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Strategies & Market Trends : John Pitera's Market Laboratory
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To: John Pitera who wrote (7587)2/19/2007 11:48:44 PM
From: Hawkmoon  Read Replies (1) of 33421
 
John,

Excellent article and it jibes with some of the fears I've had which reinforces my decision last year to rent, rather than buy, a home when I returned from overseas. I think the other shoe in the housing market has yet to fall.

One thing I don't understand is the comment on inflation and threat posed by defaulting sub-prime loans. According to my understanding, when a loan is defaulted upon money is destroyed, since all forms of debt make up the basis of money supply dynamics. That, in fact, the money supply diminishes when loans are defaulted upon, which then leads to higher interest rates as the supply diminishes, yet demand remains the same.

So I see defaulting loans being HIGHLY deflationary for the real estate markets as supply of capital is wiped out, as well as demand being hampered by higher interest rates.

Am I mistaken in this understanding?

Hawk
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