Growth based on Debt

I think the US economy can expand a lot more with increasing debt. I recall that Japanese homebuyers were out to 50 years on their mortgages during their bubble. Most homeowners in the US refinanced recently and many went for shorter terms. They will have a lot of equity in a few years which will give them confidence to use consumer credit.

One characteristic of bubbles is that people that know a bubble is occuring have to be involved or stay on the sidelines and watch others benefit from it and they don't stay on the sidelines. Therefore education is not going to change anything.

Soros claims that you cannot know when you are in a bubble until later. I find this to not be true, we knew we were in a bubble in 1999, the tulip traders in Holland had to know they were in a bubble but what was the Fed going to do? I can't think of an option they had that would not constitute interference with the free market. If they try to affect the stock market but not the rest of the economy via interest rates they would find they could not do that.

The one thing that could have been done would be to limit margin trading or ban it temporatily, maybe until stock prices returned much closer to the very long term mean. Margin effect is an important vector in a bubble and a huge factor in the crash as well. I guess the SEC would have had to mandate margin rule changes but they chose not to, perhaps the admin at the time did not want to act on anything and take the blame for ending the good times.
 
You are correct Mecro. the current growth is being financed in large part,(75-80%)with borrowed money.How long the fed will continue on its current path, no matter how detrimental to the dollar,is anyones guess.As far as inflation is concerned, anyone who pays the household bills,knows that low inflation is a myth.The problem lies within the feds formula for calculating inflation.Which not surprizingly replaced the old formula in the early 80's when inflation reached 20%.The current formula is a list of prices for goods and services.The monthly change in these prices is measured as the current rate of inflation.The current formula reflects, but is in no way shape or form an accurate gauge of inflation.In all likelyhood there will probably never be any appreciable inflation why this formula is in use.If you still have tax returns that are father back than 5 years,you can check your own records.My own records indicate(exact and very similar purchases,7years ago & now)that the REAL rate of inflation is approximately 50% over that 7 years.That is roughly twice the rate the feds formula supports.So in a nutshell the feds been understating inflation for 20 years. The empoyment numbers are also massaged to inaccurate representations, as are all of the feds numbers.
 
something to the effect that the overexpansion of credit has eventually led to every society's demise.

Unfortunately, I think the US is on a course for disaster and just like the Titanic, the ship is too big to turn to avoid the iceberg in time.

Our political system is now based on getting elected. Everyone now votes based on what's in it for them or which candidate is less likely to "take things away" from them. Few people vote based on leadership, principal, values and the greater good.

Still, while this could lead to major declines in the US stock markets, this may take a while to play out so don't let the long-term outlook affect your short-term and intermediate-term trading.
 
Quote from Mecro:

7 posts and most of them are just harrytrader BS?

Come on people, I know more of you have thoughts about this non stop cheap money printing. I'm wondering why inflation is not even setting in.
More...

Inflation has affected me personally in many different areas of my life: My health insurance premiums keep rising by 15% per year. My townhouse association has also raised their association fee by 15% per year for the last few years. Lets see what else, oh yah, the cable company has raised their prices for cable/internet by 5-10% the last few years. I can only comment on my fixed monthly expenses-I don't keep track of food, clothing or entertainment price changes. HOWEVER, entertainmentwise, the CUBS are raising ticket prices next year, but I don't know by what percentage, but I do go to a lot of the games so this is just another example of inflation affecting me personally :mad:

Yah, one can make the argument that you can get certain electronics items (such as DVDs) for much less than just a few years ago, but I don't think it offsets the increases in other items.
 
Well it seems that Greenspan & Company plan to keep this charade going at least until Bush is re-elected.

Fine with me.
 
http://www.nytimes.com/2003/12/01/business/01jobs.html?ex=1071118800&en=9497c9860de00bb7&ei=5070

If you read this article, it seems like many middle class families are living off of credit card just to pay mortgages, bills, and BASIC necessities.

How long will the economy support spending by consumers who are constantly weakened each day? How long can growth be sustained by debt??

Here are some scary quotes from the article:

"One risk arises from households that have cashed in part or all of their retirement savings to meet day-to-day expenses. "Out here, where home prices are really high, there are a lot of couples with mortgages that only can be supported on two incomes," said Dan Rink, a career coach in Alameda, Calif. "When one spouse loses a job, it's a catastrophe. I see a lot of unemployed people who are drawing down their retirement funds just in order to make their mortgage payments." "

"It was really bad," he recalled. "All last winter, we kept our house heated at 58 degrees. Early on, we maxed out on our credit cards, and we couldn't keep up with the payments we owed. I don't go to the doctor at all. But when it comes to a choice between buying medicine for my wife, who has asthma, and eyeglasses for my daughter, who needs them to see, or paying the electric bill, well, we did what we could. Fortunately, the electric company can't cut you off during the winter."

"When I think about all this," Ms. Fleetman said, "there's just one question I'd like to ask all those titans of industry who are laying people off and outsourcing all those jobs overseas: 'Who do you think you're going to be able to sell your products and services to here in the U.S.?' "

 
no one forces anyone to use credit cards. no one forces anyone to buy expensive houses

this and many other things, are very much done out of choice.

Eventually we all have to pay.
 
Im sure, like most of you, I dont need government Hacks to tell me that there is inflation. As a person who is a consumer I see the prices in more than just enegry rise, Bread, meats and Milk. There are all kinds of inflationary signals in just your average day junket to spend money.

Of course at the same time there are all kinds of gimmiks to mask this inflation...ZERO DOWN< ZERO PAYMENTS FOR 20 YEARS(you get the idea), retail sales of 50% or more, Two for One....these things help to maske the reality of what is going on.

The fact that a person can get a morgage 4x of what he/she makes also helps to maske what most of us know...THERE IS INFLATION.

Of course...as a trader, and one who trades for a living...This thought has no effect on my trading. However, it does show me that the SHEEP belive the GOLDEN CAFE........the PROMISE LAND IS AROUND THE CORNER....the SUCKERS IN ARE IN AND LONG....

The only problem is, the house of Cards may stand for a while, the debt to income ratio can still grow and may not come crashing down of a little while, yet.
 
thats a very good point about the crisis not comming immediately. I'm firmly in belief that what's going on can't go on forever, but have to remind myself that tomarrow isn't the day it stops. just making decisions with the future in mind but trading in the here and now.

-m.o.
 
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