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):
September 30, 2009

Yesterday Was The One Year Anniversary Of The Bank & Wall Street Collapse

As many readers may remember, I accurately forecast the global stock meltdown (began the week of September 29th, 2008) last July 2008. I warned readers, friends, family, clients, and co-workers that I was absolutely certain the world's stock and financial markets would either freeze, collapse, or that the U.S. Dow Jones index would drop at least 20% in value during a two (2) week time period beginning the week of September 29th, 2008.

Several readers and friends took my advice to heart, and sold many of their financial stocks (especially Washington Mutual which collapsed during that same time period). I was also concerned about the implosion of various Wall Street firms like Lehman Brothers, Bear Stearns, and Merrill Lynch. I also suggested that both Fannie Mae and Freddie Mac would collapse or be taken over by the government several years ago as well.

Why did I pick the week of September 29th last year as the official start of the stock and banking meltdown (or really the acceleration of the Credit Crisis meltdown which officially began in August 2007)? I knew that the next scheduled derivatives exchange date was on September 30th, 2008 at the Bank of International Settlements (BIS - in Basil, Switzerland).

Since the Credit Crisis is primarily due to the melting down of derivatives like Credit Default Swaps, Collaterized Debt Obligations (CDOs - effectively pools of mortgage securities), and other complex financial derivatives which may be leveraged 30 to 50 times their true face amounts, I didn't think there would be any big buyers for these non-performing assets last September 30th.

I also knew that September and October tend to be the two worst months for stocks. If you remember Great Depression I, it began on October 29th, 1929. "Black Monday" was in October as well back in 1987. I am VERY CONCERNED about another major stock meltdown during this upcoming month of October (begins tomorrow).

What happened to the $750 billion in bailout money which was supposed to save the financial markets and help the end consumer? Why haven't the trillions of dollars in "emergency & anonymous loans" provided by the various lending facilities like the "Term Auction Facilities" helped banks lend more money to the borrowers who really need it?

The millions of properties currently in foreclosure nationwide continue to provide potential investment opportunities for those individuals who have the funds (direct or via 3rd party) to buy these properties. We continue to provide the most up to date foreclosure information in Southern California so if you would like some more information, please send me an email or call me today.


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