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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: SouthFloridaGuy who wrote (73051)10/27/2006 2:19:08 PM
From: J_Locke  Read Replies (5) of 110194
 
A soft landing for the broad economy from a deflating housing bubble is virtually guaranteed. Because mortgage debt outstanding is driven by new entrants into the market and move up buyers, total mortgage debt outstanding continues to increase even as housing prices decline. Indeed, it's almost a mathematical impossibility for outstanding mortgage debt to decline.

This is well documented by Doug Noland's Credit Bubble Bulletin, which reports mortgage debt up by a whopping 16.4% ytd, even as housing prices are down 2%. As we all know, the economy is driven by credit growth, so housing continues to contribute to growth even as prices are declining.

The elephant in the room remains the current account deficit and lack of domestic savings (the two go hand in hand.) Many believe that the fed can ride to the rescue by cutting rates, but what are rate cuts except a way to pull forward demand by driving down the saving rate? With a saving rate already in negative territory, this becomes problematic at best, not to mention terribly irresponsible.

The yield curve is now inverted in all the Anglo-Saxon countries (US, UK, Aus., NZ, and CA.); all have had soft landings despite the deflating of their respective real estate bubbles (for the reasons above.) But the problems are just beginning.
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