The Residential Real Estate Crash Index Message Board

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Strategies & Market Trends : The Residential Real Estate Crash Index

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To: Hawkmoon who wrote (87839)	9/1/2007 7:05:27 PM
From: The Vet	Read Replies (1) of 306849

Hawkmoon you made some good points on money creation and I agree with your statements "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." However I find it harder to relate the destruction argument "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." As I see it, the original $500K that went to the builders et al and any principle and interest you may have paid is still out there in circulation regardless of whether you default or not. So what money has been destroyed? Sure, the bank or current owner of your defaulted debt instrument has lost some of the value in that note, but as the house will always have some value his loss should be less than the initial amount of money created. The bank has lost some potential future interest income but as that was due on newly created money in the first place it isn't really "lost" it simply won't have to be created in the future.

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