I don't buy into the analogy that the credit bubble is unbreakable and the lending sector is safe from free fall. Mortgage finance continues to be the greatest source of credit excess, with total mortgage debt increasing $723 billion, or 10.4%. New mortgage debt was up 25% from last year and was easily a record. Total mortgage debt has surged 47% to almost $7.7 trillion over the past four years.
To be succinct, it is now obvious that short-term U.S. interest rates at 1.75% are inappropriate. When the Fed does raise rates we are going to witness a domino collapse of forced liquidations. Liquidation begets losses, which begets more selling and faltering liquidity.
”To be succinct, it is now obvious that short-term U.S. interest rates at 1.75% are inappropriate. When the Fed does raise rates we are going to witness a domino collapse of forced liquidations. Liquidation begets losses, which begets more selling and faltering liquidity.” Succinct’s appreciated, but I need some help with this.
1) Why’s cheap/bountiful money inappropriate long term?
2) What do you think’s going to be liquidated? Loans? Why do you think that new higher rates would force banks to liquidate at a loss?