WATCH CSPAN FRIDAY AT l0 AM: HEARING ON MORTGAGE CRISIS AND CEO PAY

WSJ: “Fears of Stagflation Return As Price Increases Gain Pace”:

The U.S. faces an unwelcome combination of looming recession and persistent inflation that is reviving angst about stagflation, a condition not seen since the 1970s.

Inflation is rising. Yesterday the Labor Department said consumer prices in the U.S. jumped 0.4% in January and are up 4.3% over the past 12 months, near a 16-year high. Even stripping out sharply rising food and energy costs, prices rose 0.3% in January, driven by education, medical care, clothing and hotels. They are up by 2.5% from the previous year, a 10-month high.

Roanoke Times World News: Debt Load Will Destroy Us

Dick Bauman writes: “In a college freshman psychology course many years ago, I learned about the reality principle. This proposition has been turned upside down in recent decades, and we have become conditioned to be a consumer society dependent on debt to satisfy our wants and sometimes our needs. The same source states that the typical family credit card balance is almost 5 percent of their annual income, and 8.3 percent of households owe $9,000 or more on their credit cards”

ABC NEWS: CREDIT CARDS ARE THE NEXT CRISIS

GLOBAL DEBT MARKETS FALL 45% IN FOURTH QUARTER

THE ECONOMIST—THE COSTS SO FAR

A troubling estimate of the costs so far

FEAR of a downward credit spiral hangs over America’s economy. The script is well known. Rising losses from the mortgage mess make banks less willing to lend, which weakens the economy’s prospects, which puts further strain on the banks. But until now most of the estimates of the likely cost of the crisis look as though they have been plucked from thin air. A paper* prepared for a recent meeting of the US Monetary Policy Forum, a gathering of Wall Street economists, academics and central bankers, is far more thorough.

The study begins by estimating the size of mortgage-related losses using three different methods. One extrapolates from the defaults seen in different mortgage vintages to date; a second calculates the losses implicit in the prices of credit derivatives linked to subprime mortgage-backed securities as measured by the ABX indices produced by Markit (see article); a third draws on the experience of foreclosures in previous regional housing busts in Texas, Massachusetts and California. Each method involves some heroic assumptions. With house-prices falling nationally, foreclosure rates may rise far higher than they have in the past. By contrast, the ABX prices may be reflecting underlying risk and illiquidity as much as expected losses. Strikingly, however, all three approaches yield similar results: that mortgage-credit losses are likely to be around $400 billion.

That is a large number, but it is no worse than the losses that can be suffered on a bad day on Wall Street. The reason that the macroeconomic consequences are likely to be much bigger is that many of these losses will be born by banks and other leveraged financial institutions that hold approximately half of all outstanding mortgage debt in America. If the losses are spread evenly (a big if), that suggests America’s banks are likely to take a hit of some $200 billion.

NOTE: Bank of America put the overall costs much high when factoring in a fall in share prices. Their number: $7.9 TRILLLION.

AP: China Sees Inflation Pressure Growing

BEIJING - China faces growing pressure for prices to rise due to food shortages and a credit boom but is confident inflation can be held to its 4.8 percent target this year, financial officials said Thursday.”We will face increasing pressure for price rises and they need to have our full attention, becuse they have a direct bearing on the performance of our economy,” the chairman of China’s planning agency, Ma Kai, said at a news conference during the annual session of the national legislature.

Federal Reserve: Homeowner Equity Falls Below 50%

Charleston Gazette:More Foreclosure Prevention Needed, Bernanke Says

WASHINGTON - Battling a dangerous wave of home foreclosures, Federal Reserve Chairman Ben Bernanke called Tuesday for additional relief and urged lenders to help distressed owners by lowering the amount of their loans. Even with some relief efforts underway by industry and government, foreclosures and late payments on home mortgages are likely to rise “for a while longer,” Bernanke warned.”Reducing the rate of preventable foreclosures would promote economic stability for households, neighborhoods and the nation as a whole,” Bernanke said
CARLYLE GROUP BEHIND

Carlyle Capital Corporation, the fund manager backed by the giant private equity firm Carlyle Group, has not been able to meet several payment demands.

Top Iraq Contractor Skirts US Taxes Offshore

Farah Stockman, writing for The Boston Globe, reports, “Kellogg Brown & Root, the nation’s top Iraq war contractor and until last year a subsidiary of Halliburton Corp., has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven.”