If you read this blog with any regularity, you are aware I attempt to explain economic policies in a manner that virtually anyone can understand. Well, sit back folks for this may be the dumbest thing I have ever read, put forth by supposedly the smartest people in the room.
The Federal Reserve Bank of San Francisco has an Economic Letter titled “Mortgaging our Future” where they, with fancy charts and their egghead intellectual speak come to the following conclusion. You can read this brilliant observation in full here.
“Leverage is risky. Purchasing assets with borrowed money can amplify small movements in prices into extraordinary gains or crippling losses, even default………
………A growing consensus along these lines has renewed interest in revisiting the assumptions about cyclical macroprudential policy (for example, Aikman, Haldane, and Nelson 2014). Much of the recent expansion in bank lending took place through real estate lending, and this particular component of the credit mix appears to have the most relevant macroeconomic effects. A natural inference is that economic policy needs to adapt to this new reality.”
There you have it people the Federal Reserve Bank of SF from which Janet Yellen the Fed Chairwoman was President has uncovered………………(drum roll)
That using debt to buy more debt can be a bad thing and that this practice in banking led to the Financial Collapse of 2008.
This from the very institution that printed (debt) to purchase more that bad debt to the tune of $3 trillion now on the Federal Reserve balance sheets. Has come to the conclusion that is bad thing and needs to have a more relevant role in their decision making going forward.
If you are still confused, The Federal Reserve said that…….”It is a bad idea to use your credit card to pay the mortgage.”