Free at Last, and Can Barrack Save the Economy?

I never thought that Martin Luther King's words, Free at Last, would apply to me, but today, watching President Obama sign the Executive Orders closing down the torture facility at Guantanamo Bay, I realized that indeed, they did.

While Guantanamo tortured people, and while our tax money was paying for it, we were all in danger of being illegally arrested and tortured, and we were all responsible for any such act by virtue of paying our taxes. I have friends who have spoken to me about living in Germany during Hitler's rule. They all say that they had to turn a blind eye to the events around them, for if they objected, they could be the next one detained and taken away.

Fortunately, enough people did not turn a blind eye to our torture and illegal detention, and now our President has taken a big step towards restoring our rights. I hope that he continues until the Patriot Act has been completely reversed. After all, as Al Gore pointed out so wisely, during the height of World War II, when our nation's safety was in peril, nothing like the Patriot Act existed.

In fact, the only time in our country's history when Habeus Corpus was suspended was during the Civil War, and Lincoln later said he deeply regretted having done so.

Free at last, free at last, good god almighty, we're free at last. It seems so ironic to me that it has taken the brave action of a Black president to begin to free both Blacks and Whites from the shackles of the Patriot Act. Let us hope he continues down this path until all violations of the Constitution are eliminated.

I am confident he will, but can he do the same with our money and save our economy?

Some of the most fundamental problems that our economy have can be traced to the legitimizing and institutionalizing of laws and ways of doing business in both the Clinton and Bush administration. In an earlier blog, I tried to demonstrate that it is cheaper to pay a laborer to work in China than it is to maintain a slave in America. While tongue in cheek, I remain convinced that we must have tariffs against low wage countries and insist on a manufacturing minimum wage in countries that import into the US. Note that I am not asking for a universal minimum wage in those countries. That would cripple their economies. What is needed is a minimum factory wage that can be tinkered with, until we end up with manufacturing returning to America and full employment occurring here as a result.

Will Obama be able to go this far? Will he be able to institute change on a worldwide basis? Will his advisors even tell him that such a core issue needs addressing in order to return our country and then the world to prosperity?

I'm not sure. So far most of the bailout programs have had little benefit. Banks given money have refused to lend it, because they worry their clients will default anyway. I have to believe that a large part of the money that has been given to lending institutions under TARP has simply been used to purchase Treasury Bills, the only safe "loans" available in most bankers minds. This is an odd and non-productive recycling of the TARP funds which really only guarantees that the highest executives in the Banks won't run out of earnings to pay their salaries, the rest of the world be damned.

However, if Obama and the Fed are really committed to turning around the economy, I have to believe they are going to keep on trying new programs and throwing more and more money at the problem until something works. On Nov. 25th of last year, the fed announced they were going to buy $500 billion worth of Fannie Mae, Freddi Mac and Ginnie Mae backed mortgages, and another $100 billion worth of debt issued by the Federal Home Loan Banks, Freddie Mac and Fannie Mae.

So far they have spent approximately $15 billion buying these mortgage backed securities, home loans at 4.5% and 5% for 30 years. I feel that this program will bring rates down with aggressive buying, and will result in all credit worthy homeowners being able to get new first mortgages up to approximately $417,000 (the current limit) for about 4% by this spring and summer. However, so many houses that are owned by credit worthy customers are worth far more than this, so it is going to take a change in the loan limits to really have a deep impact on this country.

I suggest that the limit on FMAC and other loans be raised to at least $800,000, if not higher, so that people can refinance their homes and save a significant portion of their monthly expenditure.

The Fed's hope in doing this is that people will go out and start buying things again; cars, sofas, televisions, computers. It is interesting to note that in Japan, when their real estate bubble burst about 10 years ago, there was little interest in buying real estate and all the above. They have had low rates since and no end to their recession. Japanese save more than any others.

There is a fear that the same thing will happen in our country. I do not think that this fear is warranted however, and that is because of the fact that in Japan, their population is gradually shrinking, and in the US, by virtue of natural growth as well as illegal immigration, our population is expanding.

I have spoken with immigrants who have told me that the high minimum wage in Oregon, now over $8 an hour, has brought a large number of illegal immigrants into our state to work because they can make so much more than they can in Arizona, New Mexico etc. where minimum wage is far less.

That fact has helped ameliorate the real estate downturn in Oregon, because the bottom of the rental market in this state is holding up nicely, and it is probably due to crowding into a house or apartment by illegal immigrants. If enough people making $10 an hour decide to rent a house, they can pay high rent as long as they can tolerate living with each other.

These illegal immigrants will continue to flood into our country, especially if Obama carries out his pledge to raise the minimum wage to $10, a move I heartily endorse. This flood of immigrants will bolster the real estate market and in combination with the Fed's 4% loans and current low rate of new housing starts, now around 550,000 a year, the lowest ever since WWII, I think we should see home prices rebound nicely, and once they do we will see cars, sofas and other items start to sell.

So I am confident that these initial changes will turn our economy around, at least to begin with. But we can not continue to count on home building and low cost refinancing to keep our economy growing. We need manufacturing back in our country. Perhaps the alternative energy industry, one that Obama insists he will cultivate, will take up the slack, along with manufacturing in America the new alternative energy cars of the future.

So, will Obama turn our economy around? Yes, I think he will, more quickly than most expect, and when it does happen, I think we are going to see inflation coming back, because all that money originally given to the banks under TARP will suddenly come flooding out in the form of new loans when everyone realizes almost overnight that they are going to miss out if they don't get in on the action and snap up the last of the cheap recession priced goods and houses.

In the end, we're going to see worse inflation than we ever have before, because I firmly believe it is impossible for the Fed to do the right thing early enough in any recession in order to prevent inflation down the line. People often say running the Fed is like being at the tiller of a large ship. Unfortunately, as long as a ship is headed for the rocks, it is politically impossible to turn the rudder the opposite direction, even when the Captain knows he has already started a long slow turn that will take him past the rocks, and that now he should be steering towards those same rocks so that he doesn't run into the shallows further along his course. I think the Fed will keep rates too low now and for too long, and in the end we'll have inflation.

Gold and mining stocks are close to historic lows, with some companies who are debt free selling at a stock price equal to their cash on hand. These bargains won't last long, and they should have massive appreciation during the next five years as the economy recovers. I feel that Obama and the Fed will reward you handsomely if you invest in this sector. Thank goodness we are still free to buy gold and silver.