November 22, 2024

TARP 2 – Will Bad Loans Wipe Out Newly Raised Bank Capital?

June 22, 2009 by 1 Comment

Are The Banks Paying Back TARP Money Too Soon?

Since the beginning of the year, major banks have raised over $200 billion in capital, far in excess of the $75 billion of new capital that the government stress tests had called for.  The market prices of major bank stocks have recovered dramatically since March, indicating that Wall Street investors see a recovery in the banking industry.

In addition, the banking industry is enjoying one of the largest net interest margins in history due to a very low cost of funds.  Wells Fargo, for example, in the fourth quarter saw its average cost of funds decline to 1.5% while its net interest margin exceeded 4%.  With banks able to access cheap funding thanks to the super low rate money policy of the Federal Reserve, banks almost have a license to print money.

The big question is will the banks be able to earn enough to offset the huge amount of future write downs that will be needed on their troubled loans?  Earlier this year, Bloomberg reported that the International Monetary Fund (IMF) estimated U.S. banking losses through 2010 at $1.06 trillion.  To date the banking industry has taken write downs of only half that amount, indicating further write downs of an additional $500 billion will be necessary.

In addition, delinquency rates on $1 trillion of commercial real estate loans held by banks have been increasing at a higher rate than anticipated.  Credit card losses for the banks have also been rapidly mounting from previous estimates.

Mortgage Default Surge Could Wipe Out Banking Capital

Total Estimated Losses

Total Estimated Losses

Courtesy:  T2 Partners LLC

The banking industry’s mortgage portfolio is the real wild card and may result in the need for huge additional write downs to cover the cost of mounting defaults.  The banking industry is facing a potential nightmare surge in mortgage loan defaults, even if real estate prices stabilize at current levels due to the large negative equity positions of many homeowners.  (The above chart shows the total estimated banking losses of which only a fraction has been realized to date.)

There is no historical model to predict the correlation of mortgage defaults to equity position, but one would expect that being deeply underwater on the mortgage will result in a strong economic motive to stop paying or simply walk away.  How many homeowners, for example, will continue to make a mortgage payment on a $200,000 mortgage when the home is valued at $100,000?  The greater the negative equity, the greater the odds of a mortgage default, especially if the homeowner is under financial stress.

Unfortunately, the problem of negative equity is not theoretical.  In the latest overview of housing and the credit crisis, T2 Partners LLC, has assembled an in depth excellently documented case on why the pain in housing is not about to end quickly.  One eye opener in the report is the estimate, by type of mortgage borrower, of negative equity.  T2 shows the following stats: 73% of OptionARMs, 50% of subprime , 45% of Alt A and 25% of prime mortgage loans are underwater.  Combine this with a weak economy, job losses and negative income growth and the potential for additional huge write downs on residential mortgages seems inevitable.

The impact of a poor economy and huge negative equity is already being reflected in default rates never experienced in modern economic history.  Almost 10% of all mortgages are in some stage of delinquency or default.  The delinquency rate on prime mortgages, never expected to exceed historical delinquency rates of approximately 1%, are now over 4.5%.  Note that prime mortgage loans are the loans that were never expected to have more than a minimal default rate based on the borrower’s credit and income characteristics.

The banking industry is likely to need every dollar of newly raised capital and then some to cover future loan losses.   If future banking industry profits are overwhelmed by additional loan losses, it will be years before banks can be solidly classified as well capitalized.   A capital constrained banking industry will survive in some form, but it may not be able to provide the new lending necessary to foster future economic growth

Filed Under: Banking Industry, Housing, Mortgages, Problem banks Tagged With: , ,

Obama – 40 more years!

June 17, 2009 by 1 Comment

For all of those worried about tax increases, slow economic growth and rapidly expanding deficits, I have one word – relax.  Consider the following comments made by the President today.

Obama Says Robust Growth Will Prevent Tax Increases

June 16 (Bloomberg) — “One of the biggest variables in this whole thing is economic growth,” the president said in an interview with Bloomberg News at the White House. “If we are growing at a robust rate, then we can pay for the government that we need without having to raise taxes.”

Obama has repeatedly said he would keep his campaign pledge to cut taxes for 95 percent of working Americans while rolling back tax breaks for households making more than $250,000 a year.

The U.S. economy shrank at a 5.7 percent annual pace in the first quarter… The median forecast for growth next year is 1.8 percent, according to the survey.

Obama warned that if economic growth remains “anemic” and Congress fails to adopt his plans to hold down the cost of health care, work on alternative energy sources and improve the U.S. education system, “then we’re going to continue to have problems.”

He also repeated his promise to cut the budget deficit, forecast to hit $1.8 trillion this year, in half by the end of his first term.

“If my proposals are adopted, then not only are we cutting the deficit in half compared to where it would be if we didn’t do anything, but we’re also going to be able to raise revenue on people making over $250,000 a year in a modest way,” he said. “That helps close the deficit.”

Fiscal discipline that leads to lower budget deficits is important, Obama said, to ensure investors around the world keep buying U.S. government debt.

From warning of a “financial catastrophe” some short months ago, we are now being told that:

  1. Robust economic growth will cover government spending increases
  2. 5% of working Americans will cover the tab for the other 95%
  3. New spending on health care, education and the environment will spur economic growth
  4. Deficits will be cut in half to only $1 trillion a year
  5. Fiscal discipline will cause investors to lust after U.S. debt securities

News like this is almost enough to make one believe that the recent 40% gain in stock prices is just the beginning of  new wealth creation for investors.

Before rushing into a 100% long position with your portfolio,  consider some of the potential headwinds that the President’s magic scenario will face.

Past decades in the U.S. have been distinguished by slow economic growth (despite huge credit stimulus), stagnate or declining real incomes and a massive increase in the debt burden on every sector of the economy.   In addition, American’s have seen their major asset categories – stocks and real estate – vaporized by multi trillion dollar losses.

Median Household Incomes Fell in 94% of the States – 1999-2005.

1999-2006 Income Declines

1999-2006 Income Declines

Courtesy: mwhodges.home

Household Debt Ratio

Household Debt Ratio

Debt to National Income

Debt to National Income

Debt to National Income Ratio

Debt to National Income Ratio

Workers in Manufacturing

Workers in Manufacturing

Personal savings rate

Personal savings rate

Decline In Purchasing Power US $

Decline In Purchasing Power US $

Conclusion:

The national economic trends of past decades are:

  • Lower incomes
  • Staggering increases in debt
  • Dramatic decreases in savings
  • The destruction of our manufacturing base
  • A 90% decline in the purchasing value of our currency

If the President can reverse these trends, I say change the Constitution and give him 40 more years in office!

Filed Under: Economy, Government spending, Jobs, Uncategorized Tagged With: ,

The Cost Of Easy Money – $14 Trillion and Counting

June 16, 2009 by Leave a Comment

Supervisory Insights – Where The Money Went

The FDIC released their Supervisory Insights report today which contains a detailed breakdown of the almost $14 trillion dollars committed by the Government to support the financial system over the past two years.   This huge commitment of taxpayer money can be viewed as the  cost of cleaning up after the Greenspan era of easy money.   The cost of the financial devastation that ensued from the easy money/easy lending era  far outweighs any illusory benefits that may have been gained.

The FDIC report easily recognized  the precipitating factors of the financial crisis of 2008.

The factors precipitating the financial turmoil of 2008 have been the subject of extensive public discussion and debate. The fallout from weak underwriting standards prevailing during a multi-year economic expansion first became evident in subprime mortgages, with Alt-A mortgages soon to follow. Lax underwriting practices fueled a rapid increase in housing prices, which subsequently adjusted sharply downward across many parts of the country.

Excessive reliance on financial leverage compounded problems for individual firms and the financial system as a whole.

One indicator of the gravity of recent developments is this: in 2008,  U.S. financial regulatory agencies extended $6.8 trillion in temporary loans, liability guarantees and asset guarantees in support of financial services.  By the end of the first quarter of 2009, the maximum capacity of new government financial support programs in place, or announced, exceeded $13 trillion.

And some of the old banking basics—prudent loan underwriting, strong capital and liquidity, and the fair treatment of customers—re-emerged as likely cornerstones of a more stable financial system in the future.

The obvious question is why were prudent loan underwriting standards abandoned in the first place?  Lenders, borrowers and regulators alike were all blinded by greed and the misguided belief that easy wealth was being created by the use of ridiculous amounts of cheap credit.  Now, at a cost of almost an entire year’s GDP, we know better – at least until next time.

Government Support for Financial Assets and Liabilities Announced in 2008 and Soon Thereafter ($ in billions)
Important note: Amounts are gross loans, asset and liability guarantees and asset purchases, do not represent net cost to taxpayers, do not reflect contributions of private capital expected to accompany some programs, and are announced maximum program limits so that actual support may fall well short of these levels
Year-end 2007 Year-end 2008 Subsequent or Announced Capacity If Different
Treasury Programs
TARP investments1 $0 $300 $700
Funding GSE conservatorships2 $0 $200 $400
Guarantee money funds3 $0 $3,200
Federal Reserve Programs
Term Auction Facility (TAF)4 $40 $450 $900
Primary Credit5 $6 $94
Commercial Paper Funding Facility (CPFF)6 $0 $334 $1,800
Primary Dealer Credit Facility (PDCF)5 $0 $37
Single Tranche Repurchase Agreements7 $0 $80
Agency direct obligation purchase program8 $0 $15 $200
Agency MBS program8 $0 $0 $1,250
Asset-backed Commercial Paper Money Market Mutual Fund
Liquidity Facility (AMLF)9 $0 $24
Maiden Lane LLC (Bear Stearns)9 $0 $27
AIG (direct credit)10 $0 $39 $60
Maiden Lane II (AIG)5 $0 $20
Maiden Lane III (AIG)5 $0 $27
Reciprocal currency swaps11 $14 $554
Term securities lending facility (TSLF) and TSLF options program(TOP)12 $0 $173 $250
Term Asset-Backed Securities Loan Facility (TALF)13 $0 $0 $1,000
Money Market Investor Funding Facility (MMIFF)14 $0 $0 $600
Treasury Purchase Program (TPP)15 $0 $0 $300
FDIC Programs
Insured non-interest bearing transactions accounts16 $0 $684
Temporary Liquidity Guarantee Program (TLGP)17 $0 $224 $940
Joint Programs
Citi asset guarantee18 $0 $306
Bank of America asset guarantee19 $0 $0 $118
Public-Private Investment Program (PPIP)20 $0 $0 $500
Estimated Reductions to Correct for Double Counting
TARP allocation to Citi and Bank of America asset guarantee21 – $13
TARP allocation to TALF21 – $80
TARP allocation to PPIP21 – $75
Total Gross Support Extended During 2008 $6,788
Maximum capacity of support programs announced throughfirst quarter 200922 $13,903

More on this topic:
FDIC Lists Root Cause For Failed Banks – Lax Regulation

Filed Under: Bailout, FDIC, Government spending, Greenspan, Housing Tagged With: ,

Tracking the Economy Through Coin Production

June 9, 2009 by 1 Comment

Economic IndicatorOne of the consequences of a recession is a decline in demand for newly minted coins. Economic activity declines and there is less demand for coins in commerce. Individuals also put long hoarded change back into circulation. Coins come out of hiding from couch cushions, penny jars, and abandoned State Quarter collections. The net result is a drop in the number of new coins produced.

This year, the United States Mint expects coin production to decline by as much as 70% from the prior year. This is on top of a 30% decline experienced for 2008.  The situation has become so severe that the US Mint had already announced that they will not mint any more nickels or dimes for the remainder of 2009.

Total US Mint Circulating Coin Production
2007 14,440,650,000
2008 10,141,580,000
2009 (through May) 1,909,400,000

As dire as the annual figures seem, the month to month indications are also pointing straight down. Since 1999, the US Mint has produced five different designs for the quarter each year, which serves to provide data points over shorter time periods. The designs are changed every 2-3 months. This year there are six designs, so the new designs are released approximately every two months. Here’s what the production totals look like for this year.

2009 Quarter Production
District of Columbia design 172,400,000
Puerto Rico design 139,200,000
Guam design 87,600,000

To put these numbers in some perspective, last year each of the five State Quarters designs had at least 400,000,000 minted with the highest total coming in at 517,600,000 for the Hawaii Quarter, which was minted during the last few months of 2008. The highest quarter production since the start of the rotating designs occurred in late 2000, when the Virginia Quarter had 1,594,616,000 coins minted.

The latest production for the Guam Quarter represents a decline of 83% from the recent Hawaii Quarter and a whopping decline of 94.5% from the peak production for the Virginia Quarter.

This was a guest post written by Michael Zielinski.

Filed Under: Economy

Fiscal Discipline – Endorsed By All, Practiced By None

June 7, 2009 by

Has anyone noticed the correlation  of “fiscal discipline” chatter to rising interest rates?  Efforts by the Fed to manipulate rates lower through the outright purchases of treasuries and mortgage securities seem to be failing as the long end of the yield curve continues to steepen.  Is the fiscal discipline talk simply an effort to calm bond investors or is the plan deeper?

Consider some recent comments by the President and the Fed Chairman.

Obama Urges Congress To Pass Law Enforcing Fiscal Discipline

(Bloomberg) — President Barack Obama said he is committed to imposing fiscal discipline on the government and called on Congress to pass a law requiring any new spending be matched by higher taxes or cuts elsewhere. Obama, in his weekly radio and Internet address, said that while his initiatives to confront the economic crisis have deepened the country’s debt,

“We need to adhere to the basic principle that new tax or entitlement policies should be paid for,” Obama said.

“We cannot sustain deficits that mortgage our children’s future, nor tolerate wasteful inefficiency,” Obama said.

Earlier this week, Obama was criticized as doing too little to confront the deficit when he ordered his Cabinet to cut $100 million out of the budget

And right on cue, Mr Bernanke followed up with  sobering remarks on the perils of deficit financing and fiscal imbalances.

Fed Chief Calls For Plan To Curb Budget Deficits

“Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth,” he said.

The deficit is expected to reach $1.8 trillion this year as the country spends feverishly on financial bailouts, a sweeping stimulus package, lending programs, rescues for the automobile industry and more.

Why Bernanke is Right to be Worried

Mr Bernanke states that ”even as we take steps to address the recession and threats to financial stability, maintaining the confidence of the financial markets requires that we, as a nation, begin planning now for the restoration of fiscal balance. Prompt attention to questions of fiscal sustainability is particularly critical because of the coming budgetary and economic challenges associated with the retirement of the baby-boom generation and continued increases in medical costs.”

These are strong words, and appropriately so given the worrisome fiscal outlook facing the US. By necessity, Mr Bernanke will increasingly be in the business of countering monetisation and inflation concerns.

Indeed, the markets have already fired a couple of clear warning shots in the last couple of weeks, as illustrated by recent moves in US bonds and the dollar.

It’s Your Problem, Bernanke Tells Congress

Congress and the people who elected it must decide how much government they want to afford, Bernanke said. Stating the obvious, he went on to say: “Crucially, whatever size of government is chosen, tax rates must ultimately be set at a level sufficient to achieve an appropriate balance of spending and revenues in the long run.”

Unfortunately, Congress and the people have seldom gotten the balance right. We want the benefits of a large government without paying the costs, just as we wanted a loftier personal living standard than our income could support.

The current economic crisis — which demanded “strong and timely actions,” in Bernanke’s view — has accelerated the day of reckoning for our public and private debt…

Both Obama and Bernanke are intelligent men.  I doubt that either one truly believes that unlimited borrowing or printed money create enduring economic prosperity.   The bailouts, guarantees and deficit spending were necessary to prevent the economic crisis from turning into something much worse, but the cost has  accerlerated  the “day of debt reckoning”.

Now that the crisis seems contained and rates are rising,  the emphasis by both Obama and Bernanke is on ‘balancing spending with revenues”.   Since neither man  mentions reduced  spending, what exactly do they have in mind?

The way this plays out should be interesting.  The President wants his numerous costly programs implemented and Bernanke, a “student of the depression” will be loathe to endorse tax increases on a still very fragile economy.  Bernanke tells Congress that paying the bills is their problem and Obama states that new entitlements should be paid for.  So what is the solution? 

The solution is the only one it has ever been-  defer any meaningful action to the next administration, defer the unwinding of the excesses to the next business cycle, and defer  the debts to the next generation.  The “solution”  will keep on working until it doesn’t.

Filed Under: Bernanke, Economy, Federal Reserve, Government spending, printing money Tagged With:

Bonds Sell Off, Credit Ratings In Doubt & Mortgages ReDefault

June 6, 2009 by Leave a Comment

Every day there are many great posts on the web.  Here are some  from the past week  that merit a full read.  The listing order  is random.

Ok, I’m Done With Being Nice

Karl Denninger does not play nice in his counter point to a NY Times article about “mortgage relief” tax dollars going to those who were fiscally irresponsible and should have never owned a house in the first place.  The really galling part of the Times story was their tacit approval of the sense of entitlement exhibited by those who deserve nothing.

Bond Binge Hangover

With a lot of hysteria over the increase in long interest rates recently, this is a good measured analysis that looks at the history of rates and the implications for investors holding bonds.

Obama’s Deficits Put US Credit Rating At Risk

The huge US deficits and debt won’t matter until it does matter.  No one doubts that the US will pay on obligations, but what will they pay with?  Markets perceptions of risk can change quickly, upsetting any perceived economic recovery.

The State Vs. Federal Schism

The growing budget deficits on a State level have been getting some serious notice lately but have not reached the crisis stage.  How exactly does the Fed monetize this problem?  If the States have to cut budgets enough to match spending with drastically declining tax receipts, this will more than wipe out any stimulus spending at the Federal level.

A Tale of Two Depressions

Some great charts with not so great implications for the world economies.  The policy response this time is different but will it make any difference?

Fed In Foreclosure, Mortgage Rates Battered

Some discussion on the Fed’s losing battle to manipulate rates lower by buying treasuries and mortgage debt.  Investors are not amused and are voting  with an avalanche of sell orders in the long government debt markets.  So what does the Fed do next?

Filed Under: Federal Reserve, Interest Rates, loan modification

Geithner – “I am not a crook”

June 4, 2009 by 1 Comment

“Chinese assets are very safe”

This remarkable assertion regarding the safety of US debt securities held by China was made by Timothy Geithner, US Treasury Secretary, during his visit to China.   That Mr. Geithner felt compelled to make this statement probably reinforced the unease China has about the finances of the United States.  If the Chinese assets were actually “safe” and everyone knew it, there would have been no need to say that they were safe.

Mr. Geithner’s denial brings to mind another famous denial made by Richard  Nixon during the Watergate affair – “I am not a crook”.  We all know how that turned out.  If it wasn’t obvious that everyone knew Nixon was a crook, he would not have had to deny it.  If US assets are really safe, Geithner would not have to say that they are safe.

Almost a Vaudeville Act

Mr Geithner’s “Chinese assets are very safe” line was  greeted with loud laughter by the student audience he made his remark to.   The laughter speaks for itself regarding the credibility given to Mr. Geithner’s assurances.  Perhaps our Treasury Secretary should have countered the laughter by saying, “I am totally serious about this”.

At the same time, the President and Chairman of the Federal Reserve were very publicly proclaiming that the US deficits would be cut, future spending would be “disciplined” and that fiscal imbalances would be addressed.  These remarks probably confused the Chinese as they watch the United States implement programs that require trillions of dollars a year of new deficit spending.  You can say you will do something but what really counts is what you actually do.   Words are a cheap commodity while confidence is precious.

The recent remarks by Geithner, Obama and Bernanke promising fiscal restraint may have something to do with the following chart.

10 Year Treasury

10 Year Treasury

Courtesy: Yahoo finance

Despite the Fed’s massive purchases of mortgage and treasury securities,  price action in the long term treasury market clearly indicates more sellers than buyers, with rates nearly doubling since late last December.  Rates at 3.75% on the 10 year treasury are certainly not a disaster, but if all the powers of the Fed and Treasury to lower interest rates are failing, then maybe things aren’t so “safe” after all.

Filed Under: Bernanke, Confidence, Federal Reserve, Geithner, Government spending, Interest Rates Tagged With: , ,

Sin and Millionaire Taxes Are Not The Answer To State Deficits

June 3, 2009 by 3 Comments

Maryland Fights The Laffer Curve and Loses

As state tax revenues plunge, politicians are attempting to increase spending and cover budget deficits by imposing “sin and millionaire taxes”.

Failed attempts by the State of Maryland to cover their budget deficit with “sin and millionaire taxes” should be a text book lesson to other States that this policy is counter productive.   Large tax increases have resulted in lower than expected tax revenues.  Maryland has challenged supply side economics as represented by the Laffer Curve and lost.

Laffer curve

Laffer curve

Courtesy: Wikipedia.com

Consider the following examples of diminishing returns as tax rates increase.

Maryland’s Doubled Cigarette Tax Brings in Just 50% More Revenue

Maryland doubled its cigarette tax from $1 to $2..

In FY 2007, Maryland’s $1 cigarette tax brought in $269.1 million in revenue. In proposing the increase, Governor Martin O’Malley estimated that the increase would bring in $255 million a year. In other words, he estimated that the 100% tax increase would result in a 95% revenue increase.

Maryland’s 100% tax increase is now resulting in just a 51% revenue increase. Put another way, Maryland is getting just half the revenue it expected.

Millionaires Go Missing

Maryland couldn’t balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy.  And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O’Malley, a dedicated class warrior, declared that these richest 0.3% of filers were “willing and able to pay their fair share.” The Baltimore Sun predicted the rich would “grin and bear it.”

One year later, nobody’s grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller’s office concedes is a “substantial decline.” On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year — even at higher rates.

Taxing the rich may be a great vote getting slogan for politicians but it will not balance the deficits facing State governments.  IRS figures show that the top  5% of wage earners pay 60% of total income taxes.  The bottom 50% of income earners pay virtually zero.   Increasing taxes on the “rich” is not the solution to curing budget deficits.

Maryland is not alone in pursuing high income taxpayers, despite the documented futility of such action.  The highest tax states are consistently losing population as taxpayers vote with their feet, leaving high tax states with less jobs, business and income.  Arthur Laffer documents the self defeating results of high taxes on investment capital and people in a recent Wall Street Journal article.

Soak the Rich, Lose the Rich

With states facing nearly $100 billion in combined budget deficits this year, we’re seeing more governors than ever proposing the Barack Obama solution to balancing the budget: Soak the rich.

Updating some research from Richard Vedder of Ohio University, we found that from 1998 to 2007, more than 1,100 people every day including Sundays and holidays moved from the nine highest income-tax states such as California, New Jersey, New York and Ohio and relocated mostly to the nine tax-haven states with no income tax, including Florida, Nevada, New Hampshire and Texas. We also found that over these same years the no-income tax states created 89% more jobs and had 32% faster personal income growth than their high-tax counterparts.

Did the greater prosperity in low-tax states happen by chance? Is it coincidence that the two highest tax-rate states in the nation, California and New York, have the biggest fiscal holes to repair? No. Dozens of academic studies — old and new — have found clear and irrefutable statistical evidence that high state and local taxes repel jobs and businesses.

Finally, there is the issue of whether high-income people move away from states that have high income-tax rates. Examining IRS tax return data by state, E.J. McMahon, a fiscal expert at the Manhattan Institute, measured the impact of large income-tax rate increases on the rich ($200,000 income or more) in Connecticut, which raised its tax rate in 2003 to 5% from 4.5%; in New Jersey, which raised its rate in 2004 to 8.97% from 6.35%; and in New York, which raised its tax rate in 2003 to 7.7% from 6.85%. Over the period 2002-2005, in each of these states the “soak the rich” tax hike was followed by a significant reduction in the number of rich people paying taxes in these states relative to the national average. Amazingly, these three states ranked 46th, 49th and 50th among all states in the percentage increase in wealthy tax filers in the years after they tried to soak the rich.

Or consider the fiasco of New Jersey. In the early 1960s, the state had no state income tax and no state sales tax. It was a rapidly growing state attracting people from everywhere and running budget surpluses. Today its income and sales taxes are among the highest in the nation yet it suffers from perpetual deficits and its schools rank among the worst in the nation — much worse than those in New Hampshire. Most of the massive infusion of tax dollars over the past 40 years has simply enriched the public-employee unions in the Garden State. People are fleeing the state in droves.

The “solution” of higher taxes and borrowing to cover state budget deficits is no longer an option, with California as the prime example.  Taxing the higher income groups yields lower tax revenue.  Raise taxes on everyone and get voted out of office.  When will the States consider the obvious alternatives of reduced spending and balanced budgets?

Filed Under: Futility of higher taxes, Maryland's millionaire tax fiasco Tagged With: ,

The Futility Of Lower Interest Rates, Obama Motors, “Atlas Shrugged” Sales Surge & Confidence Mounts

June 2, 2009 by Leave a Comment

As stock markets surge, GM’s future is suddenly bright and consumer confidence soars, here are some recent blog posts worth the read with some alternative insights.

Why lower interest rates are not effective monetary policy

If too much debt caused the financial crisis, why are governments world wide trying to force more debt on an over leveraged world?  Japan’s policy of rock bottom low interest rates did not prevent Japan’s “lost decade” of economic growth and results for the  rest of the world will be no different now.  Why low interest rates do not improve the economy.

We are all now GM shareholders but don’t spend the profits yet

Now that the government, aka known as “the people” own General Motors, can we expect to see a quick turnaround that has eluded GM management for decades?  If GM cannot come up with products at a competitive price that buyers in a free market will purchase, the huge taxpayers subsidies will have been nothing but “stimulus waste”.

Atlas Shrugged book sales continue strong

The truths in Atlas Shrugged continue to promote big sales of a book written half a century ago.  Government policies continue to protect and save the least productive while killing the overall economy.  Our present political system almost guarantees the continuation of self destructive governmental economic policies.

With no signs of real economic recovery in sight, consumer confidence grows

Is the increase in consumer confidence in the economy justified?  Although we seem to have avoided the economic collapse widely feared just several months back, what has really changed?  Balance sheets and incomes have not improved and job losses continue.  Do not expect a “V” shaped recovery.

Filed Under: Confidence, Deleveraging, Interest Rates, Japan Tagged With: