Common Sense Capitalism

Here Are the First Published Federal Reserve Predictions for our Economy

2012-02-03T13:00:00.000-08:00

Check out our new Federal Reserve section, where we will match these predictions with the actual results. There are other charts in the section including money supply, and a 50 year history of the Fed Funds rate.

Thomas Sowell Discusses Barack Obama

2012-02-01T13:00:00.000-08:00

A great discussion considering the recent State of the Union.

Obama's Class Warfare Totally Distorts the Facts

2012-02-01T01:00:00.000-08:00

In the state of the union address, President Obama spent a few minutes about how the rich aren't paying their fair share of taxes. He pointed out, once again that Warren Buffett pays a lower tax rate than his secretary. He has added in the past that even Buffett thinks that's not fair.

Barack Obama believes that the rich should pay 30% of their income in taxes, if they make over $1 million. Let's address the "fair share" first.

Is It Really "Fair?"

In 2007, the top 1% paid over 40% of all income taxes collected. The top 10% of income earners paid over 70% of all income taxes collected. How is this unfair? In fact, the number of people who pay taxes in the United States virtually equals the number of people with zero income tax liability. Fair?

The liberals in government want to create more tax disparity so they can cater the votes of a growing "zero liability" group and retain power in government. Meanwhile, the "rich" are funding services that are mainly consumed by the "zero liability" group. This transfer of wealth is extremely dangerous and likely is a cause to Generation Y having a lower quality of living than their parents.

Income Taxes (progressive) vs. Capital Gains Taxes (15%)

Warren Buffett's secretary likely pays around 27% of her income in federal taxes. Warren Buffett, whose income is primarily derived from increases and returns on investments, pays a 15% capital gains tax rate. The two methods of income earning are totally different and hold different risk variations.

Most people's income is steady and is dependent on a salary or hourly rate. The government directly withdraws this money from their paychecks. Income is not variable. Capital gains are risked by an investor who may lose their money in the process of investing. The returns are variable depending on the management of the company being invested in, or the structure of the investment portfolio.

The investor is also using income that has already been taxed to make this investment. Warren Buffett has gotten so good and investing (plus stocks go up when it becomes public that he bought them, another easy boost) that I'm sure his capital gains tax income is just as easy to attain as his secretary's salary. But, for pension plans, middle class investors, and others trying to save for retirement, investment decisions don't come as easy. Should we punish these people as well with a higher capital gains tax rate?

Economic Alert: Portuguese Sovereign Debt Making Parabolic Move!

2012-01-31T13:00:00.000-08:00

This is extremely important for those of us who were hoping a Greek default would not spread outside of that country. It looks as if that is very unlikely now.

Quick Thought: Can the Government Regulate an Entity That They Own?

2012-01-31T01:00:00.000-08:00

The Chevy Volt investigation is closed without recalls, despite possible battery fires in the early models. I think about the difference between this and Toyota. I guess it pays when your regulator is your owner!

The Unintended Consequences of the Federal Reserve

2012-01-30T13:00:00.000-08:00

Giving to the borrowers at the expense of the savors!

Spain vs. Italy: Why Spain May Have a Larger Problem

2012-01-30T01:00:00.000-08:00

Back in August, as the debt crisis was heating up, the interest rates on 10 year Spanish and 10 year Italian bonds were moving in tandem. Then, in December, the gap between Italy and Spain began to widen. At times this month, the gap was near 200 basis points. Recently, the gap has narrowed, but my research is showing Spain's debt problem could be worse than Italy's.

Spain: Still High Deficits

Spain's new government cut its deficit from 8% of GDP to 6% of GDP. Unfortunately, that's not enough to sustain fiscal stability. Typically, a country would want a deficit less than the GDP growth, so they can still borrow money and the debt to GDP ratio declines. In comparison, Italy's deficit is projected to go to around 2% in the next fiscal year and near 1% in future years. The below chart best illustrates this difference:

Spain's Unemployment and Economic Output

Spain's unemployment is over 22% compared to 8.6% in Italy. This severely constrains Spain's ability to grow their economy in future quarters. In fact, I'm surprised that Spain had 0% instead of negative growth in 2009. However, the forward trend is looking like Spain is heading into a deeper recession than Italy. This also has an impact on the country's debt to GDP ratio and its ability to pay its debts.

Overall

With Italy so much closer to a balanced budget than Spain and the 'conservative' Spanish government saying they cannot increase austerity further from a 6% of GDP deficit, Spain makes me more nervous than Italy. I believe the interest rate gap will close over the next several weeks, move in parity, then Spain may switch Italy in higher yields. Don't be surprised, because you'll have read it here.

Society's Cost to High School Dropouts Is Staggering

2012-01-29T13:00:00.000-08:00

The findings of a recent study are staggering.

Milton Friedman vs. An Academic Socialist

2012-01-29T01:00:00.000-08:00

A great discussion!

ECB Scaring Private Borrowers Out of the Sovereign Debt Markets

2012-01-28T13:00:00.001-08:00

File yet another Central Bank move under "unintended consequences."

This Week in Economics: Jobless Claims and Q4 GDP

2012-01-28T01:00:00.000-08:00

Jobless claims rise more than 20K and

IMF's Lagard Talks Euro Debt Crisis

2012-01-27T01:00:00.001-08:00

It's interesting that the IMF was one of the first organizations to sound the horn on the debt situation in Europe. But, what is their motive?

What a CDS Credit Event Looks Like

2012-01-27T01:00:00.000-08:00

A great video by CNBC describing credit default swaps and the process of determining a payout.

IMF Sees $1 Trillion Financing Gap, Seeks Hundreds of Billions in New Funds

2012-01-26T13:00:00.000-08:00

The IMF is sounding the alarm over government spending and deficits, but then asks for the same distressed governments to pay into a new bailout fund!

Greek Debt Talks Break Down

2012-01-26T07:00:00.001-08:00

The Greek default talks are crumbling as the private sector looks for more concessions.

Quick Thought: With Results Like This, Who Could Be Opposed to $100 Billion per year in Federal Education Spending

2012-01-26T01:00:00.000-08:00

According to this December article on FOX News, 43,000 schools failed to meet federal education standards. In a previous State of the Union, the President spoke on education saying "instead of rewarding failure, we should reward success."

Notwithstanding the fact that education is the largest cost of most local governments and takes up to 40% of some state budgets, in light of these results, is it wise to spend $100 billion per year at the federal level to support this mess?

But don't worry, the findings were "far below" the 82 percent failure rate expected by the Department of Education. What the hell are we paying these people to do? In light of these findings, how many pro-nationalizing education people are there left?

Marrying Big Government and Special Interest: Nothing Ever Tasted So...Sour!!

2012-01-25T13:00:00.000-08:00

A nice short clip on why big government and special interest should not marry. Big government has never, and will never, represent the interests of the individual.

It's Federal Reserve Day: Here's What the Survey Says

2012-01-25T07:00:00.000-08:00

The Federal Reserve meets today. Here's a couple of videos of expectations found in the latest Federal Reserve survey.

Using Reserves to Measure a Euro Country Default

2012-01-25T01:00:00.000-08:00

A good way to measure a possible default from one of the big euro denominated countries is to monitor their reserves. The current data runs through last September. Interestingly enough, France took a decent size drop in reserves.

Unfortunately, data for the smaller European Union countries was not available. However, if the data on these four countries is layered, an interesting conclusion is found.

Reserves among the four largest EU countries is at a euro-era high. Clearly these governments are attempting to prepare for a debt crisis. Italy and Spain are the two economies to watch. Spain has the lowest reserves of these four countries, so their default would actually be the hardest to monitor (this is because the data lags by 3-4 months and in that time, Spain can burn through $20 billion).

While $200 billion may seem like enough, recently the IMF announced a projected one trillion dollar financing shortfall, and a need to boost its own bailout reserve fund by several hundred billion dollars. With shortfalls like this expected to hit these economies over the next two years, these countries reserve amounts should be taking an impact.

The Greece Debt Writedown Dilemna

2012-01-24T13:00:00.000-08:00

A good discussion on the private creditors versus public needs of Greek debt. Who will lend to Greece after the writedowns? For more on the Euro debt crisis, please be sure to check out our European Debt Crisis section, which is updated each weekday.

State Unemployment Numbers Released: How Does Your State Fair?

2012-01-24T08:18:00.001-08:00

Our Tax Dollars At Work: Rand Paul Detained by TSA

2012-01-24T07:00:00.000-08:00

If big government decides you are a threat, what would they do? How would they get to you?

Quick Thought: If the Fed Could Get It So Wrong in 2006, What if They're Wrong Now?

2012-01-24T01:00:00.000-08:00

By now, I'm sure you've heard the stories about what was said at some of the Federal Reserve meetings in 2006. If not, let me refresh your memory.

From an article in the LA Times:

"We believe that, absent some large, negative shock to perceptions about employment and earned income, the effects of the expected cooling in housing prices are going to be modest," said Timothy F. Geithner, the current Treasury secretary, who then was president of the Federal Reserve Bank of New York."

From the Chicago Sun Times:

“I agree with most of the commentary that the strong fundamentals support a relatively soft landing in housing, Bernanke told his follow FOMC members."

From the actual December 2007 FOMC meeting:

"Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time."

With comments like that, who could possibly doubt the Federal Reserve's ability to manage the current financial turmoil?

Stanford Economics Professor: America Has Lost Its Way

2012-01-23T13:00:00.000-08:00

A good discussion!

Greece Shows All the Signs of a Depression

2012-01-23T01:00:00.000-08:00

I want to take a moment and address a point I heard someone make about Greece last week. What I heard was that Greece was going to get a "free pass" for the debt and spending mistakes it has made and will be bailed out collectively by the European Union and private creditors. The comment insinuated that the Greece economy and its people had not felt the pain of the mistakes made by the Greek government.

On the contrary, the data shows Greece is in a full blown economic depression.

Sidenote: Greek Stock Market Index, January 2008: 5,200

January 2012: 645.00

While it may not be the best of resources, Wikipedia offers a good, concise definition of what an economic depression is:

"a depression is characterized by its length, by abnormally large increases in unemployment, falls in the availability of credit— often due to some kind of banking or financial crisis, shrinking output—as buyers dry up and suppliers cut back on production, and investment, large number of bankruptcies—including sovereign debt defaults, significantly reduced amounts of trade and commerce—especially international, as well as highly volatile relative currency value fluctuations—most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession."

Trade and Commerce

While exports have somewhat recovered from their drop in 2009, recently, they've showed signs of another decline. This is disturbing considering the depreciation of the euro currency. Typically, a depreciating currency makes domestic goods more attractive to international buyers (since the currency, thus the product is cheaper). This raises concerns that Greece may have disturbances in its production supply.

Exports

Production

The Greek economy has suffered month after month of production declines going back to October 2008. In year over year comparisons of each of these months, there was a 10% or greater decline in production in 11 of these months, including 4 of the last six months. This shows that Greece's economy is still worsening after three plus years in recession.

Economic Growth and Unemployment

Economic growth declines have actually steepened since the recession started. This has likely come from the inability to attain credit from within the country. Unemployment, on the same path, has neared 20% and is showing no signs of plateauing.

Economic growth

Unemployment

A Note on Government Spending

The socialists in Greece followed several countries paths when the recession hit in 2009, they spent. In fact, from early 2008 to late 2009, quarterly government spending increased by 20%!! Looks like the United States isn't the only country to waste money on "stimulus."

Quarterly Government Spending

Boone Pickens Reacts to Keystone Pipeline Rejection

2012-01-22T13:00:00.000-08:00

Boone Pickens talks about the Obama Administration's rejection of the keystone pipeline!

Don't Be Fooled By Obama's 'We're Shrinking Government' Banter

2012-01-22T01:00:00.000-08:00

Last week, President Obama announced that he's "taking aim" at the burdensome bureaucratic structure of the United States government. As an example, he set to consolidate six federal agencies into one. A CNBC article online implied that the President was going to shrink the size of the government.

The White House stated that 1,000 to 2,000 jobs would be cut, but not through layoffs. The agencies will wait until individuals quit or retire to opt out of replacing them. This move is estimated to save $3 billion over 10 years, or $300 million per year.

Implied Fallacy of Less Regulation

Just because six agencies are being consolidated does not mean that government is getting smaller. Keep in mind that in order for the President to accomplish this, he would need to receive new powers from the Congress. 'New powers' certainly doesn't imply less government control.

In his last State of the Union address, the President mentioned how different organizations regulate different parts of the salmon trade. The White House asked why so many organizations had to have their hands in the salmon trade. What we should have been asking is 'why should the government be concerning itself with the salmon trade at all?' Just because this re-organization is occurring doesn't mean that government is going to interfere less with commerce. On the contrary, it may give it a greater ability to interfere.

What "Attrition" Job Loss Means

When the government says that it will cut jobs by "attrition," that doesn't sound very promising. First, if you are waiting for the person to leave, how useful are they in the first place? Next, if they are useless and they know it, but can't be cut, wouldn't they be incentivized to stay and not be productive? Until we see actual job cuts from these agencies, the promise of reduction is simply smoke and mirrors.

The $3 Billion in Savings Myth

At $300 million per year, we'd be saving the equivalent of $4 per year for a household that earns $40,000 per year. 1/100th of a percent in savings is not impressive. Furthermore, this comes out to about $150,000 per job lost (or reduced, as mentioned above). Therefore, if the attrition losses don't occur, the savings will easily be reduced by 70% or more.

A Sad Reality

It's sad to think that this is the best that the federal government can do when it comes to efficiency, cost reduction, and smart regulation. A smarter idea would be to narrow the field of regulatory prowess of all six agencies, then eliminate the five least useful, leaving the sixth to absorb the roles of the other five. It may be a little messy or hectic, but what do you call three government agencies investigating a salmon vessel and trying to determine who is responsible for what?

This Week in Economics: Jobless Claims, CPI, and PPI

2012-01-21T01:00:00.000-08:00

Jobless claims took a plunge and inflation continues the tame pattern it started at the beginning of the European crisis.

Rick Santelli Talks Regulations, Deficits, and the Federal Reserve

2012-01-20T13:00:00.000-08:00

Some great commentary this week from Rick Santelli!

Dodd-Frankenstein: Regulation is a Mess

2012-01-20T01:00:00.000-08:00

If they are having trouble putting the regulations in effect, just imagine how tough it's going to be to enforce the legislation!

2012 Predictions: Bond Markets

2012-01-19T01:00:00.000-08:00

The bond markets ended 2011 with exceptionally low rates mainly due to the European debt crisis and the Federal Reserve's interventionist policies. I believe Europe will be the dominate story of the global economy for all of 2012 with little progress and more problems by the end of the year.

With that being said, the only question is whether or not the fiscal crisis will bleed into the U.S. I believe the 10 year Treasury bond will trade between 1.6% and 3.5% throughout the year. The two greatest factors for interest rates in 2011 will be Europe and economic growth in the United States.

Peter Schiff: U.S. is in Worse Shape Than Europe

2012-01-18T13:00:00.000-08:00

Peter Schiff on the FOX Business Channel discusses the debt situations in Europe and the United States.

Federal Reserve Profited $77 Billion From Junk Assets in 2011

2012-01-18T01:00:00.000-08:00

In 2011, the Federal Reserve earned $77 billion in profits from its $2 trillion balance sheet. That's just under a 4% return. That's not too bad for an economy that is struggling to find investment returns. In fact, a 4% return is better than an index equity investment (flat in 2011) and a Treasury investment (3% at best).

So, what happened to the $77 billion? The Federal Reserve sent it straight to the Treasury.

Beyond Frustrating

On several occasions, we've called for the auctioning of the Federal Reserve's balance sheet in an effort to return these investments back into the hands of private owners and to ease the monetary glut we've created. The Federal Reserve has not and refuses to sell these assets to the public. Even if you or I wanted to buy a troubled asset, such as a mortgage backed security, from the Federal Reserve, we would be shunned.

Impact on Growth

Instead of selling these assets privately, and in this case, giving the economy a $77 billion boost in 2011, the Fed has socialized profits. Socialized profit is income earned by the government that is essentially destroyed by the government when it is placed in coffers and not given access to the distributive nature of the free market.

Had the troubled assets been in private hands in 2011, they would have generated roughly 0.5% of GDP growth ($77 billion divided by $15 trillion). Instead, the Federal Reserve denied that to the economy, much like they tried to deny the losses of the 2008 recession. $77 billion in private hands could have created jobs, increased private investment, aided consumption, and led to great returns.

Since we began defending the free market vigorously in 2008, few events have been more shocking, disturbing, and inherently wrong than this one.

Want Stimulus? How About Focusing on Foreign Direct Investment?

2012-01-17T01:00:00.000-08:00

Foreign direct investment could definitely help our economy and create jobs. Here's a video I came across that demonstrates one way that can be helpful.

Infrastructure First? We Should Learn From Spain!

2012-01-16T01:00:00.000-08:00

Infrastructure spending has been touted as the solution to stimulating economic growth. The spending has been seen as both a job creator and an investment towards future economic growth. While liberals are the primary proponents of infrastructure, moderate Republicans and conservatives have also shown friendliness towards spending on infrastructure.

Additionally, economists from some of the nation's largest banks and the World Bank seem to believe that increased infrastructure spending will progress its economic development. However, you'd be surprised where infrastructure first policies have recently been attempted and failed.

In late 2008, Spain passed an infrastructure bill that was equivalent to 1.1% of the country's GDP. In the United States, that would equal $165 billion, which is almost double the transportation budget. What Spain ended up with is their unemployment rate going from 9% in 2008 to 21% at the end of last year, going from 2% on GDP surplus to 10% on GDP deficit, and airports with no flights or passengers.

On the bright side, Spain has the fastest and most advanced rail technology. Is it worth bankrupting the country? The link above also points out that the old socialist regime took an "infrastructure first" policy, which reminded me of President Obama touting the stimulus and "shovel ready" projects in 2009.

On top of all this, Spain's real estate bubble hasn't fully burst yet, and the mitigating deflation threatens to destroy every large bank in the country.

This country was led by the very central planning complex that is currently leading this country. Our behavior with the 2009 stimulus is eerily similar to the infrastructure waste that has plagued Spain. It's something for every citizen to keep in mind the next time a politician pushes another "stimulus plan."

Define Ridiculous: Europeans Want Germany to Spend More??!!

2012-01-15T01:00:00.000-08:00

Only the New York Times would write about something like this, but apparently forces in Europe are urging Germany to spend money under some illusion that it's going to save the European continent from falling into recession in 2012.

The beginning of the article says it all:

"Spain, Italy and Greece are taking a knife to public spending because they have no choice. But Germany is still healthy enough that it could do its troubled trading partners a favor and focus more on promoting demand and less on cutting debt."

So basically, the government should spend and borrow because they aren't having a fiscal crisis? It's ridiculous to think that a country should wait until they are in the condition of Spain, Italy, or Greece to address their spending problems. Has anyone seen how difficult of a time these countries are having in reducing their deficits? None of these three countries will make a dent on their excessive borrowing costs until they balance their budgets, even if it condemns their countries to recession.

In fact, Germany has a pledge in place to balance its budget by 2016. This pledge may come too late if the euro crisis spreads to the point that investors don't trust the sovereign debt of any euro denominated countries. With the amount of new sovereign debt in 2012 at $10.5 trillion versus almost half of that in 2005, should any investor feel comfortable about a government's ability to repay long term debt?

Besides, even if the German government wanted to borrow more, shouldn't they focus on selling the debt they are currently scheduled to sell? As you can see in the below video, they've had trouble selling debt already as a result of the Euro crisis. What would more government spending do?

Federal Reserve Strongly Weighing QE3

2012-01-14T13:00:00.000-08:00

The Federal Reserve is strongly considering QE3. Quite frankly, I could see this happening in the next meeting because of the problems in Europe and they are releasing their new communications strategy with forecasts and what-not. Personally, if it didn't work the first two times, why try it a third?

By the way, we've opened a new Federal Reserve section to the website and we will be upgrading/adding charts and data over the next few weeks. Stay tuned for more details...

This Week in Economics: Jobless Claims

2012-01-14T01:00:00.000-08:00

Jobless claims edged up to near 400,000.

2012 Predictions: Equity Markets

2012-01-13T01:00:00.000-08:00

Equity markets worldwide lost $6.3 trillion or 12% of their values in 2011. Now, obviously, this does not mean that the world lost $6.3 trillion of wealth evaporated from the planet. Money can move between different types of markets in any given time.

Governments could be trading equity prices for financing bloated government debts in 2012. With worldwide governments borrowing twice as much in 2012 as they did in 2005, it's going to be harder for institutional investors who want to lend to the government, to buy stocks in 2012.

This could be a possible reason behind markets trading at so low PE ratios. Of course, Europe is playing a huge role in this as well. Either way, government spending and the amount of public debt that is issued will play a huge role is where the equity markets head in 2012.

2012 Predictions: Commodities

2012-01-12T01:00:00.000-08:00

I believe that the commodities markets will be money-makers for investors in 2012. It's very simple, with the Federal Reserve sticking to its easy dollar policy, the price of oil will continue to rise. This is bad for economic growth, but good for commodities investors in the U.S. Consumers will also be hurt by these oil prices and the translation will result in increasing inflationary pressures.

The inflationary pressures should bring back the lore of precious metals. However, the crisis in Europe does seem to be threatening that trade. Agriculture will likely see price increases for the same reason as oil.

We have oil going as high as $140 for the year (likely late summer) and the low range being around $90. Agriculture overall should produce a 10 to 15% increase in prices. Finally, we are not going to make predictions on precious metals as their prices are a direct result of economic conditions and not the other way around.

Is the Federal Reserve's Money Printing Causing the Increased Disparity of Wealth?

2012-01-11T01:00:00.000-08:00

For years, the left has complained that the wealthy are getting wealthier and the poor are getting poorer. They've long advocated for ill-fated policies that re-distribute wealth. Prior to the 2008 financial crisis, wealth gap disparity was pretty popular, despite the fact that a record number of Americans owned their own homes.

Now, the fervor is beginning to return. We hear the President talking about Wall Street bonuses in one sentence, and foreclosures and the unemployed in another sentence. However, very little data on income disparity after 2009 is currently available (because it's so recent).

This led me to ask, could quantitative easing actually fuel the wealth gap?

Who Has Been Helped?

It's simple, we've created between $2 and $3 trillion since the recession started in an effort to avoid a deflationary spiral, curb unemployment, and return to growth. Yet, those who have been most effected by the recession haven't seen these benefits. A recent study found that only 7% of those who lost their jobs in the recession are back to where they were before the economy crashed. (As a side note, I personally lost two jobs in the recession, and am currently better off than I was in 2009. I take great pride in this, but it is my doing, not the Fed's and certainly not the federal government's).

It's obvious that money isn't increasing anything in the middle class and that makes sense. The Fed is going to give money to the wealthy, centralized institutions and rely on them to distribute it for returns across the country. They've been doing this for nearly 100 years. Therefore, it would make sense that the wealthy would have first access to the government printing press.

Purpose of the Argument

The reason I'm bringing this up is because it's my belief that quantitative easing has not been beneficial to our economy. Additionally, I'm concerned that any additional wealth gap created as a result of this, could lead to future ill-fated economic policies (essentially a horrible decision resulting from a bad solution).

The proponents of quantitative easing use just as phony reasoning as those who supported the stimulus. They argue that each saved us from a "worse ending." However, don't you think that hundreds of billions of dollars have a noticeable impact on our economy? We need to learn these lessons quickly, otherwise we are prone to greater (and more idiotic) economic policies.

FINALLY: The Government to Sell Foreclosures in Bulk

2012-01-10T01:00:00.000-08:00

The government has apparently decided to stop hoarding houses. I wonder who in the brain-trust thought it would be more productivity to sell the homes and fill them with renters instead of hold onto them and watch them fall apart? It only took three years to figure this gem of obviousness out.

No mention of this on the Fannie Mae website yet. Haven't seen a government press release either.

Delaying Foreclosures is Part of the Housing Problem!

2012-01-09T01:00:00.001-08:00

Recently, an article pointed out that the number of days it takes to foreclose on a delinquent home on average has gone from 253 days in 2007 to 674 days. This near tripling of turnover in the housing market (not to mention the re-selling for the foreclosed property) is having some devastating effects on our economy.

Housing Prices

Housing prices, who declined played a large role in the recession of 2008, cannot rebound if foreclosure conditions are so unfavorable. With people staying in homes for nearly two years without paying the mortgage, it is likely that if something breaks they are not going to fix. Imagine how problems come up over the course of 2 years that aren't fixed and as a result, the house falls into disarray.

This effects the value of that home and the others around it. Once the bank takes control of the house, they are certainly going to have to take an additional haircut for the time they waited to take it over. That money lost could have been used for a small business loan or a consumer loan. Basically, the fall in housing prices not only effects the consumer, it effects the banks ability to generate capital.

Jobs

Job creation is tied into the housing market and foreclosures. For one, a person who is in a foreclosed home does not have the mobility to job hunt in other markets. They are geographically fixed to their location.

A Note on Resale

By not getting these houses back on the market, and not selling the houses in bulk to investors, the banks are doing the economy a disservice as well. Getting these houses in the hands of people who can rehab them and rent them out is key to the price stability. Additionally, renovating these homes will lead to direct job creation.

There has to be something keeping these banks from liquidating their foreclosed housing assets.

And Now, Hungary's Got a Major Problem!

2012-01-08T01:00:00.000-08:00

While we've been focused on the euro currency countries and their debt problems, interesting developments have occurred in countries that don't have the euro. Hungary is now in the throws of its own, unique economic crisis. The cause of this crisis is the same as many of the euro countries, high government spending and debts, however some of the side effects are very unique to the Hungarian economy.

Since Hungary has its own currency, the country's currency depreciation has been noticeable. In July, it traded at 180:1 with the dollar. As of the end of the week, that trade was around 250:1. Another 10% depreciation in the currency and it will be trading at nine year lows. Unfortunately for the Hungarians, they desperately need a strong currency.

Several years ago, the Hungarian currency was strong relative to other currencies. A trade developed where the Swiss franc offered cheaper financing than the home currency. Many Hungarians took advantage of the cheap financing and took out mortgages, loans, etc. Now, with the trade reversing, consumers are becoming vulnerable.

The cost of the loans has soared with the depreciation of the currency, and there's a fear of increasing defaults across the country. This may be a reason for the Swiss placing a cap on the appreciation of the franc, in an attempt from a default problem. Currently, Hungary's bonds are rated junk by three credit agencies.

There are few crises worse than ones where foreign economic policy or foreign currency play a role in your economic outcome. Hungary is in a tough situation. With it's 10 year bonds trading at just over 10%, the country's government debt is unsustainable. Where the great mystery lies is whether or not a default by Hungary will have a major impact on the euro zone or the world financial markets.

It certainly won't increase investors appetite for government debt.

This Week in Economics: Jobless Claims and Employment Report

2012-01-07T01:00:00.000-08:00

Jobless claims remain below 400,000 and the 'unemployment rate' is at 8.5%.

Free to Choose: Part 10 How to Stay Free

2012-01-06T01:00:00.000-08:00

How to Stay Free

Free to Choose: Part 9 How to Cure Inflation

2012-01-05T01:00:00.000-08:00

How to Cure Inflation

Free to Choose: Part 8 Who Protects the Worker?

2012-01-04T01:00:00.000-08:00

Who Protects the Worker?

Free to Choose: Part 7 Who Protects the Consumer?

2012-01-03T01:00:00.000-08:00

Who Protects the Consumer?

Free to Choose: Part 6 What's Wrong With Our Schools?

2012-01-02T01:00:00.000-08:00

What's Wrong With Our Schools?

This Week in Economics: Jobless Claims

2011-12-31T01:00:00.001-08:00

Jobless claims jumped, but remain well under 400,000!

Free to Choose: Part 5 Created Equal

2011-12-30T01:00:00.000-08:00

Created Equal

Free to Choose: Part 4 From Cradle to the Grave

2011-12-29T01:00:00.000-08:00

From Cradle to the Grave

Free to Choose: Part 3 Anatomy of a Crisis

2011-12-28T01:00:00.000-08:00

Anatomy of a Crisis

Free to Choose: Part 2 The Tyranny of Control

2011-12-27T01:00:00.000-08:00

The Tyranny of Control

Free to Choose: Part 1 The Power of the Free Market

2011-12-26T01:00:00.000-08:00

The Power of the Market

Rick Santelli Sings A Stop Spending Christmas Carol!

2011-12-25T01:00:00.001-08:00

A nice short Christmas/Economic song. Merry Christmas!

This Week in Economics: Jobless Claims and Third Quarter 2011 GDP

2011-12-24T01:00:00.000-08:00

Jobless claims remain well under 400,000 and third quarter GDP falls under 2%.

If Congress Can Go On a One Month Break...

2011-12-23T01:00:00.000-08:00

...I can take a couple of weeks off!

Common Sense Capitalism will be returning January 9th. In the meantime, check out our 500+ videos on YouTube, and join our Facebook fan page.

If you have any suggestions, you can comment here or on the other social network sites.

I hope you enjoy your holiday season!

Rick Santelli Vs Central Banks

2011-12-22T01:00:00.000-08:00

Rick rails against central bank behavior.

What the 1998 Crisis and the 2008 Financial Crisis Have in Common

2011-12-21T01:00:00.000-08:00

In 1997-98, Asia faced a currency and financial crisis. There were several different mechanisms involved, however, the end result was the fleeting of capital from most of the continent. In 1997, Thailand started having issues with its foreign exchange rate. The Thais practiced a fixed currency which required them to intervene in the foreign exchange marketplace if there was fluctuations in the currency. Thailand's constant intervention of its currency were causing strains on its reserves and in May 1997, they needed the help of Singapore to complete an exchange rate intervention.

On July 2, 1997, Thailand ran out of reserves. As a result, they had to let their currency float, which caused it to devalue by 20% overnight. In addition to this, banks in Asia had been exposed to lax lending practices and even worse, governments were encouraging and backing the financing of unprofitable real estate ventures (sound familiar?).

One of the differences between the '98 crisis and the '08 crisis is that the epicenter of the '98 crisis involved countries that fixed their exchange rates. The results of the Thailand devaluation was a wave of foreign exchange interventions and devaluations. In addition, financial institutions across Asia went bankrupt due to the lax lending policies.

To make matters worse, as the smaller countries devalued their currencies, the larger countries in Asia raised lending standards exponentially. In Hong Kong, the stock exchange and currency began to plummet together. Then, late in 1997, the crisis reached South Korea, the regions second largest economy.

As the currencies devalued, so did the values on finance companies' balance sheets. This further propagated the crisis. Eventually, the fears began to weigh on all global stock markets, including the United States where the Dow Jones lost over 500 points in one trading session. The IMF intervened and lent over $40 billion to Indonesia, and made similar to loans to Thailand and other countries in exchange for a tightening in lending policies and capital requirements.

By November, South Korea requested IMF aid as several Japanese brokerages began to strain and collapse. By the end of 1997, Russia started to have problems and the South Koreans needed IMF aid in order to make good on their short term government debt. On January 12, 1998, Asia's largest investment bank filed for liquidation bankruptcy.

South Korea eventually had to renegotiate some of its debts, and things in Indonesia became much worse. By the spring of 1998, the IMF had delayed aid because the government had failed to hold up its end of the austerity deal. When Indonesia cut enough to receive aid, protests flared in the country to the point that college students were shot and killed at Jakarta University and the President was forced to resign in May 1998.

By June of 1998, Japan had slipped into recession and Russia began seeing economic disruptions. By the next month, Russia had failed to secure the cash it needed (including trying to sell state owned assets) and ended up needing a loan from the IMF. By fall of '98, the bailouts spread the South America as the crisis goes global.

All of this started in Thailand and spread around the world in roughly 15 months.

Much of this should not only sound familiar to those who experienced the 2008 financial crisis, but those in Europe experiencing the 2011 European financial crisis. The Indonesian riots remind me of an amplified version of Greece, although the Greece austerity measures haven't reached their full potential yet.

The scary part about all of this is that if Thailand can trigger such a global event, what would happen if Greece or Italy default on their debts. Italy is larger than Russia was when it defaulted in 1998 and many analysts aren't sure if loans from the IMF (like in Russia) can stabilize the fiscal and economic situation.

Judging by the 1998 financial crisis, the 2008 financial crisis, and now the 2011 financial crisis, the world hasn't learned a single lesson.

Everybody's Getting Sued!

2011-12-20T01:00:00.000-08:00

First, Jon Corzine, then former Fannie Mae and Freddie Mac executives.

What Supply and Demand Can Tell Us About the Euro Debt Crisis

2011-12-19T01:00:00.000-08:00

The European debt crisis is an extremely complex situation facing the global economic community. Despite this complexity, a major part of the beginning of the crisis can be explained by supply and demand. The basic definition of supply and demand is that supply is the amount of a product that is available to the market, while demand is the amount of the product that the consumer wants. The intersection of supply and demand is price.

Supply

The supply side of the Euro debt scenario is simply the amount of debt European countries produce for the private market. In a recent article, the OECD warned of developing finance problems as the amount of debt produced by industrialized nations has nearly doubled since 2005 to $10.5 trillion.

The article notes:

"For the foreseeable future it will be a “great challenge” for a wide range of OECD countries to raise large volumes in the private markets, with so-called rollover risk a big problem for the stability of many governments and economies.

Rollover risk is the threat of a country not being able to refinance or rollover its debt, forcing it either to turn to the European Central Bank in the case of eurozone countries or to seek emergency bail-outs, which happened to Greece, Ireland and Portugal. The OECD says the gross borrowing needs of OECD governments is expected to reach $10.4 trillion in 2011 and will increase to $10.5 trillion next year – a $1 trillion increase on 2007 and almost twice as much as in 2005."

The "large volume" is amount of debt that these counties are creating. It was also interesting to see the EuroZone get singled out as a problem area when explaining the amounts of debt being issued. In the bond market, interest rates and prices move in the opposite direction. When prices fall, interest rates go up and vice versa. In terms of supply, this glut of supply in the bond market lowers prices, which raises interest rates.

Demand

With respect to demand, in order to successfully sell government debt, there needs to be an adequate demand from private financial institutions. In the United States, demand is supported by hundreds of billions (if not trillions) of dollars of purchases from the Federal Reserve Bank. In strong Euro countries like Germany, investors flock to German bonds for safety when economic times are rough, so early on in a recession, demand tends to drive interest rates down.

The problem comes after years of sluggish or no economic growth, when financial institutions and those funding governments see little or no growth in their wealth. When this happens, the amount of government deficits (supply) that the private markets can afford to buy actually decreases. Eventually, the prices have to fall to attract buyers and rates rise.

What we are seeing in Europe is a combination of supply side and demand side pushing of prices, and hence interest rates. Private institutions, lacking the increases of wealth are less able to buy government debt. Meanwhile, governments are flooding the world with debt, unbeknownst to them of the market mechanisms which moves their prices.

Something has to give on either side of equation for this crisis to end.

The MF Global Post Mortem: Balance Sheet Shows Why Customer Money is Missing

2011-12-18T01:00:00.000-08:00

I hit the Edgar database to take a quick look at the MF Global financials. I was looking for anything that would hint to the shortfall in customers funds. The sad part of my analysis is that it seems to be completely obvious as to why customers are having a shortfall- the company did not designate enough reserve funds to cover what they owed to customers.

On the balance sheet, MF Global has a restricted cash account. Usually, restricted cash accounts are used for specific liabilities. In the case of MF Global, the restricted cash account was used to pay back money owed to dealers and customers. In the 2010 MF Global 10-K, (fiscal year ending Mar 31, 2011) which Jon corzine signed as CEO, MF Global had a combined $12 billion in cash and restricted cash ($11.3 billion in restricted cash).

In the liabilities of the 10-K, MF owed $14.6 billion in liabilities to customers and dealers ($13.5 of which to customers). Clearly, the company did not have the cash to reimburse all of its counter-parties in the event of a sudden bankruptcy. While the numbers suggest a $2.6 billion gap, it would make sense that the company has the ability to sell some of the current assets (securities) on its balance sheet to cover that gap.

In early August, MF Global filed its first quarterly 10-Q for the period ending June 30, 2011, their last filing and four months before their bankruptcy. In this report, cash and restricted cash equaled $11.6 billion while liabilities to customers and dealers was $15.2 billion. The shortfall grew to $3.6 billion.

In addition to the increase in shortfall between cash available and customer liabilities, the company began buying securities that it was to resell, some of which that it was going to buy back in the future. The company committed $2.5 billion to this activity in the first quarter of 2011 (Apr 1 to Jun 30).

The sad part of all this is that MF Global filed this information under the noses of multiple regulators. Once again, the SEC did nothing to flag this problem and Frank-Dodd was even less proactive. This leaves an important question for this industry, where else is this going on?

The other question is that if Jon Corzine is not charged with a crime, what's the usefullness of Sarbanes-Oxley?

This Week in Economics: Jobless Claims, CPI, and PPI

2011-12-17T01:00:00.000-08:00

Jobless claims fell to a 3-1/2 year low and CPI and PPI dropped as well.

How the MF Global Bankruptcy is Affecting Corn Prices and Farmers

2011-12-16T01:00:00.000-08:00

A couple of good videos discussing the ripple effects of the MF Global bankruptcy.

Responding to the Obama Campaign: Consumer Protection

2011-12-15T01:00:00.000-08:00

Recently, the Obama campaign posted a snippet on the President's views regarding consumer protection:

I watched,

And I responded:

"We need the government to tell us what products we can and cannot use. We need the government to approve medications before ourselves or our doctors can determine whether or not they are safe or appropriate for us. I guess we cannot think for ourselves."

What Higher Interest Rates Means for the US Interest on Debt Expense

2011-12-14T01:00:00.000-08:00

The above chart represent the interest expenses on our national debt estimated in all three of President Obama's budgets. Currently, we have paying a little more than $400 billion per year. However, according to the White House, interest on the debt is expected to exceed $1.2 trillion by 2020, triple what it was in 2009.

The reason is two-fold. One, America will have trillions more in debt by 2020 (approximately $6 trillion) and secondly, interest rates are expected to be higher by that time. Now, you'll notice that the more recent budget shows a dip in the estimated interest expense over the past few years. This is because interest rates have stayed lower than expectations since 2009.

Markets tend to have lower interest rates during recessions. Does the fact that interest rates are lower than they were in 2009 reflect the difference in the OMB's expectations of the economy and its outcome?

According to the Obama Administration's economic assumptions spreadsheet, the estimated interest rate on long-term Treasury bills is 5.3% and 4% on short term Treasury bills. If a debt situation similar to the one in Italy were to unfold in the United States, the interest expense amount could easily exceed $2 trillion per year. That's an $800 billion increase per year of the deficit for a country that would already have trouble borrowing funds.

So, how quickly do we need to get our act together?

Responding to the Obama Campaign: 'Give Everyone a Fair Shot'

2011-12-13T01:00:00.000-08:00

Recently, I watched the below video entitled "Giving Everyone a Fair Share." Below is the video with my response.

My response:

According to your chart, middle class wages have only gone up 35% in the past 31 years. According to the Social Security Administration, they've gone up close to 250%. That's one disparity I would like an answer on. Additionally, this video is entitled giving everyone a fair shot. Last time I checked, anyone in the United States can get in the 'top 1%' as long as they exercise their intelligence and work hard. Let's not confuse equal opportunity with equal outcome.

Obama's Budget Shows His Failure to Create Jobs

2011-12-12T01:00:00.000-08:00

The above chart represents the past three budgets covering the income security expenses in the federal budget. In Obama's first budget, it was clear that he expected the job market to be completed recovered by 2012. From there, the budget assumes growth in cost based on inflation.

In FY 2011, these estimates soared. Why would the cost of income security rise so much unless...the number of unemployed persons were higher than expected. Looks like that stimulus really had the outcome that the Obama administration expected?

Jon Corzine Testifies Before Congress

2011-12-11T13:00:00.000-08:00

I've uploaded several videos of last week's Jon Corzine testimony before Congress.

Jamie Dimon Rants: Stop Bashing the Rich

2011-12-11T01:00:00.000-08:00

Jamie Dimon has had enough of the populist anger!

This Week in Europe: Debt Crisis Rolls On

2011-12-10T13:00:00.000-08:00

Some videos this week on Europe and the Euro debt crisis.

This Week in Economics: Jobless Claims

2011-12-10T01:00:00.000-08:00

Jobless claims drop to a 9 month low.

Response to the Obama Campaign: Wall Street Reform

2011-12-09T01:00:00.000-08:00

Another video posted by the campaign and in this one, they claim to have ended too big to fail and saved our economy from future crisis.

I responded:

"Wait, wait, wait! Where was the SEC when this whole mess happened? So, since one federal agency failed, we're going to create and PAY FOR ANOTHER ONE to do what they were supposed to be doing? How about this, tell Americans to buy homes on fixed interest rates, tell Americans to buy homes where the mortgage payment doesn't exceed 27% of their income. It's a lot cheaper than taking an old rusty building (the SEC) and trying to build a shiny gold one on top of it with my money."

Response to the Obama Campaign: America 50 Years From Now

2011-12-08T01:00:00.000-08:00

An interesting video that talks about 50 years ago and 50 years from now:

And I responded:

"I HOPE the United States fifty years from now has some individual accountability left. Look 50 years back, in FY1962, the federal government spent $106 billion. Today, the government spends roughly 35 times more. If I told you government spending in 50 years was close to $100 trillion per year, would you be proud of our country?"

Euro Crisis: French and German Fiscal Plan is Ambitious

2011-12-07T01:00:00.000-08:00

Markets have been rebounding for the past week on news that the leadership in the European Union have come close to a bailout plan for the troubled countries of Greece, Spain, and Italy. The political leadership, on Monday, announced plans for a treaty that would bring the EU closer to a fiscal union, limiting each country's annual deficit to 3 percent of GDP.

The leaders will include "automatic sanctions" against countries that violate the debt rules. There is no indication this early on, if any of the EU countries (besides France and Germany) will sign on or refuse this new treaty proposal. The main challenge will be the population in each of these countries supporting austerity measures.

Popular Support

While politicians may agree with the measures laid out in the treaty proposal, civilians of the governments in crisis may be less obliged. As we've seen in Greece, entrenched entitlement spending is the most difficult line item to pull away from a budget. Unfortunately, it is also the worst funded. Many countries may deal with citizens who do not want to lose their "benefits," but also at the same time, not pay for them. Governments sympathetic to these cuts may find themselves challenged or voted out by more hard line elements that will challenge EU membership.

Is 3% of GDP Enough?

There isn't a clear indication from the private markets that 3% of GDP is a manageable deficit. I believe, that in order for that to be true, countries have to grow by at least 3% each year. Europe is currently heading towards recession, which means that even with balanced budgets, some debt to GDP ratios are going to continue to rise.

Additionally, the factors of supply and demand weigh silently huge to this outcome. If the private market is over-saturated with debt, it isn't going to accept anymore, no matter what the quantities are. Additionally, if the recent rise in interest rates does enough financial damage, institutions may be less willing to purchase government bonds in the future. This would permanently lower the demand side of the equation.

If supply and/or demand are negatively altered, then these measures may not be enough from stopping a further crisis in the immediate future.

Hope on the ECB

It is becoming more widely accepted that the ECB will need to step in and buy Euro government bonds. These purchases, similar to Quantitative Easing in the United States, will be designed to ease interest rates. Unfortunately, like QE, these types of purchases lower the incentives of EU countries to be fiscally responsible. Additionally, they run both the risks of future inflation and angering the responsible nations who were responsible, yet had to watch their counterparts be rewarded for failure (similar to what Ford had to witness when GM and Chrysler were bailed out).

The ECB can (and likely will) get around this solution by buying an equal purchase of bonds in all 17 euro countries. This will equally lower rates in each of the member countries and allow for political stability to be more attainable. Unfortunately, it still does not solve the fiscal responsibility problem that it poses.

For more on the Euro Debt Crisis, check out our new Euro Debt Crisis Live section.

Response to President Obama: Our Young People Care

2011-12-06T01:00:00.000-08:00

Another video in today's Obama file talks about how young people care about America's outcome.

I watched:

And I responded:

As a young person, I agree with you Mr.President, we do care about our country. I'm concerned about being forced to pay a percentage of my income to be reallocated to seniors (Social Security) when no such protection is going to be afforded to me when I'm a senior. I'm concerned that your own budget office expects government spending as a % of GDP to go from 25% to 33% by the end of the decade (and that assumes 4% GDP growth). I've looked at the FACTS Mr. President, and we can't afford 4 more years.

CSC Prediction: Coordinated Liquidity Easements by World Banks to Prelude Coordinated Debt Purchases, QE3

2011-12-05T01:00:00.000-08:00

Get the printing press ready!

Last week, the Federal Reserve joined all major central banks in the world to ease liquidity restrictions on banking facilities in an effort to ease credit markets from the strain caused by the European debt crisis. This was on the heels of Monday's report that large French businesses had to seek credit from China and Japan, and that European banks had stopped lending to each other.

Unfortunately, this appears as if it won't be enough to stem the coming crisis. There is too much supply of government debt in Europe (like the U.S. housing market in 2007) and the demand for that debt is dropping precipitously. This is causing bond prices to fall, banks to take writeoffs, and a vicious cycle of deflation feeding itself.

The only immediate term solution I see besides balanced budget austerity is a coordinated purchase of government debt by the same Central Banks that participated in the liquidity restriction easements. The reason that Central Banks act in coordination is to avoid disruption in the global currency markets which can cause their own liquidity problems.

Basically, what all the central banks are doing is devaluing their currency at the same time, to make the transition (ie money printing) more smooth. Their hopes are that the credit markets will unfreeze, allowing for businesses to operate normally, and economies to grow.

I want to delineate that I AM NOT advocating this move, but predicting it. I believe a true solution to this crisis is for all Euro-dominated governments to balance their budgets with elevated interest expenses on their debts included. Then, as rates, calm, these governments will turn surpluses based on the difference between the elevated interest expenses and the actual results. That surplus can be applied to the national debt, reducing it, and beginning a cycle of responsible fiscal actions.

Unfortunately, that solution makes too much sense for politicians to implement.

This Week in Europe: Debt Crisis Over?

2011-12-04T01:00:00.000-08:00

Some scenes from this week's European markets. We are working on an interactive European debt section to be completed shortly.

This Week in Economics: Jobless Claims and Unemployment Report

2011-12-03T01:00:00.000-08:00

Jobless claims are back over 400,000 and the 'unemployment rate' is 8.6%.

My Response to the Obama Campaign: One on One Communication

2011-12-02T01:00:00.000-08:00

Here's the video I watched:

And here's the response I posted:

"How about one on one conversations with taxpayers who have legitimate concerns about our economy or concerns about the size and role of government in our everyday lives? Unfortunately, those people have to pay the re-election campaign to be included!"

If you like the response, please stop by and like it, along with sending your own thoughts in regards to this issue directly.

My Response to Barack Obama: Job Creation

2011-12-01T01:00:00.000-08:00

I'm beginning a series on comments I've made on YouTube regarding videos from President Obama and his campaign. The first video I commented on was:

And I responded:

"I'm fighting for jobs too, but not with the use and abuse of our tax dollars. We are running a $1.5 trillion deficit with a $15 trillion debt. If we keep up those numbers, 9% unemployment will look like the glory days."

You can check out more videos at the link below and feel free to either reply to my comments or comment on other videos.

http://www.youtube.com/user/BarackObamadotcom

The Failure of the GSE Purchase Program

2011-11-30T01:00:00.000-08:00

In 2008, the housing market crashed, causing a broader financial crisis worldwide wrapped around mortgage backed securities and credit default swaps. Some of the biggest offenders in the mortgage backed securities markets were Fannie Mae and Freddie Mac, known as GSEs (or government secured enterprises). As Fannie and Freddie (with multi-trillion dollar balance sheets) crashed, the federal government was forced to step in and nationalize both institutions.

In doing so, they began to take on ownership of mortgage securities. Instead of winding down Fannie and Freddie to ensure that the taxpayers aren't put on the hook again, the government bloated their balance sheets and purchased over $4 trillion in mortgage securities. We previously reported the bloating of the Fannie/Freddie balance sheets last September.

The federal government expensed close to $100 billion in FY2009 'restoring' Fannie and Freddie's balance sheet. The assumption (as seen in the chart below) at the time was that the government would need to make reduced investments in the GSE's over the next two years. Then, they would begin reaping the benefits of interest payments (hence the negative balance on the chart).

I was amazed at the fact that the government assumed it would get the exact same return on the assets (percentage wise) from FY2012 to FY2019 (in the '09 budget). The shows two things 1) the government does not expect (then or now) to sell any of these assets over the next decade and 2) how irresponsible the government is in budgeting events dependent on an interest rate. It is completely impossible for the market to yield the exact same return for eight consecutive years. This highlights the incompetence of the government towards GSE purchases in the budgeting process.

In FY2011, the government reduced its outlook for purchasing GSE's and maintained its return. However, by this year (FY2012), the government swelled its expenses from FY2011 by $30 billion and now believes that because of its additional 'investment,' it's going to yield a better return in future years.

The bottom line is that nationalizing the mortgage industry has failed us. It will continue to cost us money as long as we have two government run organizations bloated with mortgage backed securities controlling the market. Additionally, for every 1% the housing market declines, these companies will need to write off $50 billion in assets!

Furthermore, the accountability of Fannie and Freddie (which wasn't all that great before the crisis, see today's video), has gotten worse since the companies' nationalization. I went to two websites and found that information required by law regarding GSE mortgage purchases, has not been updated since 2007.

http://www.huduser.org/portal/datasets/gse/profiles.html

http://www.huduser.org/portal/datasets/gse.html

How many tens of billions of dollars more do we need to throw away before we must recognize that centralized government intervention of the mortgage industry is not the solution to market stability?

Ken Langone Talks Economics, Education, and Politics

2011-11-29T01:00:00.000-08:00

Ken Langone stopped by CNBC last week to discuss some important economic issues.

What Deregulation Means for the Consumer

2011-11-28T01:00:00.000-08:00

In the study of economics and the consumer, no activity has been more vilified in the media and liberal economic agenda more inaccurately than deregulation. Deregulation of the energy and telecommunications industry has created great opportunities for investment, growth, and jobs on the business side, while saving consumers money.

A simple example would be the electricity deregulation. In the 'old' days, the government broke the energy grid into territories and gave the utility companies a designated area. For the consumer, this meant that you had one electricity company and you paid whatever they charged. Now, under deregulation, consumers can shop around for an electricity provider and choose the pricing plan that best fits their needs. As seen in the video below, being smart about what type of energy plan you choose can easily save 10% on your electricity bills. If you spend $1,500 per year on electricity, you would be saving $150 per year!

This concept has been around in the cellular phone industry since its inception. While detractors of deregulation would argue that the industry has limited usage and raised prices as a result of this policy, simple research would find that incorrect. While Verizon and many of the large carriers have eliminated certain unlimited services and raised pricing, doing simple Google searches can lead to companies who are offering what you are looking for.

For example, everyone I spoke with in the technology field told me it was 'impossible' to get 4G home internet with unlimited usage for a good price. However, just some quick research yielded a company named CLEAR which offers unlimited 4G home internet for less than cable internet.

http://internet.clear.com/?gclid=CO6owpXyn6wCFUoaQgodLEJpCA

Some would be concerned that these are 'fly by night' companies that would scam consumers. Once again, a quick look at online reviews yields some positive feedback from sites such as PC magazine and CNet.

http://reviews.cnet.com/modems/clear-4g-mobile-series/4505-3004_7-34440901.html
http://www.pcmag.com/article2/0,2817,2390517,00.asp#fbid=iVlY1Zv8ReC
http://www.myrealitytech.com/the-clear-winner-for-your-unlimited-4g3g-mobile-internet-connection/

Deregulation gives consumers more choice, can save hundreds of dollars per year, and help boost the economy via the ability for people to consume more.

Several Bond Auctions in Europe Next Week

2011-11-27T13:00:00.000-08:00

Next week is critical to the developments of the Euro Zone and the pending financial crisis. According to the Business Insider, several bond auctions in Italy, Belgium, and Spain are coming in the next week. If these auctions fail, the speed of the crisis could easily result in the beginning of a death spiral. We'll see what happens.

Euro Debt Crisis: Week In Review

2011-11-27T01:00:00.001-08:00

Some interesting events as they occurred earlier this week in Europe.

This Week in Economics: Jobless Claims and GDP Revision

2011-11-26T01:00:00.000-08:00

Jobless claims remain under 400K, but GDP took a sizeable downgrade from 2.5 to 2%.

Examining the Business Cycle

2011-11-25T01:00:00.000-08:00

The events of the past three years have really overshadowed the importance of monitoring the business cycle, which has been predictable in the timing of peaks and troughs of economic upturns and downturns. Now, it seems disrupted by all of this economic intervention.

Happy Thanksgiving from Common Sense Capitalism

2011-11-24T01:00:00.000-08:00

NEW Federal Budget Section

2011-11-23T01:00:00.000-08:00

I've updated the budget section of the website to incorporate the FY2010, 2011, and 2012 budgets. The different colors represent each fiscal year in the budget. Anyone who views these charts should see the changes the government has made in its assumptions about certain spending items during the Obama administration.

Future blogs will focus on certain line items in the budget. We may also work on our own version of the budget to give clarity to our fiscal incompetence.

The new budget section can be found here and the charts are posted below.

ALERT: Fed Minutes Reveal Strong Liklihood for QE3

2011-11-22T13:26:00.000-08:00

The latest Fed minutes from the November 1-2 meeting reveal a strong desire from Fed Board members to initiate QE3. My prediction, if this is the case, the Fed will launch a one trillion dollar purchase in coordination with the ECB and any other central banks (similar to January 2009). It will be the second time in world history that countries have devalued their currency simultaneously.

Here's the link to the Minutes: http://federalreserve.gov/monetarypolicy/fomcminutes20111102.htm

Milton Friedman Has a Message for 'Occupy Wall Street'

2011-11-22T01:00:00.000-08:00

Wise words from Milton Friedman that every OWS protestor should hear.

Bailout Update: Fannie Mae and Freddie Mac

2011-11-21T01:00:00.000-08:00

In 2009, the federal government predicted that by 2011, the government not only would no longer need to inject taxpayer money into the GSEs and would earn $7 billion per year in income thereafter. A couple weeks ago, Freddie Mac posted another loss, fell below the solvency threshold and asked for another $6 billion to keep the company solvent.

To date, the taxpayer has injected $170 billion in capital into Fannie Mae and Freddie Mac. Don't worry, though, the executives of Fannie and Freddie recently took $30 million in bonuses. What better incentive to fail if you're getting paid like that and if the company becomes insolvent, simply go to Congress and ask for more money!

All the Regulatory Horses and All the Regulators Men Couldn't Restore MF Global's Customer's Missing Cash Again...

2011-11-20T13:00:00.000-08:00

We need to kill the fantasy that government regulation protects the individual from the 'ills' of......well anything! The story of the customers of MF Global and what they've been through is heartbreaking! However, it's their diligence that will determine whether the upper management will be held financially accountable or found to be criminally negligent.

Here's some helpful links on the MF Global missing cash:
http://www.cnbc.com/id/45360952
http://www.cnbc.com/id/45354904
http://online.wsj.com/article/SB10001424052970203611404577046572738699862.html

Editorial: Inside The Failure of Jon Corzine and MF Global

2011-11-20T01:00:00.001-08:00

Jon Corzine, the former head of Goldman Sachs, United States Senator, and governor of New Jersey, is currently at the center of the business headlines, but for none of the above titles. Following a career in politics, Corzine accepted the position of chairman and CEO of MF Global. When Corzine was first hired, I was very concerned.

Why would an organization hire someone who practically bankrupted the state of New Jersey?

Turns out, MF was banking more on Corzine's Goldman Sachs experience than on his political/fiscal failures. Someone should have told Corzine that things have changed in the business world since 2008.

From what I'm hearing, Corzine backed a strategy that involved being the middleman in the European debt trade. MF would deal government debt at a discount and if the counterparty the debt was sold to made money, MF would get a share of the profits. On the other side, if the value of the bond fell below the price it was sold, MF would have to fork up the collateral loss and pay the counter-party.

For some reason, this was deemed to be a 'virtually risk free' trade inside of MF Global. To me, however, I see it as a creative twist to a credit default swap. If the price of the bond remains high, you reap the profits, just as if a stock price or investment remains high, the CDS originator can continue to collect fees. If the price falls below the threshold, you now have to pay the difference between the sale price and the new price, similar to the insured value of an investment if it fails.

Now, when I hear that MF felt this was risk free, I know that they loaded their books with this type of transaction. In fact, their leverage ratio was 40 to 1, meaning for every $1 in equity they had, there was $40 in debt. This is the same leverage ratio that Lehman Brothers had when it failed in 2008 and accelerated the financial crisis. Haven't we learned anything from the financial crisis?

Any trading or brokerage house that exists today needs to take a lesson from MF Global and diversify. Additionally, they need to run disaster scenarios that involve unprecedented market conditions as opposed to historical trading ranges. This type of 'out of the box' thinking can raise red flags long before the market does. Hopefully, senior management will be competent enough to react to these studies.

As for Jon Corzine, he should retire after this mess. It scares me to think (as you can see in the below video) that he is teaching students at Princeton. What does he have to contribute to young, impressionable minds? He failed in the public sector, he failed in the public sector, therefore, he simply needs to go away and let the professionals handle the mess he's created.

Anyone "smart" enough to hire him after this....? Probably Congress.

Steve Leisman Gets Taken Down by Rick Santelli and Steve Forbes

2011-11-19T13:00:00.000-08:00

Steve Leisman goes head to head with Rick Santelli about Europe and the Fed. Then, he gets into it with Steve Forbes. Leisman ends up 0-2 in 5 minutes.

The Week in Economics: Jobless Claims, Oct CPI, and Oct PPI

2011-11-19T09:24:00.000-08:00

Inflation indicators point downwards, possibly because of Europe, as jobless claims drop.

Will There Be a QE3?

2011-11-18T01:00:00.000-08:00

Will there be a new round of quantitative easing?