Senate sends LGBT Bill to House to Fail for Political Points in the Next Election

Posted by PITHOCRATES - November 9th, 2013

Week in Review

There are millions of transgender people who are being discriminated against in the workplace just as there are millions of people signing up for Obamacare.  President Obama can say both.  But even he must know neither is true (see Senate passes LGBT anti-discrimination bill by Leigh Ann Caldwell posted 11/8/2013 on CNN).

For the first time, the U.S. Senate approved legislation that would protect gay, lesbian and transgender employees from discrimination in the workplace…

Opposition in the Republican-controlled House is strong, minimizing any chance the measure will become law. House Speaker John Boehner also opposes it.

Still, President Barack Obama urged the House to take the bill up and said he would sign it.

“One party in one house of Congress should not stand in the way of millions of Americans who want to go to work each day and simply be judged by the job they do,” the President said in a statement. “Now is the time to end this kind of discrimination in the workplace, not enable it. I urge the House Republican leadership to bring this bill to the floor for a vote and send it to my desk so I can sign it into law.”

The bill would provide the same protections for LGBT workers as are already guaranteed on the basis of race, gender and religion.

It would not be lawful for employers to discriminate based on a person’s “actual or perceived” sexual orientation or gender identity…

“The Speaker believes this legislation will increase frivolous litigation and cost American jobs, especially small business jobs,” Boehner’s spokesman, Michael Steel, said.

Millions?  That must mean there are more than 2 million transgender people in the United States trying to get a job as this law basically adds “a person’s “actual or perceived” sexual orientation or gender identity” to a long list of federal protections.  According to a study by the Williams Institute only about 0.3% of adults are transgender.  According to the U.S. Census Bureau the U.S. population is about 313.9 million.  If we subtract those under 18 years of age (23.5%) and retirees (13.7%) from the total population that leaves 197.1 million people of working age.  Of this 197.1 million only 591,414 are transgender according to the Williams Institute study.  Which is 0.19% of the total population.  In comparison the latest Employment Situation Summary from the BLS shows the official unemployment rate (U-3) is 7.3%.  While the more accurate unemployment rate that counts all people who can’t find a job is at 13.8%.  But the more accurate picture of the economy is the labor force participation rate.  Which is now at 62.8%.  Meaning that there are 91.5 million people who have left the labor force because they can’t get a job.

There are not millions of transgender people being discriminated against in the workplace.  As there are only about a half million people who call themselves transgender in the nation.  But there are 91.5 million people who can’t find a job.  Perhaps that is the problem Congress should be working on.  Rolling back one of the most business-unfriendly environments ever to exist in the U.S.  To create jobs for the 91.5 million.  As well as the half million.

This legislation is, obviously, a political maneuver.  The Senate passed this bill so it can die in the House.  So they can say, “See?  House Republicans hate LGBT people.”  Which is how the left wins elections.  By making their base hate Republicans.  Which is why President Obama was able to win reelection despite his policies keeping 91.5 million people out of a job.  Despite a part of his base—the young—suffering the highest levels of unemployment.  But they will continue to suffer and vote Democrat.  Because Republicans hate LGBT people.  Even if it’s not true.  As long as there is a perception of it that’s good enough for them.  Even though it would be easier for LBGT people to get a job if there weren’t 91.5 million people on line looking for a job.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , ,

The Opportunity Cost of Debt

Posted by PITHOCRATES - September 16th, 2013

Economics 101

Housing Sales drive the Economy because almost Everything for Sale is for the Household

Once upon a time the rule of thumb was to buy the most expensive house we could possibly afford.  We saved 20% for a down payment on a conventional mortgage.  We lived on a shoestring budget and paid our mortgage no matter what.  Even if we had to live on meatloaf and macaroni and cheese for the next five years.  Or longer.  We did this because we would be paying that mortgage payment for 30 years.  And though tough at first during those 30 years we advanced in our careers.  And made more money along the way.  Making that mortgage payment easier to pay as time went by.

So that was the way it used to be.  And it was that way for a long time.  Until the Federal Reserve started playing with interest rates to stimulate economic activity.  Altering the banking system forever.  Instead of encouraging people to save their money so banks could loan money to homebuyers they printed money.  Flooded the market with it.  Ignited inflation.  And caused housing bubbles.  Then the government took it up a notch.

Housing sales drive the economy.  Almost everything for sale is for the household.  Furniture and appliances.  Beds and ceiling fans.  Tile and paint.  Cleaning supplies and groceries.  Dishes and cutlery.  Pots and pans.  Towels and linen.  Lawnmowers and weed-whackers.  Decks and patio furniture.  When people buy a house they start buying all of these things.  And more.  Creating a lot of economic activity with every house sold.  So the government did everything they could to encourage home ownership.  And few governments did more than the Clinton administration.  By applying pressure on lenders to qualify the unqualified for mortgages.  Which gave us the subprime mortgage crisis.

Lenders used Subprime Lending to Qualify the Unqualified to Comply with the Clinton Administration

People in poor neighbors tended to be poor.  And unable to qualify for a mortgage because they couldn’t afford the house payments.  When these poor people happened to be black the Clinton administration said the banks were racist.  They were redlining.  And advised these lenders that if they don’t start qualifying these people who couldn’t afford a house that the full weight of the government will make things difficult for them to remain in the lending business.  So they complied with the Clinton administration.  Using subprime lending to put people into homes they couldn’t afford.

The main reason why people can’t afford to buy a house is the size of the mortgage payment.  Which can be pretty high if they can’t afford much of a down payment.  So these lenders used special mortgages to bring that monthly payment down.  The adjustable rate mortgage (ARM).  Which had a lower interest rate than conventional mortgages.  Because they could raise it later if interest rates rose.  Zero-down mortgages.  Which eliminated the need for a down payment.  Coupled with an ARM when interest rates were low could put a poor person into a good sized house.  No-documentation loans.  Which removed the trouble of having to document your earnings to prove you will be able to make your house payment.  Making it easier to approve applicants when you don’t have to question what they write on their application.  Interest-only loans where you only had to pay the interest for, say, 5 years.  Greatly reducing the size of the monthly payment.  But after those 5 years you had to pay that loan back in full with a new mortgage for the full value of the house.  Which may be more costly in 5 years.

So these lenders were able to meet the Clinton administration directive.  They were putting people into homes they couldn’t afford.  Just barely.  These people had house payments they could just barely afford.  Thanks to the low interest rate of their ARM.  But then interest rates rose.  Making those mortgage payments unaffordable.  With zero-down they had little to lose by walking away.  And a lot of them did.

The Interest on the Debt is so large we have to Borrow Money to Pay for the Cost of Borrowing Money

Buying a house is a huge investment.  One that we finance.  That is, we borrow money.  Sometimes a lot of it.  Because we don’t want to wait and save money for a down payment.  And because we want so much right now we buy as much as we can with those borrowings.  Doing whatever we can to lower the monthly payment.  With little regard to long-term costs.  For example, assume a fixed 30-year interest rate of 4.5%.  And we finance a $150,000 house with zero down.  Because we have saved nothing.  The monthly payment will be $790.03.  But if we waited until we saved enough for a 10% down payment that monthly payment will only be $684.03.  And if we saved enough for 20% down the monthly payment will only be $608.02.  That’s $182.01 less each month.  The total interest paid over the life of this mortgage for zero down, 10% down and 20% down is $123,610.07, $111,249.06 and $98,888.05, respectively.  Adding that to the price of the house brings the total cost for that house to $273,010.07, $246,249.06 and $218,888.05, respectively.  So if we wait until we save a 20% down payment we will be able to buy a $150,000 house and $54,723.02 of other stuff during those 30 years.  This is the opportunity cost of debt.

We are better off the less we finance.  Because long-term debts are with us for a long time.  And they don’t go away if we lose our job.  Or if interest rates go up.  Like with an ARM.  A large driver of the subprime mortgage crisis.  Let’s see what was happening before the housing bubble burst.  Let’s say we could buy that $150,000 house with a zero down mortgage with an adjustable interest rate of 2%.  Giving us a monthly payment of $554.43.  Very affordable.  Which helped get a lot of people into houses they couldn’t afford.  But then the interest rate went up.  And what did that do to someone who could just barely pay their house payment when it was $554.43?  Well, if it reset to 4% that payment increased to $716.12 ($161.69 more per month).  If it reset to 6% that payment increased to $899.33 ($344.90 more per month).  Bringing the total cost of the house to $323,757.28 ($150,000 principle + 173,757.28 interest).  Which is why a lot of these people walked away from these houses.  There was just no way they could afford them at these higher interest rates.

Interest payments on long-term debt at high interest rates can overwhelm a borrower.  Making the Clinton administration’s Policy Statement on Discrimination in Lending insidious.  It destroyed people’s lives.  Putting them into houses they couldn’t afford with subprime lending.  But if you think that’s bad consider the national debt.  These are long-term obligations just like mortgages.  And currently we owe $16,738,533,025,135.63 (as of 9/13/2013).  At an interest rate of 3.9% the annual interest we must pay on this debt comes to $652,802,787,980.29.  That’s $652.8 billion.  Which is more than we spend on welfare ($430.4 billion).  Almost what we spend on Social Security ($866.3 billion).  And more than half of the federal deficit ($972.9 billion).  This is the opportunity cost of debt.  It limits what we can spend elsewhere.  On welfare.  Social Security.  Etc.  The interest on the debt has grown so large that we even have to borrow money to pay for the cost of borrowing money.  And there is only one way this can end.  Just like the subprime mortgage crisis.  Only worse.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , ,

FT170: “If liberals believed in being bipartisan they wouldn’t harass conservatives with the IRS.” —Old Pithy

Posted by PITHOCRATES - May 17th, 2013

Fundamental Truth

The Right should Rubberstamp Everything the Left wants Just like the Left did for George W. Bush

If you ever have watched the Daily Show with Jon Stewart you’ve probably noticed a recurring theme.  He gets exasperated.  A lot.  When it comes to the lack of bipartisan cooperation on the side of the Republicans.  And by bipartisan he means just giving the Democrats what they want.  Just to give up their core beliefs.  And vote for things that violate everything they stand for.

It’s the conservatives that really annoy him.  And Democrats in general.  Especially Tea Party conservatives.  Who just won’t buckle under.  And give the Democrats what they want.  Like the Republican establishment.  RINOs.  Who like the ruling class in Washington.  And want to be a part of it.  Unlike those Tea Party conservatives.  Who sound like a broken record.  We need limited government.  And lower tax rates.  Not an expanding federal government.  Paid for with higher tax rates.  And their opposition to Obamacare despite it being law really gets stuck in their craw.

President Obama’s reelection was a mandate.  At least that’s what the Democrats thought.  That the people approved of the president.  And everything he did in his first term.  That shellacking the Democrats took in the 2010 midterm elections?  Causing the rise of the Tea Party in the first place?  Because of those backroom deals?  That the Democrats made to pass Obamacare into law?  That was just an anomaly.  It meant nothing.  That was only some tin-hat wearing crazy people.  Tea-baggers, they called them.  No.  Real America reelected President Obama.  Because they wanted him to do more.  So the conservatives should just accept that.  And rubberstamp everything the Democrats want.  Just like they did for George W. Bush.

Based on the Demographic Numbers one Must Question if the Obama Presidency is Legitimate

Oh, wait a minute, they didn’t do that.  They fought him relentlessly.  Especially after the Democrats won big in the 2006 midterm elections.  Taking back both the House.  And the Senate.  For they hated George W. Bush.  And never accepted him as legitimate.  What with the debacle of the 2000 election.  Where to this day they say the Republicans stole that election.  Thanks to the Supreme Court.  Making Al Gore a millionaire in the process.  Peddling his global warming fear.  But poor Al Gore got robbed in 2000.  Because the Republicans cheated.  And suppressed voter turnout.  The only way Republicans can win elections.  Or so say the Democrats.

Of course the numbers don’t agree with that.  The demographics.  Then.  And now.  In 2001 liberals were at 17%.  Moderates at 38%.  And conservatives at 43%.  Today liberals rose to 20%.  Moderates fell to 32%.  And conservatives rose to 46%.  Conservatives are the majority.  Then.  And now.  (See In U.S., Nearly Half Identify as Economically Conservative posted 5/25/2012 on Gallup).  So conservatives can win elections.  Based on these numbers.  And should be able to do so easier than liberals.  So it must be the liberals.  They must be the ones cheating.  And suppressing voter turnout.

So Bush was legitimate.  Based on the numbers.  And it is doubtful the people want the Republicans to rollover.  Or rubberstamp the Democrat agenda.  For they did retain the House in 2012.  As they should have won the Senate.  And the White House.  Based on the horrible economy.  The killing of 4 Americans in Benghazi.  And Obamacare.  That the majority just doesn’t want.  Which begs the question.  Is the Obama presidency legitimate?

This Bipartisan Spirit of the Left is Fear and Intimidation of their Political Opponents

So how did President Obama win reelection?  And how did the Democrats hold onto the Senate?  Well, there was the mainstream media.  Which is liberal.  Following in the tradition of their godfather.  Walter Cronkite.  Only out of the closet.  For there are no closet liberals these days.  There’s Hollywood.  Television.  The music industry.  The public schools.  And our universities.  All liberal.  Just a small sliver of the population.  But a highly leveraged sliver.  As they have greatly amplified voices.  Which gives them legitimacy.  As television and movies sway a lot of people.  Especially the young.  Who our teachers program in our public schools.  And our professors brainwash in our universities.  Despite all of this, though, we’re still a conservative people.  While liberals still hold at 20%.  So there must be something else.

Which brings us back to cheating.  And voter suppression.  Liberals hate the Tea Party.  And conservatives.  Blaming them for their loss of the House.  In that 2010 shellacking.  Ever since then liberals have slandered the Tea Party.  Called them racists.  And every other dirty name in the book.  Including tea baggers.  They hated these people.  And were not going to allow a repeat of 2010.  With President Obama in the White House it put the liberals in charge of the executive branch of government.  Giving them power.  Which they used.  By having the most feared agency of the federal government harass the conservatives.  Especially the Tea Party.  As groups applied for tax-exempt status the IRS harassed them.  Asking them for a lot information.  Personal information.  That they could use against them.  Such as releasing the names of their major donors to liberal websites.  Who destroyed and intimidated these donors as best as they could.  Some of these people faced costly audits by the IRS.  Even suffered through costly audits from the Labor Department.  The message was clear.  If you tried to exercise your First Amendment right against the Obama administration beware.  For you will feel the wrath of the federal government.  Muzzling the opposition.  Making it easier to win.  Despite the horrible economy.  Benghazi.  And Obamacare.

This is the bipartisan spirit of the left.  Fear and intimidation.  And when that doesn’t work they speak in an exasperated voice.  Of Republicans.  And their refusal to work with the Democrats.  In a bipartisan manner.  Expressing their frustration.  That 46% of the population won’t just give in to 20% of the population.  Giving up their core beliefs.  And to just vote for things that violate everything they stand for.  Something the Democrats never did for George W. Bush.  But it is a moral outrage when the Republicans won’t do it for President Obama.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , ,

Housing Boom, Bubble and Bust

Posted by PITHOCRATES - April 15th, 2013

Economics 101

Building and Furnishing Houses creates Great Economic Activity

Central to any booming economy are healthy home sales.  For home sales unleash great economic activity.  From the first surveys of a new subdivision.  To the new sewers and water systems.  Gas and telephone.  Cable television and broadband Internet.  Concrete for basements, driveways and sidewalks.  Structural steel (that beam in the basement and steel poles holding up the house).  Rough carpentry.  Electrical work and plumbing.  Drywall, windows and roofing.  Painting, flooring, doors and hardware.  Heating and air conditioning.  Lighting and plumbing fixtures.  Brick, siding and landscaping.  Etc.

All of this takes manufacturing to make these construction products.  All these manufacturers need raw materials.  And raw material extraction needs heavy equipment and energy.  At all of these stages of production are jobs.  Extracting raw materials.  Processing raw materials.  Manufacturing products out of these raw materials.  Building this production equipment.  Interconnecting these stages of production is every form of transportation.  Rail, Great Lake freighter, river barge and truck.  Requiring even more jobs to build locomotives, rolling stock, ships and trucks.  And jobs to operate and maintain them.  And build their infrastructure.  Filling all of these jobs are people.  Earning a paycheck that will let them buy a house one day.

Then even more economic activity follows.  As people buy these homes and furnish them.  Washers and dryers.  Refrigerators, stoves, microwaves, food processors and coffee makers.  Furniture and beds.  Light fixtures and ceiling fans.  Rugs, carpeting and vacuum cleaners.  Telephones, televisions, music systems, modems and computers.  Curtains, drapes, blinds and shades.  Shower curtains, bath mats, towels and clothes hampers.  Mops, buckets, cleaning supplies and waste baskets.  Lawnmowers, fertilizers, hoses and sprinklers.  Snow shovels and snow blowers.  Cribs, highchairs, diapers and baby food.  Etc.  All of these require manufacturers.  And all of these manufacturers require raw materials.  As well as transportation to move material and product between the stages of production.  And to our wholesalers and retailers.  More jobs.  More people earning a paycheck.  Who will one day buy their own home.  And create even more economic activity.

Bill Clinton pressured Lenders to Lower their Requirements and Subprime Lending took Off

This is why governments love housing.  And try to do everything within their power to increase home ownership.  Which is why they changed the path to home ownership.  After World War II when the building of subdivisions took off there was the 3-6-3 savings and loan.  Where savings and loan paid 3% interest on savings accounts.  Loaned money to home buyers at 6%.  And were on the golf course by 3 PM.  And the mortgage was the 30-year conventional mortgage with a 20% down payment.

The conventional mortgage was the mortgage of our parents.  Who had no problem putting off their wants to save money for that 20% down payment.  They prioritized.  And planned for the future.  But the conventional mortgage has an obvious drawback.  It limits home ownership to those who can save up a 20% down payment.  Pushing home ownership further out for some.  Or just taking that option away from a large percentage of the population.  So the government stepped in.  To help those who couldn’t save 20% of the house’s price.

Mortgage Qualification Decreasing Down Payment

As we lowered the down payment amount it allowed lower-income people the opportunity of home ownership.  But it didn’t get them a lot of house.  That is, those who could afford a 20% down payment could buy more house for the same monthly payment than those who couldn’t afford it.  And a house in a better neighborhood.  Which some said was unfair.  Some in government even called it discriminatory.  As Bill Clinton did.  Who pressured lenders to lower their lending requirements to qualify the unqualified.  His Policy Statement on Discrimination in Lending helped to fix that alleged problem.  And kicked off subprime lending in earnest.  Leading to the subprime mortgage crisis.  And the Great Recession.

Conventional Wisdom was to Pay the Most you could Possibly Afford when Buying a House

But lowering the down payment wasn’t enough.  Even eliminating it all together.  The people needed something else to help them into home ownership. And to generate all of that economic activity.  And this was something the government could fix, too.  By printing a lot of money.  So banks had a lot of it to lend.  Thus keeping interest rates artificially low.  And we can see the effect this had on home ownership combined with a zero down payment.  It allowed people to buy more house for the same given monthly payment.  Even more than those buying with the 3-6-3 conventional mortgage.

Mortgage Qualification Decreasing Mortgage Rate

Falling interest rates bring in a lot more people into the housing market.  Which is good for sellers.  And good for the economy.  A lot more people than just those who could afford a 20% down payment can now buy your house.  As people bid against each other to buy your house they bid up your price.  Raising home prices everywhere.  Increasing the demand for new housing.  Which builders responded to.  Creating a housing boom.  As builders flood the market with more houses.  At higher prices.  That new homeowners move into.  And max out their credit cards to furnish.  Creating a lot of debt people are servicing at these artificially low interest rates.  But then the economy begins to overheat.  And other prices begin to rise.  Leaving people with less disposable income.  The housing boom turns into a housing bubble.  House prices are overvalued.  Those artificially low interest rates created a lot of artificial demand.  Bringing people into the market who weren’t planning on buying a house.  But decided to buy only to take advantage of those low interest rates.

Conventional wisdom was to pay the most you could possibly afford when buying a house.  For all houses gained value.  You may struggle in the beginning and have to make some sacrifices.  Say cut out steak night each week.  But in time you will earn more money.  That house payment will become more affordable.  And your house will become more valuable.  Which will let you sell it for more at a later date letting you buy an even bigger house in an even nicer neighborhood.  But when it’s cheap interest rates driving all of this activity there is another problem.  For printing money creates inflation.  And inflation raises prices.  Gasoline is more expensive.  Groceries are more expensive.  As prices rise households have less disposable income.  And have to cut out things like vacations.  And any discretionary spending on things they like but don’t need.  Which destroys a lot of economic activity.  The very thing the government was trying to create more of by printing money.  So there is a limit to the good economic times you create by printing money.  And when the bad consequences of printing money start filtering through the rest of economy the government has no choice but to contract the money supply to limit the economic damage.  And steer the economy into what they call a soft landing.  Which means a recession that isn’t that painful or long.

The Price of Artificially Low Interest Rates is Inflationary Booms, Bubbles and Great Recessions

As interest rates rise home buying falls.  Leaving a lot of newly built homes unsold on the market.  And that housing bubble bursts.  Causing home values to fall back down from the stratosphere.  Leaving a lot of people owing more on their mortgage than their houses are now worth.  What we call being ‘underwater’.  And as interest rates rise so do the APRs on their credit cards.  As well as their monthly payments.  And those people who paid the most they could possible afford for a house with an adjustable rate mortgage saw their mortgage interest rates rise.  As well as their monthly payment.  By a lot.  So much that these people could no longer afford to pay their mortgage payment anymore.  As a half-point increase could raise a mortgage payment by about $50.  A full-point could raise it close to $100.  And so on.

Increasing Monthly Payment dur to Increasing Mortgage Rate

With the fall in economic activity unemployment rises.  So a lot of people who have crushing credit card debt and a house payment they can no longer afford lost their job as well.  Causing a rash of mortgage foreclosures.  And the subprime mortgage crisis.  As well as a great many personal bankruptcies.  Causing the banking system to struggle under the weight of all this bad debt.  Add all of this together and you get the Great Recession.

This is the price of artificially low interest rates.  You get inflationary booms.  And bubbles.  That burst into recessions.  That are often deep and long.  Something that didn’t happen during the days of 3-6-3 mortgage lending.  And the primary reason for that was that the U.S. was still on a quasi gold standard.  Which prevented the government from printing money at will.  The inflationary booms and busts that come with printing money.  And Great Recessions.

 www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Tyranny of the One, Tyranny of the Few, Tyranny of the Many, Drone Strikes and the Rand Paul Filibuster

Posted by PITHOCRATES - March 7th, 2013

Politics 101

Trusting that only Good People will Serve in Government is Sheer Folly

History has been a struggle for power.  Those who wanted it fought those who had it.  And those who had it tried to eliminate anyone who didn’t have it but wanted it.  So people have killed each other since the dawn of time for power.  Making for a rather Hobbesian existence.  “Solitary, poor, nasty, brutish, and short.”  A quote from Thomas Hobbes’ Leviathan.  Where he posits that only an all powerful dictator can provide a just society.  Otherwise there would be great unrest and civil wars.  Such as was going on in England at the time he wrote Leviathan.

England, though, would choose a non-Hobbesian path.  Choosing to restrict the powers of their monarch with a represented body of the people.  Parliament.  Evolving into what John Adams once called the best system of government.  A constitutional monarchy where power was balanced between the few, the many and the one.  The few, the rich, paid the taxes that the one, the king, spent.  The common people were the many.  Who had a say in what the rich and the king could do.  So everyone had a say.  And no one group, the majority, the minority or the one, could do whatever they wanted.  Which is why John Adams once thought it was the best system of government.

John Adams wanted a strong executive in the new United States.  Not a hereditary king.  But something close to the king of England.  Who would advance the new nation to greatness.  And with disinterested men of the Enlightenment serving in the new government Adams didn’t worry about any abuses of power.  For this wasn’t Great Britain.  But not everyone had Adams’ confidence in the nobility of men.  Worrying that given the chance they would try to form a new nobility.  As James Madison said in Federalist 51, “If men were angels, no government would be necessary.”  And that was the problem.  Men are not angels.  And trusting that only good men would serve in government was sheer folly.  So we should form governments under the assumption that bad people would reach positions of power.  And thus limit the power of government.

Today both Houses of Congress win Elections by Appealing to Populism

So the Americans settled on a similar system.  They separated powers between a legislature, an executive and a judiciary.  Further, they separated the legislature into two bodies.  The House of Representatives.  And the Senate.  Representation in the House being apportioned by population.  The more populous a state the greater that state’s representation.  And the greater influence they had in writing law.  They chose their representatives by popular vote.  Making it truly the house of the people.

The states, though, feared a tyranny of the majority.  Where the largest states could have their way.  And force the smaller states to accept their rule.  For in a true democracy the majority could vote anything into law.  Such as the subjugation and oppression of a minority group.  Like the Nazi Party passed legislation subjugating and oppressing the Jews.  So minorities need protection from majorities.  In the United States the Senate provided a check on majority rule.  For each state had equal representation.  Each state had two senators.  And to further protect the interests of the states (and their sovereignty) the states chose their senators.  A constitutional amendment changed this later.  Which weakened the sovereignty of the states.  By making the Senate a true democracy.  Where the people could vote for the senators that promised them the most from the treasury.

Today both houses of Congress win elections by appealing to populism.  Representatives and Senators are, in general, no longer ‘disinterested men of the Enlightenment’ but pure politicians trying to buy votes.  Which is what James Madison worried about.  The people in government are not angels.  And they’re becoming less like angels as time goes on.  Proving the need of a separation of powers.  And a bicameral legislature.  To keep any one group, or person, from amassing too much power.  So there can be no tyranny of the many.  No tyranny of the few.  And no tyranny of the one.

The Obama Administration can’t use the Military to Kill Suspect Americans on U.S. Soil

Senator Rand Paul just recently completed a 13 hour filibuster on the floor of the Senate.  To delay the vote to confirm John Brennan as CIA director.  Not because he had a problem with Brennan.  But because he had a problem with the Obama administration.  Specifically with Attorney General Eric Holder.  Senator Paul had asked Holder if the Obama administration could use a drone to kill an American on American soil without due process even if that person posed no imminent threat.  The attorney general gave his answer in a letter.  In which he didn’t say ‘no’.  Which bothered Senator Paul.  Because the Obama administration had killed an American or two on foreign soil without due process.  Including the son of a guy that posed an imminent threat.  While the son did not.

U.S. drone strikes have killed many terrorists overseas.  And they’ve killed a lot of innocent bystanders who had the misfortune to be in the same vicinity.  Such as being in the same coffee shop.  Basically a policy of ‘kill them all and let God sort them out’.  But you don’t hear a lot about this collateral damage.  As the Obama administration simply counts all the dead from a drone strike as being a terrorist that posed an imminent threat to U.S. security.  And the innocent son that was killed in a drone strike?  Well, he should have chosen a better father.  Or so said a member of the Obama administration.  Which is what so bothered Senator Paul.  For in the War on Terror the battlefield is worldwide.  Including the United States.  Which means given the right set of circumstances the Attorney General of the United States stated the government had the legal right to use a drone to kill an American on U.S. soil without due process.

In the United States there is a thing called the Constitution.  Which guarantees American citizens due process.  If you’re an American fighting Americans on foreign soil you have no Constitutional protections.  And can be killed by a drone strike without due process.  But if you’re on U.S. soil you have Constitutional protections.  Which means the government can’t use the military to kill suspect Americans.  No.  On U.S. soil we have police forces.  And courts.  Miranda rights.  On U.S. soil you have to convince a judge to issue an arrest warrant.  Then you have to collect evidence to present in a trial.  And then you have to convince a jury of a person’s guilt.  Then and only then can you take away a person’s freedom.  Or life.  Thus protecting all Americans from the tyranny of the one.  The tyranny of the few.  And the tyranny of the many.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Monetary Policy

Posted by PITHOCRATES - January 30th, 2012

Economics 101

Monetary Policy created the Housing Bubble and the Subprime Mortgage Crisis

Those suffering in the fallout of the Subprime Mortgage Crisis can thank monetary policy.  That tool used by the federal government that kept interest rates so low for so long.  Following the old Milton Friedman idea of a permanent level of inflation (but small and manageable) to stimulate constant economic growth.  Why?  Because when people are buying houses the economy is booming.  Because it takes a lot of economic activity to build them.  And even more to furnish them.  Which means jobs.  Lots and lots of jobs.

But there is a danger in making money too cheap to borrow.  A lot of people will borrow that cheap money.  Creating an artificial demand for ever more housing.  And not for your parent’s house.  But bigger and bigger houses.  The McMansions.  Houses 2-3 times the size of your parent’s house.  This demand ran up the price of these houses.  Which didn’t deter buyers.  Because mortgage rates were so low.  People who weren’t even considering buying a new house, let alone a McMansion, jumped in, too.  When the jumping was good.  To take advantage of those low mortgage rates.  There was so much house buying that builders got into it, too.  House flippers.  Who took advantage of those cheap ‘no questions asked’ (no documentation) mortgages (i.e., subprime) and bought houses.  Fixed them up.  And put them back on the market.

Good times indeed.  But they couldn’t last.  Because those houses weren’t the only thing getting expensive.  Price inflation was creeping into the other things we bought.  And all those houses at such inflated prices were creating a dangerous housing bubble.  So the Federal Reserve, America’s central bank, tapped the brakes.  To cool the economy down.  To reduce the growing inflation.  By raising interest rates.  Making mortgages not cheap anymore.  So people stopped buying houses.  Leaving a glut of unsold houses on the market.  Bursting that housing bubble.  And it got worse.  The higher interest rate increased the monthly payment on adjustable rate mortgages.  A large amount of all those subprime mortgages.  Causing many people to default on these mortgages.  Which caused the Subprime Mortgage Crisis.  And the Great Recession.

The Federal Reserve System conducts Monetary Policy by Changing both the Money Supply and Interest Rates

Money is a commodity.  And subject to the laws of supply and demand.  When money is in high demand (during times of inflation) the ‘price’ of money goes up.  When money is in low demand (during times of recession) the ‘price’ of money goes down.  The ‘price’ of money is interest.  The cost of borrowing money.  The higher the demand for loans the higher the interest rate.  The less the demand for loans the lower the interest rate.

So there is a relationship between money and interest rates.  Adjusting one can affect the other.  If the money supply is increased the interest rates will decrease.  Because there is more money to loan to the same amount of borrowers.  When the money supply is decreased interest rates will increase.  Because there will be less money to loan to the same amount of borrowers.  And it works the other way.  If the interest rates are lowered people respond by borrowing more money.  Increasing the amount of money in the economy buying things.  If interest rates are raised people respond by borrowing less money.   Reducing the amount of money in the economy buying things.  We call these changes in the money supply and interest rates monetary policy.  Made by the monetary authority.  In most cases the central bank of a nation.  In the United States that central bank is the Federal Reserve System (the Fed).

The Fed changes the amount of money in the economy and the interest rates to minimize the length of recessions, combat inflation and to reduce unemployment.  At least in theory.  And they have a variety of tools at their disposal.  They can change the amount of money in the economy through open market operations.  Basically buying (increasing the money supply) or selling (decreasing the money supply) treasury bills, government bonds, company bonds, foreign currencies, etc., on the open market.  They can also buy and sell these financial instruments to change interest rates.  Such as the Federal funds rate.  The interest rate banks pay when borrowing from each other.  Moving money between their accounts at the central bank.  Or the Fed can change the discount rate.  The rate banks pay to borrow from the central bank itself.  Often called the lender of last resort.  Or they can change the reserve requirement in fractional reserve banking.  Lowering it allows banks to loan more of their deposits.  Raising it requires banks to hold more of their deposits in reserve.  Not used much these days.  Open market operations being the monetary tool of choice.

There is more to Economic Activity than Monetary Policy

Fractional reserve banking multiplies these transactions.  Where banks create money out of thin air.  When the Fed increases the money supply a little this creates a lot of lendable funds.  As buyers borrow money from some banks and pay sellers.  Then sellers deposit that money in other banks.  And these banks hold a little of these deposits in reserve.  And loan the rest.  Borrowers create depositors as buyers meet sellers.  And complete economic transactions.  When the Fed reduces the money supply a little this process works in reverse.  Fractional reserve banking pulls a lot of money out of the economy.  Some treat these economic transactions, and the way to increase or decrease them, as simple math.  Always obeying their mathematical formulas.  We call these people Keynesian economists.  Named for the economist John Maynard Keynes.

Big interventionist governments embrace monetary policy.  Because they think they can easily manipulate the economy as they wish.  So they can tax and spend (Keynesian fiscal policy).  And when economic activity declines they can simply use monetary policy to restore it.  But there is one problem.  It doesn’t work.  If it did there would not have been a Subprime Mortgage Crisis.  Or any of the recessions we’ve had since the advent of central banking.  Including the Great Depression.  As well as the Great Recession.

There is more to economic activity than monetary policy.  Such as punishing fiscal policy (high taxes and stifling regulations).  Technological innovation.  Contracts.  Property rights.  Etc.  Any one of these can influence risk takers.  Business owners.  Entrepreneurs.  The job creators.  The people who create economic activity.  And no amount of monetary policy will change this.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The Great Housing Bubble and The Subprime Mortgage Crisis

Posted by PITHOCRATES - December 27th, 2011

History 101

Putting People into Houses trumped Sound Monetary Policy, a Sound Currency and good Lending Practices

Housing has for a long time been the key to economic prosperity.  Because to build a house you need a lot of economic activity.  Industries produce lumber, concrete, sheetrock, brick, shingles, door frames, doors, windows, glass, flooring, plumbing pipes, plumbing fixtures, sump pumps, furnaces, heating ducts, insulation, air conditioners, electrical wiring and fixtures, carpeting, tile, linoleum, etc.  The bigger the house the more of this stuff there is.  Once built people have to buy them (stimulating the mortgage banking industry) and then furnish them.  This triggers a monsoon of economic activity.  Drapes, shades, blinds, paint, washers, dryers, stoves, refrigerators, freezers, microwave ovens, toasters, blenders, food processers, plates, dishes, knives, silverware, ceiling fans, televisions, home theaters, sound systems, computers, cable and internet services, utilities, shelving, furniture, beds, cribs, art, etc.  And, of course, the exterior of the house creates further economic activity.

This is why one of the most important economic indicators is new housing starts.  For each new house we build we create a whirlwind of economic activity.  So much that it boggles the mind trying to think about it.  That’s why governments do whatever they can to stimulate this particular economic activity.  They encourage borrowing by allowing us to deduct the interest we pay on our mortgages.  They use monetary policy to keep interest rates as low as possible.  They’ve created federal programs to help veterans.  To help low income people.  And to remove risk from lenders to encourage more risky lending (as in Fannie Mae and Freddie Mac).  They’ve even used the power of government to force mortgage lenders to qualify the unqualified (Policy Statement on Discrimination in Lending).

You see, putting people into houses trumped everything else.  Sound monetary policy.  A sound currency.  Good lending practices.  Everything.  Because that was the key to a healthy economy.  A happy constituent.  And healthy tax revenue.  Not to mention you can score a lot of points with the poor and minorities by helping them into houses they can’t afford.  So this coordinated effort to put people into houses did two things.  Made money cheap and easy to borrow.  And created a boom in new housing starts.  Which resulted in a third thing.  A housing bubble.

Subprime Mortgages were for those who didn’t have Good Credit or Stable Employment with Reliable Income

Builders couldn’t build enough houses.  People were buying them faster than they built them.  And the houses they bought were getting bigger and bigger.  As they qualified for ever larger mortgages.  Poor people and people with bad credit could walk into a bank and get approved without documenting income.  House flippers could walk in day after day and get loans to buy houses.  Fix them up.  And put them back on the market.  Without using any of their own money. The market was soon flooded with new McMansions.  And refurbished smaller homes that people were moving out of.  Demand for homes was high.  And interest rates were low.  So the supply of homes swelled.  As did home prices.

Interest rates were low.  But they didn’t stay low.  All this coordinated effort to put as many people into homes as possible created a lot of artificial demand.  Heating up the economy.  Increasing prices higher than they had been.  Leading to inflationary worries.  So the Federal Reserve began to raise interest rates.  To temper that inflation.  Which didn’t sit well with those low income house owners.  Who got into their homes with the help of the Policy Statement on Discrimination in Lending.  Which forced lenders to get creative in qualifying the unqualified.  To avoid undo federal attention.  And legal actions against them.  So a lot of poor people had subprime mortgages.  As did all of those house flippers.  People who used little of their own money.  Who put little down.  And had little to lose.

What is a subprime mortgage?  In a word, risky.  It isn’t a 30-year fixed-rate mortgage at a good interest rate.  No, for those you need a good credit score and years of stable employment with reliable income.  And enough money saved up to put close to 20% down.  Subprime mortgages were for those who didn’t have a good credit score.  Years of stable employment with reliable income.  Or any savings.  These people didn’t get the ‘prime’ mortgages.  They got the expensive ones.  The ones with the higher interest rates.  And the higher monthly payments.  Why?  Because risk determined the interest rate.  And the higher the risk the higher the interest rate.

In their Effort to sustain Economic Activity the Government caused the Worst Recession since the Great Depression

But this posed a problem.  Because of the Policy Statement on Discrimination in Lending.  Making loans available to the unqualified was no good if the unqualified couldn’t afford them.  Enter the adjustable rate mortgage (ARM).  These mortgages had lower interest rates.  And lower monthly payments.  How you ask?  By making them adjustable.  A fixed-rate mortgage has to account for inflation.  And adjustable-rate mortgage doesn’t.  Because if there is inflation and the interest rates go up the ARM resets to a higher value.  Which is what happened right about the time housing prices peaked.

When the ARMs reset a lot of people couldn’t make their monthly payments anymore.  Having put little down and having made few monthly payments, these homeowners had little to lose by walking away from their homes.  And a lot of them did.  Including those house flippers.  And that was just the beginning.  With higher interest rates the new home market contracted.  Those artificially high house prices began to fall.  And when the ARMs reset they caused an avalanche of defaults and foreclosures.  The market was correcting.  There were far more houses for sale than there were buyers looking to buy.  Home values began to fall to reflect this real demand.  People who bought the biggest house they could afford because they thought real estate prices always went up soon discovered that wasn’t true.  People were making monthly payments on a mortgage that was greater than the value of their house.  Some walked away.  Some got out with short sales.  Where the lender agreed to eat the loss equity.

The housing market was imploding.  Thanks to a great real estate bubble created by the government.  In their quest to put as many people into houses as possible.  By making mortgages cheap and easy to get.  Relaxing lending standards.  And encouraging risky lending.  None of which would have happened had they left the housing market to market forces.  Where the market sets interest rates.  And housing prices.  The irony of the subprime mortgage crisis is that in their effort to sustain economic activity the government caused the worst recession since the Great Depression.  The Great Recession.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

2010 Midterm Election: The Good, the Bad and the Ugly

Posted by PITHOCRATES - November 3rd, 2010

Big Cities, Big Union and Big Government

If you look at a map of the House election results (provided by The Washington Post), you can see the two Americas.  What you see is a red map with small dabs of blue.  And where are those blue areas?  The Big Cities, the big colleges, the big unions and the big urban concentrations of poor and minorities.  And, of course, the liberal elite in and around the Big Cities.  In other words, where you find Big Union (manufacturing, trade unions, school teachers and government employees) and Big Government.  And it’s the dynamic between Big Union and Big Government that empower the liberal elite.   Big Union provides campaign money and foot soldiers for Big Government.  And Big Government rewards Big Union by favoring their small minority over the majority of Americans.  It’s a throwback to before our Founding when kings and nobles ruled nations.  Political power is devolving into fewer and fewer hands. Into those little dabs of blue.

To get a perspective of how bad and how oppressive this ruling minority elite has gotten, consider two races.  Two people nationally despised won their reelections.  Barney Frank, who is largely responsible for giving us the subprime mortgage crisis, won in liberal Massachusetts.  And Nancy Pelosi, who forced her liberal agenda on the American people against their wishes, won by a whopping 80% in San Francisco.  This is what the Founding Fathers meant when they spoke of the tyranny of the minority.  These two have caused great harm to the American people.  Yet they represent such a sliver of minority thought in this nation.  They could not win a national vote.  Yet they can destroy a nation by winning their local vote.

But it’s not all bad.  If you look at the map, you see a lot of red in once dominate blue areas.  New England is not completely blue anymore.  New York State isn’t as blue as New York City.  Pennsylvania, Ohio, Indiana, Illinois and Michigan are red outside of the Big Cities.  Chicago, in fact, is a small pocket of blue adrift in a sea of red.  And in Washington, Oregon and California, if you move in from the Big Money coast, you see mostly red.  More importantly, if you click on the governors tab in the map, you see change, too.  New York and California are blue, yes, but there’s more red than blue overall on that map.  Which gives one hope that the republic the Founding Fathers gave us is not yet dead.  It will be hard to gerrymander those congressional districts around the Big Cities to give such little, elitist, local voices a large national voice anymore.

It’s the Economy, Stupid.  Was, and still is.

So, outside of the blue Big Cities, what do we know?  Well, the exit polling told us what we already knew.  It’s the economy, stupid.  We’ve lost too many jobs.  And that’s what we want.  Jobs (see Exit poll: Economy the big dog for worried voters by Connie Cass, Associated Press, posted on Yahoo!

About a third of voters said their household suffered a job loss in the past two years.

And as we lost our jobs, we lost our homes (see Homeownership at lowest level in a decade by Alan Zibel, AP Real Estate Writer, posted on Yahoo! News). 

The nation’s homeownership rate is at the lowest level in more than a decade, hampered by a rise in foreclosures and weak demand for housing.

And while we lose our jobs and our homes, what is the president doing?  Going on vacation to an exclusive 5-star resort.  And it’s going to cost the American taxpayer a pretty penny (see US to spend $200 mn a day on Obama’s Mumbai visit posted by Press Trust of India. 

The US would be spending a whopping $200 million (Rs. 900 crore approx) per day on President Barack Obama’s visit to the city.

Does the royal family feel our pain?

Not only do they govern against our will, but they flaunt it in our faces.  We struggle because of the likes of Barack Obama, Barney Frank and Nancy Pelosi.  We lose our jobs and our homes (which is ironic considering we’re in this mess to begin with because of Washington’s policy to provide affordable housing to those who could not afford to buy a house).  And what does the ‘royal’ family do?  Go on vacation that will cost the taxpayers millions of dollars per day.  I guess they can’t feel our pain.  Or that they just don’t care.  So think back to last summer when you spent your family vacation in your backyard because money was tight.  And that team Obama will probably raise your taxes come January 1 to be ‘responsible’ to pay for their irresponsible spending.  Take solace in the fact that at least he could live large on your dime.  Even if you had to spend summer ‘staycation’ in your backyard.

As we proceed from the 2010 midterm elections, do not forget the dynamic between Big Government and Big Union.  It won’t be easy, but they’ll continue to try to help fund those under-funded union pension plans.  And they will point to the Republicans as obstructionists.  That they need to compromise.  Put partisanship behind us.  Especially now.  Since they lost the House of Representatives, the Left can’t be partisan anymore.  Like they have been the last two years.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Repeal Obamacare – Cut the Deficit, Pay for the Bush Tax Cuts, Stimulate the Economy

Posted by PITHOCRATES - November 1st, 2010

Obamacare – Bold and Audacious, but Against the Will of the American People

Most Democrats have accepted that they will lose the House this Tuesday.  And that they have lost touch with America.  Some are scratching their heads about when this happened.  Others are fairly sure.  They point to when they governed against the will of the American people (see Grim Dems await huge House losses by Alex Isenstadt appearing 10/31/2010 on www.politico.com).

There is ongoing debate within Democratic circles about when, exactly, the party lost its handle on the electoral environment. Some consultants say they realized they lost the House in early October, when it finally became apparent that incumbents couldn’t move their poll numbers.

But others say the electoral map hardened this spring, after the House passed a health care bill that remains deeply unpopular among voters. Democratic campaign officials say it is no accident that there are few Democrats in moderate-to-conservative districts who have promoted their support for the health care measure on the campaign trail, and most don’t even acknowledge it.

Yes, Obamacare.  That was just a little too much like the bridge at Arnhem.  That was the bridge made famous in the World War II movie A Bridge too Far.  It was a bold and audacious plan by Bernard Montgomery.  As it turned out, too bold and too audacious.  The British 1st Airborne Division almost fought to the last man.  It suffered some 75% attrition.  The 1st Airborne Division was no longer a factor in World War II after Arnhem.  Like Montgomery at Arnhem, the Democrats have reached too far with the bold and audacious Obamacare.  We know it.  The Republicans know it.  Even those Democrats who voted for it know it; Obamacare is conspicuous by its absence in their campaigns this election season.   The only question now is how many Democrats won’t be going back to Washington after the elections.

Obamacare – A Big Lurch to the Left, Bankrupting our Children

Obama is not on the ballot this year, but people will be voting against him all the same.  He lied.  He campaigned as a centrist.  And then governed as the most liberal president ever.  Government spending exploded.  Stimulus.  Bailouts.  None of which moved the unemployment numbers.  They just made the economic future bleaker.  Then came Obamacare.  The bill too far.  Which was seismic (see Republicans Predict Obama Rebuff in Election; Democrats Foresee Surprise by Heidi Przybyla posted 10/31/2010 on www.bloomberg.com).

Barbour, governor of Mississippi, said the election is a referendum on Obama’s health care and economic policies that represent the “biggest lurch to the left in American political history.”

With control of the White House, the Senate and the House of Representatives, the Democrats spent like there was no tomorrow.  And for some of them, there won’t be.  Deficit spending is projected at approximately 2,000% greater than Ronald Reagan’s deficit spending.  And Reagan was bankrupting our children.  Apparently, Democrat math is different than Republican math.

Repeal Obamacare, Make the Bush Tax Cuts Permanent AND Cut the Deficit – Yes We Can

With the loss of the House imminent, the Democrats are wagging their collective finger at the Republicans.

Kaine [Democratic National Committee Chairman] said Democratic losses would force House Republicans to vote for unpopular spending cuts and tax increases in order to uphold a pledge to voters to trim the budget deficit by $100 billion next year.

“The Republicans will be forced to govern,” said Kaine. Republicans will face a difficult choice on whether to keep former President George W. Bush’s tax cuts for all Americans or to end them for those earning $250,000 a year or more, as Obama has proposed, Kaine said.

All right, let’s say the Obamacare portion of Obama’s projected annual $4.125 trillion deficit is $1 trillion (close to what CBO scored it to be).  Keeping the Bush tax cuts (according to Obama) would cost about $70 billion per year (see Barack Obama Outspends George W. Bush and Ronald Reagan Combined from this same website).  A pledge to cut the deficit by $100 billion?  The math seems pretty easy to me.  Repeal Obamacare.  Make the Bush tax cuts permanent.  And cut the deficit by NOT spending the other $930 billion or so of Obamacare.

Yes We Can; No You Can’t – We Hope Come Tuesday

Deficit reduction.  Tax cuts to stimulate the economy.   And the repeal of a very unpopular health care bill.  Where’s the downside?  Unless you’re a far-left liberal (that small 20% of the population), there is none.  Which is why the Democrats are so grim.  They gave that 20% what they wanted (well, sorta – they wanted a whole lot more).  But when it comes to votes, 20% just isn’t enough to win elections.

www.PITHOCRATES.com

Share

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , ,