Two new clouds have appeared on our darkening U.S. economic horizon. As we’ve been pointing out, we expect a financial storm, we simply don’t know when the first rain will fall. But the sky is dark and the wind is rising, not only in the U.S. but in many other places too.
Our concerns tonight are a reaction to two events we see as indicators; the first is a story reporting a decline among the big banks, occurring in their mortgage departments. The big guys are reporting losses on their mortgage writing and beyond that, a declining demand for new mortgages. In simpler terms, business sucks. As nearly half of the Fed’s funny money creation has gone into real estate mavens Fannie and Freddie, this parallels a doctor pushing more and more pills into a sicker and sicker patient. It has been a lot of pills, too. Is there any “man (or woman or child) with soul so dead, who never to himself has said”: “I wish those mortgage lenders would stop calling to give me cheap money to refinance!” When the big banks are hurting, you know they can’t even give it away… and that’s sort of scary.
Our second report comes from Puerto Rico. It has two unsettling elements: First, that the Spanish-speaking U.S. Territory under its Popular Democratic Governor Alejandro Garcia Padilla is so far in debt that its lenders are looking at impending default and second, that you haven’t heard about it. Admittedly, we normally hear from the place only in election years when the Democrats claim it ought to be handed statehood but an impending default is big news indeed. You’ve heard plenty about Detroit and it’s only a city. Even Fox News hasn’t been noisy about this. A U.S. possession larger than a number of Caribbean countries looking like a potential financial collapse? That’s Big News! But hardly a peep…and that’s scarier than the mortgage market, which isn’t receiving enough attention either.
I expect the silence to continue as all sorts of bankers try to shovel all sorts of imitation solvency over the squirming, stinking financial truth in an anything-goes effort to avoid default. A financially defaulting Puerto Rico is too likely to be the first domino in much too long a row of financial dominos. If some Wall Street banks were too big to fail, imagine a sizeable U.S. possession! But can something this size be kept hidden?
So things are becoming more than comfortably interesting in our rolling financial roulette game. How long will we continue calling winning numbers? Your call…