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Investing and Economics Blog

Fair Use Worth More to Economy Than Copyright, CCIA Says

Fair Use Worth More to Economy Than Copyright, CCIA Says

Fair use exceptions to U.S. copyright laws account for more than $4.5 trillion in annual revenue for the United States, according to a report issued on Wednesday by the Computer and Communications Industry Association.

“Much of the unprecedented economic growth of the past 10 years can actually be credited to the doctrine of fair use, as the Internet itself depends on the ability to use content in a limited and nonlicensed manner,” CCIA president and CEO Ed Black said in a statement. “To stay on the edge of innovation and productivity, we must keep fair use as one of the cornerstones for creativity, innovation, and, as today’s study indicates, an engine for growth for our country.”

September 14th, 2007 by John Hunter | Leave a Comment | Tags: Economics

Homes Entering Foreclosure at Record

Some pretty amazing statistics are in this article – Homes entering foreclosure at record:

Delinquencies hit 5.12 percent of all outstanding mortgages, up from 4.39 percent a year ago, the Mortgage Bankers Association (MBA) said in a quarterly survey.

Serious delinquencies, those 90 days or more late, jumped to 1.11 percent of all loans, from 0.98 percent in the first quarter. The loans actually entering foreclosure proceedings stood at 0.65 percent, a rise from 0.58 percent in the first three months – and the highest rate in the MBA’s 55-year history.

This quote however is a bit misguided I think:

More Americans are falling behind in their mortgage payments as stagnant home prices, auto-industry weakness and climbing interest rates have taken a toll on housing affordability.

Stagnant home prices have not taken a toll on housing affordability. Yes people that put nothing down and took out mortgage where they could not pay the monthly payments and planned to just borrow even more from the house if the house price went up can’t afford it – but they couldn’t afford it in the first place.

Related: Learning About Mortgages – Mortgage Defaults: Latest Woe for Housing – Ignorance of Many Mortgage Holders – Median Housing Prices Down 1.5% in the Last Year – How Not to Convert Equity

September 6th, 2007 by John Hunter | 2 Comments | Tags: Economics, Financial Literacy, Personal finance, Real Estate

Washington’s Funny Accounting

Fuzzy Bush math

There will be lots of celebrating in Washington next month when the Treasury announces that the federal budget deficit for fiscal 2007, which ends September 30, will have dropped to a mere $158 billion, give or take a few bucks. That will be $90 billion below the reported 2006 deficit and will be toasted by the White House and Treasury as a great accomplishment.

But I have a nasty little secret for you, folks. If you use realistic numbers rather than what I call WAAP – Washington Accepted Accounting Principles – the real federal deficit for the current fiscal year is more than 2-1/2 times the stated deficit.

What is going on? The same old story. Those in charge of spending the money in Washington like to use deceptive tactics to try and trick people that don’t know any better. For example, if the government incurs a deferred liability to pay $100 Billion dollars in future social security payments this year and invests that money in treasury bonds they act like the government didn’t spend that money. Of course it did, they took $100 billion in social security taxes and spent it to build bridges to nowhere, pay huge corporate welfare payments, other worthless wastes, even worthwhile things etc..

Related: USA Federal Debt Now $516,348 Per Household – Washington Paying Out Money it Doesn’t Have – Concord Coalition

September 4th, 2007 by John Hunter | 2 Comments | Tags: Economics, Financial Literacy, Taxes

Economic Fault: Income Inequality

There are at least 2 problems with too much income inequality: first it is bad for the economy and second it is unfair. If all the rich were like Larry Page or Warren Buffett (or even say many of them were) instead of spoiled rich kids that would eliminate one problem. Too many people live with too few economic resources in the present day – that is not right. And too much income inequality destroys the economy. Surprise: The rich get richer and the poor get more numerous

From 1979 to 2006, the hourly pay of California’s low-wage workers fell by 7.2 percent after adjusting for inflation. High-wage workers saw gains of 18.4 percent, while those exactly in the middle edged up 1.3 percent.

The richest Californians are capturing a growing share of wealth. Income reported for tax purposes of the top 1 percent of the state’s taxpayers jumped 107.7 percent from 1995 to 2005, after adjusting for inflation. During the same period, income of the middle fifth of taxpayers rose 9.3 percent.

By the way there are many things that would be hard to live with but how do people even think of spending $500,000 on some kids birthday party (search for super sweet 16th if you have not heard of the crazy idea)? I really can’t fathom people being so ludicrously superficial and cruel. If you have such money to throw away how can you possibly choose to spend it on a spoiled brat’s party instead of helping out hundreds less fortunate 16 year olds literally starving to death around the globe? I really don’t understand. I am embarrassed to be of the same species as such people.

Related: Microfinancing Entrepreneurs – Estate Tax Repeal

August 23rd, 2007 by John Hunter | 1 Comment | Tags: Economics

Real Estate Median Prices Down 1.5% in the Last Year

Home prices drop for fourth straight quarter. Wow – that sounds bad.

During the second quarter, the median single-family home price was $223,800, 1.5 percent less than a year ago, according to the National Association of Realtors (NAR). It was the fourth consecutive quarter of price declines. Condo prices rose 1 percent to a median of $226,800.

Wow, that doesn’t sound bad. For comparison the NASDAQ index was down 1.6% today. In addition, always remember median prices are not as straight forward as it might seem. The mix of housing that sells changes between the periods being compared. Often (though maybe not this time) as the housing speculation subsides the mix of houses shifts as fewer expensive houses are bought which would tend to mean even if prices for identical houses stayed the same the median price (of houses actually sold) would decline.

Home sales have fallen in many markets, inventories have stretched to a nearly eight-month supply, and new-home builders have been reporting big losses.

There are real changes taking place in the real estate market but the big changes are increased inventories, increased mortgage defaults and a credit crunch – not declining prices. My prediction of price drops was as small as any almost any I saw over the last few years. And so far, the declines are even less than I thought we would see. The biggest factor for the depth of the pricing declines is going to be how many houses are forced into foreclosure (which is unfortunately possibly going to be high due to adjustable rate mortgages being adjusted up and requiring higher mortgage payments).

In the short term, the credit crunch is having an impact and that may increase if the jumbo loans (for those with significant down payment and good credit) continue to be hard to finance. But I don’t expect that to be the situation even 3 months from now – of course I could be wrong. The real estate situation (pricing, inventory…), as often is the case, is hugely impacted by the location. Some areas, like Arizona and Florida, are being hardest hit now.

Related: Real estate articles – Beginning of the End of Housing Bubble? (2004) – Homebuilders’ confidence at 16-year low – mortgage information

August 15th, 2007 by John Hunter | 1 Comment | Tags: Economics, Financial Literacy, Investing, Real Estate

Housing Inventory Glut

Housing inventory glut gets fatter

Zip monitors 18 metro-area markets from all four regions of the country. For the 12 months ended July 31, only Boston and San Diego showed drops. Boston’s inventory fell 5.8 percent and San Diego’s dropped 2.1 percent. The average for the 18 cities was a 19 percent increase in homes on the market
…
The wait for tenants may be a long one. It’s much harder to get a loan these days for all but the best borrowers. Borrowers, for the most part, now must put more money down, document their income and assets, have few dings against their credit worthiness and show that they can afford the payments. Those tightened lending restrictions eliminate potential buyers from the market, reducing demand even as more supply hits the listings due to big jumps in foreclosures and builders finishing up projects initiated before the slump took hold.

What does the current data show about the real estate market overall? Across the country in the last year the median price has actually increased slightly. It looks like the data for the calendar year 2007 will show a decline for about 2%. Some areas have been much harder hit with median prices dropping over 10% (Las Vegas, Florida, Phoenix…). Mortgages any of 1) questionable credit score 2) jumbo loan or to a lessor extent with little money down are becoming hard to come by. Foreclosures are increasing dramatically. Builders are having a great deal of difficulty selling new housing they have built.

Still the decline in median prices is far from as dramatic as many feel (there have been large changes in the market but it still has not lead to a crash in home values or even a noticeable decline in most places). The increasing supply of houses for sale will put pressure on housing prices to decline. But without a significant continued increase in foreclosures (which is possible but it is still difficult to predict how large an increase we will see) I still do not believe we will see dramatic price declines in most of the country. The possibility (of say declines of over 15% in a year or two) is much higher now than it was in the last couple of years.

Post from 2004 on the real estate bubble worries then – again prices would have to fall a great deal to fall below the prices in 2004 (possible but not very likely to happen in the coming years). The real estate problems are significant and pose a danger to the economy (they certainly are already decreasing economic growth) however that is much different than a crash in housing prices. And as bad as the credit markets have been and rising foreclosures, increased housing inventory the anticipated crash in prices has still not been seen nationwide – and I stand by my belief we won’t see it. Though I will admit less confidently than at any time so far – I would hedge my bet on this prediction at this point (if I actually had bet any money on that prediction – I have no desire to sell any of my 401k money invested in real estate, my rental property or my house).

August 14th, 2007 by John Hunter | 3 Comments | Tags: Economics, Financial Literacy, Personal finance, Real Estate

Credit Crisis

Well the credit crisis triggered by the fallout from lax mortgage lending is really making waves. It seems we are likely to have some real issues to deal with. The reduction of easy money can have serious consequences to an economy especially one so based on spending beyond what it is producing. I’m still not sure what the overall impact will be but the risks certainly seem to be worth watching.

The world savings glut has overwhelmed the excessive borrowing done by the federal government and private sector and kept interest rates lower than seemed reasonable. That may finally change – or may not, isn’t economics great :-/

August 9th, 2007 by John Hunter | 2 Comments | Tags: Economics, Investing, Real Estate

USA Living Beyond Means

Comptroller Says Medicare Program Endangers Financial Stability:

What would happen in 2040 if nothing changes? “If nothing changes, the federal government’s not gonna be able to do much more than pay interest on the mounting debt and some entitlement benefits. It won’t have money left for anything else – national defense, homeland security, education, you name it,” Walker warns.
…
Asked if he knows any politicians willing to raise taxes or cut back benefits, Walker says, “I don’t know politicians that like to raise taxes. I don’t know politicians that like to cut spending, but I think what we have to recognize is this is not just about numbers. We are mortgaging the future of our children and grandchildren at record rates, and that is not only an issue of fiscal irresponsibility, it’s an issue of immorality.”

Strong words and I agree, as stated in: Washington Paying Out Money it Doesn’t Have and USA Federal Debt Now $516,348 Per Household.

July 10th, 2007 by John Hunter | Leave a Comment | Tags: Economics, Financial Literacy, Taxes

Old and Wealthy

I am not exactly sure why but for some reason people seem very ignorant of the wealth distribution by age. The richest group by far are those over 65. There are several reasons for this including self preservation. Once you stop working you better have a large pool of capital or you will most likely have little income (you could have a great pension and no other savings but…). Another is that the “miracle” of compound interest. Those that actually saved enough for retirement often find their investments out-earning their spending thus wealth increasing yearly. This effect over time results in wealth increasing dramatically. Many of those that failed to save enough will have their savings dissolve very quickly thus leaving the inverse of a bell curve (a high number of wealthy and of poor and a lessor number in the middle). Social Security helps those that failed to save enough for retirement to slow the decline (and those that saved enough to become even wealthier even faster). The presence of large numbers of poor elderly I think is one reason so many are surprised that they are the richest age group.

I used to be surprised how few people know this – now I know, for those I talk to anyway, they are always surprised. This has several public policy impacts such as why do we have a huge “social security transfer system” (social security including medicare) to move money from the young to the old when the old are wealthier than the young? People see the 7.65% deducted from their check but the employer has to pay an equal amount to this transfer of wealth between the generations bringing the total to 15.3%.

It doesn’t make much sense to me to have those working at Wal-mart and McDonalds transfer 15.3% of the income from their labor to much wealthier people. Yes, paying something in I think is fair. But the system should be adjusted. One method I would use is to reduce (or eliminate) payments to the wealthy elderly (continuing the existing payments to the poor elderly is affordable so I see continuing those payments as good public policy) and reduce taxes on the working poor. Obviously others disagree so we transfer a large amount of money from those working at Wal-mart to those with hundreds of thousands in investments. I think this is wrong. I wish at least the facts would be known so that the decision is made with awareness of the facts.

The median net worth of people 55 to 64 has climbed to nearly $250,000, while it has dropped to about $50,000 for those in their late 30s
…
The growing divide between the rich and poor in America is more generation gap than class conflict, according to a USA TODAY analysis of federal government data. The rich are getting richer, but what’s received little attention is who these rich people are. Overwhelmingly, they’re older folks. Nearly all additional wealth created in the USA since 1989 has gone to people 55 and older, according to Federal Reserve data. Wealth has doubled since 1989 in households headed by older Americans.
…
The implications are far-reaching and can turn conventional wisdom on its head. Social Security and Medicare increasingly are functioning as a transfer of money from less affluent young people to much wealthier older people.

Wow, I don’t recall seeing publications actually point out this fact very often. Good for the USA Today.
Read more

July 8th, 2007 by John Hunter | 2 Comments | Tags: Economics, Financial Literacy, Personal finance, Retirement, Saving, Taxes

Bottled Water Waste

Message in a Bottle

Americans spent more money last year on bottled water than on ipods or movie tickets: $15 Billion. A journey into the economics–and psychology–of an unlikely business boom. And what it says about our culture of indulgence.
…
We’ve come to pay good money–two or three or four times the cost of gasoline–for a product we have always gotten, and can still get, for free, from taps in our homes.
…
In San Francisco, the municipal water comes from inside Yosemite National Park. It’s so good the EPA doesn’t require San Francisco to filter it. If you bought and drank a bottle of Evian, you could refill that bottle once a day for 10 years, 5 months, and 21 days with San Francisco tap water before that water would cost $1.35. Put another way, if the water we use at home cost what even cheap bottled water costs, our monthly water bills would run $9,000.

Taste, of course, is highly personal. New Yorkers excepted, Americans love to belittle the quality of their tap water. But in blind taste tests, with waters at equal temperatures, presented in identical glasses, ordinary people can rarely distinguish between tap water, springwater, and luxury waters.

In addition to throwing your money away the damage done to the environment to package and transport water all over the globe instead of just using your tap to get local water is immense. Stop be so naive and buying products like Evian (not what that is spelled backwards?).

July 6th, 2007 by John Hunter | 1 Comment | Tags: Economics, Personal finance

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