10 YR Treasury 2.027 (time of CMG Rate Sheet Release)
Open is about 4 tix worse from yesterday. Approximately 0.174 worse in rebate on rate sheet.

Growing concern that Greece’s leaders are divided as to how to handle their current financial crisis has lead most US stocks to go down. The Netherlands and Germany are leading a drive to include more private-sector involvement in the next austerity package for Greece. “Europe is the issue that is first and foremost in everyone’s mind, so any news that comes out on that does have a strong impact on the market,” Peter Jankovskis, of Oakbrook Investments in Lisle, Illinois. “Any weakness there is going to be a drag worldwide.”

As a further sign that consumer spending has taken a turn for the worst, the world’s largest consumer electronics chain, Best Buy, is planning on slashing its holiday hiring by about half of what it was last year. This is a poor indicator both for the economy and is real bad news for the unemployed. Best Buy hired 29,000 seasonal employees last year, and anticipates hiring only 15,000 this year. “Our plan isn’t built or predicated upon a meaningful move in the economic environment,” said Brian Dunn, CEO of Best Buy, “The consumer is being really careful about where he or she is spending the dollars, and I think that will continue through the holidays.”

US home mortgage applications rose last week, showing that refinance demand is going up as rates are going down. Refi applications, according to the Mortgage Bankers Association’s seasonally adjusted index, went up 11.2 percent and purchase applications rose 2.6 percent. “Mortgage rates declined last week, at least partially in response to the Fed’s announcement that they would shift their portfolio towards longer-term Treasury securities, and that they would resume buying mortgage-backed securities,” said Mike Fratantoni, MBA’s Vice President of Research and Economics.

Market Summary

At 12:32 PM ET: Although the major indexes are mixed in trading today, most stocks are lower on the NYSE where declining issues lead advancing issues by 2.0 to 1. Among individual stocks, the top percentage gainers in the S.&P. 500 are Jabil Circuit, Inc. and Inc.

Will the S&P Downgrade Affect Interest Rates?

Daily Real Estate News | Monday, August 08, 2011


Standard & Poor downgraded the U.S.’s credit rating on Friday, despite Congress reaching a deal in the final hours on the debt ceiling crisis last week. And now many of your customers may be asking: What does this mean for interest rates?“The impact on your wallet of the Standard & Poor’s downgrade of the nation’s credit rating is similar to what would happen if your own credit score declined: The cost of borrowing money is likely to go up,” the Washington Post explained in the aftermath of S&P’s decision.

S&P downgraded the U.S.’s top-notch AAA credit rating for the first time in history, moving it down one notch to AA+; the rating reflects a downgrade in S&P’s confidence in the U.S. government’s ability to repay its debts over time. It’s not clear, however, whether S&P’s downgrade will instantly effect rates, analysts say.

The 10-year Treasury note is considered the basis for all other interest rates. And “the downgrade could increase the yields on those bonds, forcing the government to spend more to borrow the same amount of money,” the Washington Post article notes. “Many consumer loans, such as mortgages, are linked to the yield on Treasurys and therefore would also rise.”

Watch this video with NAR Chief Economist Lawrence Yun for more information.

While consumers who have fixed interest rate mortgages will be immune to any changes in borrowing costs, home buyers shopping for a loan or those with mortgages that fluctuate may see a rise in rates later on, some analysts say.

Mark Vitner, senior economist at Wells Fargo Securities, told the Associated Press that he doesn’t expect the downgrade to drive up interest rates instantly since the economy is still weak and borrowers aren’t competing for money and driving rates higher. However, he expects in three to five years, loan demand will be much higher and then the downgraded credit rating might cause rates to rise.

Analysts are still waiting to see if the other rating agencies, Moody’s and Fitch, follows S&P’s lead in its downgrade of the U.S. credit rating. If so, the aftermath could be much worse, analysts say.

The debt deal reached by Congress last week was expected to save the U.S. from any credit rating downgrade. However, S&P said lawmakers fell short in its deal. Congress’ deal called for $2 trillion in U.S. deficit reduction over the next 10 years; S&P had called for $4 trillion.

Source: “5 Ways the Downgrade in the U.S. Credit Rating Affects You,” The Washington Post (Aug. 8, 2011); Questions and Answers on Standard & Poor’s Downgrading of U.S. Federal Debt,” Associated Press (Aug. 6, 2011); and S&P Downgrade Will Shake Consumer and Business Confidence at a Fragile Time, Economists Say,” Associated Press (Aug. 6, 2011)

Read More

Real Estate OK in Debt Deal But Risks Remain

Young Generation Hit Hard by Recession

Daily Real Estate News | Monday, August 08, 2011


The recession has hit the younger generation hard and is forcing them to delay many major life changes and purchases, according to a new survey. About 44 percent of Millennials — people aged 18 to 29 — say they will have to delay buying a home due to economic factors, according to a survey conducted by The Polling Co. Inc./WomanTrend.

About 75 percent say they have or will delay a major life change or purchase due to economic factors, and 30 percent say the bad economy has prompted them to delay changing jobs or cities. What’s more, nearly 25 percent say they will delay starting a family, and 18 percent say they will delay getting married.

Such delays by the younger generation has started to affect household formation. Many young professionals are moving back in with their parents to curb costs, which has caused household to grow in recent years after facing decades of declines.

“The impact of the poor economy, in human terms, has been devastating. This is especially true for young Americans, whose lives have been interrupted and dreams put on hold due to the lack of economic opportunity,” says Paul T. Conway, president of Generation Opportunity.

Source: “Young Americans Waylaid by Recession, Study Shows,” Los Angeles Times (Aug. 5, 2011)

Read more:

What Does Gen Y Want?

Commodity prices

Good news bears

Aug 8th 2011, 13:39 by The Economist online

A fall in commodity prices offers some cheer among the market gloom

THE equity markets may be suffering again as investors worry about sovereign debts and a slowing global economy. But the sell-off has also extended into the commodity market, particularly in oil: West Texas intermediate is trading at around $84 a barrel. This is a bearish story that is good news for western consumers. High raw-materials prices acted as a tax rise in the first half of the year; now they are falling the effect will be akin to a tax cut. There is just one caveat. The working assumption is that the recent sharp fall in the oil prices is caused by concerns about a slowing US economy; if it is really due to a sharp slowdown in emerging markets as well, equity markets will really have cause to worry.

Readers’ comments

The Economist welcomes your views. Please stay on topic and be respectful of other readers. Review our comments policy.


Welcome back to Earth !

BRL, you better find a parachute for you…

Deflation, your time has finally come, after 2.5 years of delay

We called it:…

We’re outperforming today as we did all of last week.

I remember in 2008 petroleum peaked in May for their highest price in history. The cause was never explained.

This price exceeded 2004 levels when the Gulf refineries were smashed by a series of Hurricanes notable Katrina and Rita. The prices exceeded the outbreaks of Gulf War 1 and 2 with Iraq and even the 9/11 attacks. The price of oil exceeded Supertankers being attacked by terrorist teams, Iran mining the critical choke point of the Strait of Hormuz where 40% of World travels, Putin’s energy cut offs, or raging piracy off the Somalian coasts.

I want to propose an actor and a plot. Follow the Money. Who has the Wealth and Power and the Means and Motive? The world’s largest exporter of oil is Saudi Arabia.

And in 2008 they saw an opportunity to influence the election of the most powerful office in the world. The Saudis grew tired of Bush and the Republicans. And the Republican Presidential Candidate McCain seem to want to open up a third war front on Iran. The other candidate was named Hussein and may prove to be a tribal brother.

And when your only tool is a hammer, every thing looks like a nail. By reducing oil imports by 5%, the Saudis can affect oil prices world wide instantly and to astonishing effect. The Saudis used their control over oil supply to jigger a shortage, which lead to price spikes 6 months before the election and precipitated the American Great Recession of 2008. John McCain argued their was no recession under Republican leadership and was soundly trounced in the election.

But this Recession snowballed into the Nov 2008 banking crisis, Lehman Bros downfall, the mortgage crisis, AIG insurance crisis, Automaker bankruptcy and the unemployment morass. All because of oil spikes.

An incumbent President’s greatest opponent is the state of the economy in an election year. And the Saudis are again using their hammer this time to LOWER the price of oil to brighten the American economy and re-elect President Obama. We are puppets on a string.

Unfortunately, the law of unintended consequence, the Recession they brought on in 2008 is still around and may be into a double dip. The Saudis are at it again doing their best to suppress the price of oil to promote a recovery.

Surprise, Money is Power! And Economic issues can influence Politics. Strange things happen in election years. Yes, even foreign actors can also pull some stringshmTzic3YT/

Your assertion that the Saudis influenced oil price to rout the Republicans in American presidential election is clever, but simply UNTRUE. The Saudis, or more accurately King Abdullah and the House of Saud, most likely WANTED warmongering hawks in the White House again, so that the US could wipe Iran and its nuclear programmes off the map. Wikileaks showed that King Abdullah, while posturing as an Islamic patriot who wanted the US to moderate its Mideast policies, privately encouraged GWB to attack Iran. This explains the confusion and the disorderliness with which the Saudi diplomatic corps to Washington D.C. have been conducting themselves vis-a-vis the Iranian issue.

And in this day and age, it is unwise to assume that the power to set the price of oil is centralized in Riyadh, Caracas or whatever. Thousands of traders tinker with the price of crude, and other governments can simply flood the market with their strategic oil reserves to drive the price down.

On this blog we publish a new chart or map every working day, highlight our interactive-data features and provide links to interesting sources of data around the we


World Debt Guide:  Owe Dear

The Economist online

Our interactive graphic shows how deeply in hock we all are

THE headlines are all about sovereign debt at the moment. But that is only part of the problem. Debt rose across the rich world during the boom, from consumers maxing out credit cards to financial firms taking on more leverage, and the process of reducing it is still at a very early stage.
The interactive graphic above shows the overall debt levels for a wide range of countries, based on data supplied by the McKinsey Global Institute. In theory there is no maximum level for debt relative to GDP, but Ireland and Iceland (not on this map) found the limit in practice when they hit eight-to-ten times GDP.

The debt is also broken down by sector. Note the huge size of Britain’s banks relative to its economy, and the high level of Spanish corporate debt. Note, too, Japan’s vast amount of government debt, not yet a problem but an obvious reason for jitters over the longer term.

Japan has the dubious distinction of topping our sovereign-debt vulnerability ranking below, which orders countries based on their primary budget balance, their debt-to-GDP ratio and the relationship between the yield on their debt and economic growth (if the former is larger than the latter, the debt burden is getting steadily worse). Britain does badly, too, although a tough austerity programme and the long duration of its outstanding debt protect it from a loss of confidence. Here’s the table:


There never was a surplus

Jul 27th 2011

YESTERDAY the White House published a chart that explains how we got from the Clinton administration projection that the government would pay off its entire debt and then build up $2.3 trillion in savings by 2011, to the $10.4 trillion in debt we actually wound up with. Of that $12.7 trillion shift, the Bush tax cuts account for $3 trillion. James Fallows explains: “As the figures demonstrated, the Bush-era tax cuts, extended last year under Obama, were the biggest single policy source of deficit increase over the past ten years. Therefore you can be for reducing deficits, or you can be for preserving the tax cuts, but you cannot rationally be for both.”

I think there’s something else we need to look at in this chart. It’s the very first item at the top of the chart’s right-hand column: the shift in the debt profile that resulted from no policy change at all, but from “Economic and technical changes (eg, lower tax revenues due to recession)”. It’s $3.6 trillion.

In other words, that massive surplus pile of government savings, or sovereign wealth, or whatever you want to call it, simply never existed.* The Clinton administration’s calculations in 2000 that the government would pay off its debt and accumulate savings of $2.3 trillion over the following ten years were wrong. And they were wrong not because of any stupid error or dramatically incorrect theory about the economic world, but simply because they failed to predict that the American economy would experience a financial crisis in 2008, followed by the worst recession since the Great Depression and a historically anaemic recovery. (I assume they failed to predict the 2001 tech-crash recession as well.) The Clinton administration delivered a couple of years of real verifiable budget surpluses in the late 1990s, and if Clintonian levels of taxation and spending had continued, they likely would have generated annual surpluses that would have shrunk the debt by over $2 billion over the decade thereafter. But the forecast that they would have eliminated the debt entirely and replaced it with trillions of dollars in sovereign wealth was a mirage.

This isn’t particularly surprising; we simply don’t know how to make long-term projections about the economy or government revenues that don’t have trillions of dollars worth of error margin on either side. Which is why we need to be careful about budgeting and get our tax rates and our spending more or less in balance over the long term, running surpluses in good years and deficits in bad ones. The Bush tax cuts did the opposite: $3 trillion worth of tax cuts were predicated on the premise that we were returning the people “their” money. As it turned out, the money wasn’t there to return. Even without the tax cuts, the wars, or anything else, the government would have entered 2011 with $1.3 trillion in debt, not $2.3 trillion in savings. Basically, in the grip of careless enthusiasm about the economic future, we borrowed $3 trillion from bond markets and handed it out to citizens in rough proportion to how rich they already were. In the middle of a recovery. This is not a useful thing for the government to do.

* I’ve changed the wording in this paragraph to avoid any potential reader confusion between annual budget surpluses, which Clinton-style budgets would have generated, versus an overall buildup of sovereign wealth rather than debt, which they wouldn’t have. (Incidentally, the fact that we don’t even have a readily available word for a buildup of sovereign wealth in the vocabulary we normally use to talk about the American government seems kind of worth noting.) Additionally, I realise that if we hadn’t had the Bush tax cuts, the entire economic story of the past decade could be different; perhaps we wouldn’t have had the financial crisis. Or maybe we would have anyway. I don’t know, and I think that takes things too far. What I’m trying to say in this post is that when you get a budget forecast that says, hey, over the next ten years we’re going to pay off our entire debt and then some, you shouldn’t go rushing out to spend the money on massive decade-long multi-trillion-dollar tax cuts. Ten-year economic forecasts are not very accurate. Not to mention the fact that your decade-long tax cut will be very hard to repeal at the end of the decade.


The bargaining begins

Jul 26th 2011, 17:55 by P.E. | DETROIT

  • TO BORROW an old baseball cliché, you can’t tell the players without a scorecard, or so it seemed as talks on a new labour contract got under way this week between Chrysler and the United Auto Workers (UAW) union. Negotiators for both sides showed up wearing matching maroon pullovers and there was none of the traditional rhetoric of potential confrontation. Instead of talking about “strike targets,” for example, the UAW’s president, Bob King, has been more likely, lately, to speak of “creative problem-solving.” The American government insisted on a ban on strikes when it gave Chrysler, and its cross-town rival General Motors, billions of dollars of aid in 2009. If the talks between bosses and union leaders reach deadlock, it will go to binding arbitration.

Both sides know that this round of negotiations is anything but business as usual. What happens at the bargaining table over the next six weeks could determine the long-term viability of both the union and Detroit’s Big Three carmakers. The future of all of them was in question just two years ago when Chrysler and GM were forced into Chapter 11 bankruptcy protection, and the third domestic maker, Ford, avoiding that process only by mortgaging its assets. Although the pain was shared widely among stakeholders, workers were especially hard hit, with their union agreeing to a number of concessions that slashed all-in labour costs from around $76 an hour in 2006 to just over $50 today. The UAW reversed decades of tradition and approved a two-tier wage structure in which new hires start at roughly half the pay and benefits of more senior line workers.

That underscores one of the key differences in this year’s round of contract talks. Whereas the negotiations of years past were usually about building wages and benefits, the UAW’s main goal is now simply to hang on to jobs. At Chrysler, for example, the unionised workforce is currently less than a third of what it was a decade ago. The good news for the union is that it has risen by about 2,000, to 23,000, since the maker emerged from Chapter 11 in June 2009.

Less pay, more work
Holding out a carrot, Chrysler says that if the UAW keeps it competitive with the transplants—foreign-owned plants, like the Nissan assembly line in Smyrna, Tennessee, that also pay around $50 an hour—there will be even more work. The maker is looking at more than 300 projects to bring back in house work that it had, over the years, outsourced to suppliers. General Motors will be producing its new Chevrolet Sonic subcompact at a suburban Detroit plant using two-tier workers: the previous Chevy small car had been built in South Korea.

Whereas some American trade unions negotiate cross-industry contracts, the UAW has traditionally had to bargain separately with the domestic carmakers. As always, it hopes that the first agreement it reaches will set a pattern for the rest. However, the Big Three’s management seem less likely to go along with that approach this time, reflecting the increasing differences between the companies.

Ford, in particular, seems ready to press the union for further concessions. Its workers have so far rejected the company’s request to match those accepted by their counterparts at GM and Chrysler. The management of Ford reckon this has left its hourly labour costs several dollars higher than its rivals’. There is no strike ban at Ford, since it did not take federal bail-out money, so there is the potential, in theory, for things to turn nasty. However, Ford has not had a walkout in its American plants since Gerald Ford was in the White House, so the chances of this seem low.

Still fragile
The fragility of Detroit’s Big Three was driven home this week when, on the same day bargaining began, Chrysler and Ford reported lower second-quarter earnings. The numbers were not dire and reflected a variety of factors such as weak spring car sales and some one-off charges. At Ford, these included the cost of scrapping its ailing Mercury brand. Chrysler, meanwhile, would have been more than $180 million in the black but for its decision to pay off its $7.5 billion in American and Canadian government loans six years early, accruing $551 million in non-recurring charges.

The move will save Chrysler significant amounts of money through lower interest rates. It also allowed the maker’s Italian ally, Fiat, to shake off government oversight, and boost its stake in its American partner to 53.5%, a figure it has suggested could soon climb to 70%. Sergio Marchionne, who serves as chief executive of both companies, will shortly announce a streamlining of their worldwide management that will make Fiat/Chrysler look increasingly like a single outfit.

Mr Marchionne also made it clear that even without the government looking over his shoulder. things will not go back to “the days of sin,” when Chrysler, like its rivals, thought any problem could be fixed by tossing more money at it, whether handing out lavish executive bonuses or offering customers huge incentives so factories could keep running despite weak demand. Naturally, Chrysler’s negotiatiors in the union talks will be pushing this theme of austerity. But there seems to be a growing, and welcome, consensus that the best way to motivate workers is to let them share in the industry’s ups, and downs, with an enhanced profit-sharing programme.

An agreement on this could be just what the union needs to go after its top priority other than the contract talks themselves. The UAW’s membership slipped to 323,000 at the end of 2010, down from a 1979 peak of 1.53m. With two minor exceptions, the union has failed to organise workers at the growing number of foreign transplants, which now produce millions of cars, pickups and crossovers annually.

Mr King has warned makers like Toyota, Nissan and Honda that he may call for a global boycott if they continue to resist unionisation efforts, but in the end the UAW’s leader will have to convince workers that it is worth their while signing up and paying their dues. After the huge concessions the UAW has had to make in recent years, employees at the non-union transplants may well wonder what they would gain from joining.

Given all the pressures on both the American Big Three’s management and on the union’s leadership, both sides seem to realise that it is in their interest to work together towards a deal in the coming weeks. The chances of a breakdown, and of a fresh crisis among the carmakers, seem low.

Read on: The car industry’s crisis is over. Its long-term problems are not (Jan 2011)

Dow Plunges Nearly 200 Points as Lawmakers Remain at Odds Over Debt Deal


Wednesday, 27 Jul 2011 04:13 PM


Anxiety about a deadline to raise the nation’s debt ceiling swept across Wall Street on Wednesday and drove the Dow Jones Industrial Average down almost 200 points. With Washington showing no sign it will find a solution, financial planners around the country said their clients were increasingly worried.

The Dow took a sharp drop during the last two hours of trading and closed down for the fourth session in a row. The declines have grown each day. The market turmoil was a sign that consequences of the debt fight were beginning to materialize in earnest.

With six days to go until the Treasury Department’s Tuesday deadline — raise the national borrowing limit or face an unprecedented federal default and unpredictable fallout in the economy — analysts suggested the market would only grow more volatile.

“The longer we go without any type of hope or concrete plans for resolution, the more concerned investors are going to become,” said Channing Smith, a managing director at the financial firm Capital Advisors Inc.

‘A Compelling Argument for a Chilling Conclusion’ — S&P
Over one million Americans have heard the evidence for 50% unemployment, 90% stock market crash, and 100% inflation. Be prepared. See the Evidence Now.

While no one was panicking, financial professionals who handle the investment accounts of everyday Americans — college funds, retirement accounts and other nest-eggs — said their customers were growing more worried by the day. One said he had not seen this level of anxiety since the 2008 financial crisis.

“We’re getting a ton of calls,” said Bob Glovsky, president of Mintz Levin Financial Advisors in Boston. “It’s all `What happens if the U.S. defaults? What’s going to happen to me?'”

The Dow finished the day down 198.75 points, at 12,302.55. About half of the decline came between 2 and 4 p.m., when the market closes for the day. It was the worst fall for the Dow since June 1, with 28 of the 30 component stocks losing value.

While the decline was not close to the stomach-churning days of the fall of 2008, when the Dow lurched lower and higher by 700 points some days, there were signs that fear on Wall Street was growing. The Dow fell 43 points Friday, 88 points Monday and 91 points Tuesday, then more than twice that on Wednesday.

“Right now the clouds are gathering,” said Chris Long, a financial planner in Chicago.

Without a deal by Tuesday, the Obama administration has said the government will be unable to pay all its bills, and could miss checks to Social Security recipients, veterans and others who depend on public help. In addition, credit rating agencies could downgrade their assessment of the government’s finances, further unnerving financial markets and perhaps causing interest rates to rise for everyone.

Already, some investors are taking precautions. Richard Shortt, 66, of Somerville, Mass., worries that a default, or even just a downgrade of U.S. debt, could cause bond and stock markets to tumble. Last week he sold about 10 percent of his stock holdings and put the proceeds into a money-market mutual fund.

“It might just be a short-term decline in the markets, but it could last a week or two while this gets resolved,” said Shortt, a semi-retired small business consultant. “If we do get any sort of debt downgrade, even if we avoid a default, that will change the game a bit.”

Financial advisers typically tell their clients not to tinker with their portfolios or try to play a short-term move in the market to their advantage. Of course, leaving investments alone could be a test of patience for the rest of this week.

On Friday afternoon, for example, it’s plausible that Congress could reach a deal in mid-afternoon and send the Dow soaring 300 points in the final hour of trading. It’s also plausible that there’s still no deal and traders decide staying in the market over the weekend is too risky, and send the Dow plunging.

Investors who rode out the financial turbulence in 2008 without rejiggering their portfolios have made up most of their losses. The stock market has almost doubled since its post-meltdown low in March 2009. Many people who withdrew their money from the stock market during the worst haven’t come close to breaking even.

“Trying to adjust to something on a day-to-day basis is how you get hurt,” Glovsky said. “You’ve got to take a long-term approach.”

The memory of the fall of 2008 remains vivid. The Dow plunged 778 points in a single day when Congress surprised investors by rejecting an early version of $700 billion legislation to bail out the nation’s biggest banks.

“We’ve been through this, or something like it,” said Leisa Aiken, a financial planner in Chicago. “I think what we went through in 2008 has toughened clients up a little. They realize that they will get through it if they don’t give in to a knee-jerk reaction.”

This time around, analysts say, the chances of similar turmoil are small but growing. Standard & Poor’s, one of the rating services, has said that “the reverberations of the showdown may be deep and wide — particularly if Washington does not come to a timely agreement on the debt ceiling.”

Bond traders were still betting on a last-minute deal on the debt. The yield on the 10-year Treasury note, which should rise when investors believe there is a greater risk they won’t get their money back, has stayed near 3 percent all month.

Even if Washington sails past the deadline without raising the debt limit, bond traders believe the Obama administration will keep up its interest payments and cut spending on everything else. The resulting shock to the economy and other financial markets would make Treasury bonds a safe place for investors to hide, which could result in lower yields.

For individual investors, experts are cautioning against overreaction.

Financial planner Jim Pearman, a principal in Partners in Financial Planning in Roanoke, Va., said he was telling clients his firm isn’t changing its investments based on a “game of chicken” in Congress.

“You have to make two decisions right when you try to time this thing. One is when you get out, and the other is when you get back in,” he said. “It’s hard to make that. We don’t try.”

One measure of investor concern, the Vix, or volatility index, shot up 14 percent on Wednesday. The tone of the market changed this week, as nervous investors began moving money out of stocks, said Howard Ward, a chief investment officer at asset manager GAMCO.

He said the stock market will likely become more volatile as the weekend nears, and while he said he was not repositioning his portfolio, he admitted: “Right now I’m pretty worried.”

Read more: Dow Plunges Nearly 200 Points as Lawmakers Remain at Odds Over Debt Deal
Important: Can you afford to Retire? Shocking Poll Results

Buyers Rejected for Loans Can Now Find Out Why

Daily Real Estate News | Thursday, July 21, 2011
A provision in the Dodd-Frank financial reform law, which took effect this week, is requiring lenders to provide consumers with a free credit score, which will help provide new insights into why they may have been rejected for a loan or did not qualify for the best, lowest rate.

While borrowers can access their credit scores from the credit bureaus, the credit score that a lender uses isn’t always the same one that the credit bureau provides you. According to a report by the Consumer Financial Protection Bureau, some credit bureaus sell consumers “educational” scores that aren’t the same ones used by lenders, or these bureaus may base the score on a different model than the one lenders use.

Now, borrowers for the first time will get a more accurate view of what credit score lenders are using to base their mortgage on.

Under the new provision, lenders will be required to provide potential borrowers with a free credit score whenever they reject an application for a loan. Lenders must provide borrowers with an “adverse action” notice, which will include their credit scores as well as an explanation of why they were rejected for a loan.

Lenders will also be required to provide a free credit score and an explanation whenever they approve a loan but at a higher rate than what is given to their best customers.

Mark Greene, CEO of FICO, says that many borrowers may be surprised to learn that they didn’t qualify for a lender’s lowest rate when applying for a loan.

Source: “Turned Down for a Loan? Now You Can Find Out Why; Consumers Can Also Get Free Credit Scores if Loan Rate Isn’t Best Available,” USA Today (July 21, 2011)

America’s public debt

Down to the wire

Jul 18th 2011, 16:04 by The Economist online

Lawmakers in America are running out of time to raise the debt limit

WHILE Congressmen trade over concessions and budget cuts, the clock continues to tick on America’s debt. Barack Obama has set a deadline of July 22nd for Congress to agree on a deal. On August 2nd, the $14.294 trillion threshold at which by law America can no longer borrow money, will be reached. If that happens, America will default on its debt, triggering “a huge financial calamity” according to Ben Bernanke, the Federal Reserve chairman. On June 30th, there remained just $25m left in the kitty. Congress has acted a total of 91 times since June 1940 to either raise, extend or alter the definition of the debt limit—36 times under Democratic presidents. And they have done so with some 300 days to spare on average.  

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the right scale should be in logarit


Note that the 1945 national debt was paid by progressive taxation of up to 92% income tax rate on the wealthiest Americans under the Eisenhower and Kennedy administrations.

The current rise in national debt shows up when progressive taxation is weakened and largely eliminated in the period from 1980 to 2011.

Since a large part of today’s debt is due to two unfunded wars, it is worth considering paying off this debt in the same way that the WWII debt was paid—by progressive taxation. Evidently, progressive taxation did not curtail the prosperity of the 1950’s.


The entire planet, including emerging markets, is currently on an obscene borrowing and lending spree. Taking money from tomorrow so they can seemingly outperform rivals today. It is crazy and it will end in tears. Global debt is almost out of control.


Since those of us that are mere mortals have difficulty actually understanding just how massive America’s $14.343 trillion debt is, here’s an article that puts the number into terms that are more understandable:

This chart makes it clear for all to see that America’s government has allowed itself a level of debt/GDP similar to that America had when it was last engaged in a World War, which war was a threat to its very existence.

Perhaps Washington correctly recognizes that America is truly enmeshed in an incestuous private interest war zone running from Manhattan to Washington DC, and with complex other tenacles emanating from there. In this war, America’s subversive and greed-driven banking industry combine with other greed-imbued and power-seeking special interest groups into a writhing and poisonous snake-ball, enveloping Washington’s elected and appointed members of government.

A very curious situation.

Civilization has advanced to the point that its major wars are not hot wars, but instead played out like video games, with the point score denominated in money terms among the warring nations, and many of the “nations” not being nations at all but rather private companies with agendas which clearly outrank America’s national interests.

Impressive that America’s banks and other self-interest-seekers, could so successfully combine in such a ruinous alliance with its legislatures, the latter dominated by members of that highly privileged, never-had-a-real-job profession called “lawyers”, and thereby cause such chaos as to drive America into taking world-wartime economic measures.


Did you even look at the chart before you wrote your comment? The two “unfunded” wars were hardly a bump in the chart. The last time that the public debt (as a percent of GDP) decreased was the result of a Republican Congress.

There is plenty of bipartisan blame to go around, but you all need to quit your tired, incorrect dogma trying to blame this all on Bush, his tax cuts, and the last two wars. After several years of a Democratic Congress passing no budget, the current House is at least trying to impose some financial discipline.


I’ll say it again, let it blow.

The Republicans are demanding drastic cuts in investment in infrastructure, and old age benefits — but only for those under age 55. And they want this agreed before they will accept additional borrowing.

Stop the borrowing and cut senior benefits right now, unless they agree to increase taxes to pay for it. This 30 year something for nothing binge by Generation Greed needs to stop.


From about 1945 to 2010 the Democrats ended their reign with LESS debt as a percentage of GDP than they began with EVER SINGLE TIME. At the present end of the graph you can also see a point of inflection indicating the same will happen again.

Hmm, the so-called careless spenders have historically been more responsible.


Empire is expensive, as Great Britain found out at the end of the 19th Century and America is finding out at the end of the 20th Century.

Keeping an Empire is in the long term unsustainable. There will be a successor. The key is to manage a transition, build partnerships and forge peaceful alliances to the Next.

America is now managing its debt only by the grace of China. The two economies are linked closer than teeth and lips. I would hope these two powers grow closer and more integrated for the sake of the world. Any type of peaceful transition is better than war.

From about 1945 to 2010 the Democrats ended their reign with LESS debt as a percentage of GDP than they began with EVER SINGLE TIME. At the present end of the graph you can also see a point of inflection indicating the same will happen again.

Yes, Jimmy Carter was a great success.

Every president before 1980 had less debt as GDP%. Obama might be lucky enough to get a Republican Congress to save him from himself like Clinton did.

Graph should delete the $ line and add GDP line for Govt spending and Tax Reciepts as percentage of GDP.

$14,293,975,000 is the largest debt in the history of the world.
It is an astounding number that few can comprehend.
Interest payments alone exceeds the annual GDP of all but a handful of countries.

How do you make a fortune today? Have a gold mine(dirty), control an oil field(contend with world’s hotspots) , be a dominant industrial power(hard work) or the easiest of all, service the largest debt in the world.

If America defaults what will financial mathematicians use for their “risk free rate” parameter when they value all kinds of instruments?

First it doesn’t matter which president is in power it is congress that has to negotiate and sign off on a budget. To balance the budget with no spending cuts and no spending increases either, all taxes would have to increase 161%, or slightly less than double. To account for the 50% of US taxpayers that don’t effectively pay income taxes, the real taxpayers in this country would have to pay a tax rate which is 3X larger than current. Keep in mind that is just to balance the budget and would not reduce the deficit. Also remember that many “rich” households have two incomes not just one anymore. When the tax rate becomes too onerous you will likely see one of the household incomes quit their job. In my case that would be my wife who is a surgeon. Think about that the next time you need an emergency appendectomy and your new green surgeon has only seen an appendix in his text books. Good luck with that.

The mathematicians will use as basis the other sovereingn debts whose rating is AAA.
However, I think that the idea of a “zero risk” bond should be eliminated.

@mike – did you look at the chart before you commented to @qwerty? The amount of public debt clearly went up from $6 trn to almost $12 trn under #43. The debt to GDP ratio increased slightly simply because we were in the middle of housing and consumption bubbles. One cannot cut taxes, wage two wars and spend like a drunken sailor without increasing the overall public debt (which it very obviously did).

Thus, to begin to turn this ship around, there needs to be a grown-up who understands it will take both tax hikes and spending cuts. We didn’t get in this mess purely because of spending or solely because of tax cuts. The children in Congress need to put on their big-kid pants, quit kicking the ball down the road, and act like responsible grown ups and stop posturing for sound bites for 2012

will we need to consider foreign exchange risks?

“I think that the idea of a “zero risk” bond should be eliminated.”

I tend to agree with that. I’ve had problems with that idea since the first day of class in finance 101.


Hmm..It looks like the GOP contributed more than their fair share to the national debt. Why do the Republicans make this out to be a problem of Democrats and Obama spending too much when Bush and other Republican Presidents have increased the debt more than the Democrats have? Why do the American voters keep believing the GOP rhetoric that Democrats caused this deficit? It is as if the Republicans set this up – raise the public debt and destroy the economy then blame it on the next elected President who would surely be a Democrat.

The debt ceiling needs to be raised so we can move on. Taxes need to be increased for corporations and people making $250K or more a year, and spending needs to be cut, but we need to start but cutting military spending before social security and medicaid.

 Politicians beholden to him are simpletons who like to make public policies with sound-byte sized ideas.

Less tax is probably stimulative up to a point. But when debt creeps up on you, you need every tool in the shed to deal with it. Cutting spending is one. Raising revenues is another. Closing tax loopholes and not extending temporary tax cuts isn’t raising taxes. Those weren’t meant to be permanent. They were meant to give politicians election boosts. Besides there is soemthing very wrong about people who find spending trillions in Iraq a good thing and cannot find cents to spend on schools or healthcare at home. Where do they get off saying things like “throwing money” at education? And they find it necessary to remind everyone again and again of how patriotic they are. Somethng tells me that they are very insecure about their positions.

Jul 18th 2011 8:22 GMT

@Mike The Red – I couldn’t disagree with you more. How do you explain the huge increase in public debt that coincides perfectly with the Iraq and Afghnanistan wars? There is factual evidence that a huge portion of the public debt was caused by Bush’s tax breaks for the wealthy and their recent extension.

The current House is not trying to impose fiscal discipline at all. They are putting on a political show to try to regain the White House and trying to blame the deficit on pensioners, poor children and the disable while refusing to admit that most of the debt was caused by the last two wars and bad policies of the Bush administration.

I would strongly support true responsible fiscal discipline which begins with cutting military spending and eliminating tax breaks and loop holes for corporations and the wealthy. I do not buy the GOP propaganda and hope most Americans will see through it too before the GOP House destroys the US with its bad policies.

Jul 18th 2011 8:22 GMT

The number does not matter. It is the underlying value of the dollar that matters. As a printer of its own currency the USA can print 15 Trillion dollars to pay everyone owed. Of course the dollars will have no value in the world market but everyone can be paid without raising taxes or cutting spending.

See how a little truth (we can pay everyone without…) gets misinterpreted by the lame politicians that keep getting elected. Everyone remember that Congress, not the President, controls the purse, read the Constitution. So, if your elected ol’ boy or ol’ girl congressman runs the country into the dirt, good for you, it is what you voted for.

This is not a financial issue it is a voter

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