Do We Ever Learn Anything?

So the sovereign debt crises in Europe are creating an unexpected windfall here in the US.  Capital is fleeing Europe and being dumped into bonds here.  This is driving down bond yields and returns tied to them, notably mortgage rates.  Just why US securities look so much better than anyone else's is beyond me, but the real issue is what do we do with this windfall.  So far I'm just seeing a return to the crap that got us into this mess.

I've been saying for a couple of years now, and I've been a long way from alone on this, that as bad as the 2007-2008 option ARM resets were, the 2010-2012 resets would be worse.  Now we've been given a golden opportunity to soften that blow.  First, with rates softening, the resets will not be as severe.  Second, more people can qualify for refis and get out of the ARMs.  These two would go a long way toward restabilizing markets and values.

But it all depends, as it always does, on the third leg of the stool.  If people reduce their mortgage payments, what will they do with the new discretionary funds?  Will they pay off debt and try to get out from under?  Will they invest it here, either directly in their own businesses or indirectly through some savings vehicle?  Or will they just spend it on stuff and ship all that cash back overseas.  All signs indicate the last option, and with the active encouragement of all the powers that be.

And so it looks like we'll ultimately squander this opportunity.  We still haven't learned that a decrease in expenses is not the same as an increase in income.  We still haven't learned that our homes are not magical ATMs that can paper over our budget shortfalls.  We still haven't learned that leveraged loads of junk shouldn't be our great goal in life.  We still haven't learned that shoveling money out as fast as it comes in is not a productive pastime.  Letting flow out what flows in is a job for sewer pipes.