The blocking of the economy by state order is a mistake of epic proportions. Coronavirus is still free. However, as a result of the blockage, the economy was destroyed.
Take, for example, the housing market. According to the report from Black Knight4.3 million US borrowers overdue their mortgage payments in May for more than 30 days. Moreover, more than 8 percent of all US mortgages were overdue or collected.
Continuity is very simple.
Firstly, the economy was closed by state order.
Secondly, about 14 million people applied for unemployment benefits over a 14-week period.
Thirdly, people stopped paying mortgages.
Here, in the “land of fruits and nuts,” the trend is also moving in the wrong direction. In May, 6.85 percent of California mortgages were rated “long-term.” This category of problem loans consists of mortgages with late payments plus those that are formally in the process of collection.
When the year began, only 2.1 percent of California mortgages were insolvent. Thus, in just six months, the level of long-term mortgages jumped by 228 percent. At the national level, 7.76 percent of mortgages are not current.
Difficulties in the housing market characterize the consequences of an excessive economy. With a huge number of people in debt to the eyes, all that is needed is a short pause in cash flows and the structure of the debt has broken. To add insult, this is a government sponsored issue …
What will happen next?
Thanks to the mediation of Fannie Mae and Freddie Mac, two state-funded enterprises, lenders have an endless demand for mortgages. Fanny and Freddy buy mortgages from lenders and either hold them in their portfolios or pack them in mortgage-backed securities (MBS).
If you remember, Fanny and Freddy received financial assistance worth several hundred billion dollars during the financial crisis of 2008-2009. Now, just over ten years later, another bailout is brewing. CARES law was just a workout.
As noted above, the fundamentals of mortgage payments quickly became negative. Over the next few months, progress will move from overdue and missed payments to mortgage defaults and foreclosures.
No doubt there will be another help to the monster. But this help is more than just Fanny and Freddy or even large banks. This salvation is about a futile attempt to document American homelessness and poverty. But what will happen next?
Almost no one took into account the consequences of the next rescue of the monster. Will it be inflation? What will this do with the economy? What will this do with the stock market? How will this affect the price of gold or the yield on a 10-year treasury note?
These questions do not come up with obvious answers. We pondered over them for years, without making any satisfactory conclusions. The best we can do is learn from the past, think about what is different from the present, and make interpolations and assumptions about the impact on the future.
Using this methodology, we offer the following thoughts …
How Boutout Up Boutout Affects the Future
The 2008-09 mortgage bailout marked the beginning of a large bull market in the US. This was partly because the Fed brought the federal funds rate to zero and exchanged cash for toxic junk assets of securitized mortgage debt. This flooded the financial system with liquidity.
The future is drawing near. But what will the future bring? Namely, what type of financial assistance will the Fed provide together with the Treasury? Will it be another financial aid, similar to 2008-09? Or will it be something completely different?
We affirm that it will be something completely different. This time, it is politically more impractical for only government-sponsored enterprises and large banks to receive financial assistance. People participate in Fed games for money and also require financial assistance.
Thus, the bailout will be from the bottom up. The Treasury will provide tenants and homeowners with check payments for cash incentives, or credit them directly to bank accounts so they can participate in financial assistance.
Fannie and Freddie already have Act CARES programs to help those affected by the COVID-19 pandemic … including a moratorium on recovery and eviction, at least until August 21, 2020. You may not know that this moratorium date has already been extended twice. Perhaps it will continue to be extended until extensive government incentive checks are sent out to the American population on a monthly basis.
We assume that this type of bottom-up assistance will be less optimistic for stocks. Although this will have a much more significant effect on consumer price inflation. In other words, the dollar will lose its purchasing power in relation to real goods and services. And, in the end, he will be fastened, along with the American standard of living.
Moreover, the world of fantasy countries, where the government pays everyone rent and a mortgage, as well as a free school, free medicine and free food, will be less elevated than advertised.
Countless governments have tried for centuries. Without fail, these chases for miracles and magical magical dust solutions always end in tears.