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Very interesting Wall St Journal article that explains the negative
feedback loop – how things go from bad to worse – and how it’s
affecting the home mortgage market.
“…Total outstanding household debt rose to $13.6 trillion by the third quarter of 2007 from $7.2 trillion at the beginning of 2001 — a 10% annual growth rate. Mortgage borrowing more than doubled in this stretch. One out of every seven dollars of disposable income earned by Americans now goes toward paying down debt — near a record…”
…The trick for policy makers is to break the loop. “A macroeconomic
downturn tends to diminish the value of many forms of
collateral…reinforcing the propagation of the adverse-feedback loop,”
Federal Reserve Governor Frederic Mishkin said in a January speech.
Aggressive Fed interest-rate cuts help by reducing the cost of all of
this borrowing….”
