I got the idea for this blog a while back and the more I hear analysts talk about the need to increase consumer demand and/or spending to jump start the economy. The more I say “Reduce my Mortgage Principal Payments”. I certainly don’t see corporate America stepping up its spending and start hiring. Believe it or not the lesson in austerity we’ve received since early 2008 is still in play. Corporations have become better and more efficient operators, they have managed to do both control cost and increase revenues with lower sales; sort of like doing more with less. I work in the Quick Service Restaurant where sales numbers have been at an all time low and even with higher commodity prices we are still squeezing revenues and delivering numbers. That’s a tough way to live, but we are just picking our spots by delivering value to the consumer and finding those key areas where we can grow. We are far more judiciously in the way we spend. Those days of projecting 100’s of new stores are not here yet.

So, if the government wants to help increase consumer demand, consider a reduction in mortgage principal. Help the RESPONSIBLE portion of the middle class in this country that did not get in financial trouble. Help those who did not mortgage their proprieties twice over those who in spite of the economic downturn are still able to spend so to speak. I am NOT asking for a handout, I am asking for a Principal Normalization in relation to the loss in our real estate value. Normalization in the Computer world refers to the reduction of complex data structures to its simplest and stable form. Without getting to technical, if we were to compare the value of our homes versus the money we owe to the banks, the large majority of homeowners will probably find themselves somewhat upside down or with far less equity than before 2008.  We have far too many empty homes and not enough buyers (or demand) putting downward pressure on our homes’ value. High consumer debt affects consumer demand and spending and unless we get to a healthy balance or to a  stable form this consumer demand drought will continue on…

So the idea here is to normalize and/or adjust the gap between what we owe to the bank and the true value of our property. I know this is not easy because the same banks we help from going under will probably fuzz about forgiving and/or writing off part of our Principal. Here is where I see some merit in reducing our principal debt; it immediately translates into more DISPOSABLE income two fold short term and long term.  In the short term it puts more money in our pockets every month, and in the long term it helps us pay-off our homes (our American Dream) faster. Wouldn’t that be nice?– to pay off our homes and have all that excess cash to invest, to spend, to retire without having to borrow…   It is sort of STIMULUS in nature.   I think reducing principal debt targets a larger sector of that RESPONSIBLE middle class. The more disposable income we have the consumer demand and consumer spending it creates. Now, this helps every class because it reduces everyone’s DEBT. I think this is far more impacting than some tax-breaks  and reduction in property tax because a principal reduction cuts at the heart of the problem CONSUMER DEBT. So NORMALIZE our mortgage DEBT to a number that is more reflective to our current market conditions,  and you will see an increase in consumer demand and consumer spending.

I am not suggesting that we do this every time we have an economic crisis and maybe this isn’t such a crazy idea. I think a lot of demonstrations and the American discontent I see is because the stimulus has not reached everyone. I can’t blame America for being upset, the American Dream we agree to buy and pay for in 15-30 years is worth far less than what I contracted for.  In the mean time we see those in the banking industry and in the car industry thrive after we helped them while we are left with a grossly Devalued Asset that does not reflect what we are paying for.  Let me clarify one thing this is NOT a handout, I understand market fluctuation and I understand risk and there are no guaranties in a capitalistic economy under “Normal Conditions”.  But when the economic balance in this country in grossly altered by an easing in lending practices, by predatory lending, by a deregulated financial and banking sector and the list goes on… I can’t help to get a little upset myself and without siding with any group and political party I can understand the general discontent. Now, I am not sure the government or anyone would consider this Principal Debt Reduction idea. But the only thing I can suggest you to do if you are employed and you are in good financial standing; control your spending, keep saving, keep paying down on your home mortgage and reduce any other short term debt.  We just have to do more with less and operate better and more efficiently for a while longer. I hope this info helps…

 

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