[quote=FlyerInHi]Let’s look at the past housing bubble in a simple way. Easy credit caused higher demand and rapid price rises. When prices began to taper then fell, even people who could afford to pay made the rational decision to walk.
Nothing to do with consuming more than we produce or borrowing productivity from the future. In fact it was all about the present. We consumed exactly the amount of housing we produced, except that housing prices kept rising. When prices fell, there was massive default and deleveraging.
Dialo started off his video by saying that total spending is what matters. He should have stayed with that simple theme.[/quote]
They could “walk away” only because the govt enables them to do this. Still, somebody is taking this loss, and their future spending will be affected by these losses.
Without the ability to default, it would be the debtors who take the loss. With BK and foreclosure laws, it’s the creditors who take the losses.
As for the recent housing bubble, the Fed is sitting on a lot of the potential losses. If the debt they hold were put on the open market, everything would fall apart. It’s a ruse, but people will buy into it because acknowledging reality is too frightening for them. The savers (those in cash) are also taking a hit via artificially low/negative interest rates, and this will affect both their current and future consumption as well.
And people on fixed incomes (including workers) are also taking a hit as their dollars lose value. This affects their current and future purchasing power, too.
