By: Market Timer, Mon Dec 21st, 2009

I need to explain why we make renting such a stigma! And I need to explain why "Home owners make good citizens!". And I need to explain why American dream is to "Buy a Home". Here we go:



Before all else, I would like to remind you that a home buyer can deduct mortgage interest from income for tax purposes. But a renter cannot deduct his rent. Let us investigate why the government wants it this way.



In the past economy seemed to be doing OK solely due to credit inflation that FED has fostered. FED made it easy to borrow. America borrowed and spent. When we borrow money, banks create new money and give it to us. They do not lend existing money. Here is how banks create money.



http://www.tradingstocks.net/html/banks_create_money.html



Why does it matter? Well, all of our money supply is bank credit. It is borrowed money. It needs to be paid back as principal + interest. The interest portion is not even created yet. Borrowing MUST increase exponentially so that principal+interest amount exists in the economy so that people can earn it and pay back what they owe. What happens when borrowing stops? Deflationary crash occurs. Debt problem:



http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html



FED and the US government are running a ponzi scheme that is about to stop now. There is a limit to how much people can borrow. They knew debt would deflate. They needed a way to keep borrowing continue. To make it last what did they do? They allowed people to deduct mortgage interest from income tax. That made mortgage more attractive. So people borrowed more and injected new money into the economy. This new money makes the current administration look good. In fact, they guarantee a future bankruptcy but who cares. As long as they get re-elected... Keep in mind, renters do not borrow, they do not play the bank's money creation game, thus they are the bad guys! No soup for renters!



Government talked about the American Dream and Affordable Housing. Now home prices are becoming affordable, but instead of celebrating, they are scared to death, they are trying to inflate prices again. Government has been using home buyers as a means to inflate the money supply! This is is why renting has a stigma. This is why "every good citizen should buy his home". Here why housing bubble was a good thing for the government:



http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html



But it won't work. Home prices are down, sales volume is down. After prime borrowers were exhausted, they changed the rules to allow sub-prime borrowers get big mortgages. No 20% down was OK. Who needs cash down when you can borrow the entire amount and inflate the money supply. Liar loans were OK as long as you were a willing borrower. Now sub-prime is exhausted and the crash has started. 8K tax credit won't work. Home prices must increase exponentially to sustain a recovery. People must borrow HUGE amounts to provide new money to the economy. Who is gonna do that??? Here is why FED's easy money policy does not work beyond some point:



http://www.tradingstocks.net/html/jaguar_inflation.html



Where does that leave us? It leaves us at the top of the greatest bubble ever! What ever you do, make sure you do not take on more debt! Pay off existing debt! If you have existing savings in cash or cash equivalents such as short term US treasuries you should be fine for a few years. At the bottom of depression you may have to jump out of US dollars if FED freaks out and really prints money!



All of the prices, and salaries you see around you were based on inflated credit that happened over 50 years. It is based on a money supply that is almost entirely bank credit. People borrowed and borrowed and spent. The amount of money borrowed reached sky high. You earned in good times! Now, it is reversing course!



Deflation is here!



http://www.tradingstocks.net/html/latest_opinion.html



There is nothing FED or the government can do about it beyond saving the day with stop gap measures. Credit inflation happened last 50 years. The bubble is inflated. The cause is in place, the effect will follow. It will deflate. For inflation to happen, all of the following must happen:



1. FED makes credit available. [Yes they do]



2. Banks must lend. [No they don't, because they don't think they will get their money back]



3. Borrowers must borrow. [No they don't, because they don't think they can pay it back]



4. Consumers must spend extravagantly and chase too few products with too much money. [Consumer is a saver now]



http://www.tradingstocks.net/html/financial_crisis.html



The best thing you can do now is to pay off debt and become debt free, because it will get harder and harder to make money in an economy where the total money supply is shrinking at record speed. M1 does not matter. The bulk of the money supply is bank credit! 95% of our money is borrowed money. It has principal + interest to pay back. So, we have the principal since we borrowed it. Where will the interest portion come from so that we can earn it and pay it back??? It does not exist! It is a ponzi scheme. The music has stopped! In a credit based monetary system, we must keep borrowing or the economy will stop. That is what is happening. It is called deflation. The money supply is deflating. When there is 10 times less money in the system, it will be impossible to keep the current prices and salaries at the current levels. Pay off debt now and be debt free. Get ready for days where there is no money to be earned!



Stocks are over valued by wide margin. Prices are based on credit inflation of 50 years. It is like South Sea bubble! Stocks can crash and not come back for 100 years!



http://www.tradingstocks.net/html/near_bottom.html