BOOMS ARE CREATED TO BUST
Did the Federal Reserve know that by lowering interest rates along with lower borrowing standards it would create a real estate boom? Was it only looking for increasing profits for the banking, construction and mortgage industries? Did it realize it was borrowing construction spending from the future? Did it realize that booms always bust? If it was aware of what it was doing, then its actions were criminal. If it wasn’t aware of the consequences of its actions, then it’s incompetent and not qualified to run the United States’ central bank. Which do you think it is? Perhaps both!
The refinancing boom of the early 2000s was well documented. A friend of mine mentioned that her son worked for a bank in the refinancing department. He was make so much money that when his wife divorced him, she received $3,000/month alimony. They were very proud of their highly successful son’s career. Several years later after the bust, this same son was out of a job, had a new wife and child, and had to live with his parents (my friends) for several years until he found a job with a railroad company in the Midwest. Obviously, they didn’t realize he was at the forefront of the boom and that booms bust.
Why aren’t people aware of such a phenomenon? I was reading a novel written about life in a small town in the 1920s where real estate was booming. People would buy a property for say $10,000 in the morning and sell it later in the day for $20,000. Then go buy another property for $20,000 and sell it for $40,000. They were making fortunes within weeks. What gave the property a higher value? Was it scarce or had it been improved? No, there was no reason for the higher price except the government’s usual interference in the marketplace with an extremely liberal monetary policy. Why didn’t the people realize that? Had no one heard there is no such thing as a free lunch? Or, if it looks too good to be true, it usually is. How can people blind themselves to reality? I don’t know, but they do and still are.
The Tea Party represents a small percentage of the general public and is aware of the Federal Reserve’s destructive behavior. The rest of the populace are blind to the machinations of the federal government. I guess they believe ignorance is bliss. I hope they are enjoying their holiday from reality.
More importantly, what did the real estate boom of the early 2000s really create? First, since the stock market topped out in 2000, a lot of investors were looking for another place to invest. They found the real estate market. Billions of dollars went chasing real estate all across the country. My husband and I were looking for some land to build on in eastern Washington State, where prices were usually reasonable. We looked for years until we realized the boom had placed land beyond our reach. An acre which cost roughly $10,000 in the early 2000s, had by mid-2000s cost $25,000 an acre. Unless we wanted to move close to the Canadian border, there was no land we could afford in southeast Washington.
Second, billions of dollars pushed land values way beyond the actual worth of the land. How do I know this? Because when the Federal Reserve realized what it had done, it changed the rules, and land values plummeted. Houses that cost $250,000, $400,000 or $800,000 fell to less than half that all across the country. Fortunes were lost. But the value of the over-priced houses are still on the banks’ books. They make available a few houses at a time so property values don’t keep dropping, which they would. We hear about upside-down mortgages, where values of houses are much less than the mortgages on them, where people are paying high-interest mortgages on houses worth a fraction of the mortgage. They can watch others refinance their mortgages at the lowest mortgage rates in history. Only a government agency could cause something called an upside-down mortgage. Banks are filled with over-priced houses, some deserted, some making payments. But if the balance sheets were audited to reflect current market values, the banks would be in dire straights. And they are. So the banks can’t revalue their assets lest they prove insolvent. Therefore, the Federal Reserve in order to rescue the banks has been easing interest rates down to zero. Banks can take in deposits without paying interest. That’s a first! How long will that last? Apparently years, since the Fed says it’s going to keep interest rates down until at least 2015.
That means that everyone with any money is helping to bail out the banks. My mother who usually takes out a little money each month to supplement her social security, is now dipping into her principle. Retirement age people must save money and they are, but without receiving any interest. That’s an automatic loss of 5%. Even during the Great Depression banks paid 4%. The banking industry is in far worse condition now. Since there are no relatively safe investments drawing interest at a nominal 4 or 5% interest, pension plans are being dissolved at a constant rate because they can’t keep up with entitlements. And those still in existence are having their payments reduced to reflect the lower interest rates. All who hold dollars are being indirectly taxed to support the banks.
How long will this last? Did the Federal Reserve know this was going to happen? It was trying to help out the banks and the economy by enticing people who couldn’t afford a house to buy one anyone, knowing a balloon payment was due in 5 years. The Federal Reserve either didn’t care that these people wouldn’t be able to come up with the balloon payment and would lose their house, or they didn’t see 5 years ahead to predict this, or only wanted the boom without realizing it would eventually bust. Anyway you look at it, the Federal Reserve is derelict in its duty or simply criminal in its behavior.
With the 100 anniversary of the Federal Reserve next year, we should seriously consider ending it. A look at the value of the dollar since its inception proves the incompetency of the Federal Reserve and the damage it has caused since the boom/bust of the 1920s, the Great Depression, continuing inflation since WWII, booms and busts throughout the last 60 years, the Great Recession which is still with us, and the falling purchasing power of the dollar to just pennies compared to the 1913 dollar. The Fed was created to eliminate the boom and bust cycle. Not only has it not eliminated booms and busts, but has made them deeper and more dangerous. The Fed has failed on all counts. End the Fed now and save the country.
