Carlos Lam

The Economics of Credit Card Debt

If one misses a payment yet pays the FULL balance, oftentimes CC companies will waive any penalty. The REAL question is this: why was the consumer carrying a balance on a CC to begin with?

As for the vehicle example, it doesn't hold water. In 2007, one could purchase a used car for that was 9 or 10 years old for less than $3000 (I did) for basic transportation. I did not finance it. Indeed, basic transportation should NEVER be financed; it should be purchased with savings. One can ride a bike or take public transportation while one is saving up the money (again, I did).

I do, however, agree that the bailouts should not have occurred. The losses should've been borne by Wall Street.

On Dec 02 10:05 AM kcr357 wrote:

> A person who is able to pay their cc bills at 12% interest and misses
> one payment; which causes the interest to climb >100%, is not, in
> my definition, irresponsible. Another case is the person who financed
> a moderately expensive vehicle in 2007- It very well could have been
> completely in ones budget at the time, but fast forward two years,
> now the budget is being eaten up by rising utilities, inflation,
> increased tax to pay for two "wars", unemployment tax, bank bailouts,
> auto bailouts, mortgage bailouts, etc etc etc. It is not the burden
> of the average citizen to compensate for the fallout of our elected
> leaders and Wall St. destroying the economy, causing massive budget
> crises for said citizen.

The Economics of Credit Card Debt

On Dec 02 05:39 AM Davewmart wrote:

> Blaming individuals for taking on too much debt simply does not address
> the root of the problem, as the proportions of vice and virtue in
> the populace remain pretty constant.
> The real culprit is regulatory capture by the credit card providers
> in the US and UK, which enables them to undertake their usurious
> practises.

I disagree. It IS the individuals who use debt unwisely that is the root of the problem. If credit cards didn't exist, foolish debtors would merely borrow from family or neighborhood loansharks. If a society doesn't understand deferred gratification (saving) then it will either dissipate assets, take on debt, or both. This is what we Americans have done.

That being said, what's good for the goose is good for the gander. Credit card issuers (banks) should live with their bad decisions. Instead, the Fed is backstopping their imprudently-issued loans. THAT is indeed unjust, as it imposes costs (in the form of declining purchasing power) on savers.

Weekly Unemployment: Lying with Numbers

On Jul 09 12:25 PM thiazole wrote:

> But what does that really tell us about the current direction of
> the economy?

I think you ask the wrong question, given the name of this article being "Lying with Numbers." The point is that the government uses seasonal adjustments -- as it does with the B[L]S birth/death model -- to make employment figures look "not as bad" as the situation on the ground exists. The same can be said of the substitutions and hedonic adjustments made to the CPI during the 1990s. Simply put, the author is asking readers to CONSIDER THE SOURCE when it comes to reported statistics and ask if the source has a vested interest in the reported figure. When it comes from an agency of a particular regime, whether it be our federal government or that of the People's Republic of China, that agency has a vested interest in making the regime look good.

Housing's Big Picture Isn't Pretty

This article by Peter points to a more fundamental shift in thought that he says will occur: homes will be viewed much live cars in the future inasmuch as they require upkeep, carrying costs (insurance and taxes), and do not appreciate to the extent that was once believed. In short, when one purchases a home, it will not be viewed as an investment; it will merely be a place to live.

Housing's Big Picture Isn't Pretty

On May 25 12:03 AM LilBob wrote:


> This is the end result of all those egotistical morons who thought
> they could kill the unions, push credit, hype real-estate and just
> keep growing wealthier and wealthier with no limit and no ill effects.

I agree with your sentiments on credit and real estate hype. I disagree with your statement about unions. Agency-shop or closed-shop states have a coercive element: the law will enforce union membership even if a potential worker (a) believes that he can negotiate a better wage than the collective bargaining agreement or (b) has qualms about providing union dues to a union that politically supports candidates who oppose his moral views (i.e. the UAW politically supporting Pres. Obama even though he favors abortion). If a union is voluntary and collects no "fair share" dues, I've got no problem with it.

> As regards the CPI, costs for health-care and education (two relatively
> important factors when one lives in the developed world) have been
> omitted from those figures for years and the CPI is really pretty
> much meaningless.

I agree that the CPI is meaningless now, but you and sticktoitiveness are incorrect about its components; it includes education, healthcare, food, and energy, though the media touts the "core" CPI number which excludes food and energy. (See www.bls.gov/cpi/cpifaq...).

Beginning during Pres. Clinton's years in office--and with input from Fed. Chmn. Alan Greenspan--the CPI included substitutions and hedonic adjustments. Thus, if steak was included in the fixed CPI basket of goods but it got "too expensive," then the basket of goods was changed because it was believed that "shoppers would substitute hamburger" instead. This masked the price increase in the supposedly fixed basket of goods. The same can be said for hedonic adjustments: a calculator that has more functions but that costs the same as a basic calculator did ten years ago is seen as a factor that lowers the index. While substitution and hedonic adjustment theories may have merits on their own, the CPI was originally intended to measure a FIXED basket of goods. Clearly, this is no longer the case.

Why This Rally Is Unsustainable

On May 02 02:01 PM Smackdown wrote:

> I am referring to the Feb/March downdraft. After the stimulus was
> signed. Dow went down like 1500 points concurrent with all the
> Republicans dissenting with the package. Rush blathering. Governors
> refusing funds. That dissent caused the biggest breakdown of confidence
> I have ever seen.

Maybe, just maybe, the breakdown of confidence was warranted. After all, why be confident when the federal government is borrowing an extra $1 trillion to add to its already staggering debtload? BTW, how is refusing the funding "treasonous?" The States have every right to run their own affairs when it comes to taking federal funds or not.

Plunge Protection Team Attacks BofA: This Ends Now

On Apr 30 12:25 PM wobatus wrote:

> It has a 5,000 year track record, but why? People accept it, but
> why? It isn't oil. It isn't wheat (perishable, but valuable). It
> isn't coal. Or a forest. Or copper. Or water.
>
> Monotheism has also been around for thousands of years. And, not
> to put down believers, that doesn't mean there is a God, necessarily.

Gold accept gold because it's rare, portable, durable, and shiny. My argument isn't that it's useful like oil or lumber, merely that it's been accepted for trade for millennia. If you would rather have your wealth in agricultural land or forest, by all means do so! They both are much more useful than gold, but they do not have the portability that gold does. As you mentioned, wheat (and other crops) are perishable.

Plunge Protection Team Attacks BofA: This Ends Now

On Apr 30 09:46 AM biodummy wrote:

> If one begins with the lie (like the author does here claiming the
> dilution of the gold standard had been taking place in the late 1920s)
> it is sort of hard to believe in everything else he says. If anything,
> major recessions/depressions were happening more frequently and with
> greater severity before the fractional reserve banking had been put
> in place - essentially, about half of the time between the Civil
> War and WW1 the economy had been in recession. Gold standard (while
> being a dream of goldbugs - if it is instituted, the price of gold
> should be jacked up to ~$10K/oz to match the existing global gold
> reserves and the amount of money needed for the economy to run) is
> quite dead and is not coming back.

I don't know what America you are studying! The period between the Civil War and WWI was one of excellent economic growth and growth and growth in the ranks of the middle class. Sure, there were bubbles and depressions in certain places, but they did not last as long as did the Great Depression or the current depression.

Your last statement is quite laughable. History has shown that NO fiat currency has survived as long as gold, which has a 5000-year track record. Gold is accepted many places overseas as a means of exchange even if it is not widely accepted here in America (though I would note that outfits like GoldMoney and e-Gold do exist and transact here). Meanwhile, the Chinese are upping their gold reserves, so they certainly see something valuable in holding the commodity.

The very existence of fiat currency goes back to the idea of regime uncertainty popularized by Robert Higgs. With a fiat currency, there is no "sure thing" as to what the currency will be worth in the future, so entrepreneurs can't plan as well for the future. You and I may not live to see gold being used widely as a medium of exchange, but I'll wager that our grandchildren or great-grandchildren will.

Geithner's Testimony: Lots of Questions, Few Answers

On Apr 21 05:33 PM doubleguns wrote:

> Its not obamas advisers its congress.

Disagree to a point: Sec'y Geithner thought up the PPIP. Pres. Obama's circle decided to continue the financing for the automakers that Pres. Bush began. Pres. Obama himself lobbied for the gargantuan "stimulus" package. Pres. Obama, Pres. Bush, Sec'y Geithner, and the other luminaries of the Executive Branch share in the blame for gigantic increases in federal spending and borrowing.

HOWEVER, I agree that Congress didn't have the backbone to stop the Executive Branch. It didn't stop the banks' attempts to socialize the losses on the loans and investments that they made. It didn't stop either President from shipping money to Detroit to bail out GM and Chrysler. It didn't vote NO on a bill that encumbers our children's children with debt (although I give very small accolades to the House Republicans who all voted NO...though they caved back in the fall while Pres. Bush was still in office, so their credibility is suspect).

Geithner's Testimony: Lots of Questions, Few Answers

On Apr 21 04:35 PM Cetin Hakimoglu wrote:
> I get decent traffic. But-I disagree with your opinion. I'm trying
> to debunk these conspiracy folks who keep spreading false rumors
> about Geithner and Obama by presenting alternative viewpoints. One
> trillion dollars were printed, but the stock market recovered over
> two trillion in market capitalization. Millions of Americans have
> lots 40% or more in their 401ks.

So, your solution is to keep printing money? The printing press doesn't bring prosperity and growth; only production does. I had hoped that Weimar Germany and modern-day Zimbabwe had put this theory to sleep but, alas, it seems I'm wrong. I guess you can be the next Fed Chairman, since Ben Bernanke seems to be taking pages out of your playbook and creating enough "lending facilities" to inundate America with cash.

The Microwave Society's Answer to the Economy Is Half Baked

The underlying assets that are currently impairing the CDOs' values are simply worth less than what the banks thought they were. The banks assumed that real estate prices would continue to trend upward, but they didn't. Any real speculator would accept that his assumption was incorrect, sell the underlying assets at their fair value, take the losses, and go on.

The banks, though, don't want to face the consequences of their actions, and they are sure that they won't have to do so because of the "Greenspan put." They remember that 10 years ago the government didn't let Long Term Capital Management go under and instead bailed it out. They bet that -- in the end -- they will continue to get bailed out. So far, they are right!

The banks don't want to sell their "legacy assets" (if that's not Orwellian, I don't know what is) at their fair market value because they simply don't want to take the losses. Until either (a) the banks man up & take losses (highly unlikely) or (b) the taxpayer foots the bill (very likely), these assets will continue on the banks' books.

Nationalizing the U.S. Banking Sector: There's No Choice

"The good news is this: most policymakers agree that letting the banks fail is an unacceptable outcome. This is a start."

Yes, it's a BAD start. The banks who made these poor investment decisions SHOULD be allowed to fail. The managers who made these poor choices should be out of work. Nationalizing and subsidizing these "zombie" banks will only keep these poor decision-makers in the financial system.

"The alternative to the Treasury's latest plan for solving the mounting financial crisis is to nationalize its insolvent banks. While that initially involves a government takeover of the banks, the government intervention wouldn't be permanent."

The idea that government will willingly give up power by divesting itself of such a powerful cudgel as the financial system of America is preposterous. The federal government hasn't divested itself of the scores of needless military installations both at home and abroad. Washington hasn't divested itself of Amtrak and the Post Office, neither of which provides quality service at a low cost.