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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):
October 8, 2008

Turn Off The TV & Pick Up A Book Today!!!

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I am appalled in regard to how "dumbed down" the mainstream media makes important issues like health, religion, family, education, politics, and the Credit Crisis for most Americans. I have read many articles in recent years that also allege that most Americans read less books than ever before, and are more obese (due to worse nutrition and less exercise) than at any time in our nation's history.

There are approximately six (6) companies who control upwards of 95% of all forms of media in the USA today (print, internet, cable, etc.). These same business conglomerants also control some of the biggest medical, defense, finance, insurance, food & beverage, and other multi-national companies domestically and worldwide. For those of us who believe that there is more real news to be found on the internet, we tend to steer clear of mainstream media. If I am not mistaken, the viewer rates for mainstream print, cable, and regular television are now near all-time lows as well.

The Credit Crisis is NOT a "subprime mortgage" problem as many in the mainstream media make it out to be on cable television. In fact, outstanding delinquent "subprime" loans represent just a small fraction of the problem worldwide debt. 

The Credit Crisis is primarily due to the unwinding of unregulated derivative assets (1,000 Trillion Plus - Collaterized Debt Obligations, Credit Default Swaps, Structured Investment Vehicles, etc.). I have been writing this information for many years about the severity of this complex issue. Finally, more people are beginning to report this derivatives issue as well.

Americans today are potentially less educated and less knowledgeable than in recent years due to our eroding school system (34% national drop out rates in high school, & as high as a 75% drop out rate in some major urban areas). According to some recent studies, only 13% of all adult Americans currently have English and Comprehension skills which are considered "proficient".

Most U.S. employers who are searching for "skilled workers" value these basic skills for potential employees: 1.) Reading, 2.) Writing, 3.) Math, & 4.) Basic Computing. For many employers, they may value "critical thinking / problem solving skills" as the most important traits for people within their workforce. Yet, "critical thinking / problem solving" skills are also near all-time lows. What has happened to the U.S. school system as well as our once multi-talented U.S. population?

Please turn off the "idiot box" (your T.V.), and pick up a book today. Please be one of the few Americans who actually gets past chapter one in your book as the "average" American does not usually even finish the first chapter. Knowledge is power! 

With more and more information available to all of us on a daily basis, you may see the world in a whole new light for both you and your family. Please teach your kids how to read, write, debate, use computers, reason, and how to better use their analytical and creative young minds so their futures are much brighter down the road!!!

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