Excessive debt of ALL types is going to make 2010 a nightmare. Until we understand the scope of this debt crisis, we are not going to be able to deal with it... assuming there is any way to deal with it at all... it is exponentially bigger than people realize.
This crisis is NOT a crisis caused by one particular type of loan/debt... it was caused by a TSUNAMI of ALL types of debt... IE: mortgage debt, home equity debt, consumer credit debt, credit card debt, auto loan debt, commercial real estate debt, municipal debt, corporate debt and on and on... whether they were prime, subprime, alt-a or XYZ-type loans, they ALL contributed to the tsunami of debt.
In the U.S., consumers owe over 11 TRILLION dollars in 1 - 4 family home mortgage debt and 2.6 Trillion in other consumer credit debt... for a total of around 14 Trillion.
One Trillion (ONE) is $1 per second for 32,000 years... without interest! Noodle that one for a minute.
People are screaming about the Fed Gov’t owing 12 Trillion... at least the gov’t can tax and they have a printing press... consumers owe MORE than the Fed Gov’t and many consumers have lost their only source of income... a job!
Home prices are going to continue to decline until supply meets demand, meets a price that the average person can afford, meets a consumer who can qualify for a loan under much stricter mortgage guidelines.
There is not a mortgage modification scheme known to man that can stop millions and millions of additional foreclosures from happening.
Subprime was simply the first link to break in an extraordinarily over-stretched chain of debt. Alt-A Option ARM loans are now defaulting at the same rate or at an even higher rate than subprime.
Prime loans are not far behind... we’ve only seen the tip of the iceberg in prime foreclosures. Commercial real estate loans are expected to implode in 2010... so are municipal bonds due to collapsing tax revenues.
ANY loan that was taken out when the market was grossly over-valued was a bad loan. If a “prime” borrower with perfect credit, full income documentation and a 20% down payment bought a house or a commercial building that was 40% over-priced, then that TOO was a bad loan.
Americans took out and spent HUNDREDS OF BILLIONS of dollars in home equity loans from 2000 - 2007. They spent it on clothes, cars, boats, RV’s, 2nd homes, nannies, private schools, fine wine, fabulous vacations, etc.
That home-ATM has been cut off... which is playing a huge part in unemployment, because those debt-fueled jobs are not coming back any time soon. Tragically, higher taxes, Obamacare, Cap and Trade and Card Check will only make unemployment worse!!
Individuals are broke, cities are broke, states are broke, the Federal Gov’t is broke!
If the gov’t would step back and let the free market work (IE: allow bad investments to be purged from the system and stop encouraging even MORE debt!), then we could start the process of healing... but what are the odds of the gov’t stepping back from anything??... zero! They will only meddle in the markets more and more and make it worse and worse.
“Americans took out and spent HUNDREDS OF BILLIONS of dollars in home equity loans from 2000 - 2007. They spent it on clothes, cars, boats, RV’s, 2nd homes, nannies, private schools, fine wine, fabulous vacations, etc.
That home-ATM has been cut off... which is playing a huge part in unemployment, because those debt-fueled jobs are not coming back any time soon.
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Totally agree. Once the Mortgage-ATM stopped the spending stopped. This economy was dead in late 2000 with the DotBomb era of spending from the 90’s. Only the mortgage-ATM era kept it from a total collapse. Now that the ATM has stopped spewing debt riddled money, there is nothing else providing grease to the skids.
It’s like I told my congressman, trying to fix an economy crippled by debt by encouraging banks to make more loans is like trying to save a drowning man by throwing him a cinder block. Like it or not, we need to balance the GD budgets.
In a fractional reserve banking system the amount of outstanding loans determines how many $’s are in circulation right?
If the debts go into default isn’t that deflationary as money supply decreases?
Still a nightmare.
In a fractional reserve banking system the amount of outstanding loans determines how many $’s are in circulation right?
If the debts go into default isn’t that deflationary as money supply decreases?
Still a nightmare.