Another Real Estate Crisis Is About To Hit

January 21, 2009
Another Real Estate Crisis Is About To Hit
By Paul Craig Roberts
For a picture of the US real estate crisis, imagine New Orleans wrecked by Hurricane Katrina, and before the waters even begin to recede, a second Katrina hits.
 
The 1,120,000 lost US retail jobs in 2008 are a signal that the second stage of the real estate bust is about to hit the economy. This time it will be commercial real estate—shopping malls, strip malls, warehouses, and office buildings. As businesses close and rents decline, the ability to service the mortgages on the over-built commercial real estate disappears.
 
The over-building was helped along by the irresponsibly low interest rates, but the main impetus came from the slide of the US saving rate to zero and the rise in household indebtedness. The shrinkage of savings and the increase in debt raised consumer spending to 72% of GDP. The proliferation of malls and the warehouses that service them reflect the rise in consumer spending as a share of GDP.
 
Like the federal government, consumers spent more than they earned and borrowed to cover the difference. Obviously, this could not go on forever, and consumer debt has reached its limit.
 
Shopping malls are losing anchor stores, and large chains are closing stores and even going out of business altogether. Developers who borrowed to finance commercial ventures are in trouble as are the holders of the mortgages, derivatives and other financial junk associated with the loans.
 
The main source of the economic crisis is the infantile belief of US policymakers that an economy could be based on debt expansion. As offshoring moved jobs, incomes, and GDP out of the country, debt expanded to take the place of the missing income. When the offshored goods and services were brought back to be sold to Americans, the trade deficit rose, adding another level of financing for an economy that consumes more than it produces.
 
The growth of debt has outpaced the growth of real output. Yet, the solution offered by Obama’s economic team is to expand debt further. This is not surprising as Obama’s economic team consists of the very people who brought on the debt crisis. Now they are going to make it worse.
 
The unexamined question is: Who is going to finance the next wave of debt?
 
The US budget deficit for fiscal year 2009 already appears to be on a path to $2 trillion, and that is before Obama’s stimulus program. What we are looking at is a $3 trillion budget deficit if Obama’s program is enacted in time to impact the economy this year.
 
Foreign countries can finance a $500 billion US budget deficit out of their trade surpluses with the US. But foreigners do not have the funds to finance a US budget deficit in the trillions of dollars, and they would not finance such a deficit even if they had the funds. Foreigners are over-weighted in dollar holdings and prefer to lighten their holding than to add to them. America’s economic prospects are dim as are the dollar’s prospects as reserve currency. An annual budget deficit in the trillions of dollars makes the dollar’s prospects appear even dimmer.
 
The federal government’s likely solution to the debt problem will be to monetize the debt, that is, the government will finance its deficit by printing money. Debt will be inflated away. But for those Americans without jobs or whose incomes do not rise with inflation, life will be cruel.
 
Life is already cruel for Americans living on retirement savings. Not only has the stock market bust reduced their wealth by half, but also their remaining assets are producing no income. Interest rates are so low that debt instruments produce no income, and there are scant capital gains in the stock market. Retirees are living by consuming their capital.
 
America’s economic policy of low interest rates and debt expansion bodes ill for everyone living off their savings. Their future prospects are even worse as high inflation will destroy the value of their savings, especially if held in cash or debt instruments, including "safe" US Treasuries.
 
There are more intelligent ways to try to escape from the current crisis. However, the financial gangsters and their shills that Obama has put in charge of economic policy are thinking only of their own interest. What happens to the American people is not a concern.
 
A compassionate government would handle the crisis in this way:
 
The trillions of dollars in credit default swaps (CDS) should be declared null and void. These "swaps" are simply bets that financial instruments and companies will fail, and the bulk of the bets are made by people and institutions that do not hold the financial instruments or shares in the companies. The ideology that financial markets were self-regulating allowed illegal gambling free rein. There is no reason under the sun for taxpayers to bail out gamblers.
The bailout money, instead of being given to favored financial institutions to finance their acquisition of other institutions, should be used to refinance the defaulting mortgages. This would slow, if not stop, the growing inventory of foreclosed properties that is driving down home prices.
 
The mark-to-market rule should be suspended until the real values of the troubled properties and instruments can be determined. Suspension of the rule would prevent the failure of sound institutions and lessen the need for a bailout.
 
Interest rates have to be raised in order to encourage saving and to provide incomes to retirees.
 
To preserve the dollar’s status as reserve currency, a credible policy of reducing both budget and trade deficits must be announced. In the near term the budget deficit can be reduced by $500 billion by withdrawing from Iraq and Afghanistan and by cutting a bloated defense budget that represents the now unattainable goal of US world hegemony.
 
The trade deficit can be significantly reduced by bringing offshored jobs back to America. One way to do this is to tax corporations according to the value added to their output that occurs in the US. Corporations that produce their products for US markets abroad would have high tax rates; those that produce domestically would have low tax rates.
 
This approach to the economic crisis stands in marked contrast with the approach of the gangsters running US economic policy. The gangsters are using the crisis as an opportunity to steal from taxpayers and to finance their misdeeds and exorbitant salaries with Federal Reserve loans. Their shills among economists and the financial press tell the people that the solution is to fatten up the banks with funds so they will resume lending to an over-indebted public that will then return to the shopping malls.
 
This unrealistic approach to a serious crisis indicates a leadership crisis on top of an economic crisis.
 
Paul Craig Roberts [email him] was Assistant Secretary of the Treasury during President Reagan’s first term.

Holder for AG "Impeachable" Qualifications?

Attorney General

President-elect Obama’s pick for Attorney General is Eric Holder. Let’s do a quick review of his career. As the Deputy US Attorney General he was instrumental in an investigation of the Los Angeles Police Department to try to discover if there was a department-wide “pattern or practice” of violation of civil rights stemming from the corruption scandal in the Rampart division. In that situation officers had beaten, shot, extorted, and framed drug dealers. LAPD Chief Parks came down on the situation like a ton of bricks.

Subsequent investigation by the DOJ found that there was no evidence of department-wide corruption. Nevertheless, when Chief Parks and Mayor Riordan called Mr. Holder and asked that DOJ back off after finding no further corruption, Mr. Holder seemed to redouble his efforts. The LAPD agreed to a consent decree to keep out of court. According to the city, it is costs the LAPD $50 million annually to live up to that decree. In this time of shrinking revenues to cities and states across the country, even a city the size of Los Angeles can scarcely afford those kinds of penalties, especially when no further evidence of wrongdoing is found.

In the late 1990’s the DOJ, under the direction of Deputy US Attorney General Holder, held numerous “racial profiling” conferences, primarily the work of the ACLU. If a police department had an arrest rate that did not match racial demographics they faced significant federal litigation, championed by the ACLU. When police departments across the country are more concerned about federal litigation than fighting crime, we are all put in jeopardy.

Let’s take a quick look at Mr. Holder’s judgment. In the waning days of President Clinton’s second administration, one of the Democrat Party’s heavy contributors was Denise Rich, the ex-wife of millionaire fugitive Mark Rich. She gave substantial donations to the party. She also gave substantial donations to President Clinton’s library fund. Mr. Holder played a significant role in obtaining a presidential pardon for Mr. Rich. In all fairness, Mr. Holder has said that he regrets his association with this pardon.

In 1999, 16 members of the Puerto Rican terrorist Armed Forces of National Liberation (FALN) received presidential pardons due to Mr. Holder’s direct intervention. These terrorists had, up to that time, been associated with “more than 130 bombings, several armed robberies, six slayings and injury to hundreds of others,” reported the Baltimore Sun. These are bad people who are now allowed to walk among their potential victims. Mr. Holder has stated that does not regret his role in these pardons.

During his confirmation hearing, when questioned about Guantanamo Bay prison, he advocated closing the facility. My question to Mr. Holder would be, where are you going to put the prisoners incarcerated there? If you turn them loose and send them home, statistics show that most terrorists in Guantanamo who are turned loose return to the fight against the US and our alleys. Is he going to release them on bail to await trial? That’s just what we need, terrorists bent on our destruction given a free trip to the US so they can continue their fight on our home ground.

Also during his confirmation hearing, he said that he would respect the Supreme Court decision in the DC vs. Heller case which held that the Washington DC gun ban was unconstitutional. However, during arguments being heard in that case he signed on to Janet Reno’s amicus brief urging that the gun ban be upheld. The amicus brief stated that “the position of the Department of Justice, from Franklin Roosevelt through Bill Clinton, was that the Second Amendment does not protect an individual right to keep and bear arms for purposes unrelated to a State’s operation of a well-regulated militia..( "Brief for Former Department of Justice Officials as Amici Curiae Supporting Petitioners". American Bar Association.) “Holder said that overturning the 1976 law ‘opens the door to more people having more access to guns and putting guns on the streets.’” (Nakamura, David; Barnes, Robert (March 10, 2007). "D.C.'s Ban On Handguns In Homes Is Thrown Out" (Article), Metro: Special Reports, The Washington Post, p. A01. Retrieved on November 19, 2008. )

While Mr. Holder says that he will respect the decision of the Supreme Court, what will be his tact to subvert our 2^nd Amendment rights?

While the Democrats and media did not properly vet their candidate, the president-elect is following right along in the same vein. His Attorney General candidate is tainted to the point of being completely impeachable in any case.

As usual, I welcome your comments and discussion.

This posting may be viewed at http://carpentersmate.blogspot.com.

Dan 

Leon Panetta for CIA - With Apologies.

Director of the Central Intelligence Agency (DCI)

While this is not a cabinet post, it is arguably of near equal importance. President Obama has tapped Leon Panetta for this crucial job. Having come out of the Intelligence community in my former life, I think I have a fair idea of the requisite qualifications for this position.

Above all, the incumbent should have a solid working knowledge of the Intelligence Community, preferably by having worked in the field for a number of years. The incumbent must be a manager with extreme talent for coalition building, not coalitions of foreign countries, but coalitions within his own agency. Intelligence professionals tend to be very independent with delving minds. Whoever leads this agency will have to be able to have or develop an understanding and appreciation of the Intelligence Process as well as the Intelligence Professional very early into the job. Anyone who moves into the job with the intention of changing the agency right off the bat may as well try to move Mt. Rushmore. 

I believe that changing the CIA is possible, but only if the case for the need for change is made strongly enough that all personnel within the agency understand the need and assist in that change. Otherwise, attempting to change such an organization staffed with long-term professionals will be a useless and frustrating venture. Mr. Panetta has been highly critical of the agency for some time. This makes me think that he has a predetermined agenda that he will be taking to his new job if he is confirmed.

Those are my going-in thoughts. Let’s look at the DCI designee and see how he fits the bill. We will start by looking at his biography. He went into the Army in 1964 as a second lieutenant and was discharged as a first lieutenant in 1966. I seem to recall some kind of disturbance in Southeast Asia around that time; however I found no reference to that event in Mr. Panetta’s biography. While he was in the Army he was the chief of operations and planning of intelligence at Fort Ord. He is a Distinguished Scholar in the California State University System, lecturing on public policy at Santa Clara University. He worked as an assistant to Republican Senator Thomas Kuchel and HEW secretary Robert Finch before being elected to the House of Representatives, as a Democrat, where he served from 1977 to 1993. His focus in the House seemed to be budget, social, and environmental issues. He was tapped to serve as President Clinton’s Chief of Staff from 1994 until 1997.  For the last 10 years he and his wife have served as Directors of the Leon & Sylvia Panetta Institute for Public Policy

During his time in Congress he held four chairman positions, none of which had anything to do with Intelligence. Except for these chairman positions and the one chief of staff position, I was able to find no managerial or leadership experience. I do not consider two years as a second lieutenant in charge of operations and planning of intelligence at a state-side Army base as appropriate leadership experience to qualify him for DCI; although, he has had more managerial experience than President Obama.

Concerning this appointment I have a couple of questions for the president. If Mr. Panetta is so qualified for the position of DCI, why did you feel it necessary to apologize to Senator Feinstein for making the selection? You are now the presumptive leader of the free world. Why are you not acting like it? There seems to be a severe lack of confidence in your leadership style.

As always, I welcome your comments and discussion.   

Dan 

Stimulus: Mob Museum for Democrat REIDs home state

LAS VEGAS SUN

THE ECONOMY:

Got stimulus? We’ve got a project list

Mob museum,  makes cut to get on list laden

with road building and repair work

By Brian Eckhouse

Sat, Jan 17, 2009 

As debate over the size and scope of a federal stimulus bill intensifies in Washington, regional leaders could soon be engaged in a turf war for their piece of the pie.

Local jurisdictions have compiled lengthy wish lists of potentially “shovel-ready” projects, or those that could be under construction within 180 days. Among them: a $200 million project to build a more efficient ramp from the airport connector onto eastbound Interstate 215, $63 million in regional road repair and, of course, Las Vegas Mayor Oscar Goodman’s proposed $60 million mob museum downtown — a request that is being roundly rejected on Capitol Hill.

On Thursday, the day an $825 billion stimulus bill was pitched by House Democrats, Clark County Manager Virginia Valentine submitted a lengthy list of projects — including the mob museum — to the Southern Nevada Regional Planning Coalition. The coalition, an area advisory group, approved the list, passing it on to the state’s congressional delegation.

An early economic study by market research firm Applied Analysis found that if all 348 projects were to be undertaken, they would support $3.38 billion in wage and salary payments, as well as $7.77 billion in aggregate economic activity. That would mean for every $1 spent on infrastructure, $1.56 would pass through the county economy.

Leading House and Senate Democrats have pledged a stimulus bill devoid of earmarks, or specified projects.

The House Democrats’ stimulus plan boasts investments in energy, education, health care and jobs-rich highway construction, at a time when states — including Nevada — are slashing budgets, noted David Cherry, a spokesman for Democratic Rep. Shelley Berkley. The Senate is expected to introduce its own stimulus package soon. Senate Majority Leader Harry Reid wants a recovery bill ready for the president’s signature by mid-February.

Some stimulus funding could be immediately available. Congressional staffers say the House bill,

proposed by Wisconsin Democrat Dave Obey, appears to indicate a mix of direct disbursement to local jurisdictions and a competitive grant process. The United States Conference of Mayors is pushing hard for direct access to the money.

That’s a channel preferred by Goodman and Henderson’s city manager.

“It gives you more certainty and it gets those stimulus projects moving faster,” said Mary Kay Peck, Henderson’s city manager. “You want it to be effective? Cut out a layer.”

But if a competitive process remains, one Washington lobbyist with ties to Nevada anticipates a feeding frenzy among adjacent jurisdictions here. Peck and County Commissioner Chris Giunchigliani, however, doubt there will be much jockeying. Giunchigliani hopes Reid will bring a haul of dollars back to Nevada, and expects area cities and the county to prioritize projects by tiers as a way to determine which projects should go forward first.

Obama's Cabinet

As I have told you, it is not my intention to give Barrack Obama a pass on anything.  However, I have to admit, having him as the president-elect is a gold mine for a guy like me. There will always be something to write about.

He has not even taken office and he is giving us a great deal about which to be concerned. I am not going to address his massive money give-away which will put succeeding generations of Americans behind the eight ball for many years.

This time I am going to address his gross lack of judgment. One of the more stellar traits that Ronald Reagan had was to be able to surround himself with experts; people who clearly understood all aspects of the job they were given. We are being told how smart our next president is. Let’s look at his display of intelligence in the area of surrounding himself with experts. This will be the first in a series of discussions about the president-elect’s judgment with respect to his appointees. Other discussions about his judgment, in general, will come later.

Treasury Secretary

The current flap concerns his choice for Treasury Secretary. Tim Geithner has served as director of the Policy Development and Review Department at the International Monetary Fund; president and CEO of the New York Federal Reserve Bank, this position doubles as the vice chair of the Federal Open Market Committee which sets interest rates; chairman of the G-10’s Committee on Payment and Settlement Systems of the Bank for International Settlements; and is a member of the Council on Foreign Relations and the Group of Thirty. This is an impressive resume.

Looking at events he has directly influenced, he was the architect of the Bear Sterns bailout. I asked this question of my colleagues at the time, why? Where in the US Constitution does it say that it is the responsibility of the federal government to keep failed companies afloat? Of course, one could argue that since it was the federal government’s policies that caused many of the banking failures, they had a responsibility to fix what they broke.

As the head money guy for the federal government he will be responsible for keeping track of all of our finances; this includes being overall in charge of the Internal Revenue Service. That would imply that he has a good understanding of our tax laws and is in compliance with them. But wait; what about the $43,000 in federal self employment taxes he failed to pay? Interestingly enough, he was working with the IMF at the time. It is the policy of the IMF to reimburse their folks for their self employment tax; it sounds, to me, like he was pocketing some extra perk money. Hmmm! Was it just an oversight that he employed an immigrant maid for three months after her work authorization papers had expired (that makes the maid an illegal)?

An individual like Mr. Geithner who recklessly flaunts the law as the Treasury Secretary makes me a bit queasy when I think about how my income taxes are assessed and how this money is managed. Does this appointment reflect sound judgment, or does the president-elect share Mr. Geithner’s ethos? 

The president-elect has nominated Hillary Clinton as Secretary of State. This is arguably one of the most important cabinet posts to be considered, just above Defense and Attorney General.

Let’s look at Senator Clinton’s qualifications. At the beginning of her husband’s presidency she worked diligently on the failed national health program. As First Lady, she travelled to foreign lands with her husband when he was president. She was elected and reelected to the Senate from a state where she not a resident until she started shopping around for an opportunity. She, most recently served on the Environment and Public Works Committee, the Special Committee on Aging and the Senate Armed Services Committee. She has visited troops in Iraq and Afghanistan, and has. She has been an advocate for protecting our constitutional rights, such as her support to Roe v. Wade. But wait, how does that protect the constitutional rights of the unborn? (Sorry, I digress)

One major question I would put to both the president-elect and the Secretary of State designate would be, “How do you square Senator Clinton’s husband’s globetrotting fund raising with doing the business of the United States.” We have seen prospective elected officials and appointed bureaucrats get raked over the coals for their family’s activities, where is the righteous indignation about the Clinton money machine?

So far, I have not found any qualifications with respect to foreign affairs (oops, I should have said foreign diplomacy). This nomination for one of the most important and powerful cabinet positions makes no sense. There is no history of foreign diplomacy and very little displayed interest except to criticize existing policy.

I would argue that the president-elect has erred in judgment yet again. Normally, one or two errors in judgment could be excused, but the list is growing. My next posting tomorrow will continue the discussion.

As always, I welcome your comments and discussion. 

Dan

The Castle Doctrine Reform Bill

The Colorado Senate Veterans and Military Affairs Committee will be voting on the Castle Doctrine Reform Bill soon. The current version known as the “Make My Day” law says that if you are in your home and someone comes in and you are in fear for your life or the life of someone in your home you have the right to use force up to and including deadly force to prevent that harm. The Castle Doctrine Reform Bill would extend that right to businesses.

In a nut-shell it states that any owner, employer or employee in a business has that same right in a business that is afforded in a home. While I would like to see this bill written in broader terms, it is certainly a step in the right direction.

I urge each of you to contact your State Senator to work for the passage of this urgent bill and specifically, contact the committee members to vote it out of committee for consideration of the full Senate. Once it is passed we will work to pass it in the State House.

Contact information for the Veterans and Military Affairs Committee are listed below:

Chairman Suzanne Williams (D-28)
Phone: 303-866-3432
E-mail: suzanne.williams.senate@state.co.us  

State Senator Bob Bacon (D-14) (Vice-Chair)
Phone: 303-866-4841
E-mail: bob.bacon.senate@state.co.us

State Senator Betty Boyd (D-21)
Phone: 303-866-4857
E-mail: betty.boyd.senate@state.co.us

State Senator Bill Cadman (R-10)
Phone: 303-866-2737
E-mail: bill.cadman.senate@state.co.us

State Senator David Shulthies (R-9)
Phone: 303-866-4835
E-mail: senatorschultheis@gmail.com

The senate bill can be seen here: Senate Bill 8.

Dan

 

Daniel C. Lanotte

dlanotte@falconbroadband.net

719-683-5506

Rush after your Guns

On 9 January 2009, Congressman Bobby Rush (D-IL) introduced H.R. 45

(http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=111_cong_bills&docid=f:h45ih.txt.pdf) which, if passed, will require anyone purchasing a firearm to obtain a license to do so. Additionally, it will require that all sales will be recorded. This bill is being called the “Blair Holt’s Firearm Licensing and Record of Sale Act of 2009.”

H.R. 45 is contrary to the intent and letter of the 2^nd amendment. I offer a couple of quotes by our Founders:

"[The Constitution preserves] the advantage of being armed which Americans possess over the people of almost every other nation... (where) the governments are afraid to trust the people with arms."  ---James Madison, The Federalist Papers, No. 46.

"No free man shall ever be de-barred the use of arms. The strongest reason for the people to retain their right to keep and bear arms is as a last resort to protect themselves against tyranny in government." Thomas Jefferson

Registration and confiscation of firearms was one of the first actions Adolph Hitler took in the subjugation of “inferior” people. On November 8, 1938, The New York Times reported,

The Berlin Police President, Count Wolf Heinrich von Helldorf, announced that as a result of a police activity in the last few weeks the entire Jewish population of Berlin had been 'disarmed' with the confiscation of 2,569 hand weapons, 1,702 firearms and 20,000 rounds of ammunition. Any Jews still found in possession of weapons without valid licenses are threatened with the severest punishment.

This led up to Kristallnacht (The Night of Broken Glass) on November 10, the night the Nazis went through Berlin and smashed and looted all things Jewish, shops, temples, stores, everything. The Jews did not have any way to protect themselves or their property.

The Nazi story is probably the most well-known but there have been many other examples of government abuse of its citizens. Turkey instituted gun control in 1911. From 1915 to 1917, a million and a half defenseless Armenians were exterminated by the government. Joseph Stalin established gun control in 1929 and over the next 24 years, until his death, 20 million dissidents were exterminated by his military and secret police.

Looking at the immediate consequences of H.R. 45, we here in the US have already seen the result of gun control. Washington DC, our capitol, had a strict gun ban in place for decades. Chicago has had nearly as restrictive gun regulations in place. Those are two of the most dangerous cities in the country. The reason for that is simple. Law abiding citizens refrain from owning guns because it is against the law. They have respect for the laws of our land, no matter that they cause these same law abiding citizens to be in danger of their lives. But if guns are against the law in these cities, why are citizens in danger; obviously, because the bad guys don’t give a hoot about the laws.

Look at the callous murder of two teenagers here in Colorado Springs last Thursday. What was the trigger for the event, the theft of an IPOD. Two kids were killed because of an IPOD. The police have tagged this as a gang killing. The gangs do not care about laws. That puts the rest of us at their mercy. I am not implying that the two young men who were killed were innocent bystanders. I have no idea what their situation was. But the fact that this event happened at all points to how dangerous our world is just from the criminal element. The young man who was arrested for the murder has freely admitted to his criminal act, with no apparent remorse.

Now a group of gun-grabbers wants to make it even more dangerous for law abiding citizens by forcing us to get a license to purchase firearms. I find this to be unacceptable behavior on the part of an elected official. All military personnel are required to swear to “uphold and defend the Constitution of the United States.” Does this requirement not extend to our Congressmen and Senators?

I urge all Americans to contact their Congressman and urge that they vigorously oppose this legislation.

As always, I welcome comments and discussion.

Dan