From Volume 5, Issue Number 19 of EIR Online, Published May 9, 2006

U.S. Economic/Financial News

LaRouche: Bernanke Has Lost Control of Post-Greenspan Era

Forecasts of an imminent crash on the super-inflating commodities markets, have been coming from many (particularly Swiss and British) analyst and banking sources in recent days. Henderson Global Investors Fund, and Legg Mason brokerage, are among the best-known of institutions suddenly forecasting a near-term commodities markets collapse. Swiss-based Tiberius Asset Management warned, "The risk of prices collapsing is now very high"; and a well-known veteran copper trader, David Threlkeld, said, it's increasingly likely that "copper will implode overnight," comparing metals futures to the NASDAQ dot-com stocks of late 1999. The main association of users of copper, the International Wrought Copper Council (IWCC), held a London press conference to release a letter to the London Metals Exchange, saying "wolfpack speculators" in hedge funds have shanghaied and stampeded the LME into wild inflation; the IWCC implied it may try to set prices independent of (below) LME prices. Some 95% of all base metals trading is done on the LME. Hedge-fund trading volume is now ten times what it was in 2001, and dominates the LME's $4.5 trillion annual trading volume.

Lyndon LaRouche stressed that forecasts of a commodities crash do not mean there will be one: What they do mean, was identified by a London financial figure to EIR's Wiesbaden, Germany intelligence staff this week—"Ben Bernanke has lost it already. Bernanke has lost all credibility," by publicly shifting back and forth several times in a few weeks on interest-rate policy, and thus has lost all control of the "post-Greenspan era." LaRouche has explained repeatedly, around his April 20 hyperinflation warning statement, that the central banks are caught between trying to stop runaway inflation, by raising rates, and trying to save collapsing housing bubbles, by not raising them. Bernanke, the top central banker, has already lost his nerve.

Hyperinflation of Metals Continues

Copper prices surged May 4 by 5.4%, the greatest one-day rise in 18 years, reaching a new record. Copper rose $550, to $7,660 per metric ton, on the London Metals Exchange, and in trading on the New York Mercantile Exchange, it rose to a level of $3,485 a pound, an increase of 5.4% in one day. Other metals needed for construction and making steel also rose: tin, 4.8%; nickel, 3.6%; and zinc, 6.8%, all in one day. Gold was falling in trading in London, but by afternoon had hit a new record, $680 an ounce in trading on the New York Mercantile Exchange.

Rotten Mortgage Debt Piling Up Higher and Deeper

Cash-out refinancers, i.e., people using their homes as a form of ATM, hit a 15-year high in the first quarter of 2006. In fact, according to a May 2 report from Freddie Mac, a whopping 88% of its mortgage loans that were refinanced in the first quarter resulted in new mortgages with loan amounts that were at least 5% higher than their original mortgage balance. This percentage was up from 81% in the fourth quarter of 2005 and was the highest since the third quarter of 1990—right before the real estate boom of the 1980s ended. For the first time in five years, more than half of all refinanced mortgages carried an interest rate higher than on the former mortgage. Most of those taking out such mortgages are said to be people willing to lose more of their equity and pay higher interest rates, in order to switch from adjustable-rate to fixed-rate mortgages.

In California, mortgage default notices for homeowners hit the highest level in more than two years, as lenders sent 18,668 default notices—an early indicator of possible foreclosures—in the first quarter, up 23.4% from the fourth quarter of 2005, and up 28.7% from year ago, according to DataQuick Information Systems.

Not surprisingly, then, the parent company of the nation's largest subprime mortgage lender, based in Orange County, Calif., is closing all of its retail branches, and eliminating one-third of its workforce. ACC Capital Holdings, parent of Ameriquest Mortgage, is cutting 3,800 jobs and shutting 229 branches of Ameriquest. Subprime loans is a fancy term for swindling poor schnooks who don't qualify for a mortgage into taking a high-interest loan to purchase a home. Facing an investigation of its activities in 49 states, Ameriquest agreed in January to pay $325 million and change "business" practices, shortly before its founder, Roland Arnall, was rewarded by being sent to the Netherlands as Bush's Ambassador.

Home Resale Figures Now at Level in Two Years Ago

Sales of existing homes fell 1.2% for the month of March, to the lowest level since February of 2004. Sales for all of 2006 are now expected, according to the "experts," to fall 6%. Fed chairman Ben Bernanke was doing his best to argue that the housing market will experience a "soft landing" rather than a "sharp slowdown," but in the meantime, Bloomberg reports May 1 that "homebuilder optimism" has fallen to its lowest level since 2001.

Meanwhile, the Washington Post has taken front-page notice that, in the 20176 Zip code in Leesburg, Va., the area identified as "ground zero" for the blowout of the housing bubble, by Lyndon LaRouche, homes are now staying on the market longer than any other region in the Washington, D.C. metro area.

Realtor: 2006 Housing Foreclosures Could Top 1 Million

The first-quarter report from RealtyTrac on nationwide home foreclosures, released May 1, indicates the widespread nature of the collapse. The ten states with the highest foreclosure rates are, in order, Georgia, Colorado, Indiana, Nevada, Michigan, Texas, Ohio, Tennessee, Utah, and Florida. Georgia, where 24,419 homes have entered some form of foreclosure process, had the highest rate, with one of every 127 homes in foreclosure. Michigan, with 22,917 homes in foreclosure, showed the nation's highest increase in the rate of foreclosure, up an astounding 416%. In Tennessee, rates were up 92% from a year ago, and 147% from the previous quarter. The District of Columbia showed a similar increase of 127%. And, although their overall rates were not as high, California showed a 86% increase from a year ago, and Virginia 127%.

A RealtyTrac consultant commented that, "Foreclosures have now increased in four consecutive quarters and are on track to go above 1.2 million in 2006, which would push the nation's annual foreclosure rate to more than 1% of U.S. households."

New Orleans Mental-Health Facilities Nonexistent

Once considered among the nation's finest, New Orleans mental-health facilities are all shut down, partly because FEMA is not allowed to dispense funds for operation, only reconstruction, the Washington Times reported May 1. Nurses are now reporting a rise in calls from people who are suicidal, with no prior history of mental illness. Patients are lining the halls of emergency rooms at already-overcrowded acute-care hospitals, a situation not conducive to anyone's mental health. The timing here is critical, because in cases of shock trauma, symptoms only begin to manifest themselves in about a year's time.

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