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A growing number of American homeowners are falling into financial limbo: They're badly behind on payments, but their banks have not yet foreclosed....

The backlog of seriously delinquent mortgages, which so far affects about 1 million borrowers, is a shadow over hopes for a rebound in the nation's housing markets. It masks the full extent of the foreclosure crisis...

I have even begged them for a foreclosure," delinquent mortgage-holder Charlotte Jensen said. When she realized she couldn't save her Glen Allen home last year, she filed for bankruptcy, packed up her family and moved out. Nearly a year later, Bank of America has yet to take back the home...

"Lenders are having an immensely difficult time handling the capacity. They are torn between loan modification, short sales, foreclosures, and they are finding they can't do all these things at once, and do them well, so we're seeing a lot of things falling through the cracks," said Howard Glaser, a housing industry consultant and a housing official during the Clinton administration...

But some of the backlog also reflects an intentional slowdown in the pace of foreclosures as government and industry step up efforts to help borrowers who want to save their homes...

Last modified: 2009-06-26 09:19:46 by tjeffersonsghost

Last modified: 2009-06-26 09:57:32 by genesis

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Further, we know that all residential mortgage debt is about $10 trillion dollars. Let's be nice and assume a 5% interest payment, interest only, but not being paid. That's roughly $69 billion dollars annually that is being spent on "consumer things" that would otherwise be spent on mortgages - if they were being paid.

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In addition the savings rate is dramatically improving (good for people, bad for GDP going forward since 70% of GDP is personal consumption)

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The fallacy of the "inflationist" viewpoint is that in order for money to circulate it must be borrowed into the economy. Only the first "turn" can come from production - all other "turns" in the MV = PQ equation must come from a loan.

When debt service reaches excess income (income less necessities of life) velocity ceases and no amount of "printed" money gets into the economy to do anything.

There is no solution to this problem other than the pay down or default the debt that is producing the constriction.

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I beg to differ with that interpretation. Economic growth depends on investment, and investment depends on savings, so in the long run increased saving will lead to a higher GDP. Of course, in the short run, it can be disruptive as some businesses dependent on consumer spending fail, and it may have negative impact on reported GDP. But in the long run it's healthy.

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This morning the BEA came out and said American personal income up was up 1.4% in May, which was more than the .7% it grew by in April.

That's where the good news ends.

For one thing, the money's being saved, not spent. Consumption was up only .3%, and the savings rate hit 6.9%. Actually, we don't buy into the orthodoxy that Americans need to spend-spend-spend in order to fix the economy, since that's the thinking that got us into this mess. But if you're desperate to see positive GDP sometime soon, then shrinking spending isn't what you want to see.

But beyond that, the gains came from transfer payments.

Karl Denninger breaks it down:

Here's what the BEA said:

The pattern of changes in personal income and in DPI reflect, in part, the pattern of increased government social benefit payments associated with the American Recovery and Reinvestment Act of 2009.

Right. The government hands out money (which it taxes or borrows) and this is reflected in these numbers but taking money from one hand and giving it to another does not help GDP as it does not represent income produced through labor.

A couple of paragraphs into the release the BEA explains:

Private wage and salary disbursements decreased $12.4 billion in May, compared with a decrease of $0.7 billion in April.

Notice that number - it is dramatically worse than April. That's the REAL income contribution (or in this case, loss) to the economy.

Just as we can't believe the financial markets, since the Fed has created so much liquidity, we're at the point where it's hard to believe the real economy, because so much of it is based on transfer payments and government spending obscuring what the private sector is able to do on its own.