You Can Pay Me Now, or You Can Pay Me Later
Dolors & Sense
by Sanford Rose
KISSIMMEE Florida—(Weekly Hubris)—1/9/12—Economics exhibits more than a little circularity.
To spur the economy, we need more job creation.
To spur job creation, we need more consumer spending.
But consumers won’t spend more unless they have more and better jobs, which won’t be available until there is more economic growth.
Hmm! Any way out of this box?
The old-fashioned remedy was a surge in housing.
Well, say economists, no chance of that until the overhang of mortgage debt, which now sums to $700 billion more than the value of mortgaged single-family homes, is removed.
But that won’t happen unless there is mortgage forgiveness.
Stop! Bite your tongue. The taxpayer won’t pay for government programs that allow for mortgage principal reduction and thus reward those who took on more debt than they should have.
But does the taxpayer have a choice?
If mortgagors aren’t helped in this way, they will continue to default at accelerated rates.
Prices will continue to fall, guaranteeing a self-feeding increase in the supply of homeowners with an incentive to default.
The economy will continue to stagnate.
Tax revenues will continue to disappoint.
Deficits will remain appallingly large.
When deficits persist, there are only three feasible remedies.
Inflate the currency.
Cut spending.
Raise taxes.
What are the respective impacts on the taxpayer?
If the currency is inflated, the taxpayer will pay more for the same privately provided goods and services.
That’s a tax increase.
If spending is cut, the taxpayer will pay more for the same services now governmentally provided, such as Medicare. That’s a tax increase.
If taxes are raised—self-evident.
The taxpayer is really caught in a bind. He/she can pay now to help the mortgagor. Or he/she can pay later—in somewhat disguised forms.
Only it isn’t really a bind. By paying now, the taxpayer puts people back to work more quickly than by delaying.
That means more wealth creation and a less onerous aggregate financial and economic burden.
Forgiveness pays.
Sanford Rose
Sanford Rose, of New Jersey and Florida, served as Associate Editor of Fortune Magazine from 1968 till 1972; Vice President of Chase Manhattan Bank in 1972; Senior Editor of Fortune between 1972 and 1979; and Associate Editor, Financial Editor and Senior Columnist of American Banker newspaper between 1979 and 1991. From 1991 till 2001, Rose worked as a consultant in the banking industry and a professional ghost writer in the field of finance. He has also taught as an adjunct professor of banking at Columbia University and an adjunct instructor of economics at New York University. He states that he left gainful employment in 2001 to concentrate on gain-less investing. (A lifelong photo-phobe, Rose also claims that the head shot accompanying his Weekly Hubris columns is not his own, but belongs, instead, to a skilled woodworker residing in South Carolina.)