DEVALUE THE DOLLAR, KICKSTART AMERICA

Dollar Devaluation To Fix The Great Recession
Frank Beck, Forbes Magazine, 12.09.08, 1:00 PM ET

What began as government social tinkering—with implied threats to banks and mortgage companies to extend home loans to even the most marginal of borrowers&@151;led to a greed-blinded mortgage banking business and the meltdown we are experiencing today. Now we are asked by the same congressional leadership to go along with taxpayer-funded bailouts of the very banksters who, while making millions, created the mess..

Despite the trillions of dollars already expended recapitalizing banks, there is very little, if any, progress to show. Will a few trillion more do the trick? That seems to be the consensus among Congress and the banks. "They are simply too big to let fail," or are they really just too big to save? We can go back to "Plan A" and buy the toxic assets. If so, at what price? What if a few trillion does not remove enough toxic waste from the system or doesn't get credit flowing again and the economy bustling?

Some argue that it is time to help Main Street, not Wall Street. So, we should "forgive" some of the mortgages for those who are 90 days or more behind on their payments. Have you quit paying yet?

If we are to save bankers, shouldn't we at least distinguish between those who possess the intelligence to renegotiate their loans to workable terms? If we are to save homeowners, should not we first define the term "homeowner?" Perhaps it is not only someone who agreed to and signed a mortgage and is living in a house. Just perhaps, it should also include the stipulation that this individual paid some amount of a down payment: 20%, 5%, a dollar. I can tell you who is not a homeowner. It is not someone who paid zero down and ridiculously low payments for two years; that, my friend, is a renter.

The problem with all these ideas is the money is only directed at those who created or benefited from the problems. Why not attack the situation in a manner that will benefit most everyone, an approach that has been successful before and, when compared to the current course, has little downside?

Here it is. Stand back. World currencies should be devalued overnight.

It can be done on a country-by-country basis, but a coordinated devaluation would work best. A devaluation of 30% would raise the dollar value of all assets by 43%. A $200,000 home with a $230,000 mortgage would become a $286,000 home with the same mortgage. Presto! The homeowner who was $30,000 upside-down now has $56,000 equity and a good reason to make his payments. Both the homeowner and the bank are immediately better-off.

It would even benefit those who purchased their homes responsibly, as the value of their homes would rise by the same 43%. The current course of throwing trillions of dollars at the culprits is without any benefit to those who acted responsibly.

Admittedly, this is not a solution without the price of inflation, but the inflation would be short-lived. The current course will ultimately cause massive inflation that cannot be accurately estimated, and it may not even solve the problem.

Currency devaluation proved effective in ending the Great Depression. In 1930, Australia was the first to leave the gold standard, immediately devaluing the aussie by more than 40%, and the economy quickly recovered. New Zealand and Japan followed suit in 1931, each with the same result. By 1933, at least nine major economies had enacted a devaluation of their currency by removing it from the gold standard, all of whom emerged from depression.

In 1933, through a series of gold-related acts, culminating in the Gold Reserve Act of 1934, America realized a dollar devaluation of 41% when the price of gold was adjusted from $20.67 per ounce of gold to $35 per ounce. America, like the others before, had its economy bottom and recover as a result. Of the larger economies, only the French and Italians continued to adhere to the gold standard, and their economies remained depressed until finally, in 1936, they allowed their currencies to devalue, and their economies then recovered.

I see no reason to believe we would have any different result today. Only debt would remain the same. All other assets would immediately be worth more (in nominal terms), whether it be a home, a stock, an ounce of gold or a used car. Bank balance sheets would immediately improve, as many loans would be moved from non-performing to performing status. Banks would be paid with devalued dollars, but they made millions creating the mess. The current use of government stimulus through the creation of dollars will certainly lead to a similar or worse devaluation, so this is likely a net gain for the banks too.

Businesses would instantly become more profitable, and workers' pay would increase, allowing each to pay their debts more easily, even while sending more tax dollars to Washington, without raising tax rates. As assets are sold, the capital gains would send even more taxes to Washington. States and locales would receive more revenue via sales and property tax, improving the fiscal condition of school districts and local governments. The national debt would effectively be reduced by the same 25%, giving future generations a chance. Combine the move with a congressional pledge to only raise the budget by half the devaluation, and we could be on track for a balanced budget and paying down the debt.

As the old Saturday Night Live skit said, "Think of inflation as your friend. Wouldn't you like to wear $1,000 suits and smoke $100 cigars?" I know I would.

Frank Beck is Chief Investment Manager of Capital Financial Group and ProPlayer Investing in Austin, Texas, an affiliate of Partnervest Securities of Santa Barbara, Calif. Mr. Beck may be reached at Frank@FrankBeck.com.

DESIRING MCCONNELL'S STIMULUS PLAN

SENATE REPUBLICAN LEADER Mitch McConnell on Monday demanded an amendment to the mammoth economic stimulus package to give government-backed, low-interest loans to homeowners—a revision that he says will both increase the demand for houses and boost the average household income.

"We believe that a stimulus bill must fix the main problem first and that's housing," McConnell told reporters Monday in introducing a plan to offer fixed mortgages of 4 percent to "any credit-worthy borrower."

According to McConnell, his plan would allow the average family to see its monthly mortgage payment drop by $466 a month, or $5,600 a year. He said in a radio address Saturday that over the life of a 30-year loan, that's a savings of $167,760.

The House passed an $819 billion version of Obama's stimulus proposal last week and the Senate version being debated this week is even larger—$900 billion. But most troubling to Republicans—and even some Democrats—is that no money is allocated in the proposal to go directly toward foreclosure relief and the housing crisis, aside from a $7,500 tax credit for first-time home buyers.

Lowered-mortgage payments would put more disposable income into the hands of recession-battered households, McConnell said on the same day a staggering report showed consumer spending fell for a record sixth straight month in December.

Read it all.

Yes, we want the same sweetheart deal that Chris Dodd got. It's only fair. And it bristles of poetic justice! I want a 4% mortgage, and then I'll shut up about this treacherous bailout. Because let's look at this another way. Although US bankers are wailing hysterically that this kind of financial meltdown has never been seen before, the truth is that Japan went through something almost exactly like it back in the 90’s when their own real estate bubble burst.

The crash for them took place in ‘90-91 and didn’t really affect the Japanese until 1992. That was when things got feisty. But unlike our own leadership, the Japanese government left the economy to sort itself out, and some say that it originally made the situation worse by planning to adopt austerity measures and they announced these measures, like tax increases, 18 months in advance.

Eventually, there were some changes in government and some kind of Keynesian economics wizard who started to hold banks accountable for what is called adverse selection. As I understand it, adverse selection occurs when bankers hold onto their bad assets, like bad mortgage tranches, for example, in the hopes that they will be worth something someday, while they sell off all of their good assets for cash they need in order to do regular backing business like lending and borrowing. When Japanese banks were finally forced to eat their bad stuff, the economy turned around.

FORECLOSURE EPIDEMIC AFFECTING RENTALS

OF ALL THE THINGS that can go wrong on moving day, few could be worse than arriving at your new home to find another family already living there. Then again, in today's Darwinian housing market, worse things do indeed occur.

Like when a devious foreclosure agent tried to trick a Fairfax County teenager into handing over her family's house keys. Or when a "landlord" collecting security deposits and rent turned out to be an impostor with no legal claim to the property whatsoever.

In the past 18 months, the foreclosure debacle has pushed tens of thousands of area residents into the rental market, many with crippled credit and a desperate need for housing. Waiting for them is a new cast of swindlers, cheats and real estate sharks ready to prey on the weak and needy. Scams of various stripes are thriving in the foreclosure mess and flourishing at the margins of landlord-tenant laws.

Rental scams have generally been more of an urban problem, but the high incidence of foreclosure in the Washington region's suburbs and the relative lack of tenants' rights organizations there have helped create areas of vulnerability in such places as Prince William County. Opportunities are rife: The county and the adjacent cities of Manassas and Manassas Park have tallied 7,672 foreclosures this year through November, according to court records, up from 3,344 in 2007 and 282 the year before.

Many of those homes are bank-owned and vacant, and investors have been buying them at deep discounts and converting them into rental properties. But houses that remain vacant present some of the ripest targets for fraud, officials said.

Read it all.

THE CRIMINAL COLLAPSING OF AMERICA

SHE IS ABSOLUTELY ON THE MARK. We appear to be witnessing a coup. But by whom? Mop-up on aisle seven. Is it even possible to push back on the two dominant political parties? Is it too late? Have the mendacious Tri-lateral Commission globalists finally made their move to wrestle control of whatever resources that remain to them?

Great speech by Congresswoman Marcy Kaptur, D-Ohio...

As one wit put it, "The whole American banking system needs to be changed. American families need to save more and spend less and pool their resources together to achieve their goals. In that way, they don't have to pay the price for living beyond their means. Cash is king. Those who have lost their jobs and can't pay their mortgages, should either sell or rent out their homes, room by room, and look for something else to do to pay the bills in the meantime. Give up the debit and credit card, and pay with cash."

As much as this pains a "big spender" like myself, this sober but grim assessment and strategy for surviving it, even if still possible, appears to be the elephant in the room.

And where are the two presidential candidates and the tar baby MSM while this meltdown of American financial markets is continuing? Quick on the draw, Senator John McCain suspends his campaign, and rushes back to Congress to join Congresswoman Kaptur to shore up his prescient warning of two years ago. So let's clear up some of the disinformation coming out of the media the past 24 hours or so.

John McCain got involved in the bailout negotiations after Treasury Secretary Henry Paulson told Senator Lindsey Graham yesterday that the bailout plan would fail unless McCain came in and brought balking Republicans aboard, according to news anchor Bob Schieffer on this morning's Early Show. Schieffer's account stands in stark contrast with the allegation by Democrats like Barney Frank, Harry Reid, and their MSM cohorts that McCain's moves of yesterday were nothing more than a political "stunt."

Present but uncommitted Barack "Listen, I'm skinny but I'm tough" Obama is hiding out in battleground Tampa hypocritically practicing for a foreign affairs debate—obviously serving his nature in refusing as usual to take a stand on this financial ballout plan, preferring to stick his finger in the wind for clues and pay grades, while his Obamabots with every tick of the atomic clock, hustle and bark like frothing maniacs in decrying that Governor Sarah Palin is nothing more than a mental bulimic in everything from raising her five precious children to worshipping the fatted calf of political affairs.

Joltin' Joe Biden—the Human Gaff Machine—seems to have completely dropped off the political radar, even though he is up to his highballs in this failing economy mess, having been in the pocket of Big Finance most of his congressional career. Actually Senator Biden has never been on the radar in this election except to tally his daily blooper, his credentials as a long sitting senator from the Great State of Delaware and two failed presidential runs obviously affording him the opportunity to rest on his laurels.

The mainstream media? Go fish. The MSM would be a laughing stock if not for the undeniably vicious fangs dripping with the blood of journalism's proud history, and its mangled corpse now rotting on the ground, cast aside as ill-suited for these more spectacular times, fangs that it bares for all but its Most Chosen One during this election cycle. The air around DC is thick with intrigue, the stuff of cloak and daggers, political machine tactics, faded hopes and involuntary convulsions, the government itself just another animated corpse masquerading as business as usual.

This has been an ugly, ruthless campaign. Just ask Hillary Clinton supporters. The question on the angry quivering lips of millions of earnestly informed citizens who fear the worst in these Dickensian times, yet whom are still clinging to hopes of electoral salvation one well-equipped leader at a time, is this—will we (let us pray), as a nation of consequence, once brimming with charm, courage and promise, even survive the circular insanities informing this season's election process?

Or will November 4, 2008, actually launch an even uglier civil strife, starting with riots in the cities when one side eventually loses, fair and square, or not? Have we fallen from grace as a nation so far and so fast that The United States of America now resembles a third world dictatorship right down to the inability to transition political power without visiting violence and thuggish atrocity behind the scenes and on Main Street?

Of course with the law of unintended consequences always on our breath, perhaps we are setting ourselves up for yet another wrinkle in the rise of World War III, or worse—some foul amalgamation of all of the above as we rush to transcend race, industry and intelligence by insisting that every living creature on planet earth is somehow a racist, is somehow just plain ignorant, is somehow a troll, is somehow a bot, and we are certain, is somehow too poor for comfort, and thus so very obviously quite irrelevant in our almighty pursuit of liberty and justice for the few who make what seems increasingly to be the cheater's grade?

An enemy in American clothing. And I mean you and your kind, Bozo!

Obviously some once mighty heads need to roll under the bus before we will any of us quite be ready to look ourselves in the mirror again without seeing an enemy of the people, even as not a few very real enemies infiltrate our shores. Let me be absolutely clear. Unless these malignant financiers are prosecuted to the full extent of the law and then some, for fraudulent schemes, America will NEVER recover. Our leadership must not let these people take the money and run. They must pay the price of their plunder. Here is a link to McCain's speech given to former President Bill Clinton's Global Initiative just before he departed for Washington.

Even the often ignored but ever so outspoken and vigilant constitutionally-correct congressman from Texas—Ron Paul—doesn't offer much more than a rather vague and anemic response to this very real and unquestionably immediate (or so THEY say) economic crisis. And as we have been saying for some time now, this is only the tip of the global iceberg American industry is facing. Let's just pray that somebody now whirling around the drain will actually grab hold of reality and finally stand up for common decency and equitable justice for all, after all is said and done.

Half of life is just showing up.
—Woody Allen