Skyrocketing Consumer Debt & Falling Rates
With home mortgages, the primary collateral for the loan balance is the home itself. In the event of a future default, the lender can file a foreclosure notice and take the property back several months later. With automobile loans, the car dealership or current lender servicing the loan can repossess the car.

Homeowners often refinance their non-deductible consumer debt that generally have shorter terms, much higher interest rates, and no tax benefits most often into newer cash-out refinance mortgage loans that reduce their monthly debt obligations. While this can be wise for many property owners, it may be a bit risky for other property owners if they leverage their homes too much.

With credit cards, lenders don’t have any real collateral to protect their financial interests, which is why the interest rates can easily be double-digits about 10%, 20%, or 30% in annual rates and fees, regardless of any national usury laws that were meant to protect borrowers from being charged “unnecessarily and unfairly high rates and fees” as usury laws were originally designed to do when first drafted.

Zero Hedge has reported that 50% of Americans don’t have access to even $400 cash for an emergency situation. Some tenants pay upwards of 50% to 60% of their income on rent. A past 2017 study by Northwestern Mutual noted the following details in regard to the lack of cash and high credit card balances for upwards of 50% of young and older Americans today:

* 50% of Baby Boomers have basically no retirement savings.

* 50% of Americans (excluding mortgage balances) have outstanding debt balances (credit cards, etc.) of more than $25,000. 

* The average American with debt has credit card balances of $37,000, and an annual income of just $30,000. 

* Over 45% of consumers spend up to 50% of their monthly income on debt repayments that are typically near minimum monthly payments.


Rising Global Debt 


According to a report released by IIF (Institute of International Finance) Global Debt Monitor, debt rose to a whopping $246 trillion in the 1st quarter of 2019. In just the first three months of 2019, global debt increased by a staggering $3 trillion dollar amount. The rate of global debt far outpaced the rate of economic growth in the same first quarter of 2019 as the total debt/GDP (Gross Domestic Product) ratio rose to 320%.

The same IIF Global Debt Monitor report for Q1 2019 noted that the debt by sector as a percentage of GDP as follows:

Households: 59.8%

* Non-financial corporates: 91.4%

* Government: 87.2%

* Financial corporates: 80.8%


Rate Cuts and Negative Yields

As of 2019, there’s reportedly an estimated $13.64 trillion dollars worldwide that generates negative yields or returns for the investors who hold government or corporate bonds. This same $13.64 trillion dollar number represents approximately 25% of all sovereign or corporate bond debt worldwide. 


On July 31, 2019, the Federal Reserve announced that they cut short-term rates 0.25% (a quarter point). Their new target range for its overnight lending rate is now somewhere within the 2% to 2.25% rate range. This is 25 basis points lower than their last Fed meeting decision reached on June 19th. This was the first rate cut since the start of the financial recession (or depression) in almost 11 years ago dating back to December 2008.

It’s fairly likely that the Fed will cut rates one or more times in future 2020 meeting dates. If so, short and long-term borrowing costs may move downward and become more affordable for consumers and homeowners. If this happens, then it may be a boost to the housing and financial markets for so long as the economy stabilizes in other sectors as well such as international trade, consumer spending and the retail sector, government deficit spending levels, and other economic factors or trends.

We shall see what happens in the near future in 2020 and beyond.

* The blog article above is a partial excerpt from my previous article entitled Interest Rate and Home Price Swings in the Realty 411 Magazine linked below (pages 87 - 91):
August 25, 2009

The Federal Reserve Must Release Their Financial Data & The FDIC Report May Be Released Today!!!

As I have written for years, the FDIC has been underfunded and bankrupt for too long. Sadly, the FDIC (Federal Deposit Insurance Corp.) was set up shortly after the end of the last Great Depression (1929 - 1939) to "insure" bank accounts for customers throughout our great nation.

Since our banking system is actually considered a "Fractional Reserve System" as banks lend out up to 20 to 50 times the actual amount of their deposited funds via leveraged consumer, business, and real estate loans, the safety of our money in banks throughout America is potentially at greater risk than ever before in the history of American banking.

Remember, most banks maintain at or near ZERO PERCENT cash reserves in their respective bank branches. Sadly, most of these cash reserves are held in the form of ATM or minimal bank vault money. Historically, most banks used to maintain anywhere between 3% to 10% of their funds as "cash reserves" (or cash on hand).

Today, the FDIC may release their 2nd Quarter report if they don't delay it for "special reasons" (i.e. the report is so negative that they don't want to cause a massive run on the banks for deposits). Within this anticipated FDIC report, they may list numerous banks which they deem as "bad banks". Many financial analysts are predicting over 100+ banks may be taken over by the government in the near term as they are technically insolvent.

In addition, the Federal Reserve must release (based upon a Federal Judg's ruling) the list of all of their anonymous loans to big banks, investment banks, and other businesses since last Fall via their eleven (11) different anonymous lending "auctions".

These emergency lending facilities include The Term Auction Facility and The Term Securities Lending Facility. According to the Federal Judge, the Fed must release their billions or trillions in emergency loans by the end of this week or early next week.

As a result of both the release of the Federal Reserve's emergency loans to lenders as well as the anticipated negative FDIC report, I expect many banks to be taken over in the near term. I also expect many banks to be forced to liquidate or sell off their prime assets (i.e. real estate properties and mortgages) for whatever price they can get for the much needed cash.

We will continue to search for the best upcoming foreclosure deals for our clients as banks may be forced to take just about any price possible in the near term. How does 5 to 10 cents on the dollar for a prime Southern California home sound to you?


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