Aftershock: Protect Yourself and Profit In The Next Global Financial Meltdown, Second Edition

Pop Goes the Private Debt Bubble

The full credit crisis hasn’t kicked in yet. That will only happen in the Aftershock, when the dollar bubble and the government debt bubble pop. When consumers can still get low interest rate financing on a new car, you don’t have a credit crisis. When you can get a 5 percent, 30-year fixed-rate mortgage, you don’t have a credit crisis. In spring 2009, Toll Brothers was even offering a 3.99 percent 30-year fixed-rate mortgage on the homes they built. Of course, these loans were only to qualified buyers. From 2002 to 2006 mortgage and auto loans often went to unqualified buyers, so that is a bit of a change. We got so used to credit flowing to anyone willing to take it that now we actually think if an unqualified buyer cannot get a loan or cannot get the best interest rate possible, then we have a credit crisis.

We also do not have a credit crisis for business loans. Companies like Walmart do not have to pay 20 percent interest on their inventory loans, and they aren’t being turned down for loans entirely. It’s true that construction loans for buildings that won’t make money are being turned down, as are loans for buying commercial real estate at prices that are way too high. But we can’t exactly call that a credit crisis. It’s more of a return to credit rationality, which apparently is very foreign to many of us.

However, when the dollar bubble pops, we will most definitely have a massive credit crunch. Very few businesses or individuals will be ...