Now we see the Federal Reserve drain its reserves which are Treasury DEBTS, of course. The US government has, as per usual, lied about budget matters and now it turns out we are running up to HALF A TRILLION in the red if not much worse. Congress is busy voting to spend more billions trying to run over Iran Kitty and control Iraq, our own Tar Baby from Hell. Half a trillion in US homeowner wealth has vanished into thin air. Or rather, the US government is busy turning it into government debts. This leads to bankruptcy. Of course, the Fed ignores raging inflation and drops interest rates another 25 points. Argentina is going bankrupt yet again and for the same reasons we are going bankrupt. Will we learn before it is too late? Nope.


Here is a graph I decorated. Click on the image to enlarge. The colors represent interest rate levels. The red line is the real inflation rate. It is obvious that we are in very great trouble and the 'cures' of the late 1970's to the early 1980's, courtesy of Volcker, may have killed inflation only for a while. Not permanently.


Note the red arrow pointing to the inflation rate red line in both 1976 and 2003: These two times are the only two times in the last 60 years that the real inflation rate has been over 500 points higher than the official interest rates. There are several significant periods when the Fed dropped interest rates below the rate of real inflation: In 1960, to boost the economy and thus show Commie Russia and Commie China that we were a worker's paradise, in 1972 when Nixon pretended to be ending the Vietnam War via kissing Commie Chinese ass, in the mid seventies we had 'stagflation' as the price of everything we needed to eat or use shot way up in price, then we had another session of fake interest rates after the Gulf War I victory. Then there was 'stability'. This was supposedly a time when inflation was 'under control'.


Government spending dropped, for example. But was our economy healthy? Or DYING? Unfortunately, it was dying. Our trade deficit which began during the fake interest rate regime under Nixon, took off! So did the stock market. When the stock market bubble popped, rates went far, far below the rate of real inflation. The infamous Housing bubble ballooned. Rates were shoved upwards rapidly to deal with the flood of red ink from the US government and our consumer economy. We ran up over $4 trillion in government debt AND another $4 trillion in trade deficits. Nearly $10 trillion in all! This has only one end: bankruptcy.


So the Fed, today, voted to drop interest rates to the cellar where it last was, in a realistic sense, during Eisenhower. When we were a creditor nation and had an industrial base. Looking at this chart, I must say, we will see DOUBLE the hyperinflation of the 1975-1985 decade if the Fed keeps dropping rates and keeps them low in a misguided and insane effort in preventing Wall Street from panicking.


$536 Billion Worth of Household Assets Evaporated in February?

Paul L. Kasriel
plk1@ntrs.com

It sure is a good thing that $150 billion of checks from the IRS are in the mail to U.S. households because these same households experienced an evaporation in paper wealth in February to the tune of about $544 billion according to my admittedly back-of-the-envelope arithmetic. It was reported today that the Case-Shiller house price index for 20 major metropolitan areas fell 2.66% month-to-month in February. Applying that percentage decline in house prices to the fourth- quarter value of $20,154.7 billion for household residential real estate from the Fed’s flow-of- funds data yields a decline of $536 billion. Now, this is a very rough approximation for at least two reasons. Firstly, the Case-Shiller price index is for only 20 metropolitan areas, not the whole country. So, the Case-Shiller index captures the decline in house prices in the Manhattan, New York area but not the Manhattan, Kansas area. Second, the value of residential real estate in the Fed’s flow-of-funds accounts is based on the OFHEO house price index. But even with these qualifications, I feel confident in saying that the value of households’ residential real estate assets fell in February by some multiple of the aggregate value of the checks households will receive as part of the Economic Stimulus Act of 2008.

This stupid, ridiculous hand out designed to keep people spending: it is insane. It is stupid. It is a hand out. It is America the Welfare Queen From Hell time. It is also bankrupting the nation. Right now, our stupid geniuses who came up with this obvious scam are running in circles, screaming, 'Who, who, WHO is going to buy all our bonds we must issue to cover the gaping Federal deficits?' Of course, if Ron Paul suggests we stop spending $109 billion bombing Sadr City, the media and our flag pin lapel wearing political operatives will go nuts. 'Traitor! Treason!' they will shout. 'Ron Paul is a nut. He isn't serious! We are serious!'


So it goes: Hillary Clinton and McCain who are two warmongering peas in a pod people plant, both are suggesting we no longer collect gasoline taxes! This will free up money, as ABC TV said tonight, 'So people can buy FOOD!' My god. The head spins! I saw on TV all these big, fat, SUVs sucking down huge amounts of gasoline. Since we decided to ignore reality for two decades, we are stuck with these behemoths. I always bought gas misers. I loved my little Geo Metro. Drove it for over 200,000 miles at 55 miles to the gallon. A very unpopular car over here.


Americans don't want to make any serious changes. Everyone with gas guzzling monsters should park them and start carpooling or riding bikes or walking, god forbid. And if they can't do this, they should ditch these ridiculous machines and buy cheap, used Geo Metros. Actually, I sold mine! The kid rebuilt it. Still runs. The point is, we can't have endless gas. This is bankrupting America. It is making our trade deficit stink to high heaven. It is treason. It weakens our nation and anyone driving these things should reflect on how they have destroyed our great nation, all so they could drive about arrogantly and hassle little Geo Metro drivers.