Borrowers more than 60 days in arrears on their mortgages hit a record high 3.23 percent for the first three months of 2008, TransUnion said — that’s up 8 percent over the previous quarter’s 2.99 percent average, and is a staggering 61.5 percent higher than the first quarter 2007.
This deleveraging process has been a very unique one. Over the last decade, the Fed led many central banks around the world in an unprecedented expansion of money supply. While there is massive credit being withdrawn from the global system, the long-term effects of this money supply expansion has yet to filter through. Investors are running scared of stocks, real estate, and bonds (except Treasuries of course), and have shifted positions to commodities, government bonds, and other “safer” investments. This, along with Bernanke’s decision to drop rates, has led to a serious mispricing of risk and return among government and other bonds. As investors realize that the US government is bankrupt and currency is nearly worthless, high yield rates are likely to skyrocket. Of course, gold will jump as well.