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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 29, 2008

British Government To Take Over RSB Scotland Bank

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It was just announced today that the British (UK) government will take over the Royal Bank of Scotland by "acquiring" a majority 60% equity position within the bank. Again, shareholders will probably end up with little to nothing after the British government nationalizes this well known banking institution.

The $31 Billion (U.S. $) bailout deal will make dividends on common stock shares be worthless, and all bonuses to RBS executives will be cancelled just in time for the Christmas holidays. Over the past year, the total market value of RBS's stock plummeted over 85%.

RBS is the second largest bank in the U.K. after only HSBC. Last week, HSBC discontinued their entire national residential wholesale lending division in the United States. This event usually happens prior to the shutting down or national takeover of a bank so HSBC may be taken over by the British government in the near term as well. 

Approximately 6 months ago, RBS' Chief Economist predicted that the world's financial markets may collapse by the Fall. As the financial markets actually did collapse in late September to early October, he was very accurate in his forecasts. 

Remember, we had all of those "banker bailout plans", a 40% year to date collapse in the U.S. stock market, a 40% median price drop in California real estate in one year alone, and the continued unwinding of the Quadrillion (1,000 Trillion) to a Quadrillion & A Half (1,500 Trillion) of primarily unregulated derivative assets. 

Governments around the world have scrambled to bailout and nationalize most of the world's financial institutions (banks, investment banks, etc.), and they have continued to change the rules so the world's financial markets would not entirely "freeze up" and collapse like they did recently in Iceland. 

The "old school" style of the world's financial markets did, in fact, change altogether in late September. I am most proud of my prediction earlier in the year that the U.S. stock market would plunge over 20% within a two week time period beginning the week of September 29th. It did happen, and many of my friends, family, and clients have thanked me for encouraging them to sell all of their stocks prior to that week. 

The best remaining investments are gold, silver, and REO pool foreclosure investments for potentially cents on the dollar. The remaining investors who still own stock investments in financial institutions or insurance companies should think twice about continuing to hold these investments. If these same banks are later nationalized, then those same stock investments may later be worth as little as ZERO. 

***For financial solutions, please visit my other website at www.realloans.com .

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