Category — Helpful Tips

A FEDERAL RESERVE  STUDY PREDICTS long term interest rates may double causing a double dip recession reports the Telegraph.

This is consistent with my prior posts.  Whether this story is true or not, I don’t know.

Should this occur, and long term Treasury interest rates double,  real estate would be plunged into a depression far worse than the 1930s.

Connecting the dots, there seems to be a direct connection between the Stimulus funds not being disbursed and the Treasury’s  reluctance to auction the Treasury bills and notes necessary to finance the Stimulus.  The mainstream media seems to forget,  Treasury does not have the cash to disburse the Stimulus money.  Tax revenues have long since been spent.   The government must first sell Treasury notes and bonds to borrow the money to pay the  Stimulus money authorized by Congress.

Selling an additional $787 billion in Treasuries may well cause  interest rates to double, for example the 10 year T note interest increasing from 3.5% today to 7%.  Fixed rate 30 year mortgage interest rates would increase to 10%.

INMAN NEWS REPORTS, the 10 year T bill is stuck at 3.55%,  fixed rate mortgages are still at almost 5.5%, and the 30 year T bond at 4.44%.

With the Fed printing money (i.e. ‘quantitative easing’ by the Fed buying treasuries) and doing everything it possibly can to create inflation, people shouldn’t be surprised bond and mortgage interest are more than 6.5% higher than the rate of inflation deflation.

Message to Obama:  heh, the $2 trillion the Treasury has to borrow by selling T bills and bonds to finance the national debt, the $1.8 trillion deficit and Stimulus, only 7% disbursed, ain’t agonna happen without higher interest rates ’cause the foreigners expected to buy ain’t a’ buyin’.

An’ if Bernake keeps a’ buyin’ Ts from the left Treasury pocket ($1 trillion this year) to put in the right Fed pocket ($2 trillion more) it will provoke foreigners ta’ mutiny an’ throw the dollar in the pond, ’cause it won’t be worth nothin’.

Obama: Everyone In The Water Now!!

THE CALIFORNIA LEGISLATURE  HAS  given up trying to balance the California budget seemingly,  and may drop the $24 billion dollar budget bomb on Uncle Sugar.  Megan McArdle at the Atlantic has the story. Via Instapundit.

California can’t borrow money on the bond market because the state has a junk “Ba” credit rating.  California can’t increase taxes because it now has the highest marginal tax rate in the nation.  And it can’t cut the budget because the Progressive legislature is addicted to social welfare programs and sanctuary cities that draw 360,000 walk-in  residents per year who desperately need the social welfare that cost the state an extra $10.4 billion each year.

BUT THE REAL PROBLEM is that the state will need multi-billion dollar bailouts EVERY YEAR for the next 30 YEARS as the $200 billion accrued public employee pension benefits come due, and tax revenues continue to dramatically decrease as taxpayers are migrating out of the state at the rate of 420,000 per year. See pewsocialtrends.org/maps

So much for California being the fifth, eighth, tenth, fifteenth biggest economy in the world.

BUY OF THE WEEK:

THIS 3X2 1506′  SF HOME at 2404 Rinconada in Willow Glen is listed at $379,000.   It is a perfect rental home, and at $251 a square foot can’t be built today for the price.  Almost no maintenance; ready to rent.  With 20% down, monthly payments at about $1600, rent at $2350, put money in your pocket every month.  Buy it for less than the asking price.

THE ECONOMY OF THE US is going to crash and burn.  The prospective bailout of the financial markets by Congress won’t work.  Previous posts have stated why Chaos Theory applies to the financial and mortgage crisis today.  Chaos theory applies to all natural complex dynamical systems like markets, ecosystems, and weather.  For over 18 months the US financial system has been demonstrating a condition known as Negative Dynamical Volativity/Stability.  This is known in mathematics as the Butterfly Effect.

The dynamics of the financial and mortgage markets are sensitive to initial conditions (fragile).  This sensitivity manifests itself as an exponential growth of instability from the initial change of condition.  The cause of extreme instability is both architectural structure flaws, and flows (of money) over time.

The analogy is an airplane with a structural design failure.  As corrections are made to control the aircraft over time, there is increasing amplitude of failed control.  Without correcting both defective structure (regulations and organizational architecture) and the flow (of money) the market crashes.

The current crisis cannot be controlled without both organizational (institutions have disappeared that provided the structure with stability), regulation, and restoring the flow of money-liquidity.

Congress and Wall Street is ignoring the fact that an entirely new mortgage financing structure must be created instantly, institutions providing credit suddenly dead replaced, AND liquidity provided to be effective in creating market stability.  Congress is providing only bailout liquidity.

There is a high probability the economy of the US is gong to crash and burn within the next four months.  Fasten your safety belts.

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