Archive for October, 2009

Less Government Regulation Series: Homebuyer Tax Credit (Oct. 26, 2009)

Posted in Automobiles/Automobile Industry, Housing, Less Government Regulation Series, Taxation on October 26, 2009 by

A clunker of an idea.  The Homebuyer Tax Credit is another terrible scheme.  The government allows individuals to take an $8000 credit for the purchase of a home.  The government should quit trying to implant everyone in a single family house and instead allow individuals to live in a structure they can afford.  The mortgage interest tax deduction and the exemption from income of $250,000/$500,000 on the sale of a personal residence under defined circumstances should be rescinded.  The real estate market must be allowed to settle down rather than being jump-started with federal money.  Meddling is muddying the mess more.

And, once again, the deficit-loving Republicans are also behind this raid on the public fisc.  Senator Johnny Isakson (R-GA), a free-spending “socialist” from Georgia, is supporting the extension of the act.

Seems that the houses and cars are being sold to buyers who were already planning to acquire a house or a car anyway.

[See the “e-ssay” dated August 3, 2009 entitled “Less Government Regulation Series:  The Terrorist Tax Again” discussing among other things the clunker program for cars.]

Bumper stickers of the week:

Like giving steroids to a grandmother

Government Tax Credit: Get A Home Without It

Doin’ Okay, Sort Of (Oct. 19, 2009)

Posted in Bernanke, O'Bama on October 19, 2009 by

The O’Bama administration has now gestated for nine months.  His campaign cobbled together a consortium of often conflicting constituencies, so some if not many disappointments in many quarters are inevitable.  O’Bama is challenging so many entrenched interests and discovering that even the President is hamstrung by other institutions and individuals.  He has been informed regarding those he must consult before a decision is made.

Most of the appointments to date are appointing (Clinton, Holder, Gates, Locke, Salazar, Shinseki, Chu, Bernanke*); a few are very disappointing (Geithner, Summers, Bernanke*).  Appointing solid heads at three (State, Justice, Defense) of the Big Four agencies (Treasury) is a positive start.  Sotomayer is a skilled and sound jurist.  O’Bama’s creation of the Council of Goldman Sachs Advisors (CGSA) will prove disastrous.  And some things don’t change.  The revolving door of appointees becoming lobbyists and vice versa does not seem to have stopped spinning.  His administration is full of technicians and devoid of intellectuals.

His two books are in part veiled campaign literature.  His exam questions and answers as a law professor at the University of Chicago in his early years are much more revealing.  He never wrote anything lengthy commenting on the work of the economists at Chicago, favorable or unfavorable.  He may continue a long line of Americans, in and out of government, who really do not understand economics.

He has now taken title to the two wars.  If there is a strategy or are strategies, it or they should be shared.  America simply cannot afford to maintain its empire and must focus its finite energy and limited resources on national interests.  He dissed the Dalai Lama and disregarded America’s uncertain commitment to human rights to keep from disappointing America’s Banker, China.

Instead of awarding the Nobel Peace Prize as a golden watch to a septuagenarian, the Committee awarded it to a person who is creating golden opportunities in the September of his life on his watch.  The Committee awarded aspiration rather than perspiration.  He is working hard.  Much is left to be done.  He now has the international gravitas to remind the world that peace is only possible if, in some circumstances, the right war is pursued purposefully.  Yes, others were more deserving and likely will not be around to receive the prize.  And of course those who want America to be at war everywhere all the time remain furious.

The Olympics?  O’Bama offered his dos centavos.  The Committee decided to award it to Rio.  Great choice.  South America has never hosted the Olympics.  He did not fail.  The process worked.

A second term is somewhat akin to a second marriage, the triumph of hope over experience.  By 2012, experience may triumph over hope.  A campaign to maintain let alone expand his Party’s numbers in the early stages of the Depression II will be as great a challenge in 2010 as getting elected was in 2008.

Bumper sticker of the week:

Still hopeful

Dow: 10,000 To 5,000?: The “FUBAR Bubble” (Oct. 12, 2009)

Posted in Economics, Federal Reserve on October 12, 2009 by

“Ten thousand.  And they say the good times are rolling. ”

“It’s just another bubble.  We uploaded the ‘ bubble’ and then constructed the ‘real estate bubble.’  Now the Republicans and Democrats in an ironic act of unintended bipartisanship are inflating the ‘FUBAR bubble’ which will only inflate the economy and precipitate a sustained jobless Depression.  Combine unaccountable spending by Congress and unacknowledged spending by the other Congress, the Federal Reserve, and you create the ‘FUBAR bubble.’”

“How can everyone forget in a year?  I don’t know what to do with my money.  Everyone is dumping their money back into the market.  It’s tempting.  What else do you do?”

“I don’t know what to do.  Remember that no one wants to remember something negative, so one simply does not remember.  All the federal borrowing is not even ‘crowding out’ private investment because there is no real private investment in anything productive.  Most of the reported corporate profits are either federal money infiltrating the economic system temporarily or savings resulting from cost cutting not expansion.  Jobs are being slashed to slash costs that ends up costing the economy.  Add a Trillion dollars of uncollectable credit card debt and the coming commercial real estate collapse to the scenario and the scene gets ugly.”

“What about deflation?  No one has a job.  No one has money.  No one can buy anything.  Oil prices are down.  Copper prices are down.  Aluminum prices are down.  Prices will go down?”

“Down plus down plus down plus down plus down does not seem to add up to up.  I’ve watched the slide.  Yet people spend and consume.  They need to eat and wear clothes and clothe themselves in a house and acquire that most elusive good – status.  There are boatloads of money floating around out there and no limits on personal credit.  However, there are not enough goods to acquire.  The government can print bread (money), but it cannot print bread.”

. . .

“The Fall of 1999 seemed so blissful.  There was a feel and the smell of easy money in the air.  And talk of a 36,000 Dow.  That bubble was made of thin air.  What was in the water?”

“Everyone was giddy; I was uneasy.  I have not been able to share in all the excitement.  We were raised to believe that a P/E (Price/Earnings) ratio of 12 is desirable, 16 is tenable and 20 is tenuous.  The share prices were huge and there simply were no earnings and no real prospects for earning.”

“Those were the days.”

“Even I got caught up in a calculated slice of it.  Can you imagine if a person could have ‘shorted’ the entire United States economy in October, 2007 when the Dow/Murdoch hit fourteen thousand?  Someone could have made one trillion dollars and then bought Congress and cleaned up the mess.  The collapse was largely benign because it immediately impacted those who had ridden the rise which contained the consequences.  The continuing real estate collapse is having much more sustained and pernicious impacts because it is a steady and slow burning fuse.  The ‘FUBAR bubble’ is breaking the economy.  The ‘Federally Underwritten Bankruptcy of the American Republic’ is the last bubble.  There is nothing left to stimulate.”

[See the “e-ssay” dated Dec. 4, 2006 entitled “When The Bubble Burst” addressing the relatively modest consequences resulting from the decline of the “ bubble” and the troubling and continuing impact of the collapse of the “real estate bubble.” See the “e-ssay” dated July 23, 2007 entitled “The Dow Jones (the Murdoch?) Hits 14 K In A Hollow Economy” discussing the stock market on the edge of a precipitous collapse.]

Bumper sticker of the week:

Please, just give us just one more run up and we won’t blow this one.

Skip the Nobel in Economics? (Oct. 6, 2009)

Posted in Awards / Incentives, Economics, Economics Nobel on October 6, 2009 by

Nobel Prizes are announced in the next week.  This may be the year not to award the Sveriges Riksbank Prize in Economic Science in Memory of Alfred Nobel.  Okay, there may be some deserving recipients.  Maybe.  However, the discipline and the profession are failing.

Macroeconomic models are founded on fallacious assumptions about “rational” behavior and thus their conclusions are unfounded.  An individual is greedy but not rational in a predictable way.  Few individuals act in a “self-interested” way which is adequately defined as gilded greed undergirded by thought, reflection and calculation.

The “quants” on Wall Street may be quaint.  They are the economists who purported to be able to assess and manage and even eliminate risk using complex and inscrutable formulas.  There is always risk; the only question is who assumes the risk and suffers the downside.  Asserting and rewarding the proposition that “2 + 2 = 5” does not mean that “2 + 2 = 5.”  The quants and their kin were engaged in fraud perpetrated with numbers and formulas rather than with letters and syntax.  The Nobel Committee rewarded their efforts; the government rewarded their failures.

Someone interested in pursuing a Piled higher & Deeper (Ph.D.) in economics must buy into the established orthodoxy of a school and a school of thought.  Someone matriculating at a university is endorsing a worldview that is not based on an accurate view of the world.  The free-for-all culture in economics departments does not promote or provoke unrestrained free thought.  Economics departments are profit maximizing; they will produce whatever is rewarded.

Or they should give it to someone who knows something about economics and has conveyed a few sound ideas.

Bumper sticker of the week:

If all economists were laid end to end, they would reach the wrong conclusions.