Modern Economics Explained

Former FDIC chair Sheila Bair has an astounding proposal that will solve all our problems!

 

Under my plan, each American household could borrow $10 million from the Fed at zero interest. The more conservative among us can take that money and buy 10-year Treasury bonds. At the current 2 percent annual interest rate, we can pocket a nice $200,000 a year to live on. The more adventuresome can buy 10-year Greek debt at 21 percent, for an annual income of $2.1 million. Or if Greece is a little too risky for you, go with Portugal, at about 12 percent, or $1.2 million dollars a year. (No sense in getting greedy.)

Think of what we can do with all that money. We can pay off our underwater mortgages and replenish our retirement accounts without spending one day schlepping into the office. With a few quick keystrokes, we’ll be golden for the next 10 years.

...

And while that deal blew bigger holes in the deficit, my proposal won’t cost taxpayers anything because the Fed is just going to print the money. All we need is about $1,200 trillion, or $10 million for 120 million households. We will all cross our hearts and promise to pay the money back in full after 10 years so the Fed won’t lose any dough. It can hold our Portuguese debt as collateral just to make sure.

 

Sheila Bair for president!

 

This makes perfect sense to me, as does this classic Abbot and Costello routine. 

 

Class Warfare

I wonder if Obama's Class Warfare meme will be as successful as he hopes. Based on a conversation I overheard today at the nonStarbucks fair trade coffee shop I frequent, he might gain more votes with it than I might think. This was the topic of conversation:

A major fire burned the home of Idyllwild businessman Shane Stewart tonight. The large home was engulfed in flames for hours. No one was inside and officials were not aware of any injuries.

Naturally a portion of the conversation was along the lines of "Oh, how bad." But there was another thread to the conversation: "At least he can just move into another house he owns." You see Shane Stewart, an acquaintance and customer of mine at my hardware store, is successful. He is a real estate investor who buys and sells houses. He owns a local real estate sales company. He "owns" the city of Idyllwild as someone put it to me last week. 

Shane had developed an incentive program where if you shopped at one of his business, you could receive a discount at another. I was wanting a free movie ticket. (Shane owns the local theatre—if he was not subsidizing it, my guess is that it would close. He wants the theatre to remain so he invests.) I do not know the full story but a local eccentric complained about the program. The program ended because of the volatile nature of the complaint.

This seems to me to directly violate the tenth commandment. Here is the relevant command from Exodus 20 in the Message. 

¹⁷ No lusting after your neighbor's house—or wife or servant or maid or ox or donkey. Don't set your heart on anything that is your neighbor's.

What will the consequences of breaking the 10th commandment be? 

Make no mistake, commandment breaking is what it is, as class warfare is based on envy. It will have an inevitable consequence of less investment in the community. I too am a real estate investor. I would like to sell my property in Missouri, take my losses, and reinvest my assets here. But if I do, will I receive this same attitude? It makes me want to invest elsewhere. Palm Desert is just one hour away. 

Obama should want people like Shane and me to invest. Is investment worth it socially for the investor? Not so much. Personally I have decided to not make any investments unless I can do it without debt. This reduces investment and employment. If Obama wants me to invest he needs to give me incentives to invest and take risk. All Obama cares about is reelection. This is not a partisan issue. It was all Bush cared about too. 

Yes there are bankers who should go to jail and have not because of their connection to Obama. This is not a partisan issue. Yes there are bankers who should go to jail and have not because of their connection to Bush. 

I have seen some interesting opportunities out in my field—real estate. I will deleverage instead.

What A Nation Sows, That Shall It Also Reap

The title and comments, in Russian, about this video are incorrect-the baby pictured is at least 22 weeks old when she was born. This is still a very amazing video. 

Do we really think that we can destroy such life and it not have dire consequences? To paraphrase the Apostle Paul from Galatians-God is not mocked, What A Nation Sows, That Shall It Also Reap. 

When Ya Gonna Wake Up?

This is one of my favorite Bob Dylan songs from his "Christian" period. I think most of us are asleep about something. The state of our society is not something about which that you should be asleep. 

Paraphrasing what Paul said in I Thes 5, I know that my readers are not asleep. Here is what Paul said:

 ¹But of the times and the seasons, brethren, ye have no need that I write unto you.

 ²For yourselves know perfectly that the day of the Lord so cometh as a thief in the night.

 ³For when they shall say, Peace and safety; then sudden destruction cometh upon them, as travail upon a woman with child; and they shall not escape.

 ⁴But ye, brethren, are not in darkness, that that day should overtake you as a thief.

 ⁵Ye are all the children of light, and the children of the day: we are not of the night, nor of darkness.

 ⁶Therefore let us not sleep, as do others; but let us watch and be sober.

The song is not on you tube anymore so I can not embed it. So follow the link to a Japanese site that has it if you want to see it. Click here. 

Here are the lyrics. 

God don't make promises that He don't keep
You got some big dreams baby, but in order to dream you gotta still be asleep.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

Counterfeited philosophies have polluted all of your thoughts
Karl Marx has got ya by the throat, Henry Kissinger's got you tied up in knots.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

You got innocent men in jail, your insane asylums are filled
You got unrighteous doctors dealing drugs that'll never cure your ills.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

You got men who can't hold their peace and woman who can't control their tongues
The rich seduce the poor and the old are seduced by the young.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

Adulterers in churches and pornography in the schools
You got gangsters in power and lawbreakers making rules.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

Spiritual advisors and gurus to guide your every move
Instant inner peace and every step you take has got to be approved.

When you gonna wake up, when you gonna wake up 
When you gonna wake up strengthen the things that remain ?

Do you ever wonder just what God requires ?
You think He's just an errand boy to satisfy your wandering desires.

When you gonna wake up, when you gonna wake up 
When you gonna wake up and strengthen the things that remain ?

You can't take it with you and you know that it's too worthless to be sold
They tell you, 'Time is money' as if your life was worth its weight in gold.

When you gonna wake up, when you gonna wake up 
When you gonna wake up and strengthen the things that remain ?

There's a man up on a cross and He's been crucified for you
Believe in His power that's about all you got to do.

When you gonna wake up, when you gonna wake up 
When you gonna wake up and strengthen the things that remain ?

Headed to a Bank Near You?

Our Friendly "Neighborhood" BankerI mostly agree with "Mish" Shedlock's presentation. The problem is severe and it will spread like falling dominos. Spain, Portugal and Ireland have huge problems that are not fully appreciated in the US. What is also not well understood it that our modern banking system is all interrelated to each other. Under normal conditions a bank in Germany could count on a transfer from Spain to actually happen. But the amount of government debt owned by Spanish banks dwarves the bank's reserves. This means that a German bank might be left "holding the bag" when the Spanish banks fail. The problem spreads rapidly. (Hmm, the bank I use in California is owned by a Spanish bank ...)

Japan is in particularly bad shape, as Mish discusses in this video.