Cartoon by Elaine Meinel Supkis
By Elaine Meinel Supkis
Earlier, I told the story of the farmer and his cows who lived near my farm. How he was offered a 2 points below prime for an interest only loan and how it caused his loan to swell from $350,000 to $550,000 in just ten years.
Well, the national statistics are truly horrifying. From Yahoo news:
As they happily watch their houses swell in value, Americans are changing their attitudes toward mortgage debt. Increasingly, a home is no longer a nest egg whose equity should never be touched, but a seemingly magical ATM enabling the owner to live it up or just live.Doubled in one quarter? This is beyond balloon status. This is more akin to a black hole that is sucking in all our future wealth. Once everyone in America is in debt, you know, we end up really screwed.
Homeowners took $59 billion in cash out of their houses in the second quarter, double the amount in the 2004 quarter and 16 times the average rate of the mid-1990s, according to data released this month by mortgage giant Freddie Mac.
People are cashing out so quickly that the term "homeowner" may soon be inaccurate. Fifty years ago, Americans owned, on average, three-quarters of their house and the lender owned the rest. These days, it's approaching an even split.
Look at this hurricane, for example. Everyone in the hurricane zone has to either cash in on insurance which means it will shoot up in the future. If everything in one's house is owned by the bank including the house and it is destroyed, guess what?
You still have to pay for it. Especially after the political 'reforms' passed by mostly the GOP but also a number of Dems owned by credit companies. Our soldiers can get out of debt by literally 'buying the farm', ie, dying. If they die, their families get lots of money! This is why there aren't more Cindy Sheehans yelling at Bush. Shop til you drop morphs into drop so you can shop! The 9/11 families got an even more generous shut up money. And most of them shut up. You could not sue the USA for not protecting America if you accepted the blood money and most decided to stay mum and tak the money and live happily ever after sans whoever was the one who had to die for all this.
Not all the dead are of equal or even any value.
But the spending spree has a price. With the savings rate at zero, consumers' eagerness to tap home equity is only worsening their retirement outlook, financial advisors say.I am so very old fashioned. I happen to believe that it is OK to tap the equity of the house to fix it so it rises in value but to keep raising life long debt to pay off frivolous purchases is dumb.
If mortgage rates rise sharply or home prices fall, many homeowners could be in financial turmoil. They may be unable to service their loans, or could even find that their homes are worth less than their mortgages.
Such a prospect seems unimaginably distant to Doug Levy, a university administrator in San Francisco.
When his two-bedroom condominium rose in value by 10% — which took nine months in the hot Bay Area real estate market — Levy refinanced. That increased the size of his mortgage but gave him $25,000 to pay bills and take a modest skiing vacation in British Columbia. He's considering tapping his equity again if his condo continues to appreciate.
The people who spent to the limit in the hurricane paths are now stuck with houses of less value as well as in grave need of repair just to be habitable! And the goodies from insurance are increasingly limited. Realistically, no insurance company would insure costal or California houses except the government insures them thus encouraging reckless building as well as reckless debts.
Wholesale gasoline prices in the New York and Gulf Coast markets soared by 25-35 cents a gallon on Monday following reports that about 8 percent of U.S. refining capacity had been shut down ahead of the storm. One analyst said pump prices nationwide would likely average more than $2.75 a gallon by week's end, up from about $2.60 a gallon Monday.Price gouging during storms and national distresses used to be punished as thievery but then, back in those days, usury was illegal, too. Now, people are being forced to pony up every time the pony poops and our rulers laugh at us.
"Unfortunately, I don't think $3 a gallon is a hyperbolic number in some markets anymore," said analyst Tom Kloza of Wall, N.J.-based Oil Price Information Service. He emphasized that the market reaction is a reflection of supply tightness, not shortages.
Things going bad? Tough luck. The consumer binge that is connected with our trade and budget deficits is being used increasingly to keep our collective heads above the tidal surges from the increasing economic head winds. From CNN Money:
Although a dollar crash is unlikely anytime soon, a Federal Reserve study says any collapse in the value of the currency is unlikely to hurt the U.S. economy. But few analysts agree.No sane economy wants to drive their entire populace deep into debt nor are the governments willing to do the same. They couldn't believe their good fortune and of course the security of their bribes working so perfectly! They bought out our Presidents just like Carlyle owns more than one world leader, and in return, from Greenspan on down, they all service foreign powers that want us deep in debt. A sane government would have shot up interest rates and played hard ball currency games with anyone trying to flood America with cheap loans that have long, dangerous strings attached. It was plainly obvious for years that this is bad for us.
Instead, many economists suggest an abrupt decline in the dollar's value would cause pandemonium in both U.S. credit and equity markets.
To maintain foreign interest in U.S. financial markets and prevent large investment outflows, which would disrupt the economy, the central bank would begin raising short-term rates aggressively, analysts say.
But rising short-term rates alone would choke U.S. economic growth as American consumers would be inclined both to save more and borrow less. Since the United States buys goods from around the globe, analysts emphasize the spillover would be worldwide.
"A dollar collapse would hurt everyone -- in the U.S. and around the world," said Joe Quinlan, managing director and chief market strategist with Bank of America Capital Management.
"It would force the hand of Europe, Japan and Asia and force these nations to undergo consumption-led growth, a dynamic they have long resisted."
Now we are addicted to it like gambling addicts. We want to pull the one armed bandit's lever over and over again without thinking about the consequences and people are in power because of this huge lust to gamble recklessly. Somehow, everyone thinks this won't end in a huge, ugly crash.
This is like building sand castles on the beach before the hurricane hits.
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