ONE ANGRY GUY WHO TALKS BUBBLE AS IT IS

The bubble that must burst is a very, very large bubble. It is worldwide. It is co-existent with most nations of the world.

Like all bubbles, for a time it appears rational. It even seems to work. The bubble seems to bring all gains and no losses, and all at very low cost. The returns seem very high and never-ending. They attract the resources and allegiance of many because the yield seems so high.

But like all bubbles it cannot go on forever, because it is based on greed and gain extracted from other persons against their wills. It is a bubble based on extrapolative expectations that eventually cannot be sustained by reality.

What is this bubble? It is the bubble of constitutional and representative democracies that lack the consent of all of those being governed. It is the bubble of states that promise more and more social gains and cannot deliver upon these promises. It is a bubble of governments that are chain letters and Ponzi schemes. It is a bubble built upon robbing some to pay others.

All of these bubbles must, by the dynamic of their intrinsic nature, come to an end. They all must, by the necessity of facing reality, be deflated. And, in the process, the peoples of the earth will have to come face to face with themselves and will have to fashion new social and political relations.

The constitutional and representative democracies cannot be saved by changing the leadership, because they are based on rules of force that must come to grief. They cannot be changed by voting. No stable economy can be reflated by a central bank, and no stable nation can be reflated by voting in new leaders. Counter-intuitively, the government bubble will burst when more and more people do not vote and withdraw their support from a government based on unworkable and unjust rules of force.

Democracy, as people are now exercising it through majority force throughout the world, is rotten to the core. It is common within these government systems for people to rush to take advantage of anyone else they can, in their greed. Democracy has become one big speculative bubble, as many people have placed bets on an ever-expanding gain for themselves at the expense of others. This cannot go on indefinitely, so it is a bubble that has to burst.

Chain letters must come to an end. Ponzi schemes must unravel. The music must stop and there will not be enough chairs for all to sit on. Speculative bubbles must burst. Governments built upon ever-expanding circles of greed and gain must fail. Trees do not grow to the sky.

Deep down, we know this. We only hope that we will not be the one left standing when the music stops. We only hope the system will last another 10 or 20 or 30 years or whatever life we have left. We wish our children and grandchildren well, but we are secretly glad that we do not have to confront the problems we hope will be deferred to them and not fall upon us.

Why must bubbles burst? Basically because they cannot pay off according to our expectations.

Take the housing bubble as an example, but a bubble in growth stocks works in the same way. Changes in expectations cause price changes. If we think houses will rise in price, we are more inclined to buy them. This makes the price rise. It reinforces our expectations and draws in new buyers. Many causes of changes in expectations are possible. In the U.S., we had lower interest rates and the authorities encouraged re-financing at lower rates. In some places, new house building was restricted as in California. House prices started to rise. This started a speculative move in which people started bidding house prices higher. This was concentrated in a handful of states. Some areas grew because they had a real business boom. The idea got around, from several sources, that prices were rising. People had extrapolative expectations. They thought that what was past was prologue. These expectations self-reinforced for a while, even years.

Eventually, the reality sets in, which is that the asset cannot rise too fast in price indefinitely. It sets in for a number of reasons. Builders build houses at much lower replacement costs, drawing demand away from the high-priced houses. They also build more of the high-priced houses than there are buyers. Rentals begin to look relatively less expensive. The market runs out of new buyers, because prices are high compared to wages and salaries. Other investments begin to look relatively more attractive. Interest rates rise. Speculators begin to sell out what they had bought earlier in order to take profits. The bubble bursts, as it has to.

People are expecting a big profit, or a high yield from the house purchase. That is why they buy at high prices. They think they are going higher. When people count into their calculation of a high yield the expected future price gains, as in buying high-priced growth stocks or high-priced houses, they are pouring money into these assets thinking they have higher yields, and they are bidding the prices up so as to get those yields. In the process, the yields are falling. The whole price process is driven by what is in their minds because it’s all what they expect will happen in the future.

Greed for gain comes to grief. Many people and institutions borrowed heavily to take advantage of the housing bubble. It was like the stock margin buying in the 1920s. All of those that used so much financial leverage should fail. We who did not should not be made to pay them for their greed and mistakes. All the ones that took out asset insurance from counterparties that had no assets – they erred in their evaluations too, and they also should bear their own losses or fail. Innocent people shouldn’t be paying for the mistakes of others. All the ones that can’t pay for their houses now and are under water should face the consequences themselves. They too blundered. No one should be made to bail out someone else.

This is not the way of most governments, however. Bailouts are the way. The attempt is to find chairs for those left standing. The chairs have to be stolen from those who were prudent enough to sit down earlier before the music stopped and the game of musical chairs ended. Governments today routinely violate basic human rights to life, liberty, and property.

Government bailouts are the government’s absorption of the housing bubble into its own social security bubble. This hastens the bursting of the government bubble.

Generations before us started the government bubbles that now rule us. They bet on government. They saw gains coming down the pike as they collected their Social Security and built their subsidized houses and drove on their subsidized highways and grew their subsidized crops, all through subsidized loans. They saw gains from favoring labor and executives and public schools. The bubble grew because shifting coalitions bid up the power of government and collected the gains. Voters psychologically buy into the government bubble. They have extrapolative expectations. They think that they will secure the gains that the earlier generation managed to extract. But those gains are in their minds. They are unpaid promises made by their officials. Who will pay for those gains? Who will pay for the bailouts, the health care promises, the retirement promises, and all the other trillions upon trillions of guarantees being liberally handed out? The bubble has to burst. There’s only so much gold in them thar hills before the price of extraction rises beyond its worth.

One can do no wrong by buying a house that is going up in price, or so it appears. And one can do no wrong by endorsing a government that provides a rising stream of benefits, or so it seems. Why not buy a second home or a third? Why not borrow to buy them? And why not expand the government and get more benefits? Why not have the government borrow to provide them?

Government in its current form is an overpriced growth stock. It is paying dividends out of contributions forced out of newcomers to the game and extracted in countless ways from the dividend recipients and obtained from borrowing. It is promising a rising stream of future dividends, while itself producing nothing of value.

When the value of the obligatory debts exceeds the value of the assets, the enterprise is insolvent. The owners walk away from the assets. When government debts exceed the value of the social benefits, people will walk away from the government. Many already have, in a variety of ways. Why pay more than what something is worth? Why invest any emotional capital in an institution one regards as unfit, unjust, inefficient, intrusive, irrational, unworkable, and ineffective?

Government is now an insolvent enterprise. Government is a Ponzi scheme. Government is a fraud. Government is a bubble that must burst.

That being the case and while there is still time to think without the pressure of rapidly changing events, we can only benefit by exploring and considering a wide range of social and political options that are in accord with basic and sound principles of peace, liberty, justice, and rights. A period of revolutionary reconstruction lies ahead of us. We should not be reflating the government bubble that will burst; we should not be reflating the forces of domination and greed exercised through and by coercive government.

We should be shaking off the myths, fallacies, errors, and wrong turns of the past. We should be stating, and reinstating, and advancing those principles that can shape societies along sound lines. There are sound ideas that came along with constitutional governments, but they have been shunted aside and diluted. Consent of the governed, all of the governed, is one of those principles. This implies a second principle: Government without claim over territory, or an end to the idea that a sovereign has a right to claim rule over a territory and every person and thing within it. No person can rightfully be made a citizen of a government without his consent and by virtue of the place where he happens to live.

The internet can be a model of what is to come with respect to getting to a much-reduced arbitrary and non-consensual governance and a situation where social interactions are freed from unnecessary coercive restrictions. People can freely join whatever societies of persons they wish throughout the globe in a way that surpasses the force-ridden idea of territorial domains. The internet has no such territorial borders, and such borders only reinforce coercion as well as being the product of coercion. The internet is breaking down those borders as it opens up communications.

The bubble governments of the present have vastly intruded upon social matters. They have made the social into the political in areas where they not have obtained the consent of all. There is a large enough and difficult enough realm of governance without government absorbing society. There are all sorts of disputes, conflicts, and crimes that require governance and justice procedures. Libertarians have thought long and hard about how to preserve and improve these governance systems, even as the non-consensual features of the present bubble governments fall by the wayside when these bubbles eventually burst. Libertarians have thought long and hard about rights, rule of law, due process, and property rights. This thinking needs to be continued, questioned, tested, ramped up, restated, refined, integrated, and understood even better. The government bubble is going to burst, and we will need this and more thinking in order to cope with the coming opportunities to remake social and political relations

Michael S. Rozeff
Lew Rockwell.com
Thursday, March 26, 2009

THIS GUY IS BUBBALACIOUS

Renters Treated 2nd class citizens In US

1 out of 3 people in the U.S rent their place of residence. In states like California the number is closer to 1 out of 2 (some counties have more renters than owners).

There have been programs to defer or even help in paying for mortgages of those who lost their jobs but what about those who rent and lost their jobs?

WHO IS IS HELPING WHOM?

For a LayMan - Common Man this graph should be more than enough

http://www.doctorhousingbubble.com/wp-content/uploads/2010/07/us-housing-market-data.png

HERE IT GOES

The current global financial crisis has resulted into nationalisation of Fannie Mae & Freddie Mac in United States and has affected banks and economies worldwide. Here, In Australia the collapse of US banking giant (Lehman Brother) has impacted Blue Mountains City Council’s (NSW -Australia) only because it has $11million in investments administered by the banking behemoth (Lehman Brothers). (DAMIEN MADIGAN - Blue Mountain Gazette 17/09/2008). $14.5 trillion, or 33%, of the value of the world’s companies has been wiped out by this crisis (Anup Shah - Global Issues March 2, 2009). It remains to be seen the long lasting effects of current financial crisis on all economies.

One of the simple reason for other economies getting affected due to this event was because its financial system has direct or indirect exposure to US sub-prime mortgage market. Adam Davidson reports that failure of Freddie and Fannie might have eclipsed great depression of 1929. Fannie Mae and Freddie Mac, the twin giants of the home mortgage industry, own or guarantee assets of $5.3 trillion, almost half of the $12 trillion housing market in the U.S. These assets have been disappearing in value due to the collapse of the housing bubble. So, It can be very well imagined the situation if they were not nationalized. According to congressional budget office their bailout would cost American taxpayers anywhere between zero to $100 billion dollars while the U.S. government’s commitment to solving the financial crisis has already tuned to $9.7 trillion, enough to pay off more than 90 percent of the nation’s home mortgages. (Mark Pittman and Bob Ivry Feb. 9 - 09 (Bloomberg)

Former Finance Minister of Italy comments "The bankruptcy of Fannie and Freddie would have meant Armageddon." Further Adam reports that majority of banks around the world own bonds from both this mortgage agencies and their failure would had made this bonds of far less value. Peter Costella for Australia pointed out that for such a long period of time, the U.S. was a force for stability in world markets but know this example has set exporting instability of United States. (NPR April 20, 2009 Adam Davidson)

All OECD countries are facing financial crisis at this point of time and with dropping interest rates around the world all of them are coming with stimulas package to improve economic situation. It should also be notes that difference in Finance industry regulations here and in the US are stark. The five major banks are underwritten by the Fed (Reserve Bank of Australia) and reporting, compliance, share market requirements and company law are far stricter. The effect of profit-driven FanMac affair has proven costly not only to US homeowners but also here in Australia and throughout Europe which is an alarm bell for financial regulators, customers and the media alike. US citizens and free market economies through-out the world must demand financial law reform in the US. Aussie families are losing their homes as we also suffer from exposure to the credit crisis caused by low-doc loans written by FanMac and co (NPR April 20, 2009 Adam Davidson).

Global leaders (G20) have pledged an additional $1 trillion to restore credit, growth and jobs in the world economy recently, exceeding expectations in their plan to deal with the financial crisis. The Group of 20 nations also agreed to renounce protectionism outlined a raft of policies to rebuild trust in the financial system (AP Business Writer Jane Wardell Apr 2,08).

Fannie Mae is a Government Sponsored Enterprise (GSE)—a monopoly with special privileges, including borrowing money below market-interest rates, exemption from state and local taxes, and a credit line at the U.S. Treasury. It was created by Congress during the Great Depression to provide stability and liquidity in the US mortgage market thereby raising the levels of home ownership and the availability of affordable housing. Fannie Mae and Freddie Mac play central — if quiet — roles in maintaining the U.S. position in the global economy (On Feb. 17, the Wall Street Journal).

Fannie Mae’s stock value has dropped to less than a Dollar due to current financial crisis in US. Its primary aim was to accumulate huge profits for its corporate heads and big-time investors but that got adversely affected due to the unexpected housing market collapse.

Fannie Mae being the largest non-bank financial services company in the world and its junior partner, nicknamed Freddie Mac, have grown rich over the years. Their combined assets are 45 percent greater than those of the nation’s largest bank. On the other hand, their combined debt is equal to 46 percent of the current national debt which explains Federal reserves step of nationalising both Fannie Mae and Freddie Mac. (Fannie Mae.com - Wikipedia).

Fannie Mae and Freddie Mac are the only two Fortune 500 companies that are not required to inform the public about any financial difficulties they may be having. In the event of financial collapse, investors believe U.S. taxpayers will be responsible for hundreds of billions in outstanding debt.

One of the primary reason for nationalising of Fannie Mae was that if it went down, the entire housing industry would had collapsed. The mortgage behemoth is integrated into Wall Street banks and other major financial institutions. Fannie Mae borrows from the banks, which profit from unloading high-risk mortgage portfolios back to them. Fannie Mae in turn packages and guarantees these volatile high-risk mortgages, and sells them to the highest bidders in the billion-dollar secondary mortgage market. It receives high fees for the same.

Since European and Asian banks, private and public, have invested billions in the U.S. housing market, any significant downturn would have incalculable worldwide repercussions.

The collapse of America’s Fannie Mae and Freddie Mac necessitated a bailout of the highest order, because if the two institutions, which form a linchpin of the housing bubble and in fact the entire financial system, were allowed to crash, dozens of major banks would be right behind them.

Also, the current global financial crisis in the US has resulted into job losses for Fannie & Freddie directors and top executives, Shareholders losing on their dividends, voting rights, and most importantly their ownership stake, while agreeing to pay dearly for the government’s money and backing. On the other hand, unharmed will be holders of trillions of dollars in Fannie and Freddie debt — or securities backed by mortgages that Fannie and Freddie have insured against default — who will get all their money back, with interest.”

It is very important that government protects debt holders, because this includes foreign governments like China, as well as sovereignty funds, mutual funds, and pension funds worldwide. If these international investment sources dry up, the U.S. could no longer finance its enormous fiscal and trade deficits. It’s the Armageddon scenario.

Thus within the overall context of the debt-based financial system run by the Federal Reserve, Fannie Mae and Freddie Mac are the most important business entities in the U.S.—more so than Exxon-Mobil, Microsoft, General Motors, GE, or IBM.

Big companies like Exxon-Mobil at least have tangible assets they use to produce real goods and services. But the financial industry—including Fannie and Freddie—have only pieces of paper that represent someone’s ability to make payments in an economy going downhill, with thousands of people losing their jobs daily.

For the last decade, the U.S. economy has been built on a foundation of housing debt as its financial engine. It’s a foundation of sand. The lunacy has been a long time coming, though the “rest of the story” is little known, even to experts.

Few decades back, the international financial elite which runs the Western world decided that the U.S. would no longer be allowed to maintain its status as the world’s greatest industrial democracy (Introduction of Euro).

In 1999, then President Bill Clinton instructed the Fannie Mae Corporation to ease credit requirements on loans to ethnic minorities and low-income earners. In this nationwide scheme, the pilot program alone involved 24 banks. This was to include what became known as the sub-prime sector. Fannie Mae's chairman and chief executive in 1999 said that in addition to "reducing down payment requirements" the corporation would underwrite loans in the sub-prime market.( The Australian, Oct 1-2008)

Fannie Mae was exempt from taxation and with any losses guaranteed by public monies, although shares of profits go overwhelmingly to investors, executives and board members with shares. Fannie Mae held a virtual monopoly of what became known as the US secondary mortgage market until 1968, when Lyndon B. Johnson converted it into a private corporation or, rather, a government-supported enterprise.

It is important to note that Fannie Mae does not lend money directly to consumers, it purchases loans that banks make on the secondary market. This was made possible by Fannie Mae being allowed, uniquely, to borrow money from overseas at low interest rates backed by the US government. It passed this on to borrowers in low down payments and fixed rate mortgages.

However, the strategy announced in 1999 was to spur the banks to make more loans to people with poor credit rating, and especially to blacks and Hispanics. Not everyone was convinced this was a good idea. Peter Wallison of the American Enterprise Institute warned: "If they fail, the government will have to step up and bail them out." The US Senate finance committee in 2005 considered a bill to increase scrutiny of Fannie Mae and its accountancy mechanisms. By this time, combined debt at Freddie Mac and Fannie Mae was equal to 46 per cent of then national debt. The then US Federal Reserve chairman, Alan Greenspan, warned of forthcoming financial collapse if Fannie Mae's activities were not reined in. The trigger that caused the bubble to burst was the raising of interest rates by the Federal Reserve in 2006 and 2007, to ward off a perceived risk of inflation. This sent mortgage payments through the roof and hundreds of thousands of Fannie Mae's customers defaulted on their payments. To make matters much worse, the banks had been buying and selling loans from each other before selling them to Fannie Mae. With the collapse in the housing market came the collapse of Fannie Mae and the loans it had purchased from the banks. Before long, the banks were collapsing too, not all of them but those that had bought and sold sub-prime loans. Defaults are now running at almost 3per cent of all mortgages in the US, representing hundreds of thousands of loans.(The Australian, Oct 1-2008)

The culprits in all of this are the executives and board members of Fannie Mae for buying unsecured and risky loans, the Federal Reserve for putting up interest rates too far and too quickly, and the banks for what almost amounts to pyramid selling of bad debt based on fools' mortgages. Fannie Mae's structural flaws were an accident waiting to happen.

But there is another culprit. The Clinton administration, in pressuring Fannie Mae, created the policy of lending initially good and then bad money to people who were themselves bad credit risks. This was done for good political - not to say politically correct - reasons: the targeted extension of home ownership to minority groups. But this social engineering has been achieved at a heavy cost, not least to those who have lost their houses and taxpayers who may now have to pick up the cost of an emergency package.

Alternatively, there are mortgage insiders who believe that the housing bubble was created to allow George W. Bush to fight his wars of conquest in the Middle East. Once Bush became president it begin the wholesale falsification of mortgage applications so people could buy houses who had no business doing so. A push by state attorneys-general to investigate the mortgage fraud was blocked by Bush’s Treasury Department.

The bubble resulted in the tremendous inflation of housing and real estate prices that today is unraveling. Housing is still so overpriced, however, that many people can no longer afford to buy a home or can no longer get credit because financial institutions have become so reluctant to lend.

Housing inflation has powered the U.S. economy for the last decade. In its heyday it accounted for fifty percent of all economic growth. Take away the housing bubble, and the U.S. economy is dead in the water. That is why the government has taken over Fannie Mae and Freddie Mac. Unfortunately, there are no further bubbles waiting in the wings. When they gave up their homes to debt, the American people gave up the last thing they owned of value.

The fates of Merrill Lynch and Lehman Brothers would not seem to be linked; Merrill has the nation’s largest brokerage force and its name is known in towns across America, while Lehman’s main customers are big institutions. But during the credit boom both firms piled into risky real estate and ended up severely weakened, with inadequate capital and toxic assets.

Lehman Brothers was the fourth-largest investment bank in the United States.

It was considered one of Wall Street's biggest dealers in fixed-interest trading and was heavily invested in securities linked to the US sub-prime mortgage market. Its exposure to hard-to-value mortgage-backed securities.

had adverse effect on its balance sheet. already the US tax payer has been put at risk of shouldering the burden of billions of dollars of losses, and it is becoming politically less acceptable for the government to keep bailing out private companies. As the crisis in financial markets gathered momentum, it saw its share price collapse from $82 to less than $4.

University Project on Fannie Mae and Freddie - CQU

I remember that When I submitted this last year in May 2009 My professor gave me One comment

VERY VERY INTERESTING

Interesting Article about USA Economy

Imagine for a moment that someone inherits a farm. Let's say that the farm has good topsoil, a good well, good breeding stock, good seed, and excellent farm equipment in good repair. Prior to passing into the control of the present owner the farm did a good business selling vegetables, meat, and dairy products to the local market, and it made a small profit. 

But let us suppose for a moment that the present owner of the farm doesn't understand farming, or isn't even really interested in learning. The present owner has no objection to standing around looking good, so he stays at the farm, standing in front of it, looking good to passers by.

Of course, the bills still come in, so our farmer puts them on his credit card. When that bill comes due he uses another credit card, Then another. Pretty soon the interest payments alone are higher than his bills and the banks get nervous and call him. No problem. Our farmer sells the tractor, takes the money around to the various credit cards, the food store, the utilities, and pays off all his bills. Then he stands around in front of the farm looking good to passers-by, the lord of his domain.

Well, the bills still come in. Again the credit cards get loaded up. So, this time our farmer sells the harvester. Then later on, the cattle, then the chickens, then the seeds, then he leases the well to his neighbor and finally sells the top soil from his farm to another farm down the road whose soil is getting tired. The cash is taken around to the various creditors, the food store, the utilities, etc.

Now at this point, our farmer thinks everything is okay. The bills are paid, he has a little cash in his pocket, and everything is fine.

Of course, you know better. The farm simply does not exist any more; it's just an empty lot with a few buildings, and soon they will be gone as well. The path from the farmer's present condition to seizure of the property for unpaid taxes is a foregone conclusion, even if the farmer doesn't look far enough ahead to see it.

Poor, dumb, stupid farmer.

That farmer is our government, and our business leaders.

Just as our hypothetical farm has lost its soil, livestock, seed, and farm equipment, America has lost its manufacturing ability. Short sighted business leaders, with as little interest in manufacturing as our farmer had in farming, decided their own personal bonuses would be higher if they simply sold their factories rather that ran them. After WW2, the 27 American TV companies including Zenith, Emerson, RCA, GE, etc. led the world in TV technology. Then, the owners of the patents on TV technology decided they didn't need to dirty their hands by actually making the TV sets themselves any more, and they started selling licenses to manufacture, which the Japanese bought.

By 1987, the only remaining American TV company was Zenith. The patent holders get their money, but the American products which can be sold overseas are gone, along with the jobs to make them. (Today Zenith is owned by a Korean electronics company.)

The same happened in high-tech electronics. The integrated circuit was invented in the United States. But rather than focus on selling integrated circuits, the companies that owned that technology sold the machines to MAKE integrated circuits around the world, and now America sells very few chips anywhere. The patent holders have their money, but the cash flow from sales of manufactured goods, and the jobs that go with them, are gone. When Seymour Cray needed custom chips for his supercomputers, he had to order them from Japan.

The same thing has been happening in aviation. The airplane was invented in the United States, and through the 60s, we sold a lot of them around the world. But lately, all aircraft sales to foreign countries involve "offsets", a portion of the core technology that gets licensed to the purchasing nation and gets manufactured there. Bit by bit, the core technology gets bled off, taking with it jobs, and cash flow from the sale of those manufactured products. Along the way, the rights to manufacture American inventions outside America leak away on a steadily increasing basis. Even the mighty F-16 is now being manufactured overseas, under license.

To cover the loss of manufacturing jobs, our government has invented the catch phrase "service economy". This is the idiotic notion that we don't need to actually sell manufactured products; that we can grow and prosper our nation by doing each other's laundry for a fee. To conceal the loss of manufacturing jobs, the government has legislated into existence thousands upon thousands of useless paper-shuffling jobs, and declared their necessity by fiat. The most obvious is the income tax which has been so obfuscated by the government that half of you had to rely on an outside expert to figure out just what all those incomprehensible words really meant. By this device, the government has replaced those jobs that made products to sell with an equal number of jobs that produce nothing whatsoever of any worth, except to keep the unemployment figures down. This over-burdening of the American people with gratuitous regulations and paperwork has accomplished nothing except to obfuscate the loss of manufacturing jobs, and to transform the American character from innovators and inventors creating new products to that of minor clerks, peeking under each other's seat cushions for lost change.

So, with most of our manufacturing now gone, just what DOES America make? Trouble, mostly. With 4% of the world's population and 18% of the economy, we have 50% of all the lawyers, all looking to make a killing by looting those few industries that still call America home (like Microsoft). Kids don't want to be scientists and engineers; they've seen how little such people are valued in our country. Based on recent history, kids see the "big bucks" are in corporate law, specifically investment banking, leveraged buyouts, greenmail, junk bonds, in short what other countries describe as "trying to make money grow by shaking it side to side".

With America's ability to actually produce products that can compete on the open world market in decline, it's no wonder that the balance of trade is the problem it is. Nobody buys our export products because we just don't make that many any more, and like or not, we have to buy our appliances from the people who make them, which are NOT Americans. (When Ampex invented the VCR, they didn't even bother trying to find an American company to make it, they immediately sold the rights to Japan).

So, what do all these countries on the plus side of the trade imbalance do with their surplus billions? Well, they have been loaning it right back to us!

Our government engages in a practice politely called "deficit spending". Other terms which would aptly describe the practice include "counterfeiting" and "check kiting", but it all comes down to the same thing; spending money one does not actually have.

What would be a prison offense for a normal citizen was rendered legal for the government by the Federal Reserve Act. This was not a popular piece of legislation. In fact the Democrats had campaigned in 1912 on a platform of rejection of the creation of a private bank in charge of a fiat money system. Nevertheless, on December 23, 1913, taking advantage of the absence of congressmen opposed to the creation of a fiat monetary system during the Christmas break, the Federal Reserve Act was passed.