So those who bought houses they could never afford to begin with at the peak of the bubble, or those who bought houses earlier than that and then took out and spent every penny of paper equity, should now go out and borrow more?



-Uwe-

Someone needs to stuff a sock in these fools' mouths.

While the Ticker is correct, there's an important point going unrecognized: those who were already in hock don't have the ability to refinance at lower rates to pay off that loan more cheaply or more quickly.

I had the exact problem - while I don't have a credit problem, I did have a ~15% mortgage 30 year remaining on my farm at 6.75%. With rates at sub-4% levels, I wanted to refinance into a 5 year loan to pay it off faster at only a tad more money. No go - the bank holding the mortgage was uninterested, and it took me 7 other loan applications to get any bank to make an offer - even tho it would have been secured as the only lien on the property.

I ended up just paying off the balance, but it was a really frustrating exercise. Why no one wanted to make me a loan with so much equity in the property and no other loan on my income plus a bunch of savings can only be explained by the fact that I'm self-employed...at least, I can't come up with any other reason because my credit history is clean.

Someone needs to stuff a sock full of **** in these fools' mouths. Then push them off the 13th floor.

FIFY Gen

Tesla-The banks look at all loans two ways. First, as how much they can make from the origination of the loan and any "servicing fees" that it may generate. They also look at it from the "unintended" benefit of how much can they make if you default. The prospect for door number two is zero. Banks now want you to fail so that they reap additional profits from laying claim to you assets. As they intentionally make loans to people that they can't possibly pay, the "behind the scenes motivation" is they look at your other assets. Once you are behind, they ask for more collateral, and more and more, until they have it all, then you are forced to give it up or file or both.

Quote:

When you have a bunch of academics saying through their policy pronouncements that the economy will be crappy and the government will be handing out borrowed money through a fire hose, thereby destroying the purchasing power of surplus capital, you are sending a strong signal to the market that it's stupid to borrow money.

Actually, wouldn't it only be stupid to borrow if you thought the flow of government printing was going to stop or slow down? If the government is debasing the currency you want to borrow to the hilt and buy tangible assets like land. Then later you pay back with the worthless dollars and keep your tangible assets free and clear. If I would have done that for the first 10 years after I finished my Ph.D. I would be retired now.

Flap

Quote:

The U.S. recovery is hobbled by an economic divide that separates Americans not by income or wealth but by their access to credit.

In layman's terms we can rewrite that as they "are no longer able to get long term payday loans."

Ummm...Flap,
You are making an assumption that a person will earn more worthless dollars in the future to pay off the debt on the tangible assets. The problem with your scenario is that when incomes are declining on a real or nominal basis, it just doesn't work.

Putting aside the argument of it being stupid to borrow money, I think what he is saying is that millions of people have been unable to borrow money at 0-2% in order to pay off debt that is incurring 5,10,15,20, even 30% interest. You cant argue that it is stupid to take on debt at 0% interest to pay off debt at 20% interest.

Talk like that is of course pointless, since the Fed's job is to give money to the banks and protect their high yielding debt streams as much as is possible. Of course it is all moot if the 25% debt defaults. The Fed will step in and buy that debt themselves if that's what it comes down to... I think that is where this is going. If things get bad enough I believe we will see the Fed's equivalent of a 0% APR credit card mass mailing. How exactly they implement it, through what proxy, etc I cant say, but from a macro perspective I'm sure it will come if they need inflation bad enough.

No you wont

Quote:

you are sending a strong signal to the market that it's stupid to borrow money.

Yes, but as China has shown during the last 20 years of doing exactly what we are doing now, the stupid can get quite rich borrowing without paying it back. Since the government is in the business of making sure the people bear the cost.

While what Gen writes is true, the statement has worked. The market has responded by going up 1%, it knows more free money is heading its way.

The American people are so ****ing stupid. I saw Bill Maher said that, sorry I agree with him on this one.

"low interest rates engineered by the Federal Reserve to spur the economy and remedy the aftereffects of the borrowing boom."

So, the remedy to a borrowing boom/bust is more borrowing? Brilliant!

~~~~~~~~

There's a show called "We Owe What!" where a "financial expert" tries to help people get out of debt...time and again, the real solution for these people is bankruptcy, but the "financial expert" never recommends that...oh no...it would "damage their credit rating" and make "new credit more expensive".

WTF! The last thing these people need is any credit at any rate of interest...even zero is too much...NO MORE CREDIT!

I'd like to know who's funding this show...have an odd feeling the banks are behind it somehow...every solution is "Don't file bankruptcy, instead, get a 2nd, or 3rd job, cancel cable, etc....but whatever you do, don't stop paying back the banks"...very odd...

~~~~~~~~~~

Ok,,,I followed the trail...I knew it!..this is why the bankruptcy NEVER pops up on the show...

Host of the show is Mary Caraccioli....

>Mary is a member of the Board of Directors Executive Committee of the Global Interdependence Center

Who/where/what is the Global Interdependence Center

Federal Reserve Bank of Philadelphia
5th Floor SE
100 N. 6th St.
Philadelphia, PA 19106
Phone: 215-238-0990 | Fax: 215-238-09

http://www.interdependence.org/about/ove....

So we now have the Fed behind a TV show encouraging people not to file bankruptcy....NICE!

Quote:

The Global Interdependence Center (GIC) is a Philadelphia, Pennsylvania based nonprofit organization with a global reach.

A globalist organization encouraging everyone to play their game. The Fed and central bankers make the rules which everyone should follow.

More reason to default, it hurts the people that help create the mess in the first place.

Approaching a consideration of a Debt Jubilee?

Amazing how promises, many never designed to be fulfilled, have crippled the economy. The map has truly replaced the forest. Reboot.

Dear Federal reserve:

during the 2008 meltdown the credit card companies responded by trimming my credit lines to about a dollar above their balances. This instantly messed with my credit score. They also doubled and even tripled my rates. At the same time these very same banks were borrowing from you at 1% or less

So I am supposed to just take it and keep giving them business? I think not. I pay cash whenever I can now.

If you can't pay cash, then you shouldn't buy it unless it is something like bobbleheads or trading cards/ sarc off

If you can't pay cash then you should downsize. I can live off very little every month if I get rid of cell phone, cable, eating out etc... I have plenty of ways to cut my expenses, but I don't need to because I HAVE NO DEBT! WILL NOT HAVE ANY DEBT! I SPIT ON DEBT!

Bernie is going to give me a CC with 0% interest rate! ANOTHER REASON TO PUNCH HIM IN THE FACE!!!

Mdporter you are talking about part of the problem. WHen the meltdown hit the banks suddenly returned to sound banking practices (ok somewhat returned) but the result is that many now can't get a loan because it is unsound to give them one. What this is going is that only by getting people who are a sound risk AND those that are an unsound risk to borrow money can they ever hope to reinflate the bubble. The group of sound borrowers by themselves are simply not a large enough group to make it happen.

Thus, I do think we are past the point of no return on this ponzi. There simply are not enough of new empty bag holder or greater fools to keep it going.

Flap

The US is in the middle of asset deflation, job deflation, some wage deflation, and with a fractional reserve banking system, now the banks DO NOT want to lend to anyone but the government. The only way to create more debt or blow for the FSA is for the US Government to hand it out and borrow from the banksters.

In this end game the old Krugman economics of increasing debt, consumption, GDP, no longer flow through increasing bank debt, they flow only from increasing government debt and that none too well as Karl has shown.

Some argue the FRB is not the puppet master, but the tool of its bankster owners. Anyway at 0 percent interest, no amount of string pushing by the FRB will increase private debt. With no end in sight of asset deflation, who wants to borrow to buy assets? The FRB is just the bankster dumping ground of bad debt and government I.O.Us.

Following the trends of the Japanese debacle and the Great Depression is the US currently in about January or September of 1929?

Quote:

Many are now walled off from the low interest rates engineered by the Federal Reserve

That's technically true. The Fed has engineered where the TBTF get "loans" at zero percent and then they can re-loan the money for higher or much higher. So, there is a WALL - but it's there on purpose and supported by the Fed.

I love how it "casts" the Fed as "the good guys" for trying to provide low rates, when in fact those low rates are meant only for the TBTF.

In reply to above question about are we again like 1929, I think the present is more like the early 1930's. It's a smaller world after all.

I wish to share a great collection of articles courtesy of IEEE, the engineering society I grew up with in my career. Here are some opinions from people who are interested in the impact of technology on how people live (part of "engineering"), what is "cash"? Is cash nowadays really mostly if not all "credit"
and do people have a gut feeling that even "credit" is nothing but trash?

http://spectrum.ieee.org/magazine/

June 2012 Cover Story: "The Last Days of CASH"

My own opinion:

An essential property of cash, from a personal viewpoint or from a business owner's viewpoint or a trader's viewpoint, is that it is negotiable, fungible,
if it is to be in reality "saved" at all. That means, among many other things, that its normalized (thus useful for trading) VALUE cannot be turned off remotely by the flipping of switches irrespective of the rule of law.

Or am I being just an old fashioned di** head, or fa**, out of date?

The whole subject is pointless. I agree with Karl that the real reason rates are so low is long term benefits of borrowing are negligible at best. You hear idiots talk about the 10 year yield as a reason to buy stocks. That yield can go up faster than dividends and those geared to lower rates will belly up fast. They can't have it both ways. If the treasury adjusted to what they allow inflation to be, it would be in the 5% to 6% range right now. Take a look at Europe if you think a debt bound economy can work on risk free rates that high. It is the market, not the Fed that sets these rates. At best, the Fed is pushing more 10 year money into other assets, thus inflating a bubble.

New bank debt can't be repaid. Once credit begins to be used as the money supply, debtors never get their hands on enought money to repay what is borrowed. Debt has to be repaid out of the money supply when it comes to banks and thus can only be repaid out of what is there.

One idiot on CNBS proposed the Fed adopt a 4% inflation rate target. The only way we get 4% inflation without more consumer debt/mortgage debt is if those in the right positions run corners on commodities, as they have been doing. Forcing devaluation of what is out there reduces, not increases purchasing power. Corners temporarily shift costs up, while in the end leaving the corner to collapse.

The other thing that comes with a 4% inflation rate is 7% risk free capital rates and 10% or higher required stock returns, along with higher junk financing. How would housing look, with 8.5% mortgages? About the same as Greece or Spain?

Capital is liquidated to create money. It has to lie dormant, though it is ready demand for capital. Think about it, if you doubt this? Money in our accounts merely counterbalances what the banks have on their books. It just lies there and when it is used to buy something, it merely changes accounts. It might inflate the price of existing capital assets, but it can't increase them.

Zero is another matter. This is a hard concept to embrace, but I have read that zero means no expansion. I believe at the origin of the current banking model, capital in banks was meant to be held in treasuries, also the monetary base. Reserves have very little to do with deposits and in fact are measured against deposits. A zero rate means this stack of money has no way of expanding on its own. What is 1 times 1? Compound expansion is 1 times 1.04 times 1.04, in the case of 4%. This is a hard one to chew on.

Lastly, we keep hearing how much money corporate America has. Who owes this money? Someone has to owe this money or it doesn't exist. Our trade balances are in the negative half trillion range annually and this is financed. Don't tell me the treasury purchases to return this money balances out the outflow from those that purchase the goods, minerals and services. They are on 2 different ledgers. Deficit can only be paid out of surplus. Nothing can be paid in a compound interest system without collapsing the system.

Hypothetical situation - an investor in their early 40's wants to borrow 200K at 3% on their currently paid-off home to buy a couple rental properties of 150K each where they put 50K down on each. The investor lives in a nice home but has a willingness and preparedness to downsize and live in one of the rental properties if things get really bad. Presently the taxes/insurance/maintenance/mgmt on these 150K properties run about 5K per annum each, the interest on each would be 3K per annum, and the expected rents are 15K per annum or 12K if you factor in vacancy factors. That's 8K per annum cashflow return on the 100K capital investment. Would you consider such a scenario?