Blog Topic

THE POST WORK SOCIETY
Posted by: Darrell Castle
March 29, 2010

Today's post concerns what happens to complicated, technologically advanced society's like the American one, when they suffer a high rate of unemployment over a long period of time. I realize that much of the information in this post is against the conventional wisdom of today, but nevertheless I believe it to be true.

For reference I consider a recent article in The Atlantic Magazine entitled "How a New Jobless Era Will Transform America." The author, Mr. Don Peck, contends that even if the economy is presently recovering, unemployment is systemic and will continue at a high rate for many years. This condition will have a permanent and devastating effect on American society.

Quoting from the article; "The great recession may be over, but this era of high joblessness is probably just beginning. Before it ends, it will likely change the life, course and character of a generation of young adults. It will leave an indelible imprint on many blue-collar men. It could cripple marriage as an institution in many communities. It may already be plunging many inner cities into a despair not seen for decades. Ultimately, it is likely to warp our politics, our culture, and the character of our society for years to come."

Well there you have it. I am apparently not the only one who thinks that our troubles are far from over. Unemployment has so many disastrous effects that it simply must be dealt with and I submit that the opposite of traditional Keynesian economics must be used. When people are out of work they can't pay income tax and without income tax at record highs, the federal deficit will increase resulting in more debt and more borrowing. It also collapses the tax base at the state and municipal levels by collapsing real estate values.

Mr. Peck, however, argues that unemployment causes problems throughout society, not just politically. Again quoting; "New jobs will come open in the U.S. but many will have different skill requirements than the old ones...and as a spell of unemployment lengthens, skills erode and behavior tends to change, leaving some people unqualified even for work they once did well."

In other words, companies must innovate and technologically improve to grow and create new jobs as old ones obsolesce and disappear. Long term unemployed people are left behind as younger, more adept workers become available. Mr. Peck also believes that the next generation of young college graduates will have their dreams capped unlike what preceding generations have experienced. These things affect how people perceive themselves in their relationships with spouses and friends. Marriages are destroyed as well as the inner city tax base.

What then is the answer for us? It is too late for a pain free answer, but we must flush the debt accumulated over decades from our public and private lives. Being free of debt will allow the private sector to make things that people want to buy and people will have money and credit to buy them. We could well be on our way to a new era of dynamic growth but debt stands in the way.

Get out of debt as quickly as possible. Call me to discuss how that is possible for you. The conversation is free.

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LOAN MODS DEFAULT AGAIN
Posted by: Darrell Castle
March 26, 2010

According to a report in today's issue of Bloomberg, borrowers who received loan modifications are likely to default again within nine months.

"The re-default rate of loans modified in the first quarter of 2009 was 51.5 percent by the end of the year, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said in a joint report today. The figure, which measures payments at least 30 days late, climbed to 57.9 percent for changes made in the prior 12 months."

Homeowners who struggle to make payments on underwater mortgages are abandoning the struggle in great numbers. About 24 percent of properties with a mortgage were underwater in the fourth quarter of 2009 according to First American CoreLogic of Tysons Corner Virginia. The median price of a home in February, 2010 was $165,100, down 28 percent from its peak in July 2006, according to the National Association of Realtors.

I might add that the median price of a home in Detroit is now $7000. The population of Detroit has declined by 50 percent from its high of 1.8 million to 900,000. That city is very obviously dying but nobody in government or media appears to have the courage to mention it. Could that be because it represents the failure of government's grand plan of total control? Could Detroit be the future for all of us? Nobody seems to know.

I quote from Bloomberg again, "Modifications are clearly not working well and it's not a surprise, said Sam Khater, a senior economist at First American Corelogic...It's pointless to rewrite these loans because they are underwater."

I agree with Mr. Khater and I add that expecting people to struggle and devote their income to an underwater mortgage shows a lack of understanding of human nature.

The government must be in a real panic right now because it is nearing default on its Sovereign debt and has probably trillions of indirect debt exposure from taking control of the residential housing industry. The best solution would be to empower bankruptcy judges to write down mortgages to their current assessed values and re-amortize them. Homeowners could keep their homes and the bankruptcy courts could protect the federal government from losses by passing them to the banks.

The lost equity from the housing collapse is just the market trying to find its real value. The equity was never really there in the first place. Banks should shoulder the blame for making such over inflated loans.

You can be free of debt and if you have a regular source of income to make payments, you can keep your home too. Call me to discuss it. The conversation is free.

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SOCIAL SECURITY FUND EXHAUSTED
Posted by: Darrell Castle
March 25, 2010

From a recent article in the New York Times: "The bursting of the real estate bubble and the ensuing recession have hurt jobs, home prices and now Social Security.

This year, the system will pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office."

The change is not expected to have any effect on benefits in 2010 according to a spokesperson from the Social Security Administration. Notice that he said no effect on benefits in 2010 and did not say no effect on benefits.

When expenses exceed revenue there is only one way to cover it and that is by taking on debt at interest. In this case Social Security is being augmented by the general fund and since that is expected to run a $1.5 trillion deficit in fiscal year 2010, it must be borrowed.

The SSA spokesperson went on to explain that "for accounting purposes" the system's accumulated revenue is placed in Treasury securities.

Let me attempt to translate this Orwellian doublespeak. Various Presidential Administrations, with the full knowledge of Congress, have routinely stolen the funds that have been paid in the form of Social Security taxes. The American people depend on Social Security for retirement but the thieves don't care. The funds are used to augment the general fund to make the balance sheet look a little better. They tell us the fund has money but what it really has is more government debt so the American taxpayers in effect must now pay interest on the money stolen from them by government because the principal can never be repaid.

Unemployment has caused a severe decline in government revenue. Translation: When people are out of work due to the stupidly irresponsible policies of government they cannot pay taxes.

Three choices exist today for Social Security. 1. Print the money causing high inflation and send employees devalued dollars. 2. Increase Social Security taxes but government would then just steal more. 3.Raise the retirement age which will increase tax revenue and decrease payouts.

Translation: Government will continue to steal Social Security funds and nothing short of total economic collapse will stop it.

Social Security is now negative in one other way. Unless you retired before 2007 you are a net Social Security loser. In other words you will have paid more into the system than will be returned to you.

Times are getting more difficult day by day for ordinary people. Bankers and government bureaucrats seem to be doing OK though. Get out of debt while you still can and enjoy the rest of your life. Call me if you want to talk about how it can be done. The conservation is free.

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COLLEGE DEGREE IN DEBT SLAVERY
Posted by: Darrell Castle
March 22, 2010

This article will revisit the subject of student loan debt and how it often leads unsuspecting students into a life of debt slavery or indentured servitude. I will also touch on how federal lending makes education more expensive.

From a recent article in "Whiskey and Gunpowder" newsletter by Gary Gibson:

"Thanks to debt the feds make available for schooling-directly through federal student loans and indirectly by artificially lowering the cost of borrowing -schooling has been getting more expensive. The trend has accelerated in lockstep with the general postwar expansion of credit and with the acceleration of such that began in the early 1980's on Greenspan's watch. The rise in tuition is as fueled by easy credit and funny money as the now obviously unsustainable rise in real estate prices."

So the feds loan money to students through guaranteeing loans from lending institutions because education is so expensive few can afford it. The reason it is so expensive few can afford it is because the feds loan money to students. Quite often, as I've said before on this blog, the students are left with nothing of value and instead have a lifetime of debt payments.

The free market would not allow the existence of trade schools for profit, which deliver nothing of value, but federal lending does. Mr. Gibson goes on to point out, "the feds themselves are feeding this beast...and then complaining when it gets fat. And they're also ready with more rules to reign in abuses they invite by tossing money where the market would never tread. They've been throwing money (taken from other people) at these schools, essentially rewarding them for saddling up their misled students with debt."

Mr. Gibson's analysis is right on target. The federal government takes money directly from taxpayers and feeds it to institutions that turn out people with skills of such little value they will not even pay the debt service on the loans. If it weren't for federal funding, many or most of these schools would not be able to exist.

The market tends to tell us over time which skills are useful, and therefore worth paying for, and which are not. When the market is artificially manipulated through subsidizing failure, these things can be hidden.

My advice is to avoid student loan debt especially if it is incurred to attend a for profit trade school. If you are in debt get out as quickly as possible and if that seems impossible, call me and let's talk about it. There is no charge for the conversation.

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WHO WILL FUND THE DEFICIT?
Posted by: Darrell Castle
March 18, 2010

We hear a lot of information these days about the deficit. Some people might think of deficit in terms of debt but they are different things. Debt represents the total amount owed. The national debt at this time is about $12.5 trillion but the deficit is predicted to be about $1.5 trillion this fiscal year. The federal fiscal year ends with end of September.

Deficit is the amount that the federal government spends beyond what it takes in. This plus interest is added to the debt each year and the interest compounds and drives the debt higher and higher. The $1.5 trillion deficit this year will raise the debt to around $14 trillion requiring interest payments on that amount. This increasing deficit and debt come at a time of falling tax revenue due to the economic downturn. Falling revenue in turn drives the deficit higher.

Deficits must be funded by taking on debt plus interest. That works about the same for governments and individuals. The difference is that the federal government usually sells its debt to foreign governments such as China and if these governments are reluctant to buy it all, as they now are, there are other options.

Selling debt to foreign governments (borrowing) is the preferred way because it is not inflationary. Nothing new is being created, money is just changing hands. If the foreign governments won't lend enough, the debt is usually created and lent by the Federal Reserve System. That process is called monetizing the debt and it is highly inflationary because new money is created. The federal government authorizes a cartel of private banks, the Federal Reserve, to create money to buy the government debt for which we, the American people must repay plus interest.

Since you have no Federal Reserve System, how do you fund your deficit? Remember that a deficit is spending more than you earn. The deficit must be repaid by taking on debt plus interest or paid from savings. If there is no savings, debt is unavoidable. The interest compounds and the debt grows until the debt itself creates a deficit which makes it grow faster. What do you do then because you cannot pay the debt and it is consuming your productive capacity just as it does the government's capacity?

Debt represents future life for present rewards. You must trade the moments, hours, weeks, and years of your life, in other words, the fruits of your labor, for current benefits. A Proverb says that the borrower becomes the slave of the lender and that is true because he owns your weeks and days.

Can't you get out of debt and live as a free person? Sure you can. Call me and let's talk about it. There is no charge for the conservation.

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TRADE SCHOOL OR DEBT SCHOOL
Posted by: Darrell Castle
March 15, 2010

During these hard economic times, a fast growing beneficiary has been for profit colleges and trade schools. According to the New York Times "the profits have come at substantial taxpayer expense while often delivering dubious benefits to students."

Marketing for profit education is much easier in tough economic times as people look for ways to better themselves. According to BMO Capital Markets, a research and trading firm, roughly 80 percent of the profits come from federal loans and grants. Those loans have to be repaid by the students at some point and the repayment is rarely easy.

Tuition can cost as much as $30,000 to $40,000 to complete a program and the student is left with $30,000 to $40,000 of student loans with compounding interest. Sometimes the loan repayment leaves the students in a more difficult situation than before as they struggle to meet the monthly repayments.

It has been my experience that people deeply in debt from educational loans are often working in jobs that pay barely above minimum wage if that. There are only three or four ways to deal with the loans. 1. Pay them back from earned wages. 2. Set up a payment plan with monthly payments so small that it amounts to a lifetime obligation. 3. Repay the loans through chapter 13 bankruptcy over five years which controls interest and penalties. 4. Default and don't pay which causes the debt to grow year by year.

It's hard to get out from under student loan debt but it can be done through chapter 13. Call me and let's talk about how you can escape debt slavery.

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THE ROAD TO DEBT SLAVERY
Posted by: Darrell Castle
March 09, 2010

If you are one of the millions of people who live in debt slavery chances are that credit cards helped get you there. Do you remember when there were no credit cards? If you do, you were born before 1950. It was that year that Frank McNamara, while having dinner at a New York restaurant, was embarrassed to find that he had no money to pay for his meal. While waiting for his wife to arrive and rescue him with cash, he dreamed up what became Diners Club, and the world hasn't been the same since.

McNamara's invention was predated by Edward Bellamy's 1888 Sci-Fi novel "Looking Backward" which envisioned a world of the future where cash would be replaced by credit cards that would allow people to purchase "whatever he desires, whenever he desires it." In Bellamy's socialist utopia, you never had to pay anyone back for your purchases. That is unfortunately, not the case today unless you are willing to go through bankruptcy. Credit card issuers are quite insistent on being paid back, though they are happy should you take your time in doing so, provided you pay an interest rate that now averages more than 14.7 percent. Almost half of Americans pay only the minimum due each month on their credit card bills. If you're late even by a day, your interest rate increases to over 20 percent.

Paul C. Wright, in an article for Global Research entitled "Looming Crises: America's Credit Card Bubble Burst" points out that America used to be a nation of savers. Saving money used to be valued as a prudent exercise. The conventional wisdom was to set aside 10 percent of your income as savings for emergencies. Before the credit culture, Americans put large portions of their income in the bank to fund their children's college education, take vacations and for retirement. When they had to pay for something they paid with cash. If credit was required, it was in the form of installment loans, not revolving credit. Now cash is out of fashion and credit is king. In 2005, 164 million American credit card holders charged $2 trillion to their credit cards which amounts to $12,500 for each card holder. By 2008, consumer debt increased by seven times, while the savings rate was seven times lower than in 1980.

Credit card companies used to make their money by charging fees for the use of the cards. They eventually hit on the idea of charging interest on the outstanding debt in a revolving fashion. The combination of annual fees and compounding interest led to the rise of companies like Visa and Mastercard. Credit became a trap in which Americans maintained their standard of living which was being eaten by inflation, through the use of credit. When credit collapsed in the fall of 2008, the house of cards started to fall.

Don't stay in bondage to debt for the rest of your life. Get out now before it's too late.

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THE HUNDREDTH MONKEY
Posted by: Darrell Castle
March 01, 2010

The hundredth monkey effect is a legendary, or mythical depending on your point of view, phenomenon in which a learned behavior spreads instantaneously from one in a group, to the whole group, and then to all other groups. It comes from scientific experiments in the 1970's in which monkeys were studied after some were taught to wash sweet potatoes and the learned knowledge spread through that group and even to other groups with which the original group of monkeys apparently had no contact. The theory then is that there is an unknown number and when that number which represents a certain level of behavior within a given population is reached, the behavior will spread throughout the population. I'm going to speculate in this article as to whether that theory has any application to human behavior.

There have been two recent examples of violent behavior which allow us to question whether or not such behavior, or at least attitude, may be starting to become more generally accepted in our society. The first example is Joseph Stack from Austin, Texas. Mr. Stack, after years of fighting the IRS, which he believed to have gratuitously ruined him, flew his private airplane into a building in Austin which housed about 200 IRS employees. Mr. Stack can be separated from those deranged people who randomly shoot others in post offices, schools, and the like by the fact that he left a note outlining his reasons and intentions. From his note we can conclude that he reached a level of frustration with the IRS that can be termed the "I can't take this anymore" level. In his suicide note he stated "Violence not only is the answer, it is the only answer." His conclusion was that nothing short of violence would get the attention of a government that he felt had turned its back on the American people.

Our second example is Terry Hoskins from Moscow, Ohio. Mr. Hoskins owned a home worth $350,000 against which he had a $160,000 mortgage with River Hills Bank, and he owned a carpet business which had been experiencing losses since the recession. He struggled for months to keep up payments on his home but eventually fell behind and the bank started foreclosure proceedings. Reportedly, he was able to find financing to pay off the loan but the bank knew that it could realize more from the foreclosure sale and so it announced that it would proceed with the foreclosure. Mr. Hoskins set fire to his carpet store and leveled his home with a bulldozer. River Hills Bank now owns a pile of rubble sitting in the snow. The bank has yet to comment on what it intends to do. A local TV station took a poll and 79 percent of those responding agreed with what Mr. Hoskins did.

The capacity to inflict violence and even to conduct warfare has changed in our society. A few years ago warfare was only conducted by large standing armies but now everyone is empowered by technology. Most are capable of learning to fly an airplane and buying or renting one. Most are capable of learning to operate a bulldozer and renting one. As our society unravels and people feel more and more powerless to control their lives, an angry inchoate rage creeps into their lives. The type of behavior exhibited by Mr. Stack and Mr. Hoskins is becoming increasingly more common and more predictable. When individuals conclude they have been pushed too far, many will fight back. Could we be nearing the tipping point of major social upheaval? Who will be the hundredth monkey? Time will tell.

Don't let this happen to you. Take steps now to protect yourself and start by getting out of debt.

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