Thread: U.S. Economy To Be Hit By Second Wave of Mortgage Defaults

U.S. Economy To Be Hit By Second Wave of Mortgage Defaults

Economics / Recession 2008 - 2010 Feb 07, 2010 - 11:38 AM
By: Bob_Chapman

As we have been forecasting for the last two years, the second wave of mortgage defaults and foreclosures will hit the economy this year. Not only will we have failure in prime loans and option-arm loans, but we are faced with a new crop of subprime and ALT-A loans put into motion by Fannie Mae, Freddie Mac, Ginnie Mae and FHA. In addition, we find it of great interest that the FHA is changing the rules to purchase homes. That, of course, means less homes will be purchased.

The incidence of unemployment may be lessening, but it isn’t going away. Those of you who keep your ear to the ground know that real unemployment is 22.5% and in cities like Detroit it is somewhere near 45 to 50 percent. This is the result of free trade, globalization, offshoring and outsourcing. No city in America has been deprived of their livelihood more than Detroit. Yet, this is only the beginning. If allowed to continue 30 percent more of our jobs will be allowed to leave America, making our country an economic basket case over the next 20 years. The $25 billion that our federal government is about to loan to the states will help keep unemployment paying out and save some 40 states from going into bankruptcy. That will keep some Americans going but not for long.

Foreigners are buying less and less US dollar denominated assets, specifically Treasury and Agency bonds. As an example, Russia is buying Canadian dollar denominated assets. We ask how does the US fund its debt and its growing debt? The administration is planning for some sort of exchange of retirement funds for a government guaranteed annuity. That is so they can fund their enormous debt domestically as Japan has done for almost 20 years. Who would want to have a government guaranteed annuity from a bankrupt nation? It should also be noted that these retirement plans are still vastly under funded. What will happen if the Dow again revisits 6,600 and these funds’ assets again fall 40 percent?

The collateral behind any annuity would be almost cut in half. We will have to see what the government comes up with but any kind of voluntary plan would in time become a mandatory plan. The funds may well be funneled to insurance companies, so they can take part of the action, but they will be buying Treasuries and Agencies with those funds, you can take that to the bank. One of the rumors floating about is that a new 5 percent tax will be foisted upon what is left of American taxpayers, in the form of forced savings, which would be in the form of an annuity. The need for funds to run the government is advancing by more than 10 percent a year, as government becomes bigger and bigger. We see no abatement in Marxist, socialist or fascists in government in their desire to spend to make government ever bigger.

The public is howling for blood, particularly from banking and Wall Street, and rightly so, but the main culprit was the Fed and in third place lies our government. In populist pose our President wants to tax Wall Street and banking for looting our economy. We might remind our President that these are the very people who financially put him in office. There is also talk emanating from the Oval Office of breaking up the banks, so that the too big to fail problem will be solved. This is the result of trillions of bailout funds for banks, which then post outsized mega profits, and little or nothing to assist the taxpayer. Investigations are going on to find out what caused the collapse of the system, but Americans believe they will go nowhere.

The main brokerages and banks that caused most of the problems are the owners of the FED, the 12 regional Fed banks and the legacy, money center banks in NYC. How far do you have to investigate to find that out? Billions are being paid out to banks’ top employees, money they made with the assistance of a taxpayer bailout. The public believes it is unfair and they are right. As an example, Lloyd Blankfein, CEO of Goldman Sachs, who says, “He is doing God’s work,â€

The incidence of unemployment may be lessening, but it isn’t going away. Those of you who keep your ear to the ground know that real unemployment is 22.5% and in cities like Detroit it is somewhere near 45 to 50 percent. This is the result of free trade, globalization, offshoring and outsourcing. No city in America has been deprived of their livelihood more than Detroit. Yet, this is only the beginning. If allowed to continue 30 percent more of our jobs will be allowed to leave America, making our country an economic basket case over the next 20 years. The $25 billion that our federal government is about to loan to the states will help keep unemployment paying out and save some 40 states from going into bankruptcy. That will keep some Americans going but not for long.

Factory payrolls increased 11,000 in January, the biggest gain since April 2006, after falling 23,000 in the prior month. The median forecast by economists called for a drop of 20,000.

Payrolls at builders fell 75,000 last month, after decreasing 32,000. Financial firms reduced payrolls by 16,000, after a 7,000 decline the prior month.

Service industries, which include banks, insurance companies, restaurants and retailers, added 40,000 workers after subtracting 96,000 in December.

The number of temporary workers increased 52,000 in January. Payrolls at temporary-help agencies often turn up before total employment because companies prefer to see a steady increase in demand before taking on permanent staff.

Retail payrolls increased by 42,000 after an 18,000 decline.

The so-called underemployment rate -- which includes part-time workers who’d prefer a full-time position and people who want work but have given up looking -- fell to 16.5 percent from 17.3 percent.

The economy grew at a 5.7 percent annual rate in the fourth quarter, the biggest gain in six years, according to data from the Commerce Department released last week.

The government revised its job loss numbers for November, saying the economy gained 64,000 in that month rather than 4,000. But the numbers in December were much worse than previously stated; the economy lost 150,000 jobs rather than the 85,000 originally reported.

Thanks for quoting the important points.