By John Ransom
Monday, February 06, 2012
The country’s problems, although very serious, aren’t that tough to solve.
For anyone with a heartbeat and a healthy does of realism, our biggest problem is government intervention.
We have a credit crisis, which, like all other credit crises in the past, have been a function of too much money scattered in too few places.
Eventually, the markets collapse when performance catches up with liquidity.
This crisis has been brought on by federal intervention in various markets that inject liquidity into too few places that give a sustainable, positive return on investment.
Let’s look at three areas where federal dollars dominate: college education; real estate and healthcare.
In college education, the federal government is the only player left. Last year, for the first time ever, student loan obligations exceeded credit card obligations. This year, according to both Heritage and USA Today student borrowing is expected to top $1 trillion.
“Tuition and fees continue to shoot through the roof, now exceeding $17,000 per year, rising on average 8.3 percent at public universities this year,” writes Heritage. “[C]ollege costs have increased 439 percent since 1985, despite a 475 percent increase in federal subsidies such as Pell Grants. In other words, more federal funding hasn’t decreased the cost of attending college.”
In fact, the college inflation rate probably has much to do with the amount of federal aid available to colleges. Colleges, like every other business, raise prices when more money for their products is available.
The cost of a college education is rising so fast that students can’t pay off loans, even with subsidized interest rates from the government. “A recent study by the Institute for Higher Education Policy found that for every borrower who defaults,” writes the New York Times, “at least two more fall behind in payments. The study found that only 37 percent of borrowers who started repaying their student loans in 2005 were able to pay them back fully and on time.”
The government’s solution to the problem of too much money in education is throwing more taxpayer dollars at colleges and universities.
Same is true for real estate.
After three decades of subsidizing home ownership in the United States, the federal government helped fuel real estate prices to speculative levels and encouraged the least able to repay to borrow money with government guarantees.
4th quarter foreclosures rates rose again at the end of 2011.
“Foreclosure starts…increased this quarter,” write the Mortgage Bankers Association, “the first increase in a year after declining for three straight quarters, and is now back up to the levels of the first quarter of 2011. This is largely driven by loans leaving the loss mitigation process and the ending of state remediation programs and foreclosure moratoria.”
In other words, now that the government has stopped interceding in the private contracts between mortgage holders and home owners, foreclosures are resuming the natural course that they could have taken five years ago. But instead the government has intervened and kept the real estate market and home owners sickly, affecting the whole economy.
According to the FDIC, “The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and the government mortgage insurance program Ginnie Mae together account for more than 95 percent of total MBS issuance since 2008.”
That hasn’t stopped Obama from proposing the Federal Housing Authority absorb bigger losses or pressuring private banks to make home loans easier to get in continuation of the failed policies of the past. These are the same banks that the federal government is suing for making loans to people who couldn’t afford to repay them.
Remember too big to fail? There are more toxic assets concentrated in fewer and fewer places, most held by the federal government, guaranteed by you and me. And these policies were deliberately crafted by the Obama administration.
The story for healthcare is much the same.
The largest customer, insurer and payer for healthcare is the federal government.
And government money, combined with demographics have fueled rising costs for healthcare. “The new numbers are consistent with a trend that from August 2000 to August 2010 has seen healthcare inflation rise 48% while overall Consumer Price Index has risen 26% for the same period, U.S. Bureau of Labor Statistics data show,” writes HealthLeaders Media.
Again, Obama’s idea of reform is having the government be the only player in healthcare.
Because that worked so well for real estate and student loans.
But the most maddening part in the tale is that financial journalists won’t cover the story.
Instead of writing about the deleterious effects of federal involvement in healthcare, real estate, student loans, energy and every other area of our economy that is suffering, they often pose as cheerleaders for the administration.
Covering the latest cooked books from Bureau of Labor Statistic regarding unemployment, Don Lee of the LA Times glosses over the fact that real unemployment is at 11.3 percent rather than 8.3 percent the administration claims. Instead he chooses to take issue with Newt Gingrich’s claim that if people hadn’t dropped out of the labor pool that the “unemployment rate would now be 12% or 13%.”
Well, yeah says Lee. Buuuuuut, “while Gingrich has a point that the latest jobless rate understates the pain among workers, the unemployment figure still wouldn't be as high as he says it would be if workers hadn't dropped out. Rather, Mark Zandi, chief economist at Moody's Analytics, estimates the unemployment rate today would be 11.3% if the labor force had grown at a ‘normal’ rate since the end of 2007.”
Sure. Gingrich has a point, but his over-estimation of unemployment by over-estimation of unemployment by seven-tenths of one percent is somehow more dishonest than the administration’s undercounting of unemployment by three full points. You have to go to journalism school to that intellectually bankrupt?
Those idiot Republicans. Would it really kill Lee to admit that conservatives are r-r-r-r-right on this issue? Probably not. But it would kill something more important to him- his world view.
In fairness to journalists like Lee, they are hobbled by their post-modern desire to live in a world that conforms to their vision rather than having their vision conform to the realities of the world.
It’s not their fault.
They are just that dumb.