As we work on fresh new highs in the markets, it’s worth looking at the headwinds now in place for resuming real, organic economic growth.
- Lending in the critical housing sector is still essentially frozen outside of government support. You are starting to see talk of FHA bailouts, so the critical element of new buyers with limited down payments will be slowed down. (That said, risky lending done by the government is even worse than that done by private institutions. We would be better off with a functioning market for higher LTV loan products with investors taking the risks they want).
- As history teaches us, the government’s attempts to prop up housing with homebuyer tax credits, refinancing of various borrowers, foreclosure moratoriums, or non-economic loan modifications will eventually all fail.
- It is not possible for the government to create economically valuable jobs (see the broken window fallacy). As charismatic as he is, even Obama cannot repeal this one.
Risk taking among private pools of capital and the creation of small business and startups actually are responsible for true job creation. This sector is in a severe crunch. See one of many stories on small business lending, or frozen venture capital fundings.
- As I’ve mentioned before, the US healthcare system is grossly inefficient and unproductive, and may be headed for a crisis.
- We are allowing our currency to fall. This might be good if we had meaningful exports or other activity, but as it is we need to attract foreign capital that is comfortable with our rock-bottom interest rates…
While this is still the most innovative economy in the world, and we will recover, the answer for our government is to allow new and existing corporations room to build and operate new businesses. Those are shocking words today, where most Americans still derive their livelihood from big corporations while decrying every minor misstep, cost cut or outsourced activity they engage in. Here is my politically infeasible recovery proposal:
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End government supported mortgage lending and all incentives for home purchasing. Replace it with a partial guarantee program for private label mortgage backed securities with significant limits. If you think this can’t be done, consider the massive liquidity that was willing to purchase all sorts of these mortgages with no safety net just 2 years ago.
- End all corporate taxes. Large, connected firms aren’t paying a major share of these taxes, and when they do it is simply passed on to all of us. Banks won’t pay them for a good while (due to credit loss offsets and mergers).
- Massively reform the personal tax code. Almost anything would be better.
- Take steps to end our foreign military involvement. Set up a temporary work program for all the displaced diplomats and soldiers if you have to (repairing broken windows? or making solar panels?
)
- Offer buyouts and early forced retirement to 2 million Federal government employees. That’s only a small fraction.
- Work with investors and trade agencies to jump start asset securitization. This has got to happen, and the assets must be held outside traditional deposit-taking banks as much as possible. Create major tax incentives for private investors to hold business loans, consumer receivables, startup equity, etc.
I have a few more ideas, but that’s a start.
Posted in: market, politics.
Billion Dollar Gram: putting all the crazy numbers you read and hear into perspective!
Posted in: politics.
For those of you into finance, this blog is well worth reading through the past couple months’ posts:
Accrued Interest
Google Reader found it for me somehow. Best of all, it includes bonus Star Wars references!
Posted in: market, politics.
From this Q&A with Greg Gutfeld:
“I became a conservative by being around liberals and I became a libertarian by being around conservatives. You realize that there’s something distinctly in common between the two groups, the left and the right; the worst part of each of them is the moralizing. On the left, you have people who want to dictate your behavior under the guise of tolerance. Unless you disagree with them. Then the tolerance goes out the window. Which kind of negates the whole idea of tolerance. That’s the politically correct moralizing. Then when you become a conservative, the other kind of moralizing comes from religion. But if you remove both of those from the equation, what you’re left with is libertarianism.
From the right, you’ve got free markets. From the left, you have free minds. To me, that’s the only sensible direction. As you grow older, you kind of end up there. Especially if you drink and do a lot of drugs.”
Posted in: Uncategorized.
Those who began their careers in the dot-com mania, like myself, have now been through two booms and busts. It becomes natural to look for a third one in our future. At this point, we know the only private sector expansion is taking place in the out-of-control healthcare sector, so that is the natural place to look.
Actually, you could find some arguments for a collapse of the vast US government itself, but I am of the opinion that a future administration will be forced to make dramatic cutbacks in certain spending areas and that such an outcome can be avoided. It’s possible that this could include the large medical subsidies and entitlements already in place, so that brings us back to the healthcare system.
Here, without solutions, are a few things that are way out of whack about our system:
- The vast payee, insurer, and processor structure needed because there are so many private and public entities involved. Similar to alcoholic beverage distributors, a lot of this system is mandated to exist by outmoded policy only.
- Along similar lines, a lot of the productivity improvements made possible by the IT revolution have largely passed the healthcare system by. A lot of recordkeeping is still paper-based, despite the promises ten years ago that we would all have our complete histories at the touch of a physician’s PDA.
- The large proportion of jobs, productivity and output that healthcare now represents is reminiscent of the real estate bubble communities such as Las Vegas, here in LA, and Florida, where the majority of new residents coming in were in the construction and real estate industries themselves (or closely tied to it), which created something of a vicious cycle.
- As a culture we have a long way to go to accept true rationing, which seems completely unavoidable (barring the creation of Emergency Medical Holograms). We demand to have all possible measures taken, by expertly trained doctors, immediately. (In nationalization scenarios we can provide all reasonable care, but there are usually significant waits involved.)
- The medical education and licensing world creates an artificial scarcity of doctors. This is perhaps most easily fixed, although we must inject more semi-competent doctors into the system to help out.
A combination of inflation induced by Fed unwinding (a contentious argument but a possibility) and US government cutbacks in the name of solvency could create a wasteland of empty clinics where a simple physical is $5000 (and unaffordable by all but those absurdly rich among us) and emergency patients are kicked out onto the street.
For further reading I am digging into this blog by Bob Laszewski:
Health Care Policy and Marketplace Review
In particular, he has a March guest piece discussing the potential system failure idea.
Posted in: politics.
Testing MacJournal!
Posted in: Uncategorized.
