In order for the Federal Government to go on the Gold Standard in 1933, executive order 6102 was issued by President Franklin Roosevelt. The order criminalized the possession of monetary gold by any individual, partnership or corporation. There is nothing in the constitution that allows for such an order and it was challenged in court. Its enforceability was always in question but many Americans blindly submitted. The privately owned Federal Reserve Bank paid $20.67 per ounce for the gold they received. Later the exchange rate was set at $35 per ounce for international transactions where it stayed until 1971.
None of what I just said should make anybody feel comfortable. What I just described is not capitalism in any way, shape or form. There is no free market at work here. There never was in relation to the gold standard. When government regulates the prices of anything, including gold, you now have a centralized (communist style) economy.
It was always doubted that the US government ever maintained the ratio of dollars to gold that it said it would maintain. This became obvious by 1971 when the French started demanding payment in gold for their dollar reserves and President Nixon decided to end the phoney gold standard that never really existed. Since it was illegal for American Citizens to own gold, trading in their dollars for gold was out of the question. The Gold Standard was an illusion.
Gold can not be converted into units of labor, food, energy or building materials. Any society that has ever used a precious metal standard has had currency problems, including Rome. There was a huge monetary crisis in Europe from 1750 to 1850 concerning money backed by precious metals. In a time of real crises when barbarians are at your front gate, the only thing of value is fortifications, weapons, armor, manpower, food, water. Gold and Silver mean nothing.
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Lets consider the two ways that fiat currency obtains value. One way is that the government sets its value and forces you to accept it. The other way…. is that an artificial “need” is created. Lets use cow-manure (shit) as an example and see how it can be transformed into something precious and highly coveted.
1-You need to fertilize a field and need 50 lbs of manure.
2-Your cow can only produce 1 lbs a day, so you go to your neighbor and borrow 50 lbs of cow-manure.
3-Your neighbor gives you the 50 lbs of cow-shit but tells you that you must pay him back with 100 lbs at the end of the month (interest).
4-Your cow has only produced only 30 lbs of manure by the end of the month. You need an additional 70 lbs to pay back your debt.
5- You go back to your neighbor and ask to borrow another 70 lbs of manure .
6-You pay your neighbor back with the 30 lbs of cow-shit you actually have, plus the additional 70 lbs he lent you.
7-You have paid back the debt of 100 lbs of cow-shit owed… but you had to borrow an additional 70 lbs of cow-shit to do it.
8- For the 70 lbs of manure you borrowed from your neighbor, you must now pay back 140 lbs next month.
9- Your cow still only produces 30 lbs per month, so you will have to borrow 110 lbs of manure at the end of next month to pay back your debt.
10-You will never have enough manure to pay back all your debt. Cow-shit is now the most valuable thing in your life and you can never have enough of it. You will spend the rest of your life working for shit.
I just created a virtual monetary system based on Cow-Shit. Not really… This system is really based on debt and you can substitute anything in the place of manure including gold or paper. The key to making this system work, is to set a rate of interest that exceeds that which can actually be paid back. Hence you put the debtor on a “rat wheel” where they are running forever and never actually catch up (pay their debt). Now lets take this example further and say we attach the rat-wheel to a “mill” so that the running actually produces something of value like flour for bread. You now have “productivity”. The goal of this system was never really to collect the debt. The goal of the system is to keep people working to pay off something that can never be paid off. Keeping the rat-wheel turning is “Productivity” and that is the end goal.
It is of no relevance if you use gold, cow shit, or paper as your currency. The part that makes it work is debt. You always owe more then you have due to compounding interest. With individuals and corporations there is a limit to how much they can borrow because they must put up real assets as collateral. That is not the case with the Federal Government. The Federal Government can borrow and keep borrowing without limit except for a debt ceiling limitation or a balanced budget amendment. There is no possible way for the Federal Government to ever pay back the debt to the privately owned Federal Reserve Bank, even if they raised taxes and cut all expenses, because the compounding interest on 14.5 trillion already owed is such a ridiculously high number. Once Debt is created, at no point in time is there ever enough currency in existence to pay off all principal and accumulated interest one it. Paying off all the debt is a mathematical impossibility because the money does not and can not exist.
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The only way to fix this problem is the to change the computation for interest. Interest is what keeps the debt growing.
Instead of Int= debt x rate x term. They need to change it so that Int= (debt x rate x term) – Deflation Variable.
This would start to decrease the debt at a faster rate, but there is still a problem… as soon as the free market realizes that their is now more available money in circulation, due to decreased debt obligations, business will respond by raising prices to acquire some of that money. The system has a built in fix. If new borrowers do not come in to borrow more money because borrowing money is too expensive (high interest rates), individuals and corporations will find themselves near default. Some will have to go out of business in order for others to survive. This is the painful truth that no one is willing to come to terms with.
In order to fix the system, you have accept deflation, recession, defaults and bankruptcies as part of the system. This is the fail-safe that was designed into the system to prevent inflation. The Deflation Variable I suggested above may ease the level of default. This Deflation Variable would work along with a prolonged recession to bring debt back under control. No amount of tax increase or cost cutting can fix the problem because that is not how the system was designed to work. The system was designed to trap debtors into a life time of paying off an ever growing debt. The Federal Government has fallen into their own trap.
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The Federal Reserve Banking System was designed to work as a Ponzi Scheme. When individuals, corporations and Government borrow money, they “new” create money. The bank rules allow local banks to create new money as long as it is backed by collateral. The new money is created electronically and is accompanied by a greater debt. Debtors depend on other borrowers to come in after them to create more money and do business with them so they can pay their debt off. The system was never designed so that one entity could dominate it in the way the Federal Government has. The reason the Federal Government is in default and will always be in default is because it has grown out of proportion to the other participants in the system. Cutting costs, raising taxes or raising the debt ceiling is just addressing the symptom temporarily. Smaller government has to be part of any real solution in addition to a change in how interest is compounded.
I don’t think the Government should have the ability to create money at all. I think money is best created in the private sector. It is a more “capitalist” way to create money.
-You mine gold and mortgage it to the bank, you get new money created for your gold collateral
-You mortgage your house, you get new money created for your house collateral.
It does not matter what the collateral is… only real assets should create money. When you give back the money to the bank, you take back ownership (title) of your collateral and the money created is removed from the system. That is because the money is only a receipt for assets being held by the bank. The system makes perfect sense.
Government should only be getting operating money through taxes and perhaps by borrowing “existing” money from the public. Government should not be creating new money for its own use… because government should not have anything of collateral to put up. All government assets belong to the citizens, not government. The problem here is not with the banking system, but with government abuse of banking.
(Note: Permission to reprint and link with credit to Bill Tsafa is hereby granted)
Wednesday, July 27, 2011
Thursday, April 21, 2011
Govenment Printing Money
Money is created at the local level. You want to buy a house, the banker electronically creates a debt for you and the title of the house passes from one person to another. The seller gets electronic credits in his account and those credits are moved around within the banking system as he buys things. No money really changes hands.
The fictional electronic money created is backed by the house or other asset mortgaged… so it is actually backed by something more valuable then gold or silver.The money that needs to be paid back exceeds the money borrowed… that total sum does not exist yet… it has to be created by other people borrowing… hence the control on inflation.
In this system you can exchange paper money for shit and it will still work. You borrow 10 lbs of shit today to fertilize your garden… but you have to pay me back tomorrow with 50 lbs of shit. You might be able to manufacture 10 lbs of shit on your own over night to pay me back… but you will have to scramble to get 50 lbs of shit. Hence, shit now becomes valuable because you need it to pay me back tomorrow and can not easily acquire it. That is how money works in the Federal Reserve System.
The system is ingenious…. The only problem here is that the government can borrow any amount of money it wants with no real collateral. They just print up a Treasury Bill and sell it to the Federal Reserve for cash. Then they have to pay that back plus interests… of course same rule applies… the principal plus interest does not exists yet… so they have to borrow more in order to pay it back. It is a national Ponzi Scheme.
The key difference between the US government an the rest of us is… we have to put up collateral for money we borrow. How much we can borrow is limited by real assets that we own. The Federal Government does not have to put up assets. They can borrow without limit and run the deficit up to infinity. The value of our cash is devalued in proportion, a concept we call inflation.
The system can work if the government borrowed slowly. A reasonable rate of borrowing would be one where they increased the debt at a rate more or less equal to the rate of the population growth or the rate of economic growth. When they double the debt in a matter of two years it does nothing except dilute the currency in a manor that is extremely obvious to everyone who is in business.
My goal as an individual businessman is to increase my prices faster then the government is increasing debt/printing money. The error of the government is that when they increase the debt/money supply so fast… people catch on and respond accordingly by raising prices as fast as they can.
The fictional electronic money created is backed by the house or other asset mortgaged… so it is actually backed by something more valuable then gold or silver.The money that needs to be paid back exceeds the money borrowed… that total sum does not exist yet… it has to be created by other people borrowing… hence the control on inflation.
In this system you can exchange paper money for shit and it will still work. You borrow 10 lbs of shit today to fertilize your garden… but you have to pay me back tomorrow with 50 lbs of shit. You might be able to manufacture 10 lbs of shit on your own over night to pay me back… but you will have to scramble to get 50 lbs of shit. Hence, shit now becomes valuable because you need it to pay me back tomorrow and can not easily acquire it. That is how money works in the Federal Reserve System.
The system is ingenious…. The only problem here is that the government can borrow any amount of money it wants with no real collateral. They just print up a Treasury Bill and sell it to the Federal Reserve for cash. Then they have to pay that back plus interests… of course same rule applies… the principal plus interest does not exists yet… so they have to borrow more in order to pay it back. It is a national Ponzi Scheme.
The key difference between the US government an the rest of us is… we have to put up collateral for money we borrow. How much we can borrow is limited by real assets that we own. The Federal Government does not have to put up assets. They can borrow without limit and run the deficit up to infinity. The value of our cash is devalued in proportion, a concept we call inflation.
The system can work if the government borrowed slowly. A reasonable rate of borrowing would be one where they increased the debt at a rate more or less equal to the rate of the population growth or the rate of economic growth. When they double the debt in a matter of two years it does nothing except dilute the currency in a manor that is extremely obvious to everyone who is in business.
My goal as an individual businessman is to increase my prices faster then the government is increasing debt/printing money. The error of the government is that when they increase the debt/money supply so fast… people catch on and respond accordingly by raising prices as fast as they can.
Tuesday, February 8, 2011
Foreign Trade – Good or Bad ?
Foreign trade is a very perplexing subject to me despite my background in accounting and business. I have spent at least two decades trying to figure out who is the winner and who is the looser. The answer to that would seem to be a simple matter of knowing if you are gaining or loosing from foreign trade, but difficulty lies in figuring what constitutes a gain or loss. The foreign trade balance is the most tangled web I have encountered in my entire professional career. I suspect it is that way for a reason. If your trading partner knew that they were consistently getting the short end of the deal it is unlikely that they would want to continue doing business with you. It makes sense to present the information to your partner in such a way so that they think that the are benefiting from the trade even if they are not.
The numbers show that as a nation the United States imports more then it exports by a wide margin. The immediate impulse is to say that this is bad because we pay more money then we receive… so this must be bad. Lets take money out of the equation for a second since money is simply a substitute for the value of goods. If this was a barter system in which goods are directly traded for other goods, and we were importing more goods then exporting… wouldn’t the difference be called a profit? Isn’t it a good thing to receive more things of value then to give them away? This trade becomes even more favorable if we are paying for those goods with our own paper currency… which we print out of thin air.
Lets look at the trade balance from another prospective. Lets consider living standards. Lets compare the living standards of the average person in the United States verse the average person living in China. China has had a high GDP rate for a very long time but that has not translated in high living standards for the average person. The problem with GDP is that it only measure the total amount of money moving around within an economy, it does not measure profits. I have spoken to a number of people who visit China on a regular basis, they tell me that it is a miserable place by our standards and that they would not want to live there.
The difficulty of seeing clearly if we are gaining or loosing on foreign trade is further compounded by the reality that American companies engaged in foreign import and export have both incentive and easy opportunity to manipulate their transactions to result in the lowest tax liability due to the US government. Indeed working around the IRS is a great motivational reason why a company would want to engage in foreign trade in itself.
It is hard to deny the fact that America was built on cheap labor. The first cheap laborers was indentured servants being who were either criminals or debtors. The next form of cheap labor was slave labor. Fortunately that institute was abolished. When slavery was abolished it was replaced by what many consider “cheaper” immigrant labor. Immigrant labor did not require the large upfront investment of purchasing salves or having to look after them through sickness and old age. Then at some point it was realized that it might be cheaper to export the work rather then import the laborers. The point here is that cheap labor has always been a part of the American economy through both good times and bad times.
Over the last three centuries many in the middle class have pointed to that cheap labor and pronounced it as the cause of their hardship, but I believe that if one investigates deeply into that subject, they may discover an entirely different perspective. When we look at this from the perspective of third world countries, where they have no source of “cheaper labor”, we find that they are stuck at a level where they can only maintain themselves at a very basic level of food and shelter.
I once heard that if you are in a Poker game and do not know who the sucker is, the chances are that you are the sucker. For anyone who does not know this, it is common for poker players to secretly team up and coordinate to take advantage of a player. I think something like this might be going on with the foreign trade situation between the United States, its Allies, and China. The Chinese typically work sunrise to sunset, seven days a week in very harsh conditions to provide Americans with consumer goods that make our life more enjoyable. We give them paper money and promises to pay in return. Who is the sucker?
The numbers show that as a nation the United States imports more then it exports by a wide margin. The immediate impulse is to say that this is bad because we pay more money then we receive… so this must be bad. Lets take money out of the equation for a second since money is simply a substitute for the value of goods. If this was a barter system in which goods are directly traded for other goods, and we were importing more goods then exporting… wouldn’t the difference be called a profit? Isn’t it a good thing to receive more things of value then to give them away? This trade becomes even more favorable if we are paying for those goods with our own paper currency… which we print out of thin air.
Lets look at the trade balance from another prospective. Lets consider living standards. Lets compare the living standards of the average person in the United States verse the average person living in China. China has had a high GDP rate for a very long time but that has not translated in high living standards for the average person. The problem with GDP is that it only measure the total amount of money moving around within an economy, it does not measure profits. I have spoken to a number of people who visit China on a regular basis, they tell me that it is a miserable place by our standards and that they would not want to live there.
The difficulty of seeing clearly if we are gaining or loosing on foreign trade is further compounded by the reality that American companies engaged in foreign import and export have both incentive and easy opportunity to manipulate their transactions to result in the lowest tax liability due to the US government. Indeed working around the IRS is a great motivational reason why a company would want to engage in foreign trade in itself.
It is hard to deny the fact that America was built on cheap labor. The first cheap laborers was indentured servants being who were either criminals or debtors. The next form of cheap labor was slave labor. Fortunately that institute was abolished. When slavery was abolished it was replaced by what many consider “cheaper” immigrant labor. Immigrant labor did not require the large upfront investment of purchasing salves or having to look after them through sickness and old age. Then at some point it was realized that it might be cheaper to export the work rather then import the laborers. The point here is that cheap labor has always been a part of the American economy through both good times and bad times.
Over the last three centuries many in the middle class have pointed to that cheap labor and pronounced it as the cause of their hardship, but I believe that if one investigates deeply into that subject, they may discover an entirely different perspective. When we look at this from the perspective of third world countries, where they have no source of “cheaper labor”, we find that they are stuck at a level where they can only maintain themselves at a very basic level of food and shelter.
I once heard that if you are in a Poker game and do not know who the sucker is, the chances are that you are the sucker. For anyone who does not know this, it is common for poker players to secretly team up and coordinate to take advantage of a player. I think something like this might be going on with the foreign trade situation between the United States, its Allies, and China. The Chinese typically work sunrise to sunset, seven days a week in very harsh conditions to provide Americans with consumer goods that make our life more enjoyable. We give them paper money and promises to pay in return. Who is the sucker?
Social Security
The Social Security system is just as unconstitutional as government run health care. No where in the Constitution of the United States does it give authority to the Federal Government to run a retirement program. I believe the existence of the social security system has created a nation of people dependent on big government. The people who have some financially savvy would do far better to invest their money directly. The people who are financially ignorant are fooled into the false comfort that the “government” will take care of them in their old age. Ask any retired person and they will tell you that the payouts from social security are inadequate to live on.
Once a country goes down the socialist path it is very hard to come back because people get use to “entitlements”. The socialist cancer of government run retirement has spread to socialist government run health care and will continue to spread until it is cut off at the root. The root of socialism is the taxes that fund it. The people of this country are very over taxed and the money is spent on socialist programs that it has no business being involved it. The responsibility of the federal government is very simple; defense from foreign enemies, regulate free trade between the states and regulate a stable currency… that is it.
People broadly talk about repealing the government run health care bill and acknowledge how corrosive it is… but do not realize that the idea was born from the failing Social Security System that came before it. Few politicians, even strict constitutional ones, are willing to attack the social security system. They can not, because it has corrupted all of America and made it dependent on it. Entitlements and Dependency is the bait and trap of socialism. If we continue down this path we will soon end up like France, a broken socialist nation, with no hope of every prospering.
So what is to be done with Social Security at this point. Sadly we can not just cut it off, because generations of American have now become dependent on it. For any politician to propose tearing down the social security system it is political suicide. The answer is to turn the system over to the states. Give that responsibility back to the states who are closer to the people and are better suited to assess their needs. The Federal Government should turn over the system to the states without any mandates of how it should be administered. Within time the smarter states will realize what a hopeless endeavor government run retirement is and will phase it out all together.
Once a country goes down the socialist path it is very hard to come back because people get use to “entitlements”. The socialist cancer of government run retirement has spread to socialist government run health care and will continue to spread until it is cut off at the root. The root of socialism is the taxes that fund it. The people of this country are very over taxed and the money is spent on socialist programs that it has no business being involved it. The responsibility of the federal government is very simple; defense from foreign enemies, regulate free trade between the states and regulate a stable currency… that is it.
People broadly talk about repealing the government run health care bill and acknowledge how corrosive it is… but do not realize that the idea was born from the failing Social Security System that came before it. Few politicians, even strict constitutional ones, are willing to attack the social security system. They can not, because it has corrupted all of America and made it dependent on it. Entitlements and Dependency is the bait and trap of socialism. If we continue down this path we will soon end up like France, a broken socialist nation, with no hope of every prospering.
So what is to be done with Social Security at this point. Sadly we can not just cut it off, because generations of American have now become dependent on it. For any politician to propose tearing down the social security system it is political suicide. The answer is to turn the system over to the states. Give that responsibility back to the states who are closer to the people and are better suited to assess their needs. The Federal Government should turn over the system to the states without any mandates of how it should be administered. Within time the smarter states will realize what a hopeless endeavor government run retirement is and will phase it out all together.
The Impossibility of Economic Utopia
People can not seem to understand why it is absolutely impossible to have an Economic Utopia. A Economic Utopia is a state where you have 100% employment and everybody makes enough money to buy everything they want. This is an absolute impossibility due to human nature.
What is Human Nature within the context of business? It is a struggle between greed and laziness. On the one hand people want to do as little work as possible… and on the other hand people want as much luxury as possible. When the possibly of excelling above their peers is not available through the force of greed, such as in a socialist system, people will fall back to laziness and work as little as possible. As people work less and less, first luxury items will become scarce and then basic needs like food and shelter will no longer be produced. Hence Utopia is an impossibility in a Socialist system.
A capitalist system is also driven by the same human characteristics of greed and laziness, but the system favors greed. So why is economic utopia still an impossibility in capitalism??? Because even at the highest levels of greed there is still an element of laziness. The average businessman will not set up a business model to satisfy 100% of a given population. The Average businessman is content to target 60% or less of a given population; 60% if he targets the middle class, 20% if he targets the high end market and 20% in the low end market.
I will give a personal example from my experience to clarify what I mean. I owned a food service establishment that targeted the middle class and of course was accessible to the upper class… but the prices were prohibitive to the lower classes. Here is a simple calculation I made for a restaurant with 100 seats. I could sell a cheese burger deluxe for $7.50 and expect to sell it to 80 people… or I could sell it for $6.00 and sell it to 100 people. Either way I would gross $600, (7.50×80) vs (6×100). The difference is that when selling it for $7.50, I only have to serve 80 people… less work, same money. So I will choose to only target 80% of the population every time.
Now here is where it gets interesting… and the part that a lot of people don’t get. If somehow money became available through some artificial means like welfare and 100 people started showing up at my door because they could now all afford my prices… I would increase my prices to $9.40 so that only 80% could afford the prices even at a level where I am grossing $750, (7.50×100) vs (9.40×80). So I am back to working at only 80% of capacity. At 80% capacity, the customers that I do get will get better service since the place is running under capacity. While this may seem like a flaw in the system, it can actually serve as incentive. In a system that naturally favors less then 100% capacity, there is an competitive incentive for people to work hard to stay in that top 80% (middle class). The only incentive that people would have to not work hard to get into the middle class is if their is a fail-safe underneath them like wealth-fare.
This is a market force that completely escapes those who wish to create some fantasy world where everyone can have everything they want. It is a complete waste of time to try to put economic gimmicks into place to satisfy 100% of the population.
What is Human Nature within the context of business? It is a struggle between greed and laziness. On the one hand people want to do as little work as possible… and on the other hand people want as much luxury as possible. When the possibly of excelling above their peers is not available through the force of greed, such as in a socialist system, people will fall back to laziness and work as little as possible. As people work less and less, first luxury items will become scarce and then basic needs like food and shelter will no longer be produced. Hence Utopia is an impossibility in a Socialist system.
A capitalist system is also driven by the same human characteristics of greed and laziness, but the system favors greed. So why is economic utopia still an impossibility in capitalism??? Because even at the highest levels of greed there is still an element of laziness. The average businessman will not set up a business model to satisfy 100% of a given population. The Average businessman is content to target 60% or less of a given population; 60% if he targets the middle class, 20% if he targets the high end market and 20% in the low end market.
I will give a personal example from my experience to clarify what I mean. I owned a food service establishment that targeted the middle class and of course was accessible to the upper class… but the prices were prohibitive to the lower classes. Here is a simple calculation I made for a restaurant with 100 seats. I could sell a cheese burger deluxe for $7.50 and expect to sell it to 80 people… or I could sell it for $6.00 and sell it to 100 people. Either way I would gross $600, (7.50×80) vs (6×100). The difference is that when selling it for $7.50, I only have to serve 80 people… less work, same money. So I will choose to only target 80% of the population every time.
Now here is where it gets interesting… and the part that a lot of people don’t get. If somehow money became available through some artificial means like welfare and 100 people started showing up at my door because they could now all afford my prices… I would increase my prices to $9.40 so that only 80% could afford the prices even at a level where I am grossing $750, (7.50×100) vs (9.40×80). So I am back to working at only 80% of capacity. At 80% capacity, the customers that I do get will get better service since the place is running under capacity. While this may seem like a flaw in the system, it can actually serve as incentive. In a system that naturally favors less then 100% capacity, there is an competitive incentive for people to work hard to stay in that top 80% (middle class). The only incentive that people would have to not work hard to get into the middle class is if their is a fail-safe underneath them like wealth-fare.
This is a market force that completely escapes those who wish to create some fantasy world where everyone can have everything they want. It is a complete waste of time to try to put economic gimmicks into place to satisfy 100% of the population.
Bank Foreclosures
There has been a lot of discussion of Government interfering with the foreclosure process. As always, in any developed country when government tries to help one group, it necessitates hurting another group. Government interference is a zero sum gain almost all the time. It is my opinion that since government will do harm to some party regardless of what action it takes or does not take… government should interfere as little as possible. At least in that case people can blame each other or themselves. When government interferes, it is entirely governments fault. In the case of government interference, the harm that government will inevitably do to one group or another is funded by taxpayer money which adds to the damage.
I see little benefit coming out of government interference with a private loan contracts between willing parties. There are two major problems politicians face if they interfere with the foreclosure process of banks.
-First, if lenders don’t believe they can collect their collateral on default, they won’t lend any more in the future… That is obvious, no one would.
-Second, if borrowers believe that they don’t risk foreclosure… they will stop making any effort to pay back loans. Families are always forced to prioritize their budget. If they don’t risk foreclosure… paying the bank back goes down on the priority list.
It has long been my opinion that individuals should never, ever borrow from banks for personal items like houses or cars. They would do better to discipline themselves for a period of five to ten years and buy a house they can afford… not a mansion they can not afford. I have witnessed too many people fall into the trap of buying a house far more expensive then they should, just because they were able to secure a loan for such a house. This does nothing but enslave them to a life time of labor. Over a period of 30 years they pay back three times the value of the house… and at the end of that 30 year period the house will be in ruins.
The easily credit has also pushed real estate far beyond its natural value over the last 30 years. A house should not be worth more then the value of the land, material and labor less erosion. The value of a house should go down with its age, not up. The only thing that should appreciate is the land that it sits on. This natural process of house devaluation has been reversed due to easy credit, which allows people to bid up the price of real estate with money they DO NOT HAVE. However, this is a private matter that is being corrected by the recession. The recession is not the the problem, it is the fix.
I see little benefit coming out of government interference with a private loan contracts between willing parties. There are two major problems politicians face if they interfere with the foreclosure process of banks.
-First, if lenders don’t believe they can collect their collateral on default, they won’t lend any more in the future… That is obvious, no one would.
-Second, if borrowers believe that they don’t risk foreclosure… they will stop making any effort to pay back loans. Families are always forced to prioritize their budget. If they don’t risk foreclosure… paying the bank back goes down on the priority list.
It has long been my opinion that individuals should never, ever borrow from banks for personal items like houses or cars. They would do better to discipline themselves for a period of five to ten years and buy a house they can afford… not a mansion they can not afford. I have witnessed too many people fall into the trap of buying a house far more expensive then they should, just because they were able to secure a loan for such a house. This does nothing but enslave them to a life time of labor. Over a period of 30 years they pay back three times the value of the house… and at the end of that 30 year period the house will be in ruins.
The easily credit has also pushed real estate far beyond its natural value over the last 30 years. A house should not be worth more then the value of the land, material and labor less erosion. The value of a house should go down with its age, not up. The only thing that should appreciate is the land that it sits on. This natural process of house devaluation has been reversed due to easy credit, which allows people to bid up the price of real estate with money they DO NOT HAVE. However, this is a private matter that is being corrected by the recession. The recession is not the the problem, it is the fix.
Tax Cut Extension
“I am glad the rich will get their tax cut extension… because I plan on becoming a billionaire, and I don’t want to be taxed unfairly in the future.”
The statement I made above is something that I think about 50% of the population does not grasp. That would be the 50% who favor raising taxes for the top 2%. Unfortunately, not seeing yourself as a potential billionaire means that you will not make efforts to get above your current financial level. It is a matter of striving to better yourself, setting financial goals and planning a way to get there. It has been my observation that average person who favors taxing the rich heavily does not see themselves as ever getting to that level. While the average person who is against taxing the rich heavily, can identify themselves with the rich in one way or another and see themselves as potentially getting there. This is an important difference in mindset. In a free market economy, prosperity is a self-fulfilling prophecy. Do you believe in yourself? Do you believe that your efforts today will lead to your prosperity in the future? Perhaps this makes you question if you are planning hard enough to get rich. Very few will every actually attain billionaire status, but the effort to become one will comfortably get you into the millionaire club.
As for Obama… what he should have done was raise the high-bar from $250,000 to 1 million per year for the highest tier. A lot of households make 250,000 to 500,00 even if they don’t report it. Look at every small retail store in your neighborhood. There is a good chance they are above the 250,000 income level. They have a lot of flexibility in reporting their moderate income, and certainly identify themselves as people who plan to be very rich some day. A lot of homeowners have more then 250,000 in capital gains locked into their homes that they bought 20 years ago, so that higher tax on income over 250,000 does not sit well with them (regardless of homeowner and capital gains tax limitations). Obama does not realize that the goal of the middle class is to become part of the upper class… not stay middle class. Obama is fighting against the middle class in this sense.
Obama would have been more successful if he attempted to change the tax tiers. He should have changed the highest tax tier so that instead of starting at 250,000, it started at 1 million or even 2 million. This might have brought over just enough support to his plan to pass. This should have been done before the 2010 election. After the election it was too late for even this to work. Obama took an “all or nothing” chance… and lost.
The statement I made above is something that I think about 50% of the population does not grasp. That would be the 50% who favor raising taxes for the top 2%. Unfortunately, not seeing yourself as a potential billionaire means that you will not make efforts to get above your current financial level. It is a matter of striving to better yourself, setting financial goals and planning a way to get there. It has been my observation that average person who favors taxing the rich heavily does not see themselves as ever getting to that level. While the average person who is against taxing the rich heavily, can identify themselves with the rich in one way or another and see themselves as potentially getting there. This is an important difference in mindset. In a free market economy, prosperity is a self-fulfilling prophecy. Do you believe in yourself? Do you believe that your efforts today will lead to your prosperity in the future? Perhaps this makes you question if you are planning hard enough to get rich. Very few will every actually attain billionaire status, but the effort to become one will comfortably get you into the millionaire club.
As for Obama… what he should have done was raise the high-bar from $250,000 to 1 million per year for the highest tier. A lot of households make 250,000 to 500,00 even if they don’t report it. Look at every small retail store in your neighborhood. There is a good chance they are above the 250,000 income level. They have a lot of flexibility in reporting their moderate income, and certainly identify themselves as people who plan to be very rich some day. A lot of homeowners have more then 250,000 in capital gains locked into their homes that they bought 20 years ago, so that higher tax on income over 250,000 does not sit well with them (regardless of homeowner and capital gains tax limitations). Obama does not realize that the goal of the middle class is to become part of the upper class… not stay middle class. Obama is fighting against the middle class in this sense.
Obama would have been more successful if he attempted to change the tax tiers. He should have changed the highest tax tier so that instead of starting at 250,000, it started at 1 million or even 2 million. This might have brought over just enough support to his plan to pass. This should have been done before the 2010 election. After the election it was too late for even this to work. Obama took an “all or nothing” chance… and lost.
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