Vinny’s Blog

Hi folks holidays are over new year has arrived. I was busy during my holiday season enjoying holidays and hope you had a good time too. New Years always bring new hope and so I want to start the new year with some good news.

Good news is that housing has gone with a very critical correction in 2008 in US. Other good news is that no matter what happens housing is not going to go down to zero (0). People keep talking about housing market crashing etc….that is all related to house prices going down but (no way) they can not and will not go to zero or to some unrealistic value like that.

Here is why….houses are made of many components, wood, cement, tiles, lights, doors, windows, tables, furniture etc. and all those people who make them need to get paid so in the end when you put together a house it will always have some value. No matter what the economic situation is (or going to be) you won’t be able to buy houses for a dollar or 10. It just won’t happen. So the only question remains in 2009 is will there be more correction in housing market and that is all you have to look for.

Value of houses have to go low enough to make them an attractive buy and that can be achieved in two ways either the prices go low (low enough) or the value of USD goes down enough, net result is same lower USD will push prices of everything up and then houses cannot be made cheaper because every component will cost more and that might provide a support for the housing market.

We will look at housing market (how it’s going to shape up in 2009) later, first let us have a general look at the economy in 2009. For that we might have to look at some data from before.

Let us get started……………………let us see how much debt was created in the first 6 years of this decade well it’s approx 7 Trillion.

“The problem that has overcome the economy has its most recent roots in the creation of nearly $7 trillion of new residential real estate and consumer debt during the first 6 years of this decade,” Daniel Alpert, managing director at investment bank Westwood Capital in New York, wrote in March. “Simply put, this level of debt creation was unprecedented - more than doubling the amount of homeowner and consumer (credit card and auto loan debt, for the most part) debt that existing at the end of 1999.”
http://money.cnn.com/2008/09/14/news/economy/source_of_the_crisis.fortune/index.htm

First we created 7 Trillion dollars of debt between 2001-2006 as per Daniel Alpert and then how much money has been pledged and how much money has been spent so far by the federal government ?

8 Trillion dollars have been pledged so far…I am not kidding you must check this out yourself click on the link below to see the breakdown of 8 Trillion dollars and out of this 8 Trillion dollars 3.2 has been spent already. http://www.sfgate.com/cgi-bin/object/article?f=/c/a/2008/11/26/MNVN14C8QR.DTL

8 trillion dollar govt bailout breakdown.. That sum represents almost 60 percent of the nation’s estimated gross domestic product. Only about $3.2 trillion of the $8.5 trillion has been tapped so far, according to Bloomberg. Some of it might never be.
Unless I am mistaken this 8 Trillion dollar pledge is debt money again. Obviously we are a rich country or how else could we pledge so much money. It seems that rules of economy/money supply etc just don’t apply to United States our currency is reserve currency and so whenever we want as much of it we want we can get. All we have to do is print….print…and then again print some more……and just keep on printing. Even though US debt clock has run out of digits we just kept printing.

Just as easily we can print Trillions of dollars we can loose Trillions of dollars after all who can stop us from printing….let me give you 4 Trillion dollar losses in just few lines believe me you won’t even need a calculator.

Housing
U.S. homes lose $2 trillion in value in ‘08
Home prices have been hit hard, yet there is still no end in sight to the foreclosure crisis, according to Zillow.com.

Retirement accounts have lost $2 trillion so far
By JULIE HIRSCHFELD DAVIS, Associated Press Writer Tue Oct 7, 7:27 PM ET
WASHINGTON - Americans’ retirement plans have lost as much as $2 trillion in the past 15 months — about 20 percent of their value — Congress’ top budget analyst estimated Tuesday as lawmakers began investigating how turmoil in the financial industry is whittling away workers’ nest eggs
–There you go cool 4 Trillion…….Let me give you an account of additional Trillion or more….

U.S. Needs to Pump $1.2 Trillion Into Banks, FBR Says (Update3)
Nov. 20 (Bloomberg) — The U.S. may need to spend another $1.2 trillion to recapitalize the eight largest financial institutions and stabilize the markets
because private investors won’t take the risk, an FBR Capital Markets analyst said.
–Why because here is the situation with banks as of Nov 25th 2008 do you think it has improved since then ?

Problem banks rise to 13-year high
Last Updated: November 25, 2008: 10:40 AM ET

U.S. problem banks rise to 171 at end of third quarter: FDIC
Tuesday November 25, 10:37 am ET

Bank reserves not in pace with loan losses: FDIC
‘Coverage ratio’ at lowest level since early 1993; bodes ill for industry
Last update: 12:21 p.m. EST Nov. 25, 2008

So far housing loss 2 Trillion, retirement accounts 2 Trillion and banks need 1.2 Trillion that totals 5.2 Trillion…already did you need a calculator for that ?

If we can print so much money I guess most would think all is well……or is it ? let us look at the situation in little more detail…..every country is made of states and if states are doing well country overall will do well.

Alabama County Sued by Bond Insurers Amid Stalled Debt Talks
By William Selway and Martin Z. Braun
Sept. 17 (Bloomberg) — Jefferson County, Alabama, was sued by bond insurers Syncora Guarantee Inc. and Financial Guaranty Insurance Co., seeking to strip local officials of control over the sewer system that has pushed the county toward bankruptcy.
Alabama
Debt extension talks for US county
By Nicole Bullock in New York
Last updated: October 3 2008 02:58
The clock is ticking on Jefferson County, Alabama, to stave off bankruptcy and avoid taking a place among the growing list of casualties from the credit crunch.

New Jersey, which already has a reputation for public corruption, has earned a new distinction: it is the nation’s third-most-indebted state. A Wall Street analysis released last week put the state’s total debt, including $5.2 billion in borrowing last year, at $29.7 billion, less than half of California’s $61 billion debt and $20 billion less than New York’s.

Florida…As tax receipts continue to fall short of estimates and costs of products from gasoline to health care continue to climb, the state faces a projected $3.5-billion hole in the 2009-2010 fiscal year, raising the specter of even deeper spending cuts in the future.

California Schwarzenegger declares emergency
The state’s governor calls for quick legislative action to help ease the $11.2 billion deficit.
December 1, 2008: 6:37 PM ET

California will run out of money in February
By Guy Adams in Los Angeles
Wednesday, 24 December 2008
The State of California will run out of money within two months, forcing Governor Arnold Schwarzenegger to start settling bills and paying employees by
issuing “IOU” notes, his chief financial officer has revealed.
DECEMBER 26, 2008
Gov. Arnold Schwarzenegger has repeatedly scolded state legislators for not doing enough to resolve California’s budget deficit, which now stands at nearly $15 billion and which he said could balloon to more than $40 billion over the next two years.

New York/Connecticut Budget Gaps Threaten Broader Economy
Heavy Reliance on Wall Street Stings the Empire State, and Sector’s Realignment Could Mean Lasting Changes to Tax Base Next door in New Jersey, tax revenue fell short of projections by $258 million for the first four months of the fiscal year, and state officials there last week said Trenton’s budget deficit could reach $1.2 billion, triple the previous prediction. Neighboring Connecticut’s budget deficit, meanwhile, could hit $6 billion over the next two years.

Philly
City finances in trouble, Mayor calls for spending cuts
Mayor Nutter today announced that the city faces a $450 million funding shortfall over the next five years, due to lower than expected business privilege tax revenues and poor performance by the city pension fund.

Virginia.
Virginia orders 570 state layoffs
Governor says state nearly $1B short this year, plans cuts to college funding, puts off state employee raises.

–You get an idea……here is the bigger picture.
29 States Faced Total Budget Shortfall of at Least $48 Billion in 2009
Elizabeth C. McNichol and Iris Lav
Center on Budget and Policy Priorities
August 7, 2008
At least 29 states plus the District of Columbia, including several of the nation’s largest states, faced an
estimated $48 billion in combined shortfalls in their budgets for fiscal year 2009 (which began July 1, 2008 in most states.) At least three other states expect budget problems in fiscal year 2010.
Here is link to a table that describes budget gaps for 29 states.

By the time we get to December 29 states became 43
43 states in financial trouble
The recession has most states unable to cover expenses, according to the Center on Budget and Policy Priorities, and states should expect tough times ahead.
overall states are in a bad situation

United States - budget gap by Citi/state
–Get it most of the states are not doing well on their own……how can a country do well ?

Anyway observe what the states are looking forward to………more money of course. Did you forget we can print as much as we want…………

Massachusetts looks into federal aid
State treasurer looks for possibility of low-cost loans as credit markets become increasingly tight.
BOSTON (AP) — The treasurer of Massachusetts has asked the federal government about lending Massachusetts money under the same favorable terms it has given banks and firms during the financial crisis.

U.S. Cities, Reeling From Deficits, Seek Treasury Bailout Cash
By William Selway and Adam L. Cataldo
Nov. 14 (Bloomberg) — Philadelphia, Atlanta and Phoenix are asking the U.S. Treasury Department for part of the $700 billion financial rescue package to help them finance construction projects and pay bills.

California asks Fed for $7B loan
In a letter to the Treasury secretary, Gov. Schwarzenegger said the state may need an emergency loan for day-to-day operations.
October 3, 2008: 10:07 AM ET
U.S. governors seek $1 trillion federal assistance
By Jon Hurdle
PHILADELPHIA (Reuters) - Governors of five U.S. states urged the federal government to provide $1 trillion in aid to the country’s 50 states to help pay for education, welfare and infrastructure as states struggle with steep budget deficits amid a deepening recession.
— Now is a good time to explain difference between government debt and private debt and I hope you understand this very well because one way or the other you WILL be impacted and there is no escape from it.

Private Debt – you see an individual passes away and the debt goes out with him.
Government Debt – It stays, it does not go away, California cannot say it’s joining Spain and write off it’s debt.

In part government debt is considered safer why ? Because government has the power to collect tax from it’s citizens and that is how they pay off their debt. Are you getting the picture ? All this debt state/country 8 Trillion of it……this will have to be paid…and we are going to pay it in TAXES at the same time services provided by states may be reduced.
For states, it’s ‘worst-case scenario’
It’s hard to borrow. Tax revenues are declining. States and municipalities are hurting. Get ready for budget and service cuts.

And wheels are already in motion……….

Budget deal would include steeper car fees
Under the agreement, GOP lawmakers would vote to triple the vehicle tax in exchange for a ballot measure that would impose rigid limits on future state spending.
By Evan Halper November 21, 2008
Reporting from Sacramento — State lawmakers began moving toward a deal this week to close California’s deficit with the help of steeper car fees that would cost many drivers hundreds of dollars annually, according to people involved in budget talks.
Yet another thing to worry about: Taxes
Adding to your frustrations and losses is the possibility of getting hit with a tax bill. Time to plan.
By Penelope Wang, Money Magazine senior writer
December 24, 2008: 6:02 AM ET
Blame IRS rules. Unless you’re investing in a tax-deferred retirement account, such as a 401(k) or an IRA, you’re on the hook for the realized capital gains that may have resulted from your manager’s trading earlier in the year. “Fund managers had to sell appreciated shares to raise cash for redemptions, which triggered capital-gains distributions,” says Tom Roseen, senior research analyst at Lipper. “So you have insult on top of injury.”
Soda tax, tuition hikes: State budget cuts sting
New York slashes services and raises taxes and fees to close $13.7 billion deficit. Other states likely to enact similar measures.
In budget crises, American states reluctantly halt road projects
By Jennifer Steinhauer
Published: December 23, 2008
California, which has suspended nearly $4 billion in public works projects, is one of a half dozen states delaying or halting projects because of capsizing budgets, an inability to attract investors to the municipal bonds used to bankroll many projects and a reduction in gasoline tax revenues — which underlie a lot of transportation financing.
State Lotteries Show Big Declines
With Rare Drop in Sales, a Formerly Recession-Proof Revenue Stream Slows
DECEMBER 25, 2008, 10:56 P.M. ET
States, Roiled in Credit Crisis, Face Lower Revenue (Update1)
By Jerry Hart
Enlarge Image/Details
Oct. 3 (Bloomberg) — U.S. states and municipalities from New York to California are facing deteriorating finances as investors shun their bonds in a credit market averse to all but the safest debt and a slowing economy erodes revenue.

Lottery and municipal bonds are yet another way for states to raise money..and if they can’t get money from those guess what they can always collect it from you in form of other taxes and fees.

-Here is a tip for you for this year you can thank me for it later………

Deficits May Make U.S. Eager to Pounce on Tax Returns (Update1)
By Alexis Leondis
Dec. 11 (Bloomberg) — The most important U.S. tax tip to remember this year: make sure your return is accurate, as the Internal Revenue Service is looking for every dime it can get, said tax attorney Ian Comisky. “Because of a huge deficit and major enforcement initiatives by the IRS, an inaccurate return will have a better chance of being picked up than in prior years,” said Comisky, a partner at the Philadelphia office of law firm Blank Rome LLP.
-Make sure you don’t make a mistake on your tax return this year, specially this year and don’t be late either.

Goldman Slashes U.S. Growth Forecasts, Says Recession Deepens
By Dave Liedtka
Nov. 21 (Bloomberg) — Goldman Sachs Group Inc. increased its recession estimates, saying gross domestic product is declining at a 5 percent annual rate in the current quarter and will drop 3 percent and 1 percent in the next two quarters.

Unemployment will reach 9 percent by the fourth quarter of 2009, Goldman economists led by Jan Hatzius wrote in a research note today.

- There you go don’t expect much change in first half of 2009…and remember all that money we are printing well……..

U.S. Debt Expected To Soar This Year

$2 Trillion Increase May Test Federal Ability to Borrow

“There’s a time bomb in there somewhere,” Crandall said, “but we don’t know exactly where on the calendar it’s planted.”

http://www.washingtonpost.com/wp-dyn/content/article/2009/01/02/AR2009010202322_pf.html

[views and opinions expressed here are mine and you need not agree with them. You should not make any financial decisions or any other decision based upon material you read on this website. For that you must contact an expert in the relevant area of your need.]