Over 9% of U.S. mortgages are either in default or in foreclosure. The U.S. government is taking over Fannie Mae and Freddie Mac. The economy has shed over half a million jobs over the past nine months. Most state and local governments are bankrupt or the closest thing to it. The highway trust fund for repairs to the nation's crumbling highways and bridges is out of money. The federal government isn't bankrupt only because it can print money -- without the power to print money, there would be no way to pay the bills. But this is driving up the prices of everything to the point where even raw materials are cheaper overseas, meaning that even though the dollar is plummeting like a rock, it is *still* cheaper to move manufacturing jobs overseas rather than keep them in America -- the U.S. has lost 20% of its manufacturing jobs over the last five years.
And the American public?
Err... did you know that "Desperate Housewives" is adding a new couger? And that the Chicago White Sox may lose Carlos Quentin for the season? Alrighty, then!
-- Badtux the Apocalyptic Penguin
Actually, the dollar isn't doing too badly at the moment, at least not if you're only looking at this year. You can get a euro for $1.43 U.S. at the moment. It used to cost 97 U.S. cents to buy an Aussie dollar; as of last week it only took 83. Pay cut (relatively speaking) for Bukko!
ReplyDeleteI rather like the inexplicable U.S. dollar strength in other ways, though, because we're going to spend a month in Europe starting next week. (Gotta love those 6 weeks of holidays in Oz!) We mostly spend euros drawn from our offshore account, but if we need to put some items on our Amwerican credit cards, no worries.
I just can't figure out why the dollar is doing better, despite reading economics blogs. When you look at the incredible amount of greenBernanks the Fed is creating out of thin air, with the Fannie and Freddie bailouts and all the other corporate socialism, how can this not dilute the value? There are forces of transnational money shifts at play here at some arcane level I don't understand. I remain bearish on the buck, but not the Bukko, for the long term. But at the moment, I'm spending whatever form of currency that's doing best in relation to the others I hold.
If you were listening to Neal Boortz yesterday, the economy is not as bad as what the democrats are saying it is. [wishes for a rolling eyes smilie here]
ReplyDeleteMedia is not responsible. I can end the sentence there, because they sell ad space and time, not national priorities and problems or solutions to either. Media is not responsible and do say it loud.
ReplyDeleteMedia is not responsible. I can end the sentence there, because they sell ad space and time, not national priorities and problems or solutions to either. Media is not responsible and do say it loud.
ReplyDeleteActually, Bukko, it makes sense if you consider the fact that disappearing housing wealth makes loans go bad and thus makes wealth disappear. So while the Fed is printing money with all the fervant abandon of a Weimar Republic finance minister, as much money or more money is disappearing due to the slow-mo collapse of the U.S. banking system under the weight of all these bad loans (yet another five financial institutions got taken over last week).
ReplyDeleteThink about it this way. If I'd bought a house in 2005 for $500K, and defaulted on it today after paying down the principle by maybe $3,000, the bank is going to eat a $200K loss (because the house would only be worth $300K today). If you consider the multiplier effect of what the bank could create if they could lend out that $200K, at the current reserve requirement of 10% that means that basically $2M just disappeared out of the economy. Multiply by 9% of outstanding mortgages and you will see why the U.S. *had* to bail out Fannie/Freddie -- we're talking about trillions of dollars disappearing if Fannie/Freddie collapse, a deflationary spiral that would overwhelm even the Fed's bottomless ability to print money.
So anyhow, that's why the dollar is looking stronger recently, but it won't hold up. Once the bailout is complete and the bad loans shaken out of the system, the dollar will start heading right back down again...
don't forget the Government's Pension Guaranty Fund which is taking over pensions from businesses gone belly up after giving their CEO's golden parachutes.
ReplyDeleteOh, yeah...and the folks in the Government who are running the Pension stuff are, well, gambling with what little money they have.
Thanks for the succinct explanation, Tux. I've been assiduously reading this guy Mish's econoblog all year, and he's always going on about deflation and credit evaporation. I've been studying this stuff, dammit! But you made it clear. That's why I read your blog. In part. The snark is fun, but there's lot of that on teh Internets tubez.
ReplyDeleteI could glom deflation, which I also notice you're onto, in terms of how the sum total of every bit of land, factories, corporate stock, etc. will be worth less (in real terms, although possibly not in nominal numbers of degraded toiletpaperdollars). But with your simple sentences, I can see how the disappearance of puffed-up money in houses (and everything else that's going to be defaulted on, like peoples' credit card balances) is going to wipe out the supply of imaginary money created by fractional reserve lending. So the Fed has to try and pump a flood of new imaginary money into the reservoir as the old stuff gushes out through the massive hole blown in the debt-dam.
Of course, the Fed will fail. The problem is too damn big. You can't put air into a balloon fast enough once it's popped. The end result will be that the piece of ass-wiping paper currently known as the U.S. dollar will become poorly absorbent "poo tickets" as they say down here.
And now we get the news that Fannie and Freddie were faking their books, and the whole U.S. mortgage finance system was a sham. Which many people kinda suspected anyway, but when it's confirmed, that's more frightening. And the bond-holders, as in the Chinese, Japanese, oil states and every other country that lent money to F&F, are going to be paid back. With the full and declining wealth of the U.S. Treasury behind the plan. It's looking more and more like Zimbabwe.
This is a bit off topic, but pertains to the media.
ReplyDeleteDem voter registrations surge nation-wide
Nationwide, there are about 42 million registered Democrats and about 31 million Republicans , according to statistics compiled by The Associated Press....
The Democrats have posted big gains in many competitive states, including Nevada, New Hampshire, Iowa, Colorado and Florida...
this whole mortgage mess is the tip of the debt iceberg
ReplyDeletewe are sitting on 10 trillion in general govt debt - most of it created under Bush
and remember he is paying for this war with secret account (or so it seems) since it doesnt go into the budget.
and of course - cut taxes, since somehow money will grow on trees again.
freddie mac is the tip of the ice berg. are they askin for th CEO to turn over his paycheck - NO of course not