Thanks to the miracle of Facebook, I'm now in touch -- of a sort -- with some former college classmates. One of these recently posted an item on his blog that tickled me:
RenegonomicsAll of which sounds quite wonderful to me, if true. But my old classmate is worried:
Read carefully. The title of this piece is NOT "Reaganomics," but "Renegonomics."
I came across this interesting snippet from Bill Fleckenstein today, who refers to "the hidden benefits of debt repudiation and forbearance by the banking system, all of which have been created by the government's easy money and bank bailouts.... People who aren't making home payments; or those who are participating in short sales on homes they can actually afford -- in other words, the folks who in essence reneged on mortgages that were under water and did so because they could -- have extra money to spend that they wouldn't have if they'd been making payments."
The 'do-over' that the world was given during the financial crisis, courtesy of the printing press (read: government bailouts), will be 'paid for' with higher inflation....His solution:
Exchange your currencies for gold as a store of value in inflationary times.Now there's a hard-money guy for you! My classmate links to another blogosphere finger-wagger:
Oh, So The "Recovery" Is About Delinquency?Quite apart from the moral indignation -- which I don't at all share; up with deadbeats! -- this sounds like quite a shoe getting ready to drop. Even local governments may find themselves strapped! They might have to lay off some cops! Oh heavens!
I've said for a long time that one of the reasons our consumer spending numbers have been "reasonably good" the last six months or so - and have been improving - is that people haven't been paying their mortgages.
Now comes Bank of America about to tell Congress the same thing:
Bank of America's top mortgage executive, testifying today before Congress, will release sobering details of home-loan delinquencies, including that "hundreds of thousands of customers" haven't made a payment in more than a year.... Almost 500,000 struggling loan customers have not supplied information or taken other basic steps to qualify for mortgage help. About half of them have not made a payment for more than a year, or owe more than 50 percent of the value of their homes.
That's because those 500,000 lied about their income, assets or both when they applied for the loan originally, and that deception would be discovered.
But this also means that some 250,000 of those customers have not made a payment in a year.
If we presume that these people have average mortgage payments of $1,000 a month (and this number is probably low), this amounts to $250 million monthly that is being spent in the economy but would otherwise go to mortgage payments.
Anecdotes bear these sorts of numbers out - so-called "struggling" homeowners who, despite being delinquent on their mortgage and in fact not having paid in over a year, are spending upwards of $1,500 monthly in places like Best Buy, hairdressers and tony clothing stores.
The essential conundrum is this: Eventually, one way or another, these families will have to start making payments toward housing again. They may make those payments via their mortgage or they may be evicted and become renters but the money currently being blown on frivolities that is "propping up the economy" and leading to "strong consumer sales" is showing up there only because people are literally getting a free ride on their shelter costs.
The perversions at play here are outrageous - not only are these "homeowners" living effectively for free (and since most mortgages have escrow accounts for property taxes, those aren't being paid either!)
Anything to all this, O econ-meisters? I don't mean the "inflation", which I couldn't care less about, but the idea that the "recovery" -- such as it is -- is fuelled to some important degree by people stiffing their mortgage lenders. Is that really happening? If so, it's the second most wonderful thing to happen in my lifetime.
The first most wonderful thing is shown below. Landlubbers beware: the newsreader, droll though he is, doesn't know how to pronounce the word "leeward".