Though mainstream media
would have legal US residents and legitimate voters believing that the economy
is improving, the inconvenient truth is that it isn’t. The end of housing
crisis is being pitched to Americans with the smooth shrewdness of a seasoned
used car salesman at the end of a slow month. Only in this case, slow has gone
well beyond one month.
Because some of the ARMs that are anticipated to reset are 7 year loans, this
suggests that next year has the potential to be rather ugly. In fact, a Madison,
Wisconsin real estate news blog is suggesting that the nation may not even
be able to hope to see the beginning of the end until 2017 or 2018. It reasons
that the lengthy recovery is not only the result of 2 million homes that will
be going into foreclosure over the next several months, but also all the
massive overabundance of inventory at a time when people are unemployed,
underemployed, or just don’t have the savings available to put toward a
purchase.
But the next round of resetting sub-prime ARMs aren’t the only reason for 2013
being an ugly year. When the Democrat-controlled congress passed Obama’s Wall
Street Reform bill in July of 2010, one of the bill’s authors, Chris Dodd,
proclaimed with joyous tears in his eyes that his monstrous 2300 page creation
was a, “great moment” and that “no one will know until this is actually in
place how it works.” He also declared that, “it will take the next economic
crisis, as certainly it will come, to determine whether or not the provisions
of this bill will actually provide this generation or the next generation of
regulators with the tools necessary to minimize the effects of that crisis.”
The bill’s other author was Barney Frank, hence it’s alternative name: The
Dodd-Frank Act.
Well, the time has come to reveal just exactly how it is beginning to work.
Though the new government regulations won’t fully kick in until 2013, the
regulations that are required now are bringing about a significantly increased
work load without boosting the economy in such a way that new jobs and the
employees to fill them can be added, according to CBN.
Not only will everybody’s favorite payday lenders be affected by the bill, but
so will anybody using a debit card. Republicans are calling it a “vast federal
overreach that will drive financial-sector jobs overseas.”
Back in 2010, a Wall
Street Journal article outlined some of the destructive aspects of the Wall
Street reforms. Some of the more scary things noted are that, “The legislation
would redraw how money flows through the U.S. economy, from the way people
borrow money to the way banks structure complicated products like derivatives.
It could touch every person who
has a bank account or who uses a credit card” (emphasis added).
Another deeply concerning thing that the Wall Street Journal mentioned about
the Wall Street reforms is that, “It would erect a new consumer-protection
regulator within the Federal Reserve, give the government new powers to break
up failing companies, and assign a council of regulators to monitor risks to
the financial system. It would also set up strict new rules on big banks, limiting
their risk and increasing the costs.”
Moving right along, the Securities and Exchange Commission will be granted,
“new powers to regulate Wall Street and monitor hedge funds, increasing the
agency’s access to funding.” Also, there will be new government programs
introduced because of the bill, and the way that these programs will be paid
for (besides by the tax dollars of American citizens) is that the bill “would
allow the government to charge fees to large banks and hedge funds to raise up
to $19 million spread over five years.” Guess how the large banks will offset
those government fees. They certainly won’t
be absorbing them into their own cost of doing business!
Another interesting bit of information about the Wall Street reforms from 2010
was reported by The
Hill It noted that the Wall Street reform legislation was intended to
provide “a ‘frame’ for the new regulatory landscape, but the full force of the
rewrite hinges on how regulators interpret their new powers in the coming
months and years.” It also mentioned “the creation of a new council of federal
regulators to oversee broad financial risks; new regulations of the $600
trillion derivatives market; and a new system for the government to wind down
failing financial firms.”
The Hill also stated at the time that Obama, “will be nominating an inaugural
head of the consumer bureau, which will have broad
power to write and enforce rules over home loans, credit cards and
other products across the financial system” (emphasis added).
That economic crisis to which Dodd referred may not be limited to the US.
Especially since Italy
and Spain have declared that they will not be able to balance their budgets
by 2013. And the shaky conditions of the eurozone combined with the shuttering
US economy has the Fed contemplating another
round of quantitative easing here at home.
Interestingly, back in 2010 Investors.com
reported that the Congressional Budget Office projections were suggesting
that the US could have its credit rating downgraded sometime between 2013 and
2018, depending on how adverse the situation becomes with interests rates and
the US debt.
The article went on to quote a recent Societe General economics team report:
“While we see limited risk of a US sovereign debt downgrade in the next 2-3
years, beyond that we cannot be so certain.” Keep in mind that Societe General
has locations in about 40 countries and has been advising its clients about
safe investment options to assist them in avoiding wealth destruction for at
least a year now. The US downgrade actually ended up happening last year – which
suggests that an economic crisis may be much closer than anyone actually wants
to admit.
Even so, another threat that is far more daunting to the global economy than
the sub-prime one is the derivative industry, according to a Washington
Times article from 2011. It describes the difficult to understand item as
follows: “Essentially, they are bets for or against the house - red or black at
the roulette wheel. Or betting for or against the weather in situations in
which the weather is critical (e.g., vineyards). Forwards, futures, options and
swaps form the panoply of derivatives. Credit derivatives are based on loans,
bonds or other forms of credit. Over-the-counter (OTC) derivatives are
contracts that are traded and privately negotiated directly between two
parties, outside of a regular exchange.
All of this is unregulated. What happens between two parties - notably hedge
funds - is like what happens between two individuals who bet on the final score
of a football or baseball game. Congressional committees have been warned time
and again about ‘ticking time bombs’ and ‘financial weapons of mass
destruction’ - to no avail, demonstrating that both the U.S. government and the
U.S. Congress are dysfunctional.”
One other type of loan that is in a massive bubble and about ready to burst is
the student loan bubble. According to a National Inflation
Association article from 2011, “Student loan debt in America is now larger
than credit card debt, but unlike credit card debt, student loan debt can't be
discharged in bankruptcy.”
Since only about
half of all college graduates are finding employment right now, it’s
obvious why Obama is trying to get the same student loan bill passed on which
he avoided voting back when he was a senator. Especially since, according
to Politico, student loan interest rates are expected to shoot up this
July, only months ahead of 2012 elections. If this bill doesn’t get passed, it
will be interesting to see whether it will be defaulted student loans or one of
the other many options noted above that will be the catalyst to set off the
next economic crisis that Dodd said he was sure is on the way, but that the he
also seems to think the government is ready to fix.
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