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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):
November 21, 2008

The Dow Jones Index Approaches 50% Of It's Peak Value

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Wow!!! In October 2007, the U.S. Dow Jones Index (a composite of 30 key stocks) reached a peak of 14,160+. Yesterday (Nov. 20th), the Dow fell almost 445 points to a 5 1/2 year low of 7,552. While the Standards & Poor's 500 Index (a broader and truer range of 500 stocks) fell to 752. This is the lowest S & P 500 number since April 1997 (11 1/2 years ago).

Ouch!!! Remember, I kept warning anyone who would listen that the Dow Jones index would begin it's long descent toward financial armageddon beginning the week of September 29th. I told many people that the Dow would initially drop over 20% within a two week time period. No one believed me, yet it still happened.

Recently, I wrote articles and blogs as well as I told many co-workers, clients, family, and friends that the Dow index would hit 7,000 by the end of November. In addition, I believe that the Dow Jones index may hit 5,000 or below by Spring 2009.

I have been studying the risks associated with derivatives worldwide for over 15 years. There may be close to 1,000 to 1,500 TRILLION in unregulated derivatives currently unwinding. The Credit Crisis is primarily about the collapsing values associated with derivatives (Credit Default Swaps, Mortgage-Backed Securities, Structured Investment Vehicles, Interest Rate Option Swaps, Collaterized Debt Obligations, and other complex financial instruments).

Gold, Silver, and REO foreclosured properties for cents on the dollar are a much safer alternative investment than anything associated with the U.S. stock or bond markets. I still can't believe that the 10 year Treasury Yields hit a 50 year low at 3.00 just yesterday. 

Investors are fleeing the equities markets in droves, and they are trying to find anything which seems "safe". U.S. Treasuries are backed by the U.S. government so they must be "safe" right. Sadly, I keep hearing rumors that the U.S. government may be close to defaulting on our debt obligations by early next year so that is another major concern for all investors worldwide. Good times!!! Welcome to Great Depression II. This time it not just in the USA, but it is worldwide!!!!!

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