How Socialism will take over the US
I know the title is a bit provocative. Bear with me and follow how the idea unfolds. I'm not saying that this a good thing or a bad thing. It is simply something that is not too unlikely to happen. So here is the plot:
The growth of the US economy is fuelled by robust growth of consumer spending. This spending is financed to a good degree by borrowing against the increasing values of houses. So the interest rates and house prices determine the money available for consumer spending. This can't grow indefinitely and the number of jobs not appearing suggest, that the combined consumers spending power needs to rely on an increase of the individual spending, rather than an increase of individuals spending.
So, once the interest increases or the house prices level off, this would spell an end to the growth... Unless you make more money available otherwise. The government uses tax cuts, that might work for a while until the deficit strangles it. This is where Socialism, Freddie Mac and Fannie Mae kick in.
We all know, that our monthly mortgage payments consist of interest and capital payment. Getting back the capital isn't that interesting for the lender, since they need to look for a new borrower to continue making money.
So it is only a question of time until the "perpetual mortgage" will be introduced by the Freddie & Fannie. With one strike your pocket will have the money you needed for capital payment available for spending. This possibility is so simple and so tempting, that you will see it happen big scale sooner as you might think.
Actually, since Freddie & Fannie are government backed entities, you do not actually own your house anymore, but the government (there are the security owners in between, but ultimately its the government).
Government owning the houses of its citizens is called Socialism <vbg>.
So what do you think? (I'm more interested in you view of the financial construct, less my provocative label, but every comment is welcome).
The growth of the US economy is fuelled by robust growth of consumer spending. This spending is financed to a good degree by borrowing against the increasing values of houses. So the interest rates and house prices determine the money available for consumer spending. This can't grow indefinitely and the number of jobs not appearing suggest, that the combined consumers spending power needs to rely on an increase of the individual spending, rather than an increase of individuals spending.
So, once the interest increases or the house prices level off, this would spell an end to the growth... Unless you make more money available otherwise. The government uses tax cuts, that might work for a while until the deficit strangles it. This is where Socialism, Freddie Mac and Fannie Mae kick in.
We all know, that our monthly mortgage payments consist of interest and capital payment. Getting back the capital isn't that interesting for the lender, since they need to look for a new borrower to continue making money.
So it is only a question of time until the "perpetual mortgage" will be introduced by the Freddie & Fannie. With one strike your pocket will have the money you needed for capital payment available for spending. This possibility is so simple and so tempting, that you will see it happen big scale sooner as you might think.
Actually, since Freddie & Fannie are government backed entities, you do not actually own your house anymore, but the government (there are the security owners in between, but ultimately its the government).
Government owning the houses of its citizens is called Socialism <vbg>.
So what do you think? (I'm more interested in you view of the financial construct, less my provocative label, but every comment is welcome).
Posted by Stephan H Wissel on 27 March 2004 | Comments (0) | categories: After hours