The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: dpl who wrote (31158)	4/25/2005 2:57:02 PM
From: piggington	Read Replies (2) of 110194

>By the time you get the "hair brained ideas" the debt bubble will have been contracting for a while.The whole credit machine will seize up. I think this is the specific part where I'm having trouble. Can you tell me why this is necessarily true? Take my example of the "American Dream II Act." It's 2006, housing prices have declined, and a lot of people start defaulting. Yes, credit is contracting. So the gov't says, hey, everybody! We bought your mortgages from FNM/BAC/WFC/CFC etc and your rates are now only 3%! Also, feel free to miss the occasional payment or three. That would stop defaults in their tracks. Of course, people wouldn't overconsume like they do, and RE prices would still decline, and housing related jobs would decrease. Totally agree on that part - but doesn't the prevention of defaults (and btw the rampant printing) prevent deflation from taking hold? thanks for the insights, everyone... rich

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