Is a Greater Depression in the Works? And What Will Happen to Mortgage Rates as a Result?

by Florida's #1 Mortgage Planner on May 3, 2009

Chances are that you have seen articles and other media types reference the relationship between the Hoover-FDR regime and the current Bush-Obama regime.  Looking back to the time of the Great Depression (aka the Hoover-FDR regime), we can see shocking similarities that indicate history is destined to repeat itself, though this time may be worse.

Now, I am not one for spreading fear, or even for intentionally raising controversy.  However, I do like to spread reality when it appears necessary, such as I have done in reference to Money Merge Accounts and other mortgage acceleration programs.  This is one of those times when our leaders should learn from history so as not to repeat it, and as of now, it appears they are failing in that area.

As I have been reading my “get back to later” emails yesterday, I found some interesting perspectives that were presented.  One of the more interesting ones is that of the comparison of Obama to John Law, the original “New Dealer” that created hyperinflation by using a bank to create money out of nowhere to pay for government programs in France during the early part of the 18th century.  Here is what Doug French of the Mises Institute had to say…

“We can now throw Obama in with the other inflationist New Dealers, and with a compliant Treasury and Federal Reserve and their expanding monetary tools at the ready, he can do more damage than even John Law.”

Personally, I think Mr. French is right on the money with this one.  When looking back in comparison to FDR, it is important to note that an investigative journalist, John Flynn, whom backed FDR prior to his election subsequently became FDR’s fiercest critic, which FDR thus effectively silenced by having the Yale Review stop publishing him.  This what Flynn had to say in reference to John Law…

“As a New Dealer, [Law] was not greatly different in one respect from the apostles of the mercantilist schools – the Colberts, the Roosevelts, the Daladiers, the Hitlers and Mussolinis and, indeed, the Pericles – who sought to create income and work by state-fostered public works and who labored to check the flow of gold away from their borders”

Are you seeing the similarity to our current situation here yet?  Just in case you aren’t yet, let’s take a look at what Ivan Eland of the Independent Institute had to say about the comparison…

“Both Hoover and FDR tried to artificially pump up the economy by increasing credit, aiding banks and increasing federal expenditures, including spending on futile ‘make-work’ public works programs – all of which required the economy to fall farther back toward equilibrium, thus turning a mundane recession into the Great Depression.”

“Similarly, Bush partially or wholly socialized financial institutions, and Obama has gone on a public works binge. They both have increased credit and vastly increased federal spending and regulation.”

I think it is pretty clear now that we are duplicating the actions that were proven to have created the Great Depression and hyperinflation.  With the Federal Reserve and the Treasury creating money out of thin air, and our government doing everything possible, and then some, to extend credit and increasing government expenditures including “public works programs”, how can anyone not see what lies ahead?!?

It reminds of the definition of insanity presented before, that “insanity is when you repeat the same actions over and over again and expect a different result”.  Well, it appears our government is truly insane!!!!

Now, what does this all have to do with mortgage rates?  Well, based on history, particularly that of John Law, hyperinflation is just around the corner.  Since inflation is the archenemy of bonds, and mortgage backed securities (aka mortgage bonds) are what determines mortgage rates, mortgage rates will be hard pressed to remain low, in fact I expect them to hit the double digits in the not to distant future.  I can only hope I am wrong, but then I guess that thinking would make me insane as well.

(source for quotes: Agora Financial’s 5-minute Forecast)

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