Thursday, August 14, 2008

Economy of the living dead

The subprime monster won’t have completed its damage until the end of next June. ALT-A loans are in play to reset over the next three years. They are double the volume in dollars of subprimes. Now beginning for the next five years we have Option Arm pick-an-pay loans, whose dollar value is five times greater than subprime and ALT-A loans. $500 billion in ARMs will reset this year more than half of which will become foreclosures, far more than anticipated are simply walking away from their homes. The worst is ahead of us. Three to five years to the bottom and at least five years on the bottom after that. As we predicted bank losses will be over $2 trillion, plus in excess of $2 trillion in losses for Fannie and Freddie. Worse yet, interest rates are higher than a year ago and we forecast mortgage rates ½% higher by the end of the year.

What we have is systemic failure in our banking system; that is being drawn out as long as possible by the Fed, which is hoping for a miracle. All kinds of gimmicky is being employed by the Fed, banks, Wall Street and corporate America. As we said banks alone are looking at $2 trillion in losses. It is not only American banks that are in trouble. The ECB banks took down 40% of the toxic CDOs and SIVs. Housing markets in Spain, Ireland, England, Italy, Australia and New Zealand will take trillions in losses. The amount of money in US banks that is uninsured is more than $2 trillion. America will hit the wall some time within the next three years and when it does there will be no banking system left and what will be in the banks will be worth 50% or more less than it is today due to inflation. Gold is where it is because of de-leveraging and negative bullion borrowing rates. Take advantage of this great opportunity to buy more gold and silver related assets. We also warn you to remove any excess funds from banks and put them in gold and silver assets and Swiss franc government bonds.

The International Forecaster

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