Government jobs now exceed private sector jobs (ht Clusterstock).

Fire Dog Lake separates supposed myth from reality.  However, there’s no reference to taxpayer funded abortions that the bill makes possible, nor the moral hazard designed to drive private insurance over the edge.  It seems even liberals hate the Obamacare Bill, but mostly because they have to wait a few years for a public option to be the only option.

Washington’s blog is encouraging debate on what monetary system we should have in the United States.  In the discussion, Australian economist Steve Keen advocates that equity shares owned by the original owner when the physical underlying capital was formed would have perpetual life.  However, once the original owner sells the shares in the secondary market, the share begins to expire over (say) 25 years.  Dr. Keen points out the benefit of this arrangement:

Shares purchased in an initial public offering or float would last indefinitely while held by the original purchaser. But once these shares were sold, they would have a defined life of (say) 25 years.

This would have several benefits over our current system:

(1) Purchasers of shares on the secondary market would be forced to do what the Capital Assets Pricing Model (the delusional neoclassical theory that dominated academic finance prior to the GFC) pretended they do now: to value shares on a sensible valuation of expected future dividend earnings. You would only buy a share under this system if you expected a reasonably good stream of dividends from it, because in 25 years it would expire; and

(2) It would encourage the act of providing finance to new ventures. At present, the share market does a very poor job of providing new finance, with over 99% of the transactions being secondary market sales in search of capital gains. With my change, the only way to secure an indefinite stream of revenue from a new venture would be to provide it with some of its initial capital. This proposal would drastically shift the balance in favour of raising initial capital, which is the only truly socially beneficial role of the stock market.

We applaud this sort of thinking…good luck in getting it past Goldman Sachs.

However Dr. Keen has an even more valuable piece that strongly supports the arguement of the “deflation camp”:

So the following numerical example might make it easier to understand their arguments:

  • Imagine a country with a nominal GDP of $1,000 billion, which is growing at 10% per annum (real output is growing at 4% p.a. and inflation is 6% p.a.);
  • It also has an aggregate private debt level of $1,250 billion which is growing at 20% p.a., so that private debt increases by $250 billion that year;
  • Ignoring for the moment the contribution from government deficit spending, total spending in that economy for that year–on all markets, both commodities and assets–is therefore $1,250 billion. 80% of this is financed by incomes (GDP) and 20% is financed by increased debt;
  • One year later, the GDP has grown by 10% to $1,100 billion;
  • Now imagine that debt stabilises at $1,500 billion, so that the change in debt that year is zero;
  • Then total spending in the economy is $1,100 billion, consisting of $1.1 trillion of income-financed spending and no debt-financed spending;
  • This is $150 billion less than the previous year;
  • Stabilisation of debt levels thus causes a 12% fall in nominal aggregate demand.

With the fall in demand, we can expect falling prices.  Consider: unless the government is able to create debt in amounts sufficient to offset more than the current decline in private debt (virtually impossible in the current political environment), we will see continued declines in GDP and…deflation.

Robert J. Samuelson has a good article at the Washington Post on some of the Illusions of Cost Control. He makes a pretty good point about politics in this country: We ALWAYS take the easy/obvious way out:

There’s a parallel here: housing. Most Americans favor home ownership, but uncritical pro-homeownership policies (lax lending standards, puny down payments, hefty housing subsidies) helped cause the financial crisis. The same thing is happening with health care. The appeal of universal insurance — who, by the way, wants to be uninsured? — justifies half-truths and dubious policies. That the process is repeating itself suggests that our political leaders don’t learn even from proximate calamities.

Argument 1: The uninsured use expensive and ineffective emergency rooms for primary care. Once they’re insured, they’ll have regular doctors. Care will improve; costs will decline.

UNTRUE

A study by the Robert Wood Johnson Foundation found that the insured accounted for 83 percent of emergency-room visits, reflecting their share of the population. After Massachusetts adopted universal insurance, emergency-room use remained higher than the national average, an Urban Institute study found. More than two-fifths of visits represented non-emergencies. Of those, a majority of adult respondents to a survey said it was “more convenient” to go to the emergency room or they couldn’t “get [a doctor's] appointment as soon as needed.” If universal coverage makes appointments harder to get, emergency-room use may increase.

Argument 2: Insuring the uninsured will dramatically improve the nation’s health and thus decrease healthcare costs.

UNTRUE

Medicare’s introduction in 1966 produced no reduction in mortality; some studies of extensions of Medicaid for children didn’t find gains. In the Atlantic recently, economics writer Megan McArdle examined the literature and emerged skeptical. Claims that the uninsured suffer tens of thousands of premature deaths are “open to question.” Conceivably, the “lack of health insurance has no more impact on your health than lack of flood insurance,” she writes.

How could this be? Possible explanations include: (a) many uninsured are fairly healthy — about two-fifths are age 18 to 34; (b) some are too sick to be helped or have problems rooted in personal behaviors — smoking, diet, drinking or drug abuse; and (c) the uninsured already receive 50 to 70 percent of the care of the insured from hospitals, clinics and doctors, estimates the Congressional Budget Office.

Here’s the bottom line on healthcare cost control:

Unless we change the fee-for-service system, costs will remain hard to control because providers are paid more for doing more. We have to change the provider INCENTIVE! Just giving people free health insurance makes the problem worse. Healthcare providers will be able to continue doing more and getting paid more because there will be NO INCENTIVE for consumers to shop for the best prices OR control their own costs!

The U. S. Geological Service issued a report in April 2008 that only scientists and oil men knew was coming, but man was it big.  We have plenty of oil right here within the borders of the United States. The report was an updated one to the old 1995 version on how much oil was in the area of the western 2/3 of North Dakota, western South Dakota, and extreme eastern Montana known as the “Bakken”.    The Bakken is the largest domestic oil discovery since  Alaska ‘s  Prudhoe Bay and has the potential to eliminate all American dependence on foreign oil. The Energy Information Administration (EIA) estimates it at 503 billion barrels. Even if just 10% of the oil is recoverable… at $107 a barrel, we’re looking at a resource base worth more than $5..3 trillion.. “When I first briefed legislators on this, you could practically see their jaws hit the floor. They had no idea..” says Terry Johnson, the Montana Legislature’s financial analyst…

The problem is the environmentalists won’t let us drill for it and the foreign oil producers don’t want us to access it either.  Whose side are they on – the terrorists?  Hmmm….

Update: the US Geological Service report referenced above refers to 3.65 billion barrels of recoverable oil —not 503 billion…

Republican senator George LeMieux of Florida was appointed to fill the unexpired term of Mel Martinez, who resigned. His analysis shows that ALL WE HAVE TO DO TO BALANCE THE BUDGET is go back to 2007 spending levels!  It’s a no-brainer!  But not for idiots who buy votes for a living.

If government spending were reduced to its 2007 level, we’d have a balanced budget (with a $163 billion surplus). Returning to the 2008 level of spending, the budget would be balanced in 2014 (a $133 billion surplus). And in both cases, that’s while keeping the Bush tax cuts across the board and indexing the loathed alternative minimum tax for inflation.

Could we live with what we did in 2007?” LeMieux asks—the “we” a collective reference to Congress, the federal government, and the country. He thinks so. Because of the recession, “most Americans are living with less than they had in 2007.”

Trillion dollar deficits or a balanced budget?  Ask your president why…

A 1934 Chicago Tribune cartoon…From the looks of Obama’s new budget, the plan to take over the United States hasn’t changed:

Simon Jonson has suggested that (ultra liberal inflationist and debt multiplier) Paul Krugman be made Fed Chairman – instead of the bankster Bernanke.  Bernanke definitely needs to go …but to replace him with Krugman?  Simon Johnson has gone nuts and his sidekick Kwak has such a liberal political bias that it gets in the way of economic common sense.  Even Krugman says it’s a crazy idea. The guy just fell several notches in credibility advocating that sort of dribble…

TPC has a good post from Comstock, as summarized below:

So let’s sum this up.  Even in this big “recovery” that is being spun so heavily on financial TV, employment is still down 5.2%, retail spending 8.4%, new single-family home sales 73.3%, core new durable goods orders 19.6% and industrial production 11.5%.  Since the numbers have moved up slightly we suppose that by definition it’s technically a “recovery” rather than a recession, but it does seem like a distinction without a difference.  And remember this is all we’ve gotten from the stimulus plans, the first-time home-buyer credit, cash for clunkers, the foreclosure moratoriums, zero interest rates, unprecedented quantitative easing, mortgage-backed security purchases, Treasury bond purchases, virtual government takeover of the housing market  massive aid to the GSEs and record deficits.  As we have previously pointed out all we have done is shift private debt burdens to the Federal government.  With all that, it is still doubtful that the economy can stand on its own once these artificial supports are removed.  Nevertheless the debts will remain, eventually to be resolved either by future inflation or default.

The last sentence is intriguing… When an obligor’s income (ability to repay) goes up as a result of newly printed money making its way to them, then monetary inflation can make that obligor’s debt easier to be paid back.  But the newly printed money MUST make its way to the obligors.  Suppose the new money goes to the stock or commodities markets to bid those prices up, but the obligors don’t own any of those types of assets – rather they own real estate (i.e. houses).  Then the obligors are no better off despite the inflation.  This is the case for the average consumer.  On the other hand, the banksters benefit handsomely from the government inflation handout.  They will be able to easily pay off their debts…once they sell off their stock and commodity assets…  The one thing that remains to be seen is what that liquidation by the banks will do to stock and commodity prices.

If you are underwater on your home loan and can’t afford to make the mortgage payment, give the TBTFs the keys rather than “cooperate” with them. You are better off AND the TBTFs are then forced to write down the value of your mortgage on their asset list.  This helps the country, in the long run.   As Denninger argues, while commenting on this NYT piece,  the current extend and pretend policy is designed to hide the TBTFs financial problems -NOT TO HELP YOU!

This is the reason for “HAMP” and all of the other silliness.  It is not to “protect” homeowners, it is to prevent banks from having to recognize punishing losses that, in point of fact, they should have to recognize due to their own idiotic lending practices.

Treasury knows this – that their entire “TARP” recapitalization and “stress test” game was nothing other than a sham intended to pump confidence so that these institutions could issue stock into the market and try to “rebuild” their balance sheets.

If this didn’t actually hurt the public I wouldn’t care.  But it does severely damage the public in multiple ways, specifically:

  • These “modification” programs in the general sense do not and cannot lead to sustainable mortgages for the vast majority of homes at risk.  The reason for this is simply that the person who bought the house did so at a radical premium to what they could actually afford.  That “premium” was there as a consequence of intentional speculative activity and outright fraud in underwriting that pumped “home values” – premium that has now disappeared and cannot come back by anything short of more fraud!  Therefore these “homeowners” cannot be “saved” – any change that simply reduces payments but doesn’t get rid of the negative equity problem only extends and increases the damage ultimately done.
  • A huge percentage of the people trapped in these loans are cajoled or outright threatened into doing things that are severely against their own interest.  I hear daily of people who have raided 401ks and IRAs to try to remain in their homes and make these “trial payments” or participate in other similar schemes.  Retirement accounts are privileged in a bankruptcy and cannot be taken; it is essentially NEVER the correct thing to do to raid such an account to try to prevent a foreclosure or bankruptcy filing! This sort of underhanded “suggestion” occurs all the time and in my opinion constitutes raw predatory conduct for which there should be felony legal sanction – but of course there isn’t.
  • The artificial propping up of home prices severely damages those Americans who would like to buy a house but cannot afford one at the present price. If you do not own a car, you obviously want prices on cars to be low, not high.  The same applies if you don’t currently own a house – you want prices low, not high.  The only people who benefit from prices that are pumped up out of whack with fundamental values are those who lent money at bubble prices and will lose that money if prices contract, along with those who build more houses at bubble prices and thus skim off unreasonably large “profits.”

The power is still with the people, we just have to wake up and do the right thing as individuals for ourselves.  The right thing is to take full advantage of the law of the land and to ignore pressure and threats from the TBTFs that your credit will be damaged if you don’t work with them.  The truth is this: YOUR CREDIT IS ALREADY DAMAGED AND IT’S TIME TO BEGIN THE REPAIR PROCESS!  Get yourself back on track, forget about government sponsored loan modification farces.  Jacking around with the TBTFs only postpones the inevitable – for you and for them…

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