tag:blogger.com,1999:blog-76394792240194335542023-11-15T07:03:21.199-08:00Wake Up AmericaTheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.comBlogger20125tag:blogger.com,1999:blog-7639479224019433554.post-22369131518355879612013-03-12T11:31:00.000-07:002013-03-12T11:31:32.077-07:00CommentsI always intended that this blog be open to comments. I just took the necessary steps to enable comments from registered users, so if anyone has any ideas or constructive criticism, feel free to comment on any of my posts. I'm always open to discussion.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-56741956541712165242013-01-24T12:59:00.000-08:002013-03-12T11:10:38.957-07:00Spending Vs. "Borrowing" - Part 2If you do a Yahoo search on: Hitting the debt limit: What bills would be paid?, you'll find the article from Mon, Jan 14, 2013 on Yahoo News. Again, the article itself is not relevant to this post, and now that it appears congress will uncap the debt ceiling for a few months, it may be not be relevant again unless congress decides to recap the debt ceiling some time in the future. But the article raised concerns about our nation's priorities should the debt ceiling be capped. Since there were several suggestions (such as the trillion dollar coin) being floated at the time on how to circumvent the debt ceiling, I thought that I would throw out one that I hadn't yet seen proposed, so I posted the following comment: "They can always print United States Notes. The debt will never increase." My comment soon received the following reply from someone named Alan: "yup, and the notes will become worthless. Ya think that's a good idea?" to which I responded: "Why aren't federal reserve notes worthless, Alan?" His reply: "Because they are in finite supply. Do some reading about fiat currency."
The reason that I bring up this discussion is that I find it incredible that people can understand that printing United States Notes to float deficit spending is indeed inflationary, but that, for some unfathomable reason, they can't see that the fed's creation of federal reserve notes to do the same thing isn't inflationary. Now if our debt was on a much lower scale, the interest was manageable, and if any or all of the debt could be paid off without it being inflationary, then there would be a differnce between printing and borrowing. But if we aren't beyond that point now, we're very close to it. The debt service is only manageable because the interest rate is so low. If the debt gets much larger and/or we have to depend on the market in order to finance it, the problems will appear. And now the debt will be growing again. TBCTheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.comtag:blogger.com,1999:blog-7639479224019433554.post-84070797169436151832013-01-23T10:59:00.000-08:002013-03-12T11:09:58.567-07:00Spending Vs. "Borrowing""The Fed is Key to Where Stocks are Heading: Ritholtz" is an article posted on Yahoo Finance's "The Daily Ticker" 01/17/2013. The article itself is not relevant to this post, but I bring it up because a fellow named Mike posted this comment to that article: "Every time Ben Bernanke buys government debt with manufactured dollars it is in essence a deferred tax, since it allows the government to spend more money we don't have and it further erodes the buying power of the dollar. These deferred taxes hurt the middle class the worst and of course are destroying our children's future!"
What Mike posted was spot on, except that his blame is misguided. I replied: "And you blame it on the fed rather than the politicians because? Suppose the fed didn't do it. If the pols want to spend, they will. Right now, with the fed funding the debt at 1.87%, the yearly price tag is about .0187 x 16,400,000,000,000 or about 306.7 billion dollars per year (of wasted money). Without the fed, can we conservatively put the interest rate that the government would be paying at 5%? Then the cost would be around 820 billion per year and our deficits would be over half a trillion dollars larger. I'm not advocating either scenario, but #2 would be a lot less sustainable."
So my question is: Is the federal reserve going to be the United States' financier from now on? Can we really auction T-bills in the open market at even 5%? My guess would be - yes. At least to citizens who are incapable of investing beyond savings accounts and CDs. They would love to get 5%. But I seriously doubt that any sane person would lend money to the U.S. for 10 years @5%. As noted above, if spending on everything else remained constant (ha), we would need to "borrow" over half a trillion dollars more every year just to finance the debt at 5%. As the debt continues to grow, even "borrowing" from the fed at current rates clearly becomes unsustainable at some point.
TBCTheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.comtag:blogger.com,1999:blog-7639479224019433554.post-74541498965796386242012-11-03T20:53:00.000-07:002012-11-03T20:53:13.888-07:00A Few Pre-election ThoughtsFor starters, President Obama was on The Tonight Show on Oct. 24. You can still see the episode by going to the Tonight Show website. The interview is broken up into five segments, and I'll quote from the end of segment 2 and the start of segment 3:
Obama: "The biggest thing that we can do right now for the housing market though is to help more people refinance their homes."
Leno: "Right."
Obama: "And it actually could save the average family about 3,000 bucks, but a lot of homes are still under water. If congress passes legislation that we've already put before them, then we could actually see millions of families essentially get a $3,000 tax cut ..."
Leno: "Right."
Obama: "... and that means that the've got more money in their pockets. They're spending it, uh, at stores or they're putting it back in to equity in their own home. The whole economy could be stronger, so, uh, everybody who's listening, uh, regardless of party, tell congress when they get back to work, uh, to go ahead and get this thing done. It would be a great Christmas present for the U.S. economy."
Has the president been peeking at my blog? How long has he been sitting on this? Why has he never brought it up before? When he says "3,000 bucks", it might have been better if he'd said '3,000 bucks per year'.
But my real issue is: if he knows how effective this would be, and obviously he does, why doesn't he show a little leadership? Why leave it up to congress? By the time they get done with it, who knows how bad it will be (if it isn't already screwed up). If it involves spending, it's just plain WRONG. If it doesn't, just pull the trigger on an executive order. If we don't change the LENDING, it's not going to solve the problem with housing.
In my opinion, neither Obama nor Romney deserve to win this election. If I saw this solution four years ago, the presidential candidates should have also. Obama should have been ready to run with this the day he took office. If he had, we would be much better off today and no opposing candidate would have stood a chance in the upcoming election. Since he didn't, he left the door wide open for a challenger, even one with as much baggage as Romney. How could the Republicans have selected such a terrible candidate? The democrats have had a field day with their attack ads, which is why I expect Obama to be re-elected. Even for all of his baggage, Romney could have ensured a victory if he'd simply selected this (fixing the housing problem) as a platform and shown how effective that it would be in creating jobs and turning the economy around.
After the election, I'll change the focus of this blog from the housing solution to why this country is, without a doubt, facing an economic day of reckoning.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.comtag:blogger.com,1999:blog-7639479224019433554.post-63992400148345663202012-06-25T10:10:00.000-07:002012-06-25T10:10:31.182-07:00Two More Articles and an Added SolutionIt's been a while, but there are two articles on Yahoo Finance this morning worth reading. The first is "We Are Living in a Modern Day Depression" by David Rosenberg. To access this article, go to the Yahoo finance home page and click on 'THE DAILY TICKER' and page down until you reach the 6/25/2012 article.
The second is "Don't Count on Consumers to Save the Struggling Recovery: Economist" by Matt Nesto. To access, again, go to the Yahoo Finance home page and click on BREAKOUT (right above THE DAILY TICKER. Again, page down until you reach the 6/25 article. Excellent article summed up by "You could call it a vicious cycle, or a high stakes version of chicken or egg, but the fact remains that unless and until we are able to create new paychecks, this recovery is going nowhere fast."
I would also like to publish a comment to another Yahoo - CNBC article titled "A Global Recession? The Warning Signs Are Everywhere" dated 6/16/2012. Rich from New York, New York posted:
"The FRB and the government are letting the banks pay near zero interests to bank depositors, but they are not forcing the banks to pass on the low interest rates to the consumers on Main Street. The oil-pump is hogging the lubricant, and the engine grinds to stop for the lack of plentiful lubricant.
Like in the movie On the Waterfront and Rocky, the folks being ripped-off by the loan sharks, and the usury of the banks have a hard time getting out of their monetary fixes.
Forgotten are the zillions of students and consumers of Main Street, who are the 99%.
The Federal Reserve Bank lowered depositor interest rates, and T-Bill interest rates to near zero to benefit the banks, to benefit the government, and to benefit the 1%. Students and the consumers did not get that near zero percent interest rates, and the students and the consumers are forgotten. That's 99% of the people being ignored and forgotten. The banks, and the Government are not passing through this near zero interest rate reduction to the borrowers like student loans borrowers, mortgage borrowers, credit cards borrowers, and consumer loans. The banks and the Government are keeping the reductions all to themselves to further fatten excessively their selfish profits. The banks and the Government are screwing both the bank depositors, and the bank borrowers. The banks and the Government are ripping-off Main Street to enrich the greedy on Wall Street. Is it a wonder Main Street is hurting, when the banks, and the Government are shafting them from both ends of the street? It should not be any mystery what is happening.
Right now, banks and the Government are paying bank depositors, and T-Bill buyers less than a quarter percent, while charging credit card borrowers from more than 10% to 25% or more. This is over 40 to 100 times over what the banks pay the depositors (ie. 4,000% to 10,000% markup.) If that is not usury, what is? If that is not usury, why banks have to move their credit card operations to the Dakota?
Mortgage rates were traditionally less than 2 times depositor rates, and now they are over 10 times.
Student loan rates are more than 10 times the depositor and T-Bill rates, and now the banks and the Government want to increase that to more than 25 times the quarter percent depositor and T-Bill rates.
Mortgage rates should be limited to no more than 2 to 3 times depositor rates of half to three-quarter percent. Student loan rates should be less than 4 times depositor rates of less than 1%. Credit card rates should be less than 20 times depositor rates of less than 5 percent. And so forth. Pumping the same super low interest rates which the banks are receiving from the FRB to the consumers will get the other 99% of the economic sector on Main Street moving, in addition to the 1% of the financiers on Wall Street.
It does not take 10 minutes to sign a law requiring the banks to automatically reducing borrower interest rates to much lower levels in line with reduced depositor-rates. The 99% will get a lot more money back to spend and stimulate the economy. Why continue to "bail out" and fatten the less than 1% banksters at the expense of the 99% on Main Street? Stop the loan sharking."
While the issue with student loans and credit cards is considerably different than what I have proposed regarding mortgages, at least Rich sees that lower interest rates get people out of debt quicker, and that is the the key to a quicker recovery. If something could be done along those lines, it would certainly be beneficial.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.comtag:blogger.com,1999:blog-7639479224019433554.post-2605061030530024742011-08-29T07:43:00.000-07:002011-08-29T09:10:01.799-07:00Relevant ArticlesI've been derelict in referencing articles relevant to my blog, but here are three I perused over the weekend. (A quick aside - most of these articles come from Yahoo Finance. I like to use yahoo as a browser for several reasons, and their articles are esay to access and comment on.)
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<br />#1: "Debt Will Haunt the Market for Years to Come" by Howard Gold. Title pretty much says it all, altough I would assume that to mean that we 'stay the course' and do nothing. The article quotes Raghuram Rajan (google him up). Relevant quotes: "Recoveries from crises that result in overleveraged balance sheets are slow and are typically resistant to traditional macroeconomic stimulus."
<br />"Overleveraged households cannot spend, banks cannot lend and governments cannot stimulate." Another quote attributed to Carmen Reinhart and Kenneth Rogoff:
<br />"...Large public debt overhangs do not unwind quickly, and seldom painlessly... The debt-reduction process goes on for an average of about seven years."
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<br />#2: "Beranke Offers No New Steps But Leans On Congress" by AP Economics writers Martin Crutsinger & Paul Wiseman. Relevant quotes: "The economy is still hobbled by a depressed housing market ..." and "They say the main problem is that consumer spending remains too weak. So businesses feel little incentive to hire, expand and invest."
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<br />#3: "Recovering From a Balance-Sheet Recession" by Laura D'Andrea Tyson. While I have issues with some of the article, she does point out: "To develop cures to ease the jobs crisis, its causes must be diagnosed correctly. The fundamental cause is the drastic breakdown in private-sector demand ...". "In the United States, where mortgages account for most of the private debt overhang, the federal government should enact stronger measures to reduce principal balances on troubled mortgages and to make refinancing easier. These measures would help stabalize the housing market, would prevent future defaults and would free money for borrowers to use to pay down their debt or increase their spending." Although she definitely grasps the big picture, I disagree with 'reducing principal balances' for two reasons. 1) I don't think that it's necessary. If you reduce the cost of home ownership by lowering interest rates, the market turns around and home values increase, so the principal comes back. 2) Reducing principal hurts the holders of the all the toxic paper out there, and it is substantial. Since home values will come back once the market turns around, just lower the interest rates as I propose and pay off as many of the bad loans as possible at face value. TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-18481537143002450772011-06-28T08:42:00.000-07:002011-06-28T08:58:29.477-07:00A Different DirectionI've pretty much spelled out my plan for reducing people's debt so that they can become consumers again, thus creating jobs and reviving our economy. Short of any outside comments or disagreements which can be addressed, there's not much more that I can add at this time.<br /><br />However, I run across articles concerning our economy almost daily. When I feel that they are relevent to my posts, I will reference them in a new post here, post comments, and provide the link to the article so that all concerned citizens can stay informed.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-78887475225099610162011-06-21T07:48:00.000-07:002011-06-28T08:27:57.619-07:00Our Currency and LendingTheoretically, our economic system can operate on the fiat currency we now use. But the world runs on reality, not theory. Once we began debasing our currency in 1965, it was just a matter of time before we arrived at where we are today. Our elected officials will always find ways to spend more than they take in. Unless we get people back to work and our economy running at 100%, we may as well cap the government debt ceiling even if it means defaulting on what we owe. There is no way that we will ever be able to repay our debts except with worthless currency.<br /><br />And deficit spending with a fiat currency puts us right where we are today. Long term fixed interest rates for home loans were below 5% back in the 1950's. But money had a fixed value then. Here in the US, you could redeem silver certificates for a silver dollar containing about .75 ounce of silver. Internationally, other countries could exchange the dollars they held for gold. But as the value of the dollar eroded during the 60's and 70's, long term interest rates rose until going over 10% in the late 70's. Home building and sales stopped until ARM's and interest rates lowered in the 80's. The only reason that 30 year fixed home loan interest rates are below 5% today is because any new loan or refinance at those rates are immediately being sold to Fannie Mae or Freddie Mac. NO PRIVATE INSTITUTION IS GOING TO LEND MONEY LONG TERM AT LOW INTEREST RATES NOT KNOWING THE VALUE OF THE MONEY WHICH WILL BE REPAID.<br /><br />Ultimately, every aspect of our economy and welfare would improve with stable money. But it would probably be more difficult (until we get a handle on the deficits that we are running) to go back to a stable currency than it was detaching the dollar from gold and silver. Our immediate concern should be to get people back to work and stop the flow of red ink, then try to figure out how to stabalize the dollar and reduce the national debt.<br /><br />We already know that getting people back to work requires getting people out of debt and making them customers. And significantly lowering people's debt levels can be achieved by lowering their biggest expense (housing). And lowering the expense of housing can be achieved by lowering interest rates. And interest rates can easily be lowered by TAKING THE RISK (of unstable money) OUT OF LENDING by allowing banks and other mortgage lenders to borrow the money that they are lending for the same length of time that they are lending it.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-80611788607868752342011-06-19T06:21:00.000-07:002011-06-20T09:06:24.723-07:00Getting People Out of DebtSo, if low interest rates and tax cuts aren't getting the job done, what will? The article referenced in my previous post, "Could Private Debt Lead To Our Own 'Lost Decade'?", spells out the problem, despite being three years too late (I had at least one economic advisor warn me of the personal debt problem three years ago - it's why I began thinking about the problem and why I started this blog). In the last paragraph, however, the author gives up with "Because getting out of debt tends to be a gradual process, there's no obvious quick fix.". Yes, even with a very good paying job, it took my wife over two years to shed about $40,000- of credit card debt. And I can guarantee that most people don't have the income she has that will get them out of debt that quickly.<br /><br />But there's another way to increase your disposable income other than a pay raise. If an expense goes away, suddenly you have more disposable income. Suppose that you financed a car over a five year period and the payments were $255-/month. Once that car is paid off, you suddenly have $255-/month more disposable income that could be used to reduce other debts. Not only that, but that $255-/month wouldn't be taxed like a $255-/month pay raise would - you'll benefit from the whole $255-.<br /><br />Likewise, a significant lowering of house payments (say $600-) month after month would do a lot more to reduce personal debt than the tax cuts eneacted over the last two years. I contend that significantly lowering house payments would also lower rental costs too, as more people could afford to buy homes and take pressure off of the rental markets. <br /><br />Unless they are living in a fully paid off home or out on the street, everyone's single biggest expense is what they pay month after month just for a place to live. The biggest expense provides the biggest savings potential. And as I will show in my next blog, bringing down that expense would be easy, and easily justified.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-41203684672785809652011-06-15T07:16:00.000-07:002011-06-15T08:12:23.250-07:00What's Wrong With Traditional SolutionsActually, the government has taken some significant steps to stimulate the economy. Traditionally, if you want to stimulate the economy, you lower interest rates and/or taxes. Unfortunately, lowering interest rates only applies to new borrowing and there's not a whole lot of that right now. When you're tapped out, you're tapped out. You can't take on any new debt no matter how low the interest rate. So how about those tax cuts? Well, there's been a 2% cut in payroll taxes this year, and for the past two years we've had the 'Making Work Pay Credit' on our federal income tax. If our economy was humming along like it was in the late 90's, these tax cuts would probably have caused some significant stimulation, not that we needed any back then. But our debt levels are way too high now. See<br /><br />http://news.yahoo.com/s/yblog_theoutlook/20110608/us_yblog_theoutlook/could-private-debt-lead-to-our-own-lost-decade<br /><br />As large as these tax cuts have been (taken as a whole), they are only a drop in the bucket for an individual trying to reduce tens of thousands of dollars of credit card debt. So rather than provide stimulus to our economy, all these tax cuts have done is increase our national debt at a time when that is the last thing we need to do.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-62480083640863815332010-12-29T18:56:00.000-08:002010-12-30T08:25:04.972-08:00Job CreationAny meaningful recovery must include significant job creation in order to reduce and pay for our built-in government expenditures. Our current leader seems to think that government created jobs are the answer, despite the fact that government work programs failed to get us out of the Great Depression (and I use that term loosely - 2008 - ? may ultimtely become known as the Great Depression). So let's all work for the government. But wait, then the government would have to tax us all @ 100% just to break even. Guess that won't work. Fact is, the FEWER people that work for the government and the MORE people who work in the private sector is best for the economy. So, what creates jobs in the private sector?<br /><br />CUSTOMERS. Wake up Washington. Customers create jobs. No matter whether your business provides goods or services, the more customers you have, the more employees you need to service them. Conversely, as you lose customers, you lay off employees (or if you lose too many customers, you simply go out of business). It's that simple. <br /><br />So what is a customer? I like to think of a customer as a person with money AND the desire to spend it. You can't be a customer without money or something to exchange for what you want. And even if you have money, you're not a customer if you aren't willing to part with it. So if a lack of customers caused businesses to lay people off, WHAT HAPPENED TO ALL THE CUSTOMERS?<br /><br />Well, I think we can rule out the lack of desire to spend. We love to buy things, we like to eat out, take vacations, go to the movies - the list is endless. That leaves us with, you guessed it, A LACK OF MONEY TO SPEND, because if I had more and I knew that month after month and year after year I'd have more, I guarantee that I'd be spending more. I've got to believe the idiots in Washington are so out of touch with how the rest of us live, they can't figure this out. Oh that's right, they can vote themselves benefits that the rest of us can only dream about, and conjure up money whenever they want. Well, if we print it up ourselves its called counterfeiting, and we can't borrow more than we can pay the interest on. So when we reach our debt limits or don't have job's we STOP SPENDING, businesses LOSE CUSTOMERS, and lay off more employees. It's not rocket science.<br /><br />It's this simple folks: IF YOU WANT TO CREATE JOBS, YOU HAVE TO REDUCE THE AMOUNT OF DEBT STIFLING THE ABILITY OF MIDDLE AND LOWER INCOME PEOPLE TO CONSUME.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-22814506963532298532010-12-28T21:20:00.000-08:002010-12-28T22:56:51.990-08:00Same Problem - New PerspectiveLet's look at our problems from a different perspective. I contend that our country digs itself into a deeper hole every day that passes without a significant economic turnaround. We need a recovery to cut unemployment costs, reduce the deficit between payroll tax revenues and benefits paid out by the Great Ponzi Scheme (feel free to ask if you can't figure out what that is), and help defray the cost of all the other automatic spending our government does despite the loss of revenues which occur when our economy tanks. I'm not going to repeat the warnings of I.O.U.S.A; suffice to say that the rising price of gold and silver says it all.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-861685834408307742010-02-10T20:29:00.000-08:002010-02-11T07:45:45.399-08:00JustificationI consider myself to be a practical libertarian. I suspect that the purists won't go for what I've proposed here because it involves the government getting involved with the markets and doing something that really isn't a valid function of government. I couldn't agree with them more. But that's where the 'practical' comes into play. We can do nothing. Basically that is what is happening now. If we continue down the path we are on, I don't see how we can avoid hyperinflation. If this 'recession' continues for any length of time, and it is bound to unless the government takes some meaningful action (and government infrastructure spending is NOT meaningful action), then some day in the future they will be refering to it as a depression. It is going to take considerable time for the private sector to shed it's debt load short of what I have proposed, even if the underemployed are able write off 40% of what they owe. And the longer it takes, the more massive the deficits will be and the sooner the social security upside down day will arrive. And don't count on the Republicans or the Democrats to do the right thing and correct the problems with the entitlement programs. If someone wanted to intentionally write a script to destroy our economy and way of life, they couldn't have done a better job than what we are facing now. Maybe that is what it is going to have to take, complete failure of the existing institutions before the bums are thrown out. The big question is, do we end up with freedom and go on to future greatness, or end up with totalitarian failure?<br /><br />What I am proposing is a way to buy some time. It was the government that created the interest rate instability that forced lenders to resort to ARM's. Then it encouraged the irresponsible lending practices that led to where the housing market is today. Now it can create the necessary stability to make it all right again. I believe that Bush could have done it before he left office and the Obama could do it now, without congessional approval. Since it would be a lending bill, not a spending bill, I believe that it could be done by executive order. Once we get the country back to work, however; it will be necessary to change how Washington is currently operating. In my opinion, it will take a third party to reform Washington. But my thoughts on that will have to wait for a while. I've got taxes to do.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-82135424547907613442010-02-10T19:57:00.000-08:002010-02-10T20:28:30.316-08:00More Benefits6)Replacing as many bad & questionable loans as possible with good sound loans would go a long way toward bailing out the FED and all of the financial institutions and funds weighed down by the the big black cloud of mortgage backed securities. And as the market improves, the MBS market should improve accordingly.<br />7)I hope by now that everyone realizes that there is another train wreck on its way in the commercial real estate market. If we don't get things turned around soon, all of last years bailouts might have been in vain. Or the government my have to come up with another trillion or so that it doesn't have (and hasn't budgeted for) to save the financial institutions that are "too big to fail". OUCH!TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-21102127368441225392010-01-27T13:37:00.000-08:002010-02-05T21:25:29.165-08:00Housing Reform BenefitsSo, what benefits should be we see as a result of my proposal?<br />1) The residential real estate market should immediately stabalize. Homes would become much more affordable. My understanding is that there are still many Alt-A loans with payments due to increase dramatically. As that happens, more people will be walking away from their homes meaning more empty homes on the market and more bad paper out in the investment world. I'm not saying my proposal will save everyone who still has an ARM due to reset, but it will do more than anything that has been put in place so far. As proposed in my last blog, very low interest rates could be used to save as many loans due-to-go-bad as possible and to make the existing market more affordable for lower income people. A six month window could be used as an incentive to get people back into the market. As the existing inventory declines and the economy improves, interest rates could be adjusted so that the market doesn't overheat.<br />2) With lower 30-year fixed-rate loans available, people with lower incomes will be able to afford homes. People will see the value of home ownership as inventory declines and prices begin to rise again. People considering walking away from their homes now could take advantage of the program and reverse the trend of falling real estate values.<br />3) Millions of homeowners who can convert to lower interest rate loans could save hundreds of dollars month after month. THIS is the bailout which will help get the middle class out of debt and ultimately provide the stimulus which will create jobs.<br />4) The same homeowners who save hundreds of dollars monthly due to lower interest rates will also have lower home interest deductions on their 1040 schedule A's. Tax revenues will therefore increase at a time when they are desperately needed, WITHOUT raising tax rates. The ulimate win-win situation.<br />5) As the economy picks up, so do revenues at all levels of government. Hate to think of what will happen if this recession lasts much longer.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-73855445085054398852010-01-13T19:41:00.000-08:002010-01-13T20:58:46.664-08:00The Basic IdeaMy proposal is to allow any person over 18 years of age to be able to purchase one home (or convert one existing home loan) to a 30 year fixed mortgage according to the following outline:<br /><br />The applicant goes to the lending institution of choice and applies for the loan. The lending institution does the appropriate analysis of the applicant's financials and determines whether or not they qualify. If so, the lending institution goes to Fannie Mae or Freddie Mac with copies of the qualifying documents and secures the amount of the loan necessary to purchase the home. (It might be prudent to require at least 10% down so that the buyer has a vested interest in the property.) The lending institution borrows the money at 3% fixed for thirty years, and charges the applicant 4% fixed over the same period. For those with existing loans, so long as they are current on their existing loan, their lender can take proof of being non delinquent and convert the loan to the 4% fixed rate. For delinquent existing loans, the lending institution would have to look at the borrower's financials to determine whether or not they would qualify for the new loan. (The interest rates proposed in the outline were chosen as examples. Whereas I consider them to be reasonable, the lending institutions might argue that they need a float larger than 1%. Also, if the administration was really serious about getting the economy back on track, it might open a six month window where the interest rates would be 1% and 2% respectively as incentives for purchasing existing inventory and/or loans already gone bad.) Loans would be tracked by social security # so that no one could have more than one at a time. We don't want to re-create the bubble that just burst. The plan is intended for home owners, not home flippers. Unless the applicant can establish that they had to relocate [e.g. due to work], we might want to restrict people to a 1-2 year waitng period between loans.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-8686719229538350652010-01-13T08:41:00.000-08:002010-01-13T10:55:24.829-08:00Killing Two Birds With One StoneSo, the two problems we have to solve are 1)bad home loans & 2)personal debt. My first thoughts on the matter were: assuming the subprime borrowers could afford the early teaser rates they were given, the solution would be to convert their loans to 30 year fixed loans at those rates so that they could afford to keep their homes. At this time, of course, lenders aren't able do that with interest rates subject to the fluctuations brought about by fiat currancies. However, what if lenders could borrow money from the government AT A FIXED RATE FOR 30 YEARS. They could then turn around and lend it out for 30 years (at a fixed rate) and not be victimzed by an increase in interest rates. Now we have an effective way to deal with a lot of those bad loans out there (and most of those loans still to go bad). How does this help out with the personal debt? Instead of the administration's complicated and lame attempt at bailing out a narrow segment of homeowners with problem loans, don't discriminate; make the program available to EVERY homeowner AND potential homeowner out there. If every homeowner could convert their, say 6% loan, to a 4% loan, they would be saving hundreds of dollars a month in interest payments. The savings could be used to pay down their credit card debt to the point where the could afford to become consumers again. UNDERSTAND THIS: it is people with money AND the desire to spend it that creates jobs and moves the economy. Lowering interest rates for homeowners will put some significant money in middle class hands WITHOUT the government GIVING anyone anything. If anything, it will shore up government coffers at a critical time in our country's history. More to follow.TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-1061231429762269072010-01-07T04:24:00.000-08:002010-01-07T05:00:37.526-08:00The Problems1/7/2010<br /><br /><div align="justify">A few of my sources started warning about the impending housing bubble in late 2007, warning their readers that banks and other lending institutions would be in serious trouble when it burst. Then in the late spring of 2008 one of them went on to say that the problem was more serious than the housing bubble. Middle Class America, it warned, was up to its eyeballs in debt, and we should be prepared for a major market correction, recession, and/or worse. The engineering schooling I'd had kicked in after reading that, and I began to think if there were any ways of dealing with the collapsing housing market and all of the private debt. It was clear that Bush's little $600- stimulus payment wouldn't get the job done, not to mention that it would only increase the national debt due to little of it coming back to the government in the form of tax revenue.</div>TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-10377929599223684222010-01-06T21:26:00.000-08:002010-01-07T04:23:19.823-08:00Where I'm Coming From1/6/2010<br /><br /><div align="justify">I do my own investing, so I subscribe to several e-letters so that I can get a lot of perspectives on what is going down on the economic front. I don't claim to be an 'expert' on the issues which will follow. I've never had a class on economics at the college level. What I'm proposing will be based on a logical evaluation of the problems our economy is facing. If you wish to take issue with the problems, I'll reference the 'experts' from my e-letters. Let's get to it.</div>TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0tag:blogger.com,1999:blog-7639479224019433554.post-88606985969695311582010-01-06T20:13:00.000-08:002010-01-06T21:18:43.909-08:00Why I'm blogging.1/6/2010<br /><br /><br /><br /><div align="justify">Well, I have to kick this off somehow, so here goes. The purpose of this blog is to share ideas with my fellow citizens so that they can judge for themselves just how competent our elected leaders are. Until a couple of years ago, it didn't appear to be necessary. Despite their selling our progeny down down the river since Kennedy was assassinated, I was beginning to think that I wouldn't see the fruits of their labor in my lifetime, or at least until it was just about to end. But now, with our current recession soon to become a prolonged depression (and a Weimer Republic inflation around the corner), I feel it my duty to let everyone know that there is a very simple thing that could be done to turn our economy around now; hopefully, before it is too late. So I'll try and put down my stream of consciousness on a daily basis until the work is complete. If you agree with what follows, please email the contents or the URL to as many people as possible. The voting public is the ONLY way that the ship will be righted, despite our current leader's hollow campaign claim to be the candidate of change. If you disagree, I welcome any and all constructive criticism, and look forward to debating it as it is received.</div>TheRoadWarriorhttp://www.blogger.com/profile/03435028769043670060noreply@blogger.com0