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Top 858. Jan 24, 2006 6:01 AM

» lcha - Re: As Economy Thrived Under Greenspan, So Did Debt

In response to As Economy Thrived Under Greenspan, So Did Debt posted by permabear:

I measure my personal prosperity by my net worth. As such, if I take on debt, I might have more spending power which makes me LOOK more prosperous but my net worth does not change so I have not gained anything.

Now, if I take on debt to finance an investment of some sort and that investment succeeds, I WILL increase my net worth and will be truely more prosperous.

But, that is not what people have done. They propped up the economy by taking on debt for consumption. And real estate bubble creation.

And for the consumers efforts to strengthen the economy, have they been rewarded by higher levels of real income? No. Not from the statistics I have read.

So, I believe that under Greenspan's watch we have merely postponed the our economic pain. And transferred some of the imbalances WE created to our children. That is not my definition of success.

-- posted by lcha

Top 859. Jan 24, 2006 9:44 AM

» permabear - Re: Re: As Economy Thrived Under Greenspan, So Did Debt

In response to Re: As Economy Thrived Under Greenspan, So Did Debt posted by lcha:

I think debt works as long as the economy is growing and prices are rising. With the housing boom we've seen in the past five years, taking out mortgage debt hasn't hurt the average Joe because he can always take out more debt to finance previous debt or he can sell his house to pay everything off. But if the housing market declines, which it has begun to do, all that mortgage debt is going to just crush those that got in over their heads. The real test will come if we ever face a serious recession again (which is inevitable at some point). All the debt that people have taken on can really mushroom into something nasty. We haven't seen debt levels this high since the Great Depression.

Regarding the Greenspan article, the one piece it left out was Greenspan's tacit support of Bush's tax cut policies. Greenspan was really a meek guy when it came to sharing his economic opinions. During Reagan's era, he was pro tax cuts. During Clinton's era, he joined Robert Rubin in being fiscally responsible. Now during George W. Bush's era, he was back to supporting the big tax cuts. These tax cuts, while they may have helped stimulate the economy short term, have created macro economic debt problems which may just bring down the economy of the U.S. in time. Thus Greenspan is not only complicit in creating the debt that individuals are facing, but also just as complicit in creating the debt levels that the nation as a whole is facing ($8 trillion and counting).

-- posted by permabear

Top 860. Jan 24, 2006 2:15 PM

» permabear - Re: Re: Re: Re: As Economy Thrived Under Greenspan, So Did Debt

In response to Re: Re: Re: As Economy Thrived Under Greenspan, So Did Debt posted by Kirk:

Kirk,

I don't know what your loans terms are, but being the sensible financial guy you appear to be on these boards, I would assume you haven't gotten yourself knee deep in debt. Above you said you purchased your home in 1994. That alone gives you a huge advantage over people who are purchasing homes today because you purchased your home at a time the housing market was flat and historically reasonable. By contrast home prices have just exploded today and are priced very high when compared to measures they are often compared against, such as rents, income, affordability, etc.

I would hope you also locked yourself into a traditional 30 year fixed rate loan back in 1994. Hopefully you haven't refinanced yourself into a higher debt situation than you started with.

It is true that a majority of people bought homes before the madness with traditional loans, have pretty good equity in their homes and should make out fine. It is the folks who have bought their homes with 5 percent down (or less) took out interest only, negative amortization, adjustable rate loans that are going to get themselves into trouble...if the housing market turns down.

Regarding other measures of debt, I personally carry no debt on my credit cards after I pay them off every single month. The average Joe doesn't pay off his credit card every month. I've read statistics to the effect that the average person owes as much as $9,000 of credit card debt. At 18 percent interest rates, folks can really dig themselves into a hole they will have a hard time climbing out of. With the new bankruptcy law, they may never get out of debt.

But as long as the economy grows, Americans for the most part will muddle through. But when that next recession arrives, all I can say is look out. I sure hope it isn't a TEOTWAWKI as you described it. Somehow we survived the Great Depression. Hopefully we'll survive the next major crash.

-- posted by permabear

Top 861. Jan 24, 2006 5:52 PM

» hickfish - Re: Re: Re: Re: Re: As Economy Thrived Under Greenspan, So Did D

Above you mention that the average Joe carries about $9000 in credit card debt. I thought I heard one time that that is the aveage per person in the US.
Any chance that could be possible? If it is, and subtract out those with no credit card debt and the family impact would be astronomical.
I may have my figures mixed up. Can you confirm?

Regards

In response to Re: Re: Re: Re: As Economy Thrived Under Greenspan, So Did Debt posted by permabear:

-- posted by hickfish

http://www.bankrate.com/brm/news/debt/de...

Top 862. Jan 24, 2006 6:38 PM

» permabear - Re: Re: Re: Re: Re: Re: As Economy Thrived Under Greenspan, So D

In response to Re: Re: Re: Re: Re: As Economy Thrived Under Greenspan, So Did D posted by hickfish:

There is a lot of varied information on the subject. Even after doing some reading, it's still hard to tease out the facts. It's clear that credit card debt is a major problem, but whether its a major problem for a lot of people or just a small percentage, you can make up your own mind. Here are some articles I came across:

http://money.cnn.com/2005/10/07/pf/debt/...

Here's a glass half full view from a couple years ago:

http://moneycentral.msn.com/content/Bank...

-- posted by permabear

Top 863. Jan 25, 2006 5:27 AM

» Jas_Jain - Re: Re: Re: Re: As Economy Thrived Under Greenspan, So Did Debt

In response to Re: Re: Re: As Economy Thrived Under Greenspan, So Did Debt posted by Kirk:

--

"If we get deflation and 10 year T Bill rates crash to 2% as some like Jas suggest, then I'll refinance my home at 2% and still do fine even if my investment portfolio goes down some since I won't need as much to service the lower debt."

We all know, Kirk, how smart you are in trading Scams and you can borrow at 5% on your home and get 20%+ return by trading Scams, but average Joe and Jane are lucky to get 2% return on their Scam holdings. What may be OK for a trading genius like you shouldn't be encouraged for the rest. I short Scams, but I tell others to simply avoid them.

What you are engaged is a Carry Trade and those who are interested can check my latest on this subject under Jas Jain's Market Thoughts.

"If TEOTWAWKI happens, then it really won't matter what you have because roving gangs will take it from you or the government will tax it away. I'd rather plan for the 95% or more probability that we muddle along just fine and I don't have to battle Mel Gibson in Thunderdome for water."

Your assessment of the probability is highly colored by your own positioning. The TEOTWAWKI, in the coming ten years, is a 99% probability and not 5% as you imagine. You don't have the historical perspectives to come to the right assessment of the probability.

Jas

-- posted by Jas_Jain

Top 864. Jan 25, 2006 7:58 AM

» Kirk - Re: Re: Re: Re: Re: As Economy Thrived Under Greenspan, So Did D

.
In response to Re: Re: Re: Re: As Economy Thrived Under Greenspan, So Did Debt posted by Jas_Jain:

The TEOTWAWKI, in the coming ten years, is a 99% probability and not 5% as you imagine. You don't have the historical perspectives to come to the right assessment of the probability. Jas

Sure I do. Historically we have had people who could not make it in other countries come here, make money then tell us how stupid those of us that were here doing well before their arrival are. They seem to have a habit of projecting the failures of their country onto the USofA and extrapolating the results. It has been going on for over 200 years.

Elsewhere you have said real estate is a terrible investment. Perhaps in the short term you are correct but if all follow your current advice, they would be renters paying huge tax bills to the government rather than getting subsidized housing via the tax deduction. They would be burning cash as rent rather than building equity that they could borrow from in bad time.

I recall it was 1984 and ADJUSTIBLE interst rates were 14% for me to buy my first home. People like you told me I was nuts and my payment could to to some silly rate like it did in Germany before Hitler took over or like in other countries with troubles. Funny, after 10 years of appreciation and refinancing when rates dropped, my mortgage payment was a tiny fraction of what it would cost to rent that place. Fast forward another 10 years where I rolled my modest gains in that property into a downpayment to buy my present home. Again people told me the market would crash and rates could sky rocket so I was foolish to get a variable mortgage. I use the money saved from not having a fixed rate to build equity so if rates eventually go up, I can refinance again and perhaps get the same payment even with higher rates because I've lowered the amount due and extend out another 30 years. It is not very complex if you use a 10 year horizon and lock in rates for 5 years.

I still think TEOTWAWKI is more like 5% not 95% but that difference of opinion is what makes markets.

-- posted by Kirk

Top 865. Feb 2, 2006 11:56 PM

» permabear - Let's Bury Greenspan, Not Praise Him

February 03, 2006

Let's Bury Greenspan, Not Praise Him
by Peter Schiff

This week, Alan Greenspan bids a long overdue farewell to the Federal Reserve that he chaired for eighteen years. Praise from his Washington and Wall Street beneficiaries has naturally arrived by the boatload. His monetary policies enabled reckless and seemingly consequence-free deficit spending, helping incumbent politicians repeatedly win re-election; and his expansion of money supply and credit facilitated non-productive financial transactions, all to the benefit of the bankers who arranged them. It should be surprising to no one that he is so popular among these groups. The fact that Greenspan is so highly regarded by politicians and investment bankers is not a sign of how well he did his job however, but of how poorly.

Helping to win elections and fund bonuses comes with consequences, in this case an unbalanced U.S. economy teetering on the brink of economic disaster. During Greenspan's tenure America was transformed from the world's largest creditor to its greatest debtor, from the world's mightiest industrial power to a second rate service provider, and from a nation of responsible savers to one of reckless spenders. Self-sacrifice has been replaced by self indulgence, hard work by paper pushing, and genuine productivity by accounting gimmickry.

In effect, Greenspan helped Americans squander the "mother of all" inheritances. As any philandering playboy can attest, the process is easy and extremely enjoyable. However, it's not something worth bragging about. By focusing on consumption and asset prices, while ignoring debt, production and legitimate wealth creation, the Greenspan era was confused with one of genuine prosperity. To quote the great Ludwig Von Mises, "It may sometimes be expedient for a man to heat the stove with his furniture. But he should not delude himself by believing that he has discovered a wonderful new method of heating his premises."

As evidence of his mastery, Greenspan boosters point to what they call the "longest economic expansion in U.S. history," and to his seeming dexterity in dealing with financial crises. In fact, the only thing Greenspan succeeded in doing was delaying the inevitable. By blowing more air into every bubble he encountered, Greenspan succeeded largely by giving himself enough time to get out of Dodge before things got dicey. His long overdue departure would be an event worth celebrating, were it not for the fact that he is being succeeded by someone who may well be even more incompetent.

While the Greenspan Fed was certainly good for bankers and politicians, it was a disaster for the rest of America. In his wake, the long term solvency of America's economy, its financial institutions, and most importantly, the integrity of its currency, all teeter on the brink. Rather than being a maestro, think of Greenspan as the Pied Piper, who led Americans down a path to financial ruin. We all had a blast as the deceptively pleasing tune reverberated in our heads, but reality will set in when the music finally stops.

Do not wait for the music to stop playing. P rotect your wealth and preserve your purchasing power before it's too late. Start by downloading my free research report on the coming collapse of the U.S. dollar at www.researchreportone.com and subscribing to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsle...

-- posted by permabear

Top 866. Mar 1, 2006 12:14 PM

» Normxxx - Ominous Warnings: Part 1

Ominous Warnings and Dire Predictions of World's Financial Experts— Part 1

By Dudley Baker | 1 March 2006

I have the most informed, intelligent and savvy subscribers one could ask for. One of them, Lorimer Wilson, previously wrote me with his insights on "Our Worst Nightmare— the Puncture of the Current US Housing Bubble." It was very well received when published by me recently and he has just sent me another one I think you will find timely and of particular interest. He has compiled a remarkable summary of the ominous warnings, dire predictions and perceived devastating consequences that the vast majority of economists, financial analysts, economic research firms and financial commentators are saying about our current economic situation and what is most likely to unfold in the months and years ahead. It is a must read to more clearly understand and appreciate the financial state of the union, the impact it will likely have on various investments, and how better to allocate ones assets. Nobody has a crystal ball, but to just ignore the following warning signs and hope that everything will turn out okay would simply be foolish. Below is Part 1 of Wilson's 6-part article.

Ominous Warnings and Dire Predictions of World's Financial Experts— Part 1

Alan Greenspan, an 'original gold bug' and former Chairman of the Federal Reserve, is going to say "I told you so!" as soon as he feels at liberty to comment further on what he already warned us might/will happen to the economy. He will no doubt expand on what he saw as the:

a) potential for a derivative crisis— "I would suspect there are potential disasters running into ... the hundreds."

b) potential drop in asset prices— "This vast increase in the market value of asset claims [stocks, bonds, houses] is in part the indirect result of investors accepting lower compensation for risk. Such an increase in market value is too often viewed by market participants as structural and permanent. But what they perceive as newly abundant liquidity can readily disappear ... history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

c) housing bubble— "Nearer term, the housing boom will inevitably simmer down. As part of that process, house turnover will decline from currently historic levels, while home price increases will slow and prices could even decrease. As a consequence, home equity extraction will ease and with it some of the strength in personal consumption expenditures."

d) coming crisis in Social Security— "The imbalance in the federal budgetary situation, unless addressed soon, will pose serious long-term fiscal difficulties. Our demographics— especially the retirement of the baby-boom generation beginning in just a few years— mean that the ratio of workers to retirees will fall substantially. Without corrective action, this development will put substantial pressure on our ability in coming years to provide even minimal government services while maintaining entitlement benefits at their current level, without debilitating increases in tax rates. The longer we wait before addressing these imbalances, the more wrenching the fiscal adjustment ultimately will be." "When you do the arithmetic of what the rising debt level implied by the deficits tells you and add interest costs to that ever-rising debt at ever-higher interest rates, the system becomes fiscally destabilizing. What you will end up with is a stagnant economic system."

e) oil supply risk— "The current situation reflects an increasing fear that existing reserves and productive crude oil capacity have become subject to potential geopolitical adversity. These anxieties are not frivolous given the stark realities evident in many areas of the world."

f) rising budget deficit— "Large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years. Unless that trend is reversed, at some point these deficits would cause the economy to stagnate or worse." "Monetary policy, for example, cannot ignore the potential inflationary pressures inherent in our current fiscal outlook, especially those that could rise in meeting commitments to future retirees. However, I assume that these imbalances will be resolved before stark choices again confront us and that, if they are not, the Fed would resist any temptation to monetize future fiscal deficits. We had too much experience with the dangers of inflation in the 1970s to tolerate going through another bout of dispiriting stagflation. The consequences for both future workers and retirees could be daunting."

g) rising long-term interest rates— "The fiscal issues that we face pose long-term challenges, but federal budget deficits could cause difficulties even in the near term. Rising interest rates have been advertised for so long and in so many places that anyone who hasn't appropriately hedged his position by now is desirous of losing money."

h) record-high current account deficit— "Given the already substantial accumulation of dollar-dominated debt, foreign investors, both private and official, may become less willing to absorb ever-growing claims on US residents....Net claims against residents of the United States cannot continue to increase forever in international portfolios at their recent pace...Given the size of the US current account deficit, a diminished appetite for adding to dollar balances must occur at some point. The trade deficit cannot continue to increase forever at the recent pace.

i) excessive household debt— Debt in modest quantities does enhance the rate of growth of an economy and does create higher standards of living, but in excess, creates very serious problems.

j) falling U.S. dollar— Although I doubt that the U.S. dollar will lose its status as the world's reserve currency any time soon, there are in my judgment lessons to be learned from the experience of sterling as it faded as the world's dominant currency."

It is interesting to note that at one time Greenspan was an ardent gold bug and a true believer in the gold standard as his following words attest: "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. Deficit spending is simply a scheme for the 'hidden' confiscation of wealth. Gold stands in the way of the insidious process."

"Deep Funk"

Richard Fisher, President of the Dallas Federal Reserve, noted on Feb.6, 2006 that "U.S. consumer spending could suffer if the property market cools too fast but that is unlikely because of the high number of home owners with fixed rate mortgages acting as a buffer against the small fraction of those with variable rate mortgages. It is not unreasonable to think the situation is manageable, albeit worth watching closely."

Regarding the record U.S. current account deficit he said "those urging the United States to rein in its spending should be equally full-throated in prodding countries with excess savings and trade surpluses to create conditions for growing their domestic demand. If they fail to do so, and the U.S. suddenly becomes more virtuous on its own, the global economy could sink into a deep funk."

Financial Disaster

Paul Volker, a former Federal Reserve Board Chairman, is on record as saying "I think we are skating on increasingly thin ice. On the present trajectory, the deficits and imbalances will increase. At some point, the sense of confidence in capital markets that today so benignly supports the flow of funds to the United States and the growing economy could fade. Then some event, or combination of events, could come along to disturb markets, with damaging volatility in both exchange markets and interest rates. Indeed, there is a 75% chance of a major financial disaster within the next few years."

Great Disruption

David Dodge, Governor of the Bank of Canada, earlier this month said "global imbalances, such as the record U.S. current account deficit and the ballooning surpluses in some Asian countries, are persisting and if not resolved in an orderly way, we face the threat of great disruption with periods of outright recession."

Economic Armageddon

Stephen Roach, Managing Director, Chief Economist, and Director of Global Economic Analysis of Morgan Stanley, has stated that "America's record trade deficit means the dollar will keep falling, interest rates will rise further and U.S. consumers, in debt up to their eyeballs, will get pounded with no better than a 10% chance of avoiding economic Armageddon."

Financial Apocalypse

Kurt Richebacher, former Chief Economist of the Dresdner Bank, has stated that "the bubble-driven consumer-spending boom we are currently in represents artificial, unsustainable demand and further rate hikes by the Fed will prick both the carry trade bubble in bonds and the bubble in housing. A financial Apocalypse will follow. The U.S. economy will lose its chief liquidity source with disastrous effects on a wide range of asset prices.

"The U.S. has such serious structural problems they preclude any possibility of a sustained economic recovery. These structural problems include a corporate profits decline, a record savings shortfall, a capital spending collapse, an unprecedented consumer borrowing and spending binge, a massive current account deficit, ravaged balance sheets and record high debt levels. Tops among them are the depression of profits and capital spending which will propel each other downward in a vicious spiral.

"In addition, U.S. stocks are still overvalued. The worst part of the bear markets is still to come and it will result in the wholesale destruction of the financial wealth derived from the bubble economy.

"The U.S. financial system today is a house of cards built on nothing but financial leverage, credit excess, speculation and derivatives. A recession is coming and it will prove unusually severe and long. The length and severity of recessions or depressions depend critically on the magnitude of the dislocations and imbalances that have accumulated in the economy during the preceding boom and, as such, the U.S. economy is in for a very hard landing. The excessive monetary looseness has only postponed and magnified the coming inevitable crisis.

"Growing disillusionment with the U.S. economy is the trigger. The huge capital inflows have become the U.S. financial markets' single most important pillar. Take this pillar away, and those markets will instantly collapse with devastating effects for the U.S. economy, turning quickly into a savage credit crunch. The exposure of the U.S. financial markets to foreign investors and lenders has grown to such preposterous magnitude during recent years that a controlled gradual dollar devaluation no longer appears feasible. The dangers that loom on the currency front are immense. The grossly over-leveraged U.S. financial system is hostage to a strong dollar and permanent, huge capital inflows. The U.S. trade deficit and the accumulated foreign indebtedness have reached a scale that defies any possible action by central banks. The fate of the dollar is beyond any control."

Financial Train Wreck

Nouriel Roubini is Professor of Economics and International Business at New York University's Stern School of Business; Chairman of Roubini Global Economics; Research Fellow at the National Bureau of Economic Research; Research Fellow of the Centre for Economic Policy Research; Member of the Bretton Woods Committee, the Council on Foreign Relation's Roundtable on the International Economy and the Academic Advisory Committee, Fiscal Affairs Department of the International Monetary Fund; former Senior Economist for International Affairs on the Staff of the United States President's Council of Economic Advisors; and co-author of several books on the economy.

Roubini has stated that "if the US does not take policy steps to reduce its need for external financing, before it exhausts the world's central banks willingness to keep adding to their dollar reserves then the large, growing and unsustainable fiscal deficit and U.S. current account deficit will become twin financial train wrecks for the U.S. economy and will lead to a sharp hard landing of the dollar, a sharp increase in long term interest rates, a significant increase in the inflation rate and a sharp slowdown of the U.S. and global economy.

"A dollar crash/hard landing would be associated with a bond market rout and would have serious consequences on all other risky and overvalued assets (equities, housing, high-yield debt, emerging market debt).

"The effects in the US of higher short and long rates on the housing market, both flows of new housing and new home demand on the value of existing housing, would likely be severe.

"Oil prices will skyrocket above $100 per barrel. Then we will get a U.S. and global recession that will pale compared to the one in 1980-82.

"I am not being alarmist or unrealistic when you consider our reckless fiscal and public debt policies, the absence of adult policy supervision in Washington and the mediocre or nonexistent US economic leadership."

Demographic Tsunami

David Walker, Director of the U.S. General Accounting Office and Comptroller general of the United States, has stated that "our projected budget deficits are not manageable without significant changes in status quo programs, policies, processes and operations and were such action implemented it would most likely adversely affect the quality of life of every American now and in the foreseeable future. The U.S. faces a demographic tsunami that will never recede."

[ Normxxx Here: But hey; all of the above is that proverbial "wall of worry" that Wall Street must climb to get ahead! Until TEOTWAWKI ^* arrives, it's straight up (more or less)! ]

Thanks Mr. Wilson for this Part 1 summary of what some of the best minds have said about our current financial situation and what is in store for us in the years ahead. As we understand it, you are strategically positioned in a wide variety of assets including precious metals, mining shares and long-term warrants. Nothing like taking what the experts say to heart and investing accordingly.

^*TEOTWAWKI The End Of The World As We Know It
______________

The contents of this letter/report does not necessarily reflect the opinions or viewpoint of normxxx. They are provided for informational/educational purposes only.

The content of this message is not to be construed as constituting market or investment advice. It is intended for educational purposes only. Individuals should consult with their own advisors for specific investment advice.

-- posted by Normxxx