A Patriots Manifest Oct 01 2008
William White
So far the estimates of total planned and completed bailouts I have seen run just under 2T. Since money supply data (M1) is no longer published I cannot give you an exact idea of how much inflation will result from the bailouts but something like a 2/3 increase in price levels over the next 18 months should be in the ballpark. This has people mad at Wall Street when they should be mad at Pennsylvania Avenue. A few simple points:
The proximate cause of the meltdown is how Carter’s Community Reinvestment act is enforced under laws and regulations set down by Clinton to encourage and reward fraud in mortgage lending in the provision of housing to the poor, in particular minorities.
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Housing is generally sold on commission and the sales agent usually contacts the mortgage broker. The lower the cost of the house the lower the incentive to list, sell or finance the property. Selling or listing properties of below average value reduces the income of the real estate agents, mortgage brokers and their employers involved in the closing.
Obviously even the village idiot would have provided big tax write offs to get the working poor into houses they could afford if that were an economic goal of DC. Reaching into the pockets of working people to get to a politically established economic goal is stupid, so guess what DC did? You guessed it no tax write-offs but rather fines for non-compliance was the solution.
There are secondary effects of fining people for not putting buyers into houses they cannot afford.
Computerized underwriting and paperwork instituted to make it possible to get agents and brokers to close these deals also made it possible to close other deals faster and cheaper so liar loans and other problems. This in turn meant a lowering of standards generally.
So what happens when creative paperwork becomes the norm? My guess is that total bailout costs will run 5T with an additional 10T in foreign disinvestment. Well if 1.8T causes a 2/3 increases in prices then an additional 13.2T then a 455% increase in price level over the next 4 years is quite likely. The problem in the mortgage market is not restricted to subprime and Alternate-A loans nor is it restricted to single family home sales. Apartment, retail, agricultural and warehouse property markets are also going to head south.
Then there is the stock market. 1929 was caused by a lack of short sellers as was 1987. Short sellers are the only buyers when panic hits. The SEC has instituted a ban on short selling in 1,000 major stocks. This means no buyers when everyone heads for the exits. What that means I have no idea. However it does bring me to a blast from the past.
The last time the economy started sliding out of control in 1972-82 Harry S. Browne pointed out something of value. DC is quite likely to confiscate precious metals in bullion form but coin collections tend to be left alone. If you are counting on specie to see you through then it should be in coin form. Your gold coins of the world collection is likely to be safe, your collection of US silver coins is likely to be even safer and your collection of copper pennies even safer yet but uncoined metal like the soda and beer cans for the recycling center may be confiscated.
Wage and price controls are likely as early as May of next year so convert your bullion to coins soon. Ammo purchases can be and will be traced likewise food hoarding as hyperinflation makes the country less governable and sectional tensions increase. Discretion is the better part of valor so avoiding wild statements and calls to arms is something to consider. Building a bunker in your backyard and rolling a homemade automatic weapon into it is exceedingly unwise whereas an emergency septic tank that is partly above ground and designed to produce methane as an alternative energy source is less likely to get you into trouble. Just some things to ponder.
The views expressed by William White are his and his alone and may not be the views expressed by A Patriots Manifest. Thank you .... Michael Roller...