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Everybody’s Broke! (well mostly)

This is just bad news for the conomy, the weakness being simply profound. Stock indices careening into a huge hole. Bonds prices through the roof! Lower rates mean absolutely nothing for mortgage owners that are underwater on their loan. Epic misery! Four hundred thousand new claims for unemployment filed each week. Retailers literally shaking in their boots. Global wealth evaporating! And here I am, just getting warmed up!

Quote of the day: “Today, we really seem to be stuck in a negative spiral,” said Matthias Jasper, head of equities at WGZ Bank in Düsseldorf. “Investors just want to keep their exposure low and watch from the sidelines.” — This kind of behavior moves to its logical conclusion (crash) unless authorities can somehow reverse. Think as in “flushed down a toilet”.

Ritholz Quote: “Rates are at zero, mortgages are at 60 year lows, yet demand is simply not there. The Fed has done pretty much all it can do. Responding to the weak conomy at this point requires fiscal policy, rather than further monetary approach. “The Twist” and purchases of mortgage-backed paper is an attempt to rates down even further. It is hard to see how that can be effective in the current environment… The Fed out of bullets, traders are now left to their own devices. That means decelerating growth, little in the way of new hiring, and peak profits retreating 15-25%. There is no cavalry coming over the hill, traders are on their own.

Quote: “This is The Automatic Earth. We’ve been predicting financial and conomic collapse for 4 years now. 2011/2012 – biggest conomic slide in human history.”

“This past month’s conomic data show that the global conomic crisis continues to worsen, and by its duration and severity threatens to become known as the Great Depression II. It is evident to most that our problems arose from finance run wild, but commentators in several press outlets claim the fault lies with its victim, the public. Instead of curbing finance they advise governments impose radical austerity measures.” — Michael Hudson.

note: And he goes on to say: “In this conomy such a course is tantamount to throwing the drowning victims an anchor, while tossing the perpetrators a life preserver in the form of cash.”

By third quarter ’07, 13.96% of after-tax income was going toward debt payments, according to the Federal Reserve, up from 11.06% at the end of 1994. Then came the recession and the debt service ratio fell sharply. That’s partly due to a shift toward frugality. Also people been walking away from underwater mortgages and other debts.

: Debt payback.JPG

How you gonna refinance when home equity this anemic? Is this the real reason why the Federal Reserve is striving to push down long rates, hoping that households will somehow get access to equity locked away in their homes? Then they can resume shopping? Ain’t no equity! Nada!

: Home equity.JPG

Average hourly earnings: Another great chart, depicting the status of workers’ pay in the current downturn. Don’t see any evidence of workers making a killing, just being killed!

: average hourly earnings.JPG

Liquid assets as percent of total assets: This chart depicts historical trend for the series. Corporations may appear “flush with cash”, but this presents another perspective. Added, no one knows what anything is worth anymore. It’s why bankers assign collateral vaules such a huge haircut.
Oh Yeah! Forgot, early 80’s wasn’t exactly a period or robust optimism. It was around same time that consumers began “dis-saving”, perhaps a sign that financial stress was beginning to take a toll.

: cash on sidelines.JPG

Expert says 10 million more mortgages are set to default

Roughly 10.4 million mortgages, or one in five outstanding home loans in the U.S., will likely default if Congress refuses to implement new policy changes to prevent and sell more foreclosures, according to analyst Laurie Goodman from Amherst Securities Group. And that number is contingent on no other loans going into default.

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