Our economy is at the peak of the third economic bubble in 12 years as we are desperately mortgaging our country's productive resources to reward reckless speculation and to fight the free market.
This new bubble is driven by borrowing and then wastefully spending $6 trillion over the past 4 years to prop up false prices. Compounding this tsunami of waste, the Federal Reserve has destroyed free market interest rates by pushing the Federal Funds Rate more than 3,000% below the 10 year Treasury bond yield.
Our country and the world are ablaze in the intoxicating glow of easy money. Just like in 1999. Just like in 2005.
The government and The Fed have again poured gasoline on our campfire to keep The Wolves of Recession at bay.
Can this continue?
We can temporarily sustain the debt portion of the bubble if we decide to continue our financial child abuse and borrow another $10 trillion dollars that we have no intention of paying back. Surprisingly financial child abuse is not a crime in our society and being drunk, especially on debt, seems an adequate excuse.
But there is no way that nature will allow us to abuse our free markets much longer. Even if Chairman Bernanke wanted to keep the Fed Funds rate 3,000% below the 10 year Treasury bond yield for an extended period, it is not possible. As phony rates turn real, they will become a drag on the economy.
The government’s bond fire that keeps the predators outside will eventually dim. This will allow the Three Wolves into our camp.
The first to enter will be the Wolf of Free Markets. It will mercilessly attach the artificial interest rates and kill them dead.
Then and only then will the second and fiercest preditor be allowed to enter. Its bloodthirsty eyes will spy the surroundings as it looks for the focus of its rage. It will spot the children cowering, lying in the smoke and soot from the government’s smoldering bond fire. With lightning speed it will jump to their side. The Debt Wolf will stand bristling and snarling in between us and the children.
The third Wolf will then be allowed entry. Every ounce of its being will be focused on us. We have attempted to live far above our means by robbing resources from future generations in a vain attempt to manipulate asset values. The Wolf of Fair Prices will allow none of this. As the Debt Wolf and the Free Market Wolf protect the children, the Wolf of Fair Prices will tear our manipulated and bloated asset valuations to shreds.
The Three Wolves will lie next to the children and for the first time in their lives they will get economic warmth, protection and love. Nothing shows more love than blessing children with a sound government, free markets, fair prices and low debt. Our forefathers wished it for us many years ago, before we had our first taste of the drug of easy money.
They will fall to sleep, finally free from our greed and abuse of power. As the children wake to the safety of the economic sunrise the Wolves will be gone. The previous night will be a vague memory that is forgotten with time.
As sure as corrupt and abusive government policy nurtures unsustainable debt, false markets and unfair prices, The Recession Wolves will be there to protect the future generations.
Saturday, June 25, 2011
Thursday, June 2, 2011
Daddy and Maddie Ride the Bubble Coaster
“This is going to be fun Maddie. First we will ride Cinderella’s Fairy Boat. Then maybe we can work our way up to Fannie Mae’s Teacups.”
“Daddy, those are baby rides. I want to go on the Bubble Coaster.”
“Madison, the Bubble Coaster is only for grownups.”
“No, Daddy you’re wrong. The Bubble Coaster is best for kids or people that think like kids.”
“Well, Maddie we will give it a try. What do we have to lose?”
“Daddy, I want to spend the whole day on the Bubble Coaster.”
“The car is moving now, and we are climbing to the top of the first Bubble. Hang on tight and get ready for the big fall.”
“No, Daddy, the man behind me, Mr. Greenspan just said that the coaster only goes in the air and levels off. He said it was just like Cinderella’s Fairy Boat, only higher. He guaranteed that there would be no big drops.”
“But Maddie, Mr. Greenspan is wrong. Look ahead. Can’t you see that the tracks go way up and then go way down? That’s why it’s called a roller coaster.”
“No Silly Daddy, Mr. Greenspan said it, so we must believe it.”
“Hang on tight Maddie, the coaster is ready to descend.
Whooooooooooooooooooooooooooooooooooooooooooosh
“Wasn’t that fun … hey, what’s wrong Maddie?”
“Daddy, I didn’t expect that to happen! I was so scared. I want out now.”
“Sorry, Maddie, there is no way to stop the ride now.”
“Wait, Daddy, Mr. Greenspan just told me that if we give him enough money he will be able flatten out the dips and make it a smoother ride. It will only cost $1,000.”
“Maddie, don’t you remember that Mr. Greenspan was wrong before, and what on earth is the $1,000 for?”
“It’s nothing for you to worry about Daddy. Mr. Greenspan has a friend that owns a big bank. He said I was highly qualified for a $1,000 loan. Isn’t that great? Now we are safe and we don’t have to worry about the dips anymore.”
“Maddie, quit talking to strangers and hang on! This is real estate; it is the biggest drop on the coaster.
Whoooooooooooooooooooooooooooooooooooooooooooooooooooosh
“Daddy, I didn’t expect that at all. We need to get out of this now.”
“Poor Maddie, the ride will be over after one more dip. Then I will have a talk with the carnival security about Mr. Greenspan.”
“No Daddy it’s not a problem anymore. I talked to the driver of the coaster, Mr. Bernanke and he said he can transport us over to Cinderella’s Fairy Boat to avoid any more drops. All he has to do is call the helicopter.”
“What! Maddie, look around, we are five hundred feet in the air. Cinderella’s Fairy Boat is on the other side of the carnival. Mr. Bernanke cannot magically transport us there. It’s not possible.”
“Mr. Bernanke says he can do it and we have to believe him Daddy. He says the helicopter will only cost $10,000.”
“ I am not sure if Mr. Bernanke is a thief or if this is part of the ride but I am not going to give him $10,000. Now get ready for the next fall, it is the Last Bubble and it’s the sharpest drop on the coaster.”
“Daddy, it’s no problem. Mr. Bernanke’s Chinese friend said he would loan us the $10,000. They say that the helicopter is on the way.”
“Madison, I am not going to borrow $10,000 from Mr. Bernanke’s Chinese friend. It doesn’t make sense. None of this makes any sense. It’s like a freak show.”
“Mr. Bernanke said he would help, Daddy. So we have to let him help.”
“Maddie, shouldn’t Mr. Bernanke be focused on driving the coaster safely instead of filling little children’s heads with thoughts of magic helicopters and large amounts of money?”
“No Daddy, you’re wrong.”
“Maddie, this is absolutely insane!”
“Daddy, you don’t understand. You have to give Mr. Bernanke the money! Please Daddy say it, for me, PLEASE!”
“OK Maddie. I want to borrow the money now.”
“Daddy, look really hard. See the helicopter coming to rescue us.”
“Maddie, I think I see it. We are going to be rescued!”
Whoooooooooooooooooooooooooooooooooooooooooooooooooosh!
“Maddie, I was not expecting that at all. I have never been so scared in all of my life. Get me out of this!”
“Do you understand how to play the game now Daddy?”
“Wow Maddie! I never would have figured that out in a million years.”
“Daddy, that’s because you were acting like a grownup. This is a make believe game for kids or people that think like kids.”
“Do you want to ride again Maddie? I think I might like this game.”
“Daddy, I told you, I want to spend the whole day on the Bubble Coaster.”
“Daddy, those are baby rides. I want to go on the Bubble Coaster.”
“Madison, the Bubble Coaster is only for grownups.”
“No, Daddy you’re wrong. The Bubble Coaster is best for kids or people that think like kids.”
“Well, Maddie we will give it a try. What do we have to lose?”
“Daddy, I want to spend the whole day on the Bubble Coaster.”
“The car is moving now, and we are climbing to the top of the first Bubble. Hang on tight and get ready for the big fall.”
“No, Daddy, the man behind me, Mr. Greenspan just said that the coaster only goes in the air and levels off. He said it was just like Cinderella’s Fairy Boat, only higher. He guaranteed that there would be no big drops.”
“But Maddie, Mr. Greenspan is wrong. Look ahead. Can’t you see that the tracks go way up and then go way down? That’s why it’s called a roller coaster.”
“No Silly Daddy, Mr. Greenspan said it, so we must believe it.”
“Hang on tight Maddie, the coaster is ready to descend.
Whooooooooooooooooooooooooooooooooooooooooooosh
“Wasn’t that fun … hey, what’s wrong Maddie?”
“Daddy, I didn’t expect that to happen! I was so scared. I want out now.”
“Sorry, Maddie, there is no way to stop the ride now.”
“Wait, Daddy, Mr. Greenspan just told me that if we give him enough money he will be able flatten out the dips and make it a smoother ride. It will only cost $1,000.”
“Maddie, don’t you remember that Mr. Greenspan was wrong before, and what on earth is the $1,000 for?”
“It’s nothing for you to worry about Daddy. Mr. Greenspan has a friend that owns a big bank. He said I was highly qualified for a $1,000 loan. Isn’t that great? Now we are safe and we don’t have to worry about the dips anymore.”
“Maddie, quit talking to strangers and hang on! This is real estate; it is the biggest drop on the coaster.
Whoooooooooooooooooooooooooooooooooooooooooooooooooooosh
“Daddy, I didn’t expect that at all. We need to get out of this now.”
“Poor Maddie, the ride will be over after one more dip. Then I will have a talk with the carnival security about Mr. Greenspan.”
“No Daddy it’s not a problem anymore. I talked to the driver of the coaster, Mr. Bernanke and he said he can transport us over to Cinderella’s Fairy Boat to avoid any more drops. All he has to do is call the helicopter.”
“What! Maddie, look around, we are five hundred feet in the air. Cinderella’s Fairy Boat is on the other side of the carnival. Mr. Bernanke cannot magically transport us there. It’s not possible.”
“Mr. Bernanke says he can do it and we have to believe him Daddy. He says the helicopter will only cost $10,000.”
“ I am not sure if Mr. Bernanke is a thief or if this is part of the ride but I am not going to give him $10,000. Now get ready for the next fall, it is the Last Bubble and it’s the sharpest drop on the coaster.”
“Daddy, it’s no problem. Mr. Bernanke’s Chinese friend said he would loan us the $10,000. They say that the helicopter is on the way.”
“Madison, I am not going to borrow $10,000 from Mr. Bernanke’s Chinese friend. It doesn’t make sense. None of this makes any sense. It’s like a freak show.”
“Mr. Bernanke said he would help, Daddy. So we have to let him help.”
“Maddie, shouldn’t Mr. Bernanke be focused on driving the coaster safely instead of filling little children’s heads with thoughts of magic helicopters and large amounts of money?”
“No Daddy, you’re wrong.”
“Maddie, this is absolutely insane!”
“Daddy, you don’t understand. You have to give Mr. Bernanke the money! Please Daddy say it, for me, PLEASE!”
“OK Maddie. I want to borrow the money now.”
“Daddy, look really hard. See the helicopter coming to rescue us.”
“Maddie, I think I see it. We are going to be rescued!”
Whoooooooooooooooooooooooooooooooooooooooooooooooooosh!
“Maddie, I was not expecting that at all. I have never been so scared in all of my life. Get me out of this!”
“Do you understand how to play the game now Daddy?”
“Wow Maddie! I never would have figured that out in a million years.”
“Daddy, that’s because you were acting like a grownup. This is a make believe game for kids or people that think like kids.”
“Do you want to ride again Maddie? I think I might like this game.”
“Daddy, I told you, I want to spend the whole day on the Bubble Coaster.”
Saturday, May 7, 2011
You Just Need to Look Out the Window
We as a nation have spent the last 35 years borrowing more money than we can possibly pay back. After three and a half decades of decadence we appear to be coming to the absolute limit on our ability to borrow as a nation.
As we come to this precipice, our nation’s economic elite that sold us this debt are imploring us to continue to borrow at our current unsustainable rate. They say Keynesian Economics will allow us to pay off the extreme debt that we hold now with cheaper money that our friends in China and the Middle East will loan us in the future.
They say that as long as we continue to borrow, Keynesian Theory will just magically and painlessly make our debt problem disappear… poof.
Although this sounds wonderful and magical, it is mathematically impossible. An extremely debt heavy accounting balance sheet “always” slows economic growth.
So I have another name for what our economic elite are trying to call “Keynesian Economics”. It’s called “fraud”. This would be borrowing money knowing full well that you are incapable of paying it back.
The fact is that all economists derive their paychecks from Wall Street or our wasteful government. Who else would hire them?
So if they want to be employed, economists must always recommend more debt, more consumers spending, a larger financial sector and a larger more wasteful government.
It is all about growing the source of their paycheck.
Upton Sinclair stated it best during the roaring twenties when he said “It is difficult to get a man to understand something, when his salary depends on his not understanding it”.
Economists are salespeople. They are hired guns that will create a “flawed” model for anyone that gives them a paycheck.
I know their models are “flawed” because economists as a group are incapable of predicting major turns in our economy. Their track record is zero. They have missed predicting every major event for the past 12 years:
· In 2000 they missed predicting the biggest stock bubble in our nation’s history.
· In 2002 they rallied for “end of the world” monetary and fiscal stimulation to prevent the continuing collapse of the stock bubble that they could not see in 2000.
· In 2005 they could not see the biggest housing bubble in our nation’s history caused by the “end of the world” monetary and fiscal stimulation that they recommended in 2002.
· In 2006 they could not see the biggest credit bubble in our nation’s history caused by the deregulation that they recommended in the 1990’s.
· In 2007 no major economist saw the coming recession even though every economic indicator pointed to a recession.
· In 2008 they rallied again for another round of “end of the world” fiscal and monetary stimulus to continue the housing bubble that they could not see in 2006.
· Now in 2011 no major economist can see our current asset bubbles in commodities and bonds.
· In 2012 they will again suggest “end of the world” monetary and fiscal stimulus to prop up the commodity and bond bubble that they can’t see now.
Economists continue to ignore the destructive bubbles in the economy until they realize that a bubble has popped. Then they demand that our elected officials use “end of the world” monetary and fiscal stimulus to prop up overpriced assets in an attempt to continue the bubble.
Our bubble economy is making fortunes for the sellers of helium of which the economists get their cut. But there is a huge cost to everyone else. No jobs are created as fortunes are being borrowed from our children and given to Wall Street speculators and our monstrously wasteful government.
I suggest that our method for predicting the economy is hopelessly broken and cannot be fixed.
So what does one do when the speed indicator of your car is broken and can’t be fixed?
You look out the window to judge your speed.
And if you look out the window this is what you will see:
1) We are borrowing money from hostile foreign nations … This must stop.
2) We are destroying our free markets … This must stop.
3) We are sending our productive manufacturing jobs overseas… This must stop.
4) We are heavily subsidizing our “destructive” financial sector … This must stop.
5) We are rewarding people for uncontrolled speculation … This must stop.
6) We are punishing our savers … This must stop.
7) We are destroying our currency … This must stop.
8) And worst of all we are borrowing money in our children’s name to continue this madness … This absolutely must stop.
Nothing our economists are suggesting today appears in any economic textbook of the past. They have thrown away 4,000 years of economic thought from the geniuses of history as they prostitute their profession in order for their employers to steal money from our unborn children.
In a perfect world any economist that recommends more debt on top of the $100 trillion that we have already borrowed from our kids would immediately be labeled as a financial child abuser.
They would then be included on a “child predator” list and never be allowed to suggest that theft is the key to economic growth.
This one law would make all current economists unemployable. These villains would then learn firsthand what is like to look for work with no skills in the economy they have almost single handedly created.
But alas, our world is far from perfect.
And our economic theory is hopelessly broken and can’t be fixed.
Change will start when we stop looking at our broken economic theory and take a look at the reality that is happening around us.
We just need to look out the window.
As we come to this precipice, our nation’s economic elite that sold us this debt are imploring us to continue to borrow at our current unsustainable rate. They say Keynesian Economics will allow us to pay off the extreme debt that we hold now with cheaper money that our friends in China and the Middle East will loan us in the future.
They say that as long as we continue to borrow, Keynesian Theory will just magically and painlessly make our debt problem disappear… poof.
Although this sounds wonderful and magical, it is mathematically impossible. An extremely debt heavy accounting balance sheet “always” slows economic growth.
So I have another name for what our economic elite are trying to call “Keynesian Economics”. It’s called “fraud”. This would be borrowing money knowing full well that you are incapable of paying it back.
The fact is that all economists derive their paychecks from Wall Street or our wasteful government. Who else would hire them?
So if they want to be employed, economists must always recommend more debt, more consumers spending, a larger financial sector and a larger more wasteful government.
It is all about growing the source of their paycheck.
Upton Sinclair stated it best during the roaring twenties when he said “It is difficult to get a man to understand something, when his salary depends on his not understanding it”.
Economists are salespeople. They are hired guns that will create a “flawed” model for anyone that gives them a paycheck.
I know their models are “flawed” because economists as a group are incapable of predicting major turns in our economy. Their track record is zero. They have missed predicting every major event for the past 12 years:
· In 2000 they missed predicting the biggest stock bubble in our nation’s history.
· In 2002 they rallied for “end of the world” monetary and fiscal stimulation to prevent the continuing collapse of the stock bubble that they could not see in 2000.
· In 2005 they could not see the biggest housing bubble in our nation’s history caused by the “end of the world” monetary and fiscal stimulation that they recommended in 2002.
· In 2006 they could not see the biggest credit bubble in our nation’s history caused by the deregulation that they recommended in the 1990’s.
· In 2007 no major economist saw the coming recession even though every economic indicator pointed to a recession.
· In 2008 they rallied again for another round of “end of the world” fiscal and monetary stimulus to continue the housing bubble that they could not see in 2006.
· Now in 2011 no major economist can see our current asset bubbles in commodities and bonds.
· In 2012 they will again suggest “end of the world” monetary and fiscal stimulus to prop up the commodity and bond bubble that they can’t see now.
Economists continue to ignore the destructive bubbles in the economy until they realize that a bubble has popped. Then they demand that our elected officials use “end of the world” monetary and fiscal stimulus to prop up overpriced assets in an attempt to continue the bubble.
Our bubble economy is making fortunes for the sellers of helium of which the economists get their cut. But there is a huge cost to everyone else. No jobs are created as fortunes are being borrowed from our children and given to Wall Street speculators and our monstrously wasteful government.
I suggest that our method for predicting the economy is hopelessly broken and cannot be fixed.
So what does one do when the speed indicator of your car is broken and can’t be fixed?
You look out the window to judge your speed.
And if you look out the window this is what you will see:
1) We are borrowing money from hostile foreign nations … This must stop.
2) We are destroying our free markets … This must stop.
3) We are sending our productive manufacturing jobs overseas… This must stop.
4) We are heavily subsidizing our “destructive” financial sector … This must stop.
5) We are rewarding people for uncontrolled speculation … This must stop.
6) We are punishing our savers … This must stop.
7) We are destroying our currency … This must stop.
8) And worst of all we are borrowing money in our children’s name to continue this madness … This absolutely must stop.
Nothing our economists are suggesting today appears in any economic textbook of the past. They have thrown away 4,000 years of economic thought from the geniuses of history as they prostitute their profession in order for their employers to steal money from our unborn children.
In a perfect world any economist that recommends more debt on top of the $100 trillion that we have already borrowed from our kids would immediately be labeled as a financial child abuser.
They would then be included on a “child predator” list and never be allowed to suggest that theft is the key to economic growth.
This one law would make all current economists unemployable. These villains would then learn firsthand what is like to look for work with no skills in the economy they have almost single handedly created.
But alas, our world is far from perfect.
And our economic theory is hopelessly broken and can’t be fixed.
Change will start when we stop looking at our broken economic theory and take a look at the reality that is happening around us.
We just need to look out the window.
Tuesday, December 7, 2010
I am in Love with The Great Depression
Perfection, of a kind, was what he was after,
And the poetry he invented was easy to understand;
He knew human folly like the back of his hand,
And was greatly interested in armies and fleets;
When he laughed, respectable senators burst with laughter,
And when he cried the little children died in the streets.
I am in Love with The Great Depression
I started gaining my affection for The Great Depression as The Tech Bubble was ending. My stock account was going to astronomical amounts. I bought my dream house. My financial life was fantastic in every way but in the back of my mind I knew something was very wrong. I soothed myself at night with investment books like The Intelligent Investor by Benjamin Graham and books of the Great Depression such as The Great Crash by John Kenneth Galbraith. I didn't read these books for knowledge or insight because I was very clear on the inevitable path of our country. I read them for purification and to calm my worried soul. Thoughts of The Great Depression have become my economic "Waldon's Pond" during this period of government mandated excess and speculation in our nation's financial markets.
As the 1990's were winding down I would compare the 90's to the 1920's. They are very favorably compared. The roaring 20's saw the advent of the radio, the auto and the airplane. The roaring 90's brought about home computers and the Internet. Both period's had massive speculation stoked with easy money by The Federal Reserve.
The 20's of course ended in The Great Depression. I had hope that the 1990's would end in the same way and that our nation would come to it's senses and stop living so far beyond it's means. I realized that our government and The Financial Elite would make the same mistakes as The Great Depression and turn a deep recession into a depression. But I also knew that the people of this country were resourceful and could come out of the ten year depression in 2009 with the same independent, hard working attitude that created my grandparents' generation.
And the poetry he invented was easy to understand;
He knew human folly like the back of his hand,
And was greatly interested in armies and fleets;
When he laughed, respectable senators burst with laughter,
And when he cried the little children died in the streets.
Epitaph of a Tyrant by W. H. Auden
_____________________________________________
I would like to dedicate the following thoughts
to my father and his father on this special day. Thank you both for being part of this country's greatest generation.
I am in Love with The Great Depression
I started gaining my affection for The Great Depression as The Tech Bubble was ending. My stock account was going to astronomical amounts. I bought my dream house. My financial life was fantastic in every way but in the back of my mind I knew something was very wrong. I soothed myself at night with investment books like The Intelligent Investor by Benjamin Graham and books of the Great Depression such as The Great Crash by John Kenneth Galbraith. I didn't read these books for knowledge or insight because I was very clear on the inevitable path of our country. I read them for purification and to calm my worried soul. Thoughts of The Great Depression have become my economic "Waldon's Pond" during this period of government mandated excess and speculation in our nation's financial markets.
As the 1990's were winding down I would compare the 90's to the 1920's. They are very favorably compared. The roaring 20's saw the advent of the radio, the auto and the airplane. The roaring 90's brought about home computers and the Internet. Both period's had massive speculation stoked with easy money by The Federal Reserve.
The 20's of course ended in The Great Depression. I had hope that the 1990's would end in the same way and that our nation would come to it's senses and stop living so far beyond it's means. I realized that our government and The Financial Elite would make the same mistakes as The Great Depression and turn a deep recession into a depression. But I also knew that the people of this country were resourceful and could come out of the ten year depression in 2009 with the same independent, hard working attitude that created my grandparents' generation.
My grandparents' and their contemporaries are considered our nation's greatest generation. I had equally high hopes for my own generation. I wanted to feel the same pride that my grandfather felt as he passed the economic torch to my dad.
But something odd happened after The Tech Bubble. There was just a very, very mild recession. There was practically no real unemployment. A pipeline was created between the government and the moneylenders. A pipeline full of gold that from the outside smelled of filth. No one noticed. No one cared. I can't compare it to anything that has occurred in our country before. One would have to go back to the times of Rome under Nero to find a similar totally self serving act. Our Empire is ablaze and our leaders are responsible!
A recession is a natural event. An economic Winter that follows an overabundant Summer. A cleansing that removes speculation and greed from the system and passes along fairly priced assets and a sound government to the next generation.
Business cycles have been recorded since the beginning of the industrial revolution and probably occurred even in primitive societies. Economies move from overproduction, excess and speculation to underproduction, prudence and saving. This cycle can't be regulated because it is tied to the avarice of being human.
Recessions will occur even in a tightly controlled society, as we are seeing today. The only difference is that in a free society everyone is aware of what is happening and can react accordingly. In the tightly controlled society The Financial Elite are able to mask the business cycle. This allows the Financial Elite more power and with this power the ability to choose the winners and losers in our economy.
Our Financial Elite have pilloried The Great Depression and made it a priority to protect us from recessions at all costs. The costs that we are presently incurring are massive debt to future generations and the destruction of sound government. This is the antithesis of the business cycle. It is not sustainable in the long run.
The reason that I love The Great Depression is that in spite of massive government intervention the people of this nation were able to survive and then prosper. The Great Depression forged a generation of fiercely independent, highly productive, family and community oriented households. This was the most productive body of citizens any nation has ever known. This was the Middle Class. My grandparents' generation.
The antithesis of my grandfather's generation is my generation. We robbed trillions of dollars of our children's inheritance to prop up stock values after the Tech Bubble which sent our housing market into a bubble. We are presently borrowing tens of trillions of dollars from foreign nations to prop up inflated housing prices that occurred during the housing bubble. We have created the biggest government in our country's history with borrowed money.
So we have spent the savings of our grandparents' generation and borrowed more. We have used this money to inflate asset values and create bigger government. We are passing the debt, the inflated asset values and the government boondoggle to our children. My generation will go down in history as this nation's most selfish generation. It is a very helpless feeling being carried by this ravel of avarice.
I don't blame our people, I blame the tyrants, The Financial Elite. They are far to cunning for our pampered populous. My lament is that we are appeased by bread and circuses as our country is being looted and then burdened with stifling debt.
I am very sure that my grandfather's generation would never have allowed this to happen. A generation that formed massive strikes against unfair employment, rallied against unjust government and to a man gladly sacrificed their lives to keep this country free.
My hope looks to the future as my mind dwells in the past. I await the glory that my children and grandchildren will feel as they slay this dragon of debt. Like my grandparents did before me. I bide time in between two great generations. "They also serve who only stand and wait".
A recession is a natural event. An economic Winter that follows an overabundant Summer. A cleansing that removes speculation and greed from the system and passes along fairly priced assets and a sound government to the next generation.
I am in Love with The Great Depression
But something odd happened after The Tech Bubble. There was just a very, very mild recession. There was practically no real unemployment. A pipeline was created between the government and the moneylenders. A pipeline full of gold that from the outside smelled of filth. No one noticed. No one cared. I can't compare it to anything that has occurred in our country before. One would have to go back to the times of Rome under Nero to find a similar totally self serving act. Our Empire is ablaze and our leaders are responsible!
A recession is a natural event. An economic Winter that follows an overabundant Summer. A cleansing that removes speculation and greed from the system and passes along fairly priced assets and a sound government to the next generation.
Business cycles have been recorded since the beginning of the industrial revolution and probably occurred even in primitive societies. Economies move from overproduction, excess and speculation to underproduction, prudence and saving. This cycle can't be regulated because it is tied to the avarice of being human.
Recessions will occur even in a tightly controlled society, as we are seeing today. The only difference is that in a free society everyone is aware of what is happening and can react accordingly. In the tightly controlled society The Financial Elite are able to mask the business cycle. This allows the Financial Elite more power and with this power the ability to choose the winners and losers in our economy.
Our Financial Elite have pilloried The Great Depression and made it a priority to protect us from recessions at all costs. The costs that we are presently incurring are massive debt to future generations and the destruction of sound government. This is the antithesis of the business cycle. It is not sustainable in the long run.
The reason that I love The Great Depression is that in spite of massive government intervention the people of this nation were able to survive and then prosper. The Great Depression forged a generation of fiercely independent, highly productive, family and community oriented households. This was the most productive body of citizens any nation has ever known. This was the Middle Class. My grandparents' generation.
The antithesis of my grandfather's generation is my generation. We robbed trillions of dollars of our children's inheritance to prop up stock values after the Tech Bubble which sent our housing market into a bubble. We are presently borrowing tens of trillions of dollars from foreign nations to prop up inflated housing prices that occurred during the housing bubble. We have created the biggest government in our country's history with borrowed money.
So we have spent the savings of our grandparents' generation and borrowed more. We have used this money to inflate asset values and create bigger government. We are passing the debt, the inflated asset values and the government boondoggle to our children. My generation will go down in history as this nation's most selfish generation. It is a very helpless feeling being carried by this ravel of avarice.
I don't blame our people, I blame the tyrants, The Financial Elite. They are far to cunning for our pampered populous. My lament is that we are appeased by bread and circuses as our country is being looted and then burdened with stifling debt.
I am very sure that my grandfather's generation would never have allowed this to happen. A generation that formed massive strikes against unfair employment, rallied against unjust government and to a man gladly sacrificed their lives to keep this country free.
My hope looks to the future as my mind dwells in the past. I await the glory that my children and grandchildren will feel as they slay this dragon of debt. Like my grandparents did before me. I bide time in between two great generations. "They also serve who only stand and wait".
A recession is a natural event. An economic Winter that follows an overabundant Summer. A cleansing that removes speculation and greed from the system and passes along fairly priced assets and a sound government to the next generation.
I am in Love with The Great Depression
Sunday, November 28, 2010
The Difference Between Real Mortgage Rates and Our Current Phony Rates Could Wipe Out Your 20% Down Payment
Speculators in the housing market have been the beneficiary of a once in 100 year event.
Over the last 25 years interest rates have collapsed from 18% to 4.5%. This has allowed home buyers to borrow 200% more than they could in 1985.
This is how the numbers work:
In 1985 a $1,800 mortgage payment would purchase a $150,000 home at a mortgage rate of 18% and 20% down.
Today a $1,800 mortgage payment will purchase a $450,000 home at a mortgage rate of 4.5% and 20% down.
The collapse in rates has directly caused a tripling of home values over the last 25 years.
It’s simple math.
This math works in reverse also:
Today a $1,800 mortgage payment would purchase a $465,000 home at a rate of 4.15% and a 20% down.
Tomorrow a $1,800 mortgage payment would purchase a $381,300 at a rate of 6% and a 20% down.
This $83,700 loss is due to mortgage rates changing from 4.15% to 6%.
What is the possibility that rates will go from 4.15% to 6%?
I would like to suggest that "real" mortgage rates are 6% now.
Over the last 2 years the government has used Fannie Mae and Freddie Mac to take over the mortgage market. 95% of the loans are government guaranteed. Also the Federal Reserve has committed to at least 2 trillion dollars of asset purchases to manipulate interest rates.
I think it is safe to say that today we don’t have real interest rates. They are being manipulated by the government.
What would they be if the government was not spending trillions of taxpayer dollars to manipulate the market?
One could argue that without the trillions of dollars of government intervention mortgage rates could be at 6%. This is far below the average over the last 25 years.
A change from a manipulated 4.15% mortgage rate to a “real” 6% mortgage rate would mean the immediate loss of 18% in purchasing power or $83,700 on a $465,000 home.
Add the 2% purchase costs to this 18% interest rate loss and you have basically wiped out your 20% down payment.
If you are purchasing a home now in a phony interest rate environment and plan to sell in 5 years at a real interest rate you have already lost your down payment.
There is one last variable to consider. It takes over 6 years of mortgage payments on a 30 year mortgage to gain enough principle to prepay the closing costs when you sell your home.
So if you buy today and sell in 5 years not only could you lose your down payment but you will also need to bring a $5,400 check to pay the balance on the $26,600 in closing costs to sell your home in 5 years for $381,300.
That’s the math, not including our nation's current deflation problem and the fact that housing is a depreciating asset.
Over the last 25 years interest rates have collapsed from 18% to 4.5%. This has allowed home buyers to borrow 200% more than they could in 1985.
This is how the numbers work:
In 1985 a $1,800 mortgage payment would purchase a $150,000 home at a mortgage rate of 18% and 20% down.
Today a $1,800 mortgage payment will purchase a $450,000 home at a mortgage rate of 4.5% and 20% down.
The collapse in rates has directly caused a tripling of home values over the last 25 years.
It’s simple math.
This math works in reverse also:
Today a $1,800 mortgage payment would purchase a $465,000 home at a rate of 4.15% and a 20% down.
Tomorrow a $1,800 mortgage payment would purchase a $381,300 at a rate of 6% and a 20% down.
This $83,700 loss is due to mortgage rates changing from 4.15% to 6%.
What is the possibility that rates will go from 4.15% to 6%?
I would like to suggest that "real" mortgage rates are 6% now.
Over the last 2 years the government has used Fannie Mae and Freddie Mac to take over the mortgage market. 95% of the loans are government guaranteed. Also the Federal Reserve has committed to at least 2 trillion dollars of asset purchases to manipulate interest rates.
I think it is safe to say that today we don’t have real interest rates. They are being manipulated by the government.
What would they be if the government was not spending trillions of taxpayer dollars to manipulate the market?
One could argue that without the trillions of dollars of government intervention mortgage rates could be at 6%. This is far below the average over the last 25 years.
A change from a manipulated 4.15% mortgage rate to a “real” 6% mortgage rate would mean the immediate loss of 18% in purchasing power or $83,700 on a $465,000 home.
Add the 2% purchase costs to this 18% interest rate loss and you have basically wiped out your 20% down payment.
If you are purchasing a home now in a phony interest rate environment and plan to sell in 5 years at a real interest rate you have already lost your down payment.
There is one last variable to consider. It takes over 6 years of mortgage payments on a 30 year mortgage to gain enough principle to prepay the closing costs when you sell your home.
So if you buy today and sell in 5 years not only could you lose your down payment but you will also need to bring a $5,400 check to pay the balance on the $26,600 in closing costs to sell your home in 5 years for $381,300.
That’s the math, not including our nation's current deflation problem and the fact that housing is a depreciating asset.
Tuesday, November 23, 2010
The Destruction of our Last Free Market
I work as an accountant. I am not supposed to be innovative. Accountants are trained to follow the rules. Andrew Fastow of Enron or Mark Schwarz of Tyco tried to be innovative. They now reside in jail.
The opposite of accounting is economics. Economists must be innovative. Their job depends on inventing new theories. These new rules give their employers or their clients an advantage in the marketplace.
Over the past 15 years our nation’s top economists have been very innovative in coming up with new theories for our government and Wall Street to improve our nation’s markets. It is not surprising that most of these suggestions have enriched the pockets that employ these economists. It is also not surprising that these forays of crony capitalism have destroyed every free market that the government has attempted to control.
I only bring all this up because of the latest nonsensical plan that is being presented to save our country.
John Burns is one of our nation’s leading housing economists. He sees a new profit center for his clients. So he has come up with a new theory.
Mr. Burn’s scheme involves the government hiring private sector companies to create a huge real estate investment trust. This Wall Street trust will take all of the underwater homes from the banks, Fannie Mae and Freddy Mac and rent them out.
He says that renting out these homes will prevent our nation's house prices from falling any further.
This is economic theory at its finest. There will be huge profits for Wall Street and the banks. There will be monstrous subsidies to be paid by the taxpayer. There will be limitless unintended consequences in the future. But best of all there are fat commissions for the innovative economist that can explain how this nonsensical plan can benefit the country.
So let me recap.
Presently investors that are entering our real estate rental market are not receiving subsidies, implied bailouts or tax breaks. They are not benefiting from the easy money from the Federal Reserve. So rental real estate is the only market that is not subsidized by the taxpayer.
Investors that are entering the rental real estate market are the only investors in this country that are receiving a fair return on their money. Today investors are getting a positive cash flow on their investment. This is in line with the historical return on investment. They are receiving a fair return because the government is not distorting the market.
This is possibly the only market that the government is not distorting.
Investors that are entering the rental real estate market are not using large amounts of debt. Most are purchasing with at least 30% down and some are purchasing with all cash. So these investors will not be a risk to be bailed out by the government.
Looking at the facts one could argue that the rental real estate market is the only free investment market in our country today.
John Burn’s intends to destroy our last free market, for a profit. He is a very smart man has a good chance of achieving his goal.
It is funny how economists preach the religion of free markets as they devise ever more self-serving ways to corrupt the system.
The opposite of accounting is economics. Economists must be innovative. Their job depends on inventing new theories. These new rules give their employers or their clients an advantage in the marketplace.
Over the past 15 years our nation’s top economists have been very innovative in coming up with new theories for our government and Wall Street to improve our nation’s markets. It is not surprising that most of these suggestions have enriched the pockets that employ these economists. It is also not surprising that these forays of crony capitalism have destroyed every free market that the government has attempted to control.
I only bring all this up because of the latest nonsensical plan that is being presented to save our country.
John Burns is one of our nation’s leading housing economists. He sees a new profit center for his clients. So he has come up with a new theory.
Mr. Burn’s scheme involves the government hiring private sector companies to create a huge real estate investment trust. This Wall Street trust will take all of the underwater homes from the banks, Fannie Mae and Freddy Mac and rent them out.
He says that renting out these homes will prevent our nation's house prices from falling any further.
This is economic theory at its finest. There will be huge profits for Wall Street and the banks. There will be monstrous subsidies to be paid by the taxpayer. There will be limitless unintended consequences in the future. But best of all there are fat commissions for the innovative economist that can explain how this nonsensical plan can benefit the country.
So let me recap.
Presently investors that are entering our real estate rental market are not receiving subsidies, implied bailouts or tax breaks. They are not benefiting from the easy money from the Federal Reserve. So rental real estate is the only market that is not subsidized by the taxpayer.
Investors that are entering the rental real estate market are the only investors in this country that are receiving a fair return on their money. Today investors are getting a positive cash flow on their investment. This is in line with the historical return on investment. They are receiving a fair return because the government is not distorting the market.
This is possibly the only market that the government is not distorting.
Investors that are entering the rental real estate market are not using large amounts of debt. Most are purchasing with at least 30% down and some are purchasing with all cash. So these investors will not be a risk to be bailed out by the government.
Looking at the facts one could argue that the rental real estate market is the only free investment market in our country today.
John Burn’s intends to destroy our last free market, for a profit. He is a very smart man has a good chance of achieving his goal.
It is funny how economists preach the religion of free markets as they devise ever more self-serving ways to corrupt the system.
Tuesday, November 2, 2010
Warning Label on Economic Advice
I believe many people are confused by the role of economists in our society. They are very similar to the fortune teller at the circus. These charlatans sell their measurement of the future to the unsuspecting public. They are unconcerned with how their guess affects the outcome of their victim but laser focused on getting their paycheck from the owner of the circus.
Our government is the circus.
Our nation under the direction of our political economists has spent the last 25 years using debt to increase our nations total standard of living above the sustainable trendline. Soon our total debt to GDP will be triple what it was in 1985.
Most of this debt has been used to increase the size of the unproductive financial sector and the government. These areas are the major employers of economists. This public sector growth has occurred while our job producing private sector has stagnated. The private sector hires very few economists.
Our nation’s unsustainable growth trend of borrowing is a big worry for anyone with an ounce of common sense. But is of little concern for political economists. Their focus is on growing the source of their paycheck. Upton Sinclair said it correctly 80 years ago about our crony capitalistic system: “it is impossible to get a man to understand something when his job depends on him not understanding it”.
Our unsustainable borrowing is so unimportant to political economists that they have created very flawed models so that taxpayer debt can be overstated. These models have eliminated “total debt” as a variable. The models only include the “debt payment”. This flaw allows an unlimited amount of money to be borrowed if interest rates can be manipulated down to zero. To make matters worse the models don’t use any form of amortization, so in economic theory our nation’s debt never needs to be paid back. Borrowing $1 trillion or $20 trillion is the same to an economist because neither amount will ever be repaid.
As an accountant I feel that it is important for the taxpayer to understand the understated accounting and the conflict of interest inherent in the field of economics. There should be a disclosure notice similar to the warning on a pack of cigarettes attached to anything that is published by an economist.
Warning label to taxpayers:
Economists can only be relied upon to predict small insignificant changes in the economy. On average they have a moderate degree of success in predicting year over year economic growth of 3.5%. But as a group they have never, ever correctly predicted a major shift in our economy. Therefore the predictions of an economist of the future should never be relied upon in business. In a free market society the successful business owner is the only entity that has the ability to predict the future.
Economists are not accountants. They are not regulated by any authority and are never held accountable for anything that they say. If a private sector accountant overstates the numbers they will go to jail. If a political economist overstates the numbers they are hired by Wall Street, the goverment or by a universtiy to train other economists. So if you require accurate numbers always seek the advice of an accountant.
Taxpayers should understand that as more tax dollars flow into government, then the government will give large amounts of this money to Wall Street. Wall Street in turn uses this largess to train more economists which they send back to the government. Be aware that every time your taxes are increased, it indirectly allows the government to hire an economist that has a vested interest in increasing your taxes even more.
It is important that you understand as a taxpayer that any money the government borrows must be paid back by you. If you are a middle class family of four and the government borrows $1 trillion then that is an immediate debt to you of $26,667 plus interest.
It is important that you understand that the debasement of a nation’s currency has a cost. If you are of the middle class you are very likely to be negatively effected by the indirect effect of currency debasement. This is called “inflation”. Historically inflation has been used by tyrants to reward political favorites. Presently, our government has chosen to funnel most of the gains from inflation to the financial sector, speculators and the upper classes.
So, as a taxpayer, if the attached economic report deviates from common sense and suggests “unsustainable debt”, “a larger government”, “a larger financial sector”, “manipulating markets” or “debasing our money supply” then it is in your best interest to disregard the information.
Our government is the circus.
Our nation under the direction of our political economists has spent the last 25 years using debt to increase our nations total standard of living above the sustainable trendline. Soon our total debt to GDP will be triple what it was in 1985.
Most of this debt has been used to increase the size of the unproductive financial sector and the government. These areas are the major employers of economists. This public sector growth has occurred while our job producing private sector has stagnated. The private sector hires very few economists.
Our nation’s unsustainable growth trend of borrowing is a big worry for anyone with an ounce of common sense. But is of little concern for political economists. Their focus is on growing the source of their paycheck. Upton Sinclair said it correctly 80 years ago about our crony capitalistic system: “it is impossible to get a man to understand something when his job depends on him not understanding it”.
Our unsustainable borrowing is so unimportant to political economists that they have created very flawed models so that taxpayer debt can be overstated. These models have eliminated “total debt” as a variable. The models only include the “debt payment”. This flaw allows an unlimited amount of money to be borrowed if interest rates can be manipulated down to zero. To make matters worse the models don’t use any form of amortization, so in economic theory our nation’s debt never needs to be paid back. Borrowing $1 trillion or $20 trillion is the same to an economist because neither amount will ever be repaid.
As an accountant I feel that it is important for the taxpayer to understand the understated accounting and the conflict of interest inherent in the field of economics. There should be a disclosure notice similar to the warning on a pack of cigarettes attached to anything that is published by an economist.
Warning label to taxpayers:
Economists can only be relied upon to predict small insignificant changes in the economy. On average they have a moderate degree of success in predicting year over year economic growth of 3.5%. But as a group they have never, ever correctly predicted a major shift in our economy. Therefore the predictions of an economist of the future should never be relied upon in business. In a free market society the successful business owner is the only entity that has the ability to predict the future.
Economists are not accountants. They are not regulated by any authority and are never held accountable for anything that they say. If a private sector accountant overstates the numbers they will go to jail. If a political economist overstates the numbers they are hired by Wall Street, the goverment or by a universtiy to train other economists. So if you require accurate numbers always seek the advice of an accountant.
Taxpayers should understand that as more tax dollars flow into government, then the government will give large amounts of this money to Wall Street. Wall Street in turn uses this largess to train more economists which they send back to the government. Be aware that every time your taxes are increased, it indirectly allows the government to hire an economist that has a vested interest in increasing your taxes even more.
It is important that you understand as a taxpayer that any money the government borrows must be paid back by you. If you are a middle class family of four and the government borrows $1 trillion then that is an immediate debt to you of $26,667 plus interest.
It is important that you understand that the debasement of a nation’s currency has a cost. If you are of the middle class you are very likely to be negatively effected by the indirect effect of currency debasement. This is called “inflation”. Historically inflation has been used by tyrants to reward political favorites. Presently, our government has chosen to funnel most of the gains from inflation to the financial sector, speculators and the upper classes.
So, as a taxpayer, if the attached economic report deviates from common sense and suggests “unsustainable debt”, “a larger government”, “a larger financial sector”, “manipulating markets” or “debasing our money supply” then it is in your best interest to disregard the information.
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