October 2, 2022

Obama Jobs Plan Bad Joke For Both Employed and Unemployed

The long awaited and hugely hyped Obama “Jobs Solution Speech”, hastily crafted between rounds of golf on the Vineyard, is unlikely to help either the employed or  unemployed.

Obama’s calls his new proposals the “American Jobs Act” but it strongly resembles the $825 billion stimulus spending program of 2009 which was ineffective and failed to stimulate the economy or create new jobs.   Taxpayers will likely fail to see the logic of a $447 billion stimulus program working any better than a $825 billion stimulus program.

The latest proposals out of the White House appear to be another desperate Keynesian attempt to keep the economy on life support long enough to boost Obama’s chances in the presidential election race.  Expecting voters to buy into Obama’s new program pushes the bounds of credibility.  Why would a relatively small $447 billion program work any better than the $4 trillion in deficit financed spending since Obama came into office?

Telling voters that the new half trillion dollar program will be paid for from future mythical budget cuts isn’t likely to fly either after seeing the results of the latest fiasco on deficit reduction talks that lead to a downgrade of the US credit rating.

Half of $447 billion “Jobs Act” program consists of payroll tax cuts for both employers and employees.  While probably adding to aggregate spending, the tax cuts do not address the fundamental problems of unemployment and income stagnation over the past decade.

Why Payroll Tax Cuts Won’t Work

What business bases hiring decisions on a 2% drop in the social security (FICA) tax?  Any business man stupid enough to decide to hire new employees simply because his share of the FICA tax will be slightly lower is already out of business.  New employees are added by businesses when there is added demand for their products and when they are confident that a lasting economic recovery is underway.  Today, there is subdued demand and no confidence – a cut in the FICA tax does nothing to change this situation.

Regarding the payroll tax cut for employees, here’s how one Connecticut resident assessed the situation.

“I am currently making $80,600 per year.   The recent reduction of 2% in the FICA tax resulted in an increase of $31 per week to my paycheck.  Meanwhile, the State of Connecticut just passed the largest tax increase in history, retroactive to the first of the year, which results in paying $17 more per week.  My weekly deduction for medical insurance increased by $12 per week since last year and our employer has suspended pay increases.

My net benefit from the FICA tax reduction is $2 a week.  Meanwhile, the cost of gasoline, home heating, insurance and groceries has risen at least 6% over the past year.  Even if the FICA tax cut was made permanent, an extra $2 per week is certainly not going to motivate me to spend more.

My savings goals for college funding and retirement have been destroyed by a collapsing stock market and zero interest rates on savings.  I  have to cut current spending in order to meet my savings goals and any extra income would be saved, not spent.”

Did Obama talk to any “real people” outside of the group of Washington elites and millionaire celebrity pals he hangs around with?  I think not.

Did Obama talk to any “real businessmen” before coming out with his warmed over and effective stimulus plan?  I think not.

Did Obama talk to “Helicopter Bernanke” about how to spread out the $447 billion of borrowed money?  The government could simply spend the $447 billion by sending every household in America a check for $3,886 attached with a note telling the recipients to thank their grandchildren whose future has been mortgaged.

Voters are rightfully disgusted by the rapid decline in their standard of living, the debasement of the US currency and the self serving dealings of the ruling Washington elites.  To pull out an old campaign slogan, “It’s time for a change”.

There are no easy answers to pulling a debt laden economy out of depression, but increasing transfer payments, small tax cuts, massively increased regulatory burdens, trillions in stimulus spending and zero interest rates have not worked.  Maybe the Washington elites should simply step aside, stop micro managing the $14 trillion dollar US economy and allow the creative forces of capitalism to work

Latest Government Scheme For Growth – The Invisible Tax Cut

Pulling forward future demand to stimulate economic growth didn’t work with the cash for clunkers program or housing tax credits.   Car and home sales collapsed after consumers who were going to buy cars or houses anyways bought today instead of tomorrow.  Past stimulus programs have increased government deficits without improving long term economic fundamentals.

Undeterred by previous failures the government is again attempting to pull forward demand, this time with accelerated write offs for new plant and equipment spending.

The new Obama tax break proposals are likely to be even more ineffective than previous stimulus attempts.  To “offset” the revenue loss of accelerated deductions, other taxes would be raised, effectively muting the net stimulus that the plan attempts to provide. 

NYT –  In a speech in Cleveland on Wednesday, Mr. Obama will also make a case for the package of roughly $180 billion in expanded business tax cuts and infrastructure spending disclosed by the White House in bits and pieces over the past few days. He would offset the cost by closing other tax breaks for multinational corporations, oil and gas companies and others.

The “tax cuts” for increased business investment merely accelerate the existing tax write off for business investments that are presently written off over a period of years.  If other taxes are raised to “offset” the accelerated tax deductions, the net effect of the plan would be to effectively increase taxes on businesses.

The lure of accelerated tax cuts (which increase cash flow) is not likely to affect decisions on investment spending since corporate America is already sitting on a record amount of cash.  Accelerating depreciation deductions will merely pull demand forward from companies that had already planned spending increases for plant and equipment. 

Rational consumers and businessmen do not base long term spending decisions on tax deductions.  Increased spending by businesses is based on an increase in forecast demand.   Consumer spending is ultimately based on confidence in the prospect for increases in future incomes.  

For good reasons, neither businesses nor individuals are confident about the future and there is deep skepticism that additional stimulus programs will do little more than increase the government deficit.  The latest stimulus plan is conceptually vacuous and likely to decrease public confidence in the government’s ability to formulate a plan for long term economic recovery.

Census Bureau Report Portrays Destruction Of The American Dream

It Already Is A Depression For Many

The latest report from the Census Bureau on income, poverty and health insurance coverage portrays a darkening economic picture for millions of Americans.  Incomes and living standards fell without regard to geography, race or work profession.  For many, the Census report only confirms the destruction of the “American Dream” of economic advancement.

  • For 2008 real median household income declined 3.6% to $50,303.
  • The official poverty rate in 2008 increased to 13.2% from 12.5% the previous year and is the highest since 1997.   There are now 39.8  million people in poverty.  The government definition of poverty for a family of four is an income below $22,025.
  • The number of people without health insurance increased from 45.7 million to 46.3 million.  The number of people with private health insurance decreased slightly to 201 million.
  • Incomes declined across all racial groups.
  • Incomes declined in every geographic region except the Northeast where incomes remained unchanged.
  • Income inequality was unchanged in 2008 from the prior year, indicating that no income class was spared from a decline in income.

While the government is rolling out the press releases congratulating itself on an economic recovery, many Americans remain in an economic nightmare of unemployment, poverty and hopelessness.   The latest stats from the Census Bureau provide little reason for optimism since without income growth there will be no economic recovery. The latest report on the number of homeowners in foreclosure signals no recovery to date in incomes or jobs.

U.S. Foreclosure Filings Top 300,000 for Sixth Straight Month

Sept. 10 (Bloomberg) — Foreclosure filings in the U.S. exceeded 300,000 for the sixth straight month as job losses that boosted the unemployment rate to a 26-year high left many homeowners unable to keep up with their mortgage payments.

A total of 358,471 properties received a default or auction notice or were seized last month, according to data provider RealtyTrac Inc. That’s up 18 percent from a year earlier…. One in 357 households received a filing.

Foreclosures rose from a year earlier as companies cut payrolls by 216,000 workers last month…

“The foreclosure numbers are largely unemployment related,” Davis, a former Federal Reserve Board economist, said in an interview. “As long as 15 million Americans are unemployed, record foreclosures will continue.”

With the real world unemployment rate approaching 20%, the government’s loan modification schemes merely delay inevitable foreclosure for many homeowners – without income any monthly payment is too high.  Nor is unemployment the only cause of foreclosures.  For those who still have jobs but are barely getting by, a decrease in income can easily lead to mortgage default.

We Need Income – Not More Debt

cbearnings

While the divorced from reality politicians in Washington decide on what new deficit financed spending program they should enact next, they are missing the big picture.  Our future long term national prosperity will be based on promoting free enterprise job creation – something that does not appear to be on the agenda in Washington.

Super Clunkers – How Congress Can Double US Vehicle Sales

Clash for Clunkers Increases Car Sales

The much maligned Cash For Clunkers program has three remarkable features that differentiate it from the other wide assortment of endless government stimulus/bailout programs.

1. The Cash For Clunkers program, at an initial $1 billion cost, is relatively “small” compared to the trillions of dollars that have been deployed for other stimulus and bailout measures.  The concept of the Cash For Clunkers program did not originate in Congress but rather was the brainchild of Jack Hidary, an entrepreneur who noticed the success of similar programs in Texas and Turkey.  Mr Hidary’s lobbying efforts ultimately resulted in the Clunkers program approval by Congress.

2. The Clunkers program is the only stimulus/bailout program enacted that allows participation without regard to income or financial need status.  A Clunkers applicant does not need to be unemployed, facing foreclosure, financially inept or destitute.

After seeing trillions of taxpayer dollars spent to bail out banks and homeowners for making stupid financial decisions, it is almost refreshing to see a program that helps those who probably don’t really need any help.  A purchaser of a new $30,000 car who can obtain financing or pay for the car in cash is probably still employed and doing quite well.

It would be interesting to see the income and credit stats on new car buyers under the Clunkers program but my guess is that many of the new car buyers are frugal, financially responsible individuals who had driven the same car for many years and would have purchased another vehicle soon anyways.  The Clunkers handout merely pulled forward future car sales – but that was the intention of the program.

3.  Without debating the merits of the Clunkers program, from a strict Keynesian economic theory standpoint, the program was a resounding success based on the multiplier effect.

Keynesian models of economic activity also include a so-called multiplier effect; that is, output increases by a multiple of the original change in spending that caused it. Thus, a ten-billion-dollar increase in government spending could cause total output to rise by fifteen billion dollars (a multiplier of 1.5) or by five billion (a multiplier of 0.5). Contrary to what many people believe, Keynesian analysis does not require that the multiplier exceed 1.0. For Keynesian economics to work, however, the multiplier must be greater than zero.

In the Clunkers case, assuming increased unit sales of 250,000 at a cost of $30,000 each,  sales revenue of $7.5 billion was generated based on a $1 billion government cost.  Compared to other government stimulus, the Clunker program can only be viewed as a resounding success.

Clunkers Encore

Under the theory that government programs never die but only get larger I would expect that the government will expand the Clunkers program to the point of absurdity.   The original program has already been extended and doubled to $2 billion.

Lobbyists for the car industry should have an easy time convincing Congress to expand the program based on its “success” in generating sales.  Let’s not forget, of course, that the government and the UAW now own General Motors.

How Congress Can Double Car Sales

If  Congress really wants to get creative about stimulating car sales and lending, they may start by looking at the average age of US vehicles currently on the road.

According to USA Today, the automotive consultants R.L.Polk calculate the median age of cars in the US in 2007 at 9.2 years and the median age for trucks and SUV’s was 7.1 years.  Over 41% of all cars in 2007 were over 11 years old.  There are 235 million passenger vehicles in the US, including 135 million autos and 100 million SUV’s and trucks.

For the sake of saving the environment from old polluting cars and stimulating the economy, Congress, by legislative fiat, could prohibit the possession or use of any vehicle over 10 years old.   The mandatory new vehicle replacements could be phased in gradually over 5 years,  and would effectively force the purchase of at least an additional 60 to 70 million vehicles.   Vehicle sales for the next five years would easily double from the 2009 estimate of 11.5 million units.

The government’s investment in GM would be worth a fortune, and the States’ budget problems would disappear with the flood of sales and property tax levies on all those new vehicles.  Government guaranteed easy financing would be provided to all, regardless of income or credit.  Cash rebates on traded in vehicles would be increased to offset the new vehicle’s cost.

Result for the US economy –  large GDP increases as $2.5  trillion dollars in new car sales jolts the economy back to life.   Unemployment drops to low single digits as the multiplier effect of  booming car sales ripple across the economy.  How does the Government finance the cost of this “Super Clunkers” program?  Not a problem – the Treasury Secretary is already requesting a large increase in the national debt limit.

What politician would not vote for this plan?

Disclosures: No Positions

Does Tim Geithner Need A Stress Test?

Geithner Goes Over The Edge

Is the stress of running running the Treasury and trying to figure out how to borrow almost $2 trillion dollars starting to take a toll on the Treasury Secretary?

On Friday, Treasury Secretary Geithner lashed out at top federal regulators in an expletive filled tirade.  Mr Geithner’s rage seemed to be based on his perception that the FDIC, the Federal Reserve, the SEC and other government agencies had not blindly endorsed the Obama administration’s demands regarding financial regulatory reform.

WASHINGTON — Treasury Secretary Timothy Geithner blasted top U.S. financial regulators in an expletive-laced critique last Friday as frustration grows over the Obama administration’s faltering plan to overhaul U.S. financial regulation, according to people familiar with the meeting.

The proposed regulatory revamp is one of President Barack Obama’s top domestic priorities. But since it was unveiled in June, the plan has been criticized by the financial-services industry, as well as by financial regulators wary of encroachment on their turf.

Mr. Geithner told the regulators Friday that “enough is enough,” said one person familiar with the meeting. Mr. Geithner said regulators had been given a chance to air their concerns, but that it was time to stop, this person said.

Among those gathered in the Treasury conference room were Federal Reserve Chairman Ben Bernanke, Securities and Exchange Commission Chairman Mary Schapiro and Federal Deposit Insurance Corp. Chairman Sheila Bair.

Friday’s roughly hourlong meeting was described as unusual, not only because of Mr. Geithner’s repeated use of obscenities, but because of the aggressive posture he took with officials from federal agencies generally considered independent of the White House. Mr. Geithner reminded attendees that the administration and Congress set policy, not the regulatory agencies.

In addition to Mr. Bernanke, Ms. Bair and Ms. Schapiro, other attendees at Friday’s meeting were: Fed Governor Daniel Tarullo, Comptroller of the Currency John Dugan, Commodity Futures Trading Commission Chairman Gary Gensler and Office of Thrift Supervision Acting Director John Bowman.

Achtung! Mr. Geithner, exactly what country do you think you are working for?  Does our government no longer believer in the principles of  “checks and balances”, compromises and democratic free debate?   Shocked high level government officials who attended the meeting had no comments for the press on their meeting with Mr. Geithner.

Two days later, Mr Geithner gave another remarkable performance when he broke the holiest rule of politics and told the truth about the need for a broad based tax hike on the middle class.

Treasury Secretary Timothy Geithner said Sunday that signs are emerging that the economy is starting to turn around, but he cited private economists’ predictions that unemployment rates wouldn’t start to fall until the second half of next year. He also suggested that the current budget deficit was unsustainable, and both he and Lawrence Summers, the White House’s top economic adviser, declined to rule out future tax increases.

Asked whether President Barack Obama could keep his campaign pledge to hold down taxes for those earning less than $250,000 a year, Mr. Geithner didn’t respond directly.

“We can’t make those judgments yet about what exactly it’s going to take” to reduce the deficit, he said on ABC News’s “This Week.” “People have to understand that we have to bring those deficits down.”

The Congressional Budget Office has projected that the federal budget deficit would hit $1.8 trillion for the current fiscal year ending Sept. 30.

One can only wonder about how severe a thrashing Mr Geithner must have taken from the President for publicly admitting that the campaign promise to tax only the rich was soon to become just another broken promise.   Or was the Geithner performance done at the behest of his boss to lay the necessary groundwork for the inevitable tax increase coming for the middle class?  Either way, based on the Treasury Secretary’s behavior over the past week, the logical question is “should Geithner be stress tested”?

New Twist On Stimulating Economies – Work Less

Desperation Produces Silly Suggestion yen

Governments worldwide are obsessed with pushing consumers to spend more.  From Japan we now have a new twist on how to stimulate spending.   Government bureaucrats (with obviously too much time on their hands) are mulling the stimulus  impact on Japan’s economy if workers were forced to take more vacation time.    Consider the logic as described in Businessweek:

Some 92% of Japanese workers don’t use up their vacation time, a recent global survey by travel site Expedia found. On average, they use 7 of an allotted 15 days each year. Prime Minister Taro Aso’s administration says the vacation law could spur $121 billion in spending and generate 1.5 million jobs. Critics say it may hurt struggling companies—and fail to loosen up outlays for leisure. Many Japanese “live to work,” says Toshihiro Nagahama, senior economist at Dai-ichi Life Research Institute, “and wouldn’t know how to enjoy more vacations.

Whether the Japanese are workaholics or simply like to spend time away from home is up for debate.  The issue not up for debate is whether this silly proposal will create new jobs.  Companies do not conduct new hiring to make up for employee vacations, and economies produce less wealth when there are fewer people productively employed.   The Japanese government simply seems to be out of intelligent options after attempting to stimulate the hell out of Japan for the past two decades with little success.

Big Picture

The Japanese bureaucrats are missing the big picture.  The Japanese worker (as in many other countries) does not need more vacation time to spend money they don’t have; they simply need more income.   The Japanese saving rate as a percentage of income has been high by necessity.  With real estate and stocks prices lower than they were 20 years ago, the Japanese cannot rely on asset inflation to increase their net worth.  Savings can only come from incomes which have been stagnant for decades and now dropping sharply due to the recession in Japan.

Bloomberg — Japan’s wages dropped at the steepest pace in more than six years in March as manufacturers slashed overtime pay to cope with a collapse in exports.

Monthly wages, including overtime and bonuses, dropped 3.7 percent from a year earlier, the most since July 2002, the Labor Ministry said today in Tokyo.

Overtime payments slid an unprecedented 20.8 percent as manufacturers cut extra working hours by a record 49.5 percent, the report showed. The government has been tracking the figures since 1990.

Governments Shooting At The Wrong Target

Governments world wide are obsessed with pushing customers to borrow and spend.  They are all shooting at the wrong target.  The borrowing and spending will come naturally to most people if they are confident in their job security and confident of increases in real wages.  Right now their is scant confidence for either outcome with job losses in the millions and widespread salary reductions or freezes.

Making matters even worse for the thrifty Japanese is that the interest earned on their savings is virtually zero at the short end and a paltry coupon of 1.3% on 10 year Japanese government bonds.   Savers like to see their savings increase every year and the only way to accomplish this is to save more and spend less.  Bringing rates to virtually zero to help the over leveraged has ironically resulted in punishing the savers who theoretically provide capital to borrowers.

Japan’s economic mess will not improve  without addressing the lack of real growth in incomes and jobs and the low return on savings.  Fix these problems and the rest will take care of itself.

Obama Approves 8,500 Earmarks While Vowing To Fight Them – What?

Obama Says: Hear What I Say, Don’t Watch What I Do

After campaigning on promises to reform Washington, it was easy to be confused by the Washington Post article – Obama Signs Spending Bill, Vowing To Battle Earmarks. The president vowed to fight earmarks and wasteful spending while simultaneously signing a spending bill that approves spending almost $8 billion dollars on 8,500 earmarks.  Was this a very poor attempt to please all sides or does it suggest something deeper about the president’s leadership abilities?

Logical minds understand that actions speak louder than words, and not the other way around.  This latest surrender to special interest groups, especially after signing a “stimulus” bill with hundreds of $billions of special interest spending certainly suggests that Mr Obama is saying one thing but doing another.

Trust Me, No More Special Interest Handouts

Washington Post – President Obama’s call to rein in the use of earmarks was met with derision yesterday even from some of his past reformer allies, dealing an early blow to his attempt to change how business is done in Washington.

Obama signed what he called an “imperfect” $410 billion measure to fund most government agencies through September. He used the occasion to criticize the more than 8,500 projects, costing more than $7.7 billion, that lawmakers inserted into the bill, and he declared that “this piece of legislation must mark an end to the old way of doing business and the beginning of a new era of responsibility and accountability that the American people have every right to expect and demand.”

But as he vowed to press Congress to shun earmarks in the future, a bipartisan collection of lawmakers said the proposals he offered yesterday would do little to curb the practice and would do nothing to address the appearance of a connection between campaign contributions and spending programs ordered up by lawmakers.

Earmark supporters and opponents alike said Obama’s words would carry little weight unless he also vowed to veto critical legislation that is full of spending projects.

“Absent a genuine veto threat, he’s just spittin’ in the wind,” said Rep. Jeff Flake (R-Ariz.), an earmark opponent who walked through the House chamber yesterday carrying almost 100 pages of approved spending requests from a lobbying firm that is under federal investigation.

The connection between earmark recipients and the lobbyists who made campaign donations to lawmakers to secure their passage was central to criminal investigations that landed former lobbyist Jack Abramoff and former congressman Randall “Duke” Cunningham (R-Calif.) in federal prison.

Rep. Henry A. Waxman (D-Calif.), who as commerce committee chairman is quarterbacking much of Obama’s agenda, said of the earmarks: “I think they’re completely out of hand, completely out of control. Most of them are driven by lobbyists.”

How Obama Missed The Opportunity To Inspire

Mr Obama, you campaigned on promises of hope, change, reform and the beginning a new era of responsibility and accountability.  This could have been your shining moment to seize the initiative and prove to the American public that you mean what you say.  Signing the bill as you criticized it is not change or a reason for hope; it is just the same old way of doing business in Washington.

Criticizing an action while legally approving it makes no sense.  Vowing to end earmarks while you are approving them is like a drunk who wants “just one more” drink before he quits.   This could have been your shining moment to inspire us.  The country cries out for a visionary leader who will stand up and fight the special interest groups that have plundered our country and collapsed our economy.

Actions Speak Louder Than Words

The Marines have a saying – “follow, lead  or get out of the way”.  From my perspective, I am not sure if you followed or got out of the way, but you certainly did not lead.

Economists Give Obama Grade Rating of F – An Ugly Ending

The First Test Results Are In

Obama, Geithner Get Low Grades From Economists

U.S. President Barack Obama and Treasury Secretary Timothy Geithner received failing grades for their efforts to revive the economy from participants in the latest Wall Street Journal forecasting survey.

The economists’ assessment stands in stark contrast with Mr. Obama’s popularity with the public, with a recent Wall Street Journal/NBC poll giving him a 60% approval rating. A majority of the 49 economists polled said they were dissatisfied with the administration’s economic policies.

However, economists’ main criticism of the Obama team centered on delays in enacting key parts of plans to rescue banks. “They overpromised and underdelivered,” said Stephen Stanley of RBS Greenwich Capital. “Secretary Geithner scheduled a big speech and came out with just a vague blueprint. The uncertainty is hanging over everyone’s head.”

Mr. Geithner unveiled the Obama administration’s plans Feb. 10, but he offered few details, and stocks sank on the news. The Dow Jones Industrial Average is down almost 20% since the announcement, as multiple issues have weighed on investors’ confidence.

Despite spending and borrowing trillions of taxpayer dollars in the past two months, Mr Obama has failed to inspire confidence in the business community.  Investors have expressed a resounding vote of no confidence as seen by the ugly 20% slide in stock prices since the new administration took over.   At the current pace of events, the country will be insolvent and the Dow at 800 by year end 2009.

Investment Adviser In Chief Fuels Despair

The Obama Administration finally seems to have noticed that all of their policy announcements so far have only fueled economic despair, not alleviated it. So President Barack Obama took the rare opportunity yesterday of offering some investment advice to the American people: “What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you’ve got a long-term perspective on it.” In other words, Obama wants Americans to Buy! Buy! Buy!

But before you rush out and follow President Obama’s investment advice, consider this: last week Obama’s Treasury Department announced that the government would take a 36% stake in Citigroup by converting $25 billion of its preferred shares into common stock. The Treasury paid $3.25 a share for the stock last week, which after a weekend’s worth of government nationalization rumors fell to $1.20 by Monday. So to recap, President Obama managed to lose billions of taxpayer invested dollars in just a few days. But that’s not even the worst part. So far the government has poured $50 billion into Citigroup. Meanwhile, Citi’s market capitalization is only $6.54 billion. In other words, taxpayers could have bought Citi eight times over already for all the money they have thrown at it already.

What the Citi story does highlight though, are the perils and conflicts that make massive and intrusive government intervention in the economy a disaster for all involved. Congress has no idea how to run a bank, and that is why all the political posturing in the House and Senate is completely undermining the stabilization of the banking sector. Meanwhile, the private sector has no incentive to create jobs since they are facing a $1.3 trillion tax hike in the coming decade. Then there is the $646 billion tax hike every American will see in their energy bills from President Obama’s promised carbon capping plans. It is no wonder that nobody is taking Obama’s investment advice.

The only sector of the economy that is sure to grow under Obama is the public sector. Our own Center for Data Analysis estimates that President Obama’s budget will require over 250,000 new government employees. Other expert estimates put the number at 100,000. Another big winner under Obama’s big government: lobbyists. Democratic staffers are now commanding $350,000 to $450,000 salaries at prestigious K Street lobbying firms. At least somebody is benefiting from this Obama economy.

Investors don’t invest precious cash on hope – they invest money based on viable plans that will lead to future economic growth and prosperity.   So far, all that investors have seen are plans for massive spending related to “tax rebates” and increased social spending.

Logical minds have questioned why so much of the “stimulus” plan spending would be directed to social spending and wealth transfer expenditures, when critical sectors of the American economy (banking, insurance, manufacturing, etc.) are effectively insolvent and on the edge of collapse.  An interesting theory that makes sense comes from Michael Boskin, economic professor at Stanford University. (Courtesy of financialsense.com)

“New and expanded refundable tax credits would raise the fraction of taxpayers paying no income taxes to almost 50% from 38%. This is potentially the most pernicious feature of the president’s budget, because it would cement a permanent voting majority with no stake in controlling the cost of general government.’

“Have Nots” The New Majority – courtesy financialsense.com

First off, let’s start with comments on the new Barack “Pinocchio” Ob@ma Administration and the public servants inside the beltway of WASHINGTON DC. Several words and comments come to mind: Morally and fiscally bankrupt and absolutely corrupt. Their betrayal of doing what is good for their constituents/country and creating the conditions for economic growth versus doing what is good for their political ambitions and power over the economy is on PLAIN display in their activities and proposals.

Contrary to their words, their actions can only lead to one conclusion: They are PURPOSELY driving the economy off a cliff to gather power in the UNFOLDING crisis by destroying every corner of what is still working at the public’s expense and MISERY. Please notice how they IMMEDIATELY jump on any public figure who murmurs anything contrary to the headline illusions.

The only reason they are reducing the deduction for charity for those earning over $250,000 dollars, at a time when we need charity more than in the last 70 years, is so the people relying on charity will have to rely on government.

As I mentioned in previous newsletters, the stage is set for the emergence of a new dictator, and my bet is that we shall see Ob@ma and the gang of 535 morph into it over the next two years. Two recent articles have caught my eye, both are about Narcissism; one is by Dr.Ali Sina entitled “Understanding Ob@ma: The Making of a Fuehrer at http://www.faithfreedom.org/obama.html

Is it possible that the economic well being of the country is being sabotaged so that the ruling elite in Washington can maintain their seats of power?  When the “have nots” outnumber those able to sustain them, massive social upheaval will follow.   America’s failed experiment to create wealth through debt may be laying the groundwork for a future that few of us dare to contemplate.

Major Lenders Publish FHA Loan Limit Increases

CitiMortgage, along with other major lenders published their FHA loan limit increases.  The higher temporary FHA loan limits were authorized as part of the Economic Stimulus Act of 2008.  CitiMortgage will begin accepting FHA loan registrations as of March 17, 2009.  The higher loan limits will remain in effect until December 31, 2009.

Economic Stimulus Package Update

Fannie Mae, Freddie Mac and FHA have released requirements resulting from the Economic Stimulus Act of
2008, which include loan limit availability by Metropolitan Statistical Area (MSA), Area Median Income (AMI) and
eligible products. CitiMortgage is diligently working to implement changes as quickly as possible.

FHA Loans:
As a result of the recently released HUD Mortgagee Letter 2008-06, we are pleased to announce we will begin accepting FHA loan registrations at the new temporary loan limits as of Monday, March 17.
New Maximum Conforming Loan Limit: Lesser of 125% of the area median home price or $729,750; the FHA
maximum loan amount shall not be less than $271,050 (for 1st lien single family residence). Revisions to local limits are listed below by unit:
Revisions to lowest local limits by unit:
1-Unit: $271,050 3-Unit: $419,400
2-Unit: $347,000 4-Unit: $521,250
“High Cost” local limits by unit:
1-Unit: $729,750 3-Unit: $1,129,250
2-Unit: $934,200 4-Unit: $1,403,400

The higher FHA loan limits had been announced by HUD on February 24, 2009, in Mortgagee Letter 2009-07.

Revisions to Current Limits:
Under ARRA, the revised FHA loan limits for 2009 will be set at the higher of the loan
limits established for 2008 under the Economic Stimulus Act of 2008 (ESA) or those established for
2009 under the Housing and Economic Recovery Act of 2008 (HERA).

Loan Limits and Pricing

To determine the higher loan limits for your county, it is best to check directly with your lender.  Exact pricing and adjustments for the higher loan balance FHA loans is still being resolved.   It is expected that investors will demand  .5% higher pricing on these high balance loans.