Alex’s Notes: The more I read what this guy says, the more I realize how much of a genius he was.

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A few quotes from Thomas Jefferson:

When governments fear people, there is liberty. When the people fear the government, there is tyranny.

The accounts of the United States ought to be, and may be made, as simple as those of a common farmer, and capable of being understood by common farmers.

The concentrating [of powers] in the same hands is precisely the definition of despotic government. It will be no alleviation that these powers will be exercised by a plurality of hands, and not by a single one.

The man who fears no truth has nothing to fear from lies.

If we can prevent the government from wasting the labors of the people under the pretense of taking care of them, they must become happy.

That government is best which governs least.

Does the government fear us? Or do we fear the government? When the people fear the government, tyranny has found victory. The federal government is our servant, not our master!

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Alex’s Notes: This is a seriously long article. I dont really expect anyone to read it in its entirety (unless youre off the deep end like me).

Bottom line according to this analyst, is everything that is occuring in the world economy is lining up to be the perfect storm for gold.

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by Bob Chapman
The International Forecaster
Wednesday, 26 September 2007

US MARKETS

This past week we saw gold trade 12 days over $700, the most momentous gold event since gold began its six-year journey from $252.00 an ounce. Soon phase one of the gold bull market will be completed at $850.00 and ounce.

The breakout was triggered by a collapsing dollar, triggered by a real estate and credit crisis that not only affected the US, but Europe and Asia as well. The ECB has dished out over $350 billion that we know of and the Bank of England is in for another $100 billion to go along with some $300 billion via the Fed. Then there are all the other miscellaneous countries. Thus, at least $850 billion has been pushed into the world monetary system.

This is a major gold breakout with nothing but blue-sky until we hit $850. That should take silver to $25-$30 as well. There is no real resistance at $850, it has been 27 years. There is no overhang. It’s just psychological. We also do not know how much gold the gold suppression cartel has left. It can’t be much.

This is a storybook layout. Eleven percent plus inflation driven by lower interest rates, M3 at 14%, and massive amounts of liquidity being driven into the system. This is even more powerful than 1978-81, because we already have a crisis in world credit that has only just begun. As a kicker the dollar is headed for 72-75 on the USDX, the dollar index, and more likely 40 to 55. Thus, after we break the psychological barriers of $850 and $1,000, it is probably $2,500 for gold.

Spain sold 150 tons of gold and the government says that there will be no more sales. 150 tons was enough – what fools. All of Asia and China and India are buyers as is all of the Middle East. Russian President Putin has told their central bank to raise the gold share of its $420 billion in reserves.

All nations are lying about inflation. England says 1.8% as food prices double and petrol prices continue to climb. Then we have the ECB that expects us to believe their inflation is 2%. China just jumped 6.5%. Then we have 18 of 20 major central banks with M3 of 14% plus on average. It doesn’t get anymore bullish.

Then we have England with 300 tons left, that may be going to be leased, which is not good delivery. That means they do not meet LGD standards and probably will have to be re-refined. Some gold is in bars, some in coins and some in ingots. The gold has been accumulated since around 1840 and over the years there was no standard. There has not been an external audit since 1954 for US gold, thus, it may not be good delivery or it may not be there.

Gold is again leading the way with silver in inflationary times. Gold is reasserting its monetary role and as the ultimate safe haven. Gold shares versus bullion are very undervalued. They are trading as if gold were at $600 an ounce due to suppression by our government. That is why we believe that there are spectacular gains ahead. The entire HUI is way undervalued versus gold. You have hitched your wagon to a star and don’t let go. Buy more gold and silver coins and shares.

We send the message out again, anyone who owns SLV, the silver ETF, should have sold it long ago. The GLD, gold ETF, is in the same sell spot. These positions should be liquidated and moved into gold and silver coins and shares. Barclay’s that has the silver ETF could go bankrupt due to derivatives, CDO, ABS and CP losses. Besides, if you read the contract you will see they do not have to take silver delivery, they can buy futures contracts. Where would you be if Barclay’s went under? You would be just another unsecured creditor. We cannot get access to an audit on GLD because their contract with the depository doesn’t allow for it. Have they been lending gold? We believe they have and we believe they are not taking delivery of some of the gold they purchase via futures contracts and derivatives.

It should be noted in reference to silver that recently the commercial shorts covered almost 20,000 contracts equal to 100 million ounces of silver. That was the turning signal for silver and since it has picked up steam to the upside. We believe that silver is a runaway locomotive. That, of course, gives great leverage to silver stocks.

When looking at shares of producing gold companies be sure to check their costs. Total cash costs in the first half of 2007 were $371 an ounce or 21% higher yoy, and there will be no let up in cost increases. We do expect that the difference between the cost to mine and sales will decrease. Costs will just go higher, so gold must go higher.

As you are well aware, China holds 18.3% of all US Treasuries. It is rumored that the Chinese have a deal with George and the neocons that they will buy US Treasuries with their surplus and in return George Bush will veto any fair trade legislation with tariffs on goods and services. The problem is the Chinese grew skeptical of the deal and its consequences and in July, August and September they have been sellers of some $14.7 billion of Treasuries. What tipped the balance and the agreement was the sale of AAA rated toxic junk, with fraudulent ratings. Central banks and other bankers are furious. Other currencies will be beneficiaries of this flight from the dollar, but in time gold will be the big winner. This means lower interest rates, massive monetization and money and credit creation. In Europe the ECB has held rates down. They nevertheless have increased M3 at 11.7% and England has increased theirs by 13%.

Making matters worse for the US is rising oil prices that have to feed inflation. The Saudis and others in the oil producing business in the Middle East look like they are about to sell oil in currencies other than dollars. The Saudis could be large dollar sellers and if that happens the petro dollar will be dead and so will the dollar as the world’s reserve currency. The American elitists have again sold everyone out to save their own hides’ short term by lowering interest rates. The game is over and gold is again king of the currencies. There is $4.4 trillion in US securities out there and if just a small percentage were sold it would raise havoc with the value of the dollar and US securities. All these years foreigners have helped keep the dollar strong and inflation low and that is in the process of ending. There is every reason to sell the dollar. Not only financial ones but political ones as well. Foreigners despise this administration. They are well aware of the fiscal profligacy and the horrendous debt built up by this administration and the average American. The administration has been told by every international organization that their fiscal policies and debt accumulation on and off budget is unsustainable and would end up in economic disaster.

Hyperinflation and the Weimar Republic are next as the most recent cuts, together with these future cuts, team up to fuel rampant speculation, profligacy and inflation which, when added to that which has already been created and built into the system, will send prices skyrocketing. A stunning 15% rate of inflation has already been built into the system due to an out-of-control and hidden-from-the-public M3 money supply, which we have taken the liberty of publishing in lieu of the Fed or the government. The September 18 cuts will add to this morass as will further cuts thereafter, until we are compelled to do our grocery shopping with very large wheelbarrows full of dollars. What else could we expect from an academician whose solution to a potential recession and subsequent depression is to drop money out of helicopters (hence the name Helicopter Ben), thereby hoping to inflate his way out of trouble. This is just another foolish Keynesian myth, the economists’ equivalent of an old wives’ tale, but Helicopter Ben actually thinks it can work and that it could have prevented the Great Depression. As you all well know, sometimes in life you just have to shut up and take your medicine. This is reality. But of course impractical academicians deal in theory, not in reality, so purging the system and taking the economy immediately and unceremoniously to the woodshed was simply not palatable (and, in addition, was totally unacceptable to the Illuminists, at least for now, until their looting of the US public and their fractional reserve banking Ponzi scheme are completed). So instead, we end up with an economy that is running around wildly, totally amok, like a spoiled child with ADD to boot. As any parent would tell you, out-of-control children with little problems grow into out-of-control adolescents with much larger problems, and that is exactly where we are headed.

Mr. Bubbles beat the dollar into a bloody pulp, and now Helicopter Ben has administered the coupe de grace. Greenspan’s Folly has been followed by Bernanke’s Gambit. We and every other professional trader know that this gambit will not work, and that it is only a temporary Band-Aid that will be left flopping in the wind when the whole system collapses. The Dow, after gaining about 336 points the day of the Fed’s big cut, has struggled ever since, gaining only 39 points to close at 13,778.65 on Tuesday, one week later. This is because the PPT is caught in yet another box and cannot get out. Downward pressure on every US stock market is now so tremendous that without the carry trading hedge funds and a very weak yen, these markets will go nowhere but down until the credit crunch is resolved, and that will not happen until the dead bodies of the victims of the CDO/ABS/ABCP contagions are located, identified and buried. Given the deregulation that has occurred and which has made the whole market system worldwide into an opaque, hazy cloud which no one can see through, the location of the bodies is virtually impossible to determine, and until they are found the credit crunch will continue. If the PPT weakens the yen, the market will climb as the liquidity of carry traders greases the skids, but much of this liquidity will go into PM’s which have been relentless and unstoppable, and could very well send gold to the moon in a mind-boggling short-covering rally that could cause the very vulnerable all-time high number of gold futures open interest of 427,545 contracts set on Tuesday to totally unwind, completely annihilating the commercial shorts. If they try to strengthen the yen to put a yen-hit on gold that is at this point a nuclear option that could totally destroy financial markets worldwide as the support of hedge funds in the marketplace might be completely withdrawn by the unwinding of the carry trade.

This is why the yen has been in a fairly tight range lately with respect to the dollar and the euro. A big move in the yen either way could be disastrous for the cartel. The big push in the Dow last Tuesday did little more than provide the strength for professional traders to sell into as they try desperately to de-leverage and to cover the growing number of redemptions being demanded by hedge fund investors fleeing in terror as they wonder whether they will be the next victims of the ongoing CDO/ABS/ABCP contagion.

Gold has been unstoppable since the announcement of the Fed’s cuts on the 18th despite the fact that the cartel has thrown everything but the kitchen sink at it. Gold has closed above its previous 2006 record of 730 four trading days in a row now, vaulting from a low of 722 to close at 732 on the 20th, from a low of 727 to close at 731 on the 21st, from a low of 726 to close at 731 on the 24th and from a low of 722 to close at 731 yet again on the 24th. The old record has now become a level of support instead of a level of resistance, which bodes well for gold. The past week large central bank sales have been evident in the charts as the Washington Agreement completes another fiscal year and the wall of shorts in gold futures has grown to a breathtaking all-time record of 427,545 contracts as mentioned previously, so gold has risen despite the cartel’s best efforts to stop it. The cartel has not taken this lying down. The cartel even tried a mini-yen-hit on gold on the 20th which was famously unsuccessful. They tried the same again on the 24th-25th, and were just as unsuccessful. Oil is now being hit to support stocks and to hit gold, having transitioned from the October to the November leading contract, closing yesterday at 79.53, down 1.42, having fallen below 80 for the first time on the leading contract since the 12th. Meanwhile, during all of this diabolical manipulation, gold has already shattered all but the 1980 records. The XAU and HUI have together simultaneously hit all-time highs, supporting gold by confirming its rise, and it is difficult to tell which is leading which, creating a very bullish situation. The cartel’s sales under the Washington Agreement end today, September 26, with the completion of its latest fiscal year, and gold sales are once again far short of the 500 ton goal. This is because central banks are reluctant to unload their gold as liquidity has become a prime commodity in the ongoing credit crunch and gold has become enormously profitable. The cartel has had to twist the arms of the Spanish and the Swiss only to come short of the total quota by what may prove to be 100 tons or more. Silver continues to rise in the face of negative lease rates, and has dutifully followed gold on its way up, but has still not reached record levels as it continues to strive for the magical 14 handle, having already claimed about 13.67.

The real story is now the dollar. This is the catalyst that will send gold into outer space. Already future rate cuts are being built into the price of gold, and any effort to push gold down will bring relentless physical buying, as the Indian wedding season will surely take advantage of any dip. On Tuesday, September 25, the USDX hit an all-time closing low on the spot contract of 78.313 and on the leading contract of 78.213, with intra day lows of 78.195 and 78.100, respectively. Yet we hear nothing of this from the Illuminist-controlled media - what a surprise!!! The previous low of 78.43 was set in September of 1992, exactly 15 years ago, so you can see the depths to which we as a nation have now plunged. The dollar now joins the real estate market and SIV’s on their way to financial hell.

Large specs should continue to add to their long-term protective derivatives (yen calls and stock index puts) as the PPT gives them a golden opportunity to protect their gold positions. You should be buying these protective derivatives daily all the way up so that when the market comes all the way back down you will have daily profits to offset losses from your long positions and your gold and silver positions will remain inviolate. Remember, physical off-take is the key. Do not let up. The cartel’s back is now up against the wall and it is time to finish them off once and for all.

http://news.goldseek.com/InternationalForecaster/1190830920.php

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By Dan Slater
24 September 2007

Commentator Marc Faber says investors could benefit from sky-high asset prices as the US stokes inflation.

In a typically bearish appraisal, author of the Gloom Boom and Doom Report Marc Faber advised investors on the last day of the CLSA Hong Kong forum on Friday to stock up on physical gold and rural real estate ahead of possible global conflicts and US stagflation (inflation without growth, last seen in the 1970s.)

Faber sees the US as a consumption giant unable or unwilling to make capital investments, with third-world infrastructure, and a tendency to binge on consumer goods actually produced by other people. He estimates the US GDP has shrunk from a 32% share of the world’s GDP in 2000 to just 28% this year. He believes the rise of the Asian block is inexorable, and points out that in emerging markets, oil consumption is already greater than that of the G7 group of countries. The sale of semiconductor chips is also four times as great in Asia as that of semiconductor chips in the US.

Faber believes the conditions for a period of higher interest rates, low growth and high inflation are now with us, rooted in recent US policy.

Thus, he sees US GDP growth for the past several years as being based on consumer debt rather than savings and manufacturing prowess (as in Asia). He estimates total US credit market debt to be around 330% of GDP. The US current account deficit, which has swollen to 7% of GDP in 2007, compared to 2% in 1998, is also a reflection of America’s preference for consumption over production. That deficit has had the effect of pumping $800 billion of liquidity into the world economy, fuelling asset prices worldwide, and increasing the risk of a synchronised economic crash.

In the wake of the subprime fiasco, US growth is now under pressure, with the American consumer currently finding it difficult to maintain his dizzying levels of spending. Faber estimates that credit growth needs to accelerate just to maintain current growth levels. “But with the current account deficit no longer widening, and the market (rather than the Fed) imposing tighter lending standards, it’s hard to see where the growth will come from.”
In addition, he warns that credit problems in the financial sector will be repeated in the market for securitising credit cards and car loans.

Faber sees the US debt problem as beginning back in 2000, as the Y2K appeared to threaten a global information technology crisis. Interest rates were slashed from 6.5% to just 1%. Faber says that the economy had begun to recover by November 2001 – but that rates stayed rock bottom until June 2004. This created a massive liquidity-led growth spurt. “The low interest rates and current account deficit lead to an asset bubble not just in the US, but worldwide, and in all asset classes.”

Faber reckons the Fed under current and former chairman Ben Bernanke and Alan Greenspan has demonstrated breathtaking intellectual dishonesty. “When asset prices are going up, they appear to believe there is no reason to interfere. They only interfere when asset prices are going down. That’s a massively asymmetrical approach to the problem.”

An unchecked consumption credit binge can only lead to one thing: inflation, he points out. Faber takes issue with the US government’s definition of inflation, which he says greatly underestimates the problem. Core inflation conveniently does not include energy and food price rises. Faber reckons grocery prices have increased 6%, for example. But the Fed claims that 6% more groceries have been sold, which Faber believes unlikely. “It’s hard to be exact, but I estimate that for the people in this room inflation is running at between at 5%-10%.”

And that is set to increase, given that the US consumer can no longer pick up the slack. The preferred solution will therefore be to print money, thereby injecting liquidity into the economy. As the supply of paper rises, the greenback’s value will sink.

Faber is cynical even about the interest rate hikes that lead to the 6.25% Fed fund rate before the most recent cut. “You had an expansion in money supply which easily made up for the higher rates.”

Faber reckons that the Fed has no stomach for a tight monetary policy because they have allowed things to become so bad that the real estate market and stock market would collapse, leading to a massive recession. In other words, the Fed should have acted far earlier. The effect of the weaker dollar will inevitably be to increase US inflation, since imports will become more expensive. Add raw material inflation caused by the China boom (especially oil, facing diminishing production), and a second driver for inflation joins the mix.

A likely solution for Faber is that the US retreats behind a wall or protectionism and capital controls. This would be devastating for international investors, whose money will be prevented from leaving. Faber therefore advises them to stay well clear. “In any case, the return on US assets has been inferior to the return on most foreign assets.”

Faber believes a sudden, massive devaluation of the dollar is unlikely. But foreign investors should worry given they hold 44% of all outstanding T-bonds. In passing, he knocked the claim that an appreciating Chinese currency would help solve the problem of the US current account deficit. “The yen was at 350 to the dollar in 1971. Now it’s at 114. And there is still a huge trade surplus with the US.”

In previous years, Faber has been willing to expound on his theories of the decline of the US ‘superpower’ – the ironic quotation marks are his. However, this year he confined himself to telling investors how they could ride out the storm of paper caused by the non-stop churning of Ben Bernanke’s printing presses.

His thesis is simple. As the Fed reneges on its traditional duty of domestic price stability, Faber reckons the US central bank is becoming ever more a standard bearer for Wall Street and for key indices such as the Dow and the S&P500.

If they ever look like falling, the Fed will simply accelerate the operations of the printing presses. When too much money is chasing too few assets, prices rise. However, in real terms, there is little point in buying US assets, points out Faber, who estimates that in Euro terms US growth has been anaemic, if not negative, since the late 1990s. “Investors have to look for assets which cannot multiply as fast as the pace at which the Fed prints money,” he says.

Consequently, gold is a great bet, along with other precious metals. Faber recommends actually holding physical gold in gold-friendly countries such as Hong Kong, India and Switzerland. He counsels against holding gold in the US for fear that it might be nationalised by the government. He is still bullish on other commodities in the face of global shortages and booming Asian economies. He’s also bullish, as it were, on war. “Rising commodity prices often trigger wars – which in turn cause commodity prices to go ballistic.”

One thing seemed to be clear from Faber’s speech. If things continue along the current trajectory, the argument that Western financial and information technology expertise is a substitute for Asian R&D, a high savings rate and engineering expertise will have been comprehensively discredited.

http://www.financeasia.com/article.aspx?CIaNID=61744

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Alex’s Notes: This is exactly what I have been talking about for the last two months.

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From Adbusters #74
Nov-Dec 2007

Money for nothing. Own a home for no money down. Do not pay for your appliances until 2012. This is the new American Dream, and for the last few years, millions have been giddily living it. Dead is the old version, the one historian James Truslow Adams introduced to the world as “that dream of a land in which life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement.”

Such Puritan ideals – to work hard, to save for a better life – didn’t die from the natural causes of age and obsolescence. We killed them, willfully and purposefully, to create a new gilded age. As a society, we told ourselves we could all get rich, put our feet up on the decks of our new vacation homes, and let our money work for us. Earning is for the unenlightened. Equity is the new golden calf. Sadly, this is a hollow dream. Yes, luxury homes have been hitting new gargantuan heights. Ferrari sales have never been better. But much of the ever-expanding wealth is an illusory façade masking a teetering tower of debt – the greatest the world has seen. It will collapse, in a disaster of our own making.

Distress is already rumbling through Wall Street. Subprime mortgages leapt into the public consciousness this summer, becoming the catchphrase for the season. Hedge fund masterminds who command salaries in the tens of millions for their supposed financial prescience, but have little oversight or governance, bet their investors’ multi-multi-billions on the ability that subprime borrowers – who by very definition have lower incomes and/or rotten credit histories – would miraculously find means to pay back loans far exceeding what they earn. They didn’t, and surging loan defaults are sending shockwaves through the markets. Yet despite the turmoil this collapse is wreaking, it’s just the first ripple to hit the shore. America’s debt crisis runs deep.

How did it come to this? How did America, collectively and as individuals, become a nation addicted to debt, pushed to and over the edge of bankruptcy? The savings rate hangs below zero. Personal bankruptcies are reaching record heights. America’s total debt averages more than $160,000 for every man, woman, and child. On a broader scale, China holds nearly $1 trillion in US debt. Japan and other countries are also owed big.

The story begins with labor. The decades following World War II were boom years. Economic growth was strong and powerful industrial unions made the middle-class dream attainable for working-class citizens. Workers bought homes and cars in such volume they gave rise to the modern suburb. But prosperity for wage earners reached its zenith in the early 1970s. By then, corporate America had begun shredding the implicit social contract it had with its workers for fear of increased foreign competition. Companies cut costs by finding cheap labor overseas, creating a drag on wages.

In 1972, wages reached their peak. According to the US department of Labor Statistics, workers earned $331 a week, in inflation-adjusted 1982 dollars. Since then, it’s been a downward slide. Today, real wages are nearly one-fifth lower – this, despite real GDP per capita doubling over the same period.

Even as wages fell, consumerism was encouraged to continue soaring to unprecedented heights. Buying stuff became a patriotic duty that distinguished citizens from their communist Cold War enemies. In the eighties, consumers’ growing fearlessness towards debt and their hunger for goods were met with Ronald Reagan’s deregulation the lending industry. Credit not only became more easily attainable, it became heavily marketed. Credit card debt, at $880 billion, is now triple what it was in 1988, after adjusting for inflation. Barbecues and TV screens are now the size of small cars. So much the better to fill the average new home, which in 2005 was more than 50 percent larger than the average home in 1973.

This is all great news for the corporate sector, which both earns money from loans to consumers, and profits from their spending. Better still, lower wages means lower costs and higher profits. These factors helped the stock market begin a record boom in the early ‘80s that has continued almost unabated until today.

These conditions created vast riches for one class of individuals in particular: those who control what is known as economic rent, which can be the income “earned” from the ownership of an asset. Some forms of economic rent include dividends from stocks, or capital gains from the sale of stocks or property. The alchemy of this rent is that it requires no effort to produce money.

Governments, for their part, encourage the investors, or rentier class. Economic rent, in the form of capital gains, is taxed at a lower rate than earned income in almost every industrialized country. In the US in particular, capital gains are being taxed at ever-decreasing rates. A person whose job pays $100,000 can owe 35 percent of that in taxes compared to the 15 percent tax rate for someone whose stock portfolio brings home the same amount.

Given a choice between working for diminishing returns and joining the leisurely riches of the rentier, people pursue the latter. If the rentier class is fabulously rich, why can’t everyone become a member? People of all professions sought to have their money work for them, pouring money into investments. This spurred the explosion of the finance industry, people who manage money for others. The now-$10 trillion mutual fund industry is 700 times the size it was in the 1970s. Hedge funds, the money managers for the super-rich, numbered 500 companies in 1990, managing $38 billion in assets. Now there are more than 6,000 hedge firms handling more than $1 trillion dollars in assets.

In recent years, the further enticement of low interest rates has spawned a boom for two kinds of rentiers at the crux of the current debt crisis: home buyers and private equity firms. But it should also be noted that low interest rates are themselves the product of outsourced labor.

America gets goods from China. China gets dollars from the US. In order to keep the value of their currency low so that exports stay cheap, China doesn’t spend those dollars in China, but buys us assets like bonds. China now holds some $900 billion in such US IOUs. This massive borrowing of money from China (and to a lesser extent, from Japan) sent us interest rates to record lows.

Now the hamster wheel really gets spinning. Cheap borrowing costs encouraged millions of Americans to borrow more, buying homes and sending housing prices to record highs. Soaring house prices encouraged banks to loan freely, which sent even more buyers into the market – many who believed the hype that the real estate investment offered a never-ending escalator to riches and borrowed heavily to finance their dreams of getting ahead. People began borrowing against the skyrocketing value of their homes, to buy furniture, appliances, and TVs. These home equity loans added $200 billion to the US economy in 2004 alone.

It was all so utopian. The boom would feed on itself. Nobody would ever have to work again or produce anything of value. All that needed to be done was to keep buying and selling each other’s houses with money borrowed from the Chinese.

On Wall Street, private equity firms played a similar game: buying companies with borrowed billions, sacking employees to cut costs, and then selling the companies to someone else who did the same. These leveraged buyouts inflated share values, minting billionaires all around. The virtues that produce profit – innovation, entrepreneurialism and good management – stopped mattering so long as there were bountiful capital gains.

But the party is coming to a halt. An endless housing boom requires an endless supply of ever-greater suckers to pay more for the same homes. The rich, as Voltaire said, require an abundant supply of poor. Mortgage lenders have mined even deeper into the ranks of the poor to find takers for their loans. Among the practices included teaser loans that promised low interest rates that jumped up after the first few years. Sub-prime borrowers were told the future pain would never come, as they could keep re-financing against the ever-growing value of their homes. Lenders repackaged the shaky loans as bonds to sell to cash-hungry investors like hedge funds.

Of course, the supply of suckers inevitably ran out. Housing prices leveled off, beginning what promises to be a long, downward slide. Just as the housing boom fed upon itself, so too, will its collapse. The first wave of sub-prime borrowers have defaulted. A flood of foreclosures sent housing prices falling further. Lenders somehow got blindsided by news that poor people with bad credit couldn’t pay them back. Frightened, they staunched the flow of easy credit, further depleting the supply of homebuyers and squeezing debt-fueled private equity. Hedge funds that merrily bought sub-prime loans collapsed.

More borrowers will soon be unable to make payments on their homes and credit cards as the supply of rent dries up. Consumer spending, and thus corporate profits, will fall. The shrinking economy will further depress workers’ wages. For most people, the dream of easy money will never come true, because only the truly rich can live it. Everyone else will have to keep working for less, shackled to a mountain of debt.

_Dee Hon is a Vancouver-based writer has contributed to The Tyee and Vancouver magazine.

http://adbusters.org/the_magazine/74/The_Empire_of_Debt.html