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Posts Tagged ‘US’

Fed’s Policies Have Created Stock Market Bubble

Posted by Steve Markowitz on September 3, 2015

The last few weeks have come with increasing turmoil in equities markets.  One day last week the Dow dipped nearly 600 points, only to recover nearly 450 the next.  The market’s gyrations are occurring after their values had been relatively flat for the past year.  This is problematic since prior to the flattening, increasing equities’ valuations masked broader weaknesses in the economy.  For example, increasing equity values offset some losses inflicted on parts of the economy due to the low interest rates that decreased returns on fixed income investments.

The signs are clear; the equity bubble is at risk.  Many blame the volatility on problems with the Chinese economy.  However, as this Blog has proffered previously, Federal Reserve and US governmental policies are the culprits. Read the rest of this entry »

Posted in Bubbles | Tagged: , , , , , , | 1 Comment »

US GDP Figures Go Negative

Posted by Steve Markowitz on May 29, 2015

The New York Times reported that the US Commerce Department has revised downward the country’s first quarter Gross Domestic Product (GDP) from a paltry plus 0.2% to a minus 0.7%.  Downward revisions have become too common in recent years and bring into question the science behind the government’s numbers.

In an attempt to soften the bad news the government and some economists blame the winter weather and other one-time factors for the decline.  However, given history and the trajectory of the GDP figures in recent quarters these explanations are not credible.

Some of the causes of the economic slowdown are obvious.  The significantly increased value of the US dollar hurts exports by American companies.  In addition, the energy market has become an important part of the US economy with the increased oil and gas production.  Depressed prices have curtailed exploration and other activities in this market.

Digging deeper into the figures indicate more systemic reasons behind the slowdown.  For example the Times reported that while personal consumption, a key ingredient in the US economy, increased by nearly 4.5 half percent in late 2014, it has since dropped down to less than 2%.  GDP growth was near 5% in mid-2014, but has gone negative in last quarter.

Economists generally agree that GDP must grow by a minimum of 3% annually to have a reasonably healthy economy.  The latest figures make this unlikely for 2015, the second consecutive year with less than 3% growth.  History and current trends indicate that a recession is a strong possibility.

The latest GDP figures bring into question another governmental statistic, the unemployment rate, which is reported to be currently less than 5.5%.  This figure is bogus as the government does not count those that are unemployed, but have stopped looking for employment.  Preposterous!

The government’s reaction to the 2008 financial meltdown started during the Bush Administration with bailouts and the TARP Program.  Obama’s economic programs have since included more bailouts and record deficits in order to implement stimulus spending programs.  During both administrations the Federal Reserve fostered historically low interest rates.  Given the anemic recovery of the past seven years and the current economic data it is clear that these policies have failed.  It is now reasonable to question whether the policies themselves have hindered economic growth.

One accepted definition of insanity is repeating actions, but expecting different results.  That is precisely what the US government and Federal Reserve are doing for economic policy.  The Obama Administration suggests still more governmental spending and the Federal Reserve continues to promote low interest rates.  Both must now accept responsibility for the ongoing economic malaise.

Posted in economy | Tagged: , , , | Leave a Comment »

Government Again Pushing Mortgages to Those Who Cannot Afford Them

Posted by Steve Markowitz on May 18, 2015

In 2008 the world economies encountered the worst financial crisis since the Great Depression.  In a supposedly effort to repair the economies, governments transformed them through huge stimulus spending, low interest rate policies and bailouts.  These interventions have contributed to the ongoing weakness in economic recovery since.

The main cause of the 2008 meltdown was the subprime mortgage lending practices that led to loans being hustled to millions who could not afford to pay them back.  When the housing market slowed leading to depreciated housing values, homeowners could no longer refinance, further eroding housing demand that led to many homeowners owing more on the homes than they were worth.  Many walked away from the loans leading to the meltdown, putting at risk nearly most of the world’s largest financial institutions.

Given 2008 is only eight years ago, logic would dictate that we learned a lesson about imprudent financial behavior, at least for a generation.  However, once governments intervene, logic and economic reality take a backseat.  In fact, we are currently traveling down the same road, again fermented by governmental policies.

News.investors.com reported that the US government is again cajoling financial institutions to give mortgages to those that cannot afford them.  Specifically, the Consumer Financial Protection Bureau warned (threatened) lenders that they would be investigated for discriminatory practices if they do not count government assistance payments to lower income individuals as real income.  In announcing this policy, Bureau Director Richard Cordray used the following incredible logic:

The bureau has become aware of one or more institutions excluding or refusing to consider income derived from the Section 8 HCV Homeownership Program during mortgage loan application and underwriting processes.”  …. “Consumers should not be put at a disadvantage just because they receive public assistance.”

So, using the government’s logic, individuals who need governmental payment assistance are worthy of obtaining mortgages.

Once again politicians and bureaucrats are manipulating economic practices and reality in order to further social goals.  Prudent financial practices not only protect financial institutions, but also borrowers.  Instead, the government is placing people in mortgages they are unlikely to be able to repay.  In addition, this policy leads to bad investments decisions for some consumers when housing prices depreciated in the future.  If this occurs on a large enough scale, it will create another housing bubble and melt down mirroring that which occurred in 2008.

There is a flaw in the premise used by the Consumer Financial Protection Bureau.  Inherent in this policy is the view that lending institutions discriminate on people based on noneconomic factors, which is economic lunacy.  Those in the mortgage industry make money offering mortgages.  The more they write the higher the profits, assuming that the mortgages are prudent.  Forcing lenders to make imprudent mortgages will improve the short-term profitability of the mortgage industry, but ultimately hurt those that invest in buying these assets on the secondary market; i.e. pension funds, etc.   That is precisely what in the meltdown of 2008.

Posted in Debt, Mortgages | Tagged: , , , | 1 Comment »

Harvard Students Claim United States Greater world Threat than ISIS

Posted by Steve Markowitz on November 6, 2014

A few weeks ago Campus Reform went to Harvard University and asked students who they felt was the greater risk to the world; the United States or ISIS.  Some indicated that the US was the greater threat and claimed that American policies were responsible for the creation of radical Islamic movements such as ISIS.  Some Harvard students then followed up on this “study” creating their own video questionnaire and found similar responses, videos posted below.

Harvard University is renowned as perhaps the most famous and supposedly intellectual colleges in the United States.  The skills exhibited by some of the students in the videos bring into questions these conclusions.

It is remarkable that students from this prestigious University believe the United States responsible for radical Islam and the infighting within its subgroups.  Had these students studied world history instead of the phony academics that make up much of today’s college curriculums they would have been taught that the Sunni–Shia divide that is led to so much conflict within the Islamic world began shortly after the death of the Islamic Prophet Mohammed in 632 with infighting over the secession to the Prophet.  They would also learned that this conflict began over 1100 years before the founding of the United States.

 

Posted in Education, Islam | Tagged: , , , , , , , | Leave a Comment »

Governmental Policies Lead to Record Number of Millionaires

Posted by Steve Markowitz on March 18, 2014

MillionairesAccording to CNN Money, the number of millionaires in the United States is soaring.  Prior to the 2008 economic meltdown there were 9.2 million household millionaires.  After the downturn, that number dropped to 6.7 million in 2008.  It now exceeds the 2007 bubble economy with 9.6 millionaire households existing in the United States in 2013.

As a capitalist this Blog responds positively to growing wealth when it is a result of productive capitalism.  However, the increasing numbers of American millionaires since 2008 has been the result of governmental and central bank interventions that have created bubbles to the benefit of wealthier Americans at the expense of the good of the overall economy.

The 2008 economic meltdown was itself cause by interventions in the economy.  The major culprit was the Federal Reserve and its low interest rates policy used any time there was a hiccup in the economy.  This thwarted the economy’s ability to rebalance supply and demand and led to bubbles, most significantly in the housing and equities markets.  That led to the mother of all hick-ups with the economic calamity of 2008.

The interventionists did not learn from their failures.  After the 2008 meltdown they once again flooded markets would liquidity and used historically low interest rates to artificially stimulate economic growth.  While those efforts may have kept the downturn from becoming temporarily more significant, they have had consequences that include the increasing wealth disparity in the United States.  Those interventions created artificially high equities’ valuations that disproportionately benefited wealthier individuals.

Have the interventionists such as President Obama respond to the disparity problems they helped create?  They ferment class warfare by attacking wealthier Americans to deflect blame from their own failed policies.  Then they suggest still further interventions to correct the disparity, i.e. higher taxes.  The consequences of further interventions will lead to more economic distortions that the interventionists will then come save us from.

It is understandable that political elitists promote governmental interventions.  That helps guarantee their employment and power.  It is harder to understand why the People continue to allow these folks to exercise such power and authority given their record of failure.

Posted in economics | Tagged: , , , , , , | Leave a Comment »

Unemployment Rate Drops to Five Year Low; Or Did It?

Posted by Steve Markowitz on December 9, 2013

The United States Labor Department announced some rosy unemployment numbers indicating that the economy added 200,000 jobs in November with the official unemployment rate dropping to a five-year low of 7%.  The New York Times hailed the figures in an article by Nelson Schwartz titledLowest Jobless Rate in 5 Years Raises Odds of a Fed Move”.  Nelson touts these positive figures stating early in his article:

  • “After years of frustrating fits and starts in the wake of the financial crisis and the Great Recession, the United States economy finally appears to be generating jobs at a healthier, more sustainable pace that many analysts now think will continue into 2014.  The official unemployment rate fell in November to its lowest level since 2008.”
  • The 7 percent unemployment rate last month — down from its most recent peak of 10 percent in October 2009 — is the best reading since President Obama took office, providing one bright spot for a White House beleaguered on many other fronts.  The unemployment rate was 7.3 percent in December 2008, the month before Mr. Obama was inaugurated.

It is not until halfway through the article that Schwartz raised some concerns about the current economic picture when he says: “For people with less than a high school diploma, for example, the jobless rate last month stood at 10.8 percent. For African-Americans, it was 12.5 percent, or nearly twice what it was for whites.”  In addition, Nelson adds: “No improvement was seen in the fate of the long-term unemployed, either, with the ranks of people who have been seeking jobs for more than 27 weeks actually rising slightly in November to 4.06 million.”

Kyle Becker of kylenbecker.com this week posted a graph, included below, that pictorially explains what Schwartz and New York Times just don’t get.  The economy’s recovery is spotty at best offer little benefit to the lower income brackets and middle class.

Shrinking Work Forse

Posted in Unemployment | Tagged: , , , , | Leave a Comment »

CNN’s Christiane Amanpour Emotionally Demands the US bomb Syria

Posted by Steve Markowitz on September 14, 2013

When George W. Bush announced his decision to invade Iraq, he justified it based on Iraq having weapons of mass destruction.  A decade later we have a Progressive Democrat in the White House using a similar justification; gassing (WMDs) on his own people, to bomb Syria.  Missing from both presidents’ decisions were/are a strategic goal and endgame for the United States.

In hindsight the U.S. invasion of Iraq was a mistake.  Iraq remains today a violent country with its leadership now more closely aligned with Iran, its Persian Shiite cousins.  It is likely that should the United States get entangled in Syria’s civil war, it too would go badly.  First and foremost is the likelihood that should Assad be overthrown, the regime that replaces him would be at least as antagonistic to US interests.  In addition, replacing Assad or even destabilizing him does not remove the WMDs from Syria.  It merely changes who controls them.  Some of the Syrian rebels are aligned with radical Sunni groups who are related to the same terrorists that attacked America on 9/11.

There is a significant difference today on the political front.  George W. Bush had a skeptical press.  Many in the mainstream media today are so invested in Barack Obama that they are emotionally attached to any of his decision, even to bomb another country.  The video below shows CNN reporter Christiane Amanpour having emotional breakdown on air when discussing this issue.

Americans should be disgusted by the carnage in Syria, an extension of the larger Sunni-Shiite worldwide struggle.  However, civil wars are rarely resolved by foreign invaders.  Many more died in America’s Civil War than have been killed in Syria.  It was only when one side was beaten into submission did our war end.  The same is required in Syria.  The US’s involvement in the Syrian war will ultimately prolong it.

Posted in Syria | Tagged: , , , , , , , | Leave a Comment »

Obama, Syria and the Current Dilemma

Posted by Steve Markowitz on September 3, 2013

The US Congress is debating whether to support a motion to back President Obama’s request to authorize a US attack on Syria for Assad’s use of chemical weapons.  The issue Congress faces is a dilemma without any good options.

Should the US not act it is likely that Assad will use the chemical weapons again in its war against the rebels.  In addition, US enemies including Iran and North Korea, not to mention Russia and China, will be emboldened and may act in more belligerent ways against US interests.

Alternatively, should the US respond it is difficult to foresee the consequences.  Will Iran and Hezbollah attack US or Israeli interests in retaliation?  Will the US be drawn into a conflict with Russia?  Will the US attack lead to the Assad government falling and Syria falling into more chaos or under the control of radical Islamists?  There are no guarantees.

There are currently no good options when it comes to Syria.  The United States finds itself in this untenable position because of Obama’s incoherent Syrian/Middle East policies of the past five years.  This issue is discussed in detail by Middle East expert George Friedman of Startfor.com in an article titled Obama’s Tightrope Walk.  Highlights are included below.  The bottom line is that Barrack Obama has proven inept when it comes to the Middle East and foreign policy in general.

“Last week began with certainty that an attack on Syria was inevitable and even imminent.  It ended with the coalition supporting the attack somewhere between falling apart and not coming together, and with U.S. President Barack Obama making it clear that an attack was inevitable, maybe in a month or so, if Congress approves, after Sept. 9 when it reconvenes.  This is a comedy in three parts: the reluctant warrior turning into the raging general and finding his followers drifting away, becoming the reluctant warrior again.”

“The United States did not have any overriding national interest in Syria.  It has been hostile for a long time to Assad’s regime.  It has sympathy for the Sunni insurgents but has drawn the conclusion that the collapse of Assad is not likely to lead to a democratic regime respecting human rights, but to an Islamist regime with links to al Qaeda.”

“What started to draw the United States into the matter was a statement made by the president in 2012, when he said that the use of chemical weapons would be a red line.  He didn’t mean he wanted to intervene.  He set the red line because he figured that it was the one thing Assad wouldn’t try.  It was an attempt to stay out, not an announcement of interest.  In fact, there had been previous evidence of small-scale chemical attacks, and the president had dodged commitment.”

“There were those, like National Security Adviser Susan Rice, who favored the use of military force in the events of war crimes and human rights violations on a major scale.  One would have thought that she would have supported the war in Iraq against Saddam Hussein, the epitome of war crimes and human rights violations, but she didn’t, and that’s another matter.”

“For them, the suffering in the Syrian civil war was the result of the repressiveness of the Assad regime.  This faction had an interesting perspective.  It focused on the current injustice, not always aware, interested or believing that what came later would be worse.  I remember arguing with academic colleagues before the fall of the Shah that while he was certainly a thug, we and the Iranian people would regret what came next.  There was a romantic belief that the crowd in the street was always more virtuous than the tyrant in his palace.  Sometimes they were right.  It is not clear that the fall of the Shah reduced the sum total of human suffering.”

“The real problem is this: After the Islamist wars, the United States has, as happened before, sought to minimize its presence in the world and while enjoying the benefits of being the world’s leading economy, not pay any political or military price for it.  It is a strategy that is impossible to maintain, as the United States learned after World War I, Vietnam and Desert Storm.  It is a seductive vision but a fantasy.  The world comes visiting.”

It is not easy to be president, nor is it easy to be the world’s leading power.  It is nice to be able to sit in moral judgment of men like Assad, but sadly not have the power to do anything.  Where life gets hard is when sitting in moral judgment forces you to do something because you can.  It teaches you to be careful in judging, as the world will both demand that you do something and condemn you for doing it.

Posted in Syria | Tagged: , , , , , , , | Leave a Comment »

US Fed Policies Creates Economic Problems in India

Posted by Steve Markowitz on August 28, 2013

The US government and Federal Reserve have intervened with ever increasing frequency in the economy during the past two decades.  In the 1990’s the US economy had various hick-ups that included the dot.com and telecom bubbles’ and their meltdowns.  Immediately following the 2001 9/11 tragedy a steep drop in economic activity occurred.  In earlier years the Federal Reserve and government would have allowed the law of supply and demand to rebalance the economy.  While painful, such rebalancing is necessary to ensure the proper amounts of goods and services be produced for the available demand.   The interventions, mainly through low interest rate policies and printing money, stopped rebalancing and this ultimately led to the largest bubble of all; the housing bubble.

Five years since the housing bubble popped we continue to see the negative effects of the interventions.  Perhaps the best example is the slowest increase in job growth of any recovery of modern times.

The Fed understands the risks of continuing the low interest rate policy.  It understands that pulling the plug on this “free lunch” is akin to making a drug addict go cold turkey.  In an effort to set the stage for changing the policy, in spring the Fed announced that it is considering lessening its purchase of U.S. Treasury bonds.  That made investors nervous with US equity values gyrating since.  The Fed’s easy money policy is the major reason that US equity prices have inflated during the past two years, not economic growth.  Pull the plug on the easy money and equity values will drop.  It is only question of how far.

The unintended consequences of the Fed’s easy money policies are not limited to the United States.  The Wall Street Journal reported that developing economies are showing significant stress as a result of fears that the Fed will stop buying US Treasury bonds.

  • The Indian stock market lost approximately 5% in value over a two-day period and its currency has dropped significantly versus the US dollar.
  • Thailand has seen its equity markets’ value drop significantly.
  • The Indonesian currency has dropped to a four-year low versus the US dollar and its share prices were down 10% in one week.
  • Malaysia’s currency value has dropped significantly.

The fear is that as interest rates rise investors will pull capital from developing countries and move it to more developed and less risky markets.  As these countries’ currency values drop, their cost of imported commodities such as oil and fertilizer increase.  Inflation in India is currently at an annual rate of about 10%.  Inflation, especially in developing countries, is devastating on the poor who spend most of their money on staples including food.

When the Fed and the US government embarked on the major interventionist policies during the 2008 meltdown that included bailouts, they justified the radical actions by saying they were required to protect us from economic Armageddon.  It is not possible to determine if these policies actually protected us from a more catastrophic meltdown.  However, there are significant consequences to their “free lunch” policies.  We are beginning to see these consequences play out.  People will go hungry.

Posted in Federal Reserve, Interest Rates | Tagged: , , , , , , , , , | Leave a Comment »

US Marshals Service’s Missing Thousands of Encrypted Radios

Posted by Steve Markowitz on July 22, 2013

The Wall Street Journal reported on yet another example of an inept and wasteful federal government.  According to the report the US Marshals Service that is charged with protecting federal courthouses and protecting witnesses cannot account for at least 2,000 two-way radios worth approximately $6 million.  Making matters worse, these radios have protected encryption for secure communications, which in the hands of criminals could endanger innocent people’s lives.

The Journal obtained the information about the inept government waste through Freedom of Information Act requests.  When confronted with the report a US Marshals Service spokesman made the lame excuse that “this issue is in large part attributable to poor record keeping as a result of an older property-management system, as opposed to equipment being lost.”  However, that same agency’s Office of Strategic Technology had a more blunt assessment stating: “It is apparent that negligence and incompetence has resulted in a grievous mismanagement of millions of dollars of USMS property.  Simply put, the entire system is broken and drastic measures need to be taken to address the issues.  The 800 pound elephant in the room needs to finally be acknowledged.”

Last year the US Marshals Service was on the hot seat for a very different reason.  The Wall Street Journal then exposed the fact that almost all of the USMS’s Virginia employees had government cars.

It is remarkable that with nearly daily examples of inept government actions being reported that so many in the United States remain willing to give that government still more power.  As Forrest Gump once so infamously said, stupid is as stupid does.

 

Posted in Government Ineptness, Government Waste | Tagged: , , , , , | Leave a Comment »