Relief for borrowers with 2nd liens

Great, this should help towards curtailing the ability of taking equity out in the future ( as it works in France for ex)... This should help middle class people to redifine their 1st residency as the main liability instead of main asset.... Japanese asset deflation: here we go!!!

Can't have it both ways. It's either screw the borrower or screw the lender. Unless we want to screw the tax-payers that didn't excessively borrow or lend.

Either way it means tighter lending ahead, hence lower prices... At this point who would be surprised if prices are lower even 20 years from now, like in japan, I'd be long only on property taxes.

Destroying debt doesn't help. Since the current plan is failing perhaps we should try a different approach. Raise Fed funds and don't allow the banks to earn money held at the Fed. This will encourage savers to value money and banks to have to go out and put that money to work instead of what they are doing, buying treasuries.

Actually debt destruction might be the most efficient way to repair household's balance sheets. Sure, it will keep on bringing home prices down and consumer credit down, but both of them are desirable IMHO.

Deflation is not necessarily a bad thing. If it makes products more affordable that's a good thing. And prices go down for many reasons, for example new technology can lower the cost of manufacturing, It's bad if it's because debts have become unservicable and business activity goes into reverse. I'm not sure that just flat out price declines are undesirable.

Econ 101, deflation is paradise for those with cash, he'll for debtors...

The system has a way of giving back, kind of poetic justice. Even with a gov and a tax system that just hates savers, deflation kicks in and declares true love to him. Not a bad ending for the housing bubble saga.

http://us1.institutionalriskanalytics.com/pub/iramain.asp

Consider New York Times columnist Paul Krugman for example. In yesterday's edition, Krugman takes Fed Chairman Ben Bernanke to task for not doing more to combat deflation. Krugman, who is a leading apologist for deficit spending under the tattered rubric of neo-Keynesian economics, thinks that the Fed should do more. And what should the Fed do according to Paul Krugman? Print more money. More quantitative easing via purchases of private debt is the urgent recommendation of this leading American economist.

While Krugman criticizes Ben Bernanke for being a Republican, it is worth reminding readers of The IRA that Krugman himself is not quite the socialist that he pretends to be. In fact, Krugman was once considered to be in the same political party as President Ronald Reagan and former House Speaker Newt Gingrich. Of note, the latter just declared himself a candidate for the presidency in 2012. Ponder a little gem from the upcoming book by IRA co-founder Christopher Whalen, "Inflated: How Money and Debt Built the American Dream":

"In a 1982 memo from Paul Krugman and Larry Summers, who were both then working in the Reagan Administration, to William Poole and Martin Feldstein, the two economists predicted that inflation would again begin to accelerate because the reduction in inflation engineered by the Fed was only temporary. But Summers, Krugman and many other liberal economists were wrong. In fact the rate squeeze by the Fed and a lot of positively coincident and mostly external trends quenched the fires of inflation in the US, but did not really instill fiscal sobriety. Paul Volcker was able to break the psychology of inflation and also take sufficient demand out of the economy to give the impression of price stability."

Instead of talking about ways to boost national income and create real employment, Krugman and his ilk simply call upon the Fed to print more money to boost short-term demand for goods, many of which are imported. By encouraging consumption without regard to the source of the goods, Krugman and his peers in the world's second oldest profession remain locked into the same mental framework and vocabulary that has governed the mainstream of American fiscal and monetary policy since WWII. This is unacceptable.

Economists such as Krugman do not seem to appreciate that all of the Fed's extraordinary efforts over the past two years to inject liquidity into the U.S. economy have had little impact outside of the financial sector. The suggestion by Krugman that the Fed do more of the same really is quite irrelevant to our current national predicament. Until we discard the bankrupt thinking about fiscal and trade deficits that have characterized the careers of people like Larry Summers and Paul Krugman for the past four decades, Americans will make no progress toward achieving real economic prosperity.

The lack of alignment between the current economic narrative within the U.S. and the underlying reality facing millions of Americans is not only blocking progress toward a true economic recovery, but is making it impossible for the U.S. to communicate much less cooperate with our allies and trading partners. When President Barrack Obama and Secretary of the Treasury Timothy Geithner wander around the globe preaching a gospel that consists of more debt and inflation, you can understand why they get a chilly reception.

Unlike Paul Krugman and Treasury Secretary Geithner, our trading partners around the world understand that competitiveness and fiscal balance are the real basis for national security. Since they cannot print money at will, the leaders of Germany and the UK are compelled to take the pain of addressing fiscal deficits immediately. But as the nations of Europe work through their problems, they will emerge stronger and more unified, and able to better compete in the global economy.

Americans need to build a new economic narrative, one that is based upon creating real jobs in the real economy and not upon subsidies for foreign exporters and mismanaged Wall Street banks. We need new economic thinkers who are not hobbled by devotion to the failed economic structures of the post-WWII world. Regaining control of the U.S. economy must start with a frank discussion with our trading partners and foreign creditors about jobs, the value of the dollar and what it will take to bring America's economy back into balance.

http://www.hussmanfunds.com/wmc/wmc100712.htm
There is little question that we have, for more than a decade, squandered our productive resources in the pursuit of bubbles. Almost unbelievably, real private gross domestic investment is lower today than it was 12 years ago, and much of the gross domestic investment that we have made in the interim has been destroyed in mispriced speculative activity such as residential construction and commercial real estate development.

If our only response to excess consumption is to pull out all the stops trying to "stimulate" consumption every time it falters; if our only response to reckless lending is to defend the bondholders every time their poor allocation of capital threatens to produce a loss for them, then quite simply, we will destroy our economy, our future, and our standard of living. The last thing I want to be is a cheerleader for the bears here. But quite honestly, it's difficult to envision a return to long-term saving, productive investment, and thoughtful allocation of capital until - as happens every two or three decades - the speculative elements of Wall Street are crushed to powder.

Agreed, Riversider. What we have had to date is a bail out of the banks designed to make wealthy investors in risky fixed income whole. Realistically, their is no good reason to pay AIG cds swap holders or bond holder 100 cents on the dollar, there is no reason to pay Citibank or Bank of America bond holders and preferred stock holders 100 cents on the dollar, and particularly no reason to pay Fannie Mae and Freddie Mac bond and preferred holders 100 cents on the dollar. We are running the printing presses to the benefit of these parties, which tend to be wealthy groups and individuals, at the expense of US taxpayers and future generations of Americans. If private investors loaned capital as "liar" loans to illegals, or to Citibank or to AIG, why should the Fed permit effectively 0% loans to pay these idiots? If they were prudent investors, they wouldn't have made these loans in the first place, or they would have sold before a collapse. All we are doing is insuring that when our institutions collapse, we will also suffer unspeakable inflation. The reality is that we have too much debt capital, not too little. The simple solution is to discharge it like we do in bankruptcies, debt restructurings and liquidations. It will be very painful, but the alternatives are a delay, and then something worse.

The current economic policy being followed by Geithner, Summers & Bernanke favors the large money center banks and does nothing to fix the long term structural problems in the real economy. The banking system is a means and not an end. It exists to provide financing to the real economy. It would be good if our elected leaders realized that, and stopped thinking that banking was the real economy. It's like the tail leading the dog.

Krugman is an idiot. About Econ growth going ahead is not about narratives, confidence and the like. It's simply about horrible fundamentals ( worse is aging costs) and the total lack of preparation for them. Think for a moment , facing the retirement of the baby boomers, stagnating wages and high debt burdens of young workers dealing with always more expensive health care and education, the more retarded policy possibly would be orchestrating the mother of all housing bubble... It's funny almost.

The thing I'm really not looking forward to see is the bitterness of the old when cuts of SS materialized (my guess is that it's gonna be a fact within the next 5 years .... Oh dear, so much complaining but so much learning about ponzi schemes and transfers...