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Connection between mortgage debt and national debt?

By Patrick   Follow   Thu, 12 Apr 2012, 4:11pm   4,081 views   17 comments
In Menlo Park CA 94025   Watch (1)   Share   Quote   Permalink   Like   Dislike  

Maybe this is just a coincidence, but the total mortgage debt at about $13.5 trillion is similar in size to the national debt at about $15 trillion.

Could there be some deeper causal connection between them?

http://www.federalreserve.gov/econresdata/releases/mortoutstand/current.htm

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1. FortWayne Follow Befriend (13) 102 threads 3,764 comments

   1   7:23am Fri 13 Apr 2012   Share   Quote   Permalink   Like   Dislike   We are a deadbeat nation where too many get into debt as fast as they can and whine to government for a hand out. This started somewhere back in the 60's.

2. finehoe Follow Befriend 9 threads 242 comments Washington, DC

   2   8:02am Fri 13 Apr 2012   Share   Quote   Permalink   Like   Dislike   Government bailouts date all the way back to 1792. They are nothing new.

3. Robber Baron Elite Scum Follow Befriend (3) 49 threads 482 comments Roslyn, NY

   3   8:54am Fri 13 Apr 2012   Share   Quote   Permalink   Like (1)   Dislike   Patrick says Could there be some deeper causal connection between them? I think you might be hitting some unknown correlation.

4. tdeloco Follow Befriend (2) 11 threads 218 comments San Jose, CA

   4   9:05am Fri 13 Apr 2012   Share   Quote   Permalink   Like   Dislike   My guess is that it's just a coincidence.

5. slin Follow Befriend 26 comments male

   5   9:20am Fri 13 Apr 2012   Share   Quote   Permalink   Like (3)   Dislike   Want to cry about something get the facts about how much of your tax paying dollars went to subsidize corporations but you can't call them for what they are, handouts trillions since the 1960's and the average American is called lazy and wants a handout.Look wages have remained stagnant for 45 years and made it difficult for many to save there money so they borrowed but the real kicker is rather than give the worker a decent wage just make it easier for him to borrow and you will have screwed him over twice,this is what has happened to America and now you will all pay for it except the 1% they will always get away with it.

6. bmwman91 Follow Befriend (7) 37 threads 1,539 comments Mountain View, CA bmwman91's website Premium

   6   9:44am Fri 13 Apr 2012   Share   Quote   Permalink   Like   Dislike   Protected   I'd chock it up to coincidence. The fact that the two numbers are within 11% of each other doesn't imply correlation to me. Now, if the two numbers were shown to be within 11% of each other over a long period of time (one tracked the other), THEN I would say that there might be a case for implying correlation. Even then, it could be coincidence unless the underlying mechanisms could be shown to be correlated.

7. Patrick Follow Befriend (54) 5,188 threads 6,157 comments 46 male Menlo Park, CA

   7   9:51am Fri 13 Apr 2012   Share   Quote   Permalink   Like   Dislike   Maybe this is the correlation: Federal Reserve Notes are legal tender, with the words "this note is legal tender for all debts, public and private" printed on each note. (See generally 31 U.S.C. § 5103.) They have replaced United States Notes, which were once issued by the Treasury Department. Federal Reserve Notes are backed by the assets of the Federal Reserve Banks, which serve as collateral under Federal Reserve Act Section 16. These assets are generally Treasuries which have been purchased by the Federal Reserve through its Federal Open Market Committee in a process called monetizing the debt. So pretty much all our money is created by the Fed in exchange for government debt. And the vast majority of private debt is mortgage debt. The mortgage debt is therefore limited by the amount of money, which is pretty much the amount of government debt.

8. bgamall4 Follow Befriend (14) 753 threads 2,589 comments 63 male Las Vegas, NV bgamall4's website Premium

   8   6:54pm Fri 13 Apr 2012   Share   Quote   Permalink   Like (1)   Dislike (1)   Protected   FortWayne says We are a deadbeat nation where too many get into debt as fast as they can and whine to government for a hand out. This started somewhere back in the 60's. That is a ridiculous statement. Debt is a function of bankers wanting to make money coupled with globalization which is eroding the labor market's share of benefits. Capitalists are like bandits and labor is getting crushed. This will ultimately cause some serious problems in society if it isn't changed.

9. bgamall4 Follow Befriend (14) 753 threads 2,589 comments 63 male Las Vegas, NV bgamall4's website Premium

   9   6:56pm Fri 13 Apr 2012   Share   Quote   Permalink   Like   Dislike   Protected   Patrick says So pretty much all our money is created by the Fed in exchange for government debt. Most, but not all interest held by the Fed is returned to the treasury, Patrick. What is not returned is that which is owned by the TBTF banks, Russia, China, etc. Monetizing the debt actually saves the treasury money.

10. curious2 Follow Befriend (5) 31 threads 2,246 comments Premium

    10   7:45pm Fri 13 Apr 2012   Share   Quote   Permalink   Like   Dislike   Protected   These debt levels used to move independently, so their current proximity is probably a coincidence. For example, during the second Clinton administration, official national debt was falling, even as mortgage debt was growing. Now national debt is growing very rapidly, even as mortgage debt is falling. (Student loan debt is also growing exponentially, but you're right that mortgage debt remains the biggest share.) Here is a chart showing mortgage debt vs GDP: http://seekingalpha.com/instablog/562560-clemens-kownatzki/55271-us-mortgage-debt-versus-us-gdp It seems to have increased continuously through years of budget deficit and surplus. Now that the Fed has begun monetizing debt, any number of things may happen, but I wouldn't expect mortgage debt and public debt to become equal. They are now linked though, as the Fed is buying mortgage-backed securities and the Treasury has borrowed money to bail out Fannie & Freddie. Ever wonder who would be stupid enough to buy securities backed by mortgages up to 97% of principal, at a time when falling housing prices are still above normal? And who would be so crazy as to bid so much for them that they yield only 4% APR? We can all look in the mirror, and thank our Federal Reserve Bank, because that's what we're doing.

11. Bellingham Bill Follow Befriend 30 threads 1,488 comments Bellingham, WA Premium

    11   7:59pm Fri 13 Apr 2012   Share   Quote   Permalink   Like   Dislike   Protected   Patrick says Could there be some deeper causal connection between them? here's the actual history since 1980: http://research.stlouisfed.org/fred2/graph/?g=6s0 There's not much of a causal connection per se, though both mortgage debt and federal debt are in fact deeply interlinked. In the above chart you can see the national debt (red) rise faster in the 1980s, come under control in the 1990s, and mortgage debt start to take off in 1998, while during the Bush years both the national debt and mortgage debt exploded together (since for some reason the nation thought it was a good idea to cut taxes $3T over 10 years while also expand the DOD budget by ~$3T -- real geniuses we is). So in that chart you can see mortgage debt overtake Fed debt ca. 2004, right when the housing boom was turning into a bubble and people were pulling hundreds of billions out of their homes. This debt take-on was a very good economic stimulus -- $1T/yr of cold hard cash hitting the middle quintiles, which also actually increased money velocity and thus the tax revenues gov't was seeing, reducing the rate of deficit spending noticeably by 2005-2006. Then in 2008 of course the housing market finally said "no mas!" and the whole ponzi collapsed, the home ATM ran out of money and we had about $5T of bad debt to blow up. The Feds then stepped in with treeMENdous level of deficit spending, and that's where the graphs next crossed, right in 2009 in the middle of the recessionary collapse, as the Feds started ramping up the stimulus and households started defaulting on their mortgage debt. 'tis a curious story. Changing that graph to YOY debt take-on: http://research.stlouisfed.org/fred2/graph/?g=6s5 makes things a bit clearer.

12. FortWayne Follow Befriend (13) 102 threads 3,764 comments

    12   12:37am Sat 14 Apr 2012   Share   Quote   Permalink   Like   Dislike   On wall street a very huge industry is trading debt obligations, it's huge. Maybe it is somehow related to national debt, maybe it's just interlinked like Delurking said... who knows. Either way debt industry is not a small operation out here.

13. Patrick Follow Befriend (54) 5,188 threads 6,157 comments 46 male Menlo Park, CA

    13   9:40am Sat 14 Apr 2012   Share   Quote   Permalink   Like   Dislike   Yes, the bond market is gigantic, much larger that the stock market. I think the total world bond market is about $80T, while total world stock market is about $40T. Bond markets determine the price in terms of yield that a borrower must pay in order to receive funding. In one notable instance, when President Clinton attempted to increase the US budget deficit in the 1990s, it led to such a sell-off (decreasing prices; increasing yields) that he was forced to abandon the strategy and instead balance the budget. “ I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody. ” — James Carville, political advisor to President Clinton, Bloomberg

14. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    14   2:53pm Tue 7 Aug 2012   Share   Quote   Permalink   Like   Dislike   Protected   Sheesh what's with all the Cyrillic text?

15. marcus Follow Befriend (5) 168 threads 5,082 comments

    15   3:19pm Tue 7 Aug 2012   Share   Quote   Permalink   Like   Dislike   Patrick says Bond markets determine the price in terms of yield that a borrower must pay in order to receive funding. In one notable instance, when President Clinton attempted to increase the US budget deficit in the 1990s, it led to such a sell-off (decreasing prices; increasing yields) that he was forced to abandon the strategy and instead balance the budget. “ I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody. ” — James Carville, political advisor to President Clinton, Bloomberg Somewhere along the line, that seems to have changed, at least for now.

16. Patrick Follow Befriend (54) 5,188 threads 6,157 comments 46 male Menlo Park, CA

    16   9:48pm Tue 7 Aug 2012   Share   Quote   Permalink   Like   Dislike   freak80 says Sheesh what's with all the Cyrillic text? Spam, now deleted.

17. freak80 Follow Befriend (4) 52 threads 4,416 comments Corning, NY Premium

    17   6:13am Wed 8 Aug 2012   Share   Quote   Permalink   Like   Dislike   Protected   Patrick says Spam, now deleted. Good good. At least the Nigerians who need help with banking translate to English first.