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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: philv who wrote (37920)	8/5/2005 4:03:43 PM
From: GST	Read Replies (1) \| Respond to of 110194

Japan lowered interest rates to nil and still nobody could qualify for new loans. When everybody is underwater, there is no equity on which to structure a deal. In this environment, real estate plunged as much as 80%. Lets assume we get away with a 30-50% haircut. What will be the impact be as risk is priced into mortgage rates? That is the 64 dollar question. For "risky" loans -- and that includes a remarkably high percentage of todays loans -- a much, much higher risk premium is likely to be applied. This is compounded by the macro economic picture and the weakness of the dollar. Government borrowing is likely to soar out of sight.

To: philv who wrote (37920)	8/5/2005 4:22:09 PM
From: Umunhum	Read Replies (2) \| Respond to of 110194

why would the lender or FED make things even more difficult for this customer? The cure for excessive speculation is higher interest rates not lower ones. If an entity is losing money on it's current loan portfolio, it is not going to lower interest rates in the future. if the customer can't make it at the existing low interest rate, how can he possibly repay at a higher rate? He will be foreclosed on and the bank will have to take the loss. A real estate melt down is normally followed by a decline in interest rates, not an increase, is it not? That depends on what the Fed is doing with the money supply. The true inflation rate is running around 6% or higher right now according to John Williams: financialsense.com Why should interest rates be lower than the rate of inflation? Interest rates are going to go a lot higher than the misguided deflationists believe. We are experiencing inflation right now not deflation. Housing prices are probably going to go down but everything else is going to be going up. Also remember that if the dollar loses half of it's value, then there will be no housing bubble. Plus the US Gov will cut it's debt in half :o) The exact opposite applies if the dollar goes up in value. At which point, my question would be how in the world could the US Government sustain it's debt? It couldn't, it is absolutely impossible. That's why I think Mish's scenario is so ridiculous.