Debt Problems Started With Home Owners And Now Infects Countries

If you think back over the last two or three years, you can see an escalating trend for the debt problems that we are all facing at the moment.

In 2007 there were murmurs that home owners in the USA were starting to default on their home loans in greater numbers. the US government initially denied that there were any “structural” problems to their economy, and that everything would be fine.

We now know that American home owners submerging under debt triggered problems with banks. The debt problem ascended a rung of ladder of the system and started to affect the banks, both in the USA and in the UK too.

Northern Rock collapsed and Lehman Brothers went under in September 2008. Tens of other US banks also failed, and continue to experience problems.

2009 saw massive government intervention as quantitive easing poured billions into the economies around the world. It seems to have worked, apart from one very big problem.

Countries have become submerged with debt. The UK deficit is at a staggering £163 billion and Greece teeters on the verge of bankruptcy.

So the debt problem has ascended another rung of the ladder and now infects countries. Greece, Portugal, Italy and Ireland are all in deep trouble.

There is one more rung of the ladder left – the Eurozone.

Germany is struggling politically with the burden of bailing out Greece. The Spanish banks are under considerable pressure that looks set to worsen. The Euro is falling badly and is now the weakest against the pound since December 2008.

Over the last three years, we have seen a debt crisis start with American home owners, infect major banks, threaten entire countries with bankruptcy and now place the Euro under doctors orders.

So the debt problem, which first came to light in 2007, is far from over.

Consider this fact, though.

The American government has been giving a $8000 tax break to homeowners buying a property. That tax break expires at the end of June. It has helped revive the property market in the USA, but has also forced prices upwards, probably into unsustainable levels.

In July, house prices in America will probably start to fall again, triggering a double dip recession in the US property market. Will that make matters worse for all of us? I hope not, but we have experienced the effects of falling US house prices on economies thoughout the world recently, and the results haven’t been good.

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