Do You Believe Borrowing Leads to Prosperity? (Part 2)

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Credit Card With No Limit

I'll need a credit card that's got no limit
And a big black jet with a bedroom in it

Rockstar – Nickleback

We all deserve to live like rock stars. We just need a credit card with no limit. If you can’t get one credit card with no limit, get 20 credit cards with a $10,000 limit on each and the sky’s the limit. According to myfico.com, the average consumer has a total of 13 credit obligations on record at a credit bureau. These include credit cards (such as department store charge cards, gas cards, and bank cards) and installment loans (auto loans, mortgage loans, student loans). Of these 13 credit obligations nine are likely to be credit cards and four are likely to be installment loans. Between 1980 and 2000 13.5% to 15.5% of American’s disposable income went towards debt payments for mortgages, credit cards, auto loans and personal loans. From 2000 until 2008, with the help of the Federal Reserve, the top 10 credit card issuers, the auto financing arms of GM, Ford (F) & Chrysler, and President Bush’s defeat of terrorism by buying an SUV cheerleading, consumer debt payments skyrocketed to 18% of disposable income. Disposable personal income in 2008 was $10.6 trillion. Therefore, consumers paid $1.9 trillion towards debt obligations. To achieve normalcy, consumers will need to reduce their obligations to 15% of disposable income. This would require a reduction in debt payments of $300 billion. A massive consumer deleveraging will be required to reach this level.

President Obama, Ben Bernanke, and Timmy Geithner need the consumer to keep doing their part in this colossal Ponzi scheme. They want consumers to borrow and spend as if nothing has happened in the last 18 months. Consumer spending has accounted for 70% of our $14 trillion GDP, or close to $10 trillion. In order for the Americans to have a chance at a decent standard of living in their old age, they will need to reduce annual spending by $1 trillion per year and use that money to pay off debt. According to the Nilson Report at the end of 2008, Americans' credit card debt reached $972.73 billion. That number includes both general purpose credit cards and private label credit cards that aren't owned by a bank. The average outstanding credit card debt for households that have a credit card was $10,679 at the end of 2008. To get consumer debt as a percentage of GDP to a manageable level of 13% will require deleveraging in the neighborhood of $700 billion. This doesn’t include mortgage debt. These aren’t the green shoots you’ll hear from Larry Kudlow.

You may think all of this credit card debt is spread throughout the banking system. Wrong my friend. According to the Nilson Report, the top 10 U.S. credit card issuers held an 87.6% market share of $972.73 billion in general purpose card outstanding in 2008. That includes Visa (V), MasterCard (MA), American Express (AXP), and Discover (DFS). See if you recognize any of these fine institutions.

General purpose credit card outstandings market share 2008

Bank Taxpayer Funding

1. JPMorgan Chase (JPM) - 21.22% $25 bil.
2. Bank of America (BAC) - 19.25% $52.5
   
3. Citigroup (C) - 12.35% $50
   
4. American Express - 10.19% $3.4
   
5. Capital One (COF) - 6.95% $3.6
   
6. Discover - 5.75% $0
   
7. Wells Fargo (WFC) - 4.21% $25
   
8. HSBC (HBC) - 3.47% $0
   
9. U.S. Bank (USB) - 2.14% $6.6
   
10. USAA Savings - 2.02% $0
    

These 10 banks control virtually the entire credit card market. These 10 banks have taken $166 billion of taxpayer money while continuing to send out 5 billion credit card solicitations per year. The Federal Reserve demands these banks keep the credit flowing. Fitch's Charge-Off Index, which tracks the write-down of uncollectable debt by credit card firms, climbed 101 basis points to a record 8.41% in February. That eclipsed the prior mark of 7.52% reached in November 2005 during the spike in bankruptcy filings. Credit card delinquencies shot to a record high of 4.33% in February.

Meredith Whitney, the outstanding bank analyst, had this to say, "This is the most interesting topic for me out there, which is credit card lines. So, there are about $4.2 trillion in unused credit card lines. And there are about $840 billion of used credit lines. In the fourth quarter alone, half a trillion dollars of lines were cut from the consumer -- half a trillion. As Americans face layoffs and pay cuts, they're turning to their credit cards to make up the difference. These cuts in unused credit lines amount to cuts in compensation.” Her gloomiest forecast is for a 50% cut in unused credit lines. The cutting of credit lines and absolute need for consumers to reduce debt will put a lid on the consumer economy for the next five years.

Hilltop Houses Driving Fifteen Cars

'Cause we all just wanna be big rockstars
And live in hilltop houses driving fifteen cars

Rockstar – Nickleback

Americans love their cars. Americans are their cars. The impression of achievement and elevated social status are conveyed by the car you drive in the minds of many Americans. If you want your neighbors, friends, work colleagues and perfect strangers to think you are a success, just tool around in a $50,000 Mercedes SUV. This damn economy is forcing these socially conscious auto worshipers from following their normal two year trade up cycle. The result is that auto sales have plummeted from an annual rate of 16 million to a current rate of less than 10 million. These short sighted people have allowed the temporary psychological benefits of driving a car they can’t afford to outweigh their long-term financial future. Millions have made this choice. Now that the debt bubble has imploded, the government is pouring billions of taxpayer funds into the auto financing companies like GMAC to try and re-inflate the bubble. Only a fool would buy into it. Luckily, this country has no shortage of fools.

The great American consumer has changed their car buying habits over the decades. In the 1970’s they saved up the 20% down payment and then financed the remaining balance over 3 or 4 years. With an average loan of $4,000 to $8,000, the burden was not great. After 4 years, they owned the car free and clear. They would then drive their American built car until it fell apart, usually around 90,000 miles. In 2008, the average new car loan topped out near $30,000. In comparison, the median home price was $17,000 in 1970.

The $30,000 average car loan was made manageable by the “creative” auto financing arms of the Big 3 extending loans to 6 or 7 years. This worked fine for the trader uppers in our society. They wouldn’t be caught dead driving a 7 year old car. It was a beautiful deception. Car buyers deluded themselves that the debt didn’t matter and the car companies deluded themselves that the loans would be repaid. A perfect combination to sell 16 million cars per year for all eternity. When the return customer came into the dealership to trade up after two years, the dealers were perfectly willing to roll the unpaid loan balance into the new deal. Presto!!! We’ve got millions driving cars with a Loan-To-Value of 140%. How could this possibly fail? According to JD Power, there are now 6 million people who are underwater on their car loan. When this Ponzi scheme collapsed, car sales plummeted 40% and GM and Chrysler have been revealed as bankrupt disasters.

This brings us to the most irrational financial move anyone can make, leasing a car. Estimates are that 25% to 30% of all car sales have been leases. This is 4 to 5 million per year. The most leased cars in 2008 according to LeaseTrader.com were:

MSRP

1. BMW 3 Series $40,000
   
2. Mini Cooper $25,000
   
3. Mercedes C Class $35,000
   
4. Toyota (TM) Camry $25,000
   
5. Cadillac CTS $40,000
   
6. Mercedes SL Class $50,000
   
7. Land Rover LR3 $50,000
   
8. Lexus IS 250 $35,000
   
9. BMW X Series $40,000
   
10. Mercedes GL Class $60,000

This list substantiates that most people’s need to appear more successful outweighs the benefits of living within their means and saving for the future. Personally, I want to be financially secure rather than appear to be financially secure. I’m evidently in the minority. A car loan payment over four years that would normally be $399 a month can be $249 a month with a lease, which is very appealing to those who insist on driving a new car. The difference is that you own the car after four years with a loan. With a lease you become an indentured servant, forever indebted to the car company master. The financial reasons for not leasing are numerous:

1. A lease starts a trend of perpetually paying a car payment. If you never paid a car payment and the average car payment in America was $350 a month, putting that $350 a month in a mutual fund that made 10% would become $791,171 in 30 years.
2. If you get in an accident and the vehicle is totaled, you’ll still be responsible to pay back the full lease contract amount. Even if the insurance company gives you back less than what you owe to the dealership, you’ll be responsible for the full amount.
3. Many times, the lease agreement will be for 5 years/60,000 miles. So, if you go over that 60,000 and keep it until the 5 years is up, you’ll pay a penalty for every mile over 60,000 miles. Most people use well over 12,000 per year.
4. If you lose a job or experience a heavy time of financial hardship and cannot afford the payment anymore, the dealership will recover the car, sell it an auction, and if they sell it for less than you owe for the lease agreement, you will be legally responsible to pay the difference.
5. The car is not yours, yet they still make you pay for the maintenance of it. Again, you can’t claim the car as an asset. It is technically still an asset of the dealership that leased it to you.
6. If you decide to take the option to buy the car at the end of the lease term, you’ll have paid much more than the cost of the car even if you had financed it.

In order to get ahead in life you need to invest in assets that appreciate, not depreciate. Does the appearance of wealth and success really outweigh actually being wealthy and successful? Driving a $50,000 car doesn’t guarantee happiness. If it did, we’d be the happiest country on earth. Looking marvelous is a shallow, shortsighted way to go through life. That is fine for those who choose that route, but I’m tired of picking up the pieces of their shattered lives with my tax dollars.

Illusions

The biggest and most dangerous illusion for Americans today is that everyone deserves to be a winner. Everyone does not deserve a trophy just for playing. If you screwed up, didn’t work hard, didn’t save for a rainy day, and didn’t save for your retirement, then you lose. The winners studied, worked hard, lived within their means, and saved for the future. The winners have the option to help the losers through charitable means. If the government forces the winners to pay for the bad choices of the losers, our economic system is worthless. This is the reason that anger is building in the country. The Tea Parties were not about taxes. They were about anger towards our government for rewarding the profligate at the expense of the frugal.

Comedian Andy Kaufman died in 1984 at the age of 35 from lung cancer, even though he never smoked a day in his life. Did he really die? Did we really put a man on the moon? Andy was the master of illusion. Audiences never knew whether he was serious or joking. Next time you are at a truck stop take a look around. Andy might be there with Elvis. The American government and its citizens have to get over their illusion that they can spend their way to prosperity. According to Zillow.com 33% of all homeowners with a mortgage owe more than the home is worth. At least 67% of all homeowners with a mortgage have 15% equity or less in their homes. The average household has $23,000 of consumer debt. Six million car “owners” owe more than the car is worth. The median 401k balance is less than $15,000. Any economic recovery that is dependent on consumers to borrow and spend will just be a fool’s errand. The illusion of prosperity is coming to a tragic end.

Hey Andy, did you hear about this one?

Comments

[User 353732:]

Debt employed wisely to proportionately increase the wealth creating capacity of an individual, family, business or nation is good. If used foolishly to finance instant gratification of uncontrolled appetites with transient things , it is bad.
Debt is like wine. If wine is regarded as Thomas Jefferson did, then it significantly enhances the quality of personal, social and national life. If wine is treated and consumed in the manner of a wino then it is very bad indeed: it leads to addiction, misery, delirium, starvation and finally a terrible death.
When the person controls the wine or the debt, it is good. When the wine or the debt controls the person it is toxic and even fatal.
As a nation we went from Jefferson to wino.

Let us hope that our personal and national craving for debt is at the toxic and not fatal stage and thru a discipline of "debt rehab" we can recover. The first step is to take the bottle away. This our governing elites shows no inclination of doing in May 2009.

May 07 06:25 AM

[drevno:]

It's not only cars that represent the illusionary wealth or status (even though some people can and should genuinely afford it). It is also the house, a much bigger expense and cost. Hence it is not only driving an expensive SUV by a single person to the shopping mall, it is also living in a 3,000 sq.ft house that is essentially empty of people, and 20 or even 50 miles from a place of work, that seems such a waste of money and effort. And very likely financed by debt.

The list goes on and on - e.g. the garages so full of stuff that nobody has time to use...or a wardrobe so stocked and stacked that it is like a warehouse. All millstones around a consumer's neck.

Going into debt to pay for such excesses makes no sense indeed. And an economic recovery based on this presumption would be likely unsustainable and would likely lead back to where we are today - but without the Government's ability to bail out the failed ones again.

May 07 07:05 AM

[dcb:]

During my MBA I would sit in awe AS MULTIPLE PROFESSORS TAUGHT THE GOSSIPAL of debt. you couldn't argue with them. additionally corps get tax breaks for taking it so the return on equity improves the more of it you have (in good times of course). Therefore, the system is gamed to reward too much debt. ceo's get stock options based on equity prices, and the the guy in the market is happy his stocks are rising. conversely, no debt gets no breaks for the stockholder, cash to pay dividends doesn't reward the ceo (doesn't raise stock prices). there are multiple effects.

when you take maco economics they sit there with all these curves (happiness curves i think) explaining how someone early in life will rationally borrow money against future cash flows. Of course they fail to explain how the consumer is going to do it rationally, or how you know cash flows will appear. But, once more you can't argue with the prof.

So in summary you have a whole system that is rewards too much debt because it allows for log return instead of linear, and they assume debt will be used rationally. It is so fucked up. This was why when I learned the amount of money in the system from mortgage equity withdraws based on overvalued houses I knew shorting the market was a given when things came to a halt. Add to that decreasing earnings over a generation and the outcome is given.

It is impt in this crisis to think ahead on how our government is going to get out of this mess. The clear easy answer for white house and congress is kill dollar and cause inflation to reduce wall street debt. Let fed take heat and they do not have to make any difficult choices that will upset those lobbyists that pay the bills.

Our government no longer works for the benefit of the people, and this crisis has laid it out in the open.If you don't see it it is because you have chosen not too. I wish it wasn't that way, but facts are facts.

May 07 07:56 AM

[fool me twi...:]

I hate Nickelback.

May 07 08:10 AM

[kjm:]

Another entertainingly brilliant article Jim - thanks!

May 07 09:40 AM

[James Quinn:]

Thanks kjm.


On May 07 09:40 AM kjm wrote:

> Another entertainingly brilliant article Jim - thanks!

May 07 09:48 AM

[tunaman4u2:]

The government just turned into the american consumer by assuming more debt than they can service too. Another bubble...
partying & rallying could last a long time till the government can't hide it anymore...

Either China says we have loaned you enough or the government prints its way out leading to wicked stagflation. Those are my 2 outcome predictions, what do you see happening James to end the party? What will make credit to GDP return to sustainable levels?

May 07 09:50 AM

[James Quinn:]

I think both of your predictions will play out. The Fed will keep printing and the Chinese will slowly back away from buying our debt. LT rates will rise and inflation will become uncontrollable.

When you're in a deep hole, the 1st thing you should do is stop digging. There is absolutely no easy way out for the government or citizens. The debt must be paid down or written off. This means spending has to be curtailed dramatically. This will lead to a brutal depression. The fake American standard of living will be reduced. Americans will need to save 10% of their income. The savings would then be converted into investment. These unknown investments could relate to energy independence, nanotechnology, biotechnology or some ology that hasn't been thought of yet.

If we keep borrowing we will leave our children a smoldering ruin of a country.




On May 07 09:50 AM tunaman4u2 wrote:

> The government just turned into the american consumer by assuming
> more debt than they can service too. Another bubble...
> partying &amp; rallying could last a long time till the government
> can't hide it anymore...
>
> Either China says we have loaned you enough or the government prints
> its way out leading to wicked stagflation. Those are my 2 outcome
> predictions, what do you see happening James to end the party? What
> will make credit to GDP return to sustainable levels?

May 07 09:57 AM

[Pirate Jo:]

I am another one of those weirdos who lived within my means. I don't have any kids, and the only debt I have is my mortgage, which is where all my extra money is going now. It will be paid off in three years, when I'm 42. Then I think I'll stockpile a little cash and try to find a way to work less. With no expenses to worry about other than keeping the lights on and food in the fridge, I can live on very little and maybe avoid paying income taxes altogether. I don't want to contribute in ANY way to helping pay for the things (bailouts and spendthrifts and such) that the government is borrowing and spending on right now. Those fools who have to keep working because they have trapped themselves in their own debts are the ones who should be paying taxes for that stuff.

I have already completely abandoned the idea of retirement. That's never really been a realistic dream for anyone and has only been possible in past years because of the Social Security ponzi scheme. With average household incomes at around $40K a year, come on, get real - almost no one can ever save enough money to enjoy a 30-year 'second childhood' where they don't have to work. Especially with the market in the tank. So I am not even going to try putting that millstone around my neck. I think my 'retirement' will last maybe 5 years, which I already have covered, and until then, I'm going to live for the moment, enjoy my life, see if I can't find a way to take summers off, and try not to earn much more money than I need.

What would you rather do? Work less and enjoy life more, or work more and have the damn government seize half of it? They'll never be smart enough to enact the FairTax, so I might as well use that to my advantage. However I do wonder what kinds of pernicious rule-bending the government will try to engage in, as it gets desperate. I can imagine them taxing Roth IRAs, trying to socialize people's private accounts - after what I've seen just during the last year, nothing would surprise me anymore. It's just one more reason why you're better off living pay-as-you-go and not having much for them to steal. I think the runaway taxes and inflation we're going to see in the future will eat up most of what the few smart people have saved anyway. We're going to end up spending most of what we make just to meet basic needs. The only people who will have any decent standard of living are those who are healthy enough to work, will take whatever job is available, live cheap, and have no debts.

May 07 10:31 AM

[Pirate Jo:]

I wanted to address this comment, too:

"The Tea Parties were not about taxes. They were about anger towards our government for rewarding the profligate at the expense of the frugal."

I completely agree, and it infuriates me that President Obama pretends not to know this. The media, also, portrays the tea partiers as a bunch of tinfoil hat-wearing loonies who just don't want to pay their taxes.

May 07 10:50 AM

[mikebrah:]

"Personally, I want to be financially secure rather than appear to be financially secure."

Amen.

User353372:
TIME FOR AN INTERVENTION!

MM

May 07 10:50 AM

[Whippet:]

Jim, you brighten up my week. Thanks again.

Pirate Jo- I love your comment. I also have no desire to enable or sanction the spendthrifts running our country; I pay down debt as aggressively as possible, carry no credit card balances, own my cars free and clear, and live in a modest home. I use an aerial antenna for TV and the best thing that ever happened to me was the analog to digital conversion as I now have no signal and have shut the damn thing down. I get my news from Drudge, SA, and a few other reputable sources. I advocate evading as many taxes as legally possible. I don't count on one red cent from the SSA Ponzi scheme. I long for the day when this government collapses under its own weight and we can get back to the Constitution, hopefully in a peaceful manner. America must be rebooted; it remains to be seen whether this will be a warm or cold one.

May 07 11:23 AM

[Paul Killinger:]

You are EXACTLY right, sir. Our current dilemma is our government can no more charge its way to economic prosperity than its citizens can. Our future problem is how do we get the governmental camel's nose out from under our tent long enough to let nature take its course?

And Jo's right, too. At least the Tea Party folks PAY their taxes, unlike many of B-O & Co's. political appointees.

May 07 11:28 AM

[henarl:]

A great article! The mindset of living as high on the material hog as possible and never mind the consequences is somewhat of a generational thing. This thinking was prevalent during the roaring 20s but the depression of the 30s brought people back to reality and the next couple of generations lived pretty much within their means as a result. As the memories of depression hardship faded, later generations began to believe that living big today was more important than being concerned about tomorrow. This attitude culminated the early 2000s with young and middle aged people borrowing to the limit to support a lifestyle that only existed for the very rich previously. Now we are heading into a new depression and can expect the next couple of generations to revert to living within their means again, if not volutarily then by necessity.
Economic lifestyle appears to be a cyclic generational thing.

May 07 11:50 AM

[ArtfulDodger:]

Very good comment, User 353732!


On May 07 06:25 AM User 353732 wrote:

> Debt employed wisely to proportionately increase the wealth creating
> capacity of an individual, family, business or nation is good. If
> used foolishly to finance instant gratification of uncontrolled appetites
> with transient things , it is bad.
> Debt is like wine. If wine is regarded as Thomas Jefferson did, then
> it significantly enhances the quality of personal, social and national
> life. If wine is treated and consumed in the manner of a wino then
> it is very bad indeed: it leads to addiction, misery, delirium, starvation
> and finally a terrible death.
> When the person controls the wine or the debt, it is good. When the
> wine or the debt controls the person it is toxic and even fatal.
>
> As a nation we went from Jefferson to wino.
>
> Let us hope that our personal and national craving for debt is at
> the toxic and not fatal stage and thru a discipline of "debt rehab"
> we can recover. The first step is to take the bottle away. This our
> governing elites shows no inclination of doing in May 2009.

May 07 01:29 PM

[ArtfulDodger:]

Very good points, DCB! Good comment.

The government and the educational system it set up stands responsible for much of the muck we're slogging through today.


On May 07 07:56 AM dcb wrote:

> During my MBA I would sit in awe AS MULTIPLE PROFESSORS TAUGHT THE
> GOSSIPAL of debt. you couldn't argue with them. additionally corps
> get tax breaks for taking it so the return on equity improves the
> more of it you have (in good times of course). Therefore, the system
> is gamed to reward too much debt. ceo's get stock options based on
> equity prices, and the the guy in the market is happy his stocks
> are rising. conversely, no debt gets no breaks for the stockholder,
> cash to pay dividends doesn't reward the ceo (doesn't raise stock
> prices). there are multiple effects.
>
> when you take maco economics they sit there with all these curves
> (happiness curves i think) explaining how someone early in life will
> rationally borrow money against future cash flows. Of course they
> fail to explain how the consumer is going to do it rationally, or
> how you know cash flows will appear. But, once more you can't argue
> with the prof.
>
> So in summary you have a whole system that is rewards too much debt
> because it allows for log return instead of linear, and they assume
> debt will be used rationally. It is so fucked up. This was why when
> I learned the amount of money in the system from mortgage equity
> withdraws based on overvalued houses I knew shorting the market was
> a given when things came to a halt. Add to that decreasing earnings
> over a generation and the outcome is given.
>
> It is impt in this crisis to think ahead on how our government is
> going to get out of this mess. The clear easy answer for white house
> and congress is kill dollar and cause inflation to reduce wall street
> debt. Let fed take heat and they do not have to make any difficult
> choices that will upset those lobbyists that pay the bills.
>
> Our government no longer works for the benefit of the people, and
> this crisis has laid it out in the open.If you don't see it it is
> because you have chosen not too. I wish it wasn't that way, but facts
> are facts.

May 07 01:32 PM

[Pirate Jo:]

"I use an aerial antenna for TV and the best thing that ever happened to me was the analog to digital conversion as I now have no signal and have shut the damn thing down."

That is so funny - unlike the majority of the USA's welfare recipients, I don't have cable either. Why would I spend sixty bucks a month to watch more TV, when I don't watch the five channels I already have? I would like to watch 'The Wire' so I put the series on my Netflix list.

My car is ten years old, been paid off for ages, and I'm determined to get another ten years out of it. I can't believe the piles of money people will spend on something that is just a way to get back and forth to work. People who need to feel important by driving a car that costs more than a house aren't "successful," they are insecure and have screwy priorities.

I like your moniker, Whippet - I am a dog person too although mine is a pug.

May 07 01:36 PM

[twitee:]

The capitalistic society was designed based on credit. Without credit there is no innovation and growth. Extension of credit is one of the reasons United States has succeeded to rule the world within few hundred years. Through media, the average population is brainwashed to borrow more and work harder to create a materialistic world of their own.

The goal of capitalistic country is to entice everyone to borrow and become the slave to his or her dept.

Credit card companies’ best target is the college students. This is where it all starts. By the time most people graduated from college, they have six credit cards with no income. Then they buy a nice car with the new job. Next is to borrow the mortgage to own a house (so they can stop paying rent) and next is to finance the furniture…..this is the ideal best scenario of the average educated American. This is only the beginning of the sophisticated slavery. An average educated person will become so busy with work and cost of living expenses they would not even know what is going on in their own country, let alone around the world.

In the last decade, these actions were even exenterated by creative mortgage companies and banks to lend out even more to be able to execute their credit default swaps….so that the CEO of the banks get paid 5000 times the average educated employee income…..

Now the FED and Mobsters at the top print even more money to protect the banks and the elite…..Republican or Democratic it does not matter they are all puppets and it is all designed for the corporations by the corporations.

Even with the current collapse of the system, the FED and the mobsters want to continue the same nonsense and fool the world that the Banks are solvent and we could postpone the inevitable for few more years or even decade……

Welcome to land of freedom and opportunity!

May 07 01:49 PM

[The Hueco Kid:]

I too do not have cable and my wife and I drive 10 year old cars. I didnt know there were so many freaks out there.

May 07 01:57 PM

[ArtfulDodger:]

JQ:

This is no doubt your best article yet.

Your points are clear and would be hard to make an argument against.

What a sad state the nation is in!

In my opinion, this is your most potent point of the lot, when you wrote: "The biggest and most dangerous illusion for Americans today is that everyone deserves to be a winner. Everyone does not deserve a trophy just for playing. If you screwed up, didn’t work hard, didn’t save for a rainy day, and didn’t save for your retirement, then you lose. The winners studied, worked hard, lived within their means, and saved for the future. The winners have the option to help the losers through charitable means. If the government forces the winners to pay for the bad choices of the losers, our economic system is worthless. This is the reason that anger is building in the country..."

Keep up the good work, JQ. You're getting better with each article!

May 07 02:05 PM

[Ricard:]

Bravo, a real masterpiece! I always wondered what that REM song was referring to - I have like zero cultural capital from the 70s.

What I find interesting is the tragicomedy of how, like you said, Americans are their cars, and yet the American auto industry is going bankrupt. Furthermore, Americans long ago identified superiority and quality with German and Japanese brands...another telling statement. GM? POS. Ford? Gas Guzzler. Chrysler? Wait, wasn't that a German brand?

May 07 02:10 PM

[fireball:]

staying away from debt and avoiding paying interest has served me very well. if i had to borrow to buy i did without until i could pay for it. the exception was my first home. i payed it off 15 yrs early and promised myself "no more interest." this made it much easier to attain a healthy strong independent financial positon.
individuals and countries must live within their means.

hueco
i drove a little ford ranger for 18 years. my chevy s-10 is 7. my pretty half drives an 18 yr. old van.

i guess i better make a tin-foil hat if that goes with not liking socialist govt..

May 07 02:15 PM

[Frohickey:]

Some of us can put the bottle away.
The ones in government, however, are totally addicted to it.


On May 07 06:25 AM User 353732 wrote:

> Debt employed wisely to proportionately increase the wealth creating
> capacity of an individual, family, business or nation is good. If
> used foolishly to finance instant gratification of uncontrolled appetites
> with transient things , it is bad.
> Debt is like wine. If wine is regarded as Thomas Jefferson did, then
> it significantly enhances the quality of personal, social and national
> life. If wine is treated and consumed in the manner of a wino then
> it is very bad indeed: it leads to addiction, misery, delirium, starvation
> and finally a terrible death.
> When the person controls the wine or the debt, it is good. When the
> wine or the debt controls the person it is toxic and even fatal.
>
> As a nation we went from Jefferson to wino.
>
> Let us hope that our personal and national craving for debt is at
> the toxic and not fatal stage and thru a discipline of "debt rehab"
> we can recover. The first step is to take the bottle away. This our
> governing elites shows no inclination of doing in May 2009.

May 07 02:29 PM

[kennypowers09:]

From the article:

"Today, we are the biggest debtor nation in the world"

Not relative to GDP, which is much more important.

"The National Debt is currently $11.2 trillion or 80% of GDP for the 1st time since Harry Truman was President."

80% of the US ANNUAL GDP. We do not have to pay this debt down over one year, but assuming we did, we still have the annual cash flow to do it. Walmart has over 33 billion in corporate debt and the recent operating profit (EBIT) was 6 billion. Does this mean walmart is going down the crapper? Hardly.

As whats been said before...a well controlled debt structure can be quite beneficial to any country or company. While time will only tell the outcome of such, its still important to try to maintain as much prospective as possibile and refrain from solely looking at nominal values simply bc they are large.

May 07 02:42 PM

[Frohickey:]

Your comment slightly reflects what I have thought all along. People with mortgage and car payments are too busy working their debt off that they do not have time to pay attention to anything else. This is bad for us as Americans because it allows the people in government to run amok with our taxes.

But I think a mortgage and car payments, and lots of debt would be great for the average Islamic terrorist.


On May 07 01:49 PM twitee wrote:

> The capitalistic society was designed based on credit. Without credit
> there is no innovation and growth. Extension of credit is one of
> the reasons United States has succeeded to rule the world within
> few hundred years. Through media, the average population is brainwashed
> to borrow more and work harder to create a materialistic world of
> their own.
>
> The goal of capitalistic country is to entice everyone to borrow
> and become the slave to his or her dept.
>
> Credit card companies’ best target is the college students. This
> is where it all starts. By the time most people graduated from college,
> they have six credit cards with no income. Then they buy a nice car
> with the new job. Next is to borrow the mortgage to own a house (so
> they can stop paying rent) and next is to finance the furniture…..this
> is the ideal best scenario of the average educated American. This
> is only the beginning of the sophisticated slavery. An average educated
> person will become so busy with work and cost of living expenses
> they would not even know what is going on in their own country, let
> alone around the world.
>
> In the last decade, these actions were even exenterated by creative
> mortgage companies and banks to lend out even more to be able to
> execute their credit default swaps….so that the CEO of the banks
> get paid 5000 times the average educated employee income…..
>
> Now the FED and Mobsters at the top print even more money to protect
> the banks and the elite…..Republican or Democratic it does not matter
> they are all puppets and it is all designed for the corporations
> by the corporations.
>
> Even with the current collapse of the system, the FED and the mobsters
> want to continue the same nonsense and fool the world that the Banks
> are solvent and we could postpone the inevitable for few more years
> or even decade……
>
> Welcome to land of freedom and opportunity!

May 07 02:45 PM

[Ricard:]

Cetin,

You seem to be a math expert, so perhaps this will be more understandable to you:

a=b
b=c
c=a

But, not
a=b
b=c
d=a

The latter leads to bridges collapsing and software measuring your heart rate in the millions per second. That's dangerous.


On May 07 02:32 PM Cetin Hakimoglu wrote:

> A little knowledge is a dangerous thing...
>
> On May 07 02:17 PM Ricard wrote:

May 07 02:46 PM

[tedstr:]

I mostly agree but one fine point. I lease a Mercedes. About $50,000. Nicest car I ever owned or anyone in my family ever owned. My father would think me a fool for leasing this car if he were still around.

But I like it a lot. I have leased several less expense cars over the past 7-8 years. I only lease the ones that have special factory deals. The terms on these cars are great and the car companies have been taking it in the shorts on the residual values and the finance rates to move some of these slow selling cars. Meanwhile I keep the $4-$8,000 in deposit money I would have spent and leave it in a fund making money.

In December the lease was up on the Mercedes and they offered finacing to buy the car at market rates and for a price that was below book value. No cash. So I financed in for the next five years. I will be driving this car for 7.5 years and at the rate it is going, it may still look like and behave like new when I finally own it at my age then of 60.

My point is, you are right, paying cash and paying off your car is smart way to go, but it is not neccesarily a clear choice.

Quality of life matters. There are deals out there. Don't get over your head but buy smart and use some limited debt within your means to maximize your return on a life lived well.

May 07 02:49 PM

[Applegator:]

Our government and financial "leaders" really believes the rest of the world thinks the USA is "too big to fail".

Sorry, the game has changed.

As witness the many new international arrangements being forged (eg. China-Russia long term oil pact), the world is re-making the global economy of the future. New producers, new markets, new alliances. Less reliance on the American consumer, more inter-dependence among emerging nations.

In short, don't bank on the rest of the world to save our bacon this time. Hey, if you are China (or if you are YOU), do you really think US Treasury notes are the best investment as the world emerges from its current doldrums?

May 07 03:01 PM

[Frohickey:]

Good points all around. But I tend to agree more with JQ and others.

Debt/borrowing is not necessarily a bad thing, but too much debt is.

As for governmental debt, I think that any debt/borrowing is a bad thing. Once you have allowed government to incur debt, it tends to snowball bigger and bigger.

My rebuttal to Cetin's argument that National Debt of $11.2 trillion vs 80% of GDP. Credit card debt is incurred by people, the same people that produces GDP. National Debt is incurred by government, and government does not produce anything.

May 07 03:02 PM

[James Quinn:]

Do you work in Treasury or The Federal Reserve?


On May 07 02:42 PM kennypowers09 wrote:

> From the article:
>
> "Today, we are the biggest debtor nation in the world"
>
> Not relative to GDP, which is much more important.
>
> "The National Debt is currently $11.2 trillion or 80% of GDP for
> the 1st time since Harry Truman was President."
>
> 80% of the US ANNUAL GDP. We do not have to pay this debt down over
> one year, but assuming we did, we still have the annual cash flow
> to do it. Walmart has over 33 billion in corporate debt and the recent
> operating profit (seekingalpha.com/symbo...) was 6 billion.
> Does this mean walmart is going down the crapper? Hardly.
>
> As whats been said before...a well controlled debt structure can
> be quite beneficial to any country or company. While time will only
> tell the outcome of such, its still important to try to maintain
> as much prospective as possibile and refrain from solely looking
> at nominal values simply bc they are large.

May 07 03:02 PM

[Whippet:]

So, you are a proponent of the "what would my monthly payment be?" lifestyle, in other words... Let's just apply it to the government, as well!! The problems with a "well-controlled debt structure" are manifold; I'm sure that Bear Stearns had a well-controlled debt structure, aren't you? You see, you don't control debt- DEBT CONTROLS YOU. Proverbs tells us that the debtor is a SLAVE to his creditor. (Yeah, if King Solomon saw the Chrysler headlines recently he may not have written this.) A little debt promotes capitalization. A lot of debt promotes capitulation. If my neighbor gets punted out of his house because he was a fool, I don't feel personal guilt and want my taxes to increase. Guess that's why I'm not a liberal.



On May 07 02:42 PM kennypowers09 wrote:

> From the article:
>
> "Today, we are the biggest debtor nation in the world"
>
> Not relative to GDP, which is much more important.
>
> "The National Debt is currently $11.2 trillion or 80% of GDP for
> the 1st time since Harry Truman was President."
>
> 80% of the US ANNUAL GDP. We do not have to pay this debt down over
> one year, but assuming we did, we still have the annual cash flow
> to do it. Walmart has over 33 billion in corporate debt and the recent
> operating profit (seekingalpha.com/symbo...) was 6 billion.
> Does this mean walmart is going down the crapper? Hardly.
>
> As whats been said before...a well controlled debt structure can
> be quite beneficial to any country or company. While time will only
> tell the outcome of such, its still important to try to maintain
> as much prospective as possibile and refrain from solely looking
> at nominal values simply bc they are large.

May 07 03:09 PM

[kennypowers09:]

"I'm sure that Bear Stearns had a well-controlled debt structure, aren't you?"

Seriously? Cmon...as I said there is a significant difference between a well controlled debt level and being levered to the gills. company that can slip inslide the SEC regulation of a specificed level of cash checked every year, and become so levered to explode in just a few months. Most institutional followers saw that coming and stop being the counterparty several month's prior to meltdown. What you are comparing is apples and oranges. Not all debt is equal. While its healthy to have a inate hatred for debt, historical evidence shows that well controlled debt (let us not forget controlled SPENDING as well) can be maintained and work in the short term to advent severe cycles.

"You see, you don't control debt- DEBT CONTROLS YOU."

Ironic...I guess the debt that been in place in this country for over 200 years has taken control of us right? yeah...no significance that the GDP, quality of life, standards of living have all increased at the same paces.

I think your just scared. Its certainly natural...a majority of the individuals on this board and in this country have never been through such a period we are entering.

"Guess that's why I'm not a liberal."

Neither am i.

May 07 03:36 PM

[kennypowers09:]

Nope

On May 07 03:02 PM James Quinn wrote:

> Do you work in Treasury or The Federal Reserve?

May 07 03:38 PM

[kennypowers09:]

good thing the US has all the farm land (20% of the global ariable to be exact) and all the food.

a growing global population wont need that right?

the US economy will certainly never have such a dominant role in the global economy going forward. you could even call such dominance a bubble if you will. that said, the US will still be a very important player.


On May 07 03:01 PM Applegator wrote:

> Our government and financial "leaders" really believes the rest of
> the world thinks the USA is "too big to fail".
>
> Sorry, the game has changed.
>
> As witness the many new international arrangements being forged (eg.
> China-Russia long term oil pact), the world is re-making the global
> economy of the future. New producers, new markets, new alliances.
> Less reliance on the American consumer, more inter-dependence among
> emerging nations.
>
> In short, don't bank on the rest of the world to save our bacon this
> time. Hey, if you are China (or if you are YOU), do you really think
> US Treasury notes are the best investment as the world emerges from
> its current doldrums?

May 07 03:41 PM

[James Quinn:]

Would you like to? I think you'd fit in perfectly.


On May 07 03:38 PM kennypowers09 wrote:

> Nope
>
> On May 07 03:02 PM James Quinn wrote:

May 07 03:42 PM

[Missing_Link:]

On May 07 03:36 PM kennypowers09 wrote:
> Not all debt is equal. While
> its healthy to have a inate hatred for debt, historical evidence
> shows that well controlled debt (let us not forget controlled SPENDING
> as well) can be maintained and work in the short term to advent severe
> cycles.
>
> "You see, you don't control debt- DEBT CONTROLS YOU."
>
> Ironic...I guess the debt that been in place in this country for
> over 200 years has taken control of us right? yeah...no significance
> that the GDP, quality of life, standards of living have all increased
> at the same paces.

Yes, but for most of the last 200 years, debt has been kept in check.

In the last few decades, bank debt, mortgage debt, corporate debt, individual debt (especially credit card debt), and most importantly, the debt of the federal government -- who's supposed to guarantee all those other debts -- have spiraled far out of control.

That's the difference between the truly great American eras of the 18th, 19th, and 20th centuries and the new debt-fuelled (and ultimately debt-fuel-lit-on-fire) era of the 21st.

May 07 03:42 PM

[James Quinn:]

Representative Ron Paul from Texas prior to questioning Helicopter Ben yesterday:

We have to come to the realization that there is a sea change in what’s happening. This is an end of an era and that we can’t re-inflate the bubble, just as we devised a new system of Bretton Woods in ‘44 which was doomed to fail. It failed in ‘71 and then we came up with the dollar reserve standard which was a paper standard; it was doomed to fail and we have to recognize that it has failed. And if we think we can re-inflate the bubble by artificially creating credit out of thin air and calling it capital; believe me, we don’t have a prayer of solving these problems. We have a total misunderstanding of what credit is vs. capital. Capital can’t come from the thin air creation by the Federal Reserve System; capital has to come from savings. We have to work hard, produce, live within our means and what is left over is called capital. This whole idea that we can re-capitalize markets by merely turning on the printing presses and increasing credit is a total fallacy; so the sooner we wake up to realize that a new system has to be devised, the better.

Right now I think the Central Bankers of the world realize exactly what I’m talking about and they’re planning, but they’re planning another system that goes one step further to internationalize regulations, internationalize the printing press. Give up on the dollar standard, but we have to be very much aware that that system will be no more viable. We have to have a system which encourages people to work and to save. What do we do now? We’re telling consumers to spend and continue the old process; it won’t work.

May 07 03:44 PM

[James Quinn:]

There sure is a shortage of land in the world. Let's hang our hat on our farm land.


On May 07 03:41 PM kennypowers09 wrote:

> good thing the US has all the farm land (20% of the global ariable
> to be exact) and all the food.
>
> a growing global population wont need that right?
>
> the US economy will certainly never have such a dominant role in
> the global economy going forward. you could even call such dominance
> a bubble if you will. that said, the US will still be a very important
> player.

May 07 03:45 PM

[kennypowers09:]

Had Ron Paul had his way, we would have already been in another Great Depression. Bernanke, while you may disagree with him, is one of the world's most foremost scholar's on the subject and the consensus showed that a gold standard limited the ability of the government to control and expand money supplies, which continued to drag the economy longer than neccessary. Another correlation is the fact that the countries that dropped the gold standard the fast, were the first to enter out of contractions (lastly being france I believe). If you want a gold standard, go ahead and ask for a 50% GDP contraction, and triple digit inflation along with it, b/c our economy has simply expanded far beyond the use and supply of the extremely maluable, and far less important rock that is gold. zimbabwe would be a fantastic place to live for gold standard advocates.


On May 07 03:44 PM James Quinn wrote:

> Representative Ron Paul from Texas prior to questioning Helicopter
> Ben yesterday:
>
> We have to come to the realization that there is a sea change in
> what’s happening. This is an end of an era and that we can’t re-inflate
> the bubble, just as we devised a new system of Bretton Woods in ‘44
> which was doomed to fail. It failed in ‘71 and then we came up with
> the dollar reserve standard which was a paper standard; it was doomed
> to fail and we have to recognize that it has failed. And if we think
> we can re-inflate the bubble by artificially creating credit out
> of thin air and calling it capital; believe me, we don’t have a prayer
> of solving these problems. We have a total misunderstanding of what
> credit is vs. capital. Capital can’t come from the thin air creation
> by the Federal Reserve System; capital has to come from savings.
> We have to work hard, produce, live within our means and what is
> left over is called capital. This whole idea that we can re-capitalize
> markets by merely turning on the printing presses and increasing
> credit is a total fallacy; so the sooner we wake up to realize that
> a new system has to be devised, the better.
>
> Right now I think the Central Bankers of the world realize exactly
> what I’m talking about and they’re planning, but they’re planning
> another system that goes one step further to internationalize regulations,
> internationalize the printing press. Give up on the dollar standard,
> but we have to be very much aware that that system will be no more
> viable. We have to have a system which encourages people to work
> and to save. What do we do now? We’re telling consumers to spend
> and continue the old process; it won’t work.

May 07 04:03 PM

[James Quinn:]

Kenny Kenny Kenny

We are in the midst of a Great Depression and you don't even know it. You're mistaking a bear market rally for a recovery. Look closely at some of the charts in the article. The debt party is coming to end. The Chinese are calling the shots, not Helicopter Ben and his band of merry men. Ben is a gentleman and a scholar and an idiot. He thought we had a strong economy with a strong healthy housing market 18 months ago. What a sage he is. Read some of his comments from 2007. Continue to live in your debt induced fantasy world.


On May 07 04:03 PM kennypowers09 wrote:

> Had Ron Paul had his way, we would have already been in another Great
> Depression. Bernanke, while you may disagree with him, is one of
> the world's most foremost scholar's on the subject and the consensus
> showed that a gold standard limited the ability of the government
> to control and expand money supplies, which continued to drag the
> economy longer than neccessary. Another correlation is the fact that
> the countries that dropped the gold standard the fast, were the first
> to enter out of contractions (lastly being france I believe). If
> you want a gold standard, go ahead and ask for a 50% GDP contraction,
> and triple digit inflation along with it, b/c our economy has simply
> expanded far beyond the use and supply of the extremely maluable,
> and far less important rock that is gold. zimbabwe would be a fantastic
> place to live for gold standard advocates.

May 07 04:10 PM

[Whippet:]

So, Kenny, you must have made a fortune when you shorted Bear Stearns last year- my hat's off to you. Most institutional investors saw NOTHING coming and got hit by a truck. Surely you made even more on the collapse of Lehman and AIG, since you had precedent? And if you read the rest of my comment, I did say that: "A little debt promotes capitalization. A lot of debt promotes capitulation." Morphine is a blessing of a painkiller. Heroin addiction destroys. I'm not frightened at all. I thank God daily that I live in interesting times, and could make a difference. I eagerly await the collapse of the house of cards. I rejoice when the markets fall, because it's an acknowledgment of TRUTH over LIES. The market valuation should be based on EARNINGS, not ACCOUNTING FRAUD. I smile when the dollar DROPS, because I'm in REAL MONEY. And I'm not betting on Dow 25,000 for my savings.


On May 07 03:36 PM kennypowers09 wrote:

> "I'm sure that Bear Stearns had a well-controlled debt structure,
> aren't you?"
>
> Seriously? Cmon...as I said there is a significant difference between
> a well controlled debt level and being levered to the gills. company
> that can slip inslide the SEC regulation of a specificed level of
> cash checked every year, and become so levered to explode in just
> a few months. Most institutional followers saw that coming and stop
> being the counterparty several month's prior to meltdown. What you
> are comparing is apples and oranges. Not all debt is equal. While
> its healthy to have a inate hatred for debt, historical evidence
> shows that well controlled debt (let us not forget controlled SPENDING
> as well) can be maintained and work in the short term to advent severe
> cycles.
>
> "You see, you don't control debt- DEBT CONTROLS YOU."
>
> Ironic...I guess the debt that been in place in this country for
> over 200 years has taken control of us right? yeah...no significance
> that the GDP, quality of life, standards of living have all increased
> at the same paces.
>
> I think your just scared. Its certainly natural...a majority of the
> individuals on this board and in this country have never been through
> such a period we are entering.
>
> "Guess that's why I'm not a liberal."
>
> Neither am i.
>
>

May 07 04:14 PM

[kennypowers09:]

I think the current economic numbers show we are in far from a 50% reduction in GDP (of which those in the Great Depression experience) than that of our current yoy -2.6% GDP. The Chinese are far from calling the shots. As you well know they are still an infant and are still an export driven economy, with very important ties to the US consumer. When they flip the switch...then maybe they will be calling the shots. While they are certainly the largest US debtor, it takes two to tango, are rely just as heavily on our ability to return that principal than simply "running the show". They are simply hedging the weak dollar by buying commodities and materials, and for very good reason. The fact they ARE able to make such manuever's is their ability to use sovreign wealth funds, of which the US is simply far behind the 8 ball in terms of being able to participate in the global rat race for resources. Of course Ron Paul would never allow the US to do so, which makes China's ability to "control the world" inevitable and your complaining useless.


On May 07 04:10 PM James Quinn wrote:

> Kenny Kenny Kenny
>
> We are in the midst of a Great Depression and you don't even know
> it. You're mistaking a bear market rally for a recovery. Look closely
> at some of the charts in the article. The debt party is coming to
> end. The Chinese are calling the shots, not Helicopter Ben and his
> band of merry men. Ben is a gentleman and a scholar and an idiot.
> He thought we had a strong economy with a strong healthy housing
> market 18 months ago. What a sage he is. Read some of his comments
> from 2007. Continue to live in your debt induced fantasy world.<br/>

May 07 04:19 PM

[Whippet:]

Your GDP numbers are based upon a lie. Go here and see the real chart.
www.shadowstats.com/al...
The deflator used to calculate current numbers was critically wounded in the early 90s when CPI was bastardized by the BLS. (BTW, this was a brilliant underhanded way to steal more money from fixed-income Americans). Take the 30 year slope of that line and extrapolate it- not very promising.
50% may not be as far away as you think.


On May 07 04:19 PM kennypowers09 wrote:

> I think the current economic numbers show we are in far from a 50%
> reduction in GDP (of which those in the Great Depression experience)
> than that of our current yoy -2.6% GDP. The Chinese are far from
> calling the shots. As you well know they are still an infant and
> are still an export driven economy, with very important ties to the
> US consumer. When they flip the switch...then maybe they will be
> calling the shots. While they are certainly the largest US debtor,
> it takes two to tango, are rely just as heavily on our ability to
> return that principal than simply "running the show". They are simply
> hedging the weak dollar by buying commodities and materials, and
> for very good reason. The fact they ARE able to make such manuever's
> is their ability to use sovreign wealth funds, of which the US is
> simply far behind the 8 ball in terms of being able to participate
> in the global rat race for resources. Of course Ron Paul would never
> allow the US to do so, which makes China's ability to "control the
> world" inevitable and your complaining useless.

May 07 04:29 PM

[James Quinn:]

Switch will be flipped while your praising Bennie and the Jets. Nothing like soaring LT rates in the midst of a depression.

China's central bank frets over Fed bond purchases

By Laura Mandaro, MarketWatch
Last update: 2:10 p.m. EDT May 7, 2009Comments: 167SAN FRANCISCO (MarketWatch) -- Chinese bank authorities warned the Federal Reserve's programs to pump more cash into the financial system by buying $300 billion in Treasurys risked jolting bond prices and devaluing the dollar.
The overnight comments from the world's biggest holder of U.S. government debt helped depress Treasury prices in trading Thursday, said one analyst.
In a monetary report dated Wednesday and posted on the People's Bank of China's Web site, the central bank said the quantitative easing policy pursued by the Fed may help keep bond yields at low levels in the short term.
But over a longer period, higher inflation expectations, interest rates and central bank measures to take extra liquidity out of the system could cause a sharp adjustment to bond prices, the report said.
The central bank also said plans by the Fed and other central banks to drive lending rates lower by buying their own government debts risks depreciating major currencies.
The report "has been making the rounds overnight and is partially responsible for the selling pressure in Treasurys," said Ian Lyngen, interest-rate strategist at RBS Securities, in emailed comments early Thursday.
Ten-year Treasurys (UST10Y:U.S. Treasury 10 Year
News , chart , profile , more
Last: 3.15-0.01-0.19%

11:33pm 05/06/2009

Delayed quote dataAdd to portfolio
Analyst
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Financials
Sponsored by:
UST10Y 3.15, -0.01, -0.2%) recently yielded 3.312%, up 11 basis points for the day, as prices sold off further after a Treasury auction. Yields and prices move in opposite directions; 1 basis point is 1/100th of a percentage point. See Bond Report.
In recent months, senior Chinese officials have expressed concern that the U.S. financial crisis and efforts by policymakers to lower lending rates by flooding the system with cash would impair the value of its massive U.S. bond holdings.
On March 18, the Fed said it would buy up to $300 billion in Treasurys and expand a previous program of buying mortgage-related debt. The move sparked a big rally in Treasurys and knocked the U.S. dollar, though Treasurys have given up those gains since then.
China has also pushed for the establishment of an alternative to the U.S. dollar as a reserve holding.
Having driven short-term interest rates near zero, the Fed and other developed economies' central banks have embarked on variations of what's known as "quantitative easing," or using tools besides interest rates to increase money supply.
On Thursday, the Bank of England expanded its program of buying government bonds to 125 billion pounds ($189 billion) from 75 billion pounds.
And the European Central Bank, which cut its interest rates to a record low of 1% Thursday, said it would buy $80 billion in covered bonds, a type of bonds backed by mortgages or public-sector loans. See full story on ECB and BOE decision.
Moves to drive yields lower can come at a cost to existing bondholders if the flood of new money eventually sparks higher inflation, which erodes the value of bond holdings.



On May 07 04:19 PM kennypowers09 wrote:

> I think the current economic numbers show we are in far from a 50%
> reduction in GDP (of which those in the Great Depression experience)
> than that of our current yoy -2.6% GDP. The Chinese are far from
> calling the shots. As you well know they are still an infant and
> are still an export driven economy, with very important ties to the
> US consumer. When they flip the switch...then maybe they will be
> calling the shots. While they are certainly the largest US debtor,
> it takes two to tango, are rely just as heavily on our ability to
> return that principal than simply "running the show". They are simply
> hedging the weak dollar by buying commodities and materials, and
> for very good reason. The fact they ARE able to make such manuever's
> is their ability to use sovreign wealth funds, of which the US is
> simply far behind the 8 ball in terms of being able to participate
> in the global rat race for resources. Of course Ron Paul would never
> allow the US to do so, which makes China's ability to "control the
> world" inevitable and your complaining useless.

May 07 04:37 PM

[kennypowers09:]

I guess we can all skew the numbers how we would like to see them viewed especially when determining the value of a basket of goods. ill go with the authority on the matter and not "shadowstats". i may be following the "New World Order", but oh well. hedonic adjustments are the only issues i have with it.


On May 07 04:29 PM Whippet wrote:

> Your GDP numbers are based upon a lie. Go here and see the real chart.
>
> www.shadowstats.com/al...
> The deflator used to calculate current numbers was critically wounded
> in the early 90s when CPI was bastardized by the BLS. (BTW, this
> was a brilliant underhanded way to steal more money from fixed-income
> Americans). Take the 30 year slope of that line and extrapolate it-
> not very promising.
> 50% may not be as far away as you think.

May 07 04:47 PM

[kennypowers09:]

have you even looked at the yield curve? long term rates are FAR from "soaring" at a 4.304% yield. the 20 year average (from 12/1/80 to 6/29/90) for the 30 year treasury is currently 10.39%.


On May 07 04:37 PM James Quinn wrote:

> Switch will be flipped while your praising Bennie and the Jets. Nothing
> like soaring LT rates in the midst of a depression.
>
> China's central bank frets over Fed bond purchases
>
> By Laura Mandaro, MarketWatch
> Last update: 2:10 p.m. EDT May 7, 2009Comments: 167SAN FRANCISCO
> (MarketWatch) -- Chinese bank authorities warned the Federal Reserve's
> programs to pump more cash into the financial system by buying $300
> billion in Treasurys risked jolting bond prices and devaluing the
> dollar.
> The overnight comments from the world's biggest holder of U.S. government
> debt helped depress Treasury prices in trading Thursday, said one
> analyst.
> In a monetary report dated Wednesday and posted on the People's Bank
> of China's Web site, the central bank said the quantitative easing
> policy pursued by the Fed may help keep bond yields at low levels
> in the short term.
> But over a longer period, higher inflation expectations, interest
> rates and central bank measures to take extra liquidity out of the
> system could cause a sharp adjustment to bond prices, the report
> said.
> The central bank also said plans by the Fed and other central banks
> to drive lending rates lower by buying their own government debts
> risks depreciating major currencies.
> The report "has been making the rounds overnight and is partially
> responsible for the selling pressure in Treasurys," said Ian Lyngen,
> interest-rate strategist at RBS Securities, in emailed comments early
> Thursday.
> Ten-year Treasurys (UST10Y:U.S. Treasury 10 Year
> News , chart , profile , more
> Last: 3.15-0.01-0.19%
>
> 11:33pm 05/06/2009
>
> Delayed quote dataAdd to portfolio
> Analyst
> Create alert Insider
> Discuss
> Financials
> Sponsored by:
> UST10Y 3.15, -0.01, -0.2%) recently yielded 3.312%, up 11 basis points
> for the day, as prices sold off further after a Treasury auction.
> Yields and prices move in opposite directions; 1 basis point is 1/100th
> of a percentage point. See Bond Report.
> In recent months, senior Chinese officials have expressed concern
> that the U.S. financial crisis and efforts by policymakers to lower
> lending rates by flooding the system with cash would impair the value
> of its massive U.S. bond holdings.
> On March 18, the Fed said it would buy up to $300 billion in Treasurys
> and expand a previous program of buying mortgage-related debt. The
> move sparked a big rally in Treasurys and knocked the U.S. dollar,
> though Treasurys have given up those gains since then.
> China has also pushed for the establishment of an alternative to
> the U.S. dollar as a reserve holding.
> Having driven short-term interest rates near zero, the Fed and other
> developed economies' central banks have embarked on variations of
> what's known as "quantitative easing," or using tools besides interest
> rates to increase money supply.
> On Thursday, the Bank of England expanded its program of buying government
> bonds to 125 billion pounds ($189 billion) from 75 billion pounds.
>
> And the European Central Bank, which cut its interest rates to a
> record low of 1% Thursday, said it would buy $80 billion in covered
> bonds, a type of bonds backed by mortgages or public-sector loans.
> See full story on ECB and BOE decision.
> Moves to drive yields lower can come at a cost to existing bondholders
> if the flood of new money eventually sparks higher inflation, which
> erodes the value of bond holdings.
>

May 07 04:52 PM

[PROXIMO:]

Enjoyed the article. IMO the moderate recent stock advance is probably largely a function of behind-the -scenes deals involving banks and crooked politicians. And my guess is that the worst economic pain has yet to begin. Without making light of the debt, which is very serious, I am curious about something I seldom see commented on. I am curious as to the net worth of Uncle Sam. I mean, the balance sheet would have to include untold billions in military bases and equipment, billions in national parks, airports, museums, libraries, hospitals, Interstates, other roads, bridges, school districts, universities, billions of acres of land, government buildings, water systems, dams,lakes, etc.etc.etc. Plus Wash DC itself, with Dept of Agriculture, Dept. of Commerce, Dept. of Interior, Dept. of Energy, Dept. of Defense(Pentagon, CIA, FBI), Washington Monument, Lincoln Memorial, Smithsonian, AAFB, Capitol Buildings, White House, etc etc. I realize these would not be converted to pay off debt, but I would think US must be worth MANY trillions of dollars.

May 07 04:58 PM

[henarl:]

Come on guys, quit picking on Cetin. We all need a little comic relief in these tough times.

May 07 06:04 PM

[James Quinn:]

Keep looking in the past. Don't try and look ahead. How could LT rates possibly rise when we need to issue $2 trillion of new debt? Hmm. I'm sure demand will be tremendous for 30 year debt at 4% when the country issuing it plans to continue printing and spending on Obama's social agenda and stimulus pork. Keep believing those government figures. You are just the type of citizen our government wants.


On May 07 04:52 PM kennypowers09 wrote:

> have you even looked at the yield curve? long term rates are FAR
> from "soaring" at a 4.304% yield. the 20 year average (from 12/1/80
> to 6/29/90) for the 30 year treasury is currently 10.39%.

May 07 08:49 PM

[Jason Rines...:]

The bigger question is whom forced you to click on the link and read the article? Citizen powered media as an emerging Internet innovation is beginning to replace legacy media for obvious reasons. Necessity is the mother of all invention.


On May 07 02:13 PM ArtfulDodger wrote:

> Oh yes, JQ, I found someone who writes longer paragraphs than you.
>
>
> Steve Waldman is his name, and he writes on SA. Not by much, but
> he edged you out by a couple of sentences and a few subjects.
>
> Get a load of this one! What do you think a professional editor would
> do with this beast?
>

May 07 11:54 PM

[JPPennypacker:]

Interesting article James. I enjoyed the subtle REM and Nickleback lyrical segues. Credit cards make for "strange currencies" of the electronic variety.
Perhaps if we could get Mr. Bernanke a sleigh and some reindeer he could give all the good boys and girls and financial conglomerates limitless credit cards as a means to counteract deflationary pressures. Perhaps some of the naughty financial conglomerates would be eligible for the card if they pass some sort of nice test and Mr. Bernanke can go down in history.

May 08 12:00 AM

[Ricard:]

I'd like to make what I hope is an astute observation.

I'd like any readers of this specific article, and the ratings following it, to take note that there has been a significant change in how the comments here are being rated. This significant change is not due to the message delivered by Mr. Quinn, nor any of the commentators to his articles (including Cetin). What has changed, is the direction of the movement of the Dow and S&P.

Notice how authors that, say 4-5 months ago, were heralded as the voice of reason, as the light out of this tunnel of darkness, are now regarded as doom-and-gloomers, patients suffering from manic depression, and the like.

Although the sampling is small, and at best only somewhat reliable and subject to manipulation, it is interesting nonetheless. Another 100-200 points upward on the S&P, and I believe Mr. Quinn will be officially regarded as irrelevant by the 'masses'. That is, until the next crisis humbles them yet again.

I for one hopes he continues to write :)

May 08 12:16 AM

[Missing_Link:]

On May 07 05:12 PM Cetin Hakimoglu wrote:
> An additional $74 billion is needed. That isn't a big deal because
> it's only 1/10 of the Obama stimulus package, and if the banks need
> additional capital the fed will provide it. buy the dips.

OK, an additional $74 billion isn't a big deal because it's only 1/10 of the Obama stimulus package ...

... of $787 billion.

Is THAT number a problem?

If not, what about when you add it to his $3.4 trillion federal budget plan?

What about when you factor in the existing debt and the cost of all the other bailouts?

Here's a thought exercise:

Is there ANY number where you would say "OK, that's too much debt?"

Close your eyes for a second and try to think what that number would be.

If Obama the administration printed $999 trillion dollars and spent that on stimulus and bailouts and a massive budget, would you be OK with that?

What about 1000 times that amount -- $999 quadrillion? In a world like that, a hamburger would cost you $25,000.00 (give or take).

What if it were in the quintillions, or the sextillions?

If you can't agree that there's SOME point SOMEWHERE where we spend so much money that it actually becomes harmful and degrades the fiat currency, then you're simply not willing to admit reality.

If we accept that undeniable fact, then all we're arguing about is the exact point at which America's debt and spending are too much.

I think Mr. Quinn's article gives very good reasons to believe that sometime between the Reagan years and now, we went past that threshold and kept right on going.

May 08 12:48 AM

[Missing_Link:]

On May 08 12:16 AM Ricard wrote:
> I'd like to make what I hope is an astute observation.
>
> I'd like any readers of this specific article, and the ratings following
> it, to take note that there has been a significant change in how
> the comments here are being rated. This significant change is not
> due to the message delivered by Mr. Quinn, nor any of the commentators
> to his articles (including Cetin). What has changed, is the direction
> of the movement of the Dow and S&P.
>
> Notice how authors that, say 4-5 months ago, were heralded as the
> voice of reason, as the light out of this tunnel of darkness, are
> now regarded as doom-and-gloomers, patients suffering from manic
> depression, and the like.
>
> Although the sampling is small, and at best only somewhat reliable
> and subject to manipulation, it is interesting nonetheless. Another
> 100-200 points upward on the S&P, and I believe Mr. Quinn will
> be officially regarded as irrelevant by the 'masses'. That is, until
> the next crisis humbles them yet again.
>
> I for one hopes he continues to write :)

I agree; that's an astute observation indeed.

May 08 12:50 AM

[bogoMIPs:]

James,

Thanks very much for this candid and hard-hitting piece. It needs to be said again and again, over and over.

May 08 05:21 AM

[Steve Hughes:]

Mr Quinn,

This needed to be said load and clear. Many thanks for saying it.

May 08 05:29 AM

[Homer II:]

Hey James, great statement of facts surrounding the "norms" of a large segment of Americans. It is almost unbelieveable that this cancerous immorality has reached the highest offices of our government, whose overt behaviors obviously condone their disciples total abuse of credit.

May 08 05:40 AM

[kennypowers09:]

I hate to play semantics, but you specifically stated "soaring" long term rates and then cited an article with a trivial increase of a historically low long term rate on the 10 year (which i showed are still well below the historical average, and at one point hit 50 year lows). Of course long term rates will increase and likely inflation along with it given the amount of stimulus. that will only occur once the general economy begins to see gains and velocity picks up, which could be for some time as the current economic numbers simply show "stabilization" and not "growth".



On May 07 08:49 PM James Quinn wrote:

> Keep looking in the past. Don't try and look ahead. How could LT
> rates possibly rise when we need to issue $2 trillion of new debt?
> Hmm. I'm sure demand will be tremendous for 30 year debt at 4% when
> the country issuing it plans to continue printing and spending on
> Obama's social agenda and stimulus pork. Keep believing those government
> figures. You are just the type of citizen our government wants.<br/>

May 08 10:52 AM

[James Quinn:]

I hate to play semantics too.

The 10 Year Treasury was 2.18% on 12/26/08.

The 10 Year Treasury is 3.30% on 5/8/09.

That is a 51% increase in 5 months. I would say that an annualized increase of 122% is soaring in most people's books.

Everyone sees what they want to see.


On May 08 10:52 AM kennypowers09 wrote:

> I hate to play semantics, but you specifically stated "soaring" long
> term rates and then cited an article with a trivial increase of a
> historically low long term rate on the 10 year (which i showed are
> still well below the historical average, and at one point hit 50
> year lows). Of course long term rates will increase and likely inflation
> along with it given the amount of stimulus. that will only occur
> once the general economy begins to see gains and velocity picks up,
> which could be for some time as the current economic numbers simply
> show "stabilization" and not "growth".
>

May 08 11:26 AM

[beenburnedt...:]

Jim,

Why are you debating with Cetin?


On May 07 04:14 PM James Quinn wrote:

> I can't figure out whether you are a shill pushing your website,
> a parasite, or truly as dumb as you seem? Maybe you can provide another
> moronic comment and I'll have a better idea.

May 08 12:54 PM

[dragonpaw:]

Anyone serious about buying long-term US debt (10+ years) is delusional. The dollar's reign as the foundation of world currency and the commodities markets is nearing an end. World-wide financiers (like George Soros and thousands as well-heeled but lower-profiled manipulators), hedge fund derivators, and US indebted-to major players (China,Russia,euro-Ger... and too-many to name etc.s) realize that they've been shafted. And the shafting continues via infusion of tens of trillions of fiat US dollars. The only thing that keeps our boat afloat is the sheer size of the tanker. But our tanker is hemorraging its financial cargo, the rats(the crafty world-financiers) are jumping ship, and the few sane crew members are manning the life-boats for safer havens.
The new world order is beginning to take form with our recently anointed one at its helm. But we have no idea of the destination of our ship of state. We thought we knew where we were headed in the past. But our course has definitely "changed." We now are only one of hundreds of countries on board, and everyone should have a say in how , why,and when get there. Where-ever that may be. "After all, it's only fair," as our new leader will oft parrot in the future as he has done in the past.
It also seems only fair that our world-leader indebtedness reflect the profligacy of the past. So ,for example, our previous 10 trillion dollar debt mushrooms over-night to 20 trillion, the new "yua-ruble-mark" (they'll have to come up with something catchier and less political) should then become worth say fifty cents to our dollar and decline as we continue to inflate?
The good news in all, is that few in the US will have to pay taxes in the very near future. With the job loss at a pleasantly declining only 500K per month, how many can forced into that elusive rich-guy quarter-million a year bracket? The bad news, how long will it take to get to $100.00/ loaf bread that we all are in the 50% bracket?

May 08 02:07 PM

[kennypowers09:]

And the 40 year historical average yield for the 10 year is 6.9%. At its current level its level even NOW after "soaring" its still lower than any other 10 year treasury yield in since 1/31/62 (excluding the period between 11/19/08 through today's date. If we will play with %'s here then the current rate is STILL 114% lower than the AVERAGE 10 year treasury yield (since 1961). Its ironic how the rates are "soaring" when they are currently 375.81% (1371.99% annualized) below the HIGHEST the 10 year ever was which was on 9/81 at almost 15.847%. Now given the amount of "stimulus" that will reportedly "destroy" the US (of which many on this website complain about and greater than any other period within this time frame since the 60's), its ironic that rates would be at such a historical low. I believe that is far from currentl "soaring". As stated earlier the economy and velocity of money will have to increase before you will see rates rise.


On May 08 11:26 AM James Quinn wrote:

> I hate to play semantics too.
>
> The 10 Year Treasury was 2.18% on 12/26/08.
>
> The 10 Year Treasury is 3.30% on 5/8/09.
>
> That is a 51% increase in 5 months. I would say that an annualized
> increase of 122% is soaring in most people's books.
>
> Everyone sees what they want to see.

May 08 02:48 PM

[James Quinn:]

I've been shorting the 10 Year Treasury and 30 Year Treasury for 2 months. I expect it to be greatest investment of my life thanks to Obama, Bernanke, Geithner and their merry men. 6.9% coming down the track like a freight train. It won't stop there.


On May 08 02:48 PM kennypowers09 wrote:

> And the 40 year historical average yield for the 10 year is 6.9%.
> At its current level its level even NOW after "soaring" its still
> lower than any other 10 year treasury yield in since 1/31/62 (excluding
> the period between 11/19/08 through today's date. If we will play
> with %'s here then the current rate is STILL 114% lower than the
> AVERAGE 10 year treasury yield (since 1961). Its ironic how the rates
> are "soaring" when they are currently 375.81% (1371.99% annualized)
> below the HIGHEST the 10 year ever was which was on 9/81 at almost
> 15.847%. Now given the amount of "stimulus" that will reportedly
> "destroy" the US (of which many on this website complain about and
> greater than any other period within this time frame since the 60's),
> its ironic that rates would be at such a historical low. I believe
> that is far from currentl "soaring". As stated earlier the economy
> and velocity of money will have to increase before you will see rates
> rise.

May 08 03:16 PM

[kennypowers09:]

dont sell yourself too short jim. there are plenty of opportunities out there including shorting the longer end treasuries. i made a good dealing going long last summer in the 30 year and flipping that trade around december. commodities, tips, and any other inflation correlated investment will most certainly be compelling in the coming future.

every administration (republican or democrat) regardless of policies, will make any smart investor money...even the socialists :).


On May 08 03:16 PM James Quinn wrote:

> I've been shorting the 10 Year Treasury and 30 Year Treasury for
> 2 months. I expect it to be greatest investment of my life thanks
> to Obama, Bernanke, Geithner and their merry men. 6.9% coming down
> the track like a freight train. It won't stop there.

May 08 04:35 PM

[billddrummer:]

Mr. Quinn--

Another brilliant piece, and helps to explain why sales of 'consumer discretionary' products are moribund. It's not just because home equity lines have been tapped, not just because people are concerned about keeping their jobs.

It's because the American consumer has accumulated too much debt chasing irrelevant 'things.' Until the debt is repaid, don't expect people to spend.

I've seen this in my own situation. "Lived Large last year. Living Small now."

Living small means paying off the debt you racked up when you were living large. Because people lived beyond their means, they must now live beneath them to come back to equilibrium.

The problem is that debt can appear almost instantly, but it takes years to repay.

Look for moribund consumer spending for years.

Thanks again for a thought-provoking, timely, succinct and prescient piece.

May 08 04:49 PM

[dcb:]

The mob is out in force to make sure anyone who makes bear comments doesn't get rated high and that way people don't read those comments. I wouldn't be surprised if people are actually paid by some companies to go around marking thumbs down on comments they don't like. Good way to control information. Macro picture hasn't changed. But everyone who points out that the rosy scenario painted by wall street and washington doesn't actually exist gets shouted down. Bush 2 learned from Karl Rowe you could create your own truth. he most likely learned from 1984. Obama is the master though.

Everyone who has done even a bit of reading or trading before can easily see how this market is manipulated. but it is still the big secret. Emerging markets had a railing P/E of 30 yesterday. and that was the reason they sold off. yet today we reached a new high? explain that. was it because when golman turned on their computer this afternoon at resistance (925, with selling going on) we quickly hit a new high. watch the computer trade everytime when we need that bit of a boost to hit a new high or at resistance. or at the close to make sure we don't close below a certain number that would trigger a sell signal. today. we were going to have a nice inside day today before the computer. we didn't. that is manipulation.

May 08 05:12 PM

[ArtfulDodger:]

JQ:

You wrote in a comment: "Right now I think the Central Bankers of the world realize exactly what I’m talking about and they’re planning, but they’re planning another system that goes one step further to internationalize regulations, internationalize the printing press. Give up on the dollar standard, but we have to be very much aware that that system will be no more viable. We have to have a system which encourages people to work and to save. What do we do now? We’re telling consumers to spend and continue the old process; it won’t work."

Well said Quinny!

I think you've struck about as close to the truth as anyone I've seen regarding what the World Central Banks are planning.

Indeed, everyone who understands the mindset of the owners of those entities knows for sure that they have plans for us other than what they're saying—covert plans that they don't want us to know about, but that slip out in bits and pieces every so often.

Since Paul Warburg took charge of the first US Federal Reserve Bank, wise observers have said that these world-wide centralized systems will lead to one Supra-International-Ba... System that will have everything from taxing to regulating powers over us.

Obviously, they and you are right.

Quinny, your thinking is getting better, and you're putting it on paper in a much clearer manner.

Keep it up, me boy!

I appreciate your heart and your passion, although I may not be quite as cynical as you.

May 08 08:05 PM

[jack123:]

I think your article is right on . We have not seen the bottom yet. The way they are spending, we are going to get broke many times over.

DodgingTheDepression.com


On May 07 06:25 AM User 353732 wrote:

> Debt employed wisely to proportionately increase the wealth creating
> capacity of an individual, family, business or nation is good. If
> used foolishly to finance instant gratification of uncontrolled appetites
> with transient things , it is bad.
> Debt is like wine. If wine is regarded as Thomas Jefferson did, then
> it significantly enhances the quality of personal, social and national
> life. If wine is treated and consumed in the manner of a wino then
> it is very bad indeed: it leads to addiction, misery, delirium, starvation
> and finally a terrible death.
> When the person controls the wine or the debt, it is good. When the
> wine or the debt controls the person it is toxic and even fatal.
>
> As a nation we went from Jefferson to wino.
>
> Let us hope that our personal and national craving for debt is at
> the toxic and not fatal stage and thru a discipline of "debt rehab"
> we can recover. The first step is to take the bottle away. This our
> governing elites shows no inclination of doing in May 2009.

May 09 11:57 AM

[Vienna:]

Mr. Quinn ist one of my favorite writers and I do fully agree with him.

Debt and Fiat money in itsself is not so bad, it is only the hight and the responsibility that is required to work and control it. Much of this approach and insight was presented to me in a video called money from debt. This supposingly seems to be something everybody knows, but I still recommend looking at it.

video.google.com/video...

I would enjoy any comments on the video.

May 09 01:13 PM

[dragonpaw:]

Debt with purpose is good, i.e. legitimate business reasons and in most cases short-term . As a former small business owner, I faced this repeatedly over a thirty-plus year length; frustrating but worth while. Consumer debt is an endless, fruitless, and frustrating cycle. It has little value in the life of the average individual, unless under extreme and extenuating circumstances.Debt for a home is still a good bet, but not for "flipping" and not as a retirement program as many are now acutely aware. Debt as away of leveraging debt ,in all forms, is a Ponzi scheme-shell-game.Wall Street derivative-types and the government fit into this latter category. There is no way of insuring or assuring this debt. The latest world-wide financial debacle is proof of this at the Wall Street level. The continued play-out of the "new depression" will be proof of this at the governmental level.
As for "fiat money", the name itself is oxymoronic. Printing-press money (I realize the process is not that simplistic) by nature enentually lacks a backing, as has been recently shown for long-term US treasury sales. In addition, the deflated interest rates being paid steal from the investors of such sales as well as the supposed entitlement recipients of atrificially depressed "cost-of -living" benefactors. Good luck retirees! You get shafted on both fronts!
Meanwhile, the average in the electorate remain clueless to this process. The supposed optimism of the voting populace will ultimately prove to be our downfall. How unfortunate, as this optimism is what helped make our country great! Now it will be used by all incumbent politicos to further their self-serving agendas.And when disaster strikes again (as many like Mr. Quinn are predicting) the same finger-pointing charade will begin again. But this we will be up the proverbial "s-it-creek" without the paddle.
What advice to give ; 1) Read everything you can about the global melt-down. Don't rely on network news. They are all too limited and or biased. Either that,or (is it just me?) that Beck-Limbaugh, Olberman-Madow sound equally goofy at times. How do you get your friends to wade through this stuff?
2)Talk friends and relatives and get them "engaged". Tough times are ahead; I want to save my fanny and as many around me as possible. Many grasshoppers will be knocking at many ant's doors. I don't want the knocking.
3)Nothing on the over-all financial landscape has changed and yet the "irrational exhuberance" abounds. The only mantra ("Obamantra?") we hear is that nothing big can fail,unless it then becomes the property of the US citizenry,read here"DEMOCRATIC PARTY" into perpetuity. For allpractical purposes there is no other party
4)Learn about inverse investments, ep. ETF's. Mr. Quinn has alluded to some of these for long-term treasuries. The list is extensive, but read caveats completely and invest prudently.
5)With any long-term bond position,ask yourself;"Is this a rate That I can live with for 10+years?" I don't see any currency worth holding at present. For traders, there's always something. It' just not me.
6) Keep responding to columns like Mr. Quinn's. You guys (and gals) are sharp and always keep me thinking and planning. You're voices in the wilderness, and much wilder will come to pass.

May 09 11:27 PM

[dcb:]

I had to rant this morning about how we are getting so screwed by our government. we borrow at the international level 3.2% so we can give money for free to banks so they can lend to us at 6% or so. we as taxpayers have to pay this back. what a crime.

May 10 11:52 AM

[dcb:]

it is worth seeing some of the videos on bloomberg. (taleb, faber,) others. you have to pick and choose. many come in with own agenda.


On May 09 11:27 PM dragonpaw wrote:

> Debt with purpose is good, i.e. legitimate business reasons and in
> most cases short-term . As a former small business owner, I faced
> this repeatedly over a thirty-plus year length; frustrating but worth
> while. Consumer debt is an endless, fruitless, and frustrating cycle.
> It has little value in the life of the average individual, unless
> under extreme and extenuating circumstances.Debt for a home is still
> a good bet, but not for "flipping" and not as a retirement program
> as many are now acutely aware. Debt as away of leveraging debt ,in
> all forms, is a Ponzi scheme-shell-game.Wall Street derivative-types
> and the government fit into this latter category. There is no way
> of insuring or assuring this debt. The latest world-wide financial
> debacle is proof of this at the Wall Street level. The continued
> play-out of the "new depression" will be proof of this at the governmental
> level.
> As for "fiat money", the name itself is oxymoronic. Printing-press
> money (I realize the process is not that simplistic) by nature enentually
> lacks a backing, as has been recently shown for long-term US treasury
> sales. In addition, the deflated interest rates being paid steal
> from the investors of such sales as well as the supposed entitlement
> recipients of atrificially depressed "cost-of -living" benefactors.
> Good luck retirees! You get shafted on both fronts!
> Meanwhile, the average in the electorate remain clueless to this
> process. The supposed optimism of the voting populace will ultimately
> prove to be our downfall. How unfortunate, as this optimism is what
> helped make our country great! Now it will be used by all incumbent
> politicos to further their self-serving agendas.And when disaster
> strikes again (as many like Mr. Quinn are predicting) the same finger-pointing
> charade will begin again. But this we will be up the proverbial
> "s-it-creek" without the paddle.
> What advice to give ; 1) Read everything you can about the global
> melt-down. Don't rely on network news. They are all too limited and
> or biased. Either that,or (is it just me?) that Beck-Limbaugh, Olberman-Madow
> sound equally goofy at times. How do you get your friends to wade
> through this stuff?
> 2)Talk friends and relatives and get them "engaged". Tough times
> are ahead; I want to save my fanny and as many around me as possible.
> Many grasshoppers will be knocking at many ant's doors. I don't want
> the knocking.
> 3)Nothing on the over-all financial landscape has changed and yet
> the "irrational exhuberance" abounds. The only mantra ("Obamantra?")
> we hear is that nothing big can fail,unless it then becomes the
> property of the US citizenry,read here"DEMOCRATIC PARTY" into perpetuity.
> For allpractical purposes there is no other party
> 4)Learn about inverse investments, ep. ETF's. Mr. Quinn has alluded
> to some of these for long-term treasuries. The list is extensive,
> but read caveats completely and invest prudently.
> 5)With any long-term bond position,ask yourself;"Is this a rate That
> I can live with for 10+years?" I don't see any currency worth holding
> at present. For traders, there's always something. It' just not me.
>
> 6) Keep responding to columns like Mr. Quinn's. You guys (and gals)
> are sharp and always keep me thinking and planning. You're voices
> in the wilderness, and much wilder will come to pass.

May 10 11:55 AM

[sethmcs:]

Maybe credit cards should include the surgeon generals warning: Credit cards may be hazardous to your health wealth and self.

May 10 11:44 PM

[proxyjoe:]

dcb: I agree about some gang-voting down of the dissenters. I looked at this thread on Friday evening and there were quite a few thumbs down votes for supporters of Mr Quinn. Tonight, I see those dissenter comments reversed to a net thumbs down. seems like gangs of pro and con readers making the rounds in here. The hits seem to be focusing upon polically charged retoric.

I agree with the thrust of Mr Quinns remarks. keep up the good work.

May 11 01:51 AM

[kurtieboy:]

James, I agree with just about everything you have said. My only comments to your piece are:

1) I do not believe the government's true intent is evil or bad as you seem to imply. Faced with the situation they are in they really have no choice but to reinflate. Public confidence in the ponzi scheme is critical to an improvement in the economy. What would you have them do, let the banks and our financial system crash. The people did not vote them in to do that. The people voted them in to keep the system working by what ever means at their disposal. Keep the party going so to speak and we'll worry about the repercussions afterward. Realistically could you see anyone getting voting in with a platform of let the financial system fail, we as a country and a people need to take a major hit to our standard of living and start living within our means! Good luck! Not going to happen! Won't get voted in! In many ways the problem America is facing is democracy by the masses has the potential to lead to this type of situation and I am not sure we have the strength to get out.

May 11 04:09 PM

[James Quinn:]

You are right. The masses will always vote for more free stuff. Ultimately, this will collapse the whole system. An unsustainable trend can't be sustained.


On May 11 04:09 PM kurtieboy wrote:

> James, I agree with just about everything you have said. My only
> comments to your piece are:
>
> 1) I do not believe the government's true intent is evil or bad as
> you seem to imply. Faced with the situation they are in they really
> have no choice but to reinflate. Public confidence in the ponzi scheme
> is critical to an improvement in the economy. What would you have
> them do, let the banks and our financial system crash. The people
> did not vote them in to do that. The people voted them in to keep
> the system working by what ever means at their disposal. Keep the
> party going so to speak and we'll worry about the repercussions afterward.
> Realistically could you see anyone getting voting in with a platform
> of let the financial system fail, we as a country and a people need
> to take a major hit to our standard of living and start living within
> our means! Good luck! Not going to happen! Won't get voted in! In
> many ways the problem America is facing is democracy by the masses
> has the potential to lead to this type of situation and I am not
> sure we have the strength to get out.

May 11 05:01 PM

[Ricard:]

The road to hell is paved with good intentions.


On May 11 05:01 PM James Quinn wrote:

> You are right. The masses will always vote for more free stuff. Ultimately,
> this will collapse the whole system. An unsustainable trend can't
> be sustained.

May 11 11:42 PM

[phat cat:]

Hi James, where and what farms would you recommend to buy?

May 12 04:49 AM

[jhartz:]

Having credit and having money are not the same. And yet, our government is encouraging us to believe that they are the same.

Now, because of this, buying a house is no longer an investment opportunity, it is a gamble. It was an investment in the sense that you were making an optimistic assessment about how your economic life would unfold.

Home ownership was one of the strongest roots you and your family could sink into your community.

I tire of arguments of whether or not our government and the investment banking cartel are looking out for America's interests. It is beyond obvious that they are not.

There is little question that we are in the process of undergoing a systemic meltdown. Only to totality of it is still open to some debate.

I've done everything in my power to prepare myself and my loved ones for what is happening, and still, I realize it hasn't been enough.

I urge those of you who decry all the printed warnings of imminent doom to first take stock and prepare yourself as if they were accurate. After we've (the doom prognosticators) have been proven wrong, then you can have a great laugh at our combined foolishness.

Whatever philosophical economic camp you might belong to, I honestly wish you the best for the future.

May 14 06:32 PM

[Sovestor:]

Higher borrowing will increase living standards, but not necessarily prosperity. People in credit-driven economies can live like a king aka "higher living standard" with borrowed money (such as home equity line, credit card, student loan, auto loan, subprime mortgage, etc) for extended period of time (or very short period of time for the unfortunate ones), but you are not getting richer in term of net-worth.

Jun 15 12:22 PM