Carl, the inflation you talk about has been with us for many.. many years. Joe six-pack doesn't care.. and mom and pop.. who put their 50K in the bank don't seem to care as long as the goverment picks up the tab on incidentals.
Joe Six-pack stopped caring that his $2 six-pack now costs him $4.50.. cause he's no longer making $24,000 per year.. HE'S NOW MAKING $48,000 per year.. (PROBLEM IS.. he can't figure out why he's considered RICH by his elected officials and is paying taxes right through his orifice!
Carl.. you are mostly correct.. OF COURSE..
But.. there remains a distinction between easy credit and being a good credit risk (ofthen referred to as being CREDIT WORTHY. Easy credit .. without consequence for non-payment, is exactly what your favorite politician is gonna promise you. ALL THE POOR FAMILIES GET THEIR SHARE OF THE AMERICAN DREAM.. just for signing on the dotted line! If you are an illegal immigrant (Ya,I know.. illegal immigrant is not PC).. it is even better... you can always cross.. back over the border (not even real US citizens can do that) when the mortgage goes into default! Remember, in life their are no consequences if you truly believe that the government is responsible for your health, safety and welfare! Heck, you don't even need to teach your kids socialization skills.. or manners.. or basic English. WHAT DO YOU THINK PUBLIC SCHOOLS ARE FOR?? Really, the nerve of some people..
PERSONAL RESPONSIBILITY.., REALLY!!!
T20...YA THIN K? (c:
Hey, I don't know what your daddy did to make you hate authority figures (frankly, I don't wish to know) but I promise not to take your marijuana from you if you vote GOP! (c:
"You think we could have a depression. I think we will be lucky to just have a depression. I think our bankers and thier buddies on the federal reserve have destroyed our nation."
I think this will be a severe depression for two reasons. One is that this is a very large demographic boom, and there will therefore be a much more powerful demographic effect than the 70s. Just as the boom was huge, the bust will also be. I also think that the effect will be magnified by the social factor - the last true purging of the excesses from the economy was in the 30s. Most of us have never experienced a depression, so there are a lot of lessons to be learned, lessons that will be painful.
As for "destroying our nation", yes, we are. Again while I agree in practice, I disagree in theory. The reason is that we have abandoned the restraints on government, and they are free to spend to excess, and have done so. The bankers part is as a facilitator; by finding ways to facilitate the government to spend well beyond its means, and allowing them to continue to do so for a very long time, they have created the impression that the government's ability to spend is unlimited, which it is not. They also have created the impression that government debt does not matter, which it does.
Had the government not spent beyond its means, there would have been nothing for the Fed to facilitate. In that case the Fed would just serve the role of regulating banks. It is because government power is out of control, and government spending is out of control, that the Fed has taken an active role in controlling the money supply. Government spending must inevitably be paid for, and if not by taxes, it is sooner or later by the hidden tax of inflation. The Fed just gets to play the part of the one doing it, which conveniently takes the focus off the culprit.
"The saving and loan was just the first screwing. No one was really punished then and no one will be punished for the massive insanity happening today."
Yes, the S&L industry was screwed, but who should have been punished? What happened in the S&L crisis was the result of the boom-bust cycle, compounded by unwise industry practice of borrowing short and lending long.
In a boom/bust the boom is caused by a baby boom raising children, buying homes, and related spending. Later the bust comes and the default rate soars. Traditionally that meant bank failures, as in the 1930s, and other depressions before it.
In the 1970's the Fed attempted to change the bust cycle, and partially was successful. Instead of a depression, we got multiple recessions, but also inflation (stagflation). Partly, though, it was a smaller downturn because it was a smaller baby boom than the one in the 20s and the one now. With stagflation, less home buyers saw the values of their homes fall, and the default rate was smaller than in prior downturns.
Unfortunately stagflation had the unintended consequence of wiping the S&L industry out of existence. When you borrow short and lend long, you are always exposed to risk, and the S&L surely was. They issued 30 Yr assumable mortgages during the 50s and 60s at rates like 5-6%. When they were paying 2% interest on deposits, they made 3-4%. Unfortunately as inflation picked up, money market funds competed, and the rates on deposits shot up. By 1982 I was earning 14.75% interest on a 5 Year CD (>15% with compounding) from an S&L. How could an S&L survive paying 15% interest to borrow the money they had lent out earlier at 5-6%? Their only hope was growth - if they grew, perhaps the new mortgages at 15% would outweigh the old ones at 6%, and maybe they could survive. Many tried, but it rarely worked, and sometimes led to riskier lending, and more defaults. Had they not tried, though, they were doomed anyway. I don't think that the general public ever grasped this. I've met some who thought that the reason they failed was poor lending practices, or fraud, rather than understanding that when an entire industry vanishes, it is more than a bad operator - it is an unsound business in the first place, home lending for 30 years at fixed rates financed by short term deposits.
In the 30s banks failed, as was the norm until then. By the 70s banks left this to S&L's, and S&L's failed. Now the risk is on Freddy Mac, Fanny Mae, and buyers of mortgage backed securities. Yes, these will lose as the cycle runs its course - someone has to. The part I don't understand, though, is where you talk about "punishment". Who are you wanting to punish, and for what?
Have you ever seen to movie "It's a wonderful life", with Jimmy Stewart? Besides being a timeless classic, it shows the alternative results of choices we make in the home lending area. In one case, people who are young with families and not many assets are allowed to buy homes, and this is facilitated by the Building and Loan, which in real life would have been wiped out in the 30's, and if it did survive, would surely have failed in the 70s.
In the alternative, only credit-worthy borrowers could get money from the bank, and no doubt at a variable rate rather than a fixed rate. This was Pottersville. The movie paints one as good, the other as bad, but really they are different, and have different social consequences. The "nice" alternative, of allowing borrowing inevitably leads to a boom/bust, as well as to some institution going out of business, banks, S&L's, Fannie Mae, etc. The alternative, forcing them to live in rentals until they can pay cash avoids the boom/bust, but increases wealth disparity. When I read your writings, I always picture you in the Pottersville camp. Again, I'm not saying one is bad or good, just that they are different.
You post was excellent, and helps explain why our society today lacks the values and principles needed for a bright and successful future. The future destiny of our nation appears to me to most troubling, as we do not seem to be willing to learn the lessons that history provides to us. Our federal deficit is now gigantic and is now growing at an alarming rate. Inflated currency appears to be our only means of financing it IMO. Since few other alternatives appear to be availabe to me, I plan to continue to load up on silver while prices are low so that my family can survive the very difficult times that lie ahead for this nation. IMO we will see runaway inflation followed by a severe depression. It may not happen overnight, but the stage is certainly set for it. SS
You say, "I think our bankers and thier buddies on the federal reserve have destroyed our nation."
And here I thought it was the Republicans, all along! (c: '
Are their any democrates on the Federal REserve? Federak reserve is an organization organinzed for the benefit of bankers. I thin k most bankers would be republicans.
'On the other hand, if the economy slips into deflation that situation no longer exists. If you get 2% deflation, will someone pay .25% interest, meaning a real rate of +2.25%? They won't unless they have someone else ready to borrow it, and they didn't in the 1930's. This is a reason why the Fed fears deflation - not only does it lead to a painful economic '
I fully understand that but you miss the point that the bankers will make money. Bear Steans had a huge sale of puts way outside any reasonable number just before they when belly up. I have not picked up the exact figure but they were talking about thousands of puts 30$ out of the strike price.
In you example you express a rational theory of borrowing and lending. The bankers are going to destory everything for thier benefit. The saving and loan was just the first screwing. No one was really punished then and no one will be punished for the massive insanity happening today.
They are destroying the short side of the market over and over. When you get the market rigged in one direction it will eventually fail and fail in a big way. Right now the big funds can be certain that no matter how bad their decision the federal reserve will step in and save them
Last year they gave the CEO of both fannie organization 14 million dollar bonus. Both fannies had lost 14 billion each.
You think we could have a depression. I think we will be lucky to just have a depression. I think our bankers and thier buddies on the federal reserve have destroyed our nation.
t20438, we largely disagree only as a matter of theory, much more than in terms of actual practice. During out lifetime we've not seen a case where the Fed was unable to find willing borrowers, but that doesn't mean such a situation can not exist. That was exactly the situation in the 1930's, once the market dove into deflation.
If you have inflation, as you point out, you can borrow money at negative real rates - pay 2% when inflation is 9%, and gain 7% on the money. On the other hand, if the economy slips into deflation that situation no longer exists. If you get 2% deflation, will someone pay .25% interest, meaning a real rate of +2.25%? They won't unless they have someone else ready to borrow it, and they didn't in the 1930's. This is a reason why the Fed fears deflation - not only does it lead to a painful economic situation, but it renders the Fed powerless.