Now, here in the US, we are supposed to be geographically challenged, i.e., we enjoy a deficit in social studies information of the kind that runs — what is the capital of Outer Mongolia and name its three leading exports. Ok..guilty as charged.

But guess what, turns out we don’t even know where we’ve been living all these years.

The U.S of A? Nope. Turns out, we’re Zimbabwe:

Here’s Puru Saxena on our banana republic:

“Take a look at the annual money-supply growth rates around the world –

Now, you don’t have to be a NASA-scientist to figure out that as the quantity of money increases, each unit of money will continue to lose its value or purchasing power against assets whose supply cannot be increased at the same pace. This confiscation of purchasing power has bullish implications for precious metals.

Today, several highly-intelligent economists and analysts are anxiously waiting for “The Crash” which will wipe out the value of the Dow Jones by 50-60%, cut the value of gold by half, cause an economic depression and create a vicious bear-market in asset prices. In my humble opinion, these people are going to be disappointed because “The Crash” will be stealth and will take place via plummeting currencies rather than an outright collapse in nominal asset-prices. Those who are forecasting a significant decline in US asset prices need to look no further than Zimbabwe where stocks have been making record-highs, albeit in a collapsing currency!”

PS: The figures for the growth of M3 in the US were removed from the official stats sometime last year, I believe, but are available at a number of websites, such as, nowandfutures.com.

Now, the US rate doesn’t even look that bad next to some other places, like Russia, for instance. But should Russia, in its current state, with its huge criminal element, be the standard for the US? And note, please, that official Consumer Price Index numbers are massaged in various ways so that inflation rates are heavily disguised. Money supply increases seem only to be boosting asset prices and not hitting the grocery shelves right now, but that’s because we aren’t thinking about things like the massive growth in insurance rates, especially health insurance, but also home insurance costs, increases in rents (not as high as increases in house prices but still growing in most major cities), and another big one, increases in college tuition costs. The important thing is that in India, for example, money supply increases and asset prices inflation, while also bad, have at least been accompanied by increases in salaries (in some sectors) and growth in productivity. Not the case in the US, as far as I can tell…..where growth has been largely in the housing sector (in addition to the burgeoning of the health- care sector).

August 31, 2007

This week, Larry Kudlow and others strongly chastised Bernanke for his failure to read the writing on the wall and urged the Fed Chairman to quickly slash the Fed Funds rate. Methinks the pundits doth protest too much. For years, Kudlow, who practically coined the term “Goldilocks economy,” has dismissed with scorn suggestions that the American economy was anything less than ragingly healthy. If our economy is really so strong, why does he call so loudly for the artificial stimulus of a significant rate cut?

In truth, the writing has been clearly on the wall all along. A credit bubble has been steadily inflating for at least the last six years, which in its final frenzy produced some of the most absurd mortgage funding products the world has ever seen. To anyone not dependent on the hysteria, a no-doc, no money down, negative amortization, interest only, adjustable rate jumbo mortgage was just as clear a sign of pending catastrophe as was $200 for a share of Pets.com, or 5,000 Dutch guilders for a single tulip bulb.

The one thing all bubbles have in common is that they eventually pop, and ours just did. Unlike the popping of the last bubble in 2000-2001, this one will fall directly to our economy’s bottom line. And this time the Fed can not step up to the plate with unlimited liquidity injections.

A record percentage of our GDP is comprised of consumer spending. The source of this spending was the housing bubble. Would our savings rate really be negative were it not for housing related “wealth?” Could consumers really have spent as much as they did without the benefits of temporarily low teaser rates and the ability to extract equity from their homes? How many service sector jobs are directly related to that extra spending? When the low mortgage payments and home equity disappear, so too will the spending and jobs they engendered.

Those who feel that the economy will keep growing must believe that discretionary consumer spending is unrelated to wealth or expenses. In other words, they believe that individuals will spend as much with no home equity and $3,000 per month mortgage payments as they did with $200,000 in home equity $1,500 monthly payments. Factor in other rising expenses; such as food, energy, insurance, and taxes and discretionary spending will not just slow, it will completely collapse.

With the ugly truth laid bare, many now prod Bernanke and Bush for solutions. Unfortunately there are none. Based on absurd assumptions about real estate, we simply borrowed more money than we can ever hope to pay back. There is no magic elixir we can swallow to cure what ails us. The free market is the only force that can fix this mess. Unfortunately, the fix won’t be pretty. Prudent lending standards will return, guaranteeing that real estate prices collapse. This is an important connection that very few have made. There is no way the average American can afford to buy the average house at today’s prices with a mortgage he can afford. Assuming that the lax standards of 2005-2006 do not return, the only way this can happen is if real estate prices collapse, which is exactly what is happening.

The financial institutions that are calling most loudly for a bailout claim the Government must act to protect homeowners. However, the most severe losses will not be born by homeowners but by those who loaned them the money. Therefore any bailouts will ultimately go to lenders not borrowers. Homeowners who offered no down payment and who have no equity in their homes will in reality lose nothing in foreclosure, except perhaps a debt burden on an overpriced house. In addition, even those homeowners who made down payments likely extracted larger sums in subsequent refinancings or home equity loans. With plenty of available foreclosed homes on the market to rent it is unlikely that these former homeowners will become homeless……”

From “Mobs, Messiahs and Markets” (with Bill Bonner):

“People will no longer care about the return ON their money….

Instead they will only want the return OF their money”:

Now here’s from this past Friday’s news:
“In Los Angeles, economic concerns hit close to home.

Anxious customers of Countrywide Bank jammed its phone lines, branches and website after the nation’s largest mortgage lender — which owns the bank — announced it was facing problems from a credit meltdown.

“Countrywide Financial Corp., the biggest home-loan company in the nation, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable,” wrote the LA Times Friday. “And federal regulators said they weren’t alarmed by the volume of withdrawals from the bank.”

“The rush to withdraw money — by depositors that included a former Los Angeles Kings star hockey player and an executive of a rival home-loan company — came a day after fears arose that Countrywide Financial could file for bankruptcy protection because of a worsening credit crunch stemming from the sub-prime mortgage meltdown,” the paper continued.

“At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early ’90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names,” the Times added. “Bill Ashmore drove his Porsche Cayenne to Countrywide’s Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.”

“It’s because of the fear of the bankruptcy,” Ashmore, president of Irvine’s Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees told the paper. “It’s got my wife totally freaked out. I just don’t want to deal with it. I don’t care about losing 90 days’ interest, I don’t care if it’s FDIC-insured — I just want it out.”

More at Raw Story .

Fox‘s Cavuto Report, Saturday morning, on the late news from Friday — no bail out of homeowners by Fannie Mae.

As usual, critics are muddying this with all sorts of irrelevant criteria — i.e. corporate tax cuts. Not that I think anyone should be cutting taxes for anyone — since we are weighed down with debt. But I don’t know the details about that issue — only that it is irrelevant to the bailout question unless you like class warfare in principle and think taxcutting is the same thing as debt forgiveness. It’s not. But don’t hold your breath for actual thinking. The demagogues will jump out on both sides.

A bunch of people (middle and upperclass for the most part, many quite young), acting in groups, who speculated in second homes leveraged to the hilt and bought on spec to flip, who were so greedy they couldn’t quit doing it when every paper in the country was screaming bubble, are now crying, ‘cos, hey, their Miami condo bought with no money down and a 50 year mortgage which they hoped would triple in value before the builders had finished, is not selling like they hoped it would.

Tough. Go get some real work.

On the other hand, I didn’t notice any weeping for the past two decades for people who scrimped and saved on small salaries, who owned no plastic and stuck their savings in the bank, hoping to be free some day to do the things they loved — only to find that thanks to money creation and almost nothing in interest, while the rest of the country lived high on the hog on faux (borrowed) money and speculation, their real savings had eroded steadily. That theft from the work-and-save classes by the borrow- and- don’t-pay- back classes (runs the gamut of the rich, the middleclass, the poor, banks, corporations and the government) is the real financial crime of the past decade…

Still, I agree, there were a lot of naive and ignorant people (e.g. single mothers without the time to follow the news) who panicked because they thought they were going to be priced out of the market and were scared into buying by unethical sellers and bankers.

I feel for them.

Caveat emptor doesn’t mean that you can’t hold people to professional standards of ethics.

But a government bail out with taxpayer money by Fannie isn’t the solution. That would be penalizing good decision-makers for bad decision making and rotten ethics on the part of subprime lenders. This may be framed in public as a bailout out of pitiful poor homeowners…. but.the reality is that bailing out the mortgage holders is simply a way of bailing out the banks which loaned the money. And created mortgage-backed securities, then sliced, diced and repackaged them with the risk so separated from the reward that no one had any idea what the derived securities really represented. These MBSs were then spread out from Hong Kong to San Francisco in bonds held by mutual funds, pension funds, hedge funds..you name it…..and they were given mighty high falutin’ ratings by the rating companies — Triple A, in fact.

Now, the Triple A turns out to have been junk a la Michael Milkin….

So, the bail out of the mortgage holders ultimately ends up being a bail out of guess who?

Banks and hedge funds…..who certainly knew better.

Sounds to me like a rerun of the bail out of investors in the Mexican crisis…or the bail out of bond holders in Russia….or the bail out of banks in the Asian crisis….or….it goes on and on..

My view: Bring out the lawyers. Encourage people who were actually snookered to join class-action suits against the exact institutions responsible (no socializing of the costs of this speculation spree via Fanny, please).

A bunch of institutions broke long-standing professional standards to turn into loan sharks. A little surgery to put risk and reward back together is in order. So, penalize the banks, brokers, newspapers, government officials and middlemen who cheered this on knowingly.

They’re crooks.

If the borrowers did wrong themselves, i.e. lied on their loan documents, though, they really should have known better. They’re crooks, too, petty crooks.

Sorry – you can’t blame that on naivety or Ben Bernanke.

And then, let’s get a public hearing about money creation at the Federal Reserve, and just how the Fed Reserve, Treasury, and the big banks work together.. …

Little crooks and bigger crooks — let them all go down together.