3% Downpayment FHA Loans Surge As Subprime Buyers Are Back In The Housing Market

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Americans across the country have been priced out of the U.S. housing market since the “recovery” began due to a combination of factors; stagnant wages, private equity purchases and money laundering foreigners. As such, many potential first time buyers have been sidelined despite the availability of meager 3% downpayment loans from the FHA as well as Fannie Mae and Freddie Mac. Fortunately for the U.S. ponzi scheme economy, the U.S. government has a solution. Lower mortgage insurance premiums.

Bloomberg reports:

First-time homebuyers are finally jumping into the U.S. property market.

Need proof? Look at the mortgage market’s fastest-growing segment: loans with low down payments insured by the Federal Housing Administration.

 

Originations of FHA-backed mortgages, used predominately by first-time buyers, were up 54 percent in September from a year earlier, according to the most recent data from CoreLogic Inc. By December, the FHA insured 22 percent of all loan originations, up from 17 percent a year earlier, according to data compiled by Ellie Mae Inc.

Yes you read that right. Up 54%. 

LIVING A LIE

“Above all, don’t lie to yourself. The man who lies to himself and listens to his own lie comes to a point that he cannot distinguish the truth within him, or around him, and so loses all respect for himself and for others. And having no respect he ceases to love.” –  Fyodor Dostoyevsky, The Brothers Karamazov

The lies we tell ourselves are only exceeded by the lies perpetrated by those controlling the levers of our society. We’ve lost respect for ourselves and others, transforming from citizens with obligations to consumers with desires. The love of mammon has left our country a hollowed out, debt ridden shell of what it once was.  When I see the data from surveys about the amount of debt being carried by people in this country and match it up with the totals reported by the Federal Reserve, I’m honestly flabbergasted that so many people choose to live a lie. By falling for the false materialistic narrative of having it all today, millions of Americans have enslaved themselves in trillions of debt. The totals are breathtaking to behold:

Total mortgage debt – $13.6 trillion ($9.9 trillion residential)

Total credit card debt – $924 billion

Total auto loan debt – $1.0 trillion

Total student loan debt – $1.3 trillion

Other consumer debt – $300 billion

With 118 million occupied households in the U.S., that comes to $145,000 per household. But, when you consider only 74 million of the households are owner occupied and approximately 26 million of those are free and clear of mortgage debt, that leaves millions of people with in excess of $200,000 in mortgage debt. Keeping up with the Joneses has taken on a new meaning as buying a 6,000 sq ft McMansion with 3% down became the standard operating procedure for a vast swath of image conscious Americans. When you are up to your eyeballs in debt, you don’t own anything. You are living a lie.

Continue reading “LIVING A LIE”

HOUSING BUBBLE PART DEUX

The housing recovery without mortgage originations is coming to its inevitable conclusion. The Fed, Wall Street bankers and the US Treasury have been able to increase national home prices by 30%, with 50% to 100% in some bubble markets, using 0% interest rates, a massive buy and rent scheme, withholding foreclosures from the market, encouraging foreign cash buying, and allowing flippers back into the market. In a real free market would home prices go up by 30% while mortgage originations remained flat for the last four years?

Thirty year mortgage rates have been falling for the last 30 years. They bottomed at 3.35% in late 2012. Since then they rose as high as 4.4% in early 2014. They fell to 3.6% by early 2015 and are now hovering in the 3.8% range. Everyone who had a high interest mortgage loan, including those with underwater mortgages, have refinanced to a lower rate. The economic boost to the economy from the lower mortgage payments is over. The Obamacare costs have spent the mortgage payment savings. The combination of declining real household income, overpriced homes, millennials with massive levels of student loan debt, and now rising mortgage rates are putting a halt to this fake Fed recovery scheme.


Chart of the Day

Continue reading “HOUSING BUBBLE PART DEUX”

CONSUMERS NOT FOLLOWING ORDERS

Last week the government reported personal income and spending for April. After months of blaming non-existent consumer spending on cold weather, shockingly occurring during the Winter, the captured mainstream media pundits, Ivy League educated Wall Street economist lackeys, and Keynesian loving money printers at the Fed have run out of propaganda to explain why Americans are not spending money they don’t have. The corporate mainstream media is now visibly angry with the American people for not doing what the Ivy League propagated Keynesian academic models say they should be doing.

The ultimate mouthpiece for the banking cabal, Jon Hilsenrath, who does the bidding of the Federal Reserve at the Rupert Murdoch owned Wall Street Journal, wrote an arrogant, condescending, putrid diatribe, directed at the middle class victims of Wall Street banker criminality and Federal Reserve acquiescence to the vested corporate interests that run this country. Here are the more disgusting portions of his denunciation of the formerly middle class working people of America.

We know you experienced a terrible shock when Lehman Brothers collapsed in 2008 and your employer responded by firing you. 

We also know you shouldn’t have taken out that large second mortgage during the housing boom to fix up your kitchen with granite counter-tops. 

You should feel lucky you’re not a Greek consumer.

Fed officials want to start raising the cost of your borrowing because they worry they’ve been giving you a free ride for too long with zero interest rates.

We listen to Fed officials all of the time here at The Wall Street Journal, and they just can’t figure you out.

Please let us know the problem.

The Wall Street Journal was swamped with thousands of angry responses from irate real people living in the real world, not the elite, QE enriched, oligarchs living in Manhattan penthouses, mansions on the Hamptons, or luxury condos in Washington, D.C. Hilsenrath presumes to know how the average American has been impacted by the criminal actions of sycophantic Ivy League educated central bankers and their avaricious Wall Street owners.

Continue reading “CONSUMERS NOT FOLLOWING ORDERS”

GOVERNMENT USING SUBPRIME MORTGAGES TO PUMP HOUSING RECOVERY – TAXPAYERS WILL PAY AGAIN

It seems hard to believe, but your government is purposely recreating the mortgage debacle of 2007 and putting you on the hook for the billions in losses coming down the road. In their frantic effort to generate the appearance of economic recovery they are willing to gamble with taxpayer’s money while luring unsuspecting blue collar folks into buying houses they can’t afford. During the previous housing bubble, greedy Wall Street bankers, deceitful mortgage brokers, and corrupt rating agencies colluded to commit the greatest control fraud in the history of mankind. This time it is your government, aided and abetted by the Federal Reserve, that is actively promoting the lending of money to people incapable of paying it back. And again, you the taxpayer will be on the hook when it predictably blows up.

The FHA, created during the first Great Depression, is supposed to be self-sustaining through mortgage insurance premiums charged to homeowners, just like Fannie, Freddie, Medicare, Social Security, and student loan lending were supposed to be self- sustaining through taxes, fees, and interest. This agency was supposed to promote homeownership for lower income Americans, but has been used by politicians as a tool to capture votes, payoff crony capitalist benefactors, and as a Keynesian stimulus tool designed to kindle a fake housing recovery. They entered the fray at the tail end of the last Fed/Wall Street created housing bubble, insuring a huge number of subprime mortgage loans from 2007 through 2009. The taxpayer has already had to bail out this incompetent, politically motivated, joke of an agency to the tune of $1.7 billion in 2014.

Edward J. Pinto, a former Fannie Mae official, estimates that under standard accounting practices the agency is already insolvent to the tune of $25 billion. Mark to fantasy accounting hasn’t just benefitted the criminal Wall Street cabal, but also the bloated pig government housing agencies – Fannie, Freddie and the FHA. The FHA’s share of new loans with mortgage insurance stood at 16.4% in 2005 and currently stands at 44.3%. This is a ridiculously high level considering the percentage of first time home buyers is near all-time lows and low income buyers have lower real median household income than they had in 2005. Distinguished congresswoman Maxine Waters, who once declared: “We do not have a crisis at Freddie Mac, and particularly Fannie Mae, under the outstanding leadership of Frank Raines.”, prior to them imploding and costing taxpayers $187 billion in losses, thinks the FHA is doing a bang up job. Her financial acumen is unquestioned, so you can expect another bailout in the near future.

Continue reading “GOVERNMENT USING SUBPRIME MORTGAGES TO PUMP HOUSING RECOVERY – TAXPAYERS WILL PAY AGAIN”

Obama’s Latest Handout: Two Years Of Free Community College For Everyone

We already have millions of morons taking up space in colleges across the country who can’t read at a 7th grade level because Obama has doled out $1.2 trillion of student loans, 50% of which will never be repaid, and his solution is to spend hundreds of billions more to allow the even more stupid to attend some 3rd rate community college where they can major in African Studies or the History of Lesbians in America. And you get to pay for it. The Republicans don’t want to alienate the stupid vote, so they’ll increase the cost of this legislation and pass it right away. We should give each community college graduate a free FHA loan so they can live the American dream of owning a house without saving to pay for it. Amurika. Ain’t it great?
BEER PONG COMMUNITY COLLEGE
Tyler Durden's picture

With the number of college graduates working minimum wage jobs nearly 71% higher than it was a decade ago, and the average graduate leaving college with $29,400 in debt (crushing their hopes of leveraging up to buy that American Dream-creating house), President Obama has unleashed a double whammy of ideas in the last few days. Reducing mortgage insurance and cutting down-payment restrictions for FHA loans (i.e. providing huge leverage to segments of society to repeat the mistakes of the last housing bubble); and now, as The LA Times reports, President Obama says he is rolling out a plan to make two years of community college free, or nearly so, to every student across the country. Because it’s “fair”?

 

As The LA Times reports,

IT’S ALWAYS THE BEST TIME TO BUY

“The continuing shortages of housing inventory are driving the price gains. There is no evidence of bubbles popping.”David Lereah, NAR mouthpiece/economist – August 2005

“The steady improvement in home sales will support price appreciation despite all the wild projections by academics, Wall Street analysts, and others in the media.” David Lereah, NAR mouthpiece/economist – January 10, 2007

“Buyer traffic is continuing to pick up, while seller traffic is holding steady. In fact, buyer traffic is 40 percent above a year ago, so there is plenty of demand but insufficient inventory to improve sales more strongly. We’ve transitioned into a seller’s market in much of the country. We expect a seasonal rise of inventory this spring, but it may be insufficient to avoid more frequent incidences of multiple bidding and faster-than-normal price growth.” – Lawrence Yun – NAR mouthpiece/economist – February 21, 2013

I really need to stop being so pessimistic. I’m getting richer by the day. My home value is rising at a rate of 1% per month according to the National Association of Realtors. At that rate, my house will be worth $1 million in less than 10 years. My underwater condo (figuratively – not literally) in Wildwood will resurface and make me rich beyond my wildest dreams. Larry Yun, the brilliant economic genius employed by the upstanding and truth telling NAR, reported that median home prices soared by 12.3% in January (down 3.7% from December) over the prior year and there is virtually no inventory left to sell – with a mere 1.75 million homes in inventory – the lowest level since 1999. The median sales price of $173,600 is up “dramatically” from last year’s $154,500 level. I’m sure the NAR meant to mention that home prices are still down 25% from the 2005 high of $230,000. Every mainstream media newspaper, magazine, and news channel is telling me the “strong” housing recovery is propelling the economy and creating millions of new jobs. Keynesian economists, Wall Street bankers, government apparatchiks and housing trade organizations are all in agreement that the wealth effect from rising home prices will be the jumpstart our economy needs to get back to the glory days of 2005. Who am I to argue with such honorable men with degrees from Ivy League schools and a track record of unquestioned accuracy as we can see in the chart below? 

 

Mr. Lereah added to his sterling reputation with his insightful prescient book Why the Real Estate Boom Will Not Bust—And How You Can Profit from It, which was published in February 2006. I understand Ben Bernanke has a signed copy on his nightstand. According to David, he voluntarily decided to leave the NAR in mid-2007 as home prices began their 40% plunge over the next four years. He then admitted in an interview with Money Magazine in 2009 that he was nothing but a shill for the real estate industry, no different than a whore doing tricks for $20. Except he was whoring himself for millions of dollars and contributing to the biggest financial fraud in world history:

“I was pressured by executives to issue optimistic forecasts — then was left to shoulder the blame when things went sour. I was there for seven years doing everything they wanted me to. I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right in line with most forecasts. The difference was that I put a positive spin on it. It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.”

After Mr. Lereah slithered away from his post he was replaced by the next snake – Lawrence Yun. He proceeded to put the best face possible on the greatest housing collapse in recorded history, assuring the public it was the best time to buy during the entire slide. Five million foreclosures later he’s still telling us it’s the best time to buy. Why shouldn’t we believe the National Association of Realtors and the mainstream media that report their propaganda as indisputable fact? These noble realtooors only have the best interests of their clients at heart. Remember when they warned people about the dangers of liar loans, negative amortization loans, appraisal fraud, nefarious mortgage brokers, criminal bankers, corrupt ratings agencies and the fact that home prices had reached a high two standard deviations above the normal trend? Oh yeah. They didn’t make a peep. They disputed and ridiculed Robert Shiller and anyone else who dared question the healthy “strong” housing market storyline. In late 2011 this superb, above board, truth telling organization admitted what many financial analysts and “crazy” bloggers had been pointing out for years. They were lying about home sales. Their data was false. Between 2007 and 2010, the NAR reported 2.95 million more home sales than had actually occurred. This was not a rounding error. This was not a flaw in their methodology, as they claimed. It was an outright fraudulent attempt to convince the public that the housing market was not in free fall. These guys make the BLS look accurate and above board.   

  

We are now expected to believe their monthly reports as if they are gospel. The mainstream media continues to report their drivel about the lowest inventory level in 14 years without the slightest hint of skepticism.

The Incredible Shrinking Inventory

We are told by good old Larry Yun that there are only 1.74 million homes left for sale in this country and at current sales rates we’ll run out of inventory in 4.2 months. Oh the horror. You better buy now, before it’s too late. We must be running out of houses. Someone call Bob Toll. We need more houses built ASAP, before this becomes a crisis. But there seems to be problem with this storyline. Existing home sales are falling. Even using the NAR seasonally manipulated numbers, sales in January were lower than in November. In a country with 133 million housing units, there were 291,000 existing home sales in January. If there is an inventory shortage, why have new home sales fallen every month since May of 2012? There were a total of 10,000 completed new homes sold in December in the entire country. Housing starts plunged by 8.5% in January. Does this happen when you have a strong housing market? Do you believe the NAR inventory figure of 1.74 million homes for sale? The last time the months of supply was this low was early 2005 – during the good old days.

 

Let’s examine a few facts to determine the true nature of this shocking inventory shortage. According to the U.S. Census Bureau:

  • There are 133 million housing units in the United States
  • There are 115 million occupied housing units in the country, with 75 million owner occupied and 40 million renter occupied.
  • For the math challenged this means that 13.5%, or 18 million housing units, are vacant.
  • Only 4.3 million are considered summer homes, and 3.9 million are available for rent. That leaves 9.8 million homes completely vacant.
  • The Census Bureau specifically identifies 1.6 million of these vacant housing units as up for sale.

So, with 9.8 million vacant housing units in the country and 1.6 million of these identified as for sale, the NAR and media mouthpieces have the balls to report only 1.74 million homes for sale in the entire U.S. This doesn’t even take into account the massive shadow inventory stuck in the foreclosure pipeline. Of the 75 million owner-occupied housing units in the country, 50 million have a mortgage. Of these houses, a full 10.9% are either delinquent or in the foreclosure process. This totals 5.4 million households, with 1.9 million of these households already in the foreclosure process. The number of distressed households is still double the long-term average, even with historically low mortgage rates, multiple government mortgage relief programs (HARP), and Fannie, Freddie and the FHA guaranteeing 90% of all mortgages. Do you think the NAR is including any of these 5.4 million distressed houses in their inventory numbers?

 

Then we have the little matter of a few home occupiers still underwater on their mortgages. After this fabulous two year housing recovery touted by shills and shysters, only 27.5% of ALL mortgage holders are underwater on their mortgage. This means 13.8 million households are in a negative equity position. Those with 5% or less equity are effectively underwater since closing costs usually exceed 6% of the house’s value. That adds another 2.2 million households to the negative equity bucket. Do you think any of these 16 million households would be selling if they could?  

U.S. homeowners with a mortgage are slowly gaining equity back in their homes. 

The negative equity position of millions of homeowners gets at the gist of the effort to re-inflate the housing bubble. By artificially pumping up home prices, the Wall Street titans and their co-conspirators at the Federal Reserve and Treasury Department are attempting to repair insolvent Wall Street bank balance sheets, lure unsuspecting dupes back into the housing market, reignite the economy through the old stand-by wealth effect, and of course enrich themselves and their crony capitalist friends. The artificial suppression of home inventory has been working wonders, as 2 million homeowners were freed from negative equity in 2012. If they can only lure enough suckers back into the pool, all will be well. Phoenix must have an inordinate number of chumps with home prices rising by 22.5% in 2012 as investors and flippers poured into the market with cheap debt and big dreams. Of course everything is relative, as prices are still down 44% from the peak and 40% of mortgages remain underwater. I strongly urge everyone without a functioning brain to pour their life savings into the Phoenix housing market. Larry Yun says it’s a can’t miss path to riches.  

Despite the propaganda, hyperbole, and cheerleading from the corporate media, the fact remains that national homeowner’s equity is barely above its all-time low of 38%, down from 62% in 2000 and 70% in 1980. The NAR shills, Federal Reserve drug pushers, Wall Street shysters, and pliant media lured the middle class into the false belief that housing was an asset class that could make you rich. Homes became the major portion of middle class net worth. As prices were driven higher from 2000 through 2006, the middle class took the bait hook line and sinker and borrowed billions against their ever increasing faux housing wealth. This set up the impending collapse of middle class net worth, created by the 1%ers on Wall Street, in Washington DC, and in corporate executive suites across the land.  The median American household lost 47% of its wealth between 2007 and 2010. Average household wealth, which is skewed dramatically by the richest Americans, declined by only 18%. Real estate only accounts for 30% of the net worth of the rich. For the middle 60%, housing has risen from 62% to 67% of total wealth since 1983. Middle class families’ saw their cash cushion fall from 21% in 1983 to 8% before the crash. They were convinced that living on Wall Street peddled debt was the path to prosperity. After the crash, the middle class has been left with no cash, underwater mortgages, declining real wages, less jobs, and a mountain of credit card debt. Delusions have been crushed. But an on-line degree from the University of Phoenix funded by a Federal student loan of $20,000 will surely revive the fortunes of the average unemployed middle class worker.  

 

Despite the destruction of middle class hopes, dreams, and net worth, the ruling plutocracy has decided the best way to revive their fortunes is to lure the ignorant masses into more student loan debt, auto debt and mortgage debt.

Don’t Look Behind the Curtain

“The real hopeless victims of mental illness are to be found among those who appear to be most normal. Many of them are normal because they are so well adjusted to our mode of existence, because their human voice has been silenced so early in their lives that they do not even struggle or suffer or develop symptoms as the neurotic does. They are normal not in what may be called the absolute sense of the word; they are normal only in relation to a profoundly abnormal society. Their perfect adjustment to that abnormal society is a measure of their mental sickness. These millions of abnormally normal people, living without fuss in a society to which, if they were fully human beings, they ought not to be adjusted.” Aldous Huxley – Brave New World Revisited

 

What is normal in a profoundly abnormal, manipulated, propaganda driven society? The NAR and Federal government issue their public relations announcements every month and attempt to spin straw into gold. The media then fulfill their assigned role by touting the results as unequivocal proof of an economic recovery. This is all designed to revive the animal spirits of the clueless public. Statistics in the hands of those who have no regard for the truth can be manipulated to portray any storyline that serves their corrupt purposes. When I see a story about the housing market referencing a percentage increase as proof of a recovery I know it’s time to check the charts. You see, even a fractional increase from an all-time low will generate an impressive percentage increase. So let’s go to the charts in search of this blossoming housing recovery.

The media, NAHB, and certain bloggers look at this chart and declare that new home sales are up 20% from 2011 levels. Sounds awesome. I look at this chart and note that 2011 was the lowest number of new home sales in U.S. history. I look at this chart and note that new home sales are 75% below the peak in 2005. I look at this chart and note that new home sales are lower today than at the bottom of every recession over the last fifty years. I look at this chart and note that new home sales are lower today than they were in 1963, when the population of the United States was a mere 189 million, 40% less than today’s population. Do you see any signs of a strong housing recovery in this chart?    

 

The housing cheerleaders look at the chart below and crow about a 75% increase in housing starts. I look at this chart and note that housing starts in 2009 were the lowest in recorded U.S. history. I look at this chart and note that total housing starts are down 60% and single family starts are down 70% from 2006 highs. I look at this chart and note the “surge” in housing starts is completely being driven by apartment construction, because the student loan indebted youth can’t afford to buy houses. I look at this chart and note that housing starts are 40% below 1968 levels. Do you see any signs of a strong housing recovery in this chart?   

 

Those trying to lure the gullible non-thinking masses into paying inflated prices for the “few” houses available for sale declare that existing home sales are up 50% in the last two years. Of course, the 3.3 million low in 2010 was the lowest level in decades. Existing home sales are still 30% below the 2005 high of 7.2 million and the abnormal structure of these home sales is dramatically different than the normal sales of yesteryear.

 

The wizards behind the curtain don’t want you to understand how the 50% increase in existing home sales has been achieved. They just want you to be convinced that a return to normalcy has happened and it’s the best time to buy. The NAR wizards and the media wizards don’t publicize the composition of these skyrocketing sales. At the end of the NAR “buy a home before it’s too late” monthly press release you find out that distressed homes (foreclosed & short sales) now make up 23% of all home sales and have accounted for well over 30% of all home sales since 2010. Another 28% of home sales are all-cash sales to investors looking to turn them into rental units or flip them for a quick buck. Lastly, 30% of homes are being bought by first time home buyer pansies who have been lured into the market by 3.5% down payment loans through the FHA, with the future losses born by middle class taxpayers who had no say in the matter. Prior to the housing crash, normal buyers who just wanted a place to live, accounted for 90% of all home purchases. Today they make up less than 30% of home buyers. Does this chart portray a normal market or a profoundly abnormal market? Does it portray a healthy housing recovery based upon sound economic fundamentals?      

 all cash buyers

The answer is NO. The contrived elevation of home sales and home prices has been engineered by the very same culprits who crashed our financial system in the first place. This has been planned, coordinated and implemented by a conspiracy of the ruling oligarchy – the Federal Reserve, Wall Street, U.S. Treasury, NAR, and the corporate media conglomerates. Ben’s job was to screw senior citizens and drive interest rates low enough that everyone in the country could refinance, attract investors & flippers into the market, and propel home prices higher. Wall Street has been the linchpin to the whole sordid plan. They were tasked with drastically limiting the foreclosure pipeline, therefore creating a fake shortage of inventory. Next, JP Morgan, Blackrock, Citi, Bank of America, and dozens of other private equity firms have partnered with Fannie Mae and Freddie Mac, using free money provided by Ben Bernanke, to create investment funds to buy up millions of distressed properties and convert them into rental properties, further reducing the inventory of homes for sale and driving prices higher. Only the connected crony capitalists on Wall Street are getting a piece of this action. The Wall Street big hanging dicks have screwed the American middle class coming and going. The NAR and media are tasked with what they do best – spew propaganda, misinform, lie, cheerlead and attempt to create a buying frenzy among the willfully ignorant masses. The chart below reveals the truth about the strong sustainable housing recovery. It doesn’t exist. Mortgage applications by real people who want to live in a home are no higher than they were in 2010 when home sales were 33% lower than today. Mortgage applications are lower than they were in 1997 when 4 million existing homes were sold versus the 5 million pace today. The housing recovery is just another Wall Street scam designed to bilk the American middle class of what remains of their net worth.

 

The multi-faceted plan to keep this teetering edifice from collapsing is being executed according to the mandates of the financial class:

  • Distribute hundreds of billions in student loans to artificially suppress the unemployment rate, while the BLS adjusts millions more out of the labor force – CHECK
  • Have Ally Financial (80% owned by Obama) and Wall Street banks dole out subprime auto loans to millions and offer 7 year financing at 0%, while GM (Government Motors) channel stuffs its dealers, to create the appearance of an auto recovery – CHECK
  • Drive mortgage rates down, restrict home supply through foreclosure market manipulation, shift the risk of losses to the taxpayer, and allow Wall Street to control the housing market – CHECK
  • Have the corporate mainstream media continuously spout optimistic, positive puff pieces designed to convince an ignorant, apathetic public that the economy is improving, jobs are being created, and housing has recovered – CHECK

Free money, government subsidies, no regulation, Wall Street hubris, get rich quick schemes, media propaganda, and an ignorant public – what could possibly go wrong?   

Here is what could and will go wrong. Everyone in the country that could refinance to a mortgage rate of 4% or lower has done so. Contrary to Bernanke’s rhetoric that “QE to Infinity” would lower mortgage rates, they have just risen to a six month high as the 10 Year Treasury rose 60 basis points from its 2012 low. If mortgage rates just rose to a modest 5% the housing market would come to a grinding halt as no one would trade a 3.5% mortgage for a 5% mortgage. As I’ve detailed earlier, there are 3.9 vacant housing units available for rent. Almost half of the new housing units under construction are apartments. The Wall Street shysters are converting millions of foreclosed homes into rental units. This avalanche of rental properties will depress rents and destroy the modeled ROI calculations of the brilliant Wall Street Ivy league MBAs. These lemmings will all attempt to exit their “investments” at the same time. The FHA is already broke. The mounting losses from their 3.5% down payment to future deadbeats program will force them to curtail this taxpayer financed debacle. There will be few first time home buyers, as young people saddled with a trillion dollars of student loan debt are incapable of buying a home.

These are the facts. But why trust facts when you can believe Baghdad Ben and the NAR? It’s always the best time to buy.

    08-08-12c_baghdad_bob.jpg

“All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.  The vast majority of mortgages, including even subprime mortgages, continue to perform well.  Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.” – Ben Bernanke – May 17, 2007

 

HOW TO CREATE A FAKE HOUSING RECOVERY WITH YOUR MONEY

Make no mistake about it, Ben Bernanke, Timmy Geithner, Obama and their Wall Street cronies have attempted to engineer a ponzi scheme housing recovery with your money. They have used the FHA to dole out mortgage loans to subprime borrowers requiring only a 3.5% downpayment. When has this ever caused problems? The FHA backed a miniscule percentage of mortgages prior to 2008. Obama has used this agency to prop up the housing market, just like he has artificially kept the unemployment rate lower by doling out your tax dollars to morons going to the University of Phoenix, and using his government run auto finance company – Ally Financial – to dole out loans for Cadillac Escalades to deadbeats in West Philly.

fha share of market

Now we know that FHA backed loans going bad are skyrocketing. The FHA is broke. Guess who will bailout the FHA because they gave loans to deadbeats? YOU!!!! The FHA will lose at least $16 billion of your tax dollars next year.

FHA bailout

Ben Bernanke is buying up all the fraudulent mortgage debt from his buddies on Wall Street and transferring that bad debt to you. His balance sheet is leveraged 60 to 1 and is filled with toxic worthless shit mortgages. You are on the hook for that bad debt, while he pays you 0% interest on your savings.

Charles Hugh Smith describes the fraud in clear concise terms. Even a CNBC anchor could understand it, if they weren’t being paid to lie about it.

Real Estate: Is the Bottom In, or Is This a Head-Fake?

The housing recovery is no sure bet
by Charles Hugh Smith
Thursday, December 6, 2012, 10:32 AM

Everyone interested in real estate is asking the same question: Is the bottom in, or is this just another “green shoots” recovery that will soon wilt?

Let’s start by reviewing the fundamental forces currently affecting real estate valuations.

Expanding the pool of potential buyers has reached the upper limit

There are two ways to expand the pool of qualified home buyers, and they both rely on expanding leverage:  A) lower the down payment from 20% cash to 3%, and B) lower the mortgage rate to 3.5%.

Lowering the down payment increases the leverage from 4-to-1 to 33-to-1, a massive leap.

Increasing leverage increases risk. Over 90% of all mortgages are guaranteed or backed by Federal agencies such as FHA. This “socialization” of the mortgage industry means that losses ultimately flow through to the taxpayers, who are subsidizing the housing industry via these agencies.

Lowering the mortgage rate increases the leverage of income.  It now takes much less income to qualify for greatly reduced monthly payments.

With mortgage rates barely above the prime rate and Treasury bond yields negative in terms of inflation, there is simply no room left for lower rates or down payments.  The “increase home sales by expanding the pool of buyers” game plan has been run to the absolute limit.

The pool of buyers cannot be expanded any further; that boost to sales is done.

The unintended consequence of enticing marginal buyers to buy homes is that defaults are rising: 1 out of 6 FHA-insured loans are delinquent. This is the “blowback” of qualifying everyone with an income above the poverty line as a homebuyer.

The mortgage industry has escaped any consequences of “robo-signing” mortgage fraud

If the rule of law existed in more than name, this is what should have happened:

  1. MERS, the mortgage industry’s placeholder of fictitious mortgage notes, would have been summarily shut down.
  2. All mortgages and derivatives based on mortgages would have been marked-to-market.
  3. All losses would be booked immediately, and any institution that was deemed insolvent would have been shuttered and its assets auctioned off in an orderly fashion.
  4. Regardless of the cost to owners of mortgages, every deed, lien, and note would be painstakingly reconstructed on every mortgage in the U.S., and the deed and note properly filed in each county as per U.S. law.

That none of this has happened is proof that the rule of law is “optional” for financial institutions in America.

The $25 billion mortgage fraud settlement turned a blind eye to the fraud, and now the banks are applying losses they have already booked to the $25 billion, mooting the supposed “benefit” of the settlement to consumers.

The Federal Reserve’s purchase of mortgages – over $1.1 trillion in 2009-10 and now another $40 billion a month – is essentially a money-laundering operation in which the Fed exchanges cash for dodgy mortgages.

Analyst Catherine Austin Fitts (QE3 – Pay Attention If You Are in the Real Estate Market) summarized what this means:

“The Fed is now where mortgages go to die.”

“Thousands of mortgages on homes that do not exist or on homes that have more than one ‘first’ mortgage are now going to the Fed to disappear. Thousands of multifamily and commercial mortgages will be bought up as well. With documents shredded, criminal liabilities extinguished and financial institutions made whole, funds can return without fear of seizure.

QE3 proves beyond any shadow of a doubt that the extent of the fraud was as bad as I said it was. You can count up the bailouts and QE1, QE2, QE3 the numbers speak for themselves. The fraud was indeed in the many trillions of dollars.”

In other words, the financial sector has gotten away with murder, and the “overhang” of systemic fraud has been erased with Fed connivance.

Banks are restricting inventory

The banks are withholding distressed properties to restrict the inventory of homes for sale.

If supply overwhelms demand, prices decline.  That would be a bad thing for banks sitting on millions of defaulted mortgages and distressed properties.  Millions of impaired properties are being held off the market so supply is lower than demand.

The strategy has costs. Thousands of defaulted homeowners have been living mortgage-free for years. But the gains have been impressive. With supply dwindling, beaten-down markets have seen gains of 20+% this year as strong investor demand has pushed prices higher.

Since the strategy has paid such handsome returns, why change it?

ZIRP has attracted investment

The Fed’s ZIRP (zero interest rate policy) has pushed investors into a “search for safe yield” that has led many to buy corporate bonds, dividend stocks and everyone’s favorite “safe” fixed asset, real estate.

In many markets, one-third or more of all sales have been to investors.

Some are buying distressed properties to “flip” in strong-demand markets, but many are buying the homes as rentals with the plan being to hold them for a few years as prices rise and then sell to reap appreciation.

Anecdotally, every investor class is getting into the act, from Mom and Pop to big players such as insurance companies and Wall Street funds.  One of my contacts in the insurance industry told me that his firm was buying large multi-unit apartment complexes, as these rentals generated a yield of 6% to 7%, far above the 1.7% yield of ten-year Treasury bonds.

In a non-ZIRP world, Treasuries and other asset classes would offer similar yields but without the risks and costs of managing rentals. But in a ZIRP world of near-zero yields for low-risk financial assets, rental real estate is a compelling investment: decent yields, relatively low risk, and strong appreciation potential if housing has indeed bottomed.

“The bottom is in” – isn’t it?

Once potential buyers see prices rise and they conclude that “the bottom is in,” they jump in and buy, pushing prices higher in a positive feedback loop. The higher prices rise, the more evidence there is that the bottom is in, and the greater the incentives to jump in before prices once again rise out of reach.

Favorable rent/buy ratio

With mortgage rates well below 4%, the rent-buy ratio is favorable in many areas. It may indeed be cheaper to buy than to rent in some locales.

“Hot money” flowing into real-estate

As economies in Europe and Asia falter, “hot money” is flowing into perceived “safe havens” such as the U.S. and Canada. Some of this “hot money” ($225-$300 billion a year is leaving China alone) is flowing into real estate, a well-known phenomenon in markets such as Vancouver, B.C., Miami, and Los Angeles.

Conclusion

What can we conclude from this overview of fundamentals?

  • The mortgage industry escaped any real consequence from its systemic fraud
  • The Status Quo plan to reflate the housing market with super-low mortgage rates and down payments has worked to some degree
  • The financial sector’s plan to boost home prices by limiting supply has also worked
  • ZIRP has created a “crowded trade” in low-risk investments with attractive yields such as corporate bonds, dividend stocks, and real estate, which is being fueled by a self-reinforcing perception that “the bottom is in”

The question now is will these forces continue pushing prices higher? If so, the bottom may well be in. If these forces deteriorate or lose their effectiveness, then the “green shoots” of investor interest may wither as the U.S. economy joins Europe and Japan by re-entering recession.

In Part II: Forecasting the Future of Rental Housing and Home Valuations, we will examine what forces could change “the bottom is in!” to “this is just another head-fake” – with the real bottom still ahead.

Click here to read Part II of this report (free executive summary; enrollment required for full access).

Money in America, Part Six

In the last episode, we followed post-World War One arrangements to return to a gold standard generally; the little-known Recession of 1920-1; the Strong-Norman dynamic duo; the Weimar collapse; the easy money that put the roar in the Roaring 20s; Black Thursday and Hoover’s seeds of the New Deal.

An overture: February, 1929, Montague Norman comes to the United States for secret meeting with Secretary of the Treasury, Andrew Mellon. Also, he confers with Federal Reserve directors, presumably to agree to a coordinated approach to the impending bubble collapse.

Let it be?

Surely it was only a coincidence that the Federal Reserve advisory to member banks was to liquidate their stock market holdings. Paul Warburg had also told stockholders of his International Acceptance Bank:

If the orgies of unrestrained speculation are permitted to spread, the ultimate collapse is certain not only to affect the speculators themselves, but to bring about a general depression involving the entire country.

After Black Thursday

The stock market crash of 1929 did not cause the Great Depression but it was a warning. Too much speculation, animal spirits, hid the underlying truth of much productivity increase since the 1920-1 correction.

A voice crying in the wilderness at the time:

I was one of the only ones to predict what was going to happen. In early 1929, when I made this forecast, I said that there would be no hope of a recovery in Europe until interest rates fell, and interest rates would not fall until the American boom collapses, which I said was likely to happen within the next few months.

What made me expect this, of course, is one of main theoretical beliefs that you cannot indefinitely maintain an inflationary boom. Such a boom creates all kinds of artificial jobs that might keep going for a fairly long time but sooner or later must collapse. Also, I was convinced that after 1927, when the Federal Reserve made an attempt to stave off a collapse by credit expansion, the boom had become a typically inflationary one.

Friedrich Hayek

Irving Fisher had a different viewpoint, thought stocks would rebound, had skin in the game and got skinned. By 1933, he had rejected equilibrium and developed his theory of debt-deflation. He reckoned that speculation and overconfidence were less important than the risk factor of debt.

I fancy that over-confidence seldom does any great harm except when, as, and if, it beguiles its victims into debt.

It took three years for the market to find a bottom. With Hoover doing his bit along the way: wage controls, assisted by the Smoot-Hawley tariff, public works like the Hoover Dam, increased corporate taxes, the increase in the top tax bracket from 25% to 63% and more.

Coolidge on political action:

When depression in business comes, we begin to be very conservative in our financial affairs. We save our money and take no changes in its investment. Yet in our political actions we go in the opposite direction …

When times are good we might take a chance on a radical government. But when we are financially weakened we need the soundest and wisest of men and measures.

Silent Cal also said that Hoover had given him nothing but advice (as Secretary of Commerce) and all of it bad. Coolidge also labelled him “Wonder Boy” back then.

Hoover’s good intention of maintaining wages ran down a rocky road: some businesses followed the ‘patriotic’ duty foisted on them by cutting staff; others simply went out of business. Oh well. To compensate, the administration by April 1930 pumped public works spending to the highest point in five years.

And then there were the farmers. Having been lured into acquiring more land through easy money, and consequent overproduction, supply outran demand. Prices were falling. Deflation! Shock, horror, but Hoover’s tariff was part of the fix. Irving Fisher and 1027 other economists signed a letter to Hoover begging him to veto the bill, because of the unintended consequences.

The irony is, getting rid of tariffs (they were regressive!) was the justification for the income tax. Also, over the preceding fifteen years, U.S. exports surpassed foreign imports – what domestic price improvement would be made would be offset by reduced or curtailed export income. And, not to mention, higher food prices tended to disadvantage the poor sap buying groceries.

And by early 1930, unemployment was up to nine percent anyway.

That was the year Paul Warburg published his The Federal Reserve System: Its Origin and Growth. (1930) From Vol. 1:

While technically and legally the Federal Reserve note is an obligation of the United States Government, in reality it is an obligation, the sole actual responsibility for which rests on the reserve banks … The government could only be called upon to take them up after the reserve banks had failed.

Hoover tried an each-way bet for his tariff: he would not veto it, contingent on his independent commission overseeing and setting prices domestically after review of local and foreign statistics. But the executive could veto the conclusions of the committee …

Inevitably, retaliation happened. First, the Swiss, upset about their watch exports, boycotted all U.S. Imports. Add Italy, France, India, Canada and dozens of others.

To make matters worse, the U.S. was owed debts from foreigners from the war years and after. Without cross-trade under the gold exchange standard such repayments easily fell into arrears. Shooting yourself in both feet is not a sound foundation to stand on.

Hoover had been dubbed “the Great Engineer” for the world-class firm he founded in 1908 and his reputation expanded for his humanitarian efforts in organizing food shipment to central Europe during WW1 and even into Russia in 1921. By the 1932 election, voters remembered he had supported Prohibition and its unintended consequences and the near-death spiral of unemployment up above 24.1% and rising, more raised income taxes across the board, the Bonus Army and other Hoovervilles.

The New Deal Era

Franklin Delano Roosevelt won 42 of the 48 states in the 1932 election.

Russians Hopeful of ‘a New Deal’

New York Times dispatch from abroad. November 10, 1932

FDR’s first national radio speech in April, 1932 on the campaign trail focused on the underdog: “the Forgotten Man”. No, hardly the one written by William Graham Sumner. The new, improved version was of the “forgotten, the unorganized but indispensable unit of economic power.”

The inauguration on March 4, 1933 was the last such transition date. The Twentieth Amendment changed inauguration date to January 4 – it was ratified on January 23, 1933 but took effect on October 15, 1933.

In his 20-minute speech, Roosevelt asserted

that the only thing we have to fear… is fear itself

along with the greed … of bankers and businessmen, unscrupulous money changers, the falsity of material wealth, to put people to work, and requesting broad Executive powers.

The following day, he asked Congress for a bank holiday and initiated one by personal edict. On March 9, the retroactive Emergency Banking Act was signed; it included the process for reopening the banks and a few other obscure matters. Ten thousand banks had failed from 1929 to 1932; the current bank panic and runs on the banks by scared depositors was the justification for the bank holiday of four days, breathing space for legislation to cope.

By the end of the month, three-fourths of the closed banks were returned to business as usual.

More or less … Fractured reserve banking had received unlimited amounts of Federal Reserve currency to restore their solvency.

On March 12, 1933 FDR inaugurated his fireside chats. He asked the public to banish fear. A day later, citizens stood in line having raided their mattresses and restored half of their currency that had been ‘hoarded’ during the crisis.

Executive Order 6102

Technically, this was signed on April 5, 1933. In reality it was already a fait accompli due to the Emergency Banking Act. This had incorporated provisions from the never repealed 1917 Trading with the Enemy Act and a subsection dealing with the Federal Reserve Act and the Secretary of the Treasury. There had also been a stopgap Executive Order 6073 on March 10.

Curse those dirty hoarders was the excuse. So 6102 demanded confiscation of gold coin, gold certificates, and bullion, on pain of fine and/or imprisonment.

Oh, there were exemptions, private citizens could keep about 5 troy ounces of gold. At this time, the official price of gold was $20.67 but millions of Americans riding the rails in search of jobs and food probably did not get to exercise that option.

Those working with gold, jewelers, artisans, and so on, could maintain some working stock. And coins of numismatic value were exempt, not likely having any relevance on Main Street, though.

All else was to be returned to the Federal Reserve or their agents.

Act in haste, repent by modification: 6102 was altered by 6111, 6260 and 6261 later in the year. Even so, there was an ‘oops’: New York attorney Frederic Barber Campbell had in 1932 deposited a total of 5000 troy ounces of gold bullion at Chase National and demanded its return in September 1933. The bank cited the various executive orders and Campbell sued.

Then a federal prosecutor indicted Campbell for failing to report and failure to surrender said gold. That prosecution failed due to the error that the Secretary of the Treasury was to have signed the order instead of the president. Like they say, though, the house always wins. The right of the government to confiscate was affirmed anyway. Bye bye, bullion.

The Gold Reserve Act of 1934 sorted out all the inconsistencies and further added that gold clauses in private contracts were unenforceable. Previously, such clauses had been used to demand payment in weight of gold, on the basis one would be protected from government debasement of the money.

But that Act was yet to come and would legitimize the answer to the 1933 problem the administration faced.

Significant other activity that year was the Banking Act of 1933, aka the Glass-Steagall Act. This created the Federal Deposit Insurance Corporation – and the Federal Open Market Committee. Second was the acceptance of the 21st Amendment to the Constitution on December 5, 1933. This added some tax revenue to the government coffers.

 

Those old Liberty Bonds …

The chickens were coming home to roost. Aside from the interventions to help the British, the U.S. Entry into World War One was partly paid for by about 70% inflation. The public bought the Liberty Bonds – with a little push – which were gold denominated. Series one, two, and three had rolled over into a fourth in 1918 at ever more favorable rates.

For many years, the Treasury had ‘bled’ gold to pay the interest on these bonds and other debts. By 1933, the outstanding debt in gold was $22 billion and the Treasury had only $4.2 billion in the kitty.

Default was FDR’s answer but it wasn’t called that. No, the justification was shored up by blaming hoarders, the failing banks and a downturn of the economy that no one could have anticipated. The role of the Federal Reserve System in pumping the money supply for World War One and its severe contraction that led to the 1920-1 depression never entered the public discourse. James Warburg, son of Paul (one of the Jekyll Island gang) served as one of FDR’s advisors. So, too, did Irving Fisher, who’d believed his own stock market theories enough to invest the family fortune in 1929 and lost.

The bank holiday and gold confiscation went hand in hand to solve the problem that the U.S. Government simply could not pay its debts in gold.

Of course, the mantra always sounded that the most important issue was to save the banks. Another belief, supported by ‘repealing the law of supply and demand’ was artificially maintaining high prices. To assist in this and ‘help’ the farmers, 10 million acres of cotton would be plowed under; 5 million hogs and 2 million cattle would be destroyed. Of course, Hoover had helped the farmers first with the artificial raising of prices and the tariff, and loans to farmers, FDR built on this foundation with the Agricultural Adjustment Administration, and other acronym soup varieties.

Various critics complained that gold confiscation was effectively taking the country off the gold standard. FDR said it was only temporary and his Treasury Secretary William Woodin said the charge was “ridiculous and misleading.” The next step of cancelling the gold clause of private contracts did not reassure the critics.

Uncertainty ruled the day, not least amongst foreigners. FDR’s bizarre official setting of the gold price did not help.

If anybody ever knew how we really set the gold price through a combination of lucky numbers, etc., I think they would be frightened.”

Secretary of the Treasury Henry Mortenthau

While all this was happening, the ghost of Bryan raised its Populist head. Factions, particularly in the western states, were calling for a return to a bimetallic standard. FDR’s “pump and dump” began in 1933, followed by the Silver Purchase Act of 1934. The Treasury regularly bought silver at above market rates, tripling the value to one-third of its gold reserves. The metal itself had tripled in value in just two years.

“Whenever in the judgment of the President such action is necessary to effectuate the policy of this act, he may by Executive order require the delivery to the United States mints of any or all silver by whomever owned or possessed. The silver so delivered shall be coined into standard silver dollars or otherwise added to the monetary stocks of the United States as the President many determine; and there shall be returned therefor in standard silver dollars, or any other coin or currency of the United States, the monetary value of the silver so delivered less such deductions for seigniorage, brassage, coinage, and other mint charges as the Secretary of the Treasury with the approval of the President shall have determined: Provided, That in no case shall the value of the amount returned therefor be less than the fair value at the time of such order of the silver required to be delivered as such value is determined by the market price over a reasonable period terminating at the time of such order.”

excerpt from Proclamation 2092 (emphasis mine)

Unintended (?) consequences: China, traditionally on a silver-backed currency, and faced with an artificial market price for silver, did all the wrong things. Ultimately, the private banks were nationalized by the Nationalist government, unredeemable paper money to solve the problem was issued.

Fiat on. The Nationalist government debased their currency, fell eventually and the communists took charge of the country. Mexico was whacked by that 1934 Act also.

January 31, 1934 – the ‘gold letter day’ when the official price was set at $35, rather a significant devaluation of the dollar from the former $20.67 and the Treasury held its “my preciousss”. Only a few lucky individuals in the U.S. owned any gold for decades.

Earlier in January, FDR asked Congress for $10.5 billion for recovery programs. On the 31st, he signed the Farm Mortgage Refinancing Act. Several more farm relief measures were undertaken.

On June 6, FDR signed the Security Exchange Act establishing the SEC. First chairman, Joseph Kennedy.

That Silver Purchase Act which was signed on June 19 also established the National Labor Relations Board. And June 28 was very busy:

  • the start of the Federal Housing Administration
  • Taylor Grazing Act reserves 8 million acres
  • Tobacco Control Act imposes quotas
  • Federal Farm Bankruptcy Act imposes moratorium on foreclosures

 

The Second New Deal, 1935-1938

A significant style of administration change is notable in this period, as presented in FDR’s annual message to congress.

1935 gave America the Works Progress Administration, National Labor Relations Act, the Social Security Act, Resettlement Act, Rural Electrification Administration, the Wagner Act, Federal Credit Union Act, Revenue Act and more, including a Neutrality Act. The Banking Act of 1935 officialized the FDIC as a permanent agency. Keynesianism in its glory.

The next three years saw the Soil Conservation Act, United States Housing Authority, and 1936 was noteworthy for the Treasury order to build the gold repository at Fort Knox. Just as well …

So many changes, so many improvements. So much uncertainty.

Who really cared that the stock market was slowly climbing out of the abyss. Not everyone agreed with FDR’s policies, the Supreme Court overturned some of them. Meanwhile, Main Street was not singing happy days are here. Unemployment in October, 1933 was 22.9 percent, November, 23.2% and still sinking; January, 1934 at 21.2%, November, 23.2%. July, 1935, 21.3%.

By December, 1936 the rate was improved, 15.3%; a month later, 15.0%.and at 13.5 in August, 1937.

But. FDR’s tax fiddling had unintended consequences: the undistributed profits tax on companies ate into reserves and employers who had retained workers could not now afford to do so. Credit lay fallow as businesses hesitated to invest. Stock prices began falling, illuminating the inconvenient truth that companies had been losing money for years. And in the heartland, 15,000 farm families left the drought and headed west.

Also, the administration attempt to balance the budget was an unexpected U-turn. No wonder people were confused and uncertain. At any rate, the market was like Black Tuesday redux. The embezzlement by Richard Whitney, head of the NYSE, didn’t help nor even his conviction and imprisonment.

By January, 1938, unemployment was up to 17.4% in this ‘recession within a depression’. Naturally there was a decline in the stock market. Despite all the cartelization of industries under the New Deal, greedy businessmen were demonized. Yet even Keynes told FDR that the recession was more than a monetary problem:

“It is a mistake to think businessmen are more immoral than politicians.”

If there was uncertainty in business and among the general public, it was only a reflection of the dithering shifts of administration policy. Wendell Willkie made speeches on the ‘the terrifying effect of its random targeting of businesses had on the general economy.’

One sign of the times was the election of 1938. The Republican brand had lost members in both houses in 1930, with further declines in 1932, 1934, and 1936. But this time, they gained eight in the House, eight in the Senate, and eleven governors. The times they were a’changing. Meanwhile, news from Europe looked more and more grim.

In the election of 1940, Wendell Willkie had won his party’s nomination with some difficulty but offered a classical liberal platform:

I say that we must substitute for the philosophy of distributed scarcity the philosophy of unlimited productivity. I stand for the restoration of full production and reemployment by private enterprise in America.”

Roosevelt, though, had some advantages. Massive spending on jobs across the country and 42 millions enrolled in Social Security certainly helped. FDR had also diminished the rhetoric against business. Still, he lost some Democrats over the choice of running for a third term (what would George Washington have said?)

Willkie tried the ploy of claiming FDR would secretly plunge American into a world war and though it may have cost some support, FDR’s pledge ‘he would not send ‘American boys into a foreign war saw a resounding win of 27 million against Willkie’s 22 million. Electoral College: 449-82.

The Selective Training and Service Act of 1940, enacted September 16, was the first peacetime conscription in American history. The initial term was for twelve months.

In early 1941, FDR asked for an extension which passed the House by a single vote.

The unemployment rate perforce went down considerably. After the Day of Infamy, a new, improved selective service act extended the term of duty to two years after the war. Pearl Harbor saw thousand of volunteers a day later and thousands more conscripted. In all, over 10 million were enrolled in the military.

And thus began the myth of ‘wartime prosperity’.

When we return, a look at the real wartime economy and the post-war boom.

BAD WEEK FOR FREEDOM

“We have two American flags always: one for the rich and one for the poor. When the rich fly it means that things are under control; when the poor fly it means danger, revolution, anarchy.”Henry Miller

  




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With each passing week it seems this country spirals further into the depths of a frightening dystopian fantasy reminiscent of Huxley and Orwell’s dark world of isolation, fear and government brutality portrayed in their masterpieces Brave New World and 1984. I keep speculating whether it’s me that’s crazy and not the things I’m witnessing on a daily basis. The President signs the National Defense Authorization Act, passed by an overwhelming majority of Congress, which allows the government to imprison American citizens indefinitely without charge. And there is barely a squeak from the docile masses as they are soothed by Obama promising to never use that part of the law. I bet you $10,000 a President will invoke that portion of the NDAA in the very near future.

Jon Corzine, a card carrying member of the ruling elite .01%, remains free to roam one of his five palatial estates after stealing $1.6 billion from the accounts of farmers, widows, and thousands of other “clients” of MF Global. In his spare time he raises money for Obama’s re-election campaign. The Federal government, Federal courts and Wall Street banking cabal have circled the wagons and declared the money just vaporized, even though it sits in Jamie Dimon’s vaults at J.P. Morgan. No one is being prosecuted for this deliberate thievery. The psychopathic Wall Street criminals have been getting away with murder for so long they act invulnerable to societal mores and scoff at our laws, rules and regulations. Those are for the 99%. When you control the politicians, regulators, courts, and mainstream media, it’s easy to get away with murder. The jackals and hyenas are laughing in their NYC penthouse suites as they continue to collect $20 million bonuses for a job well done.

 

After this past week I’m apoplectic with rage and fury as the rule of law has been discarded and the Constitution trampled upon by a wealthy connected oligarchy bent upon using their absolute power to further enrich themselves. The Wall Street banks that committed the largest financial crime in history, including: fraud in the inducement, forgery, fabricating documents, bribing rating agencies to rate toxic mortgages as AAA, selling fraudulent derivatives to customers, shorting the derivatives they sold to their customers, throwing millions of Americans out of their homes, charging inflated and bogus fees during the foreclosure process, and conducting a colossal cover-up, were slapped on the wrist and made to pay a miniscule $5 billion to the millions of victims of their crimes. Not one banker has been prosecuted. Not one person has gone to jail. Justice in this country is a putrid joke. There has been no outrage from the general public. The propaganda spewed by the corporate media instructs the masses to rejoice at this fair and just verdict. The truth is that 95% of the population didn’t know or didn’t care about the 50 state foreclosure-gate settlement. They were engrossed by the huge controversy over M.I.A. flipping the bird during the Super Bowl halftime show and whether Madonna was upset about the incident.

“Free” Healthcare

While this travesty of justice was playing out, we were treated to a glimpse into the future of healthcare in America administered by politicians and bureaucrats based upon vote count expediency. The government drones at DHHS mandated from on high that every woman in America would receive “free” contraceptives from their employers. Obama had made this decision and instructed his minions to implement his visionary dictate. The outrage and anger from religious groups and employers was instantaneous. Obama saw the 2012 election slipping away and reversed course within a day. He is quite the man of principle. His “solution” was to force insurance companies to provide “free” contraception to any employee of a religious employer that didn’t provide that coverage in their insurance plan. When I hear these sociopathic politicians use the word “free” when describing healthcare or any of their thousands of bankrupt government programs, I have an overpowering impulse to smash something. Insurance companies will not provide “free” contraceptives to women. Insurance premiums will rise for everyone.

Remember Obama’s assertion about his government takeover of healthcare:

“As a consequence of the Affordable Care Act, premiums are going to be lower than they would be otherwise; health care costs overall are going to be lower than they would be otherwise.”

The next government program that reduces costs, provides better service, and is more efficient than the private market will be the first government program to do so. Examples of government ineptitude, corruption and waste include: Social Security, Medicare, Welfare, the Energy Dept., the Education Dept., and the Dept. of War. Jonathan Gruber, MIT economist and chief architect of Obamacare and Romneycare, recently admitted the truth about Obamacare:

“After the application of tax subsidies, 59% of the individual market will experience an average premium increase of 31%. My findings reflect the high cost of folding state high risk pools into the [federal government’s] exchange — without using the money the state was already spending to subsidize those high risk pools.”

Based on what Obamacare has done for the American people before its full implementation in 2014, you’ll be begging for a death panel to put you out of your misery. The following “free” healthcare services were required to be covered by insurance companies in 2010:

  • Cover preventive care without co-pays or deductibles.
  • Allow adult children to stay on parents’ policies until age 26.
  • Increase annual coverage limits.
  • Cover children without regard for preexisting conditions.

Obama’s promise that families would save $2,500 per year in the future might come up a tad short, as insurance premiums skyrocketed by 9% in 2011. Not only have premiums soared, but many companies have increased co-pays from $10 to $25 for doctor visits.

Source: Kaiser Family Foundation

Only a deceitful government busybody do-gooder would actually argue that forcing insurance companies to cover millions more Americans and cover pre-existing conditions would result in lower costs for the average family. I wonder what will happen in 2014 when 30 million more Americans are guaranteed “free” healthcare under Obamacare. The saddest part of this oncoming train wreck is that millions of willfully ignorant people actually believed the blatant lies and false storyline fed to them by sociopathic politicians who desire to control every aspect of their lives. These people believe they know what is best for you. They believe they are smarter than you. They do not care what means are required to achieve their ends of absolute domination over your life. Personal freedom, individual liberty and a critical thinking populace are the antithesis to the desires of the governing elite.

Home Sweet Home

The central planners within government and inhabiting the Federal Reserve are never in doubt that their theories, programs, solutions, mandates and schemes will achieve their desired outcome. The trouble for the American people is the desired result is not designed or planned to actually benefit them. The psychopaths drawn to politics, regulatory agencies, and government bureaucracies have no remorse or qualms about lying, utilizing propaganda, and instilling fear to achieve the ends that endorse their self serving agenda. Every dime of government spending is seized from the people by force or created out of thin air by an all knowing self-proclaimed Great Depression expert named Ben Bernanke. This Ivy League professor who has spent his entire life in academia and government thinks he knows which levers to pull to revive an economy that he destroyed. His wisdom is borne out in his prescient assessment of the U.S. housing market as it was imploding:

“We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.” – July 2005

“House prices have risen by nearly 25 percent over the past two years. Although speculative activity has increased in some areas, at a national level these price increases largely reflect strong economic fundamentals.” – October 2005

“Housing markets are cooling a bit. Our expectation is that the decline in activity or the slowing in activity will be moderate, that house prices will probably continue to rise.” – February 2006

“All that said, given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited, and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.  The vast majority of mortgages, including even subprime mortgages, continue to perform well.  Past gains in house prices have left most homeowners with significant amounts of home equity, and growth in jobs and incomes should help keep the financial obligations of most households manageable.” – May 2007

It should be clear to everyone that Ben is a goddamn genius. You can see why the mainstream corporate media hangs on his every utterance. He has accepted no responsibility for his part in producing an epic housing collapse and the subsequent recession that continues to this day. His lack of conscience comes in handy as he has destroyed the finances of millions of senior citizens dependent upon interest income to make ends meet. Having no guiding principles or ethics allows him to declare with a straight face that inflation is well contained as gas prices approach $4.00 per gallon, food prices surge 10%, and his inflationary policies contribute to revolutions around the globe.

Last week this sage spoke to the Home Builders Association and left no doubt that he has no interest in what is best for the American people. His economic remedies are the exact opposite of what is needed to cure the disease of a debt ravaged society. Dr. Bernake’s prescription is more debt fueled spending by consumers to refill the coffers on Wall Street. This is not surprising considering he is nothing but a puppet of Dimon, Pandit, Blankfein and the rest of the Wall Street cabal. His speech revealed his allegiances:

“One of the effects of declines in housing wealth is to reduce the ability and willingness of households to spend. It appears that recent declines in housing wealth may be reducing consumer spending between $200 billion and $375 billion per year. That reduction corresponds to lower living standards for many Americans. And, importantly, lower sales of goods and services also reduce the incentives of firms to invest and hire, thereby slowing the recovery. Low or negative equity creates additional problems for households. It reduces financial flexibility: Homeowners who are underwater on their mortgages cannot tap home equity to pay for emergency health expenses or their children’s college educations.”

Whenever I read Bernanke’s words, I’m reminded of George Orwell’s quote about intelligent people:

“There are some ideas so wrong that only a very intelligent person could believe in them.”

This is a man who believes he knows better than the market. He’s an economics professor that doesn’t believe in the law of supply and demand as taught in Econ 101. He thinks he can control home prices. He thinks he knows the ideal interest rate. He thinks he knows just how much money printing will revive the economy. He believes a healthy economy is driven by artificially propping up home prices, encouraging people to spend money they don’t have, recommending that homeowners borrow against their homes ($3 trillion borrowed and pissed away from 2003 through 2008), and forcing banks to make loans to subprime borrowers – again. His solution to the millions of bank owned homes is to use the taxpayer owned Fannie and Freddie to initiate bulk discount sales of these homes to his friends in the .01% so they can turn around and rent them to their former owners. I wish someone could explain to me how this helps the 99%. It is another backdoor bailout of Wall Street on the straining backs of the American taxpayer.

Obama’s housing solutions in 2009-2010 included multiple home buyer tax credits, loan modification programs, and a myriad of other Keynesian claptrap spending schemes. Bernanke supported all of those measures. They spent $30 billion of your tax dollars in an effort to artificially prop up home prices. Home prices have fallen 10% since they threw your money down the rat hole where all government programs reside, and they continue to fall. These central government planners don’t like to publicize the fact they continue to operate Fannie Mae, Freddie Mac, and the FHA as a way to shift losses from Wall Street to Main Street. Fannie and Freddie have lost $160 billion of your tax dollars since 2008, but amazingly the losses don’t show up in the Federal budget because reality has no place in politics or governmental accounting. The FHA just announced they will require a taxpayer bailout for the first time in their 78 year existence, as they lose $5 billion of your money per year on behalf of the Wall Street banking cartel. The toxic mortgages that don’t reside on the books of Fannie, Freddie and the FHA are sitting on Ben’s balance sheet. They reside, hidden from public view, in the “Other Assets” section of the chart below. His tripling of the Federal Reserve balance sheet was done for one reason only – to save the Wall Street bankers, their shareholders, and their bondholders. His actions have in no way benefitted the American people or the American economy.

It is mind boggling the degree to which central planners like Bernanke, Geithner, Obama and Congress will inflict their vision of how the economy and world in general should operate upon the trusting masses. The American people want to believe their leaders are doing what is best for them. They like dwelling in a land of delusion, security and luxury, where government guarantees to protect them from: terrorists; Iranian invasion; saving for retirement; looking out for their own health; educating themselves; and accepting the consequences of living above their means. Their ability to distinguish between truth and propaganda has been thoroughly degraded by years of government proscribed education. We have chosen to become a knowingly ignorant nation of true believers. There is no time for critical thinking while we anticipate our next tweet about the death of drug addicted pop singer. We have been taught to love our servitude.

“…most men and women will grow up to love their servitude and will never dream of revolution.”Aldous Huxley – Brave New World

The fallacy of government protecting you, taking care of you and providing you “free” benefits is so ingrained in the American psyche that it is virtually impossible to voluntarily reverse the trend. The truth that Americans refuse to acknowledge is that nothing is free in this life. We are not entitled to own a home, a free education, free healthcare, or a comfy privileged existence. Everything government provides is taken by force from someone else. Everything government does has a cost. Americans have traded freedom and liberty for the appearance of safety and security.The cost is constant war, getting groped by TSA perverts, surveillance by government agencies, threat of imprisonment without charges and a $1 trillion price tag per year. The cost of “free” healthcare is mind numbingly ludicrous rules and regulations for doctors and patients, massive fraud, outrageously expensive procedures and medications, and a $100 trillion unfunded liability left for future generations. The ultimate cost of an overbearing, all controlling government will be economic collapse and revolution.

Who Decides?

“Those who vote decide nothing. Those who count the vote decide everything.” – Joseph Stalin

The concluding act during this bad week for freedom occurred on Saturday in the great state of Maine. When it became clear that Ron Paul was going to win the Maine caucuses, the GOP establishment, that has already anointed Mitt Romney the Republican nominee, decided the people of Maine would be told who won. Using the excuse of an impending snowstorm (less than 1 inch), the powers that be cancelled the caucuses in Washington County where a large contingent of youthful Ron Paul supporters dominated. The Girl Scouts didn’t cancel their event in the same county that day. The men who cancelled the caucus are strong Romney supporters. This was a blatant Stalinist act of voter disenfranchisement. The GOP leaders declared those votes would not count in the totals. Despite this despicable act of rigging an election, Ron Paul doubled his vote percentage from 2008. His message of freedom, liberty, non-interventionism, sound money and self-reliance is reverberating across the land among young people who have not been programmed by the governing elite and the corporate mass media. The establishment will do everything in their power, including vote fraud, to prevent Ron Paul’s anti-establishment message from being heard.

A small delegation of authoritative, rich men continues to pull the strings in this country. The examples I’ve sited in the last week prove we are moving ever more rapidly towards what Friedrich Hayek described as a‘dictatorship of the proletariat’. The actions of the governing class point to no other conclusion as described by Simon Black:

  • Hundreds of thousands of mortgage contracts abrogated by the Federal government;
  • Suspension of gun rights by several local governments;
  • The continued criminalization of protest and free assembly;
  • Increased surveillance and police state tactics;
  • Authorization of military force and detention against the citizens;
  • Seizing and/or voiding pension systems into which workers have paid lifelong contributions;
  • Rejection of long-standing senior debt positions in favor of labor unions;
  • Executive and police agencies ruling by regulation and policy, not by legislative process;

When you pose the possibility of a dictatorship in America, the defender of freedom and democracy, old timers scoff and laugh off the possibility. We are the bright shining light on the mountaintop – that preemptively invades other countries; murders suspected foes with predator drones; imprisons and tortures foreigners in secret prisons; and plans to have 30,000 spy drones patrolling the skies over U.S. cities within the next few years. The government now has the authority to imprison U.S. citizens without cause for as long as they see fit. The government plans to lock down and control the internet. How could we possibly descend toward dictatorial rule? The conditions are perfect for sociopaths dwelling in government bureaucracies to make their move, as elucidated by Doug Casey:

“You may be thinking that what happened in places like Nazi Germany, the Soviet Union, Mao’s China, Pol Pot’s Cambodia and scores of other countries in recent history could not, for some reason, happen in the US. Actually, there’s no reason it won’t at this point. All the institutions that made America exceptional – including a belief in capitalism, individualism, self-reliance and the restraints of the Constitution – are now only historical artifacts.On the other hand, the distribution of sociopaths is completely uniform across both space and time. Per capita, there were no more evil people in Stalin’s Russia, Hitler’s Germany, Mao’s China, Amin’s Uganda, Ceausescu’s Romania or Pol Pot’s Cambodia than there are today in the US. All you need is favorable conditions for them to bloom, much as mushrooms do after a rainstorm.”- Casey Report

Call me a raging optimist, but I see positive signs that an irate tireless minority of Americans are coming to their senses and preparing for a showdown with the ruling oligarchy. The tremendous support for Ron Paul’s message among those under the age of 30 is inspiring. His devoted followers have incredible enthusiasm and will be a force to be reckoned with. The upcoming election will be won or lost based upon whether Ron Paul decides to run as a 3rd Party candidate, spreading his inspirational message. The Occupy Movement is also being driven by people under the age of 30. Their courage and audacity in standing up to brutal establishment military tactics and focusing the attention of the world on the greed, avarice and corruption rampant throughout our economic and political system has given me hope that the good guys can win. Every day the Millenial generation gains strength as the power of the older generations slowly wanes.

The internet has proven to be the best weapon in the fight against the governing elite. It offers people the freedom to ignore government sponsored propaganda being blasted by the corporate media. Critical thinkers can connect with other critical thinkers, while seeking the truth and spreading ideas. You can examine websites like Zero Hedge, Jesse’s Café Americain, Of Two Minds, and Mish to comprehend what is really happening in your world. The tumult and outrage exhibited by millions when the despotic Congressional jackals attempted to pass SOPA and PIPA was inspirational. The people’s voice was heard loud and clear. The politicians ruling over our lives have no guiding principles or moral code. They peddle their votes to the highest bidder. They conduct polls to determine what their constituents want to hear and then shockingly tailor a message that voters find to be exactly what they think. These sociopaths only respond to one thing – being exposed as liars and thieves. When they are confronted by an irate citizenry they scatter like roaches in a West Philly row house kitchen when you turn the light on. Yes votes on SOPA turned to No votes quicker than the Federal government can spend a billion of your tax dollars (10 hours). Obama showed how principled his positions are by backtracking on his “free” contraception mandate in less than 24 hours. If we speak loud enough they will listen, or else.

The “or else” is reflected in the chart below showing gun purchases over the last ten years. Millions of good law abiding Americans are armed. The accelerating trend is a hopeful sign that we will not allow a small contingent of corrupt politicians backed by shadowy rich men (22 men have contributed 67% of all the Super Pac money in the GOP primaries), hiding from public view, to treat this country as their personal playground.

It was a bad week for freedom loving people, but I believe there are enough patriots left in this country to change our course. We are being buried under a blizzard of lies on a daily basis. We have a choice. We can support the existing corrupt crony capitalist establishment (Obama & Romney) or we can declare war on lies, deceit and misinformation by rallying behind the only person who would truly attempt to reverse decades of corruption, sleaze, incompetence, bloat, debt accumulation, and a warped version of free market capitalism – Ron Paul. He is the only public figure willing to level with the American people and tell them the truth. Will we let the concept of truth fade out of the world? The choice is ours.

“In our age there is no such thing as ‘keeping out of politics.’ All issues are political issues, and politics itself is a mass of lies, evasions, folly, hatred and schizophrenia. The very concept of objective truth is fading out of the world. Lies will pass into history.” –   George Orwell

  

“Truth is treason in an empire of lies.”Ron Paul

THE BENNIE WHO STOLE CHRISTMAS (Featured Article)

Ben Bernanke is a highly educated PhD from Princeton who has never worked a day in the real world since he graduated from college in 1975. His entire life has been spent in the ivory tower of academia surrounded by models and theories that work perfectly in the comfort of his office. After building his reputation as an “expert” on the Great Depression by studying it and reaching the wrong conclusions, he came down from his ivory tower in 2002 to join an organization that has systematically destroyed the value of the US currency, thereby undermining the well being of the once vibrant middle class.

He became a member of the Federal Reserve and has served his masters (Wall Street Banks, Mega-corporations, Washington politicians) unswervingly since. When he makes his now regular appearances on 60 Minutes, he tries to give the appearance of being someone concerned about the average American. The facts in the real world completely obliterate the lies he nervously mouths while answering softball questions underhanded to him by corporate media mouthpieces. His quivering lip and nervous ticks reveal his true nature. How could Bernanke blatantly take measures that destroy the lives of millions of Americans?  Maybe Dr. Seuss had the answer: 

 

It could be his head wasn’t screwed on just right.
It could be, perhaps, that his shoes were too tight.
But I think that the most likely reason of all,
May have been that his heart was two sizes too small.
Whatever the reason, His heart or his shoes,
He stood there on Christmas Eve, hating the Whos,
Staring down from his cave with a sour, Grinchy frown –
Dr Seuss

If the Grinch had been pimping for a small pack of Grinchsters who impoverished the honest people of Whoville, then the Dr. Seuss poem would have perfectly described Ben Bernanke, the Federal Reserve and the banksters that run the show here in the USA. The actions taken by Ben Bernanke, Alan Greenspan and their brethren on the Federal Reserve over the last quarter century have destroyed the middle class and left senior citizens impoverished, while enriching its Wall Street masters. Now he is stealing Christmas from the hard working middle class of this country.

Bernanke’s latest theoretical venture into manipulating the puppet strings of the economy began with his speech at Jackson Hole in August and concluded with his Op-Ed on November 4. His master plan to buy an additional $600 billion of Long-term Treasuries is being implemented on a daily basis. This QE2 follows his previous QE1, which consisted of buying $1.4 trillion of toxic mortgage securities from his masters, the insolvent Wall Street banks. What follows are Ben Bernanke’s own words:   

“I believe that additional purchases of longer-term securities, should the FOMC choose to undertake them, would be effective in further easing financial conditions.”Ben Bernanke – August 27, 2010 –  Jackson Hole

“Given the Committee’s objectives, there would appear–all else being equal–to be a case for further action. For example, a means of providing additional monetary stimulus, if warranted, would be to expand the Federal Reserve’s holdings of longer-term securities. Empirical evidence suggests that our previous program of securities purchases was successful in bringing down longer-term interest rates and thereby supporting the economic recovery.”Ben Bernake – October 15, 2010 – Boston Speech

“To promote a stronger pace of economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.”Ben Bernanke Fed Announcement – November 3, 2010

“This approach eased financial conditions in the past and, so far, looks to be effective again. Stock prices rose and long-term interest rates fell when investors began to anticipate the most recent action. Easier financial conditions will promote economic growth. For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending. Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.”Ben Bernanke – November 4, 2010 – Washington Post Op-Ed

Ben and his friends on the Federal Reserve have a PR machine to help sell their lies. Let’s assess whether Ben and his Federal Reserve have helped or hurt the average American.

Throwing Senior Citizens Under the Bus

Then he slunk to the ice box. He took the Whos’ feast, he took the who pudding, he took the roast beast. He cleaned out that ice box as quick as a flash. Why, the Grinch even took their last can of Who hash. – Dr Seuss

 

There are approximately 40 million senior citizens living in 25 million households in the US. According to the Census Bureau, more than 12 million of these households survive on less than $30,000 of income per year. The median household income in the US is $49,777. A full 70% of all over 65 households make less than the median income.  A recent study found that 58% of those between 60 and 84 will at some point fail to have enough liquid assets to allow them to get through unanticipated expenses or declining income.

The vast majority of their income is from Social Security payments. Most senior citizens are rightly risk adverse and dependent upon income from certificates of deposit. During the 1990’s and as recently as 2007, a senior citizen could get a 5% return on a CD. Many of these people depended on this interest income to pay their everyday expenses. Below is a chart that plots the average interest rate for 6 month CDs since 1964. Today the average rate on a 6 month CD is .30%.

Ben Bernanke is to thank for this poverty enhancing rate. He reduced the discount rate to 0% while paying interest on deposits at the Fed. The affect of this policy has been to transfer hundreds of billions to the Wall Street criminal banks from the pockets of senior citizens and other Americans dependent upon interest income to sustain their meager lives. A brainless CNBC anchor can look at this chart and realize that the Federal Reserve caused the housing crisis by driving down rates from 2002 through 2005. Ben Bernanke, who never saw the housing collapse coming and personally had an exploding adjustable rate mortgage, has learned nothing from the prior disaster. He has driven rates down to 0% in order to force people into speculative investments. The Federal Reserve is a perennial bubble blower. This will likely be the final bubble of Bennie’s career.

 Graph: 6-Month Certificate of Deposit: Secondary Market Rate

These recent actions by the Federal Reserve are just the tip of the iceberg. Alan Greenspan, the Federal Reserve and the US Government have systematically screwed senior citizens for decades by purposely understating CPI. The result has been that the cost of living adjustments to Social Security has seriously lagged real inflation. For the 2nd consecutive year senior citizens will get no cost of living increase on their Social Security. The average monthly Social Security payment is $1,074. While seniors struggle to make ends meet, Wall Street banks are handed billions in free money by Ben Bernanke. The chart below details the COLA increases since 1975. Alan Greenspan and his commission began manipulating the CPI in the early 1980s. 

Social Security Cost-Of-Living Adjustments
Year COLA
1975 8.0
1976 6.4
1977 5.9
1978 6.5
1979 9.9
1980 14.3
1981 11.2
1982 7.4
1983 3.5
1984 3.5
1985 3.1
1986 1.3
1987 4.2
1988 4.0
1989 4.7
Year COLA
1990 5.4
1991 3.7
1992 3.0
1993 2.6
1994 2.8
1995 2.6
1996 2.9
1997 2.1
1998 1.3
1999 2.5
2000 3.5
2001 2.6
2002 1.4
2003 2.1
2004 2.7
Year COLA
2005 4.1
2006 3.3
2007 2.3
2008 5.8
2009 0.0
2010 0.0
a The COLA for December 1999 was originally determined as 2.4 percent based on CPIs published by the Bureau of Labor Statistics. Pursuant to Public Law 106-554, however, this COLA is effectively now 2.5 percent.

 

Since 2000, seniors have seen their monthly payment increase by 27%, or less than 2.5% per year. I challenge anyone to convince me that inflation has been 0% for the last two years. I have calculated my real inflation and it is four times the government reported figure. I suppose government bureaucrats and Federal Reserve Chairmen don’t fill up their gas tanks or go food shopping. John Williams at www.Shadowstats.com calculates the CPI as it was calculated prior to the Greenspan fraud. Based on this true assessment of inflation, prices have increased by 100% since 2000, or 8% per year.

Only an Ivy League academic could examine the following yearly price data and conclude, as Bernanke has, that inflation is well contained:

  • Unleaded gas up 24%
  • Heating Oil up 28%
  • Corn up 50%
  • Wheat up 48%
  • Coffee up 56%
  • Sugar up 27%
  • Soybeans up 30%
  • Beef up 26%
  • Pork up 22%
  • Cotton up 101%
  • Copper up 33%
  • Silver up 72%

I wonder what a can of Who Hash will cost in 2011?

The truth is that senior citizens spend a much higher percentage of their limited income on the basics of housing, transportation, food, and insurance. So, these increases have a much greater impact on seniors than rich bankers and Princeton scholars. The figures for key items over the last decade prove the point that seniors have fallen further due to the inflationary policies of the Federal Reserve.

Category Expense Cost in 2000 Cost in 2010 % Increase, 2000 – 2010
Housing Homeowner’s insurance (annual) $508.00 $1,059.00 108%
  Real estate tax (annual) $690.00 $1,223.88 77%
  Heating oil (gallon) $1.15 $2.88 150%
  Natural gas (per thousand cubic foot) $6.37 $10.39 63%
  Electricity (per kw hr) $0.08 $0.12 50%
Transportation Regular gas (gallon) $1.26 $2.75 118%
Medical Medicare Part B premiums (monthly) $45.50 $110.50 143%
Food 10 lbs. potatoes $2.98 $4.98 67%
  Eggs (dozen) $0.93 $1.79 93%
  Ground chuck (lb.) $1.90 $2.83 49%
  Bread, white loaf $0.91 $1.36 50%

 

Helping Housing?

And the one speck of food That he left in the house,
Was a crumb that was even too small for a mouse.
Then He did the same thing To the other Whos’ houses
Leaving crumbs Much too small For the other Whos’ mouses! –
Dr. Seuss

Not only was Ben Bernanke complicit in aiding Greenspan in creating the housing bubble by keeping interest rates too low for too long, completely missing a two standard deviation (PhDs love this stuff) price bubble right in front of his eyes, telling Americans that we had a strong housing market, telling Americans that housing price declines would not affect the economy, not regulating or policing the rampant mortgage fraud that was happening under his nose, and aiding and abetting the very criminal banks that created the bubble, but now he has blatantly lied by saying his QE2 $600 billion monetization of our debt is to support the housing market. If you believe this, I have some prime real estate with great views in the mountains of Afghanistan to sell you. 

In his October 15 speech, Bernanke assured the world that QE2 would reduce long term interest rates. On November 4, he stated:

“Lower mortgage rates will make housing more affordable and allow more homeowners to refinance.” 

On October 7, one week before Bernanke gave the green light to QE2, the 10 Year US Treasury rate was 2.38%. Today it stands at 3.3%, almost 100 basis points higher. I’m guessing this guy isn’t very good picking his weekly football pool. Interest rates have done the exact opposite of what he proclaimed they would do. These rates have surged in the face of an already weakening economy, as unemployment continues to rise and home prices continue to fall. A 100 basis point rise in Treasury bonds piles approximately $120 billion more interest expense per year onto the backs of future generations.

 Chart forCBOE Interest Rate 10-Year T-No (^TNX)

The rate on 30 year fixed mortgages has surged to 5.07% from 4.4% in mid-October. That should do wonders for refinancing and home purchases. Bernanke’s actions have priced millions of people out of the market. He has inflicted more damage on an already teetering housing market and has insured that home prices will plunge by another 20% in the next year.

Mortgage rates for Dec. 15, 2010

Despite the trillions of dollars thrown at the housing market by Bernanke and Obama through home buyer tax credits, mortgage modification programs, purchasing toxic mortgages from the criminal banks at 100 cents on the dollar, artificially reducing mortgage rates, and forcing those government run disasters Fannie Mae, Freddie Mac and the FHA to backstop more bad loans, home prices are resuming their downward trajectory to fair value. That value is at least 20% lower. With 22.5% of all properties (10.8 million properties) with a mortgage having negative equity, the housing market was already in dire straits. With the surge in mortgage rates caused by Ben Bernanke’s actions, a rapid plunge in prices can be expected in 2011, resulting in more foreclosures and negative equity swamping millions.  

The truth is that Ben Bernanke could care less about the average American homeowner making $48,000 per year. The real purpose of QE2 was to further enrich his masters on Wall Street and the ruling elite who control the wealth in this country.

Wall Street Wealth Bailout

 

 

“When the Fed uses QEII to subsidize the largest players on Wall Street, it is disadvantaging the smaller, better run banks, and it is also playing with politics. Priyank Gandhi and Hanno Lustig, in a National Bureau of Economic Research working paper issued in November (No. 16553), suggest that the implicit collective guarantee extended to large U.S. financial institutions reflects an annual subsidy to the largest commercial banks of $4.71 billion per bank, measured in 2005 dollars. But, even more important, the paper notes that subsidies for the “too big to fail” banks shows the Fed’s willingness to support the equity markets, an extraordinary and ultimately political act that requires further hearings by the Congress.”Chris Whalen

Chris Whalen and a few other brilliant analysts realize the true purpose of Ben Bernanke’s actions. Bernanke even revealed his true intentions in his November 4 Op-Ed:

“Higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.”

On August 26, the day before Bernanke’s Jackson Hole speech, the S&P 500 was at 1,047. Today, it stands at 1,247, a 19% increase in the face of  weakening economic conditions for the middle class worker. The more speculative NASDAQ stood at 2,119 on August 26, and today sits at 2,649, a phenomenal 25% increase as more middle class Americans have lost their jobs. Over this same time frame, according to the BLS, there are 500,000 less Americans employed.

The truth is that Ben Bernanke’s sole reason for implementing QE2 is to enrich the few at the expense of the many. The chart below paints the picture clearer than the lies and misinformation you will get from CNBC and Fox. The top 1% wealthiest Americans own 60.6% of all the stocks in America, with the next 9% wealthiest owning 37.9% of the stocks in America. That leaves a full 1.5% of stocks in the hands of the remaining 90% of Americans. Who is benefitting from QE2?

Part 2 of the table clarifies who Bennie is working for. The 90% of Americans have 42.3% of the liquid deposits, 61.5% of residential investment and 73.4% of the debt in the country. Ben Bernanke’s actions have resulted in liquid deposits paying 0% interest (19 largest banks out of 7,700 banks control 50% of all deposits), residential real estate prices declining, and the cost of carrying debt to rise. Meanwhile, the top 1% convinced the public they needed a tax cut so they could continue to buy  gifts like Clive Christian’s $247,000 Imperial Majesty perfume, packaged in a diamond-encrusted Baccarat crystal bottle.

Table 2: Wealth distribution by type of asset, 2007
  Investment Assets
Top 1 percent Next 9 percent Bottom 90 percent
Business equity 62.4% 30.9% 6.7%
Financial securities 60.6% 37.9% 1.5%
Trusts 38.9% 40.5% 20.6%
Stocks and mutual funds 38.3% 42.9% 18.8%
Non-home real estate 28.3% 48.6% 23.1%
TOTAL investment assets 49.7% 38.1% 12.2%
 
  Housing, Liquid Assets, Pension Assets, and Debt
Top 1 percent Next 9 percent Bottom 90 percent
Deposits 20.2% 37.5% 42.3%
Pension accounts 14.4% 44.8% 40.8%
Life insurance 22.0% 32.9% 45.1%
Principal residence 9.4% 29.2% 61.5%
TOTAL other assets 12.0% 33.8% 54.2%
Debt 5.4% 21.3% 73.4%
 
From Wolff (2010).

 

 Of course, we all know the rich create all the jobs. Too bad they were created in India and China. No more conclusive evidence of the Federal Reserve destroying the American middle class can be found on the US Census Bureau site. The median household income in the US reached its all-time peak in 1999 at $52,388, in today’s dollars (key data point). Ten years later the median household income is $49,777. The standard of living for the median household in the US has fallen by 5% in the last decade, even using the government manipulated CPI.

The mainstream media will not report this fact. They will report the non-inflation adjusted figures that show a 22% increase in the median household income. They do this because they know that the average American has no clue what the term “inflation adjusted” means. Ben Bernanke, the Federal Reserve, and the ruling oligarchy can only retain their power through the use of inflation, while slowly destroying the currency, impoverishing the masses and enriching them. The website www.mybudget360.com has suggested the proper mission statement for Bennie and the Feds should be:

“To aggregate as much wealth into the banking system while eliminating the American middle class by a slow systematic dilution of their currency and financial well being and standard of living.”

   
Table H-6.  Regions–All Races by Median and Mean Income: 1999 to 2009
(Households as of March of the following year.  Income in current and 2009 CPI-U-RS adjusted dollars (28))
Region and year Number (thousands) Median income Mean income
Current dollars 2009 dollars Current dollars 2009 dollars
 
2009 117,538 49,777 49,777 67,976 67,976
2008 117,181 50,303 50,112 68,424 68,164
2007 116,783 50,233 51,965 67,609 69,940
2006 116,011 48,201 51,278 66,570 70,819
2005 114,384 46,326 50,899 63,344 69,597
2004 113,343 44,334 50,343 60,466 68,662
2003 112,000 43,318 50,519 59,067 68,886
2002 111,278 42,409 50,563 57,852 68,976
2001 109,297 42,228 51,161 58,208 70,521
2000 108,209 41,990 52,301 57,135 71,165
1999 106,434 40,696 52,388 54,737 70,462

 

While real average weekly earnings for the average American are lower today than they were in the early 1970s, you will be happy to know that Wall Street bonuses have recovered nicely from the dip in 2008.  Compensation at Goldman Sachs, Morgan Stanley, JPMorgan Chase, Bank of America, and Citicorp increased by 31% in 2009. Average compensation rose by 27% to more than $340,000. Bonuses jumped above the $20 billion mark in 2009, but sadly trail the record of $35.5 billion in 2006 just before Wall Street destroyed the financial system of the entire world. According to the NYT, 2010 will be a banner year:

“Wall Street’s five biggest firms have put aside nearly $90 billion for bonuses. Whether it’s for jewelry, high-end clothing or apartments, bonus spending has long fed a post-holiday boom in January and February, especially in Manhattan and expensive suburbs like Greenwich.”

I’m sure this information warms the cockles of your heart.

At the end of Dr. Seuss’ poem, the Grinch repents and brings a happy ending to Whoville:

That the Grinch’s small heart Grew three sizes that day!
And the minute his heart didn’t feel quite so tight,
He whizzed with his load through the bright morning light,
And he brought back the toys! And the food for the feast!
And he, HE HIMSELF! The Grinch carved the roast beast! –
Dr. Seuss

Even if Ben Bernanke’s heart was to grow three sizes, he would be discarded by the other Grinchsters (banksters) like piece of Whoville tinsel. The truth of our current situation is better captured by Mick Jagger in his song Sympathy for the Devil:

I’m a man of wealth and taste
I’ve been around for a long, long year
Stole many a man’s soul and faith

But what’s confusing you
Is just the nature of my game

The people running the show in this country will not be bringing joy to Whoville. You need to understand the nature of their game.