"Okay, the title may be an exaggeration, but a recent Gallup Poll (hat tip Naked Capitalism) shows how the concerns over the growing level of federal debt has moved to the forefront and to a similar level by quantity of people (perhaps not level among them) to terrorism. Yves details the opportunity for change this brings:
It would appear the ground has been laid rather effectively for (among other things) an assault on Social Security and Medicare. As we have pointed out before, Social Security is not under any immediate stress, and it would take only some minor tweaks to alleviate the (well off in the future) strains. And contrary to popular perception, the reason Medicare spending will get out of hand is due to projected medical cost escalation, not demographics."
at http://econompicdata.blogspot.com/2010/06/federal-debt-monetary-terrorism.html
Friday, June 11, 2010
More On The Huge Slowdown Predicted By The ECRI Leading Indicators
"As just mentioned, the ECRI's leading economic indicator has nose-dived. Zero Hedge believes it's a very worrisome sign and adds some good perspective with the following chart:
David Rosenberg's favorite leading indicator, the Economic Cycle Research Institute (ECRI) Leading Index, fell to 123.2 in the week ended June 4, down from 124 the week before, a -3.5% annualized contraction: the first time this has gone negative in over a year. This is the lowest level since July 31, 2009, when it was at 122.4, as the chart below demonstrates."
at http://www.businessinsider.com/leading-economic-indicator-drops-2010-6#ixzz0qZJbB8BF
David Rosenberg's favorite leading indicator, the Economic Cycle Research Institute (ECRI) Leading Index, fell to 123.2 in the week ended June 4, down from 124 the week before, a -3.5% annualized contraction: the first time this has gone negative in over a year. This is the lowest level since July 31, 2009, when it was at 122.4, as the chart below demonstrates."
at http://www.businessinsider.com/leading-economic-indicator-drops-2010-6#ixzz0qZJbB8BF
World Gold Council: Gold Demand Will Shine Even Brighter in 2010
"2009 may have been great for gold. But will it shine even brighter in 2010?
Yes, according to the World Gold Council's most recent update of their popular Gold Demand Trends report. In the study were a few surprises, especially the contention that in 2010, worldwide demand for gold still has higher to go—much higher."
at http://seekingalpha.com/article/209649-world-gold-council-gold-demand-will-shine-even-brighter-in-2010?source=feed
Yes, according to the World Gold Council's most recent update of their popular Gold Demand Trends report. In the study were a few surprises, especially the contention that in 2010, worldwide demand for gold still has higher to go—much higher."
at http://seekingalpha.com/article/209649-world-gold-council-gold-demand-will-shine-even-brighter-in-2010?source=feed
A Problem for the U.S. Dollar Worse than Debt
"$19.6 trillion. That’s the Treasury Department’s latest estimate of the national debt to reach by 2015.
The debt has many folks concerned, and rightly so. There is, however, a much bigger problem facing the country and the U.S. dollar.
You see, amassing debt is not good, but it’s hardly the end of the road for a government that’s still generally trusted by the financial community. For instance, Japan’s total debt is 181% of its GDP. That’s much larger relatively than Greece, Spain, Italy, or Hungary.
But while the debt has been attracting all the attention, the real risk to the value of the U.S. dollar is posed by the annual budget deficits. And a little known, tried-and-true equation shows the inflation is coming in a big way.
$100,000 a Second
In 2008 the great credit expansion came to an end. Companies going bust, personal bankruptcies soaring, and a general decline in economic activity has unleashed deflation on the world. The private sector had enough debt and, as a whole, didn’t want anymore.
The government, however, has stepped to keep the credit expansion going. The U.S. government is borrowing $100,000 a second to keep the bubble growing. And that’s where the problem lies.
The current budget situation is a tenuous one. Revenues are down and spending is up creating a massive deficit. Last year’s deficit came in at just over $1.4 trillion. The latest Congressional Budget Office (CBO) estimate of this year’s will be at $1.5 trillion.
And the trend is set to continue well into the future. The CBO’s estimates peg the total deficit spending over the next year to average $970 billion a year. And given the overly optimistic economic expectations including no recession, a record rebound in employment, and record low inflation and interest rates, the deficits will likely stay well over $1 trillion per year.
That’s where the real problem lies. As Peter Bernholz states in Monetary Regimes and Inflation: History, Economic and Political Relationships, “There has never occurred a hyperinflation in history which was not caused by a huge budget deficit of the state.”
at http://www.marketoracle.co.uk/Article20202.html
The debt has many folks concerned, and rightly so. There is, however, a much bigger problem facing the country and the U.S. dollar.
You see, amassing debt is not good, but it’s hardly the end of the road for a government that’s still generally trusted by the financial community. For instance, Japan’s total debt is 181% of its GDP. That’s much larger relatively than Greece, Spain, Italy, or Hungary.
But while the debt has been attracting all the attention, the real risk to the value of the U.S. dollar is posed by the annual budget deficits. And a little known, tried-and-true equation shows the inflation is coming in a big way.
$100,000 a Second
In 2008 the great credit expansion came to an end. Companies going bust, personal bankruptcies soaring, and a general decline in economic activity has unleashed deflation on the world. The private sector had enough debt and, as a whole, didn’t want anymore.
The government, however, has stepped to keep the credit expansion going. The U.S. government is borrowing $100,000 a second to keep the bubble growing. And that’s where the problem lies.
The current budget situation is a tenuous one. Revenues are down and spending is up creating a massive deficit. Last year’s deficit came in at just over $1.4 trillion. The latest Congressional Budget Office (CBO) estimate of this year’s will be at $1.5 trillion.
And the trend is set to continue well into the future. The CBO’s estimates peg the total deficit spending over the next year to average $970 billion a year. And given the overly optimistic economic expectations including no recession, a record rebound in employment, and record low inflation and interest rates, the deficits will likely stay well over $1 trillion per year.
That’s where the real problem lies. As Peter Bernholz states in Monetary Regimes and Inflation: History, Economic and Political Relationships, “There has never occurred a hyperinflation in history which was not caused by a huge budget deficit of the state.”
at http://www.marketoracle.co.uk/Article20202.html
PONZI Finance Recipe for Economic Catastrophe, Gold Not a Bubble
"The “When hope turns to Fear” moment (See 2010 Outlook “When hope turns to Fear” in Tedbits archives) is unfolding as we speak, as the tides of insolvency sweep over the social welfare states and financial systems of the developed world. It is the next leg down in the global financial crisis and what will come to be known as the greatest depression ever is commencing -- we are fascinated and astonished at what the main stream media is reporting and failing to report.
No amount of PONZI finance or money printing will rescue the Western world from its immorality masquerading as morality..."
at http://www.marketoracle.co.uk/Article20214.html
No amount of PONZI finance or money printing will rescue the Western world from its immorality masquerading as morality..."
at http://www.marketoracle.co.uk/Article20214.html
Thursday, June 10, 2010
THE DEBT DE-LEVERAGING CONTINUES
"The latest flow of funds report shows more private sector de-leveraging. The risk of deflation remains well intact. The dreaded balance sheet recession is not over yet:
“Household debt contracted at an annual rate of 2½ percent in the first quarter, the seventh consecutive quarter of decline. Home mortgage debt fell at an annual rate of 3¾ percent, a significantly faster decline than in the fourth quarter, while consumer credit contracted at an annual rate of 1½ percent.
Nonfinancial business debt was flat in the first quarter, after four consecutive quarters of contraction. Bank loans and commercial mortgages continued to decline, while corporate bonds and commercial paper expanded.”
at http://pragcap.com/the-debt-de-leveraging-continues
“Household debt contracted at an annual rate of 2½ percent in the first quarter, the seventh consecutive quarter of decline. Home mortgage debt fell at an annual rate of 3¾ percent, a significantly faster decline than in the fourth quarter, while consumer credit contracted at an annual rate of 1½ percent.
Nonfinancial business debt was flat in the first quarter, after four consecutive quarters of contraction. Bank loans and commercial mortgages continued to decline, while corporate bonds and commercial paper expanded.”
at http://pragcap.com/the-debt-de-leveraging-continues
Bank Of Italy Says Interest Payments On Debt Subject To Great Uncertainty
"Just Reuters headlines for now: all Europe needs is another risk flare up."
at http://www.zerohedge.com/article/bank-italy-says-interest-payments-debt-subject-great-uncertainty?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
at http://www.zerohedge.com/article/bank-italy-says-interest-payments-debt-subject-great-uncertainty?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
EU investigates Greek-style budget fraud in Bulgaria
"New Greek-style budgetary fraud is possibly looming in Europe, as the European Commission announced it was sending an exploratory mission to Bulgaria to assess the reliability of the country's statistics, which were significantly revised in a short period of time "from a balanced budget to a deficit".
Economic and Financial Affairs Commissioner Olli Rehn announced on Tuesday (8 June) at a press conference following the Ecofin Council in Luxembourg that the Commission has "doubts" about the Bulgarian budgetary statistics and that a "methodological mission" will be sent to Sofia shortly to assess the situation.
The Commission's concerns are related to two aspects. First, Brussels regrets having "only belatedly been informed by the Bulgarian authorities about sizeable revisions in the budgetary outlook," Rehn's spokesperson told journalists in Brussels yesterday (9 June).
This already "constitutes a violation of treaty obligations". Second, "the Commission (still) lacks information on why Bulgaria has revised its planned 2010 budget from a balanced budget to a deficit estimated at 3.8% of GDP within just a few weeks, even though the macro-economic scenario remained unchanged, or was even improved during that time," explained Rehn's spokesperson, Amadeu Altafaj Tardio."
at http://globaleconomicanalysis.blogspot.com/2010/06/eu-investigates-greek-style-budget.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
Economic and Financial Affairs Commissioner Olli Rehn announced on Tuesday (8 June) at a press conference following the Ecofin Council in Luxembourg that the Commission has "doubts" about the Bulgarian budgetary statistics and that a "methodological mission" will be sent to Sofia shortly to assess the situation.
The Commission's concerns are related to two aspects. First, Brussels regrets having "only belatedly been informed by the Bulgarian authorities about sizeable revisions in the budgetary outlook," Rehn's spokesperson told journalists in Brussels yesterday (9 June).
This already "constitutes a violation of treaty obligations". Second, "the Commission (still) lacks information on why Bulgaria has revised its planned 2010 budget from a balanced budget to a deficit estimated at 3.8% of GDP within just a few weeks, even though the macro-economic scenario remained unchanged, or was even improved during that time," explained Rehn's spokesperson, Amadeu Altafaj Tardio."
at http://globaleconomicanalysis.blogspot.com/2010/06/eu-investigates-greek-style-budget.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29
Soros Says "Crisis Far From Over, We Have Just Entered Act 2"
"Billionaire investor George Soros said “we have just entered Act II” of the crisis as Europe’s fiscal woes worsen.
“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”
Concern that Europe’s sovereign-debt crisis may spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance maturing bonds and fund deficits, according to Bank of America Corp.
“When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide,” Soros said.
at http://www.zerohedge.com/article/soros-says-crisis-far-over-we-have-just-entered-act-2?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
“The collapse of the financial system as we know it is real, and the crisis is far from over,” Soros said today at a conference in Vienna. “Indeed, we have just entered Act II of the drama.”
Concern that Europe’s sovereign-debt crisis may spread sent the euro to a four-year low against the dollar on June 7 and has wiped out more than $4 trillion from global stock markets this year. Europe’s debt-ridden nations have to raise almost 2 trillion euros ($2.4 trillion) within the next three years to refinance maturing bonds and fund deficits, according to Bank of America Corp.
“When the financial markets started losing confidence in the credibility of sovereign debt, Greece and the euro have taken center stage, but the effects are liable to be felt worldwide,” Soros said.
at http://www.zerohedge.com/article/soros-says-crisis-far-over-we-have-just-entered-act-2?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+zerohedge%2Ffeed+%28zero+hedge+-+on+a+long+enough+timeline%2C+the+survival+rate+for+everyone+drops+to+zero%29
Trade Deficit Widens to December 2008 Levels
"Trade of goods and services across U.S. borders softened in April and the trade deficit rose to the highest level in more than a year, the Commerce Department estimated Thursday. Imports of goods and services dropped 0.4% to a seasonally adjusted $189.1 billion while exports declined 0.7% to $148.8 billion. The trade deficit (the difference between exports and imports) rose to $40.3 billion in April from a downwardly revised $40 billion in March. It was the largest deficit since December 2008."
at http://econompicdata.blogspot.com/2010/06/trade-deficit-widens-to-december-2008.html
at http://econompicdata.blogspot.com/2010/06/trade-deficit-widens-to-december-2008.html
U.S. Dollar's Days are Numbered
"...it appears that "everybody" knows the greenback is the best choice for safety, quality and security.
But is that really the case? To me, the dollar is looking more and more like a colossal short that could wind up being one of the biggest moneymakers of the year for traders gutsy enough to take a stand.
From Leader to Laggard?
Given that the dollar soared 11% through the end of May (see accompanying graphic), I'm sure some experts will call me crazy for going against the dollar at this point in history. But here's my thinking:
•Our $14 trillion fiscal hangover, weaker-dollar policies and increased spending will lead to additional dollar weakness in the immediate term. Longer-term, this is a foregone conclusion: The high debt load relative to U.S. gross domestic product will erode growth - studies prove this - and all the extra money that we've printed will fuel inflation, as always happens..
•Foreign central bankers - especially China - are actively diversifying away from dollar reserves and dollar-denominated securities. They can't and won't "dump" the dollar in a wholesale manner. But this shift away is nothing less than a long-term decrease in demand for the dollar - and we all know that when demand for an asset declines, so does its value.
•The Organization of the Petroleum Exporting Countries (OPEC) - and what's left of the non-OPEC nations - are still pressing for non-dollar-denominated oil deals. Expect some of those deals to take place in the wake of the BP PLC (NYSE ADR: BP) Deepwater Horizon disaster, which will bring about major regulatory changes and cause onshore reserves to command a major premium. This group, incidentally, isn't to be dismissed, given that it contains such heavyweights as China, Japan, Russia, most of the Arab nations and, of course, France"
at http://www.marketoracle.co.uk/Article20191.html
But is that really the case? To me, the dollar is looking more and more like a colossal short that could wind up being one of the biggest moneymakers of the year for traders gutsy enough to take a stand.
From Leader to Laggard?
Given that the dollar soared 11% through the end of May (see accompanying graphic), I'm sure some experts will call me crazy for going against the dollar at this point in history. But here's my thinking:
•Our $14 trillion fiscal hangover, weaker-dollar policies and increased spending will lead to additional dollar weakness in the immediate term. Longer-term, this is a foregone conclusion: The high debt load relative to U.S. gross domestic product will erode growth - studies prove this - and all the extra money that we've printed will fuel inflation, as always happens..
•Foreign central bankers - especially China - are actively diversifying away from dollar reserves and dollar-denominated securities. They can't and won't "dump" the dollar in a wholesale manner. But this shift away is nothing less than a long-term decrease in demand for the dollar - and we all know that when demand for an asset declines, so does its value.
•The Organization of the Petroleum Exporting Countries (OPEC) - and what's left of the non-OPEC nations - are still pressing for non-dollar-denominated oil deals. Expect some of those deals to take place in the wake of the BP PLC (NYSE ADR: BP) Deepwater Horizon disaster, which will bring about major regulatory changes and cause onshore reserves to command a major premium. This group, incidentally, isn't to be dismissed, given that it contains such heavyweights as China, Japan, Russia, most of the Arab nations and, of course, France"
at http://www.marketoracle.co.uk/Article20191.html
Wednesday, June 9, 2010
Bank Risk Nears Record High on Spain’s $60 Billion Capital Call
"Bank credit-default swaps surged near to a record on concern Spanish lenders will have to raise $60 billion to shore up capital as lawmakers struggle to finance a swollen budget deficit.
The Markit iTraxx Financial Index of swaps on 25 European banks and insurers climbed as much as 14 basis points to 208, approaching the all-time closing high of 210 basis points set in March 2009, JPMorgan Chase & Co. prices show. Banco Santander SA, Spain’s biggest bank, increased 23 basis points to a record 258, according to CMA DataVision.
Spanish lenders need as much as 50 billion euros ($60 billion) of capital, according to Banco Bilbao Vizcaya Argentaria SA, as they face mounting writedowns triggered by a housing market collapse and losses on government bond holdings. Civil servants went on strike today to protest at Prime Minister Jose Luis Rodriguez Zapatero’s efforts to tame the euro area’s third-largest deficit.
“There is illness in the Spanish banking system,” said Jeroen van den Broek, head of credit strategy at ING Groep NV in Amsterdam. “It’s very similar to 2008, when the market was hunting down the next bank failure. Now, the market’s hunting the next sovereign fiscal problem.”
The spread between Spanish 10-year securities and German bunds widened 10 basis points to 213 basis points, a level not seen since before the introduction of the euro in 1999. Stocks slumped with Spain’s IBEX 35 Index falling 1.4 percent to 8,669.8, heading for a third straight decline and to the lowest in more than a year. "
at http://www.bloomberg.com/apps/news?pid=20601208&sid=aXWc4pOZTk54
The Markit iTraxx Financial Index of swaps on 25 European banks and insurers climbed as much as 14 basis points to 208, approaching the all-time closing high of 210 basis points set in March 2009, JPMorgan Chase & Co. prices show. Banco Santander SA, Spain’s biggest bank, increased 23 basis points to a record 258, according to CMA DataVision.
Spanish lenders need as much as 50 billion euros ($60 billion) of capital, according to Banco Bilbao Vizcaya Argentaria SA, as they face mounting writedowns triggered by a housing market collapse and losses on government bond holdings. Civil servants went on strike today to protest at Prime Minister Jose Luis Rodriguez Zapatero’s efforts to tame the euro area’s third-largest deficit.
“There is illness in the Spanish banking system,” said Jeroen van den Broek, head of credit strategy at ING Groep NV in Amsterdam. “It’s very similar to 2008, when the market was hunting down the next bank failure. Now, the market’s hunting the next sovereign fiscal problem.”
The spread between Spanish 10-year securities and German bunds widened 10 basis points to 213 basis points, a level not seen since before the introduction of the euro in 1999. Stocks slumped with Spain’s IBEX 35 Index falling 1.4 percent to 8,669.8, heading for a third straight decline and to the lowest in more than a year. "
at http://www.bloomberg.com/apps/news?pid=20601208&sid=aXWc4pOZTk54
As Gold Hits Record, Central Banks in Focus
"Gold's surge to a record sparked speculation that central banks may be stepping up purchases of the precious metal.
Tuesday, gold contracts for June delivery rose $4.70, or 0.4%, to $1,244 a troy ounce, a record settlement price on the Comex division of the New York Mercantile Exchange. Gold also hit an intraday record, surging to $1,252.10. In euro terms, the metal also hit a record of €1,042.94 ($1,242.87) in the London market, a gain of 2.5%.
The metal has surged over worries about Europe's debt woes and the slumping value of the euro. Investors in metals and currency markets have been on alert for any sign that the world's central banks, and China in particular, are shifting reserves out of the euro and into gold.
Though central banks typically are coy about investment decisions, there have been signs lately that they might be shifting out of euros and into gold."
at http://online.wsj.com/article/SB10001424052748703302604575294093148400182.html
Tuesday, gold contracts for June delivery rose $4.70, or 0.4%, to $1,244 a troy ounce, a record settlement price on the Comex division of the New York Mercantile Exchange. Gold also hit an intraday record, surging to $1,252.10. In euro terms, the metal also hit a record of €1,042.94 ($1,242.87) in the London market, a gain of 2.5%.
The metal has surged over worries about Europe's debt woes and the slumping value of the euro. Investors in metals and currency markets have been on alert for any sign that the world's central banks, and China in particular, are shifting reserves out of the euro and into gold.
Though central banks typically are coy about investment decisions, there have been signs lately that they might be shifting out of euros and into gold."
at http://online.wsj.com/article/SB10001424052748703302604575294093148400182.html
Bernanke Says the Federal Debt Is ‘Unsustainable’
"The chairman of the Federal Reserve, Ben S. Bernanke, warned on Wednesday that “the federal budget appears to be on an unsustainable path,” but also recognized that the “exceptional increase” in the deficit had been necessary to ease the recession. "
at http://www.nytimes.com/2010/06/10/business/economy/10fed.html?src=twt&twt=nytimesbusiness
at http://www.nytimes.com/2010/06/10/business/economy/10fed.html?src=twt&twt=nytimesbusiness
RealtyTrac: 3.8m Homes to Receive Foreclosure Filing in 2010
"An estimated 3.8m households will receive a foreclosure filing in 2010, said Rick Sharga, senior vice president at the online foreclosure marketplace RealtyTrac, in a speech at REO Expo.
RealtyTrac publishes a monthly report on its database of foreclosure filings in more than 2,200 counties in the US.
The estimate would be a 35.7% increase from 2009 when 2.8m households received a filing that year. Sharga said when the 2009 stat was released, RealtyTrac economists reported the number should have been closer to 3.3m or 3.5m were it not for foreclosure moratoriums, government programs and bank policy changes.
The total amount of individual filings could reach as high as 4.5m in 2010, up from 3.9m filings in 2009, Sharga said.
Filings increased from the previous year for 52 consecutive months from January 2006 to March 2010, when the numbers dropped 2% in April 2010 from April 2009."
at http://www.housingwire.com/2010/06/09/realtytrac-3-8m-homes-to-receive-foreclosure-filing-in-2010?utm_source=rss&utm_medium=rss&utm_campaign=realtytrac-3-8m-homes-to-receive-foreclosure-filing-in-2010
RealtyTrac publishes a monthly report on its database of foreclosure filings in more than 2,200 counties in the US.
The estimate would be a 35.7% increase from 2009 when 2.8m households received a filing that year. Sharga said when the 2009 stat was released, RealtyTrac economists reported the number should have been closer to 3.3m or 3.5m were it not for foreclosure moratoriums, government programs and bank policy changes.
The total amount of individual filings could reach as high as 4.5m in 2010, up from 3.9m filings in 2009, Sharga said.
Filings increased from the previous year for 52 consecutive months from January 2006 to March 2010, when the numbers dropped 2% in April 2010 from April 2009."
at http://www.housingwire.com/2010/06/09/realtytrac-3-8m-homes-to-receive-foreclosure-filing-in-2010?utm_source=rss&utm_medium=rss&utm_campaign=realtytrac-3-8m-homes-to-receive-foreclosure-filing-in-2010
Christopher Thornberg: Short-Term Recovery Comes at Long-Term Cost
"While government intervention is boosting the US economy, including the housing market, it's only delaying inevitable future declines in growth, Christopher Thornberg, an economist and the founding principal of San Rafael, Calif.-based Beacon Economics, said during a keynote address at REO Expo, currently underway in Dallas.
"The trends are good," he said, noting recent economic growth, "but the fundamentals are bad," Thornberg said, referring government intervention in the economy, including the housing market.
The federal initiatives had three programs to stimulate demand for homes — the homebuyer tax credit, the Federal Reserve's $1.25trn mortgage-backed securities purchase program and an increase in originations of Federal Housing Administration (FHA)-backed mortgages — but also restricted supply by implementing Hope for Homeowners to keep distressed borrowers in their homes. Those forces counteracted each other.
"If you're going to restrict supply, don't boost demand," Thornberg said.
The policy was counterproductive in helping eliminate the massive inventory of foreclosures and pending foreclosures on the market. Getting rid of that inventory is now only going to be harder.
"We still have millions of foreclosures to deal with. The only thing that's happened is that we've pushed it more into the future, but all the demand programs will be gone by then," he said."
at http://www.housingwire.com/2010/06/09/christopher-thornberg-short-term-recovery-comes-at-cost?utm_source=rss&utm_medium=rss&utm_campaign=christopher-thornberg-short-term-recovery-comes-at-cost
"The trends are good," he said, noting recent economic growth, "but the fundamentals are bad," Thornberg said, referring government intervention in the economy, including the housing market.
The federal initiatives had three programs to stimulate demand for homes — the homebuyer tax credit, the Federal Reserve's $1.25trn mortgage-backed securities purchase program and an increase in originations of Federal Housing Administration (FHA)-backed mortgages — but also restricted supply by implementing Hope for Homeowners to keep distressed borrowers in their homes. Those forces counteracted each other.
"If you're going to restrict supply, don't boost demand," Thornberg said.
The policy was counterproductive in helping eliminate the massive inventory of foreclosures and pending foreclosures on the market. Getting rid of that inventory is now only going to be harder.
"We still have millions of foreclosures to deal with. The only thing that's happened is that we've pushed it more into the future, but all the demand programs will be gone by then," he said."
at http://www.housingwire.com/2010/06/09/christopher-thornberg-short-term-recovery-comes-at-cost?utm_source=rss&utm_medium=rss&utm_campaign=christopher-thornberg-short-term-recovery-comes-at-cost
Tuesday, June 8, 2010
12 Reasons Why The U.S. Housing Crash Is Far From Over
"The following are 12 reasons why the U.S. housing crash is far from over....
#1) Now that the huge home buyer tax credit (government bribe to purchase homes) has expired, the real estate industry is bracing for the worst. The truth is that a significant percentage of those Americans that planned to buy a home in 2010 really tried to squeeze their purchases in before the April 30th deadline in order to take advantage of the tax incentive. According to mortgage consultant Mark Hanson, "buyers were bidding on everything and sellers were accepting anything and everything before 4/30." Now that the tax credit is over, things could get really slow for the U.S. real estate market.
#2) A massive "second wave" of adjustable rate mortgages is scheduled to reset in 2011 and 2012. In fact, there are many analysts that are openly speculating that this second wave could be even more brutal than the first wave that we experienced in 2007 and 2008.
#3) The number of home sale closings in May was down more than 5% compared to April.
#4) Newly signed home sale contracts dropped more than 10% in May.
#5) There has been an even more dramatic decline in mortgage applications. In fact, home purchase applications are now almost 40 percent below the level of just four weeks ago.
#6) Internet searches on real estate websites are down 20 percent compared to this same time period in 2009.
#7) From all indications, a record number of foreclosures is going to continue to flood the market. The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period. That was a record high and up from 9.1 percent a year ago.
#8) U.S. banks repossessed nearly 258,000 homes nationwide in the first quarter of 2010, a whopping 35 percent increase from the first quarter of 2009.
#9) A staggering 24% of all homes with mortgages in the United States were underwater as of the end of 2009.
#10) People can't buy houses if they are flat broke. For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.
#11) The truth is that American consumers are stretched to the limit and are increasingly finding it very difficult to pay their bills. During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.
#12) The overall U.S. economy is in really bad shape and is rapidly getting worse. If American workers cannot find good jobs and if they keep going bankrupt in record numbers they simply are not going to be able to buy homes in 2010 or any year thereafter.
Those who are projecting a robust housing recovery are living in some kind of fantasy world. It is just not going to happen. Let's just hope that things don't get as bad as the numbers seem to indicate that they might. Another devastating housing crash would just suck the life right out of the U.S. economy. So let us hope for the best but also let us be prepared for the worst."
at http://theeconomiccollapseblog.com/archives/10-reasons-why-the-u-s-housing-crash-is-far-from-over
#1) Now that the huge home buyer tax credit (government bribe to purchase homes) has expired, the real estate industry is bracing for the worst. The truth is that a significant percentage of those Americans that planned to buy a home in 2010 really tried to squeeze their purchases in before the April 30th deadline in order to take advantage of the tax incentive. According to mortgage consultant Mark Hanson, "buyers were bidding on everything and sellers were accepting anything and everything before 4/30." Now that the tax credit is over, things could get really slow for the U.S. real estate market.
#2) A massive "second wave" of adjustable rate mortgages is scheduled to reset in 2011 and 2012. In fact, there are many analysts that are openly speculating that this second wave could be even more brutal than the first wave that we experienced in 2007 and 2008.
#3) The number of home sale closings in May was down more than 5% compared to April.
#4) Newly signed home sale contracts dropped more than 10% in May.
#5) There has been an even more dramatic decline in mortgage applications. In fact, home purchase applications are now almost 40 percent below the level of just four weeks ago.
#6) Internet searches on real estate websites are down 20 percent compared to this same time period in 2009.
#7) From all indications, a record number of foreclosures is going to continue to flood the market. The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period. That was a record high and up from 9.1 percent a year ago.
#8) U.S. banks repossessed nearly 258,000 homes nationwide in the first quarter of 2010, a whopping 35 percent increase from the first quarter of 2009.
#9) A staggering 24% of all homes with mortgages in the United States were underwater as of the end of 2009.
#10) People can't buy houses if they are flat broke. For the first time in U.S. history, more than 40 million Americans are on food stamps, and the U.S. Department of Agriculture projects that number will go up to 43 million Americans in 2011.
#11) The truth is that American consumers are stretched to the limit and are increasingly finding it very difficult to pay their bills. During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.
#12) The overall U.S. economy is in really bad shape and is rapidly getting worse. If American workers cannot find good jobs and if they keep going bankrupt in record numbers they simply are not going to be able to buy homes in 2010 or any year thereafter.
Those who are projecting a robust housing recovery are living in some kind of fantasy world. It is just not going to happen. Let's just hope that things don't get as bad as the numbers seem to indicate that they might. Another devastating housing crash would just suck the life right out of the U.S. economy. So let us hope for the best but also let us be prepared for the worst."
at http://theeconomiccollapseblog.com/archives/10-reasons-why-the-u-s-housing-crash-is-far-from-over
U.S. Public Debt to surpass GDP by 2012
"In the U.S., public borrowings passed $13 trillion for the first time this month, according to the Treasury Department. The debt will be larger than U.S. gross domestic product, now $14.2 trillion annually, in 2012, according to the International Monetary Fund."
Ireland Is Rapidly Becoming Just As Bad As Greece
"Barry O’Leary argues that in contrast to the other PIIGS, Ireland will be able to make the adjustments that the EMU is demanding and by cutting “fiscal spending sharply … [to] … pull themselves out of this mess through austerity”. He’s wrong.
People calling for fiscal austerity assume that major cuts can be made in public spending at a time when private sector spending has collapsed, confidence is at a low, and foreign direct investment is weak and paralysed by uncertainty. They also think that you can increase taxes (that is, reduce private demand further) and cut wages (and hence private incomes) and not expect major multiplier effects to make things significantly worse.
The Irish also seem to have bought the IMF line that the fiscal multipliers are relatively low and that the automatic stabilisers (working to increase deficits as GDP falls) will not drown out the discretionary cuts in net spending arising from the austerity packages.
The overwhelming evidence shows that the implementation of policies based on this way of thinking causes generational damages in lost output, lost incomes, bankruptcy and lost employment (especially in denying new entrants from the schooling system a robust start to their working life)."
at http://www.businessinsider.com/ireland-is-rapidly-becoming-just-as-bad-as-greece-2010-6
People calling for fiscal austerity assume that major cuts can be made in public spending at a time when private sector spending has collapsed, confidence is at a low, and foreign direct investment is weak and paralysed by uncertainty. They also think that you can increase taxes (that is, reduce private demand further) and cut wages (and hence private incomes) and not expect major multiplier effects to make things significantly worse.
The Irish also seem to have bought the IMF line that the fiscal multipliers are relatively low and that the automatic stabilisers (working to increase deficits as GDP falls) will not drown out the discretionary cuts in net spending arising from the austerity packages.
The overwhelming evidence shows that the implementation of policies based on this way of thinking causes generational damages in lost output, lost incomes, bankruptcy and lost employment (especially in denying new entrants from the schooling system a robust start to their working life)."
at http://www.businessinsider.com/ireland-is-rapidly-becoming-just-as-bad-as-greece-2010-6
Has the 2nd half slowdown started?
"I've been forecasting a 2nd half slowdown in GDP growth based on:
1) less Federal stimulus spending in the 2nd half of 2010,
2) the end of the inventory correction,
3) more household saving leading to slower growth in personal consumption expenditures,
4) another downturn in housing (lower prices, less residential investment),
5) slowdown in China and Europe and
6) cutbacks at the state and local level.
Some recent reports - like the disappointing employment report for May, reports of pending home sales collapsing in May (after the expiration of the tax credit), soft retail sales in April, a soft month for rail traffic in May - might suggest the slowdown has already started..."
at http://www.calculatedriskblog.com/2010/06/has-2nd-half-slowdown-started.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29
1) less Federal stimulus spending in the 2nd half of 2010,
2) the end of the inventory correction,
3) more household saving leading to slower growth in personal consumption expenditures,
4) another downturn in housing (lower prices, less residential investment),
5) slowdown in China and Europe and
6) cutbacks at the state and local level.
Some recent reports - like the disappointing employment report for May, reports of pending home sales collapsing in May (after the expiration of the tax credit), soft retail sales in April, a soft month for rail traffic in May - might suggest the slowdown has already started..."
at http://www.calculatedriskblog.com/2010/06/has-2nd-half-slowdown-started.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+CalculatedRisk+%28Calculated+Risk%29
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