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culture National politics

American Debt is No Accident

The fact that Americans have allowed themselves to be led down the rosy path of false economic hopes for a rosy tomorrow – where we can borrow now for anything we want with no thought for the fact that we are paying more by mortgaging our futures all the time – is not surprising. What caught my attention are the actual statistics of this fiscal malpractice and the stark proof that our financial institutions are trying to profit by keeping us individually on the brink of financial ruin.

Since the early 1980s, the value of home equity loans outstanding has ballooned to more than $1 trillion from $1 billion . . .

However, what has been a highly lucrative business for banks has become a disaster for many borrowers, who are falling behind on their payments at near record levels and could lose their homes.

The portion of people who have home equity lines more than 30 days past due stands 55 percent above its average since the American Bankers Association began tracking it around 1990; delinquencies on home equity loans are 45 percent higher. Hundreds of thousands are delinquent . . .

None of this would have been possible without a conscious effort by lenders, who have spent billions of dollars in advertising to change the language of home loans and with it Americans’ attitudes toward debt.

Aside from the precise numbers listed above, none of that information should surprise anyone with their eyes open to the economic situation of the country.

It might seem hard to believe, but not long ago people borrowed money to buy a home with the expectation that they would eventually pay off the debt. A mortgage had a finish line. . .

The newly mortgage-free even used to throw mortgage-burning parties to celebrate their financial freedom. . .

Now the idea of paying off the mortgage and owning a home outright is disappearing. . . banks now enable homeowners to keep borrowing. In fact, they encourage it. . .

As a result, the United States has become a nation of half-home owners. For the first time since World War II, the portion of home value that Americans own has fallen to less than 50 percent. In the 1980s, that figure was 70 percent. (emphasis added)

Let me translate that – we now own less of our own homes as a nation than we did 20 years ago. We have sold majority interest in the most valuable piece of property we have to our bankers for the sake of extra stuff which, while often nice to have, does not provide any of life’s necessities (shelter being a necessity while wave-runners, trampolines, nice furniture, and timeshares are not).

If the majority of our citizenry acts that way with their own money, it should not be surprising that our government does the same with public funds. (In the last 40 years, the only time our deficit spending has even tapered off was from 1998 to 2000.) Our public financial blinders have brought us to the attention of Nouriel Roubini:

After analyzing the markets that collapsed in the ’90s, Roubini set out to determine which country’s economy would be the next to succumb to the same pressures. His surprising answer: the United States’. “The United States,” Roubini remembers thinking, “looked like the biggest emerging market of all.” Of course, the United States wasn’t an emerging market; it was (and still is) the largest economy in the world. But Roubini was unnerved by what he saw in the U.S. economy, in particular its 2004 current-account deficit of $600 billion. He began writing extensively about the dangers of that deficit and then branched out, researching the various effects of the credit boom — including the biggest housing bubble in the nation’s history — that began after the Federal Reserve cut rates to close to zero in 2003. Roubini became convinced that the housing bubble was going to pop.

By late 2004 he had started to write about a “nightmare hard landing scenario for the United States.”

Anyone who is uncomfortable with the fallout of private homeowners beginning to default on their mortgages is going to be aghast at the results of the government declaring bankruptcy – and unless we change our thinking we’re going to have to declare bankruptcy – already we are faced with a debt that we are going to hate paying off. If we kept paying our current taxes and the government did nothing but pay debt at 0% interest it would take four years to pay it off and if we kept paying our mandatory spending programs it would take 10 years.

It’s about time our nation put both our public and our private financial houses in order.

Categories
National politics

Raising Fiscal Awareness

Considering the importance of importance of fiscal policy it seems to evade any serious media coverage in favor of more exciting topics. Ross Perot has launched perotcharts.com to make the information accessible to people. Former Comptroller General, David Walker, has been lecturing around the country about the cliff we are speeding towards and now Peter G. Peterson is pledging to spend $1 Billion in a media campaign to raise public awareness of the issue. (Remember how much a Billion is?)

Ready and waiting as people start to recognize the trainwreck ahead, Downsize D.C. has a campaign which helps people let their congressional leaders know that they are aware of this issue. I think many members of congress are aware of this, but they don’t want to address it because there are no easy answers or short soundbites.

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National politics

Weak Representation

In a move that was anything but surprising, the Senate voted to gut the constitution rather than stand up against the politics of fear. Democrats control both houses of Congress and yet this bill passed by large margins in both chambers. Senator Obama thinks that the executive branch is using fear to extract more power and yet he halted his presidential campaigning to go vote in favor of this capitulation to the politics of fear. The New York Times explains the outcome of the vote this way:

. . . many Democrats were wary of going into their political convention in Denver next month with the issue hanging over them—handing the Republicans a potent political weapon.

In other words, the Democrats were so afraid of defending their votes that they capitulated to the minority party rather than cast their vote according to their beliefs. This indicates that they believe in re-election above all else. Maybe we should reword the oath of office to reflect reality – “I pledge to support and defend my re-election at the end of this term.” This is the same thing that had Republicans, when they were in the majority, voting to expand domestic discretionary spending at unprecedented rates in an effort to create a permanent Republican majority. The Republicans were rewarded with the loss of both houses of Congress in the midterm elections. I wonder how the Democrats will be rewarded (probably not with the loss of the majority at this time).

P.S. Naturally Hatch and Bennett voted in favor – they were probably squirming in anticipation as they waited to cast their votes.

Categories
National politics

Charting Government Fiscal Irresponsibility

While trying to find out how Tiger Woods did in the playoff round of the U.S. Open today (he birdied the last hole to force sudden death and then won on the first sudden death playoff hole) I stumbled upon news of the launching of PerotCharts.com. This website is a project of Ross Perot which provides important information that every person in the U.S. needs to understand (and every member of Congress needs to accept). Helping Ross Perot is David Walker who was the Comptroller General of the United States until recently – he was the person responsible for creating government fiscal projections and he seems to be tired of having his numbers spun by politicians for their own gain at our national peril.

Using data from the government itself, Perot Charts shows the fiscal cliff that we are facing and on “chart” 34 of a 35 chart Fiscal Challenges presentation there are four suggestions for how to begin correcting our dire situation:

    • Restructure existing entitlement programs
    • Raise payroll taxes and/or income taxes
    • Borrow more money each year to make up the shortfall
    • Cut discretionary spending even further

Of those four suggestions, we should be implementing at least 2 if not 3 of them (restructuring entitlement programs, cutting discretionary spending, and finding ways to raise revenue as well). What we don’t need is to borrow more – that only exacerbates the problem.

Categories
National politics

Feeling Bloated

As if the Republican party (thanks largely to the current administration) had not long ago lost any credibility to apply the “tax and spend” label to the Democrats, the American Enterprise Institute has now published a report on just how fat our favorite Elephant is. (hat tip Cato @ Liberty)

Allowing for our military expenditures, making the Bush tax cuts permanent, adding prescription drug coverage to Medicare, removing the alternative minimum tax, and this years stimulus package we would still be spending hundreds of billions less this year than we are and we would have a balanced budget through 2017 if Bush had otherwise maintained the discretionary spending levels that Bill Clinton left to him.

Before the Democrats and our current Clinton get too puffed up over this fact we should all be reminded that the budgets left by President Clinton were the result of 6 years of struggle between a Republican Congress and a Democratic President. The excesses of President Bush are the result of 6 years of cooperation between a Congress and a President from the same party. One year of a Democratic Congress and our spendthrift Republican administration does not seem to have brought us noticeably toward the relative fiscal restraint we had achieved by the end of the Clinton presidency.

That struggle between the different ideals of the two parties looks like a good thing in practice, not just in campaigning. It almost makes me hope that we never again have a President and a Congress who essentially agree on most issues.