When the housing bubble collapses from artificially bid up prices on houses, everyone was in shock, including the previous administration and the current administration.
Bailouts, used to be something that your friends did for you if you got put in jail, but now it is a common term used to refer to the government intervening and worsening free markets.
When the housing market collapsed, prices should have deflated back down to what the real value was, but the government was keen on stopping the prices for correcting. Over the past few years they have vehemently been trying to stop the prices from deflating because it was wiping out the fake equity that everyone thought they had. It caused some people not to be able to afford their houses, it caused more people not to be able to sell their houses, and it caused a lot of people just to foreclose on their houses because they were worth half of what they paid for them.
To stop the deflation or the correction, the government quickly printed and doubled our money supply, which if you have any common sense at all, you realize that increases in money supply, increase the availability of money, thus decreasing the value of all money. A doubling of money supply will have the immediate effect of every dollar that was currently out there being worth half as much, no questions asked, that’s simply how it works.
The distortion comes because of how complex our monetary system is in the United States, this money doesn’t instantaneously reset the value of money, instead the people who get all this new “free” money first (cough banks) get to spend it at full power, eventually it spreads around and where it hits the hardest is on the middle class and lower income families who eventually will have their money value cut in half, including their savings and retirement.
So if the government were to succeed in keeping prices stable, this is not a good sign, due to the method they used to make it happen.
First, they have lowered the interest rates to almost 0, this means banks can borrow money from the tax payer (government) for almost nothing, and in turn they get to lend that free money to us with interest. Yes, interest rates are lower, but the margin they make off of us is substantial. With perfect credit vehicle purchases rates are at 4%, that’s a 4% gain off of free money they get. This is why you see banks reporting astronomical profits over the past few months.
Second, by printing the money and doubling it, they have virtually made every $1 worth 50 cents. Not right away obviously because of the complexities, but over the long run, it will get there. Look at what has happened since 1913 when the Federal Reserve began doing this monetary manipulation and downright theft to the middle and lower classes. A dollar today is worth about 3-4 cents about 100 years ago, that means the money is worth 3300% less than it was back then. So obviously for them, a 50% loss they just did by printing, is nothing compared to the damage they’ve done to savings in the past.
So now we get down to why you’re here. Housing prices stabalizing and increasing being a bad sign. Ready? Here we go..
If the government is able to prevent the correction by printing money, the correction will happen in the reverse fashion. Meaning prices of houses won’t drop, they’ll increase. This is called inflation. Basically, if the value of your house was $250,000 before the crash, and now it’s worth $125,000, and through inflation it goes back to being valued at $250,000. That $250,000 then will only be worth the $125,000 now, because the money is worth less.
Confusing? Basically it means, money is worth less and the money value of everything will adjust to all goods, items, and services. If a gallon of milk costs $4, it will now cost $8. So while your house value may go up and your wages, the purchasing power will remain the same or less. Just because it’s an increase in the value by dollars, doesn’t mean you have increased wealth or have more purchasing power.
Because of the average inflation rate, the most money people ever make at their job, is the first weeks pay check. The reason is simple, inflation beats out their salary increases and promotions. If you get a 4% increase in money every year you were just keeping up to inflation, meaning everything costs 4% more anyways, if you’re not getting at least a 4% raise every year, then you were making less money than when you started.
Unfortunately, the average inflation is set to explode to levels beyond 4% annually as we have never doubled our money supply like this before or increased our debt so fast. The best thing you can do is hedge your money against the dollar. Gold is always worth the same no matter what, gold is gold, it’s very static, the money supply and worthiness of the US dollar is what changes, therefore, the “price” of gold changes, but not really, it just keeps up with inflation so you don’t lose your buying power.
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