tag:blogger.com,1999:blog-109688842024-03-19T04:30:56.613-07:00Captains of IndustryHello, my name is Drew and I studied finance and economics. This blog will cover a little about politics, finance, and technology.Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.comBlogger90125tag:blogger.com,1999:blog-10968884.post-77038431211543416032012-04-21T07:35:00.003-07:002012-04-21T07:36:09.803-07:00REI Capital Group<div dir="ltr" style="text-align: left;" trbidi="on">
I've recently began doing some real estate investing and I've set up a site for my LLC.<br />
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<a href="http://www.reicapitalgroup.com/">http://www.reicapitalgroup.com</a><br />
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<br /></div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-79212994790267837202012-03-06T19:46:00.004-08:002012-04-21T15:09:29.156-07:00Problems with End the Fed<div dir="ltr" style="text-align: left; " trbidi="on">Our well-meaning friends in the Ron Paul camp have some incomplete ideas about economics and money. The genesis of this post was a post on a FreedomWorks blog, <a href="http://julieborowski.wordpress.com/2012/02/01/top-10-reasons-to-end-the-federal-reserve/" style="font-weight: normal; ">http://julieborowski.wordpress.com/2012/02/01/top-10-reasons-to-end-the-federal-reserve/</a>. I believe this is a fair representative of the Ron Paul and his supporters supporters. As the Ron Paul movement gains influence, addressing the bad or unsubstantiated arguments will be very important. I have not answered all of the arguments in the post, but I addressed most of them and some are fairly similar to one another.<br /><br /><br /><ul style="font-weight: normal; "><li><span style="font-size: 100%; "><b>The Federal Reserve Has Significantly Devalued Our Currency</b></span></li></ul><blockquote style="font-weight: normal; ">"Since the Federal Reserve came into existence in 1913, the dollar has lost over 95 percent of its value. Today’s dollar is worth less than a nickel compared to the pre-1913 dollar."</blockquote><br />This is true, but so what. This is a big problem if you kept cash under a mattress. 95% in value over a long period of time isn’t cause for concern, 95% in one year that could cause some problems. In any event, I do not keep large amounts of cash on hand. I put it into assets that earn a return over the rate of inflation.<br /><br /><ul style="font-weight: normal; "><li><span style="font-size: 100%; "><b>The Federal Reserve Hurts the Poor and Middle Class the Most</b></span></li></ul><blockquote style="font-weight: normal; ">" But higher prices are actually a direct consequence of inflation since increasing the supply of money decreases the purchasing power of the dollar. Inflation hurts the poor most since they have less disposable income. Consumers with low disposable incomes will be negatively impacted by higher prices for food and clothing."</blockquote><br />Simply not true. Inflation does not hurt the poor most. Inflation affects people who hold onto cash, and the poor tend to spend money that they earn in short order. The price of labor (wages) tend to rise with everything else so inflation does not erode the purchasing power of wages. An unexpected increase for inflation for a great many poor or middle class people would probably be beneficial. Take the example of a person with a fixed rate mortgage or student loans. If they owe $100,000, that amount stays the same if inflation increases from 2% to 10%.<br /><br />Hyperinflation hurts the poor insomuch as it hurts everyone with the chaos brought on by unpredictable relationships between prices and in extreme cases money becoming useless as even a temporary store of value.<br />Inflation does have distributional effects and it does hurt some.<br /><br /><span class="Apple-tab-span" style="font-weight: normal; white-space: pre; "> </span>1. Receive a fixed interest rate over a long period of time and there is an unexpected <span class="Apple-tab-span" style="font-weight: normal; white-space: pre; "> </span>increase in inflation.<br /><br /><span class="Apple-tab-span" style="font-weight: normal; white-space: pre; "> </span>2. Make illusory nominal gains through interest or capital gains. If inflation is at 10% and <span class="Apple-tab-span" style="font-weight: normal; white-space: pre; "> </span>you receive 12% interest you’re outpacing inflation, except that you pay taxes on the 12% <span class="Apple-tab-span" style="font-weight: normal; white-space: pre; "> </span>gain not the real gain.<br /><br /><span class="Apple-tab-span" style="font-weight: normal; white-space: pre; "> </span>3. Companies that are overtaxed because depreciation expense does not cover the <span class="Apple-tab-span" style="font-weight: normal; white-space: pre; "> </span>replacement value of a capital good as it rises in price<br /><br /><br />Some countries with high rates of inflation have indexed their tax systems to inflation, so this need not be an ill effect of inflation.<br /><br /><ul><li><span style="font-size: 100%; "><b>The Federal Reserve is Run By Unelected and Unaccountable Bureaucrats</b></span></li></ul><blockquote style="font-weight: normal; ">"The Board of Governors at the Federal Reserve are not directly elected by the American people. This means that those who run the Federal Reserve are unaccountable to the people. The seven members of the Board ultimately decide the price or purchasing power of our money. That kind of central planning would never exist in a true free market economy."</blockquote>If we have a central bank involved in money, it should be by unelected and unaccountable bureaucrats. There is a high correlation between the independence of central banks and a low, stable level of inflation over time. It’s the banks that are controlled by the treasury or ministry of finance that should have you more worried. I would be in favor of the central banks of the world using predictable targets such as <a href="http://www.themoneyillusion.com/" style="font-weight: normal; ">nominal GDP (NDGP)</a> rather than trying to outguess and out fool the economy.<br /><br /><ul style="font-weight: normal; "><li><span style="font-size: 100%; "><b>The Federal Reserve Has Made Our Economy Less Stable</b></span></li></ul><blockquote style="font-weight: normal; ">"The Federal Reserve has brought us endless boom-and-bust cycles. The U.S. economy was much more stable before the Federal Reserve came into existence. It bears significant responsibility for every financial crisis over the past century including the Great Depression, the stagflation of the 1970s and recent economic meltdown. The Austrian Business Cycle Theory explains why we see such wide fluctuations in the economy. The theory states that a false boom occurs when the Federal Reserve lowers interest rates below the market rate which increases the supply of money. Artificially low credit cost sends out misleading economic signals to producers. They are inclined to respond by greatly expanding their production around the same time. In retrospect, these investment decisions calledmalinvestments are seen as a bad allocation of resources. Malinvestments will lead to wasted capital and economic losses. The expansion of credit cannot continue permanently which means that inevitable bust will follow a false boom created by the Federal Reserve."</blockquote><br />I don’t think every business cycle or economic bubble post-1913 has been caused by the Fed. The temptation once you have a business cycle theory is to see it anywhere and everywhere. The Internet boom and bust, which was small by comparison but still significant was probably not an Austrian business cycle. It was not fueled by cheap credit. It was fueled by equity investors that were just wrong about valuation.<br /><br />As for stability before the Fed -- 1819, 1837,1873,1901,1907.<br /><br />GMU Economist Bryan Caplan wrote an excellent <a href="http://econfaculty.gmu.edu/bcaplan/whyaust.htm" style="font-weight: normal; ">analysis of the problems with Austrian economics</a><br /><br /><ul style="font-weight: normal; "><li><span style="font-size: 100%; "><b>The Federal Reserve Has Far Too Much Power to Control Our Economy</b></span></li></ul><blockquote style="font-weight: normal; ">"Federal Reserve Chairman Ben Bernanke has the power to dramatically impact our economy at a drop of the hat. The central bank completely controls and determines the money supply. It is permitted to create as much money as it wants out of thin air with no restrictions. This is the antithetical to the principles that America was founded on. Our Founding Fathers would be outraged that one centralized institution has unchecked and unprecedented power to control the economy and thus our lives."</blockquote><br /><ul style="font-weight: normal; "><li><span style="font-size: 100%; "><b>The Federal Reserve is Far Too Secretive</b></span></li></ul><blockquote style="font-weight: normal; ">"The central bank severely lacks transparency. Throughout its 100-year history, it has always operated under a veil of secrecy. The Federal Reserve has never been fully audited by any outside source. Our elected representatives in Congress have very little oversight over the central bank. It has continually resisted any kind of congressional oversight claiming that it would endanger its “independence.” A comprehensive audit of the Federal Reserve would not harm its so-called independence. It would only expose how the Federal Reserve has been manipulating our currency behind closed doors. And Ben Bernanke surely doesn’t want that to happen."</blockquote><br />If you like inflation, just wait until Congress controls monetary policy.<br /><br /><ul style="font-weight: normal; text-align: left; "><li><b> The Federal Reserve Benefits Special Interests</b></li></ul><blockquote class="tr_bq" style="font-weight: normal; ">"The policies of the Federal Reserve hurt the average American. It benefits the privileged few at the expense of the rest of us. The Federal Reserve erodes most Americans’ standard of living while enriching well-connected elites. The central bank serves big spending politicians, big bankers and their friends. Special interests receive access to money and credit before the harmful inflationary effects impact the entire economy. This is why high power lobbyists protect and defend the existence of the Federal Reserve."</blockquote>I agree that any regulator is subject to regulatory capture and that benefits the incumbents in an industry. I don't see the evidence that the Fed erodes the standard of living. The inflation argument doesn't cut it.<br /><br /><ul style="font-weight: normal; text-align: left; "><li><b>The Federal Reserve is Unconstitutional</b></li></ul><blockquote class="tr_bq" style="font-weight: normal; ">"The Constitution makes no mention of a central bank. While there have been historical debates on the constitutionality of a central bank, I see no justification for the argument that the Federal Reserve is constitutional. The federal government only has about thirty enumerated powers delegated to it in the Constitution. The power to create a central bank is not explicitly granted to the federal government in our founding document. Due to my strict interpretation of the Constitution, I find the Federal Reserve to clearly violate the Constitution."</blockquote>To be honest, I'm not sure. I believe it follows directly from the power to coin money. Congress can delegate authority to others provided it doesn't bind itself or future Congresses. Congress delegated this power and they could take it back at any time.<br /><br /><br /><br /><ul style="font-weight: normal; text-align: left; "><li><b> The Federal Reserve Encourages Deficit Spending</b></li></ul><br /><blockquote class="tr_bq" style="font-weight: normal; ">"The Federal Reserve is largely responsible for the out-of-control spending by Congress. The federal government can only obtain money through taxation, printing or borrowing money. Printing money has become the federal government’s preferred method. This is also the most destructive method since the federal government is able to simply print more money as needed to finance its drunken spending spree. It has become a never-ending cycle of spending and printing more money. Voters can put pressure on their representatives to halt politically unpopular tax hikes and lenders could stop loaning money to the U.S. government. But it’s fast and easy for the Federal Reserve to print more money at a whim."</blockquote>This argument starts with a truth about seigniorage or the profit that a government (or central bank) makes from printing money. This certainly has been significant in some places and times like in Zimbabwe, Argentina and Brazil during the 1980s. Seigniorage the US government makes from printing money is a couple percent of the federal budget.<br /><br /><br /><ul style="font-weight: normal; text-align: left; "><li><b>The Federal Reserve Routinely Bails Out Big Banks</b></li></ul><br /><blockquote class="tr_bq" style="font-weight: normal; ">"The Federal Reserve acts as the lender of last resort. The Federal Reserve was ordered through a Freedom of Information Act request to release 28,000 pages of documents in March 2011. The documents exposed that one of the largest recipients of the Federal Reserve’s money was foreign banks during the 2008 economic meltdown. The top foreign banks that received money were the Brussells and Paris based Dexia SA, the Dublin based Depfa Bank Plc, the Bank of China and Arab Banking Corp., according to Campaign for Liberty. In July 2011, due to a provision under the misguided Dodd-Frank financial overhaul law, the Government Accountability Office (GAO) conducted a one-time, watered-down audit of the Federal Reserve. The GAO investigators were not allowed to view most of the Federal Reserve’s monetary policy decisions including discount window lending, open-market operations and details on its transactions with foreign governments and banks. This first ever audit of the Federal Reserve revealed $16 trillion in secret bailouts to corporations and banks around the world in less than three years. These bailouts happened without a single vote taking place in any chamber of Congress."</blockquote><br />The $16 trillion figure includes loans that were afforded on a daily basis. So if a bank borrowed $1 billion for 30 days, we would count this as $30 billion. Not to minimize the dollar amounts involved, but get the facts right first.<br /><br /><br />Comments welcome.</div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-15903091303132519492012-02-24T16:57:00.003-08:002012-02-24T18:26:13.693-08:00I'm BackI have been thinking lately about what Republicans and Democrats get wrong. I will use Republican and Democrat as shorthand for errors more common in the mainstream of the respective US political parties whether politician or rank-and-file party member.<br /><br />Republicans: Market failures do exist. For example, many industries pollute the environment. Negative externalities should be taxed or property rights should be created and those that can abate pollution least expensively will do so. Basically, you should not get to pollute and externalize all those costs on everyone else even if it is good for a particular industry or "creates jobs".<br /><br />Democrats: A price you do not like is not a market failure. Gas prices too high, somebody must be gouging whatever that means. Of course, we need to have rent controls to protect those poor tenants. In most cases there was not a market failure to begin with and the "cure" causes the disease.<br /><br />I have a few more brewing for the Democrats, Republicans, and maybe even a few aimed at Ron Paul and his supporters.Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-40658537947612802542010-04-08T19:26:00.000-07:002010-04-08T19:50:12.041-07:00If we don't know how many people, how do we know how many Congressmen we needI frequently see advertisements on the television and outdoors for the census in the format, if we don't know how many people we have, how do we know how many x we need. <br />Where x is hospital beds, classroom, trains, buses, etc.<br /><a href="http://www.youtube.com/watch?v=OP2BGqnPQY4">http://www.youtube.com/watch?v=OP2BGqnPQY4</a><br /><br /><blockquote>"The census helps us know exactly what we need, so everyone can get their fair share of funding.”</blockquote><br /><br />I am disappointed that this appeals to so many people. Have we really moved towards a society where we fill out a survey so the government can calculate our needs? <br /><br />Of course, the primary purpose of the census to apportion Congressional seats and Electoral College votes among the several states by population. I believe that is an important enough reason to mail it back. This representative form of government is at least as important as the government handing out goodies from the fraction of people that pay the bulk of the taxes to everyone else.Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-62076355750689759042010-02-06T13:29:00.000-08:002010-02-06T13:33:08.455-08:00Speech in a Free Society<div>Everybody knows there is tons of money in politics. It is a natural consequence of the government regulating and controlling more parts of the economy. P.J. O'Rourke said, “When buying and selling are controlled by legislation, the first things to be bought and sold are legislators.” I am not writing to defend or advocate a particular size and scope of government in general. There was a Supreme Court decision regarding political speech recently, FEC v. Citizens United. </div><div><br /></div><div><b>Background</b></div><div><span class="Apple-tab-span" style="white-space:pre"> </span>Citizens United produced “Hillary the Movie” that said she was a power-hungry viper unfit for <span class="Apple-tab-span" style="white-space:pre"> </span>the presidency. They wanted to make this available in theaters and through video on demand <span class="Apple-tab-span" style="white-space:pre"> </span>systems.</div><div><br /></div><div><b>Analysis</b></div><div><b><br /></b></div><div>You would think that they would be free to distribute this move however they saw fit in a free country. However, the Bipartisan Campaign Reform Act of 2002 did not permit “issue ads” 60 days before a general election and 30 days before a primary election. Issue ads simply take a position on some policy and typically associate a candidate for or against that policy. The law called for heavy fines and jail time for daring to speak out in a way that the law did not permit. So, basically this prohibited an organized group for people from making political statements. </div><div><br /></div><div>In the recent case FEC v. Citizens United, the Supreme Court struck down major parts of BCPA. Anthony Kennedy in the majority opinion writes, </div><div><blockquote>“Thus, the following acts would all be felonies under §441b: The Sierra Club runs an ad, within the crucial phase of 60 days before the general election, that exhorts the public to disapprove of a Congressman who favors logging in national forests; the National Rifle Association publishes a book urging the public to vote for the challenger because the incumbent U. S. Senator supports a handgun ban; and the American Civil Liberties Union creates a Web site telling the public to vote for a Presidential candidate in light of that candidate’s defense of free speech. These prohibitions are classic examples of censorship. “</blockquote> While most have an idea that censorship is bad policy, he gives a great reason why we should not censor political speech, “speech is an essential mechanism of democracy, for it is means to hold officials accountable to the people.”</div><div><br /></div><div>The content of the speech was not so much at issue as was when it was going to air and who sponsored it. I agree with the majority opinion that the identity of the speaker does not determine rights. Just because a group is too influential that is not a justification for withholding First Amendment rights.</div><div><br /></div><div>Not everyone agreed with the outcome of this case, in fact it was a 5-4 decision. In a weekly radio address, President Obama said, “this ruling strikes at our democracy itself.” While some are worried about the outcome of this decision and perhaps justifiably so. However, a law cannot be upheld because it produced good outcomes or invalidated for bad outcomes. The Court rules on the law with the Constitution as the highest law in the land.</div><div><br /></div><div>As a practical matter, political free speech is necessary for a functioning republic and it is exactly what was intended to be protected whether it's the ACLU arguing against the Patriot Act, the NRA advocating for less restrictions on guns, or a group advocating for or against abortion rights. And they need to be able to say whether candidate x is right or wrong on these policies whether they are a single person or an association. The life and death of the Republic depends on the freedom to make exactly this kind of speech. </div><div><br /></div><div>The argument that we are treating corporations as people is a spurious distraction. We are simply saying that individuals are able to pool their resources and can speak in concert. Corporations are not people any more than your car or computer is a person, but the stockholders, directors, and others that control the corporation do have rights. Remember that while Hillary the Movie was funded by a corporation, people made the movie to express views that themselves and other people had. If we argue that corporations or other associations have no rights, do we then allow searches of corporate offices without warrant and cause or arbitrary expropriations without due process? </div><div><br /></div><div>I believe that the dangers of this ruling are exaggerated. Big media big money speech is losing influence, not gaining influence. Grassroots efforts are being organized via Twitter. Bloggers and news aggregators run from the bottom up decide what is important, and I believe this trend will continue.</div><div><br /></div><div>The solution to more corporate speech if that comes to pass is more speech from everyone rather than muzzling organized groups and chilling free speech.</div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com1tag:blogger.com,1999:blog-10968884.post-31099320561206195662010-01-21T19:09:00.001-08:002010-01-21T19:22:52.803-08:00Reality Still Matters<div>An exchange rate held to an unnatural level and prices restricted by government decree are a familiar tune. In Venezuela, some have bolivars and want to buy dollars for their imports. The government has tried to maintain a fictional exchange rate and has rationed dollars, but markets are what arise naturally whether you want them to or not. </div><div><br /></div><div>Predictably, the Venezuelan government's restrictions on foreign exchange and price controls are not working and these controls are creating problems that they try to solve with yet more controls. More rules cannot repeal reality and they only serve to create corruption, discourage foreign and domestic investment, and slow production. The sellers of goods are understandably reacting to the reality of more bolivars in circulation by raising prices. You can tell people to ignore reality and sell at the old prices, but the historical record is that people are smarter than that and it never works.</div><div><br /></div><div>Chavez accomplishes his objective of increasing government control exceptionally well. As he is moving so quickly and with quotes like this,“People, don’t let them rob you, denounce it, and I’m capable of taking over that business" it is obvious what he wanted all along. Perhaps the motives of politicians here are more pure, but if something like the Senate healthcare bill passes it will 'require' more controls to fix the problems it creates.</div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-2664344621548905392009-12-24T18:53:00.000-08:002009-12-24T18:58:25.307-08:00The American Dream<p class="MsoNormal"><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">I have been thinking lately in the wake of this real estate bubble, why do people buy homes. Over the past few days, I wrote down a few reasons and some brief commentary.</span></span></p> <p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"></p><ul><li><span class="Apple-style-span" style="font-family: georgia; "><span class="Apple-style-span" style="font-size: medium;">At a certain age or after a life event like marriage or the birth of a child, it’s time to buy a house.</span></span></li></ul><p></p><p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">Hard to argue with someone’s emotional connection to home ownership, except to say that it is not the way I think.</span></span></p><p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"></p><ul><li><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">Flexibility to remodel and get exactly what you want without consulting a landlord.</span></span></li></ul><p></p><p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">I do see a benefit here in being able to customize your living space. While custom build-outs are relatively common in commercial space, rented housing is whatever you can find on the market.</span></span></p> <p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"></p><ul><li><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">A forced savings plan</span></span></li></ul><p></p><p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">Some people are not good at saving money, and since each month you pay some principal you are effectively saving. This reason does not hold any personal relevance to me as I do save. It is analogous to the person that deliberately seeks to get an income tax refund even though it is giving an interest free loan to the government.</span></span></p> <p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"></p><ul><li><span class="Apple-style-span" style="font-family: georgia; "><span class="Apple-style-span" style="font-size: medium;">Pride of ownership</span></span></li></ul><p></p><p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">Again, hard to argue with someone’s emotional connection to home ownership, so I won’t.</span></span></p> <p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"></p><ul><li><span class="Apple-style-span" style="font-family: georgia; "><span class="Apple-style-span" style="font-size: medium;">A good investment</span></span></li></ul><p></p><p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">This is really just speculation on price appreciation, not that there's anything wrong with that. The long term record of housing prices does not show that it is a great investment. Yale Economist Robert Shiller calculated an average of 0.4% / year price appreciation from 1890 to 2000. Mind you, this is for a very illiquid asset with an appreciable amount of volatility.</span></span></p> <p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"></p><ul><li><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">Buy into the myth that rent is throwing money away</span></span></li></ul><p></p><p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">When you rent you are paying for a valuable service, the roof over your head, maintenance of the property, and often utilities. You’re not throwing money away for that service any more than any other service you buy. In some markets a couple years ago, buying was much more expensive than renting even over the whole term of the mortgage. As compared to buying where you “throw away” money on interest, property taxes, and repairs.</span></span></p> <p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"></p><ul><li><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">The types of properties available to rent are less desirable than ones to buy</span></span></li></ul><p></p><p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">Varies. I have heard that there has been an increase in single family homes in the suburbs available for rent.</span></span></p> <p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"></p><ul><li><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;"> </span></span></span><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">Concerned about rent increases</span></span></li></ul><p></p><p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">A fixed rate mortgage will lock in some of the expenses for housing, but don’t forget about property taxes. Those can move upward quickly in some areas.</span></span></p> <p class="MsoNormal" style="margin-left:0in;text-indent:0in;mso-list:l0 level1 lfo1; tab-stops:list .25in"></p><ul><li><span class="Apple-style-span" style="font-family: georgia; "><span class="Apple-style-span" style="font-size: medium;">Tax benefit for owner occupied property</span></span></li></ul><p></p> <span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">The mortgage interest and property tax deductions can help make owner occupied property make economic sense. Remember, these are below-the-line deductions in lieu of the standard deduction. So, you can get a maximum benefit of your expenses * marginal rate.</span></span><div><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;"><br /></span></span></div><div><span class="Apple-style-span" style="font-family:georgia;"><span class="Apple-style-span" style="font-size: medium;">Anything I missed, please comment.</span></span></div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-17354433058809251242009-12-14T18:55:00.000-08:002009-12-14T19:33:50.749-08:0045 Percent of the World's WealthWhen I think of wealth destruction, I think of fires, floods, wars, and hurricanes. Steven Scharzman of Blackstone said “Between 40 and 45 percent of the world’s wealth has been destroyed in little less than a year and a half." Given that you'd think a meteor struck Earth or something of that scale. <div><br /></div><div>The most relevant concern is the real wealth that has been destroyed. <a href="http://www.paulgraham.com/wealth.html">Paul Graham</a> tells us, "Wealth is the fundamental thing. Wealth is stuff we want: food, clothes, houses, cars, gadgets, travel to interesting places, and so on. " Nominal dollars are not irrelevant altogether. If you have a mortgage, it is still due on the nominal amount you agreed to pay. Negative equity may induce people to stop paying their mortgage and the property will have to be foreclosed upon. This situation can result in inefficiencies as a result the destruction of real wealth.</div><div><br /></div><div> I agree that some real wealth could have declined through:</div><div><ul><li>Depreciation in excess of gross investment. Left alone, wealth will decay and continual investments must be made to maintain that wealth.</li><li>Inefficiencies in the transfer process from debtor to creditor where the collateral is damaged through poor maintenance or malice.</li></ul>I certainly agree that the pace of wealth creation is slowed and that there may even be some wealth destruction, but I doubt that it 45 percent of all wealth in the world.</div><div><br /></div><div>The fact that people paid too much for assets a few years ago, and that now the assets are worth much less does not mean real wealth is reduced. I suspect this wealth that Schwarzman talks about is from on 1s and 0s on a computer system. Your house is not any less of a house now because it would sell for a third less dollars. The 3 bedrooms, 2000 square feet, 2 car garage, granite countertops, etc. are still there for your use.</div><div><br /></div><div>I doubt that 45 percent of the world's wealth has been destroyed with most buildings still standing that were there 2 years ago, airplanes still taking you where you want to go, and your computer accessing a global network that is better than ever.</div><div><br /></div><div><br /></div><div><br /></div><div><br /></div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-81104527277257840272009-12-04T17:04:00.001-08:002009-12-04T17:31:45.951-08:00Is it too easy?<span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">I am actually not too concerned over the sheer number of fulfilled requests by Sprint. It appears this is the number of data points retrieved through Sprint's systems for law enforcement. So, the actual number of people that were under surveillance was likely in the thousands. With tens of millions of subscribers, this is not too shocking.</span></span><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><br /></span></span></div><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">The bigger issue here is the lack of accountability for the watchers. There are legitimate law enforcement uses for GPS information, text messaging, phone calls, etc. While I think there should be a procedure for the government to acquire this information, the lack of documentation and accountability is very troubling. The temptation to spy on political opponents that have done nothing wrong except disagree with you rises when the DOJ does not answer to anyone. It is not difficult to imagine that people in power that will spy for their own personal advantage. Even now, we cannot be assured that this is not already taking place.</span></span></div><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><br /></span></span><div><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">Links - </span></span><a href="http://paranoia.dubfire.net/2009/12/8-million-reasons-for-real-surveillance.html"><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">http://paranoia.dubfire.net/2009/12/8-million-reasons-for-real-surveillance.html</span></span></a></div><div><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size: medium;"></span></span><a href="http://arstechnica.com/telecom/news/2009/12/sprint-fed-customer-gps-data-to-leos-over-8-million-times.ars"><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">http://arstechnica.com/telecom/news/2009/12/sprint-fed-customer-gps-data-to-leos-over-8-million-times.ars</span></span></a></div><div><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><a href="http://arstechnica.com/telecom/news/2009/12/sprint-fed-customer-gps-data-to-leos-over-8-million-times.ars"></a></span></span><span class="Apple-style-span" style="color: rgb(51, 51, 51); line-height: 18px; "><blockquote><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">"The government routinely obtains customer records from ISPs detailing the telephone numbers dialed, text messages, emails and instant messages sent, web pages browsed, the queries submitted to search engines, and geolocation data, detailing exactly where an individual was located at a particular date and time."</span></span></blockquote><blockquote><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">"The fact that federal, state, and local law enforcement can obtain communications "metadata"—URLs of sites visited, e-mail message headers, numbers dialed, GPS locations, etc.—without any real oversight or reporting requirements </span></span><i><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">should</span></span></i><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"> be shocking, but it isn't. ""Soghoian's lengthy post makes at least two important points, the first of which is that there are no reliable statistics on the real volume and scope of government surveillance because such numbers are either not published (sometimes in violation of the legally mandated reporting requirements) or they contain huge gaps. The second point is that the lack of reporting makes it difficult to determine just how involved the courts actually are in all of this, in terms of whether these requests are all backed by subpoenas."</span></span></blockquote><blockquote><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">"</span></span><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">However, communications or customer records that are </span></span><b><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">in storage by third parties</span></span></b><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">, such as email messages, photos or other files maintained </span></span><a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1421553" style="color: rgb(68, 85, 102); "><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">in the cloud</span></span></a><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"> by services like Google, Microsoft, Yahoo Facebook and MySpace are routinely disclosed to law enforcement, and there is no legal requirement that statistics on these kinds of requests be compiled or published. "</span></span></blockquote></span></span></div></div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-22117397637482556632009-12-01T19:04:00.000-08:002009-12-01T19:32:04.946-08:00Some Game TheoryI am reminded of a counterintuitive result that more people nearby will result in less action. The typical example in a game theory course is a crime witnessed by n people. As n grows, the likelihood that the police will be called actually falls. While this phenomenon has been well documented, I have recently observed a case where this is not true. An email was sent out to a mistakenly listserv. The recipients hit reply to all to inform the sender. As a few emails were sent, this took on a life of its own. Between the initial emails, replies to those emails, and emails telling people not to reply to all there were about 50 emails in all.<div><br />A couple possibilities<div><ol><li>The game theory result is still correct. Where n increases, the probability of any reply falls. However, if the first reply to all is sent everybody will jump on the bandwagon.</li><li>This situation calls for a different set of assumptions than the typical game theory situations of shared responsibility.</li></ol></div></div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com1tag:blogger.com,1999:blog-10968884.post-74458210812295450842009-11-30T19:57:00.000-08:002009-11-30T20:04:21.258-08:00It takes all kindsI saw an article recently talking about Google's presence in Japan. It is one of the few countries they have not dominated.<div><blockquote><span class="Apple-style-span" style="font-size:130%;"><span class="Apple-style-span" style="font-size: 15px; line-height: 22px; ">"Earlier this year, Google’s splash page for Japan abandoned the company’s classic spare design and added links to YouTube, Gmail and other services — an attempt to lure Japanese users who favor sites decorated with a cacophony of text and graphics." ----<a href="http://www.nytimes.com/2009/11/30/technology/internet/30google.html">NY Times</a></span></span><div></div></blockquote><div><span class="Apple-style-span" style="font-size:130%;"><span class="Apple-style-span" style="font-size: 15px; line-height: 22px;">I am not sure why anyone would want a cacophony of text and graphics. It's distracting, loads slowly, uses lots of memory, and has a tendency not the render the same way across browsers, screens, etc.</span></span></div><div><span class="Apple-style-span" style="font-size:130%;"><span class="Apple-style-span" style="font-size: 15px; line-height: 22px;"><br /></span></span></div></div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-60906156426069961422009-11-30T19:06:00.000-08:002009-11-30T19:34:03.774-08:00Future of Journalism<span class="Apple-style-span" style=" border-collapse: collapse; font-family:arial, sans-serif;font-size:13px;"><div><span class="Apple-style-span" style="font-size: small;">The old business model for journalism is clearly on the decline as we can see from the bankruptcy filings of major newspapers. No business model is guaranteed to persist in an economy that allows creative destruction, but people's needs still need to be fulfilled in one way or another. It takes a lack of imagination to think that journalism is dead. The 20th century newspaper business model is dying for sure. I think that people still want facts to be gathered and commentators and aggregators still need a primary news gathering as support. I believe that some model will allow companies to make money by producing news whether that involves microtransactions, a separation of content and distribution (similar to ASCAP in the recording industry), or something nobody has thought of yet.</span></div><div><span class="Apple-style-span" style="font-size: small;"><br /></span></div><span class="Apple-style-span" style="font-size: small;">I went to a round table discussion on political journalism and I had a couple takeaways. I may turn this into a more detailed blog entry later.<br /></span><span class="Apple-style-span" style="font-size: small; "><br /></span></span><div><ul><li><span class="Apple-style-span" style="font-family: arial, sans-serif; font-size: small; border-collapse: collapse; ">Journalism was never that well paid to begin with</span></li><li><span class="Apple-style-span" style="font-family: arial, sans-serif; font-size: small; border-collapse: collapse; ">Much of what's available on the Internet, TV, etc. is aggregation or commentary rather than primary news gathering</span></li><li><span class="Apple-style-span" style="font-family: arial, sans-serif; font-size: small; border-collapse: collapse; ">Newspaper model is clearly in the past. I wish the roundtable had gotten into some detail about possible business models and payment systems. At some point I will go into more depth.</span></li><li><span class="Apple-style-span" style="font-family: arial, sans-serif; font-size: small; border-collapse: collapse; ">The issue with non-profit news gathering groups as a solution is that they don't care as much about interesting stories. They may cover "important" stories that nobody will listen to or read since they don't have nearly the incentive to get eyeballs.</span></li></ul></div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-82219205758680375782009-11-15T13:05:00.000-08:002009-11-15T13:07:05.039-08:00Oh come on<p class="mobile-photo"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAqunZ8gwaSWHr3_QkVIseUzaBI9j24ZrIfmc2_af9FZVkl9dKiVwcu-c-BAyUpZ0hTcIrz9x9hAEUPb-aUFy20iuchsjwm3vCWacnne6pq9Sfq3WadurjC1glTwiqGmy0yS-s/s1600-h/IMAG0148-725041.jpg"><img src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjAqunZ8gwaSWHr3_QkVIseUzaBI9j24ZrIfmc2_af9FZVkl9dKiVwcu-c-BAyUpZ0hTcIrz9x9hAEUPb-aUFy20iuchsjwm3vCWacnne6pq9Sfq3WadurjC1glTwiqGmy0yS-s/s320/IMAG0148-725041.jpg" border="0" alt="" id="BLOGGER_PHOTO_ID_5404439919480079314" /></a></p><SPAN style='FONT-SIZE: 10pt; FONT-FAMILY: Arial; FONT-WEIGHT:Normal;'><br></SPAN>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-474339918266298622009-11-15T08:49:00.000-08:002009-11-15T08:50:42.828-08:00Useless Features<div><b>Conversation</b></div><div><br /></div>MC : have you ever used the web in windows to search what program opens a file type and been successful?<br />DR: no<br />DR: it's about the most useless feature<br />MC: i know<br />MC: it's laughable<br />DR: up there with copying a file and relying on the time estimate<br />MC: hahaha <div><br /></div><div><br /></div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-25982061290348514892009-11-15T07:50:00.000-08:002009-11-15T07:52:35.252-08:00This Time It's Personal FinanceI have taken some time to clarify my investment style for this blog and for myself without making any specific investment recommendations.<br /><br /><ul><li>Value, concentrated investing – While many seek the diversification of the full market portfolio, I speculate on a few investments I believe to be a great value. Growth companies have historically underperformed value stocks as investors systematically overestimate growth. Earnings growth regresses to the mean, and value typically is a better investment. A purely quantitative black-box strategy could evaluate the entire market and find value stocks. However, I am examining a company’s strategic position, financial statements, and conference calls. A portfolio of a small basket of investments that are in different sectors will get most of the benefits of diversification. </li></ul><br /><ul><li>International exposure – Most investors in any given country have a home bias. While there are barriers in understanding and in regulations to investing in other countries, it seems excessive. I seek to invest a high percentage of my investments outside the United States in emerging markets. In the cases where I cannot buy individual stocks, I buy exchange traded funds that give exposure to a particular country or region. </li></ul><br /><ul><li>Liquidity is not all that important – Most of my investments are fairly liquid at this point in time since I am unable to invest in private equity and venture capital. However, I am willing to make illiquid investments if I am compensated for that illiquidity. You can maintain liquidity on tap with credit lines at a very low cost to maintain. </li></ul><br /><ul><li>Leverage – At this time, I have cheap access to credit to borrow against investments in my portfolio. While leverage increases risk, I am in a great position to assume that higher risk. With a greater base of assets, my return on equity will be higher assuming my asset’s returns are greater than my borrowing rate. </li></ul><div>Thanks to <a href="http://davidralbrecht.com/blog/">Dave Albrecht</a> for asking me to write about my investing philosophy</div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-22087794458420665972009-11-14T17:59:00.000-08:002009-11-14T18:45:34.505-08:00We are HTCHTC has been a major producer of smart phones for the last several years, but many of their phones barely acknowledged where their origin. I have an HTC Tytn II, which is better known has an AT&T 8925 or AT&T Tilt. HTC is now bringing its name to the foreground with an advertising campaign, "You."<div><br /></div><div>I really appreciated the images and music used in the <a href="http://www.youtube.com/watch?v=5lUkF1vVudA&feature=related">commercial</a>. Here's the script - </div><div><blockquote></blockquote><div></div><blockquote><div>It’s the first thing you see in the morning.</div><div>And the last thing you see at night.</div><div>It stresses you out.</div><div>And calms you down.</div><div>It helps you remember.</div><div>It helps you forget.</div><div>It keeps you connected.</div><div>It’s the only thing that is alway within an arms reach.</div><div>Which is why you don’t need to get a phone.</div><div>You need a phone, that gets you.</div><div>And you. And you. And you.</div><div>And we are HTC.</div></blockquote><div></div></div><div>It seems that someone really understands how people use <a href="http://www.youtube.com/watch?v=K-QhxjJFl7E">their phones and people's connection</a> to their phones. HTC has such a broad line of products across price points, feature sets, and operating systems their advertisements have to be about experience not specific features, apps, and utility. (Contrast to an <a href="http://www.youtube.com/watch?v=bhhbaaWBgnk">Iphone ad</a>)</div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-17057871249618500882009-11-12T16:33:00.000-08:002009-11-12T16:53:24.366-08:00Corporate Speech<p class="MsoNormal"><span style="font-size:10.0pt;font-family:Tahoma;mso-bidi-font-family: "Times New Roman"">I recently found myself in an argument about the rights of a corporation to speak on political issues.<span style="mso-spacerun: yes"> </span>To give some context, it was a long discussion beginning with talk of the bailouts and financial regulation and moving towards whether corporations have a right to speak and corporate personhood in general.<span style="mso-spacerun: yes"> </span>While there was plenty of fodder for blog entries, I am addressing the corporate speech issue.</span></p><p class="MsoNormal"><span style="font-size:10.0pt;font-family:Tahoma;mso-bidi-font-family: "Times New Roman"">Shareholders have interests in a company doing well and sometimes regulation or tax policy is a critical issue. Shareholders and directors acting on behalf of themselves have the right to advocate for or against various issues. I think most people would agree to that proposition.</span></p> <p class="MsoNormal"><span style="font-size:10.0pt;font-family:Tahoma;mso-bidi-font-family: "Times New Roman"">However, in order to be <b>effective</b> in promoting the interests of the shareholders the speech needs to be coordinated. In practice, the transaction costs are far too high not to do so and shareholders are not neccessarily aware of all the issues that are relevant. They have appointed directors to deal with that and anything else in the day to day operation the the company.</span></p> <p class="MsoNormal"><span style="font-size:10.0pt;font-family:Tahoma;mso-bidi-font-family: "Times New Roman"">In principle, people do not lose rights when they pool their resources and appoint agents to represent them.(a corporation)<span style="mso-spacerun: yes"> </span>"Issue" ads are exactly the type of speech that was intended to be protected.<span style="mso-spacerun: yes"> </span>To prohibit corporate speech in favor or against policies is to tie the hands of the shareholders and effectively prevent them from promoting their interests.</span></p>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-59281055639936175462009-11-07T20:44:00.000-08:002009-11-07T20:51:22.468-08:00Responding to IncentivesI believe that people can be intelligent consumers of health care with the right information like anything else. A big part of the problem with health care is that the true cost is not borne or known by the users of health care. While there will always be a need for catastrophic health insurance to cover unexpected events, the more frequent costs could be covered by consumers. Tax policies have encouraged "all you can eat" health care paid for by a third party. No surprise that people in this regime would consume more health care at greater and greater costs. Not only is the demand higher, there is an incentive to shift costs on to third party payers.<div><br /></div><div>Given this background, I found this piece from the WSJ interesting on new websites to assist with finding pricing information for medical procedures. <a href="http://online.wsj.com/article/SB10001424052748704222704574499623333862720.html">http://online.wsj.com/article/SB10001424052748704222704574499623333862720.html</a></div><div><br /></div><div><br /></div>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com1tag:blogger.com,1999:blog-10968884.post-6206413743780125692009-08-25T18:32:00.000-07:002009-08-25T19:05:55.049-07:00No, you're wrongI was not thinking about this until I saw an article about the Social Security "freeze." For those of you that don't know, Social Security benefits are indexed to inflation (the CPI). I will not get into the messy details of how the CPI is calculated, but the basic idea is that if the cost of living rises 5%, Social Security benefits will rise by 5%. For 2010, there will likely be no increase since we are currently experiencing deflation and the purchasing power of dollars is increasing. However, the law does not allow for a reduction in benefits if there is deflation. I see it again and again -- people do not understand real purchasing power versus nominal dollars.<br /><blockquote><br />That means a freeze in Social Security payments will translate into a drop in real purchasing power for many seniors, said Jo Wiejahn, a senior citizen in South Bend, Ind.<p class="textBodyBlack"><span id="byLine"></span>“Any time the ... income stays the same but everything goes up from the groceries, car maintenance — everything — you are actually going backward,” Wiejahn said. “Even though I work, the fact that my Social Security is going to stay the same is tough, because that’s basically the money I depend on.”</p><p class="textBodyBlack"></p><p class="textBodyBlack"><a href="http://www.msnbc.msn.com/id/32544620/ns/politics-more_politics/">http://www.msnbc.msn.com/id/32544620/ns/politics-more_politics/</a></p></blockquote><p class="textBodyBlack"><a href="http://www.msnbc.msn.com/id/32544620/ns/politics-more_politics/"><span style="font-weight: bold;"></span></a>Actually, since there is deflation right now, everything isn't going up. Since there is deflation right now and the law prevents a reduction in benefits, the purchasing power of social security benefits is rising -- but don't tell that to Rep. Phil Hare D-ILL</p><p></p><blockquote><p>U.S. Rep. Phil Hare, D-Ill., called it "unconscionable" that Social Security recipients won't get a cost-of-living increase next year.</p> <p>He said he would support any congressional action aimed at reversing the decision, including introducing legislation if necessary.</p><p><a href="http://www.qctimes.com/news/national/article_49734f92-91cc-11de-8c31-001cc4c002e0.html">http://www.qctimes.com/news/national/article_49734f92-91cc-11de-8c31-001cc4c002e0.html</a></p></blockquote><p class="textBodyBlack">In the interest of fairness, some do make the point that healthcare costs are still rising and the elderly disproportionately spend on healthcare. While this does illustrate a problem with the CPI in general (consumers have different baskets of goods they buy), my main point is that everyone needs to understand their real purchasing power, not the nominal they have.<br /></p>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-24240546806803972782009-08-25T17:47:00.000-07:002009-08-25T18:05:05.249-07:00Speculator, you say that like it's a bad thingI guess you would say I'm a speculator. I have some assumptions about the world and I look for pricing that differs from those assumptions. If I win, I get to keep my profits. If I lose, I don't get bailed out by anyone. (The same can't be set for some major investment banks with proprietary trading arms)<br /><br />Speculators have been blamed for rises in oil prices, driving down stock prices through short-selling, market crashes, etc. The reality is that we need speculators able to act on their beliefs, to buy or to sell. Politicians often judge that one price is too high or another is too low. I think it would be foolish after what we have seen over the last couple years to say that the market always get the "right" price at every point in time. However, the alternative is the government setting prices, which I have far less confidence in than the market.<br /><br />A restriction on the activity of speculators would severely reduce liquidity in markets. Information would travel slower and those with the best estimates of the future would be less able to bring a market back to equilibrium.Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-66269022067389053652009-08-15T09:24:00.001-07:002009-08-15T09:40:36.251-07:00Real ChangeThese are two photos I took from the Jefferson memorial. I really liked the quote in the second photo. <br /><br /><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1JFuyPON9V7N6LRLNkpdsDPvdg8M_xqoS_na86MSv8nQAZYpEqhVxl8aCEF_S-JruwHht1Kv4jSoDhBih2iTELDxqwmKDUs8910z6JjckYgwkvNGdx9aGdv73shyOVmsVk991/s1600-h/P1010481.JPG"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 300px; height: 400px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg1JFuyPON9V7N6LRLNkpdsDPvdg8M_xqoS_na86MSv8nQAZYpEqhVxl8aCEF_S-JruwHht1Kv4jSoDhBih2iTELDxqwmKDUs8910z6JjckYgwkvNGdx9aGdv73shyOVmsVk991/s400/P1010481.JPG" alt="" id="BLOGGER_PHOTO_ID_5370230948876300898" border="0" /></a><br /><a onblur="try {parent.deselectBloggerImageGracefully();} catch(e) {}" href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEio2QJQ5aBYdNs51h04Iwl-3UF3wys5tDgeOcu_tSB5-O_hINCZeZ7NRG8YH4Adiy37XLepO9arDH8tkL0uL9Optt5xmfA6lPbPQBrHmQcnVYG1IWuPge2Gdz9yZ0sZm92sHlX_/s1600-h/P1010483.JPG"><img style="margin: 0pt 10px 10px 0pt; float: left; cursor: pointer; width: 300px; height: 400px;" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEio2QJQ5aBYdNs51h04Iwl-3UF3wys5tDgeOcu_tSB5-O_hINCZeZ7NRG8YH4Adiy37XLepO9arDH8tkL0uL9Optt5xmfA6lPbPQBrHmQcnVYG1IWuPge2Gdz9yZ0sZm92sHlX_/s400/P1010483.JPG" alt="" id="BLOGGER_PHOTO_ID_5370228815761252482" border="0" /></a>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-35709334248799717602009-07-18T08:05:00.000-07:002009-07-21T16:33:12.094-07:00NewspeakThis weekend I downloaded <a href="http://docs.house.gov/edlabor/AAHCA-BillText-071409.pdf">real page turner</a>. (And the <a href="http://www.stark.house.gov/images/stories/111/legislation/AAHCA/aahca-sectionbysection-071409.pdf">summary</a>)<br /><br />From the summary:<br /><blockquote>The Health Choices Commissioner specifies the benefits that must be made available in each year – including a requirement that each participating plan provide one basic plan in each service area in which they operate. It is then optional for the plan to offer one enhanced and one premium plan. The differences between the three main plans (i.e. basic, enhanced and premium) are the levels of cost‐sharing required, not the benefits covered. The Commissioner shall establish a permissible range of cost‐sharing variation that is not to exceed plus or minus 10% with regard to each benefit category.</blockquote>The Health Choices Commissioner sounds like Newspeak to me. We'll get the choices that the allow for us to have, no more no less. <br /><br />Since reading this is clearly too much of a task for one person if you're not being paid to do it, I would be open to any insights that readers of this blog happen to have.Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-58730371960268507252009-07-14T16:51:00.000-07:002009-07-14T16:55:43.043-07:00The Public OptionI have a healthy degree of skepticism that the public option might not compete on a level playing field with private insurers. I found a publication from the American Academy of Actuaries that explains some <a href="http://www.actuary.org/pdf/health/public_plans_june09.pdf">criteria for a public plan that would compete on a level playing field.</a>Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-21146633130294790742009-07-08T19:20:00.000-07:002009-07-08T20:38:41.183-07:00I just can't be too surprisedIf you liked the first stimulus, you'll love the second one. Politicians, particularly Obama and Congressional Democrats are <a href="http://www.washingtonpost.com/wp-dyn/content/story/2009/07/08/ST2009070802011.html">nervous that the stimulus</a> is not enough. First, look at some basic facts and reasonable judgments.<br /><span style="font-size:130%;"><br /><span style="font-weight: bold;">A Few Points</span></span><br /><br /><span style="font-weight: bold;">A small proportion of the stimulus has been spent </span>- A $100 billion just isn't what it used to be. In addition, a majority of the $110.3 billion was spent in the month of June. Other articles, I've seen show that even <a href="http://www.wthr.com/Global/story.asp?S=10664749&nav=menu188_2">less has been spent</a>.<br /><blockquote>Economists say that only 10 percent of stimulus dollars have been spent and the president's plan has been criticized for not creating enough jobs.</blockquote><span style="font-weight: bold;">Most agree that there is a lag</span> - The economy is a complex system and nobody expected the stimulus to work instantaneously. Given that little spending out of the total has occurred and a majority was spent last month, it is too early to know what's working. Pushing the button again won't help in the near term.<br /><br /><span style="font-weight: bold;">States are using the money for short-term needs</span> - People were promised grand projects to increase efficiency and build American infrastructure. However, much of the money has been used to close<a href="http://www.foxnews.com/politics/2009/07/08/states-using-stimulus-money-short-term-needs-study-shows/?test=latestnews"> short-term budget gaps</a>.<br /><blockquote>Cash-strapped states have used federal stimulus dollars to close short-term budget gaps and avert major tax increases but generally have not directed the money toward long-term expansion, according to a new report.</blockquote>I had a few other observations, but these are the most important ones that I have for right now.<br /><span style="font-size:130%;"><br /></span><span style="font-weight: bold;font-size:130%;" >How else could it have been done?</span><br /><br /> <span style="font-weight: bold;">Drop it from helicopters</span><br />If you remember the great economist Milton Friedman, he proposed that we "drop money from helicopters" in the event of a liquidity trap. This bypasses the slow and often inefficient process that we face in finding "shovel-ready projects" (or the latest phrase we want to use). If individuals receive money they are limited to a few broad options to dispose of the money.<br /><ul><li>Spend or invest</li><li>Save</li><li>Pay down existing debt</li></ul>If you believe that deficit funded fiscal stimulus can stimulate the economy, spending or investing the money obviously helps matters. In this particular economic downturn, there are serious issues with the banking system. If individuals don't spend or invest, they can save put their money into banks. The banks would have a larger deposit base and less issues with liquidity. However, the best result may be that individuals pay down their high debt levels. Finance author and perhaps philosopher, Nassim Taleb, <a href="http://www.dailyfinance.com/2009/07/03/taleb-sees-40-to-70-trillion-needed-in-global-deleveraging/">argues</a> that the global economy needs $40 to $70 trillion in deleveraging.<br /><br /><span style="font-weight: bold;">Grant it to the States on based upon a simple formula</span><br />Much of the money is being administered by states for projects or being used to prop up state budgets. If we want to have the States administer the funding for projects or simply prop up their short-term budgets, a simple approach would be to transfer an amount calculated in proportion to population, state product, taxes to the Federal government paid by its citizens, or some other available measure. The Congress does not have a tendency to be succinct, and a stimulus bill on one a sheet of paper is not likely to happen (or at least short enough to be read).<br /><br /><span style="font-weight: bold;">Some combination of individual stimulus and grants to the States</span><br />Combining these two approaches should not result in a stimulus bill so long that you would fall asleep reading it. The approach that Congress actually used has not been shown to actually focus on long-term, high return investments. A quickly enacted and carried out stimulus that simplistically dropped money from helicopters to the States and/or individuals would likely pack more of a punch. (If you grant the initial premise that deficit spending will stimulate the economy)<br /><br /><br />I will be continuing to research this issue with the following sites:<br /><a href="http://www.stimuluswatch.org/">Stimulus Watch</a><br /><a href="http://www.recovery.org/">Recovery.org</a><br /><br />Thanks for reading, tell your friends.Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0tag:blogger.com,1999:blog-10968884.post-77159362664264842382009-07-07T15:53:00.000-07:002009-07-07T16:21:40.236-07:00California IOUsThe largest banks in California including Well Fargo and Bank of America have accepted the IOUs in the past. Now, some banks have said they will <a href="http://online.wsj.com/article/SB124692354575702881.html">stop accepting the IOUs</a> at the end of the week. <br /><br />From this, a market is arising for <a href="http://www.ft.com/cms/s/0/6477d3a2-69c3-11de-bc9f-00144feabdc0.html?nclick_check=1">California IOUs</a>. If you look on Craigslist in San Francisco, there are dozens of ads for "IOUs Wanted."<br /><br />This raises a few issues<br /><br />1. Is this a state-issued currency? It is used just like a currency, except that there is an explicit interest bearing feature. If it is a currency, that runs into constitutional issues. <br /><span><span><em></em></span></span><blockquote>No state shall enter into any treaty, alliance, or confederation; grant letters of marque and reprisal; coin money; <span style="font-weight: bold;">emit bills of credit; make anything but gold and silver coin a tender in payment of debts</span>; pass any bill of attainder, ex post facto law, or law impairing the obligation of contracts, or grant any title of nobility.</blockquote><br />2. What are they worth if the state does go bankrupt? I have some idea about what happens with a corporation goes bankrupt, but I don't know much about the equivalent for a State.<br /><br />3. Banks are accepting the IOUs and some may continue to accept them after this week. How do they impact the bank's capital and what does the US Treasury have to say about it?Andrew Rhttp://www.blogger.com/profile/07359714571520333101noreply@blogger.com0