We have completed almost 9 months in 2010 and nothing big ( no big bad news) has taken place. So is it safe to assume that remaining months of 2010 will be calm and un-eventful as well ?
In the beginning of this year government announced ‘cash for clunker’ program then they announced tax credit for first time home buyers. Then the banks were forced to negotiate with home owners to lower defaulting home owner’s payment and some banks choose to delay the debt collection of their own.
All of this has been in the news. I am not providing links assuming that you do follow little bit of news of your own. On top of that don’t forget 2010 is a mid-election year and every election year things are made to look better than they really are..that’s politics. I am not going to explain why it’s necessary to show that things are better in an election year either.
Anyway, No matter what program, which action, 2010 so far has been a better year compared to 2008-2009. I started to believe that year 2011 could be even better - compared to 2010.
As usual I stated to look for sure signs that 2011 would be a better year. First when I checked the un-employment data ( you may have an idea why I did that 
) the numbers are all time high.
Then, obviously if people are unemployed how can they afford to live/pay their debt or housing loan ? I researched that and all assumptions I had for 2010 and 2011 being a positive year fell apart.
Following is a video clip from famous 60 minute show…………..please listen to this carefully.
A second wave of home defaults will strike Banks in 2010-2012. Over $1.5 trillion dollars of bad home loans will threaten the banking system and risk economic collapse. Condensed from a 60 minutes expose.
Video response shows Option ARM reset chart 2010-2012
Following video would show that actual number of defaults in 2010 are higher (August making a record) despite of the fact that these numbers are managed because banks have decided simply not to send notices to the home owners who are defaulting..instead all these are pushed into next year 2011 that message is towards the end of the video so pay attention.
well, everyone knows that debt payments cannot be avoided indefinitely they can be postponed but eventually they would come due and a payment would have to be made.
Now you know what’s waiting to explode….question is what is being done to avoid it ? One would imagine that policies that helped create these sub-prime, alt-a problems would be changed….correct ? WRONG…!!
All those policies that helped create sub-prime and alt-a and option-arm problems would be extended to avoid the collapse that’s looming and all this would do - is postpone the date. ( this is election year). Don’t believe it….then check out this video.
Here is full transcript of subprime 2.0 coming near you from Bloomberg.
But then again..why stop here…last time when problems occur Feds stepped in and flushed the system with 1.5 to 2 Trillions dollars. That is what supported this housing market (..so far) so, what is going to stop them from doing this again ?
If they ( Feds) are trying to flush the system again with 1 Trillion or 1.5 Trillion again then what we have read so far would make sense. Confirmation of that news alone can put more weight around previous two videos. So let us check that out.
This is what Jim Caron from Morgan Stanley said -
Exactly a week from today, the FOMC will meet on September 21, to decide whether or not to go from QE Lite to a full-blown QE 2 regime. And while most pundits had previously lost hope that the Fed will go full retard in its dollar destruction ways as early as next week, instead opting for the November 2 meeting if not wait for 2011 entirely, Morgan Stanley (specifically Jim Caron) came along: “We see considerable risk that the Fed may open the door to QE2 at this September 21 meeting despite the stronger-than-expected August payroll results and even if upcoming economic data stabilize. We believe that QE2 may come in the form of a vague outline for a plan to buy assets, expand its balance sheet and keep interest rates low conditioned upon economic data.”
What the Fed Is Trying to Accomplish
Jim Caron (New York) +1 212 761-1905
The Fed surprised the market last week. Its plan to buy US Treasuries across the yield curve caught the market by surprise. The intended impact was to reduce interest rates and spur a refinancing wave in mortgages to add stimulus to the economy. The Fed intends to enter the market to buy US Treasuries at pre-determined intervals throughout the month in Open Market Operations. You might recall this from the quantitative easing (QE) days for US Treasuries back in March 2009.
It is unclear how big and how long this program will be. Unlike QE in 2009, where the end date and size were pre-announced, this time all we know is that Fed purchases will follow a schedule of paydowns. The absolute extreme is $1.5 trillion, which represents the entire size of the Fed’s mortgage-backed security (MBS) and Agency holdings. This is unlikely, however, as not every mortgage will be refinanced. We estimate approximately $316 billion over 12 months. Although the Fed will buy Treasuries across the curve, we expect the purchases to be centered on the 7-year point, which offsets the duration of the newly created current coupon mortgage of ~6.5 years.
Jim Caron’s comments Extracted from here and here.
Summary
There you have it. System is about to blow another 1.5 Trillion, congress instead of passing laws to prevent such from happening again is/has done the opposite. Feds would come in and flush the system again with another 1 to 1.5 Trillion dollars.
As always one question leads to another - where do you think 1 to 1.5 Trillion is going to come from ? There is no immediate need, unless another ‘too big to fail’ institute gets near a blow off point.
But none the less whenever this money is required in 2010, 2011,2012 where do you think it’s going to come from ? Do you think foreigners/China/Japan would simply continue to buy another Trillion dollars worth of US bonds after accumulating a Trillion each already ?
Let me answer that for you as well…..so far the response from ASIA is “NO”
China Doubles Korea Bond Holdings as Asia Switches From Dollar
Gulf is trying to get out of Dollars too.
Gold hits new high as Saudis double their holdings
Published: 4:22PM BST 21 Jun 2010
So now, will it be your 401K, Roth IRA this time ? ( read my earlier post on it click here.
Either way we’re going to find out. Once the elections are over and feel good scenario is no longer required to be maintained what do you think the situation is going to be ? you would be in 2011 by then.
- I am glad to see that your views about 2011 are shaping up. Go back and replay the 60min video again and pay attention It’s Trillion with a “T”.
My Guess !!
As you know I am not a pundit in economics but the common sense I have dictates that when system is flushed with Trillions of dollars, lending gets loose again, housing prices would be artificially supported again…..inflation is going to kick in. This time it may be worst…..as Japan/China decide not to buy US bonds..guess what !! Fed would be buying them directly and all that money is going to create inflation…with Trillions of dollars we are talking Hyper Inflation………$5 for a cup of coffee. Also means dollar de-valuation……….if I have to put a time frame to it……..I would say we are probably a good 6-12 months away from early signs of inflation……when will this turn into HYPER INFLATION only time will tell.
If you think there is no inflation yet…!! think again..Sings of weak dollar and getting still weaker are all over the place.
Gold hits record high above 1,269 dollars
FOREX-Yen remains near 15-yr high vs dollar
Thu, Sep 9 2010
China’s Yuan to Appreciate 5Pct in 12 Months: Goldman Sachs
Sep-13-2010
You know what’s really funny……..Bangladesh…..yes, even Bangladesh……does not like dollars.
Bangladesh boosts its gold reserves
Published on Sun, Sep 12, 2010 at 00:00
-All this is pointing to just one thing….US may not have time on their side…
Greenspan calls for tax hike
Posted by Colin Barr
September 15, 2010 9:00 am
Longtime tax-cut advocate Alan Greenspan called for the government to raise taxes, arguing the best medicine for an ailing economy is a shrinking budget deficit.
The former Federal Reserve chief, appearing for an interview with media magnate Mort Zuckerman at the Council on Foreign Relations, warned that Americans are “fooling ourselves about how much time we have” to bring the ballooning U.S. fiscal deficit, exceeding $1 trillion in recent years, under control. ….and he is talking about existing deficit…..not the NEW 1.5 Trillion that we just discovered that is about to take place.
He said this happened in 1979, when Treasury rates spiked as inflation fears took off. and he warned that policymakers must take steps now to prevent a recurrence.
“I don’t think we have time to wait,” Greenspan said. “Our choice is not between good and bad, it’s between terrible and worse.”
Greenspan said he feels so strongly about the issue that he is now in favor of raising taxes — a position he could hardly have imagined earlier in the decade, when he famously came out in favor of former President George W. Bush’s 2001 and 2003 plans to cut taxes.
Greenspan said all the Bush tax cuts should be allowed to lapse — a position that conflicts with Republicans’ desire to extend the cuts and the Obama administration’s efforts to let them stand for those making less than $250,000 annually. He said he still believes taxes should be cut, as a general principle, but not at a time when the government is digging a deeper and deeper fiscal hole.
“We should not have tax cuts with borrowed money,” he said. Otherwise, he said, there are “very grave problems ahead.”
This is how the game is being played with China -
All the hype that China’s currency is lower in value against USD etc is there for one other reason.
That reason is - US wants China’s currency to appreciate against USD, in other words USD becomes cheaper - once it’s cheaper it’s easy to pay off the debt. It’s difficult to pay the debt off in more expensive currency. Now looking at it from China’s point of view. Once USD depreciates they loose the value they would/could have collected if the currency was not depreciated.
Disclaimer1
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