Austerity Gaff!

Let’s bring this argument between two economic theoreticians into the real world.  Keynesian Economics has lost some credibility in the real world not because of the theory, but rather how politicians have used it in practice over the past 3 or 4 decades. Austerity has become popular because politicians are not willing to admit  they have misused economic theory advocated by Keynes.

Keynes advocates government spending in recessions to offset the decrease in demand from the private sector. Keynes also advocates the paying down of government debt during good times in the public sector. During the last 40 years our politicians were happy to take credit for the government picking up the slack in slow times and reluctant to go to the voter in good times and say it was time to pay back the money Uncle Sam spent to spur the economy during the recession.
It is time for the politicians to go to the woodshed and admit their errors. It is not time to compound the consequences of these errors when our economy is in disarray and facing our stiffest competition since World War II. Stretching out the time period to get our debt under control from 10 years to a 15-20 year time frame gives future generations a chance to experience the same prosperity we have.
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Choosing A President

The criteria for the best presidential candidate is one having experience, character, an understanding of the problems facing the country, is living family values and will not sacrifice what is best for the country to improve his chances of winning in 2016. Barack Obama is the only candidate meeting this criteria.

He made mistakes early including allowing health care to side-track focusing on the economy, not recognizing the need to build coalitions with the Republican leadership in the House and Senate and failing to capitalize on the work done by the Bowles-Simpson Committee; even though he recognizes the need for a balanced approach to solving our debt problem.

We are better off than we were four years ago. With hindsight we know we were deeply involved in a sub-prime mortgage meltdown that almost brought on a depression. This meltdown was partially brought on by relaxing financial regulations and allowing institutions to get to big to fail.

In November 2008 everything came to a head. Without quick action by the Federal Reserve, during Bush’s term, we indeed would have revisited the 1930’s. Much of the large spending icreases the Republicans complain about resulted from the errors made during the Bush years. Frpm 2000 to 2008 consumer debt increased by 163% as shown by the chart to the left from the Federal Reserve.

The truth is economic hangovers hurt and they take years to correct. The recession officially started in 2008; however, much of our growth in the last decade resulted from excess consumer debt and the housing bubble. We borrowed from our future and are now paying the price.

At the same time, we were involved in a war in Iraq that should never have been. Thanks to Obama we are now out of it. Some will say we left too early. I say we went in too fast. It cost us much in life and treasure, while getting very little in return. In addition, Osama bin Laden is dead and al-qaeda is in disarray.

The President recognizes the need to invest in our future through education and building and repairing infrastructure. The Republicans have blocked every attempt to do so by demanding other programs must be cut while not agreeing to any tax increases on the wealthy.

We have an economic system that is not fairly distributing income. Our “Free Markets” are broken and no one is fixing it. Free markets can be harmed by over regulation by governments. The same markets can be destroyed by over zealous companies controlling markets and destroying free enterprise. The result is economic power becomes concentrated as does income and wealth.

Will a candidate, Republican or Democrat, please step forward and address this issue?

Depressions Do Not Happen In A Day!

Obama is getting blamed for the high unemployment numbers and our current economic downturn when in fact we should be pointing our finger at the Bush administration. The country’s eyes were taken off the economy by the disaster of 911 and it was exasperated further with the unjust war in Iraq.

This is a Bush depression that has its roots in the early part of the last decade.

This depression did not happen in one day. It evolved over time. We presently have an unemployment rate of 8.5%, compared with a rate of 4.2% in October 2008.

Below is a graph showing unemployed from 2000 to the present. In 2007 roughly 8 million people were unemployed. Today the unemployed total 14 million. If we take into account that many of the jobs created from 2000 forward were related to the housing bubble caused by the sub prime mortgage scam, another 2 million jobs were artificially created.

Has Obama made mistakes? Of course he has and much of it was due to a lack of experience. One of his first mistakes was tackling the health insurance issue too early and not getting directly involved in the debate for almost a year. Another was he spent too much time trying to compromise when his opposition had no desire to compromise. This was especially evident with the deficit discussions and the need to raise the debt ceiling.

Stimulus: Labor Must Contribute!

Our infrastructure needs repair and we need to create jobs. The jobs that are created are by design short term. The purpose of a stimulus is to increase consumer demand for goods and services so that business will add long term jobs to meet the demand. The end result is our upgraded infrastructure allows us to better  compete economically against the rest of the world.and our econmy recovers faster.
The tax payer alone should not be paying for the stimulus. Members of labor unions and companies who are awarded contracts should respectively lower their profit margins and wage rates to help spur the economy and thus jobs. The result would be that the stimulus dollars provided by the government would allow more infrastructure repaired and expanded, more jobs created and an economy that will get healthier faster.
The question is whether these three special interest groups, government, labor and business, can work together to solve the problem. More:

Retribution From Mortgage Crisis

The mortgage crisis is not solved partly because it is difficult to assign blame. The first reaction is to blame banks and wall street. However, many borrowers knew they were lying on their mortgage application and went into the transaction highly leveraged and financially stretched. They were counting on housing price increases to cover their over exuberance. They lost the bet.

However, there were other innocent borrowers who put significant equity into the transaction and kept their payment at reasonable levels. They were innocent victims of the housing bubble caused by sub prime lending, which brought about an over supply of housing and causing housing values to fall.. These are the homeowners who have the clearest case against the banks, wall street and mortgage and real estate brokers without scruples. These are the citizens most justified in demanding some kind of retribution from the culprits.

Here is a reasonable solution.

  1. For the “innocent” group, Fannie Mae and Freddie Mac should refinance these loans at current market rates. This reduces the risk of default on these loans because the mortgage holders monthly payments are reduced. It also puts more money in the pocket of the homeowner, which should assist in stimulating the economy. A similar plan is being worked on by the administration
  2. The government and or “certified classes” of these innocent mortgagors sue wall street, banks, and other culprits for the reduction of the equity in their homes as a result of the sub prime calamity.
  3. For the sub prime borrowers, wall street and the mortgage origination business should be required  to set-up a special fund to assist borrowers that were mislead and taken advantage of by these origination companies and wall street firms. An independent review board should be established to determine culpability and damages on a case-by-case basis.
Wall street and banks made a financial killing during the housing boom. It is time some of that gravey is given back to the innocent homeowners. Read More: