THE MORTGAGE GAMEFri Sep 7, 2007 21:23THE MORTGAGE GAME
Numerous economic pundits are waxing greatly as international central banks have poured half of a trillion dollars into the economy to prevent an economic collapse from the mortgage companies’ credit expansion of the past several years. As teaser interest rates on ARM’s are adjusted to reality conditions, mortgage foreclosures are devastating holders of the housing debt, curtailing new construction, and causing precipitous drops in stock values.
To understand the dilemma, you must understand the problem.
The basic operation between the Federal Reserve and Congress, stripped to its basic elements, is very simple: The Fed will provide a line of credit in their affiliate banks if Congress will give the Fed a debt obligation (bill, bond, or note) of an equal amount.
Every “dollar” in circulation has been created by this process of deficit spending.
Observe what has happened. An promise is made that an amount created (principle) will be repaid along with an additional amount (interest). The principle was created but a promise was made to pay back the principle and interest. The interest was not created. It does not exist. The promise is impossible to complete. A contract to complete an impossible undertaking is an act of fraud and is void upon its inception.
In simple everyday terminology, the above action is a classic Ponzi scheme.
Ponzi schemes will endure only as long as new debt can be sold. The new principle pays for the interest due and payable. If new principle is not available and existing principle is used to pay the interest due, the money in circulation sharply decreases (all other factors being constant) and quickly precipitates the obvious bankruptcy.
New debt must be of consistently larger value to pay for the increasing value of interest due. The growth of interest is exponential (interest compounded upon interest); the growth of principle is linear. The interest payment will increasingly consume a larger percentage of money collected by Congress until all other programs must be reduced or discontinued. But history is full of examples suggesting Congress will undoubtedly resort to run-away inflation before reducing government largess. The phenomenal growth in the national debt during the past 20 years is mute testimony.
The obvious theft of wealth from individuals by the printing press (inflation) who hold dollar denominated assets is very clear.
The U.S. economic system, as designed and installed by Congress in 1913, is inherently unstable and self-destructive. It is only a matter of time and perhaps it has come.
The mortgage companies may take the rap for their ARM’s but the low interest rates deliberately established by the Fed over the past years is the origin of the credit hyper-expansion.
Conspiracy buffs will quickly draw attention to the tsunami of property consolidation by Freddie, Fannie, and Ginnie to Karl Marx’s plank to abolish ownership of private property.
Milgram Experiment (Derren Brown)
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