Saturday, June 27, 2009

Glorious Depression and California Budget Crisis

Politicians may close down the entire C S University or University of California systems in order to preserve welfare for the elderly, disabled, and illegals. The gap is so huge that drastic cuts will be made -- if no money in bank so they cannot write the checks! The LA Times says it will be government by lawsuit as the various interests sue to get money and government grinds to a halt. Next year will be worse.

This is a glorious depression that has already forced people to save more, spend less, get out of debt and quit importing illegals to build houses they have to bulldoze later. Whipping California budget into shape will help unleash this dynamic economy - there has never been a better time for cheap small electronics like macbook, mac mini, ipod, iphone to help people get things done cheaply and efficiently using Oracle DB, Sun servers, Cisco routers, wireless etc. And Hollywood, games, youtube, provides cheap escape without travel, gas wastage, clogged airports and highways and time off work. In the depression of 1975-1982 Microsoft, Apple, Sun, and other high tech companies got started with unemployed talent. Now is the time to think about starting a new high-tech business.

Saturday, June 13, 2009

10 year mortgages

The duration mismatch problem caused by banks borrowing short and lending long should be fixed without using so many risky derivatives. Banks should be stretching deposits to push savers into 5 and 10 year deposits because savers are often saving for retirement so they need a longer term. Also most loans are longer term, such as home mortgages so that savings need to be saved for as long as borrowers need it so that the bank is not vulnerable to "runs" and "panics". Home mortgages should be reduced from 30 years to 10 years to match the deposit maturity.

This problem is caused by home buyers wanting to buy to fancy of a house. For the same monthly payment they could buy a cheaper house and get it paid off faster. Then they could accumulate cash for a down payment on a fancier house. After buying the fancier house and moving into it they could sell the old smaller house and use that cash to more quickly pay off the newer fancier house. At which point they can begin the cycle again and buy an even fancier house...

People would save a lot of money and be exposed to less risk by not getting in over their head and buying a too fancy house at the beginning. This would also help reduce the risks to banking.   Regulators should pressure banks to reduce the duration of their loans and increase the duration of their deposits.  Taxpayer bailouts should not be used to fix the problems of inadequate regulation by government.

Monday, June 8, 2009

Stagflationary Depression

Yes, I think inflation is coming and Obama may be a one term president like Jimmy Carter who also let inflation run out of control. Nobody likes inflation except for debtors who hold on to their jobs and can repay their debts with less valuable dollars than what they borrowed. Everybody else will have to pay more for everything which will be especially painful for those without jobs in bankrupt states such as California which is getting rid of welfare and the safety net. Inflation is also bad for the stock market and bond market and most asset markets. Inflation pushes up the discount rate so this clobbers most asset prices which are inversely related to the discount rate.

I wonder if California cannot get a budget in the next few days and runs out of cash in July then California will have to declare bankruptcy? So then they can throw out CalPERS and other pensions such as what happened at GM, Chrysler and many other bankrupt entitites? They are facing up to some serious cutbacks and I expect to see some quick actions to raise taxes, mass evacuations by the rich and poor, and further drops in real estate prices.

This depression has a ways to go, yet. Stagflationary Depression?