Thursday, April 24, 2008

The Widening Mortgage Crisis and Economic Downturn

There is increasing bad news on the homefront. According to an interesting website The Mortgage Lender and its Impode-o-Meter, there has been 253 Mortgage companies have "imploded" since 2006. I stumbled across this website from a comment posted by John on the Tacoma News-Tribune Real Estate Blog .

Scarily enough, Yale University economist Robert Shiller, admittedly bearish and known for the S&P Case-Shiller home price index, said this week that U.S. housing prices could fall farther than they did during the Great Depression. At that time, prices decreased by 30 percent.

Can you even image a 30% percent plus price decrease? I think we are seeing a widening economic crisis, we have been watching a continue increase in food, crops, gas, and metal prices, you name it.

It will be interesting times, China is increasing it's reach in search for natural resources. They are heavily invested in countries such as Sudan, Myanmar, and Congo. China's steel imports have tripled since 2002 from places like Australia. Mr. Kevin Rudd, the new Aussie PM, is fluent in Chinese. With China holding on to over a trillion (yes a trillion) dollars in reserve, they hold an immense power over the U.S.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

There is now a growing food crisis as well but that is for another day.

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