Signs of the Economic Apocalypse, 3-26-07

From Signs of the Times:

Gold closed at 657.30 dollars an ounce on Friday, up 0.5% from $653.90 at the close of the previous Friday. The dollar closed at 0.7528 euros Friday, up 0.3% from 0.7509 at the previous week’s close. That put the euro at 1.3284 dollars compared to 1.3318 at the end of the week before. Gold in euros would be 494.92 euros an ounce, up 0.8% from 490.99 for the week. Oil closed at 62.28 dollars a barrel Friday, up 9.1% from $57.11 at the end of the week before. Oil in euros would be 46.88 euros a barrel, up 9.3% from 42.88 euros for the week. The gold/oil ratio closed at 10.55, down 8.5% from 11.45 at the close of the previous Friday. In U.S. stocks, the Dow closed at 12,481.01 Friday, up 3.1% from 12,110.41 for the week. The NASDAQ closed at 2,456.18 Friday, up 3.5% from 2,372.66 at the end of the week before. In U.S. interest rates the yield on the ten-year U.S. Treasury note closed at 4.61%, up seven basis points from 4.54 for the week.

Oil spiked last week, rising 9% on concern about the British provocation of Iran. Stocks were up as well, the Dow had its best week in four years, as there was some good news on the housing front for a change. Existing home sales increased by almost 4% in February. Optimists seized on that and predictably blew it out of proportion. These sales represent contracts were entered into in December, when weather was unseasonably warm and the bad news about the housing market was not as prominent in the media. But still, a rise is better than a fall.

U.S. Economy: Existing Home Sales Surge in February

By Shobhana Chandra

March 23 (Bloomberg) -- Sales of previously owned homes in the U.S. unexpectedly surged last month by the most in three years, a sign that the housing market is probably past the worst of its slump.

Purchases increased 3.9 percent in February to an annual rate of 6.69 million, the National Association of Realtors said today in Washington. Sales have risen in each of the past three months, a streak not matched since April 2004 in the midst of the five-year housing boom.

Gains in home construction, mortgage rates near a 14-month low and an increase in loan applications from a year ago are helping lay the groundwork for an industry rebound. Stocks advanced as traders took the figures as an endorsement of the Federal Reserve's forecast that the economy will grow at a moderate pace.

“We expect the drag on the economy from housing will be gone by mid-year,” said Dean Maki, chief U.S. economist at Barclays Capital in New York. The rebound in sales is “an important development.”

Even with last month's sales gain, some economists noted that the supply of unsold properties continued to climb. Mounting defaults on subprime mortgages -- loans to people with patchy or poor credit histories -- may throw more properties onto the market and weaken prices. Sales were down 3.9 percent from a year earlier.

“Most of the housing adjustment is completed,” said Eric Green, chief market economist at Countrywide Securities in Calabasas, California. “We're just not seeing the subprime problem in these numbers yet.”

Delinquencies

Countrywide Financial Corp., the largest U.S. mortgage lender, said this week that delinquencies on some subprime home loans may climb to 9.89 percent, exceeding a company record set in 2000. The firm is among lenders to tighten standards.

At the same time, lower prices and rising incomes are making homes more affordable, along with a decline in mortgage interest rates. The National Association of Realtor's affordability index rose to an almost two-year high in January, the group reported earlier this week.

Resales were forecast to drop 2.5 percent to a 6.3 million annual rate last month, according to the median of 63 forecasts in a Bloomberg News survey, from January's originally reported 6.46 million. Estimates ranged from 6.1 million to 6.51 million.

Warm Weather

Last month's jump in sales partially reflects the closing of contracts signed in December, when unseasonably warm weather brought out more house hunters, David Lereah, the Realtors' chief economist, said at a briefing in Washington.

More stringent lending standards, after a wave of defaults in the subprime market, will limit sales this year, said Lereah, who estimated “we could be losing between 100,000 and 250,000 home sales” annually over the next two years as a result.

“It will spill over into the overall housing sector, but will be somewhat contained,” Lereah said. “With the economy being healthy, this is a problem, not a crisis.”

Existing home sales averaged 6.51 million last year, lower than the 7.06 million average for all of 2005.

The median price of an existing home fell 1.3 percent last month from a year ago to $212,800, the Realtors group said.

“The real key here is that prices have come down seven consecutive months,” Lereah said in an interview. “It seems to be working.”

Supply of Homes

The supply of homes for sale increased 5.9 percent to 3.748 million last month, representing a 6.7 months' supply at the current sales paces. That compares with 6.6 months at the end of January.

Resales of single-family homes rose 3.7 percent in February to an annual rate of 5.88 million, the report said. Sales of condos and co-ops rose 5.3 percent to an 810,000 rate.

Purchases increased in all regions of the country except the West, where they were unchanged. They rose 14.2 percent in the Northeast, 3.9 percent in the Midwest and 1.6 percent in the South.

Monthly figures on home resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier. New home sales, which are recorded when a contract is signed, are a more timely barometer of the housing market than home resales. The Commerce Department may report next week that new home sales rose to an annual rate of 985,000 last month from 937,000, according to the median forecast in a Bloomberg survey.

Resales account for about 85 percent of the housing market.

Builders broke ground on new homes at an annual rate of 1.525 million last month, rebounding from a nine-year low in January, the Commerce Department said this week.

That report helped ease concern that increasing defaults by subprime borrowers are hurting the housing recovery.

Foreclosures are still on the rise, however. The state of Ohio announced plans to issue $100 million in taxable bonds to help citizens of the state refinance their ballooning mortgages. Ohio, where deindustrialization has hit employment hard, deserves credit for acting on the problem. But it is ironic that they raised funds by issuing more debt. Not only that, but government would have been wiser to have done some elementary regulation to prevent predatory lending practices in the first place. This could be the tip of the iceberg as far as government bailouts for the housing crash as banks, financial institutions and individuals may need help at a scale that could exceed the Savings and Loan debacle in the early 1990s.

Ohio Plans Bonds to Bail Out Homeowners Strapped by Mortgages

By Martin Z. Braun

March 23 (Bloomberg) -- Ohio, which had the highest foreclosure rate among the 50 U.S. states at the end of 2006, plans to issue $100 million in taxable municipal bonds next month to help homeowners refinance mortgages they can't afford.

Proceeds of the bond issue by the Ohio Housing Finance Agency will provide financing for about 1,000 loans with a fixed rate of about 6.75 percent, said Robert Connell, the agency's director of debt management.

“We believe that it is incumbent on this agency to do something to assist these folks to enable them to keep their homes,” Connell said. “A $100 million bond from this agency is not going to solve Ohio's foreclosure problem. We hope to at least make a dent.”

A March 13 survey by the Mortgage Bankers Association found that Ohio had highest rate of homes in foreclosure nationwide. The state, whose economy has suffered amid declines in manufacturing, also had the highest rate of subprime loans in foreclosure. Subprime mortgages are granted to people with poor credit histories or high debts and often have rates at least 2 or 3 percentage points above safer prime loans.

Earlier this month, Ohio Governor Ted Strickland, a Democrat, formed a task force to stem home foreclosures in Ohio. The group will develop strategies to assist homeowners facing foreclosure and educate homebuyers.

April Rollout

Ohio will begin rolling out the refinancing program on April 2, Connell said. The loans will be limited to homeowners whose income is up to 125 percent of the median income of their county.

“It will be available to the residents of Ohio to take them out of their adjustable-rate mortgages, their interest-only mortgages and avail them the opportunity to move into a fixed rate mortgage which may now benefit their individual financial situation,” Connell said.

Kansas City, Missouri-based George K. Baum & Co. will manage the bond sale for Ohio's finance agency. The bonds will taxable because the U.S. tax code prohibits states and local governments from using proceeds of tax-exempt bonds to refinance existing mortgages, Connell said.

The survey by the Mortgage Bankers Association found that Ohio's foreclosure rate across all loan types was 3.38 percent. Indiana was second among U.S. states with 2.97 percent and Michigan was 2.39 percent. Ohio also led the nation will 11.32 percent of subprime loans in foreclosure.

To say, as the mainstream analysts were, that the housing crisis can be weathered and a rebound is just around the corner is crazy, unless some other bubble can be created. Michael Hudson pointed out that the total value of all New York real estate is greater than the total value of all plants and machinerty in the United States. What this means, according to Stef Zucconi is that,

Hudson’s point is that the US stopped being an industrial economy long ago and the US economy is now based on property ownership, rent and usury rather than actually making things.

Which is, of course, a throw back to the good old days of feudalism.

Which is nice if you either own lots of property, happen to be a money lender, or are an environmentalist who wants everyone to return to a ‘simpler’ way of life, but not so crash hot for the rest of us.

Zucconi points out the way a new bubble is created in order to avoid the consequences of the bursting of the existing bubble:

For example, when faced with the news that house prices in London have risen by 22% over the last year and the average price of a home in London now stands at £366,302 (sorry, that was yesterday, it must be topping £380,000 by now) the delusional conspiracy theorist will blame the eye-watering price rises on cynical manipulation of the money supply by scheming bankers.

Whereas the clued-in people, the rationalists who really know how the world works, will know that high levels of property inflation are due to non-conspiratorial factors such as...

"Wealthy City financiers, foreign buyers and big income earners are driving the demand in London and with quality stock at an all-time low, there is an exacerbated effect on prices"

All very sane and rational.

Only a couple of problems though.

First off, it's a matter of record that people are borrowing shit loads of money to buy property - not 'wealthy city financiers' or mysterious 'foreign buyers' but ordinary people being obliged to saddle themselves with buttock-clenching levels of debt to buy a home.

Second off, there's the small matter of the former Governor of the Bank of England openly 'fessing up and admitting that, yes, he and his buddies had deliberately stoked up personal debt and inflation to unsustainable levels...

"In the environment of global economic weakness at the beginning of this decade ... external demand was declining and related to that business investment was declining.

"We only had two alternative ways of sustaining demand and keeping the economy moving forward: One was public spending and the other was consumption.

"Now of course it's true that taxation and public spending may influence the economic climate, may influence consumer spending.

"But we knew that we were having to stimulate consumer spending; we knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term.

"But for the time being, if we had not done that the UK economy would have gone into recession just as has the United States.

"That pushed up house prices, it increased household debt ... my legacy to the MPC if you like has been 'sort that out'."

Or put another way 'Why have a recession in 2001 when you can have a full-blown depression a few years later?'

Or put another way 'We could have stimulated the economy by building infrastructure that would have served the nation for generations but decided to encourage everyone to go out and buy shit instead'

Or put another way 'Me and my mates decide the price of your house, your monthly outgoings, how much you earn, and even whether you have a job or not. And there's f*** all you can do about it'

And because ordinary people don't understand, haven't been educated to understand, how money works, bankers can pull shit like this again and again without ever being strung up from the nearest lamp post. Hats off to whoever figured this money-lending game out in the first place. He was a clever dude. Destined to burn in Hades for all Eternity, sure enough, but definitely clever.

But all this seems absurd only if you assume that the governments and those who control them actually care for the welfare of their citizens. Most likely, the anglo countries have been racking up unsustainable levels of debt in order to finance their once-and-for-all power grab, although sometimes it’s hard to tell if the Military Industrial Complex was created to enable to takeover of total power in the world or if the goal of seizing total power was set forth to justify the Military Industrial Complex:

In Soviet America, the military beggars YOU!

Over half of all federal discretionary spending goes to the Pentagon. In non-Soviet Russia, the people beggar the military, which has to beg even for enough money to feed its troops and keep the power hooked up at its falling down bases. In Soviet America, the military beggars YOU.

So where is the money going? Well, bunches of it are going to contractors who provide truck drivers making $150K+/year to take the place of GI's making $20K/year, who provide cooks making $150K+/year to take the place of GI's making $20K/year, etc. Because of course it's cheaper to hire someone for $150K/year than to hire someone for $20K/year (snark!). Funny, most of these contractors also seem to be Bush administration cronies. Odd how that works out, eh?

Other money is going to weapons we don't need. The F-16 and the F/A 18 Super Hornet will be the best fighter jets in the world for the next 20+ years. Past a certain point you hit fundamental laws of physics, past which it is impossible to improve beyond what an airframe has already achieved. Consider this: The F-16 first flew over 30 years ago, yet even today, there is not a single jet fighter in the world that can out-dogfight it. None. Zero. Zilch. The only improvements there have been in the past thirty years have been in engines and avionics. Airframes? Not so much. We've hit fundamental laws of physics there. Yet we are spending hundreds of billions of dollars on F-22 and F-35 fighter jets that don't work any better for 99% of tasks than what we have yet are five times more expensive because, well, Pentagon cronies need money, I guess.

Then there is the enormous sum of money spent maintaining legions around the world -- Germany, South Korea, Iraq, Afghanistan, and hundreds of military bases all over the globe. Democracies don't need that. But empires do. And, in the end, that is what causes the collapse of empires. The Roman Empire collapsed because it ran out of money to pay its soldiers and they decided to sack Rome (repeatedly) and install one of their own as Emperor (repeatedly) to take by force what was due them, until there was nothing left to take and the barbarians came in and took over the pitiable remnants. In a democracy, there is little need for a large military because democracies do not attack other nations and defense can be handled by a part-time National Guard like in Switzerland. In a democracy, the people beggar the military because there just isn't much need for one. In an empire like Soviet America, on the other hand, the military beggars you.