January 17, 2012 11:30 AM

The Federal Reserve is proposing to deflate the housing bubble by a take-over of Fannie Mae & Freddie Mac. If accomplished it will be under the guise of “kick-starting” the housing industry by relieving the market (really relieving the banks) of its excess of under- water- over-leveraged residential units via the acquisition of bad bank loans or foreclosed inventory and then converting them to rentals. The Federal Reserve’s proposal, if granted by Congress, may initially take the air out of the housing bubble but their proposal will eventually only make things worse—it would be like replacing the air in the current bubble with hydrogen. The made-over bubble may soar for a while but its promise to cure our economic woes is as empty as the “balloon boy” hoax. And we all know what damage hydrogen can do with just one little spark—a bigger more damaging bust.

The take-over and proposed remedial action by the Federal Reserve may provide a solution for financial institutions, the primary constituents of the Federal Reserve, by allowing them to get rid of troubled assets; and, it may also temporarily spur the housing market; however, the cost impact of the initiative will be borne by the taxpayers. Any write down in loans by Fannie & Freddie, upon disposition of the inventory will be by the monetization of the losses (printing money) by the Fed. Of course the money to initially purchase the excess housing inventory will be created out of thin air by another round of “Quantitative Easing” or by some newly fabricated name for the sleight of hand that in nothing but legal counterfeiting. This outlay of cash will more than likely be borne by the taxpayers thru the inflation tax.

The market should be left to absorb the excess housing inventory whether the end users are home owners or renters. Government should not continue to prop up the housing industry or the lenders to the housing industry. As long as we have government sanctioned institutions like Fannie, Freddie, and the Federal Reserve we will continue to see programs that promote over-spending and over-building, to satisfy one group of constituents or another. At the first sign of trouble the Federal Government or one of its agencies will step in with relief and bailouts to the benefit of these or other constituents, all at the expense of taxpayers.

In 2011 Utah adopted legislation (House Bill 317) that recognizes (but does not compel the use of) gold and silver coins issued by the federal government as legal tender in the state and exempts the exchange of the coins for another form of legal tender from certain types of state tax liability. In addition, the Utah law requires a legislative committee to study the possibility of establishing an alternative form of legal tender in that state and to submit, as a result of the study, any recommended legislation for consideration by the legislature during the 2012 General Session.

At some point, with the continued printing of fiat money by the Federal Reserve, the dollar may collapse from a lack of confidence. Missouri should also begin to position itself to offer a Sound Money Alternative in the event of such a collapse.

In addition the Missouri General Assembly should urge the US Congress to require a full audit of the Federal Reserve and to adopt legislation that will stop the Fed’s counterfeiting operations.


Bruce Hillis retired in 2001 from one of Missouri’s leading long-term health care providers. He lives in Mexico, Missouri.

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As long as we have government sanctioned institutions like Fannie, Freddie, and the Federal Reserve we will continue to see programs that promote over-spending and over-building, to satisfy one group of constituents or another.


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