Home Prices Falling Fast, Eroding American Wealth And Threatening Recovery

Plunging home prices hammered household finances in the third quarter, eroding homeowners' wealth and making them more vulnerable to foreclosure. As prices are expected to continue falling, the economic recovery could face a major stall.

Millions of homeowners saw their most valuable asset decay between July and September, according to recently released data from the Federal Reserve, as they lost a portion of the stake they can claim in their homes. A series of new reports reflects home prices are continuing to decline, increasing the pressure on America's tepid housing market. Until the market finds a bottom, the foreclosure epidemic will feed upon itself, analysts say, as foreclosed properties drive home values down. With the unemployment rate hovering near 10 percent, and with companies showing historic reluctance to hire, the housing drag poses a significant impediment to an economic recovery.

By the end of this year home prices will have dropped $1.7 trillion, or about 7 percent, according to Zillow.com, a real estate data provider. This decline has accelerated: Since August, home prices have fallen 7.9 percent, data from Clear Capital, a Truckee, Calif.-based real estate research firm, show. It is the steepest decline in home values since the height of the financial crisis in 2008, said Clear Capital senior statistician Alex Villacorta.

via huffingtonpost.com

This remains the biggest threat to recovery and could still sink some of the banks or result in the need for a second bank bailout

U.S. Home Values to Drop by $1.7 Trillion This Year, Zillow Says - Bloomberg

U.S. home values are poised to drop by more than $1.7 trillion this year amid rising foreclosures and the expiration of homebuyer tax credits, said Zillow Inc., a closely held provider of home price data.

This year’s estimated decline, more than the $1.05 trillion drop in 2009, brings the loss since the June 2006 home-price peak to $9 trillion, the Seattle-based company said today in a statement.

“It’s definitely going to continue into 2011,” Stan Humphries, Zillow’s chief economist, said in an interview on Bloomberg Television today. “The back half of 2010 looked horrible and 2011 should look like the mirror image of that.”

The drop in home values pushed more buyers underwater, meaning they owe more on their mortgages than their homes are worth, Zillow said. The percentage of homeowners with mortgages with so-called negative equity reached 23.2 percent in the third quarter, up from 21.8 percent at the end of 2009.

Housing demand has slumped since the start of the year as the government tax credit expired and unemployment hovers near 10 percent. Sales of existing homes in October fell to an annual pace of 4.43 million, compared with 5.98 million a year earlier and an annual average of 5.81 million over the past decade, the National Association of Realtors said Nov. 23. The median price was $170,500, down from $172,000 a year earlier.

via bloomberg.com

This is just about the worst possible news as there will be no recovery until the housing market gets back on it's feet.. looks like more pain coming down the track

It's Official: Ron Paul Is Head Of Monetary Policy Subcommittee | zero hedge

Despite rumors that various splinter forces within the Republican party are attempting to block Ron Paul's fateful chairmanship of the Monetary Policy Subcommittee, we now have confirmation that the only sane politician left will now be Ben Bernanke's direct nemesis during any and all future Congressional spectacles starring the printing unchallenged one. And with US debt creeping ever closer to the debt ceiling, coupled with the dollar for dollar monetization of the US deficit, such spectacles will soon be plenty.

via zerohedge.com

This should result in some interesting exchanges.. Paul is one of the few who is not bought and paid for

Public pensions and your right to know | Washington Examiner

America's housing and derivatives crises may be behind us, but another ticking time bomb looms just ahead in the many severely underfunded state and local government employee pensions.

Cities and counties alone face an estimated $574 billion in unfunded public pension liabilities, a recent Northwestern University study found. Philadelphia ($9.7 billion in unfunded liabilities), Boston ($7.5 billion) and Chicago ($44.8 billion) are all projected to run out of pension money by the end of this decade. Their problems only compound the multitrillion-dollar problem of unfunded state pensions.

Estimates of the problem's true size vary, because the governments with the biggest shortfalls often try to conceal their dire circumstances. In jurisdictions across America, pension funds attribute unrealistic values to investments and assume unrealistic rates of return. They protect themselves with exemptions from freedom of information laws, or even withhold information despite those laws.

In Illinois, the Chicago Tribune reported last month, public pension funds are specifically exempted from disclosing basic information, such as the values of their investments. In Pittsburgh, the Tribune-Review reports that the city's struggling pension fund has been withholding details even from city councilmen. As of last month, Pittsburgh's pension fund hadn't updated the data on its Web site in four years. Its directors fear that the state will take it and open its books to the public.

via washingtonexaminer.com

Once upon a time pensions were sacrosanct and managed with discretion.. this is no longer true

Robert Kaplan Pegs Indian Ocean Rim As Global Hub - Newsweek

Foreign policymakers distracted by recent history—the fallout from the end of the Cold War, the morasses of Iraq and Afghanistan—should shift their gazes from northern landmasses to southern seas. That’s the thrust of Robert Kaplan’s new book, Monsoon: The Indian Ocean and the Future of American Power, which argues that the Indian Ocean “will demographically and strategically be a hub of the 21st-century world.”

Kaplan, who has written prolifically on how geography plays into national destiny, takes the “rise of the rest” theory one step further in Monsoon. It’s not just the BRICs that are worth watching, he says, but the whole ocean and its rimland, from Indonesia to the Horn of Africa, which is lined with billions of people in dozens of countries. The area already accounts for 70 percent of the world’s traffic of petroleum products, and it will be the setting for the new Great Game between China, India, and the U.S., as each country vies for naval dominance of its waters. Forget Europe and Russia; it is the Indian Ocean’s rim, says Kaplan, that will be the epicenter of the next generation of global issues, including climate change, access to energy, and extremist politics.

On its far West lies Somalia, the anarchic state responsible for piracy on Indian Ocean shipping lanes; on the far East, Indonesia, whose democracy “could become the lodestar of the Muslim world” and whose nearby Strait of Malacca “hosts” 50 percent of the world’s merchant fleet capability. As America’s influence slowly shrinks worldwide, the U.S. will have to engage these rim countries in order to legitimize its power in the region.

via newsweek.com

A special report on China's place in the world: Friends, or else | The Economist

IN A recent essay Hugh White, a former Australian security and defence official, describes the following exchange with his American counterparts: “I put this catechism to them: ‘Do you think America should treat China as an equal if its power grows equal to America’s?’ The answer is always no. Then I ask, ‘Do you think China will settle for anything less than being treated as equal?’ The answer to that is always no, too. Then I ask, ‘So how do you expect the US and China to get along?’ I usually get a shrug by way of reply.”

That shrug is a measure of America’s difficulty in designing a China policy. America wants China to be a thriving market for its goods. It also wants China to become an active, responsible power in world affairs. Yet at the same time it feels threatened by China’s growing economic, industrial, diplomatic and military might. When America dislikes a position China has taken, it cries foul. This mix of partnership and rivalry is a recipe for confusion.

One way to resolve these tensions would be to put security first. America could aim to block China now before it gets any stronger. America won the cold war by isolating the Soviet economy and stalemating its armed forces. But trying that again would be a bad idea, as Robert Art explains in a recent issue of Political Science Quarterly. For one thing, the cost would be astronomical; for another, America might suffer as much as China. The two countries’ economies are intertwined and China owns more American government debt than anyone else. In war, nations override such factors out of necessity. If an American president tried to override them in peace out of choice, he would face dissent at home and opprobrium abroad.

via economist.com

Can America find the confidence to treat China as an equal?

The Politics and Economics Of a U.S. Default | zero hedge

In their 2009 book This Time is Different, economists Carmen Reinhart and Ken Rogoff note that defaults are most likely when the debt/GDP ratio (not including unfunded liabilities) rises above 100%. The fact that we have yet to breach 100% has given optimists comfort, along with the fact that the cost of capital for the U.S. Treasury remains low. Mind you, Reinhart and Rogoff add that both Mexico and Argentina have defaulted when their debt/GDP ratios were in the 50% range. At the very least that tells us we're already in the danger zone.

One argument that supports optimism concerning our budget deficits has to do with the historical fact that the U.S. has never defaulted. The problem here is that default as it's traditionally understood is too narrowly defined. If calculated on a currency-value adjusted basis, Washington has short-changed its creditors before and it continues to do so. That has serious economic consequences, because capital flows away from economies where it is penalized rather than rewarded.

If default is thought of in traditional terms whereby investors are simply given a haircut on monies owed, default is less scary, less economically harmful, and internationally commonplace. In such circumstances the currency can remain sound and the damage to lending is not spread to those who are funding the growth of the private economy. As it applies to the United States, there's therefore an argument that an honest default would be better than what we are doing by stealth.

via zerohedge.com

Gold Imports by China Soar Almost Fivefold as Inflation Spurs Investment - Bloomberg

China’s gold imports jumped almost fivefold in the first 10 months from the entire amount shipped in last year as concern about rising inflation increased its appeal as a store of value, said the Shanghai Gold Exchange.

Imports gained to 209 metric tons compared with 45 tons for all of 2009, Shen Xiangrong, chairman of the bourse, told a conference in Shanghai today. China, the world’s largest producer and second-biggest user, doesn’t regularly publish gold-trade figures and rarely comments on its reserves.

Bullion soared 27 percent this year as the dollar dropped on concern that the trillions of dollars governments are pumping into the global economy may debase the value of currencies. China has pledged to use price controls and may raise interest rates a second time this year to slow inflation that has gained to the highest level since 2008.

via bloomberg.com

China will buy much more gold before it's appetite is filled ... buying gold rather than US treasuries

Mounting calls for 'nuclear response' to save monetary union - Telegraph

Spain's former leader Felipe Gonzalez warned that unless the European Central Bank steps into the market with mass bond purchases, the EMU system will lurch from one emergency to the next until it blows up.

Alluding to Portugal and Spain, he said a third country will need a rescue as soon as "January or February", and fourth soon after, at which point it will "contaminate the whole of Europe and get out of hand".

"If the ECB bought just a third as much public debt as the US Federal Reserve is doing, we could stop the speculation," he said.

Willem Buiter, chief economist at Citigroup, said Greece, Ireland and Portugal are all insolvent already, and Spain is close behind. The combined rescue needs of these countries is likely to exhaust the EU's €440bn (£368bn) bail-out fund, which in reality has just €250bn in usable money.

"Once Spain needs assistance, the support of the ECB will be critical. As the sole source of unlimited liquidity and as an institution that can take decisions without the need for political or popular approval, it is the only institution that can take actions of sufficient size and with sufficient speed to stave off major financial instability," he said.

via telegraph.co.uk

It's becoming more difficult to see how the Euro is going to survive... the end of the common currency I suspect

China Approves Fund That Will Invest In Foreign Gold ETFs, Opening Avenue For Millions Of Mainland Investors | zero hedge

And here is the catalyst: China has approved a fund that will invest in gold exchange-traded funds outside the country, opening the door to mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation. Beijing-based Lion Fund Management Co. said they received approval from the China Securities Regulatory Commission on Monday to proceed with the fund. Next stop: gold much higher as the bubble mania is really unleased in such ETFs as GLD, UGL and PHYS.

via zerohedge.com

This bears some thinking about... could it be that China wants to expose the ETF's who are not fully backed by gold... in any event it's hard not to see this as driving up the gold price at least in the short term.. look for a spike in the gold price late December or early January