A Liquidity Crisis in Housing Is on the Way

themaven.net  ( Original )
MAR 9, 2018

Now while everyone it seems is calling for inflation lately, Mish see's deflation dead ahead. His points are valid but it's all up to the Fed on how they handle the extraordinary mess that they have created. Here are some of Mish's comments on inflation, deflation and about the Brookings Institute says a Liquidity Crises in the Mortgage Market is on the way.

This is a recipe for disaster, and disaster is at hand. 

Housing Collapse Coming

Four days ago, before I saw the Brookings article, I commented Housing Collapse Coming Right Up.

The Brookings article reinforces my opinion. 

Meanwhile, overdue debt is at a seven-year high. Distressed debt surged 11.5% in the fourth quarter. 

The Financial Times also notes "More Americans are also falling behind on their mortgages, for which problematic debt levels rose 5.2 percent over the same period to $56.7 billion."

Deflationary Debt Trap Setup

These numbers are huge deflationary. When credit expands there is inflation. When credit contracts (think defaults, bankruptcies, mortgage walk-away events), debt deflation occurs.

Here's my definition of inflation: An increase in money supply and credit, with credit marked to market.

Deflation is the opposite: A decrease in money supply and credit, with credit marked to market.

Rear View Mirror Inflation

We have so much inflation that Inflation is in the Rear-View Mirror

The inflation economists expect to happen, already has happened, in stocks, in home prices, in junk bonds.

They don't see it because they do not understand what inflation really is. 

Debt Deflation Coming Up

I expect another round of asset-based deflation with consumer prices and US treasury yields to follow.

Either way gold should perform well!

ORIGINAL SOURCE: Housing Liquidity Crisis Coming: Debt Deflation Follows by Mike Mish Shedlock of themaven.net on 3/9/18