Back to Crisis Levels?

Germany's Deutsche Bank has a new and improved index of U.S. financial conditions and after analyzing current conditions they have concluded that US financial conditions have just collapsed back to the lows of the immediate post-Lehman crisis levels.

Meanwhile Bank of America Corp., the second- largest U.S. home lender, added 2,000 employees since April to work with borrowers having trouble paying their mortgages. The lender now has more than 18,000 workers in “default management,” a 60% increase since January 2009.

As housing goes, so goes stimulus. Expect to see the pressure to resume programs that support housing intensify as market trends deteriorate.

Meanwhile credit conditions or liquidity are once again tightening (spreads widening) as the economy is losing momentum from waning stimulus.

In other news, Freddie's most recent mortgage rates are out and they are the lowest in history. With the US Federal Reserve now looking at emergency interest rates staying low until 2013 or beyond, the only true recourse is even more monetary stimulus.

Albert Edwards, one of the most prominent uber-bears just got even more bearish: "Our view that this economic and market recovery will collapse like a pack of cards as soon as the steroid-like stimulus is reduced is gaining ground. Most forward-looking leading indicators now signal some sort of second-half slowdown. The only area of debate now seems to be in its magnitude. By the end of this year, I believe we will be back in recession."

Albert's vision is that we are entering a deflationary collapse, following by a reactionary episode in which the Fed ends up printing tens trillions in one last attempt to restimulate the economy, resulting in hyperinflation.

We certainly do live in intersting times.

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