Your Government at Work — Note investor

The government and media shell games on public employees, debt, and evaluation of past programs continue.  Over the past couple of years, we have increasingly been reading about wide scale reduction of public employees in the press.  The Bureau of Labor Statistics (BLS) claims that state and local governments shed 221,000 jobs between December 2007 and December 2010, with another 234,000 jobs lost so far this year.  Meanwhile, a Census Bureau study shows that full time state and local employment climbed 200,000 between 2007 and 2010 (per  Clearly, the two departments were using different methodologies and we don’t know which is actually true.  It doesn’t really matter, as even the BLS figure of a 2.3% decline in the public sector is dwarfed by the 5.4% drop in the private sector.  Businesses are getting leaner much faster than are governments.

You may have seen that the highest average income in the U.S. belongs to Washington D.C.  Not in Silicon Valley, where new technologies are constantly being introduced, nor in Texas where so many energy companies proliferate, and certainly not in the farm belt or any center of manufacturing.  Washington D.C., a city of lobbyists, attorneys, and similar types who add zero value to society is where the big bucks are being pulled in.

This activity is part of a broader pattern in our country’s expanding debt problem.  Treasury Department statistics show that federal spending in the first 9 months of this year is $120 billion (5%) higher than last year, and that deficits are $23.5 billion higher.  Overall state spending rose almost 10% from 2008 to 2010, while general fund spending is expected to rise 5.2% this year and 2.6% next year.

From where does this money magically appear – from nowhere, of course.  More specifically, it comes from the future, as taxpayers and government bond holders get hit, and the Feds  inflate their way through the rest of the debt.  Political infighting and even the government “super-committee” — which is supposed to provide some substantial debt reductions by November 23 —  are only making things worse.

Speaking of more spending, the Federal Reserve is looking into buying more mortgage-backed securities in order to lower mortgage rates.  The fact that rates recently hit historical lows with no discernible impact on sales or values does not seem to have entered into the conversation.  The national median price for existing homes fell 3.5% in September from a year earlier to $165,400 (Wall St. Journal, 10/21/2011).  Let’s say that Betty Buyer purchases a house at that price and gets a 30-year FHA mortgage loan at 96.5% of the value.  At a 4% interest rate, Betty’s monthly payment would be $762.01.  If the Fed is fabulously successful at lowering the rate to 3.5%, then Betty’s monthly payment goes to $716.72.  Does anyone really think that a decline in the monthly payment amount of just over $45 will affect home sales at all?

Mortgage defaults and foreclosures are rising again now that the robo-signing scandal has been put to bed.  Expect foreclosures to continue climbing and home prices to continue falling for another couple of years – much longer if the feds continue to meddle.

Alan Noblitt is a mortgage note investor in California.  As a note investor, he keeps an eye on real estate and economic trends to help himself and his readers know what is going on.


Written by Alan Noblitt

Alan Noblitt is the President of Seascape Capital, LLC, and works as both a real estate note buyer and a business note broker. Alan has an MBA from Arizona State University, a B.S. from the University of Wyoming, and is licensed as a California Real Estate Note Buyer.

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