economics

Class Envy

The left is pushing wealth taxes to the top of their agenda. This article from Reuters tries to make the case that Norway is an example of how wealth taxes can work. Norway is always used as the socialist dream, with all of the social programs that the left loves. What the left ignores is that Norway is not analogous to the US.

For starters, let’s recognize that Norway ranks among the world’s wealthiest thanks to oil, shipping, and fishing. In Norway, the government owns those industries. All of the profits from those industries gets funneled into a government wealth fund, which is in turn invested in companies in other nations, especially the US. However, Norwegian law says that they can only spend 3% of the fund’s $2.1 trillion balance each year. This means they need to find other forms of income to enable them to support the welfare state.

That means a wealth tax on unrealized capital gains. The entire nation is a welfare state, living off of investments made in countries with actual free markets. Since there are no nations that the US could siphon money from, this plan will never work here.

By Divemedic, ago

Alarm Bells

Alarm bells should be ringing with the news that the government sold $694 billion in Treasury securities spread over 9 auctions in only three days. Yeah, our national debt now stands at $38.2 trillion. The most alarming thing about this news is that T-bill yields are rising. The 10-year Treasury yield is now at 4.15%. At that rate, the interest on our debt will be more than $1.5 trillion per year. Since Americans only pay about $2.4 trillion in Federal taxes each year, we are edging closer to the point where our debt will begin to grow like a snowball rolling down a mountain.

The only way to keep the government solvent at that point would be to inflate the currency in order to pay it with lower valued money. At that point, inflation will be higher than interest rates, and it will no longer be financially possible to invest in government bonds. This will in turn cause higher rates, which will also create a need for higher inflation. In other words, hyperinflation is the only way out, but that will cause a complete collapse of the US dollar.

Anything you own that isn’t a physical asset will evaporate overnight: currency, stocks, bonds, bank accounts. As you can imagine, the government can’t let that happen, so what they will do to deal with it is the real question…

By Divemedic, ago

Whiny Children

Listen to this rant, then read all of the comments about how “Boomers” have ruined it for today’s youth because they used up all of the opportunity by living life on “easy mode.” .

In 1960, the U.S. homeownership rate stood at 62.1% of households, meaning a majority but not all adults achieved it through steady work. Labor force participation for adults 16+ averaged about 59% in the early 1960s, with prime-age men often exceeding 90%, though many worked multiple jobs amid economic growth. Poverty afflicted 22% of Americans in 1959 (around 39 million people), dropping to 14.7% by 1966 due to expanding opportunities and policy shifts, yet struggles persisted for the unskilled or disadvantaged.

As of late 2024, the U.S. homeownership rate hovers around 65.7% of households, higher than 62.1% in 1960 despite rising costs. Civilian labor force participation for those 16+ is 62.3%, up slightly from the early 1960s’ 59% average, though prime-age rates remain strong amid dual-income norms. The official poverty rate dropped to 10.6% in 2024 (35.9 million people), far below 22% in 1959, reflecting broader access to opportunities even as entry barriers feel steeper for youth.

So total people in poverty dropped, both in real numbers and per capita. Homeownership rates are higher than in 1960, and labor participation is up.

Now there are some of these kids pointing out that houses were cheaper in 1960, but they are missing that wages were lower, and houses are now much larger. They talk about “tiny homes” as if buying a 500 square foot house is something that they just invented a couple of years ago.

The original video poster is a student. Students are always broke. Living on Ramen noodles and hot dogs is what people do when in college. Get a roommate. Stop being a whiny bitch.

By Divemedic, ago

Econ Failure

Thought experiment: If this actually happened, how would it play out? What would you do?

Most people would stop going to work. So now what? How are you going to buy anything? Everyone quit, because they all have half a million bucks. What you don’t have is any food, electricity, water, or anything else that you need.

You see a guy with some food, so you offer him money for some of his food. He doesn’t want your money, he has half a million bucks and sandwiches. You are hungry, so you eventually get to the point where you offer him $50,000 for one of those sandwiches. Others see this and do the same.

Now dude is selling $50,000 sandwiches, but has no one to help make more. So he tries to hire someone, but because sandwiches are so expensive, he has to pay $45,000 per hour. Still, people do it because they need more money to buy things at the newer, higher prices. I mean, everyone is using their $500,000 a year to outbid everyone else. Prices are crazy high.

Now we have a nation of millionaires who are all paying $50,000 for a sandwich.

That’s how increases in the minimum wage work.

By Divemedic, ago

Property Tax Cuts

The Republican Legislature of Florida is proposing changes to the state’s property tax policy. There are a number of proposals that will make it to the 2026 ballot, and I have researched them so you don’t have to. I am going to break it down for you, using my own taxes as an illustration. Then you decide which is the one you want.

In my case, I pay about $6100 per year in property taxes on a $600,000 home. It breaks down like this:

  • $1700 goes to the county
  • $2000 to the town
  • $1900 to the school board
  • $400 per year goes to police, fire, EMS, hospital, and the water authority. This part is not an ad-valorum tax.

HJR 201 (Steele): Eliminates non-school ad-valorum property taxes for homesteads entirely. This would lower my taxes to $2300 per year ($1900 for the school board, $400 to police, fire, EMS, hospitals, and the water authority). This bill doesn’t prevent taxes that are flat fee based. Localities will likely switch to a non ad-valorum tax scheme, such as charging each property a flat fee as a tax.

HJR 203 (Miller): Phases out those same taxes over 10 years by adding an additional $100,000 exemption added each year. My taxes would go down by $500 the first year, $500 the second, and so on, until my taxes were finally about $2300 per year. This bill doesn’t prevent taxes that are flat fee based. Localities will likely switch to a non ad-valorum tax scheme, such as charging each property a flat fee as a tax.

HJR 205 (Porras): Exempts Florida residents 65 and older from paying non-school property taxes on homesteads. This one won’t change my taxes a bit until I turn 65, meaning that towns will simply raise taxes on everyone else to make up for the shortfall. Since those over 65 already get major breaks, many of them don’t pay taxes, anyhow. Politicians won’t face as much voter backlash. I think this is the one that politicians will love.

HJR 207 (Abbott): Creates a new 25% homestead exemption on non-school taxes — aiding current and first-time homebuyers. This one was trickier to decipher. I believe that it would lower my taxes by about $400 per year. It doesn’t prevent rate increases. I predict that localities will respond by raising milage rates. In the end, there will be no net change in what you actually pay.

HJR 209 (Busatta): Offers an extra $100,000 exemption to homeowners who carry property insurance, intended to ease overall housing costs. This one won’t make a huge difference. It would cut taxes by about $500 per year, but it would be an effective subsidy to insurance companies, who will happily raise insurance costs in response. It honestly looks like it was written by insurance companies.

HJR 211 (Overdorf): Eliminates the cap on “portability,” allowing homeowners to transfer their entire Save Our Homes benefit to a new property, even if it’s of lesser value. This one only lowers your tax liability if you sell your house and buy one of lesser value. I just went through this when I moved two years ago.

HJR 213 (Griffitts): Adjusts caps on taxable value growth — limiting increases to 3% over three years for homesteads (currently 3% annually) and 15% over three years for non-homesteads (currently 10% annually). This one won’t help now, it will just keep taxable value from growing as quickly as it does now. The loophole here is so large, you can drive a truck through it- there is nothing here that prevents localities from raising rates, the only cap is on taxable value. The net effect is that this won’t change your taxes a single cent.

In my opinion, HJR201 is the only one that will change anything, since a person owning a $200,000 house will wind up paying the same taxes as a person owning a million dollar house. To me, that is fair, since both are nominally receiving the same government services. Same services should mean same taxes.

By Divemedic, ago

Don’t Look Now

Gold is now selling at over $4250. That doesn’t mean that gold is worth more. It means the dollar is worth less. Oh, and silver is now selling at more than $52. The dollar is quickly crashing.

The dollar has lost 3/4 of its value in the past decade, 90% of its value in the last 20 years, and 98.5% of its value since we went away from being a gold based currency in 1973. That isn’t the greed of the banks, that’s the greed of our government.

By Divemedic, ago

Balance Sheet

To understand how banks work, you need a bit of accounting knowledge. It all starts with the balance sheet. A balance sheet is simply a snapshot of a company’s financial position at a particular point in time. A balance sheet is separated into two parts:

The left side, which is everything that the company owns, called assets, and

The right side, which is the company’s obligations, plus the owner’s stake. The company’s obligations are called liabilities, and the owner’s stake is called equity.

The two sides MUST be equal to each other, that is the right and left side are in balance. There is a simple formula for this:

Assets= liabilities + equity.

To illustrate how this works, suppose you were walking down the street and had $40 in cash in your pocket. Your balance sheet would be:

Cash assets: $40 = No liability + $40 in equity. All in balance.

Now suppose that you enter a diner and order a $20 breakfast. Now your balance sheet looks like this:

Cash asset: $40 + $20 in breakfast= $20 liability that you owe to the diner for the breakfast + $40 in cash equity. Still balanced, because you added the meal to your assets, but that meal came with a liability that you now owe to the diner, so Assets still equal liabilities plus equity.

Your meal is done, so you pay your tab. Now your balance sheet looks like this:

Assets $20 in cash= $0 in liabilities + $20 in cash equity. Still balanced. This is all governed by standard rules called GAAP (Generally Accepted Accounting Principles).

Now let’s apply this to lending. I get some investors, and we start a lending institution. They start off by investing $10 million in my company. My balance sheet looks like this:

Assets $10 million in my checking account = $0 liabilities, $10 million in equity.

Now here is where things get interesting. I loan someone $1 million to open a business. Let’s not get into interest rates just yet, because I want to explain how this accounting entry works. Instead, we will do a flat fee. The loan paper says that the borrower has to repay me the $1 million principle, plus a flat fee of $50,000 for the privilege of borrowing this money. This means that my balance sheet will look like this:

Assets are $9,000,000 in my account, plus a promissory note for $1,050,000. My liabilities are $1,000,000 that I owe to the borrower, plus owner’s equity of $9,050,000. Still balanced.

I do this a bunch of times, and now I have assets of $2,000,000 in my account, and notes totaling $8,400,000. For the right side of the sheet, I now have liabilities of $8,000,000 that are in the accounts of my borrowers waiting to be withdrawn, and $2,400,000 in equity.

The borrowers finally all take the money out to fund their businesses, so now my balance sheet looks like:

Assets are $8,400,000 in notes, plus $2,000,000 in cash. The right side is now $0 in liabilities and $10,400,000 in equity. All balanced.

What if, instead of investors, I open my bank ay accepting depositors? OK, let’s see.

Assets= $8,000,000 in deposited money, plus $2,000,000 in owners’ cash = $8,000,000 of liabilities (That deposited money isn’t mine- I still owe it to them), plus $2,000,000 in equity. Balanced. I have lots of funds that I can lend out, so I am said to be liquid.

I make the same loans under the same terms, but this time, it looks different:

Assets are $8,400,000 in notes, plus $8,000,000 in depositor cash, plus $2,000,000 in owners’ cash. We now owe $16,000,000 in liabilities, plus $2,400,000 in equity. So how did we do this? Did we create money out of thin air? How can we have $16 million when all we did was lend out the $8 million that was deposited in our bank? That $16 million is just us counting the same money twice. It doesn’t make sense if you are a concrete numbers person. That’s what is meant by the money multiplier of banks. If you want to look at it as a concrete number, it certainly seems that we have created that money out of thin air. After all, we were given $8 million, but now there is $16 million out there circulating in the economy.

This, to me, was the most difficult part in understanding finance. So how did I get to the point where this made sense?

At the end of the day, we didn’t really create any money. For every dollar we lent out, we still owe a dollar to our depositors. If those people all came to us and wanted their money back, I would be in deep shit. After all, I loaned out their money and I no longer have it. Their money is nothing but a bunch of ledger entries and withdrawal strips. One way to make all of my depositors come to me demanding all of their money at the same time is to have them think that I don’t have enough funds to pay them. That’s called a “bank run” and is a near guarantee of my bank going out of business.

To prevent the scenario where we don’t have enough money to pay depositors’ demands, we keep a percentage of that money still in our hand, and we call that our reserve fund. That way, if one of our depositors came to us and wanted to withdraw his deposit, we have enough on hand to make that happen. The amount that our bank holds back is the reciprocal of the loan to debt ratio (LDR). It’s simple to calculate.

LDR= total loans/total deposits

A healthy bank maintains an LDR of between 70 and 90 percent. If a bank goes below that, they are underutilizing their assets and leaving potential profits on the table, and if they go over that, they risk not having enough funds on hand to pay depositors who want to withdraw money, and thus are risking a bank run and the bankruptcy that comes with it. Banks that go over 100% are lending out more money than they have, and aren’t liquid enough. They are facing a potential crisis.

That LDR is our bank’s reserve. That reserve, being a fraction of my assets, is called fractional reserve.

To be able to lend out more money, we can do some things, and some of them are fraudulent. That’s where the 2009 lending crisis enters the chat. In that case, banks and other lenders were downright committing fraud. This is how the scheme worked:

Let’s say that we want to be more liquid so we can loan out more money. My balance sheet looks like this:

Assets are $10,500,000 in promissory notes and nothing else. I have no more funds. On the right side, I have $10,000,000 in liabilities to my depositors, plus liabilities of $100,000 to my employees, the landlord of my rented business location, the electric company, and others. I have only $400,000 in equity. I need money so I can keep lending because my LDR is 105% and I am in trouble.

So this is what I do- I sell my promissory notes to an investor. I sell them at a discount, and the person buying them makes money on the margin. So let’s say that I sell those notes for $10,250,000. Now my balance sheet looks like:

Assets: $10,250,000 in cash. Liabilities of $10,000,000 to my depositors, and $100,000 liabilities to my other creditors. I now have $150,000 in equity, but now I can loan out more money because my LDR is is back down to 0%. Now I am back in the lending business because someone else owns those loans.

Wash. Rinse. Repeat.

They did this, even though they knew those promissory notes were unlikely to be profitable because they were made to people unlikely to repay them. The people who bought those promissory notes just got screwed. Who bought those notes? Investors- people like you and I when our pension funds and 401k’s were investing in various securities.

That’s where the fraud is, and there were a lot of lenders who took advantage of that. I still can’t believe that no one went to jail over that.

By Divemedic, ago

Discussions With Communists

Some commie online was upset that lenders charge interest, claiming that it is usury. He feels that loans should be interest free. Being that I have completed the finance and economics courses for my MBA, this is where I decided to help educate him. I shouldn’t have bothered.

Lenders have expenses.

They have fixed administrative costs like accounting, clerks, and other things that they must pay for. Those costs are the same for every loan.

Then there are the variable costs, the cost of defaults. About 1 percent of those who have a 750 or higher credit score default, but this rises to more than 15% of those with a score of less than 600. This default rate means that interest rates must be higher for those who have a higher chance of default. If interest rates are capped, then lenders will simply refuse to lend to those whose likelihood of default makes it uneconomically feasible. That tends to mean minorities, who historically have much higher default rates.

The commie went on to handwave that point away, saying it is a bad approach to paying for things.

In response to this, I posed a question:

So what’s the alternative? It takes about 14,000 hours of labor to build a house, plus materials. Where does the money come from?

Here are the alternatives that he proposed. I answer each in turn.

1) We could eliminate the usury/interest rates system altogether. If it’s too expensive, we have no business buying it yet. If a low cost bought huge portions of America, we can restore that same value.

Much of that was when each person was building their own house, growing their own food, etc. Have you built your own car? House? Can you? Most people cannot. Money is what makes specialization possible. Sometimes, a transaction takes more money than you have on hand. The cost of waiting to save and pay cash isn’t practical. Try living in a carboard box while you save to buy a house.

2) We could have a fixed flat member fee. Nothing too small, nothing too big. Something that keeps a company in business, especially when factoring in multiple customers. We could cap the compounded debt.

How large would the membership fee go to buy a house or a car? What would be the terms? Imagine walking to work for 5 years while you make payments on a car that you don’t yet have.

3) We could simply cap the profit of compounded debt.

What would happen then would be that no one with bad credit would get a loan.

4) We can focus on reducing the root costs of resources (wood, etc.) after eliminating interest rates.

The largest expense in almost any business is the cost of labor. To build that house, you still need to fund those thousands of hours of labor. Who pays for that, and how?

5) The sellers could get monthly payments directly while cutting out the middleman. Extra cost could be minimal.

So you want the sellers to also be the lenders. That’s inefficient and actually increases costs. Now the seller’s funds are tied up in the products that haven’t yet been paid for. The time between selling the inventory and receiving payment is called the cash conversion cycle. Without financing, this could mean years of a company waiting to be paid for things like appliances, homes, and cars. There will still be defaults, meaning that those costs will be passed on to consumers. Also, only wealthy people and those with good credit will receive goods. Minorities need not even apply.

6) Sellers can start by asking for a lump sum in the beginning to give them a buffer before monthly payments.

Again, with sellers asked to also be lenders. This disrupts the seller’s cash conversion cycle. Funds that are tied up in inventory that has already been sold are not available for the company to continue operations, causing losses and delays. This is expensive. The term here is called “The Time Value of Money.”

7) The seller of resource materials can drop their prices for the seller of products.

So now you want the suppliers to bear the costs? The electrician drops prices for the home builder. Now how does that work?

8) Financial aid (if spending isn’t going to the people, why is it so much better for government money to go to the usury sin of lenders?) To eventually pay off the government in a fixed fee of profit. No fee. Failure to cover is taxed — last resort.

So the government will pay interest instead of consumers? This results in unsustainable debt, or in runaway inflation.

9) A non-profit source of assistance to fill in a time of struggle.

Where does this non-profit get their funding? Money is a material, just like steel, wood, or labor. It has to be paid for. Someone, somehow, someway will bear the costs of money. It will be the consumer who has to wait until he can get a house or car on layaway, the business that has paid for labor and materials and now can’t use those funds for the next project because they are awaiting payment, or the taxpayers who have to fund the government. It’s a cost, and someone will pay for it. You are expecting the government, who has famously paid $600 for a hammer, to control costs.

10) Pay as we go. A product might need to be covered completely, but duration of services could be ongoing payment. Instead of a government paying a lump sum of a project, they only shell out service cost totals as the project goes on, that way if there’s a cancelation, it basically freezes the pay where it is at, instead of being trapped a lump sum covered by loans and then owing the initial cost and a potentially unending debt with immeasurable interest rates, the costs of services are already covered.

So you pay for the land to be cleared. Then save for a few months before you have the money to pay for the underslab work like plumbing to be done. Three more months for the outside walls, ad nauseum, ad infinitum. Twenty years of being homeless later, you finally are ready to move into your house. This is just a repeat of your first point- and still won’t work.

11) Lay Away. Pay First. Receive after. No middleman.

Again with the point of paying for it before you get it.

12) A combination of these things..

None of which will work, for the reasons above.

His answer to all of this? He focused on the “Time Value of Money” and the cost of money.

“That’s the cost of money” ignores everything I just said. I know that my wages don’t satisfy my time. Time is not an objective value. Too bad. Your explanation is some weak sauce.

The base issue here is that young people (who make up the majority of useful idiots) have no concept of money, value, or economics. My son once asked me (when he was 4 years old) for some expensive toy. I told him that we don’t have money for that, and his reply was to tell me to go get more from the ATM. Communists display all of the economic knowledge of a 4 year old who wants a new toy.

By Divemedic, ago