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On Bad Laws and Hard Rain
Bad Governance
The House finally passed the lousy two-month extension of payroll tax breaks. The CBO scored the Bill that is now law. The costs for 59 days (and annualized if extended for all of 2012):
Social Security....................$19.8B........Annualized $119.B
Extended Unemployment.....$8.4B........Annualized $50.4B
Medicare...............................$3.4B........Annualized $20.4B
Totals........(two months).....$31.2B........Annualized $181.8B
The total cost of $31B is paid for with an increase in mortgage fees to be charged by Fannie and Freddie. Given that these two are providing 90% of new mortgages, most folks who buy a home or refi an old mortgage will get hit with these fees. CBO estimates when these fees will come into the Treasury.
This information raises some questions. I posed them to CBO and did not hear back.
1) The bill sucks money out those who have a mortgage. But if this method of financing the stimulus were used to cover the other ten-months of 2012 it would but a monster bite in those homeowners. It is dumb economic policy to stick it to those who borrow money for the next ten years to pay for a two-month stimulus. It is insane to think that this could be expanded to cover a full years worth of stimulus.
My point is that there is a funding hole for expanding the stimulus beyond February. We can look forward to another stupid big fight. It will be interesting to see whose pockets get fleeced next. Maybe a levy on farmers, pro athletes or even the Boy Scouts will come up for considerations. Those options are no dumber than taxing mortgages.
2) Note that the revenue from the tax on mortgages is $1.3B in fiscal 2012. Fiscal 12 ends on 9/30, therefore the tax kicks in prior to 9/30. The 1.3b is at least three months worth of revenue (as compared to full year 2013 @4.6B). Based on this information I conclude that the start date for the mortgage tax is June 1, 2012.
We have seen in the past what happens when a subsidy for housing ends. The housing market reacts pre and post the ending of the stimulus in a predictable fashion. Buyers do what they can to get a deal done before the subsidy goes away. Demand is “borrowed” from the future.
The tax on mortgages will work in a similar manner. Post 5/30, a buyer who takes out a $600,000 mortgage will pay an extra $50 a month ($6,000 over ten years).
Will this influence demand on a short-term basis? I would expect so. The RE hucksters will be pushing this all spring:
“Buy Now! Close Quick! Avoid the Tax!
After 6/1 there will be a drop off in demand for housing. This seems particularly dumb to me as this will happen right in front of the election. Possibly the Republicans (the tax on mortgages was their idea) think that a weak housing market coming into November plays to their hand. I think they will end up with egg on their faces.
3) The Republican leaders hate Fannie and Freddie. The reason they insisted that the 2012 stimulus be paid for on the backs of mortgagors is that they want to force F/F out of business. I hate F/F too. But 2012 is not the time to make mortgages more expensive.
The Republican Party has been digging their heels in fighting against every form of tax increase. But what do they do to achieve their objectives? They raise taxes, just like the Democrats do.
I would give the Democrats a C- grade on how this worked out. The Republicans deserve a D-. America is suffering from bad governance.
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Bad Weather
Today there are reports of 1000+ deaths from flooding in the Philippines. Last week another 750 were killed from massive floods in southern Thailand. A month ago the Thai capitol, Bangkok was inundated for a month. Deaths by drowning and water borne illnesses are in the thousands. These hundred-year floods are the result of the same weather pattern that brought the floods to Australia a year ago. La Nina conditions have persisted in the Pacific Ocean.
The following chart looks at the long-term ENSO cycles. Below zero is La Nina, above brings El Nino conditions. The data shows that neutrality in ocean temperatures was achieved in September. But today we are rapidly turning back to strong La Nina conditions. The chart shows several occasions in the past where the ENSO cycle was negative then neutral and finally negative again. It’s more normal to see a cycle shift from a La Nina to a El Nino.
Both El and La conditions bring the potential for severe weather. When the cycle persists the damage that it brings is concentrated in the same parts of the globe. This slide looks at Asia today. There are severe storms all over the region. The rest of the globe has relatively tranquil conditions.
For the US, the return of a strong La Nina means that West Texas will stay dry, above average rain in the central part of the country is probable and the NE looks like it is going to get a miserable winter; Cold and snow.
The farmers say, "A drought will scare you to death, but too much rain will kill you." As usual, the farmers are right.
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You mean discontinuation of subsidies?
hmmmh, pertinently and pointedly pointed out GMad.
Ag Subsidies are a huge un-balancer.
An inverse levy. An Anti-Sub-Siddy!
ori
So close...sub-siddhi. ;)
I wouldn't mind them as much if they were means-tested so small farms got the support instead of ConAgra/ADM.
Predictions about the future are always hard, but the Northeast is 25% through climactic winter, and so far it's been quite warm, even allowing for the freak Halloween storm. January and February will have to be wicked cold just to get back to normal.
Last I saw winter starts on 12/21. It's nice now. Wait 6 weeks.
bk
I prefer the season of brooding and introspection be short...............
yah bruce the dems are less bad than the GOP (they are the same party you should know that)..howd that vote for Obuma work out? now I understand your bias and remember your nothing illegal call on solyndra..in your heart you are a socialist (demorat/repub) even if you cannot admit it. Corzine is such a GOP big wig, right Bruce? most here on ZH have seen that the 2 parties are run by the same elite, using socialism and NWO(CFR) to run DC.
the fact is that America needs a new political party not the two headed beast that runs DC.
It is very difficult for even a bright guy like Bruce Krasting, to come to that point of accepting that America's 'two party' system is a fake, and that the media-touted 'conflicts' between the two parties are stage-managed kabuki ...
Kabuki theatre for the purposes of making good legislation seem 'impossible', and for fuelling the continued illusion that those two American parties mean something ... channelling the anger of Americans toward one 'party' instead of toward the real criminal core, The System Itself.
The hard part in walking through the looking glass - accepting that the two American parties are two branches of 'one party - is the same problem Americans have with digesting the fact that the US courts are crooked from top to bottom, from US East Coast to US West Coast.
The problem with such realisations, is that they mean that there is nothing left except Revolution, people in the streets, who would probably need to die in significant numbers - like in other countries - before such a Revolution could be successful.
Bruce Krasting is thoughtful, open-minded, non-malicious, on the road to truth ... but he is not yet ready to let go of all the illusions he has been sold over the decades. In this way like many Americans. One day soon he may suddenly see it all.
"America's 'two party' system is a fake, and that the media-touted 'conflicts' between the two parties are stage-managed kabuki ..."
Griffen gives a lecture on this very topic. Long but enlightening. He founded Freedom Force Int'l to educate people about the danger of Collectivism.
G. Edward Griffin: The Collectivist Conspiracy http://www.youtube.com/watch?v=dON5D6Wkprw&feature=player_embedded#!
Freedom Force Int'l: http://www.freedomforceinternational.org/freedom.cfm?fuseaction=creed
It is a huge sham. In one swoop, if it were not for that pesky reserve currency thing, the Fed could purchase all of the outstanding debt, the interest of which would be remitted back to the Treasury and recognized as general revenue. Alas, it is npt to be (yet) so the game goes on...
http://www.youtube.com/watch?v=TM2HRiZEPs8
"Bruce Krasting is thoughtful, open-minded, non-malicious, on the road to truth ... but he is not yet ready to let go of all the illusions he has been sold over the decades. In this way like many Americans. One day soon he may suddenly see it all."
Agreed. Good guy.......not quite there yet.
Yet somehow, Clowngress found over $500K to fund research on why chimps fling poo (via the NIH).
Maybe they are looking for ideas on how to improve the quality and wow-factor of Congressional debate.
Because their parents flung poo?
Oh that's an easy one, they do that to force a cloture vote on a filibuster...
tee hee!
Bruce - Thoughtfully done as usual.