California Realtors say cutting mortgage interest tax deduction will devastate nation (11-12-10)

Home prices in the affluent California county increased roughly 6% to $699,174 in October, according to the association. Its up 11% from a year ago. The National Commission on Fiscal Responsibility and Reform, proposed two options in their efforts to overhaul the tax system. One was to reduce how much homeowners could deduct by 20%, and the other was to exclude second residences, home equity loans or mortgages over $500,000.

Removing the incentive to own a home by reducing or eliminating the mortgage deduction will drive the country into a greater economic crisis.  It is not clear if Preisdent Obama will pursue this tax reform but he should be urged to oppose it.

Freddie Mac says foreclosure problems may drain recovery (11-12-10)

Freddie Mac economists said recent problems in the banks foreclosure processes could slow what little momentum the recovery holds, and perhaps send the housing market down to a new low.

Freddie Mac, itself reported $120.1 billion in nonperforming assets in the third quarter, up 33% from a year ago, and more than $6 billion in REO that needs to be sold.

Even with the Federal Reserve’s plan to purchase $600 billion in Treasury securities through quantitative easing, Freddie still expects “sub-par” growth in GDP over the near term with a slow acceleration through 2011.

The sluggish nature of the recovery means the unemployment rate will likely remain at or above 9% through much or all of next year, with a decline in unemployment only gradually providing relief to the housing market, according to the report.

Barclays Capital expects Fed to buy Treasurys beyond 2Q (11-12-10)

Barclays Capital expects the Federal Reserve will continue buying Treasury securities past the second quarter, although it appears investors feel otherwise as there has been considerable sell-off in long-term bonds this week.

Excessive risk retention may throttle mortgage finance: ASF (11-12-10)

Under the sweeping reforms of Dodd-Frank, federal financial regulators are tasked with defining a qualified residential mortgage to determine which loans will be exempt from new risk-retention requirements. The American Securitization Forum wants the regulators to establish new standards for income and asset verification, minimum borrower equity, and debt-to-income ratios that its members believe significantly strengthen the mortgage pools and ‘ensures appropriate credit can resume flowing to American homebuyers.

D.R. Horton Sees Challenging Year as Home Sales May Decline (11-12-10)

D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, expects 2011 to be a challenging year, the industry as consumer confidence and employment remain weak, Chief Executive Officer Donald Tomnitz said.

KBW says market overly pessimistic on Fannie, Freddie losses (11-12-10)

Analysts at investment bank Keefe, Bruyette & Woods said both Fannie Mae and Freddie Mac have enough in reserves to absorb losses from legacy portfolios and that market estimates of potential losses are ‘overly pessimistic.

Calif. borrowing $40 million/day for unemployment benefits (11-9-10)

California is Going Broke/ Jerry Brown and the Democratic Majority to the Rescue.  California is borrowing $40 million a day from the federal government to pay unemployment benefits.  That means California is borrowing $40 million a day from you and me to pay unemployment benefits.

The Los Angeles Times reports the state will have a $362 million bill for interest alone due on a total debt of $10 billion next fall.

Thanks to the recession and poor management, California is an economic disaster zone, with one in every eight workers unemployed. More than 1.2 million Californians have lost their jobs since the start of the recession, and they’re staying out of work for longer periods of time.  Plus in 2001, state lawmakers nearly doubled unemployment benefit levels without raising taxes. That was smart.

The result of all this is that if California keeps borrowing from the federal government, employers could face a steep hike in their unemployment taxes.

California is not alone here. 32 states in total have been borrowing from the federal government to pay unemployment benefits. The total is $41 billion. Some of these states are asking the feds for a deferral on repaying the loan until the economy improves.

Oil Prices Up thanks to Q2

Oil is now challenging the $90/bbl threshold and this is more a reflection of the Feds quest to weaken the U.S. dollar than any incipient global economic boom. The net speculative long position on oil contracts on the NY Mercantile Exchange has doubled since the Fed first started talking openly about QE2 in late August at Jackson Hole, to a near-record 208,228 contracts (1,000 barrels per contract).

When oil first tested the $90/bbl level back in October 2007, the U.S. economy slipped into recession, without anyone knowing it, including the Fed, and the long list of Wall Street economists, many of whom are still in their seats today.

WHO DO YOU TRUST, WHO DO YOU TRUST!

It is intriguing to see how Fed Chairman Ben Bernanke said for the record, just over a year ago, that the Fed had no intention of monetizing the debt.

Chairman Ben Bernanke, in response to a question during his June 3, 2009 testimony to the House Budget Committee, said, Either cuts in spending or increases in taxes will be necessary to stabilize the fiscal situation…The Federal Reserve will not monetize the debt.

Just the other day, Dallas Fed President Fisher said that this is exactly what the Fed has chosen to do. The U.S. does not suffer from a lack of low interest rates. Nor does it suffer from a lack of liquidity. What it suffers from is a lack of policy credibility.

For the next eight months, the nations central bank will be monetizing the federal debt.
…………………November 8, 2010,  Dallas Federal Reserve President Fisher

Soon Government will not be collecting sufficient taxes from constituents.  As shown by California’s Legislature government cannot cut its social programs that have created a sea of red ink on its balance sheet.  Now that prosperous times are over the liberal progressives in control of government cannot bear to cut the pork from their precious welfare and environment entitlement programs.  The California taxpayers in a liberal state cannot take any more taxation, they have proven they are mad as hell and are watching their representative’s actions for the necessary spending cuts to non-essential programs.

Liberal progressive priorities are out of touch with common sense as the California’s Governor is calling for borrowing from property tax revenue from cities and counties.  The only cuts discussed are from schools, letting prisoners out early, and cuts in police and fire.  Were governments to attack the massive inefficiency due to absurd labor contracts there may be a start to reform.  For example, state workers at prisons who are “boiler engineers” will not sweep the floor, screw in a light bulb, or do anything that is not in their job description.  If a bolt needs tightening in another department it will not be fixed by a boiler engineer, he will sit at his desk with his feet up and say “not my job!”

Comrade President Obama has ensured labor a seat at the head of the government table with a redefining of contracts where government can subjugate the law to its own power demands.  Governments process of corporate debt restructuring and recent interventions in such restructurings as Chrysler and GM is leading to market concerns that rights of senior creditors such as bondholders are being undermined by preferential treatment of junior creditors  union pension liabilities as junior lien holders are now in senior positions.

The US government is about to lose its triple A bond rating due the disastrous financial shape it has created by debt creation and California has been downgraded my Moody’s such that it cannot even get a loan without guarantees by the Federal Government.  This will do nothing to assist the Federal government’s bond rating and no matter what the Washington politicians say Moody’s analysis will be a ringing bell above the eloquent tongue flapping of Obama.  The US government is now following the State of California because of politicians that will not cut spending but rely on tax increases so that government can survive and politicians can stay in power.

The liberal progressives in power on the state and federal levels will not cut spending.  They have been paid by special interests for years to create these programs in the first place.  The lobbying to keep programs over cutting programs will be extremely intense but will not follow the rule of common sense but of special interest money. The need to find the easy way out via taxation and borrowing that has been the hallmark of government will continue until the population faced with abject tyranny revolts at the voting booth.  As California looks to pilfer revenues from Cities and Counties as Stated by Governor Schwarzenegger, so will the Federal Government steal from the States.

The CBO estimates that US public debt to GDP ratio will rise from 40% to 80%, or about $9 trillion dollars. Should long term rates increase to 5%, the resulting increase in the interest rate bill alone would be about $450 billion or 3% of GDP. This can only be offset by an increase in taxes or cutting government spending or theft of dollars collected by the Federal Government that are then returned to states via programs like Medicare and Medicaid.

To prevent an unsustainable Maddof scheme like the Federal Government is now pulling off by massive increases to the stock of public debt as a share of GDP the debt bubble will soon burst. The burden of trillions of dollars of high debt levels will soon only be financed by default, a capital levy on the wealthy, the use of inflation to wipe out the real value of money, more public debt, and an increase in taxes at all levels of society.  Although it may be possible for government to reduce spending and cut programs this is a sacred cow that cannot be slaughtered unless it is for military spending.

The Obama administration is incorrect in analyzing the causes of this economic crisis. This mistaken policy response of socialism and massive debt does not attempt to solve the fundamental causes of economic meltdown and will result in policies that exacerbate any recovery.  This crisis was caused by excessive over-borrowing. Excessive leverage by financial institutions, households,  and irrational lending practices creating massive debt and excessive credit causing the current insolvency and illiquidity problems.

The Obama Administration sees this as a crisis of confidence that has led to a collapse of liquidity ignoring the fundamental problem of debt.  Although they do see the crisis of over-leverage and the collapse of liquidity and credit in financial markets confirms a need to infuse financial institutions with cash in an effort to stiffen up institutions and firms weak financial fundamentals debt is their economic answer.

Thus, the Obama Administration is telling Americans to spend and Obama is trying to reduce credit card rates for households to get them borrowing again.  The Administration believes the way out of the recession is through aggressive government debt to grow institutions and welfare programs that confidence and trust can return through this program and lead to a recovery.

However, recovery cannot be obtained by government incentive instead of providing individuals with personal incentives to create income take risk and produce for their own family’s future benefit.  The oblique view of the Administration to see government as the savior will not stop an unavoidable serious recession from turning into a real depression.

Real economic change from the current downward economic spiral depends on the resolution of the real and financial excesses that causes the economic and financial crisis in the first place. Currently, households, financial institutions and corporations are just starting to deleverage their debt.  Washington rhetoric is just that, a childish tantrum that can do nothing to help solve the excessive leverage, debt and credit crisis.  What it is doing by socializing corporations and putting the debt on government’s balance sheet is economic Disneyland.

As the private sector including households are in process of deleveraging, debt restructuring, this is causing deflation as households, businesses firms are cutting costs to survive while unemployment corporation cut backs continue.  Much more is needed than bail out money and massive government budgets  to create a false confidence to spur spending that will then somehow cause Americans to resume their high economic lifestyle overnight.

Nationalization of corporate debt is creating a public sector bubble of re-leveraging to pick up losses in the private sector. This policy solution is a rubric that makes recovery impossible by complicating private sector economics that must now  rely on new legal guidelines that are inconsistent, never been tried, impossible to change quickly, and obsolescent from the start.  This does nothing but add gasoline to the already dangerous fire of debt and solvency problems fanning flames to heretofore unknown and stratospheric heights.

The right way to resolve a problem of excessive debt to capital assets for households, business firms and corporations is to reduce the principal value of leveraged assets and create equity.   If there is too much debt and too little equity in an economy debt must be converted to equity by transitioning nonperforming assets into equity reducing the debt overhang.

The Obama Administration is increasing public debts, expanding the overall leverage of the economy instead of reducing it or providing incentives and credits to do so.  By blindly creating and increasing sovereign debt will not induce growth but extend the recession.  By government creating a new balloon of sovereign debt the proper way to grow the private economy can never occur.  Government created excessive debt and leverage to fund nonessential programs will create a drag on the economy due to the higher taxes needed to sustain the increasing sovereign debt balloon.

Today California’s tax propositions will fail at the voter booth.  California will either have to cut spending or balloon their debt further with guarantees by the federal government as a stop gap measure to warrantee the loans to California.  There are other liberal states in this exact same predicament however politicians still have not gotten the public’s message.  After today’s election the voters voice will resound loud and clear across America, “GOVERNMENT CUT PROGRAMS AND REDUCE DEBT!”

The providence of market analysis is the timing of when confidence will actually occur.  The only thing holding the debt pyramid of the US Government together is confidence.  It is an almost mythical state that exists in a collective mentality that is not an asset.  Yet it is the fuel that creates credit and the promise to pay an asset with either the holding of an asset or the promise to produce an asset.

Owed money is as valuable as a real asset if in the mind of the creditor there exists a value.  If in the opinion of the creditor that point changes, then the money to be traded for asset value will dry up or no longer be exchangeable in an amount previously considered for the asset.

When outstanding credit far exceeds the pool of assets and the productive capacity that backs the creation of that credit is impaired there is a real danger to the monetary system.  When confidence that supports that development for credit or conversely the erosion and reduction of that confidence therein lies the timing of the market turn.  The extent of that wave pattern can be found in the roots of public mood.

As credit is reduced in the market place the financial system will contract and investors and consumers will reduce purchases.  Prices offered by sellers will be reduced, then the market for labor and materials will contract.  People will sense this contraction and defer purchases either by fear or to wait until prices drop lower.  Each of these market forces rely on the other and a spiraling of prices is the result, as is happening now in the real estate market.  The spiraling forces will cause businesses to fold, no new businesses to start and result in further economic contraction.

This contraction is what is catching those in debt with new cars, large mortgages on their homes to sell off assets to pay debts.  As this spiral continues from an over burden of debt as we have seen large corporations, banks, insurance companies even state and local governments will have a drop in revenue and have to curtail spending.

This debt collapse will make bankers concerned with making loans.  The value of the assets securing the debt in all segments of the economy is dropping,  devastating wealth as portfolios evaporate and purchasing power dries up.  Creditors are hard pressed to believe that the value they are lending on will be there tomorrow to return the investment.

Now that this trend has become global, European countries are on the verge of defaulting on their debt as are eleven US States.  Third world debt held by formerly stronger financial nations will default weakening the creditor now turned debtor nations.  The G-20 nations are calling for a new world currency so that the IMF can materialize more debt to refinance nations that have bad loans on their books in an effort to protect the creditor nations from their own bad debt spirals.

This process involving mood is dynamic and very visible in this contraction as the processes of debt and credit feed off one another and each cause results in a new effect and the psychology deepens and is reinforced by each new depression in value.

The government bail outs, nationalizing banking institutions increasing debt levels to the stratosphere with no possibility of repayment in the life times of our great grand children is not acting as a catalyst to stimulate growth but is having the opposite psychological affect by driving the economic spiral lower toward depression.  Businesses are not intending to grow because of the new taxing disincentive in addition to government’s new involvement as a competitor in the market place that plays by its own rules.

The only growth in consumer markets will be from those companies that have reached their maximum constriction of debt to credit levels in proportion to the sales volume that keeps them profitable, but there will be no attempt to expand into new markets because of the psychological uncertainty in the market place.  Look for reports of growth only because businesses are restocking shelves from their bare bones operations.

Federal Government workers are the only ones able to spend due to their secure income levels and with the intended growth in more government jobs at the expense of free enterprise taxation the buying power of America will continue to withdraw.  A growth in the psychological mood will wait for a change in the Congress and Administration that will unleash the potential of capitalism into the market place.

The biggest credit bubble in world history has popped and government’s answer is more debt and more credit.  Yet the creditors are wary of the assets behind that credit and the money supply to afford more debt is about at an end.

There are inexpensive natural resource assets now in the market place of many countries that if purchased would provide immense future value to America.  Yet America’s government is investing in non growth government expansion at the expense of the future and the common man is starting to make their demands known to the out of touch politicians that have strapped, whipped and demoralized any psychological change to the upside

Before a tsunami hits shore there is calm, yet in the sea the currents are building strength and growing in speed to the unsuspecting taxpayers on shore.  The good folks on shore are unable to read the signs as life requires a two family income, all the daily chores of life, and taking time for the family.  Additionally, Americans have had a relatively stable and predictable government that has delivered a consistent social order that can be depended upon and forgotten about.  Those days are gone!

The massive debt of a $3.5 trillion budget, $12.8 trillion in US Government and Federal Reserve commitments, $11 Trillion National Debt, $1 trillion in new government pledges for the Public-Private Investment Program, these are the currents that are building within the economy that we cannot see from the shore.  The tsunami is coming; the signs will become more and more prevalent when the shoreline recedes into the ocean.  This will be the collapse of the manufacturing and financial sectors as national and international purchases, and government involvement in business slow the economy resulting in further unemployment.  As a part of this recession into the greater building wave of depression, will be the level of taxation that will hit to pay for Comrade President Obama’s social spending, bailouts, and debt service.

By the time inflation hits shore, the main tsunami wave of depression will already be wiping out people’s employment and they will be scrambling for safety, by selling personal assets to pay for their own debts. Government employment at the, municipal, state and local level will continue while the private sector suffers under the new socialist taxation model.

The most oppressive feature of taxation is that there is no time limit to ending the confiscation of income and capitol, just the annual raising of highly graduated tax rates to produce more government income.  Democracy is changing under the Obama administration, to a system that destroys the balance of interests in the community, that heretofore has been dependent on the rights and liberty’s outlined in the constitution before Liberal Democrats and Marxist ideology took power in 2009.  Employer and employee are losing their will to the alliance of government and industry that are conquering the capitalist system known and relied upon, up to the inauguration of Comrade President Obama.

The new Marxist-fascist form of American government is instituting dependency programs made available to the unemployed and soon to be unemployed.  Governments new regulation and restrictions on business are creating a disincentive to expansion of capitol at a time when it is needed most. Additionally,  team Obama is creating an unconscious dependency between the collective American mind and governments ability to provide income.  Americans, through this dependency will lose their imaginative ingenuity, and zeal to produce products and services that have been a hallmark of American capitalism, because they will rely on government to provide for them rather than the rewards attributed to their own expenditure of energy.

Those that work in the private sector will see the fruits of that labor severely taxed, and an inability to fight a rigged system that benefits those on the government’s payroll, with their growing numbers.  This will be due to legislators wedded to a democracy of slavery and government dependence rather than one dedicated to liberty, freedom and the past American way of life.

Thus the tumultuous attack on the constitution and the silent drumbeat that America is no longer a great nation, but one to make excuses and apologize to the world for its success, will be a subliminal assault on the understanding and principals that have made America great.