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"
