The Beginning Of The End
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Does This Look Like A Housing Recovery To You?

Homeownership Rate 2014We just learned that the homeownership rate in the United States has fallen to the lowest level in 19 years.  But of course this is not a new trend.  As you will see in this article, the homeownership rate in the United States has been in a continual decline for more than 7 years.  Obviously this is not a sign of a healthy economy.  Traditionally, homeownership has been one of the key indicators that you belong to the middle class.  When people define “the American Dream”, it is usually one of the first things mentioned.  So if the percentage of Americans that own a home has been steadily going down for 7 years in a row, what does that tell us about the health of the middle class in this country?

The chart that you are about to view is clear evidence that we are in the midst of a long-term economic decline.  It shows what has happened to the homeownership rate in the U.S. since the year 2000, and as you can see it has been collapsing since the peak of the housing market back in 2007.  Does this look like a housing recovery to you?…

Homeownership Rate 2014

So many people get caught up in what is happening on Wall Street, but this is the “real economy” that affects people on a day to day basis.

Most Americans just want to be able to buy a home and provide a solid middle class living for their families.

The fact that the percentage of people that are able to achieve this “American Dream” is falling rapidly is very troubling.

There are some that blame this stunning decline in the homeownership rate on the Millennials.

And without a doubt, they are a significant part of the story.  They are moving back home with their parents at record rates, and many that are striking out on their own are renting apartments in the big cities.

This is one area where the decline of marriage in America is really hitting the economy.  Back in 1968, well over 50 percent of Americans in the 18 to 31-year-old age bracket were already married and living on their own.  Today, that number is below 25 percent.

But that is not all there is to this story.

In fact, the homeownership rate for Americans in the 35 to 44-year-old age bracket has been falling even faster than it has for Millennials…

In the first quarter of 2008, nearly 67% of people aged 35-44 owned homes. Now the number is barely above 59%. The percentage of people under 35 owning homes only fell five percentage points, to 36% from 41%.

So why is this happening?

Well, it is fairly simple actually.

In order to buy homes, people need to have good jobs.  And at this point, the percentage of Americans that are employed is still about where it was during the depths of the last recession.

In addition, wages in the United States have stagnated and the quality of our jobs continues to go down.  As I wrote about the other day, half of all American workers make less than $28,031 a year.  Needless to say, if you make less than $28,031  a year, you are going to have a really hard time getting approved for a home loan or making mortgage payments.

Things have been changing for a long time in this country, and not for the better.  Our economic problems have taken decades to develop, and the underlying causes of these problems is still not being addressed.

Meanwhile, middle class families continue to suffer.  One very surprising new survey discovered that more than half of all Americans now consider themselves to be “lower-middle class or working class with low economic security”.  While Wall Street has been celebrating in recent years, economic pessimism has become deeply ingrained on Main Street…

Optimism may be harder to come by these days. More than half of Americans surveyed in a Harris poll released Tuesday identified themselves as being lower-middle class or working class with low economic security. And 75 percent said they’re being held back financially by roadblocks like the cost of housing (24 percent), health care (21 percent) and credit-card debt (20 percent).

And that’s not the kicker.

“The most disappointing aspect is that 45 percent think they’ll never get their finances back to where they were before the financial crisis,” said Ken Rees, CEO of the Elevate credit service company, which commissioned the survey. “And a third are losing sleep over it.”

The only “recovery” that we have experienced since the last recession has been a temporary recovery on Wall Street.

For the rest of the country, our long-term economic decline has continued.

When I was growing up, my father was serving in the U.S. Navy and we lived in a fairly typical middle class neighborhood.  Everyone that I went to school with lived in a nice home and I never heard of any parent struggling to find work.  Of course life was not perfect, but it seemed to me like living a middle class lifestyle was “normal” for most people.

How times have changed since then.

Today, it seems like we are all part of a giant reality show where people are constantly being removed from the middle class and everyone is wondering who will be next.

So what do you think?

Is there hope for the middle class, or are the economic problems that we are facing just beginning?

Please feel free to share your opinion by posting a comment below…

 

12 Charts That Show The Permanent Damage That Has Been Done To The U.S. Economy

12 - Public DomainMost people that discuss the “economic collapse” focus on what is coming in the future.  And without a doubt, we are on the verge of some incredibly hard times.  But what often gets neglected is the immense permanent damage that has been done to the U.S. economy by the long-term economic collapse that we are already experiencing.  In this article I am going to share with you 12 economic charts that show that we are in much, much worse shape than we were five or ten years ago.  The long-term problems that are eating away at the foundations of our economy like cancer have not been fixed.  In fact, many of them continue to get even worse year after year.  But because unprecedented levels of government debt and reckless money printing by the Federal Reserve have bought us a very short window of relative stability, most Americans don’t seem too concerned about our long-term problems.  They seem to have faith that our “leaders” will be able to find a way to muddle through whatever challenges are ahead.  Hopefully this article will be a wake up call.  The last major wave of the economic collapse did a colossal amount of damage to our economic foundations, and now the next major wave of the economic collapse is rapidly approaching.

#1 Employment

The mainstream media is constantly telling us about the “employment recovery” that is happening in the United States, but the truth is that it is just an illusion.  As the chart below demonstrates, just prior to the last recession about 63 percent of all working age Americans had a job.  During the last wave of the economic collapse, that number dropped to below 59 percent and stayed there for a very long time.  In the past few months we have finally seen the employment-population ratio tick back up to 59 percent, but we are still far, far below where we used to be.  To call the tiny little bump at the end of this chart a “recovery” is really an insult to our intelligence…

Employment Population Ratio 2014

#2 The Labor Force Participation Rate

The percentage of Americans that are either employed or currently looking for a job started to fall during the last recession and it has not stopped falling since then.  The labor force participation rate has now fallen to a 36 year low, and this is a sign of a very, very sick economy…

Labor Force Participation Rate 2014

#3 The Inactivity Rate For Men In Their Prime Years

Some blame the decline in the labor force participation rate on the aging of our population.  But it isn’t just elderly people that are dropping out of the labor force.  In fact, the inactivity rate for men in their prime working years (25 to 54) continues to rise and is now at the highest level that has ever been recorded…

Inactivity Rate Men 2014

#4 Manufacturing Employees

Once upon a time in America, anyone that was reliable and willing to work hard could easily find a manufacturing job somewhere.  But we have stood by and allowed millions upon millions of good paying manufacturing jobs to be shipped out of the country, and now many of our formerly great manufacturing cities have been transformed into ghost towns.  Over the past few years, there has been a slight “recovery”, but we are still well below where we were at just previous to the last recession…

Manufacturing Employees 2014

#5 Our Current Account Balance

As a nation, we buy far more from the rest of the world than they buy from us.  In other words, we perpetually consume far more wealth than we produce.  This is a recipe for national economic suicide.  Our current account balance soared to obscene levels just prior to the last recession, and now we have almost gotten back to those levels…

Current Account Balance 2014

#6 Existing Home Sales

Our economy has never fully recovered from the housing crash of 2007-2008.  As you can see from the chart below, the number of existing home sales is still far below the level that we hit back in 2006.  At this point we are just getting back to the level we were at in 2000, but our population today is far larger than it was back then…

Existing Home Sales 2014

#7 New Home Sales

Things are even more dramatic when you look at new home sales.  This is an industry that have been absolutely emasculated.  The number of new home sales in the United States is just a little more than half of what it was back in 2000, and it isn’t even worth comparing to what we experienced during the peak of 2006.

New Home Sales 2014

#8 The Monetary Base

In a desperate attempt to get the economy going again, the Federal Reserve has been wildly printing money.  It has been so reckless that it is hard to put it into words.  When I look at this chart, the phrase “Weimar Republic” comes to mind…

Monetary Base 2014

#9 Food Inflation

Thankfully, much of the money that the Federal Reserve has been injecting into the system has not made it into the real economy.  But enough of it has gotten into the system to force food prices significantly higher.  For example, my wife went to the store today and paid just a shade under 10 bucks for just four pieces of chicken.  And as you can see from the chart below, food prices have been steadily going up in America for a very long time…

Food Inflation 2014

#10 The Velocity Of Money

One of the reasons why we have not seen even more inflation is because the velocity of money is extraordinarily low.  In general, when an economy is healthy money tends to flow through the system rapidly.  People are buying and selling and money changes hands frequently.  But when an economy is sick, money tends to stagnate.  And that is exactly what is happening in the United States right now.  In fact, at this point the velocity of the M2 money stock has dropped to the lowest level ever recorded…

Velocity Of Money 2014

#11 The National Debt

As our economic fundamentals have deteriorated, our politicians have attempted to prop up our standard of living by borrowing from the future.  The U.S. national debt is on pace to approximately double during the Obama years, and it increased by more than a trillion dollars in fiscal year 2014 alone.  Despite assurances that “the deficit is under control”, the federal government borrows about a trillion dollars a year to fund new spending in addition to borrowing about 7 trillion dollars to pay off old debt that is coming due.  What we are doing to future generations of Americans is absolutely criminal, and it is just a matter of time before this Ponzi scheme totally collapses…

National Debt 2014

#12 Total Debt

Of course it is not just the federal government that is gorging on debt.  When you add up all forms of debt in our society (government, business, consumer, etc.) it comes to a grand total of more than 57 trillion dollars.  This total has more than doubled since the year 2000…

Total Debt 2014

If you know anyone that believes that we are in good economic shape, just show them these charts.

The numbers do not lie.  Our economy is sick and it is getting sicker by the day.

And of course the next major financial crisis could strike at any time.  U.S. stocks just experienced their worst week in three years, and if cases of Ebola start popping up around the country the fear that would cause could collapse our economy all by itself.

The debt-fueled prosperity that we are enjoying today is not real.  We are living on the fumes of our past, and every single day our long-term problems get even worse.

Anyone with half a brain should be able to see what is coming.

Sadly, most Americans will continue to deny the truth until it is far too late.

30 stats to show to anyone that does not believe the middle class is being destroyed

Abandoned House - Photo by Flickr User baldeaglebluffThe 30 statistics that you are about to read prove beyond a shadow of a doubt that the middle class in America is being systematically destroyed.  Once upon a time, the United States had the largest and most prosperous middle class in the history of the world, but now that is changing at a staggering pace.  Yes, the stock market has soared to unprecedented heights this year and there are a few isolated areas of the country that are doing rather well for the moment.  But overall, the long-term trends that are eviscerating the middle class just continue to accelerate.  Over the past decade or so, the percentage of Americans that are working has gone way down, the quality of our jobs has plummeted dramatically and the wealth of the typical American household has fallen precipitously.  Meanwhile, we have watched median household income decline for five years in a row, we have watched the rate of homeownership in this country decline for eight years in a row and dependence on the government is at an all-time high.  Being a part of the middle class in the United States at this point can be compared to playing a game of musical chairs.  We can all see chairs being removed from the game, and we are all desperate to continue to have a chair every time the music stops playing.  The next time the music stops, will it be your chair that gets removed?

And in this economy, you don’t even have to lose your job to fall out of the middle class.  Our paychecks are remaining very stable while the cost of almost everything that we spend money on consistently (food, gas, health insurance, etc.) is going up rapidly.  Bloomberg calls this “the no-raises recovery”…

Call it the no-raises recovery: Five years of economic expansion have done almost nothing to boost paychecks for typical American workers while the rich have gotten richer.

Meager improvements since 2009 have barely kept up with a similarly tepid pace of inflation, raising the real value of compensation per hour by only 0.5 percent. That marks the weakest growth since World War II, with increases averaging 9.2 percent at a similar point in past expansions, according to Bureau of Labor Statistics data compiled by Bloomberg.

There are so many families out there that are struggling right now.  So many husbands and wives find themselves constantly fighting with one another about money, and they don’t even understand that what is happening to them is the result of long-term economic trends that are the result of decades of incredibly foolish decisions.  Without middle class jobs, we cannot have a middle class.  And those are precisely the jobs that have been destroyed during the Clinton, Bush and Obama years.  Without enough good jobs to go around, we have seen the middle class steadily shrink and the ranks of the poor grow rapidly.

The following are 30 stats to show to anyone that does not believe the middle class is being destroyed…

1. In 2007, the average household in the top 5 percent had 16.5 times as much wealth as the average household overall.  But now the average household in the top 5 percent has 24 times as much wealth as the average household overall.

2. According to a study recently discussed in the New York Times, the “typical American household” is now worth 36 percent less than it was worth a decade ago.

3. One out of every seven Americans rely on food banks at this point.

4. One out of every four military families needs help putting enough food on the table.

5. 79 percent of the people that use food banks purchase “inexpensive, unhealthy food just to have enough to feed their families”.

6. One out of every three adults in the United States has an unpaid debt that is “in collections“.

7. Only 48 percent of all Americans can immediately come up with $400 in emergency cash without borrowing it or selling something.

8. The price of food continues to rise much faster than the paychecks of most middle class families.  For example, the average price of ground beef has just hit a brand new all-time record high of $3.884 a pound.

9. According to one recent study, 40 percent of all households in the United States are experiencing financial stress right now.

10. The overall homeownership rate has fallen to the lowest level since 1995.

11. The homeownership rate for Americans under the age of 35 is at an all-time low.

12. According to one recent survey, 52 percent of all Americans cannot even afford the house that they are living in right now.

13. The average age of vehicles on America’s roads has hit an all-time high of 11.4 years.

14. Last year, one out of every four auto loans in the United States was made to someone with subprime credit.

15. Amazingly, one out of every six men in their prime working years (25 to 54) do not have a job at this point.

16. One recent study found that 47 percent of unemployed Americans have “completely given up” looking for a job.

17. 36 percent of Americans do not have a single penny saved for retirement.

18. According to one survey, 76 percent of all Americans are living paycheck to paycheck.

19. More than half of all working Americans make less than $30,000 a year in wages.

20. Only four of the twenty fastest growing occupations in America require a Bachelor’s degree or better.

21.  In America today, one out of every ten jobs is filled by a temp agency.

22. Due to a lack of decent jobs, half of all college graduates are still relying on their parents financially when they are two years out of school.

23. Median household income in the United States is about 7 percent lower than it was in the year 2000 after adjusting for inflation.

24. Approximately one out of every four part-time workers in America is living below the poverty line.

25. It is hard to believe, but more than one out of every five children in the United States is living in poverty in 2014.

26. According to one study, there are 49 million Americans that are dealing with food insecurity.

27. Ten years ago, the number of women in the U.S. that had jobs outnumbered the number of women in the U.S. on food stamps by more than a 2 to 1 margin.  But now the number of women in the U.S. on food stamps actually exceeds the number of women that have jobs.

28. If the middle class was actually thriving, we wouldn’t have more than a million public school children that are homeless.

29. If you can believe it, Americans received more than 2 trillion dollars in benefits from the federal government last year alone.

30. In terms of median wealth per adult, the United States is now in just 19th place in the world.

America’s Insatiable Demand For More Expensive Cars, Larger Homes And Bigger Debts

McMansionOne of the things that this era of American history will be known for is conspicuous consumption.  Even though many of us won’t admit it, the truth is that almost all of us want a nice vehicle and a large home.  They say that “everything is bigger in Texas”, but the same could be said for the entire nation as a whole.  As you will see below, the size of the average new home has just hit a brand new record high and so has the size of the average auto loan.  In the endless quest to achieve “the American Dream”, Americans are racking up bigger debts than ever before.  Unfortunately, our paychecks are not keeping up and the middle class in the United States is steadily shrinking.  The disparity between the lifestyle that society tells us that we ought to have and the size of our actual financial resources continues to grow.  This is leading to a tremendous amount of frustration among those that can’t afford to buy expensive cars and large homes.

I remember the days when paying for a car over four years seemed like a massive commitment.  But now nearly a quarter of all auto loans in the U.S. are extended out for six or seven years, and those loans have gotten larger than ever

In the latest sign Americans are increasingly comfortable taking on more debt, auto buyers borrowed a record amount in the first quarter with the average monthly payment climbing to an all-time high of $474.

Not only that, buyers also continued to spread payments out over a longer period of time, with 24.8 percent of auto loans now coming with payment terms between six and seven years according to a new report from Experian Automotive.

That’s the highest percentage of 6 and 7-year loans Experian has ever recorded in a quarter.

Didn’t the last financial crisis teach us about the dangers of being overextended?

During the first quarter 0f 2014, the size of the average auto loan soared to an all-time record $27,612.

But if you go back just five years ago it was just $24,174.

And because we are taking out such large auto loans that are extended out over such a long period of time, we are now holding on to our vehicles much longer.

According to CNBC, Americans now keep their vehicles for an average of six years and one month.

Ten years ago, it was just four years and two months.

My how things have changed.

And consumer credit as a whole has also reached a brand new all-time record high in the United States.

Consumer credit includes auto loans, but it doesn’t include things like mortgages.  The following is how Investopedia defines consumer credit…

Consumer credit is basically the amount of credit used by consumers to purchase non-investment goods or services that are consumed and whose value depreciates quickly. This includes automobiles, recreational vehicles (RVs), education, boat and trailer loans but excludes debts taken out to purchase real estate or margin on investment accounts.

As you can see from the chart below, Americans were reducing their exposure to consumer credit for a little while after the last financial crisis struck, but now it is rapidly rising again at essentially the same trajectory as before…

Consumer Credit 2014

Have we learned nothing?

Meanwhile, America also seems to continue to have an insatiable demand for even larger homes.

According to Zero Hedge, the size of the average new home in the United States has just hit another brand new record high…

There was a small ray of hope just after the Lehman collapse that one of the most deplorable characteristics of US society – the relentless urge to build massive McMansions (funding questions aside) – was fading. Alas, as the Census Bureau today confirmed, that normalization in the innate desire for bigger, bigger, bigger not only did not go away but is now back with a bang.

According to just released data, both the median and average size of a new single-family home built in 2013 hit new all time highs of 2,384 and 2,598 square feet respectively.

And while it is known that in absolute number terms the total number of new home sales is still a fraction of what it was before the crisis, the one strata of new home sales which appears to not only not have been impacted but is openly flourishing once more, are the same McMansions which cater to the New Normal uberwealthy (which incidentally are the same as the Old Normal uberwealthy, only wealthier) and which for many symbolize America’s unbridled greed for mega housing no matter the cost.

There is certainly nothing wrong with having a large home.

But if people are overextending themselves financially, that is when it becomes a major problem.

Just remember what happened back in 2007.

And just like prior to the last financial crisis, Americans are treating their homes like piggy banks once again.  Home equity lines of credit are up 8 percent over the past 12 months, and homeowners are increasingly being encouraged to put their homes at risk to fund their excessive lifestyles.

But there has been one big change that we have seen since the last financial crisis.

Lending standards have gotten a lot tougher, and many younger adults find that they are not able to buy homes even though they would really like to.  Stifled by absolutely suffocating levels of student loan debt, many of these young adults are putting off purchasing a home indefinitely.  The following is an excerpt from a recent CNN article about this phenomenon…

The Millennial generation is great at many things: texting, social media, selfies. But buying a home? Not so much.

Just 36% of Americans under the age of 35 own a home, according to the Census Bureau. That’s down from 42% in 2007 and the lowest level since 1982, when the agency began tracking homeownership by age.

It’s not all their fault. Millennials want to buy homes — 90% prefer owning over renting, according to a recent survey from Fannie Mae.

But student loan debt, tight lending standards and stiff competition have made it next to impossible for many of these younger Americans to make the leap.

This is one of the primary reasons why homeownership in America is declining.

A lot of young adults would love to buy a home, but they are already financially crippled from the very start of their adult lives by student loan debt.  In fact, the total amount of student loan debt is now up to approximately 1.1 trillion dollars.  That is even more than the total amount of credit card debt in this country.

We live in a debt-based system which is incredibly fragile.

We experienced this firsthand during the last financial crisis.

But we just can’t help ourselves.

We have always got to have more, and society teaches us that if we don’t have enough money to pay for it that we should just go into even more debt.

Unfortunately, just as so many individuals and families have found out in recent years, eventually a day of reckoning arrives.

And a day of reckoning is coming for the nation as a whole at some point as well.

You can count on that.

Exactly Like 7 Years Ago? 2014 Is Turning Out To Be Eerily Similar To 2007

Bubble - Photo by Jeff KubinaThe similarities between 2007 and 2014 continue to pile up.  As you are about to see, U.S. home sales fell dramatically throughout 2007 even as the mainstream media, our politicians and Federal Reserve Chairman Ben Bernanke promised us that everything was going to be just fine and that we definitely were not going to experience a recession.  Of course we remember precisely what followed.  It was the worst economic crisis since the days of the Great Depression.  And you know what they say – if we do not learn from history we are doomed to repeat it.  Just like seven years ago, the stock market has soared to all-time high after all-time high.  Just like seven years ago, the authorities are telling us that there is nothing to worry about.  Unfortunately, just like seven years ago, a housing bubble is imploding and another great economic crisis is rapidly approaching.

Posted below is a chart of existing home sales in the United States during 2007.  As you can see, existing home sales declined precipitously throughout the year…

Existing Home Sales 2007

Now look at this chart which shows what has happened to existing home sales in the United States in recent months.  If you compare the two charts, you will see that the numbers are eerily similar…

Existing Home Sales Today

New home sales are also following a similar pattern.  In fact, we just learned that new home sales have collapsed to an 8 month low

Sales of new single-family homes dropped sharply last month as severe winter weather and higher mortgage rates continued to slow the housing recovery.

New home sales fell 14.5% to a seasonally adjusted annual rate of 385,000, down from February’s revised pace of 449,000, the Census Bureau said.

Once again, this is so similar to what we witnessed back in 2007.  The following is a chart that shows how new home sales declined dramatically throughout that year…

New Home Sales 2007

And this chart shows what has happened to new homes sales during the past several months.  Sadly, we have never even gotten close to returning to the level that we were at back in 2007.  But even the modest “recovery” that we have experienced is now quickly unraveling…

New Home Sales Today

If history does repeat, then what we are witnessing right now is a very troubling sign for the months to come.  As you can see from this chart, new home sales usually start going down before a recession begins.

And don’t expect these housing numbers to rebound any time soon.  The demand for mortgages has dropped through the floor.  Just check out the following excerpt from a recent article by Michael Lombardi

One of the key indicators I follow in respect to the state of the housing market is mortgage originations. This data gives me an idea about demand for homes, as rising demand for mortgages means more people are buying homes. And as demand increases, prices should be increasing.

But the opposite is happening…

In the first quarter of 2014, mortgage originations at Citigroup Inc. (NYSE/C) declined 71% from the same period a year ago. The bank issued $5.2 billion in mortgages in the first quarter of 2014, compared to $8.3 billion in the previous quarter and $18.0 billion in the first quarter of 2013. (Source: Citigroup Inc. web site, last accessed April 14, 2014.)

Total mortgage origination volume at JPMorgan Chase & Co. (NYSE/JPM) declined by 68% in the first quarter of 2014 from the same period a year ago. At JPMorgan, in the first quarter of 2014, $17.0 billion worth of mortgages were issued, compared to $52.7 billion in the same period a year ago. (Source: JPMorgan Chase & Co. web site, last accessed April 14, 2014.)

It is almost as if we are watching a replay of 2007 all over again, and yet nobody is talking about this.

Everyone wants to believe that this time will be different.

The human capacity for self-delusion is absolutely amazing.

There are a lot of other similarities between 2007 and today as well.

Just the other day, I noted that retail stores are closing in the United States at the fastest pace that we have seen since the collapse of Lehman Brothers.

Back in 2007, we saw margin debt on Wall Street spike dramatically and help fuel a remarkable run in the stock market.  Just check out the chart in this article.  But that spike in margin debt also made the eventual stock market collapse much worse than it had to be.

And just like 2007, consumer credit is totally out of control.  As I noted in one recent article, during the fourth quarter of 2013 we witnessed the biggest increase in consumer debt in the U.S. that we have seen since 2007.  Total consumer credit in the U.S. has risen by 22 percent over the past three years, and 56 percent of all Americans have “subprime credit” at this point.

Are you starting to get the picture?  It is only 7 years later, and the same things that happened just prior to the last great financial crisis are happening again.  Only this time we are in much worse shape to handle an economic meltdown.  The following is a brief excerpt from my recent article entitled “We Are In FAR Worse Shape Than We Were Just Prior To The Last Great Financial Crisis“…

None of the problems that caused the last financial crisis have been fixed.  In fact, they have all gotten worse.  The total amount of debt in the world has grown by more than 40 percent since 2007, the too big to fail banks have gotten 37 percent larger, and the colossal derivatives bubble has spiraled so far out of control that the only thing left to do is to watch the spectacular crash landing that is inevitably coming.

You can read the rest of that article right here.

For a long time, I have been convinced that this two year time period is going to represent a major “turning point” for America.

Right now, 2014 is turning out to be eerily similar to 2007.

Will 2015 turn out to be a repeat of 2008?

Please feel free to share what you think by posting a comment below…

Prepare For Tough Times If Your Job Has Anything To Do With Real Estate Or Mortgages

Housing Crash 2013If you have a job that involves building homes, buying homes, selling homes or that is in any way related to the mortgage industry, you might want to start searching for alternate employment.  Seriously.  Interest rates are starting to rise dramatically, and mortgage lenders such as Bank of America, Wells Fargo and JPMorgan Chase are all cutting thousands of mortgage-related jobs.  Last week, mortgage refinance activity plunged to the lowest level that we have seen since June 2009 and total mortgage activity dropped to the lowest level since October 2008.  Unfortunately, this is only the beginning.  Mortgage rates closely mirror the yield on 10 year U.S. Treasuries, the the yield on 10 year U.S. Treasuries has nearly doubled since early May.  But it is still only sitting at about 3 percent right now.  As I have written about previously, it has a ton of room to go up before it hits “normal” historical levels, and so do mortgage rates.  As I noted the other day, some analysts believe that the yield on 10 year U.S. Treasuries is going to hit 7 percent eventually.  If that happens, mortgage rates will be more than double what they are today.  And we have already seen the average rate on a 30 year fixed rate mortgage go from 3.35 percent in May to 4.57 percent last week.  If interest rates continue to rise we could be heading for a “housing Armageddon” that will make the last housing crash look like a Sunday picnic.

The mini-housing bubble that we have been enjoying for the last couple of years is coming to an abrupt end.  It doesn’t matter what the mainstream media is telling you about a “sustainable” housing recovery.  Just look at how the big mortgage lenders are behaving.  They know the gig is up.  According to Bloomberg, Bank of America has just announced that they will be eliminating 2,100 mortgage-related jobs…

Bank of America Corp., the second-largest U.S. lender, will eliminate about 2,100 jobs and shutter 16 mortgage offices as rising interest rates weaken loan demand, said two people with direct knowledge of the plans.

Would they be doing that if we were really heading into a “sustainable housing recovery”?

And Wells Fargo and JPMorgan Chase are also both eliminating thousands of mortgage-related jobs

Mortgage lenders are paring staff as higher interest rates discourage refinancing and cast doubt on how long the housing market rebound will last. Wells Fargo & Co., the biggest U.S. home lender, plans more than 2,300 job cuts, and JPMorgan Chase & Co. may dismiss 15,000.

Would they be doing this if they thought that brighter days were ahead?

Of course not.

In fact, Well Fargo just announced that it expects to make 30 percent fewer home loans this quarter because of rapidly rising interest rates.

It’s over folks.

The mini-housing bubble that the mainstream media has been hyping so much is over.

If your job has anything to do with real estate or mortgages, it is time to start thinking about a career change.

This is especially true if your job is related to refinancing mortgages.  All of the smart people have already refinanced.  As rates continue to rise rapidly, the only ones that will be refinancing are really stupid people.  According to Zero Hedge, mortgage refinance activity has already dropped by a whopping 70 percent since early May…

For the 16th of the last 18 weeks, mortgage refinance activity plunged (dropping 20% this week alone). Since early May, when the dreaded word “Taper” was first uttered, refis have collapsed over 70%. With mortgage servicers and providers large and small laying people off, it seems hard for even the most egregiously biased bull to still suggest that the housing recovery is sustainable.

And this rise in interest rates is just getting started.  The Federal Reserve has not even begun to “taper” yet.  Once that starts happening, the consequences could be quite dramatic

“In early 1994, when the U.S. recovery gained strength, the Fed started a tightening cycle and bond markets crashed not only in the U.S. but also around the world,” European Central Bank Executive Board member Joerg Asmussen said on Tuesday.

“If spillovers were large in 1994, we can expect them to be even larger today in an even more deeply interconnected world,” he added in the text of a speech for delivery in Brussels.

Of course when the Federal Reserve “tapers” their quantitative easing it won’t really be “tightening” as much as it will be slowing down the pace at which they are recklessly creating tens of billions of dollars out of thin air.  But the effect will be similar to what we saw back in 1994.

As interest rates rise, it will become much more expensive to buy a home and much more difficult to sell a home.  To give you an idea of how dramatically interest rates can affect housing affordability, I wanted to share some numbers from one of my previous articles

A year ago, the 30 year rate was sitting at 3.66 percent.  The monthly payment on a 30 year, $300,000 mortgage at that rate would be $1374.07.

If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage at that rate would be $2201.29.

Does 8 percent sound crazy to you?

It shouldn’t.  8 percent was considered to be normal back in the year 2000.

Are you starting to get the picture?

As interest rates go up, home prices will have to fall.  Otherwise, nobody will be able to afford them.

In the end, we could end up with tens of millions more homeowners that are substantially “underwater” on their mortgages.

So who is to blame?

The Federal Reserve of course.

They created this bubble by forcing interest rates down to record low levels.

At some point it was inevitable that interest rates would start reverting back to more “normal” levels, and that “adjustment” is going to be immensely painful for the U.S. economy.

As we saw back in 2008 and 2009, when the housing industry suffers the entire economy suffers.

And the higher that interest rates go, the more suffering there will be.

So let us hope and pray that interest rates do not go any higher, but let us also start preparing for the very worst.

How Big Banks Can Steal Your Home From You Even If Your Mortgage Is Totally Paid Off

Foreclosure - Photo by respresDid you know that the big banks have a way to legally steal your house from you even if you don’t owe a single penny on your mortgage?  Big banks and hedge funds are buying billions of dollars worth of tax liens from local governments all over the nation, and they are ruthlessly foreclosing on homeowners when they can’t pay the absolutely ridiculous penalties and legal fees that are tacked on to the original tax bill.  As you will see below, one 76-year-old man lost his $197,000 home that he fully owned over a $134 tax bill.  A 95-year-old woman lost her $300,000 home over a $44.79 tax bill.  This is a very, very dirty way to make money, and the predatory financial institutions that are involved in this business definitely do not want to talk about it.

Of course much of the blame should also be shouldered by the local governments that are coldly selling these tax liens to these ruthless predators.  If local governments want to collect their tax bills, they should do it themselves.  They should not be auctioning off their tax liens to cold-hearted financial institutions that are very eager to commit a legal version of highway robbery.

A few days ago, the Washington Post reported on the tragic story of a 76-year-old former Marine named Bennie Coleman.  Coleman had originally purchased his home with cash, but that didn’t stop tax lien predators from stealing his home over an unpaid $134 property tax bill…

On the day Bennie Coleman lost his house, the day armed U.S. marshals came to his door and ordered him off the property, he slumped in a folding chair across the street and watched the vestiges of his 76 years hauled to the curb.

Movers carted out his easy chair, his clothes, his television. Next came the things that were closest to his heart: his Marine Corps medals and photographs of his dead wife, Martha. The duplex in Northeast Washington that Coleman bought with cash two decades earlier was emptied and shuttered. By sundown, he had nowhere to go.

All because he didn’t pay a $134 property tax bill.

So why couldn’t he pay such a small bill?

Well, as the Post explained, these big banks and hedge funds keep tacking on interest, penalties and legal fees until the tax bills are many times the size that they originally were.  When the distressed homeowners can’t come up with thousands of dollars to pay off the debts, the big banks and the hedge funds move in for the kill…

For decades, the District placed liens on properties when homeowners failed to pay their bills, then sold those liens at public auctions to mom-and-pop investors who drew a profit by charging owners interest on top of the tax debt until the money was repaid.

But under the watch of local leaders, the program has morphed into a predatory system of debt collection for well-financed, out-of-town companies that turned $500 delinquencies into $5,000 debts — then foreclosed on homes when families couldn’t pay, a Washington Post investigation found.

In particular, hedge funds have discovered that this is a great way to make huge piles of money.  The following is a short excerpt from a CNN article that was published back in May

With buyers identified only by numbers or unrelated names, the fragmented, unregulated industry is opaque. Even the market’s size is debated — $15 billion a year, according to Howard Liggett, the chief executive of Distressed Real Estate Consulting Services, or $5 billion a year, according to the National Tax Lien Association, a trade group. While returns are a closely kept secret, investors typically make between 2.5% and 10% a year, or in the low teens for larger buys.

“The hedge funds are chasing yield in this business” says Albert Friedman, a principal at Alterna Capital, an alternative investment firm in Boca Raton that buys tax liens.

Insiders estimate hedge funds now control 40% of the tax-lien market, from under 5% five years ago, with regional banks, obscure partnerships sporting names like God’s ATM LLC, and mom-and-pop investors making up the rest.

And a number of “too big to fail” banks are involved in this business as well.

In a previous article, I described exactly how this works…

1) The big Wall Street banks set up or invest in shell companies that will disguise who they really are.

2) These shell companies run around and buy up all of the tax liens that they can get their hands on.

3) Predatory levels of interest (in some states as high as 18 percent), fees and penalties rapidly pile up on these unpaid tax liens.  The affected homeowners quickly end up owing much, much more than what the original tax bills were for.

4) If the collecting firm has to hire a lawyer, then that gets charged to the homeowner as well.  The bloated legal fees for some of these lawyers can end up being the biggest expense of all.

5) If the tax liens do not get paid, the collecting firms move in to foreclose as quickly as legally possible.

According to the Huffington Post, Wall Street banks such as Bank of America and JPMorgan Chase have been gobbling up several hundred thousand tax liens from local governments.  It appears that “distressed housing markets” are being particularly targeted.

Many of these tax liens are sold in online auctions, so it is unclear if many local government officials even realize who the big money behind many of these shell companies is.

These big financial institutions may consider this to be “good business”, but the truth is that they are absolutely shattering lives in the process.  This is particularly true when it comes to older people that do not fully understand what is happening to them.  Just consider the following examples from a recent Washington Post article

A 48-year-old math teacher paid his taxes in 2007, but the tax office took his $1,400 payment and applied it to the wrong house, crediting an entirely different taxpayer.

A 58-year-old bank employee almost lost her house in 2010 because the tax office mistakenly sent bills and notices to a wooded lot across from a strip shopping center in Virginia — 12 times.

A 69-year-old hat designer was given the wrong payoff amount and ended up in court to save her property, owned by her family since 1943.

Those homeowners found out about the mistakes in time to fight. Ninety-five-year-old Daisy Dolsey, living in a nursing home and struggling with Alzheimer’s, wasn’t so lucky: She lost her $300,000 house over a $44.79 tax debt even after she paid her taxes.

Doesn’t that just sicken you?

And then the big banks and the hedge funds have the gall to wonder why people dislike them so much.

In this day and age, large financial institutions have become more cold-hearted than ever before.

Always make sure that your property taxes are fully paid, and always keep a paper record of all financial transactions involving your home.

If you do slip up and make a mistake at some point, there is a very good chance that a ruthless financial institution will try to swoop in and steal your home right out from under your nose.

Why Another Great Real Estate Crash Is Coming

ForeclosureThere are very few segments of the U.S. economy that are more heavily affected by interest rates than the real estate market is.  When mortgage rates reached all-time low levels late last year, it fueled a little “mini-bubble” in housing which was greatly celebrated by the mainstream media.  Unfortunately, the tide is now turning.  Interest rates are starting to move up steadily, even though the Federal Reserve has been trying very hard to keep that from happening.  A few weeks ago, when Federal Reserve Chairman Ben Bernanke suggested that the Fed may start to “taper” the rate of quantitative easing eventually, the bond market had a conniption and the yield on 10 year U.S. Treasuries shot up dramatically.  In an attempt to calm the market, the Fed stopped all talk of a “taper” and that helped settle things down for a brief period of time.  But now the yield on 10 year U.S. Treasuries is starting to rise aggressively again.  Today it closed at 2.71 percent, and many analysts believe that it will go much higher.  This is important for the housing market, because mortgage rates tend to follow the yield on 10 year U.S. Treasuries.  And if mortgage rates keep rising like this, another great real estate crash is inevitable.

This wasn’t supposed to happen.  Federal Reserve Chairman Ben Bernanke said that he could use quantitative easing to control long-term interest rates.  He assured us that he could force mortgage rates down for an extended period of time and that this would lead to a housing recovery.

But now the Fed is losing control of long-term interest rates.  If this continues, either the Federal Reserve will have to substantially increase the rate of quantitative easing or else watch mortgage rates rise to absolutely crippling levels.

Three months ago, the average rate on a 30 year mortgage was 3.35 percent.  It has shot up more than a full point since then…

Mortgage buyer Freddie Mac said Thursday that the average on the 30-year loan rose to 4.39% from 4.31% last week. Rates are a full percentage point higher than in early May.

And as the chart below shows, mortgage rates have a lot more room to go up…

30-Year Fixed Rate Mortgage Average in the United States

As mortgage rates go up, so do monthly payments.

And monthly payments are already beginning to soar.  Just check out this chart.

So what happens if mortgage rates eventually return to “normal” levels?

Well, it would be absolutely devastating to the housing market.  As mortgage rates rise, less people will be able to afford to buy homes at current prices.  This will force home prices down.

To a large degree, whether or not someone can afford to buy a particular home is determined by interest rates.  The following numbers come from one of my previous articles

A year ago, the 30 year rate was sitting at 3.66 percent.  The monthly payment on a 30 year, $300,000 mortgage at that rate would be $1374.07.

If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage at that rate would be $2201.29.

Does 8 percent sound crazy to you?

It shouldn’t.  8 percent was considered to be normal back in the year 2000.

And we are already seeing rising rates impact the market.  The number of mortgage applications has fallen for 11 of the past 12 weeks, and this has been the biggest 3 month decline in mortgage applications that we have witnessed since 2009.

Rising interest rates will also have a dramatic impact on other areas of the real estate industry as well.  For example, public construction spending is now the lowest that it has been since 2006.

And I find the chart posted below particularly interesting.  As a Christian, I am saddened that construction spending by religious institutions has dropped to a stunningly low level…

Total Construction Spending Religious

So what does all of this mean?

Well, unless interest rates reverse course it appears that we are in the very early stages of another great real estate crash.

Only this time, it might not be so easy for the big banks to swoop in and foreclose on everyone.  Just check out the radical step that one city in California is taking to stop bank foreclosures…

Richmond is the first city in the country to take the controversial step of threatening to use eminent domain, the power to take private property for public use. But other cities have also explored the idea.

Banks, the real estate industry and Wall Street are vehemently opposed to the idea, calling it “unconstitutional” and a violation or property rights, and something that will likely cause a flurry of lawsuits.

Richmond has partnered with San Francisco-based Mortgage Resolution Partners on the plan. Letters have been sent to 32 servicers and trustees who hold the underwater loans. If they refuse the city’s offer, officials will condemn and seize the mortgages, then help homeowners to refinance.

If more communities around the nation start using eminent domain to stop foreclosures, that is going to change the cost of doing business for mortgage lenders and it is likely going to mean more expensive mortgages for all the rest of us.

In any event, all of this talk about a “bright future” for real estate is just a bunch of nonsense.

You can’t buy a home if you don’t have a good job.  And as I wrote about the other day, there are about 6 million less full-time jobs in America today than there was back in 2007.

You can’t get blood out of a stone, and you can’t buy a house on a part-time income.  The lack of breadwinner jobs is one of the primary reasons why the homeownership rate in the United States is now at its lowest level in nearly 18 years.

And we aren’t going to produce good jobs if our economy is not growing.  And economic growth in the U.S. has been anemic at best, even if you believe the official numbers.

We were originally told that the GDP growth number for the first quarter of 2013 was 2.4 percent.  Then it was revised down to 1.8 percent.  Now it has been revised down to 1.1 percent.

So precisely what are we supposed to believe?

Overall, since Barack Obama has been president the average yearly rate of growth for the U.S. economy has been just over 1 percent.

That isn’t very good at all.

But remember, the government numbers have been heavily manipulated to look good.

The reality is even worse.

According to the alternate GDP numbers compiled by John Williams of shadowstats.com, the U.S. economy has continually been in a recession since 2005.

And now interest rates are rising rapidly, and that is very bad news for the U.S. economy.

I hope that you have your seatbelts buckled up tight, because it is going to be a bumpy ride.

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