just for comparison, the debt level as a percentage of GDP in the late 1920’s peaked at about 260%
you are talking about getting from our current 350% down to 280% debt a decade from now
260% debt was too much in the 1920’s
are we capable of carrying these debt levels for another decade?
time will tell
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not sure about keeping people in their houses
none of the bailout plans so far have made much difference to the housing market
what has changed in the housing market:
– must prove income to obtain mortgage
– must have down payment to obtain mortgage
those are two negative changes and the only positive change I see is that interest rates are coming down
the Option ARM mortgages that are resetting in 2009/10 will benefit from the current low interest rates
without a return of stated-income (liar’s), nothing down mortgages I see a long hard road for So Cal and other high priced real estate markets
reducing mortgage principal might help some people but the ‘forgiveness’ plans I have read about just transfer the ‘forgiven’ part of the loan into a 2nd note or lien that remains a burden on the property – the new mortgage is likely to be a recourse loan so the ‘forgiven’ loan holder puts their other assets at risk – better to walk away IMO
outright forgiveness of mortgage principal would have to be widespread and dramatic – we are talking about millions of mortgages which, in some cases, are underwater by several hundred thousand dollars per mortgage – it is possible but I’m not holding my breath
rewriting mortgages is complicated by the layers of derivative paper written against bundled mortgages – what happens to these MBS, CDO, etc when the mortgages bundled within them are being written down? – some of these derivatives have clauses that force the issuer to repurchase ‘bad’ mortgages at face value
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what signs do you see that indicate any slowing of debt build?
I see articles talking about $2 and $3 trillion dollar deficits in 2009 – lots of new spending with no reductions in existing spending
if anything, debt build has to continue on an exponential path to infinity (which of course it can’t) to support the increasing burden of interest payments as well as feed new growth – this is one of the reasons why George Ure (www. urbansurvival.com) posits that fiat currencies are limited to a lifespan of about 83 years
in the 1920’s the debt build reached 260% before collapsing – we have managed 350% (is that progress?) – how high can we take this ratio? – you think the ratio is going lower over the next decade
