Friday, Aug 04, 2006

Why the US housing market faces a credit crisis

MoneyWeek: Why the US housing market faces a credit crisis

A piece on why adjustable-rate mortgages - similar to interest-only mortgages in the UK - are a time-bomb waiting to blow up the US housing market.

Posted by mary @ 11:03 AM (463 views)
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3 Comments

1. uncle tom said...

To make some sense of this rather abstract subject - essentially 'what is money?' - and to get some idea as to how things are going to pan out in the future, you need to look at the big picture, and the factors in the world's major economies that are clearly not sustainable.

The most significant of these are the trade imbalances. Ultimately these have to straighten out - and go into reverse to achieve equilibrium. But for that to happen, the developed world has to come to terms with the fact that it is consuming much more than it is producing.

I would love to read a scholarly piece explaining how that problem can be fixed without a major upset, but I'm yet to see one that doesn't omit key factors from the analysis.

However, my personal conviction is that the problem will gradually sort itself by the relative advance of the developing world's currencies at the expense of those of the developed world.

At the same time, I believe the price of key commodities will tend to track the value of the advancing currencies, making them steadily more expensive in the developed world.

I cannot see a credible path that does not involve higher inflation and much higher interest rates in the developed world.

This of course presents massive problems for the millions of over-borrowed...

Friday, August 4, 2006 11:40AM Report Comment
 

2. Retiredbanker said...

uncle tom-

Economics is a political creed and not a science.

You are unlikely to read a worthwhile analysis of future trends from any economist because none of them
have any idea how things are likely to pan out in the long term.

Friday, August 4, 2006 12:39PM Report Comment
 

3. indiablue19 said...

Unc Tom,

In re: mature economies vis a vis the developing ones.....it was a startlingly illuminating to learn in HSBC's latest profit report that it is profiting by offsetting defaults and bankruptcies [increasingly common and without stigma] in its UK private accounts against commercial successes and investments in the emerging international markets. Quite frightening. The obvious path for global banking apparently, but somehow feels socially immoral and fiscally irresponsible to think of cheap labour and cockle shell pickers supporting the over-stuffed supersizers and binge living set of the UK as they blithely shed their latest debts with no consequences. Surely in the overall there MUST be consequences.

Friday, August 4, 2006 10:13PM Report Comment
 

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