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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 10, 2008

I Told You So

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Yes, I am finally saying those words ("I told you so") to the rest of the world. For many years, I have been brave and informed enough to go out on a limb and make various statements about all sorts of topics. Some people may have disbelieved me as they didn't hear anyone else on T.V. make the same comments. Others hoped I was wrong, but they at least listened to my logical reasons why I had these opinions. 

In regard to the Credit Crisis, I was telling anyone and everyone who would listen that the derivatives market was going to unwind and "implode" several years ago. As far back as the early '90s, I was writing about the risks involved with the derivatives market. For example, I kept making references to Orange County, California's bankruptcy due to their investments in interest rate options derivatives. 

In addition, I wrote about the Long Term Capital Management (LTCM) hedge fund which imploded in 1998. At the time of the collapse of LTCM, they had about $3 billion in cash which tied up about $124 billion in derivative investments as well as an additional $1.25 TRILLION in off balance sheet investments. This one hedge fund almost took down the world's financial markets by itself. The "Fed" and other investment banks on Wall Street had to come to LTCM's rescue in order to prevent the meltdown of just about every major investment firm on Wall Street.

Back in August '08, I told many people that I believed the U.S. stock market's Dow Jones index would fall between 20% and 25% within a two week time period. I predicted that the collapse would begin the week of September 29th and would continue through the following week or two. Nobody believed me, and no other analyst made this same prediction on the mainstream media or anywhere else on the internet. It looks like I made another wise prediction based upon logical and rational thoughts!!!

As I have written for years in the nationally published Creative Real Estate Magazine, I believed that every major bank and Wall Street investment bank was technically insolvent. I warned many people to sell their stocks or real estate. Many people did listen to my dire warnings, and many continue to thank me to this day for encouraging them to liquidate their assets.

Several years ago, I said that both Fannie Mae and Freddie Mac were "glorified hedge funds" which were about to implode. I also said that WAMU, Lehman Brothers, Merrill Lynch, Bear Stearns, Downey Savings, Indy Mac, Wachovia, Morgan Stanley, the FDIC, and many others may "implode", or be taken over by the government or other entities. 

I also told anyone who would listen that AAA rated Wells Fargo Bank was on the verge of collapse partly due to their exposure to $80 billion in open HELOCs (2nds) primarily in "bubble" states like California, Nevada, Arizona, and Florida. The latest bank bailout plan ($250B) is giving Wells $25 Billion as a government "investment". The spin on this "investment" by the U.S. government is that it is "to help Wells make more loans to consumers". This is simply not true. It is to help them not go out of business. I also warned many stock investors to unload their stock investments in these same firms as I realized that many of the stock holdings would eventually be worthless.

About 5% to 10% of the people who I warned about the severity of the Credit Crisis did not listen to me as they (or their advisors) thought that I was "mistaken". I wonder what the value of their current investments are today after the melting down of the world's financial system? 

My birthday is October 29th. This is a major historical month and date as it is when the Great Depression officially began back in 1929. I have been an avid follower of the Great Depression since high school, and I believe the current meltdown will make the Great Depression seem like the "good old days". 

As the privately owned "Federal" Reserve and the U.S. government continue to "bail out" and nationalize most of our banks, insurance companies, automobile companies, airlines, and other multi-national conglomerants, we will all soon realize that our once capitalistic way of life has changed to a more socialistic way of life.

I will continue to speak my mind. If you don't like my opinions or viewpoints, then please do your own research and prove me wrong. I don't know all of the answers, but I am willing to stand my ground, speak my mind, and try to protect my family and friends unlike the vast majority of "Sheeple" who continue to drink the proverbial fluoridated "Kool-Aid" offered by the mainstream media's "real" news. 

We are now far off the 14,198 Dow Jones index peak within just the past twelve (12) months. Will we soon see Dow Jones index levels close to 50% of the 52 week peak numbers?

For more information in regard to how to prosper from the worsening, downward descending Credit Crisis, please buy my book on this same website!!! Also, my latest article (entitled "Armageddon? What To Do About It") was just released today in the national publication Creative Real Estate Magazine.

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