On Monday November 26, 2012, Louis Cammarosano, General Manager of HomeGain, was a guest on the Real Estate 360 Live radio show on The Big Talker 1580 WHFS AM, hosted by Ryan Sloper.
Listen to the show.
Part 1 (14:35)
Ryan and Louis discuss the fiscal cliff. Louis predicts that Congress will come up with a solution and that we have already gone off the fiscal cliff, they just don’t want to pull the parachute. Louis notes that the deficit is $16 Trillion and unfunded liabilities are $86 trillion and no amount of taxes or growth will be able to pay off that amount of debt.
Louis notes that Congress is worried about avoiding the automatic spending cuts and taxes increases scheduled to prevent a recession. Louis notes that there would be a recession, but that the recession is the cure to the poor economy, but that Congress will have no interest in really cutting spending. Louis notes that if Congress avoids the “fiscal cliff’ the markets will rally.
Louis notes that most of the revenues don’t come from taxes but from borrowing from foreign sovereigns and from the Federal Reserve buying US Treasuries with money they print out of thin air. Louis notes that on top of printing money to fund deficits, the Fed also attempts to stimulate the economy with QE1, 2 & 3 which involves printing money out of thin air to buy US treasuries and mortgage securities.
Louis notes that all the printing and spending will end badly but there is no appetite to stop it because government always needs money and its citizens are always willing to take the money that government redistributes.
Louis predicts that taxing the “rich” will also be part of the solution to the fiscal cliff. Louis notes that this will not solve the deficit problem and only gives expression to envy. Louis notes that people are always in favor of higher taxes -on somebody else. Louis notes that taxing the rich is a slippery slope as 90 percent of the population can vote to raise taxes on the top 10% , then 80% to raise taxes on the top 20% and eventually 51% to raise taxes on the top 49% which Louis views as mobocracy.
Louis notes that as part of the fiscal cliff solution there won’t be spending cuts, just cuts in the growth in the rate of spending.
Ryan describes this type of solution as just kicking the can down the road. Ryan notes that taxing the rich will back fire as they will cut their workforces. Ryan notes that politicians don’t understand economics 101. Louis notes that politicians may or may not understand economics 101, but they do understand politics 101. Louis notes that people don’t understand that you can take ALL of the wealth from the wealthy and that would run the government for just a few hundred days.
Louis notes that the problem is spending and that people want things from government and they want someone else to pay for it.
Louis notes that the Fed is Congress’ best friend as it enables them to continue spending without having to go back to the tax payers to ask for more money.
Louis notes the market will eventually the Fed, once borrowers realizes that the Fed will continue to devalue the currency that its bonds are denominated in and when that happens interest rates will rise and the dollar drops and the spending won’t be able to continue. At that point there will be inflation and you will be lucky to own commodities and real estate.
Louis predicts that if Congress avoids the fiscal cliff, the rating agencies may down grade the US debt rating and that may cause the dollar to drop and interest rates to rise.
Louis notes that taxing the rich can not pay off the deficit and that taxing the rich is a populist concept, not an economic one