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[admin]

[john p]

I'm thinking net-effect terms here regarding China.

US citizens overpay for Chinese products so they have an abundance of US dollars (trade imbalance). The Chinese trade the US dollars for Treasuries.

http://www.chinadaily.com.cn/china/2007-08/03/content_5447997.htm

Because the Chinese monkey with their currency and if we do the same we're perceived as being isolationists, the trade imbalance is manufactured by the Chinese's currency controls. So if they take the surplus dollars from the trade imbalance that are given to them by US citizens, it is effectively taking US dollars from US consumers to purchase Treasuries to get a return from the US Federal Reserve. China is getting out of control inflation right now because they control their currency and because the US dollar now has to be the medium of exchange for the global economy, we need to absorb the inflation caused by China's currency policy.

My point is that just like a borrower doesn't have the money to buy a house, it's like an investor trading on margin. The Chinese are trading on the trade imbalance margin. They didn't earn all of the US dollars; if the trading was fair they wouldn't have inflation right? If China had things in balance wouldn't US companies be able to compete more? So when we buy products from China today, we increase our debt and taxes tomorrow.

I guess in a roundabout way, I'm saying that it is better to invest in the US and keep our money here than ship it to China. The US worker is paying a ton of interest and the Chinese are getting our dollars and then interest on top of that from the US Treasuries. Wouldn't you rather see the Americans gaining interest than paying it?

[john p]

The really bad part about the trade imbalance is that not only is money going to China that could be recirculated here, but the prices we pay here aren't the super cheap prices that China offers but whatever the market here bears, meaning that Nike will charge you as much as they can regardless of what China charges them. So say it costs the US company 10 dollars to make a sneaker and a Chinese 1 dollar, even though Nike will charge you $60 and there is plenty to go around here we give the business to the Chinese just to get that extra 7 bucks or so. The bad part is that the US middle men get their extra 7 bucks, the manufacturing guys here don't get a taste and we pay an interest premium on the debt due to the trade imbalance interest on the Treasuries they buy. Lastly, we pay what the market will bear regardless of how cheap the middle men got it and if it was made here or China.

So lower interest here means people refinance and yank out cash, cash that wasn't earned. The more cash chasing the same goods and services creates inflation. However, because we buy the majority of our stuff in China, a chunk of that cash goes away creating inflation in China. They take our cash invest back in us and get interest on on the margin. So Americans pay interest and Chinese earn interest. Great arrangement. Because we're not tooth to tail here, the economy is not balanced. This is why I see housing's price strata differing. Not all boats rose when this tide came in.

[john p]

I'd really like to hear your views about China because I think that from a capitalistic perspective we need to understand the risks of isolationism and being a global medium or engage at this degree with an enormous communistic controlled market.

I should not have used the word China "borrows" from the US. What I'm thinking is that they are getting access to capital. They are gaining capital from their low controlled currency and then getting interest on top of the capital from the trade deficit.

What do you think? Should money flow this freely to China and be so difficult for Americans to have access to?

I think we need backflow preventers in the plumbing to protect the United States. I understand the benefits of having English being the global economy's language and having the dollar the global medium of exchange, but who is out there outlining and guarding against the risks that come with the downside of this globalization and this controlled enormous emerging market in China?

[admin]

[john p]

two days ago:

http://news.bbc.co.uk/1/hi/business/6957124.stm

nice description between the short term and long term investments by China, so keep an eye on yield curves right?

http://knzn.blogspot.com/2006/07/central-bank-bond-purchases-and-us.html

Read the blurb about Barry R. about 2/3rd's down (the whole piece is worth while)

http://festersplace.blogspot.com/2005/07/chinese-revaluation-effects.html

So read this, think about the first most recent article and connect the dots.

http://angrybear.blogspot.com/2005/07/finally-big-event-china-revalues.html

[john p]

My mind is totally messed up with this too, but my gut is telling me that the fish can eat on the worm but once they swallow the hook they are tied the the will of another. It seems that China has a bunch of lines in the water now.

I think this basket of goods, basket of currencies concept that China had in 2005 has amplified their inflation today.

The yield curve looks better today than a couple of weeks ago.

http://money.cnn.com/markets/bondcenter/index.html#

This is a great read, predicted the US Dollar and Euro situation:

http://www.merkfund.com/merk-perspective/insights/2005-07-26.html

[john p]

http://money.cnn.com/2007/09/11/real_estate/toxic_rate_reset_shock/index.htm?postversion=2007091209

So according to this report:

Arm's resets peak this fall.

1/2 or so tied to treasury yields are in better shape today (Sept 12) than this past mid July (from 5.02 to 4.09)

the other half are tied to the LIBOR, London Interbank, blah, blah, offered rate which has gone up from 5.33 to 5.8 in the last month.

So this is my point: Why are half of our fellow citizens with ARMS living in one economic reality and the other in an entirely different one?

Here's my question: Does the FED act based on what is good for the overall American Economy or for banker's profit? I'm intriqued because I think the answer should be both. If banks don't profit they won't work with folks that play by the rules as easily. They can't, however take advantage. I do think the banking industry ought to look at the average citizens lives with the pottery barn rule "If you break it, you bought it". People aren't going to go to bat for the selfish folks who were greedy and bought off way too much, but many aren't in that category and those folks need to be treated fairly.

[admin]

[john p]

Wow.

1/3 of deals falling through; that's crazy.

For this to take place, this degree, it is absolutely clear that nobody was taking a leadership role. This hit the iceberg head on while everyone on the oil tanker was drunk or asleep.

This industry needs an overhaul, no ifs, ands or buts.

The reason why this is way worse than Arthur Anderson is that that was a bad office (Houston) - gee that city has given us so much in the last decade- and the whole company went down. This is worse because it isn't just one office in one company, it's the entire industry. Their parameters are way too lax. The general rule of thumb for a society should be that you should have freedom to do things as long as your behavior doesn't materially impact others negatively. There should be some opening for those to take risk in life, but if the risk takers create a negative impact outside the harm they do to themselves, it needs to be curtailed. Risks should not be taken if the harm caused extends beyond those that can benefit.

[john p]

http://www.bankrate.com/ ...truncated...

If you compare the jumbo fixed mortgage rate to the fixed mortgage rate you'll see that they used to parallel eachother, but in the past handful of months they have separated by about a point.

http://www.boston.com/realestate/news/blogs/renow/2007/08/jumbo_headaches.html

monitor this:
http://www.boston.com/business/articles/2007/09/20/paulson_lenders_may_handle_jumbo_loans/


So, for condo's or houses about $450k and up, it is more expensive for first time buyers with just money for 5% down and closing costs.

I'd bet there is a sweetspot of right around the jumbo number plus the 5% down payment, and a colder freeze above.

Rates have dropped to about Fall 2005 levels, so if you factor two years of salary growth, pent up demand and any economic stimulus or further rate drops, we could pull through this.

This is like watching some of the Patriots games, very close; frigging heart attack. If we get this recession, house prices will drop another 10 percent, if rates drop by about 1/2 percent plus or more, and we get in line with 2004/early 2005 rates, we could bottom this winter.

I see entry level kids getting salary inflation to catch up with inflation, and mid level guys moving into leadership roles when boomers retire.

I think that Bernanke is afraid of a populist/socialist Democrat as well as the Republican Party and because they have let their cronies bled the middle class with military spending, medical costs, financial fees/costs, and energy, the American People are showing them the door.

Romney is drawing attention to the economy. Republicans are trying to take the focus off it because the War is a huge part of our economy. I met some rich financial guy from Duxbury on the train and he said that "A President doesn't really have an affect on the economy." I asked him "What about a War, doesn't a War have an affect on the economy?" Democrats are too dumb to connect those dots, they should be waltzing in but they seem to be so incompetent that it will be close.

Sadly, a leader that would have wanted calmness, an even keeled course to settle down from the age of turbulance would have been right what the doctor ordered. A Bill Richardson, a very neutral basic, experienced and rational leader would have been better suited for these times. He has the charisma of Mr. Potato Head, so he didn't have a chance. I hope someday we'll understand that "boring" is good and appropriate at times. Deval Patrick is going around telling everyone that they can have everything that they want if they go along with casinos. He recently told teachers that he could hire 20k more if casinos came in. He's like telling everyone to go along. I mean he is like a lobbyist for casinos; he's even better than Jack Abramoff. He towers over the efforts of Jack Abramoff. If you look at actions versus listen to rhetoric, he is Jack Abramoff. If people judged him on his actions and not his rhetoric and what he's branded himself as we'd see the real Deval Patrick. Obama loves Deval and tells everyone that he isn't influenced by corporate lobbyists. Deval Patrick was always hired for his political influence and is currently lobbying for casinos. Talk about trying to calm the age of turbulance, it's like there is a panic because of a fire and people are scrambling for the exits and letting in casinos are like letting a guy with a hockey mask with a chainsaw. We needed a fireman not Freddie Kreuger.

Editor's Note: This post was edited to abbreviate a URL which was widening the page due to the way that the forum software lays out posts. No other changes have been made, and the URL still points to the original destination - only its display has been shortened.

[JCK]

[john p]

Wow, am I reading this right: about 5.8 in early Sept. 07 and now around 3.1?