Japanese Financial System Is Beginning To Spin Wildly Out Of Control

The financial system of the third largest economy on the planet is starting to come apart at the seams, and the ripple effects are going to be felt all over the globe.  Nobody knew exactly when the Japanese financial system was going to begin to implode, but pretty much everyone knew that a day of reckoning for Japan was coming eventually.

After all, the Japanese economy has been in a slump for over a decade, Japan has a debt to GDP ratio of well over 200 percent and they are spending about 50 percent of all tax revenue on debt service.  In a desperate attempt to revitalize the economy and reduce the debt burden, the Bank of Japan decided a few months ago to start pumping massive amounts of money into the economy.

At first, it seemed to be working.  Economic activity perked up and the Japanese stock market went on a tremendous run.  Unfortunately, there is also a very significant downside to pumping your economy full of money. Read more >>

Eurozone Unemployment Hits Record High

The European Central Bank is widely expected to make an interest-rate cut this week to try to invigorate the eurozone’s ailing economy after unemployment in the region climbed to a record high and a key survey of manufacturing showed the sector to be at its weakest in three years.

Attention is back on the ECB’s role in helping the eurozone emerge from its debt crisis, after last week’s EU summit agreed that the central bank should play a role in common bank supervision. Leaders also backed the view of Mario Draghi, ECB president, that eurozone bailout funds should be offered directly to recapitalize struggling banks.

Few analysts expect the ECB to offer politicians a quid pro quo this week by giving further direct support to banks or governments such as more cheap loans or bond buying. But markets are pricing in the likelihood that the ECB will respond to worsening economic data by cutting its main policy rate to below 1 per cent for the first time – a step that should help peripheral eurozone banks that rely on central bank borrowing. Read more >>

Home Loan Demand Drops, Refinancing Loses Luster

U.S. mortgage applications for home loan refinancing fell for a second straight week, dropping to its lowest level since early August, as rock-bottom interest rates failed to boost demand.

While historically low mortgage rates have been a glimmer of hope for a housing market that has struggled to find footing in the absence of government support, it failed to foster demand for loans to purchase a home last week.

The Mortgage Bankers Association on Wednesday said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Sept. 10 decreased 8.9 percent.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 0.8 percent.

The MBA's seasonally adjusted index of refinancing applications decreased 10.8 percent, reaching its lowest level since the week ended August 6. More...