Weekly Update from RLA Tax and Wealth Advisory

By:  Dennis Tubbergen

Is This a Housing Red Flag?

         A story published last week in “The Daily Mail” (Source:  https://www.dailymail.co.uk/real-estate/article-15285273/foreclosures-october-financial-crash.html) reported that home foreclosures are now once again surging in the United States.  Seems that inflation over the past five years and recent job layoffs are taking their toll.

         During the month of October, there were 36,766 foreclosure filings.  A foreclosure filing is the first step in the process, when a lender warns a borrower they’re in default.  That’s up 3% month-over-month (from September) and 19% year-over-year.

         ATTOM Data CEO Rob Barber noted that home foreclosures have been accelerating this year.  “Foreclosure activity continued its steady upward trend in October – the eighth straight month of year-over-year increases,” stated Barber.

         This trend is somewhat reminiscent of calendar year 2008, when a surge of foreclosures preceded the worst housing crash in modern US history.

         There are some differences between now and 2008, though.

         In 2008, literally millions of Americans had adjustable-rate subprime mortgages that borrowers could not afford to pay once interest rates began to rise.  The real estate collapse quickly erased trillions in household wealth and pushed major banks to the point that bailouts were needed.  It also catalyzed the Great Recession.

         Presently, homeowners have loans that are less volatile, but there is a new set of potential problems.  Borrowing costs are rising, but so are insurance costs.  And, the personal savings rate is low, leaving many borrowers no reserve from which to make payments due.

         With eight straight months of year-over-year increases in foreclosures, this is more than a one-off; it’s a trend that’s accelerating.

The Federal Reserve Is Now Officially Pursuing Inflationary Policies

         The Federal Reserve, without many headlines and with no major announcement or fanfare, announced on October 29 that the central bank is ending its program of quantitative tightening.  (Source:  https://www.profstonge.com/p/the-fed-flips-to-inflation)

         Quantitative tightening saw the Federal Reserve sell balance sheet assets and cancel the dollars, which helped to get inflation under control.  But now that’s over.

         The Fed is now returning to more inflationary policies.

         The first inflationary policy is reducing interest rates to artificially low levels.  This encourages borrowing, which in turn creates new currency in our fractional reserve banking system.

         The second inflationary policy is quantitative easing, which is the polar opposite of quantitative tightening.  Quantitative easing, or QE, has the Fed creating new currency literally out of thin air and then using that newly created currency to buy US Treasuries and mortgage-backed securities from banks.

         QE, or currency creation, happened at the time of the financial crisis in 2008 when the Fed’s balance sheet doubled from $1 trillion to $2 trillion.  The Fed’s balance sheet is a proxy for the amount of new currency the Fed has created.

         From 2008 to 2020, the Fed’s balance sheet doubled again, from $2 trillion to about $4 trillion.  Then, in 2020, the Fed created nearly $5 trillion in new currency from thin air, pushing the Fed’s balance sheet to about $9 trillion.

         After some recent quantitative tightening, the Fed’s balance sheet now stands at about $6.5 trillion. 

         Here’s the first important question for you to consider:  how much QE will the Fed do this time, since the level of QE gets progressively larger each time?

         My guess is more than $5 trillion, probably a lot more before they stop.

         Here’s the second important question: Will the Fed be able to jump-start the economy this time?

         That’s anyone’s guess.  But, if they can, it will likely take more QE  than it did last time.

         No matter how you answer these two questions, the outcome will be more inflation.

         The Fed never solves a problem.  It only delays the consequences.  And, by doing so, it makes the eventual consequences worse.

US Debt Trivia

         Other than when the United States was founded, has the national debt ever been paid?

         If yes, who was the president who did it?

         The answer is that yes, the national debt was completely paid once, and the President who accomplished the feat was Andrew Jackson, the man whose face appears on the $20 bill.

         The year was 1835.  President Jackson actually campaigned against the evils of federal debt and central bankers.  Because of his views, an assassin tried to take Mr. Jackson out on the campaign trail, but Jackson survived when the assassin’s two pistols both misfired.

         Jackson not only survived the assassination attempt, but he was also elected President and successfully ended the central bank.  He then paid off the national debt; no easy task since the income tax was unconstitutional and did not exist.

         Jackson paid off the debt the old-fashioned way, by cutting spending.  Sadly, he was the last American president to do so.

RLA Radio

         The RLA radio program this week features an interview that I did as a guest expert on “The Financial Survival Network”.  I talk about what 2025 will be remembered for and how artificial intelligence might affect the US economy moving ahead.

         Click the "Podcast" tab at the top of this page to listen now.

Quote of the Week

“When you get in debt, you become a slave.”

                                             -Andrew Jackson