Dear CIGAs,

Here is the new symbol of Wall Street.

^[1]

Jim Sinclair’s Commentary

Tic, tock the dollar drops…

Treasury International Capital (TIC) Data for June

WASHINGTON –The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for June 2009. The next release, which will report on data for July 2009, is scheduled for September 16, 2009.  

Net foreign purchases of long-term securities were $90.7 billion.

Net foreign purchases of long-term U.S. securities were $123.6 billion. Of this, net purchases by private foreign investors were $105.2 billion, and net purchases by foreign official institutions were $18.4 billion.

U.S. residents purchased a net $32.9 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been $71.3 billion.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities decreased $19.5 billion. Foreign holdings of Treasury bills decreased $11.3 billion.

More… ^[2]

Jim Sinclair’s Commentary

And around the country it goes, the royal screwing of the geezers and those looking forward to retirement.

You know, "Cash for Coggers" or "Gas for Geezers" might be a necessary program quite soon. If you can’t pull your own weight it is Dr. Kevorkian time.

State pensions
Discourage double dipping
Tribune Editorial
Updated: 08/18/2009 05:48:37 PM MDT

Utah’s pension system for government workers took a hit from the Wall Street collapse, and actuaries estimate it is now underfunded by about $3 billion. One way to cut those losses would be to discourage early retirements.

This state has a peculiarly generous policy that allows people to retire and take pension benefits from the system, then go back to work full time for a state agency and receive large 401(k) contributions from their employer. According to an audit in 2006, no other state has a policy like this that encourages double-dipping. The Legislature should put an end to it.

Admittedly, the resulting savings will not come anywhere close to rescuing the state’s retirement system, but it’s a start.

Utah traditionally has provided state and local government employees, including teachers, police officers and firefighters, a defined benefit pension plan. The employee receives a lifetime benefit based on a formula which accounts for years of service and average salary. The employer has funded the entire plan.

This contrasts with a defined contribution plan, such as a 401(k), in which an employee has an individual account to which both she and the employer contribute. The employee decides how to invest the money and there are no guaranteed benefits.

Often, a police officer will retire after 20 years of service and begin to draw his defined-benefit pension. But if he goes back to work for a different police agency that is part

More… ^[3]

Jim Sinclair’s Commentary

Here comes the royal screwing of Main Street.

CalPERS Admits California "Pension Costs Unsustainable" – So What To Do About It?

In an unusual display of honesty CalPERS Actuary Says "Pension Costs Unsustainable"

The CalPERS chief actuary says pension costs are "unsustainable," and the giant public employee pension system plans to meet with stakeholders to discuss the issue.

"I don’t want to sugarcoat anything," Ron Seeling, the CalPERS chief actuary said as he neared the end of his comments. "We are facing decades without significant turnarounds in assets, decades of — what I, my personal words, nobody else’s — unsustainable pension costs of between 25 percent of pay for a miscellaneous plan and 40 to 50 percent of pay for a safety plan (police and firefighters) … unsustainable pension costs. We’ve got to find some other solutions."

Dwight Stenbakken of the League of California Cities told the seminar that pension benefits are "just unsustainable" in their current form and difficult to defend politically.

"I think it’s incumbent upon labor and management to get together and solve this problem before it gets on the ballot," he said.

"I actually think it is sustainable," said Terry Brennand of the Service Employees International Union. He said the basic problem is investment losses, not high benefit levels.

More… ^[4]

Jim Sinclair’s Commentary

Disaster, phase two, starts in September.

Mortgage deliquency rate hits all time high in 2Q
Aug 17 02:39 PM US/Eastern
By EILEEN AJ CONNELL

NEW YORK (AP) – The delinquency rate on U.S. mortgage loans hit an all-time high in the second quarter, but the pace of growth for the rate slowed, a possible sign the mortgage crisis may be beginning to turn the corner.

Data provided by credit reporting agency TransUnion shows the ratio of mortgage holders who are 60 days or more behind on their payments increased for the 10th straight quarter, to 5.81 percent nationwide for the three months ended June 30.

That’s up 65 percent, from 3.53 percent, in the 2008 second quarter.

Deliquency of 60 days is considered a precursor to foreclosure, because of the difficulty homeowners would have coming up with two back payments to bring themselves current.

While the deliquency rate hit a new high, however, the increase from the first quarter to the second was 11.3 percent. In the two prior quarters, the rate jumped nearly 16 percent.

More… ^[5]

Jim Sinclair’s Commentary

Soon China will have all the minerals and energy but few of the dollars.

Heard any pinhead, xenophobic, talking head idiots say China is in a dollar prison lately?

Exxon, China ink $41 billion Australian gas deal
Tue Aug 18, 2009 7:36am EDT
By Fayen Wong and Chris Buckley

PERTH/BEIJING (Reuters) – Australia and China struck their biggest trade deal ever on Tuesday as the world’s two most valuable listed oil companies, Exxon Mobil and PetroChina, agreed a $41 billion liquefied natural gas deal.

"It’s a statement about the nature of our two economies and the fact that Australia is important to China, just like China is important to Australia," Australian Resources Minister Martin Ferguson told Reuters in Beijing.

The gas sale agreement between Exxon and PetroChina comes just weeks after Exxon inked a A$10 billion Gorgon LNG sales deal with India’s Petronet, which marked Australia’s first ever LNG contract with India.

The deals, along with regulatory approvals process from the federal government now nearing completion, means that the Gorgon project partners could approve the massive LNG project, located off Western Australia, by early as next month.

The latest Gorgon gas sale would bring PetroChina’s total LNG purchase from the project to a total of 3.25 million tonnes per annum (mtpa) for 20 years — making it the largest buyer of gas from the project.

More… ^[6]

Jim Sinclair’s Commentary

Does not 9.4 people rather than 9.5 people out of 10 unemployed cure all our financial problems?

This writer apparently does not watch F_TV

Joblessness spurs foreclosure fears
Published: Aug. 17, 2009 at 11:36 PM

WASHINGTON, Aug. 17 (UPI) — Worsening joblessness is taking the place of subprime mortgages as the major cause of U.S. foreclosures, financial industry professionals say.

Citing Mortgage Bankers Association figures, The Washington Post reported Monday that the largest share of foreclosures during the first quarter of 2009 shifted from subprime loans to prime loans — indicating larger numbers of unemployed Americans going to foreclosure. Bankers and economists are concerned growing unemployment will further complicate efforts to unwind the foreclosure crisis, the newspaper said.

Citing a report on Moody’s Economy.com, the newspaper said an estimated 1.8 million homeowners will lose their homes in 2009 — up from 1.4 million in 2008. At the same time, the federal government has encountered more difficulty helping people keep their homes after job loss than in the case of mortgage payments shooting up due to higher interest rates.

Mark Calabria, director of financial regulation studies at the Cato Institute, a libertarian think tank based in Washington, told the newspaper (foreclosures caused by) unemployment are a "much harder nut to crack."

"It’s much easier to bash lenders than to create jobs," he said.

More… ^[7]

Jim Sinclair’s Commentary

Rolling thunders is heard over middle America

CIT Second-Quarter Loss Narrows, Reserve for Bad Loans Triples
By Linda Shen and Dakin Campbell

Aug. 18 (Bloomberg) — CIT Group Inc., the commercial lender seeking to avoid bankruptcy, had a ninth straight quarterly loss as reserves for bad loans more than tripled.

The net loss narrowed to $1.62 billion, or $4.30 a share, in the second quarter from $2.07 billion, or $7.88, in the same period a year earlier, New York-based CIT said yesterday in a regulatory filing. Nine analysts surveyed by Bloomberg estimated a per-share loss of $1.53.

CIT Chief Executive Officer Jeffrey Peek is negotiating with bondholders and considering asset sales to stave off a bankruptcy filing. The lender, which provides financing to almost a million small- and mid-sized businesses, has lost more than $5 billion in the past nine quarters as bad debts soared and the company was cut off from the commercial-paper market, its traditional source of funding.

“I don’t think there’s any good news to come in terms of credit quality,” said Sameer Gokhale, an analyst with KBW Inc. in an interview before the earnings were released.

Provisions for loan losses in the quarter rose to $588.5 million, more than triple the $152.2 million in the year-ago period. Net charge-offs rose to 2.81 percent, up from 2.41 percent in the first quarter, the company said.

More… ^[8]

Jim Sinclair’s Commentary

China will buy only if China wishes to buy. China is not in dollar prison. Whomever tells you that is a xenophobic fool.

China cuts US Treasury holdings in June
Updated: 2009-08-18 10:45

NEW YORK: China reduced its holdings of US Treasury debt in June by the biggest margin in nearly nine years, according to a US Treasury Department report issued on Monday.

China cut its net holdings by 3.1 percent to $776.4 billion in June from $801.5 billion in May, the report says. This is also the first large-scale reduction of US Treasury debt by China so far this year.

However, its June holdings were still larger than April’s $763.5 billion and $767.9 billion in March, according to the statistics of the Treasury Department.

Reuters data show the drop in China’s Treasury holdings in June was the biggest percentage reduction since a 4.2 percent cut in October 2000.

On the other hand, Japan, the second-largest holder of US Treasury securities, increased its holdings to $711.8 billion in June from $677.2 billion in May.

More… ^[9]

Jim Sinclair’s Commentary

Merkel’s speech would have you believe she does not know or has not heard of the Wall Street takeover of Washington DC.

Merkel sees "old arrogance" back on markets
Mon Aug 17, 2009 1:39pm EDT

BERLIN, Aug 17 (Reuters) – German Chancellor Angela Merkel said on Monday arrogance was returning to financial markets and politicians should take steps to ensure they could not be "blackmailed" in future.

Merkel, in an election campaign speech to her conservative Christian Democrats (CDU), did not say which financial market players she was talking about; but last month she said bankers on Wall Street and in the City of London should not be allowed to dictate how money is made.

Merkel is seeking re-election as chancellor in a federal vote on Sept. 27. Parties on both the left and the right of the political spectrum have repeatedly attacked the role played by banks in the financial crisis.

Tighter controls of the financial sector were crucial to ensuring "sustainable growth" in the global economy, she said.

Merkel said that as states struggled with the financial burden of propping up the global economy "an old arrogance was returning" among some market players.

More… ^[10]

Jim Sinclair’s Commentary

Check out the following video of me driving an amphibious car.

 

Jim Sinclair’s Commentary

Mark to market accounting needs no defense as it mandates TRUTH. Arguments to the contrary mandate blatant LIES.

In Defense Of Mark-To-Market
Jeremy Newman, 08.18.09, 01:05 PM EDT

It is consistent, objective and transparent.

Blame for the global economic turmoil and subsequent banking crisis has, throughout the last 18 months, been placed at the door of many parties: from rating agencies to governments, regulators to bankers and many more. More recently, mark-to-market accounting has been given a share of the blame.

Accounting standards and the accountancy profession are not responsible for the banking crisis. The losses incurred by banks are not merely accounting losses, they are very real cash losses. Many banks are suffering huge liquidity problems, not merely accounting conundrums . A mark-to-model system–in which each financial organization would be allowed to value and account on an individual model basis–is less transparent than mark-to-market and will lead to inconsistencies and lack of comparability. It is a far riskier system.

Mark-to-market, on the other hand, has the benefits of consistency, objectivity and transparency. It ensures that two similar financial assets are given similar values whether they were originated by the financial institution or bought in the market place; and it ensures that assets are valued by reference to an objective external market view rather than a potentially biased internal view.

In the wake of the banking crisis, many changes have taken place–or are taking place–in mark-to-market accounting. The Financial Accounting Standards Board (FASB) in the U.S. has relaxed mark-to-market rules after political pressure from banking and financial services lobbies.

The International Accounting Standards Board initially said it would not follow suit and warned against rash changes. However, after substantial pressure, the IASB has issued an exposure draft that is similar in many ways, albeit with some potentially significant differences, to the FASB guidelines. Throughout September, the IASB will hold round tables across North America, Asia and Europe to debate these proposals. At the same time, the FASB has announced this week that it may now expand the use of mark-to-market to cover all financial instruments. Who would have thought accounting standards could prompt such a heated debate?

More… ^[11]

Jim Sinclair’s Commentary

There isn’t a snowball’s chance in hell that Banksters will do this unless forced by the turn coat cowards at FASB.

Banks Should Give Better Data on Illiquid Assets, Scholes Says 
By Jeff Kearns and Shannon Harrington

Aug. 18 (Bloomberg) — Banks should give fair-value estimates for more of their illiquid assets, by listing them on public exchanges and expanding mark-to-market accounting, because investors deserve a clearer picture of their worth, Nobel Prize-winning economist Myron Scholes said.

Investors need better pricing data to accurately value the debt and equity securities of banks, he said in a Bloomberg Radio interview today. Scholes, 68, was awarded the Nobel for helping invent a model for pricing options.

“I’d like to see us encourage many more securities held on the books of the banks be migrated to exchanges if possible,” he said. Doing so would “allow for market discovery and market pricing as much as possible,” Scholes added.

The Financial Accounting Standards Board said Aug. 13 that it will consider expanding fair-value rules to loans, a step that might accelerate banks’ recognition of losses and trigger lower earnings and book values. Accounting rules now let companies recognize most loan losses only when management judges them probable. Applying fair value to loans would require earlier recognition of losses.

Regulators need to “blow up or burn” the private over- the-counter derivative markets to help solve the financial crisis, Scholes said on March 6. Because markets had frozen, investors weren’t getting timely prices to inform their decisions, he said then, speaking at New York University’s Stern School of Business.

More… ^[12]

Jim Sinclair’s Commentary

After all the surges and high fives, no matter how many, SUSTAINABILITY is the name of this deadly game.

Pakistan Not Ready to Fight Taliban Again
August 18, 2009 1:35 PM
Posted by Farhan Bokhari ^[13]

Pakistan’s army may require months to prepare for a new military offensive against the Taliban in a restive region along the country’s unsettled border with Afghanistan, a senior Pakistani general on Tuesday told President Obama’s envoy for the Afghanistan-Pakistan region according to senior Pakistani officials.

Lt. Gen. Nadeem Ahmed, a widely respected army commander, met with Ambassador Richard Holbrooke, Mr. Obama’s envoy, to brief him on Pakistan’s northwest frontier province, specifically the areas at the center of Taliban activity.

It is this region which is of the most interest to the U.S. as Afghanistan heads in to Thursday’s presidential elections. In the past, U.S. officials have complained about Taliban militants crossing the border with relative ease to attack Afghan and western troops in Afghanistan before returning to Pakistan’s soil to reorganize.

Earlier this month, Baitullah Mehsud, the senior leader of Taliban militants in Pakistan, was killed in a missile attack which was widely believed to have been carried out by a U.S.-operated drone.

Mehsud’s killing prompted speculation that the Pakistani military may attack the southern part of the Waziristan region along the country’s border with Afghanistan, taking advantage of disarray among the Taliban. Mehsud’s killing led to infighting among the Taliban. So far, the Pakistani Taliban have failed to rally behind a new leader who could emerge as a replacement for Mehsud.

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Jim Sinclair’s Commentary

When the lights go out at CIT, the lights go out in the real economy.

CIT is to the real economy as Lehman was to the fraud ridden financial industry.

That makes CIT much more important.

NY Fed, FDIC See Threats Posed By CIT
By DONNA CHILDS | A Dow Jones Newswires column

The Federal Reserve Bank of New York and the U.S. Federal Deposit Insurance Corp. at last appear to be getting to grips with CIT Group Inc. That they recognize the threats posed by the company should be a lesson to Wall Street firms.

The N.Y. Fed last week ordered CIT report daily cash positions and daily client funding, some weeks after the FDIC had issued a cease and desist order against CIT Bank prohibiting it from accepting brokered deposits and requiring it to submit a capital plan.

In their second-quarter earnings calls, leaders of various investment banks unequivocally dismissed their risk exposures to CIT. Such confidence looked misplaced, for CIT has complex and opaque financial relationships.

In some cases, CIT advances funds against the accounts receivable it buys from small businesses. In others, it provides trade credit, protecting clients against payment default by their customers.

In such cases, clients obtain financing from banks, collateralizing the bank loans by assignment of the credit balances from CIT. The failure of CIT to release those balances in a timely manner impairs the clients’ ability to repay their banks. Those banks, in turn, have financial obligations to investment banks.

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Jim Sinclair’s Commentary

Japanese economic stimulus "Cash for Clunkers" program?

Top 10 vehicles bought by people trading clunkers
(AP)

As of Friday, car buyers in the U.S. had signed deals to trade in 358,851 clunkers for new vehicles, getting rebates of up to $4,500 from the federal government. Most of the trades have been pickup trucks and sport utility vehicles. The top 10 vehicles purchased by those making clunker trades:

1. Toyota Corolla
2. Honda Civic
3. Ford Focus
4. Toyota Camry
5. Toyota Prius
6. Hyundai Elantra
7. Ford Escape (front-wheel-drive)
8. Honda Fit
9. Nissan Versa
10. Honda CR-V (four-wheel-drive)

Jim Sinclair’s Commentary

While the West sleeps China is cornering the world’s keynatural resources.

They have a plan and the West does not.

China and Australia sign energy deal
By Jamil Anderlini in Beijing and Peter Smith in Sydney
Published: August 18 2009 16:04 | Last updated: August 18 2009 16:04

China’s largest energy company agreed on Tuesday to buy $41bn worth of Australian natural gas at a signing ceremony intended to put a positive gloss on strained relations between the two trading partners.

Martin Ferguson, Australia’s energy and resources minister, was in Beijing to witness the signing of Petrochina’s agreement to buy 2.25m metric tonnes a year of liquid natural gas from the Gorgon project off the coast of Western Australia.

At current gas prices, the deal, which is with ExxonMobil, the world’s largest western oil company, would be worth $41bn over the next 20 years and is Australia’s largest-ever trade deal, Mr Ferguson said.

More… ^[16]

Jim Sinclair’s Commentary

Hyperinflation is the least understood economic phenomena.

It is always a currency event as a collapse in confidence. It always occurs during dire business conditions.

81 days to go!

Millions, Billions, Trillions
Germany in the Era of Hyperinflation
By Alexander Jung

During the hyperinflation in Germany of 1920s, the country’s currency, the mark, went crazy. The government of the Weimar Republic may have been able to clear its debts, but it came at the cost of the citizens’ savings. It’s an era that is still part of the national psyche today.

Editor’s note: During the global economic crisis, politicians and economists in the United States and Britain often criticized Berlin for its reluctance to initiate the kinds of expensive stimulus programs promoted by Washington. One of the most oft-cited reasons in Germany for racking up more debt than necessary to revive the economy was the fear of hyperinflation. From 1922-1923, hyperinflation plagued Germany and helped fuel the eventual rise of Adolf Hitler. The following article about this national trauma has been translated from a special issue of SPIEGEL on the history of money.

You could say journalist Eugeni Xammar had a stroke of reporter’s luck when the Barcelona daily La Veu de Catalunya sent him to Berlin in the fall of 1922, a pivotal moment in the country’s history. In the months that followed, it was the most exciting place in the world to report from. Germany’s financial structures collapsed, and the mark began its descent into near worthlessness.

"The price of tram rides and beef, theater tickets and school, newspapers and haircuts, sugar and bacon, is going up every week," Xammar wrote in February 1923. "As a result no one knows how long their money will last, and people are living in constant fear, thinking of nothing but eating and drinking, buying and selling. There is only one topic on everyone’s lips in Berlin: the dollar, the mark, and prices. … Have you seen this? For heaven’s sake, stop! I’ve just bought a six-week supply of sausages, ham, and cheese."

More… ^[17]

Jim Sinclair’s Commentary

"So what," is quite correct.

The FDIC is adjusting something else to QE.

Everything of size that requires bailing out will be bailed out. You and I can go to hell!

The FDIC Is Broke. Now What? (Part II)
August 18, 2009

Making Matters Worse

An additional pressure on the DIF stems from the fact that losses from prior FDIC enforcements have been dramatically higher than initial estimates. With each new FDIC report, we see less money in the DIF kitty than expected. This next article ^[18] does a great job of articulating that this is because bank assets are worth a lot less than originally thought:

On January 1 2009 the FDIC reported it had $17,276 million in the DIF and according to press releases for each failed bank, the estimated total costs for FDIC’s DIF during Q1 amounted to $2,146 million, leaving $14,997 million in the fund. However, according to the latest FDIC Quarterly report the fund counted $13,007 million at the start of Q2, – a difference of $1,990 million.

In other words, the estimated spending on failed banks during Q1 was $2,147 million, but the bill ended up around $4,137 million instead (and probably still counting).

This is why Q2 is even more interesting, since the estimated costs are $11,504 million, thus leaving only $833 million in the fund for supporting failing banks in the future. Moreover, the real total cost for the first quarter in 2009 was almost twice the estimates. If Q2 is even close to this figure, the FDIC’s DIF will (very) soon be out of funds.

However, we have detected that DIF costs/bank assets have steadily increased under the period of discussion.

We believe the main reason for this lies in a de facto relaxation of accounting standards, even before the FASB 157 amendment on March 15 earlier this year. Basically the relaxation allows banks to write-off the parts of their losses caused by the slowdown in the market – but it does this by allowing them to decide what a fair price in a ‘normal’ market would be.

More… ^[19]

Jim Sinclair’s Commentary

In case you have not read this you might consider it.

Indicators suggest gold poised for big breakout by end Q3
In an assessment of the current gold market, Donald W. Doyle, chairman of top coin dealers Blanchard & Co. sees very positive signs for the gold price in the short term.
Author: Blanchard & Co.
Posted:  Tuesday , 04 Aug 2009

NEW ORLEANS  – The slow trading months of summer are usually a time when gold prices decline, but economic analysts at Blanchard and Company, America’s largest precious metals investment firm, say that indicators this year have them believing the metal is poised for a big breakout by the end of the third quarter.

Specifically, inflation, possible hyper-inflation, dollar weakness, and supply/demand and investor demand fundamentals are all positive for the price of gold toward the end of the summer, says Donald W. Doyle, Chairman and CEO of Blanchard and Company.

While gold remains range bound, it does so at levels above $900 per ounce, which Doyle says he sees as a springboard to greater price gains, and even new record highs, through the remainder of the year – and beyond.

‘"Gold is performing strongly at the same time the stock market is making a mild rally and as the dollar continues to stay at a level that we consider to be inordinately high," Doyle says. "Typically, gold would be declining – but that’s not happening, and there are solid reasons why."

Doyle says demand is central to gold’s current sustained high price levels, with Chinese and Russian central banks adding to their holdings and investor demand continuing at record levels.

More… ^[20]

 

Jim Sinclair’s Commentary

There is a serious problem between the Administration and the Fed, but the problem is Quantitative Easing and Bernanke’s reluctance to go to infinity.

The Fed has to lose this one as the Administration appoints Bernanke’s successor. The Fed is headed towards being cops on the traffic beat.

Trouble Ahead: Obama And The Fed
Irwin M. Stelzer: More Questions Than Answers Expected In the Coming Months
August 17, 2009

(Weekly Standard)  Irwin M. Stelzer is a contributing editor to The Weekly Standard, director of economic policy studies at the Hudson Institute, and a columnist for the Sunday Times (London).

Almost exactly two years ago economists discovered that the problems in the housing and mortgage markets had spread to the financial sector. Subprime mortgages proved highly infectious, a couple of Bear Stearns funds collapsed, banks suddenly looked at their neighbors with such suspicion that they refused to lend to them, and economists dusted off their copies of histories of the Great Depression, looking for a guide to the future.

One year later they returned those books to the shelves as the "real economy" seemed to prove itself resistant to the diseases afflicting those greedy, over-bonused bankers. But summer’s lease on a recovery proved all too short, and in a few months there was a run on the essays of one Ben Bernanke, in an effort to learn what the Federal Reserve Board chairman had in mind to stop the rush to economic collapse. We discovered that he was indeed in the great tradition of Walter Bagehot, who wisely advised in 1873 that "whatever bank or banks keep the ultimate banking reserve of the country must lend that reserve more freely in time of apprehension." The Fed not only pumped money into a frozen credit system to thaw it out, but joined the federal government in inventing new ways to cope with what was clearly a panic.

And now, two years after subprime mortgages became the domino that toppled or almost toppled many institutions, one year after the mother of all recessions scared consumers into zipping their wallets, corporate executives into cutting investment and letting inventories run down, it is glad, confident morning again in America.

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Jim Sinclair’s Commentary

Green shoots are illusions of MOPE.

Jobless spike compounds foreclosure crisis
Economists estimate 1.8 million borrowers will lose their homes this year
By Renae Merle
updated 9:36 p.m. MT, Mon., Aug 17, 2009

WASHINGTON – The country’s growing unemployment is overtaking subprime mortgages as the main driver of foreclosures, according to bankers and economists, threatening to send even higher the number of borrowers who will lose their homes and making the foreclosure crisis far more complicated to unwind.

Economists estimate that 1.8 million borrowers will lose their homes this year, up from 1.4 million last year, according to Moody’s Economy.com. And the government, which has already committed billions of dollars to foreclosure-prevention efforts, has found it far more difficult to help people who have lost their paychecks than those whose mortgage payments became unaffordable because of an interest-rate increase.

"It’s a much harder nut to crack, unemployment," said Mark A. Calabria, director of financial regulation studies at the Cato Institute. "It’s much easier to bash lenders than to create jobs."

During the first three months of this year, the largest share of foreclosures shifted from subprime loans to prime loans, according to the Mortgage Bankers Association. The change to prime loans — traditionally considered safer — reflects the growing numbers of unemployed who are being caught up in the foreclosure process, economists say.

Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has proposed using $2 billion in government rescue funding to provide emergency loans to these borrowers. "We are going to be seeing more foreclosures because of prolonged unemployment," he said. "These are people who weren’t in trouble and wouldn’t be in trouble if they hadn’t lost their job."

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Jim Sinclair’s Commentary

The US dollar is no safe haven. Read the BBC.

China reduces holdings in US debt

China reduced its holdings of US government debt by the largest margin in nearly nine years in June, according to data from the US Treasury.

China holds more US government debt than any other country and cut its holdings of US securities by more that 3% in June, said the BBC’s Chris Hogg.

Japan and the UK – second and third largest holders of US debt – increased their holdings over the same period.

China’s holding of US debt is about 7% higher than at the turn of the year.

Inflation fear

In recent months the US government’s budget deficit has widened thanks in part to the Obama administration’s costly stimulus plan.

Our correspondent in Shanghai says that China is worried about this, and fears the stimulus efforts will fuel inflation in the US, reducing the value of the dollar.

This would then erode the value of the debt China holds in the US currency.

In June, China cut its holdings of US securities by about $25bn, a fall of 3.1%.

‘Dollar alternative’

The sales were made as the US treasury secretary was visiting Beijing to try to reassure the Chinese that their investment in his country’s government debt is safe.

In 2008, the Chinese increased their holdings in US debt by 52% over 12 months.

"China has said it would like to establish an alternative to the US dollar as the world’s favoured currency for foreign exchange reserves," said our correspondent.

"So far there is no evidence that there is a suitable alternative. But these figures suggest they are exploring ways to diversify their investments where they can."

More… ^[23]

Jim Sinclair’s Commentary

According to John Williams of the must have www.shawstats.com ^[24] report:

- July Housing Starts Showed Ongoing Depression
- Volatile PPI Reflected Unusual Seasonal Factors

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