Some news and talk about the media

New York Times - Why Employers Will Stop Offering Health Insurance. An interesting interview with one of the people behind the Affordable Care Act (Obamacare). He talks about how in the future he believes businesses will stop offering healthcare insurance to employees and instead give them pay increases to allow them to pay for it themselves. I believe this is exactly what we will see and that is in keeping with the way 401k plans work. The real bottom line is that businesses in the United States will be seeking to put more of the risk of being an employee on employees.

Yahoo - AFP - US, Dutch try to deposit billions in fake bonds in Vatican bank. I find this story intriguing as it is not the first time this has happened. On at least two other occasions people were caught trying to deposit billions of dollars in what is said to be fake treasury bonds. Nobody ever seems to follow up on these stories or get more detail and sometimes the perpetrators are let go. Funny.

Yahoo - Daily Ticker - We're in a private debt crisis that could lead to the next economic collapse: Richard Vague. I highly recommend you watch the very short video interview. The interviewee gives some numbers on debt in the United States. He says that the United States consumers and businesses have about $28 billion in debt. Okay, we also know that the US government has about $17 billion in debt. I have yet to hear a number that reflects debt from local and state government. Of the consumer and business debt about $1 trillion is student loans, $13 trillion is business loans, $9 trillion is mortgage loans. Hmm, let me test my math skills. Hey, that means $23 trillion is student, mortgage or business loans. That would mean that $5 trillion was car loans and unsecured or credit card loans (credit card loans are only about $600 billion). Earlier the man mentioned that household debt was about 160% of GDP (which happens to be about $17.5 trillion). 160% of $17.5 trillion is about $26.3 trillion.

He talked about how household debt was 160% of GDP; but, he used a figure that combined household debt with corporate debt. Here is where this gets real interesting, we are told that because of the government debt, every child is born with $50,000 in debt and if you multiply that by 350,000,000 people in the United States it comes out to $17.5 trillion if my calculator is working properly. Hmmmm. If you combine government debt with private and business debt the total is about $43.8 trillion or a little better than twice the GDP.

Now lets talk about household debt for a second. For every $50,000 someone makes, they would traditionally qualify for a 30 year fixed rate loan of $100,000 for a home and this would equate to 40% of their income not including their tax refund for paying their home loan. 40% of $50,000 is $20,000. I know this is a lot of numbers; but, I care about my readers and it upsets me how they are misled by the media which uses experts to explain the numbers while hiding the reality about them. The numbers aren't that bad, the debt is not that much, there is something else going on.

I used to make about $150,000 a year. I bought a house for a little less than $300,000 with a 30 year, 4% fixed loan. I was completely within the traditional requirements for buying a house and was more than capable of making the $2,100 per month payment which included property taxes and insurance. Now before you get too jealous you should know that I turned down well over triple that amount to work for others. You should also remember that I lost everything in my divorce including my house and ended up paying as much in alimony as I did for my house payment. My debt was over 200% of my income when you include credit card debt and car loans. It was not a problem to pay and I paid my taxes in full. Here is what I am saying, it is not uncommon for homeowners to have over 200% income to debt ratio and still easily pay off their debts over 30 years.

Now that is lots and lots of talk about debt numbers and it may be unclear why I bring this up, this is why you should have watched the video. In the video the man says that government debt is never the problem and that private debt is what takes down countries. It all sounds so reasonable until you understand what is really going on and what the man is really driving at, he wants to restructure private debt over a longer period of time and allow government debt to increase. The issue is the total debt that can be had.

He is saying the problem is that you cannot afford more government debt because you bought things for yourself on credit. The fact that the vast majority of household debt is home loans and car loans doesn't get mentioned. Imagine a world where the longest a home loan could be was 10 years and they would not lend you more than your total income. If you made $50,000 a year than you could only buy a house worth $50,000. Okay what would be the effect. Firstly house prices would drop immediately by half and then your payment would drop by half. Heck and increase in taxes by 50% would still leave you with more spendable cash than today.

I have been bothered by all the talk about eliminating the federal income tax. Personally, and I have said this before, I believe in a flat tax and eliminating all deductions. Everyone should pay 15% or so in income tax regardless of how they make the money or how they spend the money, pay as you benefit from living here. What if the end game was to eliminate the federal income tax and institute a federal property tax? Think it sounds crazy, how bout this. Imagine them getting rid of the mortgage deduction from your federal taxes, that would be a federal property tax and you wouldn't even call it that. By the way, I have been talking for 7 years about people who want to get rid of the tax deduction for mortgage payments.

Now I am going to go back to the man who gets interviewed. He lies. He said that banks needed to restructure the home loans that make up $9 trillion in debt. Banks don't own those loans, they are owned by Fannie Mae and Freddie Mac, the government. I wrote a post not long ago about how Fannie Mae and Freddie Mac are about to return hundreds of billions of dollars to the government based on the payment of these loans, what if they took those "profits" and used them to restructure the home loans they own and reduce the payments? It wouldn't cost the taxpayer a dime as the loans to Fannie and Freddie were paid off this year.

Right now England is experiencing a housing bubble. Whatever the decision we make on how to deal with this debt will be followed in England if this is all coordinated. Sorry, lost my train of thought and have to go to bed.