Tuesday, February 16, 2010

Economic Consequences and Solutions


Thanks for the email about the super bowl commercial. I thought the commercial was very benign.

Allen, I want to share with you what is going on with America. This isn't going to be brief and therefore cannot be expressed by phone on air. But I know you read your emails and respond, so, here is my 50c.

When I bought by first house my mortgage was a rude awakening when I realized 6% interest is not 6%. With the amortization schedule, 95% of monthly payments for minimal payments goes to interest. The amount of interest vs principle paid does not change much for 20 years on a 30 year loan. Thus if making minimum payments, the only way to build equity if for the price of the house to go up. It was commonly heard in conversations in the 90s, I got a great deal on my house, if I sold it tomarrow I already have 20k in equity. Those were the days.

The consequence of this system are several. This is a huge driver of inflation and increased cost of living. So significant is this economic pressure, mom and dad are both working and working longer hours. US productiivity has set record highs but at what cost. If noone is at home and always working, emotional needs are not satisfied and communication faulters. The consequence of this is addictive behaviors to escape instead of deal with stress. Thus we see a rise in drug use, overeating, emotional shopping, pornography, teenage pregnancy, and gang activity. There is a reason interest was forbidden in the Bible. Charging interest is an act of war. (interesting history how knights Templar introduced usury into western banking).

Banks claim interest is nessessary to offset risk. Risk is an illusion. Banks don't even give loans, middle underwritters do. Local banks collect fees. The underwritter middle men borrow our tax dollars from the FED for almost free, then lend our money back to us. Due to fractional reserve banking banks can lend 10$ for every 1$ borrowed. So when a borrower defaults the bank does not lose money, they make money. Even if the bank repos your house and sell it for 50c/1$, they still make 40c and all the interest.

Why did banks fail? Banks did not fail due to poor people defaulting on subprime loans. Rich people took out no downpayment loans and defaulted on summer homes just as much as the poor. The reason why banks had trouble was because they "leveraged" their fractional reserves by exchanging dollars for "mortgage backed security derivatives" (MBS). These volitile peices of funny money or "toxic assets" were falsely given AAA ratings as safe but became worthless as they should be when the housing market tanked. Banks preferred derivatives to cash as their fractional reserves because it allowed them to lend more per dollar (leverage). When they lost their reserves, they couldn't lend.

AIG failed because subprime no-interest loans required mortgage insurance. AIG couldn't pay the claims. But they did pay all the banks after a huge taxpayer bailout. The banks got their insurance money to cover all the defaulted loans. and they repossessed all the property and sold it at at a loss which was also really a profit. And to top it all off, Geitner imposed TARP (toxic assets relief program) which proves the failure was because of the MBS and not the subprime mortgages. This is because even after being paid the insurance money to cover the defaults the banks still were in trouble. TARP was to buy back all the MBS. But guess what, TARP money didn't buy anything. The banks kept the mony and kept the securities. I suspect they still will own them until they eventually have value again so the banks can profit yet again. No wonder why the banks were dealing out record bonuses to their executives.

Why were MBS given a AAA ratings?Alan Greenspan thought derivatives like what caused ENRON to fail and gas prices to go sky-high last year would stabilize global markets which now are over-reactive as a consequence of being global. If Brazil or China sneezes we all catch a cold.

When the dot.com balloon busted in the 90s the federal government was stimulating the housing markets. Because of keynsian economics Housing prices didn't fall, and the housing bubble continued to inflate. Most economist in the world were amazed at the resiliance of the US housing market to withstand the dot.com bust. Therefore the MBS were given the AAA rating. But then due to the consequences explained by the Austrian school of economics, wages had been falling behind cost of living increases for several decades and the overinflated housing ballon finally bust.

FYI, this also affects medical care costs. 15% of costs goes to the doctor, 15% to insurance, and 70% is the facility fee. But holpitals really only need 15-20% to cover costs. The extra 50% goes to the stock holders or mortgage underwritters. The same ultra elites that get our monthly mortgage payments.

Our current borrowing/lending system creates classes in our society. There are those who work in the system and pay the interest and those few elite who collect the interest. And then there are those who fail in the system and get left behind. This is how we "grind the face of the poor."

This fractured social system creates a destructive dynamic. This system creates more poverty due to illegitimacy and vice. Because of the class envy of the middle class of the rich, this system also causes the middle class to neglect the poor. The neglect of the poor empowers to elite to institute socialist programs promising to help the poor and which keeps the rich elite in power and the poor poor.. If they lose power, the elite can become fascist like Hitler who manipulated class envy and pit the poor Germans against the more prosperous working Jews.

The US has a lot of poor and we can talk personal responsibility all day but at the end if the day, we must feed them or we empower evil people to incite the poor to kill us. (healthcare is not a right but a responsibility) The US can end socialism only by taking care of those who rely on social programs so they no longer need it especially the fatherless and the widow.

So, what can we do? What is the alternative?
1. We need capital. I am not anti-capital. Look what micro-credit does in poor countries. What we need is non-profit, non-interest collecting banking like Sharia Law banks. Instead of giving money, a "community safety society" (CCS) would purchase the property for and cover administrative costs by charging a fee. As you make payments, you become a greater shareholder in the asset. Loses in value of the property are the responsibility of the borrower, gains are shared by the bank and borrower porportional to their percent ownership.

2. CSS only purchase assets which maintain or appreciate in value and which are local. Therefore they would not give car loans. They would invest in local companies and municipal bonds only; thus shielding the community from economic turbulence elsewhere.

3. Those who invest with the CSS must be local and become part owners. Any profits go to the member investors. I think despite this profit for depositors, the bank itself would remain it's non-profit status.

4. Christian churches need to disciple more. According to 1 Cor 5, members must confess, repent, and forsake the sins of fornication, coveting, idolatry, railing, drunkenness, and extortion before being allowed to partake of Communion of the Lords Supper. Confession alone is not enough. If your doing one of these sins, you should be assisted in stopping it before being offered the emblems of Christs sacrifice so you take them worthily.

5. America must repent and forsake our worship of Ashtoreth, Baal, and Molech through false religion, sexual sin, and infanticide/abortion. We need to repent of this. America is like the Israelites who gave Aaron their gold and with it Aaron created false religion to which the people defiled themselves by sexual sin while Moses "delayed" and then "hastened" his return.

6. America needs to take care of our poor, fatherless and widows. Food shelter and medical care are not rights but they are our responsibility. And until we care for our own, we empower socialists and fascists who can easily gain power by promising income redistribution and can incite the poor against the working class.

7. The only government stimulus that makes sense is that stimulus that supports the US being self-sufficient. This means natural gas cars over petroleum for example. Self-sufficiency protects and insulates us from global turbulence to which we are currently subject. Never borrow from foreign countries. Use tarriffs to protect US industry from foreign competition.

8. Put US currency back on gold and silver standard. Print 10 trillion dollars and pay off debt. End fractional reserve lending to offset inflation and soak up extra dollars. End the Federal Reserve.

9. If the US ends fractional reserve banking, that means the US government can make some interest on every dollar borrowed instead of only making money on a small fraction of dollars that are created/printed/lent. Think of it as raising taxes on the use of money instead of allowing "financiers" to create money for free. That will mean huge increased revenues to help balance the budget.

10. Allow your local bank to borrow money directly from the US Treasury. Currently, your local bank cannot borrow directly from the FED. Loans are always "underwritten" by "money middlemen." Somehow the justification for this escapes me. Something about subjecting the small bank to too much risk. However, if you realize the system, there is no risk at all due to fractional reserve lending and the money multiplier. The current policy consolidates power, is inefficient by these "money middlemen financiers" draining capital out of the system.

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