Just My Rant

You would think after all the problems that have surfaced in America over the past few years most people would have finally opened their eyes and started to look at the REAL problems facing this once great nation but popularity polls show that America still has their heads in the sand (more like up their asses). As the “popular” candidates vomit their sound bite bullshit about the war, national security & terrorism the average American sits on their hands and bobs their head like a good little puppy, soaking in the lies as if they were Moses receiving the commandments.

One has to wonder if America has to collapse to finally open the eyes of the myopic American. They sit and suck up the highly polished “popular” debating points of these professional bullshit artists all while they struggle to feed their families, pay their bills and just make ends meet. Why? Because the freaking economy is is the toilet! For way too many years American’s have bought the great lie of “don’t worry, go shopping”! They have been told credit is their friend and everything will be all right no matter how much they spend. The values of their homes seemed to spiral skyward like a rocket aimed at the moon while bankers pushed refinancing, 2nd mortgages and easy credit as a way to “tap into” these supposed new home values and now the great credit beast has been unmasked!

For years my wife and I have lived a somewhat frugal life while all of our friends just HAD to buy every new toy that came to market. They vacationed 2 and 3 times a year and bought new cars every couple of years. For years we looked at them and wondered how they seemed to be doing so well and we weren’t. Now the truth has been exposed. They weren’t making money hand over foot, they were borrowing it like a drunken sailor and thank god we never fell into that trap! Now these people are scared and damn well they should be because it’s time to pay the piper!

But honestly you can’t blame people, well not entirely. Most American’s believe the drivel oozing out of the TV set and when they are told they are newly wealthy why not party like it’s the end of time? No the fault lies much further up the food chain, it lies with the FED, the banks and the greedy politicians that have lined their pockets for years with corporate money from the same people that were picking the average American’s pockets. Let’s take a trip back just a few years and try to figure out when and how this mess started.

We can go back and nitpick little things but to really get to the meat and potatoes of the situation we have to go back and visit our old friend Ronald Reagan and a “new kid on the block”, the new head of the FED, Alan Greenspan. You see his administration had a little problem called inflation. Inflation meant people were paying X amount more for a set of items than they were the year before. It bothered people and made his administration look bad. They had to rein in inflation somehow.

Their solution was a simple one, instead of trying to stop inflation let’s change the way we calculate it. With some simple voodoo economics they managed to get the reported inflationary rate down to 3% in just a few years. How did they do it? Simple, they substituted an item in the “basket” (more on this later) of items inflation was calculated on, namely housing. The idea was just a but tricky since no one in their right mind could say housing wasn’t an essential for people but the administration had a new trick up their sleeve. Instead of using the cost of a home they decided to use the cost of renting a home. This way no one could say “How do you calculate the cost of living without including housing?” The trick was simple, home rental prices are one of the slowest growing prices around while home costs could do just about anything! But several other weighty factors were now removed from the equation too, home owner insurance and taxes. Now everyone was happy, the economy looked wonderful and people were ready to spend money again, especially the government. Why?

What so intrigued the government about controlling the inflation rate was the fact that Social Security increases, along with many other pay raises were tied to the cost of living. If you can keep the inflation rates down in the 2-3% range you could save the government billions of dollars from senior citizens and people that actually worked for a living!

Move forward just a few years to the Clinton administration. The Clinton administration decided the way inflation was calculated need a little more “tweaking” so once again they changed the method inflation was calculated. You see inflation had always been calculated on a “basket” of goods. The basket of goods was supposed to include a variety of items most Americans needed to live on a daily basis. Things such as housing (remember what Reagan did), food etc. Well Clinton’s little “think tank” did what most rich bastards would do. Since the “basket” included the price of a steak they said “If they can’t afford steak they will buy hamburger so we can substitute in a new item if any one item becomes too expensive in the basket”. So if steak jumps from 99 cents a pound to five dollars a pound all we have to do is remove the steak and put in hamburger at 99 cents a pound, essentially keeping inflation (as it is reported) the exact same. Makes sense to me, doesn’t it? To be honest all that comes to mind when I think about this was the famous quote “Let them eat cake”.

So Clinton patted his crew on the back because they had come up with a brandy new way to lie to the American public about how much things REALLY cost (like Americans couldn’t see it in their daily expenses), but hey the economy was smoking hot, things seemed good all over so let the good times roll and while we are at it let’s open up the markets and get the imports and exports flowing to fuel the economy even more but even there the current system posed some problems, namely tariffs and unions.

A tariff is a fee on items coming into the country to protect OUR workers from overseas slave labor rates. In other words if Sangi is willing to work for $1 a day making t-shirts and an American worker refuses to work for less than $7 per hour the government has to add cost to an item coming in from Sangi’s country so the American worker can keep his or her job.

Unions had become a especially unpleasant thorn in the corporate world’s side. They had raised the lowly worker to a position that had the power to tell the corporate big wigs what they wanted OR ELSE. Unions empowered the “little guy” with the ability to demand what was coming to them and the corporations just hated it because all that money that should be in THEIR pockets was feeding worker’s families.

Enter NAFTA, the North American Free Trade Agreement. Essentially it stripped of many tariffs that protected the American worker but that wasn’t enough. Along came CAFTA … both “agreements” removed any and all protection from cheap products and services from any item produced in South or North America. So long job security, so long guaranteed raises and pensions for American workers. If Mexico or the Dominican Republic could make it cheaper it would make it’s way into the US with no extra tariff added. Company’s that wanted to add profits to the ledger sheet simply dropped out of union negotiations by saying “If you don’t like what we are offering we will move to Mexico” and move they did, in droves! US plants were closed one after another while the administration touted their new found miracle, the “global economy”. What did this mean for Americans? Well simply put it meant the corporations would offer a low ball figure or reduced benefits and if the union didn’t like it the company would move the factory to some other country where people would work for 50 cents an hour and all those union employees had to find a new job.

So now we have people being forced to work for less than their bills. Employment rates “seemed’ fine but then again the government only reports those that are applying for unemployment and those collecting, they simply “forget” about those people that have run out of benefits and those that are working 2 and three part time jobs to make ends meet. For those that did have jobs but were still short on paying their bills the answer was a no brainer, borrow it or charge it on their credit card.

Fast forward to the reign of GW Bush, now 2002 the economy was lagging at best, still reeling from 9-11 amongst other things. Once again the much lauded “monetary guru”, Alan Greenspan who is still the head of the Federal Reserve bank enters the picture. Economic growth was the key now, how do they fuel an economic expansion? Simple, let’s make money so cheap to borrow EVERYONE will borrow, so we drop the interest rates down to damn near 1%. The economy was struggling again but this time is was a lack of growth so Greenspan in all his wisdom decided (along with many others) that the answer was ‘cheap money’ so they began the drop until finally banks could borrow money for just over 1%. What do these banks do with all this cheap money? They lend it to make more money but this time there was so much cheap money they decided to loan money to just about every Tom, Dick and Harry that wanted it … whether they were qualified to pay it back or not.

Enter in the “vultures”, those lowlife scumbags that prey on the “little guy” to make themselves filthy rich. Since the mortgage industry is virtually unregulated these vultures start preying upon people who needed cash and owned a home. They also “threw out” many of the long standing practices of determining who could buy a home. Since it “appeared” as though house values were never going to stop going up they could write new mortgages, refinanced mortgages, 2nd mortgages and more by lying about the value of the home, the home owners income and so much more. Why would they do this if they KNEW the home owner couldn’t pay the mortgage back? Greed, plain and simple greed. They sucked $10,000 - $20,000 in fees out of the unsuspecting people that took out these mortgages.

But then you might ask, wouldn’t the mortgage companies have to worry about getting the house payments on time for years? Nope, enter the latest financial scheme on Wall Street, the SIV. What these braniacs did was to bundle up all these mortgages and sell them off to investors so once the brokerage got their fees out they dumped the loan into a festering pile of other bad loans and sold them off to the highest sucker, oh sorry I meant investor. The scary part about these funds is the fact that they are rated by a couple of “supposed” trustworthy services, like Moodys, that should have know better than to rate them as investment grade funds. Personally if anyone goes to jail for this mess it should be these rating companies!

Now, you may ask “Shouldn’t the home owner have know?” Well yes BUT remember the government is telling people every day the economy is smoking hot and home prices seem to go up every day. It’s easy to get caught up in the excitement! You also have to add the pressure from the media to “own it all”, advertising about what your neighbors own and you don’t feeds into the lowest denominator in just about anyone. Let’s even mention the days after 9-11. What did OUR government tell us? “It’s OK, go shopping” .. the pressure to have the American dream was formidable at best.

Now don’t think for one second that I absolve those that bought homes knowing full well they could never afford them over the long term because I don’t! For years people have spent more than they could afford and shame on them for that but we are not talking about that select group, we are talking about the overall sense that there was nothing that would stop home prices from going up and the euphoric feeling it gave to the “average Joe”, to them it was the American dream come true!

So now you have people being forced to work for less than they are used to while they are being offered as much cheap credit as they can stomach .. what else can the government do to put in the “fix”

Well there is one last thing that most people don’t realize happened in the reign of GW Bush (or as I like to say, that ASSHOLE in Washington). In 2005 Congress (a Republican controlled congress mind you) passed the Bankruptcy Reform Act. It sounds like such a modest thing but in fact it was the final nail in coffin for each and every struggling American! For years every American knew if they REALLY screwed up they could fall back on the courts and file bankruptcy. Sure no one wanted to do it because it was the ultimate “I screwed up” but it was protection from becoming a slave to your debtors. What these “reforms” did was remove the ability of MOST people to get rid of unsecured debt (e.g. credit cards). So you can file bankruptcy but even if you file you may end up having to pay off your credit cards over time. You might say “I thought bankruptcy got rid of that debt” and you, like so many Americans would be wrong. You see the politician / corporate greed factor went the extra mile on this one. What basically happened was the credit card company’s paid off the politicians and got a law passed that took us back to the dark ages! You can lose your home, lose all your assets, hell you could even be thrown out on the street but you will STILL owe your credit card debt and they can garnish your wages until the day you die!

So after all these changes to the FED lending rate and the changes in bankruptcy laws the economy was “overheating” as they say. To make the picture even uglier the US Dollar was one step above junk bond status because of the stupid drop in interest rates. To counter act this new mess the FED had created Greenspan started ratcheting up the interest rates as that was the “only” way to slow down growth and make the dollar look quasi respectable. One little problem with this thinking was the fact that a large chunk of the new home loans written during this so-called economic boom were ARMs. ARM is short for adjustable rate mortgage. The new mortgage holder pays a small “teaser rate” and then their interest rate adjusts (or resets) every so often to the current FED rate plus X amount. Remember a lot of these people bought their homes when the FED rate was 1% but soon enough Greenspan had run the rate up 10 times! These people would soon get “sticker shock” when they opened their mortgage bill and begin to see beginnings of what we now know as the housing bust.

So let’s come back to present day. Greenspan is gone, replaced by Ben Bernanke. The fine string that had held together this “economic boom” has now unraveled into a mess of massive proportions! Banks are choking on bad debt and debtors are scared they might be homeless soon. What does Ben do to fix it? He follows right in Alan’s footsteps and starts dropping the interest rates, thereby making the US dollar plunge to new lows all while pumping MORE credit into the system. You have to ask yourself, how the HELL do you fix an overextended credit problem with more credit? Simple answer, you don’t! 2008 is set to become the “perfect financial storm” and most independent economic analysts are saying it is going to get UGLY!

So how does this “perfect storm” come into play? Well let’s add up the facts:

• Americans are SO FAR in debt most would need three life times to pay it off
• Banks are eating bad loans faster than a Nathan’s hot dog contest
• The bankruptcy laws WILL hold people in debt as slaves
• The government has played with inflation rates to make YOU feel “more comfortable”
• The FED is now loaning money to these big corporations and banks as fast as they can to TRY bale them out of the mess they have created (it wont work BTW)
• NO ONE cares whether YOU can pay your bills or not!

So let me ask you this, what is more important … moral values? Gay marriage? Religion and politics? Nope, it is the economy of the United States because if the economy collapses YOU will be a slave to the corporate machine for the rest of your life! If the economy and the way the economy is manipulated isn’t fixed and I do mean DAMN soon every other problem we have as a nation will seem like a “fart in the wind” to you and I.

I implore you, look at the candidates, ask them about the economic mess we are in and if they don’t have a good answer find ANOTHER candidate! Sure Iraq is a mess that we should have never gotten in to and yes we have to get our troops home but what kind of home will they come to if the US Economy falls into a depression that makes 1929 look like (as Alan Greenspan himself said) a Sunday picnic!

In my next article I will explain exactly how this economic firestorm could very well play out and how you can protect yourself, your family and your assets.

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