Liberation, Gold, & Other Things

The North County Times is writing about liberation .

"People are liberating the equity in their homes and they're spending the money ... in 2006, this isn't going to be happening at anywhere near the rate we have seen in the past."

The median detached home in North County costs $644,899, and costs $3,815 a month, including principal, interest, property taxes and insurance. It costs nearly $24 an hour to pay that amount, assuming an eight-hour day, 40 hours a week and four weeks to the month: Food, transportation, utilities, rent and other expenses are not included.

It seems to me the NCTimes is describing a significant structural problem. The median home, not counting food, transportation, utilities, rent, etc, costs more than most people make.

My biggest gripe, however, is the idea that people are "liberating money" by extracting home equity only to go deeper in debt. My idea of liberation (but I am not there yet) is paying off my house and having cash savings in the bank as well as gold, silver, and short to intermediate US treasuries. Throw in some equities on energy and miners and you stand a decent chance of being able to do well no matter what hits. When the upcomming consumer led recession hits, those deep in debt facing slumping housing prices are going to feel more like debt slaves than they will liberated. Liberation is being out of debt not the opposite.

Here is an example of liberation in action:

Bloomberg is reporting Argentina to Pay Entire IMF Debt 4 Years After Default.

Dec. 15 (Bloomberg) -- Argentina said it will pay back its entire $9.8 billion debt to the International Monetary Fund, severing 22-year-old ties with the lender that the government blames for its 2001 debt default.

President Nestor Kirchner, who at rallies and speeches this year has called IMF officials "rude"' and demanding, said at a press conference in Buenos Aires the government will make the payment after three years of economic growth bolstered foreign currency reserves. The economy grew 9.2 percent in the third quarter on a surge in public spending, the government said today.

Kirchner, 55, vowed to take the decision on several occasions this year to ensure the administration isn't dependent on policies endorsed by the Washington-based lender, including spending caps and higher utility rates. The announcement comes two days after neighboring Brazil said it would repay its $15.5 billion IMF debt.

Kirchner said today the IMF advice and loans in the 1990s helped lead to the country to "failure'' and said the fund has neglected to help since the default when they most need the help. He said the IMF's demands acted as constraints that impeded the economic recovery, and he criticized the fund for not providing financing for the government's debt restructuring this year.

"We're trying to pull out of the hell that we fell into,'" Kirchner said, referring to the nation's debt default and subsequent currency devaluation. He vowed to press for a "deep restructuring'' of the IMF.

For Argentina, whose default on $95 billion of bonds in 2001 sent the economy into its deepest recession on record, repaying the IMF will only increase its financing costs, said Claudio Loser, a former director of the Western Hemisphere Department for the International Monetary Fund who now works as an economic consultant in Washington.

Caludio Loser. The name speaks for itself. It's no surprise that Brazil and Argentina want to "opt out". The IMF bureaucracy is essentially seen as an imperialist institution by developing countries, and frankly that assessment isn't entirely off the mark. IMF rules FORBID that members introduce a gold standard. Does that say it all or not?

Mish cheers any country wanting to pay off debt, increase gold reserves, and liberate themselves from the IMF. That is liberation!

I talked about gold, jobs, housing and other things in my latest podcast on HoweStreet.com, Wednesday December 14th. The first take posted on HoweStreet had an audio problem that has now been corrected.

Next Wednesday, December 21, we will be talking about the FED, the ECB, Bernanke, and inflation, as well as anything exciting that happens between now and then. Be sure and tune in.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/