The Most Incredible Paradox In History
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.
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