|
|
The System, like the Berlin Wall,
must come down
|
by Hazel Burke, Unknown News
Aug. 11, 2007
|
One hugely interesting aspect of this week's mortgage and debt shenanigans is the role of the Federal Reserve as "Protector of the Realm" when "The System" freezes up and begins to implode upon itself.
Normally the Fed diligently attends to its primary functions of 1) controlling inflation and b) maintaining unemployment (read those both ways, chortle).
But they also have a Crisis Mode in which they print money and then loan it at below market interest rates to wealthy corporations such as banks and brokerages. Not only that, but they are authorized to buy "things" with their newly printed money: gold, stock index futures, US Treasury notes and bills, anything.
If The Powers That Be decide that TEOTWAWKI (The End Of The World As We Know It) is at hand, the Federal Reserve will gladly spend all of the
Many people are unfamiliar with bonds and stuff like that, but it goes like this:
Say you buy a bond paying 5% interest.
If interest rates on similar bonds rise to 6%, that means your bond is worth (about) 20% less (depending).
Why? Because someone buying the bond from you would want a discount price so that he could receive the market rate of 6%.
So what happens to the balance sheets of the holders of $45 trillion worth of mortgages when interest rates rise?
Gulp!
|
|
|
|
|
| public treasury and all of the next ten generations of citizens' money, if that is what it takes today to stop the Dow Jones average from falling an extra hundred points, or to stop J.P. Morgan from being forced to reduce its dividend by one percent.
It's standard operating procedure in our "free market" system. When corporate profits and asset prices are rising, the wealthy get wealthier and Larry Kudlow reiterates for the 10 gazillionth time on CNBC that "It is always morning in America." But when corporate profits and asset prices actually start falling the government -- through its authorized agent, the Fed -- immediately socializes the losses.
Got that? "Free market" profits are owned by Private Citizens, while "free market" losses are owned the public.
When everything is going great the citizen billionaires hold parties with ice statues of Michaelangelo's "David" pissing Stoli, and when everything turns to shit then all of a sudden they morph into communists demanding that the Fed "inject liquidity" into the vital state owned tractor factories
|
so that GOP's Five Year plan quota can be met. (And that is when "The Upright Citizens Brigade" goes to work).
However ... At a certain point The System, like the Berlin Wall, must come down. That time may be nigh (or it may not be).
See, the really, really interesting question is -- What happens to mortgages that don't go into foreclosure?
Suppose Jim and Jenny Smith work for the Post Office, or the IRS, and will always pay their bills. Jim and Jenny wisely refinanced their home and locked in a 30 year rate of 5.0%. So now they are sitting pretty even as mortgage rates for new buyers climb to 7 or 8%! Yippee.
But what about the poor, god-forsaken lender who locked in that low 5.0% rate? He is still going to receive his well-earned monthly payments from Jim and Jenny, but the market value of the loan has dropped. And if -- this is the good part -- if the Federal Reserve decides to print trillions of dollars to buy back worthless mortgage debt and paper from foolish lenders, then the U.S. dollar will probably crater and long term interest rates in the U.S. will probably rise... which will thus reduce the market value of the Smith Family mortgage even further!
So the foolish banker gets screwed coming and going -- long term inflation eats up the value of the monthly Smith mortgage payments and higher long term interest rates chew up the value of the Smith debt on his balance sheet.
It sounds weird but it is true. Many people are unfamiliar with bonds and stuff like that, but it goes like this: Say you buy a bond paying 5% interest. If interest rates on similar bonds rise to 6%, that means your bond is worth (about) 20% less (depending). Why? Because someone buying the bond from you would want a discount price so that he could receive the market rate of 6%.
So what happens to the balance sheets of the holders of $45 trillion worth of mortgages when interest rates rise? Gulp! (Sidenote: once again the U.S. has hornswoggled millions of foreigners, who "invested" trillions with us! Another successful Ponzi raid!)
But isn't Larry Kudlow telling us that the Fed is going to reduce interest rates?
Yes, but they don't control all interest rates. Their main tool is setting the Federal Funds Rate for overnight borrowing from them, and they don't even totally control that. The amount of money they can print to bail out the banks and brokerages is limited by the revulsion of foreigners to lend the U.S. even more money once they discover, to their horror, that that the US currency is being debased at an exponentially increasing rate ... which is about where we are now...
We have $800 BILLION a year in budget and trade deficits, and far more than that if you count the ongoing looting of the Social Security "trust fund" (the government immediately spends your FICA withholding and puts ginormous IOUs in an imaginary "lockbox" -- and they even compute the imaginary interest the IOU's earn while sitting in the imaginary lockbox!).
So if the Fed trashes the US Dollar to save "The System", then The System collapses anyway. That is the interesting part of this mess, and it's going to get very painfully interesting.
My best guess is that TPTB know all this, but they don't know that you know it -- and they don't know that you know that they know that... "Psssttt...everyone! Calmly and quietly walk, do not run, to the nearest fire exit without alarming TPTB!"
Bottom line? The Fed cannot bail out everyone. This is a classic Titanic lifeboat scenario. Very tragic. Romantic. "So sorry, but the needs of the few vastly outweigh the needs of the many -- for otherwise there would be chaos and anarchy!"
As long as the Katrina-like national in scope disaster is "contained", then rich old white guys will be safe to appear on national TV and mouth shit like, "Booga-booga! Terrorists are coming!", "Freedom is messy!", and "Go fuck yourself!"
The one thing the Bush Regime cannot take away from the free men and women of America is the freedom to eat shit and die ... courageously, and as free men and women.
Now you might say, "Oh, that's just sour grapes! I'll bet she lost money in stocks today and is just whining now." To which I would reply, "What, do I look like a fucking retard?"
Doesn't everyone know by now that stocks are riskier than bonds, which are riskier than cash, and that cash may ultimately prove to be far riskier than "hard assets" -- such as Alcohol, Tobacco and Firearms, not to mention gold, gas, grass, ass, etc. (...all the fun stuff...) I am merely commenting on all this because I am happiest when I have something to be unhappy
about
© by the author.
Previous articles by Hazel Burke:
|
|
We're usually unable to forward readers'
emails, but both readers and authors are
invited to visit our 'dialogue' page
for two-way communication: |
|
This is an archived Unknown News page. For newest material, visit our main page.
|
|
It's standard operating procedure in our "free market" system.
When corporate profits and asset prices are rising, the wealthy get wealthier and Larry Kudlow reiterates for the 10 gazillionth time on CNBC that "It is always morning in America."
But when corporate profits and asset prices actually start falling the government -- through its authorized agent, the Fed -- immediately socializes the losses.
|
|
|
|
|
