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.
The devastating effects of Health Reform are just becoming more and more clear. As companies are able to review how this will impact them, a very common theme is recurring again and again. Basically an Employer who is not offering health insurance to its employee (singular) will be fined $2,000 dollars per employee (singular).
Considering how most families (plural) are on a company’s insurance plan where they work, the likely cost to a company is far greater than $2,000 dollars. Let’s say a family of four gets their full insurance policy from an employer. If the cost of the premium is $3,000 per person, or $12,000 per family, companies will gladly opt out and pay the $2,000 dollar penalty, saving them $10,000.
Even if the cost to the company to insure the person is a mere $3,000 for an entire family it would still be cheaper to drop them and they save $1,000. Even better is that when they drop them, there are no preexisting conditions, and they must be accepted no matter what to an insurance plan. One more piece of evidence this will happen is that a family of four making less than $80,000 will get the insurance subsidized by the government if their employer doesn’t offer insurance.
I will predict that a cascade of employers dropping insurance plans will come. Look for the first few to do it and be crucified in the news, but after the initial stigma wears off, all the other companies will follow suit. It will be a matter of time, before there is no such thing as Employer Based Health Insurance.
The reason I say this may be a mixed blessing is in the worst way, it will make what I have been calling for come true. I didn’t realize it at the time, but it will end the employer based insurance coverage. This part is a good thing, but the way it is set up and the incentives used, is the worst way to get there. I have my own insurance, and plan on paying for it, because I am afraid of a mass exodus to sign up for individual plans. Companies may not be allowed to deny coverage, but as far as I see, the application period to get that coverage will be indefinite.
So health care reform has basically passed through the final turn and is making its way across the finish line. I have seen many sides to the debate and there are a few things I have observed. I watch those on the left asking why anyone could possible be opposed to this legislation? Here are the top 3 reasons this reform is so loved on the left. On the surface they all seem like good ideas, with the swipe of the magic legislative wand, all these issues will be fixed. Not really, here is why.
- No preexisting conditions.
- Coverage until age 26 on parents plan
- Prevents major price increases.
The three different issues that are being addressed are all intertwined. To keep this short and simple explaining number three, preventing major price increases is really just another way of saying price controls. The bottom lines with price controls are they create shortages. If insurance companies do not have any pricing power to bring in more money, they will not be able to pay more for needed services. This means rationing of care. It will happen; anyone can reason that if there isn’t enough money to pay for the expenses, limits on spending must happen. Who decides where money is better spent, that will now be someone in Washington. Good bad or ugly, without being able to raise premiums means there is not an unlimited supply of money for services. Prices will continue to shoot through the roof because of the crown jewel of this reform bill, preexisting conditions.
Our incredible intelligent law makers figured out they simply needed to write a law saying no more preexisting conditions, and that will solve all of our insurance problems as a nation. It all sounds great, why didn’t they do this a long time ago, because it just isn’t that simple. The reason it isn’t simple is because the mish mash of insurance companies and how we get coverage. Our current system is a patchwork of coverage inter tangled through ridiculous regulations.
Consider the first crazy way we get insurance…….. from our employer. It is ridiculous since if you lose or quit your job, you lose your insurance. Why would anyone purchase based on an employer? We do because of taxes and other regulations requiring companies to provide it. Next it is even more complicated with the ridiculous idea that we can’t shop across state lines. This means if your employer is in NY, then your insurance plan has to be purchased by your company in NY. If you live in a different office of the company located in a different state, you still have NY insurance. If you lose your job, by law you must give up your coverage since you are out of state and shopping across state lines is illegal.
The problem with a preexisting condition is when someone with it, has not been paying into an insurance pool. There are many reasons why this happens. Because most insurance policies are attached to the job, as soon as someone gets very sick, they will likely have to resign losing their current insurance policy, now with the new law, they will simply buy in to a new plan. The problem is that the old insurance company got all the profit while the new company will get all the expenses.
A likely outcome of this new law is the disappearance of individual policies. Why would an insurance company cover individuals now since the only people who will be seeking insurance not from an employer will be a sick person? With no fear of losing insurance from your employer, people will become sick and quit their job to take time off to focus on their health and becoming healthier, this sounds good, but will lead them to an individual policy. Again it will be a new policy that must cover them regardless of history or cost.
Eventually this will break down the system. Any smart insurance company will exit this dangerous pool of customers. That will start forcing over people to the state rolls. This will lead to a complete breakdown of the insurance industry, and eventually everyone will find themselves on a single payer insurance pool. That is the final outcome with regulations that are too onerous. It will distort the insurance market place until it breaks.
The final proof this new plan addresses none of the problems and leads to more of the above, being 26 and still needing to be on your mothers insurance. This is the case again because we have employer driven insurance coverage. If individuals bought their own insurance policy from the start, they would never need to be on moms insurance.
The reason this even needed to be included is because of how foolish our system is. A person has their family’s policy. The new health care reform will now force coverage on moms insurance until the age of 26 instead of just 18. That sounds great, but just pushes back the same problem; they will have to change insurance companies. It doesn’t address the real issue, the fact we change insurance companies way too much for easily fixed reasons.
This is my case for why health care reform will fail. It fails to address the fundamental issues plaguing our health care system. It will continue to raise the costs and will eventually run out of money.
Matt
http:.//talkofliberty.com
The CBO has returned with the estimated cost of the next ten years of health care reform. A mere $940,000,000,000.00 dollars for ten years. This is likely to be completely wrong and end up costing far more for Americans since it will destroy even more levels of competition through oppressive new regulations and mandates.
One overlooked fact regarding this comprehensive reform package is how it will basically cost $1 trillion dollars to cover an extra 31 million people. I question the idea that those 31 million do not have coverage since half of them are young in between jobs youth who probably do not even need coverage. Regardless, the average cost per person will be a staggering 3000 dollars per year for ten years to cover them for ten years, but the reality is it will cover them for 6 years meaning it is closer to $5,000 per person. Keep in mind, half of this pool is a low risk pool with little cost to cover.
The second overlooked cost of HC reform is the fact that the trillion is the cost of 31 million extra to be covered. What about the other 200 million people who already have insurance? Democrats state that this will lower the cost of insurance for employers to pay for or individuals to buy. I ask how? This bill changes nothing regarding competition or reducing regulations which drive up prices. The only thing in this bill is more coverage mandates. This will no doubt cost everyone more in the bigger picture over the next ten years. Let’s be extremely gracious to the democrats plan and only assume this bill adds additional costs of $100 dollars a year to everyone else, it would add an additional 2 trillion dollars in cost. This is an additional 2 trillion dollars that will pay for red tape not creating a job or healthier people.
Because there is nothing in this bill that increases competition and it was written by pharmaceutical executives, that means this bill can only lower costs through price controls which have never succeeded and always lead to rationing with less supply than demand. This bill will most likely suck at least another 3 trillion dollars out of our economy and divert it to unproductive areas, lowering the overall capacity of wealth generation in our economy. Small businesses will likely be crushed initially since it will takes months to find loopholes around regulations rather than pay for them.
As a big fan of Peter Schiff, I am confident he is exactly what Washington needs right now. I hope you voters in Connecticut realize what an opportunity you have to send an incredibly intelligent person who understands how government is destroying jobs.
Those of you who love freedom need to decide. I hope Schiff gets the nod.
