Important Breaking News for the Week of June 9
June 14
Israeli hawks pushing for strikes on Iran (June 12 – Monterey Herald JERUSALEM)
Six months ago, after American intelligence agencies declared that Iran had shelved its nuclear-weapons program, the chances of a U.S. or Israeli military strike on the Islamic Republic before President Bush left office seemed remote.
Now, thanks to persistent pressure from Israeli hawks and newly stated concerns by the International Atomic Energy Agency, the idea of a targeted strike meant to cripple Iran's nuclear program is getting a new hearing.
As Bush travels across Europe to gain support for possible new sanctions against Iran, Israeli leaders have been working to lay the psychological foundation for a possible military strike if diplomacy falters.
In public threats and private briefings with American decision-makers, Israeli officials have been making the case that a military strike may be the only way to thwart Iran's nuclear ambitions.
G-8 Says Economy Faces `Headwinds,' Oil a Threat (June 14 - Bloomberg)
Finance ministers from the Group of Eight nations singled out spiraling food and fuel prices as their chief concern in warning ``headwinds'' dog the global economy.
``The world economy continues to face uncertainty and downside risks persist,'' the officials said in a statement after meeting today in Osaka, Japan. ``Elevated commodity prices, especially of oil and food, pose a serious challenge.''
Inflation is accelerating after the price of oil reached an unprecedented $139.12 a barrel last week and food costs from rice to soybeans set records this year. Central banks are already shifting toward tighter monetary policy even as expansion fades.
``The G-8 is turning up the volume in terms of its inflation concern,'' said Claudio Piron, a currency strategist at JPMorgan Chase & Co. in Singapore.
The ministers stuck to their practice of not making a joint comment on currencies when central bankers are absent from the talks. Even so, U.S. Treasury Secretary Henry Paulson and French Finance Minister Christine Lagarde spoke in favor of a strong dollar. Japanese Finance Minister Fukushiro Nukaga said there was no discussion of intervention among the ministers.
``A strong dollar is in our nation's interest,'' Paulson told reporters. Lagarde said she was ``happy to hear'' that view. The dollar had its biggest weekly gain against the euro since 2005 on bets the G-8 governments would signal they favor further increases
Darling expects to hear bad news on inflation (June 14 – The Guardian)
Alistair Darling is preparing for an open letter from the governor of the Bank of England next week as inflation continues to spiral out of control.
The chancellor, in Japan this weekend for a meeting of G8 finance ministers, will get an official letter from the bank's governor Mervyn King if, as expected, inflation is shown to have strayed more than a percentage point above 2% in May when the figure is released on Tuesday. The letter must explain why inflation has exceeded the Bank's 2% target and detail its plans to bring the figure down.
Recession indicators say downturn is already here (June 14 – IHT)
Hopes that the United States can avoid a recession were renewed this week by evidence that the government's rebate checks were stimulating spending, at least for now. But two recession indicators based on employment statistics offer evidence that a recession may have begun months ago.
While both indicators are based on declining job markets, they differ in that each comes from a different survey conducted by the Bureau of Labor Statistics. Those surveys - one of business establishments and the other of households - sometimes offer contradictory views of the employment picture, but now they both indicate an economy that has slowed significantly.
Letters From Vermont (June 14 - NYT)
Despite the focus on the housing crisis, gasoline prices and the economy in general, the press has not done a good job capturing the intense economic anxiety — and even dread, in some cases — that has gripped tens of millions of working Americans, including many who consider themselves solidly middle class.
Working families are not just changing their travel plans and tightening up on purchases at the mall. There is real fear and a great deal of suffering out there.
A man who described himself as a conscientious worker who has always pinched his pennies wrote the following to Senator Bernie Sanders of Vermont: “This winter, after keeping the heat just high enough to keep my pipes from bursting (the bedrooms are not heated and never got above 30 degrees) I began selling off my woodworking tools, snowblower, (pennies on the dollar) and furniture that had been handed down in my family from the early 1800s, just to keep the heat on.
“Today I am sad, broken, and very discouraged. I am thankful that the winter cold is behind us for a while, but now gas prices are rising yet again. I just can’t keep up.”
The Great Inflation Debate (June 13 – Businessweek)
If there's one thing Americans don't like, it's a cheater. And as far as many people are concerned, it's cheating to calculate the rate of inflation by deliberately excluding soaring food and energy prices. After all, the logic goes, we all have to pay for food and energy, so why ignore it when measuring inflation? Is this some kind of conspiracy to ignore the plight of the poor or to make the economy look healthier than it really is?
Actually, there are two strong arguments for ignoring food and energy prices in setting monetary policy. Even if you don't agree with them, it's probably a good idea to understand what they are—if only to prepare yourself for the next barbershop debate over why everything's so expensive these days.
Treasury Two-Year Notes Head for Biggest Weekly Loss Since 1982 (June 13 – Bloomberg)
Treasuries fell, with two-year notes headed for their steepest weekly loss in 26 years, before a government report that may show consumer prices rose in May at the fastest pace since November.
The Federal Reserve will increase its 2 percent benchmark interest rate in quarter-point increments in September and October to curb inflation, Barclays Capital Inc. predicted in a report today. China, which invests up to a third of its record $1.68 trillion in foreign-currency reserves in Treasuries, should seek higher-returning alternatives, a former legislator said.
``The Fed is shifting attention to inflation as data suggest the U.S. is not heading into any big economic chasm right now,'' said David Keeble
June 13
Consumer Prices Increase, Sentiment Deteriorates (June 13 – Bloomberg)
The consumer price index increased 0.6 percent, the most since November, after a 0.2 percent gain the prior month, the Labor Department said today in Washington. The Reuters/University of Michigan preliminary index of consumer sentiment fell to 56.7 in June, a reading unseen since 1980, from 59.8 in May.
``The Fed is in a terrible situation here,'' Michael Darda, chief economist at MKM Partners LP in Greenwich, Connecticut, said in an interview with Bloomberg Television. ``We are certainly in a slow period'' and ``the Fed is talking tough on inflation.''
Housing: It'll get worse (June 12 – CNNMoney NEW YORK)
With home prices plunging by more than 30% in some markets, bargain-hunters are ready to pounce. But it may pay for buyers to wait. Many housing experts say that the worst-hit metro areas have even farther to fall, and could see total drops of as much as 50%.
"The housing boom was unprecedented in U.S. history," said Michael Youngblood, a portfolio analyst with FBR Investment Management, "and the correction will be as well."
Foreclosures Rise 48% in May as Repossessions Double (June 13 – Bloomberg)
Banks repossessed twice as many homes in May and foreclosure filings rose 48 percent from a year ago as falling house prices trapped borrowers in mortgages they couldn't afford, RealtyTrac Inc. said in a report today.
One in every 483 U.S. households either lost the home to foreclosure, received a default notice or was warned of a pending auction, RealtyTrac said. That was the highest rate since the Irvine, California-based company began reporting in January 2005 and the 29th consecutive month of year-over-year increases. Nevada, California and Arizona posted the highest rates in the U.S. and New Jersey entered the top 10.
' Foreclosures add to inventory and crowd out regular sales, Michelle Meyer and Ethan Harris, economists at Lehman Brothers Holdings Inc. in New York, wrote in a report yesterday. Foreclosures will account for 30 percent of national home sales this year as 1.2 million foreclosed single-family homes will eventually enter the market, they said. They estimate foreclosed properties, which typically sell for about 20 percent less than other homes, will depress home prices nationally by 6 percent.
The Peak Oil Crisis: The Summer Ahead (June 12 – Falls Church Press)
The situation is not good. Our average gasoline price just climbed past $4 a gallon and all indications are that it will continue to rise.
Declining car sales and airline flights will not bring about the reduction in demand that will be needed. Even if we were to ground all of our civilian aircraft, we would only save about a million barrels of fuel a day, about 5 percent of our daily consumption.
It will take decades to swap out our fleets of inefficient cars for something more suitable. It is going to take a lot more than cancelling a few flights and slowing the addition of inefficient vehicles to our fleet.
While not yet precarious, the supply/demand/stockpile balance in the U.S. is becoming a cause for concern. Keep in mind that the U.S. must import two-thirds of its crude oil and petroleum products each day. So far this year domestic crude production is down by 1.6 percent over last year, but imports of crude and products are down by 7.5 percent. Over the last month the situation has grown worse with crude oil imports down by 8 percent and net product imports down by 25 percent.
Now this would be all right if we were reducing our consumption by an equal amount. So far this year however, U.S. consumption is down by only 2.8 percent and according to the EIA during the last month, U.S. consumption of gasoline and other petroleum products is down by only 1.3 percent. Like the rest of the world, we are living on stockpiles.
European protests against high fuel prices turn violent (June 13 - This is London)
Violence has flared across Europe as hauliers, fishermen and taxi drivers protest against rising fuel prices they say are crippling their industries.
Protests have now gone worldwide, with the Philippines and Thailand also seeing angry workers taking to the streets.
Spain appears to have been worst hit, with lorry drivers on either side of the dispute paying with their lives. In Thai capital Bangkok, tens of thousands of heavy lorries threatened to cause havoc as farmers demonstrated and fishermen have begun burning their boats in nationwide protests against soaring prices of fuel and other essentials.
Factories close, supermarkets empty and jets run out of fuel as truckers' strike bites (June 12 – The Guardian)
Strike action by thousands of Spanish and Portuguese truckers produced ominous knock-on effects on food supplies, aviation and industry yesterday, as Lisbon airport ran out of fuel, car factories shut down and petrol stations and supermarkets reported shortages.
In a worrying sign for other European countries that face rising discontent at the spiralling cost of diesel, a third day of strikes generated widespread mayhem and the mood turned ugly after the first casualties of the standoff: two strikers died in clashes on picket lines.
Tourists flying to Lisbon faced delays after the airport ran out of fuel. Some flights were diverted to Porto. Only emergency, military or state flights were allowed out of Portela airport, a spokesman said. Only emergency fuel stocks saved Spanish airlines from similar disruption.
Supermarkets, meanwhile, reported dwindling supplies. Authorities at Spain's two biggest wholesale markets, Mercamadrid, in Madrid, and Mercabarna in Barcelona, reported deliveries of meat, fish and fruit were almost at a standstill.
In Barcelona, at a branch of Caprabo supermarket, there was no fresh fish or meat on the shelves. Shopper María Luz Martínez, 38, said: "The lorry drivers are looking after themselves while we are all suffering. But the government doesn't appear to be that interested."
As panic buying among motorists continued, petrol stations were running dry. Drivers in Lisbon trying to fill up their cars were turned away. In Spain, "empty" signs hung from pumps at hundreds of stations across the country. Three car firms, Seat, Nissan and Mercedes, suspended production because of parts shortages.
Peak Moment: Learning from the Collapse of Earlier Societies (May 29 – Global Public Media)
According to Professor Guy Prouty, every civilization rises, evolves, and then collapses to a simpler structure -- and this will include our own. Comparing America with the Western Roman Empire, Prouty notes the over-reach of our military, the unsustainability of capitalism, peak oil, and climate change. And, this time, we may see a global collapse. Transitioning to a simpler society will require us to change behavior and consciousness: decrease energy, get out of debt, decentralize, de-consume, grow our own food, build community, see ourselves as connected to the planet. Collapse is not the end, he says. It's part of a natural cycle.
June 12
Commodity Prices Show No Letup (June 12 – NYT CHICAGO)
Commodity prices went wild on Wednesday, with the price of corn shooting through the $7 barrier for the first time, soybeans and wheat moving up sharply and oil jumping more than $5 a barrel.
The higher commodity prices are likely to add to a worldwide inflationary picture that seems to worsen by the day. Prices of many grocery items in the United States have been rising briskly, with some goods like eggs and milk — produced from animals fed with corn — up by 13 to 30 percent in the past year.
“You know those complaints you’ve been hearing about high food prices? They’ve just begun,” said Jason Ward, an analyst with Northstar Commodity in Minneapolis.
Florida at the Precipice of Depression (June 10 – Mike Morgan’s Blog)
I was going to call this "Banks March Us Into Depression," or maybe more fitting is . . . "Complete Collapse of US Banking System." Folks, that is what we are looking at. I don't see any way around it. What we're seeing here in Florida, is your crystal ball. And what happens here, is coming to a town near you . . . soon.
This past week I didn't write anything, because what I am seeing unravel is disturbing to the point I had to question what I was seeing and hearing. So I decided to take as much time as I needed to digest it all, and then put something together for you. So here goes . . .
Banks cannot afford to take 50-75% hits on mortgages, and that is exactly what is happening. The precipice is here, and we are on it. Recent reports about home sales rebounding are insignificant, because no one is accurately describing the growing inventory build-up. Banks simply don't have the margins to deal with this crisis. And for that reason, we will see massive bank failures and this will snowball into a complete economic meltdown. If you have an argument against this scenario, I'd love to debate you on a live conference call. We deal with the banks. We know what is going on before the numbers show up at the Fed or any analysts desks. We deal with the public, so we hear the desperation at all levels. I listen to grown men cry about how to explain to their families that they are losing everything. I listen to people that I fear are on the verge of suicide. I read about people committing crimes simply to put food on the table. Spend a week with me, and you'll understand why there is no feasible way to avoid a Depression.
The banks will fail, just as they failed in 1929 . . . but worse because this time some of this leverage is as high as 40:1. Insurance? Where is that going to come from? There is no insurance that can cover the cost of the coming bank failure, unless we just print more money.
Home price drop means $4 trillion in lost capital (June 11 – Reuters NEW YORK)
No one knows when the credit crisis will end. But when it does, U.S home prices may have lost a third of their value, high-yield bond valuations will hit levels close to those seen during the last recession, and what may amount to $1 trillion of Wall Street losses may translate into almost $4 trillion of lost access to capital.
That's the view of top credit analysts, who say a U.S. housing decline, sparked last year by subprime mortgage debt defaults, will likely last another two years as a wider group of consumers, including prime borrowers, feel the pinch from a tightening of credit.
Budget deficit soars to $165.9 billion on rebate payments (June 11 – Marketwatch WASHINGTON)
The federal budget deficit widened to $165.9 billion in May as the government paid out some $48 billion in tax rebates to individuals, the Treasury Department reported Wednesday. Receipts fell to $124.3 billion in May, down 24% compared with the previous May. Outlays rose 25% year-on-year to $290.2 billion. The May budget deficit was close to the $165 billion forecast by the nonpartisan Congressional Budget Office.
How To Get Out Of This Mess (June 11 – Comstock Partners)
In this report we will attempt to explain what needs to take place in order to resolve the mess we find ourselves in due to over consumption, excess debt and the government trying to micro manage.
We believe the Fed and Government were the main cause of the dual bubbles (stock market and housing) by attempting to stop the perceived deflation in 2001. Now they are trying to stop or slow down the housing price declines and potential recession.
However, instead of propping up housing prices and the economy they are starting another bubble in dollar based commodities. The Fed will not be successful if they try to micro-manage our economy with a secondary role in controlling inflation. In our opinion, if they continue to attempt to liquidate us out of this mess, it will only postpone the inevitable decline in house prices and lead us into a long deflationary environment just like Japan experienced starting in 1990.
That Stagflation Show (June 9 – The Wall Street Journal)
Friday's market rout in employment, oil, the dollar and stocks was not the end of the world, but it is a warning. The message is that the current Washington policy mix of easy money and Keynesian fiscal "stimulus" is taking us down the road to stagflation.
Washington has been on this path in earnest since the credit market blowup last August. The Fed slashed interest rates dramatically to save Wall Street and prevent a recession, ignoring the risk to the dollar. Meanwhile, Congress and the White House agreed to about $168 billion in "stimulus," mainly in the form of tax-rebate checks to prop up consumer spending. If you don't feel stimulated by this repeat of nostrums from the 1970s, join the club.
June 11
Central bank body warns of Great Depression (June 9 – Banking Times)
The Bank for International Settlements (BIS), the organisation that fosters cooperation between central banks, has warned that the credit crisis could lead world economies into a crash on a scale not seen since the 1930s.
In its latest quarterly report, the body points out that the Great Depression of the 1930s was not foreseen and that commentators on the financial turmoil, instigated by the US sub-prime mortgage crisis, may not have grasped the level of exposure that lies at its heart.
More financial land mines ahead (June 10 – CNN Money NEW YORK)
When Lehman Brothers reported a stunning $2.8 billion loss Monday, it was just the latest sign that bad mortgage loans continue to be a problem for the financial markets and the economy.
But subprime mortgages could only be the beginning. Many economists and market experts are worried that other problems are lurking that could cause a new credit crisis for consumers and businesses.
Meredith Whitney, the banking analyst for Oppenheimer & Co., estimates that the credit problems will continue to dog financial markets into 2009. She thinks future losses will dwarf the roughly $25 billion set aside by Wall Street firms so far to cover them -- perhaps reaching $170 billion by next year. Other experts agree that the worst is not yet over.
Banking on Gardening (June 11 – NYT)
Seed companies and garden shops say that not since the rampant inflation of the 1970s has there been such an uptick in interest in growing food at home. Space in community gardens across the country has been sold out for several months. In Austin, Tex., some of the gardens have a three-year waiting list. George C. Ball Jr., owner of the W. Atlee Burpee Company, said sales of vegetable and herb seeds and plants are up by 40 percent over last year, double the annual growth for the last five years.
“You don’t see this kind of thing but once in a career,” he said. Mr. Ball offers half a dozen reasons for the phenomenon, some of which have been building for the last few years, like taste, health and food safety, plus concern, especially among young people, about global warming.
But, Mr. Ball said, “The big one is the price spike.” The striking rise in the cost of staples like bread and milk has been accompanied by increases in the price of fruits and vegetables.
Global Crude Oil Production Dropped in 2007, BP Says (June 11 - Bloomberg)
Global oil production fell for the first time in five years in 2007 and reserves also declined as prices rose to records, BP Plc said in its annual Statistical Review of World Energy.
Crude oil production dropped 0.2 percent to 81.533 million barrels a day last year, from 81.659 million barrels a day in 2006, the London-based company said today. Proved reserves were 1,237.9 billion barrels at the end of last year, compared with a revised total of 1,239.5 billion barrels for 2006.
World Faces `Oil Crisis;' IEA Ready to Tap Reserves (June 11 - Bloomberg)
The world faces an ``oil crisis,'' and the International Energy Agency stands ready to release emergency stockpiles even as the biggest consumers discuss measures to contain spiraling demand, the agency's chief said.
``Any major oil-plant accident can cause a supply disruption,'' Executive Director Nobuo Tanaka said in an interview in Tokyo. ``We at the IEA are monitoring the oil market and preparing ourselves to call for the release of strategic petroleum reserves at any time in the event of a major disruption.''
``We can call it an `oil crisis' given the current price, and that it continues to climb even after global efforts to cut consumption,'' Tanaka said. ``We see a critical, structural issue in the global oil market, where supply growth isn't catching up with demand.''
Talking peak oil in the heartland (June 10 – Energy Bulletin)
For those who expect an alternative fuel or technology to replace oil, the conference held out no hope. Keynote speaker David Goodstein, professor of physics at Caltech, and author of the book, Out of Gas, went through all of the alternatives: coal, natural gas, biofuels, solar, wind, geothermal and nuclear and showed how each one has severe physical limitations in the real world. For instance, here is his take on nuclear energy:
To produce enough nuclear power to equal the power we currently get from fossil fuels, you would have to build 10,000 of the largest possible nuclear power plants. That’s a huge, probably nonviable initiative, and at that burn rate, our known reserves of uranium would last only for 10 or 20 years.
China Plans More Nuclear Reactors, Uranium Imports (June 11 - Bloomberg)
China, the world's second-biggest energy consumer, plans to add more nuclear-power capacity by 2020, step up uranium imports and explore for the fuel in nations as diverse as Kazakhstan and Niger.
The country's nuclear-power capacity will rise to at least 60 gigawatts by the end of the next decade, Wang Yonggan, secretary of the China Electricity Council, said at the National Nuclear Congress in Beijing today. Overall generation capacity will double to 1,500 gigawatts by then, Wang said.
China Orders Coal Companies to Increase Production, Steps in to Keep Prices Stable (June 10 – Xinhua BEIJING)
Amid coal shortage in some localities, China's State Administration of Coal Mine Safety on Sunday issued an urgent circular ordering domestic coal companies to increase production on the premise work place safety be ensured.
The administration required state-owned coal mines to "take effective measures" to increase coal output and meanwhile step up safety management.
China Using Up Natural Resources Fast, Report Says (June 11 – Reuters GENEVA)
China is drawing on natural resources such as farm land, timber and water twice as fast as they can be renewed in its drive for development, a report from Chinese and international environmentalists said on Tuesday.
The report said the next 20 years would be critical to correct the situation and put the Asian giant's burgeoning economy, with a rapidly growing population, on to a sustainable path.
"China's average ecological footprint has doubled since the 1960s and now demands more than two times what the country's ecosystems can sustainably supply," said a summary of the report, issued by the Swiss-based WWF International.
June 10
Threatening Iran (June 10 – NYT)
Israeli leaders spent last week talking tough about Iran and threatening possible military action. The United States and the other major powers need to address Tehran’s nuclear ambitions, but with more assertive diplomacy — including greater financial pressures — not more threats or war planning.
We don’t know what’s going on behind closed doors in Washington — or what Mr. Olmert heard from Mr. Bush. But saber-rattling is not a strategy. And an attack on Iran by either country would be disastrous.
Administration does not rule out currency intervention (June 9 – AP)
Bush and Treasury Secretary Henry Paulson appear to be easing away from their hands-off approach to managing the value of the dollar. While a strong dollar has long been stated U.S. policy, that usually has amounted to no more than rhetoric unbacked by specific steps.
The government has limited options for propping up the greenback, especially in an election year with rising unemployment, slumping consumer confidence and the worst housing market in decades.
Paulson declined to rule out direct intervention -- the buying by the government of dollars in currency markets -- as a way to influence the currency's value. Another way to shore up the dollar is for the Federal Reserve to raise interest rates -- seen as an unlikely prospect given the current state of the economy.
Bernanke Says Fed to Resist Price Expectations Surge (June 10 - Bloomberg)
Federal Reserve Chairman Ben S. Bernanke said policy makers will ``strongly resist'' any surge in inflation expectations, delivering his clearest message yet the central bank is done lowering interest rates.
Bernanke played down the biggest jump in the unemployment rate in 22 years in May and said the risk of a "substantial downturn" receded in the past month. Policy makers will need to pay "close attention" to make sure the increase in commodity costs doesn't pass through to broader consumer prices, he said in a speech to a Boston Fed conference late yesterday.
Worries mount as world's farmers push for big harvest (June 10 – IHT GRIFFIN, Indiana)
In a year when global harvests need to be excellent to ease the threat of pervasive food shortages, evidence is mounting that they will be average at best. Some farmers are starting to fear disaster.
American corn and soybean farmers are suffering from too much rain, while Australian wheat farmers have been plagued by drought.
Harvests ebb and flow, of course. But with supplies of most of the key commodities at their lowest levels in decades, there is little room for error this year. American farmers are among the world's top producers, supplying 60 percent of the corn that moves across international borders in a typical year, as well as a third of the soybeans, a quarter of the wheat and a tenth of the rice.
"If we have bad crops, it's going to be a wild ride," said the Agriculture Department's chief economist, Joseph Glauber. "There's just no cushion."
Wealth Evaporates as Gas Prices Clobber McMansions (June 9 - Bloomberg)
Sky-high gasoline prices aren't just raising the cost of Eugene Marino's 120-mile (193-kilometer) round-trip to his job in the Washington area. They're reducing his wealth, too.
House prices in his rural subdivision beyond the Blue Ridge Mountains in Charles Town, West Virginia, have plunged as commuting expenses have soared. A four-bedroom home down the street from his is listed for $239,000, after selling new for $360,000 five years ago.
June 9
The Economy - Why It’s Worse Than You Think (June 16 Issue – Newsweek)
But this downturn is likely to last longer than the eight-month-long recession of 2001. While the U.S. financial system processes popped stock bubbles quickly, it has always taken longer to hack through the overhang of bad debt. The head winds that drove the economy into this dead calm— a housing and credit crisis, and rising energy and food prices—have strengthened rather than let up in recent months. To aggravate matters, the twin crises that dominate the financial news—a credit crunch and the global commodity boom—are blunting the stimulus efforts. As a result, the consumer-driven economy may not bounce back as rapidly as it did in the fraught months after 9/11.
As it seeks to regain its footing in the second half, the U.S. economy faces two significant obstacles, neither of which was evident in 2001. The first is entirely homegrown: the self-inflicted wounds of the promiscuous extension and abuse of credit in the housing and financial sectors. The second is a global phenomenon that has comparatively little to do with American behavior: rampant inflation in commodities such as oil, food and steel. These trends have conspired to inflict genuine economic pain and deflate consumer confidence. The Conference Board's Consumer Confidence Index in May slumped to a 16-year low.
The Next Real Estate Crisis (June 5 – BusinessWeek)
With the subprime mortgage crisis already crippling the U.S. economy, some experts are warning that the next wave of foreclosures will begin accelerating in April, 2009. What that means is that hundreds of thousands of borrowers who took out so-called option adjustable-rate mortgages (ARMs) will begin to see their monthly payments skyrocket as they reset. About a million borrowers have option ARMs, but only a fraction have already fallen due.
That was the catch to option ARMs; borrowers were offered low initial payments that would recast higher after several years. Many home buyers thought they could resell their homes before their payments increased. But instead, many of them got trapped. According to Credit Suisse (CS), monthly option recasts are expected to accelerate starting in April, 2009, from $5 billion to a peak of about $10 billion in January, 2010. Some of these loans have already started to recast. About 13% of option ARMs that were issued in 2006 were delinquent by 60 days by the time they were 18 months old, Credit Suisse said.
Overdue loans to Florida banks quadruple (June 5 – Tampa Bay Tribune)
The housing downturn continues to crush Florida bankers: Overdue loans, mostly real estate related, have nearly quadrupled the past year in the Sunshine State.
If that were not enough, the state's lenders have unusually low cash reserves to protect against mortgage defaults. And 41 percent of Florida-chartered banks were unprofitable the first three months of this year. That's twice the number of banks that bled red ink last year.
Wall St. firm told only some about risk (June 9 – Boston Globe)
UBS Financial Services Inc. knew as early as December that a segment of the municipal bond business was in trouble, but the Wall Street firm kept selling the investments to some clients without warning them of the risk, according to documents reviewed by the Globe.
By February, the $330 billion auction-rate securities market had collapsed, locking out the nonprofits and municipalities that had used the market for years to issue inexpensive debt, as well as the investors who had purchased it. UBS brokers have said they were as surprised as anyone about the market's shutdown.
But on the other side of the firm, UBS was advising some large investment banking clients of the looming problems at least three months before all trading stopped, according to a letter to investors by one of those clients, a New Hampshire bond issuer.
Corn Jumps to Record on U.S. Midwest Rain, Crude Oil, Dollar (June 9 – Bloomberg)
Corn jumped to a record on speculation rain in the U.S. Midwest will cut supply and as rising oil costs and the dollar's decline boosted demand for a hedge against inflation. Soybeans, wheat and rice also gained.
U.K. Producer Prices Rise at Fastest Pace Since 1986 (June 9 –Bloomberg)
U.K. producer prices increased at the quickest rate in two decades in May, increasing the odds the Bank of England will refrain from interest-rate cuts even as the economy edges toward a recession. Prices charged by factories rose 1.6 percent from April, the Office for National Statistics said in London today. That's the most since comparable records began in 1986 and double the median forecast of 32 economists in a Bloomberg News survey. >From a year earlier, prices rose 8.9 percent.
Scarcity in an age of plenty (June 9 – Joseph Stiglitz)
Around the world, protests against soaring food and fuel prices are mounting. The poor - and even the middle classes - are seeing their incomes squeezed as the global economy enters a slowdown. Politicians want to respond to their constituents’ legitimate concerns, but do not know what to do.
