[Alberta's Child]

It's a problem because the U.S. government created $400,000 out of thin air to lend the money to the bank, the bank extended a mortgage to me to buy the home, and I paid the $400,000 to the previous owner as part of my $500,000 purchase.

If the ultimate holder of the mortgage -- whether it be the bank or the holder of a securitized mortgage bond -- isn't made whole, then someone is out $100,000 (the difference between the $400,000 mortgage and the $300,000 value of the property). It's easy to say they should just swallow the loss, but then they won't be lending money again the next time someone needs to borrow it.

This is where a deflationary cycle begins, and this is what the Fed has been trying to stave off with its QE initiatives.

[Neidermeyer]

This is where a deflationary cycle begins, and this is what the Fed has been trying to stave off with its QE initiatives.
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What’s wrong with deflation ,, inflation helps the banks and the gov’t but kills the savers and responsible people ,, deflation helps me and you ... why parrot the FED line about deflation? I for one would like to go to the grocery store and pay “2000” prices for my groceries...and maybe a new car..

http://www.zerohedge.com/news/2014-04-19/everything-we-are-told-about-deflation-lie

[expat2]

I see your point. A little while before the bust, the property had been worth only $300K, so in a sense it should kind of even out. However, that was then (and the price gain helped drive the bubble) and this is now.

Of course, if the Feds can't stand the bust/deflation, they shouldn't condone the bubble/inflation.....