Americans are borrowing against home equity once again. These loans were up by almost 20% in 2012.
Some of these ignorant people are converting their home mortgages into personal loans. If they live in states where mortgages are non-recourse loans, where the lender cannot come after them if they default, they lose this legal protection when they borrow against equity. No one tells them. They do not consult with their lawyers before they borrow against equity. They probably have no lawyers.
This old habit dies hard. They do not save for the future. They spend. This is called “prudent” in the article about equity borrowing. But borrowing is rarely prudent. It wipes out equity.
Americans hate equity. They want to spend. They do not want to save. They do not bother about building a secure retirement. They prefer to enjoy the good life today.
Meanwhile, economic growth is stagnant. The federal government borrows from the Federal Reserve. The FED creates fiat money to buy government IOUs. The voters don’t know or care. “No problem!”
All debts rise: in government, in business, and in households. The lure of debt seems irresistible. “I want it, and I want it now!”
Americans discount the future. “Eat, drink, and be merry, for tomorrow we go on Medicare.”
This is Keynesian economics. “We must borrow our way to wealth.”