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Zero Interest Rates Can't Last Forever. Then Where Are We Headed? by: The Housing Time Bomb November 13, 2009 I apologize for being so quiet this week. I am extremely busy recently so please forgive me! Alrighty, let's get to these wacky markets. I wanted to share some thoughts with all of you around the US dollar and the current "easy money" interest rate policy of the Fed. Before I get into this, let me start by saying the market makes no sense right now when it comes to fundamentals (Surprise! Not!). A strong dollar is usually associated with a...

Even if he wants to tighten, David Rosenberg reminds us of the one reason why Ben Bernanke might find that impossible. The reason — there is a wave of mortgage refinancings coming in the housing market for one, and not only that, but in the commercial space, there are 2.7 trillion of debt coming due through 2011 and another 1.5 trillion of leveraged loans. In other words, the default rate is going to rise even further and the Fed tightening policy would only aggravate that situation. In other words, the Fed is simply immobile for at least the next two...

Video at Link

This morning, Treasury released the quarterly Minutes of the Meeting of the Treasury Borrowing Advisory Committee Of the Securities Industry and Financial Markets Association, which is [A]n advisory committee governed by federal statute that meets quarterly with the Treasury Department. The Borrowing Committee’s membership is comprised of senior representatives from investment funds and banks. The Borrowing Committee presents their observations to the Treasury Department on the overall strength of the U.S. economy as well as providing recommendations on a variety of technical debt management issues. The Securities Industry and Financial Markets Association does not participate in the deliberations of the...

Video at site. Why is Ben Bernanke being so slow to start talking about raising rates, much less start raising them? Because he has a secret plan that he can't talk about. What's Ben's secret plan? Intentionally keep rates too low for too long, thus encouraging uncomfortably high inflation. Why would Ben want that when he keeps talking about the importance of managing inflation? Two reasons: Faster economic growth, which leads to more jobs, fewer angry constituents, and a Congress that's happier with Ben Bernanke Faster erosion of the real value of our debts. Consumers and the government are drowning...

The Federal Reserve will reaffirm its low interest rate policy later this afternoon, a person inside the Federal Reserve said. The central bankers are fearful that any change to the wording of its interest rate policy or economic outlook will cause a huge panic in the stock market, the person said. As a result, it is highly likely the wording about interest rate policy will not change at all. Of course, the debate is still continuing inside the Fed. Some inside the Fed have argued that the central bank should begin to signal an end to the zero-interest rate policy...

Data showing the U.S. economy is growing again has renewed the debate about where interest rates are headed—a question with big implications for both the economy and investors. The U.S. gross domestic product report released Oct. 29 showed that the economy grew by 3.5% last quarter, a higher percentage than many were expecting, and fixed-income markets took it as a sign that a rate increase will happen sooner. Treasury prices fell after the release of the GDP figure, and the yield on 10-year U.S. Treasuries rose 0.08 points to 3.5%. That's still a historically low rate, reflecting the fact that...

Bernanke Gone Berserk! Bank Reserves Explode! Fed Money Printing Gone Wild! Interest-Rates / Quantitative Easing Oct 19, 2009 - 08:18 AM By: Martin_D_Weiss Martin here with the most shocking new numbers I’ve seen in my lifetime. My conclusion: Fed Chairman Bernanke has dumped so much funny money into the U.S. banking system and has done so little to manage how that money is used, the fate of our entire economy has now been cast under a dark shadow of doubt. This is not conjecture or exaggeration. Nor are the underlying facts subject to debate. They are blatant, unambiguous, and fully...

TREASURIES-Prices Up As Stock Slide Spurs Safety Bid Tue Jul 15, 2008 9:59am EDT By Ellen Freilich NEW YORK, July 15 (Reuters) - U.S. Treasury debt prices rose on Tuesday on safe-haven demand as stocks prices tumbled and as a weak banking sector cut expectations that the Federal Reserve will raise interest rates any time soon. As major stock market indexes fell in early trade, U.S. short-term interest rate futures cut back on implied prospects for Fed rate hikes over the next several months. Prospects for a rate hike by year-end fell to 82 percent after being almost fully priced...

William White predicted the approaching financial crisis years before 2007's subprime meltdown. But central bankers preferred to listen to his great rival Alan Greenspan instead, with devastating consequences for the global economy. William White had a pretty clear idea of what he wanted to do with his life after shedding his pinstriped suit and entering retirement. White, a Canadian, worked for various central banks for 39 years, most recently serving as chief economist for the central bank for all central bankers, the Bank for International Settlements (BIS), headquartered in Basel, Switzerland. Then, after 15 years in the world's most secretive...

Tiger Management Chairman Julian Robertson says that if China and Japan stop buying our debt, inflation could hit 20 percent. "It's almost Armageddon if the Japanese and Chinese don't buy,” Robertson told CNBC. "I don't know where we could get the money. I think we've let ourselves get in a terrible situation." Robertson’s 2008 picks, which included Visa, Baidu, Apple, and Google, handily beat the market. His worst performing choices went up 40 percent, the best more than doubled. Robertson says his firm still owns many of last year’s picks, but says he’s “not as berserk over owning stocks as...

This gets a bit technical, but the Federal Reserve is flashing that there could be serious, I am talking major league serious, interest rate hikes down the road. The first clue to this was last week Thursday's report out of FT that the Fed may use mutual funds as a source to shrink Fed reserves by conducting reverse repurchase agreements with the the funds. When something like this is leaked by the Fed, they are trying to alert the markets so they won't be surprised by such a move when it occurs. As I wrote last week, I saw one...

The US is too dependent on foreigners buying up the country's debt and could face severe economic problems is that stops, Tiger Management founder and chairman Julian Robertson told CNBC. "It's almost Armageddon if the Japanese and Chinese don't buy our debt,” Robertson said in an interview. "I don't know where we could get the money. I think we've let ourselves get in a terrible situation and I think we ought to try and get out of it." Robertson said inflation is a big risk if foreign countries were to stop buying bonds. “If the Chinese and Japanese stop buying...

Last year, President Obama campaigned against budget deficits. Yet, now we have the newly announced figures from the Obama administration stating that the deficits numbers over the next decade will add up to over $9 trillion-- $2 trillion more than had been forecast as recently as March. Even this likely underestimates the deficit by at least another $1 trillion. Looking back, it is hard to believe that the deficits during the Bush administration totaled only about $3 trillion over eight years. Candidate Obama promised to rein in the budget deficit. When CBS's Bob Schieffer asked Obama, during the third presidential...

The Bank of Israel raised the benchmark interest rate by a quarter of a percentage point, the first central bank to lift rates since signs of an easing in the global recession started in the second quarter. Governor Stanley Fischer increased the lending rate to 0.75 percent, the Jerusalem-based central bank said today in a statement, after keeping it at a record low since March. Two of 12 economists surveyed by Bloomberg forecast the increase, while the rest expected Fischer to hold the rate steady. The decision “strikes a balance between the need to moderate inflation and the need to...

JACKSON HOLE, Wyoming (Reuters) - If there was one message from central bankers gathered at this mountain retreat this weekend it was this: Don't expect us to raise interest rates any time soon. A series of speakers at the Kansas City Federal Reserve Bank's annual conference, which drew the monetary policy elite from around the world, heralded the global economy's apparent push out of its deep recession. But they noted that economies were recovering only with extraordinary stimulus from governments and central banks, and said it was too soon to talk of a self-sustaining recovery. "I am a little a...

LONDON (AP) -- The Bank of England surprised markets on Thursday with a significant expansion of its program to boost the money supply and support growth, even as it and the European Central Bank kept official interest rates steady at record lows. The move by the British central bank to boost its so-called quantitative easing program by 50 billion pounds ($84 billion) to 175 billion pounds ($295 billion) garnered the main attention in Europe, underscoring official caution about recent signs of an economic recovery. As the ECB shied away from announcing any new measures on "enhanced credit support," the ECB's...

So far, there's been very little analysis or speculation over why the June job's report was so bad. That makes some sense for several reasons. First, one month's numbers almost always doesn't give anyone enough data to make any fair determination. Second, it's almost impossible to know exactly what caused the economy to move anyway.

A U.S. mortgage industry group on Monday slashed its forecast for 2009 loan originations by more than 25 percent as higher mortgage rates depress refinancings. The Mortgage Bankers Association estimates that lenders will make $2.03 trillion in new home loans this year, down by more than $700 billion from its forecast in March. The Washington-based group attributed $84 billion to reduced lending on home purchases. The rest of the decline would be from fewer refinancings and "very low" volumes on an affordability loan program overseen by mortgage agencies Fannie Mae and Freddie Mac, MBA said in a statement. Mortgage rates...

Borrowing remains unusually cheap right now by historical standards, but government deficits and inflation will change that picture over the next few years. Investors are kicking themselves for failing to spot the twin bubbles in the stock and housing markets when the laws of economic gravity for both became spectacularly unhinged. Now, America should be on red alert for another bubble that's destined to pop -- outrageously overpriced government bonds, the flipside being outrageously low interest rates. Indeed, the trend towards far higher rates is already beginning: Since March, the yield on the 10-year treasury has jumped from 2.5% to...

U.S. mortgage applications fell for a fourth consecutive week, with overall demand plunging to its lowest level in nearly seven months, data from an industry group showed on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended June 12 decreased 15.8 percent to 514.4, the lowest since the week ended November 21, 2008. A rise in mortgage rates in recent weeks had sapped demand, particularly for home loan refinancing, but the direction of rates reversed course last week. Cameron Findlay, chief economist at LendingTree.com based...

Stocks fall as weak 10-year note auction raises worries about inflation, interest rates he stock market has a new priority: interest rates. Stocks fell moderately Wednesday after the government sold $19 billion in 10-year Treasury notes in a relatively weak auction. There were plenty of bidders, but the government had to lure them in with a higher yield than the market had anticipated. The yield on the benchmark 10-year Treasury note rose for the fourth time in five days, jumping to 3.95 percent from 3.86 percent late Tuesday. That helped send stocks broadly lower, with the Dow Jones industrial average...

Rahm Emanuel was only giving voice to widespread political wisdom when he said that a crisis should never be "wasted." Crises enable vastly accelerated political agendas and initiatives scarcely conceivable under calmer circumstances. So it goes now. Here we stand more than a year into a grave economic crisis with a projected budget deficit of 13% of GDP. That's more than twice the size of the next largest deficit since World War II. And this projected deficit is the culmination of a year when the federal government, at taxpayers' expense, acquired enormous stakes in the banking, auto, mortgage, health-care and...

WASHINGTON (AP) -- Rates on 30-year home loans surged above 5 percent for the first time in nearly three months this week as investors pushed up rates on long-term government debt, which is closely tied to mortgage rates. Mortgage finance giant Freddie Mac said Thursday that average rates on 30-year fixed-rate mortgages rose to 5.29 percent this week, from an average of 4.91 percent a week earlier. It was the highest weekly average in nearly six months. Mortgage rates "caught up to the recent rise in long-term bond yields this week," Frank Nothaft, Freddie Mac vice president and chief economist,...

As governments worldwide try to spend their way out of recession, many countries are finding themselves in the same situation as embattled consumers: paying higher interest rates on their rapidly expanding debt. Increased rates could translate into hundreds of billions of dollars more in government spending for countries like the United States, Britain and Germany. Even a single percentage point increase could cost the Treasury an additional $50 billion annually over a few years — and, eventually, an additional $170 billion annually. This could put unprecedented pressure on other government spending, including social programs and military spending, while also sapping...

Surging interest rates are making it harder for Americans to get mortgage deals, and set the stage for taxpayers to pay higher fees on a soaring federal debt. What’s happening is a full-fledged bear market in Treasury bonds, as investors become more optimistic about the economy. They’re buying more stocks and less government debt, a trend that pushes up government borrowing rates. The interest rate on a 10-year Treasury note has gone from 2.93 percent in April to 3.68 percent Monday. That’s an extraordinary surge in just a few weeks. Mortgage rates, which are often tied directly to the direction...

There was a serious decline in the U.S. Treasury market on Thursday and Friday, accompanied by a sharp drop in the U.S. dollar, which backed over $1.40 against the euro. The 10-year T-note traded to yield 3.45% on Friday, and the 30-year bond almost reached 4.40%. Yields are down slightly this morning, and the dollar is a bit stronger. (There is speculation that jitters over the North Korean nuclear blast are behind some of this action.) But it’s hard to miss a sense that sentiment is changing in this extremely important market.

The nation's media – finally – is recognizing and acknowledging what is happening to the U.S. dollar under the direction of President Barack Obama, Jerome Corsi's Red Alert reports. In a clear sign the dollar collapse is so imminent that the mainstream media can no longer cover up the inept way the Obama administration has managed international economics, the New York Times finally published on Thursday an editorial declaring the end of the U.S. dollar is at hand. "[The United States] is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are...

The nation’s debt clock is ticking faster than ever — and Wall Street is getting worried. As the Obama administration racks up an unprecedented spending bill for bank bailouts, Detroit rescues, health care overhauls and stimulus plans, the bond market is starting to push up the cost of trillions of dollars in borrowing for the government. Last week, the yield on 10-year Treasury notes rose to its highest level since November, briefly touching 3.17 percent, a sign that investors are demanding larger returns on the masses of United States debt being issued to finance an economic recovery. ... Already, in...

Fed study puts ideal interest rate at -5% By Krishna Guha in Washington Published: April 27 2009 03:00 | Last updated: April 27 2009 03:00 The ideal interest rate for the US economy in current conditions would be minus 5 per cent, according to internal analysis prepared for the Federal Reserve's last policy meeting. The analysis was based on a so-called Taylor-rule approach that estimates an appropriate interest rate based on unemployment and inflation. A central bank cannot cut interest rates below zero. However, the staff research suggests the Fed should maintain unconventional policies that provide stimulus roughly equivalent to...

Separating personal feelings from straight-up journalism is something MSNBC anchors have had trouble with in the past, and David Shuster is no exception. During MSNBC's daytime news coverage on April 24, Shuster interviewed Bill Himpler of the American Financial Services Association. The discussion was nominally about the legislation sponsored by Sens. Chris Dodd (D-Conn.) and Chuck Schumer (D-N.Y.), designed to freeze credit card rates, it became more about Shuster's view that credit card companies are gouging their customers. Throughout the four-minute interview, Shuster threw out anti-business questions and occasional hyperbole. Shuster asked Himpler, "Why are credit card companies raising interest...

WITH unemployment rising and the financial system in shambles, it’s hard not to feel negative about the economy right now. The answer to our problems, however, could well be more negativity. But I’m not talking about attitude. I‘m talking about numbers. ...[[snip]]... So why shouldn’t the Fed just keep cutting interest rates? Why not lower the target interest rate to, say, negative 3 percent? At that interest rate, you could borrow and spend $100 and repay $97 next year. This opportunity would surely generate more borrowing and aggregate demand. ...[[snip]]... If all of this seems too outlandish, there is a...

For those who depend on taking out a loan in advance of a paycheck, life may soon get harder if Congress passes the Payday Loan Reform Act. The bill's sponsors, which include Rep. Luis Gutierrez (D., Ill.), say they want to clean up abuse in credit markets by clamping down on the prices lenders charge for payday loans. In reality, the legislation will reduce the supply of these loans and make borrowing more expensive. The reform is based on the false premise that consumers take out these loans without realizing how much they are paying. True enough, these loans are...

In the midst of the recent stimulus debate, an innovative Republican proposal emerged that would allow banks to refinance mortgage loans at fixed interest rates as low as 4%. But if you missed it, it’s understandable. It was immediately killed by the Democratic majority and essentially ignored by the mainstream media. However, since late December, the Federal Reserve has been pushing mortgage rates lower, both through the purchase of mortgage-backed securities and by providing more capital to Freddie Mac and Fannie Mae. Rates for qualified borrowers fell from 6% to 5% in barely three weeks and have remained at that...

by David C. John WebMemo #2310 Bad policy is not improved by limiting it to certain situations. The Helping Families Save Their Homes Act (H.R. 1106) would allow bankruptcy judges to reduce the principal owed on a mortgage, a practice often referred to as a "cramdown." Judges would also be able to reduce interest rates or lengthen the term of the mortgage. This is a huge policy mistake that will help only a few people while raising the cost of borrowing for thousands of moderate-income and first-time homebuyers. Although supporters claim that this is a limited provision that applies only...

Washington — It sounds too good to be true, and it just might be: 4 percent, 30-year, fixed-rate mortgage loans to buy or refinance houses, guaranteed by Uncle Sam. What homeowner in Nevada wouldn’t sign up? Thirty-year fixed-rate loans are going for just over 5 percent, an excellent rate by modern standards. The 4 percent loans are among several housing-related provisions Sen. John Ensign and Republican leaders in the U.S. Senate are developing as alternatives to President Barack Obama’s nearly $900 billion economic recovery plan now before them. Republican senators are hoping to put a more lasting imprint on the...

Toll Brothers (TOL) just lowered the bar for the home building industry. Horsham, Penn.-based Toll this week started offering a 3.99% fixed mortgage rate for loans $417,000 or below for 30 years with no points, one of - if not the - industry's lowest rates, one well below the national average of just below 5%. It's too early to say if other builders will copy the attention-grabbing rate, but as the market worsens, competition is fierce and this move could launch a scramble to match [rates]

The bank rate has been reduced by 0.5 percentage points to 1.5pc after recent economic data suggested that the UK is in store for a deep recession this year as the house price slide, unemployment rises and spending slows. Economists believe that because the UK is experiencing a significant downturn, with banks unwilling to lend and pass on interest rates cuts in full, the Bank will reduce rates close to zero to try and ease the impact. "The 50 basis point cut at this juncture was appropriate. However, with survey data continuing to languish at record lows - manufacturing and...

The Bank of England is this week poised to cut interest rates to the lowest level in its 300-year history, in the latest sign of the severity of the economic crisis. By Edmund Conway Bank of England, expected to cut interest rates this week to their lowest level in the institution's 300-year history. Photo: Getty Images The Monetary Policy Committee (MPC) is widely expected to use its two-day meeting this week to cut the benchmark Bank rate below its current 2pc level – the first time this has been done since the Bank was founded in 1694. The radical move...

Reaching for the plastic to pay for holiday presents this season? Expect to find a few surprises in your statement next month. Credit card issuers, struggling with falling profits and rising loan losses, are jacking up interest rates and adding fees, not to mention cutting back on credit lines just in time for the busy gift giving season. This coincides with rising joblessness and uncertain economic times that are making consumers feel a little anxious, if not a little desperate One of the biggest pitfalls are 0% balance-transfer offers, which allow consumers to transfer a big chunk of debt to...

NEW YORK (MarketWatch) -- Crude-oil futures erased earlier gains and closed down 2% Tuesday, as the Federal Reserve's comprehensive easing steps and gloomy economic outlook overtook expectations that the Organization of Petroleum Exporting Countries will cut member nations' production quotas. The Fed slashed its key interest rate to a range of zero to 0.25% Tuesday afternoon, effectively cutting its key rate for overnight lending to banks by between 0.75% and 1%. It said "the outlook for economic activity has weakened further," adding more worries over falling energy demand. "Since the Committee's last meeting, labor market conditions have deteriorated, and the...

The Fed Is Out of Ammunition A discredited dollar is a likely outcome of the current crisis. By CHRISTOPHER WOOD With an estimated $4 trillion in housing wealth and $9 trillion in stock-market wealth destroyed so far in the United States, there is little doubt that we are witnessing a classic debt-deflation bust at work, characterized by falling prices, frozen credit markets and plummeting asset values. Those who want to understand the mechanism might ponder Irving Fisher's comment in 1933: When it comes to booms gone bust, "over-investment and over-speculation are often important; but they would have far less serious...

To go along with the piece I wrote earlier today, the bond market appears to have picked up on the theme of deflation. The 30-year US Treasury bond rocketed upward in price to more than 118 and a half by today’s market close, and much of the move came late in the day. This price corresponds to an interest-rate of 3.49% for the long bond. Just this morning, it was trading to yield over 3.90%. For the bond to drop over 40 basis points of yield in a single day is simply unheard of. If this pricing holds up (and...

BEIJING (Reuters) - Two Asian central banks followed the world's largest economies in cutting rates to contain the global financial crisis as a newspaper reported Washington was considering buying into banks to revive shattered confidence. Rate cuts from South Korea and Taiwan helped regional stock markets shake off some of the fear that dominated Wall Street even after Tuesday's unprecedented coordinated easing from the Federal Reserve and central banks in Europe, Canada and China. But investors remained deeply unsure about how much the joint easing would help. Money markets remained in a state of virtual paralysis and a report in...

1. The Federal Reserve cut interest rates to as low as 1% so that after inflation we had negative interest rates.

Back in 2002, when his reputation as “The Man Who Saved the World” was at its peak, Alan Greenspan, former chairman of the Federal Reserve, came to Britain to pick up his knighthood. His biggest fan, Gordon Brown, now the UK prime minister, had ensured that the citation said it was being awarded for promoting “economic stability”. During his trip, Mr Greenspan visited the Bank of England’s monetary policy committee. He told them the US financial system had been resilient amid the bursting of the internet bubble. Share prices had halved and there had been massive bond defaults, but no...

The Fed, for the first meeting since the credit crisis began last summer, didn't lower interest rates, signaling rising worries about inflation risks. Its concerns were tempered by language indicating continued worries that the aftershocks of the credit crisis that triggered its rate cuts could weaken the economy further. The central bank left the federal funds rate, charged on overnight loans between banks, at 2%. In a statement accompanying the decision, the Fed's language suggested it will continue trying to balance the economy's risks from stubbornly high inflation with the threat of continued weak growth in the second half of...

The Federal Reserve is almost certain to leave interest rates unchanged when it meets next week, and it currently doesn't appear to see a compelling case for raising rates before the fall, unless the inflation outlook deteriorates considerably. An August rate hike can't be ruled out. Between now and then, a raft of economic data, including two employment reports and several gauges of inflation, will be released. If the overall economy and the financial system show signs of rapid improvement or the inflation news worsens significantly, the Fed may decide to start reversing some of the rate cuts that began...

"It’s the economy stupid". Unfortunately there are additional elements affecting the U.S. and global markets besides the recessionary economic trend. As the U.S. economy goes, so go the economies of it’s trading partners globally. The U.S. is the consumer of the world and if the U.S. consumer does not buy, it’s trading partners do not sell. It is as simple as that. I have been almost annoying in my admonition for the past year that the U.S. economy was headed for recession. It has arrived with a vengeance. I am no longer the "lone voice in the wilderness" as others...

BANK AND OTHER FINANCIAL STOCKS rallied strongly Thursday on further optimism that the corner has been turned in the credit crisis. ...Ironically, financials jumped following a Wall Street Journal story Thursday suggesting the Federal Reserve will lower its key interest rate target only another 25 basis points (a quarter percentage pointLower interest rates are the traditional tonic for financials. But the stock market seems to have inferred that, if the Fed trims the overnight federal funds rate only one more time, it would signal it signals its work is done... After all, the Fed under Chairman Ben Bernanke not only...