Save the endangered American saver by opposing any housing bailout.
"Millions for Defense, Not One Cent for Tribute"
--The battle cry of Americans rejecting 18th-Century extortion.
Debtor in Chief Obama failed to manage his own household family budget well.
Barack Obama ran his own household family budget like a stereotypical overspending, over-indebted yuppie:
It is no surprise that President Obama supports unprecedented spending and borrowing in the federal budget since he has never suffered any consequences from the excessive spending and borrowing in his private life.
And I'm not just talking about the First Lady's $540 sneakers.
A close examination of their finances shows that the Obamas were living off lines of credit along with other income for several years until 2005 . . .
Obama's "Home ATM": Equity Harvesting with Mortgage Equity Withrawals (MEW)
The Obamas took out so many loans that their mortgage exceeded the purchase price of their home, because they used their home as an ATM and ate their home equity via a MEW to cash in on the housing bubble to finance things like $10k in piano and dance lessons and other consumption.
The "home ATM" (MEW) was a major cause of the bubble and, after house/asset prices inevitably contracted to saner levels, the resulting underwater borrowers (owing more than house is worth), foreclosures, and economic crash.
That unhealthy "growth" was overreaching people overheating your economy by overextending themselves with debt.
Obama is the type of person who CAUSED the foreclosure mess yet somehow he has been promoted to be in charge of fixing it.
A classic political platitude is to say that the government budget should be run like a household budget. If Obama runs the federal budget like he ran his own finances, we are all in deep trouble.
Obama's financial fortunes did not turn around until he became a US senator and cashed in on his new national celebrity:
But in 2005, Obama's book sales soared and the royalties poured in. Michelle explained, "It was like Jack and his magic beans."
Yes, a taxpayer-funded job can be quite a cash cow.
Maybe Obama's next economic recovery plan will make every American a senator.
It is no wonder that Obama's federal budget plans assume that money suddenly will appear out of nowhere sometime in the future and make our deficit problems vanish.
Satire Becomes Reality in Our Economic Theater of the Absurd
I previously satirized the fanciful, pollyanish economic spin of the bubble bulls by coining the following phrase:
The Great Pre-Recovery
The Great Pre-Recovery is an Orwellian euphemism for The Great Depression II (our current economy).
Pre-Privatization
The Great Pre-Recovery satirized the real attempt to push nationalization with the term, "pre-privatization"--shamelessly using the term "privatization" to describe the opposite of privatization, the end of private property (government siezure).
Pre-privatized is like a bank robber demanding a pre-deposit at gunpoint.
Bush could have described his Iraq invasion as a pre-withdrawal.
Pre-recovery is the opposite of recovery, before recovery, the lack of any recovery.
Now, truth is as strange as fiction as a real financial analyst uses the "pre-recovery" term:
You will be haunted by 3 ghosts, the Ghost of Malinvestments Past, the Ghost of Malinvestments Present, and the Ghost of Malinvestments Yet To Come.
GHOST OF MALINVESTMENT PAST (Pre-Peak Housing/Credit Bubble) Past is Prologue: America learned nothing from the 1990s Asian real estate bubble and 1997 Asian financial crisis that left Asia littered with derelict"modern ruins," the "ghost towers": -
- We instead launched our own stock and housing bubbles even as the Asian bubble imploded.
The massive oversupply of residential buildings (houses/homes, condos) and commercial real estate (CRE) (malls, auto dealerships, coffee shops) not only wastes resources in their initial construction but further wastes resources when the resulting infrastructure is destroyed, either by negligence (frozen water pipes in abandoned buildings), vandalism, or deliberate economic decision.
Bulldozing Brand New Houses
The classic joke about the malinvestment of make-work, the absurdity of paying people to dig holes and then paying people to fill those holes, is now a reality as owners are bulldozing brand new houses in Victorville California.
If there is a picture in the dictionary for malinvestment, bulldozing Victorville's housing-bubble homes could be it: -
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Apocolypse Now Lt. Col. Bill Kilgore says, "I love the smell of malinvestments in the morning....Smells like...Victorville."
Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic "shrink to survive" proposals being considered by the Obama administration to tackle economic decline. . . . The US government is looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature. . . . Local [Flint Michigan] politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area. ("US Cities May Have To Be Bulldozed to Survive," Telegraph.co.uk, Tom Leonard, 6/12/09, hat tip: Beemer)
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GHOST OF MALINVESTMENT PRESENT (Post-Peak Housing/Credit Bubble)
Sob stories about alleged credit crunches and tight budgets do not match ongoing profligacy.
Multi-Million-Dollar School Swimming Pools Despite Financial Crisis
NYC Co-Op City Harry S. Truman school is trying to spend at least $3 million dollars on an olympic-sized swimming pool:
Painting Ourselves into a Corner with Multi-Million-Dollar Art Subsidies Despite Financial Crisis
A public-radio commentator suggested that stimulus should subsidize public-radio commentators, citing New Deal subsidies for writers and artists.
Another public-radio ( NPR) commentator talked of an "arts czar" and "arts corps," praising $50 million for 14,000 NEA art jobs.
During the [Obama] transition, arts advocates floated some big ideas—including the creation of an arts corps to bring young artists into underfunded schools, the expansion of unemployment support and job retraining to people working in creative industries and the appointment of a senior-level "arts czar" in the administration. . . . In January they lobbied for $50 million for the NEA in the stimulus package and prevailed over Republican opposition. The one-time allocation will preserve more than 14,000 jobs, allow for new stimulus grants and leverage hundreds of millions more in private support for the arts. Two million Americans list "artist" as their primary occupation. Nearly 6 million workers are employed in the nonprofit arts-and-culture complex. In the words of the NEA's Patrice Walker Powell, the stimulus vote finally "dignified [them] as part of the American workforce." ("The Creativity Stimulus," Jeff Chang, NPR, 4/22/09)
Strangling the Economy in Red Tapeand Parasitic Grants
The "recovery" programs are preventing recovery by converting all economic activity into begging for government hand-outs ("rent seeking"--transfering wealth made by others instead of creating wealth).
Cumberland County Maine grants coordinator Elizabeth Trice (?) is “spending a lot of time” on grants.gov groping for stimulus funds and wading through a maze of mostly irrelevant material.
Hundreds of county and city officials attended a 9-hour White House Recovery and Reinvestment Act Implementation Conference in Washington DC.
The grants and other "stimulus" programs will have the opposite effect and mire the economy in a morass of fraud, corruption, rent seeking, squandered labor, wasted resources, misallocation of capital, crowding-out (government spending monopoly starves productive investments of funds), and hyper debt.
The FBI is bracing for a wave of fraud and corruption cases stemming from the government's multitrillion-dollar effort to get the economy moving again, the agency's chief told Congress Wednesday. ("FBI: Stimulus, Bailout Will Lead to More Fraud," 3/25/09)
The FHA previously complained that Downpayment Assistance Programs (DAP) circumvented downpayment requirements (often surreptitiously seller-financed through a shell non-profit organization), so the borrower had no skin in the game and was more likely to default.
Continued insufficient, zero, or even negative downpayments shows that the so-called "credit crunch" actually perpetuates risky, lax lending and set the highest US consumer-credit level in history.
Japan is paying its unemployed to leave the country and never return, offering Y300,000 per unemployed person and Y200,000 per dependent (roughly $3K and $2k). The government is targeting immigrants such as Latin Americans of ethnic Japanese descent, including over 300,000 Brazilians, who had migrated to Japan during a tighter labor market in Japan.
United States' greatest export is debt (and inflation).
The USA fueled its consumer binge by replacing export of industrial manufactured goods with export of its dollars and debt (causing inflation in other countries)--the export visible in the current accounts deficits of double the "sustainable" level (near 6% instead of the still dubious but popularly cited 3%).
TARPistanian President Obama, Federal Reserve Chairman Ben Bernanke, and the rest of the Rube Goldberg crew seem to be enforcing Terry Gilliam's 1985 dystopian farce, Brazil, with its Central Services government (dis)functionary repairmen, Spoor and Dowser.
"So we can differ on some of the particulars, but . . . doing nothing, that's not an option from my perspective."--Barack Obama, 2/9/09 press conference
Ben "Spoor" Bernanke: "This is an H2206, authorizing the compulsory, temporary, requistioning of this economy . . . for unnecessary repairs." Barack "Dowser" Obama: "Repairs!"
President Obama inherited massive deficits from . . . Senator Obama.
"First of all, when I hear that from folks who presided over a doubling of the national debt, then I just want them to not engage in some revisionist history. I inherited the deficit that we have right now, and the economic crisis that we have right now." (Barack Obama, 2/9/09 press conference)
When Obama blamed the other guy, the media apparently chose not to notice that the other guy was also Obama.
When not doing the seemingly impossible of making Comrade Bush look frugal in comparison, Obama made the following comments in a 2/9/09 press conference which show that, years into the economic problems, he remains clueless and 180-degrees backwards:
"We stand to lose about $1 trillion worth of demand this year and another trillion next year."
No, we stand to SAVE $1 Trillion per year by not buying things we do not need (that is what lower demand means)--but Obama apparently hates savers.
"And what that means is you've got this gaping hole in the economy."
No, we have a gargantuan, excess bubble that has deflated only slightly and still needs to be lanced like a fetid boil--but Obama cannot tell the difference between a bubble and a hole in the ground.
"The auditorium is completely broken down; they can't use it. So why wouldn't we want to build state-of-the-art schools . . . ?"
Because we do not have the money (that is what deficit means), we are already $11 Trillion in debt, and America does not need yet another Roman colosseum (school auditorium).
"I don't think it's accurate to say that consumer spending got us into this mess. What got us into this mess initially were banks taking exorbitant, wild risks with other people's monies based on shaky assets. And because of the enormous leverage . . . That led to a contraction of credit, which in turn meant businesses couldn't make payroll or make inventories, which meant that everybody became uncertain about the future of the economy, so people started making decisions accordingly -- reducing investment, initiated layoffs -- which in turn made things worse. . . . Our immediate job is to stop the downward spiral, and that means putting money into consumers' pockets, it means loosening up credit."
"We saw this happen in Japan in the 1990s, where they did not act boldly and swiftly enough, and as a consequence they suffered what was called the "lost decade" where essentially for the entire '90s they did not see any significant economic growth."
No, they did not see economic growth BECAUSE the Japanese government acted TOO boldy in bailouts and stimulus, which trapped resources in zombie companies, wasted resources in malinvestments, and consumed the very resources needed for recovery (crowding out), thereby bleeding and starving the productive private sector--and PREVENTING the recovery.
Measure Money and Credit NOT Prices, Wealth, Assets, Velocity, Transparency
People debating inflation/deflation often take the Austrian economics' definition:
Inflation = Increased supply of money and credit (combined)
Deflation = Decreased supply of money and credit (combined)
Therefore, the following are NOT inflation/deflation:
Prices: Many deflationists rightly state that price increases are not inflation (such as when gas prices were rising during the current recession). As Milton Friedman and Anna Schwartz wrote, "Inflation is always and everywhere a monetary phenomenon." In contrast, prices can be a lagging-indicator effect of inflation/deflation (monetary phenomenon) or an effect of supply and demand (production phenomenon). The Federal Reserve confuses people by using prices (CPI, PCEPI) as an inflation measure. Actually, prices can rise even during deflation if supply (relative to demand) drops faster than money/credit supply drops (a common definition of "real" (relative) "inflation" (actually, general prices increases) as "too much money chasing too few goods" explains prices by combining the monetary effect with the production effect, money relative to production, but we will stick with inflation/deflation as absolute money/credit supply for clarity). If rising gas prices are not inflation, falling gas prices are not deflation. We saw years of inflation with falling prices in electronics. Beware when people cite falling prices such as gas, wages, and assets (not money/credit supply).
"Wealth Destruction" ("Asset Deflation"): These terms often misleadingly refer not to actual wealth destruction (your quart of milk spoils), nor to money destruction (burn a dollar bill), nor to credit destruction (pay off your credit card), but to price declines, which we already know are not deflation (see the previous paragraph). First, asset destruction (house burns down) is different from asset price declines (house assessed value declines but is still the same house providing the same housing shelter). Price decline from peak is different from price decline from purchase price (house or 401k goes up 2 pennies and then down 1 penny--despite the "asset deflation," you did not lose a penny, you gained a penny). Prices can decline without practical wealth destruction when dealing with unreal, unrealized "paper" profits/losses. Second, money does not equal asset value even in "normal" markets when house prices do not decline. Someone with a 5% 30-year fixed-rate mortgage (FRM) will pay almost $600k for a $300k house after interest ($280k interest). Third, asset prices can plummet without decreasing the money/credit supply by a single penny. If someone buys a house for $300k, sells it to you for $600k, and then overnight the value drops back to $300k, the $600k is still in the economy (you gave the $600k to the seller, plus you still have $1.16 Million debt payments to give to the bank ($600k + $560k interest @ 5% 30yr FRM) if you used a no-money-down mortgage). That case is wealth transfer, not wealth destruction. Asset price fell (50%), Loan To Value (LTV) ratio rose (from 100% to 200%), and money/credit supply remained unchanged. Assets are not money. Assets are not credit. If you prefer, not all assets are money/credit. Beware when people cite falling asset values (not money/credit supply).
Velocity: Velocity, the turnover rate or frequency at which people exchange money, is an effect of economic activity, not the cause of it as central planners like to say (people need a productive reason to exchange money and increased velocity is a consequence--but politicians prefer higher velocity even for unproductive make-work because they profit from churning even wealth-destroying transactions). Do not confuse the number (supply) of an item with the number of people using that item. If your street of 10 people shares 1 lawnmower, together you have 1 lawnmower, not 10 lawnmowers (1 "high-velocity" lawnmower that travels a lot, instead of 10 low-velocity lawnmowers that each stay in 1 yard). Velocity is the speed of the money/credit supply. Velocity is not the money/credit supply. Velocity is not money. Velocity is not credit. Beware when people cite the speed of money (not the supply of money). Beware when people cite the number of dollar transactions (not the number of dollars). Beware when people cite decreased velocity (not money/credit supply).
Deflation would be the natural consequence and beneficial solution to the economic bubble, which is why the government is fighting to prevent the solution--and the charred battleground is your wallet.
Bernard L. Madoff's Ponzi Scheme Loses $50 Billion of Investors Money
. . . And Illustrates How Government Regulation Creates/Enables Financial Fraud
Ambulance-chasers who exploit this financial-fraud train-wreck for a power-grab to increase the government regulatory burden fail to understand history and human nature.
Regulators created the Securities Act of 1933, the Securities Exchange Act of 1934, and the Section 4 Securities and Exchange Commission (SEC) as more "never again" empty promises that were supposed to prevent another Kreuger but failed to prevent Enron, Madoff, etc.
Regulators created the post-Enron Sarbanes-Oxley Act of 2002 (SarbOx or SOX) as another "never again" empty promise that failed to prevent Madoff or any of the housing/financial-bubble fraud or the current global financial crisis.
Regulators not only failed to stop Madoff but instead the SEC lavished him with a special privilege named after him, the "Madoff Exception" (hat tip: Trader Walt): Madoff Exception mentioned in: "Regulation SHO, Rule 202T – Temporary Rule related to Establishment of a Pilot Program" "The SEC’s Short Sale Rule (Exchange Act Rule 10a-1) states that a listed security must be sold short at a plus tick price or at a zero-plus tick with two exceptions (the equalizing exemption (Exchange Act Rule 10a-1(e)(5)) and the Madoff exception). Rule 2O2T is a temporary rule that creates procedures for the Commission to establish a Pilot Program to analyze the necessity and effectiveness of current tick test restrictions. The Pilot Program established will exclude designated securities from the requirements of the tick test (or any other SRO-specific price test) from May 2, 2005 until April 28, 2006." (CHICAGO STOCK EXCHANGE, INC. MARKET REGULATION DEPARTMENT INFORMATION MEMORANDUM, MR-05-6, 4/27/05)
The SEC's Madoff Exception is a classic example of how government creates/enables fraud by granting ANTI-free-market, ANTI-competitive powers to special interests, even criminals.
The SEC then insulted the American public by, after the SEC shepherded the fraud's "stunning . . . duration" through 2 decades of inaction or rewarding Madoff, boasting that it was moving "quickly and decisively":
Rescue Chrysler/GM = Kill Ford Auto Dealerships Offering Buy-One-Car-Get-A-Second-Car-Free Expose Bailout's Folly
The people crying that the automobile industry is X-million jobs or X-percent of the economy should have bought a controlling interest in GM a decade ago and reformed it, instead of trying to rob the public today.
The odds that every single job would evaporate are remote.
2. If current capacity/supply/production is higher than demand, then a reduction in production is welcome and a reduction in producers is understandable (actually, even with higher production, it is better to make more things with less labor—have you noticed that 98% of Americans are not farmers (not in an agricultural job of the labor force)?). Treating the current automaker size or number as a static, sacred, magic number is ridiculous. People allege that autos and “related” companies take-up 1/7 of the economy—but trying to freeze that number in a dynamic economy can damage you and the whole country if the proper, wealth-maximizing proportion is only 1/21 of the economy (1/3 of the current size).
Weeks of public debate overlook the main point:
GM exists to provide cars to consumers, not jobs/health-care/pensions to employees.
If we have an automobile oversupply (do not need new cars):
Making more unwanted cars is a waste of resources, including unnecessary pollution and oil depletion for the workers to drive to work to waste resources.
Any car sale that the government guarantees for Chrysler or GM probably steals that car sale from Ford.
Any Chrysler or GM job the government saves probably takes a job away from a Ford worker.
Automobile Oversupply Indicators:
Japanese car makers’ sales slid about as much as US car makers’ sales did (which might indicate comparable car value, but the Japanese companies apparently put themselves in better financial shape in the good times to ride-out the bad times). 6 companies at 2/3 capacity equals 4 companies at full capacity and 2 companies obsolete.
We already have an oversupply. Why build more? Why bailout Chrysler/GM by killing Ford?
If Detroit had a solid plan to make and sell good cars at a good price, it would attract private investors (dismiss the "only government can do it" ploy and look at the dollar amount of money on the sidelines that pumps even a +1% stock-market rally).
Imagine if Detroit’s auto executives and the United Auto Workers (UAW) union spent as much time trying to build good cars as they spend trying to break into your bank account for a bailout.
