The Housing Bubble

The peasants continue to understand what is happening and are not buying the lies anymore. The “I strongly support the 9/11 mosque” speech should have him in the 30s soon enough.

Latest polls this week on The O’s approval

Gallup 43%
Rasmussen 46%
Fox News 43%

The mosque issue is a non story; typical soft nooz, cost nothing to produce, very “NPRish”.

They should instead do a story on photo enforcement technology as revenue generation for state and local governments.

He couldn’t have done more to destroy the economy, jobs and our long-term standard of living if he tried, but many on here are still are lost sheep. So focused on housing they don’t see the forest for the trees and believing whatever the media tells them. We currently have the scariest monster for a President this Country has ever seen, and they let him through the front door. 100000X worse than your local drug dealer or pedophile. He has always had one mission his entire life. To bully, use and exploit others. He dreams of millions of slaves and a devastated economic landscape. His flute doesnt work on me. I am educated and informed.

South Florida property tax appeals on a blistering pace

By Sally Kestin and John Maines
Sun Sentinel
Posted: 9:45 a.m. Sunday, Aug. 15, 2010

The annual tax notices going out this month will bring a double whammy of bad news for many Florida property owners — lower values and higher taxes.

But a small minority will get a break by challenging the county’s value of their homes, businesses and land.

Tax appeals have been pouring into government offices throughout Florida, fueled by the real estate boom and crash and a highly profitable cottage industry of tax representatives. So far this year, Broward and Palm Beach counties have reduced property values by more than $2.5 billion as a result of appeals.

The process is available to all property owners, but less than 5 percent typically file appeals in South Florida. When they win, it means higher taxes, less government services or both for everyone else.

This oughta teach him!
Axed by UFT ‘for unionizing’

In a move of stunning hypocrisy, the United Federation of Teachers axed one of its longtime employees — for trying to unionize the powerful labor organization’s own workers, it was charged yesterday.

Jim Callaghan, a veteran writer for the teachers union, told The Post he was booted from his $100,000-a-year job just two months after he informed UFT President Michael Mulgrew that he was trying to unionize some of his co-workers.

“I was fired for trying to start a union at the UFT,” said a dumbfounded Callaghan, who worked for the union’s newsletter and as a speechwriter for union leaders for the past 13 years.

Read more: http://www.nypost.com/p/news/local/this_oughta_teach_him_rQamwIU0sNZxyrmyNBxz4L#ixzz0wglGINby

A few weeks back, after a two hundred plus point DOW rally, Eddie was gloating that it “felt so good to be right” about his DOW 12000 stock market prediction, even though the DOW was nowhere near that level. Last week, the DOW completely reversed course and erased all those gains and then some. By Eddie’s own standards, that would indicate that he was actually wrong. Conveniently, Eddie was nowhere to be found to answer to his folly.

Scare mongers in the financial journalism community are helping to legitimize a Fed move towards QE2. I note that Japan has endured two straight decades of deflation, yet the two late-vintage Japanese automobiles in my garage run just fine, and so far as I am aware, Japanese living standards, including longevity, are better than America’s.

The Financial Times
Fed needs firepower to zap deflation monster
By James Mackintosh
Published: August 13 2010 20:17 | Last updated: August 13 2010 20:17

Every action film script has the hero running out of bullets at a crucial moment and reaching for whatever weapon comes to hand. Ben Bernanke may not have the pecs of Jean-Claude Van Damme, but the Federal Reserve chairman signalled this week he was willing to bash away with a baseball bat if that is what it takes to keep the economy going.

The US central bank has already cast aside its main weapon, interest rates, having slashed it to zero in the wake of Lehman Brothers’ collapse. On Tuesday, it reloaded its backup, quantitative easing – think Sigourney Weaver switching from pulse rifle to flamethrower in Aliens.

Unfortunately, the markets took the wrong message. Rather than being reassured that the deflation monster had a fight on its hands, investors decided to flee. Bad news on the economy in the US and China and renewed worries about the eurozone’s troubled periphery and European banks made matters worse. The nascent summer rally in equities came to a painful end, bonds rose and market inflation expectations tumbled.

Which raises the vital question: is the Fed firing blanks?
…
EDITOR’S CHOICE
Funds look to dangers of US deflation - Aug-13
Short View: Fed right to fret about deflation - Aug-12
US recovery doubts move centre stage - Aug-11
Short View: The Bernanke put - Aug-11
Lex: Bond markets - Aug-11
Analysis: Deflationary fears send Treasuries off the charts - Aug-10

This is where too much discretion and not enough rules will get you. The next Fed-funded too-big-to-fail bailout goes to the U.S. Treasury bond market.

The Financial Times
Short view: The Bernanke put
By James Mackintosh
Published: August 11 2010 20:33 | Last updated: August 11 2010 20:33

The US Federal Reserve has a new policy: the Bernanke put. Unlike the “Greenspan put” – the perception that Alan Greenspan’s Fed would cut rates aggressively to bail out equity markets – the latest move by Ben Bernanke’s Fed benefited bond markets.

Tuesday’s decision was actually rather modest: the Fed will maintain its holdings of Treasuries and mortgage bonds at $2,054bn, rather than slowly shrinking it as bonds mature or borrowers refinance.

This telegraphed the Fed’s concern about the anaemic economy. In addition, the market now believes Mr Bernanke has convinced fellow Fed policymakers to share his deep fear of deflation. To many investors this means future weak economic data will be met by further quantitative easing, printing money to buy assets (good for bonds).

The danger is that this interpretation becomes self-fulfilling. At the very least, Treasury yields are going to react more strongly than in the past to the next set of weak economic data. At worst, the reaction will be so strong – anticipating a full-blown QE2 – that the Fed will have little choice but to act to avoid a disappointment-fuelled sell-off in bonds driving up borrowing rates across the economy.

It is not yet certain that this will be the outcome. But if it comes to pass, it will extend the moral hazard infecting the world financial system into the biggest and most liquid market. That cannot be good news.
…

The Economist
The Democratic left
Disappointed, down, despondent
And not about to rush to the polls in November, either

Aug 12th 2010 | las vegas and Washington, dc

WHY, asks a Democrat leading a training session for fellow activists, doesn’t “Yes we can” work as a slogan any more? “Because we haven’t,” a jaded participant responds. Progressives, as bedrock Democrats like to call themselves, are despondent. The election euphoria of 2008, when their party secured heavy majorities in both chambers of Congress and Barack Obama won the presidency with ease, has deflated so rapidly that analysts are now diagnosing on the left an affliction they ascribed to the Republicans back then: an “enthusiasm gap”.

The present gap is really more of a chasm. Gallup, a pollster, reckons that a mere 28% of Democrats are “very enthusiastic” about voting, compared to 44% of Republicans. By the same token the Pew Research Centre found in June that only 37% of liberal Democrats were “more enthusiastic than usual” about going to the polls, compared with 59% of conservative Republicans. And according to an NBC/Wall Street Journal poll the same month, the categories of voters whose interest in elections has dimmed the most since the last one are liberals and those who voted for Mr Obama (see chart). “You can’t deny the level of disappointment,” says Raul Grijalva, a Democratic representative from Arizona and head of the Congressional Progressive Caucus.

Mr Obama and the Democrats’ leaders in Congress insist that progressives have a lot to be thankful for: the passage this year of universal health care, the fondest of liberal ambitions for decades; a financial-reform act that increases oversight of the wayward bankers who, in the minds of many, were bailed out at humbler workers’ expense; the extension of unemployment benefits in the teeth of vociferous Republican objections, and so on. But doctrinaire Democrats can find fault with all these achievements. Mr Obama’s health-care reform, for example, does not involve a state-owned insurer (“the public option”) designed to keep the private ones honest, as many on the left had wanted. The extension of unemployment benefits was merely the rump of a much more ambitious proposal for a second stimulus package, most of which fell by the wayside. And the scalding of Wall Street’s fat-cats has not gone nearly far enough for many Democrats’ taste.
…

So long as Frankenbanks have Dr Bernankestein’s steadfast backing, where is the worry about their future survival?

The Economist
Finance after the crisis
Citicorp redux
In the third of our profiles of financial institutions after the crisis, we look at Citigroup, a tarnished American icon

Aug 12th 2010 | NEW YORK

WALTER WRISTON liked to contend that banks needed little capital as long as they were run well. On several occasions since the legendary Citicorp boss retired in 1984, the bank and its successor, Citigroup—created in a merger in 1998—have been caught embarrassingly short of the stuff. The latest blow-up was the nastiest. Enormous mortgage losses confirmed fears that the group, which grew into a gigantic financial supermarket under Sandy Weill, one of Wriston’s successors, had become too complex to manage—a “frankenbank”, as an insider puts it. Citi almost drowned in the red ink. It ended up needing three bail-outs, the last of which saw the government take a 23% stake.

Citi must now show that it can thrive on its own. Critics argue that Vikram Pandit, who took over as chief executive in December 2007, has been too slow to pare Citi’s product offering and tighten its risk culture. To some, his survival owes more to obsequiousness—he rushed do the Obama administration’s bidding on mortgage modifications, for instance—than to managerial talent. Mr Pandit counters that he and his team are far along with what could be the largest bank restructuring ever, and that its fruits are already visible.
…

Comment to an article in The Economist on Charles Rangel’s ethics problems:

CA-Oxonian wrote:
Aug 5th 2010 11:06 GMT

Oh my goodness! Members of Congress cheating on their taxes and using taxpayers’ dollars to fund private initiatives? Whatever next? Illicit affairs? Pork-barrel spending? Boondoggles? Who would have thought it possible?

Oh, right, time to wake up and smell the pig manure. Last time I checked, politics in the USA more closely resembled that of Italy than of the Scandinavian countries. So the only question is: why is this old pol being targeted now? Obviously he failed to keep on someone’s good side. Maybe not enough back-scratching or kickbacks to the right places?

“…America is flush with cash.”

Where did all that cash come from, so soon after Wall Street banks flushed trillions of dollars down the mortgage securitization toilet? Was it simply created from thin air by the Fed’s balance sheet expansion? If it were possible to spark an economic recovery by (virtually) printing and distributing more money, why doesn’t the Fed simply expand its balance sheet by, say, $200,000 X 300 m = $60 trillion and hand over $200,000 to every deserving American household?

The Economist
The world economy
Joy, pain and double dips
Fear of renewed recession in America is overblown; so is some of the optimism in the euro area

Aug 12th 2010

SELDOM does the United States look at Europe with economic envy. The past few weeks, however, have been one of those rare phases. Concern about America’s stumbling recovery has been rising, just as anxieties about the euro area’s economy have faded. The dollar is the weakling among rich-world currencies (see article). But Americans should take a little heart: it is too soon to despair about their economy. And Europeans should show a little caution: it is too soon to be sure that theirs is firmly back on its feet.

Some forecasters believe that America’s disappointing GDP growth in the second quarter, 2.4% at an annualised rate, could be the start of a slide towards a second recession. One worry is jobs, or the lack of them. American business created only 71,000 in July, too few to match the growth in the population of those of working age and far too few to shorten the queue of unemployed noticeably. Unemployment is stuck at 9.5%, even though corporate America is flush with cash. Companies are still unhelpfully shy of hiring, preferring to squeeze yet more output from fewer people.
…

Interesting article and comment in this week’s Economist.

http://www.economist.com/node/16792858

The Economist was an early bubble critic, both stock and housing. The ultimate free market magazine now says that financial market bubbles have proven not to work for the best, unlike other markets, and need to be restricted.

“Surely there are rational investors who can profit from market booms and panics? There are some but not enough. Such rational beings are simply overwhelmed by the force of the herd.”

“Why not just let the markets rip? Some would say that bubbles tend to coincide with periods of great economic change, such as the development of the railways or the internet. Individual speculators may lose from the resulting busts but society gains from their overoptimistic investments. However, this argument is harder to sustain after the recent bubble in which society ‘gained’ some empty condos in Miami and holiday homes in Spain.”

“The evidence is clear that the clean-up costs after debt-financed bubbles are too high. Central banks and governments do have to intervene when credit growth and asset prices (particularly in property) start dancing their toxic two-step. Asset markets do not work as well as those for consumer goods.”

Here is the interesting comment.

“After the railroad bubble, we had cheap transcontinental shipping. After the telegraph bubble, we cheap transcontinental communication. After the housing bubble, I don’t see why so many people find it so inconceivable that we could have inexpensive residential and commercial housing accommodations (other than the rather large speed bump that many investors’ balance sheets depend on housing retaining as much of its wealth as possible to keep them solvent).”

“One of the larger threats to the continued prosperity of developed economies is the reality that manufacturing and services work can be done in developed economies at a comparable quality for a fraction of the labor costs. When the question is posed as to why workers in developed economies are paid so much more, the typical response is that the cost of living is so much higher. Of course, the cost of living is higher because workers are paid more. An abundant supply of inexpensive housing could be capable of bursting this circular logic, and leaving the workers of developed economies more competitive.”

The Economist
Currencies
Race to the bottom
A weak economy and an active Federal Reserve have driven the dollar down since June. Will that last?

Aug 12th 2010

THREE months ago, when Europe’s debt crisis had markets panicking about sovereign risk, it seemed that all roads led to the dollar. The greenback was rising against the other big global currencies, the yen, pound and euro. Its role as the world’s reserve currency seemed an inestimable advantage when investors were unsure where they could safely park their cash. Within the rich world, America’s economy looked the best of a bad bunch. The stage seemed set for a dollar rally.

How quickly things have changed. On August 11th the dollar fell to a 15-year low against the yen of ¥84.7. It perked up against the euro to $1.29, though that was still much weaker than the $1.19 it reached in early June when euro-revulsion was at its worst (see chart 1). The ground the greenback has lost in recent weeks owes to a run of weaker data about the economy, not least on jobs (see box on the next page). On August 10th the Federal Reserve conceded that the recovery would probably be slower than it had hoped. The Fed kept its main interest rate in a target range of 0-0.25% and stuck to its creed that rates would need to stay low for “an extended period”. In addition the central bank said that it would reinvest the proceeds from the maturing mortgage bonds it owns into government bonds to prevent its balance-sheet (and thus the stock of ready cash) from gradually shrinking.

This modest change in Fed policy was widely expected. It signalled concern about the economy while stopping short of panic measures. That did not stop stockmarkets from slumping the day after the Fed’s statement—perhaps because investors had hoped the central bank would go further and commit itself to a fresh round of asset purchases, or perhaps because they were unnerved by the Fed’s more cautious tone on the economy. But the Fed’s shift still seemed to confirm that it is more minded than other central banks to keep its monetary policy loose, a perception that has contributed to the dollar’s slide and helped America’s exporters. The day before the Fed’s decision, the Bank of Japan kept its monetary policy unchanged. The European Central Bank (ECB) has allowed short-term market interest rates to rise as it withdraws emergency liquidity support from the banking system.
…

Fannie Mae brings back no-downpayment mortgages
10:26 am August 6, 2010, by Kyle Wingfield

What could go wrong? From the Washington Independent:

“Buy new with $1,000 down,” the advertisement says, the words resting atop a trim green clapboard house offset by a bright blue sky. “The time has come. Stop wasting rent check after rent check and start building equity in your own home. And with only $1,000 down, affordable monthly payments and no private mortgage insurance required, the dream is closer than you think.”

It sounds too good to be true. But it is true. This offer does not come from a subprime lender, looking to reel in thousands of unqualified and ill-advised homebuyers, only to slap them with add-ons, fees and variable rates. It is not a teaser or a trick. The advertisement references a program initiated by the National Council of State Housing Agencies and Fannie Mae, the taxpayer-backed, government-sponsored enterprise that buys up mortgages from lending banks.

The Federal Housing Authority already offers mortgages for just 3.5 percent down — a program that now accounts for one in five U.S. home loans (link thanks to The Atlantic’s Megan McArdle) — but apparently the geniuses at Fannie Mae didn’t think that was enough of a taxpayer subsidy. Perhaps they were giddy at the prospect that the taxpayer bailout for them and sibling agency Freddie Mac will end up costing “only” $150 billion or so, although Fan alone still has nearly $220 billion in bad loans on its balance sheet.
…

Aug. 15, 2010, 12:01 p.m. EDT
Homebuyers beware: Tougher rules for FHA loans
Consumers face changes to credit scores and borrowing costs

By Jennifer Waters, MarketWatch

CHICAGO (MarketWatch) — Consumers looking for home loans backed by the Federal Housing Administration will face tougher hurdles and higher costs under new legislation and new rules that could take effect as soon as this month.

Higher monthly fees, larger down payments and better credit scores are among the new initiatives intended to insure that the FHA stays solvent. Its reserves, which are used to cover bad loans, plummeted to $3.5 billion at midyear from $19.3 billion in September 2008, according to a report from the Department of Housing and Urban Development.
Remodeling Fannie and Freddie

MarketWatch’s Alistair Barr explains how a replacement for Fannie Mae and Freddie Mac might work and what’s at stake, including the value of your home.

Proponents of the measures applaud the FHA’s efforts to preclude the need for a taxpayer bailout, while also stepping up the quality of its insurance portfolio. But critics fear that the moves will stifle an already sluggish recovery in housing and will be most burdensome on first-time home buyers who rely most on the FHA insuring their loans. The FHA backs 30% of all loans outstanding and is on track to insure 1.7 million loans by the end of its fiscal year Sept. 30, according to its recent quarterly report to Congress.

“This wouldn’t be such a big deal if the economy was going well and houses were moving quickly,” said Gibran Nicholas, chairman of CMPS Institute, which trains certified mortgage-planning specialists. “But when you’re talking that the majority of buyers out there are first-time home buyers using FHA financing, now it begins to make a pretty big impact.”
…

Education department to boost anti-fraud efforts

* FACTBOX-What is the proposed U.S. education regulation about?
Fri, Aug 13 2010

WASHINGTON | Fri Aug 13, 2010 2:16pm EDT

WASHINGTON (Reuters) - The federal government will hire more investigators to prevent fraud by for-profit colleges in such areas as student financial aid, U.S. Secretary of Education Arne Duncan said on Friday.

In a letter to the chairman of a Senate committee on education, Duncan said his department will hire over 60 additional staff to strengthen oversight of schools and increase program reviews of post-secondary institutions by 50 percent each year.

Duncan said his department would conduct undercover investigations of school recruiting practices and is working to improve its anti-fraud data analysis.

The department will also hire a new Chief Customer Experience Officer to oversee consumer protection in its Federal Student Aid division and has asked for additional funding for oversight in its 2011 budget request.

Stocks of for-profit education companies, including bellwether Apollo Group Inc, DeVry Inc and Career Education Corp fell on Friday. The S&P education services index was down almost 5 percent.

The letter followed a hearing by the Senate committee last week where the Government Accountability Office presented its findings from an undercover investigation of for-profit college recruiting activities.

“The unethical and potentially illegal practices uncovered by GAO are unacceptable,” Duncan wrote in the letter.
…

I think it finally happened. I saw a speed/redlight “photo enforcement unit” that appeared to have been disable/vandalized.

Its a long pole with 3 devices mounted to it. A camera, a radar, and some other device, maybe a transmitter?

Anyway, the camera was pointed at the ground opposite the street and the radar was pointed straight up into the sky.

I doubt the wind did this.

You guys will like this bit of insider mechanical info. I don’t have all the info as it was a quick conversation.

In the past I’ve mentioned discussions I have with a accountant friend of mine from church. “Joe” is an accountant for accountants, back checks books at casinos, knows a few DC and Wall Street banking thugs, etc.

Anyways, this morning he told me of a recent event. A large non-publicly traded builder he does work for was recently contacted by the bank the builder does business with. The bank has an equity stake in 6 model homes the builder constructed. The bank told the builder he had to sell the 6 models or else his credit lines would be cut by 100%. Accountant Joe indicated that the builder is current on his credit lines and there was no reason for it. Accountant Joe made contact through the top of the bank organization to get the low-down. Apparently the bank was directed by the OCC to write the builders spec houses down to zero and take the hit on reserves or force the builder to sell.

This might open up some good discussion to you guys who know banking because I don’t. I don’t know the name of the bank nor do I care.

The builder is pissed off because he had to dump his specs “below market value” and he was “waiting for the market to come back”. I just laughed and said to Account Joe, “the market is going to come back the way he thinks it will….. it’s over… and the OCC did the guy a favor in the long run”.

Anyways, OCC is acting as if they know these shacks aren’t worth a fraction of the asking price, yet Main Street is still completely deluded.

Speaking of ticket cams…

Interesting state Kansas: No front license plates, No motorcycle helmets, 2nd highest state percentage votes for Ross Perot I, Age of consent: 16 years, Beer drinking age: 18 until Feds cracked down, the birthplace of the civil war, John Brown, the “Free-State”, google “Bleeding Kansas”

“Don’t mess with Kansas”?

Kansas citizens have the most economic freedom in the country, according to the Forbes magazine U.S. Economic Freedom Index, which is to be published today. This ranking is largely due to Gov. Sebelius efforts to make state government more efficient.

The study said that if all states were as economically free as Kansas, the average American worker would experience a 4.42% increase, or $1,161 gain, in annual income. Over a 40-year working life, assuming an interest rate of 3%, that would amount to $87,541 in lost income.

http://www.ksdp.org/node/497

I hope I don’t come across as a crotchety old geezer when I say this. I grew up on thrift sayings like “A penny saved is a penny earned.” It seems like now our government is telling young people that “A penny borrowed is a penny earned.”

“I recall that this blog was dismissed in a similar manner. We were called crazy, and just about every other name in the book.”

And now many of the cheerleaders for the housing industry have become cheerleaders for the economy, again labeling as nuts us people who say that the the economy, like housing, is heading for hell in a handbasket.

County’s foreclosure rate second-highest in California
Inland Empire ranks 5th in the United States

Staff and wire reports • August 13, 2010

Riverside County had the second- highest foreclosure rate in the state last month, a real estate tracking firm reported Thursday. The inland region ranked fifth in the nation.

A total 7,068 mortgage default notices, auction sale notices and bank repossessions were recorded in Riverside County in July, Irvine- based RealtyTrac reported.

That’s about 1 in 109 households in some stage of foreclosure. The county was No. 3 statewide the previous month.

New Coachella Valley numbers were unavailable Thursday, but they dropped in June compared to the same period last year.

Riverside County’s foreclosure activity was roughly 3 percent lower than in June and 41 percent below the year-ago level, figures showed.

‘‘Declines in new default notices, which were down on a year-over-year basis for the sixth straight month in July, have been offset by near-record levels of bank repossessions, which increased on a year-over-year basis for the eighth straight month,” RealtyTrac CEO James J. Saccacio said in a statement.

Stanislaus County was No. 1 in the state in July, with 1 in 102 households in default.

San Bernardino County was fourth with 1 in 115, according to RealtyTrac.

Nationally, 325,229 properties slid into foreclosure in July — a 4 percent increase from the prior month but a 10 percent drop compared to July 2009.

Nevada was No. 1, followed by Arizona, Florida, California and Idaho.
…

Conyers, Kaptur Bash Fannie for Penalizing Strategic Defaulters
By Annie Lowrey 8/13/10 5:12 PM

This week, Reps. John Conyers (D-Mich.) and Marcy Kaptur (D-Ohio) sent a letter to Treasury Secretary Timothy Geithner and Edward DeMarco, the head of the Federal Housing Finance Agency, asking them to justify Fannie Mae’s policy of penalizing or suing strategic defaulters — those who can pay their mortgage but chose not to.

“We believe that this opaque, overbroad, and punitive policy, as conceived by Fannie Mae, is a poor use of taxpayer dollars and will unnecessarily include individuals who are not choosing to default on their mortgage,” they write. “Furthermore, this policy is one of many which seems to run counter to the national need to stem the tide of foreclosures which are devastating communities across our nation.”
…

Some fat cats have quite the flare for outlandish analogies.

A ‘Fat Cat’ Strikes Back
SHANNON STAPLETON

Stephen A. Schwarzman, CEO and co-founder of the Blackstone Group.

President Obama and the business community have been at odds for months. But in July the chairman and cofounder of the Blackstone Group, one of the world’s largest private-equity firms, amped up the rhetoric. Stephen Schwarzman—the leading John McCain supporter in a firm that, in 2008, gave more money to Obama—was addressing board members of a nonprofit organization when he let loose. “It’s a war,” Schwarzman said of the struggle with the administration over increasing taxes on private-equity firms. “It’s like when Hitler invaded Poland in 1939.”
…

Looks like the Nikkei _japanese stock index- is waking up to a morning spanking down around 1.5%.

More interesting is the futures touching 9000, a price level not seen since may of 2008 and now maybe the edge of the cliff.

You think if I asked a realtor whether it is a great time to buy a house they would help me out with a good deal?

From Shadow Stats today -

Intensified Economic and Liquidity Crises Continue:

“Economic reporting of this last week indicated that second-quarter GDP may suffer some downside revision (see Trade Deficit section), and that the third-quarter GDP might see renewed quarterly contraction (see Retail Sales section). After a plunge in activity and then a period of bottom-bouncing, with an upside blip from short-lived economic stimulus efforts, the U.S. economy has entered a period of re-intensified contraction. The renewed downturn had been signaled by the annual contraction of real (inflation-adjusted) annual M3 growth, back in December 2009 (see Real Money Supply in Retail Sales section).

With current projections for the federal budget deficit and related U.S. Treasury funding needs, as well the banking system’s solvency tests, all based on underlying assumptions of economic recovery and ongoing growth, the implications of continued economic downturn are horrendous in terms systemic risks and needed systemic liquidity.

Fed Gives Early Signal It Will Debase Currency to Prevent Systemic Collapse and/or Great Deflation. Those predicting deflation have reasons to do so, but I believe they are missing the nature of the U.S. government and central bank. To have a great deflation (in terms of consumer prices for goods and services), there needs to be some form of systemic collapse that helps to implode the money supply. (Issues in terms of inflation/deflation definitions and why collapsing debt does not trigger a quick onset of deflation all are discussed in the Hyperinflation Special Report.)

The Fed and the federal government did everything in their power in 2008 to spend or to create whatever money was needed to prevent systemic collapse, and they prevailed, at least for a brief period. Yet, the same risks face the system in the near future. Despite the relative stability seen in the financial markets and financial system, at present, little has been accomplished fundamentally to help the economy or to provide long-term stability to most of the banking sector. Such should become painfully obvious to the markets in the months ahead, as the economy renews its tumbling and the system reflects the impact of same.

The nature of the Fed and the federal government is to prevent systemic collapse. A collapse is unthinkable; it would mean a complete failure by the Fed and the federal government in their primary functions. Accordingly, irrespective of political or election-year niceties, the Fed and the federal government will spend or create whatever further money is needed to forestall systemic collapse. Faced with devil’s choices — a hyperinflation also leads to systemic collapse — the course of action selected likely will be the one that buys the most time (printing money and hyperinflation).

Due to ongoing structural banking problems, the broad domestic money supply has been in contraction, the economy is turning down again, and the Fed is scared. It signaled that this week when it agreed to start monetizing some Treasury debt. Ultimately, the U.S. dollar should face massive dumping as foreign investors flee dollar-denominated paper assets, and the Fed appears to be doomed ultimately to become lender of last resort for the U.S. Treasury. Such monetization and the flood of dumped foreign-held dollars into the U.S. will lead to higher inflation. As promised by Mr. Bernanke in 2002 (again, see detail in the Hyperinflation report), a central bank always can debase its currency, creating inflation. Critics of that concept offer that the process did not work in Japan, but the Japanese were not out to debase the yen.

As risks for a likely U.S. dollar panic and Treasury debt monetization near — high risk of same in the next six-to-twelve months — the general outlook for the economy and the markets is unchanged. For those with soft assets denominated in U.S. dollars, circumstances continue to suggest looking at actions for long-range wealth preservation. Despite any severe near-term volatility in the markets, physical gold and silver, assets outside the U.S. dollar (such as the Canadian dollar, the Australian dollar and Swiss franc) and assets outside the United States, offer long-term hedges against the severe loss looming in U.S. dollar’s purchasing power. ”

Best Wishes to All from John Williams

* ECONOMY
* AUGUST 16, 2010

Housing Ills Cloud Debate on Fannie
By NICK TIMIRAOS

All year long, the Obama administration has defended its decision to postpone the debate over the fate of Fannie Mae and Freddie Mac by arguing that it first needed to put the housing market back on track.

Now, as mortgage-industry executives and government officials prepare to meet for a summit on Tuesday to begin those discussions in earnest, policy makers are facing an unexpected problem: The housing market appears to be stalling.

That will make officials more cautious in considering any dramatic overhaul, because a shaky outlook further underscores the market’s heavy dependence on Fannie and Freddie, which together with the Federal Housing Administration are backstopping nine out of every 10 new loans.

“It pulls the debate in the opposite direction,” said Howard Glaser, an industry consultant. “If we’re stuck in the midst of this semi-permanent housing crisis, the question of the federal role becomes almost intractable.”

Over the past year, housing prices across much of the country began to stabilize as the government spurred sales by providing federal tax credits for home buyers and by holding down mortgage rates. The removal of those supports has exposed lingering weakness, putting renewed pressure on prices.

While mortgage rates are still at record lows, home sales have plunged in the months following the expiration of home-buyer tax credits in April. In July, they dropped 27% in Denver, 42% in Minneapolis and 45% in Milwaukee from a year earlier, according to data from local real-estate brokers’ groups.

Meanwhile, efforts to modify mortgages, which have held potential foreclosures off the market, have fallen short of their goals. In June, the number of homeowners whose government loan modifications were canceled, because they didn’t make their payments or couldn’t provide qualifying documents, was double the number of borrowers who entered the program. If more homes that represent a “shadow supply” of delinquent loans and foreclosures hit the market, home prices could tumble further.

“There’s been a feeling in government, which seems to be more pervasive than it was six months ago, that says, ‘We’ve solved this housing problem; let’s move on to Fannie and Freddie,‘” said Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group LP in New York. “But you haven’t solved this housing problem. We have another round of home prices going down a little more.”
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Top ten reasons to sell all your stocks and hide the proceeds under your mattress:

* The Wall Street Journal
* ROI
* AUGUST 13, 2010

Is a Crash Coming? Ten Reasons to Be Cautious

* By BRETT ARENDS

Could Wall Street be about to crash again?

This week’s bone-rattlers may be making you wonder.

I don’t make predictions. That’s a sucker’s game. And I’m certainly not doing so now.

But way too many people are way too complacent this summer. Here are 10 reasons to watch out.

1. The market is already expensive.
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2. The Fed is getting nervous.
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3. Too many people are too bullish.
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4. Deflation is already here.
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5. People still owe way too much money.
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6. The jobs picture is much worse than they’re telling you.
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7. Housing remains a disaster.
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8. Labor Day is approaching.
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9. We’re looking at gridlock in Washington.
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10. All sorts of other indicators are flashing amber.
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Great innovation here! Too bad that after tanking for two straight decades, Japan’s economy remains in the toilet.

Feature
SATURDAY, AUGUST 14, 2010
Meet the Maserati of Plumbing

By NEIL A. MARTIN | MORE ARTICLES BY AUTHOR
Japan’s Toto, purveyor of luxe toilets, is changing the privy habits of people around the world. With more innovations in store, its stock could sparkle like the finest of porcelain.

HERE AT Barron’s, we’ve never been picky about toilets. All we ask is that one be nearby when we’re inhaling coffee on deadline nights. The Neorest 550, however, is more than a toilet. Far more. It’s the Maserati of plumbing.

As you approach, the lid rises in greeting. The seat heats up. A catalytic converter snaps to attention, ready to absorb the faintest of unfortunate odors. Then you pick your sound effects—anything from Mozart to simulated toilet flushings to the crash of ocean waves. Folks in the living room may wonder what’s going on in there—but at least they won’t hear something worse. Toward the end, a robotic bidet arm swings into action. We’ll skip the details, except to say that it completes its duties with a warm-air dryer. As you take your leave, the lid closes and the Neorest automatically flushes. Time for the next customer.
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It seems to me a better analogy is “rebuilding an airplane after it has crashed, but while it is still burning.”

And I wonder where they get their “real estate is 15 percent of the country’s economy” figure? Pre-bubble years, or during, when real estate was at its all-time unsustainably high share of U.S. economic activity?

Treasury Fixing Mortgage-Finance System Juggles Limitless Bailout, Economy
By Lorraine Woellert - Aug 15, 2010 9:01 PM PT

The U.S. Treasury Department, hosting a summit tomorrow on how to repair the mortgage-finance system, may get a blunt message from stakeholders in an industry tied to 15 percent of the country’s economy: Don’t screw it up.

The system’s size and complexity mean that a wrong move by the Obama administration could restrict credit, drive down home prices, increase foreclosures and slow the economy, housing advocates and industry participants say. At the same time, some lawmakers say it’s time to close government-controlled loan guarantors and halt limitless bailouts.

“It’s like building an airplane while you’re still flying it,” said David Ledford, senior vice president of mortgage finance at the National Association of Home Builders in Washington. Housing investments and related services account for 15 percent of gross domestic product, according to the group, ranking the industry second to health care.
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Holy crap! Just when it looked like common sense was about to prevail in the discussion about the deleterious effect of U.S. housing subsidies, there is already movement afoot to restore the home buyer tax credit. We wouldn’t want U.S. housing to become affordable now, would we?

I am greatly looking forward to the Republicans’ efforts to turn this housing debacle into political hay. Got popcorn?

Markets, Mortgage matters
Time to end perks for homeowners?
Posted by Scott Van Voorhis
August 13, 2010 10:31 AM

OK, the Republicans are right about one thing.

Despite a lot of hype from the Obama Administration, don’t expect any bold action from the president at this Tuesday’s summit on housing fianance reform.

However, at least in the case of one key facet of the American housing market and middle class life - the mortgage tax credit - that is not such a bad thing.

The housing meltdown is prompting calls for a sweeping evaluation of the federal government’s relationship to the housing market. Check out this pretty extensive piece from USA Today - not bad for a paper designed to look like a TV set.

Anyway, given the mess we are in, that’s only natural.

But to the chagrin of would-be housing market revolutionaries, the Obama Administration is also making clear that any reforms must include the continuation of the mortgage tax credit.
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Merriam-Webster Online Free Dictionary

1 : foolish
2 : absurd, ridiculous

Markets, Mortgage matters
Just what we needed, the return of no money down mortgages
Posted by Scott Van Voorhis
August 10, 2010 10:11 AM

Is a little common sense too much to ask from the do-gooder set?

With foreclosure rates spiraling out of control, it would seem an odd time for the federal government and various state housing authorities to be promoting zero-down mortgages.

But that’s apparently what state officials in Massachusetts, Wisconsin and Idaho are doing right now as they team up with troubled federal mortgage giant Fannie Mae to offer so-called “Affordable Advantage” mortgages.

The new initiative lets qualified, lower-income buyers with good credit get a mortgage without even having to meet the already low, 3.5 percent down required on most federally-backed mortgage loans.

Instead, these lucky few are eligible for 100-percent loan to value mortgages. In some cases a token downpayment, such as $1,000, is required.

Defenders of this seemingly hairbrained (SIC) mortgage initiative - now being offered locally by MassHousing - point to the high credit scores of the borrowers. In Wisconsin, the minimum credit score of 680 is required.

Really, how in the world is someone who either can’t scrape together a down payment - or who can only come up with a thousand bucks - a good candidate for homeownership?

Moreover, with no equity in the deal, these newly minted homeowners will almost immediately find themselves stuck with underwater mortgages. Maybe they missed the news over on Beacon Hill and down in Washington, but housing prices and sales are tanking with the end of the home buyer tax credit

Well, given one in four homeowners are now stuck with underwater mortgages, what’s a few more?
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