Addicted to Debt
Bill Bonner from The Daily Reckoning
Alas, not every step takes you in the right direction.
Most of the mortgage loans were of the adjustable rate variety and most of the houses they were used to buy had prices that were also adjustable – but in the opposite direction. Now, prices are said to be falling by 10-12% per year...with many of the houses on West Camille in foreclosure. California has 6 of the top 10 foreclosure metropolises – with Stockton, Modesto and Merced particularly hard hit.
“Bank Owned” is a polite way of describing the new status of the foreclosed houses...while a Spanish word is most often applied to their former owners – endrogado (from ‘to drug’ oneself).
Endrogado means, in this context, hooked on debt. It describes the poor homeowners of West Camille Street...and much of the rest of the nation...from the most modest family, to the U.S. federal government itself.
David Walker, Comptroller General of the U.S. Treasury, has read our book, Empire of Debt . We know because he told us so. And now he’s using some of our own Daily Reckoning ideas to describe the jam the nation is in. We have to learn from history, says he...particularly the history of Rome, which has similar themes to those we see in today’s news. He goes on to say that it is as if the whole country were on a “burning platform” of fiscal deficits, under-funded healthcare and retirement programs, and military commitments far beyond our means.
The new capitalist gods must love the poor – they are making so many more of them. From the doublewide in Bakersfield to the banks of the Potomac and everywhere in between the country is ‘endrogado.’ The people who took out the ARMs now have barely a financial leg to stand on. And the people who stuck the ARMs to them are going broke. Today’s news brings word that Atlanta’s largest mortgage provider, Homebanc Mortgage (NYSE: HMB ), has filed for bankruptcy.
Still, the endrogado ones are becoming even more endrogado. Retail sales in July went up! And federal spending races ahead.
But don’t worry. Credit expansions are followed by credit contractions. Debts get paid off, defaulted, written off, written down, worked off or inflated away. All debts go away, dear reader.
*** A dear reader writes:
“Who cares?! Nothing matters. Banks should write as many risky loans as they can. No one will ever be held responsible because the Fed will always step in to save the day for the stupid banks, the stupider hedge funds, and the even stupider investors. You people at The Daily Reckoning are still preaching and practicing the old fashion theory of responsibility. FORGET IT!! It’s passé! Dive in. Open a hedge fund. Start a mortgage brokerage service or a bank. When the crap hits the fan, the Fed will come in and take over for you. Write loans with no deposit, no appraisal and no income needed. Sell them to the Fed. Let the Fed stay up nights while you sleep cozy with your profits. The American taxpayers patience has no end, his pockets have no bottom and his bottom has no problem with being spanked for crimes he didn’t do.”
Indeed...we’re keepin’ it real here at the mobile Daily Reckoning headquarters. We checked this morning and found that central banks were continuing to put more money in the system. Keep that liquidity flowin’ and the party might keep goin’! On Monday, the ECB put up another $47 billion in loans. The bank of Japan put in more money too.
*** Meanwhile, Forbes warns, “U.S. Economy Faces Downturn Threat.” Of course it does. Economies have to take some time to breathe too. Unless all this new liquidity somehow manages to make the credit bubble bigger...and worse...a slowdown in credit should mean a slowdown in the economy later in the year.
*** Milk is near a record high...
The price of milk has jumped more than fifty cents in the past six months. And as incomes in the Far East rise, so does dairy’s popularity.
“Starbucks has been viewed as the symbol of success,” says President of Starbucks Greater China Jinlong Wang.
But weight of the blame of the high price of milk can’t be rested solely on the shoulders of the latte and frappucino drinking Chinese...in fact, most of the responsibility should go the biggest fraud our country has seen in a while: Ethanol.
*** “One striking difference between Europe...especially France...and America,” said a perceptive visitor recently, “is the lack of retail space. At home, everywhere you go...there are malls, strip malls, shops...and more shops. Here, there are just these little stores...and occasionally a small mall. Nothing like in the United States. And these places are often closed. God forbid you want to buy something between noon and 2 PM...or after 6 PM.
“I saw a statistic. The United States has about 10 times as much retail space per person. I don’t know why. It’s just part of the culture. We shop for things. We don’t stock anything. We don’t grow our food. I’m amazed at the gardens around here...everyone seems to have a garden behind his house here in Normandy. I guess they just ride their bicycles into town to get their bread and go to the butchers. They don’t need much else. That’s probably why they don’t use much fuel either. They don’t have to drive around looking for things everyday.”
Bill Bonner
The Daily Reckoning