Here’s the most useful bit of folk wisdom I can pass along:
Do it once, you’ll like it. Do it twice, you’re hooked.
It was imparted to me regarding heroin, and it shriveled any curiosity I might have ever had regarding the stuff. No rush is worth the kind of self-inflicted slavery that that addiction brings. An addict’s life quickly spirals into a series of twisted rationalizations, trying in vain to recapture the euphoria once felt. There is never an exit strategy, just soulless renditions of Perry Farrell’s refrain ( I’m gonna kick tomorrow!!!). Darwin eventually provides one, but not before the addict’s selfishness has done permanent damage to everyone they once cared about.
The easy money endlessly pumped out by the Fed and squandered by the government has been compared to a heroin addiction. It’s an appropriate metaphor. Sure it makes pain vanish in the short-term, but after a while it’s no longer a question of achieving some desired effect, it’s something we need to survive. And although no one actually believes this, America seems powerless to stop this monster. Why? Meet America’s closeted heroin addicts:
See Dick. See Jane, See the chart. See the recession. Bad recession Bad. See the Fed. See the Fed cut. Cut Fed cut! See Dick and Jane refi. See the next recession…..
What I’m getting at here is that the Fed has responded to every recession in the last thirty years exactly the same way…cutting rates. Nothing’s shocking about that, but here’s the really important part: In every case, the thirty year fixed mortgage pre-recession lowest rate, was higher than the post recession highest rate (these are quarterly averages). So what was an unbelievably low rate before a recession became an unthinkably high rate thereafter, again and again and again.
See Dick and Jane think houses are great investments. Little do they realize that 65% of the price appreciation of houses over the last thirty years came from the heroin provided by the Fed and congress. That $2000/mo. McMansion payment that gets a buyer a $400,000 mortgage at 4.41%, would only fetch a $137.000 mortgage at 17.5% (click here if you don’t believe me).
If you’re thinking, “That can’t happen!” guess what? You’re hooked too.
See Dick and Jane TEA party? May I suggest the slogan, “Give me Liberty, but don’t let my house go any further underwater!” Apparently no one has explained to Dick and Jane that they are the biggest beneficiaries of this “nanny state” thing they detest. 97% of all US mortgages are either written or guaranteed by the government. While the debate over the debt ceiling rages on with all the substance of a “Tastes great! – Less Filling” commercial, the stash that keeps house prices propped up isn’t even on the table. Fannie and Freddie are not subject to the debt ceiling and have unlimited credit lines. Maybe that’s why you’ll never catch the dragon.
See Dick and Jane rob Grandma. Anyone even vaguely familiar with the behavior of junkies knew this was coming. Fannie and Freddie are unfunded liabilities, social security is not, but good luck explaining that to a strung out whore. Social security has been overfunded to the tune of $2.5 T. In 2010, the US government collected 4.5 times as much revenue from social security than it did from corporations (both data points can be verified here).