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Thursday, September 29, 2011

Real Estate Debt and the General Economy

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A clip from the Dylan Ratigan show regarding the interplay between our Real Estate Debt problems and the general economy. Some high-lights include:

1) Trillions of dollars are trapped in the system in the form of debt in underwater mortgages

2) The root of our financial issues is an overwhelming amount of debt at the consumer level, the corporate level, and even the governments at all levels.

3) Fannie and Freddie became the primary source of financing to assist the housing boom as they issued loans with little or no capital requirements for borrowers – note that these governmental agencies warped the true capitalist economic principals.

Dylan discusses the potential of mass debt restructuring, which is an interesting idea that has been used in the past (Post Civil War, Post WWII).

Here is my take: there is simply no easy way to overcome the debt issues we face: in essence, we have two options, we can

1) print money to ‘monetize’ the debt – this is the route that we have choose thus far, and it negatively effects the dollars while spreading the printed dollars in an incredibly inequitable manner – to the banks and to the government – this does the people no good as while most of us will not benefit greatly, we see the negative effects of a depreciated currency at the gas pump, home energy costs, and at the grocery store; or

2) cancel debt at all levels – this would negatively effect the banks, but would it injure the American people? – it most certainly would be difficult and the unintended circumstances are uncertain, but I would argue that most people would probably benefit more from option 2 than option 1. At the end of the day, there is no easy way out of our mess. I believe the focus should be on focusing on a system that we can build from (rather than trying to save a financial system that is clearly broken and unsustainable).

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