Keeping the Housing Bubble Inflated

It should be abundantly clear and obvious that thegovernment and Wall Street want nothing more than to keep home prices inflated and are sticking out a giant middle finger to the majority of Americans.

You might have missed the glorious news that our stunningly cunning Senate decided to reinstate the heightened loan limits for Fannie Mae, Freddie Mac, and the FHA (aka the entire stinking mortgage market).  Of course the lobbying arms of the housing industry went gaga for this policy even though it keeps prices further inflated in bubble states like California and New York.  Good job politicians, I’m sure the checks from the FIRE industry will come in just in time for the 2012 election!

Since our politicians care so deeply about working Americans, they are also examining a push at giving residential visas to foreigners looking to buy at least $500,000 in real estate.  Forget about the fact that the median home in the U.S. costs more like $170,000 to $180,000.  Then we have the Federal Reserve artificially keeping mortgage rates at historic lows and you hit the trifecta of housing welfare for expensive bubble ridden states while the overall economy falters.

Continue reading “Keeping the Housing Bubble Inflated”

How Hyperinflation will Happen

First of all, I want to ask my readers to please excuse the fact that I haven’t posted here for awhile.  Various activities have kept me quite busy, leaving me little time to write.

I was sent a link to the following post today, and think it is an exceedingly important bit of information that investors need to read and assimilate, so I am passing it on to you.

Writing in zerohedge.com, a site which I have found consistently has valuable financial information, Gonzalo Lira proposes a scenario, the inevitable result of which is hyperinflation in America, and the world.  He distinguishes between Inflation, and Hyperinflation:

But hyperinflation is not an extension or amplification of inflation. Inflation and hyperinflation are two very distinct animals. They look the same—because in both cases, the currency loses its purchasing power—but they are not the same.

Inflation is when the economy overheats: It’s when an economy’s consumables (labor and commodities) are so in-demand because of economic growth, coupled with an expansionist credit environment, that the consumables rise in price. This forces all goods and services to rise in price as well, so that producers can keep up with costs. It is essentially a demand-driven phenomena.

Hyperinflation is the loss of faith in the currency. Prices rise in a hyperinflationary environment just like in an inflationary environment, but they rise not because people want more money for their labor or for commodities, but because people are trying to get out of the currency. It’s not that they want more money—they want less of the currency: So they will pay anything for a good which is not the currency.

He gives the likely scenario that will signal the start of hyperinflation and concludes that the only likely result of the massive deficits this administration is creating, as it seeks to prop up aggregate demand levels by way of fiscal “stimulus” spending—the classic Keynesian move, is hyperinflation.

But this Fed policy—call it “money-printing”, call it “liquidity injections”, call it “asset price stabilization”—has been overwhelmed by the credit contraction. Just as the Federal government has been unable to fill in the fall in aggregate demand by way of stimulus, the Fed has expanded its balance sheet from some $900 billion in the Fall of ’08, to about $2.3 trillion today—but that additional $1.4 trillion has been no match for the loss of credit. At best, the Fed has been able to alleviate the worst effects of the deflation—it certainly has not turned the deflationary environment into anything resembling inflation.

Yields are low, unemployment up, CPI numbers are down (and under some metrics, negative)—in short, everything screams “deflation”.

Therefore, the notion of talking about hyperinflation now, in this current macro-economic environment, would seem . . . well . . . crazy. Right?

Wrong: I would argue that the next step down in this world-historical Global Depression which we are experiencing will be hyperinflation.

I would highly recommend that you take 10 minutes and read the whole article. Being informed about what is likely to occur will enable you to take the necessary steps to be prepared for it. You don’t want to be the deer in the headlights when the car comes around the bend.

Our Unsustainable Debt

Reason Magazine has an article in the June issue about United States debt.

America’s financial situation is unsustainable. In 2009 the federal government spent $3.5 trillion but collected only $2.1 trillion in revenue. The result was a $1.4 trillion deficit, up from $458 billion in 2008. That’s 10 percent of gross domestic product, a level unseen since World War II. Worse, the Congressional Budget Office (CBO) projects that we’ll be drowning in red ink for the foreseeable future, with annual deficits averaging $1 trillion during the next decade.

While these figures are dramatic, they pale in comparison to what the federal government owes foreign and domestic investors. According to the CBO, in 2009 America’s public debt reached $7.5 trillion, or 53 percent of GDP, the highest it has been in 50 years. In 2010 the debt will cross the 60 percent threshold, a level at which many economists believe a country is putting itself in financial peril.

The money used to pay our debt comes from the savings of Americans.  There will soon not be enough money from the savings of Americans which will mean that our government will increasingly have to look to foreign investors to loan us money (buy our bonds).  This is not a good financial situation for the US to be in.  We will not be able to sustain it over time.

Fiscal prudency would require that the US start generating budget surpluses to repay our debt.  Following the course laid out by the current administration the future looks bleak.  This administration has plans to run the US debt up to unprecedented levels rather than reducing it.

Probable result of this activity: significant inflation, weakness of American currency against other currencies, an extraordinarily large amount of our gross national product going to service the huge debt burden, loss of confidence in America, inability of our economy to generate innovative new industries, inability to finance new construction and a host of other economic maladies.

We need to fire Keynes and hire Hayek as soon as possible.

Read the whole article in Reason Magazine.

The Real Unemployment Rate Is Pretty Grim

Steve McCann, writing in The American Thinker, analyzes the actual unemployment data from the Bureau of Labor Statistics.  As he says:

The Obama administration and their sycophants in the (once)-mainstream media trumpeted the increase of 162,000 jobs in March claiming that the recovery in underway and becoming entrenched.  This included 48,000 part-time workers for the Census and another 40,000 new part-time jobs in the rest of the economy.

Nevertheless, behind these headlines the data from the Bureau of Labor Statistics also reveal a grimmer side of the picture.
The number of long-term unemployed (more than 27 weeks) in March rose to more than 6.5 million.  The percentage of people unemployed for 27 weeks or more also rose to a record 44.1% of all jobless.

The figures also showed the average earnings per hour dropped and the number of people working part-time increased.
The underemployment rate — which includes part-time and those who have given up looking increased to 16.9% from 16.8%.  At some point soon many of those who have given up looking will re-enter the workforce in search of employment and thereby exacerbating the unemployment rate.

Further, the latest Gallup Daily tracking (yes, that right wing outfit) found that 20.3% of the U.S. workforce was underemployed in March, up from 19.6% in December and higher than the previous month.

Further in the construction sector, which was touted to be helped by the Obama stimulus bill, the unemployment rate remains at 24.9%?

So, in actuality, the REAL national unemployment rate is not the 9.7% the government would like everyone to believe, but is now somewhere in the high teens. I would guess that some of the estimates I have heard about unemployment rate being somewhere between 18% and 19%, nationally is probably pretty accurate, considering the above. Of course, in states like Michigan and California, the rate will be higher than that.

US Now Controls Cash Deposits in Foreign Banks

It couldn’t have happened to a nicer country.

On March 18, with very little pomp and circumstance, president Obama passed the most recent stimulus act, the $17.5 billion Hiring Incentives to Restore Employment Act (H.R. 2487), brilliantly goalseeked by the administration’s millionaire cronies to abbreviate as HIRE.

As it was merely the latest in an endless stream of acts destined to expand the government payroll to infinity, nobody cared about it, or actually read it. Because if anyone had read it, the act would have been known as the Capital Controls Act, as one of the lesser, but infinitely more important provisions on page 27, known as Offset Provisions – Subtitle A—Foreign Account Tax Compliance, institutes just that.

In brief, the Provision requires that foreign banks not only withhold 30% of all outgoing capital flows (likely remitting the collection promptly back to the US Treasury) but also disclose the full details of non-exempt account-holders to the US and the IRS. And should this provision be deemed illegal by a given foreign nation’s domestic laws (think Switzerland), well the foreign financial institution is required to close the account. It’s the law.

If you thought you could move your capital to the non-sequestration safety of non-US financial institutions, sorry you lose – the law now says so. Capital Controls in the U.S. are now here and are now fully enforced by the law.

For details of the provisions of the law, go here.

Senator Dodd Urges Action on Commercial Real Estate

By Kevin Drawbaugh and Corbett B. Daly
http://www.reuters.com/article/idUSN2220875620100222

WASHINGTON, Feb 22 (Reuters) – U.S. Senate Banking Committee Chairman Christopher Dodd, citing concerns about the outlook for commercial real estate, asked regulators on Monday for action and a report on efforts to stabilize the sector.

“The weakness in the (commercial real estate) market requires prompt and robust responses from the regulators to guard against harmful effects on financial institutions and the economy,” Dodd said in a statement.

“I urge you to redouble your efforts to provide appropriate oversight of this vital component of our economy,” he said.

Dodd asked regulators for an update on their work to stabilize the market. The letter went to Federal Reserve Chairman Ben Bernanke and other top regulators.

This month, a congressional watchdog panel said the commercial real estate market has fallen more than 40 percent from early 2007 and a wave of loan failures in the next few years could threaten the U.S. economy just as it struggles back to its feet from the worst recession in 70 years.

Dodd noted that a Fed official testified last month before the watchdog panel that examiners at the U.S. central bank are reporting a “sharp deterioration” in commercial real estate loan quality.

The letter comes amid a broader debate on Capitol Hill over rewriting the way the U.S. financial services industry is regulated in the wake of the financial crisis.

The Obama administration is urging lawmakers to support a U.S. financial consumer watchdog that is strong and independent, pushing Senate Democrats to resist compromises sought by Republicans and bank lobbyists.

Treasury Secretary Timothy Geithner said the administration is still fighting “to consolidate the fragmented authority of seven separate agencies into a single, independent and accountable Consumer Financial Protection Agency (CFPA).

Seeking compromise, Dodd in recent weeks has discussed multiple options with Republicans, who oppose the CFPA, but has not struck a deal.

The Connecticut Democrat is working closely with Tennessee Republican Senator Bob Corker, a committee member, on crafting an agreement they hope will win broad support. Its release is expected within days.