On Trillion Dollar Deficits and Zero Interest Rates

After shunning "alternative" financial market news for the better part of the last month while we were traveling around the country, listening to about an hour or so of Bloomberg Radio each day on XM Radio where straight news was delivered with commentary mostly provided by bullish money managers and no offsetting views from the talented corps of skeptical Bloomberg columnists, the adjustment back into a more "balanced" view of financial markets has been something of a violent transition. Following are excerpts from Doug Noland's latest commentary at Prudent Bear on a recent piece by Paul Krugman.

Dr. Krugman, like so many economists of our time, is an inflationist. He, like so many before him, sees easy Credit and the government printing press as the solution to unemployment and other economic problems. And - in our age of electronic “money” and unbounded global finance - there are apparently no longer any bounds to U.S. fiscal and monetary stimulus.

Messrs. Greenspan and Bernanke are inflationists. The inflationists have been running the show since easy Credit was employed to juice the system after the 1987 stock market crash. The consequences of that bout of policy-induced excess led to a more potent inflationist policymaking elixir in the early-nineties to mop up the financial mess. Since then, ever more emboldened Credit inflation has been required to battle crisis after crisis after crisis. Easy money and Credit – the bane of Capitalism – were allowed to overwhelm the workings of the system. The point of Trillion dollar deficits and zero interest rates has been reached – with the undeterred inflationists now bent on this sorry state of affairs continuing indefinitely.

It is rather astonishing to see and hear with fresh eyes and ears that with some Wall Street firms reporting knockout earnings, the stock market rally looking like it will never end, and third quarter GDP set to be reported next week at an annual rate of 3.5 percent, that, absent the pesky weak job market, there is a growing consensus that the coast is clear.

A better example of this could not possibly be found than Fareed Zakaria waxing poetically about renewed prosperity in the world in the last item a short time ago.

Back to Mr. Noland for another dose of reality:

Inflationism doctrine is riddled with failings: Easy Credit distorts system pricing mechanisms; foments destabilizing speculation; spurs societal wealth transfer; distorts the underlying economic structure; fosters financial fragility; and debases the currency – to name just a few. History – including recent history – validates this analysis.

Yet there are two particular facets of today’s inflationism that make “Keynesian” policymaking extraordinarily dangerous. First, the global backdrop is one of unchecked Credit and the absence of any disciplining global monetary regime. Policy mistakes are free to run longer and with enormous global financial and economic consequences. Second, policymakers and pundits herald incredible post-Bubble policy responses, while failing to recognize that aggressive stimulus is, once again, fostering problematic Bubbles. For too long the inflationists have been negligent in their disregard for Bubble dynamics.
...
While confidence in the global reflationary backdrop may be rising, the dollar is in trouble. And many dollar apologists will claim the greenback has no immediate replacement and thus will retain its status as the world’s reserve currency. This line of reasoning misses the key point: the dollar reserve global monetary “regime” has broken down as a mechanism for supporting stable global Credit and economic performance. Unchecked global finance now rules, a consequence of the massive and ongoing devaluation of the world’s reserve currency.

Only the inflationists could argue the dollar’s current predicament is “good news.” I don’t see it. I don’t view a world economy rebalancing or becoming more stable. Instead, we’re witnessing the unleashing of another furious global boom and bust cycle. Crude oil traded above $78 this week as gold responded to the weak dollar by surging to an all-time record high. U.S. wealth is being shifted overseas, and Americans’ savings are being devalued. We are losing financial power by the day. Good news? More easy Credit to the rescue?

There is much more in this piece that is worth a look - it seems that talk of a "bubble in bubbles" and the bursting of the next ones being even worst than the last has intensified significantly in recent weeks, though it comes as news to me.

Now it's on to John Hussman's latest piece - something about the stock market being overvalued? I didn't hear too much about that over the last month either.

Comments

[perceptions_now]

Trap set, prey approaching, clock is running down!!!

2009 Oct 20 05:31 AM

[Michael Clark]

It's criminal what Bernanke and his friends are doing to Americans. The Inflationists have been running wild since 1983. It's time to clip their wings. If we don't, America will be finished -- and then the capitalists and bankers will all just move to another country and do the same things there. Bankers have no loyalty but to money.

2009 Oct 20 05:40 AM

[bigbear4511]

Mark to market is like siting on the fence waiting for the assets to turn around. When you look at what happened in the 80"s it took five years for the peak of the bank failures to happen. this would place are peak of banks failing at around 2015. Does mark to market delay losses for that long. Problems are on there way.

2009 Oct 20 05:54 AM

[User 353732]

1. The Govt is printing trillions of lies not issuing "money" at all. Lies are infinitely expandable at infinitesimal effort. They have no cost of capital because they are NOT capital, they are mere vapors and hallucinations. They cost nothing so they are rented out for almost nothing. It is only the ordinary baffled, demoralized and willfully defrauded American citizen who cannot distinguish between fake dollars and a genuine currency: the Regime most certainly can and much of the world outside the US is beginning to.

2. Lies buy the Regime time to further aggregate power and institutionalize the degradation of personal and property rights. Trillions of lies inevitably lead to sequential bubbles which are deliberate devices for transferring real resources from the many to the few and for ensnaring the many in the web of money illusion. Hence expanding bonuses and political funds on Wall St and in WashDC but foreclosures and unemployment on Main St. The rising tide of lies lifts the yachts of a tiny minority while swamping and sinking the boats of everyone else.

3. The Regime is pouring rancid colored water into discarded and moldy casks and peddling it as new barrels of young wine. As Main St. buys and drinks, hoping to be invigorated, it is being infected by the spreading toxins of the fiat dollar, diseased regulations and perverted propaganda.

2009 Oct 20 06:09 AM

[Dave Wrixon]

I think we are actually in danger of focusing too sharply on Federal Deficits. If you think of this as a joint account shared by each tax payer in the country, for many it only part of their overall debt problem. The real problem is that America is bankrupt through and through. Of course Fed Deficit is the part of each persons debt that they have the least control over, and it does seem to be being managed particularly badly, but on the positive side, it is the only place that most of them are being advanced any new credit at present.

2009 Oct 20 06:17 AM

[Leonard C.Tekaat]

CAUSE AND CURE FOR THE HOUSING AND ECONOMIC CRISIS

WHAT TO DO TO CURE THE CRISIS WITHOUT HUGE DEFICITS

1. Enact the Zero Inflation Taxation policy. This policy will increase confidence of investors to make long-term money investments in the economy, creating a market for 30yr mortgages. It will automatically change the income tax, as economic conditions change in our economy, from recession to the inflation economic cycle. This policy will help curb the excessive use of credit during the inflation cycle. (For a full explanation of the benefits of this policy change go to www economysflaw.wordpress...

2. Create mortgages that have interest rates that are no more than 200 to 300 percent above the annual inflation rate. Maintain mortgage interest rates with Adjustable Rate Mortgages at no more than 50 to 100% above the annual inflation rate. Have the U.S. Treasury fund these mortgages until the banks lower their mortgage rates and investor’s start investing mortgage-backed securities. Lowering mortgage rates would be the fastest way to stimulate the economy. By decreasing mortgage interest rates by 50%, mortgage interest payments would decrease by 50% per month. A $1500.00 monthly mortgage interest payment would decrease by $750.00. That is a $750.00 stimulus check every month for 30 yrs. Remember, the first payment on a thirty year, 0% interest rate, $200,000.00 loan is a $199.10 principal payment, the rest is all interest on an interest bearing loan. To increase people’s disposable income and increase demand in the economy, we must lower interest rates 2 to 3%. November 08 C.P.I. was a negative1.9%and going more negative by the month. A 3% mortgage rate would be 490% above the deflation rate. Eliminate the deductibility of expenses on non owner-occupied one unit housing units. This policy will increase home ownership in America.

3. Make using credit to purchase commodities contacts in commodities markets unprofitable, until the day of delivery. This policy will reduce speculation, which causes prices to increase and decrease very rapidly, and save our savings pool for necessary production and consumption.

4. After home prices are stabilized, increase the capital gains tax rate on homes, to the same amount as other long-term capital investments. If home prices are going up more that 2% a year, increase the capital gains tax rate on homes further. Increase down payment requirement, to reduce excessive demand in the market. Do not raise income taxes in general.

5. Make home loans assumable. Include all the terms stated in this stimulus plan. Increase the borrowers responsibility for maintaining the home. Encourage making repairs to the home by making the cost of the repairs tax deductible, in the year they are made. This provision does not include home improvements. This will increase economic activity and maintain the collateral for the loan.

6. Make interest on auto loans tax deductible again to increase sales. To encourage the stabilization of manufacturing cost, the auto industry would also be affected by the Zero Inflation Taxation Policy, by the disallowance of this tax encouragement to buy their product.

7. Currently, do not create a government jobs program or a Federal deficit so large that interest rates rise. Allow this stimulus plan to create more economic activity, then take up slake in the economy, if needed, at an efficient rate, to achieve the infrastructure we need for the future.

8. Do not use high interest rate policies alone to control inflation and inflation psychology. Use the income tax, which will not raise cost or cause a recession.

9. Bundle the mortgages into securities that have the same criteria and purpose. This will make it possible to determine their value, so they will be able to be marketed.

10. Enact the Oil Conservation Exchange Contribution (OPEC). This policy will help stabilize oil prices and reduce their importation. Help balance the trade deficient. More info. Go to web site.

Gold at one time in our history was the value behind our currency. It was called the Gold Standard. The new Gold Standard is the value of our homes, buildings, land, products, and our economy (people). Correctly guided, our economy will once again make our currency “As good as gold.” We must change how we make money. “ We must make money the old fashion way, we must earn it.”

THERE IS ANOTHER WAY TO STIMULATE THE ECONOMY
THAT IS FASTER AND MORE EFFICIENT

STIMULATING THE ECONOMY WITHOUT HUGE DEFICITS

According to recent articles in newspapers and financial magazines, across our nation we have seen the price of single-family homes drop an average of 31% or more in the past two years. A recent article by Courtenay Edelhart, Californian staff writer, stated, it is predicted we might see another 21% decrease in the median priced home in 2009! More price reductions are expected in 2010 in housing and in the commercial real estate sector of our economy. The deflation of housing prices was needed after the housing bubble, but we are now at a point where a floor must be put under home prices before we have a complete collapse of our economy. It is very sick because of decades of mismanagement. State and local governments, which rely on property tax money to finance their services, are cutting back and borrowing heavily. Our national debt is expected to increase by trillions of dollars.

INTRODUCTION

Let me introduce myself. I am sixty-four years old. I am a retired Economic Analyst, Economic Scholar, Financier, Businessman, Investor, Author and former candidate for the California Congress. I have over forty years of being in the financial and business world.

There is a major flaw in our economic theories. I wrote a book and several articles outlining new policies to cure economic crisis, now and in the future. It is a guide to correct a major flaw in our economic theories.

We do not need a government jobs program or more bailouts to cure the economic crisis. This is not to say that the things that President Obama is proposing do not need to be done. It would be better if we did them at a slower pace so they could be done in an efficient manner. Job programs were tried in the Great Depression of the 1930s and were only partially successful. It was World War II that finally restarted the economy. We do not want to do that again!

Because our economy has been misguided for decades, our economy is in terrible shape. Unemployment is rising. Our economy is experiencing an economic crisis. Governments are close to being broke. The federal debt is expected to grow by trillions of dollars. People are losing their jobs and homes by tens of thousands. Business large and small are going bankrupt. People are giving up hope of a better future for themselves and their families.

We have been treating the symptoms of the economic crisis, not the disease. We must try something different. What the government is doing is not working!

Investors must be encouraged to invest in long-term bonds and securities to restart the economy. There are five questions that investors ask before they will get off the sidelines. Will I make a profit? Will my investment retain its value? Will it pay a good return on investment? Will the borrower be able to return my money? Will the economic future be better than the past? If we can satisfy these concerns, investors will get off the billions of dollars they are sitting on and reinvest them in our economy. Breathing new life into it. The government will not have to bailout the economy, if investors and consumers are confident of the future.

John Maynard Keynes (1893-1946) was the British economist who revolutionized economic theories of the 1930s. Keynesian economics works well. The trouble is he did not leave a handbook on how to correctly slow down the economy when it is so strong, that it is creating an economic crisis. We recently had the housing bubble, which got us into this mess, and the oil bubble in the commodities market. The Federal Reserve was not able to do anything about either one of these bubbles. WHY?

We need a new method to cure economic crisis and control inflation psychology. Our economy has become so big and electronically sophisticated, the old ways no longer work. One of the reasons we are experiencing an economic crisis is we have made investing in capital assets and commodities with rising prices very profitable. Since inflationary investments are taxed at 15%(long term capital gains tax rate) and money investments are taxed at 38%, making the money investments worth 23% less. In fact to offset the capital gains rate on personal residences, which is 0%, and the homes annual appreciation rate is 30%, which we had in 2003-2006, interest rates on bonds, securities and bank savings accounts would have to go up to 48.5 a.p.r, to have the same return on investment. Add in the effect of the interest deduction and you have all the ingredients for a financial crisis. The house became an investment not a home. The seller had very profitable reasons to sell. The buyer had very profitable reasons to buy. This increased dramatically the number sales that occurred, all eagerly financed by the capitalistic entity (financial institutions) of our economy to increase their profits. Is it any wonder that we had a housing bubble and the Fed could not do anything about it, without killing our economy, and disrupting the world economies?

To halt the falling housing prices, save our auto industry and put people back to work, mortgage rates must decrease 2 to 3%. When the economy refinances, at a lower interest rate, people’s disposable income will increase. The unemployed will be employed, and have more income. People’s confidence level will rise and they will start spending money again! They will be able to afford a new car, there-by saving the auto industry. If the vehicle’s loan interest is made tax deductible again, more vehicles will be sold and at a faster pace.

Banks no longer hold mortgages. They sell them to investors. So we must induce an economic climate so investors are willing to purchase, during this economic crisis and the inflation cycle, long-term bonds and securities, I wrote a book “Inflation the Economy Killer” containing “The Zero Inflation Taxation Policy”, which correctly cures the economic crisis. It correctly controls inflation without hurting the economy, unlike the Fed’s high interest rate policy. It also solves the problems of under investment in the private long-term bond and securities market, during economic crises.

The Zero Inflation Taxation policy would work like this. As inflation or under investment in the bond and securities market begins to occur, the tax on money investments should automatically be decreased and the interest deduction should be decreased by the same percentage rate, based on the inflation rate. When money investments are taxed at 15%, money investments will be as valuable as inflationary investments.

Most of the time, all capital gains must be taxed at the same rate to correct this imbalance. I do not want to eliminate the long-term capital gains tax rate. We need to encourage people to make productive investments and take investment risks. I want to neutralize it at the correct time in the economic cycle. Even though it will be neutralize for inflationary investments it still will be available for productive investments. If a real estate, stock market or a commodities market bubble is occurring raise the capital gains tax rate on that item or on all long-term investments. If the price of one of the mentioned items are declining too rapidly, lower the capital gains tax rate on that item. Income taxes in general should not be raised.

In the 1980s, even through interest rates went up to 21%, they were only 100% above the then currant annual inflation rate of 11%. The currant inflation rate is approximately 0%, some economist say we may even be lower than that (deflation). The currant interest rate to buy a home is approx. 6% and decreasing slowly for the most credit worthy people. That is at least 600% above 2008’s inflation rate. If a person has credit card debt, the interest rate is even worse. It can be 2500% or more above the annual inflation rate. If a person has credit card debt equal to their annual gross income, of say $25,000.00, they will pay more interest to the financial institution than income taxes to the state and federal governments combined! The economy cannot function efficiently under these conditions. We must stop the destruction of our economy every 7 to 10 years by high interest rate polices.

ENCOURAGE FINANCIAL INSTITUTIONS TO LOWER THEIR LENDING INTEREST RATES.

The capitalistic financial system has become its worse enemy. If interest rates for mortgages were lowered there would not be as many foreclosures. The value of their collateral would stabilize. The money they are lending can be obtained at the Federal Reserve for a very low rate above the inflation rate. Banks kept the interest rates approx. 300 to 500% or more above the inflation rate all through the 1930s, causing the Great Depression to be worse than it would have been with lower interest rates. The Banks may be keeping interest rates high so they will not loose their depositors or more likely for profit reasons. Banks are investment companies. They invest the money they receive into money investments such as mortgages, business loans, treasuries, and consumer loans, ECT. The banks can have the same concerns as private investors have, as mentioned. This is why the credit system is frozen. It is not a lack of capital. The banks can borrow as much money as they need from the Fed. It is because the collateral is going down in price and people and business’s ability to repay the loan is decreasing every day. The banks will only loan to their most stable customers. The banks must also be able to make a profit to pay their cost.

The US Treasury can also borrow money at the Fed. The Treasury is a not for profit agency. It can fund mortgages for a short period of time at cost or a little above cost to pay for expenses. The Federal Reserve should lend the money to the U.S. Treasury to purchase the new mortgages through the following financial institutions, until there is a floor under housing prices. Treasury would receive the cash flow from these new mortgages, minus a service fee. It could then use the capital to fund more mortgages. When housing prices stabilize and investors are willing to invest in mortgage-backed securities, the treasury would sell the mortgages to investors. This economic recovery plan would not cost the taxpayers any money nor would taxes need to be increased to pay off a federal deficit.

I would not use the TARP money to buy the bad mortgage securities. As the old mortgages are refinance they will change from a delinquent assets to viable assets and be taken off the bad debt list. After the economy restarts and gets strong again, interest rates should rise slightly. The Fed should never let interest rates rise more than 100% above the annual inflation rate. This means that mortgage interest rates must also follow the annual inflation rate down. Mortgage interest rates must be maintained fifty to 100% above the inflation rate to control inflation expectations.

We have special circumstances in our economy at the currant time that warrants this action by the US Treasury. With the government funding lower interest rate mortgages than the banks and financial institutions, the collateral’s price will stop going down. The banks will have the confidence to lower their interest rates to be competitive.

The Treasury will determine the rate of interest for the mortgages it will buy. The Home Loan Bank, Federal Housing Authority, Fannie May, Freddie Mac and any other financial intuitions that are government sponsored, have deposits insurance by FDIC, or are partially owned by the government would create mortgages with that rate of interest. The mortgages should not have an interest rate greater than 200% to 300% above the annual deflation rate.

When the mortgages are bundled into securities, only those loans that had the same lending criteria and purpose would be allowed into the security. With this policy in place the securities could be correctly rated as to value. Adjustable Rate Mortgages (ARM) should have a starting interest rate of 50to100 % above the annual inflation rate. The mortgage interest rate could not be raised more than one-quarter percent per year or greater than a total APR of 5%. We can cap the interest rate because we will no longer be totally relying of the Fed to control the money supply. The interest rate can be lowered at a faster rate to maintain demand in the housing market. The new buyer must qualify for the mortgage at the highest interest rate the mortgage will obtain.

I believe that if home loans were made assumable, home prices would not have decreased as much as they have. The selling expenses connected to transferring the home to the buyer is considerable less and occurs much quicker, increasing demand, thus there is less time for the home to devalue. If there is no equity left in the home, the seller is not going to pay the extra expenses to sell it in a conventional manner. The homeowner will just let it go back to mortgage holder. Approval of the new buyer, by the lender, must be done before they could assume the mortgage. The mortgage should be adjusted to the current selling price of the house or the banks can agree to a sliding principal amount, as explained later. A 3% pay down of the unpaid principal amount would be required. If equity is less than 20%, mortgage insurance is required. The assumption expenses to the buyer should only be the actual expenses of the mortgage service company. The title insurance should be assumable by the buyer. The buyer should pay a small fee to cover the actual cost of assumption and a title search.

You might be thinking these changes to our financial system would decrease the investor’s willingness to invest in the new securities. Currently investors are not as concerned about the rate of return. They are more concerned about the borrower’s ability to repay the loan and the value of the collateral. With the borrower qualified at the maximum interest rate the interest rate will raise too, the chance of a foreclosure is very minor. With the mortgage interest rate increasing 1/4 per year, the investor would be more likely to invest in a mortgage backed security, rather than a treasury note that does not have an automatic annual interest rate increase.

People do not abandon their homes because the loan is greater than the current resale price. They have not given up hope that the selling price of the home will increase in the future. They are mainly moving out of their homes because they cannot afford the mortgage payments. They will give the home to the bank, if they have to move, to find less expensive housing or find employment. This is why the loan should be assumable. If the monthly payment is affordable to the buyer, it is better to own the home than to rent. Even if it’s current selling price is less than the mortgage owed. The new buyer will be allowed a tax deduction for the interest and property taxes. This advantage makes their housing cost cheaper than renting. Also it is possible they may make some money on the sale of the home in the future. Even if they do not make money on the sale, they are better off than renting, because they will eventually pay the home mortgage in full.

For those people who own a home that the mortgage is greater than the currant selling price, a clause should be included in the refinanced mortgage that states, the bank will discount the mortgage, an amount equal to 20% of the monthly payment, each month, for a maximum of ten years, or until the selling price of the house plus repairs equals the amount of the mortgage, if the borrower agrees to pay off the entire unpaid balance due. This policy would allow for an orderly decrease in mortgage balances that are above the selling price of the home. The borrower must also buy mortgage insurance. Again the borrower must qualify for the loan at the highest rate of interest the mortgage will obtain. This clause would benefit both the banks and the homeowner. The homeowner would have a lower monthly mortgage payment when he/he refinances the mortgage at a lower interest rate. The interest paid will remain 100% tax deductible if we maintain low inflation rates. The bank will make up the forgiveness of the principle amount because they will collect interest based on the total unpaid balance of the mortgage. The banks will not have the disruption of their mortgage payments, the cost of foreclosure and the sale of the property. To decrease the time and cost it takes to refinance the mortgage a modification agreement should be used.
The homeowner will also be maintaining the condition of the collateral for their mortgage.

On all mortgage insured homes the insurance company could either take possession of the home or pay the unpaid amount between the currant selling price and the unpaid balance of the mortgage minus any repairs that need to be made to the home to obtain the highest possible selling price. The borrower should be responsible for any repairs, to encourage the borrower to maintain the collateral. The repairs to a home should be made tax-deductible in the year they are made so the neighborhood does not deteriorate. The banks and borrowers should be encouraged to use a Grant Deed In Lieu of Foreclosure so the amount of time the home is empty will decrease. In this way the banks cost will decrease and borrower responsibilities will not last as long. The shortest turn a-round time will decrease the possibility of damage. The borrower should be responsible for the maintenance of the home until the bank obtains legal possession. The bank does not care who is making the mortgage payment. They do not want the house back. They just want someone to continue making the monthly payments.

To prevent another housing bubble and slow down rising housing prices, if occurring in any of the twelve Federal Reserve Districts, (more than 2% annual price increases) in that District, the secondary mortgage market should require a greater percentage down payment to reduce demand and maintain a strong financial industry. The Fed should not raise interest rates because this causes cost to go up in the economy and causes the economy to slow down in general, which causes a recession.

If the interest rate for a mortgage is reduced by 2 to 3 % the price of the collateral will stabilize because of the increased number of qualified buyers that would qualify for a mortgage. The foreclosed housing inventory will quickly be sold increasing the value of all the other homes in the neighborhood. When the mortgage is made assumable, the monthly payments will continue to pay down the loan, there-by maintaining the value of the security. The investors will be making a good return on their investment if the interest rate they are collecting is 200% to 300% above the currant annual deflation rate. With The Zero Inflation Taxation Policy enacted, the security instrument will maintain its resale value because the Fed will not have to raise interest rates as high to control inflation and inflation psychology.

There is a second wave of foreclosures on the way, starting in 2009 or 2010, when another set of (ARM) mortgages adjust. If we act quickly, they will adjust down instead of up. With the above policies enacted interest rates will come down, avoiding the possibility of hundred of thousands of more foreclosures and the prolonging of the recession or even developing a depression.

To recap again, the Zero Inflation Taxation Policy will stabilize the long-term bond and securities market, creating a market for 30 year fixed rate or ARM mortgages, at the lowest possible interest rate.

If you agree that these changes need to be enacted, support me in getting them enacted. In this way you will be doing something that will really improve the lives of the American people and families of America. The stock market should go up, replacing some of the value they have lost in their retirement funds.

We do not need a government jobs program or more bailouts to cure the economic crisis. They may do more harm than good. With the government borrowing such large amounts of money, treasury securities will rise in price. Banks and investors will put their money into treasuries and not into the economy and mortgages. A decrease in interest rates would be better than a tax cut because it would increase purchasing power without decreasing government revenues or increasing the national debt. Housing prices must have a floor put under them before more equity is lost. Banks will not loan homeowners money because of a lack of equity unless the homeowner agrees to the previous stated clause. These policy changes will cause mortgage rates to drop and the stock market should go up. The economy will stand up on its own, without a government bailout.

RECAP—WHAT TO DO TO STIMULATE THE ECONOMY.
1. Enact the Zero Inflation Taxation policy. This policy will increase confidence of investors to make long-term money investments, creating a market for 30yr mortgages. It will automatically change the income tax as economic conditions change in our economy from recession to the inflation economic cycle. This policy will help curb the excessive use of credit during the inflation cycle.

2. Create mortgages that have interest rates that are no more than 200 to 300 percent above the annual inflation rate. Maintain mortgage interest rates with Adjustable Rate Mortgages at no more than 50 to 100% above the annual inflation rate. Have the U.S. Treasury fund these mortgages until the banks lower their mortgage rates and investor’s start investing mortgage-backed securities. Lowering mortgage interest rates would be the fastest way to stimulate the economy. By decreasing mortgage rates by 50%, mortgage interest payments would decrease by 50% per month. A $1500.00 monthly mortgage interest payment would decrease to $750.00. That is like receiving a $750.00 stimulus check every month for 30 yrs. Remember, the first payment on a thirty year 0% interest, $200,000.00 loan is a $199.10 principal payment, the rest is interest, on an interest bearing loan. To increase people’s disposable income and increase demand in the economy, we must lower interest rates 2 to 3%. November 08 C.P.I. was negative 1.9%. A 3% starting mortgage rate would be 490% above the deflation rate. Eliminate the deductibility of expenses on non owner-occupied one unit housing units. This policy will increase home ownership in America.

3. Do not allow credit to be used in the commodities market, or make it unprofitable to use credit. Credit should be available on the day of delivery. This will reduce speculation and save our savings pool for necessary productive and consumption reasons.

4. After home prices are stabilized, increase the capital gains tax rate on homes to the same amount as other long-term capital investments. If home prices are going up more that 2% a year increase the capital gains tax rate on homes. Increase the down payment requirement to reduce excessive demand in the market. Do not raise income taxes in general.

5. Make home loans assumable. Include all the terms stated in this stimulus plan. Increase the borrowers responsibility for maintaining the home. Encourage making repairs to the home by making the cost of the repairs tax deductible, in the year they are made. This provision does not include home improvements. This will increase economic activity and maintain the collateral for the loan.

6. Make interest on auto loans tax deductible again to increase sales. To encourage the stabilization of manufacturing cost, the auto industry would also be affected by the Zero Inflation Taxation Policy, by the disallowance of this tax encouragement to buy their product.

7. Currently, do not create a government jobs program so large that interest rates rise. Allow this stimulus plan to create more economic activity, then take up slake in the economy, if needed, at an efficient rate, to achieve the infrastructure we need for the future.

8. Do not use high interest rate policies alone to control inflation and inflation psychology. Use the income tax, which will not raise cost or cause a recession.

9. Bundle the mortgages into securities that have the same criteria and purpose. This will make it possible to determine their value, so they will be marketable.

10. Enact the Oil Conservation Exchange Contribution (OPEC). This policy will help stabilize oil prices and reduce their importation. Help balance the trade deficient.

Gold at one time in our history was the value behind our currency. It was called the Gold Standard. The new Gold Standard is the value of our homes, buildings, land, products, and our economy (people). Correctly guided, our economy will once again make our currency “As good as gold.” We must change how we make money. “ We must make money the old fashion way, we must earn it.”

Conclusion
The refinancing of our economy at a beginning rate of 3% would not create another housing bubble or excessive demand in the economy. The changes I have proposed to the income tax will automatically neutralize or remove the Keynesian stimuli that is applied to the economy to help the economy recover from the recession, at the correct time in the economic cycle. In real estate it is location, location, location. In macroeconomics it is timing, timing, timing. Interest rates will remain at approximately 50 to 100% above the inflation rate as the economy improves, with the Zero Inflation Taxation Policy enacted. Investor and consumer’s confidants will be improved and the stimuli to use excessive amounts of credit during the inflation cycle will automatically be neutralized. An interest rate reduction is better than a tax cut or deficit spending because it increases purchasing power without decreasing government revenues or increasing the national debt. Money investment will increase during the inflation cycle, maintaining our savings pool for productive investments. The Zero Policy also maintains the means of exchange we use in our economy, (credit) at an interest rate that allows our economy to work efficiently. Interest cost will stabilize at approximately 3 to 4% with an inflation rate of 2%. Oil and commodities prices will stabilize because of the OPEC and reduced speculation and hedging in the market.

Please send this information to as many people and groups as you can. The last four letters in American are I__CAN. We can do this together and as a nation of free people. We are responsible for how our economy is managed and what laws are enacted.

Copyright 12-1-08 by Leonard Tekaat. All rights reserved in the U.S. or any other country. The use of the information in the above article copied or written by the author is strictly forbidden without written permission.

Additional info, Inflation the Economy Killer, available at Amazon.Com. Leonard Tekaat is an Economic analyst, Author Businessman, Financier, Investor and former candidate for California Congress. E-mail [e-mail] [e-mail] economysflaw.wordpress.../

2009 Oct 20 06:37 AM

[Moon Kil Woong]

Keeping rates at zirp or any low level too long is bad for the economy. We just established this fact yet once again in 2008 by recognizing the failure of Greenspan. So why are we at zirp now indefinately? My word, does the Federal Reserve and policy makers have the memory spans of a newt? The only good that can come of it is asset bubbles, overleverage, no savings, and spending beyond our means (ring a bell yet)?

And that can only lead to inflation and/or a collapse in the bubble leading to recession or depression coupled with deflation, lingering recession if our government keeps spending ourselves into a hole like Japan did, or inflation/hyper-inflation if the rest of the world gives up on trusting our ignorant central bank and government to have any fiscal prudence at all.

Note that the we and public are noticably absent in this. The reason is simple. All good economists know that out of control monetary expansion is principally caused by 2 factors, monetary expansion by the Central bank or rate setting bodies and by the lack of adequate fiscal controls over banks and financial institutions leading to unbridled lending and risk taking.

They can blame poor people borrowing when they shouldn't or people charging their credit card when they shouldn't, but the root of all of this goes back to financial institutions, the banks, and the Fed. If they weren't stupid enough to take the bad debt they would find some other person to take it. Thus, they squarely are to blame if you are a true economist. If not, you can play moral word games about why indigent people get a free house. They got it because the banks took your money and used it to give it to them.

Indeed, our fiscal house needs cleansing but not from the bottom up. That would be true justice and true accountability. It needs a shakedown from the top of the financial circles down. If not, it can only end very badly. If not now, later.

2009 Oct 20 06:57 AM

[TradingHelpDesk]

Brilliant summary Moon.

Holy smoke Leonard, take a deep breath.

2009 Oct 20 07:13 AM

[Zmartmoney]

What better way to steer the country into Socialism, than to demonstrate the utter failings of Capitalism. Mean, ugly Capitalists, who care nothing of anyone but themselves, refusing to share the spoils of their labors with the poor and downtrodden. The fact that what we have only faintly resembles Capitalism is lost on the masses, and they fawn over the ones who will take us to New Heights, with Hope and Change. You see anything change for the better yet? Yeah, me neither.

2009 Oct 20 09:58 AM

[Michael Clark]

I'll need to read your post again and think about it. One thing I noticed quickly is you think the decline in housing is a bad thing. I think it is a good thing. Housing prices appreciated 2-2 1/2% per year historically. Housing prices jumping 150-300% in five years is a travesty for the economy. Housing is not intended to be a second Wall Street, or a second Las Vegas casino. We need to raise interest rates, choke the excess out of the system, repay our debts, sober up. Do we want all of America to be coast-to-coast casino, a slot-machine society? We are in a fever; and the fever has made us insane. And its a global insanity, with a global gold rush occurring...and gold rushes can't last.


On Oct 20 06:37 AM Leonard C.Tekaat wrote:

> CAUSE AND CURE FOR THE HOUSING AND ECONOMIC CRISIS
>
> WHAT TO DO TO CURE THE CRISIS WITHOUT HUGE DEFICITS
>
> 1. Enact the Zero Inflation Taxation policy. This policy will increase
> confidence of investors to make long-term money investments in the
> economy, creating a market for 30yr mortgages. It will automatically
> change the income tax, as economic conditions change in our economy,
> from recession to the inflation economic cycle. This policy will
> help curb the excessive use of credit during the inflation cycle.
> (For a full explanation of the benefits of this policy change go
> to www economysflaw.wordpress...
>
> 2. Create mortgages that have interest rates that are no more than
> 200 to 300 percent above the annual inflation rate. Maintain mortgage
> interest rates with Adjustable Rate Mortgages at no more than 50
> to 100% above the annual inflation rate. Have the U.S. Treasury
> fund these mortgages until the banks lower their mortgage rates and
> investor’s start investing mortgage-backed securities. Lowering
> mortgage rates would be the fastest way to stimulate the economy.
> By decreasing mortgage interest rates by 50%, mortgage interest payments
> would decrease by 50% per month. A $1500.00 monthly mortgage interest
> payment would decrease by $750.00. That is a $750.00 stimulus check
> every month for 30 yrs. Remember, the first payment on a thirty year,
> 0% interest rate, $200,000.00 loan is a $199.10 principal payment,
> the rest is all interest on an interest bearing loan. To increase
> people’s disposable income and increase demand in the economy, we
> must lower interest rates 2 to 3%. November 08 C.P.I. was a negative1.9%and
> going more negative by the month. A 3% mortgage rate would be 490%
> above the deflation rate. Eliminate the deductibility of expenses
> on non owner-occupied one unit housing units. This policy will increase
> home ownership in America.
>
> 3. Make using credit to purchase commodities contacts in commodities
> markets unprofitable, until the day of delivery. This policy will
> reduce speculation, which causes prices to increase and decrease
> very rapidly, and save our savings pool for necessary production
> and consumption.
>
> 4. After home prices are stabilized, increase the capital gains tax
> rate on homes, to the same amount as other long-term capital investments.
> If home prices are going up more that 2% a year, increase the capital
> gains tax rate on homes further. Increase down payment requirement,
> to reduce excessive demand in the market. Do not raise income taxes
> in general.
>
> 5. Make home loans assumable. Include all the terms stated in this
> stimulus plan. Increase the borrowers responsibility for maintaining
> the home. Encourage making repairs to the home by making the cost
> of the repairs tax deductible, in the year they are made. This provision
> does not include home improvements. This will increase economic activity
> and maintain the collateral for the loan.
>
> 6. Make interest on auto loans tax deductible again to increase sales.
> To encourage the stabilization of manufacturing cost, the auto industry
> would also be affected by the Zero Inflation Taxation Policy, by
> the disallowance of this tax encouragement to buy their product.
>
>
> 7. Currently, do not create a government jobs program or a Federal
> deficit so large that interest rates rise. Allow this stimulus plan
> to create more economic activity, then take up slake in the economy,
> if needed, at an efficient rate, to achieve the infrastructure we
> need for the future.
>
> 8. Do not use high interest rate policies alone to control inflation
> and inflation psychology. Use the income tax, which will not raise
> cost or cause a recession.
>
> 9. Bundle the mortgages into securities that have the same criteria
> and purpose. This will make it possible to determine their value,
> so they will be able to be marketed.
>
> 10. Enact the Oil Conservation Exchange Contribution (seekingalpha.com/symbo...).
> This policy will help stabilize oil prices and reduce their importation.
> Help balance the trade deficient. More info. Go to web site.
>
> Gold at one time in our history was the value behind our currency.
> It was called the Gold Standard. The new Gold Standard is the value
> of our homes, buildings, land, products, and our economy (people).
> Correctly guided, our economy will once again make our currency
> “As good as gold.” We must change how we make money. “ We must make
> money the old fashion way, we must earn it.”
>
> THERE IS ANOTHER WAY TO STIMULATE THE ECONOMY
> THAT IS FASTER AND MORE EFFICIENT
>
> STIMULATING THE ECONOMY WITHOUT HUGE DEFICITS
>
> According to recent articles in newspapers and financial magazines,
> across our nation we have seen the price of single-family homes drop
> an average of 31% or more in the past two years. A recent article
> by Courtenay Edelhart, Californian staff writer, stated, it is predicted
> we might see another 21% decrease in the median priced home in 2009!
> More price reductions are expected in 2010 in housing and in the
> commercial real estate sector of our economy. The deflation of housing
> prices was needed after the housing bubble, but we are now at a point
> where a floor must be put under home prices before we have a complete
> collapse of our economy. It is very sick because of decades of mismanagement.
> State and local governments, which rely on property tax money to
> finance their services, are cutting back and borrowing heavily. Our
> national debt is expected to increase by trillions of dollars. <br/>
>
> INTRODUCTION
>
> Let me introduce myself. I am sixty-four years old. I am a retired
> Economic Analyst, Economic Scholar, Financier, Businessman, Investor,
> Author and former candidate for the California Congress. I have over
> forty years of being in the financial and business world.
>
> There is a major flaw in our economic theories. I wrote a book and
> several articles outlining new policies to cure economic crisis,
> now and in the future. It is a guide to correct a major flaw in our
> economic theories.
>
> We do not need a government jobs program or more bailouts to cure
> the economic crisis. This is not to say that the things that President
> Obama is proposing do not need to be done. It would be better if
> we did them at a slower pace so they could be done in an efficient
> manner. Job programs were tried in the Great Depression of the 1930s
> and were only partially successful. It was World War II that finally
> restarted the economy. We do not want to do that again!
>
> Because our economy has been misguided for decades, our economy is
> in terrible shape. Unemployment is rising. Our economy is experiencing
> an economic crisis. Governments are close to being broke. The federal
> debt is expected to grow by trillions of dollars. People are losing
> their jobs and homes by tens of thousands. Business large and small
> are going bankrupt. People are giving up hope of a better future
> for themselves and their families.
>
> We have been treating the symptoms of the economic crisis, not the
> disease. We must try something different. What the government is
> doing is not working!
>
> Investors must be encouraged to invest in long-term bonds and securities
> to restart the economy. There are five questions that investors ask
> before they will get off the sidelines. Will I make a profit? Will
> my investment retain its value? Will it pay a good return on investment?
> Will the borrower be able to return my money? Will the economic future
> be better than the past? If we can satisfy these concerns, investors
> will get off the billions of dollars they are sitting on and reinvest
> them in our economy. Breathing new life into it. The government will
> not have to bailout the economy, if investors and consumers are confident
> of the future.
>
> John Maynard Keynes (1893-1946) was the British economist who revolutionized
> economic theories of the 1930s. Keynesian economics works well. The
> trouble is he did not leave a handbook on how to correctly slow down
> the economy when it is so strong, that it is creating an economic
> crisis. We recently had the housing bubble, which got us into this
> mess, and the oil bubble in the commodities market. The Federal Reserve
> was not able to do anything about either one of these bubbles. WHY?
>
>
> We need a new method to cure economic crisis and control inflation
> psychology. Our economy has become so big and electronically sophisticated,
> the old ways no longer work. One of the reasons we are experiencing
> an economic crisis is we have made investing in capital assets and
> commodities with rising prices very profitable. Since inflationary
> investments are taxed at 15%(long term capital gains tax rate) and
> money investments are taxed at 38%, making the money investments
> worth 23% less. In fact to offset the capital gains rate on personal
> residences, which is 0%, and the homes annual appreciation rate is
> 30%, which we had in 2003-2006, interest rates on bonds, securities
> and bank savings accounts would have to go up to 48.5 a.p.r, to have
> the same return on investment. Add in the effect of the interest
> deduction and you have all the ingredients for a financial crisis.
> The house became an investment not a home. The seller had very profitable
> reasons to sell. The buyer had very profitable reasons to buy.
> This increased dramatically the number sales that occurred, all eagerly
> financed by the capitalistic entity (financial institutions) of our
> economy to increase their profits. Is it any wonder that we had
> a housing bubble and the Fed could not do anything about it, without
> killing our economy, and disrupting the world economies?
>
> To halt the falling housing prices, save our auto industry and put
> people back to work, mortgage rates must decrease 2 to 3%. When the
> economy refinances, at a lower interest rate, people’s disposable
> income will increase. The unemployed will be employed, and have more
> income. People’s confidence level will rise and they will start spending
> money again! They will be able to afford a new car, there-by saving
> the auto industry. If the vehicle’s loan interest is made tax deductible
> again, more vehicles will be sold and at a faster pace.
>
> Banks no longer hold mortgages. They sell them to investors. So we
> must induce an economic climate so investors are willing to purchase,
> during this economic crisis and the inflation cycle, long-term bonds
> and securities, I wrote a book “Inflation the Economy Killer” containing
> “The Zero Inflation Taxation Policy”, which correctly cures the economic
> crisis. It correctly controls inflation without hurting the economy,
> unlike the Fed’s high interest rate policy. It also solves the problems
> of under investment in the private long-term bond and securities
> market, during economic crises.
>
> The Zero Inflation Taxation policy would work like this. As inflation
> or under investment in the bond and securities market begins to occur,
> the tax on money investments should automatically be decreased and
> the interest deduction should be decreased by the same percentage
> rate, based on the inflation rate. When money investments are taxed
> at 15%, money investments will be as valuable as inflationary investments.
>
>
> Most of the time, all capital gains must be taxed at the same rate
> to correct this imbalance. I do not want to eliminate the long-term
> capital gains tax rate. We need to encourage people to make productive
> investments and take investment risks. I want to neutralize it at
> the correct time in the economic cycle. Even though it will be neutralize
> for inflationary investments it still will be available for productive
> investments. If a real estate, stock market or a commodities market
> bubble is occurring raise the capital gains tax rate on that item
> or on all long-term investments. If the price of one of the mentioned
> items are declining too rapidly, lower the capital gains tax rate
> on that item. Income taxes in general should not be raised.
>
> In the 1980s, even through interest rates went up to 21%, they were
> only 100% above the then currant annual inflation rate of 11%. The
> currant inflation rate is approximately 0%, some economist say we
> may even be lower than that (deflation). The currant interest rate
> to buy a home is approx. 6% and decreasing slowly for the most credit
> worthy people. That is at least 600% above 2008’s inflation rate.
> If a person has credit card debt, the interest rate is even worse.
> It can be 2500% or more above the annual inflation rate. If a person
> has credit card debt equal to their annual gross income, of say $25,000.00,
> they will pay more interest to the financial institution than income
> taxes to the state and federal governments combined! The economy
> cannot function efficiently under these conditions. We must stop
> the destruction of our economy every 7 to 10 years by high interest
> rate polices.
>
> ENCOURAGE FINANCIAL INSTITUTIONS TO LOWER THEIR LENDING INTEREST
> RATES.
>
> The capitalistic financial system has become its worse enemy. If
> interest rates for mortgages were lowered there would not be as many
> foreclosures. The value of their collateral would stabilize. The
> money they are lending can be obtained at the Federal Reserve for
> a very low rate above the inflation rate. Banks kept the interest
> rates approx. 300 to 500% or more above the inflation rate all through
> the 1930s, causing the Great Depression to be worse than it would
> have been with lower interest rates. The Banks may be keeping interest
> rates high so they will not loose their depositors or more likely
> for profit reasons. Banks are investment companies. They invest the
> money they receive into money investments such as mortgages, business
> loans, treasuries, and consumer loans, ECT. The banks can have the
> same concerns as private investors have, as mentioned. This is why
> the credit system is frozen. It is not a lack of capital. The banks
> can borrow as much money as they need from the Fed. It is because
> the collateral is going down in price and people and business’s ability
> to repay the loan is decreasing every day. The banks will only loan
> to their most stable customers. The banks must also be able to make
> a profit to pay their cost.
>
> The US Treasury can also borrow money at the Fed. The Treasury is
> a not for profit agency. It can fund mortgages for a short period
> of time at cost or a little above cost to pay for expenses. The Federal
> Reserve should lend the money to the U.S. Treasury to purchase the
> new mortgages through the following financial institutions, until
> there is a floor under housing prices. Treasury would receive the
> cash flow from these new mortgages, minus a service fee. It could
> then use the capital to fund more mortgages. When housing prices
> stabilize and investors are willing to invest in mortgage-backed
> securities, the treasury would sell the mortgages to investors. This
> economic recovery plan would not cost the taxpayers any money nor
> would taxes need to be increased to pay off a federal deficit.
>
>
> I would not use the TARP money to buy the bad mortgage securities.
> As the old mortgages are refinance they will change from a delinquent
> assets to viable assets and be taken off the bad debt list. After
> the economy restarts and gets strong again, interest rates should
> rise slightly. The Fed should never let interest rates rise more
> than 100% above the annual inflation rate. This means that mortgage
> interest rates must also follow the annual inflation rate down. Mortgage
> interest rates must be maintained fifty to 100% above the inflation
> rate to control inflation expectations.
>
> We have special circumstances in our economy at the currant time
> that warrants this action by the US Treasury. With the government
> funding lower interest rate mortgages than the banks and financial
> institutions, the collateral’s price will stop going down. The banks
> will have the confidence to lower their interest rates to be competitive.
>
>
> The Treasury will determine the rate of interest for the mortgages
> it will buy. The Home Loan Bank, Federal Housing Authority, Fannie
> May, Freddie Mac and any other financial intuitions that are government
> sponsored, have deposits insurance by FDIC, or are partially owned
> by the government would create mortgages with that rate of interest.
> The mortgages should not have an interest rate greater than 200%
> to 300% above the annual deflation rate.
>
> When the mortgages are bundled into securities, only those loans
> that had the same lending criteria and purpose would be allowed into
> the security. With this policy in place the securities could be correctly
> rated as to value. Adjustable Rate Mortgages (seekingalpha.com/symbo...)
> should have a starting interest rate of 50to100 % above the annual
> inflation rate. The mortgage interest rate could not be raised more
> than one-quarter percent per year or greater than a total APR of
> 5%. We can cap the interest rate because we will no longer be totally
> relying of the Fed to control the money supply. The interest rate
> can be lowered at a faster rate to maintain demand in the housing
> market. The new buyer must qualify for the mortgage at the highest
> interest rate the mortgage will obtain.
>
> I believe that if home loans were made assumable, home prices would
> not have decreased as much as they have. The selling expenses connected
> to transferring the home to the buyer is considerable less and occurs
> much quicker, increasing demand, thus there is less time for the
> home to devalue. If there is no equity left in the home, the seller
> is not going to pay the extra expenses to sell it in a conventional
> manner. The homeowner will just let it go back to mortgage holder.
> Approval of the new buyer, by the lender, must be done before they
> could assume the mortgage. The mortgage should be adjusted to the
> current selling price of the house or the banks can agree to a sliding
> principal amount, as explained later. A 3% pay down of the unpaid
> principal amount would be required. If equity is less than 20%, mortgage
> insurance is required. The assumption expenses to the buyer should
> only be the actual expenses of the mortgage service company. The
> title insurance should be assumable by the buyer. The buyer should
> pay a small fee to cover the actual cost of assumption and a title
> search.
>
> You might be thinking these changes to our financial system would
> decrease the investor’s willingness to invest in the new securities.
> Currently investors are not as concerned about the rate of return.
> They are more concerned about the borrower’s ability to repay the
> loan and the value of the collateral. With the borrower qualified
> at the maximum interest rate the interest rate will raise too, the
> chance of a foreclosure is very minor. With the mortgage interest
> rate increasing 1/4 per year, the investor would be more likely to
> invest in a mortgage backed security, rather than a treasury note
> that does not have an automatic annual interest rate increase. <br/>
>
> People do not abandon their homes because the loan is greater than
> the current resale price. They have not given up hope that the selling
> price of the home will increase in the future. They are mainly moving
> out of their homes because they cannot afford the mortgage payments.
> They will give the home to the bank, if they have to move, to find
> less expensive housing or find employment. This is why the loan should
> be assumable. If the monthly payment is affordable to the buyer,
> it is better to own the home than to rent. Even if it’s current selling
> price is less than the mortgage owed. The new buyer will be allowed
> a tax deduction for the interest and property taxes. This advantage
> makes their housing cost cheaper than renting. Also it is possible
> they may make some money on the sale of the home in the future. Even
> if they do not make money on the sale, they are better off than renting,
> because they will eventually pay the home mortgage in full.
>
> For those people who own a home that the mortgage is greater than
> the currant selling price, a clause should be included in the refinanced
> mortgage that states, the bank will discount the mortgage, an amount
> equal to 20% of the monthly payment, each month, for a maximum of
> ten years, or until the selling price of the house plus repairs equals
> the amount of the mortgage, if the borrower agrees to pay off the
> entire unpaid balance due. This policy would allow for an orderly
> decrease in mortgage balances that are above the selling price of
> the home. The borrower must also buy mortgage insurance. Again the
> borrower must qualify for the loan at the highest rate of interest
> the mortgage will obtain. This clause would benefit both the banks
> and the homeowner. The homeowner would have a lower monthly mortgage
> payment when he/he refinances the mortgage at a lower interest rate.
> The interest paid will remain 100% tax deductible if we maintain
> low inflation rates. The bank will make up the forgiveness of the
> principle amount because they will collect interest based on the
> total unpaid balance of the mortgage. The banks will not have the
> disruption of their mortgage payments, the cost of foreclosure and
> the sale of the property. To decrease the time and cost it takes
> to refinance the mortgage a modification agreement should be used.
>
> The homeowner will also be maintaining the condition of the collateral
> for their mortgage.
>
> On all mortgage insured homes the insurance company could either
> take possession of the home or pay the unpaid amount between the
> currant selling price and the unpaid balance of the mortgage minus
> any repairs that need to be made to the home to obtain the highest
> possible selling price. The borrower should be responsible for any
> repairs, to encourage the borrower to maintain the collateral. The
> repairs to a home should be made tax-deductible in the year they
> are made so the neighborhood does not deteriorate. The banks and
> borrowers should be encouraged to use a Grant Deed In Lieu of Foreclosure
> so the amount of time the home is empty will decrease. In this way
> the banks cost will decrease and borrower responsibilities will not
> last as long. The shortest turn a-round time will decrease the possibility
> of damage. The borrower should be responsible for the maintenance
> of the home until the bank obtains legal possession. The bank does
> not care who is making the mortgage payment. They do not want the
> house back. They just want someone to continue making the monthly
> payments.
>
> To prevent another housing bubble and slow down rising housing prices,
> if occurring in any of the twelve Federal Reserve Districts, (more
> than 2% annual price increases) in that District, the secondary mortgage
> market should require a greater percentage down payment to reduce
> demand and maintain a strong financial industry. The Fed should not
> raise interest rates because this causes cost to go up in the economy
> and causes the economy to slow down in general, which causes a recession.
>
>
> If the interest rate for a mortgage is reduced by 2 to 3 % the price
> of the collateral will stabilize because of the increased number
> of qualified buyers that would qualify for a mortgage. The foreclosed
> housing inventory will quickly be sold increasing the value of all
> the other homes in the neighborhood. When the mortgage is made assumable,
> the monthly payments will continue to pay down the loan, there-by
> maintaining the value of the security. The investors will be making
> a good return on their investment if the interest rate they are collecting
> is 200% to 300% above the currant annual deflation rate. With The
> Zero Inflation Taxation Policy enacted, the security instrument will
> maintain its resale value because the Fed will not have to raise
> interest rates as high to control inflation and inflation psychology.
>
>
> There is a second wave of foreclosures on the way, starting in 2009
> or 2010, when another set of (seekingalpha.com/symbo...)
> mortgages adjust. If we act quickly, they will adjust down instead
> of up. With the above policies enacted interest rates will come down,
> avoiding the possibility of hundred of thousands of more foreclosures
> and the prolonging of the recession or even developing a depression.
>
>
> To recap again, the Zero Inflation Taxation Policy will stabilize
> the long-term bond and securities market, creating a market for 30
> year fixed rate or ARM mortgages, at the lowest possible interest
> rate.
>
> If you agree that these changes need to be enacted, support me in
> getting them enacted. In this way you will be doing something that
> will really improve the lives of the American people and families
> of America. The stock market should go up, replacing some of the
> value they have lost in their retirement funds.
>
> We do not need a government jobs program or more bailouts to cure
> the economic crisis. They may do more harm than good. With the government
> borrowing such large amounts of money, treasury securities will rise
> in price. Banks and investors will put their money into treasuries
> and not into the economy and mortgages. A decrease in interest rates
> would be better than a tax cut because it would increase purchasing
> power without decreasing government revenues or increasing the national
> debt. Housing prices must have a floor put under them before more
> equity is lost. Banks will not loan homeowners money because of a
> lack of equity unless the homeowner agrees to the previous stated
> clause. These policy changes will cause mortgage rates to drop and
> the stock market should go up. The economy will stand up on its own,
> without a government bailout.
>
> RECAP—WHAT TO DO TO STIMULATE THE ECONOMY.
> 1. Enact the Zero Inflation Taxation policy. This policy will increase
> confidence of investors to make long-term money investments, creating
> a market for 30yr mortgages. It will automatically change the income
> tax as economic conditions change in our economy from recession to
> the inflation economic cycle. This policy will help curb the excessive
> use of credit during the inflation cycle.
>
> 2. Create mortgages that have interest rates that are no more than
> 200 to 300 percent above the annual inflation rate. Maintain mortgage
> interest rates with Adjustable Rate Mortgages at no more than 50
> to 100% above the annual inflation rate. Have the U.S. Treasury fund
> these mortgages until the banks lower their mortgage rates and investor’s
> start investing mortgage-backed securities. Lowering mortgage interest
> rates would be the fastest way to stimulate the economy. By decreasing
> mortgage rates by 50%, mortgage interest payments would decrease
> by 50% per month. A $1500.00 monthly mortgage interest payment would
> decrease to $750.00. That is like receiving a $750.00 stimulus check
> every month for 30 yrs. Remember, the first payment on a thirty year
> 0% interest, $200,000.00 loan is a $199.10 principal payment, the
> rest is interest, on an interest bearing loan. To increase people’s
> disposable income and increase demand in the economy, we must lower
> interest rates 2 to 3%. November 08 C.P.I. was negative 1.9%. A 3%
> starting mortgage rate would be 490% above the deflation rate. Eliminate
> the deductibility of expenses on non owner-occupied one unit housing
> units. This policy will increase home ownership in America.
>
> 3. Do not allow credit to be used in the commodities market, or make
> it unprofitable to use credit. Credit should be available on the
> day of delivery. This will reduce speculation and save our savings
> pool for necessary productive and consumption reasons.
>
> 4. After home prices are stabilized, increase the capital gains tax
> rate on homes to the same amount as other long-term capital investments.
> If home prices are going up more that 2% a year increase the capital
> gains tax rate on homes. Increase the down payment requirement to
> reduce excessive demand in the market. Do not raise income taxes
> in general.
>
> 5. Make home loans assumable. Include all the terms stated in this
> stimulus plan. Increase the borrowers responsibility for maintaining
> the home. Encourage making repairs to the home by making the cost
> of the repairs tax deductible, in the year they are made. This provision
> does not include home improvements. This will increase economic activity
> and maintain the collateral for the loan.
>
> 6. Make interest on auto loans tax deductible again to increase sales.
> To encourage the stabilization of manufacturing cost, the auto industry
> would also be affected by the Zero Inflation Taxation Policy, by
> the disallowance of this tax encouragement to buy their product.
>
>
> 7. Currently, do not create a government jobs program so large that
> interest rates rise. Allow this stimulus plan to create more economic
> activity, then take up slake in the economy, if needed, at an efficient
> rate, to achieve the infrastructure we need for the future.
>
> 8. Do not use high interest rate policies alone to control inflation
> and inflation psychology. Use the income tax, which will not raise
> cost or cause a recession.
>
> 9. Bundle the mortgages into securities that have the same criteria
> and purpose. This will make it possible to determine their value,
> so they will be marketable.
>
> 10. Enact the Oil Conservation Exchange Contribution (seekingalpha.com/symbo...).
> This policy will help stabilize oil prices and reduce their importation.
> Help balance the trade deficient.
>
> Gold at one time in our history was the value behind our currency.
> It was called the Gold Standard. The new Gold Standard is the value
> of our homes, buildings, land, products, and our economy (people).
> Correctly guided, our economy will once again make our currency
> “As good as gold.” We must change how we make money. “ We must make
> money the old fashion way, we must earn it.”
>
> Conclusion
> The refinancing of our economy at a beginning rate of 3% would not
> create another housing bubble or excessive demand in the economy.
> The changes I have proposed to the income tax will automatically
> neutralize or remove the Keynesian stimuli that is applied to the
> economy to help the economy recover from the recession, at the correct
> time in the economic cycle. In real estate it is location, location,
> location. In macroeconomics it is timing, timing, timing. Interest
> rates will remain at approximately 50 to 100% above the inflation
> rate as the economy improves, with the Zero Inflation Taxation Policy
> enacted. Investor and consumer’s confidants will be improved and
> the stimuli to use excessive amounts of credit during the inflation
> cycle will automatically be neutralized. An interest rate reduction
> is better than a tax cut or deficit spending because it increases
> purchasing power without decreasing government revenues or increasing
> the national debt. Money investment will increase during the inflation
> cycle, maintaining our savings pool for productive investments. The
> Zero Policy also maintains the means of exchange we use in our economy,
> (credit) at an interest rate that allows our economy to work efficiently.
> Interest cost will stabilize at approximately 3 to 4% with an inflation
> rate of 2%. Oil and commodities prices will stabilize because of
> the OPEC and reduced speculation and hedging in the market.
>
> Please send this information to as many people and groups as you
> can. The last four letters in American are I__CAN. We can do this
> together and as a nation of free people. We are responsible for how
> our economy is managed and what laws are enacted.
>
> Copyright 12-1-08 by Leonard Tekaat. All rights reserved in the U.S.
> or any other country. The use of the information in the above article
> copied or written by the author is strictly forbidden without written
> permission.
>
> Additional info, Inflation the Economy Killer, available at Amazon.Com.
> Leonard Tekaat is an Economic analyst, Author Businessman, Financier,
> Investor and former candidate for California Congress. E-mail [e-mail]
> [e-mail] economysflaw.wordpress.../

2009 Oct 20 10:06 AM

[Michael Clark]

I must say, the more I see the Inflationists' greed and disregard for the common good, the more I realize they cannot be cured. They are bitten by a snake. They are driven by a fever. I know that both capitalism and communism are flawed. We seem to be caught between two dysfunctional poles, fluctuating between both.


On Oct 20 09:58 AM Zmartmoney wrote:

> What better way to steer the country into Socialism, than to demonstrate
> the utter failings of Capitalism. Mean, ugly Capitalists, who care
> nothing of anyone but themselves, refusing to share the spoils of
> their labors with the poor and downtrodden. The fact that what
> we have only faintly resembles Capitalism is lost on the masses,
> and they fawn over the ones who will take us to New Heights, with
> Hope and Change. You see anything change for the better yet? Yeah,
> me neither.

2009 Oct 20 10:12 AM

[The Geoffster]

1. Obama is a Marxist.
2. Obama is in bed with Wall St.
3. Who's bonking who?

2009 Oct 20 10:29 AM

[Zmartmoney]

I love it when we can knock out both Global Warming and World Hunger before lunch...

2009 Oct 20 11:09 AM

[BioGuy]

"They can blame poor people borrowing when they shouldn't...."
I agree that in theory ordinary people bear some blame for the current state of the economy. They spend irresponsibly and ignore economic policy decisions of the government, focusing instead on trivial (laughable?) special interests. I used to blame the "ordinary guy" entirely and became frustrated with my middle class friends because they don't know *anything* at all about the current economy. But then I realized that they have time consuming jobs and busy families- they do not spend hours and hours reading data and analysis. They can't. The banks and government play this advantage.
A trivial thought of mine, but I wonder..... have our business leaders become so short sighted (or greedy) that they will not influence the government in the direction of stability for their own long term survival? Clearly yes. {To move beyond idle complaining, my resolution would start with minimum hold times for stocks and commodities. 60 days? This would lead to better valuation, and perhaps the ouster of useless and overpaid CEO's.}

2009 Oct 20 02:07 PM

[wildfirexx]

The falling american dollar will probably increase inflation through imports from abroad (outside of china that is as it's still pegged against the american dollar), but it may eventually create employment in USA by making our exports a lot cheaper worldwide. After all isn't that part of the great plan for The New World Order, buy reducing our wages and standard of living, while increasing the third world's.

2009 Oct 21 12:55 AM

[TeresaE]

Let's see:

Bubbles fuel increase in asset prices and wages.

Increased asset prices and wages fuel ever growing tax revenues.

Growing tax revenues fuel government growth leading to increased, sustaining needs for higher revenues.

So, government creates (or re-creates) false wealth so they can tax it to continue their own bubble.

And yet, the people want MORE government, not less.

Bread and circuses are all we have left.

Welcome back

2009 Oct 22 02:08 PM

[TeresaE]

American manufacturing is a shadow of its pre-2000 self. If we have 1/3 of our manufacturing left I would be shocked.

As evidenced by the 10,000 people showing up for 90 jobs at a GE plant in Kentucky.

So, we will be exporting our natural assets and our food.

How will that do anything positive for the majority of our citizens?


On Oct 21 12:55 AM wildfirexx wrote:

> The falling american dollar will probably increase inflation through
> imports from abroad (outside of china that is as it's still pegged
> against the american dollar), but it may eventually create employment
> in USA by making our exports a lot cheaper worldwide. After all
> isn't that part of the great plan for The New World Order, buy reducing
> our wages and standard of living, while increasing the third world's.

2009 Oct 22 02:10 PM

[tripleblack]

At some point back in the early 80's the President of Ford (pre-Bill, his uncle or father I believe) was being questioned about why they were not laying off more workers, which one of their competitors had just done, and which had caused a surge in their stock price.

His answer was that their plans would NEED those workers soon, and besides "The whole country can't make a living selling life insurance to one another".

By an odd coincidence, Ford is still around, and still an independent company, unlike the example being held up to be emulated at the time.

Oh, and I don't own any F right now, though I did until it hit $7 recently.

2009 Oct 22 02:15 PM