Monday, May 09, 2005

In comments on my Friday posting re the US "house-producing economy", Cynical Investor said,
Actually the only thing we are trading for foriegn goods is dollar based debt secured by real estate.
Since the "export" of housing by highly financialized Anglosphere economies is a particular interest of mine, I'm curious to hear opinions as to the difference between seeing the sale of mortgage-backed securities (MBS) as [1] the sale of debt backed by real estate; and [2] the sale of the houses themselves. Now granted, the owner of an MBS does not actually own the house so much as own the income flowing from the house. But is there much difference when it comes to the macro-economy and the ability of a population to exchange overpriced real estate (or the income flows thereof) for goods and services?

Cynical Investor goes on:
If enough of that debt is owed to foriegners and if enough homeowners cannot afford to pay off that debt I have confidence that US politicians will either: 1 - debase the dollar or 2 - reschedule the debt in some other way. This whole exercise is a test of the US's capitalist system - i.e. will we pay off debts to foriegners after having our party. Somehow I don't think we will.
I think the chances of a dollar debasement are low. Finance capital won't sit on its hands forever, after all. However, I agree that the likelihood is certainly greater than zero what with the Bush administration in power. Debt reschedulement is very likely in my view, however, especially since the US is the biggest baddest debtor on the block. If Argentina can push creditors around the way it has, just think what the US can do!


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