Friday Links Losing Confidence

The Mood of the Consumer Darkens – Tim Iacono

The Reuters/University of Michigan consumer sentiment index dropped to an eleven month low in the mid-July reading, down from 76.0 in late-June to just 66.5, the weakest reading on the mood of the consumer since August of last year, just as the Great Recession came to an end (according to the nation’s wisest economists).

China Has Been Covertly Funding A Housing Bubble Five Times Larger Than That Of The US: 65 Million Vacant Homes Uncovered – Zero Hedge

China is covertly funding and creating a housing bubble that is at least 5 times as big as that of the United States. We leave it up to you to imagine the consequences of that particular bubble’s bursting…

How Financial Overhaul Changes the Mortgage Market – WSJ

Here’s a look at some of the main changes for mortgages…

This debt must be resolved. There are two major ways to do it: repayment and default.

Repayment is probably a fantasy, if not beating a dead horse. The homeowners do not have the money with which to pay the loans given the current state of employment and wage stagnation, and the mortgages are for the most part on houses whose value is significantly under water compared to the debt, as in ‘ just mail in the keys.’

Straight up default, writing off the debt even through foreclosure, is also probably out of the question, because it would essentially vaporize the balance sheet of the US banking system which is also insolvent, to a greater degree than most understand, and if they understand it, would admit.

Idea to reduce principal is gaining – SacBee

…the California Housing Finance Agency in Sacramento is poised to become a national test case for principal reduction. It has $420 million in hand from the Treasury Department to lower borrowers’ principal by $50,000 per house. Banks are being asked to match that amount. The experiment begins Nov. 1.

It is time to face down the threat of deflation – FT

Policymakers need to recognise more clearly that, while the acute phase of the financial crisis may be over, the chronic trend toward deflation that has followed it is not. Two things should happen in this dangerous environment to prevent a relapse back into crisis. On the fiscal front, deficit reduction measures must be undertaken to reduce expected future outlays. Legislation to raise retirement ages for public pensions and index pension outlays more conservatively can be enacted now to take effect in the future. On the monetary front, central banks – led by the Fed, as the European Central Bank and the Bank of Japan are just not going to do it – will have to announce firm price level targets that imply rapid money creation through more aggressive asset purchases.

How to Tell a Nation Is at Risk – Floyd Norris

The economic debate now should be focused on keeping the federal government from someday being similar to Greece, with a weak private sector and a bloated government that cannot collect taxes to meet its obligations.

There is no risk of that in the near term. The United States government can print dollars to avoid default, but it is not having to do so. It can borrow at low rates because investors around the world still trust it.

To keep that trust in the longer term, the economy must grow.

Trouble Ahead? Housing Inventory Rises in Many Markets in June – WSJ

Inventory could continue to rise over the second half of 2010 as more banks take title to homes through foreclosure. More than seven million households are behind on their mortgage payments or in some stage of foreclosure.

Hans Rosling on global population growth – TED

Excellent video. 10 minutes worth watching.