Bill Bonner, Dark Cloud Looms Over Low Society

Dark Cloud Looms Over Low Society

Lower down on the socio-economic ladder, "them that hasn't, gitteth not." People on the lower rungs of society don't own shares in financial companies, they don't go to Harvard Business School, and they don't have million-dollar stamp collections. What they do have is debt - and they have a lot of it.

As long as house prices were rising and interest rates were going down, debt was no problem. The lumpen could refinance at lower rates and end up with more money to spend. But now, house prices are going down and interest rates are moving up.

The latest study, reported in the San Diego paper, tells us that the housing slump will last well into 2008. Even these guys are overly optimistic, in our opinion. "The force of a correction is equal and opposite to the delusion the preceded it," we recall saying. The biggest housing boom in a hundred years is likely to be followed by more than a couple years of bust and more than a 2% or 3% decline, we think.

And the papers seem to agree. The latest news from Bloomberg tells us, "Mortgage default rates rose 90% in May." Of course, June, July, August, September and all the rest are still ahead…

And yesterday, bonds fell again, pushing up the yield on a 10-year Treasury note to 5.24% - bad news for debtors, homeowners, and the housing industry.