bought a computer from him in 1977. Now I own, or my company owns, 15 or so Macs.   I have to wonder why Jobs donates to Democrats. I presume social concerns, like gay rights and abortion drive his interest, because there is nothing there on the business side.  Except, perhaps, Apple is big enough now to play the crony capitalism game. That would be sad, but could well be true.

Apple designs cool stuff that it then has built in China, Malaysia, Taiwan and elsewhere around the world. Apple is not unionized. Apple plays the “double irish” tax avoidance game with a lustful glee.  What could Jobs be talking to Obama about?   Jobs? Apple regularly has layoffs and manufactures abroad.  Education?  Already wasteful. Innovation?  Can’t be learned.  Money?  Probably – as in give me some.

I suspect it is more in the “I donated $50G, show me the man”.   And the “man” came.

Btw: I showed the pictures above quite purposeful. Taken near the same point in history, they show how one makes “jobs” versus how one makes “nothing”.

England cut spending modestly and it is called “austerity”.   Commenters fret that it could HAPPEN here. Well, let’s hope so!

Citi strategist Willem Buiter, alongside Howard Davies chairman of the London School of Economics, said that “savage austerity” is in the US’ future. “The only question was really the timing and the composition.”

Obama has borrowed 3 trillion dollars in 20 months. So to get back to even we need to cut spending by that much, or raise government revenues by that much. Or some combination there of.

No doubt Democrats hope they can turn this “austerity” into austerity for citizens through higher taxes to pay for Democrats power basis.  We maybe stupid enough to bite a that.  Some commenters on this blog seem eager for it.  Establishment Republicans differ only in that they would be happy to slow the rate of growth of government, and then raise taxes.

The right answer, of course, is to get government back to where it belongs… doing hardly anything.  In other words… cut spending. Austerity for the government and those who leach on the rest of us through it.

But wouldn’t that entail economic disaster??  Why would you say that?   Money government spends is taken from others that would use it in other ways.  The only real concern is about removing the decifit (which is newly printed money) from the economy.  But the deficit isn’t cost free.  Inflation and debt service aren’t “free”.

You can’t throw a dart at the government organization chart without hitting something we can do without. So start throwing darts!  Get rid of the Dept of Education, Labor, Commerce, NASA.   I’m happy to get rid of wars too.  Bring them home.  Promise bigger bombs if those countries act up again.

Apparently, Medicare will be the entire US budget shortly.  It is clearly unsustainable. Are “old” people, many of whom are Tea Party members, willing to cough up an extra few grand a year to actually contribute to their own health care?  I hope so, because that is what is needed, and that is what is fair.

Commenter Carl will say that anybody that proposes this will be unelected promptly. So be it. It needs to be done.  And if presented clearly and explained, I suspect most people will understand changes are necessary.   And if not done to favor political special interests, people will be more inclined to take the hits.

So do we have it in us?   About half of us do not. They are called Democrats. They are union thugs, public sector employees, the stupid young, and the just plain stupid. Will they doom us?  Quite likely.

I hope not.   But if France and England are clues, our future isn’t bright.  Instead of joining together to put government back in its place, we seem more likely to get the honor of paying public sector union employees to strike, light fires and hold the nation hostage.

The right path forward for the nation is clear. The only question is if it is too late to put the special interests that hold us hostage back in the hole they emerged from.

 
We could spend it on roads, or lower tolls, or extravagant bonuses!

A New Jersey toll taker earned $300K last year.

Auditors say the New Jersey Turnpike Authority wasted $43 million on unneeded perks and bonuses.  In one case, an employee with a base salary of $73,469 earned $321,985 when all payouts and bonuses were included.

Other people’s money is FUN. Print more! Tax more! 

Not for most students. 

With many colleges simply not worth the investment, we need to find ways to collect and publish ROI data so students can make better decisions about what college or university to attend.

Of course there are other things – like delaying adulthood and access to higher quality mates, that are not necessarily economically measurable but are very desirable.

I’ve split the middle. Any fancy college that will sponsor my kids is welcome to them.  Lacking that a decent state school that can be funded out of pocket will be where we send them. No loans. And although we can’t control it, we will encourage them to major in something tough and universally applicable.

Yes! You can now buy We Are Doomed in paperback! A handful of typos have been corrected and some numbers updated, but don’t worry — we’re still doomed.

John Derbyshire
touting his book “We are Doomed”.

 
Not the sign in the article.
The news organization writes about the sign but doesn’t even include a picture of it.
That’s almost as dumb as the sign.

A guy in Florida has built a huge sign asking JP Morgan, his mortgage holder, to “help”.

The Acreage man built his house in 2007 but couldn’t handle the mortgage payment of $3,600 a month.

I don’t have his exact loan figures, but $3,600 a month at 6% for 30 years means he roughly financed $600K at the peak of the housing market.

I’m not exactly sure why he thinks he should get money, which is really what he bought – not a house – for free.

Money is just a product. You buy it if you don’t have it. The cost is interest.

People like this should certainly not be helped, or touted as “fighters” in newspapers. They should be ashamed.

You know if your job is tenuous. Layoffs shouldn’t come as a surprise if you are paying attention.  And you shouldn’t buy money for more than you can afford if you have an unexpected financial setback.

In other words… buy within your means – and that includes buying money as well as TV’s or any other product.

He should walk away and spend $1500 a month, or whatever he can afford, on a perfectly suitable house and let the bank have its collateral.   Instead of wasting money on a sign that you can see from passenger jets that really proclaims “I’m a dummy”.

Responsibility… suddenly un-American.

If you want a relatively short presentation of the upcoming banking crisis, check out this one by Chris Whalen:

 
Read the whole thing. Folks forget that banks are businesses. They have expenses, income, and profit (or loss).  Right now, expenses are going up, income and profit going down, and their balance sheets are deep underwater.

So what to do?   Somebody is going to get a haircut. The only question is if those responsible for the problems pay, or if they are let off because they are politically connected.

 
The Vegas house gives better odds than our “stock market”

I no longer own any stocks, except in companies I totally control.  I decided that in addition to there being no reason for stocks to go up long term (and plenty of reasons for them to plummet), that the game was rigged and I wouldn’t play anymore.

Rigged?  Yes. Even though I mainly invested in index and larger low cost funds rather than individual stocks, I felt it rigged even against even those large players. I felt that the price of a stock represented mind games rather than actual “what it is worth” and didn’t want to play that game any longer.  And I also knew that certain “special” traders were getting advance access to market information and trading automatically on it.

Today’s news that Capitol Hill staff are winning at stocks by playing an insider game with information they get in advance of the rest of us due to their position in government only highlights what a fraud the “market” is.

Crony capitalism. The Clinton’s gave us an early taste of it, with $100K gains on next to no investment, but now the government is so large and pervasive that even low level Congressional staff are “cronies”.

Investment has become gambling.

No thanks.  Now that the Stock Market’s “house” has an edge, I view it as a I do Vegas…  A nice place to visit to eat or see a show,  but I don’t gamble.

Our government continues to side with those that bought homes they couldn’t afford, or that have made strategic decisions to not pay their mortgage.  They’ve pressured home lenders to slow down, and in one case, stop foreclosures.

This pleases one constituency – the dumb or dishonest – but at great expense to those who follow the rules.  And it mucks up the system just when the government claims they want the system to function.

If a bank can’t use the home as collateral, then they won’t loan except with substantial down payment, if at all.  If buyers can’t get loans, then sellers can’t sell homes. These sellers can’t move and buy new homes. Real estate agents can’t help them. Builders can’t help them remodel, and Sears can’t sell them appliances.

Everything is connected. And the connections works BETTER when based on honesty and enforcement of reasonable agreements.

Just in from the “screwed” no matter which way you turn department…

Realty pros say that new, tighter, FHA loan requirements will hurt a housing market that is already on death’s doorstep:

Mortgage-purchase applications are 32 percent lower than they were last year, and they weren’t great last year. While still the cheapest game in town, FHA loans are about to get more expensive, and that’s going to knock the numbers down yet again.

So this is our choice? A stalled housing market, or another rash of people defaulting because they bought a house they really couldn’t afford?

Hmmm… this is simple. I’ll take the frozen housing market. They both end up at the same place, and at least the dead housing market has a chance of being recovered by those who do have good credit. You know the “responsible” “did the right thing” “saved their money” “invested wisely” “deferred gratification” crowd…. Shouldn’t THEY get a bone tossed their way every now in then?

The trailing 10-year return for U.S. equities through the first half of this year has been as poor only six previous times since 1835–and the latest decade was worse than any of those others.

Michale Santoli

In a rather pollyanish piece in Barrons.

I pick the quotation not in support of his estimate that stocks will rally, but because it highlights just how bad the last decade has been for the typical American.  Just when folks were trying to stash away for the long run, because they were ageing, and because they had lost faith their government would return their social security funds,  the same government unleashes economic devastation that destroys their private savings.  Thanks Government!  What did Reagan say about “I’m from the government, I’m here to help.”?

India: corruption will limit their success

People go on about India being the next economic engine. I’m dubious.

India is corrupt. I’ve dealt with firms from India for almost two decades now. They are a pain to deal with because they rarely pay on time, in the full amount, or ever in some cases.  They also make you ship stuff through their brother’s, or nephews shipping company that you never heard of, and they invent taxes that have be paid that are really just discounts (the taxes won’t be paid).  I tell them, you pay your taxes, I’ll pay mine, until then pay my full invoice.  An exception to this pattern is American companies operating in India. They’ve paid up as expected.

Two countries make up most of our deeply in arrears receivables – India & France. We have virtually none seriously late anywhere else.  Corruption and a cultural willingness to cheat (by Western standards) explains it in India. In France’s case, a particular corrupt company no longer in business.

I’ve encountered some great minds from India. They were here though. Some entrepreneurs claim India is now a better environment for business than the US – and that could be true. I suspect, however, that it is only true if you have corruption on your side.

I was reminded to write about this by this article about how crappy Indian infrastructure building is:

If they can’t build highly visible homes for athletes during the games or stadiums without roofs that collapse, apartment buildings and homes might also be of similar weak quality.

India has great potential. But tribal/family corruption and their caste system seems a great brake on maxing that potential out.

They don’t worry me. 

What worries me, instead, is that we are becoming a hot bed of corrupt crony capitalism like they are.