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The Consumer Debt Anchor
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):
March 11, 2009

The Collapsing World Economy Continues ......

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As I tell my readers, friends, family, clients, and others, "I didn't want to be right" in regard to my accurate forecasts (as far back as 2004) in regard to the collapsing derivatives and financial markets worldwide. No, real estate, stocks, and bond values do NOT always go up in value as many of my disbelievers have told me in recent years.

In 2008, the value of assets worldwide dropped approximately $50 trillion dollars in value. 2009 will be significantly worse for all asset classes (i.e. real estate, stocks, bonds, commoditites, etc.). Currently, the existing value of ALL stock markets around the world may be near $50 trillion. 

To put those numbers into perspective, the combined worldwide stock market values lost the equivalent of all of the world's stock market values in just one year ('08) (VANISHED INTO THIN AIR). I still expect the U.S. Dow Jones index to hit 5,000 or below within a few weeks to a few months. Yesterday's 200 plus increase was nothing but a "sucker's rally".

I expect a major U.S. bank to be "nationalized", or formally taken over the the U.S. government as early as this Friday (Friday the 13th after 5 pm PST). Typically, banks are taken over on late Fridays so they have the entire weekend to work on "bailout".

People, please understand the financial markets are only worsening both here in the U.S. and worldwide. Asset values are headed downward in almost every category (except maybe gold and silver), and hyperinflation is just around the corner (currency values drop due to the increase in printing of U.S. Dollars in order to bail everyone out).

If you are "upside down" in your home, please contact me so we may help you cram down your debt or lower your payments. If you are an active investor, we have access to REO deals for "cents on the dollar". If you need a loan, please get one NOW as it will be much more difficult and much more expensive in the near term as long term mortgage rates continue to rise.

Sorry for the bad news today!!! I try to be an optimist in life, but I have been researching this financial and economic information for too many years.

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