American Melt Down?

No, not now, later perhaps, but note US treasury paper is less than half of China's reserves now. China, like me, is worried about the value of those assets a few years from now. That is why in the last four months they have LOWERED their holding of US dollar in their reserves, while their total reserves are still growing. BTW, China has 2.45 trillion in reserves and only ~800 billion are Treasury bonds based on records of Treasury purchase; However the true total is probably more like 1 trillion as China, some years ago did buy on the secondary market too. For last four months now China has been a net seller of Treasury paper. (Bond maturing and not rolled are counted as sold here. - In fact they are effectively "sold" back to the Treasury as the Treasury pays China their face value.)

I never said that the Treasury's IOUs to SS were worthless. In fact I said that even after the dollar has weaken by a factor of 15 in purchasing power, (with SS payments adjusted by CPI up to each individual by factor of 15, and many more retired baby boomers to pay) I noted that Treasury buying back those fixed value IOUs would still make them worth 1 of each of the 15 units SS was obligated to pay.

There is currently a short fall due to the large number of Americans un or under employed (or workers with jobs paying much less than the one they were fired from). This has reduced the SS tax income to the government at precisely the time when SS expense are turning up (by a factor of three compared to 2007) This great surge up in SS payout is due in part to the predicted retiring of the baby boomers, but also due to the unpredicted fact that many older people who were planning to work a few years more (and pay into SS, instead of collect from it) have been fired (replaced by a lower paid young person, if replaced at all). As it is very hard for a just eligible for reduce SS benefits to find a new job they are opting to start their SS, even though that means their benefits will be 20% lower for the rest of their lives!

You (and many others) are assuming this current short fall will end as the economy recovers. - As it is mainly due to baby boomers retiring (not going to change for at least a decade) and the larger un & under employed (also a growing group, probably for many years, even if the percent remains at only 9.7 or 17% if the under employed are included) there is not logical reason for you and those others to hold your POV. The short fall is also due to companies moving over sea and not paying their larger than worker's contribution to SS. That too is not going to not going to change (except possible get worse).

Post is getting too long, so I will quit. Our very different projections for the dollar is the main basis for our different POVs. You might listen to this
http://inflation.us/videos.html
re-broadcast to learn some of the facts* I base my POV on. I agree with most of what is said there, except think they are at least indirectly selling silver and gold.
I don't own any, despite my POV. Instead I own shares in about half dozen miners with strong output (or future prospect in two cases) and SLW, Silver Wheaton, which is the largest silver streaming company in the world. They all benefit much more percentage wise when price of precious metals increases than the metals themselves.

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*If any thing there which is stated to be fact is wrong, please tell me you think that is the case. I did, as you know, hold my pessimistic POV long before that organization was even created last year.

 

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This time IS different.

Housing market is part of why “This time IS different.”
(Will end with run on dollar rapidly converting worst ever depression in US & EU):

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This time (red line) IS different!

Author stating the obvious: “What leads to increasing foreclosure rates during some recessions and not others? In the perfect storm scenario what happens is that falling house prices (leading to a negative equity position in a house) combined with a job loss can lead to default and a foreclosure. …

{right graph above} shows the dramatic fall in housing prices associated with this business cycle. In previous business cycles the downturn in prices was barely noticeable or non-existent. The decline in the employment population ratio in this recession has been equally dramatic. …”

From: http://www.forbes.com/2010/04/20/ho...ey-peter-rupert.html?partner=daily_newsletter

Note both graphs take their "baseline data" from time of the business cycle peak just before the start of four different recessions. We recovered from the prior three recessions without the current huge increase in stimulus spending (and associated Federal deficit); but even with this, a key component of the economy (housing which sells many other things like dishwashers etc.) is showing NO sign of recovery, 8 quarters (two years) after the economy peak at start of 2008.

Billy T comment:
Let me add to the author's "perfect storm" factors (Falling home prices & growing total un & under employment) the fact that for several years prior to the peak in 2008, Joe American had had the real purchasing power of his salary decline under GWB. Joe did not tighten his belt to make his expenditures not exceed his income. Instead, Joe compensated for his falling real income by using the rising value of his home as an ATM machine to maintain his unaffordable life style.
This was never done before. (This time is different!)
Because then, prior to the peaks of the three earlier recessions shown in the graphs, Joe's real income rose every year.

Although the author of above quoted text fails to even mention this, IMHO, it is one of them most important reasons why "This time is different." (will end with run on dollar and then depression in US & EU.)

PS the surge in Social Security payments (factor of three already compared to 2007) due to retiring baby boomers during this " great recession" is another part of why "This time IS different." This surge was only partly anticipated (as is being boosted by "economically forced" early SS collectors - See blue text in my last post, 261.) and also the Great Recession, which dramatically cut SS tax income, was not anticipated. Thus the first deficit in SS account is occurring NOW, not after 2024 when originally anticipated. Outsourcing and complete move of employers to foreign lands is also hurting SS tax income as employers pay more SS tax than the workers do.
Even after two years and huge stimulus spending, none of these destructive trends is showing any sign of a turnaround!

THIS TIME IS DIFFERENT.

 

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“… The U.S. will sell $44 billion in two-year notes, $42 billion in five-year securities, $32 billion in seven-year debt and $11 billion in five-year Treasury Inflation Protected Securities next week, the Treasury announced on April 22.

President Barack Obama has boosted marketable U.S. debt to a record $7.76 trillion, Treasury figures show. Obama’s proposed budget calls for a $1.6 trillion deficit in 2010, compared with last year’s record $1.4 trillion shortfall.

Two-year note yields gained 11 basis points on the week, or 0.11 percentage point, to 1.07 percent, according to BGCantor Market Data. That’s the biggest move since the last week of December. The 10-year note yield rose 5 basis points, or 0.05 percentage point, to 3.81 percent. The yield curve narrowed 7 basis points on the week, also the most since the last week of December, to 2.75 percentage points. The spread reached a record 2.94 percentage points on Feb. 18. …”

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=akIJAK1u3mq0&pos=5

Billy T Comment:
The yield curve is flattening as the short term loan interest rate is rising more than twice as fast as the 10 note. The short term is part that the FED can most easily control. Thus either the FED is starting to raise rates or has lost the ability to control rates. The main thing to notice is that will record sales of US debt (129 billion in the coming week) interest rates all along the curve are climbing. If this continues (and perhaps it must if the bond vigilantes have arrived)* it will slow the recovery.

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*If this offering is not well covered (by potential buyers) it is also a sign that the bond vigilantes are demanding higher rates.

 

The great US circle jerk: Treasury gives bail out funds to the banks and banks use them to buy Treasury paper:

"... Bank are increasing purchases of U.S. government securities to pump up profits while lending to businesses languishes near the lowest levels since credit markets started to freeze almost three years ago.

Holdings of Treasuries rose each of the past five weeks, an increase of $63.2 billion to $1.5 trillion, according to Federal Reserve data. At the same time, commercial and industrial loans climbed less than 1 percent to $1.27 trillion and are down 23 percent from the record high level in October 2008.

Banks, ... are taking advantage of the record gap between their borrowing costs and yields on U.S. debt instead of lending, according to data compiled by Bloomberg. Bank demand for Treasuries is helping cap yields as President Barack Obama sells record amounts of bonds to finance a budget deficits that exceeds $1 trillion.

“The risk of owning Treasures is lower than creating loans,” said Anthony Crescenzi, a market strategist and money manager at Newport Beach, California-based Pacific Investment Management Co., the world’s largest bond-fund manager. “There is no clarity on what the capital climates will be domestically or on a global scale with regulation coming down the pipes, which means banks will be banking their money in safer assets.” ..."

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=ab.TUjV2SQNE&pos=5

 

“… For fiscal 2011, which begins July 1 for most states, 38 states and Puerto Rico are grappling with budget gaps that total $89 billion*, according to the National Conference of State Legislatures. That's nearly $34 billion more than projected four months ago….”

From: http://www.fool.com/investing/gener...of-the-states-virginias-governor-weighs-.aspx

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* If you do not know who will eventually foot this bill (and the interest on the associated loans) look in the mirror if you are a tax payer.
Lets call it only $90E9 and 3E8 Americans. That is $300 for each American man, woman and child for FY 2011.

FY2012 will cost you more, etc. until unemployment improves. That may be a decade or more as the more modern Chinese factories, (which GWB's tax relief for the wealthy did "trickle down" to build in China), will still be world's most economically efficient in 2022.

 

Some USA stats I heard on YouTube as of today

1 in 10 missed mortgage in 1st quarter.
1 in 10 cc is being written off.
1 in 6 is under employed or unemployed.
1 in 4 have negative equity in their homes.
1 in 8 feel the government programs are not helping.

hmmmmm......

 

Those stats are meaningless themselves unless you can compare them to other countries or the US 5-10 years ago...(that's how we would know how good or bad they are)

 

That's true - If I remember correctly a lot of these were all time highs or the highest level since the great depression.

In short - things suck.

 

Interesting, you see how things are.

 

Harrisburg PA hopes E-bay can save it:

"... Pennsylvania's capital owes $68 million in bond interest payments this year -- $3 million or so more than its entire annual budget. The Harrisburg Authority, the governing body that issued the bonds to construct a state-of-the-art trash incinerator, has already been unable to make several payments, and now the county government, which footed the bill last year for a $775,000 swap fee, is suing for the funds.

The authority is also indebted to the owner of the trash-burning facility, Coventa Energy, to the tune of $20 million. In April the authority also missed a $637,500 payment to Coventa, and is now in the process of negotiating a forbearance.

The mayor has said the city won't declare bankruptcy, but the governor has vowed not to bail Harrisburg out, leaving everyone wondering what options are left. In the meantime, the city is sifting through its assets, some of which include arcane Western artifacts purchased by the previous mayor with public funds, to see whether there's anything they can put on eBay before the next payment comes due. ..."

From: http://money.cnn.com/2010/05/28/news/economy/american_cities_broke.fortune/index.htm

Billy T comment: There are many cities about to go bankrupt, including Detroit, MI. In2008 only 31 cities were late with interest payments of their federal tax exempt bonds. In 2009 183 were late payers. Data for first quarter of this year not available at the above link. At least it will be mainly the rich* that GWB's tax relief aided that lose their investments, but many innocent will suffer as public schools close, etc.

This is the start of the melt down causing real pain. Many states are not in financial position to advance cities money as they too are in big trouble. (California has more debt than Greece, I think.)
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* Municipal bonds pay lower interest than other bonds, mainly to people in higher tax brackets where the lack of federal (and usually state) taxes makes the net return higher for the high income buyers.

 

"... Jobs may be coming back, but they aren't the same ones workers were used to. ... {this article is NOT about "McD jobs" replacing good pay jobs.}
James Stoeckmann, senior practice leader at WorldatWork, a professional association of human resource executives, believes that full-time employees could become the minority of the nation's workforce within 20 to 30 years, leaving employees without traditional benefits such as health coverage*, paid vacations and retirement plans, that most workers take for granted today. ..."

From: http://money.cnn.com/2010/06/01/news/economy/contract_jobs/index.htm

Billy T comment:
Fountain of youth water to make me young again is looking less attractive to me now than it did a couple of years ago.
My generation and the one before mine really has screwed the current crop of college graduates and those graduating a few years earlier.

"Sorry about that" seems inadequate. If the future is anything like I predict, we really fucked up your lives by over spending, with debt financing, for our benefits.
Perhaps you should at least offer free smokes to all over 55? (To reduce the cost of Medicare and Social Security costs you will pay.)
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*I have not followed it closely, but think the new health care laws will encourage "job splitting" so that two part time employees, with no cost to their employer for participation in the mandated plan, will be used instead of one employee. I.e. Both the "under employed" and the percentage of the labor force that is not a full time employee with benefits will increase. - Is that correct?

 

"... Bank repossessions hit a record monthly high in May, according to RealtyTrac, the online marketer of foreclosed properties. Lenders took back 93,777 properties, up 1% from the previous month's record and 44% from the same period a year earlier. ..."

From: http://money.cnn.com/2010/06/10/news/economy/May_foreclosures/index.htm

Billy T comment:
Banks will resell as not in the business of renting property. Thus 93,777 more homes on the market soon - drives prices down more. That makes more owners become "under water" owners. They are getting more likely to just turn the keys over to the banks. This will stem the foreclosure rate, but not the backlog of unsold homes. I.e. negative feed back on home prices is still strong and the "shadow market homes" (owners who want or need to sell but can't take the loss, so do not place home on the market) is still growing. Also making problem worse is the standard reaction to declining prices -I.e. potential buyers should wait a few months when prices are lower. Thus the supply of home for sale is growing and the demand of buyers is contracting.

 

Perhaps the governor will let them do what CA is thinking about:

"California's legislature is exploring the feasibility of electronic license plates with digital ads, a move that its leading proponent says could add jobs and help in combating the state's budget crisis. ..."

From: http://money.cnn.com/2010/06/21/news/economy/california_budget_electronic_plates/index.htm

If they sprinkle in some safety messages such as: Back off. You are too close if you can read this. I think the law will pass.

Or when traffic is congested and system knows your car is nearing Taco Bell:
"Take a break: 15% off at Taco Bell in the next block "Code 17" gets it."

 

"... Purchases of new homes in the U.S. fell in May to a record low as a tax credit expired, showing the market remains dependent on government support. Sales collapsed a record 33 percent to an annual pace of 300,000 last month from April, less than the median estimate of economists surveyed by Bloomberg News and the fewest in data going back to 1963 ... "

From: http://noir.bloomberg.com/apps/news?pid=20601087&sid=aFryYpgGDKpY&pos=1

Billy T comment:We had the best recovery money could buy (but it still was a steady decline in home prices). Now we cannot afford to prop home prices up any longer. Where do you think they are going?

 

Where US debt increase of 35.5% MORE as fraction of GDP will come from:

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Now debt/GDP=90.9% (from www.usdebtclock.org/) so will be: 126.4% **
Where 39.1% for the G-20 as a whole will come from (Would be higher but G-20 includes nearly debt free China's great GDP.):

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“... If you have a burning desire to fix the short-term budget mess, the most meaningful solution is to dramatically raise taxes. Everything else is peanuts. After that, you can tell the chronically unemployed to go pound sand and, in America's case, revoke the $300 billion in stimulus tax cuts. These three would do the trick more than anything else.

… Balancing short-term deficits is predominantly a factor of increasing revenue, which short of an explosion in real growth won't happen without massive tax increases. No politician with the need to be re-elected would ever dare try this, and few level-headed economists would ever suggest it, either. Hence the red ink. …” From: http://www.fool.com/investing/general/2010/06/25/whom-to-blame-for-the-national-debt.aspx

** Billy T comment:
My years old prediction of dollar run leading to depression in US and EU by Halloween 2014 is looking like a sure thing now.

Spain's debt/GDP ratio is 50.6% and "basket case" Greece's is only 113.2%. Do you think the dollar can survive 126.4% ? I don't. Especially as by Halloween 2014, China will be mainly a domestic economy and not need to export much (and what it does will go to its suppliers of raw materials and energy, like Brazil, who have Yuan incomes to spend.*) I.e. China will not be earning many dollars exporting to broke USA so will have ceased to finance the US debt. US will not default - Instead the printing presses will pay off the maturing bonds. I.e. China will say:

*Go to Hell USA. We don't need to sell to you. Your green paper is WORTHLESS

 

In addition to many other problems, there is the reduction of possible home buyers caused by just announced new policy by Fanny Mae.

The resale of homes last month was at the lowest rate ever - Many buyers acted earlier before the federal funds for buying terminated. Many people who could pay their under-water mortgages are now deciding not to "throw good money after bad" and just turning the keys back to the bank. - Part of why so many small banks, which make home loans are failing. The new policy of Fanny Mae is that people who can not prove it is impossible for them to pay their mortgage will not get an insured loan from Fanny for seven years.

The effect of this on the overhang of unsold homes is hard to know.
To extent it keeps some from not being turned back to the bank, that helps.
To the extent is reduces the number of possible buyers, that hurts.
Read discussion of this here:
http://www.fool.com/how-to-invest/p...aulting-homeowners-finally-pay-the-price.aspx

 

It was nice Discussion ..i get some meaning full knowledge while i study this....i just like it....i enjoyed the reading about your discussion..thanks for Sharing your thoughts with us......
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