How much debt is too much debt? We are beginning to find out. The dollar has been collapsing recently. Today Gold and Silver are shooting through the roof. As the debate over government shutting down heats up, many will point to these events as proof of what will happen if government shuts down. This is merely kicking the can down the road. The dollar is collapsing, and whether it happens fast or continues its slide into irrelevant slowly, the end game is the same. We need to jump on this ASAP, and cut the debt fast. The US will not lead if it has no money.
Liberal policies and conservative war mongering has come home to roost, spending what you don’t have by definition comes to an end. I am not an expert, but it doesn’t take an expert to open your eyes, and realize things we buy everyday cost far more than any raise any of us have received the last 10 years.
People need to realize a dollar is only worth what it buys, and as the Fed prints and Government spends, our savings is being destroyed. Once the real wealth is wiped out, just like in a household, the standard of living will drop next. We need to wake up quick and stop this madness.
Recently John Stossel aired a special show about freeloaders. Now, I am a huge fan of Stossel and consider myself a fellow Libertarian as well. During his segment he brought up the freeloaders who take advantage of the program www.youwalkaway.com where individuals strategically default. Stossel calls this “immoral” and calls those doing it “freeloaders”. Normally I agree with John, however he has gone back to his liberal ways worrying about the greater good and moral obligations to society.
Lets consider what obligations a home owner has, morally. When a mortgage is signed, it is a contract. Now to a libertarian, a contract is sacred and crucial to property rights. By agreeing to a contract, two parties agree to terms. Now consider a home mortgage contract, basically the buyer of the home agrees to paying back the loan or risk damaging his/her credit and potentially having a deficiency judgment placed against them in the event of defaulting. They also agree that if they default, there is a formal process that will be adhered to and eventually they will vacate the property. Nowhere in this agreement, is there any place that says “you have a moral obligation to pay as a debt slave for life” nor does the contract state “you must pay in order to keep the neighborhoods value from falling”.
Stossel notes that there is a moral claim on society to be a debt slave and to pay a mortgage regardless of how poor of an investment it could be. This is liberal hogwash. A home owner is only expected to do what is morally best for themselves and their family. Ayn Rand would never expect a home owner who has lost 150k in a losing bet, to not walk away. Why would an individual not have a greater moral obligation to their best interest, not societies? A real libertarian view would be to look at this as any other business decision and a SWOT (Strength Weakness Opportunities Threats) analysis would be done. Consider if a business opened a new location, purchasing the land and building a property. If it threatened to be a very bad long term investment, wouldn’t the business simply analyze the situation and make a smart decision?
The moral hazard in this situation is the Lender and Investor. Lets consider a scenario; assume we have an investor who is willing to give $1,000 dollars to a lender. The investor must perform the due diligence to ensure the investment they are making matches the return they expect. Now the lender is responsible for making a loan that meets the investors guidelines. They must morally make an honest loan that meets the investors criteria. So then finally we have a borrower, who must meet the criteria of the investor who will be risking their capital.
So finally, let’s assume the investor says, “you can lend my $1,000 dollars to anyone you want, I am unconcerned about my investment”. So the lender finds a borrower, who just so happens to be highly addicted to crack. The lender warns this “highly addicted to crack” individual that if they do not repay this loan, their credit will be negatively impacted. The lender also agrees to lend the entire $1,000 dollars at a very low interest rate of 6%. Even better is the investor agrees to this term in addition to the crack user and the lender both agreeing. So not much time goes by and the crack user defaults. Is this a shock? No; we expected it. This should never happen in the real world, but is an example that helps to support my conclusion, where the real “moral” hazard is found.
The problem with the scenario above is that the investor did not perform the due dilegence. In a free market driven society that would never happen. Investors would never risk so much money on very risky loans. The real moral problem however, is that investor is the US taxpayer. However, this “true” investor has no say in the risk level. It is Fannie Mae and Freddy Mac as well as other federal loan programs that determine the risk tolerance they will purchase. They have a moral obligation to defend the investors assets. The real problem here is that those agencies are quasi government agencies. The investor that funds them is the taxpayer who have no choice but to say “yes” to it’s terms of lending. A GSE can simply demand more from taxpayers and the Federal Reserve, never worrying about the quality of the investment or borrower because it is not their money at risk.
In conclusion, homeowners walking away represent a completely logical approach. Rather than being a debt slave for life, they choose a wise business decision to cut their losses and follow the contract for which they agreed. Sorry John, I love your work and would work for you in a heartbeat, but I think you missed this one by a bit.
How Senator Harkin was ever elected into his position is one thing, now look how destructive he is trying to be to the ATM industry. He is trying to “Cap” the excessive fees made by banks and ATM operators. In his mind, it is crazy for people to pay to access their own money.
Sorry Senator, but often they are not paying to access their own money. First of all, what bank charges ATM fees on their own customers? I can’t think of any Bank of America or Chase etc charging their own customers to use an ATM. So we know it is not their money.
Now consider taking away the evil profit incentive independent ATM operators, all this will do is put them out of business. Why would they put 10k of their own money in a place to sit at risk of theft for no return on investment? Why would they risk carrying a bag of money to fill it up again, risk being shot, put in the hours of work to maintain them? Why will they invest 10 thousand dollars into an ATM machine that they can’t make money, they won’t.
Beyond the fact that anyone slightly more intelligent then Senator Harkin would use their own banks ATM, or use a bank that offers refunds on ALL ATM fees, why destroy an industry? He clearly is just another shill for the banks. His laws would put all private ATMS out of business since they are the only ones who make money if his horrendous idea passed.
Wake up America and throw this bum out and any other person trying to attack jobs.
Many people do not understand the moral hazard created by having FDIC insurance. Those lovers of big government never look at the unintended consequences, only those seen. We should never be saying thank goodness we had FDIC insurance in the first place. We need to look at the cause of failing banks. A typical response would be something like a fellow reader wrote.
The Federal Deposit Insurance Corporation: Implemented in 1933 under the Glass-Steagall Act, this federal program put and end to Depression era ‘runs’ on banks. Today, people don’t have to worry about losing everything because a bank fails. Pretty handy considering the fact that hundreds of banks have failed since the 2008 economic meltdown.
The reason FDIC should be abolished is the distortion in the banking industry it creates. For those who are not aware of what FDIC is it is Federal Deposit Insurance Corporation. It is a government backed insurance policy which guarantees bank account deposits up to 250k. If the bank goes bust, the insurance policy kicks in pays backs the money. In theory, it prevents runs on banks.
Having FDIC sounds good in theory, however what it actually does is punishes good banks and rewards bad banks. The first glaring issue is basically the premium which banks have to pay is from what I understand, uniform. If one bank decides to take depositors money and gamble it, they still pay the same fee as the conservative bank. This forces conservative banks to pay for bad behavior.
The second issue comes from the fact because it covers risk of loss; depositors have no care in the world how risky a bank is operating. Often the opposite of logic happens and bad banks actually offer far higher yields to deposit money with them. This forces good money out of the good banks and pushes over to bad banks again. Again rewarding the bad and punishing the good.
The final bad side effect of FDIC is low yields paid to depositors. Because the risk is now considered very low since Uncle Sam is backing the account, banks do not have to pay depositors for using their money. This is why you get .000001% when you deposit money in a checking account. This punishes savers and gives huge rewards to the banks.
Overall FDIC distorts the banking sector, allows Fractional Reserve Lending to lend out of control. The taxpayer gets the downside, depositors get zero interest. The only winner is the big bankers.
Drilling offshore for oil is a good start. It generates jobs, tax revenue, and helps with our need for fuel.
The biggest thing which is overlooked about opening drilling is how tight the oil market is. This may not lower prices by 2 dollars a gallon, but it should make shock far less common if we didn’t have such a tight supply. Literally if a tanker or two sinks, it can drive up markets to high price levels.
My guess is oil prices will eventually come lower as China’s economy finally blows up. Repubs will say see, but regardless, this is good for America.
Matt
http://talkofliberty.com
In taking the suggestion of a fellow freedom loving blogger, Dr. Orphe Pierre Divounguy who commented on the Laffer Curve, I will take another look at it. I suggest everyone take a look at his blog as well.
The Cato Institute made some great videos regarding the Laffer Curve I have posted below, which I also recommend you check out.
To keep it simple I will use the analogy of a deadbeat son working for a family run company. The government in this story is the dead beat, and the family run company is America.
A family run business is very successful and operates at an extremely efficient level. This means that they are very profitable and are able to reinvest into the company to grow it. They have extra money each month to spend on advertising and are able to hire the best people. Currently the deadbeat son of the owner who doesn’t work for the company, therefore there isn’t any dead weight on the payroll. This is what zero taxes on the Laffer Curve represents, in this state, the company reinvests and grows at a very fast pace.
The family decides to hire the deadbeat, but they decide to give him 1% of the company’s profit. Because the company is so profitable, the missing money is not noticed, and are able to keep running quite efficiently, the non deadbeats may need to work a little harder to make up the extra 1%.
The deadbeat explains he needs more money and takes on a few new roles, which he really is not good at and the company would be better off hiring someone else, but he is dads son, therefore should be paid more and gets a 20% raise. Because he is such a deadbeat, he makes 20 times more percentage wise, but because money is being diverted from profitable centers such as advertising or hiring good people, the company is less profitable overall, so he makes more money overall, but the company is making less. This is why on the Laffer Curve, increases in taxes are not dollar for dollar more money.
The owner of the company dies and the deadbeat inherits the company. The deadbeat decides he should be paid 50% of all the profit. The deadbeat parasite begins leaching so much money out of the company, they stop advertising, and begin to hold off on spending more money on hiring, overall this makes the profit begin to fall. There is immense harm being put onto the company and makes it far higher to reinvest money into operations. Because profit is down, the deadbeat actually makes less than when he was taking 20%.
Finally the deadbeat decides to take 100% of all profit from the company because his bills are just so high and he needs more money. Rather than cut his expenses, he pillages more. All the workers who are left decide it is best to quit working and work for other companies which offer far more growth. This means the company dies, and the deadbeat makes no money.
This is the Laffer Curve in practice. The government consumes wealth, it does not create wealth. The government does not make anything and has nothing but for what it takes. The Laffer Curve is a tool for politicians to figure out how much blood they can suck out of its people before it begins to kill its host.
There are some legit reasons for government and spending, but every dollar taken kills its host by that much. Strong growth of the economy can out grow what is sucked out until you hit a tipping point.
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I have been watching the country get driven into socialism and crushed further into debt. So now on TV they (conservatives) are saying it is going to be up to the Republicans to get voted in and save us all from socialism this November. My question is what has a Republican done to shrink government? I do not believe in Republicans anymore, they have failed me.
In my life I have seen bigger government and more spending each every step of the way with Republicans. You have Republicans like Scott Brown who votes for jobs bills spending more Keynesian spending that has never worked in history. How will Republicans cut spending and balance the budget?
Republicans still believe in the Laffer Curve from the Reagan days. The biggest misconception with the Laffer Curve is not that lower taxes are better, instead the Laffer Curve is a tool to figure out what the maximum tax rate the government can get away with. Common sense says a tax rate of 0 would be best economically. Yes I understand we do need government and military, but the point is we need a smaller government not the largest one we can get away with.
Are Republicans willing to balance the budget in 2012 if they win the majority back? Are they willing to cut the military spending in half? Can a single Republican tell me how they will balance the budget and or what they would be willing to cut? I have not found a single one who can. Republicans may be a big winner in November, but unless we get leaders like Governor Chris Christie who is taking the Unions head on and slashing spending, we will continue down the road to serfdom.
I saw Sean Hannity stumped when asked what would he cut from the budget, yet he is the first to say he hates deficits. I am skeptical the Republicans will practice what they preach.
