Yes, we need to bring down the deficit and start paying down the debt, but we shouldn't default on our debt payments and undermine our credit in the process.
Wednesday, May 18, 2011
Coburn Withdrawal Bad Sign for Debt
Sen. Tom Coburn's withdrawal from the gang of six working on the budget/debt ceiling crisis is a bad sign. I was never convinced that he was committed to the process, but now he certainly is not. He probably came under heavy pressure from his fellow Republicans to drop out. They probably plan to push the debt ceiling issue to the limit. Pundits say it may not destroy the country, but there is a possibility that it might. As somebody said today, why would you want to test whether it will destroy the country, if there is even a slight possibility that it might, and if you could easily avoid doing so.
Saturday, April 30, 2011
Why Aren't We as Brave as the British?
I apologize for the disjointed letter posted previously.
I was prompted to write it by the movie "Mrs. Miniver," which I watched a while ago. It is about an upper middle class family in England from the period just before World War II until well into the war. The movie was made during the war, and on TCM, the "The End" screen said something like, "America needs your money. Buy bonds." In the movie, before the war the British husband and wife are somewhat extravagant, the wife buying a silly hat and the husband a fancy car. But once the war starts they get serious like real Brits. They make sacrifices while keeping a stiff upper lip.
I thought that same attitude was somewhat illustrated during William and Kate's wedding. Queen Elizabeth is a living link to the sacrifices made by Brits during World War II and the London Blitz. Today Britain and the United States both face financial turmoil due to the sub-prime mortgage meltdown. The Brits under PM Cameron have elected to pursue a course requiring more sacrifice that the US has. That's more in the British character than in America's.
In Ben Bernanke's press conference, we saw the competing themes of fighting inflation versus reducing unemployment. The Brits are more willing to endure the hardship of unemployment in order to get their financial house in order than the US is. We see Americans unwilling to sacrifice anything, even small cuts to Medicare benefits on the one hand, or higher taxes on the other. We need spending cuts and higher taxes, but nobody is willing to make the hard choices that calls for.
I like Ben Bernanke because he is one of the few people in Washington facing these hard choices and doing something. People say he is just following in Greenspan's "easy money" footsteps, but I don't think so. He is facing a very different situation. I like Elizabeth Warren because she also seems to have the moral character, so lacking in Washington, necessary to face these hard choices. She has staked out a little issue, making businesses deal fairly with consumers, and has been met with a buzz saw of opposition from big business.
After I watched "Mrs. Miniver," I thought, "Well, I could buy some bonds." The Japanese do it. Their indebtedness is one of the highest of any major nation, but it is not like our debt to China, because the Japanese owe it to themselves. They buy their own bonds. So, why don't we? First, I found that it is hard to buy US savings bonds. You can't buy paper bonds anymore. You can only buy them electronically and store them on some Treasury web site. With changing email addresses, lost passwords, etc., that is a recipe for disaster for me. I don't mind electronic banking, as long as there is a real, brick bank somewhere that can send me a paper statement if I want one.
While it has gotten harder to buy savings bonds, it has gotten easier to buy Treasury bonds through a broker. That change illustrates how our economy favors the rich over average citizens. You can put thousands in your 401(k), but you can't buy a $25 savings bond for your kid's birthday. But, why not buy bonds anyway? Right now the problem is that the US Congress refuses to put the full faith and credit of the United States behind the bonds. They are going to bicker over raising the debt ceiling, and leave open the possibility that they will default on US bonds. If they were serious about solving the debt crisis, they would immediately raise the debt ceiling, if only by a little bit, so that there is no risk of default, and then begin the process of cutting spending and raising taxes. But some groups want to use the debt ceiling as a bargaining chip. It is sort of like saying, "If you don't agree to my terms, I will blow my brains out." The terms may be stupid, but no one wants to see someone else blow his brains out, especially if "he" is the country we live in. In Vietnam the old saying was, "We had to destroy the village to save it." Are we now going to say this about America?
I was prompted to write it by the movie "Mrs. Miniver," which I watched a while ago. It is about an upper middle class family in England from the period just before World War II until well into the war. The movie was made during the war, and on TCM, the "The End" screen said something like, "America needs your money. Buy bonds." In the movie, before the war the British husband and wife are somewhat extravagant, the wife buying a silly hat and the husband a fancy car. But once the war starts they get serious like real Brits. They make sacrifices while keeping a stiff upper lip.
I thought that same attitude was somewhat illustrated during William and Kate's wedding. Queen Elizabeth is a living link to the sacrifices made by Brits during World War II and the London Blitz. Today Britain and the United States both face financial turmoil due to the sub-prime mortgage meltdown. The Brits under PM Cameron have elected to pursue a course requiring more sacrifice that the US has. That's more in the British character than in America's.
In Ben Bernanke's press conference, we saw the competing themes of fighting inflation versus reducing unemployment. The Brits are more willing to endure the hardship of unemployment in order to get their financial house in order than the US is. We see Americans unwilling to sacrifice anything, even small cuts to Medicare benefits on the one hand, or higher taxes on the other. We need spending cuts and higher taxes, but nobody is willing to make the hard choices that calls for.
I like Ben Bernanke because he is one of the few people in Washington facing these hard choices and doing something. People say he is just following in Greenspan's "easy money" footsteps, but I don't think so. He is facing a very different situation. I like Elizabeth Warren because she also seems to have the moral character, so lacking in Washington, necessary to face these hard choices. She has staked out a little issue, making businesses deal fairly with consumers, and has been met with a buzz saw of opposition from big business.
After I watched "Mrs. Miniver," I thought, "Well, I could buy some bonds." The Japanese do it. Their indebtedness is one of the highest of any major nation, but it is not like our debt to China, because the Japanese owe it to themselves. They buy their own bonds. So, why don't we? First, I found that it is hard to buy US savings bonds. You can't buy paper bonds anymore. You can only buy them electronically and store them on some Treasury web site. With changing email addresses, lost passwords, etc., that is a recipe for disaster for me. I don't mind electronic banking, as long as there is a real, brick bank somewhere that can send me a paper statement if I want one.
While it has gotten harder to buy savings bonds, it has gotten easier to buy Treasury bonds through a broker. That change illustrates how our economy favors the rich over average citizens. You can put thousands in your 401(k), but you can't buy a $25 savings bond for your kid's birthday. But, why not buy bonds anyway? Right now the problem is that the US Congress refuses to put the full faith and credit of the United States behind the bonds. They are going to bicker over raising the debt ceiling, and leave open the possibility that they will default on US bonds. If they were serious about solving the debt crisis, they would immediately raise the debt ceiling, if only by a little bit, so that there is no risk of default, and then begin the process of cutting spending and raising taxes. But some groups want to use the debt ceiling as a bargaining chip. It is sort of like saying, "If you don't agree to my terms, I will blow my brains out." The terms may be stupid, but no one wants to see someone else blow his brains out, especially if "he" is the country we live in. In Vietnam the old saying was, "We had to destroy the village to save it." Are we now going to say this about America?
Raise the Debt Ceiling Now
Letter to Congressman and Senators:
Right now I feel that there are only two people in Washington who have my best interests at heart, as a middle class citizen -- Elizabeth Warren and Ben Bernanke.
The fact that big business is so opposed to Elizabeth Warren indicates to me that she must be doing something right for average citizens. Normally, Ben Bernanke, as the head of the Fed would be the tool of big business interests, but I think he is genuinely concerned about average people, too. His low interest rates and QE2 are boons to big business, especially big banks, but they are the only tool he has. I think he really is trying to pursue policies that trickle down to ordinary people, even if most of the benefits go to big banks and industries.
If Congress were serious, it would raise the debt ceiling now, if only by a small amount. The fact that it is playing chicken with the debt ceiling indicates that it does not have the best interests of the United States at heart. Failure to put the full faith and credit of the United States behind our bonds will mean higher interest rates for everybody and probably a return to a deep recession. Conservatives, playing the hand of big business and big banks, will use the crisis to get spending cuts without tax increases, generally hurting average people, and particularly benefiting the very rich.
To reduce the problem with the national debt and the fiscal deficit, I would propose to cut all Federal salaries by 10 percent (including yours) and all Federal pensions (including mine) by 10 percent. Perhaps you could cut all Social Security pensions by 10% above a certain level, say $1,500 per month. For Medicare and Medicaid, perhaps you could cut payments by 10% for all procedures that cost more than $1,500.
I would propose removing the mortgage interest deduction as a start for raising tax revenues. This deduction had a very perverse effect during the housing crisis. Before sub-prime mortgages, when people still had to make a large down payment, the deduction was not so bad. But with no down payment and mortgages allowing interest-only payments for the first few years, buyers basically became renters, who are now walking away from their homes. Real renters got no deduction, but sub-prime buyers had a big Federal subsidy. It was not fair, and it encouraged an unsustainable housing bubble. It's bad policy which creates economic dislocation. Get rid of it. You could start off limiting the deduction to $10,000, and then reduce it $1,000 per year.
I don't really expect anything to happen. This government is dysfunctional. I lived in Brazil for several years as an American diplomat during its bad years, and saw people who wallpapered some rooms with the old Cruzeiro currency. That's where the dollar is heading. Brazil shows that you can recover from that, but only if you get serious. The US is not serious, yet. People used to say that Brazil was not a serious country. Now that epithet applies to the United States. After the game of chicken we just played on shutting the government down, the new game of chicken on the debt ceiling, and the decision during the Congressional lame-duck session not to raise taxes on anyone, especially the very rich, I have become one of those in the recent poll who has a very dark view of the American economy and even of America in general. As a Vietnam veteran, a retired Foreign Service officer, and a former attorney for the Veterans Administration, totalling nearly 30 years of government service, I am very disappointed in where the US is heading.
Right now I feel that there are only two people in Washington who have my best interests at heart, as a middle class citizen -- Elizabeth Warren and Ben Bernanke.
The fact that big business is so opposed to Elizabeth Warren indicates to me that she must be doing something right for average citizens. Normally, Ben Bernanke, as the head of the Fed would be the tool of big business interests, but I think he is genuinely concerned about average people, too. His low interest rates and QE2 are boons to big business, especially big banks, but they are the only tool he has. I think he really is trying to pursue policies that trickle down to ordinary people, even if most of the benefits go to big banks and industries.
If Congress were serious, it would raise the debt ceiling now, if only by a small amount. The fact that it is playing chicken with the debt ceiling indicates that it does not have the best interests of the United States at heart. Failure to put the full faith and credit of the United States behind our bonds will mean higher interest rates for everybody and probably a return to a deep recession. Conservatives, playing the hand of big business and big banks, will use the crisis to get spending cuts without tax increases, generally hurting average people, and particularly benefiting the very rich.
To reduce the problem with the national debt and the fiscal deficit, I would propose to cut all Federal salaries by 10 percent (including yours) and all Federal pensions (including mine) by 10 percent. Perhaps you could cut all Social Security pensions by 10% above a certain level, say $1,500 per month. For Medicare and Medicaid, perhaps you could cut payments by 10% for all procedures that cost more than $1,500.
I would propose removing the mortgage interest deduction as a start for raising tax revenues. This deduction had a very perverse effect during the housing crisis. Before sub-prime mortgages, when people still had to make a large down payment, the deduction was not so bad. But with no down payment and mortgages allowing interest-only payments for the first few years, buyers basically became renters, who are now walking away from their homes. Real renters got no deduction, but sub-prime buyers had a big Federal subsidy. It was not fair, and it encouraged an unsustainable housing bubble. It's bad policy which creates economic dislocation. Get rid of it. You could start off limiting the deduction to $10,000, and then reduce it $1,000 per year.
I don't really expect anything to happen. This government is dysfunctional. I lived in Brazil for several years as an American diplomat during its bad years, and saw people who wallpapered some rooms with the old Cruzeiro currency. That's where the dollar is heading. Brazil shows that you can recover from that, but only if you get serious. The US is not serious, yet. People used to say that Brazil was not a serious country. Now that epithet applies to the United States. After the game of chicken we just played on shutting the government down, the new game of chicken on the debt ceiling, and the decision during the Congressional lame-duck session not to raise taxes on anyone, especially the very rich, I have become one of those in the recent poll who has a very dark view of the American economy and even of America in general. As a Vietnam veteran, a retired Foreign Service officer, and a former attorney for the Veterans Administration, totalling nearly 30 years of government service, I am very disappointed in where the US is heading.
Saturday, April 23, 2011
People Who Walk Away from Their Houses
The Washington Post reports a new trend of people walking away from houses that they own. It misses the whole point, however. The problem is that these people paid little or no money down. Their mortgage payments were just rent payments, and unlike real rent payments, these were subsidized by the US government in the form of the mortgage interest tax deduction. People didn't do this years ago because they had skin in the game, starting out with about a $30,000 loss for walking away from a $150,000 home. Now they have nothing to lose except their credit rating for a year or two. They'll go from owning a four bedroom single family house to renting a two bedroom apartment that they can afford. No big deal, except for the banks that made these stupid mortgages and the investors who bought them. The heads of these banks, like Jamie Dimon at JP Morgan-Chase, are either very stupid or crooks. I don't think they are very stupid. But it's good when you can bribe (lobby) the lawmakers to make your immoral shenanigans legal.
I still think Tim Geithner, Hank Paulson and company deserve a lot of credit for avoiding another Depression, but now I think Geithner, who was head of the New York Fed, is too close to his old buddies whom he bailed out. Wall Street is evil. It almost destroyed America and much of the rest of the world with it. Somebody needs to pay for what they did.
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