Kicking Our Addiction to Debt
Barron’s Alan Abelson references Henry Kaufman in this week’s column:
As the root of our current woes, Henry unreservedly cited decades of ballooning debt. More specifically, since 2000, he noted, nonfinancial debt outpaced the growth in nominal GDP by nearly $8 trillion, or more than double the gap in the 1990s.
While debt spiraled wildly upward, savings shrank like a big, fat snowball at high noon in the Sahara. Savings, in case you’re too young or too improvident to remember, are what folks have left of their paycheck after taking care of important business like buying one of those pricey TV sets and less-compelling needs, like eating and paying the mortgage.
And the best part about those decadent decades was that even when you spent the last penny of your income and your piggy bank was empty, you could still get plenty of eats, baubles and that giant-screen TV with all the whistles and bells, with a swipe of your magical plastic card or by leveraging the eternally rising value of your dear old homestead.
Henry relates, more in awe than censure, from 1960 to 1990, the growth of nonfinancial debt averaged a rather sedate 1.5 times the growth of nominal GDP, while the savings rate averaged a healthy 9% a year. From 1991 to 2000, things got a bit racier, but not obscenely so: Debt outpaced GDP by 1.8 times and the savings rate averaged 4.7%.
Since 2001, though, borrowing really took off in mega fashion: Aided and abetted by the great housing bubble, debt soared twice as fast as GDP, while the average annual savings rate dwindled to a skimpy 1.4%, and in recent years, more often than not, flirted with zero.
As Henry points out, there’s no way around it: We’ve got to kick our addiction to debt if the world is to regain some semblance of financial sanity. On that score, we might interject, one can detect a kind of grim upside to the economic horror afflicting us: It’s already done wonders in raising the consciousness of just plain folks — if not necessarily that of Washington and Wall Street — to the perils of sinking deep into debt.
Why do I doubt that is going to happen on anything less than favorable terms ?
>
Source:
From Bad to Worse
ALAN ABELSON
UP AND DOWN WALL STREET
Barrons, SATURDAY, DECEMBER 6, 2008
http://online.barrons.com/article/SB122852239295784329.html
December 6th, 2008 at 7:26 am
The difference this time is, IMHO, that the game is over. Whatever Washington throws at this, it is going to take time to heal. And during that time there will be pain and an inevitable adjustment in standards on all sides. Unless America can start to produce something that the world wants to buy, living standards are going down. This, of course, was always the less pubicised part of globalisation?
December 6th, 2008 at 7:28 am
As a corollary to our addiction to debt, it needs to be pointed out that the financiers were the “pushers.” The product that they are selling is a “dangerous substance” that needs to be “controlled.” And there are some debt products that are so unreasonably dangerous (”payday loans”) that we should prohibit altogether via usury laws.
December 6th, 2008 at 7:45 am
One thing our addiction to debt did was to tank the dollar, until March 08. Since then, the dollar has surged as the US debt growth has hit a brick wall. Foreign revenue for multi-natinal companies will be slammed this quarter… growth will take a 1000 bps hit. In 1Q09, I estimate foreign revenue growth will take a 1500bps hit and in 2Q09, if the dollar rally continues, could conceivably take a massive 2000bps hit.
This will hurt companies with foreign revenue exposure…especially those that can’t take advantage of lower commodity prices that have resulted from the strnger dollar…a good example would be GOOGLE.
December 6th, 2008 at 7:50 am
Henry Kaufman, much like Fritz Hollings, will be sorely missed when they leave us. One would think, that with all the Tales we hear of eager young Journos looking to be the next Woodstein and Bernwood, those two, K & H, at the minimum, would be more thoroughly covered/more widely known.
@philipat with: “This, of course, was always the less publicized part of globalization?”
but, of course.
@OkieL with: “there are some debt products that are so unreasonably dangerous… that we should prohibit them, altogether, via usury laws.”
“payday” loanz are, certainly, egregious, but, on a total U$D value, I’m wondering why you’re not calling out “Mortgages”. I mean, what’s being lent? who funds the ‘loan’? Answer those Q’s, and you’ll see what I mean.
and, further, to the post, with this: “As Henry points out, there’s no way around it: We’ve got to kick our addiction to debt if the world is to regain some semblance of financial sanity.” Kaufman is certainly correct, but if anyone thinks that type of Old School Reason is at play, let alone the Goal, of these current shennanigans, the should know: They’re Not Thinking.
December 6th, 2008 at 7:51 am
Still at 357% debt to GDP and rising as of 6/30. On December 11, the Fed will release Total Credit as of 9/30 and I will update this.
Many criticize how the Great Depresion was handled…but if you look at Debt to GDP, it was at 170% at the 1929 crash. The New Deal sent it to 260% to fund programs and when the economy recovered, they sopped up all the debt and by1940, it was back to where it started. Masterful if you ask me. This crash is STARTING at 357% or more. It is so unprecedented that you cannot rule out any outcome, including total collapse.
December 6th, 2008 at 7:54 am
SB,
nice point, peak-GOOG has been seen, keep an peeled for double-digit GOOG quotes–they’ll be the new Black.
December 6th, 2008 at 8:18 am
Fine points. However, the US has shipped all its productive capacity overseas in the interests of profit margins for the industrial/military/JI complex. So where now? US Inc has the best profit margins ever because all the production is in Asia but the US consumer can’t afford to purchase because there are no jobs, so no income, because all the jobs are in Asia. The US can’t produce anything the world wants to buy anymore, except perhaps Boeings (Which can’t be delivered because of strikes… excuse me, strikes in this environment?) and corn (Is the US now an agricultural economy again?) So what does the US do that the world wants to buy? Derivatives don’t sell anymore, unless nobody noticed?
December 6th, 2008 at 8:21 am
@ Mark E Hoffer
Actually, I did think about making a point about ARMs. But, payday loans are the most egregious precisely because they are aimed at people who are struggling at the margins (lower and lower-middle — and even some middle class — workers). ARM loans are more visible in that they hit truly middle to upper-middle class “up and coming” workers.
All this to say: I am not really arguing with your point; just to say that payday loans were more visible to a former bankruptcy attorney like me that ARMs, which were used primarily in states such as California, Florida, Nevada and Arizona rather than small markets such as Oklahoma. ARMs used in Oklahoma were more predominant in areas where there were large racial minorities and poor. Think of it as a type of “reverse redlining.” (In the link, see definition 1.) From a lawyer’s standpoint, this is really a different legal issue.
December 6th, 2008 at 8:43 am
I’ve never liked Goog, it’s still a one trick pony.
The internet still has a lot of newbies. It is counter-intuitive, but as people become more comfortable and familiar with the net they search less. You reach a point where you pretty much have your favorite sites for almost anything you’d want to buy and use search only for obscure spare parts. You find most of your new sites by following links from sources you already trust (blogs are huge for this).
Not only that but Google’s actual search results are pretty much garbage, dominated by whoever has been able to game the system the most via link building and other methods.
December 6th, 2008 at 8:46 am
philipat Says:
December 6th, 2008 at 8:18 am
Fine points. However, the US has shipped all its productive capacity overseas in the interests of profit margins for the industrial/military/JI complex
———–
The US is going to have to stop consuming and start selling to non Americans what it is producing out there overseas.
December 6th, 2008 at 8:49 am
for all the talk about preserving the middle class its corpse has been propped up and animated post mortem by debt. we are all third world now. this is what the politicians and bankers do not want citizens to know.
December 6th, 2008 at 8:51 am
Hey Ritholtz!
Nice interview in Barron’s — congrats!
December 6th, 2008 at 8:53 am
cfischer Says:
December 5th, 2008 at 12:02 pm
@dead hobo: There really just isn’t any bad news that’s actually bad to you, is there?
reply: Nonsense.
When oil was at $125 and going up, I wrote (my cousin, actually, although we talked about what he wrote before he posted it), it was only due to a bubble, peak oil theory was a caricature of reality, the bubble was due to wasteful credit, and the economy was on death row unless the price dropped. I recall replies that sounded incredulous at my ignorance.
When naked short sellers raped the markets with impunity and were finally stopped I (we – me and my cousin) rejoiced here. In return I was treated like someone who hated America, mom’s apple pie, and motherhood. As my cousin said, “thieves controlled the markets”.
I’m just not easily fooled by the story of the moment and the hype used to sell it. Right now, the public disembowelment of the economy is the fad and no analysis can mitigate it. I guess I’m just not as weak minded as some.
BTW, my cousin is not helping write this any longer. Thus, the civility.
December 6th, 2008 at 8:54 am
Good perspective SB. Thank you. I am betting on total collapse at this point. The actions being undertaken are not to fix any particular problem, but merely to forestall collapse. I also wouldn’t bet against the unravelling of the union,with states that are fiscally conservative (relatively speaking) like Texas refusing to pay for the excesses of states that aren’t, like California and Minnesota for example.
December 6th, 2008 at 8:54 am
1) BARRY — “A Leading Bear Turns Bullish, Sort Of” .. in today’s online (and print) Barrons? Clue us in, pray tell!
2) On the debt question — good point on the halting of new debt issuance starting the dollar rally. However, debt is climbing, and we’re in worse shape than most other countries, and we’re going to have to print our way out of this. What does that say about where the dollar is headed? I would think down, once all this forced selling is over.
December 6th, 2008 at 8:59 am
The US is going to have to stop consuming and start selling to non Americans what it is producing out there overseas.
That was my point entirely?
for all the talk about preserving the middle class its corpse has been propped up and animated post mortem by debt. we are all third world now. this is what the politicians and bankers do not want citizens to know.
That was my point entirely?
December 6th, 2008 at 9:00 am
Since my retirement in 2006 I have been volunteering at local food banks and food kitchens here in NJ. I have got to say that the increase in traffic flow over the past 2 years has been eye popping. Whereas when I first began many of those coming in were by dress and cars they drove of lower income levels in the past 6 months I’ve seen people come in much better dressed, driving newer and more expensive cars. I asked a long time volunteer if she had seen this before and she said no. She had been there since 1990.
Also have an friend who manages a public storage operation. I asked him how come all these things seemed to be popping up in the past several years and what was stored in them. He answered” Essentially used furniture, TV sets, appliances, clothes, etc. I said I assumed those items were stored while people were moving or perhaps the kids college stuff. He replied,” Some of that but the vast amount of stuff was just cleaning out the house as they were replacing current stuff with new stuff”. Why not donate to charities or give it away and he just scratched his head and said he basically assumed that Americans just didn;’t think of charity toward others that way.
December 6th, 2008 at 9:02 am
The scary part of the Kaufman remarks are at the end of the article in Barron’s. They are not good.
December 6th, 2008 at 9:02 am
Philipat:
Yes, and the 72% service portion of our ecomomy had 370k job losses announced Friday, more that the NFP consensus for all job losses prior to the numbers release. I now see more talking heads talking about a 5% contraction for the 4th quarter, which would be horrific. When we look at the G7 GDP, there is also an ominous trend….
http://www.reuters.com/finance/economy
the second quarter to third quarter increasing gdp losses in Europe…troubling…and I wonder if there will be a world wide contraction of GDP for the fourth quarter 2008 and 1st quarter 2009.
Debt will have to continue its massive expansion as governments “borrow” from the taxpayer to throw everything at the implosion.
But consumers will do everything possible to decrease individual debt.
But, hey, not to worry, the recession is now a year old…and by 16 months all will be back on track…
:0 (apologies to edvard munch)….
December 6th, 2008 at 9:04 am
The US is going to have to stop consuming and start selling to non Americans what it is producing out there overseas.
That was my point entirely?
Except remember that the Chinese, Indians, Bangladeshi’s already make sh*t from manufacturing. All the profit comes back to US Corporations, which is why they have the highest profit margins ever. I’m a free market guy but the scale has tipped over too far. The US CEO’s have lost the plot interms of a balance between margins and net growth, IMHO.
December 6th, 2008 at 9:12 am
@OkieL,
I was saying: ““payday” loanz are, certainly, egregious, but, on a total U$D value, I’m wondering why you’re not calling out “Mortgages”. I mean, what’s being lent? who funds the ‘loan’? Answer those Q’s, and you’ll see what I mean.”
I, totally, hear you re: “payday” loanz, what some of those guys are doing to the wives/significant others of our Servicemen, defies decent description.
Though, past that, I wasn’t referring to ARMs, but, rather, the whole body of the Beast called “Mortgages”.
Seeing that you have experience in Bankruptcy, you must be, at least, remotely familiar with the concept of Fraud.
re: “Mortgages”, I ‘ll ask again, What’s being ‘lent’?, Who funds the ‘loan’? Again, answer those Q’s, and you’ll see what I mean..
December 6th, 2008 at 9:14 am
But our third world automobile workers here in the south at 17 dollars per hour are expected to bail out the 28 dollars per hour UAW members in Michigan….
I have an idea if we are to bailout the big 3…Why not make 17 dollars per hour the new standard for the UAW???
Or do we just keep on keepin’ on…..? Does the UAW member really want to make cars, and compete globally, or do they just want to continue American car manufacturing death by 1000 cuts?
December 6th, 2008 at 9:14 am
But, hey, not to worry, the recession is now a year old…and by 16 months all will be back on track…
Don’t think so this time, but good luck.
December 6th, 2008 at 9:17 am
No, Philipat, agree, not this time.
December 6th, 2008 at 9:31 am
where does it say that manufacturing can’t be brought back home? US corporations will do what is in their best interests. If manufacturing in the US works from a $$$ perspective than they will shift production back to the US- pretty straight forward economics. A company is not going to produce their products in the US if it is economically disadvantageous. so the question is- how do we make it advantageous? The southern states have been remarkably good at attracting foreign car manufacturers so there must be a way to make it in a company’s interest to re-invest in the US.
What does everyone else think?
December 6th, 2008 at 9:41 am
But our third world automobile workers here in the south at 17 dollars per hour are expected to bail out the 28 dollars per hour UAW members in Michigan….
I have an idea if we are to bailout the big 3…Why not make 17 dollars per hour the new standard for the UAW???
The point being missed here, which I continue to try to make, is that in China, we are talking about 17 Dollars A WEEK. This is what US Manufacurers have gone for. BUT, as I keep on saying, the balnce has gone too far. Margins are at record highs but there are no sales in the most important US market because all the jobs are in Asia.
December 6th, 2008 at 9:45 am
Philpat-
IMO the Boeing stike was a joint deal between mgt and the union. The union got to go back and tell the members how tough they are and mgt got someone to blame for their failures. This should become a case study on why design engineering and mfg need to be kept onshore for autos, planes, defense items. They may blame the union but the real reason is they can’t put the damn thing together with parts, pieces, etc. coming from all over the world.
December 6th, 2008 at 9:52 am
What are the odds that Henry Kaufman’s concerns about ever-larger concentrations in the financial industry? Is there any way, short of a complete collapse of the entire system (I’m talking survivalist stuff here), that the uber-huge TBTF monsters will ever be carved up and made more transparent?
So long as we live with The Best Government Money Can Buy, I think not. If the banking lobby was up to the task of pushing through the Paulson Bank Job Bailout Bill, in the face of the strongest (and loudest) voter outrage I know of, then there is no force on earth that can bust up the TBTF, other than a complete collapse.
I suppose I should be stocking up on bullets and bottled water, and hoping for the Apocalypse.
Hell of thing to hope for, but I see no other way out.
December 6th, 2008 at 10:08 am
@ Mark E Hoffer
I’m not quite sure I get your point “what’s being lent” and “who funds the loan.” (Are you trying to make some point about “fractional reserve lending?”)
If you read my blog you will see that I wrote about fraud a lot. There is some crossover between bankruptcy and fraud.
I have been castigated by some on here when I suggested that we need to apply rules such as “products liability” and “piercing the corporate veil” to the loan “products.” It think it has a far better analogy that my detractors are willing to accept. Sometimes I think the Upton Sinclair quote is apt here: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”
December 6th, 2008 at 10:14 am
But Philipat, our manufacturing must now always be very high end value added….We will never manufacture T-shirts in the USA again, and now the Japanese and Koreans have shown us that cars are not that high end value added anymore. Daimler and BMW had a 25% decrease in sales last month
http://www.bloomberg.com/apps/news?pid=20601100&sid=axL57THYdFkI&refer=germany
so even the manufacture of cars has become somewhat of a commodity….they aren’t blade servers, for instance.
By necessity, our manufacturing base must be high end, but then R and D and all available means should go to see we maintain that manufacturing base. The destruction of consumer and government debt here in the US is the only way out of this mess at this point, imo.
December 6th, 2008 at 10:19 am
@ philipat:
I have an idea if we are to bailout the big 3…Why not make 17 dollars per hour the new standard for the UAW???
I have an idea, too: how about we limit the pay of the top executives of all US corporations to certain multiple of the median wage of those workers?
How about we prohibit top executives from taking the pension and health care funds when a company goes Chapter 11 bankruptcy and guaranteeing that all workers get a certain percentage of the earnings throughout their lifetimes?
Two can play at that game, philipot. There has been a Great Risk Shift in this country. Let’s not blame it all on the workers, who have had very little control over the direction of our business environment.
December 6th, 2008 at 10:36 am
Larster says”real reason is they can’t put the damn thing together with parts, pieces, etc. coming from all over the world”
hum – interesting
I’ve heard on the airwaves America saves via the stock market so the article is a bit ingenuous. Then again – WS took the cash and invested abroad for the grand plan of a world full of consumers and peace and harmony through connected economies (provided Diaster Capitalism isn’t a plan part).
So Bruce in TN and philipat … what we need now is a rebalance of all wage scales across the entire globe. PEACE.
December 6th, 2008 at 10:38 am
Some of that but the vast amount of stuff was just cleaning out the house as they were replacing current stuff with new stuff
Maybe it’s not the bankers they should be throwing in jail but the ad execs. These guys have obviously learned their craft too well. Either that or make a law that limits the amount of commercials that can be broadcast in one television hour. That would do everybody a bit of good. Can you imagine only having to watch five minutes of commercials per hour as opposed to twenty?
I’m being facetious here folks….I think.
December 6th, 2008 at 10:41 am
what is the subsidy provided by the individual states to the companies providing those supposed seventeen dollar per hour jobs.
is that part of the point, entirely?
but i just got my new password, typed it in, then said it out loud and my dog disappeared. a harrypotter moment.
December 6th, 2008 at 10:57 am
And for those of you with kids…don’t let them stop their education at high school…if there is anything this debate about global wages would teach us, it is that the individual worker must be value added…he or she can be replaced in Latin America or India or China, unless a business can’t easily replace him or her. And the way that is done is by education…what is going on with workers in society…that is the little picture…what goes on with the child and future worker in your home…that is the Big Picture. Unions, even under the new administration, won’t substitute for education…
December 6th, 2008 at 11:28 am
And all the feds are doing is trying to keep this game going a little longer. Just wonderful. It won’t work.
December 6th, 2008 at 11:29 am
@larster,
nice point(s) re: BA, that’s the, *Real, Story one will never hear on HeadlineNews..
@OkieL,
one, I had no idea you had a weblog..beyond that, of course I’m making a reference to ‘Fractional Reserve “Banking”‘. And, with that, would you answer those Q’s?
“I have been castigated by some on here”–what can I say?
there are ‘people’ like this Needle-Nose: “Moss Says:
December 5th, 2008 at 8:10 pm
Narcissistic personality disorder…”
http://www.ritholtz.com/blog/2008/12/a-challenge-to-tim-geithner-debate-me-on-the-bailout-to-date-and-the-model-of-political-economy-that-should-apply-going-forward/
who, w/o directing it @ Whalen, thought that it was, somehow, additive to the discussion..
LSS: so what? there are, always, detractors. let them, not, keep you from your Ideas. offer yours, let the ‘market’ figure it out..
and, with this: “Upton Sinclair quote is apt here: “It is difficult to get a man to understand something when his salary depends upon his not understanding it.”” , I’d leave the ’sometimes’ out of it..
December 6th, 2008 at 11:30 am
The article is completely misguided in one essential aspect: the “addiction” to debt is irrelevant — of course if Greenspan or Bernanke offer to lend at deeply negative real interest rates only an idiot would say no.
The problem is the addiction to credit: the near abolition of reserve requirements and the 0% yen carry trade that both began in 1995-1996 has created a long term gigantic credit bubble, a wall of money that has inflated a number of bubbles ever since (most recently a treasury bond bubble).
Politicians, especially conservative ones, in the USA (and other countries) have been totally addicted to this credit explosion, as it has enormously benefited their campaign donor class, the financial and rentier elites that have gained immense wealth since then, while dulling the pain for the impoverishing middle class with the illusion of house and 401k capital gains, as well as financing vast wars and the movement of industry jobs offshore.
It is the rise and rise of the “unsound money”, “borrow and spend” politicians, addicted to benefiting their sponsors with negative interest rate credit, that has brought the USA and the world to the current situation.
December 6th, 2008 at 11:36 am
rexl:
Does Michigan not subsidize the Big 3?
Didn’t Levin and other reps of Michigan get photographed in a Volt flown in this week to Washington just for the footage?
The foreign manufacturers are better led, no doubt, but the point you must come back to is that they are able to do the same thing in the US the big 3 can no longer do…and the big 3 must change. If they don’t they are doomed, bailout or not.
What else is the answer? Protectionism?? By the biggest debtor nation in the world? That would be like playing Russian roulette without taking any bullets out….
December 6th, 2008 at 11:37 am
@Bruce,
take a step back from the Convertional (Non-)Thinking..
see: http://www.icerocket.com/search?tab=web&fr=h&q=T-Shirts+made+in+the+USA
December 6th, 2008 at 11:40 am
@Mark:
Interesting site…18-24 dollars for a tee shirt…sorry, that kind of proves my point.
December 6th, 2008 at 11:42 am
Going hiking in the South Fork…back late…good luck next week all…
December 6th, 2008 at 11:55 am
“So Bruce in TN and philipat … what we need now is a rebalance of all wage scales across the entire globe. PEACE”
Oh shit…the average Chinese makes $2,000 a year.
December 6th, 2008 at 12:28 pm
@bruce in Tn
College is overrated. There are plenty of great jobs that young people can pursue that do not require a college degree. My oldest son is finishing up high school. He has worked in a rock climbing gym for the last 2 years and competes in climbing events on the east coast. He loves it! His long term interests are to use these skills towards a helping people- such as search and rescue or mountain guiding. No college needed- however he will probably need to take advanced courses in CPR and other life preserving instruction . Colleges are so overrun right now with people wandering around with no idea what they’re doing there. Much of the first two years of college is prep work and electives (so you can decide what you want to pursue) that IMHO should be taught in high school. Parents have been taught the fantasy that if they’re good parents they need to send their kids to college even if it has zero interest to the child. Their hope is that as their child will somehow get through and get a degree even if they really had no reason being there to begin with ( IMO even at the age of 18 a a bit of vision is needed do determine if college is the correct choice- without the vision better to take a few years off out of high school and decide what it is that interests you- why waste everyone’s time and money). So everyone is aware, I have a degree in finance so I am not anti-college- but I am sorry it is just not for everyone and you can be a success without it. I have met many who have been.
December 6th, 2008 at 1:05 pm
Two questions:
(a) what government policies would be effective to reduce consumer debt?
(b) of those policies in (a), how many would have any chance of becoming law?
I could probably come up with a lot of answers to the first question. But I doubt I could come up with any for the second.
December 6th, 2008 at 1:05 pm
Seems everyone misses the point. Debt is not the problem. Credit is not the problem. The problem is:
S-O-L-V-E-N-C-Y
That $40K in second mortgage? No, problem, I’ll just sell my house and pay it off….Say WHAT?!!?! I don’t have any equity in my house?!?!?! Holy shit!!!!!
The illusion of wealth brought about by the artificial rise in housing values (That Bernanke explained away as due to a strong, fundamental economics – and we let this guy set policy. Un-fricking-believable.) – created an entire new class of “speculative borrowers”, those who before could have made principal payments but were lured into the trap of near 100% LTV ratios by belief in terminally wrong ideology that led to the “Solvency Trap”. Compounded on top of this was the true “Ponzi borrowers” who relied on rising prises for any affordability, and all these loans were balanced on top of an inverted pyramid of leverage.
How could it not explode?
Without the ability to pay debt we reached insolvency. In lieu of the false promises of wealth made by alchemists who claimed to have the ability to spin gold from paper products and home values, the only real and lasting solution to insolvency is to lower debt-t0-income ratios.
The solutions are not so difficult as they appear, although the solutions are contrary to prevalent thinking of academics; wages must rise or asset values must fall. There is no middle ground.
December 6th, 2008 at 1:15 pm
Also in this week’s Barrons: An interview with some guy named Barry Ritholtz.
Anyone here heard of him?
December 6th, 2008 at 1:16 pm
Amen, Winston.
DL: I have a simple plan. The Gov’t buys all the outstanding RMBS, at present market value, and writes down all the encompassed mortgages accordingly. The housing market is immediately rejuvenated, everyone overnight has a lot less debt and a lot more money, and it costs the gov’t essentially nothing as the yield on the written-down mbs should be higher than the cost to borrow. The losses, which of course will be huge, are all “contained” to the financial system.
December 6th, 2008 at 1:47 pm
Winston Munn @ 1:05
You may be right about the short term.
But over the longer term (e.g., 10 years), debt is very much an issue (consumer debt, mortgage debt, and of course, government debt).
December 6th, 2008 at 2:32 pm
DL,
I’m thinking that Winnie covered that. Simply, he’s calling out the avoided term: “Solvency”, and the lack thereof, as the appropriate caption for the current Polaroid.
Further, he is saying that Debt, in, and of, itself, isn’t, necessarily, a problem.
And, divining, he is alluding to another feared, in the MSM, term: ‘Minsky Moment’..
http://www.icerocket.com/search?tab=web&fr=h&q=Minsky+Moment
December 6th, 2008 at 2:36 pm
@Dead Hobo: Oil was certainly in a bubble, no one doubts that now. But that wasn’t the point of my post, I said it would have a moderate near term impact and thats all.
You write: “When naked short sellers raped the markets with impunity and were finally stopped I (we – me and my cousin) rejoiced here. In return I was treated like someone who hated America, mom’s apple pie, and motherhood. As my cousin said, “thieves controlled the markets”.”
So wait, you think that all that volatility and selling had nothing to do with fundamentals but was caused largely by “naked shorting?”
December 6th, 2008 at 3:49 pm
@cfischer: Good question. I guess that means we’ll have to blame the naked shorts next year when the market crashes again? Sounds great to me. This country loves its fake scapegoats.
December 6th, 2008 at 7:40 pm
@Mark,
Yes. Well summarized. Thank you.
December 6th, 2008 at 8:12 pm
Oh shit…the average Chinese makes $2,000 a year.
Actually, it’s about $1,000? And they don’t BUY $20 Tshirts, they just make them and generate a 95% margin for Nike, who now can’t sell them to anyone back home because nobody has a job?
If rebalancing is the answer as suggested by another poster then, well, good luck. That’s not what I was suggesting. My point was that there needs to be a pragmatic balance between profit margins and not having a consumer to consume. This is especially so in an economy 65% dependent on consumption?
December 6th, 2008 at 8:36 pm
OkieLawyer:
Please read again. I was quoting someone else. I’m with you buddy.
December 6th, 2008 at 8:38 pm
BR:
Re above, can I suggest again that a “Quote” facility be introduced like on most boards?
December 7th, 2008 at 10:16 am
philipat Says:
December 6th, 2008 at 7:26 am
The difference this time is, IMHO, that the game is over. Whatever Washington throws at this, it is going to take time to heal. And during that time there will be pain and an inevitable adjustment in standards on all sides. Unless America can start to produce something that the world wants to buy, living standards are going down. This, of course, was always the less pubicised part of globalisation?
……………………………………………………………………………………………………………………….
Right now, America is producing something that the whole world wants to buy…. US treasuries and
bonds. So America is still doing something productive after the subprime collapse.
December 7th, 2008 at 3:01 pm
@ Mark and SB: nice point, peak-GOOG has been seen, keep an peeled for double-digit GOOG quotes–they’ll be the new Black.
I am so, with you, on this, Brother. Great company, GOOG, mind you, but, seriously, the P/E must tumble during Bonfire of the Vanities, Part DEUX. This, punctuation, obsession, Mark, can be contagious.
Best, lb.
December 7th, 2008 at 3:03 pm
@ Winston Munn Says: December 6th, 2008 at 1:05 pm
Seems everyone misses the point. Debt is not the problem. Credit is not the problem. The problem is:
S-O-L-V-E-N-C-Y
Brilliant. Thanks for this simple point. Citi, AIG, and many many Americans are all BROKE.
December 7th, 2008 at 11:26 pm
lb,
tres` True re: Winnie’s point: S-O-L-V-E-N-C-Y. Something that, in effect, we will not recover until we understand that ‘Solvents’ are, as well, a valuable Feedstock..
http://www.osha.gov/SLTC/solvents/index.html
re:GOOG, seeing that they’re reporting ~U$D 16/sh., the move from ~725 to ~250 was the EZ part..
http://finance.yahoo.com/q?s=Goog
going fwd: if We break for Freedom, part of which would entail understanding what these guys:
http://www.icerocket.com/search?tab=blog&fr=h&q=SCROOGLE.ORG , along with EFF y EPIC (not ticker symbols) are talking about..if not, and we keep on our headlong rush toward a Society that looks, ever more, like the PROC’s, low-Triple digit quotes may prove to be the lower-bound. (e.g. 12.50 x
~~
Winnie ,
Your point was, indeed, a Good one. With that, I am glad that I was able to pick up on it. Though, of course, if there is anything that you wanted to add–to my divination, certainly, please do so..
and, lb,
this: “I am so, with you, on this, Brother. Great company, GOOG, mind you, but, seriously, the P/E must tumble during Bonfire of the Vanities, Part DEUX. This, punctuation, obsession, Mark, can be contagious.
Best, lb.”
is, to the consternation of, too, many, well punctuated. : )
December 8th, 2008 at 7:09 am
these auto-emoticons, from above: e.g. 12.50 x .. Blow.
was 12.50 x 8