Tag Archives: debt

A Timid Administration

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Saudi Arabia has told the Obama administration and members of Congress that it will sell off hundreds of billions of dollars’ worth of American assets held by the kingdom if Congress passes a bill that would allow the Saudi government to be held responsible in American courts for any role in the Sept. 11, 2001, attacks.

And in response, President Barack Obama (D) once again bowed to Adel al-Jubeir, Saudi Arabia’s Minister of Foreign Affairs, who personally delivered the threat, and virtually to King Salman bin Abdulaziz.  Obama then responded to the Saudi threat, meekly.  He

has lobbied Congress to block the bill’s passage, according to administration officials and congressional aides from both parties….

This timidity is a part of what Democratic Party Presidential candidates Hillary Clinton and Senator Bernie Sanders (I, VT) insist they will perpetuate, should they be elected.

Elections have consequences.

Debt Risk

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The PRC’s debt, at various levels, is a well-known risk to the country’s economic health. Existing loans to companies and households amounted to 207% of GDP at the start of this summer. Households had in the region of 38% of that debt as of last year. Municipal debt is approaching $25 trillion yuan ($3.9 trillion).

Now the People’s Bank of China is moving to cut the down payment required to get a loan to buy a house. The public claim the PBOC is making is that this is supposed to spur house buying and through that the economy. While it’s true enough that the cut—from 30% down to 25% down—seems like small potatoes, it still will result in an increase in household debt.

By what logic is it a useful spur to the PRC’s economy by increasing an already outlandish and out of control debt?

Even the AP Is Catching On

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They fact-checked President Barack Obama’s State of the Union speech, and they found these things.

OBAMA: At this moment—with a growing economy, shrinking deficits, bustling industry and booming energy production—we have risen from recession freer to write our own future than any other nation on Earth.

THE FACTS: Job growth has been…fueled in part by lower-paying jobs…which have replaced many higher-paying positions…. Part-time jobs also remain elevated: there are still 1.7 million fewer workers with full-time jobs than when the recession began in December 2007.

[F]aster hiring hasn’t pushed up wages much. They have been growing at a tepid pace of about 2% a year since the recession ended 5 1/2 years ago. That’s barely ahead of inflation and below the annual pace of about 3.5% to 4% that is typical of a fully healthy economy.

And

OBAMA: I am sending this Congress a bold new plan to lower the cost of community college—to zero.

THE FACTS: Zero for qualifying students; an estimated $60 billion over 10 years to the treasury.

And

OBAMA: Thanks to a growing economy, the recovery is touching more and more lives. Wages are finally starting to rise again. We know that more small-business owners plan to raise their employees’ pay than at any time since 2007.

THE FACTS: A survey of small businesses by the National Federation of Independent Business does show that a rising proportion plans to raise wages. But plans to raise pay aren’t the same as actually raising them.

Average hourly earnings rose just 1.7% in December from 12 months earlier, according to the Labor Department. That’s about half the rate that is typical of a healthy economy….

And on.

Never Met a Tax Increase

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…he didn’t like, this Progressive. President Barack Obama wants $320 billion in tax increases over the next 10 years in order to give tax credits to his version of “the middle class.”

This is rank, stinking wealth transfer. Nothing else. He doesn’t even intend to use the revenue to pay down the national debt he’s exploded over the last six years. The worst part of this is that Obama and his Democratic Party accomplices actually think this is right. The rich should “pay their fair share,” and government needs to spend the money. Never mind that “the rich” already pay 70% of the US’ income tax bill, while the bottom half(!) pay 3%-4%. Conveniently, these…Democrats…never get around to specifying what a “fair” share might be. Meanwhile, the debt keeps growing.

And

Obama also wants to close what the administration is calling the “Trust Fund Loophole,” a change that would require estates to pay capital gains taxes on securities at the time they’re inherited.

Here’s a thought. Work with me on this, it’s a hard concept for some to get: lower all income taxes to a single flat rate with no deductions, subsidies, credits, what-have-yous, and with no special treatments for this or that source of the income. Lose the death tax altogether; government should quit trying to profit from a citizen’s tragedy.

Stop using the tax code for social engineering. Have all Americans pay the flat rate, and leave in the hands of the heirs their loved one’s accumulations.

Now there’s no need for tax credits for some, which necessarily comes at the expense of others. The money inherited isn’t the government’s money, either; the government has no legitimate claim on it, and pecuniarily, it has no need of it.

Removing the tax code from the social engineering business eliminates the influence of a lot of special interests and lobbyists, too. ‘Course, that’s a problem for all politicians….

Another Argument for Disbanding Fannie Mae and Freddie Mac

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Fannie Mae and Freddie Mac on Monday announced details of a controversial plan to allow some first-time homeowners to obtain a mortgage while putting down just 3% of the price of the home.

We’ve not finished recovering from the Panic of 2008, and these entities want to resume an underlying component of the last housing bubble and burst that contributed so heavily to that.

But wait:

Fannie Mae said the loans that allow for 3% down payments will be held to the same eligibility requirements as other Fannie loans, including underwriting, income documentation and risk management standards.

That’s a low bar, indeed, as it was during the last bubble.

The problem here is not so much the high leverage of those loans, per se, as it is the lack of skin in the game—the lack of equity, or actual ownership, or what is there for the borrower to lose—a 97% borrower has in the home he’s buying. What does he lose when can’t—or decides he doesn’t want to anymore—continue paying down his loan?

Here’s Andrew Bon Salle, Fannie Mae Executive Vice President for Single Family Underwriting, Pricing and Capital Markets (you can tell he’s important to Fannie Mae from the length of his title):

This option alone will not solve all the challenges around access to credit. Our new 97% LTV [loan to value] offering is simply one way we are working to remove barriers for credit-worthy borrowers to get a mortgage[.]

Which, of course, is only loosely related to reality: if the borrower were credit-worthy, he would have the scratch to put down 10%.

The argument seems to be, also, that it’s too hard for a homeowner wannabe to raise 10% of the house’s purchase price. This, too, is nonsense. The homeowner just needs to save longer and with more diligence. Or look to buying a less expensive house. Or both.

Judgment like this demonstrates the need for these two agencies to disappear and to let the market determine the viability of mortgage packaging and peddling.