Fixing the USS USA Before It Sinks

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Even the most optimistic economist or politician would have trouble putting a happy face on the U.S. economy.  As I write this, the stock market was down over 500 points earlier this week, its biggest drop in percentage terms in 2.5 years.  Although this is obviously bad news for stock investors, it is a correction that is long overdue.  After all, the structural economy has been a basket case for years, yet the market kept pumping up stocks by focusing only on the short-term.

The U.S. has (and had) debt issues that it has no chance of solving gracefully.  The number of food stamp users is at record highs, unemployment is much higher than the official 9.2% rate, homeownership rates have fallen back to 1998 levels, and real estate prices are still dropping nationally.

Nearly all of the government bailouts and programs have done little but waste taxpayer money and add to the nation’s debt levels.  Many government agencies need bailouts or soon will.  Most of us know about the billions spend to rescue Fannie Mae and Freddie Mac.  Recently, we learned that the Federal Housing Administration (FHA) is now losing money if one applies proper accounting rules.  Gee, an agency that only requires a 3.5% down payment to guarantee mortgages for low-income Americans experiencing losses – who could have seen that coming!

The majority of the after-the-fact regulations put in place by the Feds are inadequate or just crazy stupid.  An example of the latter is a part of the Dodd-Frank bill that would effectively eliminate owner financing and mortgage notes on all residential properties.  As a mortgage note buyer for many years, this rule would have a huge adverse effect on my business.  And yet, I cannot even imagine why this rule would be under consideration, as no privately held mortgage note contributed in any way to the real estate and financial crisis.

So, what can be done to fix this fiscal mess?  Well, I would offer up that the only to get long-term stability is for there to first be significant short-term pain.  It took us many years to get into this situation, so a quick fix is out of the question.

The solution is going to be major spending cuts across all programs including entitlements and defense.  The U.S. can no longer give money to nearly everyone asking for it nor can we continue to be the world’s policeman.  At the same time, there will need to be revisions to the tax code that would get rid of many deductions and close, at least a little bit, the economic disparity gap between rich and poor.  

Of course, although I’m much more practical than political, I’m savvy enough to recognize that current lawmakers won’t solve the problem.  So, our empire will slowly crumble, just like all of those empires before it.

About Author

Alan Noblitt

Alan Noblitt is a nationwide note buyer and a licensed real estate broker in California. His business, Seascape Capital Inc., started in 2002.


  1. Alan, I like your observations. I agree that our government needs reform in many areas. I see this for effecient government, waste elimination, and ways to eliminate the needless regulations but also strengthen prudent and necessary regulation.

    I personally feel that the austerity approach being popularized ariund the world lately will unnecessarily speed a decline. After the S&P downgrade, I was encouraged that some economists and other large figures (Greenspan and Warren Buffet) stated that the downgrade was rediculous on the basis that the US couldn’t pay as it is monetarily sovereign. The downgrade on the basis of a broken political system is unfortunately undeniably true.

    My ideal path forward would be tax reform that is much more efficient. Regulatory reform. As I described earlier. This should be a constant process in order to remain competative in the world markets. I would love to see an employee payroll tax holidays for 2 years to further the balance sheet healing of the middle class as they deleverage. This is the required pain, you spoke of earlier. The private sector has to deleverage prior to fueling consumer spending and this needs to be facilitated the only mathmatical way how by the federal government running deficits so the private sector can net save.

    Public sector + private sector + foriegn sector = 0

    The last part is the most important. For the first time in decades the US has the manpower available to undertake a massive project. We need to set a goal to become 90% energy independent within 20 years. This will have rewards that the costs will more than cover for the long term health of our nation and economy. This goes along with an upgrade of our electrical grid. This will also return the power to the US in regards to their dependance on energy imports.

    Of course this is currently not feasible with our political climate and most folks understanding of our monetary system. The government doesn’t have any problem “funding” their spending but it can’t be inflationary. I use two analogies, first the federal government in our monetary system is like a the banker in the game of monopoly. The banker doesn’t win or lose and if more players join, the game isn’t in trouble if the bank must deficit spend or print money, the bank must do it just to provide the means or trade (currency) so that all can play and deflation would take place if the bank didn’t supply the needed money. The second example being, imagine we were back under the gold standard. Now say the US finds $3 trillion dollars worth of gold in North Dakota and picks it up and plops it right in fort knox. Now the Government can spend $3 trillion into the economy debt free with the only regard being inflation. The federal government can’t spend more than the productive capacity of the economy or their will be inflation, this is what is happening in China right now with their infrastructure projects. Now since we left the gold standard we don’t have to find the gold to spend debt free if we don’t want to, it is a requirement of the laws we place on ourselves, a relic of the gold standard days in reality. We still must always base our spending on not striping out our productive capacity and having inflation run to high. Just as the dual mandate of the Federal Reserve our congress ahould be focused on inflation and achieving full employment.

    Of course, living in the real world, this is not politically achievible even though it is the most prudent path out given how our economy currently operates.

  2. Kyle,
    I agree with most of what you said, and you stated your thinking quite well. Personally, I would still tend to be more aggressive in short term cost cutting and transparency than would the politicians. To me, getting the debt under control is priority #1, so would not do a payroll tax holiday or any more new government programs. In transparency, my opinion is that the downgrade to our country’s debt rating and that of Fannie and Freddie is long overdue. When a country cannot pay its bills, then it should not have a gold-plated credit rating. I applaud S&P for calling a spade a spade.

    Thanks again for your comments. Well done.

  3. I don’t see how it can be realistic to downgrade the US credit on its ability to pay. Politics is the only obsticle. We have so much that has happened over the years that doesn’t make sense in our current mainstream economist. This is because they have not realized the implications of coming off the gold standard and being a true fiat currency system. This means the US, Japan, Canada, and Great Britain among many others besides those in the Eurozone are the monopoly suppliers of currency, they currency issuers where the rest like you, me, businesses, and states are currency users.

    This makes a huge difference and gives a great credance to removing the focus from debt control to inflation control. Debt doesn’t matter on its own, it does matter if debt is taken on and money is used foolishly causing great inflation.

    Look at today, the first day with the markets open after the credit downgrade. The 10 yr treasury bond interest rate was down 10 basis points. Japans debt to GDP is way “worse” than oirs and they pay even less on their debt with no hint of a demand problem. Have you ever gone to the bank to get a loan after your credit takes a hit and they say, “well with your better credit yesterday, you were at 10% interest today with lower credit, we are gonna give you a 9% loan rate”.

    Please look into more Cullen Roche is tireless in his efforts to not politize but show the realities of our economic world and our monetary system. Once you study this for 2-3 months and still can’t find a flaw in the logic, you start to see other points of view from mainstream article and see how they are wrong or so often just explain something (like better rates with lower credit) as a fluke but all these things and much more are explained by this explaination of our current world. Good day Alan, I wish you well.

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