The American Economy and Nationalised Mortgages


Something very strange is happening to the American economy. Everyone is pretending it is good, in an illiterate manner. Today's buyout of mortgages--as opposed to a loan for which the collateral of mortgages was required--suggests that the dollar may soon be a 'mortgage currency'. In the past, currencies were backed by gold or silver; no gold earned, no currency issued, so states were under pressure to discover new sources, or, more likely, to balance budgets and not to issue paper debt at prohibitive interest rates. The gold standard, as such, collapsed in 1914, was briefly revived, and then collapsed again for good.

There are some who say a version of a gold standard prevailed in the world economy from 1944 until breaking down between 1966 and 1973. Under Bretton Woods, the US currency was ultimately capable of being exchanged for gold, held in Fort Knox. US gold reserves, and budget surpluses, meant that the dollar underpinned world trade, but that the Americans would not run down their own supplies or inflate currency, or refuse to exchange currency earned in trading with the US. Vietnam, productivity falls, and Johnson-Nixon spending effectively destroyed this system, and led to a vicious global combination of stagnation and inflation in the 1970s.

Today, the federal government of the United States has given a huge commitment to the financial sector. It may run into trillions. The American Federal Reserve has, over the past year, cut interest rates at a time when dollars are pouring into the world economy because of debt and deficits in trade and budget spending.

Yet, America is still growing (better than Europe) and, whilst unemployment is rising, the dollar is too. The gloomiest reports are still of an America not in recession, but facing one. Why hasn't it come about?

Not only should this growth not be happening, but there are two other highly puzzling factors. A huge guarantee has been given to the entire financial sector which promises to be for years but which may only last till after the elections. Further, this guarantee has been effected by purchasing mortgages, some of which are bad--which means the dollar is now backed by bad debt.

Where in human history has this been anything but a prelude to collapse? Yet the dollar is still rising. Is it that the British and European economies are in such bad shape for investors that, even with all these weights around its neck, the American economy is still favourable as a centre for investment? Is it that the Chinese and Indians need dollars on hand and will support the American economy because it owes them so much? Is it that illegal employment and illegal immigration are so deep into the American economy that jobs can be lost on a huge scale and only barely recorded, giving a false picture? Or are the financial markets living in a cynical la-la land, the last of the great bubbles, designed if not to elect a Republican then not to help a Democrat? Is currency speculation akin to the unwinding of the carry trade smashing around the world like a hurricane as assets are liquidated and turned into dollars?

Something very strange is happening. This blog went very gloomy indeed last year and earlier this year. I was beginning to think that my elephant-sense of something very bad heading our way was very wrong, and was actually glad of it. Now, the crisis I've been banging on about--of money, oil, war, food and demographic collapse beginning around the arcs of instability and in financial markets is taking shape.

I am not sure that our narcissistic, fundamentally weakened society can cope with what may be coming. I think that there are things that can be done in the short, medium and long terms, but would rather that we worked towards them than that they were imposed upon us.

Something wicked this way comes. God help us, though we do not deserve it if he does.