Are You the Hostage or Donkey?

Something remarkable happened to property taxes in America while housing lost 31% of its value from 2006 to 2009: they went up by $100 billion (27%).  Equally remarkably, as we can see from this U.S. Census Bureau data on state and local tax revenues, property taxes went up even when housing slumped in the early 1990s.

So though U.S. housing continues losing value, U.S. home prices declined in January, continuing a downward trend that began in August, with average U.S. home prices retreating to summer 2003 levels, according to the S&P Case-Shiller Home-Price Indexes, while property tax revenues continue their inexorable rise. 

See, the ultimate tax hostage is you, the property owner.  You county that you live in know it, probably better than you do.  The business owner can pull up stakes and leave, the wage earner can transfer or get another job elsewhere, and the consumer can restrict his/her consumption (or buy online) to lower the burden of sales taxes.  However, you, the property owner, are the perfect tax donkey, because the transaction costs of selling are so prohibitive.

With approximately 11 million homeowners in America owing more on their mortgage than their house is worth, then selling is no longer an option unless the bank accepts a short-sale, which lenders are not that eager to do.  Now, given that there are about 48 million mortgaged homes in America, then those 11 million represent about 23% of all homeowners, who are probably paying the same property taxes today that they did in 2009.  The difference, of course, is that property is only worth 69% of its 2009 value.  Where is your tax relief?  Imagine, if your income taxes rose by 27% even as your income declined by 30%, what would you do?

Ok, what should one do?  I recommend you visit your local county assessor and ask for the following data:

1. What are the assessed valuations for residential properties since 1997?
2.  What is the real property assessment rate?  (In my county, real property is assessed at 19% of the assessed value in #1.)
3. What are the real property tax rates since 1997?  (In my county, the real property tax rate is 4.03% for 2010.  For example, let’s assume the assessed residential valuation is $56 million.  Take the $56 million and multiplier it by .19, which equals $10.6 million.  Now, take the $10.6 million and multiplier it by the tax rate of 4.03%, which is $427,000.  That is the real property tax amount generated.  The objective is to trend the dollar amount for each year since 1997.)
4. What are the market values of residential properties since 1997?  You assessor may not have this information.  If not, contact a local realtor for assistance these valuations.

The objectives of this exercise are two-fold: (1) to trend the property market value to the actual real property taxes collected, and (2) to imply to the assessor’s office that you, and hopefully your friends in the community, are going to be the "Real Estate Watchdog” overseeing property taxes.

Washington, We Have a Problem!

The Bureau of Economic Analysis (BEA) just reported the following: "The January change in personal contributions for government social insurance reflected the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which temporarily decreased the social security contribution rate for employees and self-employed workers by 2.0 percentage points for 2011, or $105 billion in January."  In other words, our federal deficit has just increased by $105 billion dollars.  And, Washington can not even come to grips with cutting a lousy $60 billion from a budget that neither Democrats or Republicans can agree upon.  That $60 billion figure is just 4% of what the total federal deficit will be for this fiscal year, which is a complete joke.  If Washington really wants to get serious, both parties must be willing to cut $500 billion this year, $500 billion next year, and cut whatever it takes the following year to balance the budget.  However, what do you thing the chances are that it will happen?  You are correct, ZERO PERCENT! 

The "Answer" to Yesterday's Question

Since 1997, one economic measure has rocketed up an incredible 800%.  It's not home prices. Not government pensions.  No, not medical costs, and not even higher education tuition. It is student loan debt.  (By the way, I did get some very interesting and well thought out answers, but no one came up with my correct answer.)  It's not just the growth rate of student debt that’s breathtaking.  It is also its absolute size, approximately $900 billion. (See the Student Loan Debt Clock.)  For example, would you be startled to learn that total U.S. education loans recently surpassed total U.S. credit card debt?  It did, for the first time in history.

And get this: Total education debt now amounts to 93% of total U.S. defense spending.

Now, why is all this important?  Four years of college can take decades to pay off.  The average student loan takes on average 10 to 25 years to repay.  Ouch!!  This is a bubble just waiting to burst.  

Student loan debt exhibits all the requisite characteristics of a true bubble: one that is credit-fueled, government-supported, and widely popular.  In other words, we have some striking similarities between the housing bubble and the education bubble.  And, we all know what happen to that bubble.  Also, the not-amusing part of this picture is that student loans have been rendered non-dischargeable (except in extraordinary circumstances) in bankruptcy.  What does that mean? Students can not simply walk away from student loans, like those mortgages they may have.  

I firmly believe that all this student debt outstanding will not end very good.  I look for massive defaults just like occurred with the housing bubble.  

Enforcement of Swing Set Building Codes

Rules regarding swing sets and play sets in Westport, CT will go under the microscope tonight at the Planning and Zoning Commission public hearing.  Currently, swing sets and play sets must by placed at least 50 feet from property lines.  These set-back provisions have been strictly enforced.  

Westport, CT leaders have nothing better to do than to harass individuals about what, again?  Crime? Absolutely not....swing sets, of course!

 

Silver above $38 as Gold Hits New All Time Highs

On March 3, 2011, I delineated six immediate action steps that must occur in order for the U.S. to survive.  That blog was entitled, "Economic Prescription for Growth and U.S. Survival."  Today, I reiterate #6 in which I stated, "An immediate dismissal of the Federal Reserve Chairman, Ben Bernanke.  Why?  The Fed is required to promote both price stability and full employment (economic growth).  Enough said, because we have neither.  Therefore, since he is the individual responsible for monetary policy, he must be accountable and take full responsibility for his disastrous monetary polices that he has implemented."  

The dollar is in a free-fall.  Silver and gold are in a parabolic rise.  Why?  Read #6 again.  The Fed's monetary policy is destroying the basic core ad fabric of not only our economy but our currency.  We need fiscal and monetary polices that will strengthen the dollar!  Therefore, Bernanke must go, now! 

Do You Know?

Since 1997, one economic measure has increased an incredible 800%.  It's not home prices.  Not  government pensions. No, not medical costs, and not even higher education tuition.  What is it?  Let me know.  If you get it right, I will identify you as the winner in my post tomorrow. 

Who Owns All That Municipal Debt?

If there is a muni-bond collapse, as some people expect, who gets slammed?  You!  I have been negative on municipal securities along with state bonds for quite some time.  Municipal and states are bankrupt.  End of story.  They can not print money like the Fed. 

Due the "Zero Interest Rate Policy" of the Fed, investors have been reaching for yield (higher rate of return).  However, there is a consequence of reaching for that extra basis point, and that is increased risk.  Today's investors in municipal bonds will lose and lose big.  Just look at the following chart and you decide who is at risk.  Just because we have not had major defaults, yet, does not mean that it will not happen.

Weekly Update for S&P 500

Thoughts on the Future of Egypt (Mitsrayim) and Northern Africa

In America, the result events in Northern Africa, especially Egypt, have been reported in a mostly positive manner.  President Obama described the scenes of jubilation this way: "We saw mothers and fathers carrying their children to show them what true democracy might look like.  We heard a young Egypt say that my voice is heard.  We saw people of faith praying together and chanting Muslims, Christians, We are one."

The mainstream perception would have you believe that Egypt is a country hungry for freedom and peace after a generation of rule by Hosni Mubarak.  But, this perception ignores the current reality of what is really going on Egypt.  It is definitely not the wonderful, feel-good story that is being put forth in the media.  Maybe it is just the way that we Americans want to believe the world should be, like those wonderful fairy-tales with happy endings that we were told growing up.

Ok, what is reality in Egypt?  Is it, as President Obama claimed, positive for the Middle East and America because the Egyptians truly want freedom and a Western-style democracy? Or, do they want an Islamic theocracy as put forth by the Muslim Brotherhood, which claims to be the true guardian of Islam?

I believe the answer to the above two questions can be ascertained by a survey done by the Pew Research Center last year  that showed that Egyptians do not want a Western-style democracy but a strict Islamic rule.  This survey (Pew Global Attitudes Project, December 2, 2010) had the following results:

1. 85% of Muslims in Egypt want a strong Islamic influence in the nation's politics. (That would mean the Muslim Brotherhood.)
2. Approximately 85% say those who leave the Muslim faith should be killed for it.
3. 82% support stoning adulterers.
4. 77% believe thieves should have their hands cut off.
5. Over 50% support segregating women from men in the workplace.
6. 54% believe suicide bombings that murder civilians can be justified.
7. Among the 18 Muslim nations Pew surveyed, Egypt had the highest unfavorable rating toward American (82% dislike the U.S.).

The results of this survey indicates that the media and Administration have it exactly backward.  Egyptians are not seeking an American-style democracy, just the opposite.  They want a true Islamic theocracy.

I am very concerned about the Northern Africa countries, Morocco, Algeria, Libya, Egypt and Tunisia.  I have always believed that a Western-style democracy would never work in a culture where the main influence is Sharia (Islamic) Law.  I see the aforementioned countries definitely moving to an Islamic theocracy.  The next country to do such, in my opinion, is Ethiopia.  We have not heard much about the unrest there, but it is.  Therefore, what is happening in Northern Africa and the Middle East is not good for America.

Enigma -- Why?

"Why" seems to be the question of the hour and day.  Why did this happen to Japan?  Why all the financial turmoil?  Why all thehatred in Northern Africa and within the Persian Gulf countries?  Why does the world seem totally out of control?  Isn't anyone in charge?  For me, I take solace as a Natsarim.  Enjoy the video.

Troubled Asset Relief Program (TARP) Watchdog: Big Banks Got Unfair Advantage

Does anyone out there remember TARP?  The first of the mega-bailouts to Wall Street, which started with President Bush.  Boy, that sames like eons ago, but it was just three years ago (2008) and approximately two-trillion dollars if we include QE1 and QE2. (I believe that we will definitely have a OE2, no later than the end of 2011.) 

Neil M. Barofsky, the special inspector general for the Troubled Asset Relief Program, said in testimony before the Senate Banking Committee, that federal rescue of the financial system in 2008 has provided large financial institutions with an unfair advantage in the form of cheaper access to credit.  Also, he stated, "For executives at such institutions, the government safety net provides the motivation to take greater risks than they otherwise would in search of ever-greater profits."  He, also, stated that effective government subsidy enables big profits and allows the largest institutions to become even larger relative to the economy while materially disadvantaging smaller banks.  (So much for a market economy.  This is why I have always opposed mega-mergers and/or special government bail-outs, because it simply reduces competition.)

Thank you, Mr. Barofsky, for your candor at speaking the truth.  Now, let's see what Congress will do with it.  Of course, I already know the answer.  They will do absolutely nothing! 

For the full article, read it here.

Freedom and Truth

I firmly believe that the ruling elite must keep the people in the dark, especially when it comes to economics as well as in politics.  However, the rise of the Internet, and in particular outlets such as YouTube, are making that task far more difficult, as witnessed by the recent events in Northern Africa, especially Tunisia, Egypt, Libya, and Bahrain.  The genie is out of the bottle, and it is not going back in it.  Let freedom and truth rein.  That is one of the main reasons I teach is to do my small part in making  students more economic literate.

Earthquake Map of America

Read the full article here.

Why North Dakota Is Booming

"Listen up America.  "Unemployment is 3.8% in North Dakota, and according to a Gallup survey last month, North Dakota has the best job market in the country. Its economy "sticks out like a diamond in a bowl of cherry pits," says Ron Wirtz, editor of the Minneapolis Fed's newspaper. The state's population, slightly more than 672,000, is up nearly 5% since 2000. The biggest impetus for the good times lies with energy development. Around 650 wells were drilled last year in North Dakota, and the state Department of Mineral Resources envisions another 5,500 new wells over the next two decades. Between 2005 and 2009, oil industry revenues have tripled to $12.7 billion from $4.2 billion, creating more than 13,000 jobs. (Yes, that is correct. Real jobs are being created.) Oil also is the principal reason North Dakota enjoys arguably the best fiscal situation in all the fifty states. (Wow!) Perhaps more surprising, North Dakota is also attracting high-tech.

What accounts for the state's success? Dakotans didn't bet the farm, so to speak, on solar cells, high-density housing or high-speed rail. Taxes are moderate—the state ranks near the middle in terms of tax per capita, according to the Tax Foundation—and North Dakota is a right-to-work state, which makes it attractive to new employers, especially in manufacturing. But the state's real key to success is doing the first things first—such as producing energy, food and specialized manufactured goods for which there is a growing, world-wide market. This is what creates the employment and wealth that can support environmental protection and higher education."  Well done Dakotans!!!!! 

Read the full article, which is in today's Wall Street Journal.

Al Jazeera Explains What A Fukushima Meltdown Would Look Like

S&P 500 "EMA Strategy" Update

Exponential moving average strategy, 15-week EMA > 40-week EMA, is still bullish,  However, RSI and Wm%R have signaled a correction should take the S&P 500 to its 40-week EMA at the 1200 level.

Operation Empire State Rebellion

The Anonymous manifesto:

1.     We are a decentralized non-violent resistance movement, which seeks to restore the rule of law and fight back against the organized criminal class.

2.     One-tenth of one percent of the population has consolidated wealth in unprecedented fashion and launched an all-out economic war against 99.9% of the population.

3.     We are not affiliated with either wing of the two-party oligarchy. We seek an end to the corrupted two-party system by ending the campaign finance and lobbying racket.

4.     Above all, we aim to break up the global banking cartel centered at the Federal Reserve, International Monetary Fund, Bank of International Settlement and World Bank.

5.     We demand that the primary dealers within the Federal Reserve banking system be broken up and held accountable for rigging markets and destroying the global economy, effective immediately.

6.     As a first sign of good faith we demand Ben Bernanke step down as Federal Reserve chairman.

      

       Incidentally, this group, which goes by Anonymous, have a history of being able to hack into pretty much any system they want to.  This could get pretty interesting.  Ben Bernanke, you better change your email address.

Le Roi est mort, vive le Roi!

Mortgage Electronic Registration Systems (MERS)

If you have a mortgage on your home, you better read this article from Saturday's New York Times.  Never heard of MERS?  But you will very shortly, because it could turn out to be a very public problem for the mortgage industry.  Just in case you forgot what has transpired over the past three years, think sub-prime mortgage debacle. 

This little corporation by staff size, approximately fifty people, claims to hold title to roughly half of all the home mortgages in the nation, approximately astonishing 60 million loans.  That is the problem.  In many cases, they simply do not.  Please read the article.

Hypocrisy

Remember how President Barack Obama and Secretary of State Hillary Clinton said that people had a right to peaceful protest in Egypt and other nations?  How Libya's government had "lost legitimacy" by banning protests, shooting and locking up those who dared to speak? 

Does anyone want to take a wager on how long it will take Obama and Clinton to say the same thing here?
 
"DAMMAM, Saudi Arabia (Dow Jones) --Top oil exporter Saudi Arabia has banned all protests, marches and strikes in the kingdom after small protests continued over the weekend in the oil-rich Eastern province towns of al-Ahsa and Qatif, interior ministry said Saturday, according to state-owned channel al Ekhbariyah.  These activities don't conform with the Islamic laws and harm the interests of the nation and the society, the Saudi channel quoted the ministry as saying.  Any attempt to cause public disorder will be prevented by security forces, it said."

Free speech, or is that something we, as a nation, use only when it suits our financial interests?  I would wager that this story will not be picked-up by the main-stream media. 

183,000 Number Question

BLS is expected to report Friday that the U.S. added a net 183,000 jobs in February, which is the most since last May. However, the unemployment rate is seen ticking up 0.1 point to 9.1% as more people entered the labor force.

Tomorrow should prove very interesting, since the market "today" definitely believes those BLS job numbers are for real.  We will see.

Economic Prescription for Growth and U.S. Survival

The following list delineates my prescription for what must be done, IMHO, for America to once again become fiscally sound:

1. Enact the Fair Tax immediately.  (If you don’t know what it is, check it out at Fair Tax.)
2. Limit government spending to 17% of GDP.  (Why 17% of GDP?  That is the long-term average.)  With the current GDP at $14.6 Trillion, this means that government spending would currently be limited to $2.5 Trillion.  At present, government spending is  $3.5 Trillion, or 24% of GDP.  And, the projected deficit is $1.6 Trillion.  (Congress cannot even agree on cutting $100 Billion from the federal budget.  If we cut $100 Billion, it is not a great victory, not a even a moral victory, because we would still have a federal deficit of $1.5 Trillion to finance.)
3. An immediate 20% cut in government spending is necessary to start the alignment of limiting government spending to 17% of GDP. 
4. Immediately open up the ANWR (Arctic National Wildlife Refuge) for oil drilling and resume offshore oil drilling.  With oil above $104 a barrel and gasoline closely in at $3.50/gallon and on its way to $4, we must increase the supply in order to bring down the price.  (I know if we open up ANWR today that we would not get a drop of oil tomorrow.  However, the reason why price of oil will come down is due to the fact that all markets are forward looking.  That is the expectation of the future supply of oil coming unto the market will drive the price down.)
5. No more bail outs to Wall Street, Main Street, or any other Street.
6. An immediate dismissal of the Federal Reserve Chairman, Ben Bernanke.  Why?  The Fed is required to promote both price stability and full employment (economic growth).  Enough said, because we have neither.  Therefore, since he is the individual responsible for monetary policy, he must be accountable and take full responsibility for his disastrous monetary polices that he has implemented.  Just look at the following to two charts on employment and retail gas prices:

Now, after examining the above two charts, do you still believe he should be employed?  If you want to give him the benefit of the doubt, just take a look at the following chart:

The answer to the above question in the chart is that I don’t know who is going to buy those Treasury securities when QE2 ends.  The Fed already is purchasing 70%.  What will happen to interest rates when the Fed ceases to be the main demand factor?  I think you know the answer.  And, we will still have to finance the $1.6 to $2 trillion federal deficits for this year along with refinancing all that other Federal Debt maturing.

The world economies need the United States to get its fiscal and monetary houses in order.  It must be done today, not tomorrow.  We must face economic reality.  We can no longer “kick-the-can” down the road, because we have definitely come to the end of the road.