Sunday, September 28, 2008

My plan: a $15 trillion dollar bailout.

US nonfinancial debt (second quarter 2008) is $32.4 trillion dollars. This pie chart gives a breakdown of the debt by type. US GDP in 2006 (est.) was $13.13 trillion - let's guess it's $14 trillion now. Thus debt as a proportion of GDP is about 230%.

This graph shows that the 50-year mean ratio of such debt to GDP is 120.1%. So to get back to a long-term average, DEBT MUST HALVE. As I said in a reply to a comment today, it's like a game of musical chairs, but taking away half the chairs in one go.

In fact, an almost perfect fit would be to cancel all the mortgage debt in the USA - just to get back to the level of debt averaged over the last 50 years.

And Marc Faber is saying the bailout will need 5 trillion, not $700 billion.

Hmmm....

Why don't we get really bold: $32.4 tn debt x 46% in the form of mortgages = $14.9 trillion. Give everybody their houses free of debt, make future loans on domestic property illegal. Yes, there'll be inflation, but the liberated houseowners will be able to afford it.

Will the banks be ruined? They're ruined now. Will the government have to nationalise them? They're doing it now.

These are revolutionary times. We may not be able to scourge the moneylenders from the temple, but at least we can chase them out of our houses.

Yes, the result's a house price crash, if you can't pump up the price with phoney-baloney money. But no debt, so so what?

The banker has inflated everything so you have to borrow to have anything. He's made himself indispensable, like a pusher of addictive drugs standing outside the school gates, giving away samples to get you hooked. He's your "friend", your "main man", who'll make you "well".

Bankers and their pet traders have become insanely rich by making you poor. Your assets are big on the outside and hollowed-out by debt on the inside; it's why they call it a bubble.

Do you know your enemy?

8 comments:

dearieme said...

Better idea. The houses that the government finds itself owning should be handed over free to taxpayers, who can then sell them or let them as they find best.

Cassandra said...

Who'd have thought communism could be established peacefully? (what a pity of all the wasted energy to agitate the revolution)

sobers said...

Better to wipe out half the mortgage debt, leaving the housholder to pay off the rest, which they should be able to do (but will still get repossessed if they can't). Then make it illegal (on penalty of prison, not fines, for the brokers involved)to lend more than 3 times a person(s) salary, calculated as a 3 (or perhaps 5) year average. No self certification, minimum deposit/equity of 20% of purchase price.
These provisions would mean house prices would halve overnight, and no new boom could occur as people would need a) to save for deposits and b)their ability to borrow would be limited by their income growth, not allowing house prices to be bid up. The economy might even pick up as less money is funnelled to banks as mortgage payments, and is spent on goods instead.
Existing borrowers get help but not a free ride if they have massively overextended themselves (I would not halve non property debt). People priced out of the market get a chance to buy at lower prices with the assurance they can wait to save their deposit without having to worry about prices zooming up again.
Losers? Banks, Bank shareholders, bank employees, bank debt holders. Depositors would have to be guaranteed, which we pretty much have anyway in the UK. If we are going to throw moral hazard out of the window, and bail out someone, why not houseowners rather than bankers?

Sackerson was a fighting bear said...

DM: but which taxpayers?

Cassandra: b8gg8r communism, this is revenge!

Sobers: first-class, I think your scheme could work and this should be made a referndum issue.

sobers said...

Oh, and BTL would be require a 50% deposit. IE you could borrow no more on a property (that was not your personal residence) than you were prepared to invest yourself. Existing BTLers would get the same mortgage reduction as private owners but also have to reduce their holdings (over a reasonable period of time)until they met the 50% equity requirement. No more leveraging yourself to death with a tiny equity base and massive debt.

Wolfie said...

a deliciously radical solution that I find perversely attractive.

Anonymous said...

I agree that this is the best solution, since it unwinds much of the debt pushed upon us by the government in order to buy itself an election win so Gordon could get his greedy hands on power. We didn't need all this debt - all it did is push up house prices.

I don't agree with the idea that there should be a limit on house prices based on salary - why should a price of anything being based on how much we can afford to pay? That isn't a price - it's a tax! It is preferable to say that the price of a house should not be more than double the price of the build cost of that property from new, not including the land it sits on. Better still, just create a property free-for-all on the land so anyone can build what they like more or less where they like. There are 60million acres available for the 20 million households. Most modern 4bed houses occupy barely 1/20th of an acre, so even if we rebuilt all our housing from scratch it is unlikely to occupy more than 1% of the available land. Yet we are expected to pay 100 times more for that land because it has a bit of paper attached to it saying we can build on it, granted by our own local council.

Anonymous said...

I agree that this is the best solution, since it unwinds much of the debt pushed upon us by the government in order to buy itself an election win so Gordon could get his greedy hands on power. We didn't need all this debt - all it did is push up house prices.

I don't agree with the idea that there should be a limit on house prices based on salary - why should a price of anything being based on how much we can afford to pay? That isn't a price - it's a tax! It is preferable to say that the price of a house should not be more than double the price of the build cost of that property from new, not including the land it sits on. Better still, just create a property free-for-all on the land so anyone can build what they like more or less where they like. There are 60million acres available for the 20 million households. Most modern 4bed houses occupy barely 1/20th of an acre, so even if we rebuilt all our housing from scratch it is unlikely to occupy more than 1% of the available land. Yet we are expected to pay 100 times more for that land because it has a bit of paper attached to it saying we can build on it, granted by our own local council.