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Show "I PAGE 8 jDaihi&Hcmto 2009 SUNDAY, OQOBER 11, BUSINESS EDITOR Grace Leong (801) Jean Chatzky 344-291- 0 aw gleongheraldextra.com w Talking Money VJi '.. V J VINCENT l YUAssoclated Press teller counts Chinese yuan at a money exchange in Hong Kong on July 21, 2005. A China's cries for a The perks ofP2P global currency and the falling dollar lending Peter Morici recent talk of getting a loan for all the Despite debt consolidation is still or home improvements more difficult than it used to be. A recent analysis by the Wall Street Journal found that the amount of loans held by 15 large U.S. banks was down 2.8 percent in the i, . sec- ond quarter of this year, and the majority of loan volume in April and May was for mortgage refinancing and renewal of credit to businesses new loans. in other words, not Simultaneously, we're also earning less interest on any short-tersavings we've managed to stash away, whether in a money market or a CD. As I write this, one-yecertificate of deposit rates are averaging 1.6 percent, down from 3.63 percnt this time last year. Money-markaccounts have dropped from 2.5 percent a year ago to 1.2 percent now, according to Bankrate.com. Some borrowers are turning to a somewhat newfangled solution. It's called (P2P for short) lending. It's a practice of allowing individuals to borrow money from and lend money to other individuals, generally over the Internet. And this phenomenon is becoming quite popular. The financial research company Celent has predicted that we'll see more than $5 billion in these kinds of loans by 2010, up from less than $300 million in 2006. There are a lot of advantages associated with P2P lending, including low interest rates for borrowers and high returns for lenders. Below is a primer for stepping into this market. m cross-board- V want to borrow: I How it works. You go to a P2P Web site and post the amount you need to borrow. Lenders then bid by interest rate to fund your loan. The two leaders in the marketplace, Prosper.com and Lending-Qub.cowill both allow you to borrow as much as $25,000 at a time at a fixed rate, and give you three years to repay the funds. It's important to understand there are closing costs involved of around 3 percent. That's a key consideration. Right now, according to Prosper CEO Chris Larsen, most borrowers are using the site to consolidate unsecured debt, i.e. credit card debt. The closing costs to refinance $10,000 in credit card debt would be $300. You need to be sure you're gaining at least that much back (and preferably substantially more) in interest rate reductions before you initiate the deal. I Credit scores still count. While you might think that the due diligence for borrowing this way would be slim to none, it's not. This isn't an easy way out for someone with a bad credit histo- ry. Lendingaub.com and Prosper, com, the two leading sites in the marketplace, require borrowers to have a minimum credit score of 660 and 640 respectively. And, as with traditional loans, the lower your score, the more you pay, and if you default or pay late the information will end up on your credit report. I Consider borrowing from family and friends. Another player in the P2P market to have on your radar is VirginMoney.com. Rather than putting your debt out for competing bids, it's a facilitator .See CHATZKY, E7 r SB - '5 Ik. asd S 1Mb. f peer-to-pe- If you As the dollar falls against the euro, yen and other major currencies, China and other emerging economic powers holding lots of dollars and U.S. securities are crying foul, and for an end to the dollar's central status in global commerce. If they are truly disgusted, they should look to themselves for answers. Since the end of World War II, the dollar has largely replaced gold as the reserve asset central banks hold to back up national currencies. The supply of mineable gold is too limited, and efforts to back up currency with gold would result in chronic shortages of liquidity and global deflation. When a merchant moves goods, for example, from Thailand to Mexico, the market for pesos into bahts is thin or nonexistent, and the merchant sells pesos for dollars to buy bahts. Similarly, trades, financial conmany other tracts and debts are denominated in dollars, although the euro is coming into greater use. Over the years, governments and traders gravitated to the dollar, because the United States has the largest and most diversified economy. Virtually anything made or grown around the world is made or traded in the United States, and money in dollars is secure from political upheaval and state confiscation. Until recently, the dollar has been a well managed currency. The U.S. government resisted the temptation to borrow too much and flood the world with too many dollars and Treasury securities, which provide liquidity the same as do dollars. The current market determined system of exchange rates emerged by default in the early 1970s, when the Bretton Woods system of government-enforced fixed exchange rates failed, and the United States ended the convertibility of the dollar into gold. This system has no rules or effective governing structure. Consequently, some governments seized opportunities to manipulate the system to gain competitive advantages in trade. For example, since 1995 China has maintained an undervalued currency by selling huge amounts of yuan for dollars to merchants and currency traders. The undervalued yuan makes Chinese exports artificially cheap and foreign products too expensive in Chinese markets. China enjoys huge trade surpluses that create millions of jobs and double-dig- it growth in China. Japan and others have pursued similar strategies. These policies impose huge trade deficits afld unemployment on the United States, create enormous imbalances in the global economy, and contribute importantly to the Great Recession. The U.S. trade deficit grew from about one percent of GDP in 2001 to more than five percent from 2005 to 2008, and this should have created a shortage of demand for U.S. goods and services and a recession. However, China invested the dollars obtained suppressing the value of the yuan to purchase U.S. securities. U.S. consumers borrowed those dollars, against their homes and on credit cards, and kept the U.S. economy going. Finally, the credit bubble burst and an even bigger recession resulted. Huge federal borrowing is now required to finance massive U.S. stimulus spending, bailout banks and otherwise rescue the U.S. economy. All this borrowing floods capital markets with Treasury securities, which provide the same liquidity as dollars, and pushes down exchange rates for the dollar against every major currency except the Chinese yuan. This reduces the value of the dollars, as expressed in euro and yen, held by China, Russia, Saudi Arabia and others. Hoisted on the consequences of their own mercantilism, China and others would like to see the dollar replaced by a basket of currencies. A global currency poses enormous diplomatic and technical challenges, including creating an in ternational body to control its supply and persuading governments to issue debt denominated in this global currency. Without those, private merchants and financiers would still seek a central national currency to facilitate trade and denominate pri r vate contracts and debts. Even with a global currency, China could still buy dollars with yuan to keep its value suppressed against the dollar and boost exports into the United States. The United States would still have to run large federal deficits to avoid economic i '1 Dave Carpenter THE ASSOCIATED PRESS ' , or all the doom and gloom about the housing market, it still generally pays to own a home. That might be a tough case to make right now to the 16 million homeowners who owe more on their mortgage than their house is worth. But history suggests the American Dream is a pretty ; safe bet. Homes have appreciated by an average of 4 percent a year since World War II. They act as hedges against inflation and bestow significant tax benefits. Real estate is a leveraged investment; a 10 percent down payment produces a 1,000 percent return if the price of a home merely doubles. Plus there are intangibles: Owning a home provides a sense of independence, security and community. And you get to live in your investment. You can't do that with a stock. Of course, historical trends don't pay the mortgage. People who wade in and out of the housing market too often, or who buy at the wrong time or price and need to sell quickly, can get burned. But if you own for a decade or more, price appreciation usually overcomes even bad slumps. Tony and Liz Iacobelli, who are far under water on the home they bought in the Phoenix suburb of Buckeye three years ago, aren't panicking. They owe about $177,000 on their mortgage on a house worth only $132,000, which is about 40 percent of what they paid. "Houses generally go up in price, and this one will again, too," says Tony, 51, a retired New York City policeman. Several booms and busts have occurred in the modern era of housing, which began when loans became widely available after World War II. This bust has been severe: Nationally, home 30-ye- ar J H 'i 3 5 Home Investments Several booms and busts have occurred in home investments, loans which began when became available after WWII. 30-ye- ar 350 mil. 300 250 yf Population 200 " 306 mil. 150 100: Home Investment 250 200 Home price Index 130.06 Building cost Interest rates 150 100 50 ' MrS--- 84.74 2.52 A HI '40S '50s '60s - j ) 70s '80s "90s '00s SOURCE: Prof. Robert Shiller, "Irrational Exuberance" AP prices are down an average 30 percent from their peak in 2006. The collapse of the housing market may have put an end to the notion of using a home as a speculative investment akin to a hot stock. And that may not be a bad thing, economists say. "People should recognize that value comes from a lot of other things besides a possible return on the investment," says Joel Naroff, chief economist at Naroff Economic Advisors. Economists say home prices have risen by about half a percent a year above inflation, or roughly 4 percent, since the 1940s. That number, which is based on the median price of homes sold each year, was inflated a little by baby boomers starting families and building bigger houses. Since the National Association of Realtors began compiling statistics in 1968, the median sales price has climbed 6 percent annually, from See HOMES, cross-borde- 7 meltdown. China would still be stuck holding dollars See DOLLAR, E7 |