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Thursday, August 13, 2009

Great Recession Watch — August 13, 2009

Items of Interest:

Foreclosure plague: No cure yet -- The housing market is still sick, with a record number of foreclosure filings posted in July.

The foreclosure plague continued to devastate last month.

There were more than 360,000 properties with foreclosure filings -- including default notices, scheduled auctions and bank repossessions -- an increase of 7% from June and 32% from July 2008, according to RealtyTrac, an online marketer of foreclosed homes. In fact, one in every 355 U.S. homes had at least one filing during July...

Elizabeth Warren: "We Have A Real Problem Coming..." --
  • The banks are still insolvent.
  • That little tweak to mark-to-market accounting a couple of months ago has allowed us all to plunge into deep denial.
  • Now that the banks are allowed to lie about what their toxic assets are worth, they'll never sell them (because if they did they would have to write them down)...
ZeroHedge: Elizabeth Warren "We Have A Real Problem Coming"
Commercial Loan Losses Cast Shadow Over Regional Banks -- Despite some hopeful signs of relief for U.S. banks in second-quarter 2009, the next several quarters likely will continue to be a struggle, especially for small regional institutions, Standard & Poor’s Ratings Services analysts said during a quarterly conference call on Aug. 6...
Next Bubble to Burst Is Banks’ Big Loan Values: Jonathan Weil
Nouriel Roubini / Forbes:
A 'Jobless' And 'Wageless' Recovery? -- Any sustained and strong improvement in growth has to come from a revival in private demand, and not from temporary factors like inventory adjustment and policy measures. The U.S. consumer, who, as we've noted, still accounts for close to 70% of GDP, is pulling back. Investment, which still trails consumer spending at home, will be weak. Exports will be a source of growth only in the medium term. In the short term, the rest of the world will remain dependent on the U.S. to drive demand while consumption abroad will be unable to offset the decline in U.S. consumption.

These factors suggest a sluggish economic recovery for the U.S. in the coming years until new sources of growth emerge (such as exports to emerging markets, investment, new energy and technology). Factors such as unsustainable public debt, higher structural unemployment, lower credit growth and higher taxes in the future will also constrain growth.
Mr Practical / Minyanville:
The State of the Economy --
  • Libor markets have returned to normal (we are guaranteeing this market).

  • Swap spreads have returned to normal (we are guaranteeing this market).

  • Housing starts and prices have stabilized (the U.S. government is providing 15% tax credits, effectively paying the down payment for first time home buyers).

  • Car sales are seeing signs of life (the U.S. government is providing cash for clunkers).

  • The U.S. economy has stabilized because the U.S. government has effectively become almost half of the U.S. economy. But stimulus has been shown to have a zero multiplier: stimulus comes from either borrowing or transferring wealth from taxpayers, so every dollar eventually is taken back. Tax increases tend to have a minus 3 multiplier: tax increases eventually reduce growth by three times the increase.

  • "Green shoots" will wither away very quickly as the U.S. government has effectively become a very large part of the economy. That is temporary. Without the ability to generate more credit, growth will turn negative.
Mr. Practical / Minyanville:
Deflationary Debt Destruction Must Run Its Course -- [regarding] the recent meeting between Chinese and US officials (berries).

Secretary of State Hillary Clinton characterized the meeting as one making our Chinese lenders more "comfortable" with their lending, that they are soothed by our handling of the financial crisis (whatever that is) and this should allay our fears that China will lend less at a higher cost to us.

First of all I hope it is not lost on everyone that having a communist country "comfortable" in how we are conducting finance is not a good thing. A communist country that probably has some very sinister ideas of what they really want out of us...

Calculated Risk

MishTalk - Mike Shedlock

Paul Krugman - NY Times

The Big Picture - Barry Ritholtz

naked capitalism - Yves Smith

Pragmatic Capitalism

Washington's Blog

Safe Haven

Paper Economy

The Daily Reckoning - Australia