New research from the Fed

Mortgaging the Future?

In the six decades following World War II, bank lending measured as a ratio to GDP has quadrupled in advanced economies. To a great extent, this unprecedented expansion of credit was driven by a dramatic growth in mortgage loans. Lending backed by real estate has allowed households to leverage up and has changed the traditional business of banking in fundamental ways. This “Great Mortgaging” has had a profound influence on the dynamics of business cycles.

Ratio of mortgage debt to value of U.S. housing stock


The ratio of debt to all of housing.
The ratio of debt to equity then is .6/(1-.6) = 1.5, we owe 1.5 times what we own in housing.

The ratio should be 2/3, or .3 on the chart.   TOE tells us the number should be 1/Phi, I think, that is where Newton's calculus works best. But we can see the ratio was about right all the way through the 70s, we could have handled that.  The real problems started 15 years after the Nixon Shock, the point  where the losses produced by the Fed had worked through the economy, the point where disinflation, then deflation set in. And, naturally, that coincided with the great debt surge by DC.



Then they  conclude:

 The vast expansion of bank lending after World War II is one of the most extraordinary developments in the history of modern finance and macroeconomics. Our research suggests that the explosion of credit has played a more important role in shaping the business cycle than has been appreciated up to now.

The business cycles, since 1980, coincide with the recessions which have an 85% probability of coinciding with presidential regime change.  We know three things about DC and housing.

• DC always engages in tax and spending fraud such that the bill come due at the end of term.
• DC (and many states) make mortgage interest deductable.
• DC has agencies to encourage growth in  the mortgage industry.

This is not a coincidence, this is deliberate destructive policies by our elected politicians.