Apr 4 2011

No quantitative easing for oil – The Federal Reserve can digitally print money into existence but this does not create more oil. Federal Reserve has a comic book section?

The Federal Reserve continues to support a flawed banking system that has ignored the urgent calls for reform in spite of the greatest financial collapse since the Great Depression.  Bankers and fellow politicians understand that each day that passes without serious reform allows one more day for the painful memories of 2007, 2008 and 2009 to be slowly erased like castles in the sand.  It was rather clear who led us into this mess in 2007 and most would agree it was the financial sector and their ill advised reward systems.  It was greed run amok yet today you have some politicians trying to argue in favor of the banks that fault is really too hard to ascertain or place on only one group therefore no real changes can take place.  At the very least hands off the compensation packages of the top 1 percent in the financial sector that have pilfered the wealth of the nation is their core argument.  The Federal Reserve is not a government institution and contrary to public perceptions is mainly designed to protect the banking interests, not the interest of the people.  Searching for more data I stumbled on comic books put out by the Fed.

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Apr 2 2011

The financial elixir that is falling home prices – Lower home prices good for the economy – Median U.S. home price down to $157,000 taking up 3 times the annual household income instead of the bubble peak of 5. Adding jobs while home prices move lower? Banks big winners when home prices remain inflated.

It is interesting that in the short-term horizon of our economy falling home prices are occurring while jobs are being added.  The banking sector during the early days of the crisis made it abundantly clear that falling home prices would lead to economic collapse.  Yet the opposite is occurring. Why?  First, inflated home prices eat up a deeper portion of a household’s income.  With a large portion of our economy dependent on consumption this funnels consumption into a largely unproductive sector of our nation.  The banking sector is largely linked to the real estate industry so it benefits their bottom line for home prices to simply go up even if household incomes have gone negative for over a decade.  So it should come as no surprise that as home prices continue to move even lower that somehow jobs are being added.  Middle class Americans will be better off with a boring housing market with 30 year fixed mortgages and a sizable down payment requirement of at least 10 percent so resources can be focused on more job supporting growth that also allows us to export abroad (there is zero exports with housing).

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Mar 31 2011

Federal Reserve punishes savers by subsidizing big banking bailouts – Two largest U.S. banks offer a paltry 0.05 annual percentage rate while increasing service fee charges and upping loan interest rates. S&P 500 not cheap.

The challenge most Americans are facing is first, trying to save money.  If that hurdle is accomplished the next tougher question becomes where the money should be placed.  The Federal Reserve by default with a negative interest rate policy has punished savers at the expense of massive debtors.  The Fed for many decades since the 1960s had held the Fed funds rate over 5 percent.  What this also meant was that Americans if they decided to step aside from the risky stock market would at least yield a decent return in U.S. Treasuries.  Those days seem to be long gone with the funds rate near zero.  Banks are using their easy access to the Fed to borrow cheap and to lend at much higher rates.  They are also borrowing cheap and investing in global stock markets.  The two biggest banks in the U.S. give depositors merely a place in the bank’s digital vault and pay almost no interest.

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Mar 29 2011

Federal Reserve silently grows balance sheet to approximately $2.75 trillion by a shadow bailout of residential real estate and commercial real estate. The continuing hidden CRE bailout imperils future economic growth.

The biggest silent financial bailout going on in the nation revolves around commercial real estate.  Commercial real estate (CRE) values have plummeted $3 trillion from their peak in 2008.  While residential real estate values peaked in 2006 CRE waited two more years before moving lower.  The two year lagged occurred because many banks, especially local regional banks have held onto trillions of dollars of CRE loans that have now lost nearly half their value.  This includes hotels without adequate demand, empty shopping centers, and multi-use projects that really have little market demand in a country facing a debt base recession.  Ultimately CRE had to come down to reflect the values of what people could afford.  As it turns out when the average income is $25,000 in the U.S. there is little discretionary income on a per capita basis to spend day and night at the local shopping mall.  We have all heard of the residential real estate bailout since this seems to be the message coming from the banks and government yet little is ever mentioned about this $3 trillion industry that is benefitting just as much.

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Mar 27 2011

China’s ghost cities and shopping malls – 14 million empty housing units in the U.S. while China may have up to 64 million empty apartments. GDP is only as good as the quality behind the financial numbers. China real estate bubble.

The Census released data showing that 14 million housing units in the U.S. are categorized as being vacant.  As startling as this figure appears on the surface, China has an estimated 64 million empty apartment units.  As we enter a perpetual cycle of global financial bubbles, the largest ongoing bubble in the world at the moment is likely to be in Chinese real estate.  China has grown from having a GDP of $1 trillion in 1999 to well over $5 trillion today making it the second largest economy in the world.  Yet as we will examine in this article simply having a large GDP does not necessarily mean a robust economy.  Many Americans thought home values would remain elevated but once reality took over prices came crashing down in dramatic fashion putting household balance sheets into a tailspin that we have yet to recover from.  China in order to keep up with growth demands from their central government and investment demand is building at a pace where many areas including entire cities remain largely empty.

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