Debtors Revolt?

Housing Still A Big Problem

Housing will be a drag on the economy and the banks for a long time. Housing started this mess and it will not end until foreclosures begin to decline.-Lou

U.S. foreclosures near record, peak in late '10: report

NEW YORK (Reuters) - U.S. mortgage foreclosure filings in August hovered near July's record high despite broad efforts to keep borrowers in their homes and will probably rise for another year, according to a report released on Thursday.

Filings -- including notices of default, auction and bank repossession -- dipped 1 percent last month from July's all-time high and were up 18 percent in August from the same month a year earlier, real estate data firm RealtyTrac said.

"The pipeline of early stage foreclosures and delinquent loans is still probably going to overwhelm the system's ability to quickly modify" terms so struggling homeowners can make their monthly mortgage payments, said Rick Sharga, senior vice president at the Irvine, California-based company.

One in every 357 U.S. households with loans got a foreclosure filing in August.

Though lenders are moving in the right direction, Sharga said, RealtyTrac is revising up its estimate for filings this year and now expects a more prolonged foreclosure crisis.

Some 3.4 million households will get a filing this year, up from the prior estimate of 3 million to 3.2 million, and sharply higher than 2.3 million filings last year.

If the forecast is realized, it will be more than four times the filings in 2005, before the deepest housing crash since the Great Depression began.

"We had been thinking that this year would be the peak, but at the rate things are going right now, it's appearing more likely that late 2010 might be the peak year before things start to moderate," Sharga said.
A quick recovery is not in the cards, either.

"I don't expect it to be that 2010 will peak and 2011 will be the wonderful land of Oz," Sharga added."

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Chart of the Day

This is a chart of the U.S. dollar index. As you can plainly see the dollar is falling out of bed. Today the dollar index broke 77 and is sitting at a year low. Todays $20 billion 10 year bond auction better go well or the dollar will fall much further. September gold futures are trading over $1,000 ounce and should actually be trading much higher. This is the price you pay when you run $1.5 trillion budget deficits and the Federal Reserve prints money to monetize the debt. This is a VERY ominous situation and will result in inflation in the not too distant future.-Lou

Ron Paul On Pending Nightmare

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Got Gold?

A very interesting article to say the least. If this does not give you confidence in the long term value of holding gold nothing will. The Chinese are smart and know exactly what they are doing and why.-Lou

China's hidden gold purchase policy

Evidence suggests that China is continuing to buy gold for its reserves, but is doing so in a manner designed not to over-disrupt the global gold market

LONDON - There seems to be little doubt that China continues to buy gold for its reserves, but surreptitiously, as it has no desire to move the markets unduly, and it knows full well that any announcement of a big gold purchase will likely do just that.

It is not exactly a secret that Chinese government economists and bankers are disturbed about the U.S. Quantitative Easing moves. They feel that this has ultimately to lead to significant inflation and a corresponding big decline in the value of the dollar within the next few years and with some $2 trillion in reserves this is not something they are keen to precipitate by announcements of a major gold purchase programme - or even by showing the world that its gold reserves are increasing.

In an interesting article in the U.K's Daily Telegraph, International Business Editor Ambrose Evans-Pritchard comments on views expressed by Cheng Siwei who he describes as being "until recently Vice-Chairman of the Communist Party's Standing Committee, and now a sort of economic ambassador for China around the world" and thus in a good position to understand the country's policies vis-a-vis gold purchases and the dollar.

The gist of the comments was that China has fundamentally lost confidence in the dollar and is looking towards a more significant proportion of gold in its reserves.

But this is easier said than done without causing huge disruption in the gold market itself and Cheng is quoted thus: "Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as to not stimulate the market".

This looks as though it means not only is China buying on dips in the gold price - and there is evidence of strong support from somewhere every time gold falls to a certain level - but is also concealing its purchases by not moving the gold into official reserves, but the holding of it by some other government entity so it stays off the official books.

When China relatively recently announced its big jump in gold reserves it was apparent the purchases had actually taken place over about five years and were only moved into the official reserves this year, and thus only then reported to the IMF. Thus it is likely that purchases are continuing in the same manner - off the open books.

If all this is correct it does mean that there is little in the way of downside risk for gold holders with potentially massive support coming in at about $930, but perhaps a cessation of this major support buying at around current gold price levels which could keep gold range-bound. But, of course, if and when China announces its next significant rise in its gold reserves this could have a substantial impact. But on past performance such an announcement may not happen for a few years - when it may suit China to do so.

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The Most Important News Of The Day

The road to the dollar's destruction goes straight through China. If not for the dollar's reserve currency status it would already have already been severely depreciated by now. Gold is reacting to this news by taking out $1,000/oz (1004.50 as I write) and the dollar index has fallen to 2009 lows. Silver is up a huge $0.50 (3.1% 16.72/oz). Stocks look to be up sharply as well. Is the stock market reflecting coming inflation?Should be an interesting day.-Lou

U.N. body calls for dollar's reserve role to be dropped

LONDON (MarketWatch) -- A United Nations panel weighed into the dollar reserve currency debate, arguing for a new system of soft pegs to correct severe deficits in debtor nations like the U.S. and surpluses in countries like China.

The report from the United Nations conference on Trade and Development, issued on Monday, said the world economy would be better off with a system where governments intervene when necessary to either defend or depress their own currencies.

"A viable solution to the exchange-rate problem would be a system of managed flexible exchange rates targeting a rate that is consistent with a sustainable current-account position, which is preferable to any 'corner solution.' But since the exchange rate is a variable that involves more than one currency, there is a much better chance of achieving a stable pattern of exchange rates in a multilaterally agreed framework for exchange-rate management," said the U.N. body.

The role of the dollar reserve's status has been criticized of late, notably by Russia and China, which have called for the International Monetary Fund's special drawing rights to be used instead, a proposal that many see as impractical given the lack of availability or purchase power outside of settling international obligations.

The U.N. sees the impracticalities of the SDRs but also highlighted problems with the current system.

"An economy whose currency is used as a reserve currency is not under the same obligation as others to make the necessary macroeconomic or exchange-rate adjustments for avoiding continuing current account deficits. Thus, the dominance of the dollar as the main means of international payments also played an important role in the build-up of the global imbalances in the run-up to the financial crisis," the U.N. said.

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Wall Street To Trade In "Death Bonds"

Wall Street financial engineers have destroyed the world with derivatives and now they want to trade in death. These people must be stopped.-Lou

'Life settlements' bonds could be Wall Street's next big act

SAN FRANCISCO (MarketWatch) - Wall Street is developing a product that packages life-insurance policies into investable bonds, and the plan already is generating controversy, according to a media report Sunday.

Investment banks expect to buy life insurance policies that ill and elderly people sell for cash, then package hundreds or thousands of them into bonds. Institutional and other buyers would be the primary buyers of these bonds, receiving a payout when people with the insurance die, the New York Times reported in its online edition.

With $26 trillion of life insurance policies in force in the U.S., the market for these "life settlements" bonds could be immense, the Times said.
Investment banks stand to profit from the creation, sale and trading of the bonds.

Wall Street has been searching for a product to replace the once-lucrative mortgage business, and life settlements policies are being seen as the answer, the Times said.

The article cited industry predictions that the market for the bonds could reach $500 billion. It noted that Credit Suisse Group, for example, bought a firm that originates life settlements and has dedicated efforts to structuring deals and selling the bonds.

In addition, Goldman Sachs Group Inc. has developed a tradable index of life settlements, allowing investors to bet on whether people will live longer than expected or die sooner than planned, the Times said, adding that spokesmen for Credit Suisse and Goldman Sachs declined to comment.

The report said that investment banks are following the model used with the packaging of subprime mortgages, which were supposed to be high-quality and less risky, but proved otherwise.

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China Fed Up With US

China holds our economic future in their hands. This is a national security issue. They hold over a $trillion of our Treasury and Agency debt and can dump it at anytime crashing the dollar and causing interest rates to skyrocket. If China does not show up at our autions (and they are not lately) the Fed will be the buyer of last resort (with printed money). We are in big trouble folks.-Lou

China alarmed by US money printing

The US Federal Reserve's policy of printing money to buy Treasury debt threatens to set off a serious decline of the dollar and compel China to redesign its foreign reserve policy, according to a top member of the Communist hierarchy.

Cheng Siwei, former vice-chairman of the Standing Committee and now head of China's green energy drive, said Beijing was dismayed by the Fed's recourse to "credit easing".

"We hope there will be a change in monetary policy as soon as they have positive growth again," he said at the Ambrosetti Workshop, a policy gathering on Lake Como.

"If they keep printing money to buy bonds it will lead to inflation, and after a year or two the dollar will fall hard. Most of our foreign reserves are in US bonds and this is very difficult to change, so we will diversify incremental reserves into euros, yen, and other currencies," he said.
China's reserves are more than – $2 trillion, the world's largest.

"Gold is definitely an alternative, but when we buy, the price goes up. We have to do it carefully so as not to stimulate the markets," he added.

The comments suggest that China has become the driving force in the gold market and can be counted on to buy whenever there is a price dip, putting a floor under any correction.

Mr Cheng said the Fed's loose monetary policy was stoking an unstable asset boom in China. "If we raise interest rates, we will be flooded with hot money. We have to wait for them. If they raise, we raise.

"Credit in China is too loose. We have a bubble in the housing market and in stocks so we have to be very careful, because this could fall down."

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USA Faces Argintine Type Fall: Paper

Where are the economic statesman in our government? We are on the road to ruin and it seems that nobody in government realizes it.-Lou

Barack Obama accused of making 'Depression' mistakes

Barack Obama is committing the same mistakes made by policymakers during the Great Depression, according to a new study endorsed by Nobel laureate James Buchanan.

His policies even have the potential to consign the US to a similar fate as Argentina, which suffered a painful and humiliating slide from first to Third World status last century, the paper says.

There are "troubling similarities" between the US President's actions since taking office and those which in the 1930s sent the US and much of the world spiralling into the worst economic collapse in recorded history, says the new pamphlet, published by the Institute of Economic Affairs.

In particular, the authors, economists Charles Rowley of George Mason University and Nathanael Smith of the Locke Institute, claim that the White House's plans to pour hundreds of billions of dollars of cash into the economy will undermine it in the long run.

They say that by employing deficit spending and increased state intervention President Obama will ultimately hamper the long-term growth potential of the US economy and may risk delaying full economic recovery by several years.

The study represents a challenge to the widely held view that Keynesian fiscal policies helped the US recover from the Depression which started in the early 1930s. The authors say: "[Franklin D Roosevelt's] interventionist policies and draconian tax increases delayed full economic recovery by several years by exacerbating a climate of pessimistic expectations that drove down private capital formation and household consumption to unprecedented lows."

Although the authors support the Federal Reserve's moves to slash interest rates to just above zero and embark on quantitative easing, pumping cash directly into the system, they warn that greater intervention could set the US back further.

Rowley says: "It is also not impossible that the US will experience the kind of economic collapse from first to Third World status experienced by Argentina under the national-socialist governance of Juan Peron."

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Weekend Funnies

Bank Failure Friday Claims 5 More Banks

Another 5 banks bite the dust, brining year total to 89.-Lou

SAN FRANCISCO (MarketWatch) - Five banks in Missouri, Iowa, Illinois and Arizona were closed by regulators Friday, bringing the number of U.S. bank failures in 2009 to 89 as the effects of the credit crisis continue to ripple through the financial system.

Two suburban Chicago banks failed in Illinois, the Federal Deposit Insurance Corp. said:
InBank, the 14th bank to fail in Illinois this year, had $199 million in deposits as of Aug. 3, the agency said. Chicago-based MB Financial Bank has agreed to assume its deposits. InBank's failure will cost the deposit insurance fund $66 million.

Platinum Bank of Rolling Meadows was closed by the Office of Thrift Supervision, which appointed the FDIC as receiver. As of Aug. 29, the bank had total assets of $345.6 million and deposits of $305 million, the FDIC said. The FDIC authorized payout of insured deposits and estimated the cost to its Deposit Insurance Fund will be $114.3 million. MB Financial Bank will accept the failed bank's direct deposits from the federal government.

Kansas City, Mo.-based First Bank of Kansas City also was closed by regulators. The FDIC said. De Soto, Kan.-based Great American Bank has agreed to assume the failed bank's deposits. First Bank of Kansas City had $16 million in assets and $15 million in deposits as of June 30, the regulator said. Its failure is expected to cost the federal deposit-insurance fund $6 million. First Bank of Kansas City is the second Missouri-based bank to fail this year, the FDIC added.

Sioux City, Iowa-based Vantus Bank and Oak Forest, Ill.-based InBank also were closed. Vantus Bank had roughly $368 million in deposits as of Aug. 28, the FDIC said, and Springfield, Mo.-based Great Southern Bank has agreed to assume the failed bank's deposits. The failure of Vantus Bank will cost the deposit insurance fund $168 million. It's the first bank to fail in Iowa this year, according to the FDIC.

In Arizona, First State Bank in Flagstaff was closed and Sunwest Bank of Tustin, Calif., will assume all of its deposits, the FDIC said. As of July 24, First State had total assets of $105 million and total deposits of about $95 million, the FDIC said. The failure will cost the deposit insurance fund an estimated $47 million, the FDIC said

China Buys $50 Billion of New World Currency

This is the beginning of the dollar losing world reserve status. Perhaps that is why gold is close to $1,000/oz. Make no mistake, this is terrible for the U.S. dollar.-Lou

China Set to Buy $50 Billion in IMF Notes

WASHINGTON -- China is on track to become the first purchaser of notes issued by the International Monetary Fund, a move that would diversify its foreign asset holdings and could give the IMF's quasi-currency more clout.

The IMF on Wednesday said China has signed an agreement to purchase approximately $50 billion in notes from the fund. The notes are denominated in Special Drawing Rights, a quasi-currency issued by the fund and promoted by China as a potential replacement for the dollar as the world's reserve currency.

The agreement is the first of its kind for the fund and marks China's most visible step toward shifting its investment focus away from the U.S. Treasurys market.

"The symbolism is very important here. It is no longer the U.S. dollar alone that the Chinese have access to," said Eswar Prasad, a senior fellow at the Brookings Institution and former head of the IMF's China division.

Countries including Brazil, Russia and India also have expressed interest in purchasing IMF notes, whose issuance is meant to bolster the fund's lending capacity and help fulfill a Group of 20 pledge to strengthen the Fund's own capital position.

Still, "For China this is particularly significant in the context of their strong desire to have an alternative to the dollar for parking their reserves," Mr. Prasad said. "Having a large stock of IMF bonds in circulation that are denominated in SDRs is definitely going to give a boost to the Chinese proposal of increasing the importance of the SDR."

But with a limited market for IMF notes, Eurasia Group Associate Nicholas Consonery doesn't expect the agreement will spur sharp declines in China's purchases of Treasury securities. "At the margin they are trying to make efforts to diversity future asset purchases, but we have no expectation that this, in any immediate sense, will present a real viable alternative for China," he said.

China in June held more than $776 billion worth of U.S. Treasury securities, several times the total amount of notes the IMF is expected to issue. China is the largest foreign holder of U.S. Treasury Securities.

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