A Letter To President Obama And A Short Article

Description: Newspaper clipping USA, Woodrow W...

Woodrow Wilson signs creation of the Federal Reserve. Source: Date: 24 December 1913 (Photo credit: Wikipedia)

Dear President Obama:

I listened to you talking about the need to extend unemployment insurance this morning 1/7/14. I agree unemployment  benefits should be extended. At the same time we should change a couple of our income tax laws to help prevent the next financial crisis, and to increase the financial strength of the middle income people, and the working poor.

The question is :  Are  we using the correct tool to  maintain economic growth?

Hi my name is Chris Hall.  I have been in the real estate market since 1970 when I bought my first home.

I am writing you not to tell you my story, but the story of millions of families that have been affected by a flaw in our economic operational and guiding polices.

I believe “the flaw” is one of the reasons why poverty in our economy is increasing and the middle class is shrinking .

We need to use the income tax code to correctly control Inflation and inflation psychology and not only rely on the Federeral Reserve’s monetary policies. We need to change a couple of our income tax laws to help prevent the next financial crisis, and to increase the financial strength of the middle income people, and the working poor.

Enclosed you will find a short article outlining the income tax changes that are needed before the Federal Reserve changes monetary policy, which will increase interest rates! Higher interest rates could trigger another financial crisis.

Please stroll down the page at http://www.taxpolicyusa.wordpress.com to read the other articles about “Household Formation and Why We Have A Failure To Launch Generation”– “Government Policies That Keep  You Homeless And Make Your Money Worth Less” and “ Underwater Mortgages Resolved Without Inflating Asset And Primary Home Prices”

Would you please sponsor the legislation to enact the 2% Appreciation/Inflation Taxation Policy, and the other tax reforms needed to improve the operation of our economy, and to maintain the value of our money (debt). If you can’t do it for America, please pass this information on to someone who will. Thank you

Chris  HalL

The  Federal Reserve  Cannot Control  inflation, Inflation Psycholgy and Economic Bubbles  By Themselves!

Ninety seven percent of our money is created by private banks as they make loans. Financial crisis are created by the excessive creation of private sector debt. (money) Therefore we should be concerned with how much private sector debt is being created in the private sector, and in which economic cycle it is being created, to control economic bubbles, high inflation, and deep recessions.

The question is: Are we using the correct “tools” to maintain economic growth?

The US economy is slowly improving, but it has come about by housing, and asset prices being inflated with very low interest rate money created with the Federal Reserve’s monetary policy of quantitative easing.

The Fed is currently purchasing between 70 to 80 billion dollars of Mortgage Backed Securities, and Federal Government Debt combined, per month. This monetary policy is known as Quantitative Easing, which has the effect of lowering long term interest rates.

Low interest rate have benefited Wall St. and investors.  In some US housing markets investors have bought more than 40% of the single family homes for sale. Single family home prices have increase, in some markets, as high as they were before the financial crisis occurred, due to investor demand. Encouraging investors to invest in single family homes with tax incentives, and other financial ploys during a recession is shortsighted, and could lead to another sell off in single family homes. The single family home market should only include the families that want to live in the homes. Single family home prices should reflect their purchasing power, not the greater purchasing power of investors.

The tax  deduction that investors currently have, that allows investors to deduct the cost  of repairing  a house should be  given to homeowners. so neighborhoods do not deteriorate. Homeowners will hire contractors to do the work, thereby reducing unemployment  and neighborhood  blight.

Investors have many opportunities to invest in multi-unit housing. All tax incentives in the tax code for investors to invest in single family homes should be eliminated. If an investor does buy a single family home in an area that allows multi-unit housing, they will quickly build multi-unit housing on the land, which will increase the housing supply during the high appreciation cycle.

We have had one primary home bubble, do we really want to repeat history again?

Consider this, If we could create an economy that allowed people to stay housed, employed, and productive, taxes would not have to be collected, or increased to pay for a larger government “safety net.”

We should eliminate the high appreciation/inflation cycle, and deep recessions, control the creation of economic bubbles, and the excessive creation of debt (money) with the “2% Appreciation/Inflation Taxation Policy.”

History has shown us that the Fed does not have the correct tools to control high appreciation/inflation rates, or stimulate the economy correctly. In the last 50 years prices have increase 1000%. If the 2% Appreciation/Inflation Taxation Policy had been enacted 50 years ago, prices may have increased only 100%. Even if prices had increased 200%, our wages would have maintained their purchasing power with affordable raises, and our manufacturing capabilities would have remained in the USA. Our production jobs would not have been outsourced to other countries. Our wages, and products would have remained competitive in the world market place. We probably would not have become a debtor nation.

We need good paying jobs in our economy. Not policies that create “paper profits” and higher prices. We need to enact the “2% Appreciation/Inflation Taxation Policy,” Now!!!; before the Fed changes monetary policy, and interest rates rise further. Higher interest rates will decrease the value of all the money (debt) that has been created with a lower interest rate. This situation could create another financial crisis as money (debt) investors sell their money investments, in a panic, to preserve their wealth. We need to create a sustainable recovery on Main St.

The 2% Policy would work like this: If asset, and real estate prices were increasing more than 2% a year, the tax on savings and money investments would decrease based on the appreciation/true inflation rate. At the same time the interest tax deduction would decrease based on the appreciation/true inflation rate. This tax policy reform change would automatically change the tax code as our economy changes from the recession cycle towards the high appreciation/inflation cycle. This change in the income tax code would reduce the stimuli in the tax code for people to create excessive amounts of debt (money), which creates high inflation, and high appreciation rates. Money (debt) would become more valuable because of the lower tax rate on money investments and savings. More real wealth would be created. Our economy would become more productive, and less speculative. After annual appreciation/ inflation rates returned to 2%, the tax rate on interest income , and the interest deduction would automatically return to their previous tax rate and deductibility, to maintain demand.

It is a major flaw in the financial operation of our economy to rely primary on the Fed to stimulate, and control inflation and inflation psychology with interest rate changes. Instead of interest rates changing by excessive amounts, the 2% Policy would help maintain interest rates in a much narrower range. This would allow businesses, and consumers to make long term financial decisions. The middle class, and working poor would be able to stay employed as the economy balanced itself. They would be able to retain and increase their wealth, and climb the economic ladder. The 2% Policy would reduce government’s interest cost on the national debt, government social expenditures, and decrease government deficits by reducing unemployment insurance cost, food stamps, Medicaid, and welfare usage.

With the 2%Policy enacted we would not be relying primarily on the Fed to stimulate the economy, and control inflation and inflation psychology with lower, or higher than necessary interest rates. Changing interest rates excessively up, or down has proven to be very damaging to a capitalist economy by creating unemployment, foreclosures and bankruptcies, as higher interest rates reduce demand from the bottom of the economy, which reduces the ability of people to climb the economic ladder.

Very low interest rates increase senior poverty. With lower interest income, seniors deplete their savings, they then turn to government programs to sustain themselves, increasing government dependency, and their deficits. With less interest income senior’s demand for products and services decreases when the economy needs more aggregate demand. The baby boom generation is retiring by tens of thousands in this decade and beyond. It will be very important for our economy to increase employment, that seniors are able to maintain themselves, and increase their consumption as the next generation matures. The baby boom generation will remain a very large portion of our economy for many years. Their consumption will add many jobs to our economy if they remain economic viable, and do not become government dependent.

This is a shortened version of the complete article posted at http://www.taxpolicyusa.wordpress.com  ” Government  Policies That Keep You  Homeless And Make Your Money  Worth Less”

You will find the other articles posted there also.

Please share this article with your friends, to get them involved. Ask them to send this letter to their representatives in Congress to show their support. President Obama’s e-mail is: whitehouse.gov/contact   We don’t want to keep repeating history. There, has to be a better way than Gloom, Boom, and Doom economics. What are your ideas! Please comment!


Failure to launch generation: Why household formation for younger Americans continues to lag while home prices soar. 46 percent of younger Americans living with older family members.

This article is from Dr. Housing Bubble Blog  www.doctorhousingblog.com

Many are giddy about the rise in home prices.  Yet gains in home prices with no subsequent gain in income are merely a repeat of the previous bubble with a different tune.  In the last bubble, the memory has seemed to faded, the impetus for funky loan products came because incomes were not rising and products that offered additional leverage were taken up to mask the growing decline of wages.  In the last couple of years, the tinder that lit this latest run came from the Fed’s artificially low rate eco-system.  The difference this time is that the gains in home prices largely went tobig investors that now dominate the market.  In the midst of all this trading, the homeownership rate has fallen.  Household formation for younger Americans is dismal.  The economy officially exited the recession back in the summer of 2009 (half a decade ago this summer).  So why is housing formation so weak when it comes to younger households if the economy is supposedly booming?

Household formation – Under-performance

There was an interesting presentation made by Andrew Paciorek and was posted over at the Fed’s Atlanta website.  The gist of the analysis attempts to examine the math behind the weak growth in housing formation.

One main reason that I have argued is that many younger households are simply saddled with large amounts of debt and weak incomes.

First, let us look at the math behind housing formation:

household formation 1

From 2000 to 2006, roughly 1.35 million households were forming per year.  This baseline may be inflated given this was at the meat of the first housing mania.  But let us use that as a baseline.  Then, with the real estate crisis, housing formation hovered around the 550,000 range.  That is a massive drop.  What happened here was the yanking of maximum leverage loan products that really did not care about the borrower’s ability to repay the loan (i.e., their income).  When that was put back into place, the market corrected fiercely since many were walking on eggshells hoping the bottom didn’t give out.

In 2012 household formation recovered to 1 million per year.  This came because the vanilla 30-year rate collapsed and also, prices sinking made it more affordable for families to venture out and buy.  The slide above mentions that housing didn’t jump start the recovery but I disagree.  Investors plowed into the market.  They jumped in with generous liquidity provided by the QE system.  Investors went from something like 10 percent of all sales to well over 30 percent of all sales.  A reader made an astute comment that items for the 1 percent are doing exceptionally well (i.e., luxury cars, food, and clothing) while items for the general population are taking a big hit (i.e., JC Penny, etc).  Investors are buying homes with non-traditional financing largely unavailable to the general public.  Indirectly, the rise in home prices has now created a wealth effect yet again:

top states with price gains

Source:  CoreLogic

These are some incredibly large year-over-year gains especially when incomes remain stagnant.  So what you really see for many is that more income is going to housing in the form of higher mortgages or higher rents.  Of course who gets these higher payments?  Big investors that are now a big portion of the single-family housing market.  So yes, the real estate market is once again front and center for this recovery yet this recovery is largely leaving out the middle class.

Household formation – Living with the parents

The other more obvious point is a larger portion of younger Americans now live at home with parents.  In California, it isn’t uncommon to see multi-generations live in one household either out of saving money or necessity.  This trend is undeniable across the nation:

household formation 2

In the early 1980s, about 36 percent of young adults lived with older family members while today it is up to 46 percent.  Keep in mind this happened during the so-called recovery.  Yet from 1990 to 2008 the pattern held around 40 percent.  Why?  Because young households bit the bullet and took on maximum leverage loans either the vanilla variety or of the more exotic kind like ARMs.  The results were disastrous since 5.4 million homes have been repossessed since the real estate bust hit.  Yet investors have been gobbling up these homes at distressed prices and leveraging the low rate eco-system developed by the Fed.

The reason for the lag

This answers a couple of points as to the lag in household formation from the young but the bigger point is jobs (or good jobs to be more precise) and income.  Let us look at the conclusion of the presentation first:

household formation 3

I agree with the three underlying factors of formation.  The third point is given very little attention.  The labor market for younger Americans, even college graduates is not as positive as to justify current home prices:


Wage growth for college graduates has fallen.  A large reason for home price increases has been a simple supply and demand equation.  You have very little supply being metered out by banks and you have investors dominating the market (up to 50+ percent in Arizona and Nevada and over 30+ percent across the nation).  Recall those massive price gains in home prices?  Well now you have only 1 out of 3 households that are able to afford a home in California.  The question of household formation strikes at a new issue in that this next generation is likely to have a tougher go at the economy than the baby boomers.  In California for example, you have baby boomers that went to state universities when competition was not as fierce and the price-tag was virtually free plus the added bonus of the Prop 13 lottery that hit in 1978.  Then, exiting into a job market that is nothing like the one today (and pensions were abound even in the early 1980s with low healthcare costs).  Throw in the record bull market in stocks and you have a healthy combination of luck, timing, and fortune meeting together.  Today I have talked with 2 income households where both are college educated professionals making good incomes and they are struggling to purchase a modest home in a decent neighborhood without throwing most of their net income at the mortgage.

The household formation question is an interesting one but I seriously doubt that young Americans are going to be part of the new real estate renaissance for a few years.  Many are actually getting conditioned to enjoying renting and the employment mobility that is more part of the economy today compared to the lifetime employment of a generation ago.  The facts are clear and that is a larger portion of younger Americans are living at home for some reason and not venturing off to launch on their own.