Government Helps Stop Foreclosure - Hyperinflation, Depression, Devaluation

The politicians, though, do not have much choice in the matter anymore, as they are just as enslaved to the debt machine as the public. With government debt and deficits in the trillions of dollars, there is simply not enough money to keep the system going without creating massive inflation. The government has made the mistake of borrowing money at interest, money which it could create on its own debt-free.

In fact, the nation is effectively bankrupt, being forced to borrow several billion dollars every day from other countries, mostly Asian. The banks have also begun to go bankrupt, but have been able to rely on the Federal Reserve to give them the appearance of solvency. Neither the banks nor the government, however, will long be able to keep paying their bills with dollars that are increasingly losing their value.

Trading in bad mortgage debt at the Fed for US Treasury securities will only keep banks in business a short time longer than if they were forced to keep the nonperforming loans on their books. In time, investors would have lost all confidence in the banks and would have taken their money out, either in the form of cashing in stock ownership or removing money from bank accounts. With the effective bankruptcy of the government, though, banks who have traded their mortgages for Treasury securities will only put off the crisis of confidence, not avoid it entirely.

By 2009, experts have reported, the ability of the US government to meet its own debt obligations will be thrown into question. With a deep recession in 2008, and several new programs put into place by the government to help alleviate the situation, the borrowing will go up even faster, more money will be created, and the government may become insolvent much sooner. Borrowing money and printing more dollars out of thin air can not last forever, and eventually foreign governments will realize their dollar holdings are worthless.

Politicians proposing giving more power to the Fed or offering tax incentives to prop up the banking system are not helping homeowners stop foreclosure. They are helping banks stave off bankruptcy so that the government itself can stave off bankruptcy for as long as possible. But their efforts to do this are actually increasing the danger in the future, as foreign countries are finding it more difficult to deal with the US defaulting on its dollar debts by devaluing the currency. Once other countries dump their dollars, the politicians will have run out of options.

The long-term value of all currencies backed by nothing is zero, and the US dollar has already lost 20% of its value in the past year, relative to other currencies (which are also backed by nothing). Going off the gold standard and allowing banks to create as much money out of thin air as they wish is bringing on a currency crisis and economic depression that could make the Great Depression look like the heights of the dotcom boom.

In the coming crisis, though, the government only has the debt standard to abandon, but maybe that is really the only long-term solution. A rolling back of government intervention in monetary affairs and a return to real money may start at the local level, but it may allow these neighborhoods to recover from the government's and Federal Reserve's institutionalized manipulations in the economy.