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alstry (36.32)

The Most Incredible Paradox In History

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February 07, 2010 – Comments (3)

As many of you are now beginning to realize, Wall Street lent Americans more money than existed in America.  Essentially engaging in Ponzi like activities.  With only a few trillion in savings and over $50 trillion of total debt.....it is impossible to pay off the debt with savings.....but here is where the amazing irony comes in.....

THE FASTER AMERICANS TRY TO PAY DOWN DEBT WITH SAVINGS.....THE QUICKER AMERICA GOES BROKE AS ASSET VALUES COLLAPSE INTO THE GROUND.

It would not take too long for Americans to exhaust the entire savings base simply trying to pay off home mortgage debt....that doesn't include any of the other tens of trillions of debt.

In Freddie Mac's latest quarterly survey of refinancings, 33% of homeowners put cash into the deal to lower their mortgage balances, the highest percentage ever. By contrast, only 27% of refinancers took cash out -- the lowest percentage on record.

http://www.calculatedriskblog.com/2010/02/harney-cash-in-refis.html

It is effectively the inverse of The Great Depression where banks became undercapitalized due to people withdrawing savings and stuffing it under mattresses due to a liquidity crisis......conversely, this time, savings/capital will be drawn down trying to pay off a massive collective debt burden.

The biggest irony of them all.....as America goes broke trying to pay off mortgages, the underlying values of homes and other assets will be practically, if not actually, worthless as vacancies and foreclosures continue to increase.

 

3 Comments – Post Your Own

#1) On February 07, 2010 at 11:06 AM, kirkydu (92.19) wrote:

Simple and concise, I like it Al.  Oh, and so true. 

What do you think about my assertion that our only way out of this pickle is put forth a massive energy plan to remake the grid utilizing nuclear (the industrial core), wind (using farm land) and solar (rooftops for commecial and residential) power primarily, and moving towards nat gas trucks and electric cars? 

To my way of thinking, we need to cut our oil imports by 50-75% within a decade, similar to the policy of the French they embarked on in the 1970s.  Unfortunately, by having a rationale energy policy, we won't get 12 weeks of vacation a year like the French, we'll just be able to pay off our bill over the next 30 years.  After that, things could be rosey however.  

Exporting petro money can't be sustained.  And we desperately need the jobs from such an energy policy.  And we really should stop ruining the environment to boot.

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#2) On February 07, 2010 at 3:51 PM, alstry (36.32) wrote:

At this point...we need to restructure before doing anything else.

The faster we pay down debt, the faster we extinguish savings......as we are already insolvent.

If is very difficult for an insolvent economy to function in any normal capacity.

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#3) On February 13, 2010 at 7:22 PM, loriyacht (33.24) wrote:

So, Altry, if you have some cash and you have a lot of equity in your home, what should you do?

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