Tuesday, December 30, 2008

Housing Forecast Bleak

The Commerce Dept. reported Dec. 23 that November new-home sales in the U.S. fell to their lowest level in 17 years, down 35.3% compared with November 2007. And the outlook is even bleaker. 2008 was the year that subprime borrowers and speculators got hurt by the real estate crisis. 2009 could be when everyone else gets hit. Until now, the nation's most serious home price declines have been in low-cost markets that were dominated by subprime mortgages, and in overbuilt markets such as Florida, California, and Las Vegas, where residential values are sliding fast toward pre-housing boom levels.

Credit Suisse forecast that more than 8 million homes will go into foreclosure over the next four years, or approximately 16% of all U.S. households with mortgages. That's because the big story in 2009 could be that, with the deepening recession and mounting job losses, serious housing troubles could infect wealthier communities and markets that were just beginning to stabilize this summer before the bankruptcy of Lehman Brothers on Sept. 15 sparked the most serious financial turmoil in decades.

In fact, according to online real estate research firm HousingPredictor.com, based in Destin, Fla., housing prices nationwide will fall 12.5% next year, compared with an estimated 11.1% this year. Housing and mortgage problems pushed the nation into a recession that could now amplify, draw out, and expand the reach of the housing declines.

"Nationally, we think this recession is going to be worse than anything we've seen in 40 years," said Marisa DiNatale, senior economist for Moody's Economy.com. "If the economy gets that bad, then you will start to see foreclosures in Manhattan as well."

On the other hand, the speculative Las Vegas, Arizona, California, and Florida markets, which have already seen annual home-price declines of up to 30%, could see slightly smaller declines simply because values have already fallen so much, according to Mike Colpitts, editor of HousingPredictor.com. Some Florida markets, including Naples, Orlando, and Tampa, are already seeing declines moderate a bit, but problems in other Florida markets, such as Miami, continue to get worse, Colpitts said.

Few areas across the country will likely escape the recession and the corresponding impact on the real estate market, housing experts say. Another wave of foreclosures could be triggered next year as a flood of Alt-A and option adjustable-rate mortgages, which were given to people with decent credit, begin to recast. Most of the option ARMs, which allow borrowers to make minimum payments that don't even cover the accrued interest, are concentrated in already battered California, Florida, and Las Vegas.

Option ARMs originating in 2006 make up about $140 billion of the $350 billion of outstanding option ARMs, and 45% to 50% of them are expected to default, according to an analysis this past summer by Lehman Brothers. The 2007 option ARMs, which were originated just as home prices began falling, were expected to perform similarly badly.

Problems in other states could have less to do with risky mortgages and more to do with job losses. The impact of unemployment on the real estate market and the larger economy are already on display in hard-hit manufacturing cities such as Gary, Ind., and Detroit. Alabama, Arkansas, Atlanta, Michigan, and Ohio could see problems next year, Colpitts said.

"We're in the middle of the game here," said Joseph Seneca, professor of economics at Rutgers University in New Jersey. "There's significant further unwinding to come . We're in a downward spiral with job losses that is reinforcing the weakness in the consumer markets, particularly in the largest investment the consumer makes, in his home."

Home Prices Accelerate Free Fall

The deflationary black hole of collapsing housing prices continues to suck millions of families each month into its destructive vortex. The government could have used its trillions in bailouts to prop these families up, but instead wasted it on imaginary financial instruments and bank equity. In this housing deflation, that is like putting cups of water into a draining pool. Literally, it is throwing good money after bad.

The truth of the matter is that all these homes are just as valuable as they were last year or the year before. Only their monetary price has fallen, and that is only a problem because they are all leveraged with high debt levels. In the absence of a debt load, a fall in home prices hardly matters. In fact, the home prices are falling precisely because of the high debt load, because unpayable debt is forcing a liquidation.

Home prices are now at the level they were five years ago! Do you know anyone who hasn't purchased or refinanced in the last five years??? Of course not, because just about everybody refinanced during the up market, which means that basically, everyone is now upside down on their mortgage, an inevitable foreclosure waiting to happen. And the collapse is just now spreading, accelerating nationwide, with new record declines in just about every city! We are not even close to the bottom yet, let alone a recovery.

Keep in mind, almost no loans made in these last five years are still with the local bank who originated them. Instead, they were packaged into financial instruments and sold on the wider market, which makes them impossible to re-structure by the current loan servicer. Everyone's hands are tied, the only option at this point is government action directly related to home values and mortgage debt levels. Instead, our leaders talk of repairing roads; truly we are on a ship of fools.

Home prices continued to drop as the economic downturn deepened further in October, according to the S&P/Case-Shiller home-price indexes, a closely watched gauge of U.S. home prices, with home prices in the Sun Belt continuing to be hit hardest. "The bear market continues; home prices are back to their March 2004 levels," said David M. Blitzer, chairman of S&P's index committee. He added that both composite indexes and 14 of the 20 metropolitan areas are reporting new record declines.

As of October, the 10-city index is down 25% from its mid-2006 peak and the 20-city is down 23%, Mr. Blitzer said. The indexes showed prices in 10 major metropolitan areas fell 19% in October from a year earlier and 3.6% from September. The drop marks the 10-city index's 13th straight monthly report of a record decline. In 20 major metropolitan areas, home prices dropped 18% from the prior year, also a record, and 2.2% from September.

Once again, none of the regions was able to stave off a decline from September to October. Month-to-month decliners were led by Detroit, which fell 4.5%, and San Francisco, which dropped 4.2%. Atlanta, Charlotte, Detroit, Minneapolis, Tampa and Washington had their largest monthly declines on record.

For the seventh-straight month, no region was able to avoid a year-over-year price drop. Phoenix and Las Vegas were again the worst performers, with drops of 33% and 32%, respectively, from a year ago. San Francisco, Miami, Los Angeles and San Diego followed, with declines between 27% and 31%. Year-over-year, Dallas and Charlotte again had the best relative performance, with declines of 3% and 4.4%, respectively. Three new markets joined the group of areas posting double-digit declines from a year ago - Atlanta, Seattle and Portland showed drops of 11%, 10% and 10%, respectively. Cleveland and Denver showed slight improvement in their year-over-year returns compared with last month's report.

The Case-Shiller data came a week after a government report that sales of previously occupied homes plunged, dropping 8.6% in November, as the median price slid 13%, the largest drop since the survey began in 1968. New home sales fell 2.9% in November, their fourth drop in a row, and prices remained below year-earlier levels.

The glut of housing remains as credit stays tight and the economic outlook remains bleak as mounting job losses have added more stress to U.S. households. Even intensified efforts to help borrowers stay in their homes have made little headway

IMF: Enemy of the People

The IMF recommendations all involve creation of more debt. In fact, as incredible as it may sound, the IMF is openly against savings. The IMF also opposes broad tax cuts or support for U.S. workers and industries. In short, the IMF is merely another propaganda arm of the global financial elite. The root falsehood, the core lie at the heart of their propaganda efforts:the false idea that money is wealth.

The false idea that money is wealth keeps the average citizen from questioning the role or authority of the banks. As those of you who are spreading the good news of the Jubilee Year know from experience, when you bring up the idea of cancelling debt, most people think it would destroy the economy. In short, their propaganda has done its work, and the average person is mentally brainwashed to support the banking agenda, even at their own expense.

WASHINGTON -- The International Monetary Fund's top economist generally endorsed the incoming Obama administration's approach to economic stimulus, and urged countries to consider offering a kind of "recession insurance" to companies and individuals. President-elect Barack Obama's economic team is weighing a stimulus plan that would cost somewhere between $675 billion and $775 billion over two years, and would be used largely for construction and other government spending. The package is likely to include a temporary tax cut of as much as $1,000 for middle-income families.

Olivier Blanchard, the IMF's chief economist, said "the size corresponds roughly to what we think is needed." He backed the Obama approach of targeted tax cuts, saying the money should go to consumers who are "truly credit constrained." In an accompanying research paper, Mr. Blanchard and three other IMF economists advised against broad cuts in corporate tax rates, dividends and capital gains -- Republican favorites -- which they judge "likely to be ineffective" because profits are low. The changes "are often difficult to reverse," they added. In an interview, Mr. Blanchard said a general tax cut may be less effective than other measures because many consumers would save the money.

IMF recommendations rarely have much clout in the U.S., but the timing of the paper and Mr. Blanchard's comments may make a difference, as the Obama team is looking to present its plans as responsible and widely acceptable. The findings pose another hurdle for Republicans. Former Bush White House economist Glenn Hubbard argues that despite the IMF findings, a broad corporate tax cut would spur investment and boost stock prices. Not all the IMF's comments supported Mr. Obama. Mr. Blanchard warned plans to bail out car companies could prompt a trade fight if other nations tried to match or exceed U.S. aid. He said countries should focus on providing credit in the case of corporate restructurings.

Mr. Blanchard, on leave from the Massachusetts Institute of Technology, has long done research with Mr. Obama's chief economic adviser, Lawrence Summers. A spokeswoman for the Obama transition office didn't comment on the IMF findings, but said "economists across the ideological spectrum agree that the danger is doing too little to get our economy moving again, not too much." The IMF has long urged China to take similar steps to boost its economy. Overall, the IMF has been campaigning for a global stimulus plan of 2% of world gross domestic product -- or more than $1 trillion.

Among the IMF's proposals is a kind of "recession insurance." Under that plan, individual governments would offer insurance to firms and individuals that would pay off if GDP sank below a certain level. "Widespread use of such [recession insurance] contracts would provide an additional automatic stabilizer because payments would be made when they are most needed, namely in bad times," the IMF paper said. With such instruments, Mr. Blanchard acknowledged, potential buyers might worry whether, during a downturn, governments would make the payouts.

Monday, December 29, 2008

Housing Continues Freefall

The U.S. housing collapse is still the blackhole sucking the financial system down to its ruin. I am waiting for government officials to come up with some idea here, perhaps starting with propping up housing prices, or forcing the restructuring of these loans, which in many cases, have been sold in larger packages that cannot be restructured.

The Commerce Dept. reported Dec. 23 that November new-home sales in the U.S. fell to their lowest level in 17 years, down 35.3% compared with November 2007. And the outlook is even bleaker. 2008 was the year that subprime borrowers and speculators got hurt by the real estate crisis. 2009 could be when everyone else gets hit. Until now, the nation's most serious home price declines have been in low-cost markets that were dominated by subprime mortgages, and in overbuilt markets such as Florida, California, and Las Vegas, where residential values are sliding fast toward pre-housing boom levels.

Credit Suisse forecast that more than 8 million homes will go into foreclosure over the next four years, or approximately 16% of all U.S. households with mortgages. That's because the big story in 2009 could be that, with the deepening recession and mounting job losses, serious housing troubles could infect wealthier communities and markets that were just beginning to stabilize this summer before the bankruptcy of Lehman Brothers on Sept. 15 sparked the most serious financial turmoil in decades.

In fact, according to online real estate research firm HousingPredictor.com, based in Destin, Fla., housing prices nationwide will fall 12.5% next year, compared with an estimated 11.1% this year. Housing and mortgage problems pushed the nation into a recession that could now amplify, draw out, and expand the reach of the housing declines.

"Nationally, we think this recession is going to be worse than anything we've seen in 40 years," said Marisa DiNatale, senior economist for Moody's Economy.com. "If the economy gets that bad, then you will start to see foreclosures in Manhattan as well."

On the other hand, the speculative Las Vegas, Arizona, California, and Florida markets, which have already seen annual home-price declines of up to 30%, could see slightly smaller declines simply because values have already fallen so much, according to Mike Colpitts, editor of HousingPredictor.com. Some Florida markets, including Naples, Orlando, and Tampa, are already seeing declines moderate a bit, but problems in other Florida markets, such as Miami, continue to get worse, Colpitts said.

Few areas across the country will likely escape the recession and the corresponding impact on the real estate market, housing experts say. Another wave of foreclosures could be triggered next year as a flood of Alt-A and option adjustable-rate mortgages, which were given to people with decent credit, begin to recast. Most of the option ARMs, which allow borrowers to make minimum payments that don't even cover the accrued interest, are concentrated in already battered California, Florida, and Las Vegas.

Option ARMs originating in 2006 make up about $140 billion of the $350 billion of outstanding option ARMs, and 45% to 50% of them are expected to default, according to an analysis this past summer by Lehman Brothers. The 2007 option ARMs, which were originated just as home prices began falling, were expected to perform similarly badly.

Problems in other states could have less to do with risky mortgages and more to do with job losses. The impact of unemployment on the real estate market and the larger economy are already on display in hard-hit manufacturing cities such as Gary, Ind., and Detroit. Alabama, Arkansas, Atlanta, Michigan, and Ohio could see problems next year, Colpitts said.

"We're in the middle of the game here," said Joseph Seneca, professor of economics at Rutgers University in New Jersey. "There's significant further unwinding to come . We're in a downward spiral with job losses that is reinforcing the weakness in the consumer markets, particularly in the largest investment the consumer makes, in his home."

Tuesday, December 23, 2008

IMF Admits Great Depression 2 Coming

The IMF (International Monetary Fund) sees the Great Depression 2 coming, but continues the widespread error in recommending government spending as a solution. Debt spending and inflation got us into this problem, and more of the same will only drag it out and make it worse. The only solution at this point is the cancellation of all debt.

GD2 is being caused because we financed a massive oversupply of production with massive debt spending and inflation. In order for economic activity to proceed again, we need to liquidate the oversupply and the debt. By cancelling debt outright, right now, we would unattach the productive economy from the financial crisis caused by deflation and debt. If we let things take their natural course, the economy will continue to grind into a Great Depression, as debt is liquidated piecemeal in a deflationary environment. The Fed has foreseen this, and resolved to lead the world on course of hyper-inflation instead, which will kick in with a vengeance after our productive economy has been ground down to minimum productivity.

We can prevent this all quite simply: cancel our debt!

WASHINGTON (AFP) – The US economy shrank in the third quarter, official data confirmed Tuesday, as the IMF's top economist warned of a second Great Depression offering no respite from relentless gloom ahead of Christmas. The abrupt 0.5-percent contraction of gross domestic product (GDP) in the world's largest economy was seen as marking the start of a steep downturn for the United States after GPD growth of 2.8 percent in the second quarter. "This report is largely old news," said John Ryding at RDQ Economics, who forecast fourth-quarter data out next month would be far bleaker. "Given signs that the recession has deepened in the current quarter, we look for around a 6.0 percent drop in real GDP," he said.

Britain's economy also shrank by 0.6 percent in the three months to September compared to the previous quarter, against a previous estimate of 0.5-percent contraction, the Office for National Statistics said. The IMF's top economist, Olivier Blanchard, maintained that governments around the world should boost domestic demand in order to avoid another Great Depression similar to the global downturn that shook the world in the 1930s. "Consumer and business confidence indexes have never fallen so far since they began. The coming months will be very bad," Blanchard said in an interview with the French newspaper Le Monde. "It is imperative to stifle this loss of confidence, to restart household consumption, if we want to prevent this recession developing into a Great Depression," he added.

Retail sales in Italy went down 0.3 percent in October, Denmark's economy contracted 0.4 percent in the third quarter and the Dutch economy had zero growth, official data showed. Finland's unemployment rate rose to 6.0 percent in November from 5.8 percent in October and the Polish central bank cut its key lending rate by 75 basis points to 5.00 percent in a bid to fend off a recession. In Ukraine, thousands of people took to the streets for a union-led protest to demand higher wages and more social protection in the former Soviet republic, which has been hit hard by the global economic crisis. News of weakening growth also sent the British pound sliding under 1.0550 euros, nearing a record low of 1.0463 reached last week, as dealers bet on more interest rate cuts from the Bank of England and forecast parity with the euro.The dollar exchange rate also drifted lower against the euro and the yen.

Mortgage Redelinquency Problem

This situation will keep getting worse and worse if government does not establish a price floor.

The rate of home mortgage borrowers defaulting after their loans are modified is rising and shows no signs of leveling off, U.S. banking regulators said on Monday.
The data showed that after six months, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent. After three months, 19 percent were 60 or more days delinquent or in the process of foreclosure.

"One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months," John Dugan, head of the Office of the Comptroller of the Currency, said in a statement.

The number of delinquencies rose across all loan categories, although subprime loans had the highest default rates. At the same time, nine out of 10 mortgages remain current, the joint report by OCC and the Office of Thrift Supervision said. Some U.S. lawmakers and the head of the Federal Deposit Insurance Corp have called for a more aggressive effort by lenders to modify mortgage terms to help keep people in their homes. The data, some of which was released in preliminary form earlier this month, were based on information collected from some of the biggest U.S. institutions, such as Bank of America, Citibank and JPMorgan Chase.

Oil, the Dollar, International Trade

The price of oil is tricky, because it is priced on more than just its value as oil. In today's world economy, oil has become like cigarettes in prison, or gold in the middle ages, a widely traded commodity that substitutes as a store of value. In the old days, when the dollar fell, investors would flock to gold, but today that no longer holds, because there is simply not enough demand for gold. Today, when the dollar falls, people flock to oil as a store of value.

Thus, if the dollar is falling, you can put your $100 in oil, then two months later, that same amount of oil is worth $110. If you kept your money in dollars, two months later your $100 may only be worth $90. When the dollar is falling, the rule is: keep your money in dollars and you lose your value, but keep your money in oil and you gain in value.

The dollar is falling this week because of the zero interest rate policy of the Fed. Investors can make more money in Europe, where banks have higher rates, so they are fleeing the dollar for the euro. This is a huge problem for Japan and China, because their economy depends on exports to the U.S., and they hold massive amounts of dollars because of their trade surpluses with the U.S. (they are the number 1 and number 2 holders of U.S. government debt as a result). A fallen dollar means not only that their dollar holdings are dropping in value, but that their economies could be wrecked because of a fall in exports, as all their exports to America are shooting up in cost for Americans. Japan's yen has been falling lately against the dollar, and they are going nuts, threatening central bank intervention. That would mean they would use all those dollars they have to purchase yen, defeating the downward market pressure on the yen. If they have more dollars than downward pressure, they win and the yen stays high. If downward pressure on the dollar exceeds their ability to fight it, the yen shoots up, further wrecking their economy and the value of their dollar holdings. Essentially, it is vital for them to keep their currency tied to the dollar at a rate that advantages their exports.

What if international trade switched to something other than the dollar, such as the euro? The demand for dollars would instantaneously drop, leading to an oversupply of dollars, leading to a drop in the value of the dollar, leading to massive inflation in the U.S. Presumably, the Fed would have to soak up the extra dollar supply with high interest rates, what was done in 1981, ending the stagflation, and causing a severe recession. Ah, you see the problem? We are already in a severe recession, and the Fed has dropped interest rates to absolute zero in an attempt to stimulate the economy. So what could the Fed do to end an inflation in a situation of economic recession? If you guessed "nothing" you get the prize. This is, in fact, the reckless course the Fed is currently charting, intentionally creating a massive oversupply of dollars during a severe recession. They think they have learned the lesson of the Great Depression, that the Fed was too tight on monetary supply, leading to a sustained deflation and a lost decade of economic growth.

As you can see, the entire world economy is hinged on the fulcrum of the U.S. economy, expressed in U.S. consumption levels, the dollar value, and the trade in oil. Europe's economy is far less dependent on the U.S. than Asia, so their currency looks to be the strongest, and they will be the ones most likely to break the oil trade in dollars. As we have seen, breaking the dollar trade monopoly would radically devalue the dollar, hammering the U.S., Japan, and China, while advantaging Europe and the Mid East. Japan and China would like to hold monetary assets that hold their value, so they would obviously drop the falling dollar if they could, but they appear to be locked in, having so much in dollar reserves, and depending on exports to America.

Japan, who's economy is already in an recession, now faces a big devaluation in its currency,, because US interest rates are now lower than Japan's.

China will also do anything to keep its economy chugging along, which means suppressing the wages of its workers, suppressing the value of its currency, and subsidizing the prices of energy, as demonstrated today, as China "cut prices for gas, diesel, and jet fuel". Only in a fascist economy like China can they simply declare the price of their fuels. Of course, that does not indicate they can control the real cost. In reality, they are just passing along the savings of cheaper oil, which the rest of the world except the Chinese consumer has enjoyed for awhile now.

Isn't it amazing how all these systems get balanced on one another?

Oil, down to $37 in January, is slightly up above $40 for February, but falling demand renders OPEC cuts impotent. The dollar is also falling, which normally sends oil up, but falling demand for oil is even more powerful right now, keeping oil down. That's how bad the economy is getting, with industrial activity grinding down and layoffs skyrocketing.

Crude prices fall again as markets ignore historic production cuts from OPEC. Oil continued its downward march Thursday as mass layoffs pushed the U.S. economy deeper into recession, signaling a drastic pullback on energy spending. Light, sweet crude for February delivery, fell $2.10 to $42.51 barrel on the New York Mercantile Exchange. The January contract, which closes on Friday, fell 6 percent, or $2.41, to $1.42 to $37.65 after dropping as low as $37.68, levels last seen in the summer of 2004. "The market is saying OPEC cuts will have an impact but just not right away," he said. Analyst and trader Stephen Schork said. Actions by OPEC and tumbling fuel prices have failed to stimulate demand. "OPEC is virtually powerless right now," said Jim Ritterbusch, president of Ritterbusch and Association. "They'll simply have to be patient and wait for some semblance of demand improvement." Beutel said it could be several more months before there is a response to lower prices.

Schork said crude prices have further to fall. Economic data continues to paint a dire situation in the U.S., Europe and Asia. The U.S. Labor Department reported Thursday that new applications for jobless benefits fell to a seasonally adjusted 554,000 for the week ended Dec. 13, from an upwardly revised figure of 575,000 the previous week. Still, the four-week moving average, which smooths out fluctuations, increased slightly to 543,750 claims, the highest since December 1982. The labor force has grown by about half since then. Large layoffs are occurring across many sectors of the economy. On Wednesday alone, hard drive maker Western Digital Corp., managed-care company Aetna Inc., and Newell Rubbermaid Inc., maker of products including Rubbermaid storage containers and Sharpie pens, announced mass job cuts. Pharmaceutical company Bristol-Myers Squibb Co., International Paper Co. and Bank of America Corp. also announced layoffs in the past week.

On Thursday, the Conference Board, a private research group, said its index of leading economic indicators fell 0.4 percent in November. The index is meant to forecast economic activity in the next three to six months. It has dropped 2.8 percent in the six months through November, the worst decline since 1991. As companies and consumers spend less, analysts continue to whittle away energy demand expectations.

This week's dive in oil prices comes as the dollar weakens against the euro, which peaked at $1.4719 in overnight trading, its highest point since late September. Typically, a weaker dollar sends investors scurrying into the oil markets because crude is bought and sold in U.S. currency. That is what happened as prices made their historic run at $150 over the summer. The severe drop-off in demand, however has scuttled almost all of the rules that traditionally goveren trade in oil, as the OPEC production cuts show.

China on Thursday cut prices for gasoline, diesel and jet fuel as the government tries to revive economic growth. The price of diesel is being cut 18 percent while the price of gasoline will fall by 13.8 percent, effective Friday, according to the country's planning agency, the Cabinet's National Development and Reform Commission. Jet fuel prices will fall by 32 percent. The cuts will help trucking companies, airlines, factories and others that are being squeezed by high fuel prices and a slump in sales.

Saturday, December 20, 2008

The Looming Deflation of Commercial Real Estate

We are all aware of how the residential home prices have fallen,and are continuing to fall, in a deflationary spiral wiping out people and banks left and right. Now we see the commercial real estate section about to go through the same process. Just as with every other sector of the nation drowning in inflated debt, the solution is plain: cancel the debt. As usual, the problem is "worse than expected" by the so-called experts. Deflation may be stronger than even the Fed can handle with its massive liquidity drive.

For many months now, the commercial real estate industry has been grim about its future, but it has been hard to quantify just how bad things are. The default rate for loans packaged into securities and sold on Wall Street has remained well under 1 percent, yet today that low figure is considered highly misleading. Now a New York research company, Real Capital Analytics, has compiled data showing that at least $107 billion worth of income-producing property — including hotels, offices, apartment complexes and warehouses — is already in distress or is headed in that direction. The distress is occurring all across the country, but New York tops the list because of the number of costly high-profile transactions that occurred during the boom years. Real Capital Analytics’ list includes a total of 268 properties in the New York area, with a value of $12 billion, as already or potentially in trouble.

“The trouble that’s emerged is bigger than most of us expected,” Robert M. White Jr., the president of Real Capital Analytics, said in an interview in his Manhattan office, “and the size of the problem that is potentially out there is much greater than we thought we would be able to quantify at this point.” Many of these difficulties have surfaced just since mid-September, when the financial world suffered a series of jolts, including the collapse of Lehman Brothers, he said. Until now, most of the reporting on loan defaults has come from companies that monitor commercial mortgage-backed securities. But securitized loans make up only 31 percent of Mr. White’s database, which also includes condominium construction loans, bank loans that were not securitized and debt issued by insurance companies and so-called mezzanine lenders, which hold junior debt positions.

In addition to New York, other areas with a large inventory of troubled properties include Los Angeles ($11 billion), Las Vegas ($6.6 billion) and southern Florida ($4.2 billion). All sectors will be affected, but the retail, apartment and hotel sectors are likely to suffer most, the data showed. Mr. White said many people became overconfident because there had been little overbuilding, in contrast to the 1980s. Then, earlier this year, the industry was too slow to recognize that the downturn was approaching, he said. People need to go into this with their eyes wide open,” he said. “Too many of us, me included, were too optimistic during first part of ’08. I don’t want to be burned again. Unfortunately, these numbers are, if anything, conservative.”

More than 1,000 properties are clearly in trouble, he said. Owners of about 200 properties have surrendered the keys to their lenders. Another $21.2 billion worth of buildings are categorized as troubled based on one or more of the following criteria: foreclosure proceedings have been started, the property owner has received a notice of default, a receiver has been appointed, or the landlord or sole tenant has filed for bankruptcy protection. Standing on the precipice of distress are more than 3,700 properties, valued at $80.9 billion, Real Capital Analytics said. This category includes $40 billion worth of properties whose owners are suffering financially. It also covers $26 billion worth of buildings with loans maturing next year, when credit is expected to remain tight and borrowers will probably be unable to refinance their properties unless they accept much more onerous terms. They could be forced to reach deep into their own pockets to hold onto properties that have declined significantly in value.

Based on a small volume of sales, prices have dropped by as much as 15 percent. But Mr. White said he expected values to decline by 25 to 30 percent when owners who have been holding out are actually forced to sell. When Goldman Sachs predicted a decline of that magnitude earlier this year, Mr. White said he became angry. “I thought that was alarmist,” he said. “I said, ‘No way.’ But guess what? I’m in that camp right now.” pessimism in the industry appears to be pervasive, with some specialists predicting not only that building sponsors will lose their equity but that mezzanine lenders will also be wiped out. “In many high-profile New York buildings, gale-force market winds are blowing destructively straight through the equity, slicing through the mezz and zeroing in on the first mortgages,” said Douglas Harmon, a senior managing director at Eastdil Secured and one of the city’s leading brokers. Only owners with experience, solid relationships and financial resources are likely to survive, he said.

Mr. White said that even his estimate of $107 billion in actual and potential distress did not tell the whole story. Real Capital Analytics also calculated that another $84 billion worth of developments had been abandoned or stalled. But Mr. White said most of these projects were still in the planning stages, so the losses would be contained. He said the database was created using very conservative standards. Inclusion on a credit agency watch list was not enough to make the list, he said. For example, Stuyvesant Town and Peter Cooper Village, a complex of 110 rent-regulated buildings in Manhattan that Tishman Speyer Properties and BlackRock Realty bought in 2006 for $5.4 billion, is not listed as potentially troubled, even though it has fallen short of its goals for deregulating apartments and bringing them up to market rate, and its bonds have been downgraded. Explaining the omission, Mr. White said: “The owners are financially capable and are saying it’s not in trouble.”

He said the worst difficulties would be experienced by owners with mortgages drawn up in 2006 and 2007, when lenders competed fiercely for business and allowed buyers to take out interest-only loans based on what turned to be wildly inflated projections of rent growth. Often, the cash flow from the buildings does not cover the monthly mortgage payment, and reserve funds are being depleted. Nowhere was the competition more feverish than in Manhattan. Among the properties on the Real Capital Analytics list are several Midtown office buildings, including WorldWide Plaza on Eighth Avenue and 50th Street, that remain unsold from the $7 billion portfolio that Harry B. Macklowe acquired in February 2007 and had to give up a year later. Also on the list is 450 West 33rd Street, a building whose tenants include The Daily News. Broadway Partners, a company once known for flipping buildings for astounding prices, bought the building last year for $664 million but has not been able to sell it. Meanwhile, Broadway has to repay $1.2 billion in debt by spring — debt that has already been extended.

Speaking about the market in general, Scott A. Singer, the executive vice president of the Singer & Bassuk Organization, a real estate finance and brokerage company, said extensions were eventually going to be harder to come by. “Unfortunately, as we move into the new year, there is going to be less willingness or opportunity in some situations for lenders to renegotiate,” he said.

Another building listed by Real Capital Analytics as potentially troubled is 660 Madison Avenue, which Broadway bought in May 2006 for $216.5 million and flipped to Risanamento, a real estate company in Milan, in August 2007 for $375 million, or $1,488 a square foot, one of the highest prices ever achieved. (The sale did not include the separately owned Barneys store below the 14 floors of office space.)

Wednesday, December 17, 2008

Panic exodus from the dollar

The dollar began its slide into oblivion today, in response to the Fed lowering of interest rates to nothing.

As I detailed yesterday, the dollar is in a whole lot of trouble, long term. Obviously, I am not the only person to realize this. Unlike industrial policy, unemployment, or reserve amounts, currency market adjustments are instantaneous: as soon as you can think it, you can move on it. For this reason, perhaps my timeline was too optimistic, expecting the dollar to fall later rather than sooner. Because currency markets are future-looking and instantaneous, the dollar collapse may lead the broader economy, rather than follow it. Great, just great, I haven’t purchased all my big ticket items and gold yet, I am not ready for hyper-inflation!

On the other hand, the article below predicts that other central banks will also slash their interest rates soon to help their own economies, thus bringing the dollar back up. Of course, such a move would also feed a worldwide deflation. Very interesting, very interesting. Deflation, hyper-inflation, all these moves and counter moves make it very difficult to predict precise timing. With the Fed’s massive liquidity injections and zero-interest policy, the dollar is facing massive headwinds, being counter-acted by the worldwide rush to US bonds as a safe haven for investment in a global synchronized recession. For now, I will stick with my original prediction of a few more months of economy savaging delation, followed by hyper inflation this coming summer.

Dec. 17 (Bloomberg) -- The dollar declined the most against the euro since the 15-nation currency’s 1999 debut and sank to a 13-year low versus the yen as near-zero interest rates and rising budget deficits led traders to abandon the greenback.

This is a very much a panic exodus from the dollar,” said Brian Dolan, chief currency strategist at FOREX.com, a unit of online currency trading firm Gain Capital in Bedminster, New Jersey. “The primary reason is the Fed’s embrace of quantitative easing, in which they start printing dollars and start flooding the market with U.S. assets.” The federal budget deficit widened last month to $164.4 billion, compared with a gap of $98.2 billion in November a year earlier, the Treasury Department reported last week.

“This move is historic,” said Russell LaScala, New York- based head of North American foreign exchange at Deutsche Bank AG, the world’s biggest currency trader. “It’s just going to keep going until the last bit of pain stops. I would not be shocked to see $1.50.”

The greenback extended its drop against a gauge of currencies of six U.S. trading partners, falling 11 percent from a 2 1/2-year high reached Nov. 21. Investors including hedge funds reversed bets that the dollar will appreciate to minimize losses as the end of the year approached, traders said.

The dollar fell as much as 3 percent to $1.4437 per euro, the weakest level since Sept. 29, from $1.4002 yesterday, before trading at $1.4345 at 2:57 p.m. in New York. It was the biggest intraday drop since the euro’s inception. The U.S. currency decreased 1.3 percent to 87.93 yen from 89.05 and reached 87.14, the lowest since July 1995. The euro increased 1.1 percent to 126.08 yen from 124.71.

The pound weakened for the first time beyond 93 pence per euro after the Office for National Statistics said the number of people receiving jobless benefits increased by 75,700 to 1.07 million. Bank of England policy makers voted 9-0 to cut the nation’s benchmark on Dec. 4 to 2 percent, minutes showed. Sterling slid as much as 3.5 percent to 93.27 pence per euro. The pound dropped 0.8 percent to $1.5451.

Dollar Index

The ICE’s Dollar Index, which tracks the greenback against the euro, the yen, the pound, the Canadian dollar, the Swiss franc and Sweden’s krona, fell 2.1 percent to 78.961. It increased 24 percent from a low of 71.314 on July 15 to 88.463 on Nov. 21. The dollar gave back about half of that rally.

The Fed lowered its target rate yesterday to a range of zero to 0.25 percent, from 1 percent, below the Bank of Japan’s 0.3 percent rate. The central bank reiterated plans to buy agency debt and mortgage-backed securities and said it will study buying Treasuries, a policy known as quantitative easing.

Yen’s Gain

The U.S. currency depreciated 21 percent against the yen this year, the most since 1987, as more than $1 trillion of credit-market losses sparked a seizure in money markets and threw the world’s largest economy into a recession.

Central banks intervene when they buy or sell currencies to influence exchange rates. The Group of Seven, which comprises the U.S., Japan, Germany, the U.K., France, Italy and Canada, propped up the dollar in 1995, when it declined to a post-World War II low of 79.75 yen.

The fed funds target was cut to below the BOJ’s rate for the first time since 1993. Japanese policy makers struggled in the 1990s to revive growth as deflation and recessions stranded the nation in what is known as the Lost Decade.

A dollar turnaround could come as early as the first quarter of next year as other central banks lower their interest rates, according to Nick Bennenbroek, head of currency strategy at Wells Fargo & Co.

“The Federal Reserve remains ahead of the curve or more aggressive than most central banks with what it’s doing with its monetary policy,” said Bennenbroek, who forecast the euro will reach $1.45 and possibly $1.50 against the dollar. “Given how severe conditions are, a lot of other central banks are also very rapidly moving their interest rates down toward zero.”

Expectations for currency appreciation were the highest in Japan, Mexico and Germany, a monthly survey of 2,991 Bloomberg users last week showed.

Production/Export Economies Still Strong

While the service/consumer countries of the world are mired in deep economic recession, production/export economies like Vietnam's continue to flourish. Even with the US, Europe, and Japan in recession, and commodity prices down, Vietnam expects to grow 6.5%.

The only stable basis for long term stability is an industrial, productive, wealth-generating economy. We must never lose sight of these basic economic facts, and the sooner we reformulate our national economic policies, the sooner we will leave this Depression.

Instead of addressing these foundational facts, our leaders' current policy is to paper over the current problems with an inflated money-supply, and jack up long-term debt. Thank goodness at least this one Senator, Max Baucus, is talking about protecting our economy and way of life.

Vietnam -- whose major exports include oil, textiles, rice and coffee -- predicts about 6.5 percent economic growth this year, down from last year's 8.5 percent, amid falling demand in foreign markets and lower commodity prices. Last year Vietnam's exports to the United States, its largest foreign market, topped 10 billion dollars, while Vietnam only imported US goods worth 1.7 billion dollars, said the state-run General Statistics Office here.

Export-led economies such as Vietnam should rely less on trade with the United States and more on stimulating their internal markets for economic growth, a senior US senator said Wednesday. "The United States has to boost its own economy and consumption" amid the global downturn, Max Baucus, chairman of the Senate Finance Committee, told a press conference during a visit to Hanoi, the capital of the communist country. "We urge export countries seriously to move away from policies that focus so much on exports and instead to focus on local consumption." Baucus added: "We also have to address the large imbalance of trade between the United States and Vietnam," calling it "a trend that cannot be maintained."

Monday, December 15, 2008

When will the hyper-inflation start?

Our economy is currently being devastated by a severe deflation. Loans have stayed dried up, and business activity is grinding to a halt. However, a massive inflation is in the works, and here's why.

The cause of the deflation: this year's recessionary economy does not support last year's production. We have a huge glut of excess goods, from houses to cars to oil to consumer good, and we are witnessing a massive fire sale to get them all moved, resulting in a huge deflation.

However, we are not headed for a decade-long deflation, a la the Great Depression, because the Fed is absolutely committed to NOT let it happen. The Fed is going to drop its benchmark rate to the absolute floor level, then look for "non-traditional" methods to get things going after that. From stimulus packages to securities purchases, the Fed is flooding our economy with liquidity, financed with long term debt.

At the same time as the expanded monetary liquidity, we are in a worldwide economic recession, which means less is being produced. More money, less goods, the classic supply-and-demand conditions for inflation.

And the inflation will be severe: We will have LOTS more money, and LOTS fewer goods, because of the extremity of both the Fed's monetary actions and the worldwide recession.

Think of all the big box stores that are closing right now, the massive layoffs by automakers, the drastic cuts in oil production, and so on. The inflation will really kick in once "the shelves are empty" and all that excess inventory gets depleted. Probably by late spring or summer 2009, we will see a massive inflation of goods and commodities. Because of the gigantic unsold inventory, housing prices will lag at first, but by late summer, housing will begin to heat up as well, as delayed demand and investors gobble up the super-cheap foreclosure inventories, using the pools of new liquidity the Fed is creating. Look for the stock market to also shoot up as money floods the system, and cheap stocks are gobbled up.

Sounds like good news, right? Wrong. Rising prices will not represent a real recovery, only an inflation. Employment will lag desperately, and common workers will be more pinched than ever as their wages stay flat in the face of skyrocketing prices. Think of four dollar gas and how bad that was, but think of it as ten or fifteen dollar gas, or higher. Yeah, see what I mean?

The dollar will fall like a stone, in response to oversupply and low-as-you-can-get interest rates. The Greater Depression will be based on conditions of stagflation: no economic growth, high unemployment, and probable high interest rates (after the Fed jacks them back up in response to the inflation).

Now is the time to buy your goods, from food stocks, guns, and equipment, to cars and land, while things are cheap, before they get real expensive from the inflation.

Saturday, December 13, 2008

Save Our Economy: Cancel Our Debt

Our whole economy is jammed up because we have fictional debts that are tied to assets that are no longer worth their book values. In reality, we are as wealthy as we were last month, last summer, or last year, but our economy is no longer functioning because of accounting rules that declare the debts greater than the assets, and thereby prevent banks from fulfilling their function of lending money. The still-collapsing housing prices continue to wreak havoc on the financial industry, by introducing a general deflation into the economy. This deflation is sending everyone's balance sheets further upside-down, since those balance sheets are based on debt that is tied to an inflated asset price.

Everyone sees that we are in a short circuit, an ever-widening crash, but no one can grasp how to break the cycle. The original idea of the bailout was to use government money to buy distressed assets. Then the idea has morphed to wholesale cash injections into troubled companies and industries. Now the Fed is buying and backing debt securities, basically saying to the banks, yes, we know the debt is bad, but we'll cover all your losses. Congress and the new President are floating new rounds of economic stimulus packages, cash gifts to the population, based on government IOUs.

But none of these measures can work. We have already crossed over the event horizon into a deflation, and that deflation is still picking up steam. There is no going back to the artificial boosts of inflationary spending. Extra money put into the system now is unable to bridge the gap between deflated asset value and the debt book value. The banks themselves are unable to release the extra money, because their asset levels are continually falling and they need the extra money to shore up their reserve requirements. Extra money given to consumers in an economic downturn only gets hoarded, not spent, thus preventing any stimulus from happening. Further, because most of our productive economy is based overseas, it is not clear how much the American economy would benefit much from the increased spending, as the stimulus would mainly benefit some foreign country's productive output. And, as we have seen, government redistribution does not increase real wealth anyway, so how does that help? If not redistributing wealth, the government has to rely on more debt spending, which is the source of the problem to begin with!

There is only one way to end the financial short circuit, to get us out of the destructive black-hole void of debt. The solution to our current crisis is quite simple really: cancel the debt itself. All debt, credit cards, car notes, mortgages, the national debt, all of it. Hit the reset button on the financial system. We have reached the blue screen of death, the system is totally locked up. The negative effects of the financial melt down are now negatively affecting the real productive economy. We have already entered a worldwide recession, this is getting really serious.

By releasing all debt, people will get a fresh slate, and can start saving again. Banks, whose only assets are completely fiction -- they call debt an asset -- would take a big hit, but so what? Banks don't contribute to national wealth anyway. Their only utility is to enable real productivity, and in that basic function, they have completely failed, and are in fact, counter-productive right now.

Despite having most of their assets (our debts) completely liquidated, the banking system would quickly recover anyway, because we could use our incomes to start saving again. The productive economy would be truly stimulated and bank accounts would fill up quickly, because all the money we currently use to pay off debt would go into savings, investment, and consumption. Imagine not having to pay all that money every month to your mortgage or car payment. All that money is going to go somewhere, either spent or saved. Given that financing life through credit would no longer be an option, people would begin saving in earnest again.

In short, everyone is given clear title to all their assets that banks currently have liens on. Instead of having to spend thousands of dollars on their mortgages and car payment and credit cards every month, the families of America would be able to save and spend that money. The people who lost their jobs in the financial industry would be able to find new employment quickly in the productive economy.

The American economy resets, the banks reset, we start from scratch, with all of our wealth freed from the fictional burden of debt. From this point forward, people, businesses, and governments are forced to spend only out of their savings, leading to the always-rising standard of living that America experienced for its first 150 years.

Today's problem solved, Great Depression 2 averted.

Spread this idea to everyone you know. Talk about it with your family until you can understand it and explain it. Take it to your Representative and Senator and begin introducing them to the idea, because they are going to have to be the ones who pass the law to make it happen.

Let's get it done now, before it is too late.

Commodoties Shortages Coming

Jim RogersThe commodities guru predicted two years ago that the credit bubble would devastate Wall Street.

We are in a period of forced liquidation, which has happened only eight or nine times in the past 150 years. The fact that it's historic doesn't make it any more fun, of course. But it is a pretty interesting time when there is forced selling of everything with no regard for facts or fundamentals at all. Historically, the way you make money in times like these is that you find things where the fundamentals are unimpaired. The fundamentals of GM are impaired. The fundamentals of Citigroup are impaired.

Virtually the only asset class I know where the fundamentals are not impaired - in fact, where they are actually improving - is commodities. Farmers cannot get a loan to buy fertilizer right now. Nobody's going to get a loan to open a zinc or a lead mine.

Meanwhile, every day the supply of commodities shrinks more and more. Nobody can invest in productive capacity, even if he wants to.

You're going to see gigantic shortages developing over the next few years.

The inventories of food worldwide are already at the lowest levels they've been in 50 years.

This may turn into the Great Depression II. But if and when we come out of this, commodities are going to lead the way, just as they did in the 1970s when everything was a disaster and commodities went through the roof.

What I've been buying recently is agricultural commodities. I've also been buying more Chinese stocks. And I'm buying stocks in Taiwan for the first time in my life. It looks as if there's finally going to be peace in Taiwan after 60 years, and Taiwanese companies are going to benefit from the long-term growth of China.

I have covered most of my short positions in U.S. stocks, and I'm now selling long-term U.S. government bonds short. That's the last bubble I can find in the U.S. I cannot imagine why anybody would give money to the U.S. government for 30 years for less than a 4% yield. I certainly wouldn't. There are going to be gigantic amounts of bonds coming to the market, and inflation will be coming back.

In my view, U.S. stocks are still not attractive. Historically, you buy stocks when they're yielding 6% and selling at eight times earnings. You sell them when they're at 22 times earnings and yielding 2%. Right now U.S. stocks are down a lot, but they're still very expensive by that historical valuation method. The U.S. market is yielding 3% today. For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes.

Worldwide Economic Implosion Picks up Steam

The dollar fell below 90 yen today, continuing its recent downward march. These are the first waves of oncoming tsunami of the total collapse of the dollar. The collapse of the dollar will inaugurate hyper inflation within America. Purchase your necessary capital goods within the next six months, before the hyper inflation kicks in. Also, plant your Victory Garden this spring, so you are shielded from the coming rise in food prices, which will spark international famines. The food shortages and riots we saw last summer will pale in comparison to what we will see in 2009.

The yen's surge comes days after Japan said its economy -- the world's second-largest -- fell into a deeper recession in the third quarter than first thought. The Japanese economy shrank at an annual pace of 1.8% in the July-September period, compared with its original estimate of a 0.4% contraction. Companies are feeling the pain. Earlier this week, Sony Corp. announced plans to slash 8,000 jobs around the world, or about 5 percent of its global work force in a bid to bolster its bottom line. The consumer electronics giant recently lowered its full-year earnings projection to 150 billion yen ($1.5 billion), down 59% from the previous year.
Toyota has also cut its net profit forecast for the year ending March 2009 to 550 billion yen ($5.5 billion), a third of the previous year's earnings. The dollar has fallen about 20% against the yen this year and could be headed lower if the Federal Reserve cuts interest rates again and investors flee for higher-yielding currencies.

"Investing in the health of the American people is a crucial part of the nation's economic recovery," said Sen. Edward M. Kennedy (D-Mass.), chairman of the Health, Education, Labor and Pensions Committee.

Attitudes like Senator Kennedy's are going to worsen and prolong our Greater Depression. Obviously, taking care of sick people is a necessity. The problem is, health care spending is bad for the economy. Selling it to the people as a stimulus is false, a convenient lie to get a socialist political act accomplished. This whole conflagration is becoming a form of generational warfare. The elderly Baby Boomers are more than happy to strap the younger generations to the harness of their support, with massive social programs and long-term debt. Unfortunately for them, they did not have enough children to support their own generation, so it is impossible for society to support the Baby Boomer's retirement and health care needs. So far, they seem to have no problem taking down the whole productive economy in the effort, though.

Yet another reason why we are entering a Greater Depression: government creating perverse incentives, and preventing the creative destruction of a normal downturn.
Jim Rogers, one of the world's most prominent international investors, on Thursday called most of the largest U.S. banks "totally bankrupt," and said government efforts to fix the sector are wrongheaded. Speaking by teleconference at the Reuters Investment Outlook 2009 Summit, the co-founder with George Soros of the Quantum Fund, said the government's $700 billion rescue package for the sector doesn't address how banks manage their balance sheets, and instead rewards weaker lenders with new capital.

"Without giving specific names, most of the significant American banks, the larger banks, are bankrupt, totally bankrupt," said Rogers, who is now a private investor. "What is outrageous economically and is outrageous morally is that normally in times like this, people who are competent and who saw it coming and who kept their powder dry go and take over the assets from the incompetent," he said. "What's happening this time is that the government is taking the assets from the competent people and giving them to the incompetent people and saying, now you can compete with the competent people. It is horrible economics."

Wholesale prices fell considerably in November, as energy prices continued to plummet, according to a key government inflation reading released Friday. According to the Labor Department, the Producer Price Index for finished goods fell 2.2% last month. That drop was less than the 2.8% decline in October, but greater than the 2% decrease economists surveyed by Briefing.com had forecast. Prices at the wholesale level have fallen sharply as of late, dragged down by falling energy prices. The index that measures the price of energy goods fell 11.2% in November, following a 12.8% drop in October, which set a 22-year record. Crude oil prices fell 20% in the month. Food prices, which fell 0.2% in October, were unchanged last month. Commodity prices such as corn and grains have fallen slightly amid slumping demand amid an ongoing recession. The so-called core PPI, which strips out volatile food and energy prices, rose just 0.1% after a rising 0.4% in the previous month. Economists had forecast a 0.1% rise in that reading.

Economists say low inflation could give the Federal Reserve more wiggle room for lowering interest rates to record lows when it meets next week. The Fed cut its key funds rate to an all-time low of 1% in response to deterioration in global financial system, but those cuts tend to be inflationary. [AS WE SAW FROM THE PREVIOUS ARTICLE, THESE INTEREST RATE CUTS ARE ALSO COLLAPSING THE DOLLAR] A key inflation reading on the retail level, the Consumer Price Index, is due to be released next week. Economists forecast the report to show a record 1.3% drop in consumer prices in November. If prices fall below the cost it takes to produce products, businesses will likely have to cut production and slash payrolls. Rising unemployment would cut demand even further, sending the economy into a vicious circle.

Sales at U.S. retailers dropped for the fifth straight month in November. The Commerce Department said total retail sales fell 1.8 percent to a seasonally adjusted $355.66 billion last month following a revised 2.9 percent plunge in October. Excluding motor vehicles and parts, sales were down 1.6 percent in November after a revised 2.4 percent October fall. Gasoline sales plummeted a record 14.7 percent in November after falling 12.9 percent in October. Significant falls in prices at the pump are reflected in the retail sales report, which simply compiles total sales by gasoline stations. Excluding gasoline, retail sales for November edged down just 0.2 percent after a 1.6 percent slide the previous month. Sales of electronic goods climbed 2.8 percent in November, the strongest monthly rise since the beginning of 2006. Clothing sales were up a modest 0.8 percent after a 2 percent drop in October. But sales by new cars and parts dealers fell 2.8 percent after declining 5.5 percent in October. New-car sales have been dropping steeply for months, in part because of an ongoing credit crisis that makes it harder to get loans but also because consumers have been cautious about buying costly items when jobs are being cut and the economic outlook is weakening.

Oil prices retreated Friday below $44 a barrel after a $14 billion bailout plan designed to prevent the collapse of the auto industry collapsed in the Senate. U.S. crude for January delivery slipped $4.38 to $43.60 a barrel in electronic trading. A day earlier, oil prices had approached $48 a barrel after the bill, which would have provided emergency loans to General Motors and Chrysler, passed the House late Wednesday. But on Thursday Senate Democrats and Republicans failed to reach a compromise on the bailout proposal. "Anything that's bad for the economy is bad for crude oil prices," said James Williams, energy economist with WTRG Economics in Arkansas.

Investors were also anticipating a large production cut from the Organization of Petroleum Exporting Countries, an international trade cartel whose members produce about 40% of the world's oil.
The price of crude oil, which has fallen more than $100 a barrel, or nearly 70%, since hitting a record high of $147.27 in mid-July, has been weighing heavily on many producers who rely on oil profits to support their local economies. OPEC President Chakib Khelil told the Associated Press earlier this week that the oil market could expect to see a "severe" cut in production levels in order to bolster prices. Some analysts have said the group could cut production by as much as 3 million barrels a day. The group is scheduled to meet Wednesday to make a production decision

Always "Worse than Expected"

Our so-called experts have been thoroughly discredited. They are a bunch of ignoramuses who believe "long-run historical rise in the market" is an iron law. Since they don't understand the economy, they have no clue why things are going so wrong, or how to fix it. All predictions of a recovery are founded on little more than optimism, which is sadly mistaken, combined with magical "technical analysis" thinking (believing in arbitrary limits to market numbers). The fact is, all economic indicators are still getting worse, all of them. We aren't even close to the bottom yet, let alone recovery, and government actions are making things worse, so we really have no idea how long bad times will last. Until government stops screwing with the market in negative ways, we have no idea when it will bottom out.

Even the analysts who correctly expected the worst, like Peter Schiff, were wrong in limiting their expected problems to the U.S. The U.S. financial and economic system are melting down, but so is the rest of the world. Even Schiff did not foresee the global systemic crash that is happening.


New claims for jobless benefits rose more than expected last week, exceeding even gloomy expectations for an economy stuck in a recession that seems to be deepening. The Labor Department reported Thursday that initial applications for jobless benefits in the week ending Dec. 6 rose to a seasonally adjusted 573,000 from an upwardly revised figure of 515,000 in the previous week. That was far more than the 525,000 claims Wall Street economists expected.

New jobless claims last week reached their highest level since November 1982, though the labor force has grown by about half since then. The number of people continuing to claim jobless benefits also jumped much more than expected, increasing by 338,000 to 4.4 million, the Labor Department said. Economists expected a small increase to 4.1 million. As a proportion of the work force, the number of people continuing to receive benefits is the highest since August 1992, when the U.S. was recovering from a relatively mild recession. The increase in continuing claims was the largest jump since November 1974, the department said.

The Labor Department said last week that employers cut a net total of 533,000 jobs in November and the unemployment rate reached 6.7 percent, a 15-year high. The rate would have been higher, except that more than 400,000 Americans gave up looking for a new job and weren't counted in the labor force. Companies have eliminated a net total of 1.9 million jobs this year, and some economists project the total cuts could reach 3 million by the spring of 2010. [I'd be interested in hearing why they limit it to 3 million].


Also Thursday, the U.S. trade deficit rose unexpectedly in October as a spreading global recession dampened sales of U.S. products overseas and the volume of oil imports surged by a record amount, the Commerce Department said. The trade deficit rose to $57.2 billion in October, from an imbalance of $56.6 billion in September. Analysts had been looking for the deficit to decline to $53.5 billion on lower oil prices.
While oil prices did drop by a record amount, that was offset by a record surge in the volume of oil imports. [No one has been able to, or even tried, to explain this. Are we driving more, combined with winter oil needs?]


The figures come a day after the Treasury Department reported a record budget deficit for November, driven by lower tax revenues and higher spending on programs such as unemployment insurance and food stamps. In just the first two months of the budget year that started Oct. 1, the budget deficit totaled $401.6 billion, nearly matching the record gap of $455 billion posted for all of last year, the department said Wednesday. Economists expect the deficit will top $1 trillion in the current budget year, which would be a post-World War II high when measured as a percentage of the economy.

The "nasty" U.S. recession will tighten its grip next year as unemployment rises and weak home and stock prices imperil consumers, finance firms and debt-laden businesses, a UCLA Anderson Forecast report released on Thursday said. Additionally, a sustained retreat in prices for goods and services is a very real possibility that would further drag on the economy, according to the forecasting unit's report. "Where only last quarter we were worried about inflation, we are now worried about its very rare opposite: deflation," the report said. Falling prices would cut demand and discourage employers from hiring. "The record collapse in oil prices has brought with it welcome relief to motorists throughout the country and an effective tax cut of $440 billion in the form of a lower oil import bill," the closely-watched report said. "Nevertheless the swift fall in oil prices is now lowering the absolute level of consumer prices and bringing with it likely declines in nominal GDP over the next three quarters."
"The news from the economy is bad," the report said. "The recession that we had previously hoped to avoid is now with us in full gale force." The UCLA Anderson Forecast unit expects real GDP to shrink by 4.1 percent this quarter and by another 3.4 percent and 0.8 percent in the first and second quarters of next year, respectively, as consumer and business spending weaken and as the foreign trade that had propped up growth much of this year sags. "Because Europe and Japan are already in recession and China and India are suffering from a significant slowdown in growth, the export boom of the past few years will wane," the report said. "Make no mistake the global economy is in its first synchronized recession since the early 1990s."

HONG KONG -- China's producer price index climbed 2% in November from a year earlier, easing from a 6.6% rise in October on year, according to data released by the National Bureau of Statistics Wednesday. November's figures were the slowest pace of gains in the wholesale inflation in more than two years, Dow Jones Newswires reported. In the first 11 months of the year, wholesale inflation climbed 7.6%. "China's price inflation data is now declining rapidly, building on deflationary concerns that may prompt further monetary easing," wrote J.P. Morgan analysts in a research note following the data release.
Deflation pressures that are spreading through Europe and the United States also now appear to be threatening China, the world's fourth-largest economy. Deflation, a drop in prices, tends to defer spending and makes it harder for governments to boost growth. China's annual consumer price inflation fell to a near two-year low in November, a report showed on Thursday, a day after data reflected a collapse in wholesale prices and a startling drop in exports and imports. The slowdown in inflation is partly due to a collapse in global energy and commodity costs, but also reflects demand-sapping recessions underway in Europe, Japan and the United States [Dominoes falling in a row. Notice that the economy most based on production is the last to fall.]

Monetary authorities worldwide have been cutting interest rates sharply to try to get their economies moving but have had trouble persuading banks to lend more. [In a deflation, why would they?]

In a move that suggested trouble ahead for concerted European and perhaps world efforts to end the financial crisis and restore global economic growth, Germany criticized countries for rushing into untested economic rescue packages. Finance Minister Peer Steinbrueck urged governments to pause before pledging to spend billions of dollars to try to push their economies out of trouble. "The speed at which proposals are put together under pressure that don't even pass an economic test is breathtaking and depressing," he said in an interview with Newsweek magazine, published on the magazine's website on Wednesday. He singled out British Prime Minister Gordon Brown for particular criticism, accusing him of switching to economic policies that would saddle a generation with debt. "The switch from decades of supply-side politics all the way to a crass Keynesianism is breathtaking," he said.
Another German policymaker, European Central Bank Executive Board member Juergen Stark, also indicated concerns about responses to the crisis, saying late on Wednesday that the ECB does not have a lot of room for maneuver after its interest rate cut last week. The comments came as European Union leaders were to meet in Brussels to discuss a 200-billion euro ($260-billion) stimulus package to wrench the bloc out of recession.German Chancellor Angela Merkel said in Brussels that she was aware that Germany as an economic power had a responsibility to look over time at new stimulus steps.

Fatal Focus on Banks Rather than People

Someone finally notices the double standards! Banks are given massive cash injection, consequence-free and oversight-free. The auto industry, on the other hand, is given intense scrutiny, with specific plans and terms demanded. The common person, given nothing.

And our politicians are just now beginning to question this? Where have they been the past two months as this has been going on? These committees and investigations are just a way for these cowardly politicians to evade responsibility and blame others for taking action when they stood paralyzed in a state of ignorance and fear. Notice how the report only asks questions, as they notice the Treasury plan totally failing. It does not actually recommend anything.

The economy continues to collapse, at a rate "unexpected by analysts". In short, these so called experts don't know anything. Regardless of how many times their predictions are wrong, or how many bad policies they sign off on, they are never fired or even questioned. The common people are the ones who suffer most, and we need protection from these pretentious crooks.

With a skeptical tone, a congressional panel reviewing the government's $700 billion rescue package for the financial sector is questioning the Bush administration's spending of bailout funds and challenging its reluctance to use the money to reduce foreclosures. The tough reviews come as the Bush administration is considering seeking access to the second half of the $700 billion fund. All but $15 billion of the first $350 billion has been allocated in the two months the program has been in place.

Many Republicans, such as Hensarling, were suspicious of the bailout from the outset. And Democrats, including President-elect Barack Obama, have argued that instead of simply injecting money into banks, the government needed to use the funds to halt rising foreclosures. Federal Reserve Chairman Ben Bernanke has predicted foreclosures in 2008 will reach about 2.25 million.

Much of the criticism aimed at Paulson centers on his decision to shift the program's mission from purchasing troubled assets from banks and other financial institutions to infusing capital into banks by buying stakes in their equity.

At one point the report notes that Congress is demanding that the auto industry restructure itself in exchange for $15 billion in bridge loans and challenges the Treasury to do the same with banks.
"Has Treasury required banks receiving aid to: Present a viable business plan; replace failed executives and/or directors; undertake internal reforms to prevent future crises, to increase oversight, and to ensure better accounting and transparency; undertake any other operational reforms?" it asks.

Last week, the GAO concluded that the government must toughen its monitoring of the bailout fund to ensure that banking institutions limit their top executives' pay and comply with other restrictions. The auditors said the Treasury Department has no mechanism in place to track how institutions are using $150 billion in taxpayer money that the government injected into the banking system as of last month.

Other news:
Wholesalers cut back on their inventories in October by the largest amount since the period following the 2001 terrorist attacks while they watched their sales plunge by a record amount.

Analysts predict more grim news in the months ahead as the current recession deepens.

The Commerce Department reported Wednesday that wholesalers, the companies in the supply chain between manufacturers and retailers, reduced their inventories by 1.1 percent in October, the biggest cutback since a similar drop in inventories in November 2001.

The inventory decline was much bigger than the 0.2 percent decrease economists expected.

Sales at the wholesale level plunged by 4.1 percent in October, the largest decline on record.

The huge declines in inventories and sales provided further evidence that the economy is in a steep recession. Many analysts believe the current recession, which has already lasted 12 months, will drag on until the middle of next year. If it lasts past April, it will become the longest recession in the post World War II period, surpassing recessions in the mid-1970s and early 1980s that both lasted 16 months.

Overall, sales dropped 2.7 percent last month, according to the Goldman achs-International Council of Shopping Centers index based on 37 stores. It was the worst showing since at least 1969, when the index began.

Germany officially fell into recession in November, after a 0.5 per cent contraction in the economy in the third quarter followed a 0.4 per cent contraction earlier this year.

Germany's economy accounts for a third of the 15-nation eurozone.

British industry is contracting at the fastest pace since 1991. The speed at which the economy is shrinking has doubled to at least one per cent in the past three months, from an already severe 0.5 per cent officially reported for the third quarter, according to NIESR.

The UK economy is expected to officially fall into recession in the fourth quarter of this year — the technical definition of a recession is two consecutive quarters of negative growth. The most recent release of worrying economic data showed that industrial production, which counts for just under a fifth of Britain's GDP, fell by 1.7 per cent in October, the biggest slump since January 2003, official figures show.

The Folly of Government Job Creation

Job creation has become the new watchword in Washington, highlighting our leader's ignorance of economics and signaling, again, how this depression is going to be worse than the first.

The economic truth is that all jobs are not good for the economy, because not all jobs produce wealth. For example, the government could give 1 million people the job of digging ditches, and another million people the job of filling them in. 2 million people would go home with a paycheck, but zero good would be done for the real economy. It would be better just to give those people their daily wage and send them home.

In fact, such jobs are actually hurting the economy. Those workers could be looking for jobs in productive industries, but instead are spending their day wasting their economic time. Because they are otherwise employed, it also shrinks the pool of labor for the productive economy.

But what about the stimulus effect? Isn't the problem in a depression that people and businesses have closed their wallets, lowering demand, thereby crushing production, and so government has to step in an stimulate demand on its own? If government's job is to stimulate demand, then why doesn't it do so directly? It could buy as much stuff as it wanted on its own, then give it away. Why "employ" people at meaningless jobs at all? More to the point, government could just give people money directly, and let them spend it, without requiring them to waste their time on a government job. That would have the exact same stimulus effect.

Can government create jobs that are actually good for the economy? They could, but almost certainly won't. The current focus is on creating jobs that are politically important, not economically important. Fixing infrastructure, for example, sounds nice, doesn't it? The problem is, repair work is not economically productive. Fixing all the potholes on our nation's road's may be nice for our nation's motorists, but economically, it is a zero. Why not create a million jobs for people to repaint our houses and fix the holes in our walls? Lots of people's houses need touching up, both inside and out, right? That would probably also be a popular program, wouldn't it? But most people would see right away that fixing up their houses is not an economically productive job.

They are fooled by "infrastructure" proposals because the subject is transportation, which is an "industry", connected to the process of going to work and moving goods around. So fixing roads must therefore be good for industry, so the false logic goes. Creating cheaper transportation alternatives would be good for the economy, but fixing the current one we have is a wash. Sure, it needs to get done, but it is not good for the productive economy. In a Depression, we have to get our productive economy going, not just get various postponed things done.

Here is an example of a productive infrastructure project: creation of a national network of high speed electric trains, inter-city and intra-city. By providing a cheaper transportation option, we would be accomplishing a long-term good for economy, decreasing transportation costs across the board. We would also lessen our dependence on foreign oil and lessen our negative impact on the environment. In short, repairing our current transportation infrastructure is economically neutral, at best, while creating a better infrastructure would be economically positive.

Subsidizing "green" power, invariably called "investing" to fool the masses, is also an economic loser. Subsidizing anything is an economic loser. If something cannot pay for itself, that is a sign that it wastes more than it produces. During a Depression, why should we "invest" in things that lose money? That would fit the very definition of insanity, working against your own purposes, undermining your own efforts, and making your own situation worse. Due to a couple decades of environmentalist brainwashing, supporting green technology is a political winner, but we need to be helping our economy here, now more than ever. Throwing money away on moral posturing is nice when you are rich, but it cannot be done when you are poor. In fact, it only makes you poorer.

Creating a bunch of nuclear or coal power plants is an example of an economic good, because it would lower the costs of electric power, as well as decreasing our reliance on imported oil. Investing in unproven technology is the work of economic speculators. Supporting proven money-makers is the requirement when you don't have money to waste and you want to get your economy going again.

After all, all this government "investment" money has to come from somewhere. Under all these proposed bailout schemes, economically productive activities are forced to subsidize activities that aren't. How much sense does that make? In a word: Zero. In times of economic trouble, the goal is to shed unproductive jobs and invest more in activities that produce wealth. That is the only way the economic downturn will ever come to an end, as money-making industries expand to absorb available labor. Continuing to prop up unproductive jobs will only make it harder or impossible for the economy to recover. When forced to subsidize government jobs, productive industries have smaller profit margins, and are unable to expand. Additionally, marginally productive industries are forced out of businesses because of the extra costs they are forced to bear.

Thus, the best thing for a government to do in times of economic trouble is lower its burden on productive businesses, to allow the profitable the room to expand, and allow the marginally profitable the room to exist at all.

The worst economic policy for a government to adopt during a depression is "job creation", because it shrivels the labor pool, drives up labor costs, and hampers or eliminates productive industries, while subsidizing unproductive activities If job creation must occur for political reasons, it should be focused only on activities that create wealth. Manufacturing activities do create wealth, but should not be subsidized by government when competing with domestic industries. Instead, manufacturing should be subsidized in industries that are in competition primarily with foreign industry.

Education subsidies should also be targeted towards fields that are wealth creating. Subsidies for arts and literature, for example, do not help the economy. Subsidies for engineering and science programs, as well as industrial and technical training, will pay off, with inventions and innovations.

As you can see, there are many positive steps government can take to help our national economy to get going. Bailing out banks and subsidizing non-productive jobs represents the absolute worst case scenario.