So which bank owns the majority of those 800,000 homes repossessed during the credit crisis bust? Well, it’s not a bank. It’s the U.S. taxpayer.

About a third of the country’s repossessed homes, 248,000 of them, are owned by the U.S. government (Source: Bloomberg Business Week, 9/5/11).

What an absolute catastrophe for taxpayers. In its wisdom, the government created Fannie Mae and Freddie Mac as agencies to help Americans achieve the dream of homeownership. But the institutions failed miserably and were taken over by the government in 2008. Now the government is stuck with all these homes.

According to home-data supplier RealtyTrac, about one-fifth of the 3.65 million homes for sale in America are foreclosures. And, as we all know, banks pulled back on the foreclosure process late in 2010 and early in 2011, as many state governments questioned the paperwork of the banks doing the foreclosing.

What I can see:

I see more foreclosures ahead of us, as banks that pulled back on the foreclosure process start back up again. I see the government sitting on 248,000 foreclosed homes already. I see more supply and less demand for homes coming on to the market, as banks keep their lending requirements tight. I see housing pricing going nowhere except down.

U.S. mortgage rates are at their lowest levels in decades. But low rates cannot help the housing market if buyers are scared and banks want substantial down payments and strong-income candidates.

Unfortunately, longer-term, as the U.S. dollar continues to deflate in a sea of rising national debt, inflation will become a problem inAmerica, resulting in higher interest rates. If housing prices are depressed today in an environment of record-low interest rates, imagine how depressed they will become when interest rates rise.

Michael’s Personal Notes:

More of the same…

President Obama told us on Monday how he would cut deficits by $3.6 trillion over the next 10 years by cutting spending and by increasing taxes by $1.5 trillion. The President says he will veto any deficit reduction plan that doesn’t include tax hikes. The Republican-controlled Congress, on the other hand, says it will not vote in any new tax hikes. We’re headed for a stalemate, just like we had when the Democrats and Republicans couldn’t decide on raising the official government debt ceiling early this summer.

The more time there is that goes by, the more it looks like Obama will be a single-term President. I don’t believe he gets it. Since he’s been in office, his strategy has been to have government spend itself out of the economic doldrums. By the time Obama leaves office, about $5.0 trillion will be have been added to our national debt. During his four-year term, Obama will have been responsible for adding more debt to this nation that any other President in American history.

The answer is not more government programs, more spending, and higher taxes. The answer to getting the American economic machine back on track is less government spending and lower taxes, the opposite of what the Obama Administration has done so far. Let the economy take care of itself by helping it, by reducing the tax burden to stimulate businesses, which will in turn create jobs.

Where the Market Stands; Where it’s Headed:

A bear market rally in stocks that started in March of 2009 remains intact. While the rally stalled this summer (as it did in the summer of 2010), there are few investment alternatives to stocks. Bonds yields are too low to provide any risk/reward competition to equities. The real estate market remains depressed and unattractive.

The Dow Jones Industrial Average opens this morning down 1.3% for 2011. I believe there is sufficient negative sentiment amongst investors and stock advisors to push stock prices higher.

What He Said:

“The Real Threat to the Economy: U.S. retail sales are falling, the producer price index is crashing, house prices, car prices are all falling—and no one is talking about deflation but me. Fed governors are still talking about inflation—they’ve got it wrong. There’s no need for me to get into the dangers of deflation, as I’ve written about them (many times) before. Let’s just put it this way: deflation is about the worst economic state a country will experience. The risks to the U.S.economy in 2007 are greater than I’ve seen in years.” Michael Lombardi in PROFIT CONFIDENTIAL, November 15, 2006. Michael was one of the first to warn of deflation. By late 2008, world economies were embedded in their worst state of deflation since the Great Depression.

— reporting from Rome, Italy

Does America want members of the 17 eurozone countries to go bankrupt one by one? If only a few went under, the American currency would win the currency wars and reaffirm itself as the reserve currency of the world.

If you were someone living outside the U.S., wouldn’t this sound like a “secret” strategy that could work? After all, are not all the major credit reporting agencies (that grant credit ratings to European countries) subsidiaries of major American corporations?

These are the suspicions I’m hearing from people here in Rome.

Let’s give the theory some further attention and you’ll be surprised at what we find…

When we look at the rising national debt of America, by the end of this decade, the debt-to-GDP ratio of the United States will surpass that of a number of European countries. Why, despite a never-ending rise in our total debt, are U.S. bonds not referred to as “junk” when so many other European countries, with better debt-to-GDP ratios than America, have their bonds considered junk?

On July 25, 2011, Moody’s Investors Services downgraded Greece’s sovereign credit rating by three notches to what is referred to as “Ca,” very risky.

In an ideal situation, here is what happens…

The American dollar is devalued over the next three to five years, so the U.S. is paying back its trillions of debt owed to foreigners with cheaper money.

The euro totally collapses over the next three to five years. With no euro, the greenback, although devalued, survives, as Europeans want American dollars, not Japanese yen or Chinese yuan.

Great idea, if you can pull off.

Under the scenario above, the snowball job of convincing two-thirds of world central banks that the U.S. dollar should be the reserve currency of those central banks continues.

But two problems arise…

Firstly, about 21% of the revenue generated by S&P 500 companies comes from Europe (according to Bloomberg). If the euro currency is devastated, the earnings of the major American companies will be as well, pushing stock prices lower.

Secondly, the rise in the price of gold bullion from $300.00 an ounce in 2002 to approximately $1,600 today is telling us a different story. There could be a new currency in town. Or, at the very least, there could be a new currency permanently tied to the price of gold.

Euro or no euro, American dollars partially backed by gold again…I easily see this in the cards. That’s the best advice on investing in gold or gold advice I can give.

What He Said:

“Any way you look at it; the U.S. housing market is in for a real beating. As I have written before, in the late 1920s, the real estate market crashed first, the stock market second and the economy third. This is the exact sequence of events I believe we are witnessing 80 years later.” Michael Lombardi in PROFIT CONFIDENTIAL, August 27, 2007. “As for the stock market, it continues along its merry way oblivious to what is happening to homebuyers’ wealth. (Since 2005 I have been writing about how the real estate bust would be bigger than the boom.) In 1927, the real estate market crashed and the stock market, even back then, carried along its merry way for two more years until it eventually crashed. History has a way of repeating itself.” Michael Lombardi in PROFIT CONFIDENTIAL, November 21, 2007. Dire predictions that came true.

When consumers are cautious, they tend to hold back on any major purchases such as homes, vehicles, furniture, appliances, and travel, to list a few. This will impact spending and gross domestic product (GDP) growth and the ability of companies to expand their businesses and hire. This is my concern and I feel that continued nervousness among consumers will impact GDP.

Consumer Confidence in July was another disappointment, with a reading of 59.5. The reading was above the estimate of 56 and the revised 57.6 in June, but it was below the 60.8 reading in May. The reading is the lowest since October 2010.

To tell you how bad the readings are, economists feel that a reading of 90 indicates a healthy economy, something that has not happened since December 2007 when the recession began. It looks like it will be some time until the confidence reading heads back towards the pre-recession level of 90. In my economic analysis, the situation is not good.

Moreover, add in the fact that theU.S.housing market is in a double-dip recession after prices declined to below the lows of 2006 and you’ll understand my concerns going forward.

To drive the economy, consumers need to spend. We have historically low interest rates and quantitative easing. It is working, but not as fast as I would like to see.

The government can use fiscal policies, but with $14.2 trillion in national debt and at its ceiling, looking for an increase in the debt level, we are just adding more debt to American taxpayers’ load. Plus, spending more doesn’t mean consumers will join in.

The Durable Goods Orders reading for June will be reported on July 27, with estimates calling for a 0.5% increase in the ex-transportation reading, below the revised 0.7% in May. Some economists are also expecting a possible negative reading in durable goods. These are not necessarily readings you can get excited about.

A strong housing market is also critical, as homeowners tend to buy new furnishings, including many big-ticket items. This is not happening; home prices continue to decline, dragged down by continued high foreclosures and short sales, in which homes are dumped below the mortgage value. New home sales for June came in at 312,000, below the estimate of 320,000 and the revised 315,000 in May.

Also consider that a key driver of the housing market is jobs. We need jobs and security in order to give buyers the confidence to assume a mortgage and not worry about losing jobs and missing payments. The non-farm payrolls are due out next Friday and I’m not confident.

At the end of the day, we need to see confidence and the willingness to spend and not worry about money. Only under this scenario will there be sustained spending and economic growth. Unfortunately, there is little reason for us to get excited about at this juncture.