My only point was that the economy hasn't been held up by this vast flow of money into housing, that housing has sucked up money (you'd know that if you owned a house).
Grace.. that would be true if those homes were purchased outright, and not financed with debt.
However, everytime debt is created, money is ALSO created. That's how money supply works.
If you contract to purchase a $500K home and take out a loan to finance it with no money down, you've just created $500K in money supply, which then is transferred as material, wages, and profit to those people who built your home.
And over the space of a 30year mortgage, you'll pay between 2-3 times the purchase price in interest (deductible of course), you've actually created even more than $500K in money supply, the majority of which goes to the banks, who use it to extend even MORE credit to other borrowers.
Now even if the bank resells those loans to investors as CDOs, it is ALL dependent upon you continuing to pay that mortgage. If you default, then money is destroyed (normally the amount between the the mortgage value, and the price for which the home is resold in foreclosure.
The same goes with bonds. If a company issues bonds, it creates money backed by the faith held by investors that the company will be able to pay it off over time. If that company defaults on those loans, money is destroyed.
Hawk |
