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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 24, 2008

The IMF Chief Economist Predicts That The Credit Crisis May Only Worsen & Citibank Gets Bailed Out

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Olivier Blanchard, the chief economist of the IMF (International Monetary Fund), believes that the world's financial crisis will only worsen in the near term. He does not believe that the financial markets will improve until at least 2010 (yeah, right. I guess 3010), and that the markets will not stabilize until at least 2011.

Blanchard says that the IMF does not have enough money to solve the world's financial problems. The combination of the lack of liquidity as well as the potential insolvency of many of the world's largest financial institutions is something that may not be solved by any entity. 

This includes the almighty IMF and the World Bank. It seems to me that both the IMF and the World Bank have caused more economic and financial problems around the world rather than have actually helped resolve these problems like in countries such as Peru, Chile, Argentina, Brazil, Russia ('90s), various Asian nations ('90s), Poland, and many others around the world. 

Talk continues that most to all financial institutions in both the UK and the USA may have to be completely nationalized by 2009 as the unwinding of the Quadrillion (1,000 Trillion) to a Quadrillion & a half (1,500 Trillion) of primarily unregulated derivatives (the root cause of the Credit Crisis) continues at hypersonic speed. 

For example, Citibank was just BAILED OUT TODAY by the U.S. government. Our government has agreed to cover up to $306 billion in potential losses for Citibank as well as to "lend/invest" $20 billion in cash to them. Sadly, Citibank may have potential financial losses of at least another $2 to $3 TRILLION (per the Wall Street Journal). Wow!!! I have been saying and writing for years that Citibank was on the verge of melting down, yet few people believed me. Wake up, Sheeple!!!

Oh joy!!!
Let's socialize everything so the government owns and controls everything. Fools are the only ones left who currently own stock in these insolvent financial institutions. Once these financial institutions are nationalized, then the stock values typically hit a big, fat ZERO. What happened to free markets, capitalism, and what is left of the "middle class" here in America?



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