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):
December 30, 2008

The Problems Associated With Our Fractional Reserve Banking System


Of all of the money currently in circulation in America, only 3% is actually physical money (i.e. cash). The rest of the "money" in the USA is computerized, digital money (please watch video #1 in the "Videos" section of this website for more details). 

The American banking system is actually a giant Ponzi scheme which dwarfs the recent $50 to $100 Billion dollar (per various articles) Madoff scandal in New York. While our banks, the "Federal" Reserve, and the U.S. Treasury may legally create money "out of thin air" in our fiat-based currency system (backed by nothing instead of gold, silver, or other hard assets), it may become a very dangerous and risky monetary policy when the capital markets begin to collapse as we are now experiencing with our current Credit Crisis worldwide.

As per Wikipedia, the root definition of Fractional Reserve Lending is as follows:

"Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other liquid assets) with the choice of lending out the remainder, while maintaining the simultaneous obligation to redeem all deposits immediately upon demand. This practice is universal in modern banking. The nature of
fractional-reserve banking is that there only is a fraction of cash reserves available at the bank needed to repay all of the demand deposits and banknotes issued. When fractional-reserve banking works, it works because:

1.) Over any typical period of time, redemption demands are largely or wholly offset by new deposits or issues of notes. The bank thus needs only to satisfy the excess amount of redemptions.

2.) Only a minority of people will actually choose to withdraw their demand deposits or present their notes for payment at any given time.

3.) People usually keep their funds in the bank for a prolonged period of time. 

4.) There are usually enough cash reserves in the bank to handle net redemptions. 

If the net redemption demands are unusually large, the bank will run low on reserves and will be forced to raise new funds from additional borrowings, and/or sell assets, to avoid running out of reserves and defaulting on its obligations. If creditors are afraid that the bank is running out of cash, they have an incentive to redeem their deposits as soon as possible, triggering a bank run".

When I think of a "bank run", I think of the classic film It's a Wonderful Life which was based upon the era near The Great Depression. Once bank customers think their respective bank is running out of cash, then many of them will go to the bank in order to pull all of their money out of their accounts. Sadly, if too many bank customers withdraw their funds out of the bank accounts, then the bank may run out of cash. 

During the normal, boom, capitalistic time periods in American history, the Fractional Reserve Banking System worked quite well. During our on-going Credit Crisis, the Fractional Reserve system may not work very well as there may not be enough cash available to please every bank customer. 

As a result, more banks will be forced to liquidate their hard assets (i.e. real estate) for cents on the dollar. We will keep you updated on the best REO opportunities nationwide as they become available. For more ways to find money to purchase these REO foreclosure pools, please visit my other website at for more information. 

Happy New Year to All.


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