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How Big A Bailout?
April 14th, 2007 by 
reality
Much hot air is being produced in Washington about the need to bail out property owners facing foreclosure. You generally see percentages, without absolute dollars. How much mortgage debt is there out there?
About $10 trillion, is the answer. That’s a big number. 1% of $10 trillion is $100 billion. $10 trillion is about four times the total federal budget and a little less than one year’s GDP.
During the 1930s depression, about half of all mortgage debt went into default.
Remember, debt is money. The chart at the left shows the debt and liquidity surge that began in 1982, in the Volcker era, with rising fiscal deficits and therefore government debt rising much faster than GDP. Then Greenspan and Bernanke took over, and encouraged private debt as well. So here we are, with a colossal debt mountain that far exceeds (in relative terms) the size of the mountain piled up before the 1930s depression.
The reality check is that this increase in debt is simply unsustainable. Where does it stop? Well there’s no way to know in advance. My guess is that the popping of the housing bubble is going to do it. But heaven knows I’ve been wrong before. If it doesn’t, the inflationists are going to be right - the dollar will be going the Zimbabwe route.
April 14th, 2007 by reality Much hot air is being produced in Washington about the need to bail out property owners facing foreclosure. You generally see percentages, without absolute dollars. How much mortgage debt is there out there?About $10 trillion, is the answer. That’s a big number. 1% of $10 trillion is $100 billion. $10 trillion is about four times the total federal budget and a little less than one year’s GDP.
During the 1930s depression, about half of all mortgage debt went into default.
Remember, debt is money. The chart at the left shows the debt and liquidity surge that began in 1982, in the Volcker era, with rising fiscal deficits and therefore government debt rising much faster than GDP. Then Greenspan and Bernanke took over, and encouraged private debt as well. So here we are, with a colossal debt mountain that far exceeds (in relative terms) the size of the mountain piled up before the 1930s depression.
The reality check is that this increase in debt is simply unsustainable. Where does it stop? Well there’s no way to know in advance. My guess is that the popping of the housing bubble is going to do it. But heaven knows I’ve been wrong before. If it doesn’t, the inflationists are going to be right - the dollar will be going the Zimbabwe route.