Alan, you could have been...

Good riddance Mr. Greenspan. Not that it will make much difference, the course drawn over the years has been set in stone and the likely result is already well developed. A friend in the mortgage business tells me that all she has been writing lately are interest only loans with no money down. Yikes. Home prices have cooled, which is a good thing except that no one can afford them or the taxes on them now, except with nothing down, interest only loans. Oh, and these big mortgages are usually adjustable rate to boot, so no only can't the buyers afford them now, but their payments will be increasing with the Fed raising rates, while their wages are flat to decreasing, especially when you consider that the real rate of inflation is running way above the "official" government numbers.

More about the numbers later, but suffice it to say that the numbers reported and trotted out to the "general public" are cooked so well they could kick the crap out of an Iron Chef.

Asset inflation born in the go go 90s has never had a chance to work its way out of the economy, some say it has been building since the stock market crash of 1987 and the failure and bailout of the Long Term Capitol Management hedge fund. I would tend to agree. Since then the asset bubbles have never popped, or even had a slow leak, They have not been allowed to pop, thanks to Greenspan's Fed policy of "if its broke, print money until it goes away". This insane inflation of the money supply just threw fuel onto the fire and moved the bubble from one asset class to another. In the most recent case, from the Dot Com stock market bubble to real estate.

During the late 90's the stock market was on fire and people were piling in afraid they were going to miss it, stocks were going up, people were working, making money and a greater part of the population was feeling the wealth effect.
This wealth effect has been well studied and shows that when people's net worth is increasing they tend to spend a percentage of that new wealth. Even if it's just on "paper". The same thing has happened as real estate prices have increased. The ugly little secret is that that crappy 3 bedroom, 2 bath home isn't worth any more, its just that money is worth less so it takes more of it to buy it. The wealth effect is balancing on a house of cards that is the illusion of wealth. The effect is real, people "feel" rich and consumer spending based on this false reality has been barely keeping the economy afloat. Getting cash out and refinancing has been the money supply keeping things going. This is about the worst strategy for homeowners because as home prices fall back to their historic levels many will owe more than the house is worth and will have to walk away without the equity they were counting on to pay the loan and finance their lifestyle with.

How does this bubble move from one asset class to another? Cheap money. The Idiot Greenspan dropped interest rates so low that they were below inflation, so the Fed was literally printing and giving money away. Not only does this hurt people on a fixed income because they can't make anything on their savings or CDs which they depend on for income, but flooding the economy with money reduced the value of each dollar, which is in fact inflation. This disproportionally hurts the poor because the little money they are able to make doesn't buy shit anymore. Its no surprise there is a larger percentage of people living in poverty today than in decades. Unskilled wage earners were never well off, but they were able to put food on the table and live a reasonable life. No more. You saw the result in New Orleans, whole areas of the city in poor condition, rented homes week to week. When they left, there was no reason to return. Why come back to claim some trashed particle board furniture?

Since the Federal reserve (which is neither federal or a reserve) bludgeoned its way into our lives in 1913 in blatent violation of the US constitution, the dollar has lost 95% of its value. That's not a typo. Inflation of the money supply by the Fed and the greedy government has diluted the dollar so much its now worth a nickel. Maybe. Inflation increased at a fair clip, but it really got going since 1971 when Tricky Dickie Nixon abolished the gold standard. Up until then there was at least some gold and silver in reserve effectively backing up the value of otherwise valueless paper currency (remember real silver coins and "Silver Certificate" bills?). But once the dollar was cut loose, inflation has accelerated to this day.

People tend to accept some inflation as normal. It really isn't. In an economy where productivity is always rising, that is, each worker is able to produce more and more due to new technology, new machinery, and better communications, prices of each item should decrease over time, not increase. Deflation is the norm. This is how people can afford to buy the things they make, and exchange them with others for what the others make. The medium of exchange is money. Real money has value. Real money is made of metal. Fiat currency, paper money backed up by nothing, does not. That's why people want more of it, because its only based on the promise to pay, and all it takes is a printing press to make more of it. Metal has to be dug out of the ground and there is a limited amount available. That is real value.

Why do these nutters wantonly print money destroying its value and creating inflation? Because the worst thing that could happen to the money creators (the Fed and Banks) is deflation. Our economic illusion is built on debt. Money is created by loaning it into existence. I'll write more on this later, but imagine if new money is not created, there isn't any money to pay the interest on all the money already created. Its a system that feeds on itself and has only one possible outcome. Collapse. Mr. Greenspan has done his part to prolong the illusion and put off the inevitable, but that doesn't change the ultimate conclusion. It just pushes it into the future. The ugly bit is that like an angry boil, it gets worse until it is lanced or it pops on its own. The resulting pain and scar are unavoidable. In 5000 years there has never been a fiat currency that did not end up worthless except the ones now in use around the world. Your day will come too my son.

The wealthy know how to protect their wealth, that's how they stay that way. They hold real money and let the debt slaves use the fiat rubbish. Get it?

Alan, you could have been John Galt, but you ended up as Wesley Mauch.