Creating Debt to Reduce Debt Doesn't Work 17 comments
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Bloomberg reports that consumer spending is increasing, savings are increasing, unemployment is increasing and people are more confident. I am shaking my head and scratching things. Let us do the math again on this one. Unemployment up, so less jobs and less income. Spending up, which is not due to a good jobs picture. Savings up, same story. Confidence up - based on what I must ask. This is all stimulus effects, i.e. us spending/saving money that our government borrowed for us. Yes, this spells recovery in my book. I am a happy guy now.
Come on people, we cannot borrow more money and create more debt to end a debt created bubble. It ain't gonna work. Get with the program. More debt does not solve a problem due to too much debt - period! Yet that is our solution. Did I mention I am disappointed in the new Prez on the financial front? Not so much so otherwise but on the financial issues he is definitely listening to the wrong buffoons.
I hate to keep repeating myself, but let us go through it one more time:
- U.S. debt levels, as a percentage of GDP (which means it is gauged properly to past debt levels) continues to be at or near record levels;
- Housing prices are down drastically around the country and that equity was a common piggy bank;
- Unemployment is pushing on double digits nationally, and already there in many states; and
- The rest of the world is also sucking wind.
So this looks like a good time to be confident - to believe government stimulus dollars have fixed it all. Pardon me if I wait on the sidelines.
41, 42, 43, 44 and 45 - Five Banks Down This Week
The FDIC was busy this week. Five banks down in one week - impressive. CRE is taking a serious dive, private mortgages - especially prime - are worsening, and other factors are hitting local and regional banks very hard.
We are approaching a rate of two a week. Now rate wise this is nothing like the S&L crisis but dollar wise - if you include some banks that had to be bought (with government strong-arming), then we are beating out the S&L crisis.
Disclosures: None.
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This article has 17 comments:
What'll it be by year-end? Four a week?
I agree completely with everything but that statement. In these conditions, the sidelines is wrong place to be. The problem is I am not sure where to go. Gold, Oil, Yuan,.....? For those that believe our direction is 100% wrong, where do you stand?
-AM
As the lines of the herion addicts grow longer, no doubt the reported cases of alcoholism will decline. This will be "evidence" that the government knows how to cure alocohol addicion.
Of course, once the corpses of the herion addicts begin to litter the streets the government will proudly trumpet its "permanant" sucess in finding the solution to the alcohol problem while also "stimulating" the undetaking industry.
According to our elites the idea that the cure for alcoholism is not heroin but recognition,acceptance of personal responsibility, absistence and compassionate moral and psychological suppport is viewed as reactionary , too dependent on private action and freighted with obsolete cultural values.
silver has a story no one is thinking about right here. Rational substitution. Buy expensive, not cheap puts, too, they will rocket. Two step simple approach for now.
government stimulates only its' own parasitic growth. this is truly maxing out the new credit cards to continue the course that maxed out the old ones.
atlasman
it is a dilemna. get and stay out of debt. add to your pm holdings. go rural if you can. buy the staples your judgement warrents. keep your body strong. become as self sufficient as you can.
i am still trading to gain fiat monies to purchase real assets. i retired early in november but will go back to work this fall on a light contractual basis because i like to work. i retired to do my part in starving the federal parasitic beast. i will only work enough to fulfill my inner need. i will stop if i see it is going to cause my taxation without reprsentation to rise. this is the best i can do for me and mine right now. good luck with whatever you decide. i know that isn't much help. my old dad always said hope for the best prepare for the worst and expect something in between. he also taught me to never ever trust a politician.
I unfortunately have to agree. Obama has done everything you can think of to accelerate the country's crash both economically and socially. He and his party just pushed "cap and tax" through the House this week and wants to kill off, I mean.... nationalize, medicine in the near future. If those two proposals pass, there is little or nothing that the rest of us will be able to do to keep the country afloat.
BTW, for those of you who might still be in denial and think Obama is trying to make things better. Just look at his talk about improving national healthcare. Have you seen any serious proposal to reform Medi-care? Any serious explanation of where his plan will save any money? Any explanation for why the cost of government healthcare (i.e., Medi-care) has increased at a faster rate in the last 5 years than private healthcare? Obama-care is nothing but a government power grab pure and simple. Hope you like long waiting lists and poor service.
Add in Obama's tax proposals, a pending trade war via tariff provisions in the cap and tax bill, a refusal to pursue tort reform, and a willingness to do whatever a large union demands whenever it demands it...... There is certainly no help coming from this White House any time soon.
On Jun 28 06:58 AM bigbaboon57 wrote:
> Why are you "disappointed" in Obama? Don't you get it? His goal
> was never to stimulate the economy, it was and is to create more
> dependence upon the federal government. The more people that either
> directly work for the government, receive government transfer payments,
> or have jobs in the "private sector" that are tied to the federal
> government (e.g. education, healthcare), the larger is the Democratic
> voting base. Those that depend upon the federal government for sustenance
> are never going to vote for smaller government.
Before the real estate bubble we had fifty years of people borrowing their way to prosperity in the form of mortgages on houses, loans for cars, and loans for businesses. Without that borrowing they would have been paying rent that increased with inflation, bicycling to work and wage slaves to some taskmaster instead of wealthy business owners. The SBA has been helping people successfully borrow their way to prosperity for decades.
The idea that you cannot "borrow and spend" your way to prosperity is a total LIE, it has been proven to work MILLIONS of times. Any non-idiot can see that the paid off, 30 year fixed rate mortgages made in 1979 and before have been a net economic win in real dollars for the borrowers, especially compared to apartment dwellers, whose rents keep pace with inflation (while mortgage payments decline in real dollars with inflation).
Whatever the debt is now, borrowing money to invest in less costly energy and health care creates prosperity that will help pay off that debt. We pay TWICE what the average first-world citizen pays for health care, ALL factors considered. That is because we are being blackmailed by medical, insurance and pharmas run amok in their pricing, and we cannot stop them because they literally hold the power of life and death over us, and that makes for zero leverage on our part.
Likewise, the middle east (or OPEC) can cripple our economy in a heartbeat with an agreement made over their afternoon tea. At this point we need to spend money to cut our costs and create a positive cash flow so we can pay down the idiotic expenses of the two previous administrations (Bush and Clinton). Anybody that doesn't think so is delusional.
I could not agree more...but the buck stops with him... if they are the wrong buffoons he should find some smarter buffoons.
20dollar
There's a man with the right approach - by the way who do you think the next American idol will be?
On Jun 28 11:07 AM TonyCinTX wrote:
> This columnist and these comments are idiotic.
>
> Before the real estate bubble we had fifty years of people borrowing
> their way to prosperity in the form of mortgages on houses, loans
> for cars, and loans for businesses. Without that borrowing they would
> have been paying rent that increased with inflation, bicycling to
> work and wage slaves to some taskmaster instead of wealthy business
> owners. The SBA has been helping people successfully borrow their
> way to prosperity for decades.
>
> The idea that you cannot "borrow and spend" your way to prosperity
> is a total LIE, it has been proven to work MILLIONS of times. Any
> non-idiot can see that the paid off, 30 year fixed rate mortgages
> made in 1979 and before have been a net economic win in real dollars
> for the borrowers, especially compared to apartment dwellers, whose
> rents keep pace with inflation (while mortgage payments decline in
> real dollars with inflation).
>
> Whatever the debt is now, borrowing money to invest in less costly
> energy and health care creates prosperity that will help pay off
> that debt. We pay TWICE what the average first-world citizen pays
> for health care, ALL factors considered. That is because we are being
> blackmailed by medical, insurance and pharmas run amok in their pricing,
> and we cannot stop them because they literally hold the power of
> life and death over us, and that makes for zero leverage on our part.
>
>
> Likewise, the middle east (or OPEC) can cripple our economy in a
> heartbeat with an agreement made over their afternoon tea. At this
> point we need to spend money to cut our costs and create a positive
> cash flow so we can pay down the idiotic expenses of the two previous
> administrations (Bush and Clinton). Anybody that doesn't think so
> is delusional.
Positive spin. Lies. It's all the same -- in the name of self-preservation.
Look at the banks and how they are lying about earnings and ducking every time they are asked about toxic loans still on their books.
It is an age of lies -- and age of fear.
There is a difference you fail to appreciate between borrowing money to spend it on personal gratification and borrowing money to invest it in your future.
I borrowed nearly $100K to get my Bachelors and then two graduate degrees; every year I borrowed three times my take home pay at the time. It worked, I became a consultant and paid it all back and was left with a well paid career. When I was 20 I borrowed $4000 to buy a used car, but without it I wouldn't have been able to work during college, and probably wouldn't have been able to stay in college. That piece of junk was critical to my prosperity.
A neighbor on my street started a business twenty years ago by borrowing: He borrowed $30K and bought a used mini-bulldozer / trencher with a trailer to carry it, and maintained and ran it himself as a sub-contractor. Now he owns about 20 different machines and employs a half dozen people and is pretty well off. He borrowed his way to prosperity.
It all depends on how you spend it. Governments are not like people, they are not in business to make a profit for themselves. Government investment is to make it easier for citizens to make a profit. That means investment in things the vast majority of us need, like roads, infrastructure, and cheap energy. And health care: The cost of health care and insurance is crippling businesses and individuals.
Now, government has been spending like a sailor under two administrations, and is now in a position where it cannot operate without a deficit budget. It is committed by law to spend more than it brings in, on the military, social security and Medicare and other entitlements. The fiscal conservative stance is to directly cut spending, but that is a FANTASY. Bitch all they want, only Congress can change those laws and there will NEVER be the political will to do that, EVER. They might as well be demanding geese that lay golden eggs.
The way out is to increase government income, and the best way to do that is to increase prosperity, and the best way to do that is to invest in the things that make more people profitable so the existing tax rates will generate more income.
Cutting taxes doesn't do it; we will just have to borrow to spend on the entitlements. We are living beyond our means, AND we are legally obligated to do so!
But we are allowed to borrow, at pretty low interest rates, and thus the way out is to borrow money for INVESTMENT in areas that will make the USA profitable. How do we do that? By funding research in clean and plentiful energy, for one. By cutting the cost of healthcare by destroying the profit system in healthcare that lets for-profit hospitals and insurance company hold people's lives hostage until they cough up everything they own; that will reduce costs for all of us. By investing in infrastructure (power lines, roads, bridges, passenger rails) and power so we stop shipping $700B a year out of the country, mostly to petro-dictatorships.
But of course we must borrow this investment money in order to save the country, because there is no way in THIS lifetime we will ever cut the military in half, or cut SS in half, or cut Medicare or the prescription benefit in half. EVER.
As proof, let me present the Bush administration. The Republican party is home to fiscal conservatives and libertarians. For years after 9/11 they could do anything they wanted, and they ran roughshod over the Dems. What did they do? Even with the trillion dollar expense of the WoT completely off the books, even not counting that at all, they spent like sailors.
Well if they can't do it, nobody can. Face it. Congressmen get elected by spending money and that will never change. There are babies in my extended family, and I don't expect this to change in THEIR lifetimes. So if government is going to spend either way, what do you want them to spend it on? Moon shots or new and modern railroads that can save a trillion dollars a year in fuel costs? New clean power stations, nuclear and geothermal and solar, or wars of choice in the Middle East? Research on electric cars or bailouts for vampire banks?
If your answer is you just want them to stop borrowing and stop spending, you are just pouting in the corner, like the author of this column, because that is not an option and I doubt it will ever be. It is like demanding the sun not rise and the tide stay out. There will be borrowing, there will be spending, that cannot be prevented, and the only choice is what shall we spend the borrowed money on? THAT is something we can influence.