This month's figures prove that the so-called "housing bubble"
is not only real, but that its cratering faster than anyone had realized. As
the UK Guardian reported just yesterday, "the orderly housing slowdown
predicted by the Federal Reserve will (soon) become a full-blown crash".
All the indicators are now pointing in the wrong direction. Consumer confidence
is down, inventory is at a 10 year high, and the number of homes sold in July
was 22% lower than last year. As Paul Ashworth, chief economist at Capital Economics
said, "Things seem to be getting worse very quickly. Freefall is a strong
word, but I think it's the right one to use here." (UK Guardian)
The housing bubble is a $10 trillion equity balloon that will explode sometime
in 2007 when more than $1 trillion in no-interest, no down payment, adjustable-rate
mortgages (ARMs) reset; setting the stage for massive home devaluation, foreclosures
and unemployment. ("By some estimates housing activity has accounted for
40% of all the jobs created since 2001". Times Online) July's plunging
sales are just the first sign of a major slowdown. The worst is yet to come.
The blame for this rapidly-approaching meltdown lies entirely with
the Federal Reserve, the privately-owned collection of 10 central banks who
cooked up a way to shift wealth from one class to another through low interest
Well, just as high interest rates cause the economy to slow down; low interest
rates have the exact opposite effect by stimulating the economy through increased
spending. It's all pretty clear-cut.
When the stock market nose-dived in 2000 the Fed lowered rates 17 times to
an unbelievable 1% to keep the economy sputtering-along while the Bush administration
dragged the country to war, gave away $450 billion a year in tax cuts, and awarded
zillions in no bid contracts to their friends in big business. All tolled, the
Bush-handouts amounted to roughly $3 trillion dollars, the largest heist in
history, and it was carried out under the nose of the snoozing American public.
At the same time, America's debts and deficits have continued to mushroom behind
the smokescreen of low interest rates.
Rather than face the recession which should have followed stock market crash,
the Fed chose to increase the money supply (which doubled in the last 7 years)
and lower the qualifications for getting mortgages. (I read recently that 90%
of first time home buyers not only lie on their mortgage applications, but that
50% of them say that they earn TWICE as much as they really do. The applications
are not cross-checked with IRS statements) Now, tens of thousands of Americans
live in $400,000 and $500,000 homes without a penny of equity in them and with
loans that are timed to increase dramatically in 2007. (Many of the monthly
payments will double)
So, how can we blame the Fed for the reckless and irresponsible behavior of
the average homeowner?
Well, because they knew the effects of their "cheap money" policy
every step of the way.
First of all, the Fed knew exactly where the money was going. Greenspan endorsed
the shabby new lending-regime which put hundreds of billions of dollars in the
hands of people who never should have qualified for mortgages. They were set
up to fail just like the victims in the stock market scam who kept dumping their
life savings in the NASDAQ when PE's were shooting through the stratosphere.
Secondly, the Fed knew that wages had actually regressed (2.3%) since Bush
took office, so they knew that the soaring value of real estate was entirely
predicated on debt not real wealth. In other words, home values increased because
of the availability of cheap money which inevitably creates a buying-frenzy.
It had nothing to do with real demand or growth in wages.
And, thirdly, according to the Fed's own figures, "the total amount of
residential housing wealth in the US just about doubled between 1999 and 2006"up
from $10.4 trillion to $20.4 trillion". Times Online.
UP $10 TRILLION IN 7 YEARS! That is the very definition of a humongous, economy-killing
equity monster. In other words, the Fed knew the ACTUAL SIZE OF THE BUBBLE and
chose to steer it towards the nearest iceberg without warning the public.
This is what Greenspan called "a little froth".
There is no real growth in the American economy. Figure it out. Last year Americans
saved less than 0% of their net earnings while they borrowed a whopping $600
billion from their home equity to piss-away on a consumer spending-spree. Once
home prices begin to retreat, that $600 billion will evaporate, real GDP will
shrivel, and the economy will begin flat-lining. (Consumer spending is 70% of
The Federal Reserve's plan is so simple; we shouldn't dignify it by calling
it a conspiracy. It's merely a matter of hypnotizing the masses with low interest
rates while trillions of dollars of real wealth is diverted to corporate big-wigs
and American plutocrats.
It might not be rocket science, but it worked like a charm.
Now, the trap-door has been sprung; the country is dead-broke and all the levers
are in place for a police state. As the housing-balloon slowly limps towards
earth, the new Halliburton detention centers are up and running, the National
Guard is in Rummy's control, the Feds are able to listen-in on every phone call
The noose is beginning to tighten.
New Orleans was just a dress rehearsal for the new world order; 300,000
million Americans reduced to grinding poverty while the economy explodes into
sheets of flames.
Mike Whitney lives in Washington state. He can be reached