Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

United States Takes a Quantum Leap Towards Socialism

Politics / US Politics Sep 11, 2008 - 03:07 AM GMT

By: Michael_Pento

Politics Best Financial Markets Analysis ArticleUnfortunately, we Americans now realize that the decision by Ben Bernanke to slash the Fed Funds rate to 2% (a three hundred twenty five basis point reduction) was just the opening act in this Republican administration's socialism play. At the time some wondered why the government didn't just allow home prices fall to historical averages rather than seeking to lower the value of the U.S. dollar and send inflation to a 17-year high. Now we have learned just this past weekend that the Department of the Treasury has come up with a plan for conservatorship of the GSEs, enacting the largest bailout in the history of the United States.


What does the conservatorship plan mean? It means the government will take over the GSEs for the purpose of continuing their operation rather than putting them into receivership, which would seek to sell off their assets and shut down future business. In contrast, the Paulson plan will actually increase the holdings of FNM & FRE by $144 billion. The total of mortgage backed securities held by the GSEs will be allowed to increase to $850 billion each by December 2009.

My Libertarian heart sank when I witnessed Republicans and Democrats slap each other on the back as they congratulated themselves from saving us from the natural workings of the free market. The Republicans reek of hypocrisy, claiming the bailout of FNM & FRE was necessary for the health of the real estate market and the economy. I guess government intervention in the free market is only mandatory if you're a bank, insurance company, foreign government or a pension fund that owns GSE debt.

It was especially telling when Hank Paulson's was asked in a CNBC interview how much his bailout plan will cost taxpayers. He responded that he “did not use a calculator” when putting together this scheme. The essence of his response was that he did not care what the bill to taxpayers would be, his main concern was to recapitalize banks and stop home prices from falling.

The big problem with this plan is that the government does not have a plausible exit strategy. After Treasury has taken the companies into conservatorship and then expands their operations, it will not be easy to reduce the size of the GSEs. Their intention is to wind down the agencies' balance sheets beginning in 2010 at a rate of 10% per annum until they reach just $250 billion each. So let me get this straight, after the real estate market has become more reliant on FNM & FRE to securitize the mortgage market, we will then be able to allow market forces to take hold? That view becomes especially dubious in light of the fact that we will have a new administration in charge when this scale-down is supposed to be taking place.

Just as the U.S. has become addicted to artificially low interest rates—unable to raise them without seriously hurting the economy-- we now have most likely permanently socialized a good portion of the real estate market and the economy. Does the administration really believe that it is better to debase our currency and greatly expand the obligations of our government rather than letting home prices fall to a level that can be supported by the market? This move has long-term ramifications on the dollar and the national debt. Thanks to a stimulus package and reckless spending from the administration, annual deficits are already skyrocketing to nearly $500 billion. Now with the Paulson bailout plan, debt could increase even faster. This may torpedo the recent move higher in the dollar and makes its long-term picture even more bearish.

Perhaps it will first fall even further in coming weeks, but the need to own honest money—gold—has never been more apparent.

*Please check out my podcast, The Mid-Week Reality Check

Michael Pento
Senior Market Strategist
Delta Global Advisors
800-485-1220
mpento@deltaga.com
www.deltaga.com

With more than 16 years of industry experience, Michael Pento acts as senior market strategist for Delta Global Advisors and is a contributing writer for GreenFaucet.com . He is a well-established specialist in the Austrian School of economic theory and a regular guest on CNBC and other national media outlets. Mr. Pento has worked on the floor of the N.Y.S.E. as well as serving as vice president of investments for GunnAllen Financial immediately prior to joining Delta Global.

Michael Pento Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules