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powayseller
ParticipantDecember closing are always higher than November closings. Chart will be on my website. I don’t know why…. Any thoughts sdr?
ParticipantI hope it’s okay if I point out that Fed is not capitalized. Fed is short for Federal Reserve, so it’s not an acronym.
So the money supply is inflated when the Fed prints money and instructs the Treasury to auction more Treasuries? They must be working hand in hand. M3 is increasing 10% annually, so they are using money creation to control monetary policy. Yet, that part is not publicized or questioned at the Congressional hearings… the Senators barraged Bernanke with questions about interest rates but not a single one asked him about the other tool he uses to manage the monetary policy: money creation. No wonder we are all in the dark. “They” don’t want us to know.
Is there a list of how many Treasuries are bought by the Fed?
Why does Mish say we have deflation; deflation is a contraction of the money supply, yet M3 is growing.
ParticipantI’ve read that China is trying to spur domestic consumption and find other customers. I’m sure they are aware of our upcoming recession. THe 2000-2001 recession caused downturns in stock markets globally, as well as in commodities. China is preparing as best they can, I believe.
“In 2001, the imports into the U.S. fell by $79bil, or 6.3%…the U.S. current account deficit fell by only 4.1%..That reduction in U.S. demand for foreign products had a profound impact on the rest of the world. world merchandise exports shrank by 4% in value in 2001, the largest annual decrease since 1982. …
.. economic growth rates in 2001 slowed greatly in every region of the world except Africa. The slowdown in growth ranged from 24% in the transition countries to 91% in the newly industrialized Asian economies. Exports contracted in 11 out of their 16 largest economies and in all of the export-oriented Asian economies…..
Global commodity prices fell for almost 2/3 of the commodities in Table 9.7, with more than 1/3 suffering double digit declines…The stock markets were a disaster zone.”
Table 9.7 is World Bank data on commodity prices in 2000 and 2001. It shows timber -16%, rubber -13%, copper -13%, gold -3%, nickel -31%, silver -12%, zinc -21%, coconut oil -29%, crude brent oil -13.6%…only the price of grains and other food increased.
– The Dollar Crisis, Richard Duncan, p. 184 -187So I think the Chinese know they will be hard hit this time,but how can they best prepare? Their politicians and bankers are extremely educated and have long term vision, so I trust they will make the best decision for their country.
ParticipantI agree, we should not allow minors to marry.
Participantdavelj, I don’t gamble with strangers over the internet.
I was reading anotherf&ckedborrower.blogspot.com last fall, before I even sold my house. His insider views of mortgage lending led me to see how bad this is going to be, so I realized already last year that we would have high rates of foreclosure.
Here’s a sample of what I was reading last November: “I think a squeeze is coming that will affect the entire banking system. The madness of bankers has become unprecedented. They have forgotten about loan diversification. They have been caught up in Greenspan’s counter-cyclical policy of lowering the federal funds rate. Now this policy is being reversed. Rates are climbing. This will contract the loan market. Banks will wind up sitting on top of bad loans of all kinds because the American economy is now housing-sale driven.
You may think that you are shielded. But your banker is not shielded. You may not deal with bankers. But your employer does.
Your employer had better have a signed line of credit to keep the doors open. Without this, there may not be money to borrow when the housing bubble pops.
There will be great opportunities to buy houses at discounts during the down phase of the cycle. Be patient.”
Just read his articles, – it is just amazing.
— Monday morning update – Just read this from Mish’s site from a mortgage broker in Orange County, talking about subprime borrowers:
“What people don’t see, the NAR in particular, is the upcoming train wreck. I am talking about all the sub prime loans for refinances as well as purchases that were taken out 2 to 3 yrs ago and are now all coming due to reset….Ninety percent of those who take an interest only loan can only afford the interest only part and not only that, there entire lifestyles are planned around that payment…. “
ParticipantThe FCBs have a real dilemna. If they sell their Treasuries, or stop buying them, the value of their foreign exchange reserves plummets, plus they lose their main customer (the US). That is a risk they cannot take. It seems they are starting to diversify, ie move some of their newer dollar holdings into commodities and other currencies, or at least signalling that intent.
ParticipantI read (Roubini?) recently, that high economic growth is slowed by raising rates, then keeping them level for 6-9 months, and then lowering them once the recession was apparent.
A cheaper dollar is good for the government,because they can repay our debt in devalued dollars. Since the yuan is pegged to the dollar, we wouldn’t have to worry about paying more for goods from China.
ParticipantCould you see if this data is available? Maybe First American Real Estate Solutions or LoanPerformance have this? I considered buying this data early next year, so I have not even checked into its availability.
ParticipantI figured jg would come up with comparing gays to pedophiles. How is love between adults similar to sexual violence of a minor?
Unless of course the problem lies in the sexual aspect. Maybe you disapprove of anything other than a traditional missionary position?
ParticipantI am by no means a currency expert, so I am just explaining how I understand this to work.
The $2.5 trillion is already being spent, so if they sell their Treasury notes, then we either need new buyers, or we’ve got to print so many dollars that we would devalue the dollar very quickly. Likewise, converting $2.5 T into any other currency would cause a dollar glut, making its value go down further.
The dollar is going to fall unless we resolve this imbalance, but I”ve learned this things can take many years to play out. However, as much as I want this to be over with quickly, I realize that China has much to lose by stopping their Treasury purchases, or even cashing them in. Their export economy will suffer, and the dollars they already hold would lose value.
My limited understanding of this topic comes from Richard Duncan, former IMF banker and author of The Dollar Crisis.
ParticipantOk, here’s my reasoning. BTW, remember I didn’t come up with the term “neutron mortgage” – the home is left standing but the buyers are gone.
Buyers qualified at 0% down, 33% – 48% DTI in 2003 – 2005. So they’re spending 33% – 48% of their income on their principal and interest plus more on taxes and insurance. Traditional is 28% for all 4 of those items. They’re already squeezed before the first mortgage payment. Loan resets. Now what? Come up with 50% more in mortgage payments, when you’re already at 33% – 48% DTI? You think about refinancing, but you’ve got some problems that no lender will touch: 1) negative equity, and 2) your income qualified for a loan at the teaser rate you got in 04 or 05, but not at today’s higher rates, 3) you don’t have the equity to pay for the closing costs nor the $10K to pay the prepayment penalty to get out early from under the neutron mortgage. Borrower is f*cked, basically.
So the question we have to ask is this: what is the likelihood that someone who got a 100% loan in 2004 or 2005 at 33% or greater DTI can handle a 50% – 100% jump in payments, or refinance out of the mess? I’d be surprised if more than a few could do so.
ParticipantI think that the majority of mortgages taken out in 2004 and 2005 will default when they reset, because the borrower probably has no equity. We are back to 2003 to 2004 prices, so 2004 and 2005 borrowers lost their equity if they financed at 0% down. I think that about half of refinancers since 2003 will default. So yes, that is my best guess. I am not in the camp of believing these borrowers can just sell or refinance. Perhaps the mortgage industry will come out with some new products to help these people, and then my guess will have been incorrect. Sorry if I missed your question before. I think the default rate could be 90% or higher – it’s hard to tell without knowing the exact number of 0% down ARMs. The subprime market default rates are very high in states that are ahead of us in this bust, like FL, Ohio, Michigan, Colorado, and Texas. We’ll be next. I did take that bet already, davelj – I sold my house.
ParticipantHow are U.S. Treasuries out of circulation? The government spends that. I dont’ think it’s out of circulation. Why would the government not spend the money it gets from auctioning treasuries? A recent Bloomberg story said the government didn’t get enough money in its recent auction to cover its deficit spending. So we need to consider why the CPI is low.
I think CPI is low for 2 reasons: because of cheap imported goods from China, and hedonic adjustment/substitution by the government. Let’s start with cheap imported goods. Back in 1970, a garden trowel was made of steel and cost $10, maybe, just guessing. Today it’s $1.79 and made of some cheap metal and breaks if you actually try to use it. Same with irons and vacuum cleaners. My first vacuum cleaner was a used Hoover, purchased in the late 1980’s, with a steel plate on the bottom. I used that Hoover until it burned in the 2003 Cedar fire. Since then, I’ve gone through 3 vacuum cleaners, all with plastic plates on the bottom (no more steel in these models). I’ve gone through 3 irons, and hope this Rowenta is my last. I’ve stopped buying goods at Walmart – I only get paper products there, because the quality is just getting worse and worse. The point is, inflation is down only because stuff is made cheaper and cheaper, and the quality is dropping.
If the Chinese ever let the renminbi appreciate, so our imported Chinese goods cost 30% more, then inflation will be much much higher.
Hedonic adjustment and substitution means the government tinkers with the prices of increasing goods by substituting and making assumptions about greater quality. The government does not want to report true inflation, because they don’t want to pay 10% annual increases in cost of living to veterans, social security, and other entitlement people. So if the price of milk goes up, they substitute low fat milk in the basket of goods. They put a big outlay like family medical premiums, which can take 5% of a family’s income, at .1% of the CPI. Other games …. all to make the CPI less than it actually is.
So in summary, I think inflation is low because it is not properly reported, and because the Chinese are keeping their currency undervalued and selling us very cheap goods.
ParticipantCheck out this link from the bubble bloggers on the right. A great interview about a fund manager’s outlook for recession, and how he is positioning himself. He also says oil and commodity prices drop in every recession. So I was wrong about oil going to $100 in the near term. He cites lower demand in this economic slowdown is causing the oil price to drop, just as it dropped in 2000 recession.
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