The Calculating Banker

Goodbye 2011...Glad You Couldn't Stay any Longer...Hello 2012!

2011-12-29T05:34:00.000-08:00

As the year winds down in a couple days, I can't help but make my own list of events that moved the world or just me in 2011. Can't say I'm sad to see 2011 go, and 2012 looks real good, right now.

My points are here and in no particular order but rather just a rambling list:

We learned the term 'Arab Spring' where all sorts of Arabic dictators were swept out of power, only for the Arab people to realize afterwards that they didn't know what to do next.
Bin laden & Gadhafi, among others, finally got to meet their makers.
US Forces are the best there ever was.
The last Space Shuttle flew and landed.
"Things are getting better, you just can't see it or feel it," said the Naked Emperor.
Andy Rooney died, and will be sorely missed. I wish I knew how to complain like he did.
One of the biggest earthquakes and subsequent tsunami's hit northern Japan, killing 16,000 and melting down 4 nuclear reactors.
The NBA season was delayed. Nobody noticed.
I joined the 30% of the US population and got a real smart phone, a computer, not just a dumb phone that gets email, after I learned Blackberry has two years left to live.
9/11 was remembered as 10 years had passed. We realized just how quickly America forgets...
Budget cuts are over a 10 to 20 year period, so they really don't cut anything.
The Cards win the series, the Cards win the series! It may have been one of the best post season runs -ever.
Interest rates got lower. So did home prices.
The 99%'ers showed up and said we are tired of the 1%'ers walking all over us.
Everyone took a shot at running for President as a Republican.
We learned Obama doesnt have a 'real' birth certificate, and all politicians don't have 'real' morals, memories, attention spans or ethics for that matter.
Politicians look the same in prison as they do in office.
Wall Streeters don't get prosecuted, they just skip one year of bonuses, then back to the status quo.
The Fed printed money without limit only to tighten lending further so it can't be given out.
Tweeting can be dangerous, especially for movie stars, politicians, and drunk people.
Obama added $4 Trillion dollars to our national debt in 3 years, a feat that took Bush 8 years to do.
80% feel that government is broken in one way or another.
Unemployment hovers somewhere between 8% and 16% depending on how they cook the numbers. Sorta like re-baking the bread after it has already been sliced.
Charlie Sheen spent the year winning...
Stimulus Spending has admittedly now done nothing but paid off political favors and raised the debt.
Lot's of movie stars got divorced, replenishing the movie star heard for the picking.
The apocolypse didnt come, as we all know that's in 2012...
That 2012 will be better than 2011...Happy New Years.

FHA - A New Bankruptcy & Bailout Dead Ahead

2011-12-11T15:07:00.000-08:00

FHA Nearing Insolvency
In some regards 2012 is shaping up to be just like 2008. As Yogi Berra once said, "It's like de'javu, all over again...". FHA, or the Federal Housing Administration, is on track to go bankrupt sometime next year. Destined by poor loan underwriting, low and effectively no down-payments, the FHA and the US taxpayer will add FHA to the scrap heap of failed programs Freddie Mac and Fannie Mae. Yet FHA continues to crank out loans with no reserves to support them as existing loans continue to rack up losses. The inevitable FHA bailout may eclipse Freddie and Fannie losses combined.

Govt. FHA Becomes New Sub-Prime Lender
As the mortgage industry collapsed in 2008, FHA, the small low down-payment government backed lending agency, stepped in to become the primary market lender spurred by a U.S. Government desperate to prop up a housing market that was dropping like a rock.

FHA became the only primary sub-prime and low/no down-payment lender overnight, tripling the amount of loans it originated. FHA's lending policies effectively kept its required 3.5% down-payment at a theoretical zero, through liberal card tricks like "gift credits", "deposit assignment credits" and "seller rebated amounts" so no borrower money was really at the closing table. Failing to change their risk modeling based on the new sub-prime client base, FHA's losses have climbed dramatically. Even today, FHA has lagged behind the other failed GSE programs Freddie and Fannie to tighten lending standards, continuing it's lending charade.

FHA's Dramatic Rise in Loans Made

FHA Sees Crisis Period Loans Failing Much Faster
As anyone but FHA could guess, the old risk models didn't work and almost immediately loans originated in the 2008 crisis and later went bad much quicker and in much higher numbers:

FHA Capital Levels Fall Dangerously Low

FHA's Required Capital Reserves Level - 2%
FHA Jan. 2008 Reserves - 3%
FHA Dec. 2010 Reserves - .50%
FHA Dec. 2011 Reserves - .24%

Simple math shows FHA will run out of reserves sometime in 2012. This lack of reserves also prevents FHA from participating in any new homeowner assistance programs since subsidizing loans or lowering standards even further erodes reserves even quicker. In October 2010, FHA raised insurance costs to all FHA mortgage holders in an attempt to pass on losses to you know who, the consumer.

Taxpayer Losses Will Grow On Continued Losses
Losses continue to mount at Freddie and Fannie, the two GSE's (government sponsored entities) that were taken over by the US Treasury in 2008. FHA will soon be added to this list as well:

Freddie Mac losses to date $70 Billion
Fannie Mae losses to date $115 Billion
Estimated total losses through 2013 $221B-$363B

These loss estimates were made in mid 2010. Losses are now feared to be even worse than estimated. If FHA goes under, and I can't see why it won't, losses will be much higher due to the nature of the lower credit profiles at FHA, and may be double our existing losses. This will bring the total loss in home mortgages to near $1 Trillion. These losses add to the national debt, but are not added to the our existing annual budget deficits being quoted in the media. What is clear to see is that the governments social experiment of underwriting home ownership for every person in America will be a costly failure.

D.

Cost of Banking 2.0 - Go With A Community Bank

2011-12-10T15:29:00.001-08:00

I posted my thoughts on where bank fees were headed in October, and now things are much clearer. Yes, the cost of banking has went up for banks and their customers. One thing that is under-reported; the fees imposed are a mere fraction of the costs that banks are absorbing under the huge regulatory burden placed upon us all by the Democrats and the Obama administration. Fees are never absorbed by a government or an industry. It is always passed on to the most basic subset: the consumer.

Here are a few quick points for all consumers looking for the right bank in the higher priced times and then a re-post of my October blog follows.

1) Move to a Community Bank. Community Banks are setting costs in a break even move against regulatory fees. Big Banks are using this opportunity to create new streams of revenue and profits for their coffers. Big Banks caused this mess and the ensuing burden on the system. Community banks never participated in the Wall Street debacle, and are only invested in the community and customers they serve.

2) The right bank will offer you options and products to minimize your cost of banking. Community Banks are bundling products and services and offering the lowest cost to deliver you everything you want at the lowest price point.

3) There has never been a free lunch. Nothing in the world has ever been free and banking is no exception. If we take a pragmatic approach to having instant and immediate access to the financial system of accounts, ATMs, debit cards, online systems and that iphone app, someone has to pay for that.

4) These regulations are another attempt to redistribute and socialize the world monetary system. However, everything for free for the masses has never worked throughout history and it didn't with Dodd-Frank Regulatory Reform either. Why do you think both sponsors of this heinous regulation retired and didn't re-run for Congress? If you are a capitalist, please remember to exercise your right to vote.

Here is my blog from October, 2011:

Bank of America announced this past week they will begin charging a monthly fee of $5 for customers to carry debit cards. Of course it was national news, and ran on all the networks. Regions Bank said they were doing a $3 fee and Citigroup was still evaluating their costs. Well folks, it's coming. Soon banks will be charging fees for all kinds of things that used to be free. Banks charge fees to cover the costs of services demanded by consumers. Do you think that 100,000 ATMs across America don't cost anything to develop and operate? I've joked recently that big banks may have a cover charge at the door! The cost of banking is going up. Thank you Barney Frank, the Democrat controlled Congress, and Mr. Obama. Regulatory reform has injected government controls into the free market banking system, all in the interests of saving the consumer money. When did government ever save the people money? The government has said, we can make the big bad banks charge you less. But, when one fee is capped or eliminated, other fees must take their place to financially support the system. Free checking will be next due to the elimination of overdraft fees. The government once again is attempting to make the Haves pay for the cost of serving the Have-Nots. It just isn't going to happen.

A free market system is best left to seek its own level on costs and fees for service. The American consumer has always been good at determining what are respectable costs and what are not. If the costs are too high, the consumer quits the service. The service must readjust to an acceptable level or fail. Just look at the backlash from Netflix raising fees for their service recently. The consumer effectively said no. Netflix has lost hundreds of thousands of customers overnight. It's too bad the government hasn't yet figured that out.

The Cost of Banking is Going Up

2011-10-02T16:12:00.000-07:00

Debt Will Be "The End of Days" Never Seen Coming

2011-07-10T06:51:00.000-07:00

Theories abound about the end of days. To each and every thing there is a beginning and an end. Hollywood loves to kill us off on screen. We love to go and see how it all ends. Have you seen the movie about debt bringing our civilization to an end? No? Debt bringing it all crashing down? You know the one where there is a world wide drought, and we decide not to sell the Chinese grain on credit because they have too much debt. And so they decide to take it by force? Not exciting but quite probable.

Far fetched? Not really. The Romans lost control of their finances through debt. When the people of Italy realized they could elect politicians who had promised them handouts from the public treasury it was a self fulfilling curse that lead to the end. Debt is everywhere. If you have it, it is bad. If you have a lot it's a choke hold that one can't get away from.  I want to focus on several facets of debt and how it affects us.

Greece. The focus has been on Greece and their debt recently. Greece has more debt now than their population and government could ever hope to pay back some economists report. It's a small country, little in the way of industry and 50% of their population is on the government payroll! It's protectionist, steeped in a history of singularity, and little outside investment or in fluence is allowed. They simply don't have enough population that could be taxed or a economy large enough to pay back their debt. And tourism is in the tank. So what does the European Union, through the International Monetary Fund (IMF) do? Give them more loans they can't repay! Those loans come with a price tag Greece can't afford, Austerity Measures. Hence the riots and protests we've seen including an attempt to change their government leadership. Greece will soon default on their loans to the World. It is inevitable. More European countries will follow. It could result in the end of the Euro as a currency.  America's focus on the Greek crisis is from the perspective of what will happen in the USA if we don't control our debt here.

US Debt. Our Annual Budget Deficit has tripled since 2008. Our National Debt is up by 30% or $4 trillion dollars in the same time. We now owe $14 Trillion dollars. We are in a runaway debt situation that's about 10-15 years behind Greece. Austerity Measures, like what the Greeks had to accept to qualify for their new bailouts, are a possibility here. What are they? Unimaginable tax increases of 100% or more, layoffs on the scale of 50% of the government workforce, and selling of our national assets and treasures. Our Congress is attempting to make a few tough choices today. Frankly, they are a DROP in the bucket to what we really face in the future. It's time to start figuring out how to pay the bill in America.

Personal Debt. If you have it these days, you can't get any more. Most don't want what they have, let alone get any more. But if you wanted to borrow, you couldn't in this new world of credit. If you have a lot of debt now, you won't be borrowing for the next decade. You can't get rid of it except for two ways. Pay it or default on it. Debt is stifling the US economic recovery, preventing banks from lending and restarting our economy due to tighter regulations on acceptable levels of debt to qualify for a loan. Consumers account for 70% of the US economy. And when they can't borrow, the economy falters.

Moral Debt. Yes, that too. It seems to be acceptable now not honor a contract, an agreement, a loan. If things don't work out, walk away, and in a few years try again. Moral hazard is the biggest risk to the timeless historical values and ideals that developed in the middle ages or earlier,  creating the basic principals that shaped modern business and finance as we know it. To lose it, we lose the basic foundation that civilized commerce is. If you believe in walking away, then why shouldn't we in America just default on our World debt as well? Why shouldn't other countries not honor their debts to us? It would only take a few weeks to completely destroy commerce as we know it. Oh, and the credit/debit cards and dollars in your pocket would be worthless before you could draw them out and spend them.

Refusing to deal with debt will allow it to consume us. We have seen so many theories about the end of days. Asteroids, volcanoes, ice ages, aliens and solar flares. Debt and the potential for moral default, while much less sexy, can be the thread to unravel everything we hold so dear.

The Debt Ceiling and Politics

2011-06-21T19:09:00.000-07:00

There's alot of talk about August 2nd. That's when the USA reaches its debt limit. The charge card is full, maxed out. Now what?

Two things are possible. The first is that the US defaults on its debt obligations. We don't make our interest payments to the Chinese, Japanese, and most of Europe. Even Russia holds our debt. Debt in the form of US Treasury Bills (Govt. CD's) and Collateralized Mortgage Obligations (CMOs) which are bundles of, you got it, home mortgages, some surely right here from mid-Missouri. No one likes to hold loans and not get payments, so the World dumps our debt on the open market. Value of our debt plummets causing our cost of our borrowings to go from about 2% to about 8% our budget deficit would grow from $1.6 Trillion to about $4 Trillion per year. The higher interest rate would crush our economy and nation. Bread would cost $25 per loaf. Austerity measures like those being imposed in Greece would come home to the USA. Higher taxes, layoffs and huge reductions in US Govt. services.

Even without this scenario, we are only paying the interest on our debs today. We aren't even thinking of repaying any principal! Think of a credit card you can't even make the minimum payment on, which includes some principal. It's never paid off.

Scenario two: The US hits the debt ceiling, and like most folks when expenses don't equal the checkbook, you cut non-essential spending. You don't pay the bills that don't have to be paid. The USA would close parks, cut back on foreign aid, furlow some government workers, and just spend less until things are worked out. Actually, we would make our interest payments to the World. There's no doubt about it. We have enough coming in to the US Treasury coffers from tax payments and revenue sources to make those interest payments, at least for the short term.

Now why all the fear mongering about August 2? Simple, we are nearing 2012 which is an election year. Our government is broken, and no one can make tough choices because they are more worried about re-election and catering to special interests. So nothing will get done until after the 2012 elections. We will have several short term spending bills and small increases to the debt ceiling until then. And hopefully we elect some people that can fix our broken system.

D

Housing Price Recoveries Expected to be Years Away

2011-05-16T07:35:00.000-07:00

In light of new data issued this week that shows the recovery in home prices is still a long time away, I have re posted an October 2010, blog. Frankly, unless you are expanding a family, relocating, or downsizing, trying to sell in at these price levels doesn't make a lot of sense. The chart below shows the expected recovery times in America by state. It's not pretty:

What we see is that the states with the highest run up in prices during the 2005-2007 period had the farthest to fall, and the longest to recover. Further those hot markets built the most homes in that time period as well, so there is a lot more inventory sitting as well in these states.

Further this price correction eclipses the housing price declines experienced in the Great Depression as well. From 1928-1933 the decline was 25.9%. As of today this most recent decline is 32%. The percentages are based on the Case-Schiller 20-City Price Index.

I think the best we can do at this time is what i said last October. Rates are low, refi into the best rate you can get at this time, shorten the life of your loan, and ride out the bottom that we are in.

D

from: Monday, October 18, 2010

A House That is Worth Less Is Still A Wonderful Place to Live

I just refinanced my home. Guess what? It's worth less than I paid for it. So, I immediately have all the same thoughts that you do about your house and its value. First, OMG! What do I do? Sell, upgrade, remodel, ask for another appraisal? Then I think the obvious. I have a wonderful home in a nice neighborhood, and I enjoy the roof over my head. I can paint it the color I want. I decide when the grass is cut and how to shape my River Birch trees in the front yard. It's mine.

What is most striking in my thought process is the one thought that didn't cross my mind, and that's walk away. I have a contract with Freddie Mac (the Government). It says I make my payments and they let me own a home, and they let me stay there without interference. If I sell my home and make money on the sale Freddie doesn't get a cut of my profit. It's mine. Likewise, if I lose I can't send them the loss or blame them for my choice of buying in the first place. That's mine too. They held up their end of the deal and I hold up mine.

It seems that this contract of mortgage, created in the dawn of finance, is up for re-negotiation. And, as the national home price chart below indicates Missouri and the mid-West isn't that bad, and we could be a lot worse off. This is a year-end 2009 chart, but I think the worst damage to home prices is behind us, and while we may slide a bit more, I don't feel it will be significant.

So, if we decide to break contracts solely when it favors our interests, what would happen if others did the same. Like when you almost have that home paid for and out of nowhere Freddie comes knocking; "hey this is worth a lot more than you paid, cut us in for half, or we are taking your home...". Or, you're in the ER with a little one needing stitches, and the hospital decides to break their contract with your insurance provider just because it benefits them? The beginning of a moral unraveling of contracts in our modern society would see no ending.

No one, including me, likes to see their home value go down. However, a contract is a basic building block for trade and the fulfillment of a contract is the foundation for business as we know it. There is one other possibility to consider when thinking of all the options. With interest rates historically low, consider refinancing your home with a bank with low closing costs. Take the opportunity to shave years off the life of your loan. Quite possibly, the decline of your homes value due to this crisis may be offset by a much, much lower interest rate and it may be more of a positive than you think. An opportunity of a lifetime to pay off your home quicker, due to the same crisis. In the mean time, your home is your castle, and no crisis can change that.

D

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Planet X (Niburu or Nemesis) and June-December 2012

2011-04-30T09:33:00.000-07:00

I love conspiracy theories. I love talk of Alternative Science. It's the science that the government "doesn't want you to know". Actually, true or false, it is important to look at alternative views. It's how we got space flight, airplanes and a round Earth. They take us off the everyday grind and make our minds whir. And just for an instant, its not just the stuff movies are made of, but could it be possible, could it be real?

I have taken the liberty to reprint a very good description of the story of Planet X (Nemesis), because frankly it takes a Alternative Scientist to explain it. I am reprinting a post left on the website http://www.gizadeathstar.com/ from a poster named only as Bill. Bill, you're one smart guy and this credit goes to you! I did clean up some grammar. Sorry, Bill. Here it is in all its tantalizing detail:

PLANET X (NEMESIS) & JUNE-DECEMBER 2012

"The reason for not announcing Planet X (Nemesis) it is due to religious beliefs and fear it would cause the world to go into panic. It was discovered by NASA’s IRAS spacecraft, first capturing infrared images of it back in 1983. It was announced on Paul Harvey News as a possible 10th planet and our government realized the implications of this incoming body which has its unique elliptical orbit around two suns. (Our Sun has a dead companion known as a brown dwarf).

It has turned into a national security issue. Our government knows and is afraid of panic. The whole story of Planet X, (Nibiru), one of many names for Planet X comes from ancient clay tablets dating to 4,000 BC, describing a 10th planet and the life on it. They were called the Anunnaki, which means in the Sumerian language “they who came from heaven to Earth”.

The Sumerian lands are where IRAQ is now. Ancient Sumer was the first civilization on Earth (to date). It was ushered in by an alien race called the Anunnaki.

(Editor's note: The Anunnaki were from a planet called Tiamat, which orbited our Sun between Mars and Jupiter. It was destroyed upon collison with a moon or body after Tiamat's orbit was disrupted by Nemesis in a past orbital visit, and the debris from Taimat's destruction formed our Solar System's asteriod belt)

The Anunnaki taught the Sumerian people music, sciences, astronomy, languages (both spoken and written), mathematics, dense agriculture, manipulation of the environment, crop genetics, genetic manipulation of livestock, religion, sexual promiscuity, war, mining for resources, jewelry-making, tailoring, blacksmithing, architecture, art, poetry, human sacrifice, and the whole gamut of “civilized behaviors.” In fact, these events are not only outlined in the writings of the ancient Sumerians, but also in the Bible, the pseudopigraphia of the Hebrews [1] and the ancient texts of the Hindu.

The word Niburu means "bright star". It has a history or else I would dismiss all this as BS. These Anunnaki were giants, 8-10 feet tall. They used Earth's inhabitants to dig for gold they needed for their atmosphere. I believe in UFOs and the possibility that these aliens were the cause of most all religions. This is what our government is afraid of us finding out: the real truth.

I have been studying Planet X’s history on www.xfacts.com/x1.htm, http://www.sitchin.com/ ,and http://www.zetatalk.com/, for 5 years now. Planet X orbits two suns about every 3,657 years and is in our solar system now. It is 4x the size of Earth and has a mass 23x that of Earth’s. Planet X has many names from most countries; the most common name is Nemesis. This is what’s causing Earth's changes and the disasters we're seeing today. Our planet weighs nothing in space and any magnetic disturbance will have disastrous affects on Earth's weather and tectonic plates (earthquakes) and volcanic eruptions. Planet X caused the Great Flood of the Bible, as a pole shift melted the polar ice caps. It was the cause of the sinking of Atlantis into the sea. This coming pole shift will be worst the Earth’s outer crust has yet seen. The poles will rotate 90 degrees because the Earth will line up with Nemesis as it crosses our skies.

The Bible calls Planet X (Wormwood).

The Incas called Planet X (Hercolubus),

The Babylonians called Planet X (Marduk),

The Egyptians call it (The Destroyer),

The Hindu astronomers call it (Treta Yuga) and the destruction it causes Kali Yuga.

So it has a history which makes it real to me. Almost every time it comes into our Solar System it affects the surface of every planet it crosses. It’s coming in from our blind side (sun side). There seems to be a Government cover-up on this subject matter. Why? Do they fear panic? We must warn people for survival reasons...giving them a fighting chance to survive it.

To summarize what I’m saying here: I was inspired by the 50 years of work done by Zecharia Sitchin who translated the ancient Sumerian texts written 6,000 years ago.

(Editor's note: The Sumarians had a knowledge of Astronomy, as shown in the tablet below, that far exceeded their other advances in knowledge. Even today, NASA is just now confirming with modern technology many of the descriptions of our Solar System the Sumerians had made over 4,000 years ago. )

The Dark Rift (the Equator of our Galaxy) is coming on 12/21/2012. It will cause a polar shift on Earth. This Dark Rift comes about every 25,800 years. At the Equator of our Galaxy is an extension of the Black Hole of our Galaxy. The Black Hole pancakes out from the center of our Galaxy; like an old black vinyl record where the turntable is the Milky Way Galaxy. It is full of debris, meteorites, meteors, asteroids, and dust. It's all the leftovers settling from our Galaxies birth.

The Earth and our Solar System are passing through this belt in 2012.

Proof: Why is our Government blocking out coordinates 5h 53M 27s -6 10′ 58 from Google Sky?

Ice cores taken from Antarctica and Greenland show recurring dust levels at precise cyclical intervals throughout history.

The South Pole Telescope (SPT) has photos of incoming Planet X (Wormwood).

During these interval's extinctions or gaps in Earth’s history have occurred. Ancient cities (Atlantis) off our coast lines have been lost in these cycles, swallowed by the sea.

There were ancient cataclysms in the past. Are we too naive to know that history repeats itself?

Our Galaxy has magnetic North and South Poles, which means when we cross the Equator of our Galaxy, the Earth will have a physical Geological Pole Shift. Mega earthquakes are expected at the least. The debris, meteorites, meteors, asteroids, and dust may bombard us as well. Every Galaxy has a debris black belt like ours at their equators."

I'm back. After you read this a couple of times, I hope you get the jest that Planet X is entering our solar system, flying by in June 2012, and generally make a mess of our planet by December 2012. Most ancient cultures believe it. Do you?

I guess we will see in 14 months...

D

Will We Sit Back and Do Nothing About the Cost of Oil?

2011-03-26T10:09:00.000-07:00

Gas prices bottomed out at $1.61 per gallon in January 2009. This morning I looked out the window and it's $3.49 per gallon. That's a nearly 120% increase in 2 years. We as a nation have done nothing since our last oil scare in 2008. Unless you call bailing out GM and their poor management. And the US taxpayer paying into their hugely unfunded union pension coffers. We screwed over the common shareholders, and what we got was the Chevy Volt, a car that will go 40 miles between charges. Now, its 2008 all over again but instead of paying $3.50 for a gallon, this year we are looking at $5. Wake up America!

Our energy policy hasn't changed forever. We think raising the Corporate Average Fuel Economy (CAFE standards) a few miles per gallon over 5 years really does anything for America's fuel economy? No! Trucks and SUV's don't even count in the formula. How come some cars get almost 50 mpg, but most get 18? Because they can't achieve it? Really? The chart below shows the rest of the world can, so why can't America.

Obama has a moratorium on drilling. The world is also wanting to pull nuclear power off the grid as well. A new oil refinery hasn't been built since 1974. Don't use coal is produces carbon. Even if we were to ramp up electric cars and solar/wind energies, we will remain grossly dependent on oil for another 25 years. We have enough oil in North America to handle our demand. Enough that we wouldn't need any oil from the Middle East. We just arent producing it. Why? Look at the chart below:

World consumption, especially in developing countries like China, India, and Brazil is skyrocketing. Any unrest like we currently have in the Mid-East, any little problem, and oil skyrockets again. Look at the estimated world consumption in this chart:

Does it take a rocket scientist to realize that gas is headed for $5/gallon and then even higher. It's already that price in may places all over the world.

There is no plan for America in sight. We have no leadership willing to tackle this problem. It may cost them "votes". We have to make changes and develop a plan now. Any plan implemented will take years to develop. We need more fuel efficient cars. And we need to drill and develop our own natural resources. If we don't I hope you enjoy a future of long lines waiting for rationed fuel. Tiny cars. And much higher prices at the pumps.

D

Are Things Getting More Expensive?

2011-03-18T16:28:00.000-07:00

It seems like more and more when I get back from buying anything at the store I have less and less. I went to get groceries and I came in saying, "You know, I remember when groceries averaged $20 a bag, and now you cant even touch them for that...". Well, it's true. Wholesale prices rose the most in 36 years last month. The chart below shows the CRB foodstuffs index.

What is going on? Well, how about a quick look.

Oil) Oil was $1.61 per gallon in January of 2009. Today it averages $3.54 a gallon today, a 120% increase in just over two years. Everything gets transported in one way or another and oil is consumed. The further it travels the more it costs.

QE) Quantitative Easing. Look back at my older post for an explanation on QE2, and my thoughts about it making commodities go higher. Oil, Gold, Silver, Wheat, Beans, even Coffee. It's an explosion of food price increases across the globe, including Cabbage. Yes Cabbage! In third world countries this is enough to start revolutions, since eating is the central task in life to them.

Now it's hard to prove that QE2 has been single handedly the cause, but consider this: The FED is pumping $70 Billion in cash per month into the World economy. The FED's balance sheet was $895B in September 2008. Today it's $2.55 Trillion! That's a lot of money floating around the world competing for the same products. Hence, higher prices.

World Unrest) Markets hate uncertainty. Uncertainty leads to hoarding of commodities for fear the World may run out of them. This drives prices up. Just look at Oil. Protests in the Middle East drove up our gasoline 50 cents a gallon in a few days. And the feuding countries only produced about 3% of the worlds oil.

Weather) Freezing crops in Florida and South America. Quakes and Tsunamis in Japan. Record snow in the Midwest. Flooding in the Northeast and fires in California. Food is more scarce this year, worldwide. Corn and Beans have nearly doubled in one year.

The question is, "Where does it end?" Well its one less bag of groceries or even two, if this persists.

Are We Nearing the End of the 30-Year Mortgage?

2011-02-13T14:00:00.000-08:00

The future of the 30-year mortgage is in question. Debate centers around the fact that 30 years is too long for a home loan. Systemic risk to the financial system grows with longer time durations. Banks that make loans for this length of time subject themselves to this risk. Equity in the home is built at a snails pace, allowing borrowers to walk away with little loss to themselves if they fall behind.

Community banks cannot loan money for this long safely in-house, so they originate and sell those loans to government agencies like the FHA, VA, Freddie Mac or Fannie Mae. We have no way of knowing what life will look like 30 years from now, nor what could possibly go right or wrong in the world. It's between 1/3 and 1/2 of a generation!

Most home loans never get paid off. The average life of a home mortgage lasts only about 7 years. They payoff due to sale of the home, a fire, refinance, or a host of other events that come along. So, is it wise to loan money for 30 years when you will statistically only have it for 7? We don't do it for our cars, so why do it for our homes? Simple, to make the mortgage payment affordable, and people can buy more house. We take out these loans and most us of know at signing that we will never see the day when they are paid off. That in itself is a risk.

If we make home loans shorter in duration, say 8, 15, 20 or a max of 25 years, we reduce risk to the system. Less risk is good. This will cause much, much higher monthly payments. Larger payments build equity in a home faster. This reduces risk of the borrower walking away because they won't want to lose all that equity. But, bigger homes will become unaffordable for most people, unless they have a larger cash down payment, say 20-40%. Otherwise the payments will simply be too high, and they can't qualify for the loan which is based on their income. This will add downward pressure to larger homes, and thereby extend the pain in our economic recovery in the housing industry.

Either way, change will come.

D

Freddie & Fannie Bailout Plan is Sure to Make Rates Rise

2011-02-11T14:08:00.000-08:00

If you have or haven't heard, the Feds came out with a plan today to revise, change or eliminate Mortgage Giants Freddie Mac & Fannie Mae. If you include all government mortgage entities, the US Government and US Taxpayers now do 97% of all home loans in America today. They have effectively wiped out the private mortgage and securitization industry. Government can't do anything better that private industry can! We are currently losing Billions each quarter with these two losers.

It is estimated that the losses due to the relaxing of government lending standards in the 90's will cost the U.S. Taxpayer between $2 and $11 Trillion dollars when it's all said and done. This push into subprime lending by the outgoing Clinton Administration and Rep. Barney Frank D-NC, whose boyfriend worked high up at Fannie Mae by the way, will possibly double our National Debt! This exceeds all the bailouts of GM, Chrysler, AIG, Banks, TARP, and stimulus measures to date combined!

If you think it's hard to get a home loan now, just wait, Here are the few bullet points I gleaned from the press release this morning:

Reduce the governments share of the mortgage industry from 90% down to 40%. (make a lot less loans)
Raise Rates! (a lot less people can afford loans)
Raise Credit Score Requirements (less people can qualify)
Reject More Applications (less approvals)
Charge Higher Closing Fees (more money to pay at closing)
Implement a minimum of 10% Down (more skin in the game)

This will be catastrophic say the Realtor's, as less people will qualify to buy anything, and they like to sell houses! Supporters say that the private mortgage industry will come back into existence and fill the gap. You decide. Either way, there are more bumps ahead in the road for housing and home finance.

D

A Tragedy From Sea to Shining Sea

2011-01-10T19:54:00.000-08:00

President Obama was the most Presidential acting I've yet seen this past weekend. He wasn't bowing to Communists or Dictators. No, on Saturday, he was our President. Everyone's President. An assault on what makes America great had just occurred and he wanted us all to take a pause. An assault on Democrats, Republicans, Independents, Libertarians and Tea Partiers alike is really an assault on Democracy itself. If the people cannot interact with their government, then Democracy is lost. Most Presidential of all, Mr. Obama refrained from taking an American tragedy and a time of mourning and turning it into something for political gain.

That didn't stop the New York Times, NBC, NPR, and an Arizona County Sheriff from doing the despicable. Blaming a political party for what had happened. Really? Have we really stooped that low? Jared Loughner was a certifiable maniac, already known as such by the very same Sheriffs Department that played the political card. Loughner's favorite books are reported the be the The Communist Manifesto, and Orwell's 1984. About two years ago Loughner was immersed with ideal that life "was just an illusion". This guy isn't a Republican, a Right-winger or Tea Partier; He is a Nutcase!

But why? It's been reported Loughner was angered several years ago when Rep. Gabrielle Giffords answered one of his questions, not in English, but in Spanish. Truly why we may never know. Take one look at his picture...look in his eyes and you notice that nothing is staring back at you. He is evil set upon this Earth incarnate.

We as Americans cannot let this assault on Democracy and the very right to agree to disagree, to exhibit free speech, to hope for change, and to throw out the old and bring in the new to end. We cant blame Sarah Palin's rhetoric any more than we can blame Loughner's girlfriend because she recently broke up with him. If we were to outlaw Palin from politics, do we outlaw girlfriends? Would we blame the Spanish language for the answer given by Giffords? No.

Lets keep this tragedy what it is. Something that "...brings Americans together, not tears them further apart...". Let us pray for the families of those enduring loss tonight, and for Rep Giffords recovery. Mourn the loss of a 9-year old Student Council President, Senior childhood sweethearts separated, and a 20-year old intern among 3 others. Yes, our President looked very Presidential Saturday. Can we as Americans equal that strength in the way we handle this loss? My sincere hope is that we can.

D

It Was a Decade to Remember! Welcome to 2011!!!

2010-12-31T09:18:00.000-08:00

We started off this decade with a nation wondering who they had elected president. We ended it with the nation sending a very clear message of who and what they want in politics. In between a lot of things happened, and the world changed forever.

A few of my memorable points follow below:

After days of wrangling ending in the US Supreme Court, George W. Bush was our President.
Terrorists knocked down the World Trade Center Towers, and hit the Pentagon.
America invaded Afghanistan and toppled Saddam's Iraq,
Facebook and Blogs are born, and what is xBox?,
Ipods arrived and phones that do more than talk are born,
The Internet got fast enough to use,
The world figured out what most use the Internet for :)
Everything you buy now has a microchip in it, making even toasters smart,
People got more sensitive, and then less sensitive,
Leno quit then got his old job back,
Conan got hired and then fired,
Aliens, asteroids, ice, fire and volcanoes destroyed the Earth on the big screen, while almost the same thing happened in real life,
California was the place to live, now the place to leave,
Bigger was better until the world collapsed then smaller was better,
Credit was everywhere, and then nowhere to be found,
No money down and 0%, then all down or 30%,
Wall Street went from riches, to rags and back to riches in one year,
Home prices doubled, then doubled again in places, only to collapse and are still falling,
Everyone owned a home, now everyone is past due on a home,
We have several hundred less banks in the world,
Banking became automated, then a friendly face and no automated phone systems became king,
We doubled the size of our deficit & added trillions to our debt,
Patriotism swelled, and then pacifism returned,
Tax payers became Tea Partiers,
The White House & Congress got a "shellacking" by voters,

Some things don't change; how a smile affects someones day, the feel you get when you know someone has your back, tearing up at a good movie, the cuteness of babies, the meow of a kitten, the unconditional love of your pets, the warmth of friendship, and falling off to sleep knowing that the sun will always rise and reset a troubled day into a new one full of hope and promise.

Happy New Year,

D

It's A Wonderful Life!

2010-12-24T09:41:00.000-08:00

It's Christmas Eve Morning. It just snowed. As I sit here waiting for noon to come when banks call it a day and all bankers head off to their various Christmas Eve family gatherings I realize time passes whether you recognize it or not. I've spent most of this year focusing on all that's bad in the world. But now I take time to reflect on all that's good.

I'm going to watch my favorite Christmas Eve story tonight, as my tradition goes; the movie "It's A Wonderful Life". If you haven't seen it you should, in all its black and white glory. Jimmy Stewart said for years the movie was a flop and it was his worst performance. But really it's a timeless classic. It tells the story that we all so desperately need to hear in these troubling times. A few times I've said, "Hey, I feel like George Bailey". In fact I was getting lost just as he was at his Bailey Building & Loan.

America is still the greatest place on Earth to live. Americans are by far the world's most giving and generous nation. We are the Great Equalizer of the World. We add comfort and stability in every corner of the globe. We respond to every disaster, no matter where it is. We help those in need, even if they care not for us. It is truly the way God intended a loving and giving society to be. I feel good about all that we give back to humanity. You may debate how we go about it, but nevertheless our intentions are good and just.

As many know, a kitten fell into my world recently, at only 2 weeks old. He fell out from the underbelly of our bulldozer in 40 degree weather, supposedly born there. He was less his mother, completely healthy and unharmed. No siblings. No Mom. No sign or trace of family. Just little Lucky, as we call him now. After several weeks of sleep shortened nights due to bottle feeding, and eating cookies and milk at 3 am, Lucky has grown to a flash of black and white as he zooms from room to room. Bottle feeding? Yes. Sound familiar? Yes. It took me back to those days when I did the same with my wife for our two boys, who are now 16 and 21. I loved it all.

Lucky has fallen again. This time into my heart. I'm glad I took the time to stop the day my gift was delivered to accept something so precious. Lucky has made me stop many times recently, right in the middle of a bad day, and realize just how lucky I am as well.

Merry Christmas to you all. Give yourself a gift. Stop for a brief moment. Take it all in. If possible, gaze through the eyes of a child. A view of Christmas full of awe, wonder and overflowing joy as they focus on the bounty of gifts and the reality that Santa didn't pass them over this year. That view illustrates the reality of what we all have, and have been given. It's that first gift of Christmas, that we all need to open every year.

As Tiny Tim said, "God Bless us All, Everyone."

D

Your Credit Score Is the Final Authority

2010-12-15T07:17:00.000-08:00

We've long heard that banks and credit card issuers check your credit score in the loan approval process. But did you know that your homeowners and auto insurance companies check it as well? It's true. Sources say that your credit score can somehow reflect on the risk a company takes to insure you, and how likely you are to have a claim. There is a new wave of change crashing over the credit industry and it's based on secret enhancements to systems that generate your credit score. And if yours isn't good be prepared to get a quick "no" or pay a lot higher interest rate.

The latest to enter this fray is none other than the good ole USA. Through the now government owned Freddie Mac and Fannie Mae, who by the way lost $8.5 Billion in the third quarter this year, have released news of a impending new policy to add a "surcharge" interest increase on home mortgage offerings based solely on your credit score. There are three credit rating agencies and they take the lowest score of the three. Then, based on that score, they will add between 1/4% and 2.75% to your interest rate. A 5% rate could become almost 8% just based on your score! It doesn't matter how much you make, how much you have, or how nice your home is. Just that number.

Check out:
http://www.get-my-credit-reports.com/

While I am not advocating any particular site, this one does offer a lot of information for free, with the normal pay service offerings there as well. There are many good sites to Google to help you work on managing and fixing your credit.

Credit scores, as I have said for sometime, should be more coveted than our social security numbers. We should protect them as if they are gold plated. Payments should always be made a day early, instead of a day late if possible. We don't know how the software operates to generate your score. We do know a few items of it though: like the number of times you let credit cards, and car dealerships pull your credit hurts you. Your payment history is probably the biggest one, followed by how much debt you have, even if you are making your regular payments on time. Lastly, credit scores fall quickly, and getting them to come back up is like climbing Mount Everest.

Please keep this in mind as you enter the new year. Be mindful of holiday spending. Check out LifeLock online, and have them lock your credit so no one can pull your credit without your written authorization. Sign up with a qualifying account for our Business or Personal Finance Works at Mainstreet, which is currently free. Its as easy to make a budget and manage your finances on our site as it is to swipe a card, but much more profitable to you for years to come.

D

Tax Cut Extensions - Good For Us All In These Times

2010-11-18T17:34:00.000-08:00

There's been a lot of discussion about the deadline that is looming. The Bush Era tax cuts, meant to stimulate a soft economy, are expiring on the last day of this year. The debate has been to extend or not to. We as a nation are debating whether or not the tax cuts have worked in the past or not. It really doesn't matter what happened in the past. These are tough times now!

Here are the two sides: The Dem's say that they work on the middle class, but not on the upper class. How is that? I am not sure personally. The Repub's say that you can't raise taxes in a down economy, taking more out of an economic system already short on cash and growth capital. I personally agree with the latter. Why do I?

I just got my property tax bill, and my personal property tax bill. Guess what? They went up again. I have dues to pay at my subdivision association. My health insurance renewal just went up. Raw materials and Gas are up due to QE2, (check my previous posts) and I need to buy some Christmas gifts. I'm trying to keep payroll going for my staff, too. Do I have room for a 20% tax increase? I'll let you answer that for me.

The Estate Tax goes up so much, that a family farm changing hands to descendants next year would force the family to sell land to pay the tax, just to pass it on to their kids. Everyone, especially the middle class will see a large increase in weekly withholding. By year end, 2 million people on unemployment insurance will run out of benefits. Capital gains taxes would almost double. There is no logical argument that these tax increases will help pull us out of this recession. None. We need a temporary extension, if not a permanent one, for a couple of years. Just remember, 70% of all employment is created by small businesses. Small businesses are owned by hard working middle class folks who can't afford a tax increase right now.

Yes, the deficit does need cutting. We also need a balanced budget. But, folks, this is going to take 30 years not 5! Everything will need to be on the table to end our deficit spending. Taxes and entitlements including Medicare and Social Security. The table below shows what we spend on entitlements (click on the pic for a larger view):

No, I'm not advocating that we balance our budget on the backs of seniors. I am just saying that everything has to be on the table. We obviously need the tax cut extensions now, and we need take a serious look at what we can afford to spend in the future. The tax cuts will be extended I am sure. The Dems can't afford not to politically, and the Repubs ran on extending them.

But after January 1st, a lot of heavy lifting remains.

Why Is It So Hard to Borrow Money?

2010-11-15T18:01:00.000-08:00

Bankers have had a hard year. Yes, I know, everyone else has had a hard year, too. But when you think about community bankers, please consider a few extra lines that don't normally make it past your second thought:

Bankers in our area really didn't cause this crisis...yet the blame is passed around evenly to Banks in our area.
Bankers are good guys while lending you money, and bad guys when asking that it be paid back. Remember, it's a law that we have to get it paid back.
Bailouts don't happen in your/our area, and good folks in hard times don't get bailouts like the big boys did.
Bankers get to stress the many budget woes of their customers. When your paycheck doesn't last all month, you stress it. Bankers have many, many customers they are helping get to the next paycheck, and the stress really adds up on us.
Bankers have much more stress to come, even if the economy recovers and we all get back to work...
Bankers have been making loans during the crisis, only to be scrutinized by regulators for doing so.

So why won't Bankers just re-start the loaning of money and help all of us move on with our lives?

Besides stressing current events and whether or not to loan, bankers have a big storm coming over the horizon. It's the Dodd-Frank Regulatory Reform Law. The bill, passed earlier this year, is 2319 pages long. The ensuing bank regulations resulting from that bill will generate an estimated 20,000 pages of new bank regs! Yes, 20,000 pages! Thats about 40 reams of paper. I'm serious when I say, we bankers are reeling over this, and are hopeful the new congress will roll back or repeal some or all of this behemoth of red tape before our ability to lend is stifled even more.

What were the laws intentions? It was intended to protect you the Consumer. However, simply put, if you think borrowing money now is tough now, wait a couple years. Bankers are waiting to see just how this new government burden will add to our overhead, and how and if some of the smaller banks will be able to afford to compete. As always the costs have to be passed on. You see only big banks are too big to fail. Traditional banks are allowed to fail every Friday if they make the wrong decisions.

Results vary just like opinions, but the end of free checking is near. Possibly the end of being able to write a check to get a prescription for a sick child, all the while knowing you don't have cash in the bank, but knowing your banker will cover it for you, because it's the right thing to do. Yes, a fee is involved, and a fee is earned. But, that fee, tonight, is the farthest from your mind. And yes, your sick one got the medicine tonight, instead of next payday. And yes, you got to make that choice yourself, instead of the government telling you that program is not good for you or your family.

Consider this: The Government can't protect all people from all things good and bad. The many are always forced to pay for the bad judgements of the few. More red tape is never the answer, but it has been the norm lately. We need less writing and more doing. You know that privacy notice you get in the mail every year about this time from banks and credit card companies? The one you dont read? The one you round file? That cost banks millions of dollars to print and mail, complying with a regulation intended to inform you that doesnt work.

Banks need to be allowed once again to invest in their customers, their communities, without fear of government red tape putting them out of business for doing so.

I am still at work, stressing about tomorrow and next week and my budget for 2011. Then I see a customer drive by. I know their name and they know mine. Our kids played ball together. Their granny and mine are quilters together at the Senior Center. That knowledge is rare in big banks. But it's not rare here. Suddenly, it all comes back into perspective why I am still here.

D

An Election Result With A Message

2010-11-03T08:42:00.000-07:00

Regardless of your party affiliation, the electorate has spoken. It was not so much an endorsement of the Republican Party as it was a loud and clear statement that once again we want change and the Democratic Party has not delivered it these last two years. Actually, polls show that the electorate doesn't really like either party. Truly for the first time in decades, the American people have sent a message to Washington, DC: "Listen to us or lose your jobs!"

Many Democrat's, who yesterday were leading this country lost their jobs last night. All over our nation, they too, are searching the help wanted ads this morning just like the other 10%-17% of Americans who have been unemployed for the last two years. Democrat controlled seats dating all the way back to the 1880s were lost to Republicans. Truly, an extraordinary message was sent! Harry Reid, D-NV was the only big government victor, clawing out a <1% victory. He heads back to Washington with a large slice of humble pie and a noticeably weaker political persona. Now we wait to see if the President can work with our new Congress with their message from the people in hand; effect the change the people want. We also watch the Republican House and see if they will reciprocate.

Exit polls resoundingly showed the Economy/Jobs are most important to the people. The National Debt/Spending was a close second. One news analyst summed it up as "...we have to spend within our means on a personal level, and we want our government to do the same..." The last two years we have cut and saved and reduced our debt, all the while our government added $4 trillion dollars to our national debt, and as much as another $4 trillion dollars in new government spending on programs the people found extremely unpopular. And we the people do not feel we got our monies' worth.

What can we expect with these changes? Well for starters I think the Bush Era tax cuts will be extended, at least for another two years. I also think that the huge barrage of new regulations, the most since the 1930's, will be scaled back or in some cases outright repealed. This will signal some relief to taxpayers, some of whom are business entities, to begin the process of investing in growth and jobs and therefore start a meaningful economic recovery. I think the full price tag for ObamaCare will be evaluated and its true size and scope will be discovered and debated. The best change will be an economic recovery we can feel and not just be told by pundits "...the recovery is here, you just can't feel it."

What I feel was most extraordinary is something that is seldom mentioned on cable news; Once again, power was transferred. And in America we do it peacefully. In the end we are all Americans and we are all in this together. If one group doesn't succeed, we in America, do not have make war to make change. Now let's roll up our sleeves and go to work, and show the rest of the world we still can.

God Bless America, and best of luck to the new Congress.

D

Who Really Owns Your Mortage?

2010-10-20T20:05:00.000-07:00

A bank. But which bank? Recently, every week has to have it's own crisis. And this week is no different. However, this one thirteen years in the making, may take years to sort out and settle. Trillions of dollars in home loans and ownership rights are now at risk.

In the rush to relax home lending standards years ago and to push our country toward the American Dream that "everyone must own a home", a new infection was introduced that would make Big Bank pooled mortgages act like the living dead, and Wall Streeters look like Zombies. "Mr. Home Loan, meet MERS". The Mortgage Electronic Registry System (MERS) was created to electronically register, transfer and track home mortgages.  Big Banks and mortgage sweatshops made, packaged, and sold mortgages by the thousands weekly. Countless investors from Wall Street hedge funds to insurance companies to foreign governments, hot cash in hand and looking for big profits gobbled them up. Pass the cash, and here is your list of home loan serial numbers you now own. That's it. No paper, no documents changed hands.

MERS went about its merry way, adding electronic tracking to this home and that one, marveling at its efficiency. There was only one problem; one flaw. MERS is an electronic registry not a real paper filing cabinet full of countless real loan papers. It was never an intention of the MERS creators to file and handle the original loan documents. No one thought anyone would ever ask about the real paper. Enter one Borrower in bankruptcy court, asking one question: "Mr. Big Bank mortgage investor, prove that you own my home loan by furnishing my original loan documents to the court." Big Banks and their thousands of investors cannot. Community banks who have always kept their mortgages, at least their servicing rights, can. Community folks loaning money in their community. Real people handle the registry, not MERS. Now, where did all those Big Bank original mortgage documents go?

You see, the law as I understand it is you have to prove the chain of title, no matter how many times a loan is re-sold. If you can't prove ownership of title or of the loan, then you don't have real legal standing to foreclose. Wow! 4 million people just got a breather. Add another 6 months to a year to the ride. Will all those people get to keep their houses with no more payments? Of course not. It's a systemic delay that will slow our recovery in housing and the recovery of our overall economy. Probably, by two more years.

There are 62 million home loans with a MERS tracking number assigned to each. It's like a social security number for a home loan. Some say, if your home was securitized by a big bank or mortgage company into one of the thousands of loan pools and sold, you may not get full clear, clean title until this is all settled. It may take years. People buying discounted and foreclosed homes may have the same risk of someone knocking at their door some day and saying, "I have an active loan on this property...".

Here's the bottom line. If you don't pay, you will eventually lose your home. Putting off the pain until another day doesn't change that. I personally have talked to people that have played the system and not made a house payment for 18 months on a Big Bank mortgage.

     "What's your outcome, long term?", I ask. The answer is always the same.
     "I am just waiting for them to come throw me out. I know it's inevitable, but its a numbers game for them".

Now, courtesy of MERS, the numbers just reset from 4 million homes in various stages of foreclosure back to zero. The system known as our economy shudders once again.

D

A House That is Worth Less Is Still A Wonderful Place to Live

2010-10-18T11:57:00.000-07:00

Quantitative Easing (QE): Congratulations! You're Pre-Approved for $1 Trillion in New Spending

2010-10-16T09:47:00.000-07:00

As a kid, when it was time to go to the doctor it always meant a shot. I'm not real fond of needles. In fact I down right despise them. Of course, that made the "you're gonna feel a little prick" even worse. But, afterwards Mom would always say "now lets go get an ice cream cone" and I would feel much better. Nothing like a quick, short-lived sugar high to make you feel better about things.

Quantitative Easing (QE) in reality isn't any different. The question is do we need a shot in the arm, and will the vaccine work? We need something to spur an economic recovery. But, is QE the vaccine? Taking a flu shot to help with a cancerous tumor is not the answer.

Oct. 15 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said additional monetary stimulus may be warranted because inflation is too low and unemployment is too high. “There would appear -- all else being equal -- to be a case for further action,” Bernanke...(is) considering ways (to) stimulate the economy as unemployment holds near 10%... After lowering interest rates almost to zero and purchasing $1.7 trillion of securities, policy makers are discussing... purchasing Treasuries...

Purchase additional Treasuries with what? Newly printed money. A pattern of borrowing and spending from future generations is not the answer. I'm not sure really what is. Consumers are trying to pay down debt and change their spending habits, while the government does not. Consumer spending makes up 70% of the U.S. GDP (economy). And until consumers feel safe to spend, there will be no recovery. The graphs below show just how much new money has been printed and injected into the system:

To simply explain Quantitative Easing (QE), consider the following two perspectives:

1) QE is a way to spur the economy into a re-start. Print and issue new dollars, buying with them newly issued or existing government securities or treasuries, and add them to the FED's balance sheet. This injects the new money into the economy, and the FED effectively monetizes and capitalizes our debt. This should cause prices to rise (inflation) because there are more dollars floating around and people will spend more of them to buy hard goods, food and energy, driving prices up. Money is cheap, rates are low. Banks lend cheaper money, and businesses hire and give raises with the cheaper money. People have more money to spend. People buy washing machines and flat screens. At least that's the theory. Ahh, the feeling of that sugar high. But, in 30 days those flat screens get more expensive because they were built in China, and your spending U.S. dollars...

I can tell you that when the supply of something is high (dollars), the price of each falls (devaluation), and that is exactly what is happening to the dollar against the world currencies. In Europe, they too, have significantly devalued the Euro the same way, but that's a whole different blog. Consider...

"Paper money eventually returns to its intrinsic value ZERO" - Voltaire 1729

2) QE is a desperate attempt to do something when you have run out of ideas that make sense but you feel you have to do something. It's short term bad choices without any long term regard for the consequences. Recently, dissension is evident at the table of the Federal Reserve Board of Governors. Two members are openly dissenting and speaking about that dissension publicly. You see, there is no real proof that this does anything for the economy. It just devalues our dollar against other world currencies. Rothbard says the devaluation of our currency has been going on since World War I...

The Monetary Breakdown of the West by Murray N. Rothbard

http://www.lewrockwell.com/rothbard/rothbard240.html

"...the prognosis for the dollar and for the international monetary system is grim indeed... until we return to the classical gold standard at a realistic gold price... And fueling disintegration will be the continued inflation of the supply of dollars and hence of American prices which show no sign of abating. The prospect of...runaway inflation at home...and economic warfare abroad. This prognosis can only be changed by a drastic alteration of the American and world monetary system: by the return to a free market commodity money such as gold, and by removing government totally from the monetary scene."

Both theories can stimulate a lot of happy hour debate. Now just how much flu shot dosage will cure cancer? I mean a flu shot is better than nothing right? So lets keep giving incremental doses until we see some change...I fear wrong. Throughout the centuries it has been proven time and again that you cannot control the markets indefinitely. It's just too big. Over $1 Trillion in stimulus was but a drop in the ocean of the world economy. Did it create jobs? Yes, for a few months. Some, maybe a year. Ahh, that sugar high. Then we are left with no jobs, and $1 Trillion more in debt. So, let's try it again and see if it works any better. Really?

I'm not here to tell you how to fix this. We all know a lot of smart people have tried. One very old theory is to do nothing. The market and economy will take care of itself, and will seek its own level. Some businesses need to fail, some banks need to fail, and some people just need to lose their homes. Natural Selection. It's not pleasant, but it is survival of the the fittest. How would the world be today, if we had bailed out the dinosaurs? I can see the nightly news headlines now: Dinosaur breaks through playground fence, eats 6... Some things are better off left to nature. Wouldn't you agree?

In the mean time I wait. Like the rest of the consumers in the U.S., I am watching my spending, paying down debt, and waiting for the appearance of the catalyst that will spur an economic recovery. I wait for the election cycle to bring about hope & change just like everyone else is. There is no doubt that we need change. We need the government to apply our basic principals for checkbook/debit card management. We've mortgaged our kid's futures. Now we are beginning to mortgage our grandkid's futures as well. We may have actually already done much more than that. Like so many the last few years who took out a loan that they could never repay, the good 'ole USA may have done the same. With the rest of the consumers in the U.S., I am watching my spending, paying down debt, and waiting for the appearance of the catalyst that will spur an economic recovery.

It All Starts With a Sunrise

2010-10-11T19:17:00.000-07:00

I thought a lot about my first blog post. Either way good or bad, I knew it would be historic. I've read extensively. I've been following many other blogs. My opinions are formed. I've tried to determine where the line is between what is acceptable and what is not. I've found that if it's your blog say what you want. Just be prepared to defend your facts, and your ego.

What to say? Be informative? Original? Polarizing? No, just say whats on my mind. What do I think of at 3 a.m.? How would I fix things? Who would I ask for consult? How could I trust my friends to help when I would wield such power? Could I do any better fixing the mess we are in? Hell, could I do any worse? Who would be just using me to get what they want? They all would.

So again now I am alone. Utterly alone. With no one to help me assemble this first historic foray.

It was easier to get married. Get divorced. Buy an house. Or a bank. Hire good people. Let them go. Make a payroll, or decide not to. Come to the brink only to be yanked back as pebbles tumble over the edge. Yes, I have done them all. It was easier to do all those things then bare my soul to your opinion.

My hope would be that someone way smarter than me doesn't read my blog, and refute each and every position. Destroy each and every fact with such precision only a laser guided bomb could appreciate it.

What do you want in a blog? Someone to tackle you? Someone you can tackle easily? Some blogger that is an easy straight guy? You tell me. I make an easy target. I love the challenge. But I never lose. At least in my mind. The worst feeling is when I am in the middle of a great debate, and realize that I am wrong.

My hope is within my debate with you that someone, somewhere in a position to change things might read our debate, and a light would break through the darkness, and a real discovery would be made. A beginning to a real recovery of the mess we are in could begin.

So where do I start? I have so many points. How about a few bullet points to set the tone:

Our economy is worse now than in the Great Depression.
Our Dollar is closer now to going to zero than at any time since the Continental Dollar went to zero and George Washington couldn't buy a chicken to feed the Continental Army
Quantitative Easing (QE2) is buying your way out of debt with a debt. Its like paying off your credit cards with a new credit card and saying your all better.
That Obama has moved us closer to Socialism in 2 years than Communism did in 95 years.
That when you print money with no intrinsic underlying value, smart people will figure it out and quit accepting them.
That when you tell China, whose economy is 30x larger than ours and holds our mortgage, to do what we tell them; don't be surprised when they say get lost. And then you come back home acting like you were right and China has it all wrong.
That history repeats itself. And if we don't learn from the Romans, we are destined to follow them.
That we are in year 2 of a lost decade.
That your house may never again be worth what you paid for it.
That social security is full of nothing but IOU's and I'm not counting on it. I plan to work to age 75, not because I want to, but because I will need to.
That the stock market is so overvalued, a sugar high wouldn't be this good at a candy making party.
That September and October always tell us when we are headed in the wrong direction.
It will be a socks and underwear Christmas, unless leather jackets are the same price.

There. I feel better. I hope someone has something to say about one of those points. Who knows, you may go down in history as the first respondent to prove me wrong. We'll talk soon...

D

The Calculating Banker

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