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Wednesday, September 23, 2009

It’s not the H in Whanganui we should fret about, it’s the W in Recession

As you stimulus cash wears off, as the credit addict global economy starts to feel the full blaze of that trillion dollar fix, is it time to ponder what happens when the addict has it’s hit wear off?

Aren’t we simply mirroring the same type of bubbles that occurred in the wake of the 29 crash, an event that took 4 years to hit it’s peak (3 years to bottom out in the share market) I think that we are facing a W recession and that the fundamental problems that got us here haven’t been solved.

Managed Capitalism since Bretton Woods has worked better than the boom and bust previous unregulated commerce wrecked upon people, but the model needs re-working in the manner Sarkozy and Stiglitz have been examining. This discussion simply has not progressed far enough and done lazily may in fact tip the stockmarkets into a sudden flurry of panic if legislation on outlawing some types of speculative trading or buying options were leaked too early to the market. In short I don’t think we should be proclaiming victory yet, all Optimist Prime here needs is a “Mission Accomplished” banner behind him.

Key: Economic stats 'good news'
Prime Minister John Key is talking up the economy and job figures after statistics released today suggested the country may have officially clawed its way out of recession.

Instead of appearing on Letterman, perhaps John might want to get an assurance that Obama will call him to let him know when America will go pop again, because I think that America is sick, real sick….

"Option" mortgages to explode, officials warn
WASHINGTON (Reuters) - The federal government and states are girding themselves for the next foreclosure crisis in the country's housing downturn: payment option adjustable rate mortgages that are beginning to reset.

"Payment option ARMs are about to explode," Iowa Attorney General Tom Miller said after a Thursday meeting with members of President Barack Obama's administration to discuss ways to combat mortgage scams.

"That's the next round of potential foreclosures in our country," he said.

Option-ARMs are now considered among the riskiest offered during the recent housing boom and have left many borrowers owing more than their homes are worth. These "underwater" mortgages have been a driving force behind rising defaults and mounting foreclosures.

In Arizona, 128,000 of those mortgages will reset over the the next year and many have started to adjust this month, the state's attorney general, Terry Goddard, told Reuters after the meeting.

"It's the other shoe," he said. "I can't say it's waiting to drop. It's dropping now."

The mortgages differ from other ARMs by offering an option to pay only the interest each month or a low minimum payment that leads to a rising balance in the loan's principal.

When the balance of the loan reaches a certain level or the mortgage hits a specific date, the borrower must begin making full payments to cover the new amount. The loan's interest rate also may have been fixed at a low level for the first few years with a so-called teaser rate, but then reset to a higher level.

Because the new monthly payments can be five or 10 times what borrowers are accustomed to paying, they "threaten a much greater hit to the consumer than the subprimes," Goddard said, referring to the mortgages often extended to less credit-worthy borrowers that fed the first wave of the financial crisis.

Miller said option-ARMs were discussed at Tuesday's meeting on mortgage scams, which brought state attorneys general from across the country together with U.S. Treasury Secretary Timothy Geithner, Attorney General Eric Holder, Housing and Urban Development Secretary Shaun Donovan, and Federal Trade Commission Chairman Jon Leibowitz.

The mortgages tend to be "jumbo," or for significantly large amounts, Goddard said, making it even harder for borrowers to sidestep foreclosure. He said he expected to see an increase in scams as distressed homeowners become more desperate to refinance big debts.

HSBC bids farewell to dollar supremacy
The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC.
"The dollar looks awfully like sterling after the First World War," said David Bloom, the bank's currency chief.

"The whole picture of risk-reward for emerging market currencies has changed. It is not so much that they have risen to our standards, it is that we have fallen to theirs. It used to be that sovereign risk was mainly an emerging market issue but the events of the last year have shown that this is no longer the case. Look at the UK – debt is racing up to 100pc of GDP," he said

Crucially, China and rising Asia have reached the point where they can no longer keep holding down their currencies to boost exports because this is causing mayhem to their own economies, stoking asset bubbles. Asia's "mercantilist mindset" of recent decades is about to be broken by the spectre of an inflation spiral.

The policy headache was already becoming clear in the final phase of the global credit boom but the financial crisis temporarily masked the effect. The pressures will return with a vengeance as these countries roar back to life, leaving the US and other laggards of the old world far behind.


At 23/9/09 3:22 pm, Anonymous Anonymous said...

"Managed Capitalism since Bretton Woods has worked better than the boom and bust previous unregulated commerce wrecked upon people,"

Um no it was unsustainable because govnt wanted to print money to fund the welfare state thereby having to break away from the gold standard.

You should stick to your knitting bomber.

At 24/9/09 9:36 am, Anonymous Sam Clemenz said...

Mission accomplished!


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