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Fight Club: Is the Home Mortgage Interest Deduction Worth Keeping?

Garrett Baldwin: Don't Just Cut the Mortgage Deduction… Cut All Deductions and Lower Taxes

If home ownership is the American Dream… then why do we need government to subsidize it?

The home mortgage interest deduction (HMID) is a lopsided tool of economic alchemy that favors the rich, and artificially increases housing prices due to the "stimulus" it creates.

According to the Congressional Budget Office, this tax break will "cost the government" more than $1 trillion over the next decade. The HMID mostly benefits households earning $75,000 to $500,000 a year. According to the Tax Policy Center, this range of Americans earns 77% of the tax savings from the HMID.

Top News

Obama Vacation to Martha’s Vineyard is Their Sixth in 2013 … So Far

Everyone needs a vacation occasionally, if only to relax, collect your thoughts and
just chill out.

Obama vacationBut too much of anything is rarely good, especially when it means President Obama is away from critical duties in Washington.

The sixth Obama vacation of the year starts August 10, when the President and his family will skip off to lovely Martha's Vineyard.

The First Family has been on vacations once monthly since January and has displayed impeccable taste and style when choosing vacation spots. And those kinds of prime vacation spots don't come cheap.

It's almost like they sit around the table at night and thumb though travel magazines and say, "This looks nice, gas up Air Force One. Let's go see Martha's Vineyard!" Then everybody packs their bags, the barking dog and giggling kids — and off they go.

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Global Economy

What the Financial Press isn't Telling You About China’s Subprime Crisis

China is the world's second-largest economy, a simple fact that underscores the importance of its financial health to investors worldwide.

And unfortunately, thanks to China's subprime crisis, it's not doing as well as we're led to believe.

The Chinese stock market has fallen to levels unseen since the 2009 global financial crisis, and short-term interest rates have reached as high as 25%.

We've been told by the mainstream financial press the Chinese economic crisis is being caused by shadow banking.

The term has been demonized by reporters outside China. But that's not the whole story. In fact, there is a valid reason for shadow banking to thrive in China:

"Chinese banks are mostly state-owned, and they rarely lend money to the private sector. Thus, there has always been strong demand for financing outside of official banking circles," says Money Morning Global Investing & Income Strategist Robert Hsu.

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The Fed

Larry Summers or Janet Yellen, Who Will Obama Pick as Head of Fed?

With Ben Bernanke prepared to step down as Federal Reserve chairman within the next year, the human resource debacle of locating the next Federal Reserve chair is underway.

Despite reports of Timothy Geithner, Alan Blinder, or Roger Ferguson being modest replacements (the latter I personally endorse), it seems that the candidacy has been narrowed to two.

The next Federal Reserve chair will be a choice between one of the biggest enablers of the financial crisis, Larry Summers, and the more-qualified, but politically unknown, Janet Yellen.

Here's my insight on each candidate…

What a Summers Federal Reserve Would Look Like…

FOMC meeting

FOMC Meeting: Look to Statement for QE Clues

Don't expect a definitive answer from this week's Federal Open Market Committee (FOMC) meeting on when the Fed will begin tapering its massive quantitative easing program.

Instead, the focus will be on the FOMC's statement, which will be scoured for clues about when scaling back QE3 could begin.

"We do not expect any modifications to the asset purchase pace or forward guidance at this meeting, so markets are likely to hang on every word change in the statement," Michael Hanson, an economist at Bank of America Merrill Lynch Global Research, said in a research report.

This month's FOMC meeting is the last before September, the month the markets have been expecting the Fed to announce "the taper."

Brian Gardner, senior vice president of Washington Research at Keefe, Bruyette & Woods, said the economic outlook will be key to finding taper clues.

"We do not expect any changes in policy (either for large-scale asset purchases or for Fed funds rates) but the commentary on the state of the economy could be significant," Gardner said in a research note. "As Fed officials have recently reinforced their intent to look at the outlook for the labor market and the economy, any change in the Fed's description of the economy could provide a better idea of when the Fed might taper asset purchases."

But, Gardner added, "Our guess is that any change in language will be nuanced and keep the markets guessing about when the Fed will taper."

He said Friday's jobs report may ultimately be as significant as the FOMC statement in terms of gauging when tapering would take place.

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Income Plays

Four Companies That'd Benefit From Corporate Breakups – the Last One May Surprise You!

June 28 saw the corporate breakup of News Corp (NASDAQ:NWSA), the world's 2nd largest media-entertainment conglomerate with some $34 billion in revenues worldwide.

The split took over the headlines and had investors in a tizzy.

When you own equity in a company that undergoes a corporate breakup, you may stand to earn major profits – if it's the right approach for that particular company to stimulate earnings and growth.

Money Morning's Chief Investment Strategist Keith Fitz-Gerald explains how corporate breakups can benefit – or sting – investors:

    "Many times there is a breakup premium attached to a stock when assets are worth more than the sum of their parts. The same is true of revenue streams that are suddenly freed of costs that belong to other divisions or products.

    "Conversely, if a breakup goes badly, that's usually because investors find problems that weren't apparent when the entity was held whole."

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Your Money

Peter Thiel's Solution to the Student Loan Bubble Makes a Lot of Sense

Peter Thiel, Co-Founder of PayPal

"Education is a bubble in a classic sense. To call something a bubble, it must be overpriced and there must be an intense belief in it. Housing was a classic bubble, as were tech stocks in the '90s, because they were both very overvalued, but there was an incredibly widespread belief that almost could not be questioned – you had to own a house in 2005, and you had to be in an equity-market index fund in 1999." ~ Peter Thiel on higher education for NRO.

Peter Thiel is a highly successful entrepreneur, venture capitalist, hedge fund manager, and perhaps most notably co-founder of Internet giant PayPal.

He is also a staunch libertarian, and anything but meek about sharing his philosophic point of view.

When it comes to higher education in America today, Thiel is less than impressed:

"It's basically extremely overpriced. People are not getting their money's worth, objectively, when you do the math. And at the same time it is something that is incredibly intensively believed; there's this sort of psycho-social component to people taking on these enormous debts when they go to college simply because that's what everybody's doing."

Like Thiel, we at Money Morning believe that America has been swallowed by a student loan bubble.

We've given you the numbers. We've discussed its uncanny similarity to subprime. We even tracked one student's epic journey to discharge his student loan debt.

And, like Thiel, we've thought up some reasonable alternatives to the blind pursuit of higher education.

For instance, we suggested starting a business. There is something about real-world experience that can't be replicated in higher education right now.

Just look at the commentary by some of the business elite.

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Your Money

Death Tax Woes: Don't Make the Same Mistake Tony Soprano Did

We were all shocked by the sudden, untimely death of James Gandolfini. Gandolfini was an immensely gifted actor who changed the face of television entertainment in the role of Anthony "Tony" Soprano, a deeply troubled gangster-in-therapy, who had to balance obligations to his family… and his Family.

By all accounts, James Gandolfini was generous and kind to family and friends alike. It has been reported that he left a large legacy, in excess of $70 million, to be divided between them. His net worth is an estimate, and his asset inventory hasn't yet been disclosed, but he did alright for a middle class kid from North Jersey.

Sadly, however, his nearest and dearest won't see anywhere near the full amount he left behind.

It turns out that James Gandolfini was generous – to a fault. His wish was that his legacy, in the form of real estate and other assets in the United States and Italy, be distributed in large chunks, the largest in a trust for his 13-year old son, Michael and 8-month old daughter, Liliana. His widow, Deborah Lin, is set to receive 20% of his estate. The will stipulates that the shares to be doled out after taxes.

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Is Obamacare Creating a Part-Time America?

America has become a part-time nation. The Bureau of Labor Statistics recently reported that in June part-time employees in the labor force reached an all-time high of 28 million, 3 million more than when the recession began in 2007.

The economy lost 240,000 full-time jobs in June and added 360,000 part-time jobs, the BLS noted. Of the 753,000 jobs created this year, 589,000 were part time.

The real unemployment rate in June, the U6, stood at 14.3%, up from 13.8%, a figure that includes part-time workers seeking full-time jobs and those who have become discouraged and are no longer looking for work.

Now many economists and many in the financial press with sympathies to the administration have attributed the rise in part-time America to uncertainty among employers about future profitability and growth and not to the looming Obamacare mandate.

It's ironic that in trying to play down Obamacare's influence on the job market, they end up dissing the president's stewardship of the economy.

However, Obamacare has likely played a significant role in the part-time job wave. Under the Affordable Care Act, companies with 50 or more full-time workers must provide health insurance to all full-time employees, those working 30 or more hours per week.

So if your workers don't work 30 hours per week you don't have to provide health insurance. It makes economic sense to have a part-time work force in many cases. Even with the administration's recent one-year extension of implementing the employer mandate until 2015, most small companies are still preparing to it.

A reported 74% of small businesses are positioning themselves to slash hours, layoff workers or both.

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Economic Reports

July Fed Beige Book Round Up

the beige book

Periodically, each Federal Reserve Bank gathers anecdotal information on current economic conditions in its geographic district.

Banks take into consideration the outlook of regional Fed bank directors, interviews with key business contacts, economists, market experts, and other sources.

This information comes out 8 times per year in a compilation report dubbed the "Beige Book" – it's essentially a summary of economic activity in the 12 Fed bank districts as prepared by a designated Federal Reserve Bank on a rotating basis.

Today (Wednesday), the Federal Reserve released its latest.

Therein, manufacturing reportedly expanded in most districts.

Consumer spending, auto sales, transportation, commercial real estate, and banking has improved.

Hiring activity modestly improved, but three districts noted businesses' reluctance to hire permanent workers. We're likely seeing the effects of Obamacare.

Notably, housing demand and construction activity increased at a moderate to strong pace in all districts.

Meanwhile, tourism and agricultural conditions seemed bogged down by bad weather.

In sum, overall economic activity has reportedly continued to increase at a modest pace since the last Beige Book, released on June 5.

Sounds good, but how about some specifics?

Here are some interesting economic tidbits I came across while perusing July's Beige Book, broken down by district:

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