From the "Daily Reckoning" some interesting figures proving we live in a fools paradise. Debt is not the road to prosperity soooo - how do we get out of this mess as it cant go on forever. I have no idea except to get out of debt which I have but as for the western nations? Thoughts
"Home foreclosures soaring in Wichita," the
Kansas City Star tells us. "Bankruptcy filings swell in
Colorado," reports the Rocky Mountain News. Both Kansas and
Colorado are suffering the after-effects of collapsing
interest in technology companies. Through aggressive tax
incentives, Denver invited many of the nation's most
beloved techs to set up shop in their city. Wichita, Kansas
wooed some of the Boeing operation away from Seattle.
- They have subsequently suffered similar fates. A Denver
bankruptcy puts it this way: "During good economic times,
Colorado grew quickly, and people borrowed liberally for
new cars and to fill new homes with expensive appliances,
furniture and other luxury items. And if they get laid off,
it's hard to make a quick turnaround because they've still
got these purchases in place. Some of these large-ticket
items people have are locked in, and even though they see
the need to make short-term adjustments, they can't."
- "Filings [for foreclosures] have picked up and become
more volatile since the recession began," said Stanley
Longhofer, an economist with Wichita State University,
describing the rise in foreclosures in his state to the
Kansas City Star. "But the increases started long before
then. It is not the housing market going into the tank that
is causing foreclosures. It is people that have allowed
themselves to get in way over their head."
- "U.S. consumer debt," reports the Rocky Mountain News,
citing Federal Reserve figures, "through credit cards, auto
loans and other non-mortgage personal borrowings, grew for
a third straight month in September to $1.97 trillion."
Throw in mortgage debt and Americans hold $8.4 trillion in
personal debt. The entire nation's GDP, by way of
comparison, is roughly $10 trillion.
- Now the well-dressed gentleman doesn't look so
impeccable, does he? In fact, he looks rather like a
fraud... hiding secrets... and telling more lies to cover up
the truth from those who would hold him accountable. When,
in fact, he already knows he's going to a certain rendez-
vous again, ce soir. He can't resist.
- Our prediction: He's about to get caught in the act. "No
matter how much the Fed inflates, it can't force businesses
to borrow or banks to lend money," the Mogambo Guru quotes
Jim Puplava on Financial Sense online, looking at the
decline in the money supply numbers and the lack of lending
going on at the banks. "When the appetite for credit
evaporates, the money supply starts to contract, which is
what it is doing now."
- But there is a downside to all of that, as Mr. Puplava
explains: "Now that the supply of money is contracting,
there is less money to keep the economy and the markets
expanding. This will become critical in the months ahead
because this is a liquidity driven market. As the supply of
money and credit contracts, so will the markets.
"As a fact check to your Daily Reckoning column, I checked
the economist country databank
(http://www.economist.com/countries) to verify exactly how
the U.S. debt/GDP, deficit/GDP, and CA deficit stack up
against other nations. I was a bit shocked by the results.
"Europe has essentially the exact same debt problem as the
U.S. does. In both France and Germany, debt is 60% of GDP,
almost exactly the same as the U.S.. Deficits are lower (3%
versus 5%), but in the case of the U.S., at least
*some* of that 5% is due to the war, which, like all wars,
will eventually end. True, the current account situation is
much better (+2% versus -5%), but I am not sure how much of
that is already priced in to the current $/EURO exchange
rate...
"On the other hand, Japan has an absolutely horrific 145%
of debt to GDP, with annual deficits of 8% of GDP. I know
it's more fashionable to bash the U.S. these days, but
surely this is no role model.
"A friend (and former hedge fund manager) of mine would
also like to add that Italy has a 100% debt to GDP ratio
and the eventual inclusion of eastern Europe in the euro-
zone will clearly only make things worse.
"On the subject of pension liabilities - the situation is
also worse in Europe and Japan, where the age demo is
aggravated, and state pensions are bigger.
"Regarding equity valuations - it is very debatable whether
either Japan or European equities are 'cheaper' than the
U.S.. Both may have lower Price/Book ratios than the SP500,
but in Japan much of that is (still) inflated property
values and cross-holdings; in Europe growth rates are
significantly lower - and should command a lower P/E. Not
to say that the U.S. market is cheap, but neither is Sony
at an 90 P/E, or German banks in the mid 20's P/E, or the
French luxury good makers at P/E's of 30 or more...
"Clearly the U.S. is not the picture-perfect example of
fiscal responsibility. But Europe is at least as bad, and
Japan is worse. I would suggest including these two blocks
as Daily Reckoning 'editorial targets' going forward, but I
doubt it would increase your newsletter circulation."
A good listen form the financialsense website
http://www.netcastdaily.com/fsnewshour.htm and select "Bill Bonner"
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