I figure that it's been a while since I thoroughly pissed EVERYONE off, so I thought I'd give it a shot.
This country is in the middle of an immigration crisis. This crisis is problematic for a multitude of reasons, but mostly because we HAVE to face the hypocrisy of closing our borders to immigrants. The fact is, that unless we are 100% american indian, we are descendents of immigrants.
Still, there has to be some kind of regulation; some kind of workable balance that allows for immigration to be done legally and quickly. Now, for anyone who read my last post, I will take this moment to make my personal plug for the best way to make immigration, both legal AND illegal, beneficial to the country instead of a detriment to it: get rid of income taxes and move all taxation to sales taxes. Once that happens, a person's legal status matters a whole lot less because they are consumers, either way. But even beyond that, there really are some common sense ideas to bridge this volatile gap:
1. first, and most oppressive, start treating this like a legal issue instead of a political issue. Illegal=Criminal. If someone is breaking the law, we generally have a suitable punishment. STOP treating this like a political issue. They are not "undocumented workers," they are "fugitive criminals." Treat them as such, and coming across the border won't be as much fun. As long as the benefits from being here illegally outweigh the consequences of being caught, it will continue to be an issue.
2. stop the practice of making anyone born within our borders an automatic citizen. Citizenship requires responsibility. Two "fugitve criminal" parents should not be given refuge (and welfare) by our country because she managed to sneak across the border before her water broke! This is stupidity at its finest.
3. institute large fines to businesses that knowingly hire "fugitive criminals." I'd say 2X the cumulative total of all of the fugitive criminal's past wages should suffice. If there is not enough documentation to know how much that is, then, a) make the fine an automatic $10,000 per worker, and b) revoke their business license and charge them with fraud IMMEDIATELY.
4. impose large fines for individual citizens who knowingly house a fugitive criminal. $10,000 and a year in jail should do it.
5. immediately deport any fugitive criminal, confiscating everything they have, save the clothes on their backs. Yes, even from Emergency Rooms. Stabilize them and ship them back.
6. make a law (the ONLY new law we need...why make new ones when we don't enforce the onces we have) that states any fugitive criminal found here without a green card can NEVER become a citizen.
7. Issue green cards abundantly, but monitor them in 1 year increments. Taxes collected by greencard workers become property of the US...no 'tax returns.'
8. Citizenship is available to anyone who:
a. can pass a constitution test.
b. can pass a high-school level english test. (and as a sidenote, no 'american' should be able to graduate without 4 years of a foreign language. Drop the 'engilsh arrogance' and start being as smart as the rest of the world)
c. has had 5 years of gainful employment on their green card OR enlists to serve 3 years in the military. Citizenship is dependent upon an honorable discharge.
9. No federal benefits are available to anyone who has not been a citizen for 3 years, gainfully employed the entire time.
10. Yes, I'm a jerk.
11. Get over it.
Thursday, April 29, 2010
Wednesday, April 28, 2010
Fix this country!
I was bored on my way home last night, so I fixed the nation's problems. Oddly, Barack Obama wouldn't take my call...I'm assuming that it was because it was so late. I'll try back later today.
My idea is this:
We do away with all federal programs and all federal income taxes, leaving them up to the individual states (sort of like the 10th amendment guaranteed they would be, until the federal government usurped that autonomous authority).
Instead of income taxes, all taxes are levied by way of sales taxes and property taxes. Food and medicine are not taxed. Everything else is taxed: houses, cars, etc.
This levels the playing field for everyone, rich and poor alike. Those who spend the most (the rich) pay the most in taxes. Those who spend the least (the poor) pay the least. Then tax rates differ depending on product. Food/Meds, no tax; toilet paper/toothpaste, maybe 2%. Cigarettes/Booze, 20%. It's fair. It leaves very low taxes on those who only buy neccesities (assumedly, the poor), and a 'luxury' tax on those who can afford the vice. Pro-rate tax rates based on price range of things like cars and homes. lower tax rates on lower-priced items. Businesses are taxed solely on purchasing goods and a reasonable VAT. All taxes levied go directly to state. A percentage of state taxes go to fund the federal government. All property taxes stay in the county and township. Each county and township is responsible for its own social programs, school districts, etc. This way, those who work the hardest and choose to keep their money, can move to districts where property taxes are low because there are minimal welfare programs. Or those with children can move to districts where education is a top tax priority. Each state would be in charge of defining acceptable limits. The Federal government tests constitutionality, regulates the inter-state commerce, and provides foreign protection.
I actually thought that I was on to a brilliant idea until I realize that this idea is not new...this is constitutional. This is the way this great country started and functioned for 100 years...before politicians decided that they could do a better job spending our hard-earned money than we could....
My idea is this:
We do away with all federal programs and all federal income taxes, leaving them up to the individual states (sort of like the 10th amendment guaranteed they would be, until the federal government usurped that autonomous authority).
Instead of income taxes, all taxes are levied by way of sales taxes and property taxes. Food and medicine are not taxed. Everything else is taxed: houses, cars, etc.
This levels the playing field for everyone, rich and poor alike. Those who spend the most (the rich) pay the most in taxes. Those who spend the least (the poor) pay the least. Then tax rates differ depending on product. Food/Meds, no tax; toilet paper/toothpaste, maybe 2%. Cigarettes/Booze, 20%. It's fair. It leaves very low taxes on those who only buy neccesities (assumedly, the poor), and a 'luxury' tax on those who can afford the vice. Pro-rate tax rates based on price range of things like cars and homes. lower tax rates on lower-priced items. Businesses are taxed solely on purchasing goods and a reasonable VAT. All taxes levied go directly to state. A percentage of state taxes go to fund the federal government. All property taxes stay in the county and township. Each county and township is responsible for its own social programs, school districts, etc. This way, those who work the hardest and choose to keep their money, can move to districts where property taxes are low because there are minimal welfare programs. Or those with children can move to districts where education is a top tax priority. Each state would be in charge of defining acceptable limits. The Federal government tests constitutionality, regulates the inter-state commerce, and provides foreign protection.
I actually thought that I was on to a brilliant idea until I realize that this idea is not new...this is constitutional. This is the way this great country started and functioned for 100 years...before politicians decided that they could do a better job spending our hard-earned money than we could....
Tuesday, April 27, 2010
A failing Republic, part 4
One of the greatest concerns that I have as an employer and as a citizen is the fundamental shift in responsibility seen our country.
Once, there was an American dream. It was the idea that anyone could be anything that they wanted to be. It was an idea that people could work hard, work smart, and be successful. Enterepreneurs, inventors, and workers came together to make the impossible happen. Children dreamed of bettering themselves through hard work. News of this dream brought in immigrants from all over the globe.
Now, there is another American dream. This dream is very different than the dreams of decades passed. Now, the American dream is to win the lotto. Or, perhaps the "american lottery," that is, finding someone really rich to sue. Work ethic has gone out the window. More people are promoted because of WHO they know rather than WHAT they know. Why work hard, when the labor unions dictate the same raises and benefits to both the hardest worker and the laziest worker alike? If the lazy worker somehow gets fired, no problem. There is nearly endless unemployment and then state-aid...subsidized housing, food vouchers, even free healthcare. This is ALL picked up compliments of 'the government.' Entitlement for the lazy at the expense of those who have succeeded. This doesn't bother most people, because most people have lost the American dream: the idea that if they work hard, they could someday be the one being taxed to pay for the welfare state that we live in. The truth is that the government officials like to have people dependent upon them...it is the ultimate power over them. Once dependent upon the programs, it would be very hard for the consumer to pull the plug on the game, because they would lose their benefits.
We have governmental economics backward in this country. Reaganomics brought forth the concept of lowering taxes and starving the federal government. federal programs had to be cut back because there was no federal money to fund them. HOWEVER, the money was back in the hands of those who earned it, giving them the ability to spend it as they saw fit. The current model of governmental economics is exactly the opposite. Grow the government as much as we can, taking however much from the people that we need to...if we take too much, they can get put on federal programs to help them out. What a stupid idea...except that it gives the government more and more power over us.
I have become a bit of a Libertarian in recent years. I'm a social moderate and a fiscal conservative. I can't swallow the democrats' ideas of 'rob from the rich and give to the poor.' If you take away the incentives of working hard, then no one has any reason to work hard. i can't swallow the republicans' ideas of trying to legislate morality, based on their own, narrow viewpoint...while ignoring the opinions of the majority. And now, in the past few elections, democrats have begun to strip away as many freedoms as the religious right, and the republicans have gone on spending sprees that scare the liberal of the liberals.
We need to return to the idea of hard work paying off, and we need to elect candidates who support the kind of governmental environment condusive to LETTING hard work pay off. We need to stop legalizing the greedy governmental theft of family money through death and capital gains taxes...let the people re-invest that money into their community, where the money is NEEDED. We need to stop raising taxes on those who employ the middle-class. We need to cut the type of welfare programs that breed dependency. Ultimately, we need to restore the concept of personal responsibility.
Please allow me to build my own future instead of taxing it away from me, leaving me to hope that the government won't run out of money before I retire....
Once, there was an American dream. It was the idea that anyone could be anything that they wanted to be. It was an idea that people could work hard, work smart, and be successful. Enterepreneurs, inventors, and workers came together to make the impossible happen. Children dreamed of bettering themselves through hard work. News of this dream brought in immigrants from all over the globe.
Now, there is another American dream. This dream is very different than the dreams of decades passed. Now, the American dream is to win the lotto. Or, perhaps the "american lottery," that is, finding someone really rich to sue. Work ethic has gone out the window. More people are promoted because of WHO they know rather than WHAT they know. Why work hard, when the labor unions dictate the same raises and benefits to both the hardest worker and the laziest worker alike? If the lazy worker somehow gets fired, no problem. There is nearly endless unemployment and then state-aid...subsidized housing, food vouchers, even free healthcare. This is ALL picked up compliments of 'the government.' Entitlement for the lazy at the expense of those who have succeeded. This doesn't bother most people, because most people have lost the American dream: the idea that if they work hard, they could someday be the one being taxed to pay for the welfare state that we live in. The truth is that the government officials like to have people dependent upon them...it is the ultimate power over them. Once dependent upon the programs, it would be very hard for the consumer to pull the plug on the game, because they would lose their benefits.
We have governmental economics backward in this country. Reaganomics brought forth the concept of lowering taxes and starving the federal government. federal programs had to be cut back because there was no federal money to fund them. HOWEVER, the money was back in the hands of those who earned it, giving them the ability to spend it as they saw fit. The current model of governmental economics is exactly the opposite. Grow the government as much as we can, taking however much from the people that we need to...if we take too much, they can get put on federal programs to help them out. What a stupid idea...except that it gives the government more and more power over us.
I have become a bit of a Libertarian in recent years. I'm a social moderate and a fiscal conservative. I can't swallow the democrats' ideas of 'rob from the rich and give to the poor.' If you take away the incentives of working hard, then no one has any reason to work hard. i can't swallow the republicans' ideas of trying to legislate morality, based on their own, narrow viewpoint...while ignoring the opinions of the majority. And now, in the past few elections, democrats have begun to strip away as many freedoms as the religious right, and the republicans have gone on spending sprees that scare the liberal of the liberals.
We need to return to the idea of hard work paying off, and we need to elect candidates who support the kind of governmental environment condusive to LETTING hard work pay off. We need to stop legalizing the greedy governmental theft of family money through death and capital gains taxes...let the people re-invest that money into their community, where the money is NEEDED. We need to stop raising taxes on those who employ the middle-class. We need to cut the type of welfare programs that breed dependency. Ultimately, we need to restore the concept of personal responsibility.
Please allow me to build my own future instead of taxing it away from me, leaving me to hope that the government won't run out of money before I retire....
Wednesday, April 14, 2010
A Failing Republic, part 3
The hardest part of economics is realizing how inter-dependent each system is on some other system. The bailout of the auto industry is a perfect example: we can spend tax-payer money to bail it out, or we can let it fail and unemploy thousands of workers, losing their tax revenue, and putting them on government aid. Both scenarios cost the taxpayer a lot of money, so the question is: which one leads us to the point we want to end up? This is the third really important lesson in failing economics.
3. The 'government' is NOT an entity.
When we talk about "the government" we talk about it as if it is a self-aware independent being. "The government" should do something about Katrina. "The government" should provide healthcare. "The government" is in debt. We almost personify the government, and we need to stop it. The idea of a federal government was so that the US could be a representative republic. Pure democracy was (and arguably still IS) impossible, given the land mass and transportation abilities of the US in 1789. So the constitution allowed each state to elect 2 senators and then a certain number of representatives, respective to the census of each state. This gave equal power to each state in the senate (small states would not be ignored), and weighted power in the house (larger populated states would have more voice). An executive branch was created to oversee, and a judicial branch was created to be the final say on whether or not laws were constitutional. That's all the government is. It was given very limited power and have a very small pervue. It was financially supported by the states. The federal government was nearly 100 years old before it passed the first federal tax on to it's citizens. This tax had a single purpose: to pay for the civil war.
The problem is, where there is money, there is power. As money-hungry, power-hungry people took more and more control, the government became a huge, self-aware ogre. Instead of the government being a group of representatives making decisions that affect the well-being of the citizens, it became an entity. the government now defines education, business, healthcare, and industry. As this happened, the civil war tax was never stopped as promised. Instead, we are taxed more and more to feed "the government." We have come to believe that it is our job to give peace offerings to 'the government' and wait for 'the government' to tell us what to do and then to take care of us.
The government is draining our economy. Capitalism is what made this country great. Capitalism is what has made this country rich and prosperous. and the laws of equilibrium ultimately keep capitalism in checque (through an ebb and flow process). the government wants more of the capitalists money, so it socializes industries that were once privatized. the politicians take advantage of every capitalist indescretion to prove their point and whittle away at the rights and freedoms of business owners, and thereby private citizens. Those elected to the "government class" have a free ride. "the government" has a direction that it wants to go (take healthcare reform for example), and it simply goes that way. Someone afraid to vote for the bill, for fear of voter backlash, is simply promised a government job in the new healthcare system. They have become "governmentalized," marching to the beat of an over-indulgent ogre. The politicians are no longer there for the good of the common citizen. They are there to get rich and powerful...the type of elitist class that the patriots of the late 18th century gave life and family to fight against.
We, as 21st century Americans, welcome it with open arms. This government, right now, demands more taxes, allows less true representation, and cares less about the average citizen than England did in 1776.....
3. The 'government' is NOT an entity.
When we talk about "the government" we talk about it as if it is a self-aware independent being. "The government" should do something about Katrina. "The government" should provide healthcare. "The government" is in debt. We almost personify the government, and we need to stop it. The idea of a federal government was so that the US could be a representative republic. Pure democracy was (and arguably still IS) impossible, given the land mass and transportation abilities of the US in 1789. So the constitution allowed each state to elect 2 senators and then a certain number of representatives, respective to the census of each state. This gave equal power to each state in the senate (small states would not be ignored), and weighted power in the house (larger populated states would have more voice). An executive branch was created to oversee, and a judicial branch was created to be the final say on whether or not laws were constitutional. That's all the government is. It was given very limited power and have a very small pervue. It was financially supported by the states. The federal government was nearly 100 years old before it passed the first federal tax on to it's citizens. This tax had a single purpose: to pay for the civil war.
The problem is, where there is money, there is power. As money-hungry, power-hungry people took more and more control, the government became a huge, self-aware ogre. Instead of the government being a group of representatives making decisions that affect the well-being of the citizens, it became an entity. the government now defines education, business, healthcare, and industry. As this happened, the civil war tax was never stopped as promised. Instead, we are taxed more and more to feed "the government." We have come to believe that it is our job to give peace offerings to 'the government' and wait for 'the government' to tell us what to do and then to take care of us.
The government is draining our economy. Capitalism is what made this country great. Capitalism is what has made this country rich and prosperous. and the laws of equilibrium ultimately keep capitalism in checque (through an ebb and flow process). the government wants more of the capitalists money, so it socializes industries that were once privatized. the politicians take advantage of every capitalist indescretion to prove their point and whittle away at the rights and freedoms of business owners, and thereby private citizens. Those elected to the "government class" have a free ride. "the government" has a direction that it wants to go (take healthcare reform for example), and it simply goes that way. Someone afraid to vote for the bill, for fear of voter backlash, is simply promised a government job in the new healthcare system. They have become "governmentalized," marching to the beat of an over-indulgent ogre. The politicians are no longer there for the good of the common citizen. They are there to get rich and powerful...the type of elitist class that the patriots of the late 18th century gave life and family to fight against.
We, as 21st century Americans, welcome it with open arms. This government, right now, demands more taxes, allows less true representation, and cares less about the average citizen than England did in 1776.....
Wednesday, April 7, 2010
A Failing Republic, part 2
Looking further into the financial woes of our country, and the reasons for the economic distress:
2. Refusal to pass a law requiring the government to balance the budget.
I fully admit that I am not the best book-keeper or statistician in the world, but I'm not stupid either. I know how much money I bring in every month, and I have a rough idea of what my bills will be. I balance that amount, trying to be very careful to put enough away every month to cover the 'unexpected' realities in life. Am I always successful? No. Does it still need to be my goal? Yes! So why, then, do we allow the federal government to spend money without any accountability to the taxpayer? The following statistic frightens me beyond belief. Scared me so much that I triple checked sources: In 2009, the interest payment on the national debt was $100,000,000,000. That's not the debt itself, just the interest paid out. There are approximately 125M tax payers in the US right now (down from 131M a couple years ago, because of unemployment). This means that the average taxpayer pays $800 in income taxes every year, just to pay the interest on the national debt. Frighteningly, the debt doubled last year. Likewise, the interest will double and the amount of taxes needed to cover the interest will double. $1600 per year per taxpayer is the cost of the interest on the national debt for 2010. This is an 'eternal' amount. By that, I mean that this is without paying down one penny of the debt itself. You and I will have to average paying $1600/year for the rest of our lives, without ever actually lowering the debt, just because the government spends on an out-of-control basis.
In our private lives, we have a budget (whether thought out, or just paid by the seat-of-our-pants) that restricts our spending. We come to a point where we simply have nothing left to spend. The government does not have that spending cap. If the government spends too much, it has the power to just increase it's income by raising taxes. Must be nice. Can you imagine having the financial power of the government? Spent too much last year? just give yourself a raise to cover it. Credit card debt too high? just pass the interest on to someone else. If the people who actual pay for it complain about it, just take some more of their money and then give it back to them in a program that they like and hope that they are too stupid to know that it was their own money to begin with (and yes, the average American IS, unfortunately, that easily distracted).
The national debt and the deficit HAVE to be contended with. The interest is eating up the hard-earned labors of the American people. Without it, each of us would pay $1600/year less in taxes...or that $1600 could be used for humanitarian efforts (healthcare, for instance?). Instead, it just blows away with the wind.
The problem comes in trying to find a viable candidate with a campaign agenda of: the only way to fix this country is to either, 1. raise taxes until the debt is paid off, or 2. cut programs until there is no deficit. This candidate's own MOTHER might not vote for him.... So the only real answer is for Congress to pass a law requiring a balanced budget and requiring a certain percent of any outstanding debt to be paid each year. Get rid of the debt, and stop surviving in deficit mode. At the rate we are going, a large-scale depression would bankrupt the US government before it would bankrupt the average citizen. There's an old phrase asking who owns your house. The light-hearted answer is the bank (and you). So I wonder who the US owes the money to.... Who actually owns our country?
2. Refusal to pass a law requiring the government to balance the budget.
I fully admit that I am not the best book-keeper or statistician in the world, but I'm not stupid either. I know how much money I bring in every month, and I have a rough idea of what my bills will be. I balance that amount, trying to be very careful to put enough away every month to cover the 'unexpected' realities in life. Am I always successful? No. Does it still need to be my goal? Yes! So why, then, do we allow the federal government to spend money without any accountability to the taxpayer? The following statistic frightens me beyond belief. Scared me so much that I triple checked sources: In 2009, the interest payment on the national debt was $100,000,000,000. That's not the debt itself, just the interest paid out. There are approximately 125M tax payers in the US right now (down from 131M a couple years ago, because of unemployment). This means that the average taxpayer pays $800 in income taxes every year, just to pay the interest on the national debt. Frighteningly, the debt doubled last year. Likewise, the interest will double and the amount of taxes needed to cover the interest will double. $1600 per year per taxpayer is the cost of the interest on the national debt for 2010. This is an 'eternal' amount. By that, I mean that this is without paying down one penny of the debt itself. You and I will have to average paying $1600/year for the rest of our lives, without ever actually lowering the debt, just because the government spends on an out-of-control basis.
In our private lives, we have a budget (whether thought out, or just paid by the seat-of-our-pants) that restricts our spending. We come to a point where we simply have nothing left to spend. The government does not have that spending cap. If the government spends too much, it has the power to just increase it's income by raising taxes. Must be nice. Can you imagine having the financial power of the government? Spent too much last year? just give yourself a raise to cover it. Credit card debt too high? just pass the interest on to someone else. If the people who actual pay for it complain about it, just take some more of their money and then give it back to them in a program that they like and hope that they are too stupid to know that it was their own money to begin with (and yes, the average American IS, unfortunately, that easily distracted).
The national debt and the deficit HAVE to be contended with. The interest is eating up the hard-earned labors of the American people. Without it, each of us would pay $1600/year less in taxes...or that $1600 could be used for humanitarian efforts (healthcare, for instance?). Instead, it just blows away with the wind.
The problem comes in trying to find a viable candidate with a campaign agenda of: the only way to fix this country is to either, 1. raise taxes until the debt is paid off, or 2. cut programs until there is no deficit. This candidate's own MOTHER might not vote for him.... So the only real answer is for Congress to pass a law requiring a balanced budget and requiring a certain percent of any outstanding debt to be paid each year. Get rid of the debt, and stop surviving in deficit mode. At the rate we are going, a large-scale depression would bankrupt the US government before it would bankrupt the average citizen. There's an old phrase asking who owns your house. The light-hearted answer is the bank (and you). So I wonder who the US owes the money to.... Who actually owns our country?
Tuesday, April 6, 2010
A failing Republic, part 1
I'm not sure whether I'm getting more retrospective in my middle-aged years, or if things really are just headed down the crapper in this country. Either way, it's my blog, and I'll whine about anything that I want to!
America is in a greater economic crisis than we were prior to the Great Depression. The problem is that no one wants to see it. While a positive outlook can keep things rosy for a while, there is a dark economic shadow looming over this country that can not be kept at bay forever. I truly believe that America is headed for an economic "reset" and I believe it for some very specific reasons. My next few blogs will hit some of these points.
1. Americans don't seem to learn from their mistakes. If I ask the average American what caused the Great Depression, they will generally blame the stock market crash of '29 and the subsequent bank failures. The real question is, what caused the stock market crash/bank failures? As much as I hate to believe this, I truly do think that most Americans...even educated people...don't understand anything about the economics of what caused the failure. Because this knowledge is not present, the option of trying to learn from our mistakes has been taken away (by our own willful ignorance).
The stock market and the banks have a lot in common. Both are 'worth' a real amount, but 'valued' at another amount. Betting on this gap makes people very rich and it makes people very poor. I apologize for the length of this example, but it takes time to get our heads around some ideas:
Let's say that there is a bank that has $100 (actual worth). The bank knows that it can lend money for a house, and by charging interest, can make $3 for every dollar loaned, over the course of the contract. Essentially, the bank has a future 'value' of $300, so people invest. Every time $1 of a loan is paid back, the bank can re-loan that money and make another $3. So, if the bank continues to loan out all of it's assets, like a revolving door, it's 'value' continues to climb, geometrically. The problem is, although the bank may show a 'value' of thousands of dollars, its 'actual' money on hand is really only $100. If it loses this $100 of 'real' money, its future 'value' is irrelevant because it is bankrupt...there is no more working capital to "loan out." It has to seize assets and hope to make a profit. This is exactly what happened to the banks (and similarly the stock market, since it works on the same principle) in the early 30's. This is also what happened to the banks in 2008, and to the stock market in 2007, and to Fannie and Freddie, et al. Their books showed them to be worth trillions of dollars, but without any operating capital, they were actually not worth anything except over-inflated assets. The problem that we have in this country is that we are over-extended...much the way the banks and the stock market are/were. We, as individuals, have borrowed more money than we are actually worth. We buy houses that exceed our yearly income by 10 times. We finance cars, boats, and vacations. We have credit card debt with interest so high that it will take decades to pay off, even if we stopped using them. THIS is what happened in the Great Depression. The American people were over-extended because the banks kept screaming "borrow more." Blindly we listened, until we became over-extended to the point that we couldn't make our payments. Just a few missed payments by the right number of people caused the banks to fail, as they didn't have enough 'real' money to cover the losses. Their only option is to foreclose on the properties in arrears. The problem is that the property's 'actual' worth is 1/4 of what the bank had planned on. Foreclosure only profits if the property has gained value over the course of the loan...and the housing recession had proven the opposite to be true. The house was worth less than was borrowed against it.
So, 2008 comes around. Instead of looking at our past and saying that it's time to curb our borrowing, the Government bails out the failing banking/housing industry, with taxpayer money and the directive to "loosen up credit and lend more." The solution that was presented is the cause of the original problem. Nothing has been fixed...just prolonged. In order to truly fix this, the Government should have taken the money ($800 Billion, for those who have forgotten) and re-written existing, failing loans for the lowered, re-assessed property value and no interest. This would have kept the American people in their homes, kept the banks from going under by paying them for their 'actual' losses, all-the-while surpressing the ability for all parties to continue to spend money that no one had.
This cycle is far from being over. At what point will we learn?
America is in a greater economic crisis than we were prior to the Great Depression. The problem is that no one wants to see it. While a positive outlook can keep things rosy for a while, there is a dark economic shadow looming over this country that can not be kept at bay forever. I truly believe that America is headed for an economic "reset" and I believe it for some very specific reasons. My next few blogs will hit some of these points.
1. Americans don't seem to learn from their mistakes. If I ask the average American what caused the Great Depression, they will generally blame the stock market crash of '29 and the subsequent bank failures. The real question is, what caused the stock market crash/bank failures? As much as I hate to believe this, I truly do think that most Americans...even educated people...don't understand anything about the economics of what caused the failure. Because this knowledge is not present, the option of trying to learn from our mistakes has been taken away (by our own willful ignorance).
The stock market and the banks have a lot in common. Both are 'worth' a real amount, but 'valued' at another amount. Betting on this gap makes people very rich and it makes people very poor. I apologize for the length of this example, but it takes time to get our heads around some ideas:
Let's say that there is a bank that has $100 (actual worth). The bank knows that it can lend money for a house, and by charging interest, can make $3 for every dollar loaned, over the course of the contract. Essentially, the bank has a future 'value' of $300, so people invest. Every time $1 of a loan is paid back, the bank can re-loan that money and make another $3. So, if the bank continues to loan out all of it's assets, like a revolving door, it's 'value' continues to climb, geometrically. The problem is, although the bank may show a 'value' of thousands of dollars, its 'actual' money on hand is really only $100. If it loses this $100 of 'real' money, its future 'value' is irrelevant because it is bankrupt...there is no more working capital to "loan out." It has to seize assets and hope to make a profit. This is exactly what happened to the banks (and similarly the stock market, since it works on the same principle) in the early 30's. This is also what happened to the banks in 2008, and to the stock market in 2007, and to Fannie and Freddie, et al. Their books showed them to be worth trillions of dollars, but without any operating capital, they were actually not worth anything except over-inflated assets. The problem that we have in this country is that we are over-extended...much the way the banks and the stock market are/were. We, as individuals, have borrowed more money than we are actually worth. We buy houses that exceed our yearly income by 10 times. We finance cars, boats, and vacations. We have credit card debt with interest so high that it will take decades to pay off, even if we stopped using them. THIS is what happened in the Great Depression. The American people were over-extended because the banks kept screaming "borrow more." Blindly we listened, until we became over-extended to the point that we couldn't make our payments. Just a few missed payments by the right number of people caused the banks to fail, as they didn't have enough 'real' money to cover the losses. Their only option is to foreclose on the properties in arrears. The problem is that the property's 'actual' worth is 1/4 of what the bank had planned on. Foreclosure only profits if the property has gained value over the course of the loan...and the housing recession had proven the opposite to be true. The house was worth less than was borrowed against it.
So, 2008 comes around. Instead of looking at our past and saying that it's time to curb our borrowing, the Government bails out the failing banking/housing industry, with taxpayer money and the directive to "loosen up credit and lend more." The solution that was presented is the cause of the original problem. Nothing has been fixed...just prolonged. In order to truly fix this, the Government should have taken the money ($800 Billion, for those who have forgotten) and re-written existing, failing loans for the lowered, re-assessed property value and no interest. This would have kept the American people in their homes, kept the banks from going under by paying them for their 'actual' losses, all-the-while surpressing the ability for all parties to continue to spend money that no one had.
This cycle is far from being over. At what point will we learn?
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