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Subprime Mortgage Meltdown - Beware of Monopoly Money to Follow!

Housing-Market / US Debt Aug 31, 2007 - 02:09 PM GMT

By: Money_and_Markets


Best Financial Markets Analysis ArticleLarry Edelson writes: The subprime mortgage meltdown and real estate collapse in this country is a mess. No doubt about it. And there are lots of lax mortgage brokers and bankers to blame.

In the months ahead you're going to see their shenanigans exposed … class action lawsuits filed by the dozens … and even some big chiefs getting hit with criminal charges and eventually jail time.

But the biggest blame of all, in my opinion, goes to the folks in Washington who were just as fiscally irresponsible. I'm talking about the politicians and central bankers who keep racking up debts on the government side of the ledger, and who crank out currency and credit like it's monopoly money.

The U.S. Federal Government Is Flat Broke!

As I write this, the total federal debt stands at $8,985,362,378,553.90. That's $8.985 TRILLION. Put another way, every man, woman and child in the U.S owes $29,672.26!

What's more, the debt has been rising to the tune of $1.44 billion every day since September 2006. That's $60 million per hour!

This is a disaster in the making by any measure. And it's going to get worse. In fact, that's probably why Washington officially upped the country's national debt limit to $9.815 trillion a few months ago.

By the way, not counted in the above figures are Washington's contingent liabilities such as future social security payments, Medicare, and government pensions. Add all those IOUs together and you have a Federal debt quagmire that's approaching $55 TRILLION.

In short, the U.S. is the most indebted country on the planet. It's a grim fact that we are now starting to face … and will continue to face, courtesy of the real estate and mortgage market meltdowns.

The average American citizen is dealing with a lot of debt right now

And let's not forget that …

American Consumers Have Their Own Mountains of Debt

The average U.S. household owes $112,043 for mortgages, credit cards, car loans, and all other debt. Meanwhile, the average personal savings rate is a mere 0.6%.

Yes, the average citizen has other assets at their disposal. Chiefly, real estate. And as long as home prices were rising, it was okay.

But now that prices are falling — and mortgage money is becoming tighter — it's fair to say that the day of reckoning is coming home to roost for the average American citizen.

The debts will overpower the assets, and a wave of incredible home foreclosures and personal bankruptcies will come crashing down over their heads.

As if that's not bad enough …

The U.S. Economy Is Already in a Recession

You won't hear that from most Wall Street gurus. And Washington certainly won't state it, either. But the U.S. economy is already sinking fast.

Two simple figures tell the story:

2007 Estimated Gross Domestic Product: 2.7%


2007 Estimated Consumer Price Inflation: 2.7%

= Net Real Economic Growth: 0.00%

And that's based on the government's manipulated figures for inflation!

Using my own estimates — which are supported by other independent analysts — inflation in the U.S. is running much closer to 10%.

So given GDP growth of 2.7%, real economic growth in the U.S. could be running at a NEGATIVE 7.3% right now!

In other words, in real terms, the U.S. economy is already contracting. This does not yet figure in the worst of the real estate and mortgage crises, either.

Bottom line: The outlook for the U.S. is not good.

Don't get me wrong … I was born in the U.S. … I love the U.S. … and in many ways it is the greatest country on the planet. But there's no denying that it now faces some of the toughest times ever in its economic history.

We will survive it. There's no doubt about that in my mind.
But how we survive it is another matter.

There is only one way, and the Federal Reserve has already taken the first steps in that direction …

It's Called Hyper Inflation!

In short, they print lots of money, which devalues the U.S. dollar. Then, it's easier to pay off their old debts with the cheaper currency.

Washington seems determined to make dollars as worthless as Monopoly money!

I've said it before and I'll say it again: Over time, any economy that's based on a paper (fiat) currency will see its medium of exchange depreciate and lean toward hyperinflation.

It doesn't matter if the economy is large or small, emerging or industrialized. It doesn't matter who is in the White House. And it doesn't matter who controls Congress. The Federal Reserve will pump out money like crazy no matter what!

Already, some measures show the broad supply of money and credit growing at a rate of nearly 13%. That's the highest monetary growth since just after 9/11, and it matches the growth rate we saw in the late 1970s, when inflation hit 14%.

There is no way that kind of monetary growth can be anything but inflationary.


So What Can You Do To Protect Your Wealth?

Now, more than ever before, you must keep in focus the two-pronged approach to protecting — and increasing — your net worth:

First, no matter what, keep the majority of your money LIQUID!

Don't get stuck in illiquid investments right now, especially real estate.

Also, continue to steer clear of long-term government, municipal, and corporate bonds. Ignore the talk that interest rates on these instruments will decline. They may do so in the short-term, but with the Fed pumping out money like crazy and the U.S. dollar plummeting in value, it's only a matter of time before bonds get hit hard again, and long-term rates start climbing.

In my opinion, money market accounts, especially treasury-only money markets, are the best place to hold your keep-safe funds. The yields are not great, but at least your money is safe.

Second, hedge the value of your money and simultaneously position yourself for profits.

The best way to do both: Seek out tangible assets that thrive when the dollar is sinking and inflation is rising.

I'm talking about hard assets … gold … oil … virtually all natural resources.

Because they are traded in dollars, the prices of natural resources such as gold and oil must rise to compensate for the falling greenback.

On top of that, never forget that Asia is still cooking, firing away on eight, if not 12, cylinders of economic growth, and that nearly half the world's population is now consuming natural resources at a pace never before seen in the history of the planet.

Best wishes,

By Larry Edelson

P.S. Continue following the recommendations in my Real Wealth Report . The newsletter was designed precisely for times like these and its performance has been outstanding. Right now, we have more than $12,000 in open profits on the books, and that's on top of $37,000 in gains already bagged this year. Not bad for tumultuous markets where most other investors are getting their heads handed to them!

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

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03 Sep 07, 19:38
spells inflation , will it be asset or price though

will this funny money find it's way into emerging market bubbles? as well as a bit of price inflation in emerging markets

will the u.s just continue to export it's inflation to other country's at least until the russian open their oil bourse in first half of 08. and then the petro dollar may be loosened from it's thrown (war w/ russia anyone?)

looks like all currency's are gonna be depreciated against gold, and oil prices will show just how much.

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