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"Double Eagle"
Surety Bond Specialist

Diminishing Property Rights Will Lead
To Higher Mortgage Default Rates

With regard to property rights, 1913 was a terrible year. This was the year when the Sixteenth Amendment to the U.S. Constitution was ratified—allowing the federal government to directly tax its citizens. To add insult to injury, the Federal Reserve was established and the fiat-banking cartel was born. Therefore, in 1913, the federal government was empowered to tax its citizens in two ways. One way, of course, is via direct taxation. The other, and more pernicious method of taxation, is through inflation— by the Federal Reserve debasing the dollar. In essence, Americans became slaves to the state (via taxation) as they do not fully own the fruits of their labor (i.e. money) and what fruit they are allowed to keep is debased by central banking. The long-term effects, of the federal government’s assault on money (as private property), have certainly spilled into the arena of real property as well. For it is a logical progression to go from not fully owning the fruit of one’s own labor to not really owning one’s own real property. Incrementally, Americans have been conditioned to believe that the state decides which rights, including property rights, are granted to the people. Such conditioning will prove to be disastrous when America’s housing bubble collapses.

Slowly, but surely, private property rights have been eroded. In cities and counties all over the U.S., Americans are being subjected to real estate fascism. County commissioners, city councilmen, and other public officials have literally gained dictatorial powers over real property. Homeowners are being told that trees cannot be cut down from one’s yard, that soil may not be imported to establish a new garden, that a small structure may not be built in a back yard, that a home remodel must meet certain arbitrary standards, and the list goes on and on. Even worse is the use of the powers of eminent domain where local government seizes property and, often times, hands it over to politically-connected companies. Thus, the Fifth Amendment has become a mockery.  When summing all of this up, one must ask if individuals and businesses really own their property?

What is so alarming about this is that Americans, in general, see no problem with this creeping real estate fascism. I have some friends (a married couple) who live in a Seattle suburb and have blindly accepted the dictates of the local city planners.  Four years ago, I helped my friends build a storage shed in their back yard. As it turns out, the cinder-block foundation upon which we built the shed was deemed inadequate by the building inspector—he stated that city code required a concrete-slab foundation for such a sizable shed. Consequently, we literally sawed off four feet of the structure in order for the shed to meet the city code pertaining to using a cinder-block foundation (as a side note, a neighbor tipped off the city inspector, prompting this unpleasant alteration to the structure). My friends just shrugged their shoulders and have unwittingly accepted the fact that they share their property’s ownership with the local government.

Since the New Deal, the federal government has intervened in the private housing market—which, in many ways, has lead to the aforementioned real estate fascism. The Federal Housing Authority (FHA) was established in 1934 with the objective of rescuing a housing industry that "...was flat on its back." The following reasons were given for the creation of this federal monstrosity during the Great Depression (as found on the Department of Housing and Urban Development’s website):

• Two million construction workers had lost their jobs.
• Terms were difficult to meet for homebuyers seeking mortgages.
• Mortgage loan terms were limited to 50 percent of the property’s market value, with a repayment schedule spread over three to five years and ending with a balloon payment.
• America was primarily a nation of renters. Only four in ten households owned homes.

In 1965, the FHA became a part of HUD. On a combined basis, the "FHA and HUD have insured almost 30 million home mortgages and 38,000 multifamily project mortgages representing 4.1 million apartments, since 1934." Undeniably, the federal government’s intervention into the housing market has been enormous.

Since 1934, an alphabet soup of government agencies and government sponsored enterprises (GSEs) have intervened in America’s housing market with the objective – as stated on Ginnie Mae’s website, using this agency’s statement as a proxy – to "...help make affordable housing a reality for millions of low-and-moderate-income households across America by channeling global capital into the nation’s housing markets." In addition to Ginnie Mae, other federal agencies involved in the housing market include the Department of Veteran Affairs, the Department of Agriculture’s Rural Housing Service, and HUD’s own Office of Public and Indian Housing. Not to forget the GSEs, Fannie Mae and Freddie Mac have become behemoths in providing liquidity to the housing market.

When combining the Federal Reserve’s current (and reckless) low interest rate policy with the above-mentioned governmental and quasi-governmental housing entities, millions of otherwise unqualified Americans now “own” homes. Members of Congress and even President Bush are taking credit for helping Americans realize the American dream of home ownership. What these politicians fail to recognize is that they have circumvented the traditional route of Americans saving the 20% downpayment previously necessary to qualify for a traditional 30-year mortgage. Now Americans have very little “skin” in the game as the mortgage lending system has been so distorted, by the government, that literally anyone with a pulse can qualify for a mortgage loan—including loans that require minimal downpayments (even as low as 0%). Millions of households have adjustable rate mortgages and often depend upon having two wage earners in order to afford the house payment. Indeed, with federal involvement, mortgage credit is easy to come by. Never have so many people, with so little at stake, been able to borrow so much money.

Now the big question becomes what will happen to the real estate market when interest rates (and, most likely, unemployment) inevitably begin to rise? One must look at how Americans have become conditioned, by the federal government, to uncritically view the issue of private property rights. We have a draconian tax system that makes it clear that Americans do not fully own the fruits of their own labor (i.e. money earned via hard work). We have local governments (supported by federal appellate court decisions) that decide for themselves what real estate property rights may or may not exist. We have federal bureaucracies that provide shortcuts allowing Americans to purchase homes without having to work and save for a meaningful downpayment—in essence home mortgage credit has been socialized.  We have a fiat-money system that steals our wealth via the pernicious tax of inflation. Thus, we have a society in which the meaning of private property ownership has been debased by the federal government itself. So when interest rates begin to rise, I see massive mortgage defaults ahead. Heck, I can hear the mantra now: “I can’t afford the house payment anymore, so it’s the government’s problem now, not mine.” Consequently, hugely expensive bailouts of the GSEs, and other federally backed institutions, lay on the horizon. Of course, this will mean higher taxes (both directly and via inflation) and, therefore, further violations of property rights. Does anyone care anymore?

© 2004 Double Eagle,
Surety Bond Specialist
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Gale Bullock, MAI, SRPA, SRA

Busting the House at the Isle of Capri

Barking Up the Right Tree

The Dynamic Duo of Sanders and Fitts describe a lot of things relevant to micro and macro economic history of the US in their essay. When you combine the narco-dollar economy with the Fraud at HUD, and elsewhere, it is hard to imagine that all these fast food restaurants and eateries here in Columbia, Missouri are really making it as legit businesses without some extra booty on the side. When I look at real estate, commercial and residential,  I see nothing but a negative return economy to the property owner, who’s sucked into a debt-berg at the hands of the banking cartel that plays to Wall Street and the Federal Re$erve & GSE central banking cartel, which creates money, unbacked by specie, out of thin air. America, unfortunately, has been cursed not only with a fractional reserve central bank… it has multiple central banks, who are able to create money out of thin air in their own two-tiered structured finance Mandrake Mechanism. The Federal Re$erve inflates the currency by the printing press destroying our wealth in a debt backed money system. The GSEs operate to inflate real estate for the Federal Re$erve to create a real estate wealth effect in real property, borrowing money as central banks into thin air using money market fund intermediation, [1] while the whole banking cartel fleeces the borrower or consumer for the Big Boys on Wall Street, and the cotillion ball of central bankers dancing in the Ballroom of the RMS Titanic. Have I a derivative or two, for you! Debt backed legal tender money systems and debt-backed real estate don’t mix in our view in the current economic environment under Austrian Economics of  “the bigger the boom, the bigger the bust.”

History Lessons Go Un-Noticed?

We have two econo-metric histories of the markets to follow. The US in the 1930s depression. Japan in the 1990s, which has been in an economic depression since their stock market tanked in the early 1990s. In both cases, both central banks lowered their FED Funds rate, or the so-called rate of interest member banks charge each other, and still real estate imploded in both venues. At one time Japan was buying the World and most of Hawaii in the mid to late 1980s… now I figger the nice folks in Japan with lotsa bucks [Federal Reserve Notes to spend] realize they were Bubblized by their Bank of Japan. The Bank of Japan even published a position paper several years ago, on what they would not do again. I read it. Pretty much hocus pocus, but the gist was – Folks, We Screwed-Up Big Time! They lowered their central banking rates to support their stock market, and with all their banks heavily into the NIKKEI, they tanked their own real estate market. Ditto, USA, 1930s, but with a few more twists – not going there. Great Myths of the Great Depression penned by Lawrence Reed at the Mackinac Center in Michigan is a great read! [2]

Mr. Greenspan followed the same central banking plans from the 1930s and that which those nice folks did who attacked Pearl Harbor on 7 December, 1941 [another history lesson of pre-emptive strikes making for great economic bed fellows!]. The Imperial Vizierial Wizard  has kept real estate micro and macro markets alive and viable pumping money to Wall Street to keep the DOW over 10,000 as he now decides to raise the FED Funds rate by a half a point or so in the past several months. Nice play, Alan! In the .25 point funds rate increase the week of September 20, 2004, you moved money back into the treasury bond market -- and the mortgage rates, which had been rising, lowered a bit! Great Move Sir Alan of Greenspan, Knight of the Bank of England! Queen Elizabeth II is most proud of you this week, as well as the House of Rothschild! You deserve your Knightship, your Imperial Grand Vizierness!

Mortgage Rates Up or Down, Real Estate Up or Down?

Well, I can tell you what is supposed to happen in an increasing mortgage rate environment – but I cannot tell you what will happen, because this is not a free market anymore. Well, it probably hadn’t been for a really long time. I just didn’t understand the power of the banking cartel, their links to the banking cartels in Japan, SE Asia, China, and elsewhere that hold world reserve currency dollars [FRNs] which are re-invested in our legal tender fiat paper money system [currency, as the treasury bond markets], since we have a negative trade imbalance and need about $1.8 billion per day [I think that’s right] influx of foreign FRNs to keep this country afloat, and to keep the house of cards financial system solvent [you can learn more about the Flux Capacitor in the movie, Back to the Future]. Basically, the USA is bankrupt, and we got no cash! If there is gold in Fort Knox, Kentucky, I sure would like to see it as a citizen. I know we are out of Silver Bullion…. The US Mint has to buy Silver in the open market to mint Silver Eagles! What does this [heavy metal] have to do with real estate up, or down in a changing mortgage interest rate environment? Think about it and you tell me, Pal! Enervate!

I write the songs, I write the rules, I change the textbooks. –
Sir Alan Greenspan

Never underestimate the Dark Side of the Force. Let me just toss this out! If mortgage interest rates for residential property were 8-10% and commercial rates were 11-13%, the USA would be looking at one Helluva abysmal Macro Realty Market Depression. It might even re-create the Dust Bowl in Oklahoma and Texas! Current mortgage rates are at 40-45 year lows. They ain’t going to stay there forever. The average mortgage rate over the past 20 years was probably about 7-9% and trading in that range. In the early 1980s, they were as high as 17-18% or more! Greenspan says real estate has created wealth [through increased debt] and cannot be a bubble since all real estate markets are local. Gee Whiz! – Prophetic, ehhh, or Apocalyptic? The central banking cartel has a nice ride. Tax laws urge debt in this country so you, the taxpayer, can deduct the interest on your 1040! Hummm…. Odd… they did away with deducting tax deductions on your groceries, SUV, gasoline, and retail sales purchases long time ago, or did you notice? You are taxed to death everywhere, but these taxes you pay are counted as part of your income, save for real estate mortgage interest and real estate and personal property [vehicle] tax deductions on your 1040 in April! Tax laws, the IRS, and the 16^th Amendment perpetuate the real estate wealth effect myth the central banking banking cartel says is making you rich, all the while your debt and mortgage plays to the banking cartel on Wall Street! Hey, go take out a 150% home-equity loan and share the wealth!

Increasing Mortgage Interest Rates Up, So What Happens to Realty Prices?

It depends. Upon what? -- The dynamics of the local micro realty market and the banking cartel active in that market and the previous mistakes they have already made. [Ooooooooo … great answer!] The banking cartel does not want a market to fall out from under them. In a market of rising interest rates they will still throw money at the markets hoping things will get better… that is until the borrower exceeds their credit score, can’t pay the cash, and they have to pull the plug and foreclose. Bankers will pump the market as long as they are able. Hey, if they cannot borrow money into existence, and make loans, they are dead! When you pay off a loan, they don’t make any money [although they say they do! Actually, paying off a loan, contracts the money supply, and is deflationary! Grin!] If you are delinquent on a payment, they are on you like the Aflac Duck on a June Bug! Theoretically, if interest rates rise to historic averages, your micro real estate market should start unwinding [deflating or going down in prices]… but don’t count on it until the local banking cartel has done all they can to throw good money after bad. When they ax the CEO, and bring in the new guy or gal [gal CEOs of banks are generally barracudas, and pretty mean!],  you can bet your bottom dollar [FRN] lending will tighten, and they may have just slit their own throats, playing to the prime directive of the Federal Re$erve at total banking consolidation to try to stay solvent -- sharks are already in the water for takeover to Wall Street. Hello, Countrywide, Washington Mutual, Bank of America, and Wachovia… blood in the water… Shark Attack! Micro realty and banking market implosion and takeover! Hello, Wall Street, here we come! Welcome to Derivative 101, Two-Tiered Structured Finance, and the mortgaged backed security in the Land of Oz with the Big Boys in NYC!

So you think rising mortgage rates mean depressed realty prices? – Nahhhhh!

Nope. I stated a scenario of what if’s. You, Dear Reader, inferred and applied to all micro and macro markets on the Planet. It depends. On what? It depends on the dynamics and market strength and orientation of the micro realty market, and the factors that influence prices, and most likely how underbuilt or overbuilt it currently is. Unemployment plays a factor, as well as new industries locating there, civic activities, the strength of the local government, as well as other considerations. San Diego isn’t Hickory Valley, Tennessee and neither is Boston, Atlanta, Denver, or Columbia, Missouri! Each market is different! Certainly, industries closing down and moving off-shore, a local government not conducive to development, and lack of community pride and involvement in the developable resources are factors as well. Statistically, if you have at least one or more gambling casinos in the micro realty market, you are guaranteed to be recession and depression proof [Just kidding!].

Other factors that are important are:  the economic base and labor force with effective purchasing power in the micro realty market, recreation resources [the better the fishing, the less chance of a micro realty market implosion], historical attributes, the history of the market, as well as the plain ole folks who make up the community in the micro market. Given that residential mortgage rates rose to 10%, many micro realty markets could be devastated in the realty market pricing and sales activity, while other micro markets would go on as if nothing happened. Each micro and macro realty market is different. At a 10% interest rate, some markets could even appreciate in market price -- when given the correct micro market placed based factors that influence real estate prices [discounting the Federal Re$erve and GSE inflation of real estate through the destruction of the monetary system, which we view as an inflation of real estate prices that is a measure of the destruction of the monetary system [the real rate of monetary destruction], when applied to and equated with real property appreciation rates].

In a Rigged Market, Never Bet Against the Isle of Capri!

It is our view, that anything can, and probably will happen when mortgage interest rates correct to a more typical historic average, instead of the money pumping to Wall Street 40-45 year lows we have seen since the Wall Street Stock Market Crash in Year 2000. Mr. Greenspan is trying really hard to preserve the Federal Re$erve central banking system, as well as the GSE money pump to Wall Street inflating real estate prices, avoiding systemic financial collapse before the next Chairman is appointed.[3] Right now Fannie Mae’s accounting shenanigans are coming under the Zoologists’ Microscopes in the supposed regulating agencies. Having to play lender of last resort to the Big Boy Fannie Mae derivative counter-parties on Wall Street is somewhat “inflationary” to say the least, when all of the moves by the central bank are supposed to be “measured.” You sweating a little at that, Sir Alan? -- are you having nocturnal dreams about Long Term Capital Management and vying for a Nobel Prize? I suspect, Sir Alan, that your chances for a Nobel Prize are about as “measured” as busting the house at the Isle of Capri! – Now that’s a truly “daunting task!”

[1] from more on money market fund intermediation in the way in which GSEs operate, see Doug Noland’s Credit Bubble Bulletin. Noland is Every Prudent Bear’s PrudentBear! See Also: Realty Reality Recommended Reading from 8/20/2004 – What Jane and Joe Need to Know

[2] See Also: Thomas J. DiLorenzo’s The New Deal Debunked (Again) at www.mises.org.

[3] See: The US Economy is Not Depression-Proof by William L. Anderson at www.mises.org.

© 2004 Ole Bear AKA Gale Bullock
Editor, Realty Reality
Proprietor, www.pgtigercat.com 
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Professor Piggington

The Effect of Rising Rates on San Diego Residential Real Estate

It is rather trite these days to point out that rising mortgage rates may adversely impact home prices.  Nevertheless, I intend to spend a little time flogging that particular dead horse with an eye towards evaluating the specific effect of interest rates on housing demand, supply, and prices here in my hometown of San Diego, California.

Affordability or Lack Thereof

San Diego may well be nearing a lower limit of affordability. The California Association of Realtors Affordability Index recently put San Diego affordability at a state-wide low of 10%, meaning that only the top 10% of San Diego wage earners could afford to buy a median priced home. And despite a multi-year declining trend in interest rates, the growth in monthly housing payments has dwarfed that of local incomes:

San Diego’s dismal affordability dictates that first time homebuyers, who are funding home purchases with their wages rather than a prior home equity windfall, stretch themselves to the absolute fiscal limit in order to break into the housing market. Even “move-up” buyers who come armed with cash from their last home sale find that moving up to a nicer place necessitates taking on an enormous monthly payment. How would these people be affected if interest rates rose, for example, to where they were a mere four years ago?

Decreased Demand

Back in September of 2000, fixed-rate mortgages were at 7.91% as compared to today’s 5.81%. A return to 7.91% would drive monthly payments* up by a full 21%.  The purchaser of a median priced home would need to scrape up an extra $500 every month. And this scenario would be even worse for the recipient of an adjustable rate mortgage: the 1-year ARM rate was almost twice as high four years ago as it is today!

It is commonplace among real estate pundits to assert that the negative effect of rising rates will be mitigated by a concurrent strengthening of the economy. The example scenario in the previous paragraph should put that idea to rest: even during a robust recovery it is highly doubtful that incomes will increase enough to offset a 20% (or more) rise in monthly housing expenses. Given that so many potential homebuyers are already stretched so thin, it seems clear that even a small rise in interest rates could knock a lot of buyers out of the market.

Increased Supply

Yet even as the number of buyers decreased as rates went up, the number of homes for sale could increase.  Consider the following:

1. Over 75% of new San Diego mortgages are some form of adjustable-rate loan. All these mortgage holders will, at one point or another, be exposed to the risk of rising rates.
2. 25% of San Diego homebuyers do not even make a down payment, and mortgages are being written for as much as a 125% loan-to-value ratio.

If ARMs were to start adjusting in a higher-rate environment, mortgage payments could, as in our example scenario above, rise significantly. Assuming that many ARM holders stretched themselves to the limit at purchase time, a lot of people would suddenly be unable to make their payments. And of this group, many would have a 100% or more loan-to-value ratio on their mortgages and would thus have no equity in their properties. Lacking the ability to pay the mortgage bills and having no money tied up as collateral, the obvious course of action for these people would be to foreclose.

Nowhere To Go But Down

While the rise in monthly mortgage payments over the last few years has been ample, the rise in home prices has been downright staggering.

The following chart tracks the historical median price for San Diego homes from 1982-2001.  The prices are adjusted for inflation to demonstrate how much San Diegans have historically been willing to pay for homes in comparison with the cost of other goods. And because wages tend to track inflation, the chart also gives us a rough idea of how much homes have cost in relation to incomes.

Inflation-adjusted home prices have tended to rise and fall based on cyclical changes in supply, demand, and local economic factors.  As the chart shows, prices have fluctuated around a trendline whose slow rise could be explained by increasing population, increasing home size, and a general trend towards lower interest rates.  None of these factors changed much between 2001 and 2004: during that time, population increased by 5%, home supply increased by 5%, and interest rates went down by 16%. Looking at the prior fluctuation patterns and the lack of change in fundamentals, one would expect the inflation-adjusted prices to start heading back towards the trendline. But this is not what happened at all:

As a speculative real estate mania took hold in San Diego, home prices exploded upwards. If the market were to revert to the mean today, the median home price would have to drop by almost 50%... and that is assuming prices only dropped to the mean instead of overshooting it on the down side as it always has in the past.

The depth of potential home price movement is a very complex topic on which I have written an entire essay. In the interest of brevity I will leave it at this: San Diego home prices are extremely high and potentially have a long way to fall.

A Recipe For Lower Prices

Rising mortgage rates would decrease housing demand as buyers were priced out of the market. Those same rising rates would cause an increase in supply as foreclosures picked up.  A decrease in housing demand combined with an increase in housing supply against a backdrop of sky-high home prices would surely cause some serious downward price pressure. And once San Diegans were relieved of the misconception that real estate only ever goes up, home prices could begin their long, inevitable march down to a level more in line with historical trends.

* - In the scenario wherein we compare payments at today’s rate versus that of four years ago, the monthly payment includes both principal and interest.  In calculating the dollar amount I assumed that the buyer was old-fashioned enough to make an actual down payment of 10%. The figures are adjusted to take account of the mortgage interest tax deduction at a tax rate of 25%.

© 2004 “Professor Piggington”
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Rob Kirby

Welcome to the Looney Tunes!

For this cartoon, our cast of characters include:

• Road Runner (Goldus Fixicus)

• Wile E. Coyote (Jane-us and Josephus Six-Packus) Genus: Leftus Holdeming, Species: the Bagus

• Acme Products

A Great Disconnect at the Hairpin Curve?

So just what has been the cost of the gold price-rigging regime brought upon us by Road Runners Rubin, Greenspan and Summers anyway? I mean, how exactly do you quantify it? I’m going to go ‘out on a limb’ so to speak to surmise that our collective Wile E. Coyote moment, around a hairpin corner at 125 miles per hour, is fast approaching. For those who might be unfamiliar with Wile E. Coyote – he is the arch nemesis of the Road Runner of Warner Brothers’ Looney Tunes fame. ‘The last laugh is on Mr. Wile E. Coyote,’ in the eventual end!

Do we take the “official amount” of gold that Central Banks collectively claim to have in their vaults and multiply it by a finite number? Perhaps we should subtract from the former number the amount of gold GATA figures the Central Banks have left on hand prior to doing our multiplication? After all, Central Banks are sure to get increased value for their remaining gold stocks, once the global investment community wakes up to the fact that their vaulted stocks are likely half of what official sources claim.

Insider Trading for Fun and Profits, While Shearing the Sheep – New Ideas for Living!

Another idea might be to measure the returns that have collectively accrued to the Bullion Banks’ bottom lines over the past ten years or so? They have all worked so hard and diligently in their complicity to help the Fed and U.S. Treasury to rig the price of gold – and everyone knows that good help doesn’t come cheap. A corollary to this might be to guesstimate the amount of nefarious profits that might have been garnered as a result of the inner workings of the rigging scam? After all, it is well known by even the most uneducated that activities such as ‘insider trading’ can yield huge benefits to the perpetrators.  If you don’t believe me, ask Martha Stewart.

Ahhh, the Martha Stewart thing -- how about the value of avoiding a lengthy stay in the ‘slammer’?-- if as, and when, the perpetrators are nabbed or get caught?  Then again, perhaps it’s not so much the lie itself, but more to do with whom you tell it to? It’s apparently quite alright to lie to a grand jury and the American Sheeple, but a completely different ball of wax when one fibs to ACME Products, the SEC, or securities regulators. I guess there really is nothing more sacred than the equity markets in the good old U.S. of A. What is even a few nights in the slammer with some house arrest tacked on to the end really worth to a guy with a thick wallet or a big fat bank account? Then again, who’s to say? Perhaps a good old-fashioned tarring and feathering might be more appropriate for this lot?

Hear No Evil, Speak No Evil, See No Evil, and Have No Fun!

We may choose to measure the costs of failed policy in terms of ‘monkey see, monkey do’. Where I come from, folks generally tend to learn from leaders. These leaders and their fraudulent price fixing ways have certainly taught a new generation of business mavens the ropes of impropriety, all the while escaping culpability for their ill gotten gains. So far this year in the United States of America, no fewer than 14 companies have made cash settlements with regulators [ACME, SEC, NY AG Spitzer’s office] in amounts exceeding $30,000,000 each. No less than an additional 5 companies paid fines exceeding $100,000,000 each.  In not one of these aforementioned cases did the payee admit one ounce of guilt! Chump change for a hand slap, isn’t it!??? Good students they are, indeed in the game of ‘monkey business as usual.’

Empirical Monetary Wizardry & the Grand Poobahs’ “Beep Beep!” or Just Fire in the Hole?

How does one go about measuring the costs associated with the masking of empirical inflation and the denial that inflationary pressures [incredulous even with $50 dollar [Federal Reserve Note oil]] are present in the economy? One day I hope that our esteemed Federal Re$erve Governors have the opportunity to candidly and collectively answer this question.

Perhaps the price should be measured more personally in terms of the accolades heaped upon the fine feathered Rubin [of Citibank], Summers (Führer of Harvard), and Greenspan [of Maestro fame]? Praise like this is hard to buy – even if you are using/abusing the nation’s good name, credibility, and good credit to do so – Beep, Beep!

Daunting Cost Accounting Behind the Gold Rigging or the Dislocation of Outsourcing?

What about the costs associated [inflicted upon other sovereign nations] for having the U.S. dollar appear “strong” whilst the perpetrators have been systematically debasing the world’s reserve currency [and hence everyone else’s] all along? How about the human suffering that accompanies a depressed or worthless currency? While that number is a little bit difficult to ‘get your head around’, suffice to say it’s a very, very big number. Tabulating a number this large would involve multi-national calculations involving trade numbers going back at least ten or so years in countless countries’ trade figures all around the world. Measuring the debacle in these terms is a little more than a ‘daunting task’ if I do say so myself.

Some might even choose to attribute the costs of the scourge of outsourcing jobs to this flawed pursuit. After all, an unnaturally strong dollar has given rise to conditions where domestic industries could not economically compete with already lower wage/living standard jurisdictions like China/India. This is not to say outsourcing would not have occurred at all, but rather, the pace or rate of change might have been materially altered so as to ‘ease’ the resulting dislocation and transition.

The Great Disconnect – Heavy Metal and Real Estate

In the end, I wonder if we might begin considering the damage that the accompanying larceny of forced and arguably unnaturally low interest rates and collateral damage caused in the realty markets [from rigging free markets]? After all, the aforementioned economic maladies have without a doubt given rise to excesses in both realty as well as reality, in both macro and micro contexts. I would contend that the sanctity of the family home has long been held as the penultimate symbol or nucleus of the ‘family unit’ – and a basis for manipulation of heavy metal music and currency debasement. I would even contend it’s the glue that binds what counts most in life. How do we put a finite price or a measure of value on the debasement of these institutions? Measuring the carnage brought on by failed policies like this takes on new meaning when the barometer includes a scale other than “shareholders or bondholders equity” [shareholder value] as is the case with the GSEs, namely Freddie, Ginnie, and Fannie.

When interest rates ultimately normalize and rise, as they surely must do, and when falling real estate values ultimately hit Jane and Joe Six-Pack between the eyes like a speeding bus, I cannot help but wonder out loud who will get the last laugh? -- and whether Road Runners Greenspan, Rubin or Summers will still be sitting in the driver’s seat? Beep Beep!

© 2004 Rob Kirby 
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