Is it a home or part of the debt based banking system?

Today, Megan McArdle writes in Why Did We Divert So Much Capital into Housing? – Megan McArdle:

Given that house prices are basically set by the size of the monthly payment that buyers can afford, rather than some deeper notion of intrinsic value, it’s hardly surprising that looser credit caused house prices to rise–nor that, in the wake of WorldCom, the recent history of steady appreciation in American real estate led naive buyers and lenders to think that housing was “safe”. The ingredients of a bubble are always, to some extent, sui generis, but they have a common theme: the price of something starts going up in a way that deludes investors into thinking they’ve found a sure thing.

I blogged on the same topic back in December 2008, and print my perspective here:

I had a breakthrough; an epiphany of sorts this afternoon. Sometimes, things roll along and they don’t make sense, but I just figured something out. How can the cartel we call the Federal Reserve continue expanding the money supply endlessly, including dumping over $1 trillion dollars into circulation in the last three months, and still claim low-single-digit inflation? We economists know the truth, right? With a limited amount of wealth creation, if money supply grows faster than real wealth, our dollars are devalued and that’s what we call inflation. So what gives?

THIS IS THE PART I FIGURED OUT THIS AFTERNOON !!! It’s in your house. The inflation is in your mortgage. And as the houses become devalued, so will the dollar.

How is this? What are you talking about Jim? Are you some kind of nut?

Of course I am, but that’s beside the point. Just think about this.

Normal debt can only grow at the level at which banks are willing to lend (our money of course) to others for the purpose of creating wealth. (That’s the premise, anyway). If businesses are not willing to borrow from banks, or if they can’t figure out how to increase their wealth by producing goods and services at a profit, the whole thing falls apart. So, how can they create wealth where it doesn’t really exist.

This is the tough one. Has your home appreciated? Seriously, could you sell your home and purchase a better one? In terms of real value, is your house and property really worth more than it was 10 years ago? I’m going to go with NO! It’s the same house on the same piece of land (in most cases). So WHY has it quadrupled in price? Hehe… that is the trick. See, they relaxed the rules, and built more profit in the middle to entice everyone to purchase at astronomical prices. We all thought we had to purchase a home because it was the best way to hold wealth. We were all convinced that making interest payments to the fed through our bank and Fannie May was preferable to paying income tax. BUT IT ENDS UP IN THE SAME PLACE. Whether we pay interest on our home, or we pay interest on the national debt, the money still goes to the fed.

Whew… gotta breathe….

So, what am I saying? The fed, by relaxing restrictions, pushing a policy of making loans on homes with exorbinant, truly unsupportable values, and guaranteeing the repayment of loans (by stealing the money from us) created “false wealth” that doesn’t really exist !!!!! It isn’t really there. As we have seen, homes have already come down an average of 20-40%. They will continue to fall, until such time as they are seen as reasonable investments. A static piece of capital (cash in the bank, property, a home) can reasonably expect to gain about 6% in value year-over-year. That is totally reasonable. The idea that our homes are in such demand that they can appreciate in value above that is ridiculous. There are thousands and thousands of vacant homes all over the country. There are even more which are about to be bank owned. The only thing still supporting the price is the false wealth perceived by holders, and ….the bailout … attempting to bring the banks back flush. But it won’t last. It can’t. As housing prices continue to fall, the bucket won’t be able to fill fast enough. There isn’t enough production …well, anywhere, to support a sudden 50% deflation in home prices. The dollar will / must fall with it.

Of course, this is just one man’s humble opinion, so take it for what it is worth.

I’ll continue here to say that, why and how are interconnected in this issue. The authority and power rested with the governing bodies of the banking industry (The FED), and they not only allowed, but moreover, facilitated and encouraged this to happen. I hold that the reason they did so was in order to continue to expand deficit spending. For every dollar loaned, these guys make interest. It is in their interest to increase money supply, at all times, beyond real wealth. However, inflation is their enemy, so in order to hold it at bay, they turned our homes into bank assets, and falsely inflated them to facilitate more and more borrowing.

In a final word: Forget about Obama and Palin. Forget about Pelosi. The FED is your enemy, and until it is abolished, we are electing the same person in different clothing with each successive revolution.

1 Comment
  1. I agree about home inflation, but I still have to disagree on abolishing the FED. The debate over a central bank in the US has been around since before we drafted the constitution. I don’t think it will ever go away.

    The FED is clearly swayed by the government. Congress can get rid of the FED if it wants to. However, Congress likes to have a great open account. Who wouldn’t? If they want to go spend more money, they just tell the FED that they need to expand the money supply. If the FED says no, Congress and the President slap them around a bit and they cave in the form of a “bailout”.

    Ultimately, we need to be looking at ourselves. These are our politicians that we *hire* to serve us. They have failed. They have put systems in place that have failed, taken our wealth, and eroded the American dream. Let’s hire new people to run Congress that will fix the problem.

    A central bank is not a problem with proper oversight and accountability. If the bank were to say no when Congress wanted more money to bail out a failed automobile industry, we’d be a lot further along in recovery.

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