There are three separate battles that must be fought in the war against the Housing Bubble.
The first battle was the bloodiest and has already been fought. The banksters have carpet bombed the lower end of the housing market with foreclosures. The speed and thoroughness of the operation could be compared to the Blitzkrieg by Nazi Germany in World War II. Robo signers replace the Messerschmitts that reighed terror from the sky.
There is no loss of life of course, but lives have been destroyed all the same.
Mercifully the destruction is complete and the battle of home prices is over. The banksters are moving out, and on to greener pastures of exploitation.
Lower end areas like Antioch, Pittsburg and many parts of Oakland are selling below 2000 prices. It is time for the citizens of these markets to come out of their bunkers and rebuild.
The destruction has laid a foundation for growth. For the first time in 8 years young families are buying homes at affordable prices and investors are getting a fair return on their investment. The lower end housing market has wrested itself free of the tyranny of greed caused by the banksters and the bubble.
There is still some fighting in the middle tier of the market. This would be the Walnut Creek and Pleasant Hill areas. In these areas there is reasonable value for the discerning buyer but there is still a small cohort of overpriced resistance fighting back.
The banksters are using a different and more cunning strategy than in the battle of the lower end. They are strategically unloading just enough foreclosures in an attempt to keep prices in the bubble. This market manipulation allows for a slower more painful decline in home prices. It’s more like the punji stick booby traps in Vietnam.
But home buyers are on the offensive. They are purchasing homes at median 2002 value, so this battle is close to an end. Unfortunately for the buyers there are still a few homes that are listed at 2007 prices. These landmines can booby trap an undiscerning young family that is not skilled in reading the new terrain.
It is exactly like an explosion. The 2007 purchase price radiates mispriced value out amongst the surrounding area. A devastating event for the young families involved. Indirectly there is collateral damage to the market. But as time goes by this will happen less and less. The new buyers coming into the fray will learn from the mistakes of their fallen comrades.
Looking at the numbers it appears that Walnut Creek and Pleasant Hill buyers are learning to avoid the landmines. The pending sales numbers are starting to trend at 2001 values. Once these pending sales are closed, it will mean affordable pricing for comparable homes in the future.
As long as there are no new Covert Operations, like the Homebuyer Tax Credit by our government, the neutral zone between buyer and sellers will be drawn at 2001 prices. The white flag will be raised just south of the bubble and the battle will be over. Young families will be able to safely enter into the Walnut Creek and Pleasant Hill markets in 2011.
The final battle rages in the high end markets of Alamo and Lafayette with no hope of ending anytime soon. Overall the market is selling at 2005 prices, solidly in the bubble. Young buyers are totally outmatched in this fight.
There are many homes that are still being sold at 2007 prices. Each sale creates a comparable that enables other sellers to price their home at peak bubble price. These booby traps will continue to snare young families into a home that in all likelihood will be underwater in 5 years as prices slowly trend downward to 2002 values.
To make matters worse for the young buyers is that the banksters have allied with the sellers in this battle. The same banks that carpet bombed the homeowners in the lower end housing market, and used punji sticks to demoralize the middle tier buyers are now stockpiling foreclosures in the high end market. This stockpile of foreclosures could very well become a weapon of mass destruction in the future when they are unloaded onto the unsuspecting young people purchasing homes today.
Another powder keg that could explode is the pent up force of rising interest rates. There are many more interest only loans in the upper end market compared to the middle and lower tiers of the housing market. This trip wire has the potential to blow the whole high end market back to the Stone Age.
But what should be most distressing to young home buyers is that the Black Ops team at the Federal Reserve has helicopters in the air. Even though there is no chance of winning the war, The Fed is fiercely fighting free market interest rates in an effort to stretch out this battle for as long as possible. This Kamikaze mission by The Fed is meant to Shanghai young high end home buyers into joining their futile battle against our nation's free markets.
The high end market is like the fight between brothers on opposing sides during the Civil War. Except in this fight the rich older brother that started the war is borrowing money from China to continue the war and sending the bill to the poor younger brother that had nothing to do with starting the war in the first place.
War is definitely Hell.
For the next 3-5 years this battle will continue between the young and the old in Alamo and Lafayette. I don’t see how the young people that want to move into these markets have a chance. The high end home sellers have the money and the means to hold out for bubble prices. They have also formed an alliance with the banksters and The Fed.
The young buyers that enter this battlefield are set to become the cannon fodder that allows many rich sellers to escape from the bubble with all of their false profits as it imprisons an unsuspecting young family into an overpriced home in a very, very unsound economy.
If you are a young family looking to purchase a home, I would urge you to stay clear of this war zone.
Saturday, November 5, 2011
Sunday, July 10, 2011
Zero Gravity Flight
Over the past 4 years our government at all levels has borrowed $6 trillion in future productive resources that taxpayers must pay back. Little of this largesse has made it's way back to private sector Middle Class Producers. Much of this money is pooling in the bank accounts of; The Rich, Big Banks, Multinational Corporations, Overseas Investors and Wall Street.
The Federal Reserve is redistributing our savings in the same fashion. Ben Bernanke has the Federal Funds rate locked permanently at 3,000% below the 10 Year Treasury bond Yield. This is in effect confiscating the investment returns of savers. The money is pooling or "stagnating" in the reserve accounts of the Big Banks.
Although the amounts are getting larger and more aggressive, these policy choices that I mentioned above have been consistent for the last 15 years. We continue to rob resources from the future to reward government favorites now.
Taking resources from private sector production and savings and then distributing them randomly to the government’s public sector favorites is not a formula to create sustained growth in an economy. At the very best it will create economic stagnation, which is easy to see in our economy today. For the past 15 years real household incomes have stagnated. We continue to lose private sector jobs, while the total size of the public sector has been growing faster than Mississippi sumac in summertime.
Looking at the situation logically, the policy choices that our government has made over the last 15 years should lead to economic stagnation.
For the past 15 years we have had economic stagnation.
How could any rational person not see the cause and effect.
The problem is that investors don't seem to understand the cause and effect of this situation. It is very important that the market understand the probable outcomes and consequences of our government’s policy choices:
“We have borrowed extreme amounts from the future and locked ourselves into a slow growth economy now. The limited resources available during our slow growth period will probably continue to be directed by the choices of government officials as much as our free markets.”
The previous statement would give full disclosure to our current economic situation. Our future will be a slow growth environment with resources being allocated by the capriciousness of government officials instead of the free market.
But when the facts are distorted, the misinformation becomes a big problem for our investment markets and our economy.
Presently government policy makers continue to tell our financially incompetent populace that more private sector jobs are coming and economic recovery is on the horizon.
Obviously this is an impossible outcome given our government’s current policy choices and our limited economic options.
Therefore this erroneous information from a trusted source creates a large disconnect between reality and expectations. Misinformation is creating huge investment bubbles in our economy. We are now at the apex of our third bubble in 12 years.
Investment prices are floating dangerously higher than the valuations that support them.
Our present bubble is like an airplane achieving its maximum altitude as it flattens out and begins a quick decent. Presently we are at the point in the parabolic arch where gravity no longer exists. This is called Zero Gravity Flight and in an airplane or an investment market this period can only be temporary.
Zero Gravity Flight can be very enjoyable if you understand what is happening. But it can be very dangerous if the captain of the airplane tells his passengers that this weightless condition will continue for the rest of the flight.
So if everyone on the airplane becomes detached from their seats at the apex of the parabolic loop with unrealistic expectations, it becomes a mania. These unrealistic expectations of the future can come crashing down once gravity exerts its force.
Overvaluation in our assets will bring the same result as our economy slows.
Presently just about all asset classes are overvalued. Commodities and bonds are historically overvalued. Investors are only interested in watching their investment returns sail to the moon. They are blind to the consequences.
Investors are desperate to stretch the risk curve, at absolutely the worst time in the economic cycle to stretch the risk curve.
So as Investors are joyously bouncing off the sides of the airplane cabin and as our captain has permanently turned off the “fasten your seatbelt” sign.
There has never been a better time for the prudent investor to sit down and buckle your seat belt tight.
The Federal Reserve is redistributing our savings in the same fashion. Ben Bernanke has the Federal Funds rate locked permanently at 3,000% below the 10 Year Treasury bond Yield. This is in effect confiscating the investment returns of savers. The money is pooling or "stagnating" in the reserve accounts of the Big Banks.
Although the amounts are getting larger and more aggressive, these policy choices that I mentioned above have been consistent for the last 15 years. We continue to rob resources from the future to reward government favorites now.
Taking resources from private sector production and savings and then distributing them randomly to the government’s public sector favorites is not a formula to create sustained growth in an economy. At the very best it will create economic stagnation, which is easy to see in our economy today. For the past 15 years real household incomes have stagnated. We continue to lose private sector jobs, while the total size of the public sector has been growing faster than Mississippi sumac in summertime.
Looking at the situation logically, the policy choices that our government has made over the last 15 years should lead to economic stagnation.
For the past 15 years we have had economic stagnation.
How could any rational person not see the cause and effect.
The problem is that investors don't seem to understand the cause and effect of this situation. It is very important that the market understand the probable outcomes and consequences of our government’s policy choices:
“We have borrowed extreme amounts from the future and locked ourselves into a slow growth economy now. The limited resources available during our slow growth period will probably continue to be directed by the choices of government officials as much as our free markets.”
The previous statement would give full disclosure to our current economic situation. Our future will be a slow growth environment with resources being allocated by the capriciousness of government officials instead of the free market.
But when the facts are distorted, the misinformation becomes a big problem for our investment markets and our economy.
Presently government policy makers continue to tell our financially incompetent populace that more private sector jobs are coming and economic recovery is on the horizon.
Obviously this is an impossible outcome given our government’s current policy choices and our limited economic options.
Therefore this erroneous information from a trusted source creates a large disconnect between reality and expectations. Misinformation is creating huge investment bubbles in our economy. We are now at the apex of our third bubble in 12 years.
Investment prices are floating dangerously higher than the valuations that support them.
Our present bubble is like an airplane achieving its maximum altitude as it flattens out and begins a quick decent. Presently we are at the point in the parabolic arch where gravity no longer exists. This is called Zero Gravity Flight and in an airplane or an investment market this period can only be temporary.
Zero Gravity Flight can be very enjoyable if you understand what is happening. But it can be very dangerous if the captain of the airplane tells his passengers that this weightless condition will continue for the rest of the flight.
So if everyone on the airplane becomes detached from their seats at the apex of the parabolic loop with unrealistic expectations, it becomes a mania. These unrealistic expectations of the future can come crashing down once gravity exerts its force.
Overvaluation in our assets will bring the same result as our economy slows.
Presently just about all asset classes are overvalued. Commodities and bonds are historically overvalued. Investors are only interested in watching their investment returns sail to the moon. They are blind to the consequences.
Investors are desperate to stretch the risk curve, at absolutely the worst time in the economic cycle to stretch the risk curve.
So as Investors are joyously bouncing off the sides of the airplane cabin and as our captain has permanently turned off the “fasten your seatbelt” sign.
There has never been a better time for the prudent investor to sit down and buckle your seat belt tight.
Tuesday, July 5, 2011
Hummingbird Economics
Biff has been fixated with hummingbirds since he was five years old. He has written many books and articles on the care and feeding of nature’s most important bird.
Unfortunately none have ever been published.
Amazingly, hummingbirds don’t seem to be a priority for most people. So Biff never received the recognition that his brother Ben receives.
Biff used an inheritance to purchase a 1000 acre valley in upstate Vermont. The parcel has always been known as Honeysuckle Valley. He bought the property to be closer to his birds and to distance himself from Princeton and the success of his brother.
Biff like his brother Ben has always been focused on improving his environment, so he started placing honeypots out in the open to lure more hummingbirds to his property.
Over the years Biff began noticing a change in the hummingbirds. They seemed to be growing in size so it was obvious that his honey was helping the birds. The only puzzlement was that the extra bulk seemed to make the hummers less nimble in escaping the advances of their predators, the hawks.
Biff thought about this constantly. He remembered his brother talking about disequilibrium in an economy. Could this be the same?
He called his brother Ben and asked for help. Ben explained his theory about stimulating slow moving economies with more money. So together they surmised that it made sense to stimulate the slow moving hummingbirds with more honey.
Biff started his own version of Economic Stimulus for his hummingbirds. This seemingly small event turned into a watershed moment in economic history.
As Biff provided more and more stimulus for the hummingbirds an amazing equilibrium came about that no one could have predicted.
Like the hummingbirds, the bears have learned to use Biff’s stimulus. The bears now stay by the honeypots constantly waiting for honey. The slow moving hummingbirds have also learned to stay by the honeypots to utilize the benevolent bears as protection from the hawks. Continuous economic stimulus has created a new higher standard of living in Honeysuckle Valley for the hummingbirds and the bears.
Many years ago economic philosophers such as Plato and Jefferson suggested that a government that chooses “winners” and “losers” in a society would always end in corruption.
Then Keynes and Friedman postulated that small amounts of “temporary” stimulus during economic downturns could bring positive overall benefits to an economy provided the government manipulation was reversed after the recession ended.
Biff with the help of his brother Ben provided the research that has allowed government economists to take the final step away from our inefficient free markets and toward the inevitable “managed economy”. The findings in Honeysuckle Valley have proved that constant stimulus by a benevolent third party can increase the standard of living of all participants equally.
(It must be noted that the brothers decided that the hawks did not merit being a variable in their study because the pesky creatures left the valley and moved to New Hampshire midway through their research.)
Economists from all over the world now come to Honeysuckle Valley to study the first documented case which proves that continuous and unlimited economic stimulation can create a higher standard of living for everyone. This new theory is presently being utilized in Japan, Portugal, Ireland, Italy, Greece, Spain and of course here in the United States by Biff’s brother Ben.
Biff is rich and famous and is getting the recognition that he deserves.
There is only one thing that bothers Biff now.
He hates the first question that comes from all new visitors to Honeysuckle Valley:
“What in the heck is that Smell?”
Unfortunately none have ever been published.
Amazingly, hummingbirds don’t seem to be a priority for most people. So Biff never received the recognition that his brother Ben receives.
Biff used an inheritance to purchase a 1000 acre valley in upstate Vermont. The parcel has always been known as Honeysuckle Valley. He bought the property to be closer to his birds and to distance himself from Princeton and the success of his brother.
Biff like his brother Ben has always been focused on improving his environment, so he started placing honeypots out in the open to lure more hummingbirds to his property.
Over the years Biff began noticing a change in the hummingbirds. They seemed to be growing in size so it was obvious that his honey was helping the birds. The only puzzlement was that the extra bulk seemed to make the hummers less nimble in escaping the advances of their predators, the hawks.
Biff thought about this constantly. He remembered his brother talking about disequilibrium in an economy. Could this be the same?
He called his brother Ben and asked for help. Ben explained his theory about stimulating slow moving economies with more money. So together they surmised that it made sense to stimulate the slow moving hummingbirds with more honey.
Biff started his own version of Economic Stimulus for his hummingbirds. This seemingly small event turned into a watershed moment in economic history.
As Biff provided more and more stimulus for the hummingbirds an amazing equilibrium came about that no one could have predicted.
Like the hummingbirds, the bears have learned to use Biff’s stimulus. The bears now stay by the honeypots constantly waiting for honey. The slow moving hummingbirds have also learned to stay by the honeypots to utilize the benevolent bears as protection from the hawks. Continuous economic stimulus has created a new higher standard of living in Honeysuckle Valley for the hummingbirds and the bears.
Many years ago economic philosophers such as Plato and Jefferson suggested that a government that chooses “winners” and “losers” in a society would always end in corruption.
Then Keynes and Friedman postulated that small amounts of “temporary” stimulus during economic downturns could bring positive overall benefits to an economy provided the government manipulation was reversed after the recession ended.
Biff with the help of his brother Ben provided the research that has allowed government economists to take the final step away from our inefficient free markets and toward the inevitable “managed economy”. The findings in Honeysuckle Valley have proved that constant stimulus by a benevolent third party can increase the standard of living of all participants equally.
(It must be noted that the brothers decided that the hawks did not merit being a variable in their study because the pesky creatures left the valley and moved to New Hampshire midway through their research.)
Economists from all over the world now come to Honeysuckle Valley to study the first documented case which proves that continuous and unlimited economic stimulation can create a higher standard of living for everyone. This new theory is presently being utilized in Japan, Portugal, Ireland, Italy, Greece, Spain and of course here in the United States by Biff’s brother Ben.
Biff is rich and famous and is getting the recognition that he deserves.
There is only one thing that bothers Biff now.
He hates the first question that comes from all new visitors to Honeysuckle Valley:
“What in the heck is that Smell?”
Saturday, June 25, 2011
The Recession Wolves
Our economy is at the peak of the third economic bubble in 12 years as we are desperately mortgaging our country's productive resources to reward reckless speculation and to fight the free market.
This new bubble is driven by borrowing and then wastefully spending $6 trillion over the past 4 years to prop up false prices. Compounding this tsunami of waste, the Federal Reserve has destroyed free market interest rates by pushing the Federal Funds Rate more than 3,000% below the 10 year Treasury bond yield.
Our country and the world are ablaze in the intoxicating glow of easy money. Just like in 1999. Just like in 2005.
The government and The Fed have again poured gasoline on our campfire to keep The Wolves of Recession at bay.
Can this continue?
We can temporarily sustain the debt portion of the bubble if we decide to continue our financial child abuse and borrow another $10 trillion dollars that we have no intention of paying back. Surprisingly financial child abuse is not a crime in our society and being drunk, especially on debt, seems an adequate excuse.
But there is no way that nature will allow us to abuse our free markets much longer. Even if Chairman Bernanke wanted to keep the Fed Funds rate 3,000% below the 10 year Treasury bond yield for an extended period, it is not possible. As phony rates turn real, they will become a drag on the economy.
The government’s bond fire that keeps the predators outside will eventually dim. This will allow the Three Wolves into our camp.
The first to enter will be the Wolf of Free Markets. It will mercilessly attach the artificial interest rates and kill them dead.
Then and only then will the second and fiercest preditor be allowed to enter. Its bloodthirsty eyes will spy the surroundings as it looks for the focus of its rage. It will spot the children cowering, lying in the smoke and soot from the government’s smoldering bond fire. With lightning speed it will jump to their side. The Debt Wolf will stand bristling and snarling in between us and the children.
The third Wolf will then be allowed entry. Every ounce of its being will be focused on us. We have attempted to live far above our means by robbing resources from future generations in a vain attempt to manipulate asset values. The Wolf of Fair Prices will allow none of this. As the Debt Wolf and the Free Market Wolf protect the children, the Wolf of Fair Prices will tear our manipulated and bloated asset valuations to shreds.
The Three Wolves will lie next to the children and for the first time in their lives they will get economic warmth, protection and love. Nothing shows more love than blessing children with a sound government, free markets, fair prices and low debt. Our forefathers wished it for us many years ago, before we had our first taste of the drug of easy money.
They will fall to sleep, finally free from our greed and abuse of power. As the children wake to the safety of the economic sunrise the Wolves will be gone. The previous night will be a vague memory that is forgotten with time.
As sure as corrupt and abusive government policy nurtures unsustainable debt, false markets and unfair prices, The Recession Wolves will be there to protect the future generations.
This new bubble is driven by borrowing and then wastefully spending $6 trillion over the past 4 years to prop up false prices. Compounding this tsunami of waste, the Federal Reserve has destroyed free market interest rates by pushing the Federal Funds Rate more than 3,000% below the 10 year Treasury bond yield.
Our country and the world are ablaze in the intoxicating glow of easy money. Just like in 1999. Just like in 2005.
The government and The Fed have again poured gasoline on our campfire to keep The Wolves of Recession at bay.
Can this continue?
We can temporarily sustain the debt portion of the bubble if we decide to continue our financial child abuse and borrow another $10 trillion dollars that we have no intention of paying back. Surprisingly financial child abuse is not a crime in our society and being drunk, especially on debt, seems an adequate excuse.
But there is no way that nature will allow us to abuse our free markets much longer. Even if Chairman Bernanke wanted to keep the Fed Funds rate 3,000% below the 10 year Treasury bond yield for an extended period, it is not possible. As phony rates turn real, they will become a drag on the economy.
The government’s bond fire that keeps the predators outside will eventually dim. This will allow the Three Wolves into our camp.
The first to enter will be the Wolf of Free Markets. It will mercilessly attach the artificial interest rates and kill them dead.
Then and only then will the second and fiercest preditor be allowed to enter. Its bloodthirsty eyes will spy the surroundings as it looks for the focus of its rage. It will spot the children cowering, lying in the smoke and soot from the government’s smoldering bond fire. With lightning speed it will jump to their side. The Debt Wolf will stand bristling and snarling in between us and the children.
The third Wolf will then be allowed entry. Every ounce of its being will be focused on us. We have attempted to live far above our means by robbing resources from future generations in a vain attempt to manipulate asset values. The Wolf of Fair Prices will allow none of this. As the Debt Wolf and the Free Market Wolf protect the children, the Wolf of Fair Prices will tear our manipulated and bloated asset valuations to shreds.
The Three Wolves will lie next to the children and for the first time in their lives they will get economic warmth, protection and love. Nothing shows more love than blessing children with a sound government, free markets, fair prices and low debt. Our forefathers wished it for us many years ago, before we had our first taste of the drug of easy money.
They will fall to sleep, finally free from our greed and abuse of power. As the children wake to the safety of the economic sunrise the Wolves will be gone. The previous night will be a vague memory that is forgotten with time.
As sure as corrupt and abusive government policy nurtures unsustainable debt, false markets and unfair prices, The Recession Wolves will be there to protect the future generations.
Thursday, June 2, 2011
Daddy and Maddie Ride the Bubble Coaster
“This is going to be fun Maddie. First we will ride Cinderella’s Fairy Boat. Then maybe we can work our way up to Fannie Mae’s Teacups.”
“Daddy, those are baby rides. I want to go on the Bubble Coaster.”
“Madison, the Bubble Coaster is only for grownups.”
“No, Daddy you’re wrong. The Bubble Coaster is best for kids or people that think like kids.”
“Well, Maddie we will give it a try. What do we have to lose?”
“Daddy, I want to spend the whole day on the Bubble Coaster.”
“The car is moving now, and we are climbing to the top of the first Bubble. Hang on tight and get ready for the big fall.”
“No, Daddy, the man behind me, Mr. Greenspan just said that the coaster only goes in the air and levels off. He said it was just like Cinderella’s Fairy Boat, only higher. He guaranteed that there would be no big drops.”
“But Maddie, Mr. Greenspan is wrong. Look ahead. Can’t you see that the tracks go way up and then go way down? That’s why it’s called a roller coaster.”
“No Silly Daddy, Mr. Greenspan said it, so we must believe it.”
“Hang on tight Maddie, the coaster is ready to descend.
Whooooooooooooooooooooooooooooooooooooooooooosh
“Wasn’t that fun … hey, what’s wrong Maddie?”
“Daddy, I didn’t expect that to happen! I was so scared. I want out now.”
“Sorry, Maddie, there is no way to stop the ride now.”
“Wait, Daddy, Mr. Greenspan just told me that if we give him enough money he will be able flatten out the dips and make it a smoother ride. It will only cost $1,000.”
“Maddie, don’t you remember that Mr. Greenspan was wrong before, and what on earth is the $1,000 for?”
“It’s nothing for you to worry about Daddy. Mr. Greenspan has a friend that owns a big bank. He said I was highly qualified for a $1,000 loan. Isn’t that great? Now we are safe and we don’t have to worry about the dips anymore.”
“Maddie, quit talking to strangers and hang on! This is real estate; it is the biggest drop on the coaster.
Whoooooooooooooooooooooooooooooooooooooooooooooooooooosh
“Daddy, I didn’t expect that at all. We need to get out of this now.”
“Poor Maddie, the ride will be over after one more dip. Then I will have a talk with the carnival security about Mr. Greenspan.”
“No Daddy it’s not a problem anymore. I talked to the driver of the coaster, Mr. Bernanke and he said he can transport us over to Cinderella’s Fairy Boat to avoid any more drops. All he has to do is call the helicopter.”
“What! Maddie, look around, we are five hundred feet in the air. Cinderella’s Fairy Boat is on the other side of the carnival. Mr. Bernanke cannot magically transport us there. It’s not possible.”
“Mr. Bernanke says he can do it and we have to believe him Daddy. He says the helicopter will only cost $10,000.”
“ I am not sure if Mr. Bernanke is a thief or if this is part of the ride but I am not going to give him $10,000. Now get ready for the next fall, it is the Last Bubble and it’s the sharpest drop on the coaster.”
“Daddy, it’s no problem. Mr. Bernanke’s Chinese friend said he would loan us the $10,000. They say that the helicopter is on the way.”
“Madison, I am not going to borrow $10,000 from Mr. Bernanke’s Chinese friend. It doesn’t make sense. None of this makes any sense. It’s like a freak show.”
“Mr. Bernanke said he would help, Daddy. So we have to let him help.”
“Maddie, shouldn’t Mr. Bernanke be focused on driving the coaster safely instead of filling little children’s heads with thoughts of magic helicopters and large amounts of money?”
“No Daddy, you’re wrong.”
“Maddie, this is absolutely insane!”
“Daddy, you don’t understand. You have to give Mr. Bernanke the money! Please Daddy say it, for me, PLEASE!”
“OK Maddie. I want to borrow the money now.”
“Daddy, look really hard. See the helicopter coming to rescue us.”
“Maddie, I think I see it. We are going to be rescued!”
Whoooooooooooooooooooooooooooooooooooooooooooooooooosh!
“Maddie, I was not expecting that at all. I have never been so scared in all of my life. Get me out of this!”
“Do you understand how to play the game now Daddy?”
“Wow Maddie! I never would have figured that out in a million years.”
“Daddy, that’s because you were acting like a grownup. This is a make believe game for kids or people that think like kids.”
“Do you want to ride again Maddie? I think I might like this game.”
“Daddy, I told you, I want to spend the whole day on the Bubble Coaster.”
“Daddy, those are baby rides. I want to go on the Bubble Coaster.”
“Madison, the Bubble Coaster is only for grownups.”
“No, Daddy you’re wrong. The Bubble Coaster is best for kids or people that think like kids.”
“Well, Maddie we will give it a try. What do we have to lose?”
“Daddy, I want to spend the whole day on the Bubble Coaster.”
“The car is moving now, and we are climbing to the top of the first Bubble. Hang on tight and get ready for the big fall.”
“No, Daddy, the man behind me, Mr. Greenspan just said that the coaster only goes in the air and levels off. He said it was just like Cinderella’s Fairy Boat, only higher. He guaranteed that there would be no big drops.”
“But Maddie, Mr. Greenspan is wrong. Look ahead. Can’t you see that the tracks go way up and then go way down? That’s why it’s called a roller coaster.”
“No Silly Daddy, Mr. Greenspan said it, so we must believe it.”
“Hang on tight Maddie, the coaster is ready to descend.
Whooooooooooooooooooooooooooooooooooooooooooosh
“Wasn’t that fun … hey, what’s wrong Maddie?”
“Daddy, I didn’t expect that to happen! I was so scared. I want out now.”
“Sorry, Maddie, there is no way to stop the ride now.”
“Wait, Daddy, Mr. Greenspan just told me that if we give him enough money he will be able flatten out the dips and make it a smoother ride. It will only cost $1,000.”
“Maddie, don’t you remember that Mr. Greenspan was wrong before, and what on earth is the $1,000 for?”
“It’s nothing for you to worry about Daddy. Mr. Greenspan has a friend that owns a big bank. He said I was highly qualified for a $1,000 loan. Isn’t that great? Now we are safe and we don’t have to worry about the dips anymore.”
“Maddie, quit talking to strangers and hang on! This is real estate; it is the biggest drop on the coaster.
Whoooooooooooooooooooooooooooooooooooooooooooooooooooosh
“Daddy, I didn’t expect that at all. We need to get out of this now.”
“Poor Maddie, the ride will be over after one more dip. Then I will have a talk with the carnival security about Mr. Greenspan.”
“No Daddy it’s not a problem anymore. I talked to the driver of the coaster, Mr. Bernanke and he said he can transport us over to Cinderella’s Fairy Boat to avoid any more drops. All he has to do is call the helicopter.”
“What! Maddie, look around, we are five hundred feet in the air. Cinderella’s Fairy Boat is on the other side of the carnival. Mr. Bernanke cannot magically transport us there. It’s not possible.”
“Mr. Bernanke says he can do it and we have to believe him Daddy. He says the helicopter will only cost $10,000.”
“ I am not sure if Mr. Bernanke is a thief or if this is part of the ride but I am not going to give him $10,000. Now get ready for the next fall, it is the Last Bubble and it’s the sharpest drop on the coaster.”
“Daddy, it’s no problem. Mr. Bernanke’s Chinese friend said he would loan us the $10,000. They say that the helicopter is on the way.”
“Madison, I am not going to borrow $10,000 from Mr. Bernanke’s Chinese friend. It doesn’t make sense. None of this makes any sense. It’s like a freak show.”
“Mr. Bernanke said he would help, Daddy. So we have to let him help.”
“Maddie, shouldn’t Mr. Bernanke be focused on driving the coaster safely instead of filling little children’s heads with thoughts of magic helicopters and large amounts of money?”
“No Daddy, you’re wrong.”
“Maddie, this is absolutely insane!”
“Daddy, you don’t understand. You have to give Mr. Bernanke the money! Please Daddy say it, for me, PLEASE!”
“OK Maddie. I want to borrow the money now.”
“Daddy, look really hard. See the helicopter coming to rescue us.”
“Maddie, I think I see it. We are going to be rescued!”
Whoooooooooooooooooooooooooooooooooooooooooooooooooosh!
“Maddie, I was not expecting that at all. I have never been so scared in all of my life. Get me out of this!”
“Do you understand how to play the game now Daddy?”
“Wow Maddie! I never would have figured that out in a million years.”
“Daddy, that’s because you were acting like a grownup. This is a make believe game for kids or people that think like kids.”
“Do you want to ride again Maddie? I think I might like this game.”
“Daddy, I told you, I want to spend the whole day on the Bubble Coaster.”
Saturday, May 7, 2011
You Just Need to Look Out the Window
We as a nation have spent the last 35 years borrowing more money than we can possibly pay back. After three and a half decades of decadence we appear to be coming to the absolute limit on our ability to borrow as a nation.
As we come to this precipice, our nation’s economic elite that sold us this debt are imploring us to continue to borrow at our current unsustainable rate. They say Keynesian Economics will allow us to pay off the extreme debt that we hold now with cheaper money that our friends in China and the Middle East will loan us in the future.
They say that as long as we continue to borrow, Keynesian Theory will just magically and painlessly make our debt problem disappear… poof.
Although this sounds wonderful and magical, it is mathematically impossible. An extremely debt heavy accounting balance sheet “always” slows economic growth.
So I have another name for what our economic elite are trying to call “Keynesian Economics”. It’s called “fraud”. This would be borrowing money knowing full well that you are incapable of paying it back.
The fact is that all economists derive their paychecks from Wall Street or our wasteful government. Who else would hire them?
So if they want to be employed, economists must always recommend more debt, more consumers spending, a larger financial sector and a larger more wasteful government.
It is all about growing the source of their paycheck.
Upton Sinclair stated it best during the roaring twenties when he said “It is difficult to get a man to understand something, when his salary depends on his not understanding it”.
Economists are salespeople. They are hired guns that will create a “flawed” model for anyone that gives them a paycheck.
I know their models are “flawed” because economists as a group are incapable of predicting major turns in our economy. Their track record is zero. They have missed predicting every major event for the past 12 years:
· In 2000 they missed predicting the biggest stock bubble in our nation’s history.
· In 2002 they rallied for “end of the world” monetary and fiscal stimulation to prevent the continuing collapse of the stock bubble that they could not see in 2000.
· In 2005 they could not see the biggest housing bubble in our nation’s history caused by the “end of the world” monetary and fiscal stimulation that they recommended in 2002.
· In 2006 they could not see the biggest credit bubble in our nation’s history caused by the deregulation that they recommended in the 1990’s.
· In 2007 no major economist saw the coming recession even though every economic indicator pointed to a recession.
· In 2008 they rallied again for another round of “end of the world” fiscal and monetary stimulus to continue the housing bubble that they could not see in 2006.
· Now in 2011 no major economist can see our current asset bubbles in commodities and bonds.
· In 2012 they will again suggest “end of the world” monetary and fiscal stimulus to prop up the commodity and bond bubble that they can’t see now.
Economists continue to ignore the destructive bubbles in the economy until they realize that a bubble has popped. Then they demand that our elected officials use “end of the world” monetary and fiscal stimulus to prop up overpriced assets in an attempt to continue the bubble.
Our bubble economy is making fortunes for the sellers of helium of which the economists get their cut. But there is a huge cost to everyone else. No jobs are created as fortunes are being borrowed from our children and given to Wall Street speculators and our monstrously wasteful government.
I suggest that our method for predicting the economy is hopelessly broken and cannot be fixed.
So what does one do when the speed indicator of your car is broken and can’t be fixed?
You look out the window to judge your speed.
And if you look out the window this is what you will see:
1) We are borrowing money from hostile foreign nations … This must stop.
2) We are destroying our free markets … This must stop.
3) We are sending our productive manufacturing jobs overseas… This must stop.
4) We are heavily subsidizing our “destructive” financial sector … This must stop.
5) We are rewarding people for uncontrolled speculation … This must stop.
6) We are punishing our savers … This must stop.
7) We are destroying our currency … This must stop.
8) And worst of all we are borrowing money in our children’s name to continue this madness … This absolutely must stop.
Nothing our economists are suggesting today appears in any economic textbook of the past. They have thrown away 4,000 years of economic thought from the geniuses of history as they prostitute their profession in order for their employers to steal money from our unborn children.
In a perfect world any economist that recommends more debt on top of the $100 trillion that we have already borrowed from our kids would immediately be labeled as a financial child abuser.
They would then be included on a “child predator” list and never be allowed to suggest that theft is the key to economic growth.
This one law would make all current economists unemployable. These villains would then learn firsthand what is like to look for work with no skills in the economy they have almost single handedly created.
But alas, our world is far from perfect.
And our economic theory is hopelessly broken and can’t be fixed.
Change will start when we stop looking at our broken economic theory and take a look at the reality that is happening around us.
We just need to look out the window.
As we come to this precipice, our nation’s economic elite that sold us this debt are imploring us to continue to borrow at our current unsustainable rate. They say Keynesian Economics will allow us to pay off the extreme debt that we hold now with cheaper money that our friends in China and the Middle East will loan us in the future.
They say that as long as we continue to borrow, Keynesian Theory will just magically and painlessly make our debt problem disappear… poof.
Although this sounds wonderful and magical, it is mathematically impossible. An extremely debt heavy accounting balance sheet “always” slows economic growth.
So I have another name for what our economic elite are trying to call “Keynesian Economics”. It’s called “fraud”. This would be borrowing money knowing full well that you are incapable of paying it back.
The fact is that all economists derive their paychecks from Wall Street or our wasteful government. Who else would hire them?
So if they want to be employed, economists must always recommend more debt, more consumers spending, a larger financial sector and a larger more wasteful government.
It is all about growing the source of their paycheck.
Upton Sinclair stated it best during the roaring twenties when he said “It is difficult to get a man to understand something, when his salary depends on his not understanding it”.
Economists are salespeople. They are hired guns that will create a “flawed” model for anyone that gives them a paycheck.
I know their models are “flawed” because economists as a group are incapable of predicting major turns in our economy. Their track record is zero. They have missed predicting every major event for the past 12 years:
· In 2000 they missed predicting the biggest stock bubble in our nation’s history.
· In 2002 they rallied for “end of the world” monetary and fiscal stimulation to prevent the continuing collapse of the stock bubble that they could not see in 2000.
· In 2005 they could not see the biggest housing bubble in our nation’s history caused by the “end of the world” monetary and fiscal stimulation that they recommended in 2002.
· In 2006 they could not see the biggest credit bubble in our nation’s history caused by the deregulation that they recommended in the 1990’s.
· In 2007 no major economist saw the coming recession even though every economic indicator pointed to a recession.
· In 2008 they rallied again for another round of “end of the world” fiscal and monetary stimulus to continue the housing bubble that they could not see in 2006.
· Now in 2011 no major economist can see our current asset bubbles in commodities and bonds.
· In 2012 they will again suggest “end of the world” monetary and fiscal stimulus to prop up the commodity and bond bubble that they can’t see now.
Economists continue to ignore the destructive bubbles in the economy until they realize that a bubble has popped. Then they demand that our elected officials use “end of the world” monetary and fiscal stimulus to prop up overpriced assets in an attempt to continue the bubble.
Our bubble economy is making fortunes for the sellers of helium of which the economists get their cut. But there is a huge cost to everyone else. No jobs are created as fortunes are being borrowed from our children and given to Wall Street speculators and our monstrously wasteful government.
I suggest that our method for predicting the economy is hopelessly broken and cannot be fixed.
So what does one do when the speed indicator of your car is broken and can’t be fixed?
You look out the window to judge your speed.
And if you look out the window this is what you will see:
1) We are borrowing money from hostile foreign nations … This must stop.
2) We are destroying our free markets … This must stop.
3) We are sending our productive manufacturing jobs overseas… This must stop.
4) We are heavily subsidizing our “destructive” financial sector … This must stop.
5) We are rewarding people for uncontrolled speculation … This must stop.
6) We are punishing our savers … This must stop.
7) We are destroying our currency … This must stop.
8) And worst of all we are borrowing money in our children’s name to continue this madness … This absolutely must stop.
Nothing our economists are suggesting today appears in any economic textbook of the past. They have thrown away 4,000 years of economic thought from the geniuses of history as they prostitute their profession in order for their employers to steal money from our unborn children.
In a perfect world any economist that recommends more debt on top of the $100 trillion that we have already borrowed from our kids would immediately be labeled as a financial child abuser.
They would then be included on a “child predator” list and never be allowed to suggest that theft is the key to economic growth.
This one law would make all current economists unemployable. These villains would then learn firsthand what is like to look for work with no skills in the economy they have almost single handedly created.
But alas, our world is far from perfect.
And our economic theory is hopelessly broken and can’t be fixed.
Change will start when we stop looking at our broken economic theory and take a look at the reality that is happening around us.
We just need to look out the window.
Tuesday, December 7, 2010
I am in Love with The Great Depression
Perfection, of a kind, was what he was after,
And the poetry he invented was easy to understand;
He knew human folly like the back of his hand,
And was greatly interested in armies and fleets;
When he laughed, respectable senators burst with laughter,
And when he cried the little children died in the streets.
I am in Love with The Great Depression
I started gaining my affection for The Great Depression as The Tech Bubble was ending. My stock account was going to astronomical amounts. I bought my dream house. My financial life was fantastic in every way but in the back of my mind I knew something was very wrong. I soothed myself at night with investment books like The Intelligent Investor by Benjamin Graham and books of the Great Depression such as The Great Crash by John Kenneth Galbraith. I didn't read these books for knowledge or insight because I was very clear on the inevitable path of our country. I read them for purification and to calm my worried soul. Thoughts of The Great Depression have become my economic "Waldon's Pond" during this period of government mandated excess and speculation in our nation's financial markets.
As the 1990's were winding down I would compare the 90's to the 1920's. They are very favorably compared. The roaring 20's saw the advent of the radio, the auto and the airplane. The roaring 90's brought about home computers and the Internet. Both period's had massive speculation stoked with easy money by The Federal Reserve.
The 20's of course ended in The Great Depression. I had hope that the 1990's would end in the same way and that our nation would come to it's senses and stop living so far beyond it's means. I realized that our government and The Financial Elite would make the same mistakes as The Great Depression and turn a deep recession into a depression. But I also knew that the people of this country were resourceful and could come out of the ten year depression in 2009 with the same independent, hard working attitude that created my grandparents' generation.
And the poetry he invented was easy to understand;
He knew human folly like the back of his hand,
And was greatly interested in armies and fleets;
When he laughed, respectable senators burst with laughter,
And when he cried the little children died in the streets.
Epitaph of a Tyrant by W. H. Auden
_____________________________________________
I would like to dedicate the following thoughts
to my father and his father on this special day. Thank you both for being part of this country's greatest generation.
I am in Love with The Great Depression
I started gaining my affection for The Great Depression as The Tech Bubble was ending. My stock account was going to astronomical amounts. I bought my dream house. My financial life was fantastic in every way but in the back of my mind I knew something was very wrong. I soothed myself at night with investment books like The Intelligent Investor by Benjamin Graham and books of the Great Depression such as The Great Crash by John Kenneth Galbraith. I didn't read these books for knowledge or insight because I was very clear on the inevitable path of our country. I read them for purification and to calm my worried soul. Thoughts of The Great Depression have become my economic "Waldon's Pond" during this period of government mandated excess and speculation in our nation's financial markets.
As the 1990's were winding down I would compare the 90's to the 1920's. They are very favorably compared. The roaring 20's saw the advent of the radio, the auto and the airplane. The roaring 90's brought about home computers and the Internet. Both period's had massive speculation stoked with easy money by The Federal Reserve.
The 20's of course ended in The Great Depression. I had hope that the 1990's would end in the same way and that our nation would come to it's senses and stop living so far beyond it's means. I realized that our government and The Financial Elite would make the same mistakes as The Great Depression and turn a deep recession into a depression. But I also knew that the people of this country were resourceful and could come out of the ten year depression in 2009 with the same independent, hard working attitude that created my grandparents' generation.
My grandparents' and their contemporaries are considered our nation's greatest generation. I had equally high hopes for my own generation. I wanted to feel the same pride that my grandfather felt as he passed the economic torch to my dad.
But something odd happened after The Tech Bubble. There was just a very, very mild recession. There was practically no real unemployment. A pipeline was created between the government and the moneylenders. A pipeline full of gold that from the outside smelled of filth. No one noticed. No one cared. I can't compare it to anything that has occurred in our country before. One would have to go back to the times of Rome under Nero to find a similar totally self serving act. Our Empire is ablaze and our leaders are responsible!
A recession is a natural event. An economic Winter that follows an overabundant Summer. A cleansing that removes speculation and greed from the system and passes along fairly priced assets and a sound government to the next generation.
Business cycles have been recorded since the beginning of the industrial revolution and probably occurred even in primitive societies. Economies move from overproduction, excess and speculation to underproduction, prudence and saving. This cycle can't be regulated because it is tied to the avarice of being human.
Recessions will occur even in a tightly controlled society, as we are seeing today. The only difference is that in a free society everyone is aware of what is happening and can react accordingly. In the tightly controlled society The Financial Elite are able to mask the business cycle. This allows the Financial Elite more power and with this power the ability to choose the winners and losers in our economy.
Our Financial Elite have pilloried The Great Depression and made it a priority to protect us from recessions at all costs. The costs that we are presently incurring are massive debt to future generations and the destruction of sound government. This is the antithesis of the business cycle. It is not sustainable in the long run.
The reason that I love The Great Depression is that in spite of massive government intervention the people of this nation were able to survive and then prosper. The Great Depression forged a generation of fiercely independent, highly productive, family and community oriented households. This was the most productive body of citizens any nation has ever known. This was the Middle Class. My grandparents' generation.
The antithesis of my grandfather's generation is my generation. We robbed trillions of dollars of our children's inheritance to prop up stock values after the Tech Bubble which sent our housing market into a bubble. We are presently borrowing tens of trillions of dollars from foreign nations to prop up inflated housing prices that occurred during the housing bubble. We have created the biggest government in our country's history with borrowed money.
So we have spent the savings of our grandparents' generation and borrowed more. We have used this money to inflate asset values and create bigger government. We are passing the debt, the inflated asset values and the government boondoggle to our children. My generation will go down in history as this nation's most selfish generation. It is a very helpless feeling being carried by this ravel of avarice.
I don't blame our people, I blame the tyrants, The Financial Elite. They are far to cunning for our pampered populous. My lament is that we are appeased by bread and circuses as our country is being looted and then burdened with stifling debt.
I am very sure that my grandfather's generation would never have allowed this to happen. A generation that formed massive strikes against unfair employment, rallied against unjust government and to a man gladly sacrificed their lives to keep this country free.
My hope looks to the future as my mind dwells in the past. I await the glory that my children and grandchildren will feel as they slay this dragon of debt. Like my grandparents did before me. I bide time in between two great generations. "They also serve who only stand and wait".
A recession is a natural event. An economic Winter that follows an overabundant Summer. A cleansing that removes speculation and greed from the system and passes along fairly priced assets and a sound government to the next generation.
I am in Love with The Great Depression
But something odd happened after The Tech Bubble. There was just a very, very mild recession. There was practically no real unemployment. A pipeline was created between the government and the moneylenders. A pipeline full of gold that from the outside smelled of filth. No one noticed. No one cared. I can't compare it to anything that has occurred in our country before. One would have to go back to the times of Rome under Nero to find a similar totally self serving act. Our Empire is ablaze and our leaders are responsible!
A recession is a natural event. An economic Winter that follows an overabundant Summer. A cleansing that removes speculation and greed from the system and passes along fairly priced assets and a sound government to the next generation.
Business cycles have been recorded since the beginning of the industrial revolution and probably occurred even in primitive societies. Economies move from overproduction, excess and speculation to underproduction, prudence and saving. This cycle can't be regulated because it is tied to the avarice of being human.
Recessions will occur even in a tightly controlled society, as we are seeing today. The only difference is that in a free society everyone is aware of what is happening and can react accordingly. In the tightly controlled society The Financial Elite are able to mask the business cycle. This allows the Financial Elite more power and with this power the ability to choose the winners and losers in our economy.
Our Financial Elite have pilloried The Great Depression and made it a priority to protect us from recessions at all costs. The costs that we are presently incurring are massive debt to future generations and the destruction of sound government. This is the antithesis of the business cycle. It is not sustainable in the long run.
The reason that I love The Great Depression is that in spite of massive government intervention the people of this nation were able to survive and then prosper. The Great Depression forged a generation of fiercely independent, highly productive, family and community oriented households. This was the most productive body of citizens any nation has ever known. This was the Middle Class. My grandparents' generation.
The antithesis of my grandfather's generation is my generation. We robbed trillions of dollars of our children's inheritance to prop up stock values after the Tech Bubble which sent our housing market into a bubble. We are presently borrowing tens of trillions of dollars from foreign nations to prop up inflated housing prices that occurred during the housing bubble. We have created the biggest government in our country's history with borrowed money.
So we have spent the savings of our grandparents' generation and borrowed more. We have used this money to inflate asset values and create bigger government. We are passing the debt, the inflated asset values and the government boondoggle to our children. My generation will go down in history as this nation's most selfish generation. It is a very helpless feeling being carried by this ravel of avarice.
I don't blame our people, I blame the tyrants, The Financial Elite. They are far to cunning for our pampered populous. My lament is that we are appeased by bread and circuses as our country is being looted and then burdened with stifling debt.
I am very sure that my grandfather's generation would never have allowed this to happen. A generation that formed massive strikes against unfair employment, rallied against unjust government and to a man gladly sacrificed their lives to keep this country free.
My hope looks to the future as my mind dwells in the past. I await the glory that my children and grandchildren will feel as they slay this dragon of debt. Like my grandparents did before me. I bide time in between two great generations. "They also serve who only stand and wait".
A recession is a natural event. An economic Winter that follows an overabundant Summer. A cleansing that removes speculation and greed from the system and passes along fairly priced assets and a sound government to the next generation.
I am in Love with The Great Depression
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