No Easy Answers

 Regarding “The New Shot Callers” post, Borderline Convert Byanca wrote:

 

Let’s say the government didn’t interfere. China and Japan get nervous…. Decide to pull out all of the money they have loaned….what then? Where’s our US dollar then…

 

There simply is NO solution.  Had the government done the right thing and not guaranteed Freddie and Fannie debt, we would now be experiencing an outright financial crisis. The dollar would be falling sharply along with real estate prices, gold would be soaring and the recession would be deepening.  But even in the midst of all that chaos, the dollar would eventually find a bottom and a new rebuilding period could begin.  This scenario, which is politically inconvenient in the short run, is the best long-term solution.

 

However, by choosing to nationalize Freddie and Fannie, the government has merely delayed the disaster. In hyperinflation, which is where we are headed, a currency can lose all of it’s value. This scenario might be more politically favorable in the short-term, but the long-term effects are catastrophic (i.e. Weimar Republic, Zimbabwe, and Argentina).  Thus this borrowed time will cost us dearly, as the day of reckoning will now involve much steeper losses for our currency.