What's Behind Foreclosures?

[opebo]

The obvious solution is to reflate the prices of the homes, and/or forgive the debt by revaluing mortgages to a reasonable percentage of the new valuations.

For example if a house used to be $500,000, and the mortgage is $400,000, but the house has gone down to $200,000 in value, the new mortgage could be set at $160,000 (80% of $200,000).  The remaining $340,000 can be electronically created by the Fed.

[opebo]

If the Fed printed that much money, interest rates would go sky high on expectation of inflation. This would effectively destroy the long term lending markets, consumer demand for large ticket products including housing, and business investments.

That makes no sense as the printed money would only be replacing the magically 'disappearing value'.

[opebo]

The obvious solution is to reflate the prices of the homes, and/or forgive the debt by revaluing mortgages to a reasonable percentage of the new valuations.

For example if a house used to be $500,000, and the mortgage is $400,000, but the house has gone down to $200,000 in value, the new mortgage could be set at $160,000 (80% of $200,000).  The remaining $340,000 can be electronically created by the Fed.

And in the years previously, when asset prices increased, should the person who borrowed $350,000 on a $400,000 house, only to see it increase in value to $500,000, have to repay $420,000?

No, but a very high tax rate on such inflation would be good policy.  (I guess that is another way of saying 'yes, but only to an extent').

One wishes both on the up and downside to reduce the volatility of 'capitalism'.

[opebo]

I could afford my home when I had my $50,000 a year job.  I could not afford my house when I lost my job.

Think that may have something to do with it all?

Of course, but having the Fed print the money to pay your mortgage payment thus cannot be inflationary, because it is merely replacing lost income (your wage).

[opebo]

If the Fed printed that much money, interest rates would go sky high on expectation of inflation. This would effectively destroy the long term lending markets, consumer demand for large ticket products including housing, and business investments.

That makes no sense as the printed money would only be replacing the magically 'disappearing value'.

Yes but psychology may send interest rates sky high anyway- at least temporarily. Just look at what happened in Indonesia 1998, or Britain 1931-- high interest rates first, debt deflation afterwards.

We already have the debt deflation right now, so there's no harm in printing up the money which has disappeared.  Even if it caused some kind of 'scare inflation' it couldn't last long.