Immigrants and Housing Proposal

I was surprised to find the following in the New York Times this morning:

"Two senators, Charles E. Schumer, Democrat of New York, and Mike Lee, Republican of Utah, have proposed a bill that would offer three-year visas to foreigners who spent at least $500,000 to buy homes in the United States. But the idea has many opponents who fear expanding the nation’s oversupply of workers (a worry not shared by a fair number of economists)."

That was in a longer article, Goodbye House, Hello Pot Plantation by Catherine Rampell. There are over 1.2 million for sale and empty houses in the U.S. today, including hundreds of thousands repossessed by banks but being held off the market. On the other hand moving the unemployment number back to 5% would soak up all of this housing (partly in the form of rentals) and create more than enough demand for another construction boom.

We are in a massive housing and economic Catch 22. We probably can't get to 5% unemployment unless there is strong new construction. Housing construction requires local labor (can't be done overseas) and the materials used themselves are heavy enough that shipping is a large cost component, so they tend to be regional as well. In addition banks are reluctant to loan to home buyers. That would change if housing prices firmed.

I proposed moving house-buying immigrants to the front of the line back in A Cheap, Quick Housing and Economy Fix [November 18, 2008]. A number of people thought it was a good idea, but getting traction in anything related to immigration is difficult.

If you want to look at the Lee-Schumer bill or track it through Congress, it is S. 1746: Visa Improvements to Stimulate International Tourism to the United States of America Act. Here is the key text:

(a) Nonimmigrant Status- Section 101(a)(15) of the Immigration and Nationality Act, as amended by section 5(a), is further amended by adding at the end the following:
‘(X) subject to section 214(t), an alien who, after the date of the enactment of the VISIT USA Act--
‘(i)(I) uses at least $500,000 in cash to purchase 1 or more residences in the United States, which each sold for more than 100 percent of the most recent appraised value of such residence, as determined by the property assessor in the city or county in which the residence is located;
‘(II) maintains ownership of residential property in the United States worth at least $500,000 during the entire period the alien remains in the United States as a nonimmigrant described in this subparagraph; and
‘(III) resides for more than 180 days per year in a residence in the United States that is worth at least $250,000; and
‘(ii) the alien spouse and children of the alien described in clause (i) if accompanying or following to join the alien.’.

One of my complaints about the New York Times and other traditional web sources is that they hate it when a link takes you off their site, unless it is a paid ad. Not only do they not link to one of the bill tracking sites (there are several), they do not even give the official name of the bill, or its number. So getting more detail is unnecessarily difficult in this hyperlinked age. That is poor reporting, in my view. Probably not because of the reporters themselves, but because of "policy."

A Republican Hurricane

Imagine what Hurricane Irene how would affect people if the Tea Party - Republican program for dissolving American government were in full effect.

First of all, most people would have had no warning that the hurricane was coming because the National Oceanic and Atmospheric Administration would have been shut down. The Tea Party declared it a waste of taxpayer dollars. Sure, private weather companies could exist and tell their private clients that weather was about to go wild, and the Pentagon would continue to be well-funded and would have its own weather monitoring capabilities. But having a government service that efficiently serves everyone without charging ... that would be socialism.

For most people the first signs of Irene would be their cardboard boxes blowing away. The Republicans want to eliminate taxpayer-subsidized housing, Social Security payments, unemployment compensation, and Medicare. They do want to charge enough local taxes to pay police to keep the resulting 60 million homeless Americans out of abandoned structures, so boxes would be the new McMansions. You might think a family of four or even one would provide enough weight to hold down a box home against the wind, but you are forgetting that food stamps, a socialist evil, would have been eliminated. People would be too skinny to weigh down a box against hurricane force winds.

But why worry about the lazy socialist rabble? Republicans would be fine. The rich would have even more money because taxes would be even lower, and no government regulations would prevent them from industriously creating jobs for the unemployed people of India and Africa. Warned by their private weather services, the rich would simply fly their private jets to Texas to enjoy the Perry drought. If they lose a few servants trying to protect their mansions and yachts from the weather, they could be easily replaced.

Their are rich Republicans and their are religious Republicans; that is the alliance that has crushed (in our imaginary scenario) the socialist Anti-Christ. The Religious, non-rich Republicans who could still afford ammunition would be getting out their Vietnamese-made Kalashnikovs and perhaps a few still-functioning American made relics of when guns were still manufactured in the United States, before deregulation. You might think they would be protecting their homes against the 30 million homeless people in the path of the Hurricane.
No, they would be in a sectarian war. With church-state separation gone, inter-Christian tensions would have risen to unforeseen (except by me) heights. The hurricane would be the last straw. It would be clearly caused by a lack of appropriate prayer. The Baptists would accuse the Methodists and Catholics of praying wrong. As soon as the winds slowed the majority religion in each locality would go out armed and demanding conversion or death. Surviving Republicans would flee to their respective religious enclaves.

The economy would spiral into Depression that made the 1930's Depression seem like Happy Days. Even the U.S. military would eventually collapse, unable to pay its troops. States would secede from the union, and localities would secede from states.

It would be God's anarchy. Meanwhile, the socialist, religiously tolerant states of the world would get along just fine (as the Soviet economy did in the 1930s) and historians would write first drafts of The Rise and Fall of the American Empire.

Republican, Democratic and Tea Party Debacle

The rhetoric was shrill, but in the end there was much to do about nothing. The federal government has no plan for reviving the economy, and it has no plan for not going bankrupt down the road a few years. But consumers, business decision makers, and bankers were filled with terror throughout July, making the economy worse, not better. A worse economy results in lower taxes and bigger federal deficits, the opposite of what the Tea Party claims to want.

In yesterday's Disecting the Bull blog, Plenty of Stimulus, intended primarily for investors, I argued that the federal stimulus, on the whole, is plentiful.

Unfortunately, Congress and the President, as a whole, have their priorities screwed up.

Military and homeland security spending were exempt from cuts. There are economists who will tell you that military spending creates jobs, but so does make-work spending. The finished goods from military spending create no value. Also, much of the spending goes to troops garrisoned in our overseas empire, rather than into the American economy. Military and homeland security spending do not help the U.S. compete in the international arena against export powers like Germany, South Korea, and China.

Research and development, science, and education are being cut. Can you spell s-t-u-p-i-d? Sure, education money could be better targetted. We have too many English and film majors, not enough people learning technical, business, and science skills. We have way too many high school drop outs.

Regulatory agency budgets are prime targets for cuts. A lot more Americans are going to die because of lack of enforecement of safety rules than could possibly be killed by international terrorists. Banks won't get examined, impure foods will make it to supermarket shelves, passenger planes will crash in mid-air. Thank the Tea Party for that.

What is truly amazing, though, is that nothing is being done about the families being devastated by long-term unemployment. True, at least until the end of 2011 the federal government will continue to extend unemployment benefits to 2 years (most state allow for 6 months, which is fine in a normal economy or mild recession). Unemployment started rising in 2007. Of course there are food stamps, homeless shelters and Medicaid, but unemployed people are economically unproductive. Talent is being wasted when we need to be competing vigorously against the Chinese and Germans. The Republicans pray to their Holy Trinity, gold, free markets, and capitalism, but while the price of gold is up (don't worry, it's a bubble, it will fall again), our free markets have been rather lax at creating jobs.

It CEO's won't hire, government should take action. Here's what an activist President and Congress would do: impose a 95% income tax rate on CEO's of profitable companies that fail to grow their workforces. Include stock options and other benefits when calculating the tax. My guess: full employment by the end of 2011.

Get the housing market started again by allowing the Federal Reserve to loan directly to credit-worthy home buyers at the same interest rates it charges banks. Oh no, that would be socialism! Better depression, suicide, homelessness, riots, and chaos than a bit of healthy socialism.

You can talk about economics, but in the end an economy is just the aggregate of a bunch of human decision makers. You don't want people to be overconfident, or you get bubbles, but you don't want them to be overly cautious either.

The July Debacle did anything but inspire confidence. Hey hey, ho ho, the Tea Party has to go.

Capitalists Announce Five Year Plan

The new capitalist five year plan for the economy of the United States of America (including its empire of affiliated nations) was announced August 26, 2009, in a secret underground bunker in Manhattan. The plan covers the years 2010 through 2014.

The usual report on the prior five year plan was handed out in advance. Although there were some minor glitches in 2008 and 2009, the plan was deemed to be highly successful. The political baton was successfully handed off between the two parties without any real change in policy. Large numbers of workers were impoverished, which will ensure their loyalty and hard work during the coming years, if they are rehired. Almost all value was squeezed out of the economy and into a much smaller number of individual capitalists and banking institutions than had been necessary in the past. The heroin supply from Afghanistan was assured, military spending increased, and China and India got in lockstep with the plan for global development.

The key components of the new five year plan can be summarized as: maintain a stable trajectory. Military spending is to grow, but not so much as to jeopardize other segments of the economy. Unemployment is to recover, as its primary purpose of indebting large numbers of people and insuring their future loyalty has been largely accomplished. Stock market and housing price booms are designed in towards the end of the plan, to be facilitated by easy credit from the Federal Reserve. New regulations are planned to minimize competition, and new loopholes have already been worked into them that can be used to advantage only by the largest corporations.

The health care system in the United States is to remain mainly as it is, with only the most minor of reforms. Sick people are an economic liability once their wallets have been drained, but using tax dollars extracted from workers, high prices for drugs, insurance, and doctor services will be maintained.

The view on global warming has changed since the last five year plan. Super profits will be made by reluctantly accepting government and private dollars for "clean energy" projects. Meanwhile, heavy equipment manufacturing plans will be laid for the vast system of dikes that will be needed to protect sea coasts from flooding.

"Above all," said Michael Milkem, this year's chairperson, "we must remember to not try to micromanage the situation. Our strength is in sticking to fundamentals. Don't sweat the small stuff. Control the politicians, interest rates, and bank lending policies and the small stuff will take care of itself."

Adobe and the Capitalist Firing Squad

Did you hear about the leftist firing squad?

Everybody stands in a circle and fires at each other.

So now lets talk about the capitalist firing squad. They are in a circle now, blazing away, and hoping the government will intervene to

They are not firing bullets (yet); they are firing people.

I thought of this because I listened to Adobe (the software makers of Acrobat and Flash fame) management do their analyst conference yesterday. You can read my financial commentary on Adobe at Dissecting the Bull. Here I want to remind people about how selfishness can be negative even for the selfish (in contrast to the Adam Smith inspired sentiment that greed is good for society).

Adobe is immensely profitable. In the latest quarter they had profits of $320 million on revenues (sales) of $915 million. They say they would have done better if we were not in a recession.

So what are they going to do? Their profits were up 10% from a year-earlier, at a time when a lot of people and companies are in a world of hurt. But their response is to fire a large percentage of their employees. Actually, apparently the pink slips went out at the beginning of December.

Those employees will respond to their own personal situations by cutting their spending. Joining other laid-off workers, they will contribute to a macroeconomic spending downturn. Other companies, feeling less demand, will do another round of layoffs. Perhaps compelling Adobe itself to lay off more workers in 2009.

You can understand layoffs when a company is losing money. But Adobe is not the only company that is firing people just to keep its stock price up. Practically every profitable company I have paid attention to has done the same. They have absolutely no loyalty to their workers. If the past is any indicator, corporations will lay off some of their best workers and keep the ones whose main characteristics are lip puckering and back stabbing.

I believe we are actually in a fairly typical cyclical economic downturn. For the usual reasons, probably in 2009 we will realize that the bottom is behind us. Companies will start hiring again. The capitalist firing squad will go back to its usual anarchistic ways. Housing led us into the recession and will probably lead us out of the recession. Very few new homes are being built right now, and with interest rates and housing prices low, excess inventory is beginning to be sucked up (except when it was built in the middle of nowhere) [See California Housing Dynamics]

On the other hand, if the capitalists close their circle tighter and shoot more accurately than I expect, there is still a possibility that they can turn a recession into a depression. Then it will be the leftists turn to go hunting among the disillusioned and hungry.

A Quick, Cheap Housing and Economy Fix

Know anyone on the Obama transition team? Pass this idea along to them, see if they can indeed think outside the box:

Sell the glut of houses to immigrants. It will cost taxpayers nothing. All that Congress & the President would have to do is to authorize those who are already on the waiting list, and have the money to buy a house, to come on in.

Even administrative costs would be minimal. Those who can show the financial ability to buy a house could get temporary visas to come in (I would not want them to buy a house unseen), pick a house, and make the arrangements. When the money is transferred and the new title recorded, they get their green card and can occupy the house.

The entire surplus of American houses could be disposed of in six months to a year. Housing prices would stop falling, so people would (mostly) stop defaulting on their mortgages. Banks would be saved.

Cost to tax payers: zero.

The anti-immigrant types might scream, but we would not be letting in more immigrants in the long run. Just speeding up the current program. Quotas would remain the same, so legal immigration would slow for a while once the program was completed.

I just can't think of anything wrong with this idea, except that it does not involve giving away taxpayer dollars, and most politicians are too spineless to tack into the the anti-immigration headwinds even when the benefits to the United States of America are so obvious.

Pass the idea along.

Strange Securities Auctions

I have written in the past, mostly at Dissecting The Bull, about the problem with pretending markets are efficient pricers of goods when prices are set by auctions. The recent financial meltdown has given many real world examples of this, but they are difficult to explain to people who are not familiar with stock and bond pricing, much less derivative pricing. So I have made up an imaginary example that encapsulates, in a dramatic way, a particular type of auction malfunction (if by malfunction we mean pricing that veers from free market ideals). I'll walk you through the example, then relate that understanding to selected current economic and financial events.

You hear about an auction and it sounds like you might want some of items in it, if the prices are right. The auctioneers will take only cash, so you put together what you have, say $55. You get stuck in traffic, so you arrive late. Outside people are already boasting of what great bargains they won. You hurry in.

The auctioneer, "the next item is a bundle of $1 bills, 100 of them." You think it is a strange item to auction: it is clearly worth $100 [assume these are not bills of value to collectors, or counterfeits, just ordinary $1 bills]. No one makes an offer at first, because everyone says assumes that it will be bid up to just short of $100, so bidding is a waste of time. But the tension builds and you decide why not, and open at $10. At that point the bidding goes quickly up to $29, then stalls. You offer $30. No one else bids against you. You win the $100. You pay $30 for the $100 and have $70 at the end. Meanwhile the auction has ended.

How could that happen (aside from the fact no one would auction off actual money like that)? Everyone else had run out of money. The next richest bidder in the room only had $29. It is your lucky day.

Translating this imaginary excursion closer to reality, now suppose that the item you bid $30 on and won was a mortgage bond worth $100. It really is worth $100, because the mortgage backing the bond is sound and will pay $100 over time. You win the auction not because the bond is worth $30, but because there is not enough cash to efficiently price the auction. Free market ideals have broken down.

Lately, almost no one has wanted to participate in auctions of at least two types of securities, mortgage-related bonds derivative securities and auction-rate securities.

There are two basic reasons there has been little bidding for weeks now: fear and lack of cash to bid with. The kind of institutions that can play this sort of game were all suddenly short of cash, and wanting to auction off what they could for cash, rather than using their precious cash to buy more securities. But no one else knows how to price the securities. For instance, it is difficult to find out which particular houses correspond to which particular mortgage bonds; linking the houses to derivatives is even more complex. So it is not exactly like buying a bag of $1 bills, if you just start buying a bunch of bags without looking in them. It is like buying an unopened bag of $1 bills and moths. It might have $100 of usable bills in it, or it might be all moths, or anywhere in between.

This is a problem for the government bail-out program; is the government going to look in each bag before it uses taxpayer money to buy it, or is it going to guess about the value of huge groups of bags using sampling techniques.

In free market theory prices are supposed to emerge in an efficient manner and result in efficient allocations of resources. Putting aside that there may be (in fact, are) problems with free market economics even when pricing of commodities is efficient, in the real world the conditions necessary for efficient pricing often don't exist.

For an auction to price items efficiently, there need to be a reasonable number of bidders and a reasonable number of items to bid on. If anyone has the power to set prices, prices will be set by that person, not by the market.

Even when there are reasonable numbers of buyers and sellers, because of human nature, prices can get out of whack, as in both bubbles and Depressions. The housing market is an auction market. Two years ago there were relatively few houses compared to bidders, resulting in unrealistic, high pricing. Now the same houses are in abundance compared to bidders, so in many cases sales are either not made (because in effect the people auctioning off their houses have set a minimum bid that no one will meet) or made at well below the real value of the house. The actual cost of construction being a good surrogate for real value for new homes, and that cost adjusted for inflation and physical deterioration being a good surrogate for used homes.

The Federal Reserve has been tasked with making sure their are neither too many nor too few dollars in circulation. When there are too many dollars, they are used freely to create inflation and asset bubbles. When there are too few dollars, people are forced to sell assets at less than their real values. Free market theories pretend that the only real value is the selling price, and it a very real sense that is true. But when selling prices depend on the whim of the Federal Reserve, you might want to ask yourself: what really is true, and what is bull?

Gramm-Leach-Bliley, Glass-Steagall, and Bill Clinton

In the last couple of weeks some of the nationally known pundits, and the Barack Obama campaign, have started talking about how the Gramm-Leach-Bliley banking bill, which overturned the Great Depression-era Glass-Steagall act, has played a major part in the mortgage finance disaster of 2007-2008. I posted an article, Housing, the Credit Squeeze, and Glass-Steagall Act, back on February 4, 2008, when no one wanted to talk about the subject.

During an election, if the economy is bad, there is a tendency to blame everything on the party in power. Senator Obama's attacks on Senator McCain about Gramm-Leach-Bliley are not unjustified. However, Obama's party, the Democratic Party, was just as responsible for repealing Glass-Steagall as the Republican Party. Given Barack's spineless political career we can surmise that he would have voted for Gramm-Leach like everyone else, had he been in the Senate or House of Representatives at that time.

At the shallowest level, we are simply seeing the usual political-economic cycles that have been taking place since the first flint ax was traded for the first sea shell. Mixing ordinary banking (taking deposits, making loans) with Wall Street style banking (creating and trading stocks, bonds, and more complex financial instruments) was clearly a cause of the Great Depression. So Congress built a firewall with Glass-Steagall. At the time the bankers were bankrupt and unable to bribe their way out of the situation.

But when no fire transited from banking to brokerage houses, or vice-versa, for a number of decades, pressures began to build. That firewall did not just prevent fires, it prevent people from making quick bucks. Flexible politicians were found, particularly new ones who did not remember the Great Depression. One of the most flexible modern politicians was Bill Clinton, a Democrat. He named Robert Rubin to be his Secretary of the Treasury, and he kept Alan Greenspan as Federal Reserve Chairman. Think of these men as voracious predators with no respect for anything put power and money. Together they put in place the key "reform" that allowed the rapacious mortgage and derivatives frenzy of 2004-2006. Now taxpayers will be further burdened to clean up the mess.

So what is Senator Barack Obama going to do about it if he becomes President? What will Senator McCain do about it if he becomes President? The standard answer seems to be: make the Federal Reserve more powerful. None of the old "power to the people" solutions are even conceived of, except perhaps by Green Party candidate Cynthia McKinney. But it was the Federal Reserve that helped pressure Congress into repealing Glass-Steagall.

Politicians will say anything to get elected. Congress, not the President, is supposed to write the laws. Most American citizens vote without knowing anything about their representatives in Congress. Until people are better informed and more able to exercise power directly, don't expect any major changes in our system.

Double Bubble, Toil and Trouble

Two economic bubbles burst in less than a decade. Is that just a run of bad luck, or is it a financial engineering feat? And how is it related to politics?

Consider that the Internet stock bubble that peaked in 2000 cannot be directly blamed on the Republican Party, since Democrat Bill Clinton was President and his Vice President Al Gore was a early proponent of the Internet. Congress, however, was controlled by the Republicans. The Federal Reserve probably deserves most of the blame for that bubble.

The Housing mortgage bubble that burst in 2007, with aftershocks still shaking up 2008, cannot be blamed on the Democrats. Even though Democrats controlled Congress by the time the bubble burst, we had a Republican President, George W. Bush, during the build-up to the bubble. Again, the Federal Reserve deserves most of the blame for the bubble (if you don't count the banks, the mortgage brokers, and the fools who bought at the top of the housing market).

So should we blame the Federal Reserve? Is the two-party system just a circus to keep most citizens distracted while we are really governed by an all-powerful, appointed, cabal of the highest reaches of banking and government? The two-party system is a circus, but it is not just a circus. The Federal Reserve is powerful, but today the corporate new media is saying the bubbles were because the Federal Reserve had too little power, not too much. There is a bit of truth in that, but they did have the power to raise interest rates. Raising interest rates earlier during each of the bubbles would probably would have prevented many of the excesses that damaged the entire economy when the bubbles popped. Yet those who hate the Federal Reserve would have hated that even more. In the housing bubble, the left would have pointed to the injustice of raising interest rates to the point where ordinary people were unable to buy homes, and the right would have screamed because it would have slowed down a none-too robust economy.

Noam Chomsky has talked about the way our "free market" economy tends to privatize profits and socialize losses. That is, the workers have to clean up after the rich. We are seeing that now with the banking bailouts. Executives walk away with their winnings, they don't have to give anything back to the stockholders or customers or employees or other losers. No one is paying back the fees generated by mortgages that should never have been made. The financial press, at least that part aimed (propaganda should always be carefully aimed, otherwise there might be casualties from friendly fire) at the unsophisticated, have failed to talk about bondholders at Freddie Mac and Fannie Mae. When the U.S. Government backs these institutions, it is saving the bondholders' investments. The bondholders took a risk in lending money to Fannie Mae to lend (through middlemen) to home buyers, but instead of being forced to take their losses, they will get paid all the interest and principle promised. Stockholders are losing almost everything; bondholders are fully protected. Old money tends to be in bonds; new money tends to be in stocks. Even among the very wealthy there is a system of caste and privilege.

Most Americans are just going to have to work harder and make do with less. Of course finding a job if you are an unemployed carpenter or real estate broker is not easy to do right now: you can't work harder when you are not working at all. American workers find themselves in the modern equivalent of lying prostate in the cotton field, genuinely unable to move a muscle because of poor food, heat, and exhaustion, while the overseer (never the master, who is drinking fine whiskey while trying to guess what price cotton will fetch in New Orleans this year) lays on the whip, demanding that they get up and produce more, more, more. You can't work harder or smarter if no work is to be found because the nation's capital was allocated to financial speculation.

The federal government is going to have to raise taxes or spend a lot less money on services, or it will bankrupt the entire nation without having to wait for the long term. Fortunately the Bush Tax Cuts for the Rich (which many Democrats in Congress originally voted for) are apt to expire in 2010, regardless of who is elected President, as long as the Democrats control Congress.

Financial bubbles have many components, but the ones that are large enough to matter are always based on credit bubbles. Credit is needed to provide the money used to bid up the price of whatever assets are in the bubble. The Internet Bubble was a typical bubble; many people called it a bubble long before it burst. Only idiots owned the stocks when they started to crash. Every Internet stock was hyped as the next Microsoft, while stocks of companies that were making real goods and profits were neglected. The credit involved was the ordinary kind, made possible by the Fed keeping interest rates too low.

The Housing bubble was weirder. With an Internet company at least the fiction was there that it might become more valuable over time, when it learned to convert page views to real money. But a house is a house. A neighborhood might become more popular, driving up prices locally, but the whole nation is not a neighborhood. House prices rise gradually over time mostly because of inflation. The bubble got its start because housing was not a popular investment during the 1990's stock market boom. When the Internet bubble broke, housing was relatively cheap and interest rates on mortgages were exceptionally low. Buyers moved in, sending up prices and getting the ball rolling. Then the bubble was driven by short-sighted banks and mortgage companies that were able to give credit at no risk because it was other people's money, and collect big fees for that service. As soon as the Federal Reserve raised interest rates towards normal levels, the bubble started to fall apart.

I think a lot of people saw it coming and decided to grab while the grabbing was good.

The real estate industry has always been a major financial backer of both Democratic Party and Republican Party politicians, from local city councils up through Congress and the Presidency. Don't expect anyone to give the real estate speculators a spanking.

As always, the American worker and small businesses, and a few well-run, non-glamorous, large businesses, will pull everyone's ass out of this mess and get no credit for it. But until ordinary Americans wake up and think things through, organize and act on a sound analysis, they are going to keep getting lashed by the wise guys on Wall Street. Neither the Democratic Party, nor the Republican Party, as currently configured, are capable of taking on Wall Street or the real estate speculation lobby.

With interest rates nice and low now, and no shortage of stupid people in the world, the next bubble is brewing somewhere. Only time will show where.

Saving, Spending, and the Federal Reserve

Those who give advice have told the American people, for decades, that they should spend less and save more. Apparently towards the end of 2007 Americans, or enough of them anyway, finally learned their lesson and cut back on spending. Now Wall Street and their servants at the Federal Reserve Board are in a panic. Their plan: cut interest rates, inject credit into the big banks, and get Americans over-spending again. Add to this the genius of politicians who will use this opportunity to do some more tax cuts and run up a higher federal deficit, and you have an election year.

You had to be really an idiot to believe in 2006 that house prices would go up forever. One might forgive the folly of some people who just wanted to own a home, but speculators and lenders should have known better. Even those who wanted to own a home were doing the typical American fatter-is-better thing: people who could easily afford a 1000 square foot home were taking out jumbo mortgages to move into 3500 square foot homes. For a year a two the American Dream, typified in the Beverly Hillbillies, had come true. Even a clerk at WalMart could get a loan to move into a MacMansion. People with real job skills were buying palaces. And the truly spendthrift, who bought houses before 2005 and saw their on-paper value of their comparables double or triple, added to their mortgage debt so they too could lead the American version of the good life.

So now interest rates are being cut down to practically nothing. It is mainly to save the greedy idiots who ran the big banks and brokerage houses, the Citicorps and Merill Lynches and Morgan Chases. It will help Americans spend their way through the slowdown or recession. It will lower interest rates on CDs, stressing out senior citizens. The Fed is bringing another truckload of bad hooch to the party. Hooray!

So is saving money bad? Is being thrifty bad? Is buying a Corolla instead of a Hummer bad? Is living in a 1000 square foot house bad?

According to the Fed and the creatures that pass for financial reporters in the U.S., saving is good for individuals, but bad for the economy. The savers loan to the spendthrifts and on we tumble; everyone can't save.

Of course all you have to do is look outside America to see that national economies don't have to be based on a spendthrift culture to grow. China is a good, big example. People save more their. This creates a virtuous cycle (if economic growth is the goal): savings is invested in production. Rising production allows for more consumption and more savings.

Americans, from the Fed to the average Jack and Jill, have forgotten about the value of productivity. Ignore for the moment the ecological impact of all this. Think: if we produce more we can sell more, locally, nationally, and globally. Then we can save more and even spend a little bit more too.

Well, a lot of houses were built in the U.S. between 2000 and 2007. They were big houses that require a lot of carbon fuel to keep warm in winter or cool in summer. So here's a project: lets split them all in half. Half a MacMansion should be plenty of room for most families. And affordable too.

How about a 3 month home construction holiday? Give the workers a rest and a vacation. Allow some of the excess inventory to be absorbed. When people see that prices are no longer falling, what with ultra-low mortgage interest rates being in the vogue again, the market will get on an even keel.