David Ramsey's Weblog

December 25, 2009

Iceberg Dead Ahead!

Filed under: Economics and Financial — David Ramsey @ 11:46 pm
Tags: ,

Eric Sprott and David Franklin recently asked Is It All Just a Ponzi Scheme? And the answer is increasingly looking exactly like it is. Zero Hedge just followed up on Sprott’s thesis by asking Are Hedge Funds Responsible For The Missing Half A Trillion In Treasury Purchases? As they analyze the publicly available data, which is admittedly incomplete, the answer appears to be that indeed, the Federal Reserve is engaged in the greatest scam in the history of the entire world.

At the same time that Sprott was asking this question, Bloomberg reported that the U.S. Treasury Ends Cap on Fannie, Freddie Lifeline for 3 Years. Zero Hedge also adroitly summarized this announcement succinctly and absurdly as follows:

We do not expect the GSE’s to grow their portfolios at all, so we are fixing the bloated portfolio problem by easing the portfolio caps to permit a quarter trillion dollar expansion thereof.

We do not expect either of the GSEs to need more help from the Treasury, so we are responding to the underutilized $400 billion “lifeline” the GSE’s have with the Treasury ($111 of which is currently used) by expanding it to… infinity.

Oh, and though they have collectively lost nearly $200 billion, we are paying the CEOs around $6 million each.

Great work team! It’s already almost 11:00. Let’s go to lunch.

All of this points to a very sick economy, one that is not going to recover any time soon if these reports are true. Ah but what about the recovery in housing? Mark Hanson covers why housing is still a disaster in progress for at least a few more years at his blog. So between the obvious need to bailout Fannie and Freddie before they collapse, which has just been enabled at your expense, by the way, we have the new housing market collapsing in another tailspin. And this is further reaffirmed by Depression level unemployment numbers of 22% when you honestly count everyone out of work or underemployed. So 22% of the economy can’t spend anyway, even if they wanted to because they don’t have the income stream to do that. Unemployment peaked during the Great Depression at 24%. We are frighteningly close to that now with no clear exit from this mess in sight yet.

We’re in a deflationary tailspin here at the moment and nothing Bernanke does seems to be able to stop that. Buckle your seat belts. The year 2010 won’t just be a shocker for Democrats. It could be a shocker to the entire world and in ways not yet even envisioned, especially if the rest of the world begins to publicly ask the same sorts of questions that Eric Sprott has been asking.


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