Here’s the problem to be solved. The debt to income ratio of everyone, individuals and businesses, is off the charts. The housing bubble gave people access to capital that they never would have had otherwise. When a family took out $100,000 second mortgage a couple years ago, they didn’t understand that it was borrowing on a leveraged asset. Almost overnight they found out that they were $100,000 in dept and unable to pay it back.
The Fed has to figure out how to wipe this dept off the books because it would take a decade of savings for many families to pay off what they have borrowed. If housing prices returned to 2006 levels, most of this dept would magically disappear! Since housing still has some room to fall (one man’s opinion), how can we prop up home values?
Inflation to the rescue! The Fed is already printing money by the billions. Congress is still figuring out what to put into the massive stimulus bill, but one thing is for sure, it will be close to a trillion dollars! Most experts seems to agree that inflation is on the horizon. Perhaps this is a very good thing.
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