"Danger Will Rogers...Danger" *

Steven Pearlstein, a columnist for the Washington Post wrote about the "Global Economy Comes To The End Of Its String" and went on to explain, quite "readably" why it's happening. The column, in the 8/6/11 online edition, discusses the fact that we are cycling back to 2008 levels (maybe), because we never fixed the underlying problems with ours and the global economies. The only issue I would have with the characterization is that we are finding it increasingly difficult to separate our economy from the global economy.

As was written in the prior post here, the U.S. has been spending more than it's been making. We have relied on foreign countries, like China, to continue to buy our Treasury Bonds, which is just lending us money. That's what the whole "Debt-Ceiling" debate was all about. It took Congress 3 months to decide if we would be allowed by law to borrow more so we could keep operating our Country without a DEEP cutback in services, like Defense, Medicaid, Parks, EPA protections, Federal Aviation Admin., and on & on & on.

Brian Wolfman posted a short piece of the article on the Consumer Law & Policy Blog and asks at the end "So, what's the chance that will happen given what we've just seen in Congress?" Here is my response:

"You ask, somewhat rhetorically, about the chances for Congress to adopt policies like those Mr. Pearlstein outlined and accept his analysis of the "how we got here". If you know how to bring back from the un-living (on earth anyway) Sam Rayburn, Tip O'Neill, Dwight Eisenhower, Louis Brandeis, Earl Warren, Hugo Black, Ronald Reagan, and Gerald Ford, we might have a chance. As partisan as some of those folks were, they put the Country first when the chips were down (don't really know what that expression means but...).

The current Congress is so ideologically focused and unyielding in their world view, that they belong back to a time when the "world was flat". Common sense tells them that if you go to a beach and look out to the horizon, you can see that the world is flat. That was the prevailing common sense. Oh, and, of course, from Wasilla, AK you can see Russia (I tried with military issue binoculars, from the highest point in Wasilla, in March of 2010, on a clear day, and could NOT see the "Hammer and Sickle").

We are truly at a turning point for the Country and the world. The EU (European Union) is as divided as our Congress, so they will be no help. At least here, the big issue for BOTH Congressmen and Senators is GETTING RE-ELECTED in the same country. The pandering to lobbyists and ideologues must stop. The hard core Tea Partyists are at least true to their beliefs, but remember the flat world.

The future looks grim. Voters cast out the evil-doers in the mid-terms. The world economic crisis was only in part our fault. We allowed the most selfish politicians and "bankers" to run us into the ground. No regulation, no brakes, no-mind to the constitutional interpretations of the past, and a skilled manipulation of the concepts of a "free-market economy" ruled for 8 years. But, this coincided with Europe deciding to try getting along. No one hired a Cat Herder.

Maybe if we remember Peter Pan's plea that we all believe in Tinker Bell (metaphorically only) our economic system will survive. If it doesn't and we don't begin to rebound quickly, we are facing a future that we have fought 2 world wars, our own revolution, a civil war, and the "baby-boomer wars" for nothing.

*from the CBS Show -"Lost in Space" - fitting!

Author's Copyright by Richard I. Isacoff, Esq., August, 2011
rii@isacofflaw.com
http://www.isacofflaw.com

We Got A Credit Line Increase

The Country is Saved. We Won't Default. We Won't Need the EU to Bail US Out! Hooray!!!

As I noted in a Tweet, if the U.S. defaulted and ended up in Bankruptcy, who would be the Trustee, the guardian of creditors like China? Luxembourg???

The entire situation is ridiculous. But, it wasn't so far-fetched (a default). Everyone was buying gold and platinum and silver and... As posted here earlier "How Many Grams of Fat Are There In An Ounce of Gold?", the idea being that gold is only worth what someone will trade for it. Well, we will not have to worry about that anymore. The Congress, meaning the Democrats, Republicans, and Tea Partyists, in both the House of Representatives and in the Senate, and the President have come up with the master-plan to avoid not being able to borrow. The amount the United States can borrow will be increased.

Foolish as it appeared (because of all of the 2012 election campaigning and "holier than thou" Tea Party drinkers; I mean why have a Tea Party and drink coffee? But they did forget the crumpets!), there was exposed a huge problem with our financial system.

Some basics and answers to questions:

1. How could we run out of money to pay bills? Well, we already have. We have used the equivalent of an home equity loan to get money for all of our annual needs. The difference is that we "sell" Treasury Bonds. That is a nice way of stating that we will agree to pay "X"% interest if someone/country lends us money. Granted the amounts are larger than you would need for siding on your house, but the concept is identical. The "Treasury Bonds" that you hear/read about are nothing more than IOUs given to whoever buys the bond.

2. What is the Debt Ceiling and how high is it. It is $14.7 trillion; that is $14,700,000,000,000. It is the amount the Country is allowed to "borrow" from other countries and "all of us". It is a constitutional matter. The Congress has to agree on the amount and then get the President's approval for the MAXIMUM amount of our loans. Congress is acting like a Bank's Loan Committee deciding whether the Bank's Customer (the Country) can repay it's loan.

Were did all of the money go? No one knows for sure and no one, even the GAO (General Accounting Office) can trace it. But we know that we spent money on several wars (2 still on-going); we STOPPED a world-wide depression by enacting the "Stimulus" packages; our States, cities and towns had their tax revenue supplemented by some of that $14.7T for schools, bridges, roads, housing (especially for the elderly); the world wide stock and securities markets did not crash because we paid to offset losses -AIG, Lehman, Ford, Chrysler, GM et al.

IN REALITY, WE SPENT MORE THAN WE EARNED. Tax revenues were too low, the wars were/still are sooo expensive, and we have been spending like we could just print more money (oops, we can and did!)

3. What is the "Deficit" - over-simplified but not by much - just as in any household, or business, the deficit is the NEGATIVE difference between what we spend and what we earn. The trade deficit is a bit different - that is the NEGATIVE difference between what we sell to foreign countries and what we buy from them. For a long time we have bought more than we have sold. WE ARE A NATION OF CONSUMERS.

Coupled with our penchant for buying is the fact that our "DOLLAR" has been strong for a long time in comparison to other countries' money. Simpler - our dollar was based on a stronger economy; more output and capability of manufacturing, inventing, building more than nearly all other countries. We were perceived as having the ability to produce 10, 15, 20, 50% MORE IF WE WANTED TO, AT ANY TIME - like right after the start of WWII. Doesn't do much good if no one is buying!

4. Why did it take so long to set a new limit? POLITICS - RE-ELECTION in 2012. That simple? YES. That doesn't mean that some of the 535 people in Congress did not really believe that our "bill" to others will cause the ruination of the Country. It could, but most likely won't. As these things are measured, we have a bill that is 62% of our Annual GROSS DOMESTIC PRODUCT(GDP). That means that we OWE 2/3 of our county's TOTAL output of goods and services for a year.

Just think about paying 62% of your net/take home income for loans. That doesn't take into account food, utilities, cable, gasoline etc - all of the things that are monthly or annual expenses. For the Country, it's like only having 1/3 of the total amount the United States collects, for the payment of Medicaid, Food Stamps, Unemployment, Military pay, other government employees' pay, expenses for things like the Gulp/BP clean-up, and all other programs big and small.

Maybe now our elected officials can get back to business of running the Country - maybe they need a lesson in accounting - Remember Debits on the Left, Credits on the Right. Debits by the Window, Credits by the Door (from Accounting 101). OR we could buy 535 calculators and copies of Quicken

Author's Copyright by Richard I Isacoff, Esq, August 2011

rii@isacofflaw.com
http://www.isacofflaw.com

Brief Recap of Major Financial Issues

There used to be a TV show, weekly, called appropriately "THAT WAS THE WEEK THAT WAS". It provided a satirical review of the weeks happenings - especially politics. Kind of like a fast paced, hit-a-run version of John Stewart. Actually, "The Daily Show" is a modern day iteration. This Is The Month That Was:

FORECLOSURES
1. Foreclosures still moving at a brisk pace. Some slowing but due to paperwork issues. The mortgage servicers, led by the Mortgage Backed Security Investors, want to foreclose, and actually do so, even when they do not have the legal rights. IT GOES LIKE THIS :
a. You get a loan from the "We Saw You Coming Mortgage Company"
b. The mortgage company has already sold the loan to a large bank
c. The holder of the mortgage only (not the note, the I.O.U.) is company called MERS, short for Mortgage Electronic Registration System. This is mortgage industry registry to avoid recording mortgage transfers
d. The loan is "sold" into a Pool of 3000 other loans paying the Bank for its investment in your mortgage. The Bank now has no risk - this explains why no one cared about loan quality and why there were bizarre loan products like the "Pick-A-Payment"

e. The pool is sold as a BOND - just like a corporate bond- where investors buy $10,000 or maybe $1mil of the total which can be $2billion+ The reason to purchase is to get a higher than bank savings account interest return without much risk (good luck!)
f. If a borrower falls behind in payments, the manager of the pool of loans (called the investor) decides whether to modify the loan or not
g. The Fed Gov't set up the Making Home Affordable program to help homeowner get modifications but DID NOT REQUIRE ANY LENDER/INVESTOR MAKE ANY MODIFICATIONS

CONSUMER PROTECTION

1. There was a Consumer Finance Protection Board established so one agency can "ride-herd" as a REGULATOR to be certain that consumers don't get swindled. Here's where that is:

a. The CFPB is to stop "Predatory Lending practices", credit cards that have hidden fees (like the 0% interest for 1 year including balance transfer except for the 4% or 5% fee, not interest on the transfer)-see last posting for full explanation, and excessive fees to Banks for using a debit card.
b. The Republicans in the Senate have vowed to refuse to allow the appointment of ANYONE to the top spot at the CFPB unless the powers are reduced and there is a committee running it

2. Banks are lobbying to reverse the Law that will limit how much they can charge the merchants for each customer use of a debit card. Right now if you buy a $2.00 coffee and "swipe" your debit card to pay for the coffee, the store might get charged $0.40. No wonder prices for small items like coffee and hamburgers are so high

JOBS
1. Jobs are still being created, 50,000 this past month but that is only 1.2% of the unemployed
a. No real manufacturing starts to create jobs
b. Housing market dead - too many foreclosed and repossessed homes to let prices rise so no one can sell, Banks own too many houses, no reason to build a new house hoping someone will buy it
c. Mortgages are extremely difficult to get so even if you want to buy, who will lend you the money. No building-No Jobs.
d. Outsourcing to other countries bigger than ever

ECONOMY

1. Economy is not defined as how much we are earning or how much things cost or how confident consumers/businesses are feeling

a. Economy is the system to move goods and services. Essentially how will supply and demand is working
b. Economics is the study of the economy - not a science and there are as many theories as there are people studying the economy, therefore being Economists. So when you hear about "The Top Government Economist said that..." it's just his opinion. It is not a real science. It's a social science based on opinions and theories

2. Our trade imbalance grew. This is the measure of how much we import versus export. We import much more than we export.

a. The trade imbalance affects the value of our Dollar as compared to other countries currency
b. Things got better with Japan because few cars are being imported due to the disasters that hit Japan
c. Things got worse with China - they buy a fraction for us of what we buy from them.

That's just a brief round-up of 4 topics of concern to us all

Oh, I almost forgot - there is the Federal Debt Ceiling -that is the maximum amount the Government can borrow. We will be "MAXED OUT" by August. Raising that limit is also being held-up by Congress. If it doesn't get raised, we end up defaulting on our loans (payment of interest and principal on such things as Treasury Bonds. Then the value of the dollar compared to other currencies will drop by 25%-35% OR MORE immediately. Think things cost are expensive now? How about $7/gallon gas or a $40,000 Base Model Toyota

Author's Copyright by Richard I. Isacoff, Esq, June 2011

rii@isacofflaw.com

http://www.isacofflaw.com/