The Solutions for Insane Deficit Levels Are There:
The Wall Street Journal published a story on November 27th titled “As Business Goes So Goes Utah” The story pointed to the economic trends in Salt Lake City being opposite the decline or no growth being reported in many parts of the US and actually the world. A primary reason for the positive economic conditions in Salt Lake City is the city’s favorable tax incentives for businesses to locate there and build new plants, research centers and headquarters. The result is jobs and jobs mean people make money and spend. Consumer spending fuelsl more than 70% of the economy.
Obama and congress are now beginning to talk about the deficit. I wonder why this has been largely ignored. Since Obama has taken office there has been enormous deficit spending. What’s done is done so the focus should be on solutions. One solution is to substantially cut the administrative burden of the government on small businesses and citizens. This means eliminate regulation hampering business productivity. This also means change the regulatory compliance requirements so banks either begin loaning money to credit worthy companies or they lose their charter. A serious commitment to cutting government spending which also means cutting the size of government is one step. A constitutional mandate for a balanced budget is another step. Elimination of all non-essential government regulation is another step. Get government out the way and let free enterprise work.
Underwater Real Estate Values
Real estate valuations are a big problem. Foreclosing on homes where the occupant can afford to pay a lower amount in rent and could pay the same on a reduced mortgage balance makes no sense. Think about it. Let’s say a home owner has a mortgage for $300,000 on a home now valued at $200,000 by the market. Assume the payments are $1600 per month currently. If foreclosed the bank will have to take a lower purchase price on the house and since investors need to make a profit and there is likely renovations needed then the settlement with the bank could be $150,000 or less. It is clear there will be a mark to market on this property by the bank and the property’s note reduced for the occupant.
There are note buyers interested in buying the paper from the bank. Banks should be encouraged to negotiate these “mark to market notes now” so the process of relieving the burden of those “underwater” with their mortgage can be accelerated. This solution results in the current homeowner being able to stay in their home with lower payments on a reduced mortgage to an investor. The investor is satisfied because they are receiving above average rates of return and the bank is actually better off in most cases because the cost of missed payments and preceding on foreclosure is avoided. This solution should be aggressively pursued.
The basic tenant is spending at the national level and personal level needs to match income and the less burden placed on the citizens the more invigorating the economy will become. “So Goes Tax and Spending, So Goes Business and The US”
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About: Steve Pohlit CPA,MBA has been the CFO and COO of major domestic and international companies. Steve has extensive business ownership experience having purchased and started off line and on line businesses. Steve offers his business building experience to companies and entrepreneurs with business coaching and business consulting. His focus is on building business profits and net asset value at above average rates. All articles published by Steve unless specifically restricted may be freely published with this resource information.