[quote=HLS]Dave,
I know that you know your stuff..
Do you really believe that we are going to actually avoid a depression ??
It’s just being delayed for those that aren’t ready to attend yet, like a meeting that is running a few minutes late, waiting for more to show up.
I’m thinking that the future comparisons will be to the “Greatest Depression” which will be the one of 2007-2016, not the “Great” 1929-1941.
In your example, only their payment will be lower, not their balance.
…..happily ever after. THE END. HLS[/quote]
Yes, I believe we are going to avoid a depression, as defined by a peak-to-trough decline in GDP of 10% or more. If you look at the capacity for the govt. to borrow and stimulate (go back to WW II and you’ll see federal debt to GDP at 122% – right now we’re at about 70%) we’ve got many trillions of dollars of capacity. At very low rates. It gets paid off slowly – with lower corresponding GDP going forward – over the next 10-20 years. Painful, yes. But not the end of the world.
No, in my example, there is a blend of lower rates AND substantial principal reduction. That’s one way in which the lenders are going to lose. They just won’t lose as much as if all of these houses go into foreclosure.
Look, we’re in a serious bind here. Which is not surprising to me or anyone else here. But one thing we have going for us is the experience of Japan and the Great Depression to look back on for lessons of what not to do. Current policy prescriptions are far from perfect, but I will say this: they get marginally better each week. At least the Officialdom is “learning” from each little mistake and taking some marginal corrective action. I believe that we’re going to see a massive globally-coordinated stimulus plan in 2009. The US, Asia, Europe – the whole freakin’ globe. Will it prevent a steep, long recession? Nope. That’s baked into the cake no matter what happens. But if policy actions are handled properly, we should avoid a depression. The tools and capacity are there.
