The GM Affect

Interest rates have gone haywire the last couple of days. You won’t hear it reported in the media though. Why? Because it would look bad for certain economic positions and actions taken by the current Administration …at least that’s my take on it…

The problem is that the bond markets are upset about the way the Obama Administration has handled the bond holders for Chrysler and fear the same will happen with GM. At the administrations urging, the judge in the Chrysler bankruptcy case forced the bond holder to take on more risk.

Usually bond holders are the first to be protected in a bankruptcy but this time it was other interests that were protected first. (think Unions) The bond holders took a back seat to almost every other concern.

Before you go saying those ‘evil’ bond holders (lenders) deserve it, think about this. Bond holders invest in companies by making loans to them because they are risk adverse. Investing in normal stocks is to risky for these investors. There reason? They are investing money from pension funds and insurance companies. This money needs to be invested in areas with very little volatility and steady returns with low risk to the money. (think about your pension, you want safety right?)

The way these bond holders are being treated is a huge change from how large restructuring like this normally takes place. And this sets a dangerous precedent going forward. So with a bankruptcy from GM looming on the horizon, the bond market got very, very nervous and everyone backed out of the market in one day!

I’m calling this The GM Affect because it was so awful. We saw rates jump 1% in less than 24 hours ….by the way… That is completely unheard of!

Rates have come back down today, but I don’t know how long that will last. Rates jumped up to 5.5% from a low the previous day of 4.5%. Rates today are back down to 5% but no one knows for how long.

With a very scary economic report just out about a 5.7% decline in GDP the first quarter of this year and about companies slashing inventories and jobs (approximately 2,000,000 more jobs lost) I’m not sure how much longer rates can stay this low.

So while the Administration rolls our their latest campaign touting the ‘good’ that the stimulus package has done and while they roll out the parties for the supposed 150,000 jobs that were created, our economy has had the second largest contraction since 1981. (By-the-way, only about $11 million of the $45 Billion that has hit the economy was for worthwhile make- work projects. The rest was for one-time payments for welfare and Medicare and for the extension of unemployment benefits.)

I know that this sounds like political commentary and I apologize because it is truly not meant to be a political view point. I'm commenting on my concern about the numbers The numbers don’t lie, and since they don't lie, then someone or something else is lying. Could that something be the government, maybe both parties? Some will point back to the Bush administration as an excuse to support Obama’s actions. Guess what? Bush was wrong as well!

All the economic tricks and gimmicks being tried today have been attempted before. We did here in the late 70's to early 80's. and it didn't work. Heck countries all around the world have tried what we are doing and they will tell you it doesn’t work.

Call it Keynesian Theory, call it Social Democratization, call it whatever you want but understand this. If it is illegal for you to 'kite' checks to cover your debt, then why do we allow the government to do it? (Kiting a check is when you deposit a check from one of your own checking accounts into another and then from that account back into the original account in a never ending circle just to cover checks that you right elsewhere, at some point it will catch up to you.

So why are we allowing our government to do a thing that we would be put in jail for doing? Because of some ‘theory’? Does this make sense to anyone?

At some point we will not be able to print enough money to buy our own bonds to fund our bloated and bureaucratic government. I’m hoping for the best and preparing for the worst. Here’s a link to a great article with the bad news/good news that can help you make up you own mind. http://www.marketwatch.com/story/us-gdp-revised-to-57-decline-in-first-quarter

A Lesson on Greed

When you look around the world and see the haves and have-nots, does it make you wonder if this capitalist society filled with greed is injurious to the world?

A powerful question to be sure. I like the answer given by Milton Freeman and countless other modern day philosophers. Is there some benevolent benefactor within mankind that is so pure that they can order our society for us?

The answer is NO. When you look around the world, the truth is that the societies with a free enterprise system (capitalism) have the highest living standards on the planet. As a matter of fact the freest people have the best quality of life.

However, look at the world where governments restrict free trade and control societies. Their standard of living is squashed and the motivation to improve society is squandered.

Ah, but human nature is not abated. The leaders of these ‘controlled’ and closed societies are greedy. We need only look at the standard of living the leaders enjoy as compared to the poverty they force upon their populous. Is this not Greed?

The problem with heading towards socialism was best stated by Margaret Thatcher when she said that the problem with Socialism is that eventually you run out of other people’s money.

But I think there is an even greater problem. When you look at the history of countries that trend towards Socialism and Communism you see what happens when men are entrusted with ultimate power.

Their Human Nature overtakes them and the next thing you know you move towards Totalitarianism. In a free trade, free enterprise, capitalist society with a Republic form or government, the market and the rule of law helps to minimize our human nature and acts as a checks and balance to human greed.

Sure, greedy people do succeed, but so do people those that aren’t greedy. In a capitalist system, the non-greedy can compete with the greedy and many times the non-greedy win. This creates a better society, not control by some authoritarian overseer.

Some would blame our current economic situation of the greed of capitalism, but the truth is that this situation was caused by poor government policy, shoddy oversight and mismanaged regulations.

In other words, this problem was caused by powerful politicians attempting to dictate to industry how they should operate.

Now the USA moves towards Socialist policies and I find it ironic that as our President visits his once vaunted campaign trail in Europe he is being met with cold shoulders and words of warning.

Even the once Socialist stalwart nations of Germany, France and Italy are now looking upon the actions of Barak Obama with disdain. They have publicly questioned the soundness of the Presidents push for governments to spend more money to get the world economy moving again.

What they are saying (without saying it) is that this has been tried before. They have tried it before …and…. IT DOES NOT WORK!

So I leave with this one question. If the great Socialist Utopias of Europe are not willing to go further down this path because they understand that it will only do more harm than good, then why are we the citizens of the freest nation on earth allowing our government to lead us this way?

Watch the video and learn… I welcome your opinion.

Economics 101 - Raising Taxes Helps Nobody!

When I have conversations with close friends who may not agree with my fiscal conservative political view, I am always struck by one fact. Many of their views are formulated by an understanding of economics as described by the media.

And when I watch the major news networks and see their talking heads, I’m dumbfounded that these guys don’t have any clue about economics or the things they are reporting on.

It’s understandable that a majority of our citizens don’t understand economics but it is unfathomable to me that reporters who are supposed to investigate the stories they report on don’t have a clue.

I am going to attempt to strip the politics out of my statement but some will never see the truth of what I am about to say. For those people who are so partisan that you can’t get your head out the sand and see the truth then you deserve the totalitarian government that will one day befall us all.

There once was a Republican President that was followed by a Democratic President and they both ruined our economy. The commonality between their presidencies was a progressive tax rate with a mid range tax above 38% and the top rate above 50%.

Both these presidents believed in price controls and caused a calamity on commodities prices and production. Both presidents policies caused high unemployment, high interest rates and out of control inflation. Who were they? Richard Nixon and Jimmy Carter.

Further stripping away the politics from the economics of our country, there were two presidents, one Democrat and one Republican that lowered taxes, stripped away regulations and allowed the markets to work freely and the economy boomed. They were John F. Kennedy and Ronald Regan.

When we analyze the histories here we see that tax increases “on the wealthy’ or tax decreases “for the wealthy” has no sound economic strategy, it’s just pandering and populism to garner votes and power. The real story is that the way our progressive tax system works is not beholden to how we “feel” about the rich.

To read the rest of this post please visit my blog at http://brainsnotincluded.com/

(BTW - Who defines who the rich are anyway? That’s a scary thought…huh?)

Here are the real facts of the matter. We don’t just live in the vacuum of a capitalist economy. Our capitalist economy is part of the world’s greater Capitalist economy.

The truth is that we can’t detach our economy from the world economy no more than we can tax the rich into oblivion and expect to be able to lift up the poor to a higher status. Ever since we took our economy off the gold standard we stopped employing a Static scoring methodology and moved to a dynamic scoring system.

So what does all this gibberish mean? It simply means that we can’t punish the rich without punishing everyone. Two presidents, one Democrat and one Republican, proved that raising taxes and imposing heavy regulations on a capitalist economy will kill the incentive and motivation to work and produce.

They proved that less money comes into the treasury because every thing just stops. They proved what Thomas Jefferson said about government. Government cannot create wealth, it can only redistribute other peoples wealth thereby destroying it.

These same two presidents also proved what Margaret Thatcher said; The problem with Socialism is that you eventually run out of other people’s money. And a progressive tax system with a heavy handed government is very close to socialism.

Now on the other side of the equation we’ve had two presidents that employed a very different approach. One was a Democrat and the other a Republican and both lowered the tax rate to an optimum point to encourage, incentivize and motivate the populus.

These presidents created a robust economy and even with lower tax rates on ‘the wealthy’, they still managed to increase revenue to the treasury. This issue of whether to raise taxes or not has nothing to do with economics. If it did, we’d always keep taxes low.

No, the real issue is about feelings. Well, I for one am tired of feeling good about bleeding the rich for every red penny they have. I would much rather be happy because my own coffers are full and the economy is solid.

Let’s take the politics out of our discussion about taxation and let’s use real facts about how to get an economy moving and keep it growing. Higher taxes is not the answer!

Obama Lied; The Economy Died

Obama Lied; The Economy Died

The title of this article is one powerful statement and I was in shock when I read it. It’s the title of an article written by a conservative author, Tony Blankley.

Before you cry foul! Remember that liberal Democrats used the saying Bush Lied; People Died as the center piece of an entire campaign, not just an article in a newspaper …much more incendiary rhetoric I’d say.

Blankly, playing on this same theme makes some very good points in his op-ed piece in the Washington Post. He posits that Obama ran as one ‘thing’ but is really another.

Take the Preisdents message of ‘change’ as example #1. Obama ran on the promise of change in Washington. His stated goal was a more civil tone and more bipartisanship.

However, what we see happening is Obama and his Democratic cohorts ramming legislation down the throats of the Republican minority. His side is using tricks like only issuing legislation in printed format (not electronic) and expecting thousands of pages to be digested and voted on in just days of review.

When legislation is opposed, the President says; ‘We were elected, it’s our turn.’ And when the Republicans decide not to vote for legislation they haven’t had time to review the Obama team calls them obstructionist.

What change? Sounds like the same ole Washington to me!

There’s more, Obama professed to be for fiscal responsibility and no ear marks. Here again he has lied. We have only to look at the huge stimulus package which was one giant earmark made into law and had nothing to do with stimulating anything!

Other examples of Obama’s lies exist as well. The omnibus spending package with over 8,000 earmarks in the billions of dollars is being pushed for passage. The President says its last year’s business, BUT, if that’s true then why wasn’t it passed last year.

This is another example of the big lie. Obama claims to have inherited the Deficit and he did inherent some of the deficit but in the two months since he’s been in office, he’s tripled the size of the deficit.

The constant, persistent and now accelerated growth in spending and government regulations is killing the markets and slaying our economy. Obama ran to the center as a fiscally conservative Democrat in order to get elected, what he’s become is a Harry Reid and Nancy Pelosi tax and spend style liberal!

Obama Lied; The Economy Died; how very apropos.

Shut Up and Get Out of the Way!

There ...I said it! The talking heads in the government need to just shut up and get out of the way. What gives me the right to be so pointed? Well I'll tell you.

I have a unique perspective, being one of the few people in the mortgage industry that didn't go gonzo and make loans to every breathing Jack that walked through my door. I didn't get rich off the housing boom and I wasn't part of the "problem."

I sit everyday watching the stock markets, analyzing the bond market and reading about the mortgage backed securities market trying to give my clients some direction about where interest rates are headed. Right when I think I see a trend developing, BAM! something happens that causes huge volatility in the market!

That 'something' that causes volatility and turns good markets into bad is usually very simple to identify. It is a press conference. Not just any press conference, it's usually a press conference by the President or one of his newly appointed minions.

Case in fact, on Tuesday, February 10, 2009, Sec. Tres. Geihtner has a press conference to announce how the Treasury plans to move forward to 'fix' the crisis, the markets tank and theirs huge volatility everywhere. It's not directional, it's just panic selling without solid trends. It's mindless and crazy.

So what's going on? Well the markets begin to settle and everyone is becoming comfortable. In many cases trends are forming and they are good trends, Whew! We can breath a sigh of relief right?

Wrong! Before a good trend has a chance to take hold and before the capitalism side of our capitalist economy can begin to do what it does, someone from the government announces some new spending, printing or borrowing plan that throws everything out of whack again.

The markets can fix themselves with some oversight and some slight tightening of regulations. But before a real fix can take hold two things have to happen!

One, the government has to Shut Up! Stop telling the markets what your going to do and start listening to what the markets are saying. Step two, is to supply the markets with what they say the need! THEN..... GET OUT OF THE WAY!

If the government officials would quit trying to get face time so they can claim credit for the fix then the fix would come a lot sooner. I for one am tired of seeing the people that got us in this mess claim that they have the fix to get us out.

And I dare you to tell me there's a whole new crowd in charge now and they didn't have anything to do with this mess, come on....I dare you... ;-)

The Good, The Bad and The Ugly

Finally we might get some movement on solving the bank and mortgage mess! It is about time. I've always said if the problem is really bad loans then get them out of the system and everything will be fine.

Now we here that's exactly what might happen. New Tres. Sec., Timothy Gheithner has suggested the creation of a 'bad bank'. This bank would be an aggregator used to accumulate the loans that are in default, essentially removing them from banks books and getting them out of the system.

This 'bad bank' would absorb all of the delinquent assets and turn our banks back into 'good banks' again! Stupendous. But wait, here's the ugly part, there's not enough money left in the TARP fund to buy all the bad loans.

The answer might be to seek investment capital from the private sector. With enough government guarantees on returns, that money might come flowing in fast and furious. However, the real ugly part would be if the American tax payer were to be burdened further with those guarantees.

For now all we can do is take a wait and see stance on this. This is the most logical decision to be made by the Treasury since this whole thing started over two years ago.

Let's hope Timothy 'the dodger' Geithner is right. I think he is, it's what the economist I follow have been saying for a while ....and they are all conservatives so maybe they all got it right this time.

What? 'the dodger' comment above? What's that all about? Sorry, it's just my swipe at yet another Obama appointment where the appointee had a tax problem....but that's a subject for another blog isn't it.

Sorry, back to the subject at hand. If the Secretary of Tresury is correct on this one, the fix could be in and we might see our economy improve as early as the 4th quarter of this year.

But the recovery may still be blunted if the Democrats are successfully in Porking America again with this huge, over inflated, pork barrel, pig belly so called stimulus package. Again, we will all just have to wait and see.....zzzzz.....zzzzz..... Somebody wake me up when this nightmare is over please! ;-)

To One Sided

Okay, I just realized something. I've been to one sided. I'm bashing the so-called stimulus plan, referring to it as a huge chunk of pork. It really is nothing more than one giant 'earmark' written as a law.

But that's not the point I want to make today. Along come the Republicans and they band together and not a single Republican votes for the bill. They rant about the pork and they rave about the lie Obama supposedly told about working with both parties.

The one thing they don't do is offer any viable solutions themselves! Tax cuts is cannot be the end-all/be-all answer for the Republican Party every time their is an economic crisis. The answer must be radical change, but not in the way that the dems want. More spending is NOT the answer either!

These guys just don't get it! We need real change! Change, real change, would be the elimination of the tax code as we know it. You want to talk change, let's change our economy from a spending economy to a saving economy by installing the Fair Tax! That's real change.

Change would be the elimination of Corporate Taxes. Everybody talks a good game about bringing manufacturing jobs back to the U.S. but nobody is doing anything about it! Imagine if corporations didn't pay any tax at all! (well they don't really, we pay the tax in the form of higher prices on goods and services)

All that money would be enough to make up for the extortion large manufacturers pay to the Unions. That's CHANGE!

Nobody gets it. Obama hasn't changed anything yet, he's just changed who's in charge. We still have the same old politics. The Republicans need to quit complaining and start offering us something real.

Just pinning the bad ideas on the Democrats so that they get full credit when these ideas fail ...and believe me, they will fail... is not good for America. If Republicans want to be seen as more than obstructionist, then they need to propose real and radical change!

"Change we can believe in", it's what Americans thought we voted for, now can we get some please?!

Porked Again!

While the President lectures America's CEO's about excessive pay and the Vice Pres plays buddy-buddy with Al Gore, the Democratically controlled Congress voted to hand $93,000 to each and every member!

So the earmarking will stop under the Obama administration, right? Of course that's unless you take into consideration that the $800 billion stimulus is nothing but one HUGE earmark!

Now the Dems have found a new way around future earmarks, you need only look at their most recent actions. They just gave themselves $93,000 per congressman as pocket change.

It's being sold to us as 'a necessary increase to help out constituents'. Bull Sh%#! It's an earmark without being an earmark!

It has been intimated by the Vice President that its patriotic to pay taxes. It has been suggested by Harry Reid and Nancy Pelosi that we all have to tighten our belts. So tell me something, why don't the politicians have to tighten theirs?

I thought we were going to get some leadership out of the Obama administration. Turns out we're all just getting Porked Again!

Here Today but Tomorrow? Not so much!

So the stimulus package is here! Yeah! The Dems are here to save the day. They intend to dump $800 billion dollars into the economy! That should get things moving again!

What? What do you mean only 3% of that money will make it into the economy over the next 18 months. Huh? How come 25% of the money isn't spent until 11 YEARS from now?

I'll tell you why, because ramming this particular spending package (notice I didn't call it a stimulus) through is nothing more than an attempt to create bigger government programs well into the future. This idea is as bad as the idea to stop charging payroll taxes on people making less than $50,000 per year.

You haven't heard much about how the tax break works because its a really, really bad idea as well. We all know that Social Security, Medicare and Medicaid are underfunded and virtually insolvent. We also know that the 'payroll' tax is what supposedly funds them.

So what's our solution to the problem? To have even less money come in to fund these programs? What?

We need a new program in America. We need to change this economy from a 'spending' economy to a 'savings' economy. We can't do that if the government keeps spending, spending and spending some more.

Taking away the payroll tax for some and not all is not the right step. The right step is scrapping the entire income tax system all together. Change our system to a consumption tax.

With a consumption tax, like the Fair Tax, every time someone buys something the government gets paid. Think about all those illegal aliens that burden our hospitals and school systems.

They would not be under the 'tax radar' anymore. They buy food, they pay tax. They buy gas, they pay tax. Heck, they buy anything, they pay a tax!

Our poorer citizens, you know the real Americans ....the ones that were born here or did the right thing and did what was necessary to stay here legally... those people would get a card to rebate them for the tax they paid!

That would transform our economy from spenders to savers! What's so wrong with that. There are many excuses why it can't be done, but those excuses are mostly made by politicians that would lose power and be forced to come up with REAL solutions to REAL problems.

Let's force the politicians to stop pitting us against each other based on whose wealthy and whose not and lets stop electing our politicians based on who will tax you less or who will rape the rich! It's time for a paradigm shift in the way we operate. Stop spending and save!