There is no economic recovery on the horizon. In fact, because of the shenanigans, er, policies of our Ruling Class - lie, spend, tax, borrow, and print - the economy is only going to get worse. A lot worse.
Sure, it will seem as if things are picking up thanks to QE2 early in the year, but make no mistake about it, it's only a mirage. Here, let's take a look at the housing market.
No end in sight to foreclosures.
US mortgage foreclosures jumped in the third quarter as fewer borrowers qualified for loan modifications that would have reduced their monthly payments, bank regulators have said.
The rise in repossessions and decline in loan modifications are further signs that problems in the US housing market are persisting, in spite of forecasts by some analysts of a recovery before the year-end.
The number of homes entering foreclosure rose 31 per cent compared with the second quarter and 3.7 per cent compared with the year-earlier period, according to the Office of the Comptroller of the Currency and the Office of Thrift Supervision.
These newly foreclosed homes will add to a growing backlog of 1.2m properties in some stage of repossession, a 4.5 per cent increase over the second quarter and 10 per cent more than the previous year.
But who owns the properties banks are foreclosing on?
In a series of pieces I have argued that MERS, a creation of the mortgage banking industry, has effectively destroyed the institution of private property in America. Ironically, MERS was created to facilitate quick and easy and cheap securitization of mortgages -- what are called mortgage-backed securities. In fact, what it did was to eliminate any backing of the securities by mortgages. Of the total securitized asset universe, something like $7 trillion are (supposedly) backed by residential mortgages. However, MERS helped to delink the securities from the mortgages. At best, they are unsecured debt -- there is no property backing the securities. What this means is that foreclosure is not permitted. As I have said before, it is likely that most or even all foreclosures occurring in the US are illegal seizures of property -- home thefts. We are talking about 100,000 completed home thefts per month, with another 250,000 new foreclosures started to steal homes every month. Projections are that 13 million homes will have been "foreclosed" (read: stolen) by 2012.
Worse, from the perspective of the banks, they've got to take back all the fraudulent MBSs, most of which are toxic.
In plain simple language, the banks are royally screwed. They cannot foreclose on the properties. Holders of the "mortgage-backed" securities can turn them back to the banks because they are actually unsecured debt. In previous pieces I have also explained why MERS's recommended practice also violates US tax code -- so back taxes are owed. And we know that the mortgages stuffed into the securities did not meet the "reps" of the PSAs.
So, in short, banks have got to take the whole lot of toxic waste securities back. Trillions of dollars worth. The banks are toast. There is no cooking of the books that will turn this blackened toast back to bread.
Yes, another banking crisis is right around the corner. But don't you worry ... the politicians will protect the banksters. It's "We the People" who always get screwed. (UPDATE: There is no law in America anymore.)
This huge and growing surplus inventory of houses will probably depress prices considerably from here, perhaps another 20% over the next several years. That would bring the total decline from the first quarter 2006 peak to 42%. This may sound like a lot, but it would return single-family house prices, corrected for general inflation and also for the tendency of houses to increase in size over time, back to the flat trend that has held since 1890.
We are strong believers in reversions to the mean, especially when it has held for over a century and through so many huge changes in the economy in those years—two world wars and the 1930s Depression, the leap in government regulation and involvement in the economy, the economic transformation from an agricultural base to manufacturing and then to services, the post- World War II population shift from cities to suburbs, the western and southern transfer of population and economic strength, the movement from renting to homeownership and the accompanying spreading of mortgage financing, etc.
Furthermore, our forecast of another 20% fall in house prices may be conservative. Prices may well end up back on their long- term trendline, but fall below in the meanwhile. Just as they way overshot the trend on the way up, they may do so on the way down, as is often the case in cycles. Furthermore, another big house price decline will spike delinquencies and foreclosures leading to more REO sales by lenders, which will further depress prices. Our analysis indicates that a further 20% drop in prices will push the number of homeowners who are under water from 23% to 40%, resulting in more strategic defaults, more REO, etc.
In spite of the Fed's printing press, credit is drying up too.
If US consumers believe it difficult to borrow now, just wait! In the next few years credit conditions are likely to go back seventy years when private debt was difficult to obtain. Most Americans intuitively believe there is too much debt at every level of society. But the economic and political vested interests do not want them worried about that. They want to give them credit to infinity to keep this economic mess from imploding. The US Federal Reserve’s new round of quantitative easing (QE2) is clear evidence of that. However, Americans are right about their inordinate debt load, and future economic conditions are likely to create a severe debt scarcity.
The principal reasons for the coming debt scarcity are that ‘debt saturation’—where total income cannot support total debt—has arrived, say some analysts; also, the growing understanding that adding new debt may not increase GDP—it could decrease it; and that the banks and financial system are a train wreck in waiting, eventually being forced to mark their assets to market, thus creating for them massive asset write-downs and strangling their lending ability.
The realization that debt saturation has arrived will not surprise many people. But understanding that new debt can decrease economic activity might surprise them. And the numbers illustrate this possibility. In Nathan’s Economic Edge, Nathan states, “in the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!”
In fact Nathan also shows that for decades, each new dollar of debt produces less and less in return, from a return of close to $0.90 in the mid 1960s to about $0.20 by 2007. One explanation for this is that as societal debt increased it focused disproportionately on consumption rather than productive enterprise, whose return appears greater.
Data indicates that American consumers do not want to increase their debt. Debt saturation is occurring, and with it a declining return on each borrowed dollar—even for the US government. Most significantly, the banks and the financial system will probably soon experience a new round of massive real estate related losses and subsequent financial institutions’ bankruptcies. Thus, a new major financial crisis will likely soon engulf America, greatly impairing its lending facilities and creating a severe scarcity of debt.
2011 looks to be the year that "We the People" start fully experiencing the grave economic consequences of relying on a self-serving, ineffectual Ruling Class (both Democratic and Republican). All the rules, regulations, wars, schemes and promises ... have finally brought about their predictable result ... The Greatest Depression the world has ever known.