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My High Dividend Stocks
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My High Dividend Stocks
This is my high dividend stocks site where I help site members find high dividend stocks with earning power and strong balance sheets.
12/15/10 Baltimore, Maryland – Consumer prices rose 0.1% in November…and less than a percent over the past year. If you strip out food and energy – which government number crunchers do, because those prices are allegedly “volatile” – you still get a 0.1% increase.
That’s the “core” CPI, and that’s what the monetary mandarins at the Federal Reserve care about when drafting plans to buy Treasuries, control interest rates, goose employment numbers, order pizza, drink wine, play Xbox 360 or any of the myriad other things they do during their FOMC meetings.
As a group, they can’t be pleased with the number. Over the last year, despite trillions of dollars in government stimulus and quantitative easing, core CPI has risen a scant 0.8% – far below the Fed’s “sweet spot” of 1.6-2.0%.
But whom are we kidding? Even the “headline” figure, the one including food and energy, is suspect.
Our friends at Casey Research put out this chart a couple months ago. The column in the far right – CPI-U – is actually lower now than it was then, all those other columns notwithstanding:
How does the government pull this off? We ask constant readers to indulge our newer ones as we revisit three of the most common tools the statisticians use…
These changes started with the last round of Social Security “reform” under the auspices of Alan Greenspan in the early ’80s. The idea was that if CPI were lower, Uncle Sam could pay out less in Social Security benefits.
You can see the end result over time maintained by our friend John Williams of Shadow Government Statistics. Mr. Williams calculates economic numbers the way they did back in the Carter era. The “official” CPI number is in red. The shadow stat is in blue:
In the meantime, the Federal Reserve statement issued after yesterday’s meeting amounted to, “steady as she goes” on the ill-fated QE2. The Fed, looking at current “official” CPI numbers, sees “deflation”…
And so the plan to goose the system with $875 billion in Treasury purchases that started last month will continue to at least double the official rate from whence it sat while they were kibitzing over bagels before the meeting began yesterday morning.
Sooner or later, reality is going to catch up to the gamed statistics. Indeed, “an inflationary outbreak is very likely,” says Chris Mayer, editor of Mayer’s Special Situations.
History is on our side.
“The dollar has done nothing more reliably than lose its value over time,” Chris points out. “I think the future will be no different. People who worry about deflation – that, somehow, the dollars in our pocket will actually buy more in the years ahead, not less – will not only be wrong. They will be broke.
“Writer Jason Zweig points out that ‘Since 1960, 69% of the world’s market-oriented economies have suffered at least one year in which inflation ran at an annualized rate of 25% or more. On average, those inflationary periods destroyed 53% of an investor’s purchasing power.’
“That is why I believe that being prepared for inflation is the most important investment decision we have to face in the coming decade. If you aren’t prepared, then the consequence is a mean hit to your wealth.”
Addison Wiggin
for The Daily Reckoning
Read more: Why You Shouldn't Trust the Core CPI Numbers http://dailyreckoning.com/why-you-shouldnt-trust-the-core-cpi-numbers/#ixzz19LBybZFb
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Be seeing you!
Be Very Afraid: The 'Experts' Are Running the Economy
by Thomas E. Woods, Jr.
Recently by Thomas E. Woods, Jr.: Some Americans Distrust Authority
When Young Americans for Liberty at Indiana University first invited me to speak last year, the group ran into resistance from the university administration. Having consulted the economics department, the relevant university office declared that I was "uncredentialed," and that perhaps a professor from IU’s economics faculty could give a nice lecture instead. I was uncredentialed, presumably, because my education at Harvard and Columbia was in history, not economics.
The student group refused to take this lying down, and made such a stink in the local media, pointing to my bio and the reception of my book Meltdown – including the friendly coverage it received from mainstream outlets like Barron’s, CBS.com, and UPI – that the university not only reversed its stance but even partially funded my appearance, which took place on September 21 of this year.
The Indiana Daily Student (circulation 15,500) offered me a 600-word guest column in the wake of my appearance. Here’s what I wrote, which they published verbatim (complete with a comments section). ~ Tom Woods
The free market did not cause the financial crisis, and the Elmer’s glue and Scotch tape our wise leaders have applied to the economy are only prolonging the agony. That’s the thesis of my 2009 New York Times bestseller, Meltdown.
That’s not a popular thing to say in Bloomington, I learned several months ago.
When Young Americans for Liberty at IU hit a bureaucratic stone wall in trying to invite me to campus – a problem I can’t say I’ve run into at any other university – the local media took notice. But it was the comment sections that were a particular hoot. It was as though I had insulted Stalin in the old Soviet Union. Who does this idiot think he is? How dare he speak of our wise overlords that way! Why, they’re just looking out for the good of the people! And so on, as if I’d stumbled into some kind of cliché competition.
Then, when the university reversed itself and even helped fund my appearance, the comments switched to, "If I had time, I’d go over there and set this guy straight!" Uh-huh. The large crowd that came to hear me a couple weeks ago couldn’t have been friendlier.
What I explained at IU was that asset bubbles, like the housing bubble we’ve just lived through, do not occur spontaneously. If people bought lots of houses on the free market, interest rates would rise as the banks’ loanable funds were depleted. That would put an end to speculation in real estate.
But thanks to the Federal Reserve System (or simply the "Fed"), which is no part of the free market, large infusions of money created out of thin air kept interest rates low, and thus perpetuated the bubble. During an asset bubble, demand for the asset in question rises, as does its price. Where would people get the money to keep buying an increasingly costly asset if the government’s officially approved money machine weren’t there to flood the economy with cash?
It was this interference with interest rates, pushing them well below where the free market would have set them, that set in motion the classic boom-bust cycle we’ve just witnessed. F.A. Hayek won the Nobel Prize for showing how central banks like the Federal Reserve, by interfering with interest rates and not allowing them to tell entrepreneurs the truth about economic conditions, divert the economy into unsustainable configurations that inevitably come undone in a crash. (Hayek belongs to a tradition of free-market thought called the Austrian School of economics.)
None of this has anything to do with the free market.
Adding fuel to the fire was the so-called Greenspan put, the unofficial policy of the Greenspan Fed that promised assistance to private firms in the event of risky investments gone bad. What kind of incentives do you suppose that created?
The point of being in college is to learn how to think beyond clichés. Forget the quacks who told us, cluelessly, that everything was fine with the economy in 2007. Look instead to modern spokesmen of the Austrian School like Peter Schiff, Ron Paul, and Jim Grant. You know, the people who, unlike your professors (who, by the way, tried to keep a dissident voice from speaking on campus), predicted the recent crash to a T.
September 30, 2010
Thomas E. Woods, Jr. holds a bachelor's degree in history from Harvard and his master's, M.Phil., and Ph.D. from Columbia University. He is the author of ten books, including the just-released Nullification: How to Resist Federal Tyranny in the 21st Century, and the New York Times bestsellers Meltdown: A Free-Market Look at Why the Stock Market Collapsed, the Economy Tanked, and Government Bailouts Will Make Things Worse, and The Politically Incorrect Guide to American History. Visit his website and blog, follow him on Twitter and Facebook, and subscribe to his YouTube Channel.
Copyright © 2010 by LewRockwell.com. Permission to reprint in whole or in part is gladly granted, provided full credit is given.
August 24th, 2010
You can listen to this article on your smart phone or computer. This is perfect for drive time.
We have been analyzing American Agency Capital Corp. (AGNC) for the past few articles at www.myhighdividendstocks.com . AGNC purchases mortgage-backed securities and collateral debt obligations from Fannie Mae and Freddie Mac. So we must understand what Fannie and Freddie are and how the make/lose money. For those of you who don’t know – Fannie and Freddie are government sponsored enterprises. That means they have special privileges that other corporations don’t. They buy mortgages in the secondary market, repackage them into securitized products, and guarantee the principal and interest payments on those securitized products. They are colossal failures and have to be subsidized by the federal government almost yearly to keep operating. Ron Paul spoke before the House Financial Services Committee years before the housing crisis and the financial crisis. He understands that government intervention in markets distorts the allocation of capital in those markets. The mortgage market is no exception. This is a concise explanation of how the markets are distorted by congress’ subsidies to Fannie and Freddie. AGNC’s dependence on Fannie, Freddie, and Congress is a huge risk that you must understand before investing in this stock yielding 20%.
This article appeared on www.LewRockwell.com way back in September 2003
Fannie and Freddie
by Rep. Ron Paul, MD
by Rep. Ron Paul, MD
Ron Paul in the House Financial Services Committee, September 10, 2003
Mr. Chairman, thank you for holding this hearing on the Treasury Department's views regarding government sponsored enterprises (GSEs). I would also like to thank Secretaries Snow and Martinez for taking time out of their busy schedules to appear before the committee.
I hope this committee spends some time examining the special privileges provided to GSEs by the federal government. According to the Congressional Budget Office, the housing-related GSEs received $13.6 billion worth of indirect federal subsidies in fiscal year 2000 alone. Today, I will introduce the Free Housing Market Enhancement Act, which removes government subsidies from the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac), and the National Home Loan Bank Board.
One of the major government privileges granted to GSEs is a line of credit with the United States Treasury. According to some estimates, the line of credit may be worth over $2 billion. This explicit promise by the Treasury to bail out GSEs in times of economic difficulty helps the GSEs attract investors who are willing to settle for lower yields than they would demand in the absence of the subsidy. Thus, the line of credit distorts the allocation of capital. More importantly, the line of credit is a promise on behalf of the government to engage in a huge unconstitutional and immoral income transfer from working Americans to holders of GSE debt.
The Free Housing Market Enhancement Act also repeals the explicit grant of legal authority given to the Federal Reserve to purchase GSE debt. GSEs are the only institutions besides the United States Treasury granted explicit statutory authority to monetize their debt through the Federal Reserve. This provision gives the GSEs a source of liquidity unavailable to their competitors.
The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.
Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans.
Despite the long-term damage to the economy inflicted by the government's interference in the housing market, the government's policy of diverting capital to other uses creates a short-term boom in housing. Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.
Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts.
No less an authority than Federal Reserve Chairman Alan Greenspan has expressed concern that government subsidies provided to GSEs make investors underestimate the risk of investing in Fannie Mae and Freddie Mac.
Mr. Chairman, I would like to once again thank the Financial Services Committee for holding this hearing. I would also like to thank Secretaries Snow and Martinez for their presence here today. I hope today's hearing sheds light on how special privileges granted to GSEs distort the housing market and endanger American taxpayers. Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market. I therefore hope this committee will soon stand up for American taxpayers and investors by acting on my Free Housing Market Enhancement Act.
Dr. Ron Paul is a Republican member of Congress from Texas.