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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Elroy Jetson who wrote (55303)11/1/2004 6:55:32 AM
From: Snowshoe  Read Replies (3) of 74559
 
>>Many believe this is the ultimate cause of an economic depression - a sudden de-leveraging. Those who pay the price for this are not those in debt, but those who saved.<<

OK, I've gone back to your original statement which I which I think is an inaccurate generalization. There were plenty of folks in debt who lost everything and became homeless during the 1930s when their farms were foreclosed. In my view, they paid the price. And there were other people with savings going around to those Sheriff's auctions and buying up that distressed property for a song. The leverage created by the temporary low prices enabled them to make profits that exceeded inflation.

The same thing happened during the S&L crisis 20 years ago. I know people who got into very severe financial difficulty because of their debts during that period. The poorest were allowed to escape their debts (although they lost their down payments and accrued monthly payments). But folks with other assets had to cough up to pay off their underwater loans. OTOH, vulture capitalists came in at the bottom and cleaned up. Ten years later many of those properties had tripled in value from the rock-bottom prices they paid with leveraged savings.

It all depends on what you do with your savings.
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