Entries Tagged 'News' ↓

If you haven’t heard by now, President Obama heeded the complaints of the United Steelworkers’ union and slapped a punitive 35% tariff on Chinese produced tires.  This has sparked anger in Beijing and China vowed to investigate poultry and automotive parts imports from the United States.  China is also filing a formal complaint with the WTO.  So who does this really benefit?

First of all, I don’t think this  benefits the Obama administration because they really need to sustain a good relationship with Beijing.  Even though the tire industry is a small part of the trade between the two countries, the Chinese government definitely sees this as a grave insult.  The Chinese commerce minister Chen Deming said that this act is “an abuse of special safeguard provisions and sends the wrong signal to the world”.  Frankly I don’t think it is worthwhile to anger China over a tiny percentage of trade between the two countries just to yield to  some political supporters.

Next, this will probably hurt Americans more than the Chinese. The poultry industry is now on edge because they export tons of chicken feet and wings to China at a premium price.  If China imposes a tariff on them they will lose quite a bit of profit.  The USA Poultry & Egg Export Council expressed that they are “upset with the way this has been handled by the administration“.   The New York Times published a particularly amusing article on this matter which said that the Chinese will still continue to buy the large juicy American chicken feet even if there are tariffs, but Chinese people are also very price conscious so any increase in price will bring consumption down.  The poultry industry is right to be concerned, because those chicken feet are fairly worthless here in America.  Suppose that this tariff protects $1 billion in domestic tires, but loses $2 billion in chicken exports, then American workers still lose as a whole.

Another way this hurts Americans is that the tariffs will increase tire prices.  Most of the Chinese tires are cheap low end products.  American manufacturers such as Goodyear and Cooper manufacture their low end products in China and import them to the United States.    The tariffs on Chinese tires will inevitably increase prices for American consumers who buy the lower end tires.   Additionally, if manufacturers had to increase the price of their low end products they would probably increase the price of their premium products to make their products seem more “premium”, and that means more expensive tires for everyone.Americans are also very price conscious right now, and the higher prices might mean lower sales, and ultimately that might hurt the American tire industry and decrease jobs in that sector anyway.  In that case this protectionist measure would have accomplished the exact opposite of its purpose.

So who really benefits from this?  I think the trade lawyers should be happy because Obama pretty much open the doors for more similar complaints from every other industry.  In Bush 43’s administration four similar industry complaints were rejected because Bush wanted to keep trade free.  Now Obama is sending a signal out there that he is willing to approve protectionist measures for small groups that he favors so more groups may be hiring up lawyers to file complaints because now they have a bigger chance of getting their petitions approved.  Although the complaints are not “expensive” according to this article, whoever files them will be getting a fee. So in the end, I think  the lawyers win.

Ultimately, I highly doubt that this tariff on 0.4% of China’s exports to the United States is going to turn into an all out trade war, but it is certainly making Obama less popular to everyone except the specific unions that he is agreeing to.  Decisions like this affect a lot more than just the people making the complaints, and it is probably wiser to reject them all like Bush did.  That way at least it looks like there are no favorites.

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Today the White House released a transcript of President Obama’s prepared speech to schoolkids on September 8th.  This is a speech that caused a lot of uproar amongst many parents because they felt like Obama was becoming a bit too Big Brother.  I think a lot of the controversy could have been avoided if the transcript were released earlier and the somewhat lame lesson plan by the DOE was scrapped.  Anyway, I read the entire speech and here are some of my thoughts.

First, the main theme of the speech  is that staying in school and working hard is the way to success.  I agree with that 100%.  If my parents did not pursue their advanced degrees here in America then I would not be here at all;  if I did not finish college I also would not be where I am; if my hubby did not get his engineering degree he probably would not be making video games now.  I definitely believe that education is the way to upward mobility here in America, and I am actually glad to see a lot of people I know going back to school this year to improve their skills or learn a new trade.  Although I have forgotten a lot of the details of things I learned in the 16 years of schooling I had, I  think I will be using the basic math and language skills for a lifetime.

Obama also gives a fairly good reason for kids to stay in school.  He says that in school you can discover what you are good at by trying out different classes.   I think that is somewhat true, but not always.  I went to  public schools in America for 9 years before going to a public state college for 4 years  so I can say with confidence that NOT all schools give kids the opportunity to discover what they are good at due to resource constraints or institutional requirements.  Public secondary schools in general are extremely structured and you have to take a core set of classes to graduate.  I have known some kids in highschool who were really talented in things that the schools just did not teach at all.  Obama is right in saying that school is where you can discover if you are good at things like writing or math because every school teaches those subjects.  However,  it is not necessarily a good place to discover if you are a good cook or great artist because not all schools have the bandwidth for those “extra” programs.  Kids still have to discover their talents on their own,  so I think college is really where people can freely experiment with a huge variety of subjects.  However, finishing secondary school is usually a prerequisite for college and not everyone could afford to go to college.

Another fairly hefty message in the speech is that failure is acceptable and the way to success always contains some stumbles along the way.  That is obviously pretty cliche, but it is also true.  Obama suggests that students should overcome failure through hardwork, practice, and seeking for help.  All of those are sound advice for kids.  Of course he had to throw in that you should not give up on yourself, because “when you give up on yourself, you give up on your country”.

Obviously this was a positive message meant to inspire kids to work hard in school and become successful.  However, I felt that it did not really clearly define what success is.  There is one short paragraph where Obama said that kids might think that it is easy to become “rich and successful” without any work because TV shows rappers and basketball stars living it up.  Honestly I think it is kind of sad that he disparages entertainers and sports stars because many of these people work pretty hard at their professions, too.  Also there is another section that talks about how kids need to be able to fight the challenges of this nation with the skills they learn in school and also “build new companies that will create new jobs and boost our economy”.  So is success financial? Is success fame?  Is success being more educated by your parents?    I don’t think that was extremely clear.  To follow the theme of the message, I guess Obama wants kids to figure out what being successful really means.

Anyway, I will stop writing this essay now because it is feeling too much like I am finishing a school assignment.  The bottom line is that I definitely feel like having at least a  college degree gives people an edge in employment and earning potential, but if you are truly good at something that the schools do not teach then you should go for it.  Traditional structured schooling is not right for everyone, and those who are successful share a passionate drive to achieve their dreams, and they all work hard at their goals.   Happy Labor Day everyone!!

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CNN recently ran a slideshow featuring seven families who utilized the $8,000 first time homebuyer’s tax credit to purchase a home.  I found the slideshow to be pretty interesting because it featured a good diversity of people, but quite a few of the examples were from California.  Here is a breakdown of the slideshow and my comments.

First,  there is a family of four from Adelanto, CA that is buying a home for $72,000.  Obviously for this family the tax credit is  a great deal.  They can only claim $7,200 because that is 10% of the price of the home, but hey, it is free money.  They are still waiting for approval on their purchase, and I hope they get it because it seems like an awesome deal for a 4 bedroom house.  However, the story indicates that they would have bought the house with the credit or not because they needed a new home and the price was right.

Next, there is a single woman from Michigan  who bought a $115,000 home for herself.  From the description she gave it seems that she has a good head on her shoulders and she has been saving for a downpayment.  This person also said that she would have bought the home anyway, and the $8,000 is really a bonus to her.  I think that is great for her, but this means that the stimulus did not really spur an additional sale here.

The next couple is actually from San Mateo County.  They bought a $750,000 home in San Carlos with an FHA loan.  This means that they put down 3.5% and their loan is somewhere around $723,000.  At 5.5% this is a mortgage of around $4100.  Throw in property taxes and that’s another $600 a month.  They will be paying pretty much all interest to begin with and  it definitely does not cost $5000 a month to rent a three bedroom in San Carlos.   This story makes me worry a bit because this couple is planning a wedding and they said that the $8000 tax credit is saving them.  If you do the math, $8000 is  1.06% of their purchase price.  Honestly $8000 would not even cover their closing costs on this purchase so it would seem that perhaps they are buying too much.  The story did indicate that they felt rushed into the decision because of the tax credit, and I don’t know if that is a good thing.

The next couple is from Baltimore and they purchased a $119,000 home that they fixed up with the tax credit and other grants for historic homes.  Again, I think in this case the $8000 is significant enough that it makes a lot of sense.

Another local couple from San Francisco is up next.  They got a $550,000, 2200 square foot home in San Francisco.  This is actually a pretty good deal if it is in a good area of San Francisco.  They used the $8,000 to partially pay for a $12,000 roof.  They indicated that they waited to buy their home because they heard that a refundable credit was coming out, but once again, $8000 is just a drop in the bucket for their purchase.  It’s great that they were pay for 2/3rd of their roof, though.

The next couple took advantage of the fact that the $8,000 could be used as a downpayment .    Essentially they got a 0% down loan from the government.  The home is $257,000 and they could not save up $9,000. It also seems that they got an adjustable loan?  In this case their only equity is the $8,000 tax credit,  so it was definitely crucial in their purchase decision.

The next guy also used the tax credit as a downpayment, but he bought a triplex and is renting out two units to pay for most of his mortgage.  So basically he became a little landlord on the dime of the US government.  That is a awesome deal for him and I hope he does well.

In conclusion, I would say that most of these folks would not have purchased a home this year if the tax credit weren’t there.  The two groups that used the tax credit as a downpayment could not have afforded what they bought.   In the two Bay Area  cases where the purchase prices were $550,000 and $750,000 the $8000 really was just a drop in the bucket so I feel like they shouldn’t have based their purchase decision solely on the credit.  Anyway,  it is nice to see that some people are able to take advantage of this in a smart manner even though I find it ironic that the government is giving out 0% down loans on one hand and wagging a finger at the “greedy bankers” with the other hand.  Honestly  I cannot wait for this credit to expire so that the housing market returns to normal.

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Earlier this year California already raised income taxes by .25%, but now it seems that our income taxes will go up a little bit once again. This time it is due to deflation and it is not widely publicized.

This change will pretty much affect everyone who pays any income taxes because tax brackets are being pushed lower due to deflation.  In this chart from the LA Times you can see how the brackets are changing this year.    For us the increase will be around $150 on top of the extra 0.25% we are already going to pay.  It is not a huge deal, but it is interesting because this instance of lowering the tax bracket is very rare.

On the flip side, it is possible that deflation will lower the assessments of property taxes for Californian homeowners next year.    This depends on the California Consumer Price Index numbers in October.  If this happens then Californians may see their property taxes go down a little bit, but it is also not significant considering that the deflation number is around 0.7% right now.  So on a $300,000 assessment with a 1.1% property tax rate, the 0.7% deflation will save a homeowner around $23 for the entire year.

I don’t think most Californians will feel the tax changes due to deflation, but it is possible that deflation could affect federal tax brackets next year, too.  Additionally, the IRS uses annual CPI to figure out limits for things such as IRA and 401k contributions, so those limits may not increase.  Although the deflation rate is quite small now, it is definitely something to keep an eye on.

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If you do not know by now, the Cash for Clunkers program is looking for another $2 billion in funding since it burned through $1 billion in less than a week.  Legislators are touting this program as the most successful program of the stimulus package and that is rather scary because how much waste it actually produces.

This program essentially scraps working cars and gives consumers a voucher to buy a brand new car.  A good illustration of what happens to the “clunkers” is here on YouTube.   The sad thing about it is that the cars being traded in have to be in working condition, and none of their parts can be reused or resold.  So the result is that hundreds of thousands of perfectly good used cars are taken off the market completely to be turned into garbage.  The gas mileage requirement for the new cars are also quite low.  In some cases consumers only have to find a car that gets 1 or 2 miles per gallon to get the voucher so I am not quite sure how big of an environment benefit this would be considering that it costs quite a bit of  energy to scrap the old cars and produce new cars.  It may be much less wasteful if the old cars that got just 1 mile less per gallon were allowed to survive a bit longer.

If this is indeed the most successful part of the stimulus package then perhaps the legislators should apply the same principles of Cash for Clunkers to the housing problem.  In order to promote new home sales, perhaps home buyers should be given a credit for “trading in” their existing homes with home builders.  The old home will have to be owned for at least a year, and in habitable condition and cannot be more than 15 years old.   The new homes have to be green and use appliances that cut down on energy use by 5%.  The government will then give a voucher for  $100,000 for the old home, and then the old home has to be burned down to the ground and none of its parts can be reused.  Lets just throw $75 billion (this is the price of the ill conceived mortgage modification plan) at this hypothetical program and sell 750,000 new homes and decrease the supply of used houses by 750,000!  Sure, some neighborhoods will get uglier due to the piles of ashes, but I am sure that will stimulate new construction and create jobs!

I know that burning down homes to stimulate new home sales sounds ridiculous, but the fictional housing program I outlined above directly parallels Cash for Clunkers. If it is implemented it would probably be deemed a “success” as hundreds of thousands of people with homes worth less than $100,000 start razing their properties and buy new homes.  The government is essentially encouraging people to destroy something perfectly usable to buy something new.  Also I am sure many of these new car purchases came with new loans so once again we have government policy that encourages people to spend and get into debt.  Cash for Clunkers  certainly is stimulative for the auto industry, but it is definitely not stimulative for the environment or prudent tax payers.

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