*http://daviddegraw.org/2011/07/this-is-what-a-collasping-ponzi-scheme-looks-like-housing-market-headed-off-a-cliff-as-a-shocking-10-8-million-mortgages-at-risk-of-default/

Related Articles:

1. Financial Crisis Caused by “3% Down Mortgages” NOT “Wall Street Greed”  http://www.munknee.com/2011/07/financial-crisis-caused-by-3-down-mortgages-not-wall-street-greed/
2. Price:Rent Ratio Suggests House Prices Have Further to Fall  http://www.munknee.com/2011/05/pricerent-ratio-suggests-house-prices-have-further-to-fall/
3.  In Foreclosure? Don’t Worry! Your Bank Probably Can’t Prove They Own Your Mortgage!  http://www.munknee.com/2010/10/in-foreclosure-dont-worry-your-bank-probably-cant-prove-they-own-your-mortgage/
4. Housing Crash Continues: Why Now Is NOT The Time To Buy!  http://www.munknee.com/2010/09/housing-crash-continues-why-now-is-not-the-time-to-buy/
5.  Ever Increasing Foreclosures Mean Low House Prices for Many More Years  http://www.munknee.com/2010/04/ever-increasing-foreclosures-mean-even-lower-house-prices-for-many-years/
6. U.S. Real Estate? Fuhgeddaboudit for Another 5 Years!  http://www.munknee.com/2010/02/5-more-years-of-lower-real-estate-prices/

Editor’s Note:

• The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
• Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.

It would appear that the U.S. is in an untenable position – between a rock and a hard place – in an inescapable debt trap – where the options are, at best, dire – hyperinflation or a deflationary depression! It would seem that all we can do is ride out the storm in a boat laden with gold. Words: 2283

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below edited excerpts from Jeff Nielson’s (www.BullionBullsCanada.com) original 7000 word speech* at the “World Money Show” in Vancouver for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Nielson goes on to say:

The U.S.’s severe debt problems which are exacerbated by its $70 trillion in unfunded liabilities to fund the social ‘entitlements’ of the mass of baby boomers who will be retiring by the tens of millions in the next few decades and there is NO likelihood of the U.S. government ever reducing those entitlements. Any attempt to do so would cause severe economic disruptions and civil unrest. In fact, there are numerous practical reasons why this will never happen:

1. The looming pension crisis
It is estimated that U.S. pension plans were underfunded by about $3 trillion as of the end of 2008 and even after the recent “rally” in U.S. equity markets that pension deficit still amounts to roughly $2 trillion. Thus, even if the U.S. government could somehow make full pay-outs on the entitlement programs which U.S. seniors will be relying upon, they would still have to raise an additional $2 trillion just to maintain their standard of living not to mention the consumption-level which this consumer economy relies upon for its survival. Why? Because, with over 40% of Americans having less than $10,000 in savings, Americans are more dependent today on these entitlement programs than any other generation of Americans in history.

2. The second coming of another housing bubble
With 75% of the “assets” held by retired and soon-to-be retired Americans consisting of real estate, they will need to dump roughly $2 trillion of real estate onto the U.S. market – the most over-supplied real estate market in history – in order to maintain their standard of living. To preclude such an event, the U.S. government has been desperate to ‘re-inflate’ the U.S. housing bubble – at any cost – to buoy up American ‘real estate’ accounts and bail out the banks holding the mortgages on houses in foreclosure.

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Nevertheless, I believe the U.S.will see a second housing bubble because:
1. the U.S. Federal Reserve has taken the interest rate all the way down to zero – and left it there
2. millions of U.S. properties have either been held off the market by U.S. banks, or are tied-up in U.S. foreclosure proceedings. Both actions have artificially reduced “inventories” of unsold homes by at least 50% putting in place a very temporary “bottom” in prices
3. the U.S. government agencies, which are responsible for all 90% of all new mortgages, have once again lowered their lending standards. In fact, when the government buyers’ “credit” is factored-in, more than half of all U.S. homes purchased in 2009 had zero down-payments.
4. the Federal Reserve has been buying up every U.S. mortgage bond in sight given the record default rates which currently exist in the U.S. In fact, more than 25% of all U.S. mortgage holders have “underwater’ mortgages and 15% of all U.S. mortgages are currently in default and/or foreclosure: an all-time record
5. buying all these “bonds” (with newly-printed dollars) has temporarily kept U.S. mortgage rates several percent lower than they would have been without this hidden and very expensive taxpayer subsidy. This has resulted in the Federal Reserve absorbing more than $2 trillion of “bonds” and securities which – to be polite – are of extremely dubious value and the moment the Fed stops buying-up all these debt-instruments, U.S. mortgage rates will shoot higher.

With all of the aforementioned occurring at a time when millions of “option ARM” mortgages are about to reset and more than 40% of the millions of Americans holding these mortgages have been making minimum payments
it follows that when these mortgages reset, borrowers could see their monthly payments not merely increasing by 40% or 50% per month, but by up to several times their current payments.

These millions of mortgage resets are occurring at the same time that long term unemployment in the U.S. is at its highest level in at least 70 years, and U.S. housing “real” inventories are at their highest levels ever. As such, once this second collapse begins, there will be no means of stabilizing this market because:

1. With interest rates already at 0%, interest rates can literally only go higher
2. U.S. homeowners have less equity in their homes than at any time in history
3. Retiring baby boomers will have to dump $1 to $2 trillion of real estate onto this market just to partially fund their under-funded retirements and much more than that, if entitlement programs should have their benefits slashed.

This will not only undermine the U.S. housing market for many years to come, but any reductions in U.S. entitlement programs will directly make the next collapse of the U.S. housing sector that much more severe – because it would force the sale of much more real estate.

3. The future cost of interest payments and “unfunded liabilities”
The Obama government has already admitted that over the course of this decade more than 50% of every new dollar of debt will be consumed in interest payments on old debt. Those interest payments, alone, will exceed $1 trillion/per year before the end of this decade. Added to this will be roughly $2 trillion per year of “unfunded liabilities”, which will now have to be funded. This means that over the course of this decade, the U.S. government will have to come up with an additional $3 trillion/year – above and beyond all current spending programs. This will roughly double U.S. government spending, and roughly quadruple current deficits.

Even the largest tax increases in history could only fund, at most, about 10% of this spending-gap. This means either cutting trillions per year in government spending, which would be totally impossible, or simply printing-up trillions and trillions of new dollars to pretend to “pay” those bills. This, in turn, guarantees hyperinflation.

4. The on-going political paralysis
The budgetary constraints which I have discussed above have all been of the “economic” variety. However, arguably it is U.S. political constraints which are an even bigger obstacle in beginning to address the massive, triple-problem of U.S. insolvency: debts, deficits, and liabilities.

Decades of “gerrymandering” have transformed roughly 80% of U.S. electoral districts into the permanent holdings of one or the other of the two, U.S. political parties. As such, the candidates of the favored party are essentially guaranteed a seat for life and this eliminates any incentive to produce positive results for their own constituents – other than bringing home the “pork”. As a result, partisan politics has taken precedence over any, and all, other considerations and, regretfully, the #1 rule of partisan politics is to never allow the party in power to accomplish anything (good) of significance.

The one exception to this scenario of total indifference is with respect to the American Association for Retired Persons (AARP) which is not only the largest voting bloc in the U.S., but it is comprised of the only segment of the U.S. electorate which has a constently high “turn-out” in every election. Not surprisingly, their two most important issues are Social Security and Medicare: the two social programs which are 100% certain to bankrupt the U.S. economy. Barring a complete “metamorphosis” of the entire U.S. political system, these “unfunded liabilities” are essentially carved in stone, since they are the only issues where doing something unpopular could threaten the security of the sitting politician and this leaves current and future U.S. government with nothing but terrible options. The questions they must ask themselves are:

1. Do they fully “fund” all these entitlement programs by printing up countless trillions of new dollars (the only possible way to cover those entitlements 100%)?
2. Do they slash entitlements – and lose their own, cushy positions – sucking trillions of dollars out of the economy and result in a debt-implosion which would make the death of the former Soviet Union look like a “picnic”.

If the U.S. does not commit to one course of action or the other, however, the U.S. will likely suffer the worst of both worlds: a “hyperinflationary depression”.

5. The preference for hyperinflation
Hyperinflation is more than just “soaring prices” – it also reflects a crisis of confidence with respect to the currency in question, and the beginning of a death-spiral for that currency.

When a currency starts to rapidly lose value the government is forced to print up vast quantities of new currency to subsidize the depleted wealth of its citizens – so they literally do not starve to death. Then, that excessive money printing leads to an even more rapid rate of devaluation for the currency, and this vicious circle gets more and more severe. In virtually every example in history, such currencies effectively go to zero.

For the reasons previously mentioned, many people will argue that hyperinflation is the inevitable course on which the U.S. is headed. Not only is the Federal Reserve under extreme pressure to continue to print countless trillions of new dollars, but hyperinflation “solves” the twin problems of massive, current debts and completely unpayable entitlement programs. The debts would get “paid”, and the entitlements would be “funded”. That being said, the paper used to do this would have only a minute fraction of its former value because, since hyperinflation causes a currency to move toward zero, all debts and liabilities expressed in that currency also become effectively worthless. Thus, a very strong argument can be made that the U.S. will choose the informal “default” of a hyperinflation, rather than suffer a formal default – and a resultant debt-implosion.

History is clear: the devastation of hyperinflation will destroy the wealth of average Americans to an even greater degree than through suffering the ravages of a deflationary implosion – although the former would preserve the “paper empire” of the Wall Street banks who have been dictating U.S. economic policy. As such, is there really any doubt as to what direction the government, unduly influenced by the country’s financial oligarchy, is going to take?

6. The current deflationary environment
In order to delay inflation from ravaging the U.S. economy, however, the U.S. government is currently playing a very dangerous game. It is essentially starving the entire U.S. economy of capital. Bank-lending is falling at the fastest rate in U.S. history because the banks refuse to lend money to U.S. businesses, despite their promises to do the exact opposite. They prefer to keep most of the bail-out money “on deposit” at the Federal Reserve in what is literally nothing more than a “savings account”. That’s where the Federal Reserve has been “borrowing” the money to buy-up trillions of dollars of worthless U.S. mortgage bonds. The rest of the bankers’ money is then used to “play the markets” with their “proprietary trading”.

7. The lack of a vibrant economy
Those who insist that the “mighty” U.S. economy will “bounce back” as it always has in the past – that the U.S. will “grow” its way out of its huge debt/deficit crisis – Don’t seem to realize, with more than 50% of every new dollar of U.S. debt simply being interest payments on the old debt, that the U.S. economy will not be able to grow much, if at all – let alone at the above-average rate which is required just to produce enough revenues to service all that debt.

The U.S. economy is supposedly growing at more than a 5% rate, which is equivalent to an “economic boom” for any economy other than China’s. However, to borrow an old line: “where’s the beef?” U.S. government revenues (for all three levels of government) are plummeting downward at an accelerating rate, so how can the economy be “booming” if no one is generating any tax receipts for the government? The fact is that, with the U.S. carrying the heaviest debt-load in its history, and an every-larger portion of every dollar consumed just paying interest, the overall U.S. economy would have to be operating at a higher rate of activity than is normal in the past, just to achieve average growth. Can anyone really suggest that the U.S. economy is currently stronger than normal?

A Debt Trap in the Making
With the U.S. economy currently carrying over $60 trillion in total public/private debt just raising U.S. interest rates even 1% would drain an extra $600 billion per year out of the U.S. economy in additional interest payments – an equivalent drop of 5% drop in U.S. GDP – and that would be the case even before factoring in the “multiplier effect” of sucking that much money out of the economy – and every 1% hike would inflict a similar, but compounded, amount of damage on the U.S. economy. Frankly, it is very likely that even a 1% increase in current U.S. interest rates would be enough to send the U.S. economy into an immediate deflationary spiral.

Talk about being between a rock and a hard place – in an inescapable debt trap – where the options are, at best, either a hyperinflation or a deflationary depression! Yes, it would seem that all we can do is ride out the storm in a boat laden with gold.

*http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=11900:debt-denial-and-default&catid=64:presentations&Itemid=141

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given as per paragraph 2 above.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.

The U.S. economy is in a downward spiral of debt deflation despite the bold actions of the federal government and of the U.S. Federal Reserve taken in response to the financial crisis that began in 2008 and the associated recession. Indeed, von Mises once said, “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later, as a final and total catastrophe of the currency involved” and just that is happening before our very eyes. Words: 2242

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below further reformatted and edited [..] excerpts from Ron Hera’s (http://www.heraresearch.com/newsletter.html) original article* for the sake of clarity and brevity to ensure a fast and easy read. (Please note that this paragraph must be included in any article reposting to avoid copyright infringement.) Hera goes on to say:

Green Shoots Have Turned Brown
Despite the sighting of supposedly green shoots in the spring of this year the evidence is anything but encouraging:
- the unemployment rate has risen to 9.9%,
- paychecks in the private sector have shrunk to historic lows as a percentage of personal income,
- personal bankruptcies have risen yet again,
- roughly 14% of U.S. mortgages are delinquent or in foreclosure,
- credit card defaults are rising,
- consumer spending hit 7 month lows,
- consumers appear to be borrowing to service existing debt.

Outside of the federal government, which is borrowing at record levels and expanding as a percentage of GDP, and outside of the bailed out financial sector, debt deflation has continued unabated since 2008. [Following is evidence of such an event unfolding and some examples of the ultimate result:]

1. Money Supply is Contracting
A contraction of the broad money supply is taking place because the influx of money into the U.S. economy, i.e., lending to consumers and non-financial businesses, has fallen below the rate at which money is flowing out of general circulation as a function of debt service (interest and principle payments on existing debt). Thus, a net drain of money from the broad U.S. economy is taking place. As a result, additional borrowing, as consumer spending falls, appears to be servicing existing debt in a pattern that is clearly unsustainable and that signals a further rise in debt defaults in coming months.

The estimate of the broad money supply (the Federal Reserve’s M3 monetary aggregate) is crashing and the Federal Reserve’s M1 Money Multiplier, a measure of how much new money is created through lending activity, fell off of a cliff in 2008, and remains practically flat-lined.

2. Debt Servicing Remains Low
The contraction of the broad money supply points to a potential slowing of economic activity and indicates that consumers and non-financial businesses will be less able to service existing debt. Despite easing somewhat in March 2010, credit card losses are expected to remain near 10% over the next year and mortgage delinquencies, are currently at a record highs, and these dismal predictions implicitly assume a stable or growing money supply.

3. A Tsunami of Mortgage Defaults Expected
A tsunami of eventual mortgage defaults seems to be building and loan modifications have been a failure thus far. There have been only a small number of permanent loan modifications (295,348) under the Home Affordable Modification Program [HAMP] in 2009, out of 3.3 million eligible (60 days delinquent) loans and more than half of modified loans default.

4. Consumer Savings Are Being Liquidated
Although it has been reported that American consumers are saving at a rate of 3.4%, the contraction of the broad money supply suggests savings liquidation. Given a contracting money supply, ongoing debt defaults and declining consumer spending, the increase in non-mortgage consumer loans indicates that consumers are borrowing where possible to consolidate debts, cover debt service, or borrowing to continue operating financially as their total debt grows, thus as they approach insolvency.

5. There is a Reduced Ability To Borrow
The increase in non-mortgage consumer loans has not prevented an overall decline in total household debt attributed to ongoing deleveraging by consumers. While deleveraging (paying down debt) has been interpreted as caution on the part of consumers, or as low consumer confidence, the decline in outstanding credit reflects a reduced ability to borrow, i.e., to service additional debt. This suggests that the recovery of the U.S. economy may be illusory and that the economy is likely to contract further in coming months.

Commercial borrowing has declined more sharply than household debt suggesting that the nominal return to growth estimated at 3% has not been matched by debt financed expansion in the private sector.

6. Structurally High Unemployment to Remain
Unemployment and labor force data suggest that the U.S. labor market is in a structural decline, i.e., millions of jobs have been and are being permanently eliminated, perhaps as a long term consequence of offshoring, outsourcing to other countries and the ongoing deindustrialization of the United States. However, the immediate meaning of the term “structural” has to do with the fact that jobs created or sustained during the unprecedented expansion of debt leading to the financial crisis that began in 2008, e.g., a substantial portion of service sector jobs created in the past two decades, now appear not to be viable outside of a credit expansion.

The total number of unemployed or underemployed persons, including so-called “discouraged workers” (Bureau of Labor Statistics U-6), is at 17.1%. Using the same methods that the BLS had used prior to the Clinton administration, U-6 would be approximately 22%, rather than the official 17.1% statistic. With official U-6 unemployment of 17.1% and a workforce of 154.1 million there are roughly 26,197,000 people officially out of work. Using the pre-Clinton U-6 unemployment calculation of approximately 22%, there would be 33.9 million unemployed. If the average US household consists of 2.6 persons and if 33% of the unemployed are sole wage earners, then 55.5 million US citizens currently have no means of financial support (17.9% of the population).

While it has been reported that the labor force is shrinking, the characterization of workers permanently exiting the workforce by choice may be inaccurate. While a shrinking workforce could reflect demographic changes, the rate of change suggests that tens of millions of Americans are simply unemployed.

Setting aside the question of whether or not those “not in the workforce” are, in fact, permanently unemployed, the workforce– as a percentage of the total US population– is currently at 1970s levels. Since many more households today depend on two incomes to meet their obligations, compared to the 1970s, a marked drop in the percentage of the population in the workforce points to a decline in the labor market more significant than official unemployment statistics suggest.

7. Structural Government Deficits to Remain in Place
What is more important, however, is that structural unemployment suggests structural government deficits, e.g., unemployment benefits, welfare, food stamps, etc. Since more than 2/3 of US GDP (roughly 70%) consists of consumer spending, a sustainable recovery from recession seems improbable if unemployment is worsening or if the labor force is in a structural decline, since that would imply unsustainable government deficits, whether or not they are masked by nominal GDP gains thanks to economic stimulus measures.

8. GDP Growth May Stay Negative
The U.S. federal government is a growing portion of GDP, thus reported GDP growth is largely a byproduct of government deficit spending and stimulus measures, i.e., reported GDP growth is unsustainable. Total government spending at the local, state and federal levels accounts for as much as 45% of GDP, thus nominal gains would be expected when government deficit spending increases. According to some measures, reported gains in GDP are a byproduct of relatively new statistical methods and, using earlier methods of calculation, GDP remains negative.

9. Declining Dollar and High Inflation a Distinct Possibility
Government borrowing and spending may have offset declines in the private sector, but only to a degree and only temporarily. The resulting growth in U.S. public debt has an eventual mathematical limit: insolvency. Of course, the actual limit to U.S. borrowing remains unknown. The continuing solvency of the U.S. depends on the ability and willingness of governments, banks and investors around the world to lend to the U.S., which in turn depends on the tolerance of lenders for the U.S. government’s profligacy and money printing by the Federal Reserve, e.g., quantitative easing and exchanging new cash for worthless bank assets. U.S. Treasury bond auctions will fail if lenders conclude that a sufficiently large portion of their investment will be diluted into oblivion by proverbial money printing. In that event, the U.S. dollar will surely plummet, despite deflationary pressures within the domestic U.S. economy, and the cost of foreign goods, e.g., oil, will rise, causing high inflation or triggering hyperinflation.

According to the Bank for International Settlements (BIS), the federal budget deficit increased from 3.1% of GDP in 2007 to 9.2% in 2010. Rather than being the result of one-time expenses, such as temporary stimulus measures, much of the deficit represents permanent increases in government spending, e.g., due to the growing number of federal employees. If increased government spending is removed, GDP appears to be declining significantly. Of course, sustainability has more to do with total debt than with deficit spending because a deficit assumes that there is an underlying capacity to service additional debt.

10. Debt is Unsustainable
While asset prices have declined, e.g., real estate and equities, debt levels have remained high due to the federal government’s policy of preserving bank balance sheets, which had ballooned prior to the financial crisis to the point that overall debt in the U.S. economy reached unsustainable levels.

The absolute debt to GDP ratio of the U.S. economy peaked in 2007 when debt levels exceeded the ability of the economy to service debt from income based on production, even at low interest rates. Although U.S. GDP began to decline prior to the advent of the global financial crisis, debt coverage had been in decline approximately since the 1970s, coincidentally, around the time that the U.S. dollar was decoupled from gold.

Government deficit spending cannot correct the situation because, for every dollar of new borrowing, the gain in GDP is negligible and some have argued that the U.S. economy has passed the point of “debt saturation.”

In a growing economy, additional debt can result in a net gain in GDP because the money supply grows and economic activity is stimulated by transactions that flow through the economy as a result. The debt saturation hypothesis is that, as debt levels rise, additional debt has less impact on GDP until a point is reached where new debt causes GDP to decline, i.e., the capacity of the economy to service debt has been exceeded and, not only is it impossible for the economy to grow at a rate sufficient to service existing debt (since interest compounds), but economic activity actually declines further as a function of additional debt.

11. A Downward Spiral in Debt Deflation is to Continue
The process of debt deflation is straightforward. New lending at levels that would maintain or expand the broad money supply is impossible for two reasons:
1. asset values and incomes have fallen and millions remain unemployed and
2. debt levels remain excessive compared to GDP, i.e., real economic activity (outside of the government and financial services industry) cannot service additional debt.

The inability to lend, actually the result of prior excess lending, results in a net drain of money from the economy. The drain effect, in turn, leads to further defaults as cash strapped consumers and businesses fail to service existing debt, and as debt defaults impact bank balance sheets, putting a damper on new lending and completing the cycle of debt deflation.

Keynesian economic policies, i.e., government deficit spending, are irrelevant vis-à-vis excessive debt levels in the economy and bailing out banks is not a solution, since it cannot stop the deterioration of their balance sheets. The process is self-perpetuating and cannot be stopped by any government or monetary policy because it is not a matter of policy, but rather one of mathematics.

Since the presence of excess debt (beyond what can be supported by a stable GDP, or by sustainable GDP growth) impacts the broad money supply, efforts to preserve bank balance sheets, i.e., to keep otherwise bad loans on the books of banks at full value, will ultimately cause bank balance sheets to deteriorate more than they would have otherwise. The fact that U.S. banks issued trillions in bad loans cannot be corrected by changing accounting rules, nor can the consequences be avoided by government deficit spending or by unlimited bailouts, and the problem cannot be papered over by dropping freshly printed money from helicopters flying over Wall Street.

Conclusion
The major problems facing the U.S. economy today, namely
- a tsunami of debt defaults,
- structural unemployment,
- massive government budget deficits,
- a contraction of the broad money supply outside of the federal government and the financial system, and
- a lack of sustainable growth
cannot be addressed as long as excess debt levels are maintained. As von Mises clearly understood, sound economic conditions cannot be restored unless and until the excess debt, which resulted from a boom brought about by credit expansion, is purged from the system.

The current policy of the United States, is a downward spiral into a bottomless economic abyss.

*http://seekingalpha.com/instablog/496474-ron-hera/74344-into-the-abyss-the-cycle-of-debt-deflation

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
- Sign up to receive every article posted via Twitter, Facebook, RSS feed or our Weekly Newsletter.

The key concern for analyzing trading/investing opportunities for the rest of 2010 and into 2011 is whether we are facing a major pullback or ‘crash back’ to Autumn 2008 or March 2009 lows or an on-going continuance of the markets’ “risk on / risk off” pattern of the first quarter. Words: 516

In further edited excerpts from the original articles* Cliff Wachtel (www.avafx.com) goes on to say:

Crash or No Crash In 2010-11? That Is the Question
On one hand the following negative forces weigh down on future prospects:
1. The EU teeters on the brink of a wave of sovereign defaults and ensuing banking crisis that threatens the global economy like nothing since the Lehman Brothers crash in the Autumn of 2008
2. The US faces a potential second wave of mortgage defaults of a magnitude not seen since the subprime crisis that ultimately sank the global economy-which was stronger back then.
3. China and India are trying to slow their growth rates to more sustainable levels
4. Interest rates are generally very low and will need to rise over the coming years, creating potentially severe headwinds for most developed economies because they are so dependent on long term low rates.

On the other hand a number of bullish forces are keeping the markets afloat, namely;
1. Low interest rates
2. Slowly but steadily improving economic data and earnings
3. Growth in emerging markets
4. State economic creativity

Four Horsemen of the Coming Crash
When it comes, one or more of the following will be the cause(s):
1. EU Debt Crisis: A likely wave of sovereign defaults and resulting bank failure contagion that has likely become a question of when, not if.
2. US Subprime Crisis II: The US begins to see another wave of mortgages resetting at higher rates in July. The last time a wave of this magnitude hit it caused the subprime crisis which ultimately crashed the global markets and economies.
3. China- Slowdown or Crash? The Chinese are actively trying to let the air out slowly from a potential bubble in Chinese housing construction and real estate but governments do not have a great track record at controlling the pace of economic expansion and contraction, especially once a bubble is in place, and all indications are that it is.
4. Rising Interest Rates: Either via central banks promised tightening short term rates or bond markets raising long term rates on fears of rising default risk from rising deficits.

Conclusion
We believe that while the global economy is improving, the evidence suggests another serious pullback at least. A complete crash of Great Depression magnitude is also a real possibility.

*http://seekingalpha.com/article/201965-the-coming-crash-pros-and-cons?source=email
*http://fxmarketanalysis.wordpress.com/2010/04/30/the-coming-crash-four-reasons-pro-and-con/ (AVAFX.com is a leading online trading site for global currency, commodity, and stock index trading.)

Editor’s Note:
- The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
- Permission to reprint in whole or in part is gladly granted, provided full credit is given.
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A credit or capital crunch is a period of time when capital for borrowing is very difficult to obtain because lenders stop lending out of fear that borrowers may not be able to pay back the loan due to rising unemployment, bankruptcies, mortgage defaults and other economy-generated problems. They tend to reject everything except borrowers with the very best credit, which are usually the safest loans, and they tend to charge higher interest rates, or perhaps they may do both. Words: 512

In further edited excerpts from his original article* Marco Benavides (www,realestateproarticles.com) goes on to say:

While we are slowly working out of the current credit crunch as banks ease restrictions, the effects or the credit crunch can still be felt. The subprime mortgage crisis was a contributing factor to the credit crunch, but it was not the only cause. In fact, lender permissiveness in lending and consumers spending beyond their means, even with poor credit ratings, were also major contributors.

Whatever the cause, the financial crisis led to unemployment, unemployment led to families in financial crisis, which led to loan defaults, which led to foreclosures, which led to bankruptcies, and it became a vicious circle. Homebuyers stopped buying, which led to an oversupply of homes, which caused builders to slow down or stop new construction projects, and the cycle continued. There was also a price correction, where home prices got down to levels not seen since 1993, but buyers were still not buying.

The real estate market is thought to have touched bottom and has been seen rebounding of late. However, housing stocks need to come down in order for the housing market to pick back up. For housing stocks to come down, buyers need to buy, and banks need to loosen restrictions, which has also been seen of late. Lenders are still being much more cautious than they were before the subprime mortgage crisis, but it is thought that they will never be as permissive as they were before 2007.

As restrictions are eased, more buyers will qualify for mortgage loans, more homes will be bought, and the real estate market will continue to fully recover, but it may take some time before everything is back to normal levels. There are people who have been turned down for mortgage loans in the past two years who should have gotten a loan, and these people will be able to find loans and perhaps at much better terms than they would have gotten two years ago.

Patience will win out in the end if buyers continue to be cautious and conservative in their spending habits. Many people have begun to fix their credit, and they need to continue taking the necessary steps to rebuild their credit scores.

The effects of the credit crunch on the real estate market have been serious, but negative trends will not continue forever.

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