The Federal Reserve is looking to buy back bad debt and pushing for the government to write loosen lending standards on loans that they invest in and write down the balance on mortgages where the home is underwater.
Last week, I wrote about the Fed’s recent criticism of the U.S. government’s handling of the housing crisis, a crisis that still persists and may only be getting worse (“Fed Cries Foul?“).
According to a number of news sources, the Fed is considering taking unprecedented action in the housing markets by buying back more housing bad debt. And they are pressuring the government to step up efforts to loosen lending restrictions for borrowers and doing loan write-downs for owners who owe more than their house is worth through Freddie and Fannie.
This week, some new revelations about the Fed’s outlook during the run up to the housing crisis in 2006 were released in the form of that year’s meeting transcripts—and the Fed looks foolish.
According to The New York Times, “Meeting every six weeks to discuss the health of the nation’s economy, [Fed officials] gave little credence to the possibility that the faltering housing market would weigh on the broader economy, according to transcripts that the Fed released Thursday. Instead they continued to tell one another throughout 2006 that the greatest danger was inflation — the possibility that the economy would grow too fast.”
Additionally, the Fed poked fun at the growing concern by builders to move housing inventory, “The officials laughed about the cars that builders were offering as signing bonuses, and about efforts to make empty homes look occupied. They joked about one builder who said that inventory was ‘rising through the roof.'”
The implication of the transcripts are clear: the Fed had no clue that the floor was about to fall out from underneath them and the U.S. economy.
So, this begs the question, why do they think they’re now qualified to speak in the housing market?
In 2006, there were plenty of people with enough common sense to know that the housing crisis was going to be bad for the economy, but these were generally considered fringe economists or conspiracy theorists because they challenged the status quo.
Rather than listen, the Fed drank its own Kool-Aid on the fundamentals of the economic system, and the safety net that was supposed to be collateralized debt.
Today, many people, such as my friend and now Rich Dad blogger, Richard Duncan, author of The Dollar Crisis and The Corruption of Capitalism, are sounding the alarm about the coming collapse of the dollar that may result from the Fed’s continued call for printing more money and inflating the economy through debt.
Yet, today, the Fed continues to drink their Kool-Aid and move forward with blind faith — much like they did in 2006, when one Fed member stated upon Chairman Greenspan’s departure, “It’s fitting for Chairman Greenspan to leave office with the economy in such solid shape. The situation you’re handing off to your successor [Chairman Bernanke] is a lot like a tennis racquet with a gigantic sweet spot.”
Those must have been some pretty cheap strings.
The point of all this? I simply want you to understand that the so-called experts can not only be wrong, but they can be dangerously wrong. My hope is that you don’t drink Kool-Aid, whether it’s served by the Fed, or even myself, but that you increase your own financial literacy.
The mission of the Rich Dad Company is to equip you to think for yourself. We provide financial education that helps you do your research, gather all the information, analyze that information, and make your own informed decision.
Think for yourself and get a financial education.
This is why I rarely tell people what to do, but instead simply explain what I’m doing. I never want you to follow my advice blindly. I want you to think for yourself. What works for me may not work for you.
This is also why we redesigned our website to be more useful to you by providing free financial news and resources to help you make informed decisions.
At the end of the day, only you can save yourself and your family financially. Make the decision today to think for yourself and to take charge of your financial future.
We’ll be here to help with our financial education resources.
By: Joshua Gayman
In 1970 the US Government was running a spending deficit and a trade deficit(just like today) and so they were depleting their gold reserves because at the time the dollar was attached to gold to give it a hard asset-backed value.
This deficit spending caused inflation, which meant that other countries’ currencies would be devalued because all of the currencies of the developed nations in the world have been attached to the dollar since Bretton Woods in 1944(right after World War 2)
In 1971, Germany did not like that their currency was being devalued to keep the US dollar propped up, and so they unilaterally left the Bretton Woods system. This move by Germany strengthened their economy and simultaneously, the dollar dropped 7.5% against the Deutsche Mark.
Other countries started demanding payment from the United States in Gold due to the execessive printing of dollars and the negative trade imbalance of America.
On August 9th, 1971, France unilaterally withdrew from the Bretton Woods system, leaving their tie to the US dollar. As the dollar plunged again and to prevent a total collapse, President Nixon cut the link with the US Dollar from the gold standard less than one week later on August 15th, 1971-immediately and without the approval from Congress. Since that day, the dollar has been a fiat currency, a debt, and the United States has been the only country in the world to literally have the ability to print as much of it as they want.
Fast forward 40 years…
The dollar has lost 97.5% of it’s purchasing power. We have gone through the biggest booms in the history of the world. We have seen the biggest bust in the history of the world.
Unemployment is at records highs. The trade deficit and budget deficit are both at record highs. Foreclosure is at record highs. The money supply is rapidly setting new records. Again, like 1971, other countries are wanting out of their tie from their currency to the US dollar, and for the same reasons they did 40 years ago..That is, execessive printing and a trade deficit. This time, there is also a record budget deficit, and the US credit rating has been downgraded.
What major actions are left to be taken? Interest rates are already near zero, they are pumping as many dollars into circulation as possible, and they cannot cut spending enough to balance the budget, no matter what they cut.
There is no way gold can drop in value until the dollar dies and a new currency is set. Look at the pictures below to see why:
Written by: Joshua Gamen
Gold hit an all time high of $1,633.80 per ounce on Friday! Driving up the price is the result of central banks buying gold and coincidentally(sarcasm) the decline in value of the dollar. The drama in the white house regarding the debt ceiling has had quite an impact on the price of gold lately, as has the news that the US can’t keep perfect credit by devaluing it’s current debts from printing more money. But what is really key here, is that the central banks(the people who print pieces of paper that people use as money around the world) are buying gold.
Silver has been idling around $40 per ounce this past week or so, and looks to continue it’s descent upwards along with other commodities including oil which is at a price of $95.70 per barrel and approaching $4 per gallon. The increased price in silver, just like gold and oil, is an economic reaction to the depletion of value in the US dollar. This is because value does not leave the planet, it simply transfers between different asset classes. Right now the money is flowing out of the dollar and into gold, silver, oil, real estate, food, etc.
I am holding to my recent prediction of silver hitting $200 per ounce by October 2012. If silver hits $200 per ounce, that would put gold at a price of $8,156 per ounce based on the current ratio of silver to gold at roughly 41 ounces of silver to 1 ounce of gold. Strong projection, but I’d like to get some talk going on about the subject. With Federal Reserve Chairman Ben Bernanke recently telling Congress they are working on doing more of the same thing(creating debt for free, devaluing the currency, buying back treasury bonds, QE3…) along with the possible default on the US debt, a credit rating downgrade of the US, and rising prices in oil and gold, I think it’s a harsh reality we could face. What it would ultimately mean would be very bad for the poor and middle class, inflation..
Debt Ceiling – Credit Downgrade
The politics are what they always are, a battle for power.
The reality is, they’ve argued over the debt ceiling being raised for too long and it has already took effect on the credit rating of the country. The reality is that a credit rating downgrade will be just as catastrophic as a default on the debt. The stocks will tank, the dollar will free fall, and gold will surge.
Tho many me be interested to see who wins the heated debate over the hot topic between the Democrats and the GDP, the truth is as Robert “Rich Dad” Kiyosaki puts it: ” that no matter who wins this battle, the war may already be lost—and the American public will be the casualties.”
Like I said, politics are a battle for power – Here is the fact:
WE HAVE A BIG DET, AND WE CAN’T PAY IT BACK. SO IF WE PILE MORE DEBT ON THAT, WE WON’T BE ABLE TO PAY THAT BACK EITHER. The Credit Rating Agencies know that we can’t pay this debt back, even tho they have took this long to finally admit it. According to the Wall Street Journal:
Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have all warned they might cut the U.S. credit rating. S&P, in particular, has said it could move even if a debt-reduction deal is met and the $14.29 trillion federal debt ceiling is raised.
S&P has cited $4 trillion in debt reduction as a figure that would be appropriate for keeping the triple-A rating. S&P has also said it wants a credible agreement, meaning one that has bipartisan support.
Neither side is close to a $4 trillion figure. And given the wrangling, the chances of strong bipartisan support for any deal seem unlikely, investors said(“Downgrade Threat Looms”).
..Now, the question shifts from what will happen to what am I going to do now that I know what is happening.
The definition of insure is this: “to guaranty against future loss or harm.”
The US dollar is a commodity. Everything going on right now is sending that commodity to the tank, and since it has no intrinsic value as it’s physical body(paper), it will now stop until it reaches zero. Now, you can have your political beliefs on everything and that’s fine, but you wouldn’t buy a house without insurance, and you wouldn’t drive your car without insurance, so why do you hold your money as a piece of paper with no insurance? Gold and silver are insurance to the dollar.
My point is that it’s not about what I want to be money, right? We all have ideas of what we want or think should be money, it’s about what probably is going to be money.
Meanwhile it remains a perfect storm -a good one 🙂 – to invest in real estate! Prices are still low while sales are high. Most important is that interest rates remain at all time lows, making the oppertunity to leverage and cash flow abundant. We’re getting it done with outstanding returns here in Phoenix, AZ. Give me a call if you are interested in doing some investing – 623-252-3234, let’s talk.
By: Joshua Gamen
Could there be a one world currency?
As a citizen of the best country in the history of the world, the United States, I would have said no 5 years ago. I would have told you that’s a terrible idea. The United States is home of the US Dollar. And to the United States government, the Dollar represents a global license to print money. This is because the Dollar has stood as the Reserve currency of the world since 1944(google: Bretton Woods). No other country in the world has the same power to literally just print money with a printing press, because other countries have to convert their currency to Dollars before performing global trade.
But the times, they are a changin’!
Fast FWD 5 years to present day
All of those dollars printed since 1944 were leveraged further using debt and fractional reserve banking. We are all familiar with how debt increases the money supply. Fractional reserve banking is the process of expanding the money supply further by banks issuing new loans every time a deposit is made. This means when u put $100 in the bank, they turn it into $1000 in loans.
After decades of printing money into existence and operating in a system ran by debt, the house of cards crashed in 2007. A huge run on the system occurred from ’02 to ’07 when Debt flooded the world like never before. The country thrived as they lived on the money the banks loaned them. Loans that existed off of money which was printed into existence from nothing and charged interest on. Banks thrived as housing was used to further leverage the money supply by being used as collateral for more debt. But 2007 exposed the system. In 2007, the economy fell like Jenga when society could no longer make the minimum interest payment on it’s debts. Banks tried to patch the hole in the bubble by dropping interest rates to zero so that the system could stimulate debt to stay afloat, but it was too late. The debt was already too much to repay.
The banks then had to foreclose on the houses because they weren’t receiving payments. The banks want interest, not rent, so the houses are useless to them. This caused a flood of supply to the housing market and drove values down. The housing crash was absorbed to them because they got reimbursed by insurance companies like AIG. That is what then caused the stock market crash in 2008. Fannie and Freddie crashed first, then huge public insurance companies like AIG went bankrupt from reimbursing the banks for their foreclosure losses. Financial stocks tumbled and brought the other sectors down with them, causing the stock market to fall 50 percent.
The banks needed the insurance companies to keep bailing them out, so they got the government to issue that huge bailout. In addition to their beloved insurance companies receiving hundreds of billions of dollars, they got plenty for themselves thrown into the package. They then used their money to buy up the little banks, furthering their empire of banks.
Now the banks were posting record profits from the money they had received from the government and insurance companies, but the public was still in shambles. Even with the government dumping trillions of Dollars into the system, unemployment soared as housing continued to crash from the continually increasing supply of housing led by foreclosures, loans stopped and trade halted, both globally as well as on a local scale.
With the US economy on life support, the rest of the world stopped investing in it. This means foreign nations stopped purchasing our debt. To keep the economy going, more Dollars were printed and injected into the economy, which devalued the existing dollars. Now we are on the brink of another Jenga. This time the collapse would be much more devistating, as it would be caused by the exposure to the currency bubble that the Dollars has been in. The cause of the bubble: Too much currency in circulation. The problem is that there are significantly more Dollars in circulation than there is production of goods and services. This inevitably leads to the increase in prices to all goods. This also means, unless you are getting a pay increase to adjust for the increase in prices, you won’t be able to live the same as before. In addition, if you have money in savings, it will now buy you less than it would have in the past.
Foreign countries have took notice of our currency manipulation, and they don’t like it. Most notably China, who is fighting to have their currency, the Yuan, replace the Dollar as the reserve currency of the world. The reason they don’t like supply of Dollars flooding the world is because it means the interest they are collecting from investing in the US is being paid back to them in Dollars, which are lower in value than they were when these foreign nations invested in the US.
A currency crash, which is economically referred to as hyper-inflation, would result in a world depression.
I believe that we will see this happen very soon, as we are seeing the value of the dollar plummet, while at the same time more and more dollars being printed. This is why commodities such as oil, gold, and silver have been skyrocketing since this mess began in 2007.
So what will happen when this happens? I believe it will cause a global reliance on government, which will then cause one of two scenarios. The first scenario being a merge of the biggest nations in the world into a one world government, and the second being a world war for control of a world government. Either way, freedoms will be lost and quality of life diminished. But I will assure you, someone, somewhere, will be gaining power from the whole thing..
By: Joshua Gamen
Knowledge is the new coin. Since 1971, the dollar is debt. This happened when President Nixon took the US Dollar off of the gold standard(without the persmission of Congress). See, money as we know it today is not constant, but rather it is a derivative of the faith in that which is perceived as the money. Let me explain…
The Dollar is not real money. What gives value to the dollar is not that it is backed by the full faith of the US government, it is that people have faith that it is backed by the full faith of the US Government. The problem with this is, as many of us already know, the government is broke. The United States government literally runs like a household who has maxed all of its credit cards and refinanced their house to a mortgage greater than it’s value. The difference between the US government and a household who might do that, is that if a household did that, they would lose their house and no longer be able to borrow money to live. The US government, however, has the Federal Reserve, who depends on the government to stay afloat, so that they can continue to indebt the people of the United States and world, which count on the government.
There are too few people who realize the true root of our economic problem. The problem is our money. The thing that we work so hard for and try so hard to hang on to, is actually our biggest problem! The ultra rich who control the money supply want us to need more and more of their toxic money, as that is the only thing that gives it value! The more of the money we need, the more they print. The more money we need, the weaker we become, and the more we are headed towards socialism, where we fully depend on our government to provide everything for us.
The Federal Reserve does not provide anything of tangible value, they simply create money out of thin air which they then lend to the government and other banks, who in turn lend the money to people, in exchange for a debt in which they will never in their lifetime be able to pay off. Hence the name of the game, DEBT. The Federal Reserve has no reserves because they don’t have any real money. Why would they need to store money when the rules of the board game Monopoly apply to them in real life?(The bank never goes broke. Which is a real rule btw..)
“The Federal Reserve Bank is not a bank. That idea is as illusionary as our money.” -Robert Kiyosaki(Author of Rich Dad Poor Dad)
My point on this topic tonight, however, is not that the Federal Reserve is a hoax(Although it is), but that money in our modern day is based off of ideas. If you have something that others will believe in, you have created value.
For example, Mark Zuckerberg has no idea what he was creating when he started Facebook. As pointed out in the movie “The Social Network,” Mark’s goal was not to make money by selling ad space online, it was to create something in which EVERYONE would think was cool. Facebook was born. Now there are millions of Facebook users across the globe, and Mark Zuckerberg is the youngest BILLIONAIRE in the world. Mark printed his own money, billions and billions of dollars of it, by taking an idea and creating something others wanted.
The good news is, you can financially educate yourself, and use your own ideas and/or debt to legally print your own money. Let me give you a real life example. Since I have not asked the parties for their permission to publish their names on the internet, I will use simple made-up names..
Jonny finds a 3 bedroom house for sale at $60,000 in Phoenix, Arizona. He gets a mortgage(debt) for $55,000 to purchase the property, and promises the private lender he will give them a down payment of $5,000 within 90 days. Jonny puts up the house for sale and markets it by saying, “Buy with no bank!”
Jonny then finds Bobby and Sue, who make good income but have damaged credit due to the recent foreclosure on their credit report(They simply could not make the payment anymore on their old house after their neighbors were paying 1/3 of the monthly bill to rent the house next door). Bobby and Sue need a house, because they have 3 large dogs and cannot stand the thought of keeping them in an apartment. So they give Jonny the $10,000 they had saved up while not paying their mortgage for 6 months, and receive the option to purchase the house at any time they want over the next 5 years for $70,000. Their monthly rent is $900, which is half the price they were paying in the house they got foreclosed on.
Bobby and Sue are very happy. They now have a house again in which they can call their home, and put their creativity and personality into it while keeping the equity for themselves. For them, all of the money and work that they put into the house increases their standard of living, but not at the expense of throwing the equity away, as was the case if they did anything more than sweep the floor at their old house.
But Jonny is the one who really makes out on this deal. Jonny did not save his paychecks to get the $60,000 to buy the house, he simply took out a private loan himself, requiring a down payment of only $5,000, which he had 90 days to come up with. His monthly payment on the private mortgage was only $600, even at 12% interest.
Jonny got $10,000 in his pocket before he ever paid out $5,000. So not only did he have someone else pay for his down payment, but he is also putting an instant $5,000 in his pocket on top of it, and another $300 into his pocket each month that he has the property. If Bobby and Sue buy the property, Jonny simply pays off his $55,000 loan and realizes another quick $5,000.(He owes $55,000, but Bobby and Sue owe him another $60,000 to buy off the house legally, in addition to the $10,000 they already gave him). If Bobby and Sue decide to move, Jonny can put the house right back on the market and do the same deal again for someone else. The down payment he received from Bobby and Sue will more than cover any short term vacancy.
Jonny has legally printed his own money, and will continue to print his own money every month that he has someone pay rent to him to live there. He has made money from nothing. He took on new debt, and created an idea in which was worth a greater debt to someone else. Rather than use that debt to weigh him down, he uses that debt to work for him. Some day the house will be paid off. This is really an infinite return.
There are many more examples that could be given, but the point is that money is an idea. Knowledge is the new money.
It doesn’t matter if the economy sees inflation(cost of goods and services going up) or deflation(costs of goods and services going down), the name of the game is debt. Debt is what the ultra-rich are after.
If you want to have more money, your knowledge of money needs to include learning to use debt to create cash flow, then manage that cash flow. Whether you do that with real estate, businesses, the stock market, the internet, or whatever your idea may be.
By: Joshua Gamen
While the politicians are doing everything they can to keep the attention of the crowd, the real game players are behind the curtain, sitting at a table, plotting out how they can keep control of the world.
Obama is still the president, for another 2 years. His popularity rating is falling, people are frustrated, they want jobs and they want the lifestyle back. But I assure you it is not up to the government to provide the life you want, it is up to you.
The election was tonight. The House of Representatives had the majority swing back to the Republicans, as the balance shifted to a count of 236 Republicans to 162 Democrats. Democrats still have majority of the Senate by a slim count of 51-47. There is a lot of talk about the “GOP”(Grand Old Party, Republicans), tea parties, etc, and what they will try and change. But while the same game continues to get played in Washington that has gone on for generations, the real players are in the backroom keeping their plan going to make the rich richer.
While Americans were heading to their polling places Tuesday to decide who will represent them in the halls of the Capitol, just two miles away the Federal Reserve’s Open Market Committee was having a two day meeting in its historic Board Room.
Odd that the election came the night before the Fed makes their big announcement. Or is it?
“While the talking heads will be focused on who won what seats in congress, the real power will be making an important decision whether to begin another round of quantitative easing, a.k.a printing money, to try and jump start the economy. The way they do this is by buying their own debt in the form of bonds. ” -Robert Kiyosaki.
The Federal Reserve was established in 1913, we are almost 100 years into it’s existence. The elections are held every 2 years. What does it tell you when the two meet at the same time. Think about this, the Federal Reserve is not part of government. The Federal Reserve is a private entity. It is not Federal, it is not a bank, it has no reserves. All they do is print paper. And yes, they feel the need to have a big meeting over the 2 days while the elections are going on and then come make their big announcement the day after the votes are in. Could they be getting their strategy ready for the next batch of elected officials and their plan to play off of them as well as possible?
They are going to buy back their own bonds. Bonds are IOU’s. So basically, they are just removing some of the IOU’s. Why would they do this? Well, if the interest that they have created based on all of the “loans” they have made in their existence, is greater than the production we can achieve, their only hope to keep the system going is to just pull back and say, “it’s ok, we’ll take some of this off so that you can continue to pay us.” It’s the ultimate “loan mod.” Seriously, their whole goal is that you keep working to give your money to them. You are creating stuff, and meanwhile they are keeping control of everything being created. If the people wake up and realize that we are paying them with dollars that don’t mean anything anyways, then they will quit paying them all together. If the people don’t think they “owe” anything, then they don’t “owe” anything. Could the Federal Reserve order the military to force people into going to work and then handing their money to them? No, not “yet” anyways. Remember, the Federal Reserve is a private entity. Scary that they have the power they do.
Leave your thoughts!