Category — News

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!!

MARKET WATCH in testimony before Congress today reports that mortgage modifications are not working for homeowners who are losing their homes.

This is accurate.  A few loan modifications are being made, but not enough to stem the tide of foreclosures and declining home prices.  Until something is done, such as amending the Bankruptcy Act, record foreclosures and declines in home values will accelerate as the recession deepens.

FORBES MAGAZINE article by Nouriel Roubini forecasts stag-deflation over the next five years.  The article provides the economic technical data for anyone who prefers statistical heuristics.

For readers who are concerned about midterm inflation resulting from all the money the Fed is pumping into the financial system, I would point out that historically economists have been completely unreliable in predicting inflation.  Roubini’s analysis does not take into account international monetary effects, like the value of the dollar.   I’m still concerned about the dollar’s value.  Over the next five years if the dollar decreases in value prices go up.  And for real estate owners with ARMs mortgage payments increase.

THE STABILITY IN FINANCIAL MARKETS we needed, as I have previously posted, is not happening.  One thing is certain, instability will continue.  This is true because the big mortgage losses are still ahead of us.  The Pay Option ARMs resets will be in the billions in California in 2012.  Foreclosures will hit their peak then.

One thing that will not occur is something similar to the Great Depression when deflation and the money supply collapses the economy.  The opposite is runaway inflation do in part to a meltdown in the dollar.

There is a technical term for this condition.  There is the Edge of Chaos, using Chaos Theory, where the economy normally works.  Going beyond this boundary area of normal gradients of change there is Chaos.  A better more understandable term is Negative Dynamical Stability.  This occurs where corrections and efforts to bring about stability produce greater instability, in wave of increasing amplitude.  Should Negative Dynamical Stability continue the structure eventually comes apart.  Chaos results.  Then new structures evolve.

It seems now certain that the economy has entered a prolonged period of Negative Dynamical Stability.  Stand by for more negative impacts.

FANNIE & FREDDIE were taken over by the Treasury Department yesterday.  This is great news for the mortgage and real estate market.  Mortgage credit underwriting should ease, and rates should fall.

The public purse will go kaching, kaching as the federal bailout will cost the public not billions, but a trillion dollars or more.  The federal debt in the trillions of dollars was never actually paid off from the 1987 bailout of the savings and loan industry failure.  Maybe, someday, the Congress will come up with the regulatory architecture for a mortgage system that works.

By October mortgage money should be flowing again.  Yippie!