Jim in San Marcos borrows and discusses a chart showing homeowners' equity. As residential property prices drop, more borrowers move into negative equity. He says bank-owned properties (REOs) are already pricing-in a fall of 30%+.
"Examine the disappearing equity. It came from no where and is going back to no where."
That's what happens when credit becomes a form of currency, as the bullion moralists keep reminding us.
Why are banks allowed to create so much "fiduciary money"? Who does own the Fed?
Sunday, January 06, 2008
Saturday, January 05, 2008
Bitter medicine
The Levy Economics Institute runs a range of figures through its economic model and decides that it is pessimistic for the short-to-medium term, but guardedly hopeful for the state of the US economy afterwards:
... the present crisis is already more serious than any that has occurred before in modern times.
... Our projections, taken literally, imply three successive quarters of negative real GDP growth in 2008. Spending in excess of income returns to negative territory, reaching -1.6 percent of GDP in the last quarter of 2012—a value that is very close to its “prebubble” historical average.
... while the rate of growth in GDP may recover to something like its long-term average, all our simulations show that the level of GDP in the next two years or more remains well below that of
productive capacity.
... We conclude that at some stage there will have to be a relaxation of fiscal policy large enough to add perhaps 2 percent of GDP to the budget deficit.Moreover, should the slowdown in the economy over the next two to three years come to seem intolerable, we would support a relaxation having the same scale, and perhaps duration, as that which occurred around 2001.
Our projections suggest the exciting, if still rather remote, possibility that, once the forthcoming financial turmoil has been worked through, the United States could be set on a path of balanced growth combined with full employment.
... the present crisis is already more serious than any that has occurred before in modern times.
... Our projections, taken literally, imply three successive quarters of negative real GDP growth in 2008. Spending in excess of income returns to negative territory, reaching -1.6 percent of GDP in the last quarter of 2012—a value that is very close to its “prebubble” historical average.
... while the rate of growth in GDP may recover to something like its long-term average, all our simulations show that the level of GDP in the next two years or more remains well below that of
productive capacity.
... We conclude that at some stage there will have to be a relaxation of fiscal policy large enough to add perhaps 2 percent of GDP to the budget deficit.Moreover, should the slowdown in the economy over the next two to three years come to seem intolerable, we would support a relaxation having the same scale, and perhaps duration, as that which occurred around 2001.
Our projections suggest the exciting, if still rather remote, possibility that, once the forthcoming financial turmoil has been worked through, the United States could be set on a path of balanced growth combined with full employment.
Raving sane?
"Deepcaster" (Financial Sense, January 4) looks again at the mysterious ownership (and creation) of the US dollar by a private bank, the Federal Reserve. The more one reads about it, the weirder it gets - it's like finding out that ET really does exist!
The conspiracy theory here is that the Fed and other central banks are a cartel that not only inflates the money supply, but has created trillions in derivatives, partly to manipulate the investment markets. "Deepcaster" accuses this cartel of engineering drops in the gold price, just when you'd think gold should be emerging as a natural currency.
He brings in the Amero theory, too - ultimate replacement of the destroyed dollar by a new North American currency, presumably so the crooked poker game can continue with fresh cards.
Can anyone please shed light on all this? For example, who EXACTLY are the owners of the Fed?
If nobody knows or is willing to tell, perhaps one of us should claim ownership - "finders, keepers".
The conspiracy theory here is that the Fed and other central banks are a cartel that not only inflates the money supply, but has created trillions in derivatives, partly to manipulate the investment markets. "Deepcaster" accuses this cartel of engineering drops in the gold price, just when you'd think gold should be emerging as a natural currency.
He brings in the Amero theory, too - ultimate replacement of the destroyed dollar by a new North American currency, presumably so the crooked poker game can continue with fresh cards.
Can anyone please shed light on all this? For example, who EXACTLY are the owners of the Fed?
If nobody knows or is willing to tell, perhaps one of us should claim ownership - "finders, keepers".
Unemployment B-L-S---
Market Ticker: The Recession of 2008
Karl Denninger reports that the US unemployment rate has hit 5%. He thinks - and it's certainly plausible - that we're already in a recession. Especially if Rob Kirby is right, and the Bureau of Labor Statistics (BLS) is lying about the scale of job losses in the financial industry.
Karl Denninger reports that the US unemployment rate has hit 5%. He thinks - and it's certainly plausible - that we're already in a recession. Especially if Rob Kirby is right, and the Bureau of Labor Statistics (BLS) is lying about the scale of job losses in the financial industry.
Friday, January 04, 2008
Marquess of Queensberry rules?
One envies the cheerful liberal economists such as those at Cafe Hayek, but will their principles work in a world where other, much darker forces are working? As I suggested in September, there may be those who will use the tools of international trade and investment as part of a vengeful and destructive plan.
Now, Jeffrey Nyquist treats us to another Sino-Soviet frightener, and Nadeem Walayat sees even more potential enemies, who may not refrain from below-the-belt blows. The enemies of the Open Society abide. Are our Western politicians prepared? Will they defend us?
Now, Jeffrey Nyquist treats us to another Sino-Soviet frightener, and Nadeem Walayat sees even more potential enemies, who may not refrain from below-the-belt blows. The enemies of the Open Society abide. Are our Western politicians prepared? Will they defend us?
Gold and the Dow
Prudent Bear's excellent presentation "The case for a secular bear market" includes a graph of the Dow divided by the price of gold, from 1920 to 2005.
Taking the present values - Dow 13,056.72, gold $864.80 - the formula works out at 15.098, which suggests that the Dow is still well above trend.
Some would see this as indicating a coming gold spike; but another way to rebalance is for the Dow to fall. As credit deflation takes hold, I suggest that in 2008, both gold and the Dow will drop below their current levels, but the Dow more than gold.
UPDATE
Gary Dorsch is looking at the same ratio ("By the end of 2008, the DJI to Gold ratio might tumble towards 10 oz’s of gold"), but thinks the rebalance could happen the other way, through destructive inflation.
If so (and he doubts that it's possible), Karl Denninger thinks you'd still be better off betting on the Dow, using call options:
So tell me again - if you believe in "hyperinflation" - why do you want to buy the clear LOSER of an asset that metals represent, when you can buy index CALLs and, if your thesis is correct, you will make an absolute stinking FORTUNE!
(Of course if you're wrong and the DOW is under 16,000 by the end of the year, that $20,000 is totally flushed. That's the price of poker - but again - just how sure are you that "The Fed" is going to "hyperinflate"? And by the way, no, I don't think they are - in fact, I don't think they CAN.)
SECOND UPDATE
Gary Tanashian sets a target of $920 for gold, but anticipates a drop-back anytime; but longer term, Julian Phillips can't imagine governments NOT hyperinflating, to avoid the horrors of deflation.
The astrologers continue to mutter and gesture over their charts.
Taking the present values - Dow 13,056.72, gold $864.80 - the formula works out at 15.098, which suggests that the Dow is still well above trend.
Some would see this as indicating a coming gold spike; but another way to rebalance is for the Dow to fall. As credit deflation takes hold, I suggest that in 2008, both gold and the Dow will drop below their current levels, but the Dow more than gold.
UPDATE
Gary Dorsch is looking at the same ratio ("By the end of 2008, the DJI to Gold ratio might tumble towards 10 oz’s of gold"), but thinks the rebalance could happen the other way, through destructive inflation.
If so (and he doubts that it's possible), Karl Denninger thinks you'd still be better off betting on the Dow, using call options:
So tell me again - if you believe in "hyperinflation" - why do you want to buy the clear LOSER of an asset that metals represent, when you can buy index CALLs and, if your thesis is correct, you will make an absolute stinking FORTUNE!
(Of course if you're wrong and the DOW is under 16,000 by the end of the year, that $20,000 is totally flushed. That's the price of poker - but again - just how sure are you that "The Fed" is going to "hyperinflate"? And by the way, no, I don't think they are - in fact, I don't think they CAN.)
SECOND UPDATE
Gary Tanashian sets a target of $920 for gold, but anticipates a drop-back anytime; but longer term, Julian Phillips can't imagine governments NOT hyperinflating, to avoid the horrors of deflation.
The astrologers continue to mutter and gesture over their charts.
Dead Cat Splat
Some expect the market to drop, but bounce quickly as in 2000. Vince Foster says not, since this boomlet has been credit-fuelled.
His view: housing is woeful, emerging markets look as though they may be topping-out, the Ted Spread is signalling insolvency fears, the 10-year bond rate augurs slowing growth; so cash is king.
His view: housing is woeful, emerging markets look as though they may be topping-out, the Ted Spread is signalling insolvency fears, the 10-year bond rate augurs slowing growth; so cash is king.
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