34%, 58%, 79% "the frightening numbers"

[donsu]

http://www.atimes.com/

Waiting for a tsunami
In the last six years, the US national income has gone up by 34% while consumer credit has increased by 58% and mortgages by 79%. Those are the frightening numbers behind the facade of resilience of the US economy, a facade that will crumble quickly when the credit bubble bursts.

http://www.atimes.com/atimes/Global_Economy/GH04Dj01.html


-snip-

The pressure point that we will review first is the American consumer. Since June 1999, national income has increased from $8,161 billion to $10,913 billion (as of March 2005). While an increase of 34% in six years may sound like a good thing, we need to examine this information in light of inflation and debt. During this same period, consumer credit went from $1,347 billion to $2,129 billion, an increase of 58%. I'm sure we can all share numerous stories of the telemarketer or the credit card applications in the mail. We have everything under the sun bought on credit. When we run up our credit card, if we are having trouble paying it off, we can always roll the balance to another credit card that has a 0% interest for a period of time.

-snip-

In June 1999, total mortgages in the US stood at $6,021 billion. At the end of March 2005, the number is $10,774. This is a 79% increase. Keep in mind our incomes have only risen 34% while our credit card bill has grown by 58%. So what have we, as a nation, done? The answer is painful, if not obvious. We have borrowed the money with our homes as collateral for the loan. As our credit has got increasingly splotchy and our cash flow needs have increased, institutions have lowered their lending standards and moved toward riskier finance products. In a May 5, 2005 report issued by Fannie Mae, we see the share of interest-only Adjustable Rate Mortgages (ARMs) "A" paper selling in the Mortgage Backed Securities (MBS) market has grown from 3% in 2001 to 50.9% in 2004 while ARMs for the same class and timeframe have grown from 18% to 72.1%. The Jumbo MBS market has grown from 5.4% to 52.5% during the same period. In addition to this we learn that the sub-prime MBS finished 2004 with 66% of their loans as two-year ARMs. In other words 66% of these notes face a likely upward adjustment in payments as early as 2006. These are astonishing numbers.

-snip-

For the thousands who lived near and around the Indian Ocean, they had no warning. Yes, today the warning systems are in place, but only after the tragic event. Fortunately, investors today have a great deal of information warning them of events to come. History warns us to avoid the pitfalls of not heeding its voice. My desire is that many people could learn to profit from the decline so that when it comes, they may be able to help those who have had no opportunity to do so. For those today who have many opportunities to protect themselves but continue to deny that a tsunami could occur in the financial markets, I only stand amazed at the blatant denial of reality.
--------------------------------

for some, reality is like beauty, in the eye of the beholder

but for most of us reality is knowing americans are screwed

[wli]

1. looks even more like time to run

You can't fight tsunamis.

[newportdadde]

2. Interest Only ARM... = insane.

[Guy_Montag]

4. I occasionally listen to US radio online from the UK

& have heard adverts for these interest only mortgages.

What is the point of them, how can you ever hope to pay them off?

How are they legal?

It amazes me that people would borrow like that, even on fixed rate.

[Sub Atomic]

8. People take out short-term, interest only ARMs

in hopes that they are able to see their house quadruple in value before the interest rate kicks up.

They hope to be able to sell the property for a tidy sum and not get caught up when their mortgage payments explode.

A bit too risky for my blood.

[barb162]

11. Some people have made out like bandits on these mortgages

but most markets in the US don't have the increases in value like Ca and some other places.

[BillZBubb]

3. This article does a good job showing why we should be worried.

He also shows the 55% increase in the money supply over the Chimperor's term. That's almost as dangerous as the absurd debt levels.

[ProfessorGAC]

7. Questionable Conclusion There

The money supply has not increased by 55%. Look at the M1 and M2 values. It has increased only slightly more than the change in the size of the nominal GDP. That's not good, but it's not a 55% bump. I don't know where those numbers came from, but they're not part of the standard econometric matrix of values.
The Professor

[BillZBubb]

10. Nope, CORRECT conclusion.

Look at the more broad M3 numbers. Up about 56% from 6/1999 ($6219.292B) to 6/2005 ($9740.828B).

Those ARE standard values. The original article is correct.

[jackstraw45]

5. So what's the best course of action?

"My desire is that many people could learn to profit from the decline so that when it comes, they may be able to help those who have had no opportunity to do so. For those today who have many opportunities to protect themselves but continue to deny that a tsunami could occur in the financial markets, I only stand amazed at the blatant denial of reality. "

How DO people protect themselves from this?

[orwell]

6. Same Old Fiat

Well, since money is now effectively a figment of everyone's imagination (fiat money), what is to stop the powers that be from completely changing the rules if a "crisis" develops? In other words, why wouldn't they just declare a one time debt amnesty and allow everyone to keep all their "hard earned goodies".

Since the sole "mission" of governments worldwide is to now encourage absurd levels of consumption, we will do whatever we need to export American consumerism worldwide so the factories and profits keep humming. Check out China. They are busy gobbling up cell phones, TV's, the latest fashions, and other western "necessities". The elites discovered long ago that a fat consumer is a happy consumer. The porcine public will not care about war, fraud, murder, incompetence, theft of liberty, as long as they can go to WalMart and load up.

Keep on buyin' America. The bill never comes due...

[SW FL Dem]

9. I've been saying this for years

It is really scary how many people have mortgaged their futures on mega homes and luxury cars. In the overpriced Bay Area of CA, something like 60% of the new mortgages in the past few years are interest only or ARMS. That's the only way the buyers could qualify for the mortgage. These people are going to face a huge increase in their mortgage payments over the next year or two. I know someone who took out a 750K mortgage at 4.25% two years ago, the mortgage is fixed for only 5 years, then it becomes adjustable. His mortgage is now $3689, at the end of his five year fixed term, unless interest rates drop, he is looking at about a 6.25% rate loan and his payment will go up by almost 1K a month. Unfortunately, most of his neighbors are in the same situation and they are losing their IT jobs to outsourcing at an ever increasing rate. It is a recipe for disaster.

Every day we get offers to refinance our mortgage to an interest only mortgage, yes we may save money in the short term, but I like having the security of my 5.25% 30 year fixed rate. Our house has doubled in the four years we have owned it and our current loan to value ratio is 33%. We have a lot of equity we could use to buy newer cars or finance a fancier life style, but we won't. The only thing we have used the equity line for is a kitchen remodel, and that will be paid off within the next year.