Mortgage Bubble About to Burst?

Millions of Americans are heavily burdened with first and, in many cases, second mortgages. People reached for "the American dream" of owning their home—but often a home somewhat beyond the reach of their incomes. Additionally, they pulled needed cash out of home equity through refinancing. Who controls these loans? What do creditors receive in return for their money? Are we about to experience a financial restructuring on a world scale with shocking consequences for the United States?

by Melvin Rhodes

The Old Testament book of Deuteronomy warns Israel of the consequences of disobedience to God's laws. The Israelites were given a choice—they could obey God and be blessed or disobey God and suffer the inevitable consequences.

One of the blessings for obedience was that Israel would "lend to many nations, but...not borrow" (Deuteronomy 28:12). The reverse would happen if the Israelites disobeyed: "The alien who is among you shall rise higher and higher above you, and you shall come down lower and lower. He shall lend to you, but you shall not lend to him; he shall be the head, and you shall be the tail" (verses 43-44).

America is clearly starting to reap the negative financial consequences of disobedience, as a recent article in The American Conservative shows. Written by San Francisco financial analyst Robertson Morrow, the article is titled, "Living With the Bubble" (Feb. 10, 2003).

"As a percentage of personal income, mortgage debt has risen from 51 percent 25 years ago to over 100 percent today," points out Mr. Morrow. "In the last 5 years, mortgage debt has risen by 60 percent, or $2.2 trillion, an amount roughly the same as the profits of every American corporation for the last five years and twice China's exports to the entire world."

In a society where debt has become a national way of life, does this really matter?

Mr. Morrow says it does. "One problem with borrowing all this money is that people might not be able to pay it back. Another is that, for the foreseeable future, Americans will be spending a large proportion of their income on debt service. This will constrain consumer spending—two thirds of the economy—which will retard economic growth for the remainder of the decade. Slow economic growth will inhibit income growth, preventing us from earning our way out of the hole into which we have dug ourselves."

Read the full article at www.wnponline.org/wnp/wnp0303/mortgagebubble.htm

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