Should U.S. banks forgive a portion of the principal on mortgage loans that might otherwise go into default and foreclosure, as Ben Bernanke suggested on Monday? Well, if they do, it won’t be done from the kindness of their hearts. The bankers will do it if they reckon they will recover at least some of the money they’ve lent, rather than none at all (and having to take possession of an asset they can’t sell.)
A reader writes in:
Well why shouldn’t the US banks forgive part of their loans to mortgagees so that mortgagees can restructure their debt?
The banks can’t have their cake and eat it as well (or can they ? )… I mean to say it was Ben and the fed coming to the rescue and pumping liquidity into the banking system in the form of short term covering loans ( say has anyone checked that those loans have been repaid ?) by the Fed that saved a few banks from being shortsheeted.
So Ben is saying, we saved you a–, now is the time for you to take a hit and save the little fish… will the banks listen?
Maybe they ought be told by congress, not asked by uncle Ben.
Congress is stupid, an attribute of its collective nature. Individually, Congress people are charming charlatans whose biggest frauds are practiced behind closed doors. Collectively, the institution becomes a self-righteous, thieving, bully with a heightened capacity to destroy wealth (and liberty.) But Just is probably right. Congress will get up to something before the election this year. And it will be no good.
Inflation or Deflation? We say inflation in tangibles and deflation in debt-based assets. But we could be wrong.
A reader comments:
All your uber bullish gold takes have done nothing for the sp’s of numerous ozzie gold minnows and speccies, some of which actually have some of it below ground.
I’m thinking global economic collapse card will trump the inflationary spiral card.
Neither one is terribly appealing. But you can prepare for both as best you can by moving your wealth into more liquid assets. If not gold, cash will do. And for the record, we are not uber bullish on gold. We are often bullish on it, though, because we live in a world where paper money backed by government promises is being exposed as the 30-year old fraud that it is.
Actually, the whole system of funding wars and welfare programs by securitizing future tax receipts (what else are government bonds) is a product of the British and Scottish mind. Without the fiscal welfare/warfare State, the British would never have defeated Louis XIV and all his gold. The French eventually ran out of capital to confiscate, and without any more gold to steal from the people, Louis and his successors had to borrow from bankers.
That’s when money was as good as gold because it WAS gold. When the French spent their treasury, they had no income producing assets to draw on for more revenues. The British (and the Dutch) invented a system of commerce and finance and trade that relied on sound money and open borders. The Nation state has been perverting that system ever since, primarily through confiscatory taxes, regulation, and of course, a monopoly on money that has destroyed the purchasing power of savers as effectively as a cannonball through the guts.
Thanks for your great articles.
You ask what could stop gold rising in price?
Once scenario you may want to consider is that gold will again become illegal to own. This has happened in the past (US I believe).
This could be a very interesting scenario… but if illegal in the US would this affect the world gold price to any marked degree?
Maybe something to think about.
Definitely something to think about. As much as it wants to keep the bubble alive, the Fed is also in the business of manufacturing. That is, the Fed’s product is dollars. It sells them to the world. It’s been a good business for a long time. The Fed-the bankers that actually own and run it-will not want to lose that business, bad as it has been lately.
Bankers hate gold because it is not fractional reserve banking. Bankers make money by putting people into debt and keeping them there. It’s a profitable business, as long as citizens (whom we now call consumers) are willing to stay in perpetual financial servitude.
Wealth you can war, take over the border with you, and exchange anywhere for virtually anything is intimately tied up with liberty-your freedom to move about and take your money with you. That is bad for governments, too, who farm taxes from their citizens the way a farmer collects eggs from his hens. If you fly the coop, there go the eggs. Why do you think governments are making it harder and harder for individuals to take their capital and leave for places where there is more tax fairness?
What government’s really hate about gold, though, is that puts a real limit on their ability to make war and domestic policy. With hard money, you can’t spend it if you don’t have it. With paper money, you can tax and spend or borrow and spend. The important feature of paper money-from the perspective of a so-called is public servant-is that it’s a bottomless check book full of blank checks.
Doesn’t that mean the money supply wouldn’t grow as fast with gold-based money? Yes. And doesn’t that mean prices would be stable? Yes. Does it also mean the economy would grow more slowly? Yes, that’s true too. Growth would be slower… but capital would be allocated less wastefully, too.
The explosion in the supply of paper money has led to a massive miss-allocation of real resources. That’s why the world has six billion people chasing the same rising prices for corn, wheat, oil, soybeans, and gold. There would probably be fewer people on the planet if the Federal Reserve System had never been invented.
As it is, there are plenty of people on this old green ball. And quite a few of them find the future “very disturbing.” A few of them, though, are going to figure out how to live in a world with higher energy prices, and make some money in the bargain. Which group will you belong to?
Markets and Money