People say we go to war for oil and other natural resources. Not true! We do it so others can have oil and other natural resources. You're welcome China.
"While the United States spends hundreds of billions of dollars fighting the Taliban and Al Qaeda here, China is securing raw material for its voracious economy. The world's superpower is focused on security. Its fastest rising competitor concentrates on commerce." - China Willing to Spend Big on Afghan Commerce
Fannie Mae and Freddie Mac were originally created as a way to increase the amount of credit available to consumers to purchase homes. They did this by buying mortgages on the open market, packaging these mortgages as securities, and selling them to investors for a fee. The reason why investors agreed to purchase these securities is because Fannie and Freddie promised to pay off the mortgages even if the home owner defaulted on the loan. So all the mortgages purchased provide the investor interest without the risk of default.
Because of these types of securities, as well as historically low interest rates, a major asset bubble formed in the housing market. Home valuations skyrocketed and people were cashing out the "equity" in their homes and spending it on whatever they desired. As the bubble continued to increase in size, more and more people jumped on the bandwagon and went deeper into debt. Fannie and Freddie continued to guarantee any loan put in front of them.
Eventually the bubble burst. So many people defaulted on their loans that Fannie and Freddie had no way to pay for all the defaults on mortgages they backed, making the assets they sold "toxic." Nobody knew what they had bought or how safe the loans they owned actually were. Although the government repeatedly said that Fannie Mae and Freddie Mac were not backed by the government, when the time came they bailed them out to the tune of (up to) $400 billion. To date, both companies combined have used about $111 billion of tax payer money.
The saga continues. "The Treasury Department said Thursday it removed the $400 billion financial cap on the money it will provide to keep the companies afloat." If these two companies have only used about 1/4 of the money allotted to them, why would the treasure remove the $400 billion financial cap?
Maybe it's because we are on the verge of another mortgage disaster. Maybe because the FHA is the new subprime lender. Maybe they have a hint - this time - of what is coming our way.
The government may be keeping housing prices inflated through programs such as the tax credits to new home buyers, by continuing to back subprime loans to encourage more demand, or by limitless bailouts of failed companies, but in reality all it is doing is making the situation worse. No matter what Congress, the Treasury, the Federal Reserve, or the President thinks, they can not control the market. The market always wins. Eventually, as the new subprime buyers default on their loans, prices will again drop causing another massive collapse in the housing market. The government is simply getting ready to try and keep everything afloat a little longer. Unfortunately they are just making things worse for everyone. Taxpayers bear the brunt through higher taxes, debt and inflation, home buyers get stuck with overvalued homes, and the Wall Street investors benefit as they earn profits on money they risked, but should have lost.
Welcome to socialism 101. Wealth distribution at its finest.
Only one president in the history of the United States paid off our nations debt. Anyone know who it was? Andrew Jackson, our seventh President.
This week I listened to an excellent book, "The Case Against the Fed" by Murray N. Rothbard. I highly recommend it if you want to understand our current economic problems. I'll post links to the mp3s later. It's all online and free at the Mises Institute.
A few excerpts...
"If the bill expands Medicaid eligibility to 133% of the poverty level, that too will lead to rationing. Because Washington bureaucrats have created a system that underpays doctors, 40% of doctors already restrict access to Medicaid patients, and therefore ration care."
and...
"Other unintended consequences of the Reid bill could wreak havoc on patients' lives. What happens, for instance, when savvy consumers commanded to buy insurance realize the penalty is the de facto premium? It won't take long for younger, healthier Americans to realize it's cheaper to pay a $750 tax for coverage instead of, say, $5,000 in annual premiums when coverage can't be denied if you get sick."
Here is an article about an Australian Senator questioning what would happen to his country should the United States default on its debt.
But Senator Joyce insisted yesterday that the dangers to the global economy from the run-up in US private and public sector debt were real and should be debated.''It is the elephant in the room,'' Senator Joyce told The Age. ''This is a huge risk that Australia faces. What is the game plan, what happens if it comes unstuck?
''Far from turning around the [George] Bush legacy of deficits and debt, [US president Barack] Obama has made it worse. It has got all the hallmarks of a financial collapse about to happen in America.''
Senator Joyce said investor concerns about the American Government's ability to fund its deficits were already undermining the role of the US dollar in the international trading and financial system.
''The US dollar is almost becoming like junk bonds,'' he said.
- http://www.theage.com.au/national/joyce-warns-of-bigger-gfc-20091022-hbg6.html
It's one thing when our political leaders tell us there is nothing to worry about, but when you hear leaders from other countries start to question our solvency as a nation, it starts to hit home (well, it should hit home anyway).
Looking at in the context of time...
Ok, final "reality" post I promise. But it is pretty sad that when businesses and households are struggling to make ends meet, the government has absolutely no concerns about their own spending habits.
The Senate on Sunday passed a $1.1 trillion spending bill with increased budgets for vast areas of the federal government including health, education, law enforcement and veterans' programs.The spending bill passed Sunday includes $447 billion for departments' operating budgets and about $650 billion in mandatory payments for federal benefit programs such as Medicare and Medicaid. Those programs under immediate control of Congress would see increases of about 10%.
The FBI gets $7.9 billion, a $680 million increase over 2009; the Veterans Health Administration budget goes from $41 billion to $45.1 billion; the National Institutes of Health receives $31 billion, a $692 million increase.
- http://www.usatoday.com/news/washington/2009-12-12-spending-bill_N.htm
Taking more wealth out of the economy in a time when it really needs it for investment is simply counter productive. The article above says that "$650 billion" will go to "mandatory payments for federal benefit programs." In 10 years from now, we will have to add another $500 billion (we pay $200 billion/year right now) just to pay interest on our debt. Reality is catching up.
As I was saying earlier, Washington simply does not live in the same reality we do.
"Federal employees making salaries of $100,000 or more jumped from 14% to 19% of civil servants during the recession's first 18 months - and that's before overtime pay and bonuses are counted." - For feds, more get 6-figure salaries
It's not just the politicians.
I posted a while back about having to soon raise our debt ceiling. Well, the time is here.
In a bold but risky year-end strategy, Democrats are preparing to raise the federal debt ceiling by as much as $1.8 trillion before New Year's rather than have to face the issue again prior to the 2010 elections."We've incurred this debt. We have to pay our bills," House Majority Leader Steny Hoyer told POLITICO Wednesday. And the Maryland Democrat confirmed that the anticipated increase could be as high as $1.8 trillion - nearly twice what had been assumed in last spring's budget resolution for the 2010 fiscal year.
The thing that gets me is that as a regular person, we can't just raise our own credit limit on our credit cards to "pay our bills." If we're irresponsible or our income goes down (ie. lower tax revenue in terms of the gov), our credit actually gets tightened. Maybe politicians just don't realize how things work in the real world because they no longer live in it.
Dear Washington, don't take out more debt to pay our bills, cut expenses/fraud/waste! Follow a budget! Come, and join the reality that the people you serve live in.
I saw the Greenpeace ads where they made world leaders look about 10 years older and came up with a more relevant message for 2020.
Feel free to copy and distribute to others.
An important article that everyone in government, especially the President, should read. It talks about the President's ideas on using TARP money to "create jobs" when perhaps that money would be better spent paying down the debt. Below the graph, I quoted the most eye-opening part of the article in my opinion.
The Jobs Picture Crashes Into Debt Realities
"How much money are we talking about? Today, the national debt is topping $12 trillion and the White House estimates that the government's tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year. To put these numbers in perspective, Edmund Andrews writes in the New York Times that this means an additional $500 billion a year in interest payments in less than 10 years, which is "more than the combined federal budgets this year for education, energy, homeland security, and the wars in Iraq and Afghanistan.""
Sixty-eight years ago today, the United States declared war on Japan, a day after the attack on Pearl Harbor.
It was the last time that congress bothered to exercise it's constitutionally granted power to declare war. They ceded that power to the President at the beginning of the Korean "police action." We haven't been in a war since.
Today on NPR I heard that Guantanamo Bay prison might be moved to Illinois. Illinois officials like the idea, citing that it will create roughly 3000 jobs. An economist from the University of Chicago thinks the real number will be closer to 500.
Regardless of who's numbers you believe, it's essentially irrelevant. They are service sector jobs paid for with our tax money. They don't contribute to the economy, they take from. These jobs increase our debt and raise our taxes. I don't understand why people get so excited about jobs like this. Get excited about factories opening. Get excited about things that create wealth, not drain it.
Some might argue that this prison is necessary to make our world a safer place. That is a poor argument. This prison and others like it are a direct result of trying to make our world a "safer place". The more we make our world safe by invading foreign countries and supporting corrupt governments through foreign aid, the more prisoners we will create. Maybe our world would be safer if we stopped trying to dictate what kind of governments other people have, and take a look at our own. Maybe that's why our government seems to like war so much.