Well it seems that the result of decades of fraud is finally at hand, and everyday Americans are struggling to understand the cryptic jargon of the financial elite as they attempt to squirm their way out of a straightforward explanation for their behavior.
In a climate of rampant "debt speculation" loans have been made to people who cannot possibly pay them. Why these people accepted these loans is unclear, but the real question is: Why were they hade at all? The answer is that the mortgage lenders create money from nothing for the purpose of lending it. This loan is repaid by even more money which represent the value of the labor of the person who worked for it. At the end of the process, if the mortgage is repaid, the lender gets to keep the difference and the Fed gets their cut, and the extra money washes through the system. If the mortgage is not repaid, then the institution still created the money, the borrower still spent it, inflation still occurs, and the bank is left holding the deed to the home. Either way it's a pretty good deal.... for the bank, I mean.
This "extra" money that has been created dilutes the value of the preexisting money, which gives the appearance that prices have gone up, when in reality, it simply takes more of the paper dollars to equal same amount of "value". The apparent inflation of prices includes the price of the home in question, and lots of quasi-real money is said to accrue in the form of "equity". But don't be fooled.
Now that the number of people who, having fallen afoul of the other dying aspects of the economy (or having simply made a foolish decision in the first place, we don't know), are unable to make good on their debt, the rottenness of the financial "sector" and the interrelation of all of its components are coming into the spotlight. Everyone is terrified (justly) that they may be about to lose their livelihood due to artificial fluctuations in the economy... and of course, if the mortgage payers fail, then the banks fail - clearly something has to be done, and crowds of frightened and confused Americans cry out to their government, "Do something! Save us! You are all-powerful! Fix this reality!"
But reality is what it is and the Americans seem to have forgotten that it was never the government's job to make everything OK for everyone. Now they are hatching a plan for the Fed to "guarantee" these loans. What that means is this: the Federal Reserve System has been authorized to create money out of absolutely nothing and use it to "buy" these loans. This guarantees the solvency of all the lending institutions involved, whether they had been pursuing sound lending policies up to this point or not. It also means that the Federal Reserve System, and not any other lending agency, now becomes the holder of the deed to that property. The speculators will have been rewarded because they really took no risk at all, and the person holding the mortgage sleeps with sound relief until....
....the money that was created from nothing floods into the money supply. It will quite suddenly take many more dollars to purchase anything and everything, because the value of the individual dollars has been diluted. Since the individual's paycheck, denominated in dollars, will not go up correspondingly, that individual will have lost purchasing power, even though they may in fact be receiving "more money".
So there are three really simple facts that everyone should try to keep in mind:
1) The banks and mortgage institutions will be profiting, and everyone whose income is denominated in dollars is going to be paying for it;
2) If you let the Federal government pay your mortgage, don't be surprised when they start acting like they own your house - because they will; and
3) None of this hocus-pocus would be possible if these jokers actually had to raise real money to finance these schemes, as would be the case in a 100% specie economy.
Oh, one other thing. Another way that money can be added to the money supply is from outside. Many of these nearly-insolvent "investment" firms are being "liquidated", or sold to investors. But since everyone in the US is struggling, they are being sold to foreign investors, who just happen to have large amounts of dollars they have amassed over the last few decades. These dollars are losing value too and the foreigners would love to convert them into something of real value, like euros, or oil, or your family's house.
The way "out" of this is not to increase bureaucracy, add government regulation, and give even more power to the Fed. The way "out" of this is "through" it: let it happen, learn from it, and pick up the pieces.
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