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It's the thought that counts.
When Gov. Charlie Crist and the Florida Bankers Association announced their voluntary, 45-day moratorium on initiating foreclosures and foreclosure sales during the holidays, they earned their gold stars for holiday charity and popularity.
But that's it. That's all it was — a PR, feel-good move.
It will do nothing to improve the overall state of too many overextended homeowners.
If thought through, the moratorium really just makes things a little worse, increases costs and extends the flushing process.
As a spokesman for one of the state's largest mortgage law firms told us: “This is exactly the wrong thing to do.” People who were behind on their mortgages will likely use whatever money they had earmarked for their mortgage payment to buy Christmas gifts — thus putting themselves further behind and further indebt.
Let's not forget the cost of rescheduling foreclosure sales, either. This has a chain reaction that flows up the line and adds costs. Law firms must cancel the publishing of notices of sales and later must re-publish the sales — that's two additional costs the law firm bills to the bank. Meantime the longer a sale is delayed, the more unpaid interest accrues against the mortgage, a cost the bank continues to eat, not to mention the cost to the bank of preparing and revising the foreclosure documents. Let's also not forget the courthouse costs — time added to court clerks' processing and judges' adjudicating foreclosure cases.
Compared to the extraordinary number of foreclosures filed in Florida in Ocotber (54, 325), the foreclosure cases affected by the moratorium will be miniscule. To be sure, those who are being foreclosed will appreciate the 45-day, holiday reprieve. And any act of charity is to be applauded. But this is emblematic of Crist — positive PR for minor initiatives instead of bold moves that indeed make a dramatic difference, i.e.:
Since Florida's recession began, what major initiative has Crist proposed that would help boost Florida's economy? Stay tuned for the governor's state of the state address in January. It will be a telling test of Crist's leadership.
+ Beware coming inflation
Deflation? You've seen home prices fall nearly 30% from their peaks. Gasoline prices have dropped 53% in the past four months. Retailers are offering astonishing sale prices.
Are we entering a scary, Great Depression-like period — one of pervasive deflation ... when all prices, even wage rates, fall? This seems to be a growing theme in the mainstream press.
To the contrary, the warning should be this: Watch out for runaway inflation!
This is the tax that kills the middle class.
Key signs point to inflation being the next big bogeyman, not deflation.
Deflation is essentially a shrinking of the money supply. Inflation is the opposite. In its simplest definition, inflation is when too many dollars are chasing too few goods. It occurs when the supply of money grows faster than the demand for goods and services.
A quick example: You grow oranges. Your two neighbors each agree to buy an orange for $1 apiece. The next day, your neighbors show up to buy their orange. But this day a representative of the federal government also shows up.
He has $4, newly printed dollars by the government's money printing presses. He wants oranges, and he offers you $2 apiece for the two oranges you would have sold to your neighbors. Your neighbors' dollars just lost half their value.
That's simplistic. But if you look at indicators, you have to lean toward inflation, not deflation. Consider:
Inflation Prediction 1: Take the table below showing the straight-up spike in the adjusted monetary base. That's the amount of dollars circulating in the economy. As noted in the text below the chart, Richard G. Anderson, a senior economist at the St. Louis Federal Reserve Bank, wrote in 2006 that inflation “is caused primarily, or perhaps exclusively, by increases in its own monetary base.” And given what the Fed and Treasury have been doing lately, it's not likely we'll be seeing much of a decrease in the monetary base.
Inflation Prediction 2: Robert Higgs, senior fellow in political economy for the Independent Institute and editor of The Independent Review, wrote this week in an article entitled “Nonsense about Deflation”:
“Does deflation actually loom at present? If it does, its occurrence will surprise me greatly, because the Fed has been creating base money as if there were no tomorrow, and if the bailouts continue, as seems likely, more of the same is virtually certain.
“In short,” Higgs concludes, “given the monetary conditions now prevailing, the greater threat by far is inflation, not deflation. And contrary to what the investment 'experts,' the politicians and the mainstream economists believe, inflation is not a benign element in the economy's operation. It is, as it has always been, the most dangerous and destructive form of taxation.”
Inflation Prediction 3: Of the all the predictions we've read, John Williams, a California economist for 25 years who specializes in tracking federal spending through his Shadow Government Statistics consulting firm, has the direst.
“The U.S. economy is in an intensifying inflationary recession that eventually will evolve into a hyperinflationary great depression. Hyperinflation could be experienced as early as 2010, if not before, and likely no more than a decade down the road.
“The U.S. government and Federal Reserve already have committed the system to this course through the easy politics of a bottomless pocketbook, the servicing of big-moneyed special interests and gross mismanagement.
“The U.S. has no way of avoiding a financial Armageddon. Bankrupt sovereign states most commonly use the currency printing press as a solution to not having enough money to cover their obligations ... With the creation of massive amounts of new fiat dollars will come the eventual complete collapse of the value of the U.S. dollar and related dollar-denominated paper assets.”
The Way Out: None of these predictions is off base when you juxtapose them against the writings of one of the most prescient economists of all time — Ludwig von Mises. Von Mises accurately predicted the collapse of the German mark in 1923 and also forecast the collapse of the U.S. economy. Indeed, eight months before the collapse of the German mark, von Mises wrote:
“If the practice persists of covering government deficits with the issue of notes, then the day will come without fail, sooner or later, when the monetary systems of those nations pursuing this course will break down completely. The purchasing power of the monetary unit will decline more and more, until finally it disappears completely.”
As von Mises also warned: “The first condition of any monetary reform is to halt the printing presses. Germany must refrain from financing government deficits by issuing notes.”
President-elect Obama, Congress and Ben Bernanke should read von Mises to get us out of our horrible economic vise. Americans are so overleveraged they can't afford to borrow — even at the low interest rates that exist — to boost consumer spending. At the same time, Congress has saddled taxpayers with so much debt and high taxes and has committed us to spending so far beyond our means that it can only pay for its excesses by printing more money. This is the insidious inflation tax.
The only way out: Stop the presses. Reduce spending. Cut taxes. That or the worst is still to come.
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