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 [ 1 post ] 
 Great Plans to Destroy U.S. Economy 
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Joined: Mon Sep 13, 2010 1:47 pm
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Post Great Plans to Destroy U.S. Economy
by: Aleksey Vayner



We are in recession and have just began to chip away at the tip of an iceberg that is credit crisis. Former Treasury Secretary Larry Summers recently stated, “We are facing the most serious financial stress that the U.S. has seen in at least a generation.” I think to call our economic situation a recession and the subprime bubble a credit crisis is a gross understatement.

This is just the beginning – an opinion shared by Satyajit Das, a world-renown expert on credit derivatives, who is also the author of 4,000+page reference text on this subject.

I believe we are going into a nasty bear market. Why?

1. Extraordinary level of debt characterizes a very weak economic state.

2. Political leadership with silly intervention proposals.

3. Subprime market bubble that is just a key to Pandora’s box…watch out!

Massive Debt

Bush’s oil war on Iraq is a $300 billion dollar per year burden on the U.S. economy (by many scholarly and economic estimates). This is expensive by itself, but becomes completely unaffordable when we factor in that the US Government borrows $250-300 billion dollars form China every year above and beyond what it already collects in taxes in spite of tax payers overpaying (i.e. most do not take advantage of the deductions they are legally entitled to).

These numbers do not factor in that Social Security and Medicare are in trouble, which will translate into increased taxes on U.S. citizens in a relatively near future. Our public education system is also a wreck, with 60% high-school drop-out rate in some larger cities…

But that’s only a part of the picture. Much larger debt and dangerous leverage hides in the world economic system and is unfortunately not limited to the U.S. credit crisis.

That said, some form of intervention is necessary to ease the pain; the problem is that no one really knows what this intervention should be. Many proposals are playing around with interest rates, which lead to my next point.

Silly Intervention Proposals

Stimulus Package

If you are waiting for your stimulus check, I am very happy for you. But lets be blunt; it will not do jack to help the troubled economy. The government’s goal should be to make sure we do not dive into a greater mess than the one we already in. Mailing out checks is not a solution for a system for a country that is already so heavily in debt.

Excuse me for stating the obvious, but the government is planning to give out money it does not have! What is it going to do? Borrow another $200 billion from China or just print it up? The little I remember from freshman year at Yale when William Nordhouse still taught introductory economics suggests that created money (regardless of the method used) comes with negative repercussions of a plunging dollar and a rapid inflation.

As the stimulus package receives coverage by most major news channels, one item that is not getting much attention is that it will useless to those who really needed. To get a tax refund you must first be earning money, so the low class who are not required to pay federal income tax will receive half as much as people with higher incomes, while retirees on social security may not get anything at all. [To be precise, the relief package is not a tax refund. It has to be claimed as if there was an overpayment of an income tax]. When the check does arrive, (consumer agencies estimate that) about 80% of the people will spend it on pricey items like electronics in which case most of the money will go right out of the window to foreign manufacturers. This does not address the underlying issue.

The existing problem does not have anything to do with consumer spending. It does not even has much to with the homeowners who are defaulting on their mortgages and are eaten up by mass media, as I will discuss shortly. On the contrary, the problem has more to do with too much spending, highly leveraged financial instruments, and unrealistic real estate valuations.

Feldstein's Plan

Another plan, more colorful than the stimulus package, came from Martin Feldstein (former Reagan advisor). Recently presented in The Wall Street Journal, it proposed for the government to lend homeowners who are in trouble 20% of their outstanding mortgage balance. This money, according to Mr. Feldstein, would come from selling T-bills and have a payoff period of 15 years. The interest would be tax deductible.

So…the plan does not actually help the homeowners; it just moves debt from one place to another, and tries to pay off loans that were created on ridiculous real estate values (and should not have been underwritten at all). Government loans, as Mr. Feldstein pointed out, will lower the interest payments…but weren’t lower interest rates partly what got us into current trouble?

Reality Check

How much trouble our economy is in is debatable. The fact is that the real estate that is backing current outstanding mortgages is worth much less than it was worth before.

The most comparable historic scenario I can think of is Japan (albeit the magnitude of their real estate market was quite a bit larger). One industry fueled economy, leading to widespread speculations. The formed bubble raised real estate values sky-high. Then it came crushing. Then the Nikkei followed, falling for a decade. Sounds familiar?

The Japanese were reluctant to write off bad debt in hopes that the prices would eventually recover. This did not happen and as banks tried to survive, the credit crunch stalled the economic growth so much that for 9 or 10 years the average GDP was 1.5% despite near-zero interest rates.

If history repeats itself, then Japan demonstrated that waiting for property values to rise will not work. That interest rates are not the issue. And that trying to do everything possible to keep bad loans on the books will only exacerbate the bear market.

It Gets Worse

At the beginning I said that we are in for a nasty bear market, and that the subprime credit crunch is just a key to Pandora’s box...What I am talking about stems far beyond the defaulting homeowners, or yesterday's meltdown (and Federal Reserve’s rescue) of Bear Stearns (BSC). I am talking about global levels of debt beyond of what you and I can imagine.

What we are seeing now is that homeowners who are defaulting on their mortgages are being blamed for the credit crisis. This criticism is misdirected. The real players in this game are:

- Financial Technicians who pie group of similar people. Next, they charge everyone in the group the same price with the knowledge that they will pay less money to some in the group and more money to others but averaging the same amount of money to each person over time. Then they simply tack on their fee (like the casino's vig) for paying everyone when the money is needed for health situations. For the most part, you are betting that you are going to need more money for your health care than the average person in the group will need. This is what the insurance industry calls the "law of large numbers" and is what really makes affordable health insurance possible.

Most importantly, "affordable" and "cheap" are not synonyms. They do not mean the same thing. A Toyota Camry is "affordable". A Yugo is "cheap". There is some truth to the old saying that "You get what you pay for" but it is also important to understand that just because your friend spent $30,000 more for his Lexus than you did for your Toyota that he got $30,000 more car. Actually, the more and more you spend, the less and less you get for your money. Health insurance is very similar.

The opposite is also true though. One can get from point A to point B by driving a Yugo but not reliably. If your car breaks down a lot, should you rely on it to get you to work? You could get fired for being late or not showing up, right? If you need to get to a really important sales meeting... would you show up in a Yugo? What about this... would you buy something from someone driving a beat up Yugo? I know I wouldn't! I'm not a snob but I don't want to lose money by being cheap!

With that in mind, you should check the ratings companies such as AM Best (ambest.com) and Standard & Poors (standardandpoors.com) and, in my opinion, select a company with a rating of A or higher. More often that not, the least expensive policy from a highly rated company is much better than the most expensive policy from a lower rated company. In almost every case, the better company is the better way to go even if it costs a little more. It would suck to need the money and have nothing but trouble trying to get it from your insurance company let alone getting it quick, wouldn't it?

To wrap up, finding affordable health insurance is not nearly as difficult as most people think it is... not nearly that difficult.

If you need affordable health insurance, understand that by simply agreeing to higher deductibles, spending time researching online and comparing 8-10 differnet plans is the simplest method.


About The Author
Ed Brancheau, The Insurance Egghead (http://www.insurance-egghead.com/), helps businesses, individuals and families find affordable health insurance (http://www.insurance-egghead.com/affordable-health-insurance.html). Drop by his website, The Insurance Egghead, for tons of free advice, articles and guides about health, dental, vision, accident and life insurance.



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389dfc0935The Importance of Entrepreneurst0by: Dr Alan Dowler



In the newly-elected New Labour Government which swept into power in 1997, the new mantra for economic renewal emanating from the then Iron Chancellor, Gordon Brown, was one of enterprise, enterprise and even more enterprise, to turn Britain into an economy driven by the entrepreneurial nature of its citizens well-versed in how to make money (see http://HowToStartMakingMoney.blogspot.com). In the government white paper, “Our Competitive Future: Building the Knowledge Driven Economy”, the economic aims of the new Labour administration were made absolutely clear: “Entrepreneurship and innovation are central to the creative process in the economy and to promoting growth, increasing productivity and creating jobs. Entrepreneurs sense opportunities and take risks in the face of uncertainty to open new markets, design products and develop innovative processes”.

Nowhere was this zeitgeist more clearly defined than in the advent of the dot.com revolution, with its young instant (New Labour-supporting) paper millionaires using technology to create the companies of tomorrow. The convergence of a new creative and innovative government, combined with the explosion in the possibilities for business and consumer use of the internet, was New Labour’s equivalent of Harold Wilson’s “White Heat of a second industrial revolution” thirty five years earlier. We had a Labour Administration introducing specific pol


Mon Dec 15, 2008 4:52 pm
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