WHAT DOES "FED PUMPS $68 BILLION INTO BANKING SYSTEM" ACTUALLY MEAN?
WHAT DOES "FED PUMPS $68 BILLION INTO BANKING SYSTEM" ACTUALLY MEAN?
PART 1 of 2
August 13, 2007
Last week saw a bucking bronco ride in the stock market. The American people read headlines such as: Fed vows, then pumps massive funds to calm markets and Fed's $38 billion helps markets. I have written many columns the past several years as have hundreds of others warning of the coming financial tsunami. Far too many people scoffed at all the warnings, continued to rack up massive debt and pursued the American dream of owning their own home when their financial portfolio and credit history simply could not float the big boat they were taking out into the ocean. The first of the dominos began to teeter earlier in the week: Aug. 6 (Bloomberg) -- "American Home Mortgage Investment Corp. became the second-biggest residential lender to file for bankruptcy protection this year, adding to signs that late payments have spread to homeowners with good credit records."
Dr. Edwin Vieira is arguably the foremost authority in this country on the central bank and the history of our monetary system. His monumental tomes, CrashMaker (fiction) and Pieces of Eight (non-fiction) are the quintessential teaching tools towards understanding this complex issue and making it understandable for average Americans like me. I bring this up because over the weekend I had a long telephone discussion with Edwin about the market last week. We both agree that the clock is ticking and all the bombastic gas let loose by financial guru's like FAUX's (FOX) Neil Cavuto, is just that because all the kings horses and all the kings men will not be able to fix this one. Not for a long time.
The government's plunge protection team (PPP) galloped in this past week and dumped almost $70 billion "dollars" into the banking system to save themselves. Creating "billions" out of thin air. Worldwide, central banks were scrambling and issuing more worthless paper to the tune of triple digit billions. The big neon billboard has been lit up with a message no one wanted: the stock market growing more fearful about tightening credit after years of free for all liquidity. High Times at Mortgage Express. Investors who don't have in-depth knowledge or real understanding of our monetary system and the FED, trying to figure out what's going to happen to their investments. The subprime mortgage market free fall has been building for years. These are loans made to people who have less than ideal credit - all being done during a housing market that began it's slumpalmost two years ago.
On August 9, 2007, the privately owned Federal Reserve pumped "$24 billion in temporary reserves to the banking system amid an increase in demand for cash from banks roiled by U.S. subprime loan losses." The next day, the FED infused the dying patient on the operating table three different injections: $38 billion. Some say this won't be nearly enough to stop the hemorrhaging. This latest "rescue" by the central bank is going to be short lived and many experts not on the government's payroll predict the FED will have to reverse it's decision last week to leave interest rates alone and instead, announce an emergency drop in rates. The wise folks over at urbansurvival.com said it best last Friday: "When up to a third of a trillion dollars being dumped into financial market's in 36-hours doesn't stem the tide, even the financially ignorant can sense something has changed. That's pouring money into the financial system at a rate equivalent to all of Canada's Annual GDP every four days. And what did we get? A 31-point Dow loss anyway!"
The government announced on August 10, 2007, that Freddie Mac and Fannie Mae will not be allowed to acquire any more mortgage debt. Banks and lending institutions have for too long been making bad loans and despite the gigantic warnings signs, greed carried them through the years, but now foreclosures packages are spitting out more paper than the Pentagon. Let me give you an example. Go to: www.foreclosure.com On the left side, just pick California (state) and Los Angeles (county). Look at just this one list of houses in foreclosure. There are other sites I've browsed with page after page after page of houses in foreclosure just in the LA area alone; they range from $250,000-$1.8 million. Foreclosures were already hitting record numbers by June 2007.
The inventory of available housing continues to stack up like Uncle Sam's IOUs to the world. The "dominant media" continues to dress up the naked mannequin in little better than see-through clothing; the numbers tell the real story. During the roaring re-fi years of low interest rates, Americans took the equity out of their homes and enjoyed the good life. Then came the unpleasant taste of fear when their homes were no longer worth what they paid for them, inventory in their areas can't be sold and the final shocker: subprime loans in numbers enough to gag a planet suddenly went bad as consumers could no longer make those payments. Where do these folks go when they are forced out because of foreclosure? Rental apartments, family or in their cars. They contribute nothing to the economy because any disposable income they might have goes just for the basics of survival.
As Edwin said in our recent conversation, the system has to keep propping itself up in an attempt to fend off hyper inflation like what hit Argentina where people once able to prosper were eating out of garbage cans. Unfortunately, and sadly, most Americans simply have little or no understanding of the subject matter, but to not understand what's happening will be deadly for millions. How will this affect the average American out there already dying under the weight of credit cards debt insufficient household income (despite two working people, sometimes with three paychecks) and taxes in all forms taking disposable income?
1. The middle class has been destroyed by unconstitutional trade agreements; our most productive and important job sectors decimated - agriculture, manufacturing, industrial. Wages have not kept up with the cost of goods and services; the illegals invasion sucking the lifeblood out of this country by stealing jobs (like meat packing at good wages) and sending BILLIONS "home." Pile on the continued sacking of the people's purse by thieves in one Congress after another and a five year undeclared war being funded through borrowing slapped on their backs, has left the American family broke. Seniors living on social security and investments will see those dwindle and will have to keep tapping whatever savings they might have accumulated over their lifetimes. One "rainy day" will drown them.
2. Growing numbers of Americans refuse to buy Made in Communist China; I am one who has been doing it since 1994 when NAFTA was unconstitutionally signed into law. I don't even own a toaster. I go without when I can't find what I need, but I can generally find what I want by taking the time; see Made in USA. If you can't find it there, do a www.scroogle.org search and you will get results. This does not help our economy or retailers, but I'm sorry. I will not give my money to an enemy of my country just for "things." And, remember this: there's a good chance the fur in your sweater, parka and even doll clothes comes from dogs skinned alive in Communist China.
3. In the real world, parents across this country are scrambling to get their children new clothes, books and other trappings because summer break ends for most schools the end of this month. Cash strapped, they go for credit cards. Too many are already maxed out and as credit tightens by the banks, the situation becomes even more dire. Heap the bankruptcies on top of foreclosures (July 2007: Ariz. bankruptcies up 60%; credit-card debt, higher mortgage payments cited) and we're no longer talking chump change here, we're talking about a dreadful scenario for our nation.
4. In a couple of months you will start to see hints of Thanksgiving and Christmas decorations begin to hit the big box stores. Retailers depend on the grotesque spending spree every December called Christ-mas for their big earnings boost. But what's going to happen this year? It's difficult to buy Christmas presents - especially all that 'bling' when your house is in foreclosure, you're one of two SUV payments behind and child care is running you $150 a week. Johnny needs braces, Sally wants ballet lessons, both kids want to go to Disneyland and you would just love a week in the French countryside. However, when the financial squeeze starts to keep you awake at night, the first thing to go is non-essential services like entertainment, eating out in restaurants 2-3 nights a week, vacations and those $75 seats at the Cowboys game. Savings in this country is almost extinct and for the poor, the only place they have to go is ever expanding food banks which are hurting in many major cities throughout the country. For part 2 click below.