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Thread: A Current State Of Debt 2008

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    Gil
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    Default A Current State Of Debt 2008

    Following in demonplight's lead with regards to the A or B issue. I don't know if someone has created a thread on this issue in depth.

    Now I'd like to get opinions from all over the world on this issue. If you are going to post here, I do hope that you have thought about it as anything else is utter spam. I will be referring to Americans a lot because they have started this long before other countries. What was commonplace in the 80s in the USA is only starting to occur in Australia.

    __________________________________________________ _________________

    The issue of course is debt. This current generation, like the generations before it, are taking on debt to fund their home and lifestyle purchases. We and Americans in particular, have been living well beyond our means for decades in the attempt of the [insert your country] American dream, owning your own 5 bedroom house in a nice suburb with 2 cars. Let's face it, we all want to obtain these assets and I for one will go about any means to do so. Now what middle class Americans have been doing for decades is obtaining a mortgage with a future value that is far beyond their ability to meet. They aim to refinance indefinitely and while this worked 5 years ago, it isn't now. For a similar reason which I will get to soon, families that default are murdering the banks. When you default, the bank seizes the house and sells it to recover the loan amount. However due to the prices of houses falling or plateauing at best, the banks cannot recover the initial loan let alone lost interest. For those who do not know, a bank only keeps a reserve ratio amount of cash. The principle is that if I give the bank $100 I will only ever withdraw $10 from my account. The other $90 can be loaned to create revenue in the form of interest payments to the bank. Now as you can see, if the bank cannot recover the mortgage value of the loan let alone some of the interest payments they expected to receive, the bank is in a bit of a cash crisis. Now imagine that hundreds of loans are defaulting. The bank has quickly run out of money and unless it chases down its remaining loans or the reserve bank of the nation gives then an extended loan, the bank will collapse. This is the so called credit crunch.

    Refinancing is starting to become popular in Australia. Unlike the States, our house prices are inflated and continue to increase. This is the same driver that forced the average American to go to the loophole that is indefinite refinancing. I am concerned that if the housing prices keep on increasing that we will follow the same path.

    So to the discussion. How is the housing affordability in your country? Do you see any trends that I have mentioned or any others? What do you think about the credit crunch? Have you thought about how it will affect the growth of the economy as businesses seeking debt are a significantly higher risk than a mortgage?

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    Gil
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    There's a similar issue with China. I think this has something to do with it.
    If I'm wrong, then I'm sorry.

    Oh, Hi-deeki, imagine... your kind not eating raw fish! ^_^


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