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Weekend Tension

Posted by MadScientist (Düsseldorf, Germany) on 14 July 2008 in Cityscape & Urban and Portfolio.

To be honest, I don't understand much about money. If things get too complicated, you'll hear me saying: "Go ask my wife." And she knows.

But this time it's different, this time even your humble MadScientist reads the economy news. And many commentators agree that the past weekend was something special, as the US decides about setting the direction towards deflation or inflation. That means, savings worldwide will suffer from devaluation, or there will be a grand crash of debts that will pull the rug from under the world-wide assets (but will leave money as such relatively untouched).

Of course I'm talking about the rescue measures for Fannie Mae and Freddie Mac. As far as I can see there a two different approaches: on one side, Treasury Secretary Paulson and FED boss Bernanke try to save both Fanny and Freddie at any cost (what would mean nationalization in the broadest sense), then again there's a number of congressmen and senators who don't want this kind of 'socialism', the usual "Bailout always and forever". Anyway, the next US "1 Trillion Dollar Deficit" government is not to be envied.

But where will this money do come from? Already in 2002 Bernanke answered this question: it will come from the "US Dollar Printing Press" (or another suitable measure with the same effect). Rising the money supply works great: Germany has its own experiences with hyper-inflation and even today the warnings of my grandparents are singing in my ears: "Don't run into debts!" "Hold property; that keeps its value!" and similar quotes. The terror of those days is still alive in many people's memories.

In my opinion the same things will happen as the FED was saving Bear Stearns some months ago: in the end US taxpayers will have to take the responsibility, because the burden of true capitalism is way too hard for Wall Street boys and their influential friends. That means good times for Fannie and Freddie and several other mortgage banks, but it will devaluate the US dollar.

Not that this will annoy the common US consumer: if the dollar loses its value, so do the debts. As long as salaries will raise appropriately, private consumption may continue. Foreign credit grantors of the US of course are left out in the cold: a cheap dollar will plunge foreign credit banks into ruin. Thus the crisis will propagate to other countries. And the US consumers will make similar experiences like my grandparents did in the late 1920s / early 30s, when funny money had been released that wouldn't survive the day.

Maybe we'll buy a small house with a big garden - cash, of course. In a warm region. Perhaps a ruin, not necessarily as old as these you can see at today's photo, but who knows. The garden is for fun and useful plants. Property keeps its value. And don't run into debts!
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Canon EOS 300D
1/500 second
F/8.0
ISO 100
28 mm

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