Give me 5 minutes and I’ll convince you that you should sell your house immediately and invest your life-savings in gold or a Swiss bank-account.
Okay?
For some time now we’ve been hearing about the so-called housing bubble and what effect it could have on your net worth and future. Well, the numbers are finally in and you can decide for yourself whether its time to sell now or try to ride out the storm.
In 2000 the total value of homes in the US was $11.4 trillion. Today that number has shot up to $20.3 trillion; nearly double.
At the same time, mortgage-debt in 2000 was a trifling $4.8 trillion (about half) while in 2006 it skyrocketed to a whopping $9.3 trillion.
So, how do we explain these enormous increases in value? After all, wasn’t the housing boom just the natural outcome of “supply and demand”?
No it wasn’t. That’s an unfortunate myth that should be interred with the withered remains of Milton “free-market” Friedman.
If we really want to know what’s going on, we need to look back at the machinations at the Federal Reserve in 2001, that’s when Greenspan lowered interest rates to 1.5% to soften the blow from the stock market meltdown. Rather than tighten interest rates and let the country to go through a period of recession, Greenspan lowered rates and ramped up the printing presses to “full-throttle”.
Voila; the housing bubble! Or what the conservative “Economist” magazine calls “the largest equity bubble” in history.
The housing bubble has nothing to do with supply and demand or with the fictional increase in workers salaries. (which have actually gone down since Bush took office) Rather, it is the predictable result of dramatically increasing the money supply while expanding personal debt via home-mortgages.
Remember, the central banks are not in the mortgage business; they are in the “money-pedaling” business. And the way you sell more money is by making it as cheap as possible. The Fed intentionally inflated the bubble with cheap money so they could keep the printing presses whirring-along. They worked in concert with the banks to lower the requirements for mortgages so they could attract an endless swarm of “unqualified” customers who wanted to join the feeding-frenzy.
Isn’t that what happened?
And, didn't that make it possible for every Tom, Dick and Harry to borrow hundreds of thousands of dollars on “no-down payment”, “interest only”, ARMs or other equally risky mortgage-packages?
Of course it did.
There are some who will argue that the Federal Reserve just made an honest mistake and were merely trying to steer the country away from impending recession.
That may be true, but let’s consider the facts before we draw any hasty conclusions.
Pin the blame on the donkey - one of their favorite games
I believe that the reckless deficit spending binges are purposeful economic timebombs created by the republican robber barons intent on appearing like big spending benefactors fostering strong economies. Enormous debts lay in wait for fiscally prudent and politically susceptible Democrats who must tighten the belts to make payments on and to control the monstrous debt. Big spender republicans get to appear like fat cats bringing in the pork from an economy rolling in dough, but which is floated on obscene amounts of debt.
Massive inflation, VA hospital bills, war reparations, and a hundred other republican booby traps will be pushed off on the next Democratic leader. Honest government bureaucrats get blamed and skewered for cutting the fat and raising taxes (which is never popular) to be responsible.
Pin the blame on the donkey is a very popular game for these A-holes.
by
Tim Riley (7 articles, 5 quicklinks, 7 diaries, 148 comments [12 recommended, 0 rejected]) on Monday, Nov 27, 2006 at 3:10:45 PM
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