The Great Consumer Crash of 2009 177 comments
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“It is easy to ignore the storm if you look at the opposite horizon. When the storm reaches your location there can be no more ignorance.”
I hate to tell you, but the storm has reached your location and it is a Category 5 hurricane. The levees are leaking. Ignore it at your own peril. The 6,000 sq ft McMansion buying, BMW leasing, $5 Starbucks latte drinking, granite countertop upgrading, home equity borrowing days are coming to an end. The American consumer will not go without a fight.
For the last seven years the American consumer has carried the weight of the world on its shoulders. This has been a heavy burden, but when you take steroids it doesn’t seem so heavy. The steroid of choice for the American consumer has been debt. We have utilized home equity loans, cash out refinancing, credit card debt, and auto loans to live above our means. It has been a fun ride, but the ride is over. We can’t get steroids from our dealer (banks) anymore.
After examining these charts, it is clear to me that the tremendous prosperity that began during the Reagan years of the early 1980’s has been a false prosperity built upon easy credit. Household debt reached $13.8 trillion in 2007, with $10.5 trillion of that mortgage debt. The leading edge of the baby boomers turned 30 years of age in the late 1970’s, just as the usage of debt began to accelerate. Debt took off like a rocket ship after 9/11 with the President urging Americans to spend and Alan Greenspan lowering interest rates to 1%. Only in the bizzaro world of America in the last 7 years, while in the midst of 2 foreign wars, would a President urge his citizens to show their patriotism by buying cars and TVs. When did our priorities become so warped?
How Did I Get Here
And you may find yourself behind the wheel of a large automobile
And you may find yourself in a beautiful house, with a beautiful wife
And you may ask yourself-Well...How did I get here?And you may ask yourself
Where is that large automobile?
And you may tell yourself
This is not my beautiful house!
And you may tell yourself
This is not my beautiful wife!-Talking Heads, David Byrne lyrics to Once in a Lifetime
By 2005 practically everyone had a large automobile and a beautiful house. By 2010 many of these people will be asking where is that large automobile and will realize as the sheriff escorts them out of their house that this is not my beautiful house. There is plenty of blame to go round for this predicament. According to Northern Trust economist Paul Kasriel, “We’re a what’s my monthly payment nation. The idea is to have my monthly payments as high as I can take. If you cut interest rates, I’ll get a bigger car.” Major banks offer credit cards using your home equity as a way to pay everyday expenses like groceries, gas and clothes. Eating your house was never so easy.
I have been accused by many of my friends and family as someone who sees the glass as half empty. I disagree with their assessment. I see the glass as it is. I find myself scratching my head trying to figure out why a society that always saved for a rainy day, consistently saving between 8% and 11% of their disposable income, now has a negative savings rate. I believe that keeping up with the Jones’ is the primary reason that Americans have taken on so much debt.
The authors of the book, Why Middle Class Mothers and Fathers Are Going Broke, contend that the costs of housing and a good education for their children are killing them. It now takes two incomes to provide what one income provided 30 years ago: a middle-class house in a safe neighborhood with a decent public school. Bidding wars erupted for homes in what are thought to be good school districts, making homes in those areas ever more expensive.
A phenomenon called “expenditure cascade” has occurred in the U.S. according to Cornell Professor Robert Frank. When top earners build large multi-million dollar mansions, they shift the frame of reference for those just below them on the income scale. Those people then respond by building bigger houses and so on down the food chain. This has resulted in families living on the edge. If one parent loses their job, it’s an easy slide into bankruptcy.
The U.S. is the country in the developed world with the lowest savings rate. Canada and Japan are trying to keep pace. Germany and France have social programs which allow for more savings. We may come in last in savings, but no other country in the world can spend like us. Our motto is live for today, the government will bail me out in the future.
click to enlarge images
We have outsourced our savings to the emerging economies, along with our manufacturing jobs. The Chinese are saving the money we’ve paid them for flat screen TVs and the Middle Eastern countries are saving the money we’ve paid them for oil. You need savings in order to increase investment. The emerging markets are making the vast majority of the investments in the world. While the U.S. endlessly debates drilling and construction of nuclear plants (none built in U.S. since 1987) and oil refineries (none built in U.S. since 1977), China brought four oil refineries online in 2008 and plans to build 30 nuclear reactors in the next twelve years. The Asian Century has begun, but the U.S. has tried to keep up by using debt. It will not work. If anything, this has accelerated the shift of power to Asia.
Source: Creditwritedowns.com
Positive Feedback Loop
The last thing that anyone thought would result while watching the Twin Towers collapse on September 11, 2001 was the greatest housing boom in the history of the world. When a country goes to war, it usually asks its citizens to sacrifice.
“I have nothing to offer but blood, toil, tears, and sweat. We have before us an ordeal of the most grievous kind. We have before us many, many months of struggle and suffering.” (Winston Churchill – May 13, 1940)
In the true spirit of Winston Churchill, President Bush could have paraphrased Churchill by saying: I have nothing to offer but tax cuts, tax rebates, 0% auto financing, and no-doc mortgages. Americans grieved for a few weeks and then did their patriotic part by buying everything they could get their hands on. As Alan Greenspan denies causing the housing crisis today, his words from November 2002 come back to haunt him, “our extraordinary housing boom…financed by very large increases in mortgage debt, cannot continue indefinitely into the future.” After making this statement, he proceeded to slash the discount rate to 1% in June 2003 and left it at that level for a year. This began the positive feedback loop:
1. The Federal government cut taxes and sent rebates to all Americans.
2. The Federal Reserve cut interest rates to 1%.
3. Government officials urged Americans to spend in order to defeat terrorism.
4. Alan Greenspan told people that adjustable rate mortgages were a good thing.
5. Congress and President Bush believed that everyone should own a home and pressured lenders to provide mortgages to low income people.
6. GM, Ford, and Chrysler offered 0% financing on their cars through their finance arms, while also encouraging low rate leases. Credit card companies sent out 5.3 billion offers in 2007. In 1968, when the credit card was a new concept, total credit debt was $8 billion. Now the total exceeds $880 billion, according to the Federal Reserve.
7. Wall Street created new investment vehicles that allowed mortgages to be packaged and sold to investors throughout the world with investment grade ratings provided by Moody’s and S&P, for a price.
8. Mortgage companies and lenders developed ARMs, Option ARMs, teaser rate loans, no-doc loans, negative amortization loans and 100% financing loans.
9. Low income people started buying homes, with these exotic mortgage products, from middle income people. Middle income people started to buy larger houses from rich people, boosting demand for new homes. Rich people bought mansions and second homes. Bidding wars for houses were common.
10. The demand caused by this influx of new home buyers drove prices skyward, with home prices doubling in five years. This price rise brought in the speculators/flippers, who began to buy multiple houses with nothing down, pre-construction, with plans to sell them for a profit without ever moving into them.
11. Average Americans who saw their paper wealth growing rapidly, as their home value increased, took advantage of this by refinancing their mortgages and extracting the equity from their homes and spending it. The chart below shows that in 2004 and 2005, Americans sucked $800 billion from their homes in each year.
Source: Calculated Risk.com
12. Homebuilders throughout the U.S., but particularly in California, Arizona, Florida, and Nevada, went on the biggest building binge in the history of the U.S. These builders either believed their own bull about demographics, or just decided to ride the wave as far as it would take them. This binge led to 8.5 million total home sales in 2005, about 3.5 million more than what would have been expected based on historical rates.
13. The massive number of excess home sales and equity withdrawal led to huge demand for home furnishings, remodeling services, appliances, electronic gadgets, BMWs, and exotic vacations. This led to massive expansion by retail and restaurant chains based on extrapolation of this demand.
14. Retailers, homebuilders, restaurants, and car makers extrapolated the false demand far into the future. There are now over 7,000 Wal-Marts, 6,000 CVSs, and 30,000 McDonalds. Any company that built their business on false assumptions and excess debt will be meeting their maker, shortly.
15. Because the originators of virtually all loans to consumers were immediately selling the loans off, they had no incentive to follow any guidelines or due diligence when issuing the loans. Anyone with a pulse could get a mortgage, car loan, or credit card. Unscrupulous mortgage brokers popped up everywhere, luring uneducated and willing people to join the party. Greedy appraisers went along with the scam by overvaluing houses to whatever the banks desired.
16. The debt induced spending that occurred from 2001 until 2007 accounted for virtually all the GDP growth over this time. Without the mortgage equity withdrawal, the U.S. would have had less than 1% average GDP growth for the entire period.
Source: John Mauldin
Negative Feedback Loop – Underway
The pseudo-wealth that has been created in the last seven years has begun to unwind, but will increase in speed in 2009. You only know how you’ve lived your life over the last seven years. Your neighbor who has been getting their house upgraded, sending their kids to private school, driving a BMW, and taking exotic vacations may have been living the high life on debt. As usual, Warren Buffet’s wisdom comes in handy.
“Only when the tide goes out do you discover who’s been swimming naked.”
The tide is on its way out, and the naked swimmers are numbered in the millions. Mohamed El-Erian, the number two man at PIMCO, fears a negative feedback loop consuming the country. I believe we have begun the negative feedback loop and it is starting to accelerate. The stages are as follows:
1. Home prices reached an unsustainable level in 2006. Prices had gone parabolic between 2001 and 2006, with the average price reaching above $225,000. In 2001, prices were just above $125,000. As the pundits keep looking for a bottom in housing, the chart below clearly shows there is a long way to go.
2. The massive overbuilding based on false demand has led to 3.5 million excess homes in the U.S. based upon historical trends. The most shocking fact is that there are 1.5 million vacant homes. This oversupply can only be corrected by massive price decreases.
3. With the tremendous price increases in houses over the last decade, you would think that equity would be at all-time highs. But no, owner equity as a percentage of house value has reached an all-time low of 45%. People have sucked the equity out of their homes and spent it faster than the prices were rising. The problem is that house prices can and will fall, debt remains like an anchor around your neck until paid off or it drags you down into bankruptcy.
4. The millions of exotic mortgages (subprime, alt-A, ARMs, no-doc, and negative amortization), which have started to blow up, has led to a tsunami of foreclosures. In 2005 there were less than 600,000 foreclosures in the U.S. In the 1st two quarters of 2008 there have been more than 1,350,000 foreclosures, with the pace accelerating. Approximately 15% of all subprime mortgages and 7% of all Alt-A mortgages are in delinquency. According to UBS, 27.2% of subprime mortgages originated in 2007 by Washington Mutual are in delinquency. Washington Mutual is the poster child for how not to run a savings and loan.
Source: MBA
5. The combination of oversupply, over-leverage, and foreclosure tsunami has now taken on a life of its own. Home prices have been spiraling downward for two years to the point where 29% of all households that purchased in the last five years owe more than their house is worth according to Zillow, the home valuation company. For those who bought in 2006, 45% have negative equity. It is now making economic sense for people to just walk away from their house and send the keys to the lender. This is referred to as ‘jingle mail’.
6. The ongoing housing price decreases are now affecting prime mortgages, home equity loans, and home equity lines of credit. Prime mortgages for less than $417,000 had a delinquency rate of 2.44% in May, up 77% from last year. Prime jumbo loans over $417,000 had a 4.03% delinquency rate in May, up 263% from last year. According to the ABA, 1.1% of all home equity lines are in delinquency, the highest level since 1987.
7. Consumers have dramatically increased the use of credit cards, now that the housing ATM has run out of cash. The average American household has credit card debt of $9,840 versus $2,966 in 1990, at an average interest rate of 19%. Credit card delinquencies have increased to 4.51% in the 1st quarter. Amex just announced a major unexpected write-off because its prime customers have hit the wall and are defaulting. Consumers used their credit and debit cards to buy $51 billion of fast food in 2006 according to Carddata. According to the Federal Reserve, 40% of American families spend more than they earn. This has led to the result in the chart below. The reversal of this trend will be necessary but traumatic. It has already begun, with the savings rate increasing to 2.6% in early 2008. David Rosenberg, the brilliant economist from Merrill Lynch, describes what has happened and what is to come:
"This is an epic event; we're talking about the end of a 20-year secular credit expansion that went absolutely parabolic from 2001-2007.
"Before the US economy can truly begin to expand again, the savings rate must rise to pre-bubble levels of 8pc, that the US housing stocks must fall to below eight months' supply, and that the household interest coverage ratio must fall from 14pc to 10.5pc.
"It's important to note what sort of surgery that is going to require. We will probably have to eliminate $2 trillion of household debt to get there," he predicts, saying this will happen either through debt being written off, as major financial institutions continue to do, or for consumers themselves to shrink their own "balance sheets".
The elimination of $2 trillion of household debt will lead to the closing of thousands of retail stores, strip malls, restaurants, and bank branches. There should be a lot of vacant buildings available in the next few years, and a few suspicious fires.
Source: Creditwritedowns.com
8. Banks are doing what they usually do. They are closing the barn door after the pigs have escaped. As their losses have crossed the $500 billion mark, it is getting tougher for them to convince more suckers to buy their stock. They have so much toxic waste “assets” on and off their books at inflated values that they can not or will not lend. The Federal Reserve reported that banks have tightened standards for all loans in record numbers. After giving loans to anyone with a pulse for the last five years, this information is refreshing. But based on the well qualified assessments of Bridgewater Associates and NYU economist Nouriel Roubini, there is still $1.0 to $1.5 trillion in losses to go. Bank lending to consumers will be subdued for years.
Source: Mike Shedlock
9. Government unemployment figures have begun to skyrocket, while the true unadjusted unemployment figures point to a major recession. If the number of people who have given up looking for a job were included, the official 5.7% unemployment rate would jump to 14%. People without jobs can’t spend money or make mortgage payments. With the deep recession that I anticipate, the official figures will reach 7%. This will result in lower consumption.
Source: Haver Analytics
10. Car sales have plummeted. The major car manufacturers have stopped leasing cars to consumers. J.D. Power and Associates forecasts car sales of 14.2 million units in 2008, a 12% decrease over the 16.1 million units in 2007. This would be the lowest level since 1993. For many years, virtually anyone could lease a luxury automobile and appear to be successful. In 2007, one of every five new vehicles was leased. When that current lease runs out, good luck trying to get a new one. Chrysler, GMAC, Wells Fargo and others will no longer offer auto leasing. They have taken massive losses due to the huge decline in residual value not accounted for in their nice little financial models. You can’t give away a truck that gets 10 MPG today. Expect to see more junkers on the road.
Source: J.D. Power
11. Retail store closings and retail bankruptcies have begun to accelerate. This will lead to hundreds of thousands in job losses. Barry Ritholtz recently documented the fate of many retailers so far:
Ann Taylor closing 117 stores nationwide
Bombay Company: to close all 384 U.S.-based Bombay Company stores.
Cache, a women’s retailer is closing 20 to 23 stores this year
CompUSA (CLOSED).
Disney Store owner has the right to close 98 stores.
Dillard's Inc. will close another six stores this year.
Eddie Bauer to close more stores after closing 27 stores in the first quarter
Ethan Allen Interiors: plans to close 12 of 300 stores to cut costs.
Foot Locker to close 140 stores
Gap Inc. closing 85 stores
Home Depot store closings 15 of them amid a slumping US economy and housing market. The move will affect 1,300 employees. It is the first time the world's largest home improvement store chain has ever closed a flagship store.
J. C. Penney, Lowe's and Office Depot are all scaling back
Lane Bryant, Fashion Bug, Catherines closing 150 stores nationwide
Levitz - the furniture retailer, announced it was going out of business and closing all 76 of its stores in December. The retailer dates back to 1910.
Macy's - 9 stores closedMovie Gallery – video rental company plans to close 400 of 3,500 Movie Gallery and Hollywood Video stores in addition to the 520 locations the video rental chain closed last fall as part of bankruptcy.
Pacific Sunwear - 153 Demo stores closing
Pep Boys - 33 stores of auto parts supplier closing
Sprint Nextel - 125 retail locations to close with 4,000 employees following 5,000 layoffs last year
Talbots, J. Jill closing stores. Talbots will close all 78 of its kids and men's stores plus another 22 underperforming stores. The 22 stores will be a mix of Talbots women's and J. Jill
Wickes Furniture is going out of business and closing all of its stores. The 37-year-old retailer that targets middle-income customers, filed for bankruptcy protection last month.
Wilsons the Leather Experts – closing 158 stores
Zales, Piercing Pagoda plans to close 82 stores by July 31 followed by closing another 23 underperforming stores.
I know Linens & Things just went belly up, and Steve & Barrys recently filed for bankruptcy protection and sale.
12. Mall owners and commercial developers are on the brink of bankruptcy. Commercial developer CB Richard Ellis didn’t sound too optimistic in their recent 10Q filing:
We are highly leveraged and have significant debt service obligations. Although our management believes that the incurrence of long-term indebtedness has been important in the development of our business, including facilitating our acquisitions of Insignia and Trammell Crow Company, the cash flow necessary to service this debt is not available for other general corporate purposes, which may limit our flexibility in planning for, or reacting to, changes in our business and in the commercial real estate services industry. Notwithstanding the actions described above, however, our level of indebtedness and the operating and financial restrictions in our debt agreements both place constraints on the operation of our business.
General Growth, a mall developer, looks like a prime candidate for bankruptcy based on their recent 10Q info. Mike Shedlock assesses their situation:
Interest expense for 3 months ending June 30, 2008 was $312,943,000.Net Income for 3 months ending June 30, 2008 was $34,082,000 Earnings per share from continuing operations was $.01 Earnings per share from discontinued operations was $.12 If the cost to refinance $18 billion were to rise to 8.0%, interest expense would rise by 50% to a whopping $469,414,000 per quarter. Even 7% would be a killer based on the numbers presented above.
Given that the Shopping Center Economic Model Is History and credit is tightening everywhere, General Growth Properties is going to be in deep trouble if credit conditions remain as they are, or even if they improve slightly. I expect credit conditions to worsen.
13. Consumer and business confidence is shot. Consumer confidence is at multi-decade low levels. Small business confidence is also at historic lows. Small businesses do most of the hiring in the U.S. Consumers and businesses are correct in their assessment of the situation. It is our political and corporate “leaders” that are in denial.
In conclusion, the gathering storm has arrived. It will be long, painful and destructive. Those who prepared for the storm by not taking on excessive debt and living above their means, will ride it out unscathed. Those who built their house on sand by leveraging up and living the “good” life, will see their house swept out to sea. The storm will pass and we will rebuild. Our country is resilient. The purging of this massive debt will result in the creative destruction that is the hallmark of American capitalism. New opportunities, new technologies and a new attitude will put us back on course.
There has been and will be resistance to the inevitable deep recession that is coming. The American consumer is not cutting back willingly. They are being dragged kicking and screaming towards the joys of frugality. The “material generation” needs to dematerialize. My biggest concern is that our politician leaders and their cronies running our government will continue to try and reverse the normal capitalistic course of recession and expansion. Companies need to fail, housing needs to find its bottom based on supply, demand and price. Those who gambled must be allowed to lose and suffer the consequences. If the government attempts to shift the losses to those who lived lifestyles of thrift, an angry uprising will ensue. Government intervention in this natural process could lead to a decade long depression. Let’s hope that reasonable heads prevail.
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This article has 177 comments:
The small frugal family needs to take proactive action to protect whatever capital it has. Get out of stocks and (most) bonds. Put at least 50% in precious metals - gold or silver coins. Lay down stocks of long-life staple foods if you can get them at a fair price, well-packaged and continually rotate the stocks (only buy what you like to eat). Make all essential repairs to your property and lay down a stock of spares and tools. Think about where you would get water in a civil emergency and take action. Now is the time to make sure you have a working bicycle; there is a high probability of either rocketing fuel prices or unavailability. Buy a decent book written by Pioneers; tips and methods used by your great-grandparents. They lived off the land before industry started.
Thanks again for sharing your excellent article.
I agree with a previous commenter that you are too optimistic about assuming that the Government will not try to shift the losses to those who lived in thrift. Some early signs are ominous: for example, we are handling the foreclosure crisis by trying to prevent foreclosures. We are planning to spend more by means of stimulus packages instead of less. As you mention, this reversal of the capitalist process will only delay the inevitable. I would have liked a better, more elaborate treatment of an investment plan in that scenario. Also, you should include in your article the possible fates of the dollar.
Good article, lots of facts, and hence, I can't argue with the conclusion.
I will predict a huge run on the stock exchange starting in about 8 months and will let time set who is right.
www.contraryinvestor.c...
And, there are always ways to make money in the market...always.
The commentary in this was enough to make a few people up here with me remember their grandparents comments about the Great Depression and how they made it through that. they survived quite well considering the stuff they had to do and , well, let's face it, the party is well and truly over, as it should be...
When one listens to the quiet one can hear the bleats of in the distance...
I found his discussion of alternative investments of interest. His chapter on improved risk management covered overlays. He discussed that the portfolio “requires a high-frequency monitoring of the betas” to key market risk factors such as equity, interest rate duration, currency and credit risk. When he started the discussion of the factor decomposition of the portfolio, it made me think we all need to consider the overlay strategies in investment and pension funds. Your thoughts?
This time it is the "Great Correction".
Also nut trees, a large garden and some chickens. A strong fence, some guns (lots of ammo) and several guard dogs. Your own water well, solar power... a house designed to repel small arms fire, with several camoflaged, secure emergency exits. Also 4-wheel drive vehicle, flood survival gear (canoe or small boat), survival gear including 1st-aid kits. Lots of bottled water and 1 dozen extra cots & blankets (when eveyone else sinks, you may want to accomodate a few others). You get the idea.
Can a massive “readjustment” be far off (e.g. the UK in the 1949 and then again in '67)?
"...The debt induced spending that occurred from 2001 until 2007 accounted for virtually all the GDP growth over this time. Without the mortgage equity withdrawal, the U.S. would have had less than 1% average GDP growth for the entire period."
One quibble...credit card debt is going up, but not at previously seen rates nor is interest paid (NI) going up. Many, granted not all, folks use cards and pay at month end. Plus, as the auto bill, internet, etc expands, credit card usage goes up. Delinquencies and losses certainly are going up, but soon credit card balances will have to be separated into revolving vs paid.
Key:
My biggest concern is that our politician leaders and their cronies running our government will continue to try and reverse the normal capitalistic course of recession and expansion. Companies need to fail, housing needs to find its bottom based on supply, demand and price. Those who gambled must be allowed to lose and suffer the consequences. If the government attempts to shift the losses to those who lived lifestyles of thrift, an angry uprising will ensue.
great points:
The elimination of $2 trillion of household debt will lead to the closing of thousands of retail stores, strip malls, restaurants, and bank branches. There should be a lot of vacant buildings available in the next few years, and a few suspicious fires.
Government unemployment figures have begun to skyrocket, while the true unadjusted unemployment figures point to a major recession. If the number of people who have given up looking for a job were included, the official 5.7% unemployment rate would jump to 14%.
thanks james, great job
Thomas Jefferson was concise in his early warning to the American nation, "If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
found on: sonic.net/sentinel/nai... (note: not affiliated with this site)
People aspire to move up, mimic the life of rich. This is wrong of course, but it is a human nature that will not be stopped. Same thing --keeping up with your neighbors will always be there no matter what economy. People in slums do the same thing! This is true in the whole world, not only in America. But only in America you can make it from nowhere to multimillionaire. Aspiration for wanting more is not a bad thing. It fuels ambition to be the better than others, to make money. create business, etc.
2.If government would not punish our savings by taxing them, we could start saving more. What if government woud provide some incentive for savings? Our economy is based on sales and not savings. I am not sure if anything will change this.
3.I slightly disagree with your post 9/11 assesment of what US should have done. We all remember that. Terrorists wanted to cripple us financially. This is also one of their ongoing strategies. Stock market was rapidly sliding, people were scared home. Donating money did not boost economy.
4.Also I disagree that it was Bush whos objective was: housing for everybody. Bush did not create FHA. This idea stems from this kind of program. I don't know this, but I bet this idea stems from democrats.
If you look closely at retailers--most of them are old, or those who did not pay attention to trends, or overbuild. Retailers are hurting, but these particular retailers--reasons are more complex than just downturn.
Overall I really like your article. It brings clearity to this situation. We will need time to heal. Government actions will be crucial--you are right. This election will be nail biting for so many reasons. America needs experienced leader, not a cheerleader.
THE FUTURE OF FAMILIES IN AMERICA
In this ever changing and increasingly perplexing world, many Americans peer into their future with uncertainty and confusion. I am convinced that a widespread deception is at the core of this confusion. Modern day Americans have been duped and are in dire need of clear teaching and leadership about the times we live in.
We in America have been led to believe that Americans will escape suffering and hard times. Where does this belief come from? To begin with, it evolves from “life as we have always known it.” Our generation has experienced one of the most prosperous eras of any nation in history. As a whole, we don’t have a clue as to what real suffering and difficulties are; we just know the “good life.” Additionally, the popularity of all the “super success books” focusing on easy wealth accumulation, have diverted Americans from observing the events unfolding right before our eyes. We have been fooled into thinking that America guarantees us a soft life because we are # 1. But this deception leaves Americans confused, asking, “Where is the good life?” Why is this happening to me? This isn’t what I’ve been promised!” As a whole, the American people of today have bought into the American Dream & the Gordon Gecko entitlement philosophy, hook, line, and sinker. However, neither history nor reality gives credence to this popular “easy times for life” gospel of today. It is not consistent with current trends, or history itself.
And what does history demonstrate? In 1900, Great Britain ruled the world, fully convinced she would forever retain her supremacy. However, gradually over the next hundred years, her standard of living fell by 50% compared to the rest of the developing world. Meanwhile, due to our nation’s industrial productivity and military might, America’s standard of living surpassed Great Britain, more than tenfold. By 2000, Great Britain and America had merely swapped places as world rulers. Do we really have any reason to believe we will maintain our preeminent position? Or will America, like Great Britain, fall to the wayside and become a far lesser entity in the world? All current indications point to America falling from the top, and falling hard.
It behooves us to contemplate the fast-approaching storm that will soon hit all of America, especially families and the poor. Out of the East, China and India are fast becoming economic superpowers, soon to claim America’s status as world leader (as America once did to Great Britain). China’s GDP (gross domestic production) is currently running at about 12% -15% a year. At this rate, China will add approximately 300-400 million middle class consumers over the next ten years, all with surplus money to spend. This scenario will create enormous upward pressure on commodity prices such as gasoline, wheat, corn, cotton, lumber, steel etc. Furthermore, India is on track to add another 100 million middle class consumers to the planet and on top of that, there are over one hundred smaller, but expanding, economies in nations such as Russia and Brazil with a current GDP of at least 3% - 4%. Collectively, we’re looking at close to one billion consumers poised and ready to purchase our precious commodities. At the same time, globally, we are losing approximately 38,000 acres of arable land a year while adding approximately 100 million people per year. What will the end result be? The “pinch” Americans now feel at the check stand will escalate into an “economic tsunami.” Our nation will suffer hardship never thought possible in America.
To further confuse people, politician after politician, President after President, keeps promising Americans a better future, a future they cannot produce. And Americans, so used to good times, desperately cling to the promises, not wanting to face a life of less that seems to be inevitable.
Now more than ever my fellow Americans, we need to live wisely, build community, save and invest our recourses, and adjust quickly to the global changes of our world.
He was distraught because he thought that the financial crises was, for the most part, behind us. These guys on CNBC, including Larry Kudlow and that raving lunatic Jim Cramer, don't have a clue.
I take issue with some of the comment thought "But only in America you can make it from nowhere to multimillionaire"
The richest man in the world is a Mexican who was not born rich. I have relatives who live in England who have a life-style as good or better than any Americans I know. This arrogance of Americans in thinking that they are the only ones in the world who can get rich or have a superior life-style is a bit nauseating.
The "American Era" is over, this is the dawn of the "Asian Era" and those who think not will die with the old Era. Unfettered Capitalism has run it's course and the golden goose was slaughtered.
There has to be a reward to saving beyond patting yourself on the back for being virtuous.
On Aug 14 05:54 PM xsuddensam wrote:
> I had a good laugh this morning listening to chief CNBC talkinghead
> Joe Kernen complaining about another Wall Street Journal article
> reporting more credit problems on the horizon.
>
> He was distraught because he thought that the financial crises was,
> for the most part, behind us. These guys on CNBC, including Larry
> Kudlow and that raving lunatic Jim Cramer, don't have a clue. <br/>
>
There is a easy solution to the housing crisis - open the tap for immigration. Any rich foreigner, who does not have a criminal record and can document his earnings, and who can buy a house for cash (no mortgage) should be given a green card.
The problem will not only be solved in no time, but there will be a huge boom in real estate fueled by equity - not debt.
I guess I could exchange my dollars for euros, yen, or Aussie dollars and park that money in foreign banks. At least then I could afford to escape if things got really bad and I acted promptly enough.
Instead, I plan to invest in more education - business and a foreign language. Guaranteed high returns and the flexibility to not be trapped in a declining soon-to-be 3rd world country.
"If you want to blame anyone it should be the democrats who forced banks to loan money to people to buy homes they could not afford..."
Since most bankers are Republicans, can you tell me how this works? I thought banks are in the business of making money. Surely, no banker is going to be forced to make fraudulent and stupid loans to people who don't qualify. The incentive for making these loans was simply greed.
As I recall, congress has only been a Democratic majority since January of 2007 (seated) -- less than two years. The bulk of these loans were originated with the blessing of a Republican congress and a Republican white house.
Where will the money come from to merely pay the INTEREST on $53 Trillion of current PRINCIPAL (not future DEBT=PRINCIPAL + INTEREST).
How did we get here?
We got here altogether.
While government is corrupt, voters empowered the corruption by repeatedly rewarding corrupt politicians with perpetual re-election:
one-simple-idea.com/Co...
We got here due to these 10+ abuses over the past 30 years:
one-simple-idea.com/Di....
Now we are only beginning to feel the painful consequences, as evidenced by these 17+ deteriorating economic conditions, which have never been worse ever and/or since the Great Depression:
one-simple-idea.com/Ne...
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/De...) , jobless (money.cnn.com/2008/06/...) , homeless (one-simple-idea.com/Di...) , and hungry (www.results.org/websit...) ?
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
I kept waiting for someone, anyone, to mention energy. Doing a search puts the first mention of that word (thanks, Tim Miles!) in the second-to-last comment.
Let's talk a bit about fundamentals -- REAL fundamentals. Everything we do depends on energy. Some have said that Americans are resilient, creative, inventive, etc., and that we will figure a way out of this, and civilization will soon resume its upward path of infinite growth in a finite world. And yet, there is only so much energy -- and there is evidence that it is on the edge of terminal decline.
Today, even the poorest person supporting a family on a minimum wage income has the support of hundreds of "energy slaves." Pop a slice of bread in the toaster in the morning, and the energy equivalent of FIVE or more human slaves gathers fuel and starts a fire for you. Hop in that beater vehicle to go to your minimum wage job, and the energy of a THOUSAND human slaves push your vehicle down the street.
This will not continue. The gross energy consumption of the US exceeds the energy collected from sunlight of all the plants growing in the US by some 50% or more. We are in the last few decades of consuming the "ancient sunlight" that nature has stored.
So what we are seeing is simply the result of the beginning of energy suffocation of civilization. James Quinn does a brilliant job of analysing the secondary and tertiary effects of the beginning of the energy decline, but totally misses the underlying reason.
Understanding the energy decline is the key to survival.
And yes, the devotees of Adam Smith can be counted on to chorus that rising energy costs will simply enable other technologies and sources of energy. The problem is that cheap energy is a pre-condition for making solar panels, wind turbines, and biofuels. Take away the scaffolding, and the entire platform collapses. Analyse these in terms of energy, rather than dollars, and the future is not so predictable. Adam Smith's "invisible hand" is blind to finite limits.
Imagine you're in a space suit, orbiting earth. The space suit is stuffed with millions and millions of dollars of US paper money. Or what the heck -- call it gold, diamonds, or whatever else you can stuff in there. You have ten minutes of air left. The question is: how much will you have to pay for an additional ten minutes of air? Or even one minute?
To bring that analogy "down to earth" in the immortal words of Kenneth Deffeyes, "The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground." It ain't so.
If this concept is new to you, I encourage you to explore some of the following websites. This is not simply nut-case stuff. It's real, and we're now feeling the first effects of the terminal energy decline.
www.energybulletin.net
www.peakoil.org
www.peakoil.com
www.dieoff.org
One-Simple-Idea.com/US...
You know the saying: "When it rains, it pours".
However, in my opinion, the most significant root causes of most of our problems today are these 10+ abuses:
One-Simple-Idea.com/Di...
. . . which are mostly the cause of these 17+ deteriorating economic conditions:
One-Simple-Idea.com/Ne...
Voters are culpable too, since most voters repeatedly reward bad politicians with perpetual re-election.
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/De...) , jobless (money.cnn.com/2008/06/...) , homeless (one-simple-idea.com/Di...) , and hungry (www.results.org/websit...) ?
Perhaps when enough voters are feeling enough pain, they will do what most voters did in year 1933 (3+ years into the Great Depression; too late to avoid the pain of the excesses of the 1920s), when a whopping 206 members of Congress were voted-out of office.
One-Simple-Idea.com/Co...
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
One-Simple-Idea.com/De...
Our current nation-wide debt pyramid is now so huge (e.g. over $53 Trillion), it's probably no way to avoid the collapse. All that can be done now is to try to delay the collapse by creating more money out of thin air. But that won't work when most people can no longer carry any more debt.
This is why no one can answer the simple question:
WHERE will the money come from to pay merely the INTEREST on $53 Trillion of nation-wide debt, much less the money to pay down the PRINCIPAL, when that money does not yet exist?
It may take several more years, but the DEBT will continue to grow and grow. The Federal Reserve's only choice is to continue to keep inflation high by creating more money out of thin air. In fact, the government will give away money if necessary (in the form of more stimulus checks).
The writing is on the wall.
Do the math.
$53 Trillion of nation-wide debt is a recipe for economic disaster.
Where will the money come from, when it doesn't already exist?
Especially when 80% of all Americans only own 17% of all wealth?
"May you live in interesting times," the old Chinese admonition goes. Investors are headed for some interesting times indeed.
I am not sure that the government is corrupt since I have spent nearly 32 years in it and work alongside highly dedicated and professional public servants. Perhaps certain people in our political system are corrupt, but American voters have a responsibility to do something about it. I have voted in every election since I received the right to vote so I am not to blame.
For an alternative take on CC debt, see:
articles.moneycentral....
IMV wrote: The economy will recover by mid 2009. Buy assets NOW!! And join me in the next party.
______________________...
Think so?
Where will the money come from to pay the INTEREST for $53 Trillion of nation-wide debt, much less the money to keep the PRINCIPAL of $53 Trillion from growing ever larger?
And that $53 Trillion of nation-wide debt does not even include the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 Million baby-boomer-bubble approaching.
It may take a few more years; perhaps even another decade, but there will be painful consequences for so much debt.
Take of those rose colored glasses.
The U.S. is in serious economic trouble that will be painful for many people for many years.
Sure, blind pessimism is foolish, but so is blind optimism; like an ostrich with it's head stuck in the sand . . . it had better be careful it really isn't a bucket of setting concrete . . . a mishap that perhaps could be avoided if it weren't for the rose-colored glasses.
P.S. David Walker, former U.S. Comptroller has been warning us about the massive debt and exacerbating problems for years.
Watch some of his videos.
It's more serious than many know.
One-Simple-Idea.com/De...
At any rate, here's one simple question.
WHERE will the money come from to pay the INTEREST alone on $53 Trillion of nation-wide debt, much less the money to keep the $53 Trillion PRINCIPAL from growing larger, when that money does not yet exist? Can you say: inflation ?
The Federal Reserve and government are now in a real pickle, and they will be creating massive amounts of money, and giving it away for free (i.e. more stimulus checks) to keep the pyramid from collapsing.
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
into America then who would have built all of these homes? My educated guess leaves me to believe that the normal working man would have built these homes. Less soldiers means smaller army.
Smaller army means less homes. Less homes means better economy. If you think about it these homes built by illegal criminal immigrants were in retrospect illegal operations. Illegal doings have consequences. Thanks to all of our politicians who were to much of a coward to stand up for what is right has now lead us down the very spiral we fall today and tomorrow. Anyone who cannot see the problem
America faces today and in the coming YEARS has something wrong
with there reasoning system. It is a new disease. Something that plagues us all. Denial. GOOD LUCK AMERICA!!!!!!!!!!!!
You are living a life based on false economic pretenses.
It doesn't really matter that you are no longer able to lease that overpriced luxury car. You wouldn't be able to afford the gasoline to operate it even if you could.
Don't think that just because you were able to borrow your way into high six or seven figure balance sheet, that you are wealthy. Far from it!
In my father's day they called it a DEPRESSION.
These days it is called a correction.
Either way, it is the Middle Class who will suffer the longest and hardest.
Thank you Alan Greenspan, Ronald Reagan, Bill Clinton and G. Bush 1 & 2.
Great work!
www.wharton.upenn.edu/.../
Hmmmmmm?
You seem to be an intelligent man. But you have quaffed too much of the media Kool-ade.
To wit: GAO says 68% of corporations pay no Federal income taxes.
To wit: The Federal income tax system favors the rich.
The facts...the GAO study also mentions that 50% of corporate earnings passe through the Sub-S and LLC corporations untouched but flows DIRECTLY to the shareholders pro-rata to be taxed on their 1040s instead of the corporations' 1120s. No tax is lost.
The 68% allegedly lost is reduced by the 50% paid by the shareholders directly. The other 18% represents (in the main) corporations that had negative earnings.
Of Federal income taxes, the top 1% of income earners pay 39.4% of all Federal income taxes yet own only 21.2% of all income. The top 10% of all earners pay 70.3% of these taxes with only 46.4% of the income.
Moreover, the bottom 50% of all earners pay 3.07% of the taxes with 12.8% of the income. This favors the rich? I pay 33.4% of my total income for Federal taxes, an amount equal to more than 2000 of the average from the lower 50%.
Do a little fact finding before regurgitating the media myths.
Why don't you try to say something intelligent rather than calling people frauds. I'm not on the faculty. Look in the staff diectory. I guess with your research skills, you aren't a graduate of Wharton.
Details - Public View Close
JAMES G QUINN
Sr. Director of Strategic Planning, Wharton Finance and Planning (Staff)
jamg@wharton.upenn.edu
Try Googling "James Quinn Wharton". You'll find plenty of professional activities for your "fraud". Next time don't go off half-cocked. Get some facts first.
The argument goes something like "screw the other guy more or earlier than he screws you", but bottom line, living on interest (usury) instead of production isn't a solid foundation for an economy.
In fairness to all, could you clarify what your role is at Wharton?
Oh, and to Mr. jlounsbury59, the results you get from your suggested google search do not lead to the author of this article (except for a bunch of reprints of blog entries from the last couple weeks.)
Favorite comment is from OldLimey - great summary about American consumerism.
My own comments:
1) This article would seem to advocate for what Greenspan recently wailed about - wiping out Fannie and Freddie and starting anew. I'd imagine that would fix at least a large portion of the mortgage mess, although not necessarily the balance sheets of American consumers.
2) Interesting to track the boom/busts of the past 10 years. First, it was in stocks, which have since recovered, even the techs given their P/Es. Then, it migrated to housing, which is nearing a bottom. Now, it is in commodities, which with the dollar's ascent, are fast falling themselves. What's next? Am I missing a market? Or are stocks really ready for another speculative boom cycle? Or should we...
3) Look to other consumers - I will focus on China, although other regions may also have a similar backdrop. The size of its currency reserves, the still pristine savings rate, and the more-than-likely continued, unstoppable growth seem ripe for the flourishing of the Chinese consumer. Such a development would be healthy for the country, as it would be able to self-sustain its economic growth, and become less dependent on exports. In the international arena, it has every reason to pursue such a path to smooth relations with debtor nations. Moreover, with the recent plunge in Chinese equities, incredible deals are ripe for the picking.
Conclusion:
I think if one were to take this article seriously a decent course of action would be to
1) Deleverage, as many others have already commented on
2) Buy puts or sell short Fannie and Freddie
3) Stock up on single-digit P/E developing nation stocks with a similar profile as China.
Be careful of
1) Nations reliant on commodities - WSJ just put out an article citing speculative activity accounting for the majority of the transactions in the oil market - it is easy to imagine other commodity markets, and hence other nations' economies, infected by the same disease
2) US consumer discretionaries without a strong, diversified international portfolio (just don't let an AAPL hit my head)
3) Single-digit P/E US stocks, but ahem, there is no such thing.
Cheers, and happy hunting!
When I wrote "Nations reliant on commodities", I meant "Nations reliant on exporting commodities", not importing them. I'm sure Japan would be quite happy (or less unhappy) if commodity prices fell further.
Donnernv wrote: Moreover, the bottom 50% of all earners pay 3.07% of the taxes with 12.8% of the income. This favors the rich? I pay 33.4% of my total income for Federal taxes, an amount equal to more than 2000 of the average from the lower 50%.
Do a little fact finding before regurgitating the media myths.
______________________...
Funny how those accusing others of perpetuating myths are the very ones doing it.
Your numbers and percentages on income taxes exclude one important fact: those tax rates are on adjusted income; NOT gross income. The current tax system is regressive due to a myriad of tax loop-holes that favor the wealthy.
Not only that, capital gains and dividends are not subject to Social Security and Medicare taxes.
Social Security and Medicare taxes are 15.3% (half from employee, half supposedly from employer, but really comes out of employee's pocket).
Not only that, but Social Security is capped at about $98K, making it even more regressive.
Not only that, capital gains are taxed from 5%-to-15%.
The tax system is regressive and unfair.
The middle-income groups is getting soaked.
Here's the proof:
One-Simple-Idea.com/Di...
Sorry for reacting angrily to your post. I am responsible for Planning and Budgeting at Wharton. My group supports the faculty in their efforts in research and teaching. Faculty are referred to as faculty. If the title is director or senior director, that means you are staff.
and give the middle class a tax break. Boy that sure sounds good doesn't it. Oh wait, I just lost my job because the evil big business are now paying huge tax increases and in return has to cut back on 2,600 jobs to make up for lost revenue. I really don't think a tax break for middle class is going to help me if I don't have a job. Now instead let us give big business a tax break and a chance to expand with opportunity for new employment instead of laying people off. Wow, new jobs. Like I said before everyone is in denial of what's going on around them. Americans have become such brats that instead of embracing new data for educational purposes such as the article above they would rather spend all there time trying to discredit. Open your eyes America
and realize it is time to think about the big picture and not just yourself.
This effects us all and it's sad to believe that most will not even try to see the existence of this national problem until poverty comes knocking at their door. GOOD LUCK AMERICA!!!!!!!!
Maybe even more worrisome are the measures the USG will take to get us out of this mess. The more likely will tend to salve the self-inflicted wounds, but not address their systemic basis (such as the much-ballyhooed tax stimulus package). In the end, if we do not do what is necessary to fix our financial system and our own way of living, we will only add pain for ourselves, our children, and our grandchildren.
The Barren wrote: Yes, lets talk about taxing the big business. I do not believe anyone is thinking clearly enough to see who they work for. So lets tax big business
and give the middle class a tax break. Boy that sure sounds good doesn't it. Oh wait, I just lost my job because the evil big business are now paying huge tax increases and in return has to cut back on 2,600 jobs to make up for lost revenue. I really don't think a tax break for middle class is going to help me if I don't have a job
______________________...
You're right.
Taxing corporations is really like yet another regressive sales tax on consumers.
The tax system is already too regressive.
One-Simple-Idea.com/Di...
Taxation doesn't have to be so complicated.
The reason it is so complicated (by design) is so that it will be ripe for abuse.
We need a simpler and fair tax system.
Here's a good start: One-Simple-Idea.com/Ta...
Of course, that would make too much sense, and Do-Nothing Congress (One-Simple-Idea.com/Co...) is a graveyard where good ideas and common-sense solutions go to die.
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
We can't raise taxes when the economy is bad, we can't raise taxes when the economy is good, and we can't cut spending. So lets just print more money, hide the tax increase and B.S. the middle class
into thinking they're getting ahead.
That's is the only option left.
But it won't work for long.
Eventually, the debt pyramid will collapse.
The real issue is the energy issue. I am an optimist and believe that it can be solved. I'm not saying there won't be huge pain that comes from lowering expectations. But I don't think it's about to dry up overnight... I don't think the sky is falling. But with energy who really knows? If it's energy that's the long-term problem then debt on the books of Americans won't mean much anyway.
We can build large scale solar, wind, nuclear, and other innovative technologies here. We can build products to sell to China and to other places in the world. The infrastructure is here. If Asia is the next wave of prosperity, it will be because America is paying off the debts it has acquired. In short, just because an era of massive consumption may be coming to an end, this country and the people here won't just wither away. We have agriculture and infrastructure and people and factories here. We will just become producers and savers by necessity. The shoe will soon be on the other foot... ie, we will be the next China. The wave of pessimism seen in the comments here is a necessary stage, but don't forget that the sun also rises. In the long run this isn't the downfall of America, it's simply the rise of other countries. And we went into debt for it. And it won't be fun to work our way out of the hole. But America won't be cut off from from the international finance system. Stop crying, take note of the reality, and deal with it.
Laugh out loud funny.
Hopefully, the I.O.U.S.A. movie will be a success. First you admit you have a problem - and then you can go about the business of trying to solve it.
Brilliant! I wish I could have said it better myself. seekingalpha.com/artic...
A different long-term solution is to invest offshore in global growth stocks. Several international stocks are now growing explosively and are offering good dividends. YUM and DEO are good examples which are linked to food and beverages in EU and Asia. Fundamentally, they are very well-managed companies with strong books, and they are recommended for a "buy & hold" strategy by many groups all over the Internet, that is "buy & forget."
Another angle for approaching the doom & gloom issues is to view everything as a "numbers game." If you think the dollar will undergo something like what happened to the Ruble during the dissolution of the USSR, then consider the price fixing history of gold over the last 50 years. What happened in Japan is also not likely to occur, since the problem there was that the Japanese government didn't do anything. (Our Fed monitors everything very closely). It would be beneficial to start reading up on the history of fiat currencies (paper money) and their demise, why the US got off the gold standard, history of how much gold is in Fort Knox and what happened in the 30's and 70's in the lifetime history of gold. Once the picture becomes clear, you will begin to realize that there is no way that goldville will be the only place to live in the future. There's a lot of manipulated (paper) money out there in the form of electronic digits, and thus, it's an erroneous assumption to expect that significant dollar devaluation will occur and that gold will explode to 2000 overnight. With gold, history has shown that the advantage is related to the long-term chronicity of hedging against dollar devaluation, and not some get-rich-quick scheme based on overnight rallies. Over the long term, you would actually want a lot of gold in your portfolio, so after the price of PM's (precious metals) settles down, then maybe buy again for safety reasons. One thing is certain, if the price of gold got down to say the true value (not overpriced significantly) then you would want to buy say 500K or 1m of it, and then you will have a nice nest egg. Of course, the timeframe here is over the next 10-20 years, when the dollar won't be the fiat currency of the world. Fundamentally, whatever you are doing, you have to invest in growth - companies with rock-solid management and profitable books. Betting (hedging) that your portfolio is going to grow with e.g. a PM is not growth. Last, be careful about groups that focus solely on investment with US stocks, because the US economy makes up only 15-20% of the global economy. In real terms, because we're the greatest debtor nation, the true percentage is probably 5-10%.
Perhaps it is time to rethink the entire idea of usury.
At one time, usury was loaning money at any rate of interest.
It is interesting that we now consider some usury OK.
But if usury is bad, how can a little bad be good?
If inflation is bad, how can a little inflation be bad?
But, aside from the moral question, there is a mathematical problem.
That's why no one can tell us where the money will come from to pay the INTEREST on $53 Trillion of nation-wide debt, much less the money to pay down the $53 Trillion of PRINCIPAL, and keep the PRINCIPAL from growing ever larger, when that money does not yet exist ! ? !
The M3 Money Supply in year 1950 was 135 Billion.
By year 2005, it was $10.15 Trillion.
That's a factor of 75.2.
Yet, we did not become 75.2 times wealthier, did we?
Especially when the population doubled from 150 Million to 300 Million.
So, where will the money come from?
There's only one option left, and it's not a good option.
The government and Federal Reserve will create more money out of thin air.
However, that upside-down pyramid will eventually collapse when we can no longer carry any more debt.
A 1950 Dollar is now worth 10 cents.
Inflation will most likely get worse.
If necessary, the federal government and the Federal Reserve will start giving away more money (i.e. more stimulus checks) and tax cuts to stave off the collapse of the monetary system.
And all of those nations that invested in the U.S.' $53+ Trillion of nation-wide debt may come to regret it (like trying to put a fire out by throwing more fuel on the fire).
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
Well done.
I happen to think that it's very unamerican on the part of some to constantly put out the idea that the sun is setting on America. The sun is not setting on our great nation, it is rising!
____________________
Published by SA August 17, 2008 - America's Fiscal Crisis: Tough Decisions Needed Now
Previous title, Published May 2, 2008 - Why We Need Ron Paul
www.lewrockwell.com/or...
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Published by SA August 13, 2008 - The Economic Cost of the Military Industrial Complex -
Previous title, Published June 18, 2008 - Ron Paul and Dwight D. Eisenhower True Patriots
www.lewrockwell.com/or...
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Published by SA August 6, 2008 - Corporate Fraud + Government Intervention = Bailout Nation
Previous title Published June 18, 2008 – Corporate Fraud + Government Intervention = Bailout Nation
www.lewrockwell.com/or...
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Published by SA August 4, 2008 - Delusions of Debt - Published
Previous title Published July 26, 2008 – Truth is Treason in the Empire of Lies - Delusions of Debt – The Ron Paul Solution
freethemarketman.wordp.../
There's nothing un-American about taking a critical look at the sorry state of affairs that has led us, as a country, to the brink of economic collapse. In fact, I'd argue that the collective greed and fiscal irresponsibility of those in a position of both business and political power is what's un-American here.
And though I don't want to introduce an overtly political component into this conversation, I have to say your remarks sound all too similar to those made by "proper" Americans who accused anyone openly critical of the Iraq war of being un-patriotic. Fortunately, some people understand that loving their country doesn't require them to sit passive and mute while it gets run into the ground by a wealthy minority whose own special interests trump (no pun intended) the majority of the population's.
Your statement demonstrates a complete inability to understand reality.
So please answer one question for us:
QUESTION: Where will the money come from to merely pay the INTEREST in the $53+ Trillion of nation-wide debt, much less the money to pay down the PRINCIPAL and keep it from growing ever larger to nightmare proportions, when that money does not yet exist?
Especially when 80% of the U.S. population owns ONLY 17% of all wealth (a trend that has been worsening fast since year 1976 (One-Simple-Idea.com/Di...)?
Where will the money come from?
Creating more money out of thin air won't work after most Americans are so deep in debt that they can't carry any more debt.
And that $53+ Trillion of nation-wide debt does NOT even include the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby-boomer bubble approaching (13,175 new recipients per day!).
At a mere 4.0% interest, and if the U.S. started paying down the debt by about 5.81 Trillion per day (instead of borrowing $3 Billion per day), it could take 272 years to pay down that much debt. Quite honestly, I don't think it's going to happen. It's quite possible that we have passed the point where that may have been possible. And with the do-nothing Congress (One-Simple-Idea.com/Li...), what are the odds that the federal government will ever have the discipline to stop the rampant spending, borrowing, and money printing?
reinvestor x, So anyone calling others un-American and unpatriotic for discussing and raising awareness about the U.S. economy is quite ridiculous, and bordering on delusional.
Such anti-anything-NOT-rosy sentiments undermines the credibility of any of your comments.
Anyone in the U.S. that isn't worried about these 10 abuses (One-Simple-Idea.com/Di...) of the past 30+ years, resulting in these 17+ deteriorating economic conditions which have never been worse ever and/or since the Great Depression, must be very wealthy already, or livin' on another planet.
If not, please tell us WHERE will the money come from when it doesn't already exist?
Do you seriously think that usurious, dishonest, upside-down pyramid can be perpetuated indefinitely (One-Simple-Idea.com/De...)?
I've heard similar anti
At any rate, the voters have the government that the voters elect.
one-simple-idea.com/Co... (Pressing Problems)
one-simple-idea.com/Di... (Root causes and consequences...)
one-simple-idea.com/So... (Solutions...)
Rowdy wrote: And though I don't want to introduce an overtly political component into this conversation, I have to say your remarks sound all too similar to those made by "proper" Americans who accused anyone openly critical of the Iraq war of being un-patriotic.
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Good point ! I was thinking the same thing.
reinvestor x wrote: I have a firm grasp of reality and have no need to be sarcastic.
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Challenging others' patriotism for disagreeing with your predictions of a rosy future doesn't lend much credibility to that comment. Why not stick to some facts?
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reinvestor x wrote: I do have much affinity for my country and see no purpose in the constant "woe is the USA" mantra that seems to permeate the blogs nowadays.
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You are entitled to your opinion. Why would someone find anything not-rosy so distressing? Ohhh . . . well, perhaps we should ask Phil Gramm. Perhaps we are only having a mental recession?
However, again, challenging others' patriotism while ignoring the massive evidence (One-Simple-Idea.com/Ne...) to the contrary does not lend much credibility to your comments. That is, unless you can explain-away these abuses (One-Simple-Idea.com/Di...) and these resulting consequences (One-Simple-Idea.com/Ne...).
Better yet, perhaps you can tell us WHERE the money will come from to merely pay the INTEREST on the $53+ Trillion of nation-wide debt, much less the money to pay down the PRINCIPAL and keep it from growing ever larger to nightmare proportions, when that money does not yet exist?
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reinvestor x wrote: We are not on the brink of economic collapse and the landscape is littered with those who tried to count America out. It ain't happening.
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It must be nice to have a crystal ball to predict the future.
Perhaps you know something the majority of Americans, and economists, and the former U.S. GAO Comptroller don't?
Anyone who thinks that 17+ economic conditions (One-Simple-Idea.com/Ne...) that have never been worse ever and/or since the Great Depression is nothing to be seriously concerned about, then they must be smokin' somethin' , because such anti-anything-NOT-ROSY sentiment borders on delusional.
With women entering the workforce in great numbers and the number of two-income households increasing, wouldn't household income, and debt capacity, increase more rapidly than national income. Also tending to increase debt capacity is the fact that many household expenses coming out of the first income would be fixed and the second income could be devoted more exclusively to servicing debt. That greater debt capacity could account for some of the increase in household debt as a percent of national income.
Also, it seems that falling interest rates over the past 26 years have contributed to the increase in household debt. The key element to look at in terms of debt is not the principal amount, but the monthly payment required to service it. This is the standard used by lenders to judge the amount of principal a borrower is qualified to borrow. For example, the monthly payment on a $150,000 mortgage at 10% is about the same as the monthly payment on a $240,000 loan at 5%. Thus interest rates falling from 10% to 5% would have contributed to a $90,000 increase in household debt, even though the borrower would have been no worse off because his fixed monthly payment would have been the same.
The first chart implies that households are much worse off than they were 30 to 40 years ago because of their increased debt levels. That could very well be true. But to prove that point, the appropriate measure would seem to be to compare household debt service costs with household income after expenses but before debt, in constant dollars. I think the measure/chart presented does not present a completely accurate picture.
I really liked the article. And have read some of James' other articles. They are very well written and thought out.
User245196 wrote: Rather than household debt as a percent of national income, wouldn't a better measure be household debt as a percent of household income. That is, isn't there an apple-to-oranges element in using household debt/national income?
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Yes, that could be done, but real median household income has barely risen since 1978 (one-simple-idea.com/Di...). Especially when also considering that there are now more workers per household.
Besides, the $53 Trillion nation-wide debt is over 380% the nation's $13.9 Trillion GDP (one-simple-idea.com/Di...).
Also, 80% of all Amerincans only own 17% of all wealth (One-Simple-Idea.com/Di...).
20% of all Americans have negative net-worth.
40% of all Americans (on average) have ZERP net-worth.
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User245196 wrote: With women entering the workforce in great numbers and the number of two-income households increasing, wouldn't household income, and debt capacity, increase more rapidly than national income.
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Yes, but real household median incomes actually fell (on a per person basis), when including the fact that there are more workers per household, while debt rose extremely fast for many years, as evidenced by the nation-wide debt -to- national-income graph (one-simple-idea.com/Di...).
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User245196 wrote: Also tending to increase debt capacity is the fact that many household expenses coming out of the first income would be fixed and the second income could be devoted more exclusively to servicing debt. That greater debt capacity could account for some of the increase in household debt as a percent of national income.
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Since year 1976 (one-simple-idea.com/Di...), the debt/income ratio has been growing worse (not better).
Also, since year 1976, the wealth disparity gap has been growing steadily worse (one-simple-idea.com/Di...).
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User245196 wrote: Also, it seems that falling interest rates over the past 26 years have contributed to the increase in household debt.
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True. Easy credit is bad. Especially now, when greedy banks hiked interest rates on millions of home owners, making their mortgage payments more than they can afford (doubling in many cases).
To understand the motives behind all of that easy credit, one should watch this 47 minute video (video.google.com/video...).
The monetary system isn't only morally problematic, it is mathematically flawed, as are all pyramid schemes.
That may sound like some wild conspiracy-theory rhetoric, but I invite anyone here to try to disprove it.
That is why no one can tell us where the money will come from to merely pay the INTEREST on the $53+ Trillion of nation-wide debt, much less the money to pay down the PRINCIPAL and keep it from growing ever larger to nightmare proportions, when that money does not yet exist?
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User245196 wrote: The key element to look at in terms of debt is not the principal amount, but the monthly payment required to service it.
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Good point. I've done just that.
Let's start with the $9.4 Trillion National Debt (for now, we'll exclude the $12.8 Trillion borrowed and spent from Social Security).
At only 4.5% (which is currently already 1.1% below inflation), the daily interest is $1.16 Billion per day.
Therefore, if the federal government stops borrowing about a billion per day, and starts paying back about $1.6055 Billion per day (enough to keep the debt from growing ever larger), it would take 153 years (One-Simple-Idea.com/ht...) to pay down the $9.4 Trillion National Debt.
Now consider the nation-wide debt of $53 Trillion (and again, for now, we'll exclude the $12.8 Trillion borrowed and spent from Social Security).
At only 4.0% interest (which is 1.6% below current inflation), the daily interest is $5.8 Billion per day.
Therefore, if we stop borrowing $3 Billion per day (enough to keep the debt from growing ever larger), and start paying back $5.81 Billion per day, it would take 272 years (one-simple-idea.com/De...).
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User245196 wrote: This is the standard used by lenders to judge the amount of principal a borrower is qualified to borrow. For example, the monthly payment on a $150,000 mortgage at 10% is about the same as the monthly payment on a $240,000 loan at 5%. Thus interest rates falling from 10% to 5% would have contributed to a $90,000 increase in household debt, even though the borrower would have been no worse off because his fixed monthly payment would have been the same.
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No doubt, interest rates and the length of the loan are important factors. In my opinion, 30 year loans (for most people) is insanity. And getting an adjustable rate loan is an invitation for abuse (which we have observed for the past few years, and still ongoing now).
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User245196 wrote: The first chart implies that households are much worse off than they were 30 to 40 years ago because of their increased debt levels.
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That's right. But don't forget, real median household incomes have actually stagnated (or fallen), when considering more workers per household; household cash as a percent of debt has fallen drastically since 1976 (bigpicture.typepad.com...); household debt versus income has skyrocketed since 2002 (photos1.blogger.com/bl...); we have more regressive taxation than ever before (One-Simple-Idea.com/Di...); rampant illegal immigration; savings are at the lowest level since the Great Depression; the monetary system is a dishonest, ururious, predatory pyramid scheme; and numerous other abuses (One-Simple-Idea.com/Di...) and manifestations of unchecked greed, widening the wealth disparity gap ever farther.
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User245196 wrote: That could very well be true. But to prove that point, the appropriate measure would seem to be to compare household debt service costs with household income after expenses but before debt, in constant dollars. I think the measure/chart presented does not present a completely accurate picture.
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No, but there is ample evidence that household debt versus income is rising, and not likely to improve for some time.
At any rate, the voters have the government that the voters elect.
one-simple-idea.com/Co... (Pressing Problems)
one-simple-idea.com/Di... (Root causes and consequences...)
one-simple-idea.com/So... (Solutions...)
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AcidBoy wrote: Well it's about time someone puts this problem into the light. I wonder how many people read this and understand that Americans are nothing but a bunch of sheep. We hear what they say ( The Government) and believe it all. Sad isn't it.
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Yes, it is.
Too many sheeple. BAAAAHHHH (www1.duc-anh.com/watch...) !
When will it get better?
When failing to reject apathy, complacency, blind partisan loyalties, laziness, irrational fears and hatreds, ignorance, and laziness finally becomes too painful.
In a voting nation, an educated electorate is paramount.
Thomas Jefferson said: "If a nation expects to be ignorant and free, in a state of civilization, it expects what never was and never will be."
The voters will get their Education (One-Simple-Idea.com/Pr...) one way or another. They merely need to decide if it's going to be the smart, responsible way, or the hard and painful way (One-Simple-Idea.com/Sc...) again.
I noticed that the "anti-anything-NOT-ros... crowd seldom (if ever) back up their happy-talk with facts, or facts to refute the sobering facts being presented. Above, you see one person challenges the author's (James Quinn's) graphs and data, but offers no evidence to the contrary. Another person says:
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"I have a firm grasp of reality and have no need to be sarcastic. I do have much affinity for my country and see no purpose in the constant "woe is the USA" mantra that seems to permeate the blogs nowadays. We are not on the brink of economic collapse and the landscape is littered with those who tried to count America out. It ain't happening."
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. . . but also fails to provide any evidence or analysis to refute the author's facts.
Who are these happy-talkers, and why are they so distressed by anyone discussing, analyzing, and working to find solutions (One-Simple-Idea.com/So...) to our pressing problems?
Why are they so distraught by those trying to educate the voters?
Why do they want us to stick our head in the sand, or keep our rose-colored glasses on?
Why does Phil Gramm (recent former economic advisor to John McCain) and other similar ilk want us to believe it is merely a "mental recession" ?
How can anyone look at these 17+ deteriorating economic conditions (One-Simple-Idea.com/Ne...) and say, "don't worry, be happy"!
You can disagree, but you aren't going to silence us.
And if there's anything that is truly un-American, it's trying to squelch free-speech, and challenge Americans patriotism by portraying dissenters as un-American. Heil !
Perhaps it is because these "happy talkers" don't want the usurious, dishonest pryamid system, and other manifestations of unchecked greed to finally collapse?
That's why they tell us "don't worry, be happy . . . now go to the mall and SPEND, SPEND, SPEND !".
Greenspan encouraged people to get "Adjustable Rate Mortgages" (ARMs).
Then what did the greedy banks do? They jacked up those rates, creating the most massive rate of foreclosures in American history (One-Simple-Idea.com/Di...).
And when that was risking collapse of the pyramid monetary system, the government and Federal Reserve (One-Simple-Idea.com/Fe...) created more money out of thin air and gave it away in the form of tax rebates and stimulus checks!
Get ready for more of that, and more inflation to go with it (One-Simple-Idea.com/US...).
There are now only two things that the government and the Federal Reserve can do, which will only delay the inevitable collapse of the usurious, dishonest monetary system:
(1) create more money out of thin air; get ready for more inflation (One-Simple-Idea.com/De...).
(2) give away more money (created out of thin air) in the form of stimulus checks, tax rebates, and tax cuts; while the massive debt grows ever larger, to nightmare proportions (One-Simple-Idea.com/De...).
The thing is, a funny-money-fiat-money system can be perpetuated for a long, long time, but if many other manifestations of unchecked greed gets out of control (such as these 10+ abuses: One-Simple-Idea.com/Di...), it hastens the inevitable collapse of the pyramid scheme (video.google.com/video...). That's what we have today. We may have already passed the point in which our massive debt can actually ever be serviced, much less paid down. The debt may now be past the point where it is possible to pay the INTEREST and reduce the PRINCIPAL so that the PRINCIPAL will stop growing ever large to nightmare proportions (One-Simple-Idea.com/53...). Especially with such a do-nothing Congress (One-Simple-Idea.com/Co...), and too many voters that repeatedly reward irresponsible and corrupt incumbent politicians (One-Simple-Idea.com/Li...) with perpetual re-election (One-Simple-Idea.com/Co...).
This is why no one can (or wants to) tell us WHERE the money will come from to merely pay the INTEREST on the $53+ Trillion of nation-wide debt, much less the money to pay down the PRINCIPAL and keep it from growing ever larger to nightmare proportions, when that money does not yet exist?
At any rate, the voters have the government that the voters elect (One-Simple-Idea.com/Ma...).
one-simple-idea.com/Co... (Pressing Problems)
one-simple-idea.com/Di... (Root causes and consequences...)
one-simple-idea.com/So... (Solutions...)
keilios wrote: None of them coerced any Americans to borrow against their home in this fashion. This really comes down to personal responsibility, and every American, every human, must take personal responsibility for their actions.
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Not entirely. There was a lot of fraud and usury too. And then those loans were bundled and sold all around the world. The problem reaches far beyond our own shores.
Therefore, this is not merely a consumer problem.
More accurately, we are ALL culpable, but not so much in the areas you designate.
But we are ALL culpable.
The problem is:
(1) government is corrupt and irresponsible,
(2) but too many voters repeatedly reward the incumbent politicians in the two-party duopoly with 85%-to-90% re-election rates (One-Simple-Idea.com/Co...).
Perhaps enough voters will be less complacent, apathetic, and blindly partisan (one-simple-idea.com/Th...) when enough of the voters are jobless (money.cnn.com/2008/06/...) , homeless (one-simple-idea.com/Di... , and hungry (www.wsws.org/articles/...).
At any rate, the voters have the government that the voters elect (One-Simple-Idea.com/Ma...).
one-simple-idea.com/Co... (Pressing Problems)
one-simple-idea.com/Di... (Root causes and consequences...)
one-simple-idea.com/So... (Solutions...)
The vast majority of home loans/defaults are not due to fraud, but to subprime loans; risky loans to risky buyers. Not all, but the vast majority. These individuals who took these loans know their own credit history, they know who/what they are. Yes, there was some banker/consumer fraud that added to the mix, but that's not the majority of the cases. It still comes down to "buyer be ware". We, as individuals, must be educated about our investments and make as informed and educated choices as we can. Too many subprime borrowers were just so delighted to be able to finance something that they did so wrecklessly and without regard to future possibilities. Too many bankers were just too greedy to reap the benefits of yet another high interest mortgage that they failed to read the writing on the wall. That's not the government's fault, no matter how much better it may make one feel to attempt to foist all the blame onto the government. As I stated, they have enough of their own failings to account for without adding our own agency to the mix.
The sad thing is, the current economic crisis was inevitable. Had the government actually provided oversight and regulation years ago when non-conforming loan programs became popular, the housing boom would have been short-lived at best. Without the insanely lenient lending guidelines that were so pervasive up until early-to-mid 2007, the economy would have been in the toilet 5 – 7 years sooner because a significant percentage of people who bought or refinanced homes during that time would have never qualified for financing...effectivel... driving a stake in the heart of the real estate-fueled economic boom.
keilios wrote:
As I stated, they [government] have enough of their own failings to account for without adding our own agency to the mix.
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Nonsense:
(1) Who promoted Adjustable Rate Mortgages? (i.e. Greenspan, the Federal Reserve, a quasi government controlled/privately owned bank).
(2) Who encouraged spending, consumerism, and home buying (i.e. Bush and his administration)?
(3) Who deregulated the corporations behind much of the unchecked greed?
(4) Who has grown government ever larger, to nightmare proportions?
(5) Who is now bailing out the banks (i.e. wealthy), and shifting the consequences to the tax payers?
(6) Who is responsible for the rampant usury and fraud?
(7) Who is now giving away money (e.g. tax rebates, stimulus checkes, tax cuts) to prevent the collapse of the usurious, dishonest monetary system?
(8) Who is responsible for these 10+ abuses (One-Simple-Idea.com/Di...) and the resutling 17+ deteriorating economic conditions (One-Simple-Idea.com/Ne...)?
Yet, you say the government has not responsibility for the mortgage meltdown?!? Pure nonsense.
The arrogant, corrupt, FOR-SALE, do-nothing Congress (one-simple-idea.com/Co...) is 50% (or more) responsible.
The voters are also 50% responsible.
Guess what, due to lack of regulation, lack of responsible monetary policies, some responsible homeowners are still being harmed, because the massive foreclosures are affecting them too. Now we have a glut of homes (largely built by illegal aliens), and people can't sell those homes. What was their crime? Well, if anything, it is the crime of repeatedly rewarding bad politicians with perpetual re-election.
At any rate, what you seem to have conveniently overlooked (as written above), WE are ALL culpable; BOTH government AND voters.
The government failed miserably to regulate the monetary policies (not to mention being basically morally and fiscally bankrupt), and the the voters repeatedly reward bad politicians with perpetual re-election (One-Simple-Idea.com/Co...).
So trying to defend the government on this issue is really quite laugable, bordering on delusional.
We had a stock market bubble in the late 1990s, which burst in 1999.
Then we had the real estate bubble, which started bursting in 2005, and has not yet bottomed.
What fuels these bubbles?
Why is everyone running around like a chicken with its head cut-off, looking for someplace to invest, so that their hard-earned income is not eroded by incessant inflation?
Why have we had positive, incessant inflation since year 1956?
The usurious, dishonest, pyramid scheme we call a monetary system is one of the major abuses (of these 10 abuses: One-Simple-Idea.com/Di...) that fuels these bubbles.
Some people think the banks are hurting.
That's not entirely true.
The banks made a lot of bad loans, but who is really going to suffer the consequences, when the FDIC, Federal Reserve, government, and tax payers bail them out (as they did with the Savings and Loan bail-out).
And few (if any) will be prosecuted for any of it.
The banks love to loan money, because they make interest on it.
The Federal Reserve creates money out of thin air (at a 9-to-1 ratio), the member banks loan it out with some more interest. The are all making lots of money.
And if someone is foreclosed, the bank confiscates the property, essentially converting money printed out of thin air into real assets and property. Cha Ching!
And even if the FDIC seizes the bank, they'll get bailed out?
But this pyramid scheme can't last forever.
It will collapse when the majority of Americans finally can not carry any more debt. We are getting closer and closer to that day. Already, the nation-wide debt is over $53 Trillion. On average, that's $173,771 of debt per person. However, 80% of the 305 Million U.S. population only owns a mere 17% of all wealth. The wealthies 1% of the population owns over 40% of all wealth (up from 20% in year 1976: One-Simple-Idea.com/Di...).
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/De...) , jobless (money.cnn.com/2008/06/...) , homeless (one-simple-idea.com/Di...) , and hungry (www.results.org/websit...) ?
At any rate, the voters have the government that the voters elect (One-Simple-Idea.com/Ma...).
one-simple-idea.com/Co... (Pressing Problems)
one-simple-idea.com/Di... (Root causes and consequences...)
one-simple-idea.com/So... (Solutions...)
Yeah, that's just what we need, more government regulation and oversight. Look, the govt. isn't, and was never intended to be, a nanny state. We the people screwed much of this up for ourselves, and we should get out of it that same way, minus government buy-outs and the like. We chose to wear blinders, or many of us did, ignoring the inevitable. This isn't the first time in history anything like this has happened, but we chose to ride the wave as long as we could, and pretend we didn't see the shark in the waters. That was our choice (collectively) and we are now living with the consequences.
Where would you draw the line in government regulation/oversight/b... That sure is a slippery slope.
keilios wrote: Yeah, that's just what we need, more government regulation and oversight.
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False. That is a lame tactic at obfuscation.
The issue is enforcement of existing laws and regulations.
There is no such thing as a completely capitalistic free market (unless you like monopolies, manipulated stock markets, and rampant investor fruad).
And what we are witnessing in the mortgage meltdown is NOT merely bad home owners and borrowers.
Part of the problem is greed and unenforced laws and regulations by the SEC, FDIC, Federal Reserve, and the federal government.
Greed is why they were all looking the other way.
You've got your work cut-out for yourself if you think you can make a credible case that government and the Federal Reserve had no blame in this problem.
What a lot of people getting ARMs didn't know is that NO bank would refinance their loans. Thus, these peoples' homes were foreclosed, and the banks confiscated them, turning money created out of thin air into real assets and property, which the banks turned around and are reselling. Cha Ching! Those wealthy to capitalize on this mess are buying up houses at a discount.
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keilios wrote: Look, the govt. isn't, and was never intended to be, a nanny state.
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Look yourself. No one ever said that. That is yet another lame tactic at obfuscation.
By the way, did you get your tax rebate and stimulus check? Did you cash them? If you feel so strongly about it, why didn't you rip up or refund those nanny-state give-ways, eh?
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keilios wrote: We the people screwed much of this up for ourselves, . . .
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Wrong. Irresponsible and corrupt government, banks, and the Federal Reserve had a LOT to do with it too. Trying to argue otherwise is not credible.
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keilios wrote: . . . and we should get out of it that same way, minus government buy-outs and the like.
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That part, I agree with for the most part, since WE are ALL culpable.
The voters should also not forget this when they go to vote on 04-NOV-2008.
Part of the reason for so much corruption in government is because the voters repeatedly reward bad politicians with perpetual re-election (One-Simple-Idea.com/Co...).
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keilios wrote: We chose to wear blinders, or many of us did, ignoring the inevitable.
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I can't argue with that at all. I saw it coming, and paid my home off in full instead of losing it in the failing stock market. Damn glad I did too.
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keilios wrote: This isn't the first time in history anything like this has happened, . . .
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True, but this is the worst it has ever been since the Great Depression. Foreclosures are at record levels (One-Simple-Idea.com/Di...).
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keilios wrote: . . . but we chose to ride the wave as long as we could, and pretend we didn't see the shark in the waters.
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True for many.
Too many people did just that.
Not only homeowners, but those in the federal government, banks, and the Federal Reserve too. They are not nearly so innocent as you seem to believe.
There are many victims too.
Many people have been defrauded. Many people trying to refinance were victims of fraud.
I know a family who was foreclosed-on because the bank official doing the refinance was stealing his payments and not making the mortgage payments.
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keilios wrote: That was our choice (collectively) and we are now living with the consequences.
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Yes, there will be painful consequences for many years for these abuses, which did not all come about by mere coincidence (One-Simple-Idea.com/Di...), including a usurious and dishonest monetary system, and these 17+ economic conditions (One-Simple-Idea.com/Ne...) have never been worse ever and/or since the Great Depression.
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keilios wrote: Where would you draw the line in government regulation/oversight/b... That sure is a slippery slope.
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How about enforcing the laws, instead of ignoring them?
Over-regulation is not the problem.
As you said yourself, everyone ignored what was going on.
And this is not the only thing government is perilously ignoring.
Illegal immigration (One-Simple-Idea.com/Bo...) is another prime example of the government ignoring existing laws, for votes (One-Simple-Idea.com/Vo...), profits (archive.newsmax.com/ar...), and misplaced compassion (One-Simple-Idea.com/Bo...).
Again, it is ALL of us.
(1) Government is corrupt (One-Simple-Idea.com/Li...),
(2) and too many voters repeatedly reward incumbent politicians with perpetual re-election (despite giving Congress dismally low approval ratings as low as 9%: www.rasmussenreports.c...).
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt, jobless, homeless, and hungry <b><i>?<...
At any rate, the voters have the government that the voters elect.
Pressing Problems...
Root causes...
Painful consequences...
Solutions...
www.tradersaffiliates....
interesting guy
Pack asked: So, what is a person to do to get ready for the end?
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Prepare for a long-term economic decline:
(01) if possible, get out of debt;
(02) if possible, own your own home and pay it off first; down-sizing to a smaller, less expensive home to accomplish that may be a good idea; especially if unemployment sky-rockets; a place to live will be valuable if things get bad; my mother (as a child) lived in a tent for months during the Great Depression, because they didn't own, nor could rent a home;
(03) if you owe $300K, but your house is now only worth $200K, you may want to get out of that mortage now, before you owe the bank more than $100K, as property values fall even lower;
(04) if possible, diversify your investments as much as possible; 10% of your assets in gold/silver (or other metals), or some foreign currencies (e.g. Euros) may be a good idea; also, try to find investments that are more immune to recessions and depressions;
(05) buy some cheap land;
(06) grow a garden; with so much contaminated food, it might be a good idea;
(07) if possible, live close to work; limit commute distance and fuel costs;
(08) put a timer on your electric hot-water heater (it will save $20-to-$40 (or more) per month); eliminate electricity hogs and vampire devices that use electricity even when turned off; get rid of incandescent light bulbs;
(09) a few solar panels and storage batteries might be great if you can't afford to buy electricity; that's enough to run a refrigerator and some LED lighting; if possible, go off the grid and generate all of your own power; don't depend on power companies, because they are likely to get volatile and/or unaffordable; look at what my electric bills (one-simple-idea.com/El... have been doing lately; notice price per KWH). My JUNE-2008 electric bill jumped to a ridiculous $423.16 for only 2176 KiloWatt Hours (averaging 19.95 cents per KWH);
(10) find other ways to reduce electricity usage (e.g. shutters on windows, solar screens for windows, more insulation in attic, radiant barrier on garage door, install a programmable thermostat and set it to run less; shop around for cheaper electricity if it is unregulated, etc.);
(11) if you have a fireplace, get some firewood;
(12) learn a skill or trade that may be marketable in bad times;
(13) learn another language; the only good jobs may only be overseas;
(14) if possible, have some liquid funds somewhere, even if in other currencies;
(15) if possible, stock up on medications; they may be hard to get later;
(16) learn to hunt; already, there is a growing number of people that are already hunting small animals in the parks of San Francisco, and during the 1930s, deer and squirrels were hunted almost to extinction. Learn how to trap, kill, prepare and eat a squirrel now, so you’ll be ahead of the curve. And if you own a piece of cheap land somewhere, you can grow some crops.
(17) install a security system (even if not centrally monitored), and buy a weapon (or two) and ample ammunition; crime rates rise in bad times; that's not meant to make people fearful, but many people already own one or more weapons; my family does;
(18) sell all of your junk now (i.e. on EBay, etc.);
(19) stop unnecessary spending; find cheaper forms of entertainment;
(20) lastly, stop repeatedly rewarding bad politicians with perpetual re-election (one-simple-idea.com/Pr...);
None of these are easy, but they also are going to get any easier either.
The more of those things done in advance, the less painful it will be later.
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/De...) , jobless (money.cnn.com/2008/06/...) , homeless (one-simple-idea.com/Di...) , and hungry (www.results.org/websit...) ?
At any rate, the voters have the government that the voters elect (One-Simple-Idea.com/Ma...).
one-simple-idea.com/Co... (Pressing Problems)
one-simple-idea.com/Di... (Root causes and consequences...)
one-simple-idea.com/So... (Solutions...)
Saving rates are flawed due to government calculation.
real estate mess is another perfect example of free market system. As home prices moved up, more competitions moved in, more homes being built and prices will eventually fall. nothing worng with that. I am surprised so many people are so shocked with the fall in prices.
asset= liability + equity.
Yes, Liabilities in this nation on the rise, primarily due to home mortgage debts, but so what, we have plenty of asset and equity to pay off debts.
Relax. You live in a best country in the world. American stocks are very cheap. A big bull market has already begun,
Sure, some people will still be rich-to-relatively-wel...
That's not the point, but yet another obfuscation.
The point is that the numbers of sufferring are growing, and we probably haven't seen anything yet.
I suspect those trying to trivialize these abuses (one-simple-idea.com/Di...) and resulting consequences (one-simple-idea.com/Ne...) are not in that 40% of Americans who (on average) have ZERO net worth.
And still, no one here has yet answered the QUESTION:
Where will the money come from to merely pay the INTEREST on the $53+ Trillion of nation-wide debt (One-Simple-Idea.com/De...), much less the money to pay down the PRINCIPAL and keep it from growing ever larger to nightmare proportions, when that money does not yet exist?
Especially when 80% of the U.S. population owns ONLY 17% of all wealth (a trend that has been worsening fast since year 1976 (One-Simple-Idea.com/Di...)?
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/De...) , jobless (money.cnn.com/2008/06/...) , homeless (one-simple-idea.com/Di...) , and hungry (www.results.org/websit...) ?
At any rate, the voters have the government that the voters elect (One-Simple-Idea.com/Ma...).
one-simple-idea.com/Co... (Pressing Problems)
one-simple-idea.com/Di... (Root causes and consequences...)
one-simple-idea.com/So... (Solutions...)
Frank Rong wrote: This article has 137 comments:
Sean Maher
Aug 14 05:11 AM
My WebsiteGood summary of the deleveraging pain now facing US consumers; I've discussed a structural downshift in US consumption (and necessarily huge rise in infrastructure spend) on my blog many times; while attention is focused on the slumping subprime mortgage market, the biggest risk going forward is in superprime 'McMansion' loans, of $500k-$2m where default rates are climbing fast; the greatest overconsumption/debt accumulation in the boom years has been among the professional middle classes striving to maintain their 'deserved' lifestyle in the face of stagnating salaries and soaring service inflation. As white collar job losses rise, this may cause a whole new wave of foreclosures in upmarket suburbs nationwide. Report abuse
Lemain
Aug 14 06:01 AMExcellent article, well-supported by research and facts. I fear that your optimism that Government will protect the frugal guy is ill-founded. The people at the root of the problem are the wealthiest individuals and corporations whose money is essential for elections. The world has always been a grossly unfair place; a few of us post 1945 have been lucky enough to be protected and have enjoyed a very 'fair' society, relatively. Look at other parts of the world and previous generations to see just how lucky we have been.
The small frugal family needs to take proactive action to protect whatever capital it has. Get out of stocks and (most) bonds. Put at least 50% in precious metals - gold or silver coins. Lay down stocks of long-life staple foods if you can get them at a fair price, well-packaged and continually rotate the stocks (only buy what you like to eat). Make all essential repairs to your property and lay down a stock of spares and tools. Think about where you would get water in a civil emergency and take action. Now is the time to make sure you have a working bicycle; there is a high probability of either rocketing fuel prices or unavailability. Buy a decent book written by Pioneers; tips and methods used by your great-grandparents. They lived off the land before industry started.
Thanks again for sharing your excellent article. Report abuse
buyitcheap
Aug 14 07:08 AMSo what's the recommendation? Short equities? short bonds? After all this sky is falling business, what's your recommendation for making money from it? Report abuse
bigshot
Aug 14 07:28 AMDont know, just dropped on the sight by accident and the negativity annoyed...I suspect that there will be a big run on the market starting in about 8 months that will surprise us all, after that ....how knows?
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LogicOverHyp
e
Aug 14 07:33 AMSuperb article. Your conclusion should be pretty obvious to all -- now that the storm is rattling the roof. However, what is different in your article is that your conclusions are based on hard data and not mere conjectures.
I agree with a previous commenter that you are too optimistic about assuming that the Government will not try to shift the losses to those who lived in thrift. Some early signs are ominous: for example, we are handling the foreclosure crisis by trying to prevent foreclosures. We are planning to spend more by means of stimulus packages instead of less. As you mention, this reversal of the capitalist process will only delay the inevitable. I would have liked a better, more elaborate treatment of an investment plan in that scenario. Also, you should include in your article the possible fates of the dollar. Report abuse
redbaron
Aug 14 07:46 AMSome people just don't get it. This guy fills his article with facts, and some apparently can't read and think. That will be to their peril.
Good article, lots of facts, and hence, I can't argue with the conclusion. Report abuse
poorslob
Aug 14 08:01 AMYour artical should be printed in every newspaper . For many Years I have seen the hand writing on the wall but few people around believe that this so called prosperity cannot go on forever . I have never seen so much waste in my life as we have seen over the past two decades .We throw away enough to support another country. Requarding our new economy Paul Volker said "enjoy it while it lasts"Like you said the american consumer will go down kicking and screaming and blaming others for their demise . I like yourself do not have a clue to the final outcome but have noticed that people like fish or herds tend to move together Feed us , entertain us . make us comfortable and the american consumer is satisfied .. Report abuse
bigshot
Aug 14 08:11 AMRedbaron...I have just read some of your posts and can see that you are man of some background.... however if the if the inverters pre 1929 went on facts alone and what they were told by the press at the time it would not have been a good outcome for them?
I will predict a huge run on the stock exchange starting in about 8 months and will let time set who is right. Report abuse
gon4beer
Aug 14 08:19 AMI agree completely and sadly, since I'm in the investment business. Folliowng is a link to a recent article from the Contrary Investor website that suggests that we may be going through a rare and likely to be very painful, generational change. Very scary picture.
contraryinvestor.c... Report abuse
investor88
Aug 14 09:01 AMJames is to be commended for writing another excellent article well supported by research, facts and logical conclusions. Those who read this and take corrective appropriate deleveraging actions will better survive the tough times ahead. Some may read this and conclude it is better to get out of risky assets and just reserve a portion for trading ie well preservation should trump chasing risky gains. Report abuse
Redman
Aug 14 09:14 AMA very good data-based article. But...and this is a very big but (no pun intened..but why not!?)..Americans always fight back..as he said...so why not now? Give us the right tools and the job will get done as it always has!
And, there are always ways to make money in the market...always. Report abuse
neeb??
Aug 14 09:22 AMI just printed off this massive tome to some friends who never gave up their back to the land missives from the 70's(anyone remember them?).
The commentary in this was enough to make a few people up here with me remember their grandparents comments about the Great Depression and how they made it through that. they survived quite well considering the stuff they had to do and , well, let's face it, the party is well and truly over, as it should be...
When one listens to the quiet one can hear the bleats of in the distance... Report abuse
adan
Aug 14 09:39 AM
My Websitetoo big for me to read at once, which i don't mind, am saving to digest in pieces - i appreciate the apparently thorough look - thanks! Report abuse
Blythe
Aug 14 09:51 AM
My WebsiteI disagree with James Quinn's interpertation of what Mohamed El-Erian, the number two man at PIMCO believes. I just finished reading his excellent book, entitled When Markets Collide. He does not "fear a negative feedback loop consuming the country. " Instead, he explains how to invest given the secular changes of the emerging markets increased foreign cash flows and activity. Read this book. It will eliminate any "fear" and help you know how to invest your own portfolio.
I found his discussion of alternative investments of interest. His chapter on improved risk management covered overlays. He discussed that the portfolio “requires a high-frequency monitoring of the betas” to key market risk factors such as equity, interest rate duration, currency and credit risk. When he started the discussion of the factor decomposition of the portfolio, it made me think we all need to consider the overlay strategies in investment and pension funds. Your thoughts? Report abuse
Dr. Jackpot
Aug 14 10:02 AMSome will starve. The fat will finally lose weight. Crime will soar. Nothing can be trusted. Coffe and toilet paper will be way more valuable than gold. Cities will be snarling pit bull arenas. Best to be in the country on 3 acres with fruit trees in a mild climate and no kids to support. Report abuse
notsosmart
Aug 14 10:10 AM
My Websitea really great article.the question is-who could have stopped this? anyone trying would have been called a nut,unpatriotic,anti business, a communist,a socialist,an uneducated moron.i paid off my house 10 yrs early.never fell for a heloc,drive a 17 yr old car& sleep well at night. luckily,i live in a neighborhood where most people live lke i do.of course we now have "conservative socialism" so that people like me have to bail out the wallst scammer crowd. i cant do anything about that.its amazing that the dumb-dumber americans reelect the same crowd(9% approval rating) & expect good leadership.aint going to happen folks.there are people who deny this article.denial just wont make it go away.goldilocks may have to wear old clothes for a while. Report abuse
NewTech
Aug 14 10:17 AM
My Website75 years ago we were in the midst of the Great Depression.
This time it is the "Great Correction". Report abuse
Ace2
Aug 14 10:27 AMExcellent article. Thanks for taking the time and making the effort to produce it. Report abuse
sr9web
Aug 14 10:28 AMDr. Jackpot:
Also nut trees, a large garden and some chickens. A strong fence, some guns (lots of ammo) and several guard dogs. Your own water well, solar power... a house designed to repel small arms fire, with several camoflaged, secure emergency exits. Also 4-wheel drive vehicle, flood survival gear (canoe or small boat), survival gear including 1st-aid kits. Lots of bottled water and 1 dozen extra cots & blankets (when eveyone else sinks, you may want to accomodate a few others). You get the idea. Report abuse
wpdragon
Aug 14 10:35 AMand still there is denial... ain't it just grand? Report abuse
nickgogerty
Aug 14 10:59 AM
My WebsiteThe film IOUSA comes out on Aug 21st. Should be interesting. agorafinancial.com... Report abuse
This game
is so rigged
Aug 14 11:00 AMVery comprehensive. But I think Quinn does not give enough credit to the average indebted American citizen. Why would they save when the government devalues their savings by 3-7% per year? M3 has doubled over the past 10 years - and even if you take out the overly exaggerated GDP, it's still a devaluation of 50%. It doesn't make any sense to save dollars, and the average person doesn't know any other way to keep their earnings.
Can a massive “readjustment” be far off (e.g. the UK in the 1949 and then again in '67)? Report abuse
Octogenarian
Aug 14 11:04 AMThe tax policy discourage savings....after tax, my 4% CD is down to 2.5%. For beginning savers with $10K, you get $20 a month, not even close to cover daily coffee fix or internet fees or cable or cell phone payments or tank of gas or Church box drops... Report abuse
venividivici
Aug 14 11:09 AMMate the market is going up today in the face of a lot of bad news because Cramer and the rest of the cheerleaders keep screaming it's a bottom, it's a bottom, it's a bottom. Denial remains the name of the game. There is no point in getting angry at the stupidity of others. Reality will exact revenge on those who ignore the facts. Just worry about yourself Report abuse
neeb??
Aug 14 11:46 AMvenividivici is right. It all comes down to "Human. All too Human". Report abuse
adan
Aug 14 12:05 PM
My Websitealmost 1/2 way through! - best part for me so far:
"...The debt induced spending that occurred from 2001 until 2007 accounted for virtually all the GDP growth over this time. Without the mortgage equity withdrawal, the U.S. would have had less than 1% average GDP growth for the entire period."
Report abuse
sumosama
Aug 14 12:18 PMGood article.
One quibble...credit card debt is going up, but not at previously seen rates nor is interest paid (NI) going up. Many, granted not all, folks use cards and pay at month end. Plus, as the auto bill, internet, etc expands, credit card usage goes up. Delinquencies and losses certainly are going up, but soon credit card balances will have to be separated into revolving vs paid.
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adan
Aug 14 12:34 PM
My Websitefinished! - great recap and links!
Key:
My biggest concern is that our politician leaders and their cronies running our government will continue to try and reverse the normal capitalistic course of recession and expansion. Companies need to fail, housing needs to find its bottom based on supply, demand and price. Those who gambled must be allowed to lose and suffer the consequences. If the government attempts to shift the losses to those who lived lifestyles of thrift, an angry uprising will ensue.
great points:
The elimination of $2 trillion of household debt will lead to the closing of thousands of retail stores, strip malls, restaurants, and bank branches. There should be a lot of vacant buildings available in the next few years, and a few suspicious fires.
Government unemployment figures have begun to skyrocket, while the true unadjusted unemployment figures point to a major recession. If the number of people who have given up looking for a job were included, the official 5.7% unemployment rate would jump to 14%.
thanks james, great job
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adan
Aug 14 12:36 PM
My Websitenote: i shoulda added quotes for the key thought above, this is the author's words, well said; reminds me of thomas jefferson in the late 1700's (not exactly of course, but brings him to mind) :
Thomas Jefferson was concise in his early warning to the American nation, "If the American people ever allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the people of all their property until their children will wake up homeless on the continent their fathers conquered."
found on: sonic.net/sentinel/nai... (note: not affiliated with this site)
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observer08
Aug 14 12:56 PMVery good article, very good comments. What is the solution ? Report abuse
WATCHMAN of
the OC
Aug 14 01:02 PMNot to mention the fact that the jobs created by all the unnecessary strip malls will go away for a very long time. All of the construction trades, all of the suppliers such as glass, tile, roofing, carpet, stucco, lumber, steel, concrete, paint etc...and all of the transportation and manufacturing jobs. Many of these jobs were filled by people who have immigrated (legally?) from south of our border. What will these people do with no safety net and no family structure as support? Plus with all of the divorce and fragmentation of our own communities/family's, people will not have anywhere to turn. So, I fear we will first see people begging at grocery store parking lots, and then grocery bag snatching so they can feed their kids. It will be scary. The America we knew as young children is passing into history. So very sad. Report abuse
Glass
always full
Aug 14 01:26 PMThis is an excellent and well researched article, however it fails to take into account the current 10 trillion dollar national debt and the 48 trillion of unfunded future liabilities that we are facing. The reason the Fed stopped reporting M-3 18 months ago was to keep the impending monterization of debt off the national radar screens and mask the fact that the federal government will accept hyper-inflation rather than an economic downturn. This will eventually result in the collapse of the entire economy and the end of an empire. Report abuse
notsosmart
Aug 14 01:34 PM
My Websitedid the romans know their empire was collapsing?sometimes there are no answers.time is the answer & the events as they happen may be not only not pleasant but violent.the human brain just isnt there yet.yes it is sad. Report abuse
daniela
Aug 14 02:19 PM1.You mentioned: A phenomenon called “expenditure cascade” has occurred in the U.S. according to Cornell Professor Robert Frank. When top earners build large multi-million dollar mansions, they shift the frame of reference for those just below them on the income scale."
People aspire to move up, mimic the life of rich. This is wrong of course, but it is a human nature that will not be stopped. Same thing --keeping up with your neighbors will always be there no matter what economy. People in slums do the same thing! This is true in the whole world, not only in America. But only in America you can make it from nowhere to multimillionaire. Aspiration for wanting more is not a bad thing. It fuels ambition to be the better than others, to make money. create business, etc.
2.If government would not punish our savings by taxing them, we could start saving more. What if government woud provide some incentive for savings? Our economy is based on sales and not savings. I am not sure if anything will change this.
3.I slightly disagree with your post 9/11 assesment of what US should have done. We all remember that. Terrorists wanted to cripple us financially. This is also one of their ongoing strategies. Stock market was rapidly sliding, people were scared home. Donating money did not boost economy.
4.Also I disagree that it was Bush whos objective was: housing for everybody. Bush did not create FHA. This idea stems from this kind of program. I don't know this, but I bet this idea stems from democrats.
If you look closely at retailers--most of them are old, or those who did not pay attention to trends, or overbuild. Retailers are hurting, but these particular retailers--reasons are more complex than just downturn.
Overall I really like your article. It brings clearity to this situation. We will need time to heal. Government actions will be crucial--you are right. This election will be nail biting for so many reasons. America needs experienced leader, not a cheerleader. Report abuse
OldLimey
Aug 14 02:26 PMExcellent article and a fascinating set of comments. From across the pond, it seems as though what has happened is that somewhere along the way the 'American Dream' faded into history and was replaced by the 'American Have Now'. The idea that work, saving and aspiration would lead to a better life was replaced by the idea that instant gratification is a birthright. A nation of producers was encouraged to become a nation of consumers; corporations gained and government facilitated. The social dynamics have been different in the UK, but much the same has been happening here as well. Readjustment to a more sustainable model is going to be painful. The glass is indeed half empty. People have been drinking too much without replenishing it. Report abuse
StockMarketF
unding
Aug 14 02:36 PM
My WebsiteWell said! Most people do not understand or appreciate the magnitude of the current consumer debt ratio. CNBC never talks about these important issues or if they do, they don't for very long and tell you to get bullish. Report abuse
neeb??
Aug 14 03:11 PMWhich just goes to show how the mass media can be a little spotty at times with the information... ....not everyone can osmose data out of thin air,i guess.... Report abuse
OldYank
Aug 14 03:13 PMOldLimey, at least you have better pubs/beer! Always a welcome relief when times get tough. Report abuse
Bull Frog 3
Aug 14 04:20 PMIt must be a sad life to run around in fear all the time awaiting the collapse. People have been predicting the imminent end for decades. We will all be long gone before that happens. Let's look at each chart differently. Chart I and II Household debt ratio at 120% of national income. So what that is not out of line with normal business practices and is actually very conservative. Look at Wal Mart their debt ratio is 345%. Americans have a higher debt ratio because we work more hours and are more productive than the rest of the world. It is that drive to want more that makes us successful. Chart III and IV our savings rate is so low because of inflation. We are making smart decisions to spend and obtain assets at current prices and not allowing our hard earned income to become devalued by inflation and parking it in a bank. Chart V a savings glut in developing countries. That is exactly the problem we do not have - they need to restart their slowing economies by spending and investing that savings. That is the reason for inflation and slowing growth. If they had made better investment and spending decisions commodity driven inflation would come down and growth would pick up. The rest of the charts regarding the lax lending standards etc... are spot on! Luckily there is still a international savings glut to recapitalize the holes in the system. Cash is king right now. Use it wisely to buy assets for 50 cents on the dollar. That is how to become wealthy. Always buy stuff on sale. The good news is there is a sale going on now and better times ahead!!! Report abuse
lexie
Aug 14 04:33 PMI passed this article along to everyone in my outbox! Protection Plunge team doing all they can, so no tea leave reading on my part. Report abuse
Jim Quinn
Aug 14 04:33 PMWal-Mart's debt ratio is 36%. A slight difference from 345%. Good luck buying those assets for 50 cents on the dollar. Report abuse
Dan O'Leary
Aug 14 04:37 PMJames - Another great article. I can't recall who above posted the comment but I too believe that we CAN solve the many of our problems. We just have to get ALL the politicians out of the way! Report abuse
WATCHMAN of
the OC
Aug 14 05:22 PMI would politely ask Bull Frog 3 to think in terms of hard times, not The End of All. There is a difference, as I've outlined below........
THE FUTURE OF FAMILIES IN AMERICA
In this ever changing and increasingly perplexing world, many Americans peer into their future with uncertainty and confusion. I am convinced that a widespread deception is at the core of this confusion. Modern day Americans have been duped and are in dire need of clear teaching and leadership about the times we live in.
We in America have been led to believe that Americans will escape suffering and hard times. Where does this belief come from? To begin with, it evolves from “life as we have always known it.” Our generation has experienced one of the most prosperous eras of any nation in history. As a whole, we don’t have a clue as to what real suffering and difficulties are; we just know the “good life.” Additionally, the popularity of all the “super success books” focusing on easy wealth accumulation, have diverted Americans from observing the events unfolding right before our eyes. We have been fooled into thinking that America guarantees us a soft life because we are # 1. But this deception leaves Americans confused, asking, “Where is the good life?” Why is this happening to me? This isn’t what I’ve been promised!” As a whole, the American people of today have bought into the American Dream & the Gordon Gecko entitlement philosophy, hook, line, and sinker. However, neither history nor reality gives credence to this popular “easy times for life” gospel of today. It is not consistent with current trends, or history itself.
And what does history demonstrate? In 1900, Great Britain ruled the world, fully convinced she would forever retain her supremacy. However, gradually over the next hundred years, her standard of living fell by 50% compared to the rest of the developing world. Meanwhile, due to our nation’s industrial productivity and military might, America’s standard of living surpassed Great Britain, more than tenfold. By 2000, Great Britain and America had merely swapped places as world rulers. Do we really have any reason to believe we will maintain our preeminent position? Or will America, like Great Britain, fall to the wayside and become a far lesser entity in the world? All current indications point to America falling from the top, and falling hard.
It behooves us to contemplate the fast-approaching storm that will soon hit all of America, especially families and the poor. Out of the East, China and India are fast becoming economic superpowers, soon to claim America’s status as world leader (as America once did to Great Britain). China’s GDP (gross domestic production) is currently running at about 12% -15% a year. At this rate, China will add approximately 300-400 million middle class consumers over the next ten years, all with surplus money to spend. This scenario will create enormous upward pressure on commodity prices such as gasoline, wheat, corn, cotton, lumber, steel etc. Furthermore, India is on track to add another 100 million middle class consumers to the planet and on top of that, there are over one hundred smaller, but expanding, economies in nations such as Russia and Brazil with a current GDP of at least 3% - 4%. Collectively, we’re looking at close to one billion consumers poised and ready to purchase our precious commodities. At the same time, globally, we are losing approximately 38,000 acres of arable land a year while adding approximately 100 million people per year. What will the end result be? The “pinch” Americans now feel at the check stand will escalate into an “economic tsunami.” Our nation will suffer hardship never thought possible in America.
To further confuse people, politician after politician, President after President, keeps promising Americans a better future, a future they cannot produce. And Americans, so used to good times, desperately cling to the promises, not wanting to face a life of less that seems to be inevitable.
Now more than ever my fellow Americans, we need to live wisely, build community, save and invest our recourses, and adjust quickly to the global changes of our world.
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jlounsbury59
Aug 14 05:30 PM
My WebsiteAn outstanding article and exceptionally good (for the most part) comments. I liken our recent history to musical chairs. In the current situation, though, when the music stopped (for the last time?) we have discovered that many chairs have been removed, not the usual one chair. Continuing the analogy, many will have to stand for a while but they will not die. They will stand, do their best and perhaps be wiser when they find chairs again in the future. Report abuse
xsuddensam
Aug 14 05:54 PMI had a good laugh this morning listening to chief CNBC talkinghead Joe Kernen complaining about another Wall Street Journal article reporting more credit problems on the horizon.
He was distraught because he thought that the financial crises was, for the most part, behind us. These guys on CNBC, including Larry Kudlow and that raving lunatic Jim Cramer, don't have a clue.
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surgcare
Aug 14 06:21 PMExcellent article,however I disagree with the premise that it was G Bush who created this problem . When Bush took office the economy was in a recession and the stock market crashed . This is why Greenspan lowered interest rates and Bush cut taxes . Whats forgotten or not realised is that a lot of people lost lots of money from the mantra at that time of "BUY AND HOLD '. This cost americans lots of money ,so they lost confidence in the stock market and put their money in the thing they trusted the the most ,their homes .If you want to blame anyone it should be the democrats who forced banks to loan money to people to buy homes they could not afford ( although they could during the dot com bubble and the huge tax increase by the democrats in 1994 ,which held up as long as there was a stock market boom , but then caused a recession when the the market bubble popped .The current bailout by the democrats will only make this affair worse . As for people like "bigshot " he or she will be the first one "whining " when things go bad ,expecting handouts because he's not prepared . Report abuse
buyitcheaper
Aug 14 08:23 PMReally good comments and article by the author- consider for a minute how little if ANY at all gets into our high school or college/university level curriculum - i.e. How to interpret economic data 101. Our financial IQ is horrifyingly weak. I'd still like to know how he would position a portfolio in light of the data and conclusion. short term treasuries and cash, all things ex-US? Report abuse
neeb??
Aug 14 09:01 PMbuyitcheaper, you hit the nail on the head. I keep harping about the abysmal knowledge of a lot of people about even concepts like househod budgets. I know a lady who with a grade 2 level of understanding of math is mystified when she comes across so many people who either do not know how much they spend on their grocery bills or even know that all that running around in the big gas guzzler to save 2 bucks just cost them 10x that amount..... Report abuse
barnburner
Aug 14 09:18 PMI think Jim Quinn has all his fact correct but still the market is fickeled so who know what will happen to the market.
I take issue with some of the comment thought "But only in America you can make it from nowhere to multimillionaire"
The richest man in the world is a Mexican who was not born rich. I have relatives who live in England who have a life-style as good or better than any Americans I know. This arrogance of Americans in thinking that they are the only ones in the world who can get rich or have a superior life-style is a bit nauseating.
The "American Era" is over, this is the dawn of the "Asian Era" and those who think not will die with the old Era. Unfettered Capitalism has run it's course and the golden goose was slaughtered. Report abuse
Joyful
Alternative
Aug 14 09:40 PM
My WebsiteOne reason people didn't save money is Alan Greenspan's interest rates. There was no sense in tying up your cash in a 2% CD. I took mine out of the bank and put it into stocks with high dividends, but I think a lot of others just spent it.
There has to be a reward to saving beyond patting yourself on the back for being virtuous. Report abuse
The hand
Aug 14 09:56 PM
My WebsiteThe great thing about data is that you are left only with arguing what it means. For sure, we need to sit back for the next six months to see what the horizon looks like. There are many possible senarios even if the USA does not blockade iran - and if it does things will not look good. Report abuse
iThinkBig
Aug 14 11:03 PM
My WebsiteNo doubt. They are still in the denial stage while some plan for the next start of a Bull run in 2013. And that is if we elect decent leadership and have major geopolitical issues (which unfortunately, history tells me we will).
On Aug 14 05:54 PM xsuddensam wrote:
> I had a good laugh this morning listening to chief CNBC talkinghead
> Joe Kernen complaining about another Wall Street Journal article
> reporting more credit problems on the horizon.
>
> He was distraught because he thought that the financial crises was,
> for the most part, behind us. These guys on CNBC, including Larry
> Kudlow and that raving lunatic Jim Cramer, don't have a clue. <br/>
> Report abuse
E Nuff Sed
Aug 15 12:25 AMGive me your entrepreneurs, your rich, Your Gucci clad elites yearning to shop till they drop, The capitalistic pigs and fat cats of your teeming shore.
There is a easy solution to the housing crisis - open the tap for immigration. Any rich foreigner, who does not have a criminal record and can document his earnings, and who can buy a house for cash (no mortgage) should be given a green card.
The problem will not only be solved in no time, but there will be a huge boom in real estate fueled by equity - not debt.
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Omitted
Kingdom
Aug 15 07:17 AMTwo of the biggest liars in US history: George W Bush and dimwit US Labor Secretary Elaine Chao. It takes 100K-130K new jobs created per month in the US just to absorb new graduates. These two Republican morons have rarely met that target. Job offshored? It will not come back. The difference goes onto credit cards at usury interest rates. Where's the outrage? Bush should have been impeached for lying after Month 3. Both of their job titles contain the words "OF THE UNITED STATES." My advice: put your bills on Elaine Chao's desk. Bury her desk. Let her have Roger Ailes, Rush Limbaugh, drug addict, and the Swift Boat Veterans for Truth help her open her mail. When she leaves office, send your bills to her via her husband, Mitch McConnell (R-Ky) up for re-election this year. Report abuse
Randy Fay
Aug 15 09:14 AM
My WebsiteLots of facts and charts, but really no MEAT here people. Yes, we are in a credit induced hangover. In some places house prices doubled over 5 years, certainly not everywhere. Right now, for the first time in many years, it is now cheaper to own a home than rent. With the reduction in consumer spending comes what....you guessed it, lower inflation. Report abuse
Chris B
Aug 15 09:50 AMThe long term trends are disturbing. It seems that nowhere is safe, not stocks, not bonds, not cash accounts, not real estate, not commodities or metals (consumption declining), and not foreign stocks. Inflation will soon approach 10% from the current 6%.
I guess I could exchange my dollars for euros, yen, or Aussie dollars and park that money in foreign banks. At least then I could afford to escape if things got really bad and I acted promptly enough.
Instead, I plan to invest in more education - business and a foreign language. Guaranteed high returns and the flexibility to not be trapped in a declining soon-to-be 3rd world country. Report abuse
xsuddensam
Aug 15 10:13 AMSurgcare writes:
"If you want to blame anyone it should be the democrats who forced banks to loan money to people to buy homes they could not afford..."
Since most bankers are Republicans, can you tell me how this works? I thought banks are in the business of making money. Surely, no banker is going to be forced to make fraudulent and stupid loans to people who don't qualify. The incentive for making these loans was simply greed.
As I recall, congress has only been a Democratic majority since January of 2007 (seated) -- less than two years. The bulk of these loans were originated with the blessing of a Republican congress and a Republican white house.
Report abuse
Tim Miles
Aug 15 11:23 AMI think the article is dead on and agree with those who say that politicians in general have been reluctant to tell Americans the truth and to inspire them the way FDR and JFK did to sacrifice for their country. I firmly believe in America's ability to meet challenges and to achieve great things. We all need to understand that the era of cheap oil is over and to wean ourselves away from our addiction. Drilling for more oil is a stupid response to our energy crisis. We also need to be more responsible for our environment and how we live our lives. Europeans tend to be more frugal and energy efficient than Americans, but also appear to lead happy lives. So the future does not have to be grim. Report abuse
gfsound
Aug 15 11:31 AMThis is quite simply the most well documented, best article I have read on SA ever, hands down. Thank you to the author for breaking it down into terms that even most Americans SHOULD be able to understand. Report abuse
d.a.n
Aug 15 12:04 PM
My WebsiteYes, the problem is worse than most people know.
Where will the money come from to merely pay the INTEREST on $53 Trillion of current PRINCIPAL (not future DEBT=PRINCIPAL + INTEREST).
How did we get here?
We got here altogether.
While government is corrupt, voters empowered the corruption by repeatedly rewarding corrupt politicians with perpetual re-election:
one-simple-idea.com/Co...
We got here due to these 10+ abuses over the past 30 years:
one-simple-idea.com/Di...
Now we are only beginning to feel the painful consequences, as evidenced by these 17+ deteriorating economic conditions, which have never been worse ever and/or since the Great Depression:
one-simple-idea.com/Ne...
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/D... , jobless (money.cnn.com/2008/06... , homeless (one-simple-idea.com/D... , and hungry (results.org/websit...) ?
At any rate, the voters have the government (one-simple-idea.com/L... that the voters elect (one-simple-idea.com/C...
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
Report abuse
Tip
Aug 15 12:11 PMI couldn't agree more with xsuddensam's response to Surgcare. No bank was "forced" to do anything by democrats or anyone else. To the contrary, it was republican deregulation that led to this mess. Prior regulations enforced reasonable credit criteria. Deregulation removed this enforcement, allowing banks to follow their greed, and resulting in this big mess. Report abuse
Jan Steinman
Aug 15 12:37 PM
My WebsiteThis is a lovely analysis of where we are, but a bit weak about how we got here.
I kept waiting for someone, anyone, to mention energy. Doing a search puts the first mention of that word (thanks, Tim Miles!) in the second-to-last comment.
Let's talk a bit about fundamentals -- REAL fundamentals. Everything we do depends on energy. Some have said that Americans are resilient, creative, inventive, etc., and that we will figure a way out of this, and civilization will soon resume its upward path of infinite growth in a finite world. And yet, there is only so much energy -- and there is evidence that it is on the edge of terminal decline.
Today, even the poorest person supporting a family on a minimum wage income has the support of hundreds of "energy slaves." Pop a slice of bread in the toaster in the morning, and the energy equivalent of FIVE or more human slaves gathers fuel and starts a fire for you. Hop in that beater vehicle to go to your minimum wage job, and the energy of a THOUSAND human slaves push your vehicle down the street.
This will not continue. The gross energy consumption of the US exceeds the energy collected from sunlight of all the plants growing in the US by some 50% or more. We are in the last few decades of consuming the "ancient sunlight" that nature has stored.
So what we are seeing is simply the result of the beginning of energy suffocation of civilization. James Quinn does a brilliant job of analysing the secondary and tertiary effects of the beginning of the energy decline, but totally misses the underlying reason.
Understanding the energy decline is the key to survival.
And yes, the devotees of Adam Smith can be counted on to chorus that rising energy costs will simply enable other technologies and sources of energy. The problem is that cheap energy is a pre-condition for making solar panels, wind turbines, and biofuels. Take away the scaffolding, and the entire platform collapses. Analyse these in terms of energy, rather than dollars, and the future is not so predictable. Adam Smith's "invisible hand" is blind to finite limits.
Imagine you're in a space suit, orbiting earth. The space suit is stuffed with millions and millions of dollars of US paper money. Or what the heck -- call it gold, diamonds, or whatever else you can stuff in there. You have ten minutes of air left. The question is: how much will you have to pay for an additional ten minutes of air? Or even one minute?
To bring that analogy "down to earth" in the immortal words of Kenneth Deffeyes, "The economists all think that if you show up at the cashier's cage with enough currency, God will put more oil in ground." It ain't so.
If this concept is new to you, I encourage you to explore some of the following websites. This is not simply nut-case stuff. It's real, and we're now feeling the first effects of the terminal energy decline.
energybulletin.net
peakoil.org
peakoil.com
dieoff.org Report abuse
d.a.n
Aug 15 01:12 PM
My WebsiteNo doub that rising energy costs and an non-finite source of energy is exacerbating the problem.
One-Simple-Idea.com/US...
You know the saying: "When it rains, it pours".
However, in my opinion, the most significant root causes of most of our problems today are these 10+ abuses:
One-Simple-Idea.com/Di...
. . . which are mostly the cause of these 17+ deteriorating economic conditions:
One-Simple-Idea.com/Ne...
Voters are culpable too, since most voters repeatedly reward bad politicians with perpetual re-election.
But, perhaps enough voters will be less apathetic, complacent, and blindly partisan when enough of the voters are deep in debt (one-simple-idea.com/D... , jobless (money.cnn.com/2008/06... , homeless (one-simple-idea.com/D... , and hungry (results.org/websit...) ?
Perhaps when enough voters are feeling enough pain, they will do what most voters did in year 1933 (3+ years into the Great Depression; too late to avoid the pain of the excesses of the 1920s), when a whopping 206 members of Congress were voted-out of office.
One-Simple-Idea.com/Co...
At any rate, the voters have the government (one-simple-idea.com/L... that the voters elect (one-simple-idea.com/C...
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
Report abuse
d.a.n
Aug 15 01:22 PM
My WebsiteThe monetary system is nothing more than a dishonest, usurious, upside-down pyramid-scheme, and all pyramid schemes are doomed to collapse.
One-Simple-Idea.com/De...
Our current nation-wide debt pyramid is now so huge (e.g. over $53 Trillion), it's probably no way to avoid the collapse. All that can be done now is to try to delay the collapse by creating more money out of thin air. But that won't work when most people can no longer carry any more debt.
This is why no one can answer the simple question:
WHERE will the money come from to pay merely the INTEREST on $53 Trillion of nation-wide debt, much less the money to pay down the PRINCIPAL, when that money does not yet exist?
It may take several more years, but the DEBT will continue to grow and grow. The Federal Reserve's only choice is to continue to keep inflation high by creating more money out of thin air. In fact, the government will give away money if necessary (in the form of more stimulus checks).
The writing is on the wall.
Do the math.
$53 Trillion of nation-wide debt is a recipe for economic disaster.
Where will the money come from, when it doesn't already exist?
Especially when 80% of all Americans only own 17% of all wealth?
Report abuse
fatcat
Aug 15 01:34 PMOne thing not mentioned in this article...as much as 40% of families receive public subsistence,welfare,fo... stamps,ssi,etc.Hopefully this would provide a soft landing for these people,many of whom would be the ones that would lean toward civil disobedience.. Report abuse
Midas
Mulligan
Aug 15 02:11 PMWell done. A thorough, well-researched article. I would dispute the author's suggestion, however, that the penurious and prudent will emerge relatively "unscathed." Those ( or perhaps, "we" ) who invest will likely experience a degree of "collateral damage" of a kind, in terms of meandering or lower indexes ( lower equity prices ), resulting from a consumer-led slowdown of undetermined depth and breadth.
"May you live in interesting times," the old Chinese admonition goes. Investors are headed for some interesting times indeed. Report abuse
Wall Street
Free Thinker
Aug 15 02:47 PMCredit, on the scale discussed in this article, is how productivity is measured for large societies. If we get another boost in productivity, perhaps robots that follow us around and do our mundane chores, the credit/debt crisis will disappear, as it did in the late 90s, when the slow down in productivity (from PCs) was given another boost with the Internet (communications). I don't see that technological advance, but that doesn't mean it won't happen. If it doesn't, then yes, as the article excellently points out, everyone will have to adjust to stagnant productivity. But as some commentators have pointed out. America has always been a magnet for the world's greatest talent. That talented people now move to Australia or Canada is what should really worry us. Report abuse
Tim Miles
Aug 15 02:55 PMThanks, Jan Steinman for your comments on energy. I would urge people to read Lester Brown's Plan B: Mobilizing to Save Civilization. It is a well thought out and reasoned book which deals with the coming scarcity of resources that all of us will face in the future and offers ideas on how to handle it. I am more optimistic than some of the bloggers about our chances since I see articles every day on U.S. companies and innovators who have practical solutions to various problems like our energy crisis. The beauty is that they all want to make money and will employ Americans in the industries of the future if politicians make the right decisions about nurturing innovation, improving education and healthcare, and reforming a tax system that favors the wealthy and allows many corporations to avoid paying their fair share (see a recent GAO study that focuses on corporate tax dodgers).
I am not sure that the government is corrupt since I have spent nearly 32 years in it and work alongside highly dedicated and professional public servants. Perhaps certain people in our political system are corrupt, but American voters have a responsibility to do something about it. I have voted in every election since I received the right to vote so I am not to blame. Report abuse
IMV
Aug 15 03:26 PMI am sure those charts does not pass a quality check. Info has been twisted to make a point. The economy will recover by mid 2009. Buy assets NOW!! And join me in the next party..... Report abuse
Romeo R
Aug 15 03:54 PMImpressive article! Well supported data behind all arguments. It should be televised throughout the country to give a dose of enlightenment on US economy to the great nation of ours. Report abuse
Skjellifetti
Aug 15 04:04 PMThe author needs to learn the difference between average and median and when it is appropriate to use one vs the other. When Bill Gates builds a house, the average house price looks way out of reach.
For an alternative take on CC debt, see:
articles.moneycentral.... Report abuse
d.a.n
Aug 15 04:09 PM
My Website_______________...
IMV wrote: The economy will recover by mid 2009. Buy assets NOW!! And join me in the next party.
______________________...
Think so?
Where will the money come from to pay the INTEREST for $53 Trillion of nation-wide debt, much less the money to keep the PRINCIPAL of $53 Trillion from growing ever larger?
And that $53 Trillion of nation-wide debt does not even include the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 Million baby-boomer-bubble approaching.
It may take a few more years; perhaps even another decade, but there will be painful consequences for so much debt.
Take of those rose colored glasses.
The U.S. is in serious economic trouble that will be painful for many people for many years.
Sure, blind pessimism is foolish, but so is blind optimism; like an ostrich with it's head stuck in the sand . . . it had better be careful it really isn't a bucket of setting concrete . . . a mishap that perhaps could be avoided if it weren't for the rose-colored glasses.
P.S. David Walker, former U.S. Comptroller has been warning us about the massive debt and exacerbating problems for years.
Watch some of his videos.
It's more serious than many know.
One-Simple-Idea.com/De...
At any rate, here's one simple question.
WHERE will the money come from to pay the INTEREST alone on $53 Trillion of nation-wide debt, much less the money to keep the $53 Trillion PRINCIPAL from growing larger, when that money does not yet exist? Can you say: inflation ?
The Federal Reserve and government are now in a real pickle, and they will be creating massive amounts of money, and giving it away for free (i.e. more stimulus checks) to keep the pyramid from collapsing.
At any rate, the voters have the government (one-simple-idea.com/L... that the voters elect (one-simple-idea.com/C...
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
Report abuse
The Baren
Aug 15 05:06 PMThe one topic no one wants to look at or talk about is obviously the topic that eludes us all. Not me. Take a good hard look around you or maybe it is to late to the fact of who built all these houses or are all the parasites gone. Yes, most have moved on already to someplace else. I heard all the jokes about how fast they build. About how if we were to deport them it would destroy the economy. How every man has a right to make a living. If our government did something in the beginning like stopping the ant hill of ILLEGAL CRIMINAL IMMIGRANTS over pouring
into America then who would have built all of these homes? My educated guess leaves me to believe that the normal working man would have built these homes. Less soldiers means smaller army.
Smaller army means less homes. Less homes means better economy. If you think about it these homes built by illegal criminal immigrants were in retrospect illegal operations. Illegal doings have consequences. Thanks to all of our politicians who were to much of a coward to stand up for what is right has now lead us down the very spiral we fall today and tomorrow. Anyone who cannot see the problem
America faces today and in the coming YEARS has something wrong
with there reasoning system. It is a new disease. Something that plagues us all. Denial. GOOD LUCK AMERICA!!!!!!!!!!!! Report abuse
tex97239
Aug 15 05:35 PMExactly what I have been trying to explain to people for the last 20 years.....
You are living a life based on false economic pretenses.
It doesn't really matter that you are no longer able to lease that overpriced luxury car. You wouldn't be able to afford the gasoline to operate it even if you could.
Don't think that just because you were able to borrow your way into high six or seven figure balance sheet, that you are wealthy. Far from it!
In my father's day they called it a DEPRESSION.
These days it is called a correction.
Either way, it is the Middle Class who will suffer the longest and hardest.
Thank you Alan Greenspan, Ronald Reagan, Bill Clinton and G. Bush 1 & 2.
Great work! Report abuse
p-mo
Aug 15 05:39 PMHuh, I can't find this guy's profile on the faculty of Wharton;
wharton.upenn.edu/.../
Hmmmmmm? Report abuse
Donnernv
Aug 15 06:31 PMTim Miles:
You seem to be an intelligent man. But you have quaffed too much of the media Kool-ade.
To wit: GAO says 68% of corporations pay no Federal income taxes.
To wit: The Federal income tax system favors the rich.
The facts...the GAO study also mentions that 50% of corporate earnings passe through the Sub-S and LLC corporations untouched but flows DIRECTLY to the shareholders pro-rata to be taxed on their 1040s instead of the corporations' 1120s. No tax is lost.
The 68% allegedly lost is reduced by the 50% paid by the shareholders directly. The other 18% represents (in the main) corporations that had negative earnings.
Of Federal income taxes, the top 1% of income earners pay 39.4% of all Federal income taxes yet own only 21.2% of all income. The top 10% of all earners pay 70.3% of these taxes with only 46.4% of the income.
Moreover, the bottom 50% of all earners pay 3.07% of the taxes with 12.8% of the income. This favors the rich? I pay 33.4% of my total income for Federal taxes, an amount equal to more than 2000 of the average from the lower 50%.
Do a little fact finding before regurgitating the media myths. Report abuse
p-mo
Aug 15 06:36 PMThis guy is a fraud. He is not the "senior director" of anything. Report abuse
Jim Quinn
Aug 15 07:11 PMHey Bozo-mo
Why don't you try to say something intelligent rather than calling people frauds. I'm not on the faculty. Look in the staff diectory. I guess with your research skills, you aren't a graduate of Wharton.
Details - Public View Close
JAMES G QUINN
Sr. Director of Strategic Planning, Wharton Finance and Planning (Staff)
jamg@wharton.upenn.edu
Report abuse
jlounsbury59
Aug 15 07:35 PM
My Websitep-mo - - -
Try Googling "James Quinn Wharton". You'll find plenty of professional activities for your "fraud". Next time don't go off half-cocked. Get some facts first. Report abuse
Tesh
Aug 15 09:08 PM
My WebsiteWith all the fuss over usury and the fraudulent economic system, I find it interesting that nobody is calling the investor society to task. The idea of "investing" your way to riches is just as dangerous and fundamentally unsound as fractional reserve lending. All that investing does is flip the debtor/creditor equation; usury is still a drain on capital, regardless of what direction it flows in.
The argument goes something like "screw the other guy more or earlier than he screws you", but bottom line, living on interest (usury) instead of production isn't a solid foundation for an economy. Report abuse
p-mo
Aug 15 10:16 PMMy apologies. By the nature of your article and the description in your bio, it seems that you are representing yourself as Wharton faculty, which apparently you are not.
In fairness to all, could you clarify what your role is at Wharton?
Oh, and to Mr. jlounsbury59, the results you get from your suggested google search do not lead to the author of this article (except for a bunch of reprints of blog entries from the last couple weeks.) Report abuse
Ricard
Aug 16 04:11 AMGreat article - one of the best opinion pieces on the economy I've read, and easily one of the best articles in general I've read in years. This article manages to put all of the bad news I've read about 2001-2007 into one nuclear holocaust, and once packed into such, delivers the promise of the title with a fury that would make those Michael Phelps victory pics look tame.
Favorite comment is from OldLimey - great summary about American consumerism.
My own comments:
1) This article would seem to advocate for what Greenspan recently wailed about - wiping out Fannie and Freddie and starting anew. I'd imagine that would fix at least a large portion of the mortgage mess, although not necessarily the balance sheets of American consumers.
2) Interesting to track the boom/busts of the past 10 years. First, it was in stocks, which have since recovered, even the techs given their P/Es. Then, it migrated to housing, which is nearing a bottom. Now, it is in commodities, which with the dollar's ascent, are fast falling themselves. What's next? Am I missing a market? Or are stocks really ready for another speculative boom cycle? Or should we...
3) Look to other consumers - I will focus on China, although other regions may also have a similar backdrop. The size of its currency reserves, the still pristine savings rate, and the more-than-likely continued, unstoppable growth seem ripe for the flourishing of the Chinese consumer. Such a development would be healthy for the country, as it would be able to self-sustain its economic growth, and become less dependent on exports. In the international arena, it has every reason to pursue such a path to smooth relations with debtor nations. Moreover, with the recent plunge in Chinese equities, incredible deals are ripe for the picking.
Conclusion:
I think if one were to take this article seriously a decent course of action would be to
1) Deleverage, as many others have already commented on
2) Buy puts or sell short Fannie and Freddie
3) Stock up on single-digit P/E developing nation stocks with a similar profile as China.
Be careful of
1) Nations reliant on commodities - WSJ just put out an article citing speculative activity accounting for the majority of the transactions in the oil market - it is easy to imagine other commodity markets, and hence other nations' economies, infected by the same disease
2) US consumer discretionaries without a strong, diversified international portfolio (just don't let an AAPL hit my head)
3) Single-digit P/E US stocks, but ahem, there is no such thing.
Cheers, and happy hunting! Report abuse
Ricard
Aug 16 04:22 AMOops:
When I wrote "Nations reliant on commodities", I meant "Nations reliant on exporting commodities", not importing them. I'm sure Japan would be quite happy (or less unhappy) if commodity prices fell further. Report abuse
THE CLOCK
MAN
Aug 16 05:24 AMWe still have time to make major corrections to the problems that face this nation. We can start by electing a "Statesmen" this time instead of politicians. Americans can still write on the ballot their choice for President of the United States.... Want to really turn this country back to what the Founding Fathers invisioned.... write in RON PAUL, a man who truely loves this country and has the courage to face the problems that confront this nation. Quit throwing you vote away... the Democrats and Republicans are sleeping in the same bed.... God Bless America Report abuse
d.a.n
Aug 16 07:59 AM
My Website_______________...
Donnernv wrote: Moreover, the bottom 50% of all earners pay 3.07% of the taxes with 12.8% of the income. This favors the rich? I pay 33.4% of my total income for Federal taxes, an amount equal to more than 2000 of the average from the lower 50%.
Do a little fact finding before regurgitating the media myths.
______________________...
Funny how those accusing others of perpetuating myths are the very ones doing it.
Your numbers and percentages on income taxes exclude one important fact: those tax rates are on adjusted income; NOT gross income. The current tax system is regressive due to a myriad of tax loop-holes that favor the wealthy.
Not only that, capital gains and dividends are not subject to Social Security and Medicare taxes.
Social Security and Medicare taxes are 15.3% (half from employee, half supposedly from employer, but really comes out of employee's pocket).
Not only that, but Social Security is capped at about $98K, making it even more regressive.
Not only that, capital gains are taxed from 5%-to-15%.
The tax system is regressive and unfair.
The middle-income groups is getting soaked.
Here's the proof:
One-Simple-Idea.com/Di...
Report abuse
Jim Quinn
Aug 16 10:16 AMp-mo
Sorry for reacting angrily to your post. I am responsible for Planning and Budgeting at Wharton. My group supports the faculty in their efforts in research and teaching. Faculty are referred to as faculty. If the title is director or senior director, that means you are staff. Report abuse
The Baren
Aug 16 10:38 AMYes, lets talk about taxing the big business. I do not believe anyone is thinking clearly enough to see who they work for. So lets tax big business
and give the middle class a tax break. Boy that sure sounds good doesn't it. Oh wait, I just lost my job because the evil big business are now paying huge tax increases and in return has to cut back on 2,600 jobs to make up for lost revenue. I really don't think a tax break for middle class is going to help me if I don't have a job. Now instead let us give big business a tax break and a chance to expand with opportunity for new employment instead of laying people off. Wow, new jobs. Like I said before everyone is in denial of what's going on around them. Americans have become such brats that instead of embracing new data for educational purposes such as the article above they would rather spend all there time trying to discredit. Open your eyes America
and realize it is time to think about the big picture and not just yourself.
This effects us all and it's sad to believe that most will not even try to see the existence of this national problem until poverty comes knocking at their door. GOOD LUCK AMERICA!!!!!!!! Report abuse
John
Pseudonym
Aug 16 10:59 AMWhen the history books are written on this subject, this article should be included. Report abuse
Lilguy
Aug 16 11:08 AMGood, if exhausting and depressing, overview of how we got ourselves into the situation we're in.
Maybe even more worrisome are the measures the USG will take to get us out of this mess. The more likely will tend to salve the self-inflicted wounds, but not address their systemic basis (such as the much-ballyhooed tax stimulus package). In the end, if we do not do what is necessary to fix our financial system and our own way of living, we will only add pain for ourselves, our children, and our grandchildren. Report abuse
WEBISKING
Aug 16 11:21 AM
My WebsiteReagan Bush and kennedy all enacted major cuts EVERYTIME after that FEDERAL REVENUES WERE INCREASED. The fact taht Congress overspent all the money does not change that fact. Investment bubbles have been going on since the tulip bulb incident in the16 or 17th century. remember this lne What wise people do in the beginning.Fools do at the end Report abuse
Moses
Aug 16 11:48 AMI agree that eventually the US will fall from grace, but is it this time? I give it a 60-70% chance that it is. There are no guarantees, the US gov't could keep putting it off by issuing more debt. Eventually though we will collapse under so much debt. What happens to all the other countries that own so much of our debt? Report abuse
d.a.n
Aug 16 12:44 PM
My Website_______________...
The Barren wrote: Yes, lets talk about taxing the big business. I do not believe anyone is thinking clearly enough to see who they work for. So lets tax big business
and give the middle class a tax break. Boy that sure sounds good doesn't it. Oh wait, I just lost my job because the evil big business are now paying huge tax increases and in return has to cut back on 2,600 jobs to make up for lost revenue. I really don't think a tax break for middle class is going to help me if I don't have a job
______________________...
You're right.
Taxing corporations is really like yet another regressive sales tax on consumers.
The tax system i
For example, the author said:
"After examining these charts, it is clear to me that the tremendous prosperity that began during the Reagan years of the early 1980’s has been a false prosperity built upon easy credit. Household debt reached $13.8 trillion in 2007, with $10.5 trillion of that mortgage debt. The leading edge of the baby boomers turned 30 years of age in the late 1970’s, just as the usage of debt began to accelerate. Debt took off like a rocket ship after 9/11 with the President urging Americans to spend and Alan Greenspan lowering interest rates to 1%. Only in the bizzaro world of America in the last 7 years, while in the midst of 2 foreign wars, would a President urge his citizens to show their patriotism by buying cars and TVs."
Credit Card companies are too greedy for their own good. The skyrocketing interest charge would backfire back as defaults start pouring in.
To think about saving today makes little sense when real interest rates your savings will earn are negative and inflation will destroy the value of your dollars faster than you can put them away. So you ask savers to "invest" in markets that are full of risk and for which people have neither the time, inclination or knowledge to investigate.
Focus on becoming debt free as fast as humanly possible.
The US economy could crater faster if new international conflicts arise as
then our energy costs will go stratospheric. Outgoings for gas and food
have replaced many dinners & movies and that new TV.
Grow your own vegetables.
Many don't realize you were not allowed own gold until after 1974.
There was a reason for that.
The "Middle Class" is destined to become extinct but we don't see it, yet.
The Fed may try to put us on life-support but the obits are being drafted
as we speak and the outcome is already written in the ledgers. Some,
even the frugal having done everything right, will lose out because their
jobs will off-shore at a faster rate. I have a real problem with paying
illegals any Social Security &or their free medical when 50million citizens
can't get the same.
Illegals cost this country $70billion a year and we pay for it thru increased
health & auto insurances, law enforcement costs and the fact that this
money could have been going into education, research or whatever.
I also have a problem the Feds raiding this same Social Security piggy
bank themselves without paying it back in.
What will have happen next... ? Here a few ideas...
- taxes across the board *will* have to go up. Govts dont stop spending.
- crime will increase starting with the larger population centers.
- charities will be under funded when they are needed most.
- more people will drive without medical and auto insurance.
- the "rich" are not getting richer anymore these days ...
- in the last Depression, America's population was only about 100million.
There is no govt infrastructure in place to set up soup kitchens to feed
100million people, out our current 310million.
You do the math - they published a report last week suggesting our
population will increase to 439million within 35years.
Everyone is free to grow their own food - dont waste anything.
Dont waste any other resources or materials either - many things can
be turned into cash or barter however small.
There is a Tsunami coming as its time to move away from the beach...
It could get much worse, since the nation has $53 Trillion (or more) of total nation-wide debt, but 80% of the U.S. population owns only 17% of all wealth, 1% of the population owns 40% of all wealth, and that trend has been worsening since year 1976 due to the perpetuation of these 10 abuses (One-Simple-Idea.com/Di...).
The following have never been worse ever and/or since the Great Depression:
(1) Total $22 Trillion of federal government debt (one-simple-idea.com/Na...) has never been larger, both in size and as a percentage (over 160%) of the $13.86 Trillion GDP (year 2007), when including the $12.8 Trillion (www.socialsecurity.org... and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby boomer bubble approaching (that's 13,175 new recipients per day!).
(2) Total personal household debt nation-wide ($13.88 Trillion) has never been larger, both in size and as a percentage (over 100%) of the $13.86 Trillion GDP.
(3) Total nation-wide debt of $53.2 Trillion (one-simple-idea.com/Di...) has never been larger, both in size and as a percentage of the $13.86 Trillion GDP:
private domestic financial sector debt=$15.8 Trillion;
household debt= $13.88 Trillion;
bus iness debt=$10.16 Trillion;
federal government National Debt=$9,622,190,370,71...
state and local government debt=$2.2 Trillion;
other private sector foreign debt=$1.8 Trillion;
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Total nation-wide debt = $53.2 Trillion (and that does not even include the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby boomer bubble approaching);
If the $12.8 Trillion borrowed and spent from Social Security is included:
Total nation-wide debt = $66.0 Trillion = $53.2 Trillion + $12.8 Trillion = 4.76 times the nation's $13.86 Trillion GDP (year 2007) !
Total federal debt is = $22.2 Trillion = $9.4 Trillion + $12.8 Trillion = 1.60 times the nation's $13.86 Trillion GDP (year 2007) !
QUESTION: Where will the money come from to pay the interest on the $53.2 Trillion of nation-wide debt, much less the money to reduce the principal debt of $53.2 Trillion, when that money does not yet exist?
(4) Real median household incomes (one-simple-idea.com/Di...) have fallen since year 1999, and have actually never been lower since year 1978 when also including the fact that:
(a) there are now more workers per household;
(b) we have more regressive taxation (voters should ask to see the tax curve on gross income; before a myriad of tax loop holes are applied);
(c) and the 40-hour work week is disappearing;
(d) urban sprawl and high fuel costs are hammering the middle-income and lower-income levels;
(5) Illegal immigration has never been worse and more costly, costing American citizens an estimated $70 Billion to $338 Billion annually in net losses (one-simple-idea.com/Bo...). The problem has quadrupled since the amnesty of year 1986. Hundreds of overrun hospitals have closed (60-to-84 in California alone), California is now laying off 20,000 teachers in the public school system. 29% of all people incarcerated in Federal prisons are illegal aliens. The politicians (despicably) capitalize on it in 3 ways:
(a) by pitting American citizens and illegal aliens against each other for profits and to depress wages (Wage_Stagnation + Cheap_Labor = Big_Profits);
(b) by dividing the voters (capitalizing on Americans misplaced compassion for illegal aliens more than their fellow Americans);
(c) and by pandering for votes;
(6) The wealth disparity gap (one-simple-idea.com/Di...) has never been larger since year 1930. The gap started growing larger, and has not stopped growing larger since year 1976.
(7) Taxation has been regressive (one-simple-idea.com/Di...) since year 2000 (or before). We have never had so many different kinds of taxes; many of which are regressive sales taxes. The current tax code is ridiculously complex (by design) with a myriad of tax loop-holes that mostly benefit the wealthy.
(8) Home equities have never been lower (below 50%) since year 1945 (mhutch.blogspot.com/20...).
(9) Home ownership has fallen (money.cnn.com/2006/03/...) since year 2006 for low-income and middle-income groups. A study shows that only 59.6% of working class families owned their homes in 2003, lower than the 62.5% in year 1978. That is, home ownership is rising among the wealthy, while falling for most Americans that are losing wealth, losing equity, losing income, and losing their homes at record levels. Currently, home ownership is in a record plunge, and the 4th quarter of 2007 had the biggest one-year drop (1.1%) since tracking began in year 1965.
(10) Foreclosures are at record levels (one-simple-idea.com/Di...):
JAN-2008: 225,000
JAN-2007: 145,000
JAN-2006: 105,000
JAN-2005: 70,000
(11) Average personal savings rates are negative (since year 2005), and have never been worse since 1933 (one-simple-idea.com/Di...).
(12) Energy vulnerability: oil and energy prices have never been higher (both in nominal price and adjusted for inflation; worse than the spike in year 1981); one-simple-idea.com/US...
(13) Federal government bloat has never been worse, and continues to grow to nightmare proportions. There are now more jobs in government than all manufacturing nation-wide (www.akdart.com/gov1.ht...).
(14) Global competition has never been stronger. Trade deficits have never been larger (see China). Transnational corporations want cheap labor (WageStagnation + CheapLabor = BigProfits). Jobs are leaving the nation in droves; a trend that started in the early 1970s, and also helps to explain why real median household incomes have actually been falling since year 1978. Also, while 5.5% unemployment (money.cnn.com/2008/06/...) doesn't sound bad, the jump from 5.0% to 5.5% (from April-2008 to May-2008) is the largest one-month increase in 22 years (source: U.S. Labor Dept.). Also, one should remember that the population is growing by 5 million per year too. So the number of unemployed is growing larger, even if the percentage isn't.
(15) Medicare (www.ncpa.org/pub/st/st...) has hundreds of billions of unfunded liabilities per year, which are being funded by more borrowing and debt. It is not sustainable; especially with the approaching 77 million baby-boomer bubble. In year 2007, Medicare (16%) and Medicaid (7%) combined were 23% of the $2.7 Trillion federal budget.
Year 2007: $432 Billion (16% of federal budget)
Year 2006: $374 Billion (14% of federal budget)
Year 2005: $333 Billion (13% of federal budget)
Year 2000: $216 Billion (12% of federal budget)
Year 1990: $107 Billion ( 9% of federal budget)
Year 1980: $34 Billion ( 6% of federal budget)
Year 1970: $7 Billion ( 4% of federal budget)
(16) Inflation (one-simple-idea.com/De...) was higher in the mid-to-late 1970s and early 1980s, but we have had positive inflation since year 1956. 3% to 5% inflation doesn't sound bad, but when it is every year, it becomes exponential (i.e. 3% this year is really more than 3% of last year, which is more than 3% the year before, etc., etc., etc.). Thus, a 1950 U.S. Dollar is now worth less than 10 cents (one-simple-idea.com/US...). As of 16-JUL-2008, consumer prices have rose at a rate that has never been faster in the last 26 years. Energy prices have a great deal to do with this.
(17) Other exacerbating problems (one-simple-idea.com/Co...):
(a) 2 wars in Afghanistan and Iraq (cost as of 19-JUL-2008 estimated between $557 Billion and $2+ Trillion); zfacts.com/p/447.html
(b) skyrocketing health care costs (one-simple-idea.com/Di...);
(c) declining quality and rising costs of education (tsp.convio.net/site/Pa...);
(d) election system problems (one-simple-idea.com/Di...);
(e) lawlessness (one-simple-idea.com/Di...);
(f) regressive taxation (voters should always ask to see the tax-curve on gross income; before a myriad of tax loop holes are applied) (one-simple-idea.com/Di...);
(g) violent crime rates are on the rise again, after falling for many years (www.cbsnews.com/storie...);
(j) declining transparency in government (i.e. the U.S.A. Corruption Perception Index has fallen for 10 years) (www.transparency.org/p...);
(i) for the 2nd time in 125 years, the Red Cross is bankrupt (www.washingtonpost.com...);
(j) environment (One-Simple-Idea.com/En...);
(k) the Dow Jones had the worst June since the Great Depression;
(l) government corruption (One-Simple-Idea.com/Li...)
Unfortunately as grim as the conclusions here are, I'd defy anyone to oppose the thesis here with even 1/10th of the facts that Quinn cites....
Unfortunately as grim as the conclusions here are, I'd defy anyone to oppose the thesis here with even 1/10th of the facts that Quinn cites....
www.contrarianprofits....
www.agorafinancial.com...
14) The government has failed to protect our boarders and there are now about 20 million illegal immegrants in our country. They bring with them the heavy cost of crime and federal, state and local government welfare and support programs. Minority nationally organized street gangs now run rampant in America. As the economy falls into deep recession, the materialistic cash culture will turn more and more to crime to support their needs. Soon this will be 'No Country for Old Men'.
Do you by any chance have a job or some other interests that you could spend some time on? Your endless comments and marketing is a bit much. Look out your window, perhaps you could do your neighbor a favor and mow their lawn or add some value by picking up some trash or helping an old lady cross the street.
Think-About-It wrote: Do you by any chance have a job or some other interests that you could spend some time on? Your endless comments and marketing is a bit much.
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What marketing?
I'm not selling anything, so that comment is false.
My advice for anyone that doesn't want to read it, don't.
Simply don't read it if you don't want to.
Afterall, nobody is forcing you to.
Obviously, some people don't have enough to do, since they can find time to critique the messenger, rather than the message.
Do you have anything of relevance to add to the subject (our economic conditions)?
At any rate, I plan to carry on as usual, and if you don't like it, that's too bad.
Don't read it.
Scroll right past it. If you got one of those nifty wheel-mouses, just spin right past it. Better yet, if you press Ctrl-F and type Report Abuse, which takes you to each successive comment.
Perhaps you could try to answer the question on one else can answer?
QUESTION: Where will the money come from to merely pay the INTEREST on the $53+ Trillion of nation-wide debt, much less the money to pay down the PRINCIPAL and keep it from growing ever larger to nightmare proportions, when that money does not yet exist?
Especially when 80% of the U.S. population owns ONLY 17% of all wealth (a trend that has been worsening fast since year 1976 (One-Simple-Idea.com/Di...)?
At any rate, the voters have the government (one-simple-idea.com/Li...) that the voters elect (one-simple-idea.com/Co...).
one-simple-idea.com/Co... (Pressing Problems...)
one-simple-idea.com/Di... (Root causes...)
one-simple-idea.com/Ne... (Painful consequences)
one-simple-idea.com/So... (Solutions...)
That should be a huge red flag for you all
The country where I live, New Zealand, has a worse savings rate: minus 14%! You may well have discounted NZ on the basis that it will soon lose its status as a developed economy.
Our house is safe... 15 yr mortgage @ 5% with 10 yrs to go and we didn't overbuy to begin with... it's the consumer debt and consumer loans that are killing us.
Thanks in advance.
However, you may save money if the interest rates on your Credit Card debt is high. That is, eliminating the Credit Card debt and interest may allow you to start putting money back into your 401K instead of paying it in interest to the Credit Card companies.
Maybe I am ignorant, but I cannot come up with one preparedness plan for my money given the premise. They all have major flaws.
My best guess is to take out a huge mortgage in the best neighborhood in my city and wait for rampant inflation to solve this mess. (which is the only way to thoroughly cleanse the system IMO)
what defensive postures are any of you suggesting?
I am actually going to have to come up with enough cash to buy a car and good enough credit to get a loan on one..
Keep reading and rereading this information until your eyes stop glazing over and you begin to comprehend the facts.
It is critical that we start paying attention to the fact that our lifestyle of "borrow and spend" is coming to a screeching halt.
It is not going to make a whit of difference who gets elected president because the pig trough days are over.
I have my money on this side of the bet.