Monday 24 October 2011

Savers Protect Your Deposits From Bankrupting Banks and Quantitative Inflation

The Market Oracle Newsletter
October 23rd, 2011            Issue #20 Vol. 5

Commodities Currencies Economics Housing Market Interest Rates Education Personal Finance Stocks / Financials Real Gems

Savers Protect Your Deposits From Bankrupting Banks and Quantitative Inflation

Stocks Stealth Bull Market 2011 Ebook Direct Download Link (PDF 2.8m/b)

Interest Rate Mega-Trend Ebook Direct Download Link (PDF 2.3m/b)

Inflation Mega-Trend Ebook Direct Download Link (PDF 3.2m/b)

Dear Reader

The Euro-zone continues to teeter over the edge of the financial abyss as bankrupting countries that cannot print Euro's threaten the collapse of its banking system that would would soon collapse the whole global banking system in a matter of hours as electronic bank runs sweep across the worlds financial system resulting in trillions of dollars worth of deposits being withdrawn in a matter of hours and thereby collapsing first the Euro-zone and then within 24 hours the UK, USA and Asia along with it. My recent article (Euro-Zone Prepares to Print Trillions in Advance of Greece Debt Default) covered the potential consequences for the world in the event of financial armageddon, this article continues on from the last article that covered the inflationary depression consequences of money printing that the likes of Britain and the United States are engaged in and that the Euro-zone WILL eventually replicate (Bank of England's Quantitative Inflation Bankster's Paradise Inflationary Depression Economy ).

The focus of this article will be on concrete steps that depositors need to take now to reduce the real risk of the actual loss of their funds on deposits at bankrupting banks before they should go on to protect against the ongoing real terms loss of value in the face of the perpetual money printing Quantitative Inflation Mega-trend.

Banks Going Bankrupt - Lehman's Bankruptcy Example

The 2008 Lehman's bankruptcy irrevocably changed the financial world as within a matter of days a chain reaction of the worlds banks and insurers were on the verge of going bust, pushing the world towards financial armageddon as the following video illustrates of just how close the U.S. Financial System came towards total collapse. At 2 minutes, 20 seconds into this C-Span video clip, Rep. Paul Kanjorski of Pennsylvania in February 2009 explains how the Federal Reserve told Congress members about a "tremendous draw-down of money market accounts in the United States, to the tune of $550 billion dollars." According to Kanjorski, this electronic transfer occurred over the period of an hour and threatened a further $5 trillion to be drawn out triggering a total collapse of the Financial System, which prompted Hank Paulson's emergency $700 billion TARP bailout action.

Video Served by Youtube

This is the real problem that the credit rating agencies, mainstream press and politicians are not stating which is that the fallout from sovereign default will not be orderly, yes the actual default process may be orderly, over seen and managed by the ECB with planned haircuts of first 20%, then 40% and then 60%, but the markets response won't be orderly, depositors will panic and pull their funds from those they perceive as having the greatest exposure to a. sovereign debt and b. to sovereign debt derivatives. THIS IS ALREADY HAPPENING. Which is the real reason why the banks are not lending, because they know they cannot unwind their over-leveraged positions in the event of default so have been hoarding cash now in advance of sovereign default.

Eurozone-zones Bogus Stress Tests Busted, Ignored Sovereign Default and the Derivatives Monster.

Today's financial system is in a worse state than when Lehman's went bust as measured by the credit default swaps, because there are multiple Lehman's out there ALL teetering on the brink of bankruptcy as a consequence of exposure to bankrupting PIIGS as the ongoing news coming out of Europe illustrates with the bailouts of Lehman wannabe's such as the French / Belgium bank Dexia and Greek banks. That's before we start to even approach the consequences of banks such as the German giant Deutsche Bank going bust.

All of the now failing banks passed the eurozone's bogus stress test that never took into account the obvious that Greece would eventually default on its debts and therefore the banks are sitting on losses of at least 50% on their Greek sovereign debt holdings, never mind losses on other PIIGS debt.

The reality is that virtually ALL of the European banks would fail the PIIGS defaulting and triggering haircuts of 40-60% of sovereign debt holdings which means the bank stress tests were pure political propaganda with no basis in reality.

The solution that the mainstream press obsesses over is for the recapitalisation of the banks, which theoretically should work though involve amounts far beyond anything being put forward today, i.e. you can forget Euro 100 billion, even Euro 250 billion, what would be needed are amounts north of Euro 500 billion. However as I have repeatedly warned over the years this does not address the real issue of ultimate exposure, which is not that of the PIIGS debt but that of the OTC derivatives market, which globally now exceeds $600 trillions as a consequence of over leveraged positions.

You can tell that the banks are sitting on huge losses (bad loans) when they are buying insurance against their own debt defaulting (credit default swaps) such as Goldman Sachs recent announcements of profits on this basis as a consequence of the increase in the value of the CDS on its debt.

The risks are that of how much is the ultimate liability once the PIIGS start to default and banks start to go bankrupt requiring recapitalisation bailouts, where will it end?

That question is unknown, it could stop at Euro 1 trillion, then again it may require Euro 10 trillion or Euro 100 trillion, I and no one else knows, and the risk is global because ALL banks swim in the same derivatives ocean where the sovereign debt exposures are mere tips of over leveraged ice-bergs. These are the un-quantifiable risks that the banking system is exposed to that depositors need to protect themselves against in the event of sovereign defaults.

Meanwhile, whilst the BBC more prone to regurgitating central bank propaganda as evidenced by the fact that the likes of BBC new broadcast of continuous statements as to why UK inflation is always destined to imminently start falling (for near 2 years now), recently let itself become infected by the dark side by letting a perma-bear trader wonder into the news studios :

"know the stock market is finished. The euro, as far as they're concerned, they don't really care".

"For most traders, we don't really care that much how they're going to fix the economy, how they're going to fix the whole situation — our job is to make money from it," he said.

"Personally I've been dreaming of this moment for three years. I have a confession, which is I go to bed every night, I dream of another recession."

"The governments don't rule the world. Goldman Sachs rules the world. Goldman Sachs does not care about this rescue package, neither does the big funds."

It's interesting to see that the stock market is up over 10% since he spoke of a market crash!

Depositors Not Being Paid For Risk of Financial Armageddon

Even though a european banking crisis seems inevitable, I personally rate actual financial armageddon i.e. the banking system ceases to operate as a low probability as a consequence of unlimited money printing by the governments and central banks pumping an infinite amount of liquidity into the banking systems to avoid financial collapse at all cost (highly inflationary), however the problem with the Euro-zone is that it functions as a committee of 17 countries that literally takes months to respond to crisis, when they may only have hours to act!

For instance recently we witnessed the spanner in the works that the little Czech Republic had thrown as it initially rejected expansion of the European bailout fund because they did not want to contribute to a potential bailout themselves, despite the fact that for a decade the likes of the Czech republic had been gorging on vast quantities of E.U. financial aid, off course financial armageddon would hit the likes of small countries such as the Czech republic much harder as investors pulled out funds.

Against the current system of operation of the Euro-zone that appears designed for maximum effect for the potential for failure, depositors are just not being paid enough interest to to carry the risk of loss of capital, i.e. annual interest rates of between 1-3% (before tax) are just not enough for the real risks being carried for the nominal loss of the value of savings, therefore as I have iterated on several occasions during the past few years, and most recently in June (Bankrupt Greece Blackmails Europe, Bailout or Euro Zone Dies, Global Financial System Collapse) that depositors really do need to ACT BEFORE THE EVENT, because they will be unable to do so DURING THE EVENT.

UK Bank Downgrades, Now Rated Worse than Lehman's

The Moody's credit rating agency downgrade of 12 UK banks reminds readers that it's not just european mainland banks that are under pressure, but all banks across the globe, including the UK.

The downgrade is in response to the real risk that the UK government will no longer bailout all UK financial institutions in the event of default and bankruptcy.

Most notable downgrades were for the UK big banks:

  • RBS from Aa3 to A2
  • Lloyds TSB Aa3 to A1
  • Santander Aa3 to A1
  • Nationwide Aa3 A2
  • Co-op A2 to A3

The downgraded banks in near unison stated that the downgrades do not make any difference to their businesses, well they would say that, instead as is the case with every borrower that if you become a higher risk then you pay a higher interest rate and more collateral is demanded against market derivatives positions, remember these banks are leveraged upto the hilt so small changes in ratings have huge impacts on their financial health. In fact a large part of the summer stock and commodities market correction can be put at the feet of banks having to liquidate assets to cover derivatives positions.

Also, remember that the credit agencies are BEHIND THE CURVE, the true state of the banks is far worse, for instance Lehman's was rated as A2 just days prior to its bankruptcy ! That's the same as RBS, Nationwide, and better than where Lloyds and Santander stand.

The trend towards bank bankruptcy continues since which time governments have edged closer towards bankruptcy themselves which has increased the risks of debt defaults.

Eurozone Meetings Trending towards a 2 trillion bailout.

We have had eurozone meetings, after meetings after meetings for the duration of the sovereign debt crisis, where the underlying message coming through is that the banks need to be re-capitalised, with Germany wanting the banks to seek funds from private investors whilst France wants public funds involved, preferably central bank unlimited funding because of the exposure of French banks that risk bankrupting France itself and thus France ultimately requiring an IMF/ EU/ German bailout which was illustrated by the recent downgrade of French debt.

There is no instant fix, the ratification of the Euro 440 billion pot is just sticking plaster, it is not enough, my expectations are for 2 trillion but the longer crises goes on then so will the ultimate costs and economic damage escalate.

The ratified 440 billion will have to be leveraged to at least Euro 2 trillion but that will still not be enough for when France comes knocking on the bailout door, still as I have earlier illustrated the banks if not stabilised now could result in a situation infinitely worse.

Greece Default to Trigger PIIGS Wide Default

When Greece defaults on its debts the rest of the PIIGS, Ireland, Portugal, Greece and Spain will all look at Greece being let off the hook, do the sums and come to the same conclusion that they should also follow the Greece example in an orderly default as opposed to being suckers that continue to pay for debt that they cannot afford.

Will Germany Pay the Bill ?

Well Germany paid the bill for German unification which in real terms will ultimately be similar to the total cost of bailing out Europe, starting with Greece but probably ending with France itself.

Current State of the Banking Crisis

European Leaders have been meeting during the weekend where the objective is to agree to leverage the already agreed bailout fund higher to act as insurance for sovereign debt holdings to a certain percentage against default, therefore this increases liabilities without actually committing to put any money in the pot. However the risks are unknown, i.e. the risks could be Euro's 1 trillion, 2 trillion, or perhaps 3 trillion ? No one knows because the amount of sovereign debt outstanding continues to expand at the rate of about 500 billion euros per year across the Euro-zone and with it so does the banks derivatives exposure at between X10 and X30.

I won't admit to understanding exactly what the Euro-zone are agreeing to do because I don't think they want the people to understand the facts because the losses as a consequence of default will be many times the face value of the outstanding debt, so definitely serves the politicians not to mention the multi-trillion Euro liabilities being agreed to on behalf of the electorates, especially Germany, where politicians have already rejected calls for new monies, so smoke and mirrors are being used to achieve the same outcome, which at the end of the day bodes ill for the value of the Euro.

All I know is that the euro-zone ultimately are destined to follow the example of the UK and USA, that of monetizing debt in which respect the UK £275 billion Q.E. would translate into an ECB debt monetization of about Euro 1.5 trillion, so they do have the scope to make some major market moving announcements, if they are able to agree to do so.

PIIGS Debt Default Could Trigger Economic Booms

The PIIGS are locked into the German backed Euro, which means currency downside is limited i.e. Greece are not going to experience the high inflation rates that the likes of Iceland experienced following its own default and currency crash. This gives the PIIGS a great opportunity that following the initial pain will result in a economic booms as debt interest burdens approaching total government revenues evaporate.

Many academics out there put forward a multitude of reasons why default would be bad for the PIIGS i.e. such as they will no longer be able to borrow money on the world markets.

Firstly, they don't need to borrow for the next few years because they have the likes of the German backed ECB to pump as much money as needed into the PIIGS to alleviate the initial pain of default.

Secondly, the markets do not act on the basis of academic theories, the markets DISCOUNT the future and not dwell on the past, they will see the opportunities that will flow from future booms and soon FORGIVE the PIIGS defaults, this is after all the lesson of history where we can see from the experience of Russia, Brazil, Argentina and even Greece that markets forgive and forget and base their investing decisions on the basis of what is to follow in the future, just as their current pricing of PIIGS debt and reluctance to lend is on the basis of future default, so will the markets AFTER default price and lend on the basis of future growth.

The Bottom line is when Greece defaults, ALL of the other PIIGS will also quickly default, then it depends on what happens to other countries in and outside of the euro-zone on whether the systemic risk has been contained at that point, then you will see economic booms starting first in the defaulted PIIGS from their knocked down economic levels and soon spreading to countries that have stealth defaulted by means of Inflation such as the UK.

Protect Your Deposits From Bankrupting Banks

Your first priority must be to protect your deposits from Banks that could go bankrupt during a sovereign default induced global bank run, I last covered this in depth in June 2011 (Bankrupt Greece Blackmails Europe, Bailout or Euro Zone Dies, Global Financial System Collapse ), if you have not already done so then you need to act TODAY because amidst a banking crisis you may not get the opportunity to act.

My last article covered the risks per individual banks, however the truth is that in the event of a banking sector collapse - ALL DEPOSITS OVER THE £85k (100,000 Euro's) WOULD BE AT RISK as per government guarantee limits, so I am not going to repeat the analysis of stating the risks of individual banks, because the only truly SAFE UK bank is the 100% government backed National Savings and Investments.

Therefore KNOW THIS - IF the Banks in Europe Start to Collapse as a series of domino bank runs- NO DEPOSITS OVER £85k will be safe in ANY BANK other than National Savings & Investments.

Steps You Need to Take Now !

The following are my updated lists of tasks you need to do to protect your deposits because you are NOT being paid to carry the REAL RISK OF LOSS OF FUNDS ON DEPOSIT!

1. Ensure that you have at least 2 current accounts across banking groups and at least one with a safer bank such as HSBC.

2. Next make a list of all of your deposit / bank accounts, with the amounts on deposit.

3. Now group your accounts by banking sector group (see list here as a guide).

4. If you are anywhere near the £85k limit with any banking group then move those excess funds immediately!

5. Small banks and building societies are at greater risk than larger banks and building societies because the government is the larger banks such as HBOS pose a greater risk to the financial system and economy so the government will be more reluctant to let them fail, but that does not mean they will actually cover deposits beyond £85k in the event of a collapse, so you still need to limit exposure to £85k

6. Consider transferring funds to your spouse so as utilise their compensation limit across a banking group.

7. Ensure you have procedures in place so that you can at short notice transfer funds from high risk banks to lower risk banks so as to limit the fallout from any banking system crisis. For instance open an NS&I Direct Saver account NOW (pays 1.75% gross), then use this during an unfolding sovereign debt crisis event to transfer your cash to as this is the safest deposit account available for UK depositors (Max £2mill, Min £1). Again do this now as you may not be able to do so during a debt crisis event due to high demand for the account.

Instant Access Savings Accounts with Lower Risk banks

  • NS&I - 1.75%
  • Tesco - 2.90% (includes 1.65% bonus for 12 months)
  • HSBC - 0.75% (includes 0.5% bonus if you do not withdraw in a calendar month)

Higher Risk banks

  • Santander - 3.1% (includes 2.6% bonus for 12 months)
  • Barclays - 1.25% (includes 0.35% bonus when you do not withdraw in a month).
  • ING Direct - 3% (includes a 2.46% bonus if you do not withdraw in a month)
  • SMILE (Co-op) 0.25%

Extreme High Risk Banks

  • Halifax Online Saver - 2.8% (includes 2.7% bonus for 12months).

All accounts pay significantly less than current CPI Inflation of 5.2%.

8. Do not have ANY savings are fixed deposit exposure to banks that do not fall under the UK Financials Services Compensation Scheme.

9. Limit exposure to PIIGS banks, that is Greece, Ireland, Spain, Portugal and Italy as these are at the most risk of going bust thus triggering a lengthy process for savers having to wait for compensation. Remember that if Spain comes under pressure following perhaps Ireland and Portugal joining Greece, then the risks posed to Santander depositors will also significantly rise.

10. Keep enough in cash to cover at least 1 months expenditure, (I keep 2 months worth of cash).

11. Utilise instant transfer accounts between spouses, i.e. if you have accounts with the Halifax then you can instantly transfer funds between one another, therefore during a crisis you can instantly reduce the exposure if one person is above the £85k compensation limit at that time.

The bottom line, is if you want ZERO risk then dump all of your excess funds into National Savings & Investment accounts, for which the cost is 1.25% in terms of interest rate differentials.

Red Pill or Blue Pill ?

Do you want to continue sleep walking towards the total loss of the value of your wealth or walkup to the stealth inflation theft matrix?

the red pill

This is what the worlds central bankers fear the most, that their respective populations wake up to the truth of the inflation mega-trend that they have been lied to for decades as to the real level of inflation that has forced them to work harder and borrow huge amounts to just maintain their standards of living.

They fear that workers will see through economic propaganda and start seeing the reality of what INFLATION is doing to them. THAT is the ONLY thing the likes of the Bank of England fears (well apart from banking sector induced financial armageddon) the workers of Britain starting to demand PAY rises that MATCH INFLATION AND TAX RISES (the wage price spiral).

Debt Deflation a Flawed Theory That Services the Purpose for Economic Propaganda

UK CPI Inflation smashed through the 5% barrier by rising to 5.2% for September (4.5%), which is now approaching near triple the Bank of England's 2% target that continues to make a mockery of the central bank whose primary remit is supposedly price stability, where 3% was supposed to have been the maximum level a break above which was supposedly to trigger a series of panic measures to bring inflation under control, instead of which the Bank of England has instead opted to print money as it recently announced another £75 billion of electronic money printing that the fractional reserve banking system would eventually leverage to over £1 trillion, for the primary objective for the monetization of government debt, i.e. the same policy that the Weimar republic had been engaged in on its path towards hyperinflation. UK public debt is probably being monetized at the rate of 15% per annum with approx 30% monetized to date, only the deflation fools and the vested interest academic economists cannot or choose not to realise the highly inflationary consequences of governments monetizing their debt.

Meanwhile the more recognised RPI Inflation measure surged higher to a 20 year high of 5.6% which is set against average pay rises of just 2% that illustrates an Inflationary Depression in progress.

CPI rising to above 5% should not come as any surprise as it has been expected to take place for several months now (14 Jun 2011 - UK CPI Inflation Holds at 4.5% as Stealth Theft of Wealth and Debt Default Continues )

UK CPI inflation looks destined to hit 5% within a few short months especially as energy companies continue to milk customers with outrageous unjustifiable price hikes of as much as 20%, all conducted in an environment of record low interest rates, now held at 0.5% for more than 2 years, all as a consequence of the Bank of England's primary focus in ensuring that the still bankrupt banking sector continues to generate artificial profits that are only partially being used to write down bad debts, with the balance paid out as bonuses on what amount to fictitious tax payer funded profits.

UK inflation has soared to above my already high expectations as per the January forecast for 2011 (17 Jan 2011 - UK Inflation Forecast 2011, Imminent Spike to Above CPI 4%, RPI 6% ) that expected Inflation to remain above Bank of England's 3% upper limit for the whole of 2011, which is set against the Bank of England's Feb 2011 Inflation Report that expected CPI of just 1.7% by the end of 2011.

However, actual inflation as experienced by most people in Britain currently stands at an even hideously higher rate of 7.36%, which explains why your weekly groceries bill is inflating at a rate twice the official inflation indices that have been manipulated by successive governments to under-report the true rate of inflation.

According to the debt deflation theory we should have had deflation for the past 2 years, instead of high inflation in consumer prices. The reason why is obvious in that the economic models are FLAWED, the reality is this, which not something new but something I have repeatedly iterated for 2 years now and that is that ALL FIAT CURENCIES ARE IN FREEFALL AGAINST ONE ANOTHER !

Which means exchange rates may give the illusion of currency stability but the reality of the overall trend is that ALL currencies are FALLING at an exponential rate ! Which is why you have compound inflation i.e. the trend for the inflation curves are exponential.

This is why as savers and investors you need to leverage yourself to the Inflation mega-trend because deflation will not be allowed to exist in our fiat currency fractional reserve banking money printing world, regardless of what the debt deflation theory of ivory tower academics state should take place.

The bottom line is that some 2 years on from my initial warning (18 Nov 2009 - Deflationists Are WRONG, Prepare for the INFLATION Mega-Trend ), debt deflation remains and has shown it self to be a red herring!

The real world example of Iceland illustrates the consequences of the collapse of currency where despite soaring unemployment and a contracting economy they had inflation soaring to 20%!

DEPRESSION - YES

DEFLATION - NO

What you get is an INFLATIONARY DEPRESSION, which the UK clearly exemplifies with rising unemployment, and a stagnating economy and ACCELERATING ANNUALLY COMPOUNDING INFLATION.

DEPRESSION DESTROYS DEMAND, RESULTING IN UNEMPLOYMENT

That does not mean supply will result in falling prices, because DEPRESSION DESTROYS SUPPLY, RESULTING IN UNEMPLOYMENT

Unemployment results in higher government spending / deficits resulting in more money / debt printing resulting accelerating drop in the fiat currency (does not matter what it does relative to others, as all currencies are in perpetual free fall against one another).

Therefore a falling currency results in RISING PRICES REGARDLESS OF ECONOMIC THEORY, REGARDLESS OF THE DESTRUCTION OF DEMAND, REGARDLESS OF THE RISE IN UNEMPLOYMENT AND REGARDLESS OF THE DESTRUCTION OF CREDIT!

Global Occupy Wall Street Comes to London

The injustice of the workers, students, retirees and savers being forced to pay for the crimes of politicians and bankster's has come to London with demonstrations across the financial district of London.

The demonstrators seek greater equality in the distribution of wealth as they see the top 1% get richer whilst the rest suffer during the economic depression which is where Britain and most of the western world have drifted into.

However, the demonstrators appear confused as to who is actually to blame because most of their slogans put the blame at the foot of capitalism, when capitalism is not to blame but politicians and the bankster elites as a consequence of the fractional reserve banking system that is designed to turn everyone and everything into debt slaves that requires the inflation stealth tax to function as I covered at length recently (Bank of England's Quantitative Inflation Bankster's Paradise Inflationary Depression Economy ).

At worst the multi-nationals are to blame for off shoring jobs, but all corporations are charged with maximising profit for their share holders.

The real problem is that people in the west are being over paid, this is part of the mega-trend for the convergence of GDP between the developed and developing world which no government can fight against, basically because there are workers in countries such as China, India, and Brazil who are doing the same jobs as those in the in west for 1/10th of the pay.

This is not just west vs east mega-trend but we see it in Europe today where the likes of Greek public sector workers protesting against downward pressure on wages whilst they are being paid as much as six times as public sector workers doing the same jobs in other european countries such as the Czech republic.

So in many respects the Occupy Wall Street have it wrong, they are fighting to maintain jobs especially in the public sectors that the countries cannot afford and only finance through debt. In fact many of the demonstrators need to fight for less debt and borrowing rather than more for there is no free lunch, all borrowing more money will do is to increase the real rate of inflation, thus making the workers and savers poorer.

Protect Your Wealth From the Quantitative Inflation Mega-trend

The crisis is that the bankrupt banks have bankrupted virtually every western nation. The advantage for the likes of the UK and USA is that these countries are stealthily defaulting on their debts and liabilities by printing money and inflating the debt away as real inflation stands several points above the official indices, something that each and everyone experiences when we go to shop for goods and services. Whilst this avoids the loss of the value of your savings in nominal terms however over the course of INFLATION MEGA-TREND 2010's decade, the value of your savings will STILL BE WIPED OUT because at the end of the day the price is and will continue to be paid by savers and workers in loss of purchasing power of accumulated wealth and earnings.

Contrary to government and central bank propaganda, high inflation is here to stay because :

a. It is a government stealth tax on the workers and savers that especially hits the middle classes hard as it is a mechanism for the transference of wealth to all those who are in receipt of government handouts be they the bankster elite or those on benefits.

b. It is for the purpose for the stealth default on total UK debt (Public+private+unfunded liabilities), that totals in the region of £11 trillion. As a reminder that despite all of the economic propaganda the Coalition government has so far NOT PAID DOWN ANY DEBT, instead debt continues to accumulate at the approx rate of £140 billion a year. The reason for this is simple because the government is not experiencing any financing pain for new borrowings, i.e. 10 year gilt yields are trading at 2.5%, looking at this from another angle, this means investors are willing to loan the UK government money for 10 years at 2.5%, in which case the UK government as would be the case with any borrower, is effectively in receipt of free money as inflation is running at twice the rate of interest charged. Off course this is not sustainable as countries such as the PIIGS have found out, there is always a crunch point when the market wakes up and is no longer willing to finance un payable borrowings.

Therefore a 5.6% RPI means that the value of total UK debt is being devalued and stealthily defaulted on at the rate of £616 billion which is MORE than TOTAL Government Revenues of some £500 billion.

Which is why regardless of what you will read in the mainstream press INFLATION IS the PRIMARY FORM OF TAXATION IN THE UK, that exceeds ALL other taxes put together.

That is why Inflation is perpetual, forever, given the huge benefit enjoyed by government and why all the talk of inflation falling is just worthless propaganda because the government wants / needs inflation. This is something that I espoused right at the very beginning of the current phase of the perpetual inflation mega-trend in January 2010 Inflation Mega-trend ebook (FREE DOWNLOAD).

Therefore the coalition government, as is the case with every government is ONLY focused on one thing and that is to get re-elected, and to achieve this it has to borrow and spend enough money to generate the illusion of economic prosperity in the last year or 2 into the lead up to the next election.

My next series of articles will seek to update the Inflation Mega-trend wealth protection strategies such as Housing (people waiting for prices to fall are forgetting about the effect of inflation), Stocks (summer correction clearly looks over, dividend increasing stocks are leveraged to the inflation mega-trend ) and Commodities (whilst you can mine gold and silver they can't be printed, though oil and agriculture are probably better long-term bets because they are consumed).So ensure you are subscribed to my always free newsletter to get these in your email in box.

Your wealth protecting inflation mega-trend analyst.

Source and Comments: http://www.marketoracle.co.uk/Article31124.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2011 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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Sunday 16 October 2011

Bank of England's Quantitative Inflation Bankster's Paradise Inflationary Depression Economy

The Market Oracle Newsletter
October 15th, 2011            Issue #19 Vol. 5

Commodities Currencies Economics Housing Market Interest Rates Education Personal Finance Stocks / Financials Real Gems

Bank of England's Quantitative Inflation Bankster's Paradise Inflationary Depression Economy

Stocks Stealth Bull Market 2011 Ebook (Mar2011) Direct Download Link (PDF 2.8m/b)

Interest Rate Mega-Trend Ebook (Mar2011) Direct Download Link (PDF 2.3m/b)

Inflation Mega-Trend Ebook (Jan 2010)  Direct Download Link (PDF 3.2m/b)

Dear Reader

The Bank of England recently hit the panic button again by announcing another print run of £75 billion (electronically), which is in additional to the £200 billion already printed since March 2009. The news has been accompanied by much economic propaganda across the media sphere from the Bank Governor Mervyn King and Politicians including Osbourne and Cameron to the BBC's journalists / pseudo economists virtually all in unison reading from the same script of printing £75 billion being necessary to boost the UK economy in the face of the imminent threat of Recession / Deflation.

Mervyn King's Money Printing Propaganda :

“CPI inflation rose to 4.5% in August. The present elevated rate of inflation primarily reflects the increase in the standard rate of VAT in January and the impact of higher energy and import prices. Inflation is likely to rise to above 5% in the next month or so, boosted by already announced increases in utility prices. But measures of domestically generated inflation remain contained and inflation is likely to fall back sharply next year as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists.

The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term. In the light of that shift in the balance of risks, and in order to keep inflation on track to meet the target over the medium term, the Committee judged that it was necessary to inject further monetary stimulus into the economy. The Committee therefore voted to increase the size of its asset purchase programme, financed by the issuance of central bank reserves, by £75 billion to a total of £275 billion. The Committee also voted to maintain Bank Rate at 0.5%. The Committee expects the announced programme of asset purchases to take four months to complete. The scale of the programme will be kept under review.”

Inflation will undershoot the 2% target in 2 years time? Where have we heard that before ?

We have had central bank propaganda for the whole of the past 2.5 years of quantitative easing that is more correctly termed as quantitative inflation, that CPI inflation would imminently fall below 2%, which I warned off in March 2009 (05 Mar 2009 - Bank of England Ignites Quantitative Inflation ).

Instead of deflation, savers and workers have been setup for a decade of HIGH INFLATION as covered at length in the January 2010 Inflation Mega-trend ebook (FREE DOWNLOAD), because once QE money printing starts then it won't stop whilst large budget deficits exist sending the economy into a state of stagflation which is precisely where the UK economy stands as illustrated by the below inflation graph that has seen UK inflation on both official measures remain not just stubbornly above the 2% CPI target but also above the Bank of England's upper limit of 3%, this despite all of the public announcements of economic austerity, tax hikes, spending cuts and spare capacity that would result in inflation falling as per economic propaganda iterated at length on BBC news bulletins for approaching 2 years now.

However, whilst the official inflation rate is at CPI 4.5% and RPI 5.2%, actual inflation as experienced by most people in Britain currently stands at a hideously high 6.8%, which explains why your weekly groceries bill is inflating at a rate twice the official inflation indices that have been manipulated by successive governments to under-report the true rate of inflation.

Quantitative Easing / Inflation Theft of Wealth from Savers and Workers

The British population continues to be fooled by economic smoke and mirrors propaganda into bailing out the bankster's at unlimited liability so that no bankster generated bad debts have been defaulted upon, every bond issued by the bankster's that they continue to collect bonuses upon is still being honoured by the tax payers of Britain at huge personal expense that will continue to be born for many years if not decades.

The primary mechanism for this stealth theft of wealth is by means of high real inflation induced loss of purchasing power of earnings that has been effectively masked from the public in the UK who are increasingly experiencing the real pain of not being able to maintain their standards of living without triggering angry public demonstrations compared to those that take place in Greece on a near weekly basis in the face of actual pay cuts, as Greece being part of the Euro-zone means it's government is unable to print money and use the inflation smoke and mirrors illusion to steal its populations wealth, but rather it is ultimately for German tax payers to finance the Greece state with loans that will never be repaid even in nominal terms let along real terms. Off course this is out of self interest to preserve and protect their own bankster's that rule Germany with nearly as iron an fist their last dictator.

However theft of wealth by means of inflation is nothing new because governments printing to buy votes is a perpetual policy of ALL governments as the below graph illustrates the steady theft of purchasing power of sterling on the RPI inflation measure shows that over the past 24 years near 60% of the purchasing power of sterling has been stolen and funneled to those that control the printing of money, namely the banking elite.

Therefore the workers of Britain are in the exact same boat as the workers of Greece, it's just that for the Greeks the theft is obvious as they actually see their pay being cut, whereas in Britain the theft is executed stealthily, slyly by the masters of economic propaganda with chief propagandists such as Mervyn King uttering soothing phrases every now and then of temporarily high inflation that the mainstream press and academic economists (vested interests) lap up and regurgitate at length so as to manage the populations inflation expectations.

Savers experience the stealth theft of wealth where even the best savings accounts paying 3% are still resulting in a loss of life time accumulated wealth to tune of at least 3% per year (RPI and after basic income tax). For savers to just break even they would need to be in receipt of a savings rate of at least 6.2%. Savers you have been fooled, fooled into believing that bailing out the banks was to protect your savings. Instead you have lost at least 10% of the value of your savings since September 2008, your savings are effectively being stolen and funneled to the banks to gamble with without risk of loss as they know the tax payer will always step in to bail them out and savers will ultimately pick up the tab.

The workers of Britain are now losing out the tune of 5% per annum. the trend is pretty much in line with my analysis of (04 Mar 2011 - Inflation and Tax Rises Crush Britain's Middle Class, Real Earnings 25% Drop!) that warned that peoples should expect to lose between 15% to 25% of the net real terms value of their earnings over the next 2-3years. This is now taking place as a consequence of the three policies of quantitative easing (Inflation), Tax rises (VAT,duty, tax free allowances frozen) and economic austerity (cuts in benefits such as tax credits and child benefit, cuts in public services that now have to be paid for privately).

Britain's Bankster's Paradise Debt Based Economy

You think your living in a democracy? Think again, because your living in a bankster's paradise that controls your lives in totality, this is as a consequence of the fractional reserve banking system. The words fractional reserve banking may not sound very dangerous, but the fractional reserve banking system is designed to eventually turn everyone and everything (including governments) into DEBT SLAVES, as over time virtually ALL (99%) of the money in an economy turns into DEBT MONEY i.e. it is virtually all borrowed money created by the banks that constantly requires more money to be created / loaned out to service the interest charged on existing debt money and hence the natural outcome is to end up where either Greece is today or an hyperinflationary collapse.

All countries are heading towards bankruptcy as a consequence of the fractional reserve banking system which has bankrupted Greece and is going to Bankrupt Britain, it is not a question of IF but WHEN because the system of fractional reserve banking theoretically ensures that eventually ALL of the economic activity of a country would be utilised to service its DEBTs.

This is where Greece is now, its debt burden is exploding, it won't be long until theoretically ALL of the Greek governments revenues will be required to service its debt interest, an impossibility which means bailout debt is being piled onto existing debt all the way towards a certain default, therefore there is nothing that the German or French politicians can say or do to prevent this outcome, instead they should be worrying about where their respective countries trend on the path towards bankruptcy because they are all part of the same Euro-zone bankrupting club and it won't be long until the PIIGS have many new members such as Belgium and France as ratings agencies play catchup to downgrade bankrupt countries.

Similarly Britain is firmly trending towards bankruptcy, it is defaulting on its debts by means of high inflation as I have iterated numerous times over the past 2 years and most notably in June 2010 (29 Jun 2010 - UK ConLib Government to Use INFLATION Stealth Tax to Erode Value of Public Debt ), at the time the FT's Martin Wolf disagreed with me, now a year on inflation is far higher as opposed to the propaganda of inflation falling to below 2% by now, as illustrated below by the Bank of England Inflation forecast graphs that show that it's economic forecasts amount to nothing more than economic propaganda to massage the inflation expectations of the general population, why does the mainstream press never acknowledge what is staring them in the face?

Bank of England August 2009 Inflation Report

Two years ago (August 2009) the Bank of England continued with its mantra of persistent threat of deflation as UK inflation was to target a rate of below 2% not only by August 2011 but for the whole of the next 2 years as illustrated by the graph. Instead the reality has been that not only has inflation remained above the 2% target, but also above the 3% upper limit for virtually the whole of the past 2 years.

Bank of England August 2010 Inflation Report

The mantra of spare capacity and downward pressure on wages to resolve in disinflation continued in the August 2010 Inflation Report. CPI for August 2011 was forecast to resolve to 1.8%, as opposed to the actual inflation rate of 4.5%.

UK Public Debt

Economic Austerity exists in only words as the UK Coalition government spending continues to grow each and every year which means that the deficit persists as the below debt graph illustrates. So far the coalition government has done nothing that the Labour government would not have done in terms of the debt and deficit which remain on the SAME trajectories i.e. total debt is now expected to target £1.1 trillion by March 2012 which is set against the March 2010 Labour budget projected debt of £1.08 trillion, no difference, which illustrates the illusion of political parties having any real power in terms of being able to act against the debt based economy.

Of course total government debt is actually about X5 higher then official public debt at between £4.5 to £5 trillion when one takes in account total liabilities as illustrated by my last analysis and projection of May 2009.

Off course public debt and liabilities is not total debt, for on top of this we have private sector debt of banks, corporations and individuals that is usually more than public debt, therefore UK private debt is at least £5 trillion though more probably nearer to £8 trillion, given the fact that the bankrupt banks alone are sitting on approx £4 trillion of debt.

Therefore it is no good the people of Britain thinking that Greece is different to Britain, because the only real difference is TIME, we are just as bankrupt as Greece, the same goes for most of the rest of the Euro-zone including the usual PIIGS suspects and then France, with only Germany and the small Nordic countries in a pre-bankruptcy state. I should also point out that America is also bankrupt and so is Japan. My next analysis will look at how to protect your wealth and savings from bankrupting countries (FREE NEWSLETTER).

The Perpetual Debt Inflation Based Economy

The only answer / solution that the governments have remains as I have iterated countless times during the past few years, that of stealth default by means of high real inflation, and hence the Inflation Mega-trend. Inflation is a REQUIREMENT for the Debt Based Economy, this is how governments keep putting off the day of reckoning by inflating the debt away and then borrowing more money to service the debt interest which is why virtually all money in an economy is debt money that will NEVER be repaid.

The formula is simple the greater the Debt (debt to GDP) then the greater will be the Inflation.

When George Osbourne and David Cameron are telling you that they are paying down Britain's debt, they are LIEING! NO GOVERNMENT DEBT IS BEING REPAID OR WILL EVER BE REPAID!

David Cameron recently rewrote his Tory party conference speech because it went against the debt based economy which requires ever expanding debt:

The text of his speech circulated to Journalists instructed households to pay off their debts.

‘The only way out of a debt crisis is to deal with your debts. That means households – all of us – paying off the credit card and store card bills.’

Which he changed to :

'The only way out of a debt crisis is to deal with your debts. That’s why households are paying down their credit card and store card bills.’

Yes, there is a credit crisis, which means the banks or reluctant to lend, but the governments are PRINTING debt like there is no tomorrow (budget deficits), if necessary they will do what Helicopter Bernanke has done, which will be to drop money from the sky to increase the velocity of money, off course first to the bankster's that own virtually everything (if you have a mortgage then you don't own your home), but eventually as a last resort free money will be handed out to every citizen to spend.

There is always another more inflationary option available to governments to ensure that deflation will be avoided, that option is war which the United States and Britain have been quite busy exercising over the past decade which implies these countries should experience higher inflation then the less blood thirsty countries out there, which is evident when comparing the inflation rates on a league table of country blood lust, this also means that we can expect more wars, so it is unlikely that Iraq and Afghanistan are the end but perhaps just the beginning of many more inflation driven wars.

You should by now be realising that the over-whelming commentary about the threats and risks of debt deflation are nothing more than propaganda so as to allow policies such as quantitative easing (money printing) to be more palatable to the general populations so as to ensure that the Inflation Mega-trend continues, therefore a good 90% of what you read in the mainstream press which is regurgitated by the blogosfear is wrong.

The Inflation Mega-trends / Inflationary Depression

The official CPI inflation indices illustrate the facts of what has actually transpired during the whole period of deflation propaganda mantra of the past 2.5 years.

The actual trend for the UK has been of one of continuing accelerating inflation, where the great deflationary recession of 2008-2009 of barely 2 years ago has become only vaguely visible as an inconsequential blip along the path of the Inflation Mega-trend. Do you see that little dip near the end of the above graph ? Well that inconsequential non event which was yet again taken by the mainstream press and Deflationists to run and cry deflation, just as every single minor downward blip during the past 2.5 years has been followed by something similar, if this type of reaction in disregard of the primary trend is not delusional than what is it ?

In fact take a second look at the inflation graph and another point should stand out that usually gets lost when one focuses on the year on year changes, i.e. today's UK inflation is 4.5%, last years was 4% etc... What the above graph reminds us of is that the rate of increase in inflation is COMPOUND, which tells you that the rate of decent in the value of money is exponential, i.e. even if inflation stays at 4% per annum, that does not translate in a 40% loss of purchasing power over 10 years but rather 50% because the rate of loss of purchasing power is exponential, just keep that in mind whenever you hear the year on year inflation figures that the Inflation curve is always steepening.

Meanwhile, the United States has experienced milder inflation since the Great Recession of 2008-2009. However this is set against the mantra of deflation that implies the complete opposite of what actually has transpired despite the worst recession since the Great Depression. So all of the talk of the U.S. being in deflation for the past 2.5 years has been delusional which does not match the reality of what actually has taken place and given the ongoing multi-trillion dollar deficits looks set to feed a trend for a stagflationary economy for the U.S. for many more years or an Inflationary Depression i.e. not a repeat of the 1930's or the 1970's but something new. Something more akin to low growth and high inflation (above target), which is actually good for stocks because corporate revenues and profits are inflated whilst wage costs are deflated, but bad for the general populations of most western countries who are squeezed to work harder for less real terms pay.

The UK personifies the Inflationary Depression with its CPI of 4.5% and GDP of 1.1%.

The bottom line is that Quantitative Easing should more correctly be termed as Quantitative Inflation, and Inflation is nothing more than the stealth theft of wealth from workers and savers. The additional £75 billion will be leveraged to over £1 trillion of debt money by the banks by means of the fractional reserve banking system which over time will add to already high inflation, this is what the government wants / needs, for it needs the bankrupt banks to create money to buy the bankrupt governments debt that continues to be printed at the rate of a net £150 billion per year.

Now if you disagree with my analysis, then before you start emailing me about why debt deflation must happen, then first read my Inflation Mega-trend Ebook (FREE DOWNLOAD) because the sum of the whole analysis includes climate change, scarcity of resources i.e. peak oil, changing demographics, and the rise of Chindia - ALL contributing to the perpetual Inflation mega-trend.

Hyperinflation?

To repeat what I have stated in the past, hyperinflation is a political panic event when the regime is in danger of imminent collapse and the government presses the monetary doomsday button of printing physical notes by the container load to prevent deflation resulting in the loss of confidence in the currency, all countries are trending towards hyperinflation but that does not mean that it is imminent, or predictable, in fact I continue to see no evidence for an hyperinflation event, not today, nor tomorrow, or for the whole of 2012. Still protecting yourself against the Inflation mega-trend ensures your protected against Hyperinflation (even though it still appears highly unlikely in the UK or USA for the for seeable future).

My next article / newsletter (within the next few days) will update on what savers and investors should do to protect themselves from quantitative inflation and the bankrupting banks, subscribe to my always free newsletter to get this analysis in your in box.

In the meantime see my earlier June article on protecting your bank deposits in at least nominal terms - Bankrupt Greece Blackmails Europe, Bailout or Euro Zone Dies, Global Financial System Collapse as excerpted below:

UK Safe Retail Banks List

The following table lists Britain's major retail banking groups (separate licences) in terms of the percentage probability that your deposits above the UK compensation limit of £85k and Euro-zone banks 100,000 (current £/E £86k) would be secure in the event of a series of euro-zone debt defaults starting with Greece and that the crisis is contained to these smaller peripheral euro-zone countries i.e. Greece, Portugal and Ireland, if Spain comes under real risk of default then that would require a revaluation of this list as banks such as Santander would come under far greater pressure given exposure to Spanish government debt.

Banking Groups (separate Licences) Probability Deposits over £85k are Safe
National Savings & Investments
99%
Tesco Bank
80%
HSBC
75%
Co-op
75%
Standard Chartered
65%
Santander Group
50%
Barclays
35%
ING Direct
25%
Nationwide BS
20%
CitiGroup
20%
Lloyds TSB
10%
HBOS
10%
Nat West
5%
RBS
5%
Allied Irish
1%

 

Stock Market Update

(07 Aug 2011 - Stock Markets Panic Crash Continuing, Is the Stealth Bull Market Over?):

I will endeavour to also include an update on the stock market in my next newsletter, however I usually only do analysis when I need to know something, instead my view on the stock market has remained constant for the duration in that the sell off during the summer into the end of September has presented great opportunities to accumulate target stocks for the long run as consistently dividend increasing stocks are leveraged to the inflation mega-trend.

Your Inflation mega-trend investing wealth protecting analyst.

Source and Comments: http://www.marketoracle.co.uk/Article30989.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2011 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of three ebook's - The Inflation Mega-Trend; The Interest Rate Mega-Trend and The Stocks Stealth Bull Market Update 2011 that can be downloaded for Free.

Stocks Stealth Bull Market Ebook DownloadThe Interest Rate Mega-Trend Ebook DownloadThe Inflation Mega-Trend Ebook Download

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 600 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive
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The Market Oracle is a FREE Financial Markets Forecasting & Analysis Newsletter and online publication.
(c) 2005-2011 MarketOracle.co.uk (Market Oracle Ltd) - The Market Oracle asserts copyright on all articles authored by our editorial team. Any and all information provided within this newsletter is for general information purposes only and Market Oracle do not warrant the accuracy, timeliness or suitability of any information provided in this newsletter. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We recommend that independent professional advice is obtained before you make any investment or trading decisions. ( Market Oracle Ltd , Registered in England and Wales, Company no 6387055. Registered office: 226 Darnall Road, Sheffield S9 5AN , UK )

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--

Saturday 1 October 2011

October Home Buyer's Newsletter

To unsubscribe, do not hit reply. See instructions
at the end of the newsletter.

+++++++++++ October 1, 2011 +++++++++++++++++++

CONTENTS:

Introduction: Resale and New Home Activity Up from August, 2010
Mortgage Rate Update: Another Large Decline in Rates
This Month's Tip: Establishing Your Timeline
++++++++++++++++++++++++++++++++++++++++++++

Introduction: Resale and New Home Activity Up from August, 2010

Welcome to the October edition of the Home Buyer's Newsletter.

The up-and-down trend of home sales activity continued in the month of August with
both existing-home and new home sales showing increases from the levels seen in August,
2010.

Existing-home sales increased in August, even with ongoing tight credit and appraisal
problems, along with regional disruptions created by Hurricane Irene, according to the
National Association of Realtors®. Monthly gains were seen in all regions.

Total existing-home sales, which are completed transactions that include single-family,
townhomes, condominiums and co-ops, rose 7.7 percent to a seasonally adjusted annual rate
of 5.03 million in August from an upwardly revised 4.67 million in July, and are 18.6
percent higher than the 4.24 million unit level in August 2010.

Lawrence Yun, NAR chief economist, said there are some positive market fundamentals.
"Some of the improvement in August may result from sales that were delayed in preceding
months, but favorable affordability conditions and rising rents are underlying motivations,"
he said. "Investors were more active in absorbing foreclosed properties. In addition to
bargain hunting, some investors are in the market to hedge against higher inflation."

Sales of new single-family houses in August 2011 were at a seasonally adjusted annual
rate of 295,000, according to estimates released jointly on September 24 by the U.S.
Census Bureau and the Department of Housing and Urban Development. This is 2.3 percent
(±13.9%) below the revised July rate of 302,000, but is 6.1 percent (±18.8%) above the
August 2010 estimate of 278,000.

The median sales price of new houses sold in August 2011 was $209,100; the average sales
price was $246,000. The seasonally adjusted estimate of new houses for sale at the end of
August was 162,000. This represents a supply of 6.6 months at the current sales rate.

+++++++++++++++++++++++++++++++++++++++++++++

Mortgage Rate Update: Another Large Decline in Rates

September showed another large decline in long-term mortgage rates with 30-year
fixed-rate averages falling nearly 25 basis points (a quarter point in rates).
According to mortgage company Freddie Mac, 30-year fixed-rate mortgages averaged
4.01% in the period that ended September 29th after beginning the month at an
average rate of 4.22%. 15-year fixed-rate mortgage loans averages also fell,
declining from 3.44% at the beginning of September to 3.28% at the end of the
month.

For current average mortgage rates, see:
<A HREF="http://www.ourfamilyplace.com/homebuyer/rates.html">Mortgage Rates</A>
For an extensive discussion of all aspects of mortgages, see the section on the
site devoted to this subject. <A HREF="http://www.ourfamilyplace.com/homebuyer/mortgage.html">Mortgages</A>

++++++++++++++++++++++++++++++++++++++++++++++

Sponsor: Looking to Compare Agents? Try HomeGain.com

The most important part of your team for buying a home should be
your real estate Agent. Want to anonymously (and without obligation)
compare Agents? You can compare experience, background and
much more at HomeGain.com.

<A HREF="http://www.homegain.com/sp/ae_intro.html?entryid=2267&ht=houseclicksAE">Compare Agents</A>

++++++++++++++++++++++++++++++++++++++++++++++

This Month's Tip: Establishing Your Timeline

Buying a home takes time. This is true no matter what the current
market conditions are, how much inventory is available or the type of
financing you choose. Since it mose likely will be the biggest purchase
of your life, this longer time frame works to your advantage since it
usually does not allow you to rush into a purchase.

In general, it is usually a good idea to budget anywhere from 90 to
120 days for the purchase of a home, measured from start until finish.
This includes time for personal budget preparations, housing research
as well as the actual purchase (contract), inspection and financing
processes. Having a timeline--and a gameplan to go with it--mapped out
before you begin to search for a home can save a great deal of time--
and aggravation--down the road.

Your first step, which you will want to begin at that 90 to 120 day
from your estimated move point, is to analyze your personal situation.
This will include some self-questioning of your mindset and priorities.
Some questions you will be wanting to ask yourself include:

+ Do we REALLY want to buy a home?
+ Can we comfortably afford to buy a home?
+ Do we want to buy in the immediate area or would we consider other
areas (including other areas of the country)
+ What are some of the absolute necessities in the home? What would
we LIKE to have? What things are not necessary? What do we definitely
NOT want in a home

You will want to begin this self analysis sooner if you are in an active
real estate market with a limited number of properties available since
finding the right home may take more time. If there are plenty of homes
to choose that will fit your needs, you will have more leeway in your
timeline. IN most areas of North America, inventory is currently at
fairly high levels, meaning that chances are fairly good that you will
have a fairly extensive range of choices.

After you have determined the basics (DO we want a home and what type
of home do we want) it is important to begin the financial considerations
since this will have a big bearing on your purchase. This analysis should
occur before you even consider looking at homes, a mistake many buyers
make. By understanding just how much home your budget can afford you
can direct your home search in the right direction. You can find
information on financial considerations on the site here:
<A HREF="http://www.ourfamilyplace.com/homebuyer/financial.html">Financial Considerations</A>
and here:
<A HREF="http://www.ourfamilyplace.com/homebuyer/moneytips.html">Budget Tips</A>

It is only after you have a clear picture of these financial and
budget considerations that you begin the process of shopping for a
mortgage. This can come as late as 60 days prior to your preferred
moving date, but the earlier you have things in line the better
prepared you will be.

We have a complete overview of a timeline for purchasing a home
on the Home Buyer's Information Center website, which can be
accessed here:
<A HREF="http://www.ourfamilyplace.com/homebuyer/timeline.html">Home Buying Timeline</A>

Next Month's Tip: Moving Preparations

++++++++++++++++++++++++++++++++++++++++++++++

The Home Buying Checklist

Many of our visitors have said that one of the most valuable
aspects of the Home Buyer's Information Center is the
Buying Checklist, where they can make sure that all
the bases have been touched. You can find the checklist
here: <A HREF="http://www.ourfamilyplace.com/homebuyer/checklist.html">Home Buyer's Checklist</A>

A special thanks to all those who have written to let us know
that they have found the Home Buyer's Information Center a
helpful resource in their buying process.

Have a great month and good luck in all your endeavors!

The Team at the Home Buyer's Information Center

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