The capital asset inflation of the past several years, particularly in real estate and commodities, resulted in part from a very weak US dollar. This inflation caused unrealistic expectations by individuals and government with respect to real estate and commodity appreciation. Debt borrowings and speculation created additional credit expansion and inflation. Now about 20% of all subprime mortgages are behind in their payments. Wages to pay mortgage obligations have not kept up with this inflation. The government reach to increase taxes on property appreciation has created additional unrealistic expectations, now by government, to fund public projects.
Was the thinking incorrect that increased asset inflation could finance these expectations?
The paradox of labor versus capital returns again. Which comes first, the chicken or the egg; or in this case, capital or labor?
It's time for government to master the paradox of capital and labor.
They are both important.
The proposed bailout of Fannie and Freddie has a chance to master this paradox. Part of the paradox is to enable individuals to make their mortage payments.
Since government needs to have sufficient revenue to meet their entitlements, national security and the freedoms of our people, that revenue is important also.
I would argue that a more balanced strategy employing both capital and labor can accomplish this goal.
I applaud the proposal by the government to make both equity and debt investments in Fannie and Freddie to solve this paradox. I'd propose starting a US sovereign fund, designed to own these kinds of equity and debt instruments, owned and managed by the people, with benefits going to the people, to fund entitlements, national security and freedom. Let the people have a vested interest in the long-term character and integrity of these investments. Instead of working for self-centered interests, if we work to help and support each other, good things will happen.
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