Mortgage Equity Withdrawal - Are Americans Addicted to It?

Much of the money borrowed home fuel consumer spending and reinforced the weak financial management techniques. It was common during the bubble rally for people to run to huge credit card bills each year, then refinance and pay them. It was foolish enough to finance consumption, but it's still crazy to pay for that spending more than 30-year period of a typical mortgage. consumer value fades quickly, but the debt remains for a very long time.

Many people said "free money" Their house was releasing its earnings per equity as soon as they could so they could buy cars, take vacations, and generally live a good life. This borrow-and-spend mentality actually was encouraged by the lenders who are eager to these loans, and even a government that is benefiting from economic growth and higher tax revenues.

2001 recession was caused by falling stock prices and the resulting reduction of corporate investment. the recession is shallow, but the economy has had trouble recovering mainly because of the continued erosion of manufacturing jobs. Federal Reserve under Alan Greenspan was desperate to reignite economic growth, so the Fed funds rate was reduced to 1% and kept it for more than a year. It is hoped this increased liquidity in order to go to work again troubled economy, investment, instead, he went to the mortgage loans and consumer pockets through mortgage equity withdrawal. Basically, the economic recovery from 2001 to 2005 was to create an illusion that excessive borrowing, and rampant consumption of home. economy is to grow through production, he has grown through the consumption of

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There are many theories as to fall and fall of the Roman Empire. One of the more intriguing is the idea that Rome fell because it was weakened by the parasitic nature of Rome. Rome was an empire that consume resources. Boats will arrive in a city full of goods and leave the town empty. Consumption has kept the masses happy and thus quelled civil unrest. The Roman Empire was the world's only superpower with an unrivaled military power. Equally his unsurpassed ability to consume resources. Does any of this sound like the U.S.?

The United States has clearly become a consumer nation, and the government continues to borrow large sums of money to demand economic engine going. In early 2008, Congress passed the "stimulus" package, where many people will get direct gifts of money in the hope that they will spend it and keep the economy going. Since the federal government is already running a deficit, this money is borrowed against future tax receipts. In other words, this gift is received by future generations. With the decline in house prices, direct government handouts on borrowed money were needed to make up for the loss of money lent to the private sector used to be available through mortgage equity withdrawal.

So what happens to Americans when they take away their mortgage equity withdrawal? They experience severe economic downturn rivaling the Great Depression when they were deprived of borrowing. As an addict experiencing withdrawal, the Americans are going through a severe economic pain of getting off their mortgage equity withdrawal habit.