Crazy idea to fix the economy, FTW!

Every day, during my lunch, I read several news sites including MSN. I know, MSN isn’t exactly the best source of news, but I’m an avid music fan and find some of their coverage interesting. The rest of main stream media is a joke now that I’m onto them and their filtered brainwashing of individuals pushing “news” that is subliminally lulling them into a false sense of comfort. There is so much that goes on around the world that just isn’t covered anywhere in American media. When Gary Johnson asked “What is Aleppo?” on Fox News Morning Joe, I was at first surprised but quickly realized that his platform isn’t primarily focused on foreign policy, rather domestic policy. News outlets instead hammered him for not knowing about Aleppo and made correlations to someone not knowing about Sarajevo in the 90’s or Iran-Contra in the 80’s. It’s crap if you ask me. Yes, I’m a third-party supporter, however I’m not biased enough to not recognize a mistake as we all make them. No one is perfect.  He does have a few ideas on his platform that suggest it would improve the economy, but don’t go far enough I think.

The entire monetary system, as it exists right now, is predicated on borrowed money. It was created out of thin air, by the Fed, after the wake of the 2008 financial crisis. A system so broken and propped up by debt can’t sustain itself for too long, and none of the plans by any Presidential candidate really lives up to the promise of being able to fix it. The rich elite run the country and until they don’t, nothing will fundamentally change. Here is a quick and dirty plan I came up with after reflecting a short period of time. I’m not an economist, but do understand the concept of credit/debit systems and religiously balance my register every month.

For all households making less than $250,000/year

  • Forgive all property asset debt
  • Forgive all consumer credit debt
  • Forgive all student loan debt

That might seem like a high annual income amount, however only 3% of American households make over that amount per year. Essentially, you would be removing the two largest amounts of debt for almost 97% of the entire country. An enormous amount of spending power would return to almost 97% of households to where the question or food vs. utilities would not need to be thought of again. The catch, and there’s a catch, is that anyone with a forgiven property asset or consumer credit debt would not be permitted to take on any new debts of those types for a minimum of 12 months. For the majority of the country, I don’t think that would be a problem. This one simple and drastic measure would remove the following amounts of debt from the U.S. financial system:

  • $13.8 trillion in mortgages (EOY 2015)
  • $929 billion in consumer credit (May 2016)
  • $1.2 trillion in student loans (April 2015)

Essentially, when you add it all up, it would remove more in currency than the Fed added to stabilize the economy during the 2008-2009 financial crisis. The amounts are staggering especially considering that the group of people in the U.S. that hold that debt are NOT part of the elite class that can afford do a house outright, don’t carry credit in most cases, and typically go to college for free with a “donation” to the University being attended. Forgiving this debt would in turn give the economy a shot of adrenalin to get it jump started in the right direction. How would your view of the country change if you didn’t have to make your monthly mortgage, credit card, and school loan payments. How much would your lives change for the better?

The other side of this problem is with the law and regulatory requirements that would need to be changed. The financial sector could no longer be allowed to self-regulate as they’ve shown over the last several decades they only care about making more money. Any law put in place in the last 30 years would need to be reviewed, analyzed for effectiveness, and then repealed or updated to align with the founding fathers view of law. The law is what grants all citizens the equality that is required to be a true democracy. Laws that favor the elite and/or don’t apply to the elite need to be removed completely. Here’s an example: a guy with a pound of marijuana is sent to jail for 5 years with 5 years probation (legal in some states) while a government official complicit in sharing top-secret emails that threatened national security is mildly scolded. Another example: executive office officials are brought up on charges for destroying top-secret documents, charged, and served jail time while the President that ordered this to take place is pardoned following his resignation by his former Vice-President.

No idea is too crazy once you’ve passed the proverbial point of no return. Yeah, it will be a whole hell of a lot of short-term pain in terms of the financial market, shifting of power, etc. When you weigh it against the long-term potential of doing the above plan and keeping the system working or letting it go and having the system crash globally, seriously, what would the better choice be?

The Government Debt Bubble

moneybubble

I’m on a documentary kick right now on Hulu and Netflix. The one I watched last night after work has me really concerned for the future of our economy and the ability of the Federal Reserve to correct the next crisis. Similar to The Big Short, this movie focused on the history of the Fed and the events leading to the most recent crash of the market in 2008. To say the movie, Money for Nothing: Inside the Federal Reserve was eye-opening, is a titanic understatement. Some of the earlier history, both pre-Fed and newly-created-Fed, was new to me and I wasn’t aware of the problems they faced. Our economy is actually so much more fragile than we are all led to think. An independent, or self-described independent, government agency tasked with keeping our economy balanced that is separate from government policy and influence, really doesn’t seem to be working after seeing this movie.

What absolutely floored me, the eye-opening moment, was the near $4 trillion that the Fed pumped into the economy in the form of a bailout for companies like Citigroup, Goldman Sachs, Bear Stearns, Morgan Stanley, and GE. That isn’t a withdraw from a bank account totalling $4 trillion, no, it was a loan to these companies from the Fed that stopped them from collapsing like Lehman Brothers. A loan! It created, in one year, an increase to our national debt of $4 trillion. Banks were saved, investment firms were saved, mortgage companies were saved….. but were they? A loan by the Fed added debt to the economy, any growth or correction from that loan was done with “credit”. For those of you that own homes, you don’t really own the home, you own the debt created at the time of purchase. You don’t actually own your home until you satisfy the debt associated with it. The mortgage company technically owns the home, they hold the deed. The bailout didn’t wipe out the fact that 14 million homes were purchased in 2006-2007, half of which were considered sub-prime. In some cases, companies would provide NINJA loans, aka No Income, No Job, or Assets. Call me crazy, but who in their right mind would actually think that was a GOOD thing to do?

All the economic recovery we’ve experienced since 2008 has been built on the money the Fed has pumped into the economy. The interest rate is currently at 0.5%, making it impossible for people to make any money from savings. A low rate is supposed to make it easier for lenders to, well, actually lend money, but they’re not. Our unemployment rate has gone up following the 2008 crash. We have nothing to show that the improvement is based on anything tangible. Industry is still struggling, we don’t make anything the world wants (for the most part), and consumers are spending money they don’t have and creating more personal debt. The United States, when all forms of debt are counted, is pushing $50 trillion! A staggering number that most people can’t understand let alone visualize in real world comparisons. What is scary though, is that the policies the Fed were using in 1994 and the bailout of Long Term Capital in 1998 created the mechanisms for the 2008 crash to take place. That and an across the board refusal to regulate the Derivatives and Investment Insurance markets. Both of these markets were allowed to run unchecked for more than a decade feeding into a housing market bubble that eventually popped with catastrophic effects.

In the span of 2008-2009, I have had all my credit cards converted from fixed rates to variable rates (none of which I’ve managed to convert back to fixed). I almost lost my house due to job loss and pay cut on a new job compounded by the fact that I had used equity in my home to help offset the cost of adoption in 2006. I nearly went underwater in home price and it took me over a year to get through the ridiculous HARP process. At this point, I see the evidence from this documentary in real life and fear that a bubble so big, so enormous, is about to rip itself apart and take the entire world economy down with it. The system that existed in 2008 is the same system that exists today with very little regulation or legislation to prevent it. You would think that after the dust settled, people would have been brought up on charges, banks would have been broken up, the Glass-Steagall Act of 1933 re-enacted…. something! No, nothing, not a damn thing!. The precedent has been set that if companies make money, they win, if they make mistakes they lose money and the Fed bails them out. Either way, they win. It sucks.

If you watch the movie, you need to let me know if you are willing to take some short-term pain so that the system can be fixed and correct itself to set in motion some long-term prosperity. I’m sure the 1% would have a few choice words for me at this point because it would mean an end to nearly free money with interest rates at 0.5% for them and 4-6% to consumers who borrow from them.  Interest rates leading up to 2007 were 0% by the way, in case you didn’t know.  The problem is that the bubble this time is the debt of the United States Government and the Federal Reserve…. talk about “too big to fail.”

Virtual economy

WritingACheck
As if, who writes checks anymore?

While sitting down and entering in receipts and paying some bills, I started to laugh. Looking at the electronic representation of money I never really had in my possession had a comical and humorous feel to it. I mean, I worked to earn the money that was deposited in my account that I then spent on things. At no point was this money actually ever in existence except as numbers in some software. It first started at my company, then transferred to the payroll company, then to my account, then to the final destination after leaving my account. It was all electronic transfer of money relying on a system that is horrifyingly fragile to a number of external threats, all of which are real possibilities in the future.

 

Somewhere out there is an electronic record of my finances that is being used to judge my creditworthiness for almost everything. The shear amount of things that require good credit is staggering especially when you consider that more than 50% of the country is in some form of debt beyond a home or vehicle. I’m in that category myself despite having significant control over what is purchased and when. Despite my best efforts, there always seems to be something that hits the bottom line making it nearly impossible to actually save money. Everyone wants their piece of the pie along the way leaving the guy at the end left to pick from the crumbs. I’m not complaining by any means, I take responsibility for the money I’ve spent regardless of whether it was a “want” or a “need”. There are certainly things I can live without, but weighed against whether I want to or not, some things are just too convenient to live without. An example, a garbage disposal, have one for 12 years and then take it away, you suddenly realize how convenient it was.

Recalling back the last several years, I realized I rarely carry paper money anymore. I’ve come to rely on cards (ATM/Debit, CC, etc.) so much that the need to carry paper money has all but disappeared. There are only a few places that I require paper money at this point, but only because they don’t accept cards. The only other reason is when you need a purchase to be under the radar (like an anniversary or birthday present). Previously I wrote about being off the grid as a personal decision. What if living off the grid was necessary because the grid was no longer functioning? As in the case of computer hacking, electromagnetic pulse bombs, or a complete collapse of the financial infrastructure as it exists today. What do you do then knowing you have electronic money but no electronic means of getting to it or knowing if it still even existed?

DoomsdayPreppers
Doomsday preppers….  or a typical family in Texas, you choose, lol  (c) National Geographic

While I’m not a doomsday prepper by any means, I do want to make sure I’m sanely prepared for certain disasters that have a relative certainty of happening in the future. One of them being a collapse of the financial system where paper money might be the only currency that is left and actually still works. In the case of a market collapse, the only sure means of wealth to purchase what you need is precious metals like gold and silver. For over 100 years, the American currency was both gold and silver backed at least until the turn of the 20th century. People have been pushing for years to get back to that standard, however, it would mean pulling billions of dollars out of circulation in a system that is only backed by trust. Not a good place to be in my honest opinion because if it weren’t removed from circulation, the value of the dollar would fall significantly to match the gold or silver being used to back it.

 

With that said then, I’ve got a stash of paper money in my safe at home specifically for when all electronic means to access my money aren’t working. Regardless of the reason, until such a moment that the financial system collapses, paper money will still hopefully buy the necessary things to survive. Depending on the type of financial system collapse, paper money might also be worthless. An example of that was in 1929 at the start of the Great Depression, paper money was only worth cents on the dollar. The monetary system at that time was very different than it is today, however the underlying factors of wealth, greed, and power have never changed. Whether it be borrowing to purchase stocks (sometimes $.20 on the dollar) or to finance sub-prime loans for people who couldn’t afford it, economies will fluctuate regardless of circumstances. Fear is the driving force behind all the stock market plunges through history. If you objectively look at the system in place, it fundamentally doesn’t change pre-plunge to post-plunge, however people fearing they will lose money (they never had in their possession physically) make a run on a system that can’t support conversion from electronic to physical form.

redflagAn article I read recently detailed the warning sign that the housing market is again going to take a downturn. The basis of the article explained how seasoned infrastructure investors have backed off purchasing foreclosed (fixer-upper flips basically) properties due to demand for inventory and the return falling below 30%. The unfortunately side-effect of that is that novice or misinformed first time investors are purchasing these properties, on slim potential margins, often utilizing credit to do so. The red flag here is that there is the potential for that first time investor to not only lose the investment they just purchased, but also lose their current property as well. That doesn’t turn out well in a market still fragile from 2008 and serves to show that things haven’t changed that much despite the new regulations that have been put in place. Having just purchased a new home, I’m concerned that a downturn in the economy at this point would hit much harder than the previous one. The correction mechanisms in our economic systems have not recovered and would be inadequate to offer any help if a downturn happened now.

The bottom line here, and the main point of this, is we rely too much on electronic technology. There aren’t enough adequate safeguards in place to ensure the systems protection. The irony is that I’m explaining this through an electronic journal.

irony
Oh, the irony!