Ask a D.C. insider what’s the best way to solve the debt crisis. Nine times out of ten, they’ll recommend taking on more debt. That’s how things operate in the Potomac swamp. Up is down, right is left, digging yourself into more debt is the best way to get out of it. But it wasn’t always like this. In fact, there used to be common sense when it came to the economy. So where did it all go wrong?
Politicians talk about the uninsured. Special interests argue on behalf of those with pre-existing conditions. But why is no one wondering how doctors are affected by the new law? They’re the ones on the frontlines dealing directly with new patients, as well as the red tape that makes bureaucracies go round.
Politicians proclaim the benefits of small business while on the campaign trail. But when they meet in the seedy halls of Congress, they have no problem doing whatever they can to stifle, regulate, and subdue their progress. Instead of siding with entrepreneurs, these politicians often side with political allies and cronies that helped put them into office.
Just because you’re retired doesn’t mean you have to stop working. Especially now that you have all the time in the world to do what you really want. Entrepreneurs don’t only come out of Silicon Valley. They come from all walks of life, from all different ages. If you’re retired and want to stay active while you relax, then find out the steps you need to take in order to start, manage, and grow your next small business.
Austrian economics does more than tell you what happens when the government disturbs market forces. In the hands of knowledgeable investors and entrepreneurs, it can tell you exactly what to expect from the market. Market behavior depends on how people behave. And how people behave is central to the Austrian perspective.
The U.S. dollar has been the world's reserve currency for almost a century, and already there are signs it may be in decline. But that doesn't mean it's not still valuable. On the contrary... As Chris Mayer explains, there are many reasons the U.S. dollar will remain relevant on the world stage for years to come. Read on...
World War II might have dragged the country out of the Great Depression, but it did so at a great price. Central planning took center stage, and politicans and bureaucrats suddenly knew what was best for America, the economy, and your life. On top of that, they replaced the free market with a new economic system… Creditism.
If you’re good at something should you be penalized so others have a chance at success? Should award winning actors and actresses be barred from future Oscar ceremonies to give other men and women the chance to succeed? Success should always be rewarded and encouraged. But what happens when you have a government that wants to even the playing field and take away the spoils of success. Gregory Bresiger finds out...
Practical people often pooh-pooh fiction reading as a time wasting dalliance, dominated by a Marxist coloring of the world. However, fiction readers were given a scientific reason recently for spending hours absorbing fanciful figments of someone’s imagination.
Argentina is suffering the ravages of government debasement of the currency -- i.e., inflation, the process by which government pays for its ever-increasing debts and bills by simply printing more paper currency. The expanded money supply results in a lower value of everyone’s money, which is reflected in the rising prices of the things that money buys.
When government expansion is allowed to continue unabated or when it casts a heavy regulatory shadow on America’s entrepreneurial spirit, the freedoms that we’ve come to know, and perhaps take for granted, slowly begin to slip away.
Its acceptance is as widespread as its justification is important, for it provides the rationale for the Federal Reserve’s unprecedented monetary expansion since 2008. While critics may dispute the wealth effect’s magnitude, few have challenged its conceptual soundness. Such is the purpose of this article. The wealth effect is but a mantra without merit.
Baron Rothschild, the famous French financier, was once heard to say that he knew of only two men who really understood money -- an obscure clerk in the Bank of France and one of the directors of the Bank of England. “Unfortunately,” he added, “they disagree.”
The new reality of Obamacare’s tax credits has left finance reporters to pen articles warning readers to “take care” when considering a tax credit and providing strategies for how best to “protect yourself.” So what do finance reporters know that the White House doesn’t?
Nihilo ex nihilo fit. Out of nothing, nothing comes. First put forward by ancient Greek philosopher Parmenides in the fifth century B.C., Thomas Aquinas and St. Augustine later used this axiom to prove that the universe needed a “first mover” to get things going. Even if the whole thing began with some kind of “Big Bang” moment, it still needed a banger to bang it. Who? God, of course.
Economic theories don’t lend themselves to laboratory testing, so the work of a national appraisal firm is especially enlightening. A new study lends support to the Austrian business cycle theory, which says that the less government is involved, the faster a market will recover.
What positive steps can we take? The energy that is now expended by well intentioned, freedom-seeking individuals on the destructive course of politics can be turned into powerful steps that will have a positive effect on the future. All are moral, right and just. None require aggressing. Consider the following...
The Affordable Care Act creates a new health insurance marketplace (the exchange). But because of the great uncertainty about what buyers will enter the market and who will buy what product, the law creates three vehicles to reduce insurance company risk.
Politicians and bureaucrats are notorious for manufacturing euphemisms -- clever but deceptive substitutes for what they really mean but don’t want to admit. That’s how the phrase “revenue enhancement” entered the vocabulary. Some of our courageous friends in government couldn’t bring themselves to say “tax hike.”
It’s easy to be negative about the U.S. economy these days. Find a glint of silver, and folks come running to point out all of the dark clouds looming about. This, of course, is what we got last week when the monthly jobs report was released from the U.S. Department of Labor (DOL). Folks pooh-poohed the number of jobs and whining that they’re not enough or that it’s less than a bunch of economists thought that it might be. But you know what? Stuff ’em.
Facts are easy. You can check facts. What supporters of the Affordable Care Act are doing, on the other hand, transcends factual bungling. It’s far more advanced: a warping of reality so debauched it looks like something out of a tale by H.P. Lovecraft.
The east coast and parts of the southern U.S. were to varying degrees paralyzed by blizzards a few weeks ago. The snow as expected rendered the roads treacherous, and in anticipation of slick streets, shoppers flocked to the grocery stores in advance.The rush into grocery stores, and its aftermath, offers worthwhile lessons in economics.First up, […]
The highest form of charity, argued the 12th-century Jewish philosopher Maimonides, is when the help given enables the receiver to become self-sufficient.But our systems of state charity — aka welfare — have too frequently had the opposite effect: They have actually created dependency. It is time to rethink the way we help people.I’m going to […]
Last year was quite the year for Bitcoin. We’ve seen exponential growth in Bitcoin’s exchange rate and extensive coverage in the media. Another phenomenon we have witnessed is the proliferation of alternative cryptocurrencies, five of which we’ve provided below.What all of these cryptocurrencies have in common is that they rely on a decentralized network to […]
President Obama crowed in his State of the Union speech about the economy, even mentioning “a rebounding housing market.” Maybe he was referring to friends in high places, like the seller of Penthouse One in New York, which just closed for $50.9 million, all cash. Millions of mere-mortal homeowners likely wanted to throw something at […]
The nonpartisan Congressional Budget Office is acting in a bipartisan way to cover up the biggest single threat to the bipartisan political alliance that is stripping America of its wealth: the United States Congress.There is no question that the following policy is bipartisan. Democrats and Republicans in Congress are completely agreed that the following information […]
Recent difficulties with implementing the Affordable Care Act have increased opposition to the program. A majority of Americans now oppose it. Problems with the HealthCare.gov website are in all likelihood temporary. However, there are serious long-term problems, particularly considering long-term finance and labor supply issues. Given the mounting difficulties with and growing concerns about the […]
Some pretty big names in the financial prognostication business are recommending that investors start buying houses. Jim Grant has devoted lots of space in Grant’s Interest Rate Observer to the idea. Marc Faber, Donald Trump, Warren Buffett and our own Chris Mayer all like sticks and bricks.
Five years ago, the unthinkable began to happen. It got worse and worse. By the end, housing prices nationwide were down 35%. In some markets like Las Vegas, where I spent time as a banker, the shellacking has been much worse. The bulls figure now’s the time to buy. You know, buy low and sell high.
In a piece for The Daily Reckoning, Mr. Mayer talks about how affordable housing is in the U.S. He points to the ratio of median home price to median income. The lower the ratio, the more affordable the market is. Hong Kong is an unaffordable 12.6, while a number of U.S. cities come in at less than 2, especially in economically ravaged Michigan (maybe because these cities are bankrupt and municipal services are sketchy). But U.S. bargain hunters must steer clear of expensive Honolulu and Boulder.
“I turned bullish on US housing in January 2011,” writes Mayer. “I did this after being a housing bear for about a decade. But the housing bubble that I feared has long since popped. Good bargains abound.”
Is housing the low-hanging fruit that Mayer and others think it is? Housing prices bounced in the first six months of this year, bolstering their case. But housing is anything but on fire. Prices are rising because resale inventory is at eight-year lows and new-home inventories haven’t been this low since the Census Bureau started tracking that data, in 1963.
There are always people looking for houses, because life circumstances change. However, the only reason this tepid demand is moving the price needle at all is the lack of supply. As Nick Timiraos writes in The Wall Street Journal,
Low inventory isn’t necessarily a sign of strength. One problem is that many sellers can’t or won’t become buyers. Millions still owe more than their homes are worth, and even more — about 45% of all homeowners with a mortgage, according to data firm CoreLogic Inc. — have less than 20% in equity.
Mr. Timiraos has put his finger on the housing market’s problem that the bulls are turning a blind eye to. Upwards of 16 million homeowners are underwater. They owe more on their mortgage than their home is worth. In some cases, the amount is hundreds of thousands of dollars. These folks are imprisoned by their debt. They have been told all their lives they must honor their debts no matter the cost.
They desperately keep paying to protect their precious credit rating, handing their savings and their futures over to wards of the state Fannie Mae and Freddie Mac or too-big-to-fail zombies like Wells Fargo and Bank of America.
Many homeowners naively go to their banks and try to negotiate a modification of their loan. They are stunned when the lender either ignores them or refuses to consider a rewrite if the loan is current. Eventually, many give up. But they don’t go anywhere. They just stop paying.
Bank servicers are overwhelmed and don’t file defaults for months, sometimes years. In Las Vegas alone, there are hundreds of thousands of borrowers who haven’t made a mortgage payment in years. Timiraos writes that its ironic that “prices are rising fastest in markets that have the most underwater borrowers because so few homes are for sale.”
The latest numbers in Las Vegas reflect an inventory that has dwindled to 3,981 units, compared with more than 11,000 a year ago. Last month, 44% of all sales were short sales. And currently, “About 85% of homes under contract are short sales waiting for lender approval,” reports Hubble Smith for the Las Vegas Review-Journal.
“We’re really struggling with inventory,” Robyn Yates of Windermere Prestige Properties in Henderson told the Review-Journal. “That’s the challenge. Even though it’s great that prices are going up, it’s not great from the perspective of real estate firms and buyers. It’s very frustrating.”
Many states have passed laws requiring that lenders provide proof they have standing to foreclose. Many can’t provide it. During the boom, most mortgages were assigned electronically through MERS (Mortgage Electronic Registration Systems). Judges like to see actual paper-and-ink assignments.
This legal tangle is keeping the market from clearing. Literally millions of homes are just waiting to be sold, foreclosed upon, or liquidated. This is not the sign of a recovering market. Instead, the clogged foreclosure pipeline artificially elevates prices.
Timiraos makes the point that mortgage rates are at historic lows. If you can qualify for the money, that is. Qualified buyers are few and far between, post crisis. However, for those that do qualify, “Mortgage rates allow borrowers to take out about 12% more in debt without increasing their monthly payment,” writes Timiraos. This boost in sales and prices will not last once rates go back up.
And to top all of this off, wages and employment are just not growing enough to spark a rally in home prices. The only thing bringing down the unemployment percentage is people giving up on finding work. This would have been fine back in the NINJA (no income, no job, no assets) loan days. Bankers are again tightfisted.
There could come to be a time when houses are a good investment, but that day has not arrived. Now is the time to walk away if you’re underwater and forget about buying.
In the new edition of my book, Walk Away: The Rise and Fall of the Home-Ownership Myth, I examine the U.S. government’s constant cheerleading for and subsidy of homeownership. Every argument against walking away is considered and rejected. Also, I take a careful look at the neuroscience of why people continue to pay and battered-homeowner syndrome.