November 9, 2014

A World Of Pure Fiat Money And Discretion

It’s Friday desk clearing time for this blogger. “A string of super-tall, super-luxury buildings have sprung up and are still in development changing the city skyscape forever. ‘We have never seen anything like this before,’ said Alex Herrera, director of technical services at The New York Landmarks Conservancy. Herrera calls mega towers ‘ghost ships’ — bought as investments by international billionaires, who visit only a couple of weeks a year. ‘It’s definitely changing our skyline and it’s certainly changing the character of 57th Street, which used to be a very quaint street of art galleries and piano stores,’ said Herrera. ‘Now, it’s a street of billionaires who don’t really live there.’”

“Octavio Nuiry, Managing Editor of the RealtyTrac Housing News Report writes that while foreclosure activity continues to wane there is a ‘tetrad’ of housing landmines that could threaten the housing recovery and trigger a surge in defaults, repossessions, and short sales. The tetrad consists of defaults in loan modifications done under the Home Affordable Modification Program, Home Equity Line resets, and remaining underwater borrowers and non-performing loans. The article states, ‘The foreclosure crisis hasn’t receded, it was intentionally delayed by government manipulation. The can was kicked down the road. And next year, foreclosure activity could spike again.’”

“And now, Nuiry says, the chickens are coming home to roost. The RealtyTrac article concludes with the statement ‘Indeed, the collapse of the U.S. residential real estate market is happening again right before our eyes in slow motion.’”

“The number of foreclosure petitions in Massachusetts grew for the seventh straight month in September. Foreclosure petitions rose 68 percent from September 2013, according to a report from The Warren Group. The spike is not concerning, said Cassidy Murphy, editorial director of The Warren Group. ‘Most of what is happening right now is people clearing out their backlogs of what they didn’t do,’ Murphy said.”

“Although Polk County’s housing market is showing steady signs of recovery, troublesome properties that real estate professionals call zombie foreclosures continue to be a problem here. The latest figures from RealtyTrac show there were nearly 1,300 such houses in Polk during the third quarter of 2014. Tampa, Orlando and Jacksonville have it even worse, and Florida leads the country with an astounding 35,913 empty, undead homes.”

“Jamie Sites rents a home in Lakeland, two doors down from an abandoned two-story house that resembles something from a horror movie. A home she owns and is trying to sell is located directly behind the crumbling heap. ‘The people who come to look at our house, when the real estate agent takes them out back and they see that, they’re like ‘Oh my gosh,?’ Sites said. ‘It’s horrible. It’s just so bad.’”

“In a region still stung by foreclosures, Henderson officials launched a foreclosure registry to monitor homes that are abandoned or at risk of becoming so. If foreclosures are any indication, there have likely been thousands, if not tens of thousands, of abandoned properties in recent years. Some 33 percent of Las Vegas-area homes that are in the foreclosure process — but not yet bank-owned — have been vacated by the owners, according to RealtyTrac. The rate nationally is 18 percent.”

“As it stands, an estimated 5,000 homes in Henderson are in some stage of the foreclosure process, said Keith Paul, spokesman for Henderson city government. Residents often flee their home because they can’t afford the mortgage. While gone, their financial woes only worsen with unpaid taxes, mortgage penalties, HOA dues and other fees, Windermere Prestige Properties agent Keith Lynam said. ‘There’s no way they’re coming back,’ he said.”

“According to Zillow, prices for single-family homes in the Danbury region have declined by more than 1.5 percent for the year. Most experts use the word ‘challenging’ to describe the current residential real estate market, noting that a shadow inventory of foreclosed properties continues to be a drag on pricing and sales. ‘The spring season was a little busy, but things really dropped off in June,’ said Paul Scalzo, the president of Scalzo Group. ‘We are just going through a correction. There is still a lot of shadow inventory in the market that we need to work through before prices can begin to rebound again.’”

“Paul Singer’s Elliott Management Corp. said optimism on U.S. growth is misguided as economic data understate inflation and overstate growth, and central bank policies of the past six years aren’t sustainable. ‘Nobody can predict how long governments can get away with fake growth, fake money, fake jobs, fake financial stability, fake inflation numbers and fake income growth,’ Elliott wrote. ‘The inflation that has infected asset prices is not to be ignored just because the middle-class spending bucket is not rising in price at the same rates as high-end real estate, stocks, bonds, art and other things that benefit from’ quantitative easing, Elliott wrote.”

“The latest Geneva Report indicates that global debt increased from 174% to 212% of GDP during 2008-2013. The biggest increases were largely in the developing economies led by China, which saw its debt rise from 72% to 217% of GDP during that period. This ratio is quickly approaching those of other countries — 257% for countries using the euro, 264% for the US, and 411% for Japan. Inequality is getting so serious that it prompted prominent economists to take up the issue. Janet Yellen, chairman of the Board of Governors of the Federal Reserve System, called increasing inequality un-American and warned that it would do great harm. As her agency does not deal with this area of economics, she provided no specific policy prescriptions besides general suggestions in the areas of improving support for education.”

“In Yellen’s speech, she points to ‘the high value Americans have traditionally placed on equality of opportunity.’ She also recognizes that ’some variation in outcomes arguably contributes to economic growth because it creates incentives to work hard, get an education, save, invest and undertake risk.’ However, Yellen warns that ‘inequality of outcomes can exacerbate inequality of opportunity, thereby perpetuating a trend of increasing inequality.’”

“As the head of the world’s most powerful central bank, Yellen is silent about the Fed’s own role in increasing inequality by inflating returns for high-income households through ultra-low rates that have encouraged risk-taking and propped up asset prices, while discouraging saving and capital investment. Today monetary policy has no rudder; there is no monetary rule to guide policymakers. We live in a world of pure fiat money and, in the case of the Fed, pure discretion. That environment breeds uncertainty and ignores the limits of monetary policy.”

“As Janet Yellen was preparing to take over the Federal Reserve, she got some advice from the departing chairman, Ben Bernanke: Keep in mind that ‘Congress is our boss.’ Republican control of the Senate could mean Richard Shelby of Alabama, who turned from Fed supporter to critic during the financial crisis, would lead the Senate Banking Committee, which oversees the central bank.”

“Shelby voted against Yellen’s nomination as vice chair in 2010 and as chair last year. In both cases, he cited ‘deep concerns about Dr. Yellen’s Keynesian bias toward inflation as a member of the Federal Open Market Committee’ as well as ‘her poor record of bank regulation’ as president of the San Francisco Fed from 2004 to 2010.”

“The Fed last month announced an end to its third round of quantitative easing, while maintaining its pledge to keep interest rates low for a ‘considerable time.’ ‘In both time and money, QE has overstayed its welcome by years and by trillions,’ House Financial Services Committee Chairman Jeb Hensarling, a Texas Republican, said in a statement. ‘Loose monetary policy before the crisis inflated the housing bubble and six years of QE may have just inflated the next bubble.’”

Bits Bucket for November 9, 2014

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