Debt and deflation make for a toxic mix

Economic policy The world has been on a debt binge for decades, underpinned by housing, and low interest rates is making it worse.
 
One of Britain's largest banks, HSBC, is offering its customers housing mortgages carrying a rate of just 0.99 per cent.
 
There are a few catches. The loan-to-value ratio has to be at least 40 per cent. The mortgage rate has a duration of only two years after which it will revert to the bank's standard variable rate of 3.94 per cent. The set-up fee is also a hefty £1999 ($3700).
 
Even so, it's quite a deal.
 
That rate on a maximum mortgage of £500,000 would cut the servicing cost on the old rate by more than £11,000 a year.
 
Meanwhile, across the Atlantic, mortgage-finance giants Fannie Mae and Freddie Mac are considering a programme that would make it easier for lenders to offer mortgages with a down payment as small as 3 per cent.
 
If you think you have heard the story of the finance-based, housing-led recovery that was the ideal medicine for an economy under stress, you are correct.
 
Read the full article: Debt and deflation make for a toxic mix (subscription required)

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Max Walsh

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Max Walsh was for many years one of Australia’s top economic and political commentators, highly regarded as a journalist, author and broadcaster. Throughout his career, Max was involved in all dimensions of the media industry, which has encompassed positions with two of Australia’s largest publishing companies and television networks.

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