Tuesday, November 17, 2009

Mortgage Interest Rates Headed Above 10% by 2015


It is obvious to me that mortgage interest rates are headed back to late 1970s levels within the next five years.

Around 10% would be wishful thinking.

Over 20% is likely.

This simple fact is also obvious to investors worldwide.

Governments across the globe are spending money at a rate unheard of in human history and this debt is going to be monetized, devaluing the dollar and other unfortunate currencies to abysmal levels.

Look at the gold futures market. Gold traded at an all-time high yesterday. Traders are fleeing currencies for commodities.

The Chinese, who are the largest creditors of the United States, are sick of low American interest rates. Why do you think Mr. Obama is in China? To talk about panda bears? They want fiscal responsibility from their Number One debtor---the U.S.---and are prepared to take policy actions to get it.

Bernanke at the Fed has lost all credibility when he talks about a strong dollar. Go here to see how the markets react to his tough talk. The Fed is literally giving dollars away at its lending window. ZERO PERCENT LOANS to member banks while the dollar sinks to a FIFTEEN MONTH LOW.

And then, while Mr. Obama is in Beijing getting read the riot act by Chinese officials who essentially control the monetary policy of the United States through their nearly $800 billion holdings in Treasury debt alone Bernanke proclaims he likely will keep interest rates near zero for the foreseeable future.

Helicopter Ben needs to understand that the Fed does not set interest rates.

The markets do.

And like black market currency exchanges in Third World nations there is an "official" exchange rate and then there is the real one set by actual supply and demand conditions for the availability of currency. Bernanke is becoming increasingly irrelevant, hopelessly out of touch, as investors understand he has lost focus as sole protector of the U.S. dollar and seems to want the title of U.S. Job Creator.

Hyperinflation in the United States is a real possibility over the next ten years. There seems to be no brakes on runaway public spending and the monetization that will follow.

I know gold traders who are predicting $2,000 an ounce gold as investors flee the dollar like it was slimed by plague. Read this article on gold at $2,300 an ounce due to hyperinflation fears.

It's obvious what the problem is. No fiscal accountability on any level, Federal, State, or local. There is no concept of economic discipline, living within your means, spending only to increase net worth, or any basic and essential rule for financial prosperity.

I was stunned to learn this week that in my home state of Washington our governor borrowed against the already underfunded retiree pension fund to close part of a fiscal deficit. So how did she spend this borrowed money?

They opened a legislative gift shop where you can buy souvenirs of your visit to the statehouse in Olympia.

They also hired the first ever state poet. NO JOKE.

At the same time Washington State governor Chris Gregoire is trying to close a $2 billion fiscal deficit where she is closing prisons and laying off counselors for victims of violent rapes, she is hiring a state poet---and talking about higher taxes.

On the subject of arts and entertainment, the National Endowment for the Arts got an 8% increase in its budget this year. This is actually MORE of an increase than Obama's budget requested.

Isn't in wonderful at a time when the Federal deficit is running at $1.4 trillion or a full 10% of America's total gross domestic product we can spend nearly $200 million a year and each and every year on art?

All this underscores the problem. The solution is not in Washington but with you. They will not listen or learn. You need to do both.

Plan on dealing with some of the highest interest rates in history over the next five years. The Chinese want higher rates and they are right. So is the market. Higher rates, really higher rates, are inevitable. Plan now.

Robert J. Abalos, Esq.