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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Elroy Jetson who wrote (51209)	1/24/2006 6:43:28 PM
From: shades	Read Replies (1) \| Respond to of 110194

=DJ US Current Account Deficit May Be Near Optimal -Study By Campion Walsh Of DOW JONES NEWSWIRES WASHINGTON (Dow Jones)--The U.S. current account deficit may be near optimal levels based on expected economic growth trends among wealthy countries, according to a study co-authored by a Federal Reserve economist. Dramatic growth in the U.S. share of gross domestic product - net of investment and government spending - among wealthy countries has been "one of the most striking economic developments of the last 25 years," according to the study by Fed economist John Rogers and University of Wisconsin Professor Charles Engel. While noting major caveats, the study finds "the size of the U.S. current account deficit may be justifiable if markets expect further growth in the U.S. share of advanced-country GDP." A country's current and expected-future share of world economic output determines its optimal ratio of consumption to output, Engel and Rogers say. The authors say their modeling could contain important flaws undermining the idea that the U.S. current account reflects optimal consumer decisions. If simplifications and assumptions in the study are wrong, "it may turn out, as many have been warning, that the deficits have put the U.S. on the path to ruin," the economists say. The study's findings could falter if East Asian economies reverse their role as large net savers and lenders in international capital markets, or if the U.S. loses the "exorbitant privilege" that allows it to earn higher rates on its foreign investments than foreigners earn on investments in the U.S., they say. The economists also say they were unable to reach firm conclusions about the path of foreign exchange rates over the next 25 years. But their study cites long-term economic growth trends that appear to justify the size of the U.S. current account deficit relative to economic growth expectations. The U.S. share of net GDP among the Group of Seven plus Switzerland, Sweden and Norway has grown to about 44% in 2004 from about 39% in the late 1970s. The study's baseline projection shows this share is expected to grow at a slower pace to 47% in the next 25 years, according to the working paper study, released this month by the National Bureau of Economic Research. Since 1993 consensus long-term forecasts have consistently and widely underestimated U.S. economic growth relative to G7 countries as a whole, the study says. "The current forecasts for the future, however, show that the markets expect a large increase in U.S. share of GDP - almost precisely the amount that we calculate would make the current level of deficit optimal," it says. Federal Reserve Chairman Alan Greenspan and other Fed officials have said recent sharp growth in the U.S. current account deficit - the broadest gauge of the country's trade gap with the rest of the world - can't persist indefinitely. The deficit reached $195.8 billion, or 6.2% of GDP, in the third quarter of 2005, and it is expected to have hit a record for 2005 as a whole. In a speech last month, Greenspan suggested he has become less concerned about the trade deficit's potential to spark financial market turmoil because the deficit stems partly from a global increase in cross-border trade and investment. But he also warned of dangers from unchecked U.S. government budget deficits and the potential for protectionist barriers to international trade. -By Campion Walsh; Dow Jones Newswires; 202 862 9249; campion.walsh@dowjones.com

To: Elroy Jetson who wrote (51209)	1/24/2006 8:11:53 PM
From: Ramsey Su	Respond to of 110194

NS, when the cost of fund changes, there is always a lag before an adjustable loan adjusts. Even an ARM that adjust monthly may have 30 days before the change takes effect on the borrower. It is the lender who have the "risk" for that period. Furthermore, if COF spikes higher than the periodic caps that most ARMs have, it is again the lender that bears the risk. As for deficiency judgements, there are exceptions. The one that I wonder the most about is fraud, specifically, loan fraud committed by overstating income on their loan applications. I have brought this up numerous times before. What if defaults all of a sudden start to go sky high, wouldn't it trigger some type of an audit by one or more of the many parties involved in mortgages today? So you find all these stated income loans with totally fabricated incomes, would "they" not be forced to take appropriate action just to make sure their behinds are covered? It could be a real mess.