1930s to Dwarf 2009-2019 Credit Crunch
Over the next 8 years, 2011-2019, the current “Credit Crunch” will be more severe than what we saw at the beginning of the Great Depression back in the 1930s. Back in the “Roaring 20s”, American businesses and consumers had leveraged themselves like never before.
Debt soared to record levels and when the credit spigot was suddenly turned off the whole thing came crashing down and it took an entire decade and a World War to recover.
Well, today things are frighteningly similar and expected to become much worse though out the rest of the decade.
With “Mortgage Interest Rates” at all time lows, banks aren’t wanting to lend — even to people with good credit unless you are a highly qualified borrower. Nearly a quarter of people who apply for loans are turned down, according to the Federal Reserve because borrowers with one or two blemishes on their credit are being denied credit.
Potential buyers aren’t even applying for loans because they assume they can’t get one and they know it’s very difficult to get a mortgage in this environment. Another factor keeping people out of the mortgage market is that lenders now require much more up-front cash. The median down payment for purchase is about 15% but most banks now want at least 20%. During the housing boom, it approached zero.
Consumers can expect we will be entering an “Stagflationary Depression” where the value of your assets will decline stupendously as items such as food, gasoline and consumer goods will rise stupendously. In the next few years you can expect your whole paycheck to cover just the basic necessities to survive and interest rates to top 18%. So, what type of declines and increases can we expect to see?
2011-2019 — Housing is expected to fall another 50% in real dollar value
2011-2019 — Wages are expected to fall 35% adjusted for inflation
2011-2019 — The US Dollar is expected to fall 50% adjusted for inflation
2011-2019 — The DJIA is expected to fall 75% adjusted for inflation
2011-2019 — Oil is expected to rise 400% in real dollar value
2011-2019 — Rents are expected to rise 125% in real dollar value
2011-2019 — Gold and Silver is expected to rise 200% in real dollar value
2011-2019 — Food is expected to rise 250% in real dollar value
And now, it’s about to get harder for buyers to get financing as Federal regulators proposed rules last week that are designed to discourage risky lending but that will also likely further restrict lending. Banks would be required to keep 5% of some loans, specifically those with less than 20% down payments, on their books rather than selling them all off as securities. As a result, all banks may be unlikely to issue loans where less than 20% is put down.
So much for first-time buyers — For the first time in 100 years, the government is discouraging you from purchasing a home.
Tags: 1930s, Banks, Consumer Goods, Credit Crunch, Credit Score, DJIA, Down Payment, Federal Regulators, Food, Gasoline, Gold, Good Credit, Home Prices, Housing, Housing Boom, Interest Rates, Lending, Leveraged, Loans, Mortgage, Mortgage Interest Rates, Oil, Paycheck, Rents, Roaring 20s, Securities, Silver, Stagflationary Depression, US Dollar, Wages