patrick.net

Largest import is CRUDE OIL

Of course import prices will also go up a little.

What is so nice about crude oil is that it's price increases does not flow through or feed into the price of other products or services!?! HAHA

I guess if my gold goes up and rent stays the same I am still doing alright!

Patrick you said: "I assume the Chinese and Japanese are pretty annoyed, given that the value of their US Treasury holdings just fell by, oh, a trillion or two."

Losing more than one trillion is quite difficult given that China and Japan collectively hold only have a bit more than one trillion of our debt to start with. If we do the math we see that a one half percent reduction in the value of the dollar reduces the value of their holdings by about $5 billion.

Peter P,

Did Bernanke send out the kool-aid ration with this rate cut? I didn't get mine!?!

Paul

Such an uncanny resemblance between US and Land of Oz. We used to have just Scarecrow without brain and Tin man without hart and now we just got the Lion without guts. Maybe we all need to have a little more faith in our government. In Big Government We Trust.

Paul, nearly all goods and services are also inputs to other things - but on a fractional/diminished basis. The price of oil often fluctuates daily by as much or more than the amount by which the dollar just declined. It is good to understand the contrext of things so as to not grossly overestimate their impact.

Of course the dollar could decline further, but it could also strengthen on secondary considerations.

It is just a few raindrops - the sky is not falling...

In fact it is quite the contrary - a little rain is a good thing.

You mean the currency or the land? Or just move there? With global warming, there is a double incentive to buy Canadian.

Hey Idaho is just south of the Canuks....another reason I moved here after bailing out of my San Jose house in 2006. Should warm up and get wetter here over the next few decades.

Invest in guns and ammo. A type III Federal Firearms License is still only $30 for 3 years. You can purchase Mosin Nagants and Mausers for $100 or so and tins of ammo for same from east bloc countries for really cheap. Turk 8mm Mauser ammo or 7.62 x 54R ammo from Albania is only a few pennies a round.

1982 oil, adjusted for inflation today would equal $100/barrel.

If rates didn't get cut, more damage would be done by the increase of foreclosures on the economy which would shrink lending and contract consumption - which accounts for 70% of GDP. Although, I do agree that we are bailing out the bad with the good, it needs to be done.

BTW, foreign investors hold Treasurys not fed funds, so the Fed Funds rate reduction does not reduce their interest rate earnings. In fact, the 10 year Treasury rate went up today, so they will now earn (slightly) more interest on new bond purchases. So looking forward, lending to the US just got better.

Deep shit my ass.... The total effect of all these things is not only not significant, it is barely measurable.

Check out the bargains here: www.aimsurplus.com

"...Invest in guns and ammo. ..." and they are not making any more of old Russian ruffles, just like land...

Zephyr,

10 (1999) to 82 (Now) is a trend not an aberation or vol!

Today patrick.net community lost agains FED ... what is your option now. Would you recommend Peter Schiff europac.net?

Hey John,

It will not be long and you will get your inflation adjusted crude at $100. It's great we are all ok with lost purchasing power and feel the need to justify / adjust for inflation.

Paul

Turk 8mm Mauser ammo or 7.62 x 54R ammo from Albania is only a few pennies a round.

Does this mean Turkey and Albania will become booming affluent economies while the US degrades into anarchy and barbarism? or will it just mean a few people will have boxes of ammo on their shelves while their savings go under...

the 4 Corners story on the mortgage meltdown amusingly points to the family who had amassed tins of baked beans and ammo, etc, only to find they were overcommitted on 'investments'... what's the secondhand ammo and baked beans market like?

PAUL BARRY: Jim and his family fear earthquakes, terrorism, civil disorder and a rising crime rate, which is why they’ve stocked the house with emergency rations and have five guns close to hand.

JIM ADAMS, RIVERSIDE HOMEOWNER, CALIFORNIA (to Paul Barry): There’s one, just about one hidden in every room in the house.

PAUL BARRY: But what hit Jim Adams between the eyes was something he never imagined - his own desire to make a killing.

Paul,

I am not finding a way to justify inflation. Inflation, for now, is tame. I am saying that we have to pick between the lesser of two evils, per se.

AP
House Votes to Aid Struggling Homeowners
Tuesday September 18, 7:22 pm ET
By Marcy Gordon, AP Business Writer
House Approves Plan to Help Struggling Homeowners Avoid Foreclosure

WASHINGTON (AP) -- The House on Tuesday approved a plan to expand federal backing of mortgages in hopes of helping struggling homeowners avoid foreclosure. Despite some White House objections, the Bush administration and House Democrats took conciliatory stances pointing toward resolving their differences.
The bill passed the House 348-72. It would allow the Federal Housing Administration, which insures mortgages for low- and middle-income borrowers, to back refinanced loans for tens of thousands of borrowers who are delinquent on payments because their mortgages are resetting to sharply higher rates from low initial "teaser" levels.

Brian Montgomery, the Housing and Urban Development assistant secretary who heads the FHA, said the legislation could enable more than 200,000 homeowners whose loans are excluded from federal backing to come under the agency's umbrella.

"This is a historic day for FHA," Montgomery told reporters after the vote. He said the administration remains concerned about specific provisions -- notably much higher limits in the bill for mortgages that could be insured by the agency, as much as $729,750 in high-cost areas compared with the current $362,000. However, Montgomery added, "I feel optimistic we'll work out these differences" as the legislation moves through Congress.

In the Senate, the Banking Committee is expected to vote Wednesday on a version of the legislation proposed by panel chairman Sen. Christopher Dodd, D-Conn., and its senior Republican, Sen. Richard Shelby of Alabama.

The House measure is Congress' first stand-alone bill passed in response to the mortgage-market tumult of the summer, which came amid a rising tide of defaults and foreclosures. The Senate last week approved spending legislation that includes $200 million in aid to nonprofits and other groups that offer counseling and information to help homeowners avoid foreclosure.

"The American dream is in peril for many families in this country as foreclosures rise and dreams shatter," Rep. Betty Sutton, a Democrat from Ohio, a state particularly hard-hit by the default wave, declared in House debate before the vote.

Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee, said he wanted to whisk the new House measure to the Senate along with a bill to tighten government oversight of mortgage finance giants Fannie Mae and Freddie Mac. The administration has insisted such legislation was needed before restraints on the amounts of mortgage securities the two government-sponsored companies are allowed to buy and hold could be eased.

....

I am not finding a way to justify inflation. Inflation, for now, is tame.

Yeah, right inflation is tame. Let's see, the Fed likes CPE and core CPI, both cooked to such an extent that they exclude the things everyday people use the most - food, energy, and (at least regarding its impact on daily budgeting) purchased housing. Just ask yourself a common-sense question: does my current paycheck go as far as it did X years ago? For most Americans, the answer is clearly no.

Once again, today patrick.net community members lost ... go buy a house now. Are there any other options??

One thing is for sure ... I am not voting for Democrats in 2008 ... they will surely lower interest rate more and provide housing assistance to speculators.

TIPS - inflation adjusted treasuries

inflation - you get your 3% (or whatever the going rate is) on top of inflation
deflation - you only get 3%, but your money got more valuable on top of that so who cares

ok, so it's not dramatic, but can anyone tell me where the risk is here?
other than the govt understating inflation, that is

I find it very interesting that people can think that lowering the cost of a fundamental element of their cost of living is bad for them. It reminds me of the people who think that a higher mortgage rate is good because they get a bigger tax deduction, while not realizing that the tax benefit is only a fraction of the increased cost.

skibum, If X is less than 10 you are correct. However, the purchasing power of the average american and most americans has steadily risen over the 60+ years. Compared to 30 years ago the improvement is great. But compared to 1999 most people have lost a few percent of real purchasing power.

Our "external debt" is about $10 trillion.

http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

So when the dollar loses 1%, that's $100 billion lost by our creditors. I did exaggerate. $100 billion is nothing, right? I'll update the post.

Wondersalve, TIPS are a good safehaven for your money. However, after taxes you will make little or no money. No loss but no real gain either. That's OK for a parking place when you are having trouble sleeping at night.

Long term you need to be in something that beats inflation by more than a mere 2 or 3%. Normally, that would be stocks and real estate. But it is too early to buy real estate, and stocks are a tricky bet right now.

>> $100 billion is nothing

Yes it is nothing compared to the mess that Alan Greenspan created ...

>> But it is too early to buy real estate, and stocks are a tricky bet right now.

How about international stocks like Peter Schiff europac.net?

TIPS is only based on government cooked statistics. There is no risk if you are just in it for 2-3 years, fine, you lose 3-5% each year depending on what the real inflation is and how well they can understate. For the long term, we all know the power of interest rate difference, compounded.

May I remind those who have lost hope in the situation the experience of Japan. Japan literally dropped their interest rate to the floor, anywhere between 2001 and 2006, you could buy a home on an ARM of 1-2%. What happened to their housing price?

If dropping rate (printing money) alone can save the economy, recession as a word should have ceased to exist for a long time. Fed's action will prove effective in one aspect only, trashing the dollar.

not sure if alan greenspan is entirely to blame. easy credit banksters, MBs, REI hacks, mom and pop specuvestors, etc all had a hand in it, as that recently linked blame game article pointed out... altho if you dangle low interest rates in front of the mob, what do you expect??? maybe he WAS to blame, doesn't he understand capitalism by now? jeez...

In fact, the 10 year Treasury rate went up today, so they will now earn (slightly) more interest on new bond purchases.

I wonder how that is going to affect home sales.

Interest rate policy is like a leash on a dog. You can hold the dog back with a restrictive/tight leash, but letting the leash loose will not cause the dog to run unless the tight leash was the only constraint. If the dog wants to be lazy a loose leash will not change that.

You can't push a string.

So dropping interest rates will help the economy if the rates restrictive to the economy (as they have been for almost two years now). And lowering the rates below the balance point just fuels inflation, as we saw when Greenspan lowered the Fed funds target to 1%.

DS,

what do you think is going to happen to Oz Reserve Bank's Nov meeting? Rate cut? I was actually very surprised that you guys came through with a rate hike in August to 6.5%.

Greenspan understood that a 1% rate would cause a bubble. But he was trying to prevent a deflationary spiral at the time. Deflation was a lower probability outcome but a disaster if it occurred. He figured he could deal with the bubble, but not with a deflationary spiral.

I have a question based on the following scenario. Assume that only 10 % of the 60 billion of mortgages that due this October First (Deustche bank stats), what will happen to the stock market when these people (most of whom, have never saved a dime in their lives) fail to make their October payment. Will the FHA bail them out even though the bill is due Oct 1, and the FHA has no clue at this time. In other words how many months will these 2/28 sub prime borrowers be given to catch up?

Second problem. What do you think will happen to the prices of SFR? The Realtards hate any drop in house prices, the LO's and mortgage companies need every dime of profit because of the lower sales, so they ALL want the housing prices to skyrocket again. The lowest FED rate was in 2004, if Jim Cramer gets his way and the FED drops .50 percent at least three more times. WHAT THE HECK WILL HAPPEN?? It seems to me, we will be exactly where we were in 2004 when the 2/28's were invented as a way to keep the bubble getting bigger. But this time we won't have 2/28's we will have FHA playing games with JUMBO LOANS. I need some guidance on this. It looks very bad.

Can anyone help me understand this?

Zephyr said:

"If we do the math we see that a one half percent reduction in the value of the dollar reduces the value of their holdings by about $5 billion."

But you know, better than most, Zephyr that today's drop in the dollar isn't the whole story.

Once upon a time (early 80's), the dollar was over 160. Six years ago, it was 120. In 2005 it was 92. Today it's 79.2 and falling. And what's the all-time low? 78.something? Right?

So, the fall in the dollar means something to us as well as the Chinese. It's not an insignificant issue. How big of an issue it becomes is anyone's guess, but it is cause for concern.

floordog,

let me borrow some wisdom from history, recent history.

Here is the interest rate of BOJ upon which the Japanese mortgage rate is based. Just for convenience sake, add 1.5%-1.75% on top to arrive at the mortgage rate. It is in English and numbers so you don't need to understand Japanese to read.
http://www.economagic.com/em-cgi/data.exe/bjap/ehdis01

According to BW, "Japan's savings rate topped 20% of household income in the mid-1970s and clocked 14% as recently as the start of the 1990s. It is now no higher than 7%." Unlike the US, Japan's household savings rate never went below 0. We've been negative since 2001.

So, what do you think is going to happen?

OO Says:
DS,
what do you think is going to happen to Oz Reserve Bank’s Nov meeting? Rate cut? I was actually very surprised that you guys came through with a rate hike in August to 6.5%.

yeah, there was a 0.25% hike again, to stem 'inflation', with talk of another rise in nov. now the US subprime industry is collapsing with its flow-on effects around the world, plus northern rock in UK etc, there is less likelihood of another rise in nov, but whether they will reduce it is another matter. it will be interesting to see if Oz goes with US rates or contrary to them, in fact, depending on local conditions and the mood of the Reserve. (it's possible that you can't buck international rates trends for long due to the effect of carry trade, etc, that's beyond my ken)