Sunday, June 08, 2008

Eminent Domain in Reverse

One reason the national debt is so damn big is that the federal government owns and operates assets that it shouldn't, like Amtrak.

What we need is a sort of eminent domain in reverse, a right vested in the American people to purchase government-owned assets at fair market prices. If the government wants to put a road through your property, or thinks a corporation would do more for the economy than you're doing, it can force you to sell it. Why can't We the People do the same for government assets? I'd exempt military bases and national parks but everything else should be on the table, especially businesses like Amtrak.

This would force the government to run their business interest profitably or lose them to the highest bidder. The proceeds of sales should be used to pay down the debt; the subsidies saved in future years will of course reduce the budget deficit.

Saturday, June 07, 2008

The Poor Person's Inflation Hedge

I taped my June 22, 9:30 PM appearance on Larry Kane's Voice of Reason show here in Philly yesterday. (CN8 in the Philly market; if you get Comcast, check your local listings). The subject of consumer debt came up and I pointed out that inflation expectations are such that Americans act rationally when they run into debt, especially if they can reasonably expect their wages to keep up with price increases. Borrowing is of course the poor person's hedge against inflation: there's little better investment than having a big fat mortgage inflated away in real terms.

Say you have a $100,000 mortgage (perhaps on what today is a $75,000 house) and earn $20,000 per year -- the debt is 5x your earnings. If inflation runs at 10% per year for a few years and your wages keep up, or eventually catch up, you'll still owe $100,000 (minus any principal repaid, which is minimal at first on a 30 year mortgage) but make say $25 or $30k per year -- only 3 or 4x your earnings. The higher inflation is, the easier it is to repay the debt. Why do you think the government isn't quaking in its boots about the cheap dollar and high prices for everything from oil to bread? It's $9.4 plus perhaps $99 TRILLION in hock. (See the counters on this page and Thursday's post.)

Running up credit card debt is not such a good hedge against inflation because the interest rates on consumer revolving credit are, and likely to remain, well above the rate of inflation (even the actual rate the government is hiding). But cc debt offers a second type of hedge, one against falling real wages (when wages lag inflation). Bankruptcy laws are more stringent than they were a few years ago but until they bring back debtors' prisons ...

So if you don't like what is going on in the economy, watch the show, and buy the book!

Friday, June 06, 2008

99 Trillion! and I know why.

Richard Fisher, top dog at the Dallas Fed, says that the present value of the cost of Medicare, the new drug benefit, and Social Security is $99.2 TRILLION, or about 10 times the funded national debt (see the counters on this page):

Holy Moose!

The saddest thing about this figure is that it is completely unnecessary. American's would save more if our financial securities firms, markets, and regulations were not so completely screwed up.

Personal story: Today, I closed a small 401k account with Ameriprise Financial. Why? Because they were sucking me dry with fees (to which they tacked on an extra fiddy bucks today). After taxes, I will actually lost money on this "investment." No wonder Americans spend every dime they make, borrow to the hilt, and hope the government will bail them out when they get old and sick.