Daily Digest - Dec 4

Thursday, December 4, 2008, 6:25 AM

Who holds US debt?, Lacker says Fed actions potentially destabilizing, UN warns of dollar risk, Paulson still doesn't get housing, mortgage refinancing surges, US-China currency clash, and the Beige Book. 



U.S. Debt/Bond Buyers: Who's Your Daddy? (China about 20% of foreign debt holders)


Federal Reserve Bank President: Increased Fed Lending Could Destabilize Financial System 

Richmond Federal Reserve Bank President Jeffrey Lacker said a dramatic increase in Fed lending could destabilize the U.S. financial system.

Delivering remarks to a panel discussion on the economic outlook, Lacker said central bank lending can distort expectations and create moral hazard.

"Such expectations can themselves be very costly, because they can distort the incentives faced by, and as a result, the choices made by private-sector participants."

Lacker said it is essential that the Fed not let inflation drift from view. He also commented that it is reasonable to expect growth to return sometime in 2009.

The Richmond Fed President said he expects that a recovery will be helped by the Fed's stimulative monetary policy and lower oil prices. He also predicted that the drag in housing will lessen in 2009, while construction is expected to find a bottom.

Lacker commented that bank lending is restrained by a lack of credit and credit worthy borrowers rather than bank capital. He also predicted that the strong U.S. dollar, along with weak global economic growth, will curb exports.


UN team warns of hard landing for dollar

The UN team said that, as the financial crisis spread beyond the US, there had been a massive shift of global financial assets into US Treasury bills, driving their yields almost to zero and pushing the dollar sharply higher. At the same time, however, the US's external debt had risen to new heights that could provoke a dollar collapse.

The report recommends reform of the international reserve system away from almost exclusive reliance on the dollar and towards a globally backed multi-currency system.


Paulson Still Doesn't Understand Housing's Problems

Treasury Secretary Hank Paulson once again reveals his appalling misunderstanding of the Housing market and its problems today when he floated his latest idea to "Stem Home-Price Declines.

There are two problems with Housing:

Ultra low rates and an abdication of lending standards put 3 - 4 million people in homes they could not afford. The real costs of home ownership have been forcing many of these people to move back into more affordable quarters (i.e., rentals).
By just about every measure, home prices remain significantly elevated over historic metrics.And given the chain of sales that accompanies any existing home sale - the starter home/move up home/bigger house/even nice home/downsize retiree - anything that keeps home prices out of reach of the starter and move up buyers damages the entire chain for purchasers.


eCommerce Online Sales (Chart)


National Employment Report (ADP)


US Mortgage Applications Surge by Record Amount

The group's seasonally adjusted index of refinancing applications jumped 203.3 percent to 3,802.8, the largest rise on record. The index was up 37.7 percent from its year-ago level of 2,761.3.

The refinance share of applications increased to 69.1 percent from 49.3 percent the previous week.


Mortgage applications more than double


While the application statistics were high, "this is more a refinance story than a purchase story," said Mike Larson, real estate and interest rate analyst at Weiss Research.

The report's Refinance Index increased 203.3% to 3802.8 from the previous week, and the seasonally adjusted Purchase Index increased 37.4%.

"While purchasing a home is a big commitment, refinancing is often a no-brainer," Larson said. "You may be less inclined to go buy a house in this weak economy. Refinancing will go forward if the gains can hold."

In the short-term, the Fed "did manage to get quite a bit of bang for their buck," Larson said. "Most things they've done so far have improved some credit spreads slightly, but you didn't see the effect on Main Street. Now, these are big numbers - the biggest we've ever seen."


US, China headed for possible currency clash

U.S. officials say Treasury Secretary Henry Paulson will press Beijing to let its yuan rise against the dollar to ease trade tensions at the two-day Strategic Economic Dialogue. American companies contend that China keeps the yuan undervalued, giving its exporters an unfair advantage and adding to its swollen trade surplus.

But with China's exporters suffering, the yuan plunged Monday in government-controlled trading-a possible message to Washington to go easy on the issue.


The Federal Reserve Board (Beige Book December 3, 2003)


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crymoney's picture
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Re: Daily Digest - Dec 4

 China to Hank. Bite me.

roger's picture
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Re: Daily Digest - Dec 4

Daily Telegaph UK newspaper article by Jeff Randall.

"Ignore the excuses, here are the signals showing disaster on the the way"

 This is well worth reading.

rmurfster's picture
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Re: Daily Digest - Dec 4
roger wrote:

Daily Telegaph UK newspaper article by Jeff Randall.

"Ignore the excuses, here are the signals showing disaster on the the way"

This is well worth reading.



The link doesn't work.

Aura's picture
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