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The increased availability of car loans and eased standards for auto loans has played a large part in rising auto sales in the U.S. Annual sales of cars and light trucks maintained a pace of 14.1 million vehicles in July 2012, and could reach 15 million for 2012. Lenders see the car loan market as more profitable and less risky than mortgage lending because of the shorter periods of the loans- 3 to 5 years and the low default rate. Currently only about 2.52% of auto loans are 30 days past due for second quarter 2012, according to Experian. Auto loans outstanding at the end of the 2nd quarter 2012, are $725 billion, according to the automotive division of Experian, up 5.7% from a year ago. The market for securities backed by auto loans has rebounded since the 2008 financial crisis. About $50 billion in bonds backed by auto loans were issued in the Jan-July 2012 period, according to Dealogic, compared to $53 billion in 2011. To get a picture of how this compares with mortgage securities- auto loan backed securities are up 33% above pre 2006 levels, and mortgage backed securities are about 70% below 2006 levels. A recent Fed survey of bank lending officials shows easing lending standards reported by 20% of respondents for the last 3 months for auto loans, compared to 3% for prime residential mortgages and 11% for credit cards....

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The real estate bubble in China continues to grow even after th pandemic. Local governments depend on land sales for about 60% of their revenues. The government in Beijing also is unwilling to let prices decline too much because this could create unrest. As a result households have continued to add second, third homes in speculative investment. Unlike the U.S. where households invest in the stock and bond markets and residential property investment is one of several options, in China this is the only option people believe. The notion of continually rising prices is built into the mindset in China. This is happening even as those who do not have homes are still priced out of the market, and those with savings are pouring them into housing, more so as people save more in 2020. This can be seen in the vacant homes rising to about 40% for those buying second homes. People are also taking on more debt with consumer, mortgage and other debt of households getting close to 60% of the country's GDP, a high leverage ratio. This also means there is less capital to invest in productive investments in industry as more and more savings are tied up in housing with large vacancy rates meaning the housing is not even being used. Some of the speculative nature of this can be seen in this report in the WSJ for cities such as Tianjin, Shanghai and Shenzen. ...

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This analysis by Mackintosh in WSJ points out that the low to negative interest  policy of the ECB has hurt savers, bank profits, and makes the ECB unpopular, yet it has shown tangible signs of success in creating jobs. This is true even though unemployment in the EU is still over 10% in some countries. He says that the unemployment is back to where it was in Nov. 1998 before the euro. There are 7.5 million jobs created in EU since beginning of 2014, the point at which ECB went to ultra low interest rates. This is above the 6.3 million created in the U.S. upto 1st quarter 2016. Big difference now is that companies and households are borrowing as rates fell. Inflation at 0.2% in August 2016 for EU is a weak spot, but considering where the EU was just 2-3 years before in 2013, the change is a largely positive one.

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US president Biden campaigns in Nevada. His focus is on the cost of living actions and has proposed 15,000 affordable housing rental units on underused federal land repurposed for housing, action which can be taken on presidential orders. Other cost of living action is being prepared by Biden and he closely follows the mortgage rate increases from 3% to 8% that are leaving families stuck without owning an home. Biden is also focussing on the threats to democracy coming from the former president's rhetoric and actions, something that he devoted time to in his address in Philadelphia's Independence Hall, where the founders of this Union gathered together to draft the Constitution. This happened early in his first presidential term and in the 2020 campaign Biden focused on this threat to democracy. Peter Baker points out that Biden is best qualified to convey a sense of hope to America, yet what the NYT, W. Post and WSJ, and the television news channels -that are not watched as much by the core 25-54 years with a shift to digital- fail to do is to do their own introspection on how Biden has forged the consensus in Congress from his vast experience and wisdom to make the multi trillion dollar investments in America's future through infrastructure, job creation, manufacturing, chips and science. Not since FDR has America seen this happen and it shapes 2030. ...

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Greg Ip of the WSJ provides this exceptional report offering readers remarkable clarity on what the Republican Tax Law does- its high and low points.  High Points 1. It reduces the corporate tax rate to bring it in line with other advanced industrialized countries. The corporate tax rate in Germany and Japan is 30%, in the UK it is 19%. For 5 years businesses can write off capital equipment immediately instead of depreciating over a couple of years. This could boost investment and growth. 2.  The law takes aim at deductions that led to distortions. It limits the mortgage interest deduction, and caps the deduction for state and local taxes. This removes the incentive to pay more for homes that exacerbated the housing crisis in 2008. The Alternative Minimum Tax is largely removed. The Low Points 1. The biggest drawback is that lawmakers did not properly fund the tax cuts. Of the 10 costliest tax breaks nine were not touched, including employer health insurance, retirement savings, capital gains. Only the state and local taxes deduction was reduced. And a new tax deduction  was created, a 20% tax deduction for small business (proprietors and partnerships) paying taxes on their individual tax returns. Taxes on the wealthy or value added taxes, reducing tax breaks, is how other advanced industrialized countries paid for the corporate tax cuts, but did not happen here. Additional economic growth  to generate added tax revenues is the way Republicans in Congress say this is funded. Yet this is a questionable assumption as Britain reduced the corporate tax rate to 19% without seeing a surge in economic growth, as Greg Ip pointed out in an earlier WSJ article. At best the Joint Committee on Taxation estimates $500 billion over a decade in added revenues from added growth leaving $1 trillion to be added to the deficit. The WhartonPenn Budget Model (WPBM) estimates only $140 to $367 bill from the additional economic growth resulting in added tax revenues. Under this model only 0.03 to 0.08 percent added U.S. economic growth per year is expected from the Republican Tax Cuts. Such a situation would be bad  for the U.S. as the gradual improvement in Debt to GDP ratio to 78% following the financial crisis of 2008 would be sharply reversed taking the ratio to 97% by 2027. An unsustainable trajectory which will require tax increases in a few years and hurt investment in education, health and infrastructure into the future. This is what worries many experts most on both sides of the political spectrum today about what the Republican Congress has pushed through for a legislative "victory." This is why experts believe this is not serious tax reform and will require a new effort after 2019.   ...

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Carney breaks down Fannie Mae's 2013 earnings figures of $84 billion to show that this is due to unusual factors- such as low interest rates that it gets to access capital from the government, and the reversal of a write-down of deferred-tax assets. $45.4 billon is from the reversal of a writedown of deferred tax assets, $14.6 billion to gains not easily repeated, and about $12 billion because Fannie was able to borrow at 2.06%. (Mortgage securities generated interest income of $22.12 billion. The mortgage guarantee business generated about $12.3 billion which is a result of the 2012 change to the bailout agreement terms) He sees Fannie's core earnings that it could keep generating at about $12 billion. The additional reserve capital requirement that it would face as a systemically important or "too big to fail" financial institution at about $100 billion, making it about 8 years for it reach the reserve capital requirement. The situation at Fannie Mae is not as rosy as the 2013 earnings figures suggest. ...

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The US housing market in 2022 with sharp increase in cash out refinancing and home equity financing. Total home equity increased 20% in the first quarter to $27.8 trillion, a record high, according to the Federal Reserve, the US central bank. About 60% of equity was withdrawn through cash out refinancing in 2021, according to mortgage data. Cash out refinancing simply adds the amount borrowed to the existing mortgage balance. The amount borrowed through such financing by homeowners adds to inflationary pressures with more cash borrowed on the house for home improvement projects, gardening projects, appliance spending and automobile purchases. The increase in the interest rates by the US Federal Reserve including the 0.75% increase in the rate announced on June 15 slows the amount of borrowing through cash out refinancing. The supply chain disruptions disrupted flow of goods at a time of high demand in 2021 following the lockdowns, and then the war in Ukraine added another layer of inflation from high gas prices. The combined effect with housing price pressures created the perfect storm in inflation the US is facing with the rest of the world. ...

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Zombrun describes the effect of low interest rates on savings for the bottom half of households in the U.S., the pressure to invest in stocks without the skills and experience of the better educated part of households in the top 20% of households by wealth and income. This resulted in a negative effect, a depletion of savings compared to an increase under a higher interest rates scenario with less pressure to take risks in a volatile stock market. This is the direct cost of the crises in stock and financial markets of 2000 caused by a internet bubble, and the larger crisis of 2008-2009 caused by the bubble in mortgages and housing. The secondary effects of the mortgage price bubble and faulty mortgage securities was in the millions of homeowners who went into foreclosure in 2009-2013, which further depleted wealth and savings of households in the bottom half lacking the experience and skills to navigate this type of housing market. The failure of the Obama administration to stem the foreclosures with practical steps which would have helped not hurt the banking sector, as suggested by FDIC's Sheila Bair and Harvard economist Martin Feldstein in many WSJ op-eds in 2010-2012, added to the erosion of savings and wealth of the bottom half. Minorities in particular were hit hard. A third effect is of communities across America that are feeling the effects of job migration to emerging markets such as China that has been underway as part of the globalization of the last three decades. A fourth effect in the rising cost of education, particularly since 2000, has reduced the opportunities for struggling working class people to enter the middle class and enjoy the higher incomes in precisely the very period when the divergence of incomes between less educated, less killed people and the more educated and better skilled people was taking place. The last two effects were neutral as part of the overall process of emergence of a globalized economy with a premium on more skills and education, requiring action by the government, universities and business for a concerted effort to mitigate in some places the negative effects and enhance in other places the positive effects. The first two effects were man made crises which required managing in constructive and positive ways for the entire American people, taking risks where necessary such as fears about the financial system if foreclosures did not go through. The risks of a long period of extremely low interest rates for savers and the middle as well as working class were poorly understood by the Fed since 2000. A similiar crisis is being faced in Europe with extremely low interest rates. Janet Yellen was only doing the honest thing by acknowledging how far and how different the situation is now compared to the period of three decades following 1945- a question not just of values cherished in America, also of the need for societies to advance through creation of wealth across all sectors of society or regress, as described by Smith in the Wealth of Nations....

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Prof. Admati, of Stanford, says that with the March 2012 stress tests the Fed has prematurely announced the banks are healthy. Prof. Cole of DePaul University, questions some of the assumptions used by the Fed as too optimistic even though it used a 13% unemployment rate and decline in stock and real estate values by 21%. He says the loss of $56 billon on home equity lines of credit and second lien mortgages, 13% of the portfolio, is highly underestimated. He says the legal liabilities of banks are also underestimated.

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The eurozone economy has grown by 3.6% and created 4 million jobs since the start of the bond buying program by the European Central Bank in 2015, according to the ECB. This means that the program has largely accomplished what it set out to do to revive the eurozone economy.

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Half of the 109 economists and housing analysts polled in October 2010 by MacroMarkets LLC, expect home prices to bottom in 2011, and half don't expect home prices to bottom till 2012. Backing this up is growing inventory in many markets. The Wall Street Journal's latest quarterly survey of housing market conditions in 28 major metropolitan areas showed inventories of unsold homes were up in 19 markets at the end of 3rd quarter 2010, compared to the prior year. The largest increases were in California- in Los Angeles, Sacramento and San Diego. Only parts of Texas, and Washington D.C, and some other areas which have shown decent job growth are an exception. In the Realtor's Report, median home price fell 2.4% to $171,700 in September 2010 from a year earlier. This data does not include the suspension of foreclosures due to title defects, which will further dampen prospects of a recovery in housing. This will affect New Jersey, Florida and other "judicial" states, where the banks must complete foreclosures through court. At the current sales pace it would take 10.7 months to sell the 4.04 million home inventory of unsold homes, according to the recent NAR report. Six to eight months is considered normal. This does not reflect the "shadow" inventory of homes in some stage of foreclosure, which is estimated at around 4 million, creating a problem that even current low rates for a fixed rate mortgage of 4.21% cannot solve....

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As interest rates for housing moved up from 3.1% to 5.25% on. 30 year mortgage the sales in the housing market in the US have slowed down. This WSJ report says the housing sales are expected to decline in future. The average existing home sold for an average price of $391,200 in April 2022 compared to $340,700 a year earlier.

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Martin Feldstein looks at Bowles-Simpson Deficit Commission proposals and says the deficit reduction does not come soon enough. He points out that the Bowles-Simpson proposals still leave the national debt in 2020 at the level it is today- at 60% of GDP, and not reach the level of 40% of GDP that we had 2 years ago till 2035. The mere prospect of persistently high deficits, he says, jeopardizes the recovery by creating the expectation that tax and interest rates will eventually rise substantially. He says the Bowles-Simpson spending reductions by reforming the tax code that subsidizes mortgage payments, local government spending, health insurance and other items at an annual cost of $1 trillion, are the best approach. He differs with Bowles-Simpson in how this money would be used. Whereas Bowles-Simpson would use it to lower tax rates, leaving only $80 billion a year for deficit reduction, Feldstein would finance major deficit reductions. Feldstein recommends additional universal savings accounts to supplement Social Security. And he supports the Bowles-Simpson proposal for limiting the growth of government health-care spending to 1% more than the growth of GDP. He says the President needs to scale back the tax and spending proposals in the budget presented in the early part of 2010....

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The Tax Plan of Jeb Bush, with the help of advisors Martin Feldstein and Kevin Warsh, lowers the top personal tax rate from 40% (including surcharges) to 28%, and reduces the corporate tax rate from 30% to 20%. The plan is designed to jumpstart the economy for higher growth by increasing business investment and incentives. Businesses are allowed to deduct 100% of new investment immediately. The idea is to increase capital investment so that benefits also go to workers in higher wages. The Bush economic advisors see 50% of the corporate tax burden as affecting workers wages- average compensation would go up by $2750 a year by 2020 and $6200 by 2025 in 2015 dollars. Companies can pay a one time 8.75% tax on money earned and held overseas, paid over 10 years- about $2.1 trillion of this income held overseas can be added to the pool available for business investment. As proposed earlier by Feldstein the itemized deductions including mortgage interest can be taken only upto 2% of adjusted gross income, suggestions during the reform effort not taken up by Obama. To reduce the excessive use of leverage in business decisions the field is levelled for use of debt and equity by removing the deduction for business interest expense. This editorial says that by putting in the details, which political leaders tend to leave vague on specific figures, Jeb Bush and his advisors have taken a crucial step forward. This it says, shifts the debate from current shallow posturing to how America can lay the groundwork for the kind of growth needed to help increase wages, increase economic growth to higher levels, and preserve America's position in the world....

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Retirement savings of firefighters, teachers and other public sector workers in the US give returns of a median minus 4.01% in the 1st quarter of 2022. About $4.5 trillion is invested in these retirement savings in the US. The S&P 500 has returned minus 13.5% year to date through the first week of May 2022. Bloomberg US aggregate Bond Index, largely US Treasurys, highly rated corporate bonds and mortgage backed securities, returned minus 10.5%.

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Consumers are taking on new loans for cars and purchases such as refrigerators, but at the same time businesses and consumers are paying off debt at a faster rate. The sharp decline in the Euribor rate in 2015 is good news for Spanish consumers and business as most loans are tied to the Euribor rate. Yet memories of the severe downturn in the Spanish economy are leading to consumers reducing debt with reluctance to take on new loans. The result is that even though Spain's economy is expected to show 3% growth in GDP in 2015, the loan levels at Spanish banks are expected to remain flat in 2015 over 2014. The IMF says GDP will not reach precrisis levels till 2017, reflecting how deep this downturn has been in Spain. IMF forecasts show that debt held by Spain's businesses and households will be double economic output till about 2020.

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Reilly raises the question why asset allocation decisions of the type made by JP Morgan Chase since 2008, does not make it similiar to a mutual fund or a hedge fund, and why this should itself not be considered a form of proprietary trading. JP Morgan Chase had $600 million of corporate debt in its overall debt portfolio or 1% in 4th quarter 2006. By end of 2008 this increased to 5% or $10 billion. By end of 2009, this went up to 17% of the portfolio or $62 billion, and they are at that level today. The holdings of non-U.S. residential mortgage securities was also increased, going up to 20% of holdings or $75 billion at end of 1st quarter 2012, from $2 billion or 1% of the portfolio in 2008. Corporate debt holdings at Bank of America at the end of the 1st quarter of 2012 were about 1% or $2.4 billion, and at Citigroup were about 4.5% or $12 billion. The Chief Investment Office unit of JP Morgan handles this portfolio, which is the result of deposits of $1.12 trillion exceeding loans of $700 billion. The low interest rate environment after 2008 creates incentives for banks to look for ways to improve crimped margins and in the process adding risk....

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Prices of homes in the U.S. increased by 9.3% in February 2013, according to the Standard & Poor's/ Case-Shiller survey of home prices in 20 major metropolitan areas. All 20 cities posted gains for the second month. Prices in Phoenix increased by 23%, and in San Francisco by 18.9%. The median home price in March was $184,300 up from the $154,600 in Jan. 2012. The peak was at $230,400 in 2006. The WSJ quarterly survey shows less than 3 month supply of homes in Phoenix and San Francisco. Supplies of homes declined by 16.8%, sales of previously owned homes were up by 10.3% in March over the prior year month. Supplies have dropped as banks are putting fewer homes in foreclosure and many homeowners are unwilling to sell for a number of reasons. Increasing rents and low mortgage costs also help increase demand. The interesting aspect of this is that prices are rising even as homeownership rate declined to 65%, according to the Census Bureau. And compared with 2004 there are 7.2 million more renters and only about 400,000 new homeowners, according to Capital Economics. Some of the homebuying comes from investors buying homes and converting them into rentals....

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Donald Trump's economic advisory team includes in addition to Harold Hamm, shale energy billionaire, Steven Mnuchin, CEO of hedge fund Dune Capital Management, hedge fund billionaire John Paulson, Dan DiMicco, CEO of steelmaker Nucor, bankers Stephen Calk, and Andy Beal, tax expert Stephen Moore, and David Malpass, a columnist for the WSJ. The team is headed by Stephen Miller, an aide to Senator Jeff Sessions of Alabama. The Washington Post points out that the selection of the team with many hedge fund businessmen including John Paulson, who bet against faulty mortgages before the 2008 financial crisis, is at odds with his criticism of Hillary Clinton for her contacts with Wall Street and his message of not having any connections with Wall Street so that he could better represent the interests of ordinary Americans- people hurt by the 2008 financial crisis with the high jobless rate for older white men. In the 2008 election both candidates John McCain and Barrack Obama were shown in media articles to have connections to lobbyists for Fannie Mae and Freddie Mac. In the 2012 election Mitt Romney as a private equity executive at Bain, was a part of the financial industry. This time in 2016- after all the noise and tumult about who represents Main Street- is no different for Trump and Clinton's connections to the financial industry. Only Clinton has to respond to the movement within her party from Bernie Sanders for providing a genuine example, and breaking with the past. The team of economic advisors put together by Jeb Bush led by Glenn Hubbard may be little different in substance than the one put together by Trump in its connections to the financial and real estate industry. The only person who took on the financial industry to fight for homeowners interests shown in Lyrarc since 2008 is Sheila Bair of the FDIC, a Kansas Republican. She could truly represent the interests of working class and ordinary Americans simply from a notion of fairness that  is so much a part of the American experience. Yet she has said running for office and fund raising in the way it is practiced today makes the thought too difficult to accept. Recent developments do not offer encouragement. Yet ordinary Americans ought not to forget, and ought not to let anger affect a discerning view of things. ...

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The city where the auto industry in the USA started in the 1920's and what it is today and its future a century later as we approach the 2020 mark. The industry in decline and reshaping itself as a global industry with sales in Asia and Europe and the rest of the world a new focus as the US market begins to decine in significance relative to the rest of the world both in terms of sales and opportunities for expansion. The poverty rate the highest in the nation at 28.5% and the highest foreclosure rate in the nation after Stockton, California, with one in 33 homes in Wayne County in foreclosure. And things are only going to get worse in 2008 and 2009 because auto sales are expected to decline and the Alt A mortgages are expected to see a bump up in the interest rates.

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The Public-Private Investment Program of the U.S. Treasury Department has not had a good start. With most banks passing the U.S.government's stress tests and raising $50 billion in the markets, PPIP which was intended to to help resolve the situation of all the toxic securites siting on the bank's books, has gone the way of all the prior efforts to solve this problem. Simply postponed this time hoping that the housing market recovers. With the Rogoff-Reinhardt study showing that it takes about 6 years or longer before housing recovers from such aserious crisis as this one, it would be 2012, before one sees an improvement. See the link to the Business Week analysis that shows housing markets in the USA having some aspect of normalcy in 2012. Yet even this analysis is using an optimistic scenario, because it assumes Moodys Economy.com estimates of economic growth for GDP of 4-5% in 2011- 2012. This assumes the consumer debt that has reached over 100% of GDP will be reversed quickly in 2010, and the the factory capacity utilization currently at 68% and expected to drop further in 2009- with more automobile manufacturing capacity remaining to be scrapped -will recover quickly in 2010-2011. This is unrealistic considering the combination of factors at work. Here Devin Leonard talks to PIMCO chief Bill Gross, who with Warren Buffett and PIMCO CEO Mohammed El-Erian, are key proponents of the PPIP program. Both El-Erian and Warren Buffett say they conceived independently of such a program, in which toxic securties are taken off bank's books with government help. As PIMCO is one of the largest traders of mortgage bonds in the country and has years of successful experience in dealing with mortgage bonds, the New York Fed under Geithner turned to PIMCO for advice in 2008. By this time PIMCO was under ownership of Allianz, a German insurer, which bought PIMCO for $3.3 billion in 2000, with $233 million and a $40 million retention bonus going to Bill Gross. Bill Gross describes how the program would function. PIMCO puts up $500 million, and Treasury matches this with $500 million. Analysts estimate that this partnership would be able to attract as much as $ 4 billion in low interest financing from Treasury and the Fed. Gross says that some of these securities pay as much as 14% interest, and even with a 70% default rate, this partnership could make $250 million a year on the $5 billion partnership, or a 5% return, with PIMCO making a 25% return on its original investment. This isn't exactly pro bono work as Buffett had originally suggested to Bill Gross in the midst of the crisis. But a more fundamental concern is that no one really knows exactly how much of toxic securties the banks have on their books, even though estimates have been made. If this is closer to $1 trillion, PIMCO's expertise and efforts will simply fall short of dealing with a problem of this size, and the window dressing of a problem of this magnitude could only hurt efforts for the eventual resolution of this problem. If housing does not recover as is expected till 2012 at the earliest, and the economy continues to deteriorate in unemployment and factory utilization, then the toxic securities on the bank's balance sheets may pose a bigger problem that will require serious action....

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Annamaria Andriotis does enormous service to millions of borrowers for student loans by putting down in simple payments terms everybody can understand the approach to take for a university education. She points out the pitfalls in taking federal loans and following the advice of the student loan office. The federal student loans have an origination fee of about 4.2%, so even if you pay off the loan early you are stuck with the origination cost, which private lenders such as major banks do not normally charge. On a $100,000 loan this could be $4200 right off the beginning, reducing the loan to $95,800. Private lenders offer fixed rates also at attractive terms of about 4%-4.25%, with added reduction of 0.25 to 0.5% for loans with automatic payment. The lenders include Wells Fargo, Suns Trust. It is important to have good credit ratings. Scores of over 700 or 720 in credit ratings provide the most attractive rates, yet a good credit rating is also acceptable. FICO scores range from 350 to 850 for credit ratings. Added reduction of quarter to half percentage point for automatic payment. A loan for $100,000 taken with Federal PLUS loan and government guarantees could run 7.21% for fixed rate. Andriotis points out that compared to the $4586 payment on a $100,000 student fixed rate private loan at 4.25% for 10 years, a federal guaranteed PLUS loan at fixed rate of 7.21% for 10 years would cost $3541 more over the life of the loan. Mortgage loans for 30 year fixed rate jumbo loan is about 4.14%. In September 2014, the rates for jumbo mortgage loans offered by private banks are now converging at the 4.18% for conventional mortgage loans. For auto loans zero percent financing from auto company lenders such as Toyota Financial are a better option. Rates of 2% on auto loans may be available from private banks and credit unions. SunTrust Banks has an online lending division LightStream that is offering personal loans to borrowers having good credit ratings scores, with interest rates of as low as 1.99%. The borrowers with excellent scores can get the unsecured option at the best rate of 1.99%. Credit unions are offering lower auto loan rates of 2.64% and 2.74% compared to banks charging average of 4.79% and 4.9%, according to data from SNL Financial. Millions of borrowers with good credit ratings, especially for student loans, need to start early in checking out the rates and shopping for the best rate. A good credit rating of parents can enable a student to make a huge difference in payments for undergraduate or postgraduate education, and avoid the unnecessary burden of high interest rate loans in a low interest rate environment....