Bank Charge-off Rate Highest Since 1992 for Commercial Banks: Credit Cards, Revolving Debt, and the Contraction of Credit.
Charge-off rates are now at a 17 year high since commercial banks are writing off real estate loans, consumer loans, leases, agricultural loans, and other construction loans. The FDIC is going to be bombarded with hundreds of bank failures in the upcoming years simply because their balance sheet does not have the ability to support such a large banking system with assets that have fallen by tremendous amounts. The most recent data tells us that banks are charging off 1.46 percent of all loans. This may seem miniscule but keep in mind with a system leveraged in some cases 30 to 1, this is all it takes to sink a company into a low capital position.
Government Employment and Bankrupt City: Federal and State Government were Last Secure Employment Sectors. Financial and Economic Contraction.
States across the country are facing unprecedented budget shortfalls. A total of 44 states face budget shortfalls, which for all practical purposes puts the entire country in a uniform crisis. The state of California is in a state of fiscal panic. Currently the state faces a $42 billion budget deficit and the State Controller has decided to hold back on income tax refunds in order to pay for other services. It would appear that furloughs are still on there way starting this Friday for tens of thousands of employees. Yet the state still idles in a weird sort of punch-drunk love.
Wealth Evaporation of $40 Trillion: 3 Areas: Global Stock Market Capitalization, U.S. Residential Real Estate, and Oil.
We have never seen so much global wealth destruction happen at once. Global equity markets are off in the 50 percent range and don’t seem to be letting up. We are seeing wealth destruction at an unprecedented rate. We can debate whether inflation will show up but until the U.S. Treasury bubble pops, we can expect to see deflation in our current forecast. I think it is hard for many to comprehend that $40 trillion has evaporated from a few niche markets.
California Budget: California has Run out of Money, Starting Monday. $42 billion deficit and Economic Problems and Future Issues. Investment Forecast for the State.
The California housing and finance driven economy is coming to a destructive end. On Monday February 2nd 2009, California’s chief accountant will start delaying payments totaling approximately $4 billion. In this pot of money, the state will be postponing income tax-refunds, college grants, and welfare checks. Now we really see the pickle of this budget mess. This is almost a reverse stimulus. Much of the money is actually coming from postponing income tax-refunds, which I imagine is going to go over well. After a historical housing bubble which still has many in a state of denial that the gig is over, another kick to the shin is that many people may have their income tax checks delayed.
While the market is intrigued by the nearly $1 trillion fiscal stimulus plan, a mortgage cram down bill has already passed the House. It is amazing that it has taken this long to even get this thing going if the true premise of the politicians and policy makers was to save homeowners from losing their homes. Of course, the money changers, the U.S. Treasury and Federal Reserve have been consumed trying to bailout their banker buddies without really focusing on practical applications that will work to stem foreclosures.
Federal Reserve and U.S. Treasury Fleece the American Public: Total Market Cap of TARP Participants is $336 Billion, We Can Buy Them Out Completely: Enough with TARP and Nationalize NOW.
As we now are realizing in growing agony, the first $350 billion in TARP funds were poorly managed and did very little to improve the economic conditions of this country. In fact, I have argued that the U.S. Treasury and Federal Reserve through various market actions have taken actions to make saving money a very unattractive proposition for most Americans. Ironically, the only institutions saving any money right now are those participating in the TARP since they are holding onto the money with a clenched fist.
Southern California’s most expensive area, Orange County is not immune from the current economic downturn. The employment situation is dire across the state with the current unemployment rate spiking to 9.3% in December from a rate of 8.4% in November. The speed of job losses is increasing in a state with a deeply troubled housing situation. Orange County seemed to be a stronghold in the early stages of the bubble but now is simply another county in California with double-digit declines.