The Federal Boondoggle Continues

It's 2013.  Obama and his cronies are still in office and the federal deficit has grown to $16,700,000,000,000.00 and still climbing as the federal union keeps raising taxes, borrowing from the Federal Reserve by exchanging Treasury Bonds and T-Bills for freshly printed fiat Federal Reserve Notes backed by nothing and worth less and less in purchasing power.  Inflation is very noticeable now and more businesses are failing, more people are filing bankruptcies in record numbers, and foreclosures are backed up by the thousands in many states.

Unemployment benefits were extended several times (now up to 73 weeks), paid for partially by raising the federal unemployment taxes on businesses from .8% of payroll to 6.2% of payroll--a a whopping 675% increase of this payroll expense item on top of other state rate increases--and partially from borrowing from future generations.

Businesses are hurting not only because of these payroll tax increases but inventories are still high because people don't have the cash to buy the nonessential products they used to buy, so revenues are down while the cost of goods (materials used to manufacture the products) is increasing due to the devaluation of the dollar.  It's a vicious cycle that causes retailers to order fewer goods, manufacturers to reduce production and layoff workers so the unemployment ranks swell and even fewer people have the money to buy more products.  Moreover, the suppliers to the manufacturers, the producers of raw materials and components, have to cut back as their sales figures drop.  The same is true of service industries, the engineers that develop new products or modify the old; the software developers; the truckers and railroad workers, even restaurants and entertainment outlets.  Casinos have tightened their slot machine payouts and reduced their incentive programs.

But there are lots of new opportunities for contrarians to make money betting on the losing side of the proposition by shorting stocks or buying put options on the stocks of floundering businesses or by picking up cheap foreclosures or bank-owned properties and renting them to former home buyers.

As people cut back on local shopping to save money on gas, more of them are shopping online, so entrepreneurs who sell stuff online are making a killing.  Meanwhile states are losing sales tax revenue so are pushing harder and harder to tax Internet sales which currently are taxed only if sold in the state in which they are physically located.  Interstate sales can not be taxed without amending the federal constitution, something I hope never happens. The Internet is the closest thing to free trade in the world and is beyond the reach of most money-grubbing politicians regardless of country or state.

Where this will end is anybody's guess, but my extensive research convinces me that it will not end well.  Unless our politicians start facing reality and start cutting down the size, scope, and cost of government, the nation is doomed to continue borrowing and printing phony money until our credit is exhausted and like Brazil, Argentina, Greece and other countries in the past, we default on our debts (go bankrupt) and start over again.

It's time for the People to holler, "We've had enough, and we're not going to take this anymore!"  Fire the politicians and lawyers and start America over again with no formal national government but 50 sovereign and independent States (nations) free to operate as their individual citizens choose, remembering Jefferson's words that "the government that governs least, governs best."  Little Iceland did it a few years ago and is thriving today after returning to a gold-based currency.

Government's ONLY function is to protect the natural rights of its citizens--those being the rights to life, liberty, property, and contracts.  Services such as road and bridge building and maintenance, street lighting, sewerage treatment, police and fire protection, and other public services should be paid for from property taxes and use taxes and not from borrowing (read robbing) from the next generation.

Natural law makes no allowances for the unfit.  In the wild, animals either feed themselves or die so that only the strong survive to reproduce the next generation.  Droughts and famine keep over-population in check.  Floods and forest fires clear out the weakest vegetation.  The same should hold with economics.  Recessions should clear out the under-performers and make room for newer, stronger, or better-managed companies.  But when the government starts meddling in business, subsidizing the failures and propping up the lenders who took on too much risk, they interfere with the natural cycles and only make matters worse.

Welfare should be left to private charities funded by voluntary contributions from those willing to support the nonproductive members of society and not forced from the productive who may be opposed to supporting them.  Retirement should be the responsibility of the individual and the employer.  If the workers put the current 7.65% of their wages, matched by the same amount from their employers, into an annuity with any reputable insurance company, their return on investment and monthly income after retirement would be substantially higher than they can ever get from the Social Security system, and the money they accumulate in their annuity policy can be passed on to their heirs, rather than left to the government to mismanage.

Until next time.

Joy and abundance,

Cory Layne
Reno, Nevada, America

Nearly Two Years Later - More of the Same

Barak Hussein Obama won the 2008 presidential election and took office January 20, 2009.  The recession he inherited has gotten worse.  By fudging the numbers regarding unemployment, jobs lost, and new jobs created, his administration has avoided calling it a depression, but it IS a depression.  

Most of the jobs lost have been in manufacturing, distribution, and services.  Most of the new jobs created have been government jobs which add nothing to the GDP, they are expenses in the federal budget.  As to the unemployment numbers, they only count those currently receiving unemployment insurance payments.  They omit those whose coverage has expired.  Those people may have found new jobs or created their own business (as I have), but few are earning what they earned before losing their previous jobs.  

Personally, I'm earning about a third of what I was earning in 2005.  I've scaled down from a 6 bedroom house to a 1 bedroom motorhome and moved from high cost Reno, Nevada, to much lower cost San Benito, Texas.  

Until I get my online business producing sufficient cash flow on a consistent basis to upgrade to my more mobile lifestyle, I'm content with my laid-back, small-carbon-footprint, motionless lifestyle. I do miss my mountains and four seasons though.

Meanwhile our illustrious "leaders" at the federal and state capitols continue to spend, borrow, and spend some more.  With bailouts of the banking, mortgage, and auto industries and more easy credit programs with low interest mortgages designed to put foreclosure "victims" back in houses they can't afford.

The federal deficit now stands at $13.4 Trillion mostly owed to the Federal Reserve Banking System.

Joy and abundance,

Cory Layne
San Benito, Texas, America

Take Back Your Government: The Financial Crisis – Cause and Effect

Take Back Your Government: The Financial Crisis – Cause and Effect

Update on 2008 post about the Financial Crisis - It Still Continues

As we all know, Barack Hussein Obama won the 2008 election promising "change."  As we enter 2014, halfway through his second term, I think most of us realize that any changes that have been made have only made conditions worse.  The federal debt ceiling has been raised repeatedly, making the whole idea of a "ceiling" ludicrous.  There seems to be no ceiling on how far in debt our politicians are willing to put us.  The national debt now exceeds $17.2 Trillion Dollars, up another $6 trillion from 2008.  Yet net wages and salaries are down, and starter jobs for our recent high school and college grads are almost nonexistent.

Politicians get themselves elected and quickly forget that they were elected to represent us, to protect our rights from infringement by the government.  Instead they believe they were elected to RULE us and lose no time in making more rules to restrict us and further restrict the free enterprise "capitalist" system that made America great.

Some of the "changes" include ObamaCare, misnamed "The Affordable Care Act", which was rammed through Congress without being read by any representative or senator.  In the words of the inimitable House Majority Leader at the time, Nancy Pelosi, "We have to pass it to see what's in it."  What's in it has caused havoc within the medical insurance industry.  Existing policies are being cancelled because they don't comply with the new law, businesses are downgrading their employees to part-timers so they don't have to comply with the law requiring them to provide insurance for all of their full-time employees, doctors are giving up private practice to avoid all the red tape (some of them going into politics).

The wars against terrorism continue to cost a trillion a year and have accomplished little toward eliminating terrorism and have instead produced more hatred toward Americans by those who have lost loved ones and property in U.S. attacks.  U.S. military fatalities continue to rise.  In Iraq, the casualties have declined steadily since the so-called "handover" in 2004 with only 256 deaths since Obama's 2009 inauguration.  U.S. wounded during same period totaled 15,036.  In Afghanistan, our dead numbered 569 at the time of Obama's inauguration.  As of 31 Dec 2013 they stand at 2,162.  Wounded over 23,500 under Obama's watch.  The Veterans Administration is years behind in processing disability claims of wounded veterans, even those that should be no-brainers, those who've lost limbs or suffered permanent brain damage.

The IRS and NSA scandals have raised the hackles of many, but not much has been done to correct or restrict either agency.  The Affordable Care Act included the addition of 30,000 IRS agents and auditors to insure that everyone who chooses not to purchase insurance is fined (read taxed) each year.  How many of them were actually hired to persecute Obama-bashers, liberty-seekers, and tax protestors I can only guess.

But life in America goes on, and we will survive this depression as our grandparents or parents survived the 1930s.  Hopefully, we won't have any more world wars and people will eventually learn to get along with each other.  After all, "people" don't start wars, politicians do.  When we withdraw our consent and start limiting the assumed power of the political class, we will begin to see more freedom, more self-rule, and less of being ruled by others who don't have the good sense to leave well enough alone.

Make 2014 the year we start questioning authority at all levels and start holding our elected officials accountable to us, the People.

Joy and abundance,

Cory Layne
Reno, Nevada, America

The Financial Crisis – Cause and Effect

Fanny Mae, the Federal National Mortgage Association (FNMA), was founded as a government agency in 1938 as part of FDR's New Deal to provide liquidity to the then depressed mortgage market. For the next 30 years, Fannie Mae held a virtual monopoly on the secondary mortgage market in the U.S.

To get Fannie Mae out of the federal budget, it was converted to a private corporation in 1968. Freddie Mac, the Federal Home Loan Mortgage Corporation (FHLM) was created in 1970.

They were two private investment banking companies formed under charter by the federal government to do interstate and international banking, specifically to provide liquidity to mortgages and mortgage-backed securities. In other words they bought individual and packages of mortgages from the primary lenders and sold them to investors in the form of stock in their companies or other securities.

They were publicly traded corporations (NYSE: FNM and FRE) known as Government Sponsored Enterprises (GSEs). Under federal regulations they received preferential treatment such as tax exemption and lowered reserve standards which other banking institutions were not allowed. In other words, they were stockholder-owned corporations authorized to make loans and loan guarantees. They received no direct federal government subsidies. Nevertheless, the corporations and the securities they issued were widely believed to be backed by the U.S. government, giving investors a false sense of security.

They were the leading participants in the U.S. secondary mortgage market, which enables mortgage companies, savings and loans, credit unions, banks, and federal, state and local housing finance agencies to obtain funds to lend to home buyers. The primary lenders could sell their mortgages to Fannie Mae or Freddie Mac, giving them the cash to fund more mortgages which they could sell to get cash for yet more mortgages, repeated over and over until virtually everyone eligible for a mortgage had one.

To keep the Ponzi scheme going, the federal government under Clinton (1999) required banks to lower their lending standards to allow lower income renters to qualify for loans to buy their first homes. With the aid of lower interest rates from the Federal Reserve Banks, banks were willing borrow more from the Fed to loan out at only slightly higher rates. Fannie and Freddie lowered their standards in order to buy up these sub-prime loans.

As more and more buyers entered the housing market, they gobbled up existing homes and created a boom in new home building as the sellers of these older homes moved up to larger and fancier new houses. Home prices rose rapidly in heavily populated areas.

The stockholders (foreign as well as domestic investors) were happy because their investments in Fannie Mae and Freddie Mac provided the funds for these mortgages that were backed by rapidly appreciating real estate assets. Their investment strategy was based on the pipe dream of a never-ending appreciation in the real estate market when, in fact, they were merely fueling the fire under the biggest real estate bubble in history.

I've lived through 3 such bubble-burst cycles since I started buying fixer-uppers in the late 1960s. None of them as bad as the Roaring Twenties boom and bust that (along with other factors) led to the Great Depression.

As prices rose, home owners anxious to take advantage of the rising equity in their homes refinanced to pull out cash which they quickly spent, causing a short-term "economic boom."

Owners of investment properties refinanced to pull out cash to invest in more income properties. Speculators bought up multiple properties with interest only or adjustable rate, 100% or even 125% loan-to-value mortgages, expecting to make a good profit fixing them up and reselling them, a practice called "flipping." And for a few years sellers were making a killing. Local governments were thrilled that their tax base was expanding, and they quickly reassessed property at higher and higher values. Happy days were here again.

But by 2006 home prices had gotten so high in some parts of the country that buyers who could qualify for even the "no-qual sub-prime" loans dried up. Housing prices leveled off. The seller’s market became a buyer's market, and some owners who needed to sell were willing to take less than "market" value for quick sales, and speculators, seeing that the party was over, started dumping their properties on the market. Prices began to fall.

All of a sudden many home owners and most speculators found themselves upside down—they owed more on their recent mortgages than the property was worth in the market.

If they were to sell their properties, they wouldn't get enough to pay off the balance on the mortgage. So rather than sell and still owe money, they quit making their payments on the mortgages and allowed the property to be foreclosed or signed them over to the lender in lieu of foreclosure (which has no negative affect on their credit ratings). They could walk away with no cash (other than the several month's worth of mortgage payments they hadn't made) but owing zero.

The lender is now holding the physical property at its current appraised value on its balance sheet rather than the higher-valued mortgage amount, having to write-off the difference as a bad debt expense. In addition they are not getting paid monthly mortgage payments (mostly interest), so their available cash is reduced. Too many of these transactions and the lending institution shows a loss on its income statement, and the balance sheet net worth goes negative when their liabilities (money owed to their depositors) and equity (money invested by their stockholders) exceed their assets (loans outstanding, cash on hand, real estate owned, and other investments).

Most corporations in that condition file bankruptcy. Their assets (right down to furniture and fixtures) are sold by the bankruptcy trustee, and the proceeds paid to the creditors (depositors in the case of banks) who accept whatever their share of the proceeds is (pennies on the dollar) and write off the difference as a bad debt or capital loss. If there is anything left over (almost never), the stockholders divvy up the rest. Usually the stockholders get zip.

In the case of a bank going under, the depositors are protected somewhat by the Federal Deposit Insurance Corp (FDIC) which will theoretically cover the depositors' losses, but if too many banks are involved the FDIC hasn't enough funds to cover even a small portion of the losses.

As of 2007, Fannie Mae and Freddie Mac owned or guaranteed about half of the $12 Trillion in mortgages in the U.S. As a result, the mortgages held by these corporations were backed by decreasing assets. Stockholders started selling their shares in an attempt to get some of their investment back before these financial institutions went belly-up, creating a mini panic in all mortgage-backed stocks. Without new funds to provide cash for more new mortgages and other loans, lending slowed and the "credit crunch" began.

Under federal law and the charters of these GSEs, the U.S. Treasury was authorized to "advance" funds for the purpose of stabilizing Fannie Mae and Freddie Mac, limited only by the congressionally authorized National Debt Ceiling.

On 7/30/08 in a law expanding regulatory authority over Fannie Mae and Freddie Mac, Congress increased the debt ceiling by $800 Billion, to a total of $10.7 Trillion, and allowed the Treasury to support the federal home loan banks.

Less than six weeks later, before any support plan drafted by the Treasury could be implemented, on 9/7/08, under terms of their charter, Fannie Mae and Freddie Mac were placed into conservatorship of the Federal Housing Finance Agency (FHFA), a federal takeover called by commentators "one of the most sweeping government interventions in private financial markets in decades." CEOs and boards of directors were dismissed and each company was required to issue preferred stock to the Treasury Department and suspend future dividends, leaving the common stock holders out in the cold and causing additional unrest on Wall Street.

When the unrest grew to potential panic, the House of Representatives quickly put together an official bailout bill as requested by Bush and the Treasury Secretary for $700 Billion to shore up Fannie Mae, Freddie Mac, and AIG (which carries most of the mortgage insurance issued in the U.S. and, through pension funds it manages, is heavily invested in FNM and FRE and other mortgage-backed stocks).

Part of the House bill to authorize this monstrous bailout stated that the national debt ceiling would be raised by another $700 Billion. Congress was inundated with pleas from constituents not to pass the bailout bill, and for once the majority of our representatives actually listened to their constituents and the bill was defeated on 9/29/08.

Meanwhile, the Senate had devised its own bailout plan which they intended to work into the House bill once it was passed by the House. When the House bill was defeated, the Senate pulled a sneaky and blatantly unconstitutional trick on the voters. They attached their version of the bailout to a continuing budget resolution already passed by the House and sent it back to the House for a revote “as amended.”

This was all done within three days; not long enough for anyone to read either the original House bill or the continuing resolution, or for the People to be informed and allowed to react. The House voted for the combined bill the same day it was received from the Senate and in about the same ratio of yeas to nays as they had on the previously passed continuing resolution, only now instead of being $150 Billion, it included the $700 Billion bailout package for a total of $850 Billion.

Whether that bill raised the National Debt Ceiling again, or was included in the 7/30/08 increase I have yet to figure out, but I will as soon as I can.

By the way, not one home owner is being “saved” from foreclosure by this bailout. The money is going to the lenders, not the borrowers. These institutions are in trouble because of the number of foreclosed properties already on their books that they can not sell in the current market unless they have the cash to lend to the potential buyers. A Catch-22 if there ever was one.

Under the bailout plan the Treasury will purchase these foreclosed properties (or the mortgages of those not yet foreclosed) from the lenders and carry them on the federal balance sheet until the real estate market recovers and they become salable, supposedly at higher prices than the Treasury purchased them for.

This is a bill of goods they’ve sold the taxpayers so that they believe they will actually benefit from the bailout. If there was any chance these properties would be worth more in a year or two, the speculators would be buying them by the thousands from the banks, rather than selling the ones they currently own or letting them go to foreclosure now. This will become another Resolution Trust Corporation (RTC) as in the early 90’s after the notorious Savings and Loan bailout, and the properties will go for ridiculously low prices to attract investors willing to hold them for 5-10 years until property values rise enough to turn a good profit.

Investors are not stupid. With maintenance and property tax expenses and low rental values (rents did not increase much during the boom because there were so many vacancies due to renters becoming home-owners), they would have to be nuts to pay anywhere near current market prices for them.

Now, where does the Treasury Department get the cash to buy these foreclosures? Every penny of the $700 billion would be “borrowed” from the Federal Reserve to be repaid (plus interest) by future taxes.

What that means is the Treasury will issue an IOU to the Fed in the form of Treasury notes, bonds and bills which the Fed and its banks can either hold or sell to the highest bidders. The US Treasury (read taxpayers) is responsible to redeem (pay off) these debt instruments at the face value plus interest at the stated rate, regardless of who holds them. The Fed will have the Treasury print up $700 Billion in Federal Reserve Notes (fiat dollars) to cover the total amount of the “credit created” to hand over to the bailout recipients.

These fiat dollars will then enter circulation in the global economy, thus diluting the value of all dollars currently in circulation, so that it will require more dollars to purchase every product or service we consume. This won’t happen immediately but as the devalued currency trickles down to the consumer level.

The hapless masses will see prices rise and bitch and moan about “money grubbing big business” raising prices and never think to blame their own “benevolent” government for devaluing the dollar—again.

When Bush entered office in 2001, the national debt was just under $6 Trillion, as of October 2008 it is $10.7 Trillion (not counting long-term obligations such as Social Security, Medicare, and Medicaid), perhaps $11.4 Trillion with the bailout—that’s $11,400,000,000,000.00, an astronomical amount of money for a population of 300,000,000 to repay.

Considering the gross domestic product (GDP) of America is around $14 Trillion and not rising anywhere near the rate of government spending, this is absurd. GDP was about $10 Trillion at the start of the Bush administration, so the debt under Bush has gobbled up more than the entire increase in American production for the past eight years and has left America nothing to show for it but higher prices now, higher still tomorrow, and much more debt to pay off later.

Bush submitted and Congress approved a ONE YEAR budget of $3.1 Trillion for Fiscal Year 2009, which began 10/1/08, up more than a Trillion Dollars (50%) from the FY2001 budget he inherited from Clinton.

Has your spending risen 50% in the past eight years? If it has, you are probably living on borrowed money, too.

The winner in November’s election will inherit that budget, along with the $10.7 or $11.4 Trillion debt. McCain would keep the status quo, and Obama would raise taxes for even more spending.

The so-called Presidential Debate on 9/26/08 was merely an argument between the Republican and Democratic candidates, rated by the media as to which scored the most points on charisma and one-upsmanship, not on their understanding or even their stand on the issues. Only two issues were addressed (Iraq and the Economy) and the answers of both candidates were noncommittal other than McCain would keep us in Iraq indefinitely and Obama would support a withdrawal with an indefinite date. The other presidential candidates weren’t invited.

In rehashing the debate over the next several days, the media showed its colors. CNN reporters repeatedly said things like: “We know the next president will be a senator,” “…whether Obama or McCain is more suitable to RULE the United States” [emphasis mine]. On and on, they bought into and sold the two party system which offered no choice at all. Either elect a military spender or a social spender.

It’s disgraceful. I hope the voters have enough common sense to throw out both major parties (except Ron Paul who repeatedly warned Congress that this sort of thing was absolutely wrong and would result in just what we are seeing today) and put some fresh blood and more responsible representation in Congress and the White House as well as local and State offices.

This election is going to see some major attacks on the two party system and the bipartisan tax and spend statists currently in office. Until we can convince enough people that voting for a third party is NOT “wasting your vote” and that voting for more of the same when both major parties are wrong IS wasting your vote, we cannot start the process of getting government back to serving the People rather than enslaving them.

The real wasted votes are those of the registered voters who stay home on election day because they don’t believe one vote matters and those who vote for one of the major party candidates because they are “confirmed” Republicans or Democrats even though they don’t approve of the candidate they are voting for.

As for me, I’m voting Libertarian, wherever one is running, as the Libertarian Party is the only one committed to reduce spending, eliminate borrowing, reduce the size and scope of government at all levels, eliminate crippling regulation of everything from unneeded licensing to regulations that are clearly unconstitutional, repeal all outdated and unenforceable laws, fully enforce those laws that are both constitutional and necessary, and end these undeclared wars and police actions all over the globe that are costing us over a Trillion a year.

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Please enter your comments on this situation and similar issues. Ask your friends to participate as well. This is not just an American problem. Most of the world's governments and banking institutions operate this way, with fractional reserve banking, creating credit out of thin air, fiat currencies backed by nothing but the taxing power of the government, and spending the taxpayers’ money without restraint. We are in serious trouble worldwide if we allow this to continue.

I hope this has made sense to you.

Joy and abundance,

Cory Layne

San Benito, Texas, America