OstrichHater

Turning Japanese: The Audacity of Reality (Part 3 of 3)

Jim,

re your comment below,

>The Debt Service Ratio in 1980 was 11%. Today it is 14%.

you are probably right saying that it is 14% now vs 11% then (I didn't have that official stat). I am simply suggesting that the <30% increase in debt service levels seems far from catastrophic to me than what you are suggesting.


Also, re your comment:

>You assume they will stay at 2.8%. Very hopeful assumption.

You have to remember that if interest rates rise, it only affects NEW debt, and not existing debt, and therefore is a little less scary. It is not as if the debt service level will immediately double from 14% to 28% if the 10 year doubles from 2.8% to 5.6%, because the debt service level is the blended average rate of the debt outstanding (not the new debt issued).

Turning Japanese: The Audacity of Reality (Part 3 of 3)

Interesting article, but only because it provides the opposite point of view of the wall street analysts. However, this opinion is just as biased as the talking heads on CNBC!

A good example (but certeinly not the only one) of the many biases included here is the claim that:

The debt level in 2008 is catastrophic vs 1980 debt levels.

However, the relevant comparison would be DEBT SERVICE LEVELS, as the cost of debt currently is much much lower than it was in 1980's (10 year treasuries are now 2.8% vs 12-14% in the early 1980's). Therefore, the debt levels are not nearly as bad as this article implies.