Thursday, February 12, 2009

The Debts of the Spenders: Obama's Subsidized Housing Program

Otherwise known as a "Mortgage Buydown Program." Because we can't have people saving and becoming responsible now. That is not the American way.

*Editor's note: The American way is live rent free for several months at the expense of the taxpayer (and indirectly at the expense of foreign creditors) and that's before this new program even started.

Instead, a compromise fiscal stimulus bill was passed in Congress ***[Correction - As of this writing the bill is scheduled for debate. The House debate is scheduled for Friday and the Senate's over the day or possibly the weekend].***

It was not as big as the Democrats would have liked but all that proves is China retains some leverage (pun intended) over US spending habits although that power has been severely diminished.

The banks couldn't get free bailout money directly so they decided to suck that money out through a free bailout of mortgage holders. Apparently US policy makers mistook reluctant Chinese purchases of Treasuries to go on a spending binge. . . again.

However, a true "bad bank" remains unlikely because the debt burden would be so prohibitive that it would destroy any intrinsic value of Treasuries overnight (let's not even get into the European problems which I covered in my January posts). And that is something the Chinese - indeed any creditor - will probably not stand for.

Remember, a nation borrowing and issuing notes in its own fiat currency is highly unlikely to suffer default. But inflation risk definitely exists. And the bond market remains - extrinsic of gold - the one place that serves to check fiscal profligacy.


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