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debt - some sobering figures

  1. GSTfree

    678 Posts.

    From the "Daily Reckoning" some interesting figures proving we live in a fools paradise. Debt is not the road to prosperity soooo - how do we get out of this mess as it cant go on forever. I have no idea except to get out of debt which I have but as for the western nations? Thoughts

    "Home foreclosures soaring in Wichita," the
    Kansas City Star tells us. "Bankruptcy filings swell in
    Colorado," reports the Rocky Mountain News. Both Kansas and
    Colorado are suffering the after-effects of collapsing
    interest in technology companies. Through aggressive tax
    incentives, Denver invited many of the nation's most
    beloved techs to set up shop in their city. Wichita, Kansas
    wooed some of the Boeing operation away from Seattle.

    - They have subsequently suffered similar fates. A Denver
    bankruptcy puts it this way: "During good economic times,
    Colorado grew quickly, and people borrowed liberally for
    new cars and to fill new homes with expensive appliances,
    furniture and other luxury items. And if they get laid off,
    it's hard to make a quick turnaround because they've still
    got these purchases in place. Some of these large-ticket
    items people have are locked in, and even though they see
    the need to make short-term adjustments, they can't."

    - "Filings [for foreclosures] have picked up and become
    more volatile since the recession began," said Stanley
    Longhofer, an economist with Wichita State University,
    describing the rise in foreclosures in his state to the
    Kansas City Star. "But the increases started long before
    then. It is not the housing market going into the tank that
    is causing foreclosures. It is people that have allowed
    themselves to get in way over their head."

    - "U.S. consumer debt," reports the Rocky Mountain News,
    citing Federal Reserve figures, "through credit cards, auto
    loans and other non-mortgage personal borrowings, grew for
    a third straight month in September to $1.97 trillion."
    Throw in mortgage debt and Americans hold $8.4 trillion in
    personal debt. The entire nation's GDP, by way of
    comparison, is roughly $10 trillion.

    - Now the well-dressed gentleman doesn't look so
    impeccable, does he? In fact, he looks rather like a
    fraud... hiding secrets... and telling more lies to cover up
    the truth from those who would hold him accountable. When,
    in fact, he already knows he's going to a certain rendez-
    vous again, ce soir. He can't resist.

    - Our prediction: He's about to get caught in the act. "No
    matter how much the Fed inflates, it can't force businesses
    to borrow or banks to lend money," the Mogambo Guru quotes
    Jim Puplava on Financial Sense online, looking at the
    decline in the money supply numbers and the lack of lending
    going on at the banks. "When the appetite for credit
    evaporates, the money supply starts to contract, which is
    what it is doing now."

    - But there is a downside to all of that, as Mr. Puplava
    explains: "Now that the supply of money is contracting,
    there is less money to keep the economy and the markets
    expanding. This will become critical in the months ahead
    because this is a liquidity driven market. As the supply of
    money and credit contracts, so will the markets.

    "As a fact check to your Daily Reckoning column, I checked
    the economist country databank
    (http://www.economist.com/countries) to verify exactly how
    the U.S. debt/GDP, deficit/GDP, and CA deficit stack up
    against other nations. I was a bit shocked by the results.

    "Europe has essentially the exact same debt problem as the
    U.S. does. In both France and Germany, debt is 60% of GDP,
    almost exactly the same as the U.S.. Deficits are lower (3%
    versus 5%), but in the case of the U.S., at least
    *some* of that 5% is due to the war, which, like all wars,
    will eventually end. True, the current account situation is
    much better (+2% versus -5%), but I am not sure how much of
    that is already priced in to the current $/EURO exchange
    rate...

    "On the other hand, Japan has an absolutely horrific 145%
    of debt to GDP, with annual deficits of 8% of GDP. I know
    it's more fashionable to bash the U.S. these days, but
    surely this is no role model.

    "A friend (and former hedge fund manager) of mine would
    also like to add that Italy has a 100% debt to GDP ratio
    and the eventual inclusion of eastern Europe in the euro-
    zone will clearly only make things worse.

    "On the subject of pension liabilities - the situation is
    also worse in Europe and Japan, where the age demo is
    aggravated, and state pensions are bigger.

    "Regarding equity valuations - it is very debatable whether
    either Japan or European equities are 'cheaper' than the
    U.S.. Both may have lower Price/Book ratios than the SP500,
    but in Japan much of that is (still) inflated property
    values and cross-holdings; in Europe growth rates are
    significantly lower - and should command a lower P/E. Not
    to say that the U.S. market is cheap, but neither is Sony
    at an 90 P/E, or German banks in the mid 20's P/E, or the
    French luxury good makers at P/E's of 30 or more...

    "Clearly the U.S. is not the picture-perfect example of
    fiscal responsibility. But Europe is at least as bad, and
    Japan is worse. I would suggest including these two blocks
    as Daily Reckoning 'editorial targets' going forward, but I
    doubt it would increase your newsletter circulation."

    A good listen form the financialsense website

    http://www.netcastdaily.com/fsnewshour.htm and select "Bill Bonner"

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