Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What ECB’s Tiering Means for Gold - 17th Nov 19
DOJ Asked to Examine New Systemic Risk in Gold & Silver Markets - 17th Nov 19
Dow Jones Stock Market Cycle Update and are we there yet? - 17th Nov 19
When the Crude Oil Price Collapses Below $40 What Happens? PART III - 17th Nov 19
If History Repeats, Gold is Headed to $8,000 - 17th Nov 19
All You Need To Know About Cryptocurrency - 17th Nov 19
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

The Fed Fears New Mortgage Crisis Could Derail Economic Recovery

Housing-Market / US Housing Nov 25, 2009 - 08:27 AM GMT

By: Claus_Vogt

Housing-Market

Best Financial Markets Analysis ArticleAlthough the number was just revised downward, the U.S. economy still expanded by 2.8 percent during the third quarter. So it definitely looks like the recession is history.

What’s more, last Thursday the Conference Board published its Leading Economic Indicator (LEI) for October. This indicator has a strong predictive history, having predicted each recession since the early 1960s as well as the one we’ve just gone through.


Right now the LEI is not forecasting a return of the recession. Quite to the contrary … the October reading was again very strong. Year over year the LEI was up by 4.2 percent, the seventh consecutive increase. And the LEI’s historical record strongly supports a continuation of economic growth during the coming quarter.

With so much good news, I have to ask …

What Does the Fed Fear, Then?

Why are Fed members continually reiterating the current zero percent interest rate policy?

Why are they assuring us that this policy will continue “for an extended period?”

What are they afraid of?

Do they see or know something we don’t?

Why are Fed members sticking to their zero percent interest rate policy?
Why are Fed members sticking to their zero percent interest rate policy?

The past few years have clearly demonstrated that the Fed members didn’t have a clue about the consequences of the real estate bubble, which they themselves inflated. And after the crisis hit, they kept underestimating it at each step along the way.

Moreover, if you had listened to Bernanke and his pals in regards to your personal finances, your losses would be huge!

This sad showing obviously did nothing to shake their self-efficacy or arrogance. They still want us to believe that they are the puppet masters behind the economy — at least in boom times. And during a bust they want us to believe that they alone are in possession of a remedy.

It seems as though they totally lack trust in the free market forces. Instead they desperately want to fix things by decree and money printing.

So why do they keep advertising an ultra lax monetary policy even now, after the economy is starting to recover?

Because They Know Another Mortgage Mess Is in the Offing

The Fed is well aware of the mortgage reset schedule for the coming years. And they’re probably well aware of a major problem out there, too … a problem at least as severe as the subprime mess.

I’m talking about mortgages like Alt-A and Option-ARMs. A huge wave of resets is due to commence soon.

From the second quarter of 2010 until the fourth quarter of 2011, hundreds of billions of dollars in these mortgages will reset to much higher rates! And many of them will end up becoming delinquent.

Here’s why …

Mortgage resets are bound to increase the number of foreclosures.
Mortgage resets are bound to increase the number of foreclosures.

Aggravating the situation is the fact that most of these mortgages were taken out when the housing bubble was at its height. So now, the loan-to-value ratios for many homes will be obscenely high.

This means a tsunami of write-downs for the banking sector, probably as huge as the subprime write-downs. And it means a huge wave of foreclosures on borrowers who can’t afford the new, higher monthly payments.

The ability to service a debt does not depend on rising GDP figures. It depends strongly on current income. That’s why high (and rising) unemployment rates are very bad news for the housing market and for the banks — again.

It’s still too early for this unavoidable, mortgage reset problem to derail the banking system and stop the economic rebound in its tracks. We can still be bullish on stocks for some time, as well.

Nevertheless, this looming problem goes a long way in possibly explaining the Fed’s reluctance to return to a more normal monetary policy. And it’s something you should keep in mind.

Best wishes,

Claus

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules