It takes a mind better attuned than mine to the arcane science of high finance to understand why the Dow briefly crested 14,000 today (July 17). The mystery deepens considerably when items such as this are taken into account:

“[Homebuilders] declined after the National Association of Home Builders/Wells Fargo sentiment index fell this month to 24, the lowest since January 1991, from 28 in June. Readings less than 50 mean most respondents view conditions as poor.”

For several years, the manic real estate/mortgage/refinancing industry has been the only engine keeping our consumer economy aloft. The Federal Reserve, the Power Elite’s official counterfeiters since 1913, has done everything it can to keep the housing and re-fi bubble inflated, as the dollar’s increasing decrepitude demonstrates.

The official rationale for the Federal Reserve — whose officers don’t have the cojones to be honest and brazen thieves — is that they exist to regulate and rationalize the economy by exercising sober, adult authority over the banking system. R-i-i-i-i-i-ight. That’s why they spent the last decade or so pumping out money and credit with the giddy enthusiasm of a prankster spiking the Prom punchbowl with Spanish Fly.

This led to years of promiscuous mortgage lending in which financial institutions would open their wallets on very short acquaintance to practically anybody, irrespective of his background or qualifications. As a result, countless people on both ends of such deals got screwed, and the economy is pregnant with awful possibilities. I’d elaborate on some of them, but I think I’ve overworked this metaphor already.

We can already see the expanding collapse of the “sub-prime” mortgage sector, which in some communities is undermining property values for conscientious homeowners and (odd as this might seem at first) abetting the growth of the police state. Not surprisingly, investors are bailing out of the sub-prime market.

Trying to stem that hemorrhage is a task assigned to Housing and Urban Development (HUD) Secretary Alphonso Jackson (who is nowhere near as cool as virtuoso bassist Alphonso Johnson — and no, that’s not Basil Fawlty on lead guitar, but rather a very young John Scofield).

Where does a US government official go these days in search of investment capital?

That’s right — Beijing.

“Hey, honey — our new neighbors are here to throw a house-warming party!”

His hat in his hand, Secretary Jackson took Mendicant Airlines to Beijing, seeking to persuade China’s central bank “to buy more mortgage-backed securities after a surge in defaults by risky borrowers in the world’s largest economy eroded demand for such instruments,” reported Bloomberg News. Specifically, Jackson sought to sell the Chinese some securities issued by Ginnie Mae, a federally backed mortgage lender operating through HUD.

Ginnie Mae is a better investment than its better-known cousins Freddie Mac and Fannie Mae, Jackson insists, because HUD’s mortgage association has the “full backing of the US government.”

In other words: When Ginnie’s mortgages go bad, Congress covers for them and gets the Fed to print up the “money” to cover the costs; other Government-Sponsored Enterprises (GSEs) such as Freddie and Fannie offer no such guarantees, even though they’re widely believed to.

HUD is also seeking to sell mortgage securities to Chinese commercial banks, and Jackson intends to sign a “memorandum of understanding” on this matter with Chinese construction minister Wang Guangtao when he visits Washington in August.

Refinancing a mortgage with the First Bank of Mao is a little … different. For some reason you have to agree to repaint your house in festive Proletarian red. The mortgage papers come bound in a little Red Book. And you have to sign with this huge ceremonial pen containing an embedded explosive charge.

Amazing as it may seem, as of June 2006, Beijing held over $107.5 billion in US mortgage securities. This is a trifling amount once it’s understood that there is something on the order of $11.8 trillion in outstanding mortgages. But the bubble’s collapse has just begun — and Beijing is awash in cash. Although Washington is looking for Beijing’s help to bail out its mortgage-granting GSEs, but given the extent to which the economy still depends on that sector, there’s no reason to expect that our rulers would want the Chinese to stop there.

Until a “homeowner” pays off his mortgage, he’s actually renting his home from the lending institution. I wouldn’t be surprised if, several years hence, millions of American “homeowners” discovered that the “landlord” to whom they’re making mortgage payments is the Chinese government.

A brief postscript….

Look, I’m aware that China has changed dramatically since the Cultural Revolution; in fact, according to friends and relatives who spend a considerable amount of time there, it has changed dramatically in just the last decade. While the Chinese government still describes itself as the vessel of “Marxism-Leninism-Maoism-Deng Xiaoping Thought,” its commitment to global revolution is considerably weaker than that of the demented ideologues who surround the Dimwit-in-Chief. The Chinese themselves are astonishingly bright and admirably entrepreneurial. The regime, like governments everywhere, is run by some thoroughly nasty people. I would like to think that China is big enough and old enough that it can transcend Communism, but I’m not optimistic. I would love to be proven wrong.

And a personal request…

Please keep Korrin in your prayers. She is not doing well.

Please visit The Right Source and the Liberty Minute archive.