[quote=pri_dk][quote=davelj]I agree with this 100%. But… we are so far in the hole AT THIS POINT that I would argue that almost all INCREMENTAL debt is harmful – again, at this point.[/quote]
By ‘harmful,’ do you mean worse than the alternatives?
I think that’s the crux of it. It is very likely that we only have a few crappy alternatives, but which is the least crappy, and why?
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A good question. I don’t have a good answer. But… when you’re in a hole the best interim step is to stop digging.
Rather than create more debt, and as objectionable as it may sound, I’d prefer going in the other direction and extinguishing debt via the Ben Bernanke Helicopter: Just send a “specific use” check to all of the underwater homeowners still current on their mortgage payments such that their LTV drops to 105%. The check would (obviously) vary in size by the amount needed to get the LTV down to 105%. (That’s about a $600 billion aggregate check, by the way.) The check could ONLY be used to reduce the mortgage – not for consumption. Theoretically, this would reduce debt and not lead to inflation, as you still couldn’t borrow against the house (it’s still underwater) and most of the lenders ultimately receiving the funds are in no mood to lend (expanding the money supply). I’m not saying this is a good solution, by the way. I’m just saying it, or something similar to it, might be a least bad one.
Now, here come the folks justifiably complaining about moral hazard and “but I was responsible and you’re rewarding stupidity”, etc etc etc… Let the admonishment rain!!
