As Barack Obama and his newly appointed financial team attempt to salvage the US and global economy from falling into the depths of a depression, what should the leader of the free world do?
When all is said and done, the problem facing the US during the past eight years, and for many others the past thirty years, is the average net worth of our citizenry has not increased. And, most likely, has gotten materially worse.
To understand what is happening, do not look to the past but let's look at the present. It is not unusual for a recent college graduate to be leaving school with over $100,000 in debt. And what does the recently hired student make? Maybe one-third of their debt level. Take a $36,000 starting salary, or about $3,000 per month, and subtract out taxes, take out rent of $800 per month (that could be conservative), the $1,000 per month of interest expense for the loans and the newly graduated student will have to steal for food. Or, more likely, depend upon his or her parents for support.
Another way to look at this, having graduated from college in 1986, a typical starting salary was $20,000, roughly two times what one year of college tuition cost. And, further, most people graduated without loans to pay off. This also happened to be when the cost of education started spiraling upwardly out of control. In my freshman year, annual tuition was around $8,000, jumping to $12,000 in four years. Today, that college costs $40,000 per year.
Add the pressure of getting master degrees and student could be stuck with $150,000 in loans upon graduation, if not considerably more.
This student then has to pay $50,000 to $70,000 to get married to be socially acceptable, pay for the $500,000 home where he or she will have to find $100,000 down payment since PMI insurance is so onerous (now over $400 per month) as the age of the 10% down mortgage is likely over.
The massive expansion of the use of debt during the past thirty years has led to an environment where the price of what we pay for things is materially higher than what we can afford to pay. This will mean, unless some creative things are done by Obama & Company, prices for mostly everything will be coming down. The recent drop of gas from $4.00 to $2.00 per gallon was nice. However, the recent collapse to $1.50 is almost becoming a bit unsettling.
The most creative thing Obama can do is keep on doing what the country has been doing, but do it more aggressively and more of it. If our citizens are scared to death by the volatility in financial markets and the US ten-year bond yielding just 2.6%, sell as much debt as you can at that interest rate and use the proceeds to buy all the bad mortgages and credit card debt. If people want to get out for debt, buy it and let them. This will quickly improve the net worth of the average American, increase their spending power, up their confidence and get the economy going again. As the economy stabilizes, tax revenue will go up to pay off the debt issued to repurchase the debt.
At the same time, develop new regulations so this mess will not happen again for another seventy years. Deregulation let people borrow at levels that they should not have been able to borrow. Also, continue to have the Federal Reserve flood the US economy with money and the US economy will begin to improve.
But remember Obama: Be aggressive! Be aggressive! Be aggressive!
Sunday, December 14, 2008
Saturday, May 31, 2008
Boston
First impression of Boston is how tranquil the town is—calm, nice with people being thoughtful. Interestingly, Boston lacks the level of intensity that is perpetually pushing people to the limits of sanity as in New York. The presence of having to attack, having to compete, having to work together, having to be paranoid that is part of New York is devoid in the Bostonian as I walked through Copley Square and Beacon Hill.
What is quite surprising is how much private high-school permeates Boston life. The world of private school in New Jersey is really for those who suffer from a severe case of inferiority. New Jersey invest heavily in its public schools and boasts the best in the nation, with little reason for a family living in a good town to pay the added expense.
However, that is not the case in Boston. A street is called Exeter; another called Dartmouth, a beneficiary of the private schools that dot the states from Connecticut heading northward.
Overtime, one has to question if this pervasiveness is a breakdown between the citizenry and local government that has now gone on for generations--the pride of being from Exeter and heading on to one of the schools that makes up such an important part of Boston life. The preppy clothes--some wearing new and neat, others wearing Polo shirts hanging sloppily around their overly wide waists, a sign of inactivity. And the whiteness, Oh! the whiteness. Not of the clothes, but of the skin. Pale white faces; paler white legs. And the look, Oh! the look. That pale white face with the look of inbreeding. America’s version of the royal family. A person so pale and so soft that a simple look from someone from South Boston or from an area like Bensonhurst would make this soft, fleshy boy in his twenties collapse due to his sheltered, shallow existence having lived a life in walled gardens.
The softness is distant from the lives most Americans and others around the world live. The coarseness that one builds up from watching their parents struggle to makes ends meet--the lack of money for your mom to look as pretty as she wants; the stress dad feels from always having his job threaten in this American system build around business. The white, pale soft skin of the Bostonian, descending from a father that works for the private equity firm that bought the company your dad who used to work for, then fired so they could afford to pay down the debt piled on to purchase it.
The southy driving the tour bus demanding his paying customers to listen: “If you listen, you’ll learn something.” Or, the other southy, owner of a liquor store, forcing the pale college student to dig deep into his pockets to find the final penny to pay his tab. The elder statements of the liquor store with a reddened face followed the pale student, he was not required to dig deep into his pockets to find his last penny.
The softness at first can be nice. The parents, now empty nesters, together, having wine in an French Bistro on Newbury Street. But, after a few minutes, there is no conversation. She has wine and her crossword puzzle. Always an ideal spot to do a crossword puzzle--a happening bistro in one of the trendiest cities in the country. This couple likely said goodbye to their last child. The husband, to have some conversation, turned to the early twenty-something barmaid. Her ambitions were not to be barmaid—to no one’s surprise—but to help her boyfriend turn his streaming radio station into a success. At least the barmaid still had hope. The wife, suffering the numbness associated with her daily in-take of wine and lack of physical exertion, turned back to her crossword puzzle.
What was not picked up in my first day of Boston was what made Boston great—the intelligence that comes from attracting many of the best minds in the world. The philosophy that helped drive the creation of laws that this nation was built on and the men and women of science who continually come up with the new ways to approach life that allow human beings to move forward. Well, tomorrow is another day.
What is quite surprising is how much private high-school permeates Boston life. The world of private school in New Jersey is really for those who suffer from a severe case of inferiority. New Jersey invest heavily in its public schools and boasts the best in the nation, with little reason for a family living in a good town to pay the added expense.
However, that is not the case in Boston. A street is called Exeter; another called Dartmouth, a beneficiary of the private schools that dot the states from Connecticut heading northward.
Overtime, one has to question if this pervasiveness is a breakdown between the citizenry and local government that has now gone on for generations--the pride of being from Exeter and heading on to one of the schools that makes up such an important part of Boston life. The preppy clothes--some wearing new and neat, others wearing Polo shirts hanging sloppily around their overly wide waists, a sign of inactivity. And the whiteness, Oh! the whiteness. Not of the clothes, but of the skin. Pale white faces; paler white legs. And the look, Oh! the look. That pale white face with the look of inbreeding. America’s version of the royal family. A person so pale and so soft that a simple look from someone from South Boston or from an area like Bensonhurst would make this soft, fleshy boy in his twenties collapse due to his sheltered, shallow existence having lived a life in walled gardens.
The softness is distant from the lives most Americans and others around the world live. The coarseness that one builds up from watching their parents struggle to makes ends meet--the lack of money for your mom to look as pretty as she wants; the stress dad feels from always having his job threaten in this American system build around business. The white, pale soft skin of the Bostonian, descending from a father that works for the private equity firm that bought the company your dad who used to work for, then fired so they could afford to pay down the debt piled on to purchase it.
The southy driving the tour bus demanding his paying customers to listen: “If you listen, you’ll learn something.” Or, the other southy, owner of a liquor store, forcing the pale college student to dig deep into his pockets to find the final penny to pay his tab. The elder statements of the liquor store with a reddened face followed the pale student, he was not required to dig deep into his pockets to find his last penny.
The softness at first can be nice. The parents, now empty nesters, together, having wine in an French Bistro on Newbury Street. But, after a few minutes, there is no conversation. She has wine and her crossword puzzle. Always an ideal spot to do a crossword puzzle--a happening bistro in one of the trendiest cities in the country. This couple likely said goodbye to their last child. The husband, to have some conversation, turned to the early twenty-something barmaid. Her ambitions were not to be barmaid—to no one’s surprise—but to help her boyfriend turn his streaming radio station into a success. At least the barmaid still had hope. The wife, suffering the numbness associated with her daily in-take of wine and lack of physical exertion, turned back to her crossword puzzle.
What was not picked up in my first day of Boston was what made Boston great—the intelligence that comes from attracting many of the best minds in the world. The philosophy that helped drive the creation of laws that this nation was built on and the men and women of science who continually come up with the new ways to approach life that allow human beings to move forward. Well, tomorrow is another day.
Subscribe to:
Posts (Atom)