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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):
Page 9 of 24
February 18, 2009

U.S. Obligations Exceed World's Entire GDP (Ouch!!!)

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As Congress tries to push through their latest $800 billion dollar economic stimulus package, most Americans don't realize that the true deficit amounts are measured in TRILLIONS. In fact, the current estimated U.S. federal budget deficit is estimated to be close to $65 TRILLION. This estimated $65 TRILLION currently exceeds the world's entire GDP (Gross Domestic Product). 

The combined total U.S. budget deficit obligations, including Social Security and Medicare benefits to be paid in the futur...

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February 17, 2009

"Dr. Doom" Says We Should Nationalize U.S. Banks

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Nouriel Roubini (aka "Dr. Doom") recently suggested that the U.S. government should nationalize all large U.S. banks. Roubini, the NYU professor, has probably been the most accurate forecaster of the on-going and downward spiraling Credit Crisis over the past decade. Have we hit the bottomless "abyss" as of of yet?

Since the USA has effectively already nationalized Wall Street, the automobile industry, the U.S. banking system, and the quadrillion (1,000 trillion dollars) derivatives industry to...

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February 9, 2009

Electronic "Run On The Banks" Almost Collapsed The World Banking System (Sept. '08)

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As reported by the very "mainstream" media outlet (C-SPAN), Congressman Paul Kanjorski (Pennsylvania) explained how the Federal Reserve told Congressional members about a "tremendous draw-down of money market accounts to the tune of $550 BILLION DOLLARS". 

What is most concerning about the withdrawing of over a 1/2 TRILLION DOLLARS is that it happened within just an hour or two on September 15th, 2008 (the start of the 4th Fiscal Quarter).

All of this money was being withdrawn electronically. Th...

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February 3, 2009

California Is Now Broke - The State, Not The People

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Good times!!!  California, the 7th or 8th largest economy in the world is now officially broke (and on the verge of Chapter 9 bankruptcy - 1st state EVER to possibly file for bankruptcy protection). 

California is faced with a $40 billion dollar budget deficit. As a result, residents will not be getting their state tax rebates, scholarships to Cal Grant colleges will go unpaid, and various county services will cease to exist. 

In addition, over $500 million to the state's vendors will go unpaid,...

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January 30, 2009

A "Professional Run On Banks" May Be Underway

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Most Americans do not realize that foreign investors and large American equity funds control a large portion of U.S. bank accounts as well as our Treasury Bonds (or shorter term T-Bills). In recent times, many of these same domestic and international investors have begun to pull their money out of U.S. banks and investment banks. 

In addition, many foreign investors are converting their large holdings in U.S. Dollars into other currencies, or other hard assets like gold or silver. The U.S. Treas...

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January 30, 2009

46 of 50 States May Be Near Bankruptcy

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At least 46 American states have high budget deficits, and may be forced to file Chapter 9 bankruptcy either this year or next (2010). Arizona and California continue to be two of the hardest hit states. Each of these states may completely run out of cash within the next few months.

Many important programs and benefits may be cut in the very near term in many of these states. In addition, state and sales income taxes may be raised to help offset the mounting budget problems. At some point, state...

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January 28, 2009

Nouriel Roubini ("Dr. Doom") Says That U.S. Stocks May Fall 20%

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Nouriel Roubini (aka "Dr. Doom") said today that U.S. stocks may fall 20% in the near term because "the corporate and economic news will be worse than expected". 

Dr. Roubini also said that more Americans will soon realize that most major banks are bankrupt (as I have said and written for the past few years). These insolvent financial institutions (banks and the few remaining investment banks on Wall Street) will then be forced to sell more assets for much needed cash. 

The potential new glut of...

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January 27, 2009

Great Britain's Banks Were Hours Away From Collapsing Last Year, U.S. Banks Are In Worse Shape

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"Britain was just three hours away from going bust last year after a secret run on the banks, one of Gordon Brown's (the U.K. Prime Minister) Ministers has revealed", according to The Daily Mail (a well known London publication).

On Friday, October 10th (according to the same article), Britain's entire banking system almost collapsed partly due to a "bank run" for major and minor depositers who attempted to withdraw their funds en masse. The demand for funds was so swift and so massive that all...

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January 21, 2009

Financial Stocks Tumble Worldwide

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Financial stocks over the past week have fallen sharply both here in the United States as well as in the United Kingdom. Just yesterday (Tues., Jan. 21st), the Royal Bank of Scotland (RBS) reported that their 2008 losses may exceed $41.3 billion. 

As a result of their negative numbers, RBS' stock dropped 70%. Many financial analysts now believe that the UK government may have to completely nationalize or takeover the bank before it completely collapses.

State Street Corporation's stock values d...

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January 9, 2009

REO Pool Financing Updates

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As the on-going Credit Crisis continues to cause our planet's economies to plummet even further than thought possible by most people (except me), we are focusing more of our efforts on providing our clients with the best access to REO pools nationwide as well as the best financing options to purchased these distressed REO pools.

Banks and mortgage service companies are in such dire financial shape these days that they have to unload their prime real estate assets in order to generate much needed...

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