Ball of Confusion

17 03 2014

Washington, D.C.

Computer World headline and sub-headline:

Gates sees software replacing people; Greenspan calls for more H-1Bs
Both agree that U.S. secondary education system needs much improvement

Translation: People will be less and less necessary over time, so the solution is to import more people. And also…fix the schools.

UPDATE 3/18

As you can see, Sailer took this story up after a certain snarky birdie whispered in his ear.  After reading this article again, this part suddenly jumped out at me:

“We cannot manage our very complex, highly sophisticated capital structure with what’s coming out of our high schools,” said Greenspan, former chairman of the Federal Reserve.

Well pardon me, Al, but when did we ever expect the typical high school graduate to manage our complex sophisticated capital markets?  Hint:  The answer is never.  Not even in the days when a high school diploma actually meant something.

I guess Bill & Al think that the junior and senior years of high school should cram in a combination of B-school, grad school in economics and a near John Nash level math curriculum.  If that’s what they want, fine.  But realize it’ll have a disparate impact on NAMs, and just about everyone else for that matter.





Schaeffer’s Number

1 02 2014

Amurrika

I’m going to re-post something I wrote on AR earlier today.  Something which has been bothering me about Schaeffer’s Number and the whole concept, but I haven’t been able to get off the tip of my tongue until today.

***

$3 trillion for health care expenses divided by 250 billion person-hours worked, both in a year, comes to $12 an hour.

$1 trillion for all K-12 public education, and that’s another $4 an hour.

The problem with Schaeffer’s Number and the economic and policy implications that people draw for it is this: Not all economic value added goes to labor. Not all Federal revenue collection comes from personal income taxes.

It’s mawkish to say and think that if you make $15 an hour, that you’re not even pulling our own weight with regards to education and health care alone. That’s because the economic forces from which you earn your $15 an hour are themselves productive and adding to the economy. And while lots of people are under Schaeffer’s Number, there are lots of people over it, pulling their own weight and the lot of other people’s weight.

While I think the Gross Domestic Product figures are questionable because they count too much intangible snake oil as productivity, (and it gets worse all the time), let’s play along. The $15.68 trillion GDP in 2012 divided by 250 billion person-hours worked makes $62.72 an hour. The real Schaeffer Number economy-wide is $62.72, which means if you make less than that, and almost everyone does, you’re not pulling your own economic weight. That much an hour works to $130,457 a year, which puts whoever earns it at the 96.3 percentile, i.e. the top 3.7% of individual income earners. So the whole economic-philosophical basis behind Shaeffer’s Number, taken to its logical conclusion, is that 96.3% of us are slackers and aren’t pulling our weight, and therefore, in the opinion of some (cough, cough, won’t say Ron Unz, cough cough), the minimum wage should be raised to $62.72 an hour.

Who really believes that?

***

 





Supply and Demand

3 12 2013

New York

H/T V-Dare.

NYT bashes Unz’s “immigration control via minimum wage hike” proposal, mainly because Unz is motivated by trying to keep Hispanics from flooding into the country.

Except they’re both wrong.  You simply can’t hack your way around the law of supply and demand with a different price floor or price ceiling.  Without real immigration control and enforcement, all raising the MW will do is create a lot more violations of the MW, which official American will duly ignore.

With real immigration control and enforcement, you really won’t even need a MW law, because the wage and salary equilibrium will be significantly higher.

For proof of that, the effective minimum wage based on economics in oil boom towns of western North Dakota is around $15 an hour.  Why?  High demand for and low supply of employees.  What’s the official MW in the state?  No higher than the Federal MW, $7.25 an hour.

If we left the immigration laws passed in 1924 both in terms of number and national origin unchanged, equilibrium wages all over would be much higher than what they are now, and even higher in more expensive parts of the country.





Give Us This Day Our Daily Debt

18 10 2013

Amurrika

Front of Drudge:  Debt jumps $328B in one day

That’s because with the debt ceiling lifted, the Yankee government quit lying ended its series of extraordinary measures to hold the apparent total national debt pretty much steady for the last few months to avoid “legally” running into the debt ceiling.

Now that they’re telling the truth again extraordinary measures are no longer necessary, the national debt is officially $17,078,127,027,486.08 as of a few minutes ago, I can now figure that, since the national debt was $8,677,214,255,313.07 on the day Nancy Pelosi took over as House Speaker on January 3, 2007, as of right now, 49.2% of our national debt has been run up since Nancy Pelsoi was Speaker and/or Barack Obama has been President.





Not Equal Sign

4 09 2013

America

inequality

Bingo:

Only four states, New York, California, Texas, and  Florida, plus Washington, DC have inequality above the national average of .39, indicating both their very large populations, their very complex ethnicity, and large metropolitan economies rich in high income earners, entrenched concentrations of poverty, and high levels of immigration. Surprisingly, these states are even more unequal than the poorest states with the most difficult racial history and delayed development: Mississippi, Alabama, Arkansas, and Louisiana.

So this means income inequality in the United States is basically a four state problem.  You need an area to have one or more industries of great wealth production of some sort and a lot of low-IQ NAMs.

Also:

For an old Roosevelt Democrat, the persistence of widespread poverty and deepening inequality, even while the extremely rich capture ever higher shares of income and wealth, is outrageous. It brings the United States back to the degree of inequality last recorded in 1929. It is ironic that the lowest degree of inequality in American history was 39 years ago in 1974, during a Republican administration, and fifty years after the great March on Washington.  These new maps are not pretty, and sadly there is little prospect for improvement.

And what do “old Roosevelt Democrats” think about the immigration question?  Income inequality was at its nadir in 1974, which corresponds well to the early 1970s peaks of many positive metrics and nadirs of many negative metrics about individual economic prosperity.  What happened in the early 1970s?  Easy button:  The borders were swung wide open in 1965, and the flood of cheap labor non-white immigrants started to wreak havoc on the economy at that time.





The American Economy’s Figurative Penile Implant

1 08 2013

America

Stuffing the GDP numbers upward entails:

The changes involved are pretty simple. Beforehand, if a factory bought a drill press, the government would count that as an investment that would generate income over time, depreciating along the way until its value added fell to zero.

But consider the movie companies or TV studios that produce lasting hits like “Star Wars” or “Seinfeld.” They, too, spin off years of revenues. In that sense, their production is much like a capital investment, though there’s been no place in the national accounts to score that investment.

Now there is a new category in the quarterly G.D.P. reports called “intellectual property products,” including “entertainment originals.” For example, the production costs of what the B.E.A., a part of the Commerce Department, calls “long-lived TV shows” — ones that provide a steady stream of income, like “Seinfeld” reruns — will for the first time be counted as investment. That’s right — the ultimate show about nothing will now add billions to G.D.P.

Research and development spending that was previously treated as an expense to business, the same as paper clips and electricity, will also now be treated as an investment with the potential to generate future income.

The logic here is solid. Spend a few hours on Netflix and you’re happily consuming the results of considerable R & D in streaming technology, along with investments in the shows themselves. It seems clear that the intellectual property called “The Sopranos” is as valuable to its owners as the laptop and software enabling you to binge-watch it.

Still, if that sounds squishy, that’s because it kind of is. Also, most people may not react well to being told that, according to the B.E.A., we’re all about $1,800 richer on a per-capita basis — but only on paper. Your paycheck’s still your paycheck. Have a nice day.

Okay, I start a production company, make one lol cat video, and one person watches it.  The GDP has now gone up a few pennies?

Aside from padding the size of the economy, this also has the effect of making us look less taxed than we actually are.  If you artificially raise the GDP, this means that the ratio that is governments’ spending over GDP by definition will decrease, making big spending governments (such as the American Federal government in the Obama era) look smaller than it actually is.  Related news…the higher the GDP can be claimed to be, the smaller will be the percentage that Americans donate and give away relative to the GDP, ergo Americans will seem to be less generous.

N’Deshawntavious buys a hot gun from the black market for twice as much as it would cost to buy it legit (if N’Deshawntavious could buy it legit, which he probably couldn’t because he’s an underage convicted felon).  He uses that gun to protect dope territory and to threaten customers who are in arrears.  Therefore, the illegal gun is a capital investment that helped him earn money.  Do we count that as part of GDP?  Especially considering that when the gun was legally purchased some time in the past, that went into the GDP.  Therefore, you have the same gun double-stuffing the GDP because of its legal market value and its black market capital investment value.

This is getting comical.

 





Ds Into Bs

31 07 2013

Washington, D.C.

What is this like?

If Leave It To Beaver is on a streaming video service you subscribe to, call up Season 4 Episode 27.  I’ll give you a hint:  Eddie Haskell is involved.

Here’s another hint:

litb-d-b





Stuck Odometer

16 07 2013

Washington, D.C.

CNS:

Treasury: Debt Has Been Exactly $16,699,396,000,000.00 for 56 Days

According to the Daily Treasury Statement for July 12, which the U.S. Treasury released this afternoon, the federal debt that is currently subject to a legal limit of $16,699,421,095,673.60 has stood at exactly $16,699,396,000,000.00 for 56 straight days.

That means that for 56 straight days the federal debt has remained approximately $25 million below the legal limit.

Even though the portion of the federal debt that is subject to a legal limit has not changed in almost two months, the Treasury has continued to sell bills, notes and bonds at a value that exceeds the value of the bills, notes and bonds it has been redeeming.

Misrepresenting your outstanding debt while selling debt equity is the crime of fraud for private actors.

It would be like preventing your car’s odometer from rolling up when you hit 99,999 miles then continuing to drive it around, then selling it for more than what you would otherwise be able to sell it for if it actually had six digit miles.





Disagree With Unz

20 02 2013

AmCon and V-Dare

Unz:  Raise the minimum wage really high so that illegal alien cheap labor isn’t so cheap.

Sorry, but it’s not that easy.

You can only defy the laws of gravity so long by standing on a tree branch before it breaks and you fall down to the ground and go boom.

Likewise, the laws of economics eventually carry the day.

The relatively low minimum wage we have now can’t prevent there being a black market industry of illegal aliens working at illegal sub minimum wages, because those that benefit from the cheap labor grease the right political palms to keep the heat off.  If you raise the minimum wage to, say, $12 an hour, as Unz wants, the only thing that will be raised is the amount of bribery and palm greasing from the cheap labor addicts to certain politicians and quasi-politician/quasi-cops.

Wherever there are rent controls, mainly in expensive high rent cities, what always happens is that there comes to be a massive waiting list, a lottery, or a questionably legal if not outright illegal “front money” payoff roughly equivalent to the delta of the market rent minus the controlled rent prices, to get a rent controlled apartment.

You just can’t hack around the existing paradigm of a mass supply (and growing) of cheap Hispanic and Asian labor with an artificially higher price floor.  All you’ll get is more tomfoolery.

The ONLY thing that will work is severely restricting the supply of labor by way of deporting it, legally disallowing it from the labor market, and/or not allowing it to immigrate into the country to begin with.  Then you’ll have a supply-demand curve that legitimately shifts upward in favor of higher salaries and wages.





You Spin Us Right Round

1 02 2013

America

WSJ Market Watch:

No-money-down mortgages are back

Some affluent buyers are getting the keys to their new home without putting a penny down.

It’s 100% financing—the same strategy that pushed many homeowners into foreclosure during the housing bust. Banks say these loans are safer: They’re almost exclusively being offered to clients with sizable assets, and they often require two forms of collateral—the house and a portion of the client’s investment portfolio in lieu of a traditional cash down payment.

In most cases, borrowers end up with one loan and one monthly payment. Depending on the lender and the borrower, roughly 60% to 80% of the loan can be pegged to the home’s value while the remaining 20% to 40% can be secured by investments. On a $2 million primary residence, for instance, the borrower could get a $2 million loan, which would require a pledge of assets in an investment portfolio to cover what could have been, say, a $500,000 down payment. The pledged assets can remain fully invested, earning returns as normal, without disrupting the client’s investment goals.

While these affluent clients may be flush with cash, this strategy allows them to get into a home without tying up funds or making withdrawals from interest-earning accounts. And given the market’s gains combined with low borrowing rates in recent years, some banks say clients are pursuing 100% financing as an arbitrage play—where the return on their investments is bigger than the rate they pay on the loan, which can be as low as 2.5%. Some institutions offer only adjustable rates with these loans, which could become more expensive if rates rise. In most cases, the investment account must be held by the same institution that’s providing the loan.

“No fair!”  I can hear the Congressional Black and Hispanic Cauci whining right now.  These aren’t really “no down payment” mortgages, these are “no money down” mortgages.  Big difference.  But they won’t result in “deprived minorities” getting to buy houses.

But still, I don’t approve.

Why?

Because it means that quantitative easing is going to have to continue to keep the investments and securities markets’ indexes high, so that the investments and securities necessary to sling as a quasi-down payment at least hold their “value” over the life of the mortgage, and of course everyone else will have to bear the cost vicariously with everything we buy.  And if some banks are only offering these kinds of loans as ARMs and never fixed rates, this means that governments’ iron-fist manipulation of both the interest rate market to keep interest rates low to make it cheap for governments to borrow money (e.g. LIBOR), and also the current normal good-inferior good jiggering around with the CPI (to keep it as low as possible to keep Social Security COLAs as low as possible and to keep the income tax bracket boundaries from soaring too much from year to year to keep income tax revenue high enough) better keep on going for a long time.

This is going to go splat some how some way, maybe sooner than we think.  I bet RJP already knows the answer.

Until he provides it for us…five, six, seven, eight…the extended club mix at that:





How Eased Is Thine Quantity

5 01 2013

Federal Reserve

I’m looking over my queued up list of news stories and URLs that I’ll cover in tomorrow’s wrap-up.  I think I’ll get one out of the way right now.

Rush talked about some nut professor who will go unnamed, simply because we all know, (and this nut professor knows) his proposal is pure SVNT (shock value nut talk).  And he knows it because he, like everyone else with a brain, knows it will never happen, and that the only reason he’s “proposing” it is to become a celebrity.  It’s this business about striking $1 trillion platinum coins and using that to “pay” the deficit.

But in thinking about this non-story, I wondered what the real money supply is these days.  For a long time, the metric referred to in the vernacular of economics education as M0 (M-Zero), but not officially by the Fed (their official name for it is some long acronym), which is defined as all the American paper and coin currency in common circulation, wasn’t even $1 trillion, so a single $1 trillion coin would more than double it.  But to my shock, it wouldn’t do that now:  While M0 was only around $800 billion as late as the fall of 2008, before  you-know-what happened, thanks to several rounds of quantitative easing, it now stands at about $2,700 billion ($2.7 trillion).

People are claiming that things aren’t that bad, because DJIA is now riding at about the same 13k it was in the summer of 2008, pre-crash.  Yeah?  So what?  Does 13k in an America with $2.7 trillion of open currency and coin floating around mean the same thing as 13k in the America of yore with only $0.8 trillion ibid.?  It’s actually scary that with more than three times as much physical currency floating around out there, that your oh-so-important metric based on the current selling prices of mostly long-ago issued shares of common stock of the thirty given large publicly traded corporations that some cigar-munchers in some room deem currently “important” can only get back to par.  What’s more scary is that everything isn’t more than three times as expensive as it was in September 2008 — A lot is significantly more expensive, but not everything is literally (2.7/0.8) = 3.375 times more expensive.  But that must mean one or more of several things:  (1) Things are about to get more expensive, and it’s just taking time for the increased money supply to work its way through the economy, (2) “Official” CPI is artificially low, (Duh, when Social Security checks and tax brackets are indexed to CPI, do you think the Feds/Fed have a big incentive to nuance/lie it down as far as possible?), (3) There are other economic factors why there are things that are not yet or will not eventually become 3.375 times more expensive than they were in 9/08, (4) M0 is not the be-all end-all metric of money supply:  Ron Paul actually thinks M3 is a better “real” metric for money supply, and M3 is all “M0″ coin/currency floating around plus banks’ deposits with the Fed plus checking accounts plus travelers checks plus savings accounts plus almost all money market funds and mutual funds plus almost all certificates of deposit, if my memory serves.  Since the financial crisis, M3 has increased, but not at the same ridiculous rate as M0.

So, maybe an extra $1 trillion coin wouldn’t be the uber-disaster I would otherwise fear.  Though it doesn’t mean it’s at all desirable.





Lessons Learned

4 01 2013

CNN

Rush:

CNN’s Ali Velshi Might Be Right About How Low-Information America Understands Economics

RUSH: Ali Velshi, obviously, ladies and gentlemen, is a low-information reporter. Ali Velshi, the economics guru at CNN, said last night: “Republicans need to understand the difference between the debt ceiling and debt.”

He’s saying that you can’t use the debt ceiling to try to control spending, and he said the Republicans are making a big mistake. He said the American people understand economics now.

How?  Is Kim Kardashian’s ass giving out economics lessons?

Almost:

So we thought we’d put the theory that the American people understand economics now, Ali Velshi’s theory, to the test.  So we went to Entertainment Tonight.  We have a portion of Christina McLarty.  She’s the infobabe at Entertainment Tonight.  She had a report about speculation that Kim Kardashian may pose nude while pregnant.

Head to Rush for the rest.





Inferior

4 01 2013

Charlotte

This past C****tmas shopping season was crummy for stores that retail regular goods.

Turns out it was also flat to lethargic at at least one purveyor of inferior goods.

Again, I’m speaking of “regular” and “inferior” in purely economic terms.

Fiscal cliff, people.  We went over it a long time ago.





Hold Your Breath

29 12 2012

Your Blogmeister’s Desk

Did you know?  Most loans for most things wind up being “underwater” at some point during the amortization schedule of the loan.  While a brand new car or brand new piece of furniture instantly depreciates once you sign all the paperwork, the reason why the loan isn’t underwater right away is because you have a down payment, which is de facto insurance for the lending institution.  However, depending on the kind of car you buy or what kind of furniture you buy, there will be times during the time you’re paying back the loan that it will be worth less on the used car or furniture market than the principal amount you owe on the car or furniture loan at that moment.

Those ever precious student loans that liberals love so much are always underwater, because there’s no collateral.  There’s no way of knowing for sure how much higher your income is with your debt equity-financed education is compared to what you would be making had you never gone to college, so there’s no way of making even a moral-economic judgment on whether it was worth it for you as an individual to take the student loans you did, or whether you should have if you never did.

So why do we freak about about houses and mortgages being underwater?  If you have the income, you keep paying the mortgage.  Eventually, you’ll be back above water if you keep it up.





New U

1 12 2012

America

We need a new unemployment/underemployment metric.

In the mass survey that is done to determine U3 and U6, we should ask people this question:

Do you have a permanent employment situation that you anticipate having for at least the next (fill in the blank number of years), that pays you well enough both in terms of salary, wages, and also health benefits, such that you can afford to maintain a spouse and at least two dependent children, and also either purchase a house or rent a requisite sized apartment in an area that is part of a quality public school district?

Yes, then you are “Affordable Family Formation” employed, if no, then not.

As it is now, you can be counted as “employed” if you’re working one hour per week at minimum wage at an “above board” job.

For the record, the last time I would have been able to answer Yes to that question was early November 2010.  Between then and starting in on Todd’s campaign, I subsisted on the last few months of the job I knew I was losing, then temp/accounting jobs.  If Todd would have won the election, I could have answered “Yes” at this moment.  But the menial job I’m doing in lieu of being a Senate staffer means I’d have to answer no.





Mixed Messages

24 11 2012

America

Official America says that we don’t save enough money.  Then when we do, in the form of 401-Ks, the Yankee government threatens year in and year out to raid our piggy banks, because the poor dears can’t wait until we’re retired to collect the yearly income taxes on the 401-K payouts.  They need to spend money now because another election is just around the corner.  Raiding 401-Ks has been talked about in one form or another since the Clinton years.  And the louder the politicians talk about doing so, the less likely it is that people will start 401-Ks.  It’s why I never started one, because I fully expect either a Federal raid or to die if not both before I could collect from one.

Official America says that the finances of major cities are in bad shape.  Then they start talking about pulling the rug out from under tax free muni bonds.  Only one thing could happen in earnest — It makes it more expensive for urban governments to borrow money.  Which is fine by me — All that will do is expose their houses of cards sooner than otherwise would happen.  Feet don’t fail them now to bankruptcy court, one city after another after another.  Why are the borrowing needs of a big city government more important than a corporation such that the former’s bonds’ interest are tax free for the recipients but the latter’s not?  (The money market is already spooked as it is re corporate bonds because you’ll never know when you’ll buy debt equity into some politically favored TBTF corporation, and then if the corporation has to go into reorganization bankruptcy, and that threatens some goodie of some politically connected interest group, Congress will intervene and shove them into a special bankruptcy path and the bondholders will have to take a cold bath.)  Maybe it’s because of the social/partisan politics:  Cities = poor downtrodden non-whites = Democrats, while corporations = big evil heartless scrooges = Republicans, (though depending on the election cycle, corporate money tends to swag with the perceived winner or front-runner).  The last thing our Federal government needs is for any outlet in the money market for higher interest rates, because everyone and their brother, sister and cousin will park money there, thereby making it more expensive for the Federal government to borrow money.





Inferior Good

24 11 2012

America

Bigger stampeding herds during Black Friday this year compared to last is said to be a sign of an improving economy.

Wrong.

That’s because I think Black Friday is essentially an inferior good from a purely economic standpoint.





Inferiority Complex

15 11 2012

America

iStockAnalyst:

But what, exactly, does this concern about “inflation” actually reflect? Probably not what we think. Some time ago, my colleagues Mike Bryan and Guhan Venkatu (from the Cleveland Fed) made note of “The Curiously Different Inflation Perspectives of Men and Women.” Their findings are pretty informative:

Over the past few years, the Federal Reserve Bank of Cleveland, with assistance from the Ohio State University, has studied household inflation perceptions and expectations using a monthly survey of approximately 500 Ohioans (the FRBC/OSU Inflation Psychology Survey). This survey, which records respondents’ perceptions of price changes over the past 12 months as well as their expectations for price changes over the next 12 months, has uncovered a surprising result. The data indicate that the public’s estimates and predictions of inflation are significantly and systematically related to the demographic characteristics of the respondents. People with high incomes perceive and anticipate much less inflation than people with low incomes, married people less than singles, whites less than nonwhites, and middle-aged people less than young people. This Commentary describes what is perhaps the most curious observation of all: Even after we hold constant income, age, education, race, and marital status, men and women hold very different views on the rate at which prices are changing.

I don’t think this is a psychological issue, it’s a reality issue, and a clue to the way that the official inflation statistic methodology is rotten.

We’ve had this discussion here in the recent past about the economic (not moral) difference between a regular good an an inferior good.  In case you were asleep, or my explanation put you asleep, stay awake and grok this:  A regular good is a good or service whose demand increases as people’s income increases, and an inferior good is a good whose demand increases as people’s income decreases.  Example:  The fanciest green bean cuts from the luxury mini-supermarket in uptown are a regular good, Aldi’s cans of green beans are an inferior good.  Again, in pure economic terms, not necessarily quality.  (Though the real world correlation is usually strong.)

One thing that has kept the official inflation stat relatively low is because the Federal beancounters are swapping out the cans of luxury green beans with cans of Aldi’s green beans to keep the total cost of the market basket from going up too quickly.  Of course that’s bullshit, because you’re not literally comparing apples to apples and oranges to oranges.

The reason that lower income people, single people and non-whites are “perceiving and anticipating” more inflation than higher income people, married people and whites is not because they’re delusional or victims of head tricks, it’s because the REAL inflation that exists for everyone, which they see with their eyes, puts more strain on their budgets more acutely.  Federal government’s beancounter has every incentive in the world to swap out Whole Paycheck’s green beans for Aldi’s green beans to keep the “official” CPI inflation rate low to keep interest rates low so that the Federal government can still borrow money at low interest rates (LIBOR-style manipulations notwithstanding) and keep Social Security COLAs as low as possible, so that the Federal government can keep on hiring and paying its inflation statistic beancounters.  Too, elected politicians don’t like high inflation rates.  However, low income person who has lived on a fixed income for a long time has never had that luxury:  He or she has only ever been able to purchase Aldi’s green beans.  So he or she sees an apples to apples inflation metric with his or her own eyes every week or every month.  Since such people can only ever buy inferior goods, they can’t swap those out for sub-inferior goods to avoid inflation.  And to such a person, when Aldi charges, for example, 10 cents more for a can of green beans this year than last, and in turn 10 cents more last than the year before, that’s a BFD for their zero-sum game budget.

Sure, the cans of luxury green beans are also going up, but higher income people miss the marginal inflationary costs on those goods far less than lower income people, and while there is an accurate inflation statistic in front of their face, comparing luxury goods to luxury goods, they really don’t need to pay that much attention.





Why Black Middle Class Net Wealth Is Declining

8 10 2012

BRA

I don’t need to quote from the story, or even read the story.  Because I have already read this story 100 times before now.  They’re all the same, just change the names, the cities and the dates.

Let’s say you’re young Mr. and Mrs. Affirmative Action in 1990.  In about two years, you saved up enough money to make a down payment on a house.  In 1992, you buy a house for $60,000 in the working class salt-and-pepper part of town.  When you buy the house, you had to have the requisite 20% down ($12,000), and a good credit score, and the mortgage payment couldn’t be any more than 28% of their gross household income.

In the meantime, the Federal Reserve Bank in Boston releases a phony loaded report about “racism” in mortgage lending.  This leads to a gradual erosion in mortgage lending standards, the declining required down payment percentage (and eventually, eliminating the requirement for a down payment), not doing credit checks, and allowing for a mortgage payment to be such a high percentage of the household’s gross income that it’s actually higher that it’s actually more than their take-home pay.  At the same time, interest rates are declining.  All these factors combined serve to swell the selling prices of real estate.

Mr. and Mrs. Affirmative Action’s $70,000 starter house is eventually worth $120,000, in that some time in 2005, someone made them an offer of $120,000 on the house, based on having been pre-approved for that amount based on the lower mortgage lending standards and lower interest rates, but they turn it down.

In the ensuing years, as people can’t make their mortgage payments, and banks are feeling the pinch, banks aren’t issuing mortgages for the insanely high amounts anymore, because they’re restoring some of the old lending standards.  Now, Mr. and Mrs. AA would probably get offered $100,000 max if they put their house on the market.

All along, Mr. and Mrs. AA had the house, and were making mortgage payments on it.  But they only “gained” $50,000 of net wealth as “anything goes” mortgage bankers from the late 1990s to about 2006 pre-approving people for higher and higher amounts was bidding the price of existing houses up, and they only “lost” $20,000 of it as the party ended and standards were somewhat restored and pre-approved amounts were reduced, hindering the ability to bid existing housing sale prices too high.  The house was there all along, but the “worth” of it was only in between people’s ears.

If we had sane public policy, then there would have never been the subprime circus, and Mr. and Mrs. AA’s house would have slowly increased in value over the years, notwithstanding a lot of other factors, and they wouldn’t have been taken on this mental roller coaster ride of up-down-up-down, and wouldn’t be mad that their illusory “up” didn’t later beget an illusory “down.”





Supply and Demand

16 08 2012

Washington, D.C.

My theory on why all these Federal agencies are buying mass quantities of ammunition, including agencies that seem to have no use for it.  To wit:  NWS is claiming that the hollow points it will buy is for “target practice.”  First off, why do NWS employees need to do target practice?  Second, who wastes expensive hollow points on target practice?

My theory is that the Feds are doing this in a contra-LIBOR maneuver.  They’re deliberately jacking up the demand for ammo to keep the price high to make it more expensive for private buyers, in order to discourage mass private buys.





Gigabit Internet — You Don’t Say

6 08 2012

Kansas City

When most people were able to afford broadband, I made the prediction, with Say’s Law in mind, that instead of existing webpages loading virtually instantaneously, most websites would become so loaded with goodies, rhinestones and junk that eventually a webpage in the broadband era would load just as slowly as a “Web 1.0″ page did during the dial-up era.

Can I call ‘em, or can I call ‘em?

Google is rolling out gigabit fiber in Kansas City.  Eventually, most people in most places will soon be able to get a gigabit tier.  The same thing will happen again.  People who assemble and maintain webpages will find some way to fill the bigger pipe with junk, especially in an attempt to monetize their sites.

Supply creates its own demand.

Especially happy are the firms that manufacture and sell 802.11ac WiFi hardware, which is just now starting to roll out.  The top theoretical speed of 802.11n is 600 mbps, practically far less, and all those numbers are under a gigabit.

UPDATE

As an aside, even if you now have a gigabit pipe coming into your house, or a pipe whose speeds exceed N, wait on buying an AC router.  AD is coming out soon after AC, and for awhile, some AC stuff won’t be compatible with AD, and vice versa.  Too, both AC and AD will be immature and their specifications not final for awhile.  Wait until both AC and AD are final, and there is enough A/B/G/N/AC/AD combo hardware, and that the hardware is mature.  However, if your incoming pipe is over 100 mbps, make sure both your router and your computer’s ethernet can handle gigabit wired, because a lot of routers and on-motherboard ethernet cards still don’t.





Everybody Can’t Be Happy

17 07 2012

Inland Empire

Update on using ED to seize “underwater” mortgages.

I asked what compensation the bank that drew the original mortgage would receive.

Answer:

The city pays fair market value to the owner of the mortgage. That is usually a securitization trust, an otherwise passive financial entity used to bundle mortgages and sell pieces to investors that became a bigger part of the mortgage market during the 2000s housing boom.

“Securitization trust” is probably a fancy way of saying “IOU.”  Certainly, the cities can’t afford to pay the banks for the outstanding principal balances, especially since most of them are so bankrupt that they can’t pay for trash collection.

Also:

The company says everyone should wind up happy: The homeowners get lower payments, cities help clean up the mortgage crisis and shore up their tax base, and the mortgage-owning trusts unload a risky asset.

Robert Burns knew how these best laid schemes turn out.

I should note that as long as the “underwater” homeowner is paying their mortgage notes on time every month, it’s not a “risky asset” for the bank, even if the outstanding principal is higher than the current market value of the house.





Whole Paycheck

11 07 2012

The Late Great American Economy

Bloomberg:

Low-Paid Grads On Tight Budgets Switching to Discounters

Michael Baum took every substitute teaching job he found and has sent out hundreds of resumes since graduating from college two years ago. He never got a full-time offer and works as a waiter at a pizza parlor in Chicago, earning $650 during a busy week.

“It’s discouraging,” said Baum, 25, who is certified to teach in Texas and North Carolina as well as his native Michigan. His pay is just enough to cover basic living expenses.

(snip)

Instead of indulging at the start of their career, many young people with degrees now are scrimping. Compared with five years ago, Generation Y — people born from 1981 to 2001 — is shopping more at discounters and value stores such as TJX Cos. (TJX)’s T.J. Maxx and Marshall’s and Dollar General Corp. (DG), and less at premium-priced retailers such as Limited Brands Inc. (LTD)’s Victoria’s Secret, Macy’s Inc. (M) and Nordstrom Inc. (JWN), according to Kantar Media. The New York-based research company analyzed shopping habits from January to May this year and in 2007.

This isn’t new to economists.  They call these goods “inferior goods” and these retailers “inferior.”  NOT because they’re literally inferior, but they use “inferior” as an economic term, because demand for these goods and businesses at these retailers go up in times in declining or depressed national income.  In contrast to normal goods and retailers, who see increased demand and business as national income rises.

In other words, “inferior retailers” are where you go when your whole paycheck won’t go far at Whole Paycheck.  Or when Needless Markup is really needless markup for your wallet.





Buyers and Sellers

9 07 2012

Paris

AP:

France sells bonds at negative interest rate

PARIS (AP) — France’s government has sold short-term bonds at negative interest rates for the first time, a sign of investor confidence despite concerns about French debts and the wider eurozone.

Despite the dropping rates, France’s economic outlook is stagnant. President Francois Hollande said Monday that growth in the first half of this year is expected to be “nil.”

Yields, or borrowing rates, have been falling on French medium and long-term bonds in auctions over the past couple of months, as investors flock to the perceived safety of Europe’s larger economies.

In a sale Monday, the treasury sold three-month bonds at -0.005 percent, and six-month bonds at -0.006 percent. The treasury agency says it’s the first time they have registered negative yields.

They “sold” negative interest rate government bonds, which means someone was dumb enough to buy them.

That.  Scares.  Me.

The only way that would be a sane move is if the French money market is anticipating serious deflation, and an instrument just south of zero is as good as it’s going to get.





Fuzzy Math

5 07 2012

Inland Empire

WSJ:

Cities Consider Seizing Mortgages

A handful of local officials in California who say the housing bust is a public blight on their cities may invoke their eminent-domain powers to restructure mortgages as a way to help some borrowers who owe more than their homes are worth.

Investors holding the current mortgages predict the move will backfire by driving up borrowing costs and further depress property values. “I don’t see how you could find it anything other than appalling,” said Scott Simon, a managing director at Pacific Investment Management Co., or Pimco, a unit of Allianz SE.

Eminent domain allows a government to forcibly acquire property that is then reused in a way considered good for the public—new housing, roads, shopping centers and the like. Owners of the properties are entitled to compensation, which is usually determined by a court.

But instead of tearing down property, California’s San Bernardino County and two of its largest cities, Ontario and Fontana, want to put eminent domain to a highly unorthodox use to keep people in their homes.

The municipalities, about 45 minutes east of Los Angeles, would acquire underwater mortgages from investors and cut the loan principal to match the current property value. Then, they would resell the reduced mortgages to new investors.

The eminent-domain gambit is the brainchild of San Francisco-based venture-capital firm Mortgage Resolution Partners, which has hired investment banks Evercore Partners and Westwood Capital to raise funds from private investors. The company’s chief executive, Graham Williams, is a mortgage-industry veteran who helped pioneer lending programs for low-income borrowers at Bank of America Corp. BAC -1.74% in the early 1990s. Its chairman, Steven Gluckstern, is an entrepreneur who once owned the New York Islanders hockey franchise. Evercore’s founder and co-chairman, Roger Altman, served in the Clinton administration and is raising funds for President Barack Obama’s re-election effort.

For a home with an existing $300,000 mortgage that now has a market value of $150,000, Mortgage Resolution Partners might argue the loan is worth only $120,000. If a judge agreed, the program’s private financiers would fund the city’s seizure of the loan, paying the current loan investors that reduced amount. Then, they could offer to help the homeowner refinance into a new $145,000 30-year mortgage backed by the Federal Housing Administration, which has a program allowing borrowers to have as little as 2.25% in equity. That would leave $25,000 in profit, minus the origination costs, to be divided between the city, Mortgage Resolution Partners and its investors.

Proponents say this would help residents shed debt loads that are restraining economic growth, while preventing foreclosures that are eroding the tax base. But unlike the beneficiaries of most recent mortgage-modification efforts, who must show hardship, these borrowers would have to be current on their payments to participate. And the program initially would focus only on mortgage-backed securities that aren’t federally guaranteed—about 10% of all outstanding U.S. mortgages.

The move is yet another sign of the desperate measures taken by cities still reeling from the effects of the housing bust. Several have declared bankruptcy.

“A number of cities, mayors, city managers have come to me and said, ‘How soon can we get in?’ ” said Greg Devereaux, San Bernardino County’s chief executive. He said he learned of the program last year from a California state official. He said county officials haven’t yet made a firm decision on whether to proceed. “We think it would be irresponsible, given the size of the problem in our county, not to at least explore it,” he said.

Unemployment in San Bernardino County, the nation’s 12th-most-populous county, is among the nation’s highest and tops 30% in some parts. More than two in five borrowers with a mortgage owed more than their homes were worth at the end of March.

The seizure of home-mortgage liens, but not the underlying homes, hasn’t ever been conducted through eminent domain, as far as the group’s principals can tell. And while they believe they have a strong legal case, they expect loan owners to sue.

“California legal precedent and political posture favor the program and constitute an ideal proving ground,” Mortgage Resolution Partners said in a presentation to investors reviewed by The Wall Street Journal.

The document said it would begin with a $5 billion effort in California that could grow to three million mortgages as part of a $500 billion multistate effort.

Several states have authorized the taking of other intangible property, such as insurance policies, shares of stock or rights of way, according to Robert Hockett, a Cornell University professor of law and adviser to Mortgage Resolution Partners.

In 1984, the U.S. Supreme Court upheld the state of Hawaii’s use of eminent domain to transfer residential tracts of land to renters to break up a landownership oligopoly and stabilize home prices. In 2005, the court affirmed the right of a Connecticut town to use eminent domain to transfer non-blighted homes to a private developer to spur redevelopment. That spurred several states to pass laws restricting such powers.

The three local California governments have created joint powers authorities that don’t need permission from their city councils or board of supervisors to move forward unless they need public money. That means if the agencies back proposals that are privately financed, the plans could only be stopped from moving forward in court.

Mortgage-bond investors—who are the property owners, for eminent-domain purposes—say the program would do nothing to deal with the biggest problems—borrowers already in default. “Shouldn’t that be the first priority?” said Laurie Goodman, senior managing director at broker-dealer Amherst Securities Group LP.

A letter sent last week to city leaders from 18 trade associations, led by the Securities Industry and Financial Markets Association, warned that such a move “could actually serve to further depress housing values” by making banks less willing to lend. The plan’s backers are unfazed. “The exact opposite is true. There’s no private market right now,” said Mr. Gluckstern of Mortgage Resolution Partners. “Until you clear out this problem [of underwater loans], private lending will not come back.”

Problems:

1.  The original intent of eminent domain has to do with real property (land), not abstractions like mortgage contracts.  And real property taken in ED has to be used for a public purpose — I fail to see how helping underwater homeowners is a public purpose.

2.  Fuzzy Math.  See the paragraph in bold above.  The $300 house at its current mortgage now worth $150 is deemed by a judge to be worth $120.  So these new financiers ride in and help the current mortgage note payer start a whole new mortgage for $145, five less than its current market value.  It is said that there will be $25 profit because the $120 that a judge deemed the property worth from $145 gained from the new mortgage is $25, to be split among the financiers.

These clever geniuses are forgetting something.

The bank that currently holds the $300 principal mortgage.

This doesn’t say whether the banks that hold the high dollar mortgages will get anything, but it does not seem that they will.  What’s going happen to the banking system when all these banks holding high dollar mortgages are told that their mortgages and the remaining principal on them (which is most of the principal amount, in most cases) has suddenly been decreased to zero?  Even if you want to construe eminent domain to apply to abstract property, you can’t seize them without “just compensation” to the original owner.  And this scheme has no compensation, much less just, for the original owner.





Fact

25 06 2012

Used this application to figure out this stat:

1.  National debt on June 21, 2012:  $15,779,643,362,484.67

2.  National debt on January 4, 2007:  $8,670,596,242,973.04

3.  National debt accumulated from 1/4/7 to 6/21/12:  $7,109,047,119,511.63

4.  Figure 3 divided into Figure 1:  45.05%

This means that 45% of the debt run up in American history has happened with a Pelosi/Democrat-run House and/or Barack H. Obama II being President.





I Follows H

11 06 2012

WaPo:

Fed: Americans’ wealth dropped 40 percent

The net worth of the American family has fallen to its lowest level in two decades, according to government data released Monday, driven by a more than 40 percent drop in their stakes in their homes.

The Federal Reserve’s detailed survey of consumer finances showed families’ median wealth plunged from $126,400 in 2007 to $77,300 in 2010 — a 39 percent decline. That put them on par with median wealth in 1992.

The Fed’s data underscore the depth of the wounds of the Great Recession and how far many families remain from healing. The median value of Americans’ debt did not change between 2007 and 2010. Meanwhile, the housing market crash inflicted particularly severe damage, with the Fed showing that the median value of Americans’ equity in their homes plunged 42.3 percent between 2007 and 2010.

Since they’re talking about net worth, they’re talking about assets minus liabilities.  The Fed says that overall debt hasn’t increased, but people’s assets have taken a hit because of the housing market decline.  Of course, if your house has a high net value, that’s only relevant to you if you sell your house.  If you take a loan against your equity, then you’re decreasing your net worth.

Maybe housing is part of it, but I think the average net worth of an American household is being dragged down by an influx of people starting households that are just out of college, have a lot of debt, and don’t have good jobs to pay off their student loan debt and other debts.  The American wage and salary scale is slowly being dragged down thanks to a word that starts with not the letter H, but the letter that follows it in the alphabet, the letter I.





Clinton vs Newt, Again

7 06 2012

It feels like 1996, all over again.

Breitbart:

Last night in New York City Obama and Clinton held a joint fundraiser. Bill Clinton had to remind everyone of the difference between his presidency and Obama’s

“And, I care about the long term debt of the country a lot. Remember me, I’m the only guy that gave you four surplus budgets out of the eight I sent.”

This is probably a dig at Obama.  But I can’t help but notice that Clinton is getting on the Newt bandwagon to take credit for the surplus budgets in the late 1990s.  When in reality, most of those budgets were passed when Dennis Hastert was Speaker, and Clinton just signed them.  They were a result of a good economy bringing in much more new tax revenues to governments, and at a time when government spending was at a relative nadir compared to what it is today, before 9/11, the “War on Terror,” Medicare Part D, TARP, Porkulus, the beginning stages of ObamaCare, and the retirement of the Baby Boomers.  IOW, a set of circumstances very unlikely to repeat.





Pincher Movement

22 05 2012

NYT:

More Earners at Extremes in New York Than in U.S.

The wealthiest 1 percent of New York City residents took in nearly one-third of the personal income in the city in 2009 — almost double the comparable proportion nationwide, a new study shows.

In a report scheduled to be released on Monday, the city comptroller’s office found that large percentages of New Yorkers earned high incomes and low incomes, leaving a smaller middle class than in the nation as a whole.

“There is some evidence of the kind of common worry that New York has a weak middle,” said Frank Braconi, chief economist in the comptroller’s office.

“New York has a weak middle.”

To some people, this is a feature, not a bug.  Or rather, mission accomplished, not DEFCON 5.

Next up:  The rest of the country.





Meow Mixed Up

24 04 2012

The point we’re supposed to take from this story is that the generation proceeding my own suffers from “financial illiteracy.”

Though I think that’s a misnomer.

If a dog chases a cat up a tree, would the dog start barking at a bag of Meow Mix?

Would anyone need to know how to read and write if there were never any books?

Sorry, the problem among Millennials isn’t financial illiteracy, it’s that there aren’t the good jobs for today’s U-30s that there were in past generations.

If schools are doing a bad job at teaching financial literacy, it’s because there’s no time to teach it, for those all important lessons in condoms, social justice and Martin Luther King.  Besides, jobs and money are only for the bourgeoisie capitalist pigs.  The real civil rightsey thing to do is to collect a government check.








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