This is about money. Your money, and the current U.S presidential election. I'm also going to try and explain why your money, the coming election, and the "sub-prime housing bust" are all intimately tied together. FYI, the cause of the recent housing debacle is not because of "poor people with bad credit bit off more than they could chew, gol'darnit!" but goes much deeper and has far reaching implications for everyone.

Two things have me scared out of my wits right now;

1) The value of the U.S dollar is dropping at an alarming rate (for reasons I will expound upon further)

2) None of the presidential candidates are paying much attention to this. Sure, they're furrowing their brows to show that they'll be "tough on economic problems" but from what I've seen, none of them have a concrete plan to deal with this. They're all too busy in pissing contests with each other to give any time to what is probably the most serious issue the next president will have to face (sorry to say, this one will trump terrorism)

But first, let's talk about your dollar, the soon to be former reserve currency of the world, the U.S greenback! For my entire life, the value of the U.S dollar has been greater than the Canadian dollar... in fact, just a few years ago one dollar CDN equalled about 70 cents U.S. Just a few days ago, our dollar surpassed the U.S on the exchange rate. Today, one $CDN will get you 1.03 $ U.S. By Christmas if things don't change it could be as much as 1.10. In comparison to the Euro things are even more disproportionate- 1 Euro is equal to approximately 1.40 U.S. In fact, the U.S dollar has dropped against all the 16 most actively traded currencies with exception to the Mexican peso this year. Is this because all these other currencies gained value? Not especially.... it's because the U.S dollar is sinking, and since the federal reserve cut interest rates back in september to bail out a pack of thieves on wall street, the dollar appears to have no parachute to break the fall. 

Now how does this affect the average Joe? Inflation. Inflation means that your money loses value, and so you get less for your money. The price of goods and services go up, but if your income doesn't rise to match it, look who just joined the poor house! Most recently to give you a little perspective in September gasoline costs rose 4%, heating oil soared 9%, food jumped 5% and dairy products went up 7.5%..... in ONE month!! So why is the dollar sinking, and why is inflation coming?

Thank the boys at the federal reserve, the major banks, poor financial education, and greed! The big housing boom that's been going on in the U.S for the last few years is one of the biggest bubbles in economic history, a textbook example of a ponzi scheme and what you're currently witnessing is a slow motion trainwreck as that bubble collapses. Let's say in the last few years you bought a house, with the intent of flipping it as soon as you put in a few renos. You're only going to own the house for a year or two max, right, and in that time the value of the house is going to up, right? So since you're going to be flipping the house in short order (at a profit) why don't you get an ARM- adjustable rate mortgage? What this means is that you get a loan to buy a nice big house, but for the first few years you only pay the interest on that loan... not even touching the actual mortgage itself, so that when you go to sell, you only make money if the price goes up. Which it will, right, because housing can only go up! But, if you own the house more than a short amount of time the rate resets, and the monthly payment literally skyrockets, and if you can't pay it's eventually foreclosure time. So how does this affect the broader economy?

A hell of a lot more than it should. You see when you buy a house with a mortgage of say, $ 500,000.00, the banks went and did a little math. They calculated the maximum amount of money that they could squeeze out of a person if they were going to pay off the whole mortgage over 30 years, or 40 years, or whatever number of years the mortgage is for. Then they calculate how much that sum will be at the end of 30 years adjusted for inflation, changes in interest rates, how much they think the value of the property will be at the end of said time, all that stuff. Then, they perform a pagan ritual involving some chicken bones and a calculator, and voila, they list your $ 500,000.0 mortgage as 5 million dollars on their books. They call this a CDO, a "collateralized debt obligation", and is traded on the market as something that's called a "derivative". What this means is that the bank has just succeeded in creating virtual money out of thin air. The bank doesn't actually have 5 million dollars thanks to your mortgage, and they never will. But through poor regulation of the banking sector, the banks get away with these things. Then, they take a whole bunch of mortgages, thousands and thousands of them and bundle them together into these CDO's. A few hundred million dollars of real mortgage debt get turned into one or two billion dollar "CDO's" which then get invested in the market, bundled into various funds. The methods of turning this money over into other areas of the economy are mind boggling and so convoluted that to properly document what has happened would take several books, which someday someone will hopefully write. Essentially, billions of dollars of nonexistent money is traded on the market, netting certain banks and individuals massive profit by trading derivatives that are for lack of a better word, worthless.

This is part of the reason why the market has been flying so high for so long, and the above explanation of CDO's is very over-simplified, but serves to give you a picture of the tom-foolery going on in the marketplace. However, since this funny money was built on a lie, just a small amount of foreclosures in the U.S (small compared to what may be coming) has caused the banks to all realize that they've been buying and selling each other garbage. The big party is coming to an end, and the hangover is going to be severe!

Were you aware that the stock market froze over and risked collapse on the 16th of August? Many of the loans which were available just months ago (subprime, piggyback, ARMs, “no doc,” Alt-A, reverse amortization, etc) are either much harder to get or have been discontinued altogether. The banks are no longer willing to lend each other big sums of money because they don't even know what's in their own funds right now and certainly can't risk adding anymore toxid CDO's- An article in the Financial Times shows how this process has slowed to a trickle:

“Only $9.9 billion of home equity loan securitizations have come to market since July 1 — A 95% DECLINE FROM THE $200.9 BILLION IN THE FIRST HALF OF THIS YEAR AND A ROUGHLY 92% DECREASE FROM THE SAME PERIOD LAST YEAR.”

Okay, enough about the housing debacle. Suffice it to say that it's caused cataclysmic problems for the market- did anyone see Jim Cramer meltdown on CNBC? If not, go here http://www.youtube.com/watch?v=SWksEJQEYVU 

So how does this all together? Well, due to all these shenanigans, the economy has been flooded over the past several years with tons of cheap money. Cheap money is money that is loaned at very low interest rates. The more cheap cash and credit you have on the market, the less it's worth. This is part of why the value of the U.S dollar has been dropping. So the market runs into trouble because the banks were running their own ponzi scheme in the global derivatives market, and because they start losing money they cry for help. Econ 101 textbook says that to stop hyperinflation from happening, during times when a bubble is about to or is already collapsing, raise interest rates. This will cause the banks and credit industry to take a big hit, but these are the buffoons who engineered this whole scam in the first place so why shouldn't they have to sleep in the bed that they made?

Apparently, they have nothing to worry about. The federal reserve actually LOWERED  rates even more, and there is talk that at the end of the month they may cut the rates EVEN FURTHER. This will cause the value of the U.S dollar to plummet, causing massive inflation. If you think food and heating are expensive now, wait until it costs half of your monthly income!!! When massive inflation sets in, every company tries to slim down their expenses, so they lay off workers. Those people who do get laid off have great trouble finding work elsewhere in the economy because every company is fighting just to stay affloat, this is called a recession or even worse a depression, similar to something we all encountered back in the 1930's. There are a few different tried and true ways that inflation can be tackled, but that'll be the topic of my next article.

For the love of God, please take your presidential contenders to task about their thoughts on inflation, the value of your dollar, and what they are going to do about it. If they give you some kind of malarkey about how they'll "fix the economy" without giving you a real plan, please pull them off the stage and punch them in the stomach a few times to get the point across!

Thanks for putting up with another rant.