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Friday, 10 August, 2007

Who’s been watching the markets? Because the U.S. economy hasn’t really been making anything, “Voodoo economics” has been the rule of the day, That the top indices have not fallen further is a bit of a mystery …

Until last week. I’ve been operating under the assumption that the authentically insane real estate market has been financing the inexplicable growth through loans and bonds. This was naive in the extreme. These new ARM-based mortgage instruments from new institutions, which loan money to just about anyone, are fronts for the old houses which buy the mortgages, which they have no apparatus to support, and use this promise to keep their portfolios afloat.

That is, all those house flippers and people getting mortgages they can’t really afford have been keeping things going. These are among the reasons housing prices are so very high. Demand is absurd, because credit is available like it’s going out of style. As the real [read: price of tea, beans and gasoline] economy continues to compress, mortgage holders default and that little part of the market evaporates. This is happening thousands of times every week. This stop gap measure is not working, because the price of tea in China, Australia, Japan, Europe and Peoria keeps rising while wages actually drop adjusted for inflation with energy costs.

The Fed dropped at least $38 billion into the system today. We’ve only seen something like this once before. President Hoover assumed the crunch would be minimal and rather brief, so they didn’t want to talk about a “recession”. Not unlike what’s coming from Washington lately.

They called the coming, brief, temporary but nerve-racking period a “depression”.

Only we didn’t have commitments overseas in 1930.

Literally anything which can be done to stimulate the real economy must be done, and we can’t wait until 2009. You already know what we’ll get. This is the beginning.

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