Saturday, October 10, 2009

Living in the New Land of Oz

I wish I could get into the Kool-Aid behind the Land of the New Oz. I wish I didn't understand the madness of what is being done. I wish I didn't care about the future of America. Why did I have to learn about money, debt/credit, and Gold? Maybe I just need to start taking Prozac, drink more and read less so that I see things clearly in the terms our leaders want us to.

This article reprint from the New York Times makes me sad and angry at the same time. Once one understands the madness of fiat paper currency, it is hard to look at its practitioners with anything but scorn or pity. Of course, the pity must be reserved for the ignorant while the scorn is reserved for those who know what they are doing and don't care. The for-profit federal reserve falls into the latter category, as does the master of bread and circuses, Barney Frank. To quote from the article in regards to the rapidly escalating government-sponsored home loan defaults:

Barney Frank, the Massachusetts Democrat who is chairman of the House Financial Services Committee, said in an interview that the defaults were, in essence, worth it.

“I don’t think it’s a bad thing that the bad loans occurred,” he said. “It was an effort to keep prices from falling too fast. That’s a policy.”

Yes, it is a policy. A policy that requires massive currency debasement to have a snowball's chance in hell of succeeding. The housing bubble has popped and it cannot be revived by decree. Period. However, if one changes the value of paper dollars in circulation, then housing prices may indeed stabilize in nominal terms. As an extreme example, perhaps we could just peg our currency to home values in the United States. Let's peg the U.S. Dollar to the median home price in the United States and then build 500 million homes in this country in a "make-work" stimulus program. Then, we can give the houses away so that everyone could have 3 homes. Perhaps then home prices might transiently stabilize and even rise in nominal terms when priced in U.S. Dollars.

Once this occurred, we would all be prosperous again! Oh, and we could also give every new homeowner $50,000 in cash to help furnish the homes. Since they would need to furnish and maintain these free homes, the economy would boom. What could go wrong? Economic jackasses of the court like Paul Krugman would probably support a proposal of this type.

Again, to quote from the article:

Despite the agency’s attempt to outrun its fate by insuring ever-larger amounts of new loans...

Yes, the fiat debt hampster wheel is a bitch when you start running the numbers. Since new loans are assets and assets are being depleted by loan defaults, simply make more and more loans at an ever increasing pace to keep up with the accelerating default rate!

And, on the other side of the equation from the article:

Chaz Fullenkamp, an automotive technician in Columbus, Ohio, got an F.H.A. loan even though he was living on the financial edge. “If I got unemployed, I’d be wiped out in a month or two,” he says. Thanks to the F.H.A., however, he is better off than he used to be.

Mr. Fullenkamp used F.H.A. insurance to buy a house this spring for $179,000. The eager seller paid the closing costs and also gave Mr. Fullenkamp $2,500 in cash. He immediately applied for the $8,000 tax rebate. Even taking his down payment into account, he came out ahead.

“I knew in my heart I could not really afford the house, but they gave it to me anyway,” said Mr. Fullenkamp, 22. “I thought, ‘Wow, I’m surprised I pulled that off.’ ”

Surprised, indeed! The bolded sentences in the quote above are the fiat propaganda. To say this guy is better off and that he came out ahead on this deal is the Kool-Aid part of the equation. Debt is good. No debt is bad. Owning nothing, having no savings, and agreeing to take on a mountain of unaffordable debt backed by a depreciating asset is the perfect recipe for getting ahead in life - duh!

What could possibly go wrong if we all just hold hands and believe? Oh, wait:

The government is giving as many people as it possibly can the chance to buy a house or, if they are in financial difficulty, refinance it.

Ah, refinance anyone with a pulse. So, private banks and Wall Street are bailed out by the government taking loans in default off the private sector's books and putting it on the taxpayer's tab. Gee, I wonder why private banks aren't foreclosing more quickly on defaulted loans? Hmmm. And, of course, the coup d'etat from the original gangstaz:

...the taxpayer is responsible for paying investors who own Ginnie Mae bonds when F.H.A.-backed mortgages hit trouble.

Oops. I guess we know why the for-profit, non-federal, unconstitutional federal reserve has been buying mortgage-backed securities hand over fist. Risk-free profits guaranteed by the U.S. government. Wow, nice move! But I'm sure the federal reserve was not interested in the money they would make by counterfeiting money and being guaranteed a real profit paid by the taxpayer on the counterfeited money. No, they only have the U.S.' bests interests at heart. They are our savior. We can't audit them - that would be like auditing Mother Teresa!

Besides, never mind this part because housing has bottomed according to the National Association of Realtors and we're all going to get rich again by owning homes. In fact, you'd better buy a home now before prices go up rapidly. Hurry, before it's too late!

The hare-brained schemes of the fiat demagogues are going to get stranger and stranger and the central bankstas behind the government are egging them on and happy to give them a larger line of credit because the federal reserve will make massive profits off of the subsequent misery either way. To blow out the current natural state of deflation, central bankstas and their apparatchik lackeys are willing to try anything. What do the bankers care? Inflation, they win as the private sector recovers. Deflation, they lose at first but then ask the government to make them whole again to prevent "financial collapse" (i.e. banksta losses). First deflation, then inflation. Oh, and it's all for your benefit. Thomas Jefferson, say what you want about him, was not a dumb guy and many know the famous comment attributed to him:

"If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."

Because the economy is so weak and because of where we are in the asset class rotation and social mood cycle, this latest bout of madness in the New Land of Oz will translate into a strong continuation of the bull market for Gold. The level of mania reached in this secular Gold bull market will be proportional to the level of stupidity coming from those in Washington who manage the purse strings. If recent events are indicative, I have a feeling it's going to be a helluva mania.

Wikinvest Wire