However, I would submit that a small fraction (well less than 10%) of homeowners have defaulted on their loans thus far AND the result is that the entire economy is sucking wind because of it.
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I agree it was the trigger. My point was it should not be that fragile and if it is that fragile our economic and political “leadership” sure as hell should not encourage the behavior that could bring the whole thing to it’s knees and be working on ways to make it more resilient. When in fact they did the opposite and exacerbated the problem.
This is a culmination of decades of bad policy or more appropriately, policy directed at benefiting a few at the top with absolutely no sustainability.
We gutted our economy with globalization, filled the hole with debt based consumption growth needing an ever increasing amount of new debt creation just to not collapse. We ran out of people in 03-04 and started giving loans to everybody under the sun just to keep the party going, it was just a matter of time until the house of cards came down. Subprime was the pinprick of a 30 year credit binge.
Now, due to the credit contraction dynamic from lack of trust and no capitial, banks are not lending and this is affecting businesses which have become completely reliant on debt just to fund operations, this is causing the layoffs–>layoffs to more defaults—>to more credit contraction. It’s going to be a viscous cycle and the inherent faultiness and hollowness of the model will become quite apparent.
The United States may be on course to lose its ‘AAA’ rating due to the large amount of debt it has accumulated, according to Martin Hennecke, senior manager of private clients at Tyche.
“The U.S. might really have to look at a default on the bankruptcy reorganization of the present financial system” and the bankruptcy of the government is not out of the realm of possibility, Hennecke said.
“In the United States there is already a funding crisis, and they will have to sell a lot more bonds next year to fund the bailout packages that have already been signed off,” Hennecke told CNBC.
In order to solve or stem the economic slowdown, Hennecke suggested the US would have to radically reduce spending across all sectors and recall all its troops from around the world.
On topic: With the US caught in a self-reinforcing deflationary death spiral and BK looming in the background on the doorstep of terminal world oil production decline I’m going to have to say the DOW is going much lower. In fact, I’d say we are going to a new economic paradigm that quite possibly will not be denominated in dollars. But that’s just me;)
