The dollar is dead: long live the ?

Auditor #9 wrote:

heh. I'd reckon they are throwing tidbits to the birds at first but soon enough they will be giving them whole sliced pans. The mortgage defaulters have 30 days to try to renegotiate their loans - so the terms will be changed at least for some people.

Given the weirdness of the sub-prime market where your loan is thrown up on PaddyPower Investment International in order to raise the capital from droves of investment gamblers all over the planet, who is going to take it when the defaulters begin to challenge their loans in courts? Those sub-prime debts may not be covered by any real laws .. Who do you go to to help you recover the money you lost in the Grand National?

One massive class-action and the whole house of cards could come tumbling down. Before that you will see more leniency if not cuts from the banks.

Would that be cuts in the interest already accrued? Cutting the penalties that the house owner has already incurred as a result of missing payments? Are these cuts?

The article says they are given 30 days to negotiate payment plans or new loan terms - with a move like this at all I'd be surprised if the expenses incurred weren't waived outright but it doesn't refer to it in the article at all. Only too right - the market price was out of proportion to the value of the house and then some greedy fecken bankers come along with their 10 or 12% sub prime offerings.. It got so out of hand that it seems to have affected the strength of the dollar itself with worldwide confidence in it leading to dumping of the currency...

Auditor #9 wrote:

The article says they are given 30 days to negotiate payment plans or new loan terms - with a move like this at all I'd be surprised if the expenses incurred weren't waived outright but it doesn't refer to it in the article at all. Only too right - the market price was out of proportion to the value of the house and then some greedy fecken bankers come along with their 10 or 12% sub prime offerings.. It got so out of hand that it seems to have affected the strength of the dollar itself with worldwide confidence in it leading to dumping of the currency...

Could it reach below the nominal amount of the loan?Any widespread precedents?

I don't know if there are precedents to be honest but it could be interesting to try to find out. As these types of 'loans' aren't really loans at all but let's call them for what they are - bets and have been around for only a short while - maybe six or seven years then you wouldn't expect there to be an extensive history of it, as far as my knowledge goes. Maybe in the US they have had regulations applied to them but here in Ireland this financial area is only getting regulated now - maybe more to protect the lender than borrower I suspect.

So no, I don't know if there have been precedents and the reference to the nominal value of the loan is interesting - these 'credit vehicles' are more like stocks and shares than loans so their real value is what the payer can pay not what the payer should pay...

Happy to skim the cream than take the milk back to the creamery? f**kin ratter cats

SeathrúnCeitinn wrote:

Happy to skim the cream than take the milk back to the creamery? f**kin ratter cats

It will be interesting to see what becomes of "sub prime" neighbourhoods. There are areas that are becoming very derelict - ghost town in character with a very high vacancy rate. Some, in areas with declining/disappearing industry may just fall into ruin and be bulldozed back into the dust.
This has happened to mined-out mining towns over history.
In other urban areas large sites may be assembled and in due course a killing may be made out of the misfortune of others.

I would say that the rise of what you aptly call subprime neighbourhoods is a big concern. The Boston Herald did an article on this a few weeks past highlighting how it spreads rapidly as the value of the close-by properties plummet until the street is foreclosed. There is then no buyers at any price almost because you could not get enough rent to cover even the property tax to the city which might be 5 thousand a year. So the city loses out too. It is worse than the mining towns because they being deserted is a lot better than the predators that patrol these new blighted streets

It been that way in parts of Northern England for a while now. I remember hearing stories 8-10 years ago of entire streets in places like Manchester being bought for the metaphorical bag of chips. Mind you this was probably still the lingering affects of the last property implosion over there, as much as the ongoing population movement in the UK to the south east.

MikeW wrote:

It been that way in parts of Northern England for a while now. I remember hearing stories 8-10 years ago of entire streets in places like Manchester being bought for the metaphorical bag of chips. Mind you this was probably still the lingering affects of the last property implosion over there, as much as the ongoing population movement in the UK to the south east.

It was the same in Newcastle and Middlesborough at the time. Seen some story about a father (not exactly rollin in it) buying some terrace house for £6,000circa for his son who was goin to college there.
He said it was a reasonable gamble given that his son's rent would be covered for 4 years. When they panned around the estate and asked the son what it was like to be a landlord and him only a young slip of a boy, he replied with something like,
" I don't really like the dogs runnin about the place"

I was talking to a lad from Detroit recently so as I had heard about how bad things were I was asking him about the scene there. He was no expert on house prices but he was able to tell me that an ak47 goes for 180 dollars on the street. I have read that houses cost less than the flashy wheels parked outside. To get a flavour of this place check the drudge report today to read about the mayor who is in a spot of legal problems. He is made for the part.

youngdan wrote:

It is never intended for government debts to be paid off. The money supply is to be expanded indefinately. The bankers clean up. Everything depends on the expanding continueing. This is why inflation is a given and never explained. The only danger to the system is an end to the inflating or worse a reversal. The defaults are causing a reversal and deflating. The system can not survive if this is not prevented. This is the struggle that is taking place at the moment. The leveraging which was great at expanding is now working against them. This is the moment of truth. The market could crash within hours from here.

Apologies in advance if this is a stupid question.

But how does the above square with what's below?

You are getting into an area that my understanding of I would not be as confident of as elsewhere. Ard-Taoiseach has made the area of gdp and statists like them his own and refers to them regularly. That graph signifies that the gdp has expanded over the good years so the debt is smaller relative to it. It does not mean that the federal debt is falling. It is rising about 500 billion a year. If as is likely the gdp begins to fall the debt will stay rising but at an even faster clip. Don't conclude from the graph that the debt is falling but do conclude that it is easier for the economy to service the debt than it was a few years ago. Isay that the debt is never intended to be paid off because money is introduced into the economy by the the selling of bonds. When the fed buys bonds the cash is newly created and added to the money supply. Sometimes the fed will sell some of the bonds it holds into the market. When this happens the money used to buy them goes back to the fed and leaves circulation. They will be said to reduce liquidity in the market when they do this. So if the treasury were to cut spending and balance the budget they would no longer be issueing bonds and the money supply would not be increasing. To pay off the debt they would start buying back bonds and this would drop the money supply further. To pay off the debt is an impossibility. A deflation, should it happen would croak the dollar and a new curruency would be introduced. Not even the experts can know whether we are going into a deflation which would make dollars very valuable before they become worthless through default or a hyperinflation where they become worthless like in Zimbabee. As an indication of how nervous the markets were last week the yield on 3 month bills fell to 0.68% because so many people were buying them for safety. This was the lowest yields since the 1950's.

I don't know how reliable this link is, but it suggests that the US total debt (including personal debt) has escalated since the 90s and questions if the strategy is to continue to borrow until no one will lend any more and then abandon the currency.

http://www.financialsense.com/editorials/hodges/2007/0315.html

The bottom line is that value is only produced through people's work and skill in making stuff that people will buy, and can't be produced by printing bits of paper with € signs on. If we try to live at a standard of living not supported by our work, and borrow to pay for it, sooner or later someone comes to collect the house and the car etc.

Kate,

YD is referring to the US. That graph looks like the Irish Debt to GDP graph, and whatever else you can say about the governments over the last decade, they have supressed the national debt in real terms. Of course when you are booming its not too difficult.

The graphs would be similiar with I would guess the Irish one looking healthier but the problem faced in a decline will be the same. Ireland will have no tools to play with though as they control neither the currency or the short term interest rates. If the revenue intakes to government are reported monthly there then we can see how much they fall and who will be blamed. Cactus, in all my years watching cnbc and elsewhere I have never seen to the best of my memory anyone propose paying off the national debt. It can not be done under a debt based currency system. That is not to say that the federal government is out of options though. 6 months ago on P.ie I ranted about what could happen when the day of reckoning came. If they have the gold they can just start afresh and screw the orientals and Europeans. If it is the likes of Baron Rothschild who has the gold then we have a bleak scenario and if it is the Chinese then we have an extremely bleak scenario. The federal government owns a huge amount of land here and even if they have their gold sold off which is unlikely the could back a new currency with this land. When France had a currency crisis back when John Law caused all the grief they backed their currency with mortages on estates seized from the church. Governments can come and take the gold out of your molers if they wish

I won't quote your post on national debt matters since it's virtually un-quotable but you are quite right in pointing out that the absolute level of national debt remains high as shown by this other graph:



It doesn't really matter as the economic boom means that debt servicing costs have gone from a few months of tax revenue to a few days. We're quite alright, Jack!

youngdan wrote:

The graphs would be similiar with I would guess the Irish one looking healthier but the problem faced in a decline will be the same. Ireland will have no tools to play with though as they control neither the currency or the short term interest rates. If the revenue intakes to government are reported monthly there then we can see how much they fall and who will be blamed. Cactus, in all my years watching cnbc and elsewhere I have never seen to the best of my memory anyone propose paying off the national debt. It can not be done under a debt based currency system. That is not to say that the federal government is out of options though. 6 months ago on P.ie I ranted about what could happen when the day of reckoning came. If they have the gold they can just start afresh and screw the orientals and Europeans. If it is the likes of Baron Rothschild who has the gold then we have a bleak scenario and if it is the Chinese then we have an extremely bleak scenario. The federal government owns a huge amount of land here and even if they have their gold sold off which is unlikely the could back a new currency with this land. When France had a currency crisis back when John Law caused all the grief they backed their currency with mortages on estates seized from the church. Governments can come and take the gold out of your molers if they wish

Great post youngdan

Compared to the graph of the US situation that graph looks very healthy. I can only see to 2003 and am not sure the graph continues. Keeping in mind that I am looking at Ireland from afar and like the lads there following the election here there is a disadvantage involved. But I eagerly await the revenue figures from there. I understand that construction was 17% of the economy whereas 8% would be the norm. I have seen the argument for public works to carry the load but that money is coming directly from the public purse. I had predicted that an emergency budget would be introduced but human nature is that the problem will be left until it will be harder to tackle. I am not impressed that he was chatting the Vietcong while the financial system was on the brink. He said the market problems were international events and I don't think he will be up to the job. Politics aside as I do not think much of Enda the Eejit either why is the finance minister not a man with the highest economic degree that can be found. This man could be the justice minister surely.

http://www.depression2.tv/d2/node/68
Hopefully the above will post because it explains well this new facility the fed is using to help institutions who are stuck with assets that are not worth much. The writer Michael Nystom I have read for years but was pleasantly surprised when I met him last year at a Ron Paul meeting and found out he lives in Arlington Massachusetts. The term bond auction is used to describe what is done but it is totally different from what happens at the bond auctions described earlier. The thing to note is that the exchange is only good for 28 days and then must be renewed as the prospect of them being repaid is nil. This gives credence to the argument that the whole thing is not inflationary. A reference is made to James Grant who is a bond market bigdealer who is not happy and believes the Fed is destroying the economy. Over the last week or so we have seen a lot of signs that deflation is gaining the upper hand in my opinion.

Sorry to go off thread, youngdan, but have you come across a journalist called T. Christian Miller who writes for the LA Times? would that be a regular newspaper of good standing?

There is no such thing as off thread Cactus because it all ties together. I don't know anything about either the Times or Miller but that looks like an interesting book he wrote on Iraq. I get nearly all my economic news from business sites and commentaries posted on them. One newspaper guy I used to read all the time was John Crudele on the NY Post but not recently but I must get his take on recent events. I will try to read some of Millers recent pieces if I can find them.

youngdan wrote:

http://www.depression2.tv/d2/node/68
Hopefully the above will post because it explains well this new facility the fed is using to help institutions who are stuck with assets that are not worth much.

Interesting - like a national pawn shop. Very cheap credit - is this the way forward?

Auditor #9 wrote:

youngdan wrote:

http://www.depression2.tv/d2/node/68
Hopefully the above will post because it explains well this new facility the fed is using to help institutions who are stuck with assets that are not worth much.

Interesting - like a national pawn shop. Very cheap credit - is this the way forward?

Was reading that the US had over 70% 0f world oil production in the 1920s. This is how things are now. That would have to effect the dollar.

A pawn shop is a great way to look at it but it is even better. You bring in a timex and they give you a rolex. They do not just buy the timex and you must return the rolex in 28 days. However for the 28 days you have the rolex you can sell it elsewhere to get the cash you need to tide you over the rough patch. But you must return the rolex in 4 weeks. This is not adding money into the system permanently. If the Fed just gave out money for the timex it would be just monetizing worthless junk and everyone would sell treasury bonds because inflation at extreme levels would be guaranteed. This would raise the interest rates. Things are being strung along on a wing and a prayer. I don't see anything but disaster. As regards oil there is a fallacy pushed in the US that the war was to ensure cheap oil. The fact that some swallow this whopper shows that some people will believe anything. An oil company wants cheap oil as much as a publican wants cheap gargle.

Link To Muslim News

It seems that Iran has, or about to, stop using the dollar for trading oil. Will others follow suit, and what are the implications for the dollar?