The so called economic recovery is underway. The government and the FED is trying to help the housing market. In other words they are trying to propell the home prices. Would it not be better if home prices were cheaper? Would it not be better is Americans had "Affordable Housing"? The government does not think so, despite all their Affordable Housing talk. They only like affordable mortgage.
Uncle Sam wants YOU to buy a house! And an expensive one! Seriously. That is the only game in town. Let me explain why.
When we borrow money, banks create brand new money. They do not lend existing money. Here is how banks create money:
http://www.tradingstocks.net/html/banks_create_money.html
This is called credit inflation. FED has been inflating credit for the last 50 years faster than GDP growth. This extra money in the economy makes it easier to earn it. People feel good. They forget that entire money supply is borrowed bank credit that needs to be paid back someday with interest!
This flood of money makes the current administration look good. Remember all the talk about "Affordable Housing"? And right after the government promised American dream come true, they made mortgage easy, and propelled the home prices. That is not really affordable housing.
Now finally the home prices are coming down, and instead of celebrating that home prices are affordable they are trying to propel them up again. This is because uncle sam wants you to borrow money so that banks create money! As simple as that. The more you borrow, the better it is. This is the only tool that the government has to make it look like they are doing good.
The truth is expensive is NOT good. Stocks should be cheap. Why would you want to own something that does not pay a dividend? Homes should be cheap. Why would you want an expensive house? Until these things get cheap, we are NOT going to be wealthy. If people are not able to afford a home, then higher prices are not good. A good life style does not mean you have to pay mortgage to a bank for 30 years.
A good life is when you own your house outright. But the government, the FED do not want you to achieve this dream. They inflated the housing bubble on purpose. They are trying to do it again. Why is that? That is because a big chunk of the population works in financial services. Their job is to create money out of thin air, demand interest for it, and sustain their life based on the efforts of rest of us. And the rest of us pay for their 'services'. We can understand why they exist if finance is like the oil in an engine. It is needed to make it run. But we cannot have a large population work based on commission (interest) because the real economy (production) cannot sustain the interest burden. However, Wall Street and the banks are powerful and they do influence government policy.
This is why government subsidizes mortgages with interest deduction from income. That is a direct wealth transfer from renters / owners to the banks and makes it more attractive to buy expensive homes so that people borrow big, banks create money and inject it into the economy. That is why cash for clunkers. So that you borrow and buy a car. That is why 8K first time home buyer credit. Sounds like a good plan, right? That is why they allowed sub-prime, no 20% down, liar loans... We went through sub-prime borrowers and there was nobody left who could borrow. There is a limit to how much people can borrow. When the entire population reaches it's natural limit, the bust arrives and the same process reverses itself, and it is called credit deflation:
http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html
No comments:
Post a Comment