The Eventual Death of the U.S. Dollar.
Posted 06 November 2007 - 05:02 AM
Also Bush's calls for election in Pakistan were a bit weird, right in the middle of strife and military coup orchestrated by communists and Islamists/AlQaeda.
This is what happens when "relationships" or "social values" become the god replacing God of our God given rights.
Posted 07 November 2007 - 04:26 PM
Dollar Slumps to Record on China's Plans to Diversify Reserves
``We will favor stronger currencies over weaker ones, and will readjust accordingly,'' Cheng Siwei, vice chairman of China's National People's Congress, told a conference in Beijing. The dollar is ``losing its status as the world currency,'' Xu Jian, a central bank vice director, said at the same meeting.
Can anyone say, Chinese economic nuclear bomb?
Posted 07 November 2007 - 07:18 PM
Craig Smith, CEO of Swiss America Trading Corp., told WND he's been in the investment business for 30 years and has "never seen people more nervous."
Alarmed by today's economic news, he dispatched a note to brokers with a warning of ominous potential consequences if China and other trading partners abandon the dollar.
"If that were to happen, all bets are off, and we will be in a depression that makes 1929 look like child's play," he said, "or we will experience Weimar Republic inflation as the dollar makes extreme moves toward devaluations."
Good thing we built all those Chinese factories...
Posted 07 November 2007 - 11:00 PM
The commies found a way to exploit the economy and they are doing what they will do. You think they care if they start a wordwide depression? Hell no...they will love it. That will show the world that capitalism is failed system.
Lets not forget however, the huge financial instutition and the Fed have to carry a lot of the blame. The huge banks for their greed and exotic debt securities and derivatives and the Fed for not being independent and feeding Wall St.
Posted 08 November 2007 - 01:29 PM
Posted 09 November 2007 - 03:25 AM
I'm not surprised, really. We have been receiving the same stupid message (if there were a better word to describe it than "stupid," I would use it; but alas, there is not) that somehow we can get something for nothing for many years now. It appears that America's blindly following that message is about to catch up to us in a big way.
Added to the $1 trillion subprime debt is an estimated $915 billion Credit Card Debt. Ouch.
I am reminded of someone wise who once warned:
"It is a rule of our financial and economic life in all the world that interest is to be paid on borrowed money. …
“Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours. … Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you."
And so none of what I see today surprises me.
Posted 15 November 2007 - 10:03 PM
Was over in Europe last week. Now I know how it is for people from so called 3rd world countries when they visit the US. I felt poor.
Yep. It can be a big owie on the wallet. Even more so in the UK. Some of my European counterparts in Germany and France have experienced a sharp upswing in the cost of living since the Euro was introduced 7 years ago. It would definitely be wise at this current time to add G-10 currencies in FX as a hedge to your portfolio.
Posted 19 November 2007 - 12:54 AM
OPEC Interested in Non-Dollar Currency
Ahmadinejad: "They get our oil and give us a worthless piece of paper,"
Posted 21 November 2007 - 01:55 PM
Posted 29 November 2007 - 12:55 PM
The “newest big players” in the worlds financial markets are called sovereign wealth funds. They are not actually so new, but the financial community is more conscious of them these days. Sovereign wealth funds (I'll call them SWFs for short) are large, government-owned pools of money created by various national governments either from savings (for example, from oil sales) or through the sale of bonds. A government with an SWF can invest those funds in companies and other vehicles so that the government will have even more money. Just like an individual investor might do, but on a far grander scale. Many governments have sovereign wealth funds; for example, Norway, Singapore, Russia, Saudi Arabie, Australia, Canada.
China’s SWF is estimated to be the fifth or sixth largest in the world..
These sovereign funds hold a lot of their money in dollar-based instruments, because until recently, the dollar was the world's standard currency. However, even though the dollar has lost a lot of value relative to other currencies and may (will) continue to do so, the SWFs are not interested in selling all of their dollar-based instruments right away and fast.
First of all, not all of their dollar instruments may be immediately saleable. More than that, the SWF managers know that if they succumbed to panic selling, this could engender a market hysteria in which all of the world’s other big dollar holders would also try to sell their dollars before everyone else, while the dollar still had any value. In the end, everyone would lose big, including the guy who started the panic, because he wouldn’t be able to sell most of his dollars (dollar-based instruments) before the dollar had crashed to zero value.
Instead, the evolving consensus of the SWF managers and the rest of the financial community seems to be that it is in the SWFs best interests to help stabilize the dollar, to the degree that this is possible. This is behind the Abu Dhabi government’s purchase of about 5% of Citibank this week. Citibank, apparently, was hurting for cash due to the large stake they took in certain dubious investments that turned out badly (CDOs/CMOs/SIVs). No one said so, but I wonder if Citi was in danger of going bankrupt. Anyway, Abu Dhabi – a big dollar holder – was not interested in seeing a much weakened Citibank, because this could have had a knock-on effect on other institutions and would only have further reduced world confidence in the U.S. currency, further depreciating the value of Abu Dhabi’s dollar holdings.
So, Abu Dhabi's SWF managers were persuaded to help Citibank by essentially buying about 5% of Citibank’s shares. This means that Citibank’s financial situation has been stabilized and financial panic has been staved off for the meantime, and Abu Dhabi’s dollars will retain their value a bit longer.
I expect China will adopt the same attitude for the present.
One other reason that large investors would want to hold on to some dollars for a while is that they can use them to buy up U.S. assets. We can expect to see this happening with greater frequency over the coming weeks and months. We can also expect less resistance from the U.S. to foreign acquisition of U.S. assets.
Here's a link to a short and rather viciously amusing comedy sketch that describes the subprime mortgage debacle pretty well. Investment in sliced and diced mortgages is part of the reason Citibank and much of the rest of the world's financial system is breathing hard at this time. My only quibble with the explanation offered in the video clip is that the "question" that caused all the trouble was not how much the houses are worth, but how much the mortgages are worth. Oh, and a "string vest" is a sleeveless cotton mesh undershirt.
I actutally considered making this post in the Elections 2008 thread. The subject we're discussing here is certainly going to play a factor in those elections.
Posted 29 November 2007 - 05:23 PM
Russian President Vladimir Putin is pushing to lift the country's international standing and secure its national resources by pressuring foreign oil companies to rewrite production contracts. His efforts to bolster his country's self image also extend to history books, where he supports a new manual for high school teachers that softens the reputation of Josef Stalin, who killed millions of his countrymen.
``This is a political deal,'' Bill O'Grady, director of fundamental futures research at A.G. Edwards & Sons in St. Louis, said of the possible shift to rubles. ``It's almost as if Putin has decided that what makes him strong is basically showing he can stand up to the U.S.''
Gazprom May Switch Sales to Rubles as Dollar Weakens:
Posted 10 December 2007 - 12:53 AM
His efforts to bolster his country's self image also extend to history books, where he supports a new manual for high school teachers that softens the reputation of Josef Stalin, who killed millions of his countrymen.
President Putin's communist roots are showing again. Any man who wishes to "soften the reputation" of the mass murderer Stalin,* is a dangerous man who should be repudiated by the Russian people--even if he is restoring Russia's economy and "military pride." (Putin's esteem for Stalin makes that that second achievement especially worrisome.) You can't help but wonder how many death's history will end up attributing to President Putin. Given Russia's arsenal of nuclear and biological weapons, the toll could exceed that of Stalin....
*51 million deaths are attributed to "comrade Stalin."
Posted 10 December 2007 - 03:58 PM
President Putin's communist roots are showing again. Any man who wishes to "soften the reputation" of the mass murderer Stalin,* is a dangerous man who should be repudiated by the Russian people--even if he is restoring Russia's economy and "military pride."
Wasn't there some other guy at one time in the last century who restored his countries economy and "Pride." And then...Zeig Heil!
Posted 11 December 2007 - 01:25 PM
Anyway... I'm both surprised, and yet not surprised by this move, if that makes sense.
Posted 14 December 2007 - 11:31 PM
Schwarzenegger Will 'Declare Fiscal Emergency' In Weeks
POSTED: 2:06 pm PST December 14, 2007
UPDATED: 2:47 pm PST December 14, 2007
Gov. Arnold Schwarzenegger said Friday he will declare a "fiscal emergency" in January to give him and the Legislature more power to deal with the state's growing deficit.
Schwarzenegger made the announcement Friday after meeting with lawmakers and interest groups this week to tell them California's budget deficit is worse -- far worse -- than economists predicted just a few weeks ago.
The shortfall is not $10 billion, but more than $14 billion -- a 40 percent jump that would put it in orbit with some of the state's worst fiscal crisis, those who have met with him said.
A fiscal emergency would trigger a special session and force lawmakers and the governor to begin addressing the shortfall within 45 days.
"What we have to do is fix the budget system. The system itself needs to be fixed, and I think that this is a good year, this coming year, to fix it," Schwarzenegger said in Long Beach, where he was promoting his plan for health care reform.
California is struggling with shrinking state tax revenue from the meltdown of the subprime housing market and the credit crunch on Wall Street.
State spending also has increased by more than 40 percent since Schwarzenegger took office after the 2003 recall of then-Gov. Gray Davis.
Schwarzenegger in August signed a $145.5 billion budget that increased spending 11 percent due largely to the increased cost of bond repayments and special funds. General fund spending for day-to-day operations increased less than 1 percent, from $101.7 to $102.3 billion for the budget year that began July 1.
In August, Schwarzenegger's office projected the state would end its current budget year with a $4.1 billion reserve. Last month, the state's nonpartisan legislative analyst reported that the state would instead end the year in the red, and was on pace to rack up a staggering $10 billion deficit over the next 18 months.
Schwarzenegger and his top aides this week have privately told lawmakers and interest groups that the gap could top $14 billion and warned cities, counties and health and welfare agencies to expect cuts.
Last month, Schwarzenegger ordered agency leaders to draft plans for across-the-board cut as high as 10 percent.
State lawmakers have been criticized in recent weeks for pushing through a raise for themselves, despite the state's fiscal troubles.
Posted 16 December 2007 - 11:24 AM
Mortgage Failure Avalanche
Jim Willie CB
Dec 13, 2007
An avalanche comes in 2008. Its wreckage will hit both the US Economy and banking world.
The greatest deception in the bank sector this year has been the misrepresentation of the mortgage debacle as a subprime problem.
That is akin to calling an iceberg only a problem for what one can see, when 90% of its mass lies below water. Ice is lighter than water. Most mortgage bonds are like acidic stones weighing down bank and investor balance sheets. Wall Street and the USGovt con artists, using tools are fraud and distortion, prefer the public and investment community to think of the 'Subprime Problem' as the source of distress. On mortgage bonds, collateralized debt obligation derivatives, structured investment vehicles, all dominant in the news, reports constantly stress how the problem is traced to subprime mortgages to all those unworthy home loan borrowers who never should have been given such loans, even at higher mortgage rates.
The systemic threat, both to the US banking system and US Economy, has entered a new stage.
The remedy addressed is sure to force the USDollar lower and the gold price higher, to occur in the next gear. Breakouts are coming which will seem to lose control, like what was seen in September and October.
Official policy in reaction to the USEconomic threat of recession will spill money into every corner and crevice. Gold and mining stocks will benefit.
My forecast stated all summer long is that the USGovt maestros will gradually introduce increasingly broader rescue elements, since everything they try at early stages will fail.
The USFed remains badly behind the curve, as yesterday they cut the official Fed Funds target rate, but did not sufficiently cut the Discount Window rate that imposes a Stigma Tax. Today, the USFed announced a much broader bank liquidity policy, focused upon more auctions at set rates and a swap line with the Euro Central Bank. They have announced more coordination with the Bank of England, the Bank of Canada, the Swiss National Bank, and the US Federal Reserve. This is part of my forecast. They must have been working all night long.
By summertime 2008, the requirements for a grandiose Resolution Trust platform will be etched more clearly. The key to the gold price lies in two spots: 1) massive monetary inflation to treat the banking problems and prevent recession, 2) realized price inflation in a manner lacking disguise. John Mauldin uses the metaphor of fire trucks being called to the scene. The USFed has been amazingly shamefully slow in recognizing the problems. Stuck in their stupid "inflation versus growth" framework mindset, they miss both the interbank system seizures and home mortgage avalanche coming outside the prime mortgage corral.
The threat to the banking system will be staggering. The threat to the economic system will be broad and deep. The avalanche will expose the combined system as insolvent, broken, in need to total rescue.
The damage will necessitate rescue platforms to undermine the entire US$-based monetary system, certainly sufficient to lift gold well past the $1000 level.
By the time 2009 approaches, the system will be recognized as totally broken. The new question will be whether that system can indeed be repaired.
As measures put in place and debated for consensus approval, the urgently demanded movement should be the particulars on the new Resolution Trust Corporation. The desperation no longer hidden (like on Bernanke's face) will lift gold well past the $1000 mark. The impetus behind the gold price will turn to inflation much more than the US$ counter-lever. All major currencies will be inflating heavily, as seen in recent central bank decisions either to cut official interest rates or to hold steady. Major currencies will begin to be compared in a manner to judge which ones are weaker as they are undermined during stimulus to discourage economic recession and credit flow interruptions.
The new 2008 year will smash that notion, as an absolute avalanche of failed mortgages will slam the bank system and financial sector in general, the majority being prime mortgages. SHOCK & AWE IS RIGHT AROUND THE CORNER ON PRIME MORTGAGES, A FACT THE BANKERS ARE KEENLY AWARE OF!!!
The villainous failed mortgages have a few traits in common. These primes are adjustable rate mortgages (ARMs) with harsh resets. They contain destructive features certain to cause as much pain as laughter for their insanity. Recall they are prime mortgages with lax features resembling subprime loans without the higher rates.
Only 150 to 225 thousand subprime mortgages will be addressed by this flimsy HOPE NOW freeze plan, and nothing among the looming prime mortgages heading for certain default. The innovative mortgage products face ruin. Large cross sections of newer mortgages, written since year 2000, are under-water badly. Their loan balances are much greater than their home values.
THE NEW PHENOMENON IN 2008 IS RECOGNITION OF ZOMBIE LOANS, ZOMBIE HOMEOWNERS, ZOMBIE CONSUMERS, AND ZOMBIE BANKS.
They are bankrupt without declaration; they are walking dead. An added footnote is needed to this auxiliary HTL special report, tied to accusations of fraud by large mortgage bond investors, both in the United States and foreign institutions.
MOTIVE: AVOID LAWSUITS & FORCED BOND BUYBACKS
The threat of court-ordered forced contractual bond buyback by Wall Street con artists is nearing a reality. If investors engage the Wall Street banker broker dealers in the renegotiation, refinances, and workouts, then those institutional investors will lose the right to sue Wall Street firms, and lose the opportunity to force fraudulent bonds to be bought back at perhaps ten times their current traded prices. Wall Street, given its Fascist Business Model connection with the USGovt, has enlisted Congressional help to place 'Safe Harbor' obstructions to lawsuits, thus absolving the criminal activities perpetrated by Wall Street. The gaggle of Wall Street firms engaged in packaging mortgage bonds, ensuring they contained a 'AAA' false label, colluding with key agencies to misrepresent the sale of securities, has made a bold move to freeze troubled mortgages, and to dupe/lure investors into the process. If they take the bait, they lose the opportunity for remedy on hundreds of billion$ in fraud-ridden bond losses. My contention made for over two years is that the USGovt and Dept Treasury and Wall Street and numerous major icons in the United States embody institutionalized dishonesty. That perception is much more clear in 2007. Legal address and remedy of that institutionalized dishonesty might come in 2008.
Wall Street and other major bankers continue to soil their pants. They realize several looming tragedies:
Prime 'AAA' mortgage bonds have lost roughly 20% of value
Innovative flexible adjustable mortgages are due to default in droves
Enormous growing list of under-water mortgages are beyond rescue
Big banks are facing dire insolvency threats, as new defaults approach
Enormous bond writedowns have only begun for big banks
Insolvency can turn to bankruptcy with more debt rating agency downgrades
Mortgage bond investors contemplate lawsuits, accusing Wall Street fraud
Wall Street banks face the prospect of over $1 trillion in mortgage bond buybacks
Rescue & remedy will trash the USDollar and catapult the gold price
As a preface, one should know that politicians did not advance this plan. The key initiators of the HOPE NOW project were three banks. It was an alliance led by the Federal Deposit Insurance Corp (insurer of banks), along with big banks and their lobbyists from Citigroup, JPMorgan, and Wells Fargo. These banks in my opinion are insolvent, soon to be forced into bankruptcy as the next round of the mortgage debacle unfolds from the 'innovative' adjustable and option laden mortgages. They all face bankruptcy, insured by the FDIC. If lawsuits are filed and that road is traveled, declared bankruptcy is assured.
The rescues to save the Ruling Elite will lift gold and trash the USDollar, as much from a new unprecedented round of monetary inflation, as from destroyed image of the US financial system. Freezes never work. When in college, my memory is vivid of the lunatic Nixon Wage Price Freeze. When it lifted, the price inflation rampage was the worst in modern history. My suspicion is that when any mortgage freeze is lifted, both mortgage rates will rise sharply and mortgage bonds will fall sharply in value.
Few have bothered to think about the infectious disease of moral hazard, to consumer and household reactions. Many economic participants will feel left out with the current rescue, against a backdrop of watching colossal fraud go unpunished. They will possibly act destructively, an intentional effort to destroy their credit rating so they can participate in national bailouts. Many live in homes with negative home equity. They might feel above the rules, immune to impact of their actions, engrained in destructive habits, feel powerful from a reprieve, want to be included, or just not care. They will feel they have nothing to lose. The likelihood that property taxes will be paid, water & sewer fees paid, lawns mowed, hedges & trees pruned, garbage removed, broken windows repaired, holes in walls filled, driveway cracks filled, shingles straightened, liens on the property resolved, these are all in doubt in my book. Pride in ownership will turn ugly, into a free ride game. Practicalities are strained to the extreme.
A zombie comes to learn to act with disregard, disrespect, and disobedience. Henry David Thoreau wrote 'Civil Disobedience' almost two centuries ago in response to the Spanish Civil War, yet another false flag self-inflicted attack. That was done to the USS Maine vessel off the Cuban coastline. Expect such disobedience to be practiced widely in reaction.
FASCIST BUSINESS MODEL ENTRENCHED
However, here is where the real damage comes, as an extension of the Fascist Business Model.
The sickest and often most fraud-ridden banking entities will receive fresh new money, possible USGovt handout infusions. The failures will be rewarded, leaving the successful, honest, competent to struggle or to go begging.
Banks will issue fewer prime mortgages. The plan will force extreme focus on subprimes, ignoring primes. Banks will be forced to hold back on funding new loans since old loans must be addressed. In the process, their plan will very possibly accelerate the downside for housing prices. Home inventory levels will continue to rise. Sellers will not find willing buyers so easily capable to make final their loans. The lending institutions in general will be rendered less inefficient.
The most glaring example of this principle will be the capital funding of Freddie Mac and Fannie Mae. F&F are failed institutions with broken apparatuses, having operated for years without disclosure, but will dominate the national program if our current leaders have their way. Instead, new financial entities should be created, not revival of broken entities. Inefficient capital usage will be the main feature of this plan.
In my opinion, THE FINANCIAL SYSTEM HAS OFFICIALLY ENTERED CHAOS, with that chaos more widely recognized in year 2008.
To be sure, it is an early stage. Massive housing losses have occurred.
Even more massive mortgage bond and related credit derivative losses will occur. Rewards are being prepared for the most reckless of participants. Encouraged destruction of credit and credit ratings is possibly around the corner, so that marginal households can participate in freezes, bailouts, or whatever is handed out.
Subprime loan failures are the tip of the iceberg. In 2008, the breakdown of numerous other types of mortgages will occur, already in their initial phase.
They are NOT subprime mortgages. The mortgage finance sequence of boom, bubble, bust is entering the third stage. Prices for housing properties will revert at least to where they were in 2001 when the insanity began, which was actively encouraged by Greenspan. History tells us that. His fingerprints are everywhere. All subprime mortgage bonds will go to zero in value. All CDO bonds containing subprimes will go to zero in value. All prime mortgage bonds will lose at least half their value. If the national decline in home prices falls over 10% to 15% more, then almost all recently issued prime mortgage bonds might possibly head to zero in value. Few talk about the next destructive factor for mortgage bonds.
Ultimately, a minimum of a $2 trillion bailout is necessary, as mortgage bond losses will be at least that high, especially when considering the leveraged CDO bond losses. The new bigger broader Resolution Trust Corporation must be created as soon as possible without delay.
Urgency is here and now. The system is in the process of degradation, sure to lead to some increased disorder.
The changes will be similar in England and possibly to some degree Spain, because they went overboard on real estate speculation. England built an economic dependence upon an inflated housing sector. Spain permitted uncontrollable vacation property speculation. Be sure to know that Wall Street firms are in charge of the solution to a disaster that they themselves perpetrated. Wall Street firms will want to be in charge of the bailouts, even the Resolution Trust Corp. Wall Street firms will want to be involved in the grotesque bailouts, since so much corruption and opportunity will be presented. Like the parasites they are, they sense gain. Think Halliburton and the Iraq & Afghan Wars, with profits abounding to insiders on cozy contracts. Think contractors in New Orleans and Hurricane Katrina relief. Think the next RTC administrators, with more huge profits. To even consider the fraud-ridden Freddie Mac and Fannie Mae for serving as the foundation financial agency for secondary market reinvigoration is a travesty. It is a blatant endorsement of the entrenched Fascist Business Model.
FAILED INNOVATION IN MORTGAGES
Anyone who believes the mortgage debacle is limited to subprime loans and bonds has bought hookline & sinker the story trumpeted by Wall Street and the larger banking community. The risk pricing model has broken, with authorities determined not to have the story properly.
Instead, it is framed in friendly terminology, distorted to the public and the investment community. The world of bizarre reckless adjustable rate mortgages (ARM) is soon to suffer a publicly visible and horrible implosion. The aftermath of irresponsible 0% down payment mortgages is soon to suffer implosion. The innovative creative flexible mortgages are soon to suffer implosion. No documentation, no income mortgages, unimaginable in normal cultures, are soon to suffer implosion.
A vast world of under-water mortgages exists in the United States, soon to suffer implosion. The abuse of second mortgages and home equity loans is soon to suffer implosion. The main focus of attention will be on California, the center of innovation and creativity. Think the American Home Dream turning to a Ball & Chain toward serfdom, the New American Nightmare.
The key theme with innovative adjustable mortgages is their zombie nature. Resale is hindered, as is refinance, since the property is vastly under-water, loan balance greatly exceeding the home value. A return to similar mortgage loans is impossible, since they no longer exist. A loan rate freeze is a certified prescription for another zombie loan and zombie home title owner. Particular gratitude goes to ScottM in Seattle and that anonymous San Francisco mortgage broker who offered details after his personal experience in approving over $2 billion in mortgage loans himself. His information is appreciated, and needs to be made more public.
Negative amortization mortgage implosion. This type loan has permitted home title owners to pay less than the appropriate interest amount, thus adding to the loan balance. When the loans hit their maximum negative potential allowance, a huge increase is forced which could result in required monthly payments not 20% to 35% higher, but 100% to 200% higher. The full interest requirement kicks in, based upon the full loan balance, having risen. Imagine a $1400 monthly payment shooting to $2800 or $4000!
Prime second mortgages implosion. This type of loan enabled a huge number of home title owners to effectively invest 0% down payment in their original purchase. Many lending institutions have cut off further withdrawals from the home equity source, in a lockdown much like applying a tourniquet to a bleeding limb. Wells Fargo once boasted this spring not to be involved in subprime mortgages, but they possess $84 billion of these worthless loans. Expect Wells Fargo to go bankrupt. The bankrupt banks will not just have Wall Street addresses.
Pay option adjustable rate mortgage implosion. Called 'Option ARMs' in the finance industry, this category will make national news for their insanity in negative amortization features. In volume, they will greatly eclipse the subprime story, since the loan type involves all risk levels of borrowers and all sizes of properties. Again, this feature enabled many people to buy far too large a property.
Shocking statistics are cited in the special report, pertaining to these truly reckless loans. Bear in mind that homes have fallen in value, so underwater percentages in extreme cases of these loans might be more than 25%!!! Analysts estimate that on many of these Option ARM loans, home title owners are underwater by 15% to 20%. Many of these loans have seen their balances rise by 7% per year for at least three years. These loans are more disguised subprimes. The negative amortization features act like a timeduse to explode, in a situation offering no hope of refinance, no qualification for other loans, and no equity. They will go bust.
Hybrid interest only adjustable rate mortgage implosion. The hybrids attracted borrowers by offering a fixed low introductory teaser rate for a fixed three, five, or seven years. After that period, they adjust annually. Again, this feature enabled many people to buy far too large a property. The 3/1 (3-year fixed, adjust every 1 year later) began to reset in 2006, with many more in 2007. The 5/1 will begin to reset in 2008, causing a nightmare. Many lenders offered Hybrid ARMs to lower quality borrowers. Plenty such loans did not require income verification. Like the Option ARM, the low teaser rate caused the loan balance to rise during the introductory period, thus leading to vast number of loans being under-water. Again, refinance or new mortgage loans will not be approved. They will go bust.
The downtrend in housing prices generally might actually motivate banks and other lending institutions not to make more home loans. A tidal wave of foreclosures comes soon, not related to subprime in any way, with California at the epicenter. Mortgage bond holders of above described abusive INSANE mortgage loans packaged into bonds will suffer massive losses. For some, like Option ARMs, no bond market exists anymore. The banks on the other hand will suffer from the tidal wave of loan losses, much of which is deserved. My only hope is that Wall Street banks suffer their fair share of the pain. Home property values in some metropolitan areas are likely to fall by 30% to 50% from peak, taking them back to 2000 and 2001 levels.
THE ONLY SOLUTION IS UNTHINKABLE, A NATIONAL BAILOUT OF THE MAJORITY OF HOME MORTGAGES AND MORTGAGE BONDS, SINCE THE ENTIRE SYSTEM IS BROKEN IRREPARABLY.
The effect on the USDollar and gold price is uncertain, but surely negative for the clownbuck and positive for gold. As Persian Gulf oil producers watch in horror, they will be increasingly motivated to cut their US$ formal currency pegs.
The upcoming US mortgage debacle will kill the USDollar as the recognized practiced endorsed world reserve currency, with the abolition of the defacto PetroDollar standard certain. The gold price will rise amidst the absolute hurricane of low pressure asset deflation and colossal monetary inflation to fight it. THE GOLD PRICE IS CONSOLIDATING NEAR AND ABOVE 800, A DISPLAY OF STRENGTH AND RESILIENCE.
My dire forecast for 2008 is that the USDollar DX index will find its way to 65 and the gold price will find its way to $1200 per ounce.
A 10% to 15% decline in the USDollar comes. A 30% to 50% rise in gold comes.
The positive rub to investors is that as the national emergency becomes more widely recognized, the need to flood the bank & bond arenas, as well as the corporate credit & household arenas, will become broadly understood as desperate.
Without that flood, the system will enter a deeper economic recession than already is in progress. Without that flood, the system will see the banking system actually fail.
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