The Next 10 Shoes To Drop: OptionARM Explosion

Anyone referring to the "subprime crisis" has got to get with the program. The subprime wave of defaults is basically over. Now the question is, what about all the other types of mortgages? You know, OptionARM, Alt-As and of course, good old fashioned prime mortgage.

The big wave of OptionARM resets has yet to come, and given the drop in home prices, refinancing won't be realistic. Let's hope the homeowners can afford their new monthly payments.

and interest rates are climbing and there`s nothing the Fed can do about it because their Trillion dollar deficit spending is causing it.

Bingo! The government and Fed idiots have check-mated themselves (and us) right into a corner of financial and economic disaster.

I have a tough time getting my head around this economic minutiae, but I think Denninger's take on a deflationary death spiral is more logical and more likely given the circumstances.

I don't think we're going to see hyperinflation, because all this extra cash the fed is printing isn't going to find its way into the hands of average consumers. Consumers simply won't have wheelbarrows full of devalued currency to drive hyperinflation with.

Increasing interest rates, increasing unemployment, and still-decreasing property values is already causing a situation where demand simply collapses.

There will likely be mild inflation as producers try to pass along the costs of increased taxation from the central government, but consumers are and will remain broke, so there will be no demand-side drive for hyperinflation. I think we'll see Carter-era "stagflation", only much much worse.

It's a never ending discussion, but I disagree with Denninger on the deflation/inflation issue. With the unprecedented level of debt the government is set to issue, buyers are already demanding and getting higher interest rates. This will affect every other form of lending. China laughed Geitner off the stage last week when he told them we had a sound monetary policy. They as well as all the other countries calling for a new reserve currency realize that at some point soon, the dollar will become so worthless, that a new reserve currency is needed with utmost urgency.

If the government continues force feeding the bond market enormous amounts of debt like they are indicating, at some point one of the main buyers (China? Japan?) will realize they cannot afford to invest anymore money into this deficit spending black hole. When they stop buying Treasuries and head for the bond market exit door trying to sell what US Treasuries they have amassed, that will spark a panic for other countries to quickly follow suit dumping their holdings, causing bond interest rates to rocket upward which could cause a bond market collapse.

When that happens, the dollar will immediately take a large devaluation practically overnight. We will wake up the next morning and see high inflation staring us straight in the face. Prices at that point won't have anything to do with consumer demand for goods and services. High inflation will occur quickly because the dollar valuation crashed. JMO.

Maybe, but the 30 year bonds saw 29 billion in tendered offers for only 11 Billion worth of bonds.

http://www.treasurydirect.gov/instit/annceresult/press/preanre/2009/R_20090611_1.pdf

Seems like a success(?)

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