23 August 2008 - 16:33Market Commentary 8/23/08

I have long had an interest in studying macroeconomics since a good grasp of them is key to understanding why the movements and trends we see in financial markets occur. As many others have discovered in their research of economics that politics and economics are inseparable. Especially in a nation which seeks to control its economy through government edicts.

Unfortunately this is the case in 21st century America and a prime example of it is the American Housing Rescue and Foreclosure Prevention Act of 2008 (H.R. 3221) which Congress used as a band aid for a housing market which is bleeding to death. This abomination which was in part spurned by public pressure for the government to “do something” to fix the problem they created in the first place. Originally bestowed upon us by Franklin Roosevelt as part of the New Deal Fannie Mae has lead the way for the housing crisis we are experiencing today. This fascist GSE (Government Sponsored Enterprise) is privately owned but state controlled (the definition of fascist ownership) so that the investors reap the rewards and the taxpayers cover the losses. As a result, Fannie Mae and Freddie Mac which would both be out of business without the taxpayer bailouts own or back about half of the $12 trillion in U.S. mortgage debt. Indymac who worked in concert with Fanny and Freddy has already collapsed. Obviously the accumulation of risky loans by these behemoths which are bankrupt has lead to market instability.

So what was the solution enacted by Congress? Create a new government agency the FHFA which answers to the privately owned Federal Reserve to oversee the GSEs in question. This gives more power to the elitist bankers who already rule Washington by funding the Federal government’s socialist programs and of course the campaigns of all the most influential politicians. It gets worse, in addition to the new powers given to the Fed, treasury secretary Paulson was given a green light to loan as much money as he wants to Freddie and Fannie for the next 18 months out of the public treasury. If this is such a good idea why doesn’t the fabulously wealthy Hank Paulson loan them the money himself? Keep in mind our treasury already owed $9.8 trillion dollars to its creditors prior to this stunt and now is well over the $10 trillion mark as a result of this bill. So in essence what we have done is loan money that we don’t have to a failed enterprise. Anyone who studies economics as I do realizes how monumentally foolish this is. In addition $300,000,000,000 ($300 billion) has been set aside for FHA loan guarantees for all those subprime loans that the bankers are eager to unload on someone. The subprime mortgages in risk of foreclosure will be converted to low fix rate mortgages and the risks associated will be absorbed by the government. Meanwhile the banks get to write off every one of these mortgages as a loss (even if it is not) and will have further responsibility for these bad loans. On top of all that money has been allocated to the states to buy up abandoned and foreclosed properties. The home builders who are on their last legs will be sure to benefit from this and of course government’s position is strengthened as well due to the increase in land ownership. What really takes the cake is the provision of this new law to report ALL debit and credit card transactions to the IRS going forward. This is just one more step towards the total control and oversight off all financial transactions of American citizens. Of course when you need to stick a sucker (you) with the bill you have to make sure the sucker can pay it. 

This is clearly the action of a socialist government apparatus which seeks to manipulate its economy (always with bad results) which is why I point it out to you. This communist style economic control has a direct effect of the value of our free floating currency. It also has a direct effect on the overall health of the U.S. economy since it takes money out of the hands of the individual who would otherwise put it to better use in the private sector. It is precisely these socialist programs which harm America’s economy and which have created the bubble which is busting. What is really frustrating is the apparent blind faith in the government displayed by our citizenry and even the financial markets. The dollar has rallied nicely since the enactment of this monstrous band aid legislation. I can assure you however that ultimately the value of the dollar will decline as a result of this detrimental bill. If this country operated in the same fashion of France which just keeps raising taxes until their deficits are funded this bill would never pass. Because we live in America where the Federal Reserve is happy to give us all the credit we want so that we can pay interest to them by way of the Federal Income tax we foot the bill for the reckless actions of U.S. banks (the same banks who own the Federal Reserve) and citizens instead of letting those responsible suffer the consequences. We add $800 billion more to our deficit with ONE BILL in Congress and those who championed it are proclaimed heroes instead of traitors. At current tax levels we can’t even afford to make the minimum payments on the debts we already owe. We have trillion dollar deficits owed to the likes of the friendly communist Chinese regime which has killed more than any other in history and the friendly Federal Reserve bankers who have counterfeited our currency for almost 100 years.

Why should we care though? After all it is our sons and daughters and their children who will suffer the consequences, or so we would like to believe. If that is the best case scenario then it is clear drastic change must occur now. If the sinking ship which is the United States is to survive as a free nation we need to start holding people accountable for their actions today. The intergenerational tyranny we are subjecting our offspring too is unacceptable. The real question is as Warren Buffet suggested in 2005 at what point does China or the Federal Reserve demand land or other resources in payment of this debt? What kind of slavery and abject poverty will are children be subjected too?  All we are doing with this housing bill and others like it is delaying the inevitable and making sure things will be worse when the reckoning finally does come.

When all this is considered, it becomes obvious to see why the dollar has crashed and why it is impossible for our economy to ever improve fundamentally while business as usual continues in Washington. While this bill and other stunts to prop up our economy until the elections are over may boost the dollar don’t expect it to stay strong for long as long as this nonsense continues.