Back in February of this year, Alan Greenspan, Chairman of the Federal Reserve suggested that people consider adjustable rate mortgages (ARMs). At the time I thought this was peculiar for two reasons: (1.) It was inappropriate for the Fed Chairman to be advising people regarding interest rates which he has some degree of control over. And (2.) given that interest rates were at the lowest in 25 years the upside potential was far, far greater than any further decline.
Today, about 20% to 30% of all mortgages are ARMs. There's no telling what impact Greenspan's recommendation had on these figures but one thing is for sure - since February, the Federal Reserve has raised interest rates five times.
Given the increase in the cost of gasoline since February 2001 and the increase in interest rates over the last year, those that responded to the advice of Mr. McTeer and Mr. Greenspan are not only way "under water", they have been financially decimated. Who has benefited? The bankers. And who is the banker's banker? Alan Greenspan and his lackey McTeer.
I can't help but wonder if this has anything to do with the fact that for the last year, I have been seeing notices of foreclosure announcements in the classified section of my Sunday newspaper. Every week I see an entire page of these notices which means these people are losing their homes. And not only do they lose their homes, they lose all of the equity they have in them. All of the interest they have paid and all of the principle they have paid...gone. What are these families going to do? Where are they going to go?
So why would Greenspan and McTeer offer such bad advice? The answer is actually quite simple.
Thomas Jefferson, declared "If the American people ever allow private banks to control the issue of their money, first by inflation and then by deflation, the banks and corporations that will grow up around them, will deprive the people of their property until their children will wake up homeless on the continent their fathers conquered."
Of the two scenarios, deflation is feared much more so than inflation by our monetary masters. Inflation, at least, enables debt to be repaid albeit in inflated dollars but deflation means default and the lender (the banks) suffer the loss. Therefore, I believe we will see every effort by the powers that be to encourage an outcome of inflation.
From Richard Russell:
Deflation is a problem because in deflation debts become much more difficult to service.
In deflation, banks loan less and this is a pressure on the money supply. It can shrink during deflation.
In deflation, corporations cut back on their activities, because they are preparing for slowing business and lower prices.
Perhaps worst of all, during deflation the mind-set turns to saving, since money becomes worth more, and because pressure is on all prices. As far as manufacturers and stores are concerned, pricing power is nonexistent.
During extreme inflation, people spend there money as soon as they get it because they believe the cost of a product will be greater later. During a deflation, people hold on to their money because they believe the cost of a product will be less later.
While you may have doubts about which way the economy is going, one thing is for certain, one can't trust the government to show you the way.
Govern yourself accordingly.