Democrats & Liberals Archives

Economic Meltdown and Crony Capitalism

President Bush claims that the Federal Reserve and his Administration have moved quickly and aggressively to address the mortgage and economic problems. I guess that it depends on what one counts as quick and aggressive.

Back in September 2006, the Mark Trumbull of Christina Science Monitor wrote Risky mortgages threaten a squeeze. The news for the next eighteen months to the present have been a long ringing of alarm bells.

However, housing was an issue even before 2007. On October 3, 2006 Scott and Archibold wrote (emphasis mine):

The burden of housing costs in nearly every part of the country grew sharply from 2000 to 2005, according to new Census Bureau data being made public today. The numbers vividly illustrate the impact, often distributed unevenly, of the crushing combination of escalating real estate prices and largely stagnant incomes.

The response of the Fed and the Administration to the looming mortgage crisis? Nada - except to raise interest rates which exacerbated the problem.

Which brings us to the current "swift" action in the form of the "bailout" of Bear Sterns. Bear Sterns is an eighty-five year old firm and the fifth largest U.S. bank. Actually, Bear Sterns is not a "bank" per se. It is an "investment bank', which means that it deals in equities and securities to provide monies for governments and companies.

So, the Federal Reserve makes $30 billion (with a B) available to back the investments of Bear Stearns. They make that money available through JP Morgan Chase (and Bank One), which is a competitor of Bear Stearns. Just on the face of it, such a move raises a ton of questions. Why is the Fed assuring the funds of the private investment industry? Why do it through JP Morgan rather than Bear Stearns directly? Whose money is the Fed lending, and exactly what happens if the backing of those investments fail? Some of these issues are answered in a March 17, 2008 Business Week article "article. In trying to address why the Federal Reserve would back JP Morgan in acquiring Bear Sterns, the authors state:

To protect JPMorgan from the greatest risks on Bear Stearns' books, the Federal Reserve agreed to guarantee up to $30 billion of Bear's most troubled assets -- primarily mortgage securities that have plummeted in value and have become tough to sell.

They go on to note that tax payers could be on the hook for the money, but that the Fed also has its own reserves from the sale of Treasury Bills and securities. The Fed has indicated it would back up to $200 billion to avert the mortgage meltdown.

As to why JP Morgan rather than someone else. I think we need look no further than the lobbying money that has been spent. See Bear Stearns and JP Morgan lobbying tallies below (courtesy of OpenSecrets.org).

Bear Sterns lobbying efforts from OpenSecrets.org:
BearStearnsLobby.png


From OpenSecrets.org
JPMorganLobby.png

It should be noted at JP Morgans' lobbying effort in 2007 totaled $5,440,000; however, the entire commercial banking sector only contributed $5,485,000. That speaks volumes.


Interestingly, the question of why Bear Stearns ran into trouble was a "run on the bank." The Business Week article states:"Jittery clients sought to take their money out of Bear Stearns, but Bear said Friday it did not have enough money on hand to meet all payments. When word of that got out, more clients demanded their money." What it does not state is that those "clients" are governments and corporations - not you and me. I might add that T Bills are considered among the "safest" of investments. T Bill holders might be a bit jittery about their "safe investment" being thrown into a mortgage meltdown reportedly linked to predatory lending practices and massive foreclosures.

Well, the "bailout" of Bear Stearns became and (government subsidized) acquisition facilitator for JP Morgan. THe Fed put up $30 billion and JP Morgan bought Bear Stearns for $263.2 million (BusinessWeek). Bear Stearns had an estimated value of $8 billion with investments much higher than that.

SO let me get this straight. We have Bear Sterns which has hard assets of over $8 billion, and investment holdings in the multi-billions, which has the Fed prop up its "riskier" investments to the tune of $30 billion through a competing investment firm which scoops of Bear Sterns at a fire sale price of $236.2 million. Hmm. Further, I heard that Bear Sterns office buildings alone (hard real estate) was worth roughly $1 billion - fire sale indeed." Why does this not add up at all?

Who did lose in this little shell game of "I Hit the Jackpot?" Well for one, the share holders (including those unlucky enough to have their retirement plans invested for them in Bear Stearns." They lost over 95% of their funds overnight (BusinessWeek). Not mentioned at all are those who are losing their homes through the machinations of the investment firms. Then of course, there are the U.S. tax payers who now stand on the line to save JP Morgan's assets.

Ah isn't crony capitalism grand?

Relevant Articles
3/14/08, MSNBC. JPMorgan, Fed come to rescue of Bear Stearns.

3/14/08 BBC, Bear Stearns gets emergency funds.

3/14/08 Thomas, International Herald Tribune. Bear Stearns gets a lifeline from Fed and a rival.

3/15/08 Irwin & Tse, Washington Post. Fed Comes To Rescue As Wall St. Giant Slips

3/15/08 Thomas, NY TImes. Run on Big Wall St. Bank Spurs Rescue Backed by U.S.

3/15/08 Giannone & Hanilton, Reuters. Fed comes to Bear Stearns' rescue

3/17/08 Goldstein, MarketWatch. U.S. stock futures slump on Bear Stearns, Fed action

3/17/08 Zibel & Herron, BusinessWeek. Why Fed helped JPMorgan buy Bear Stearns.

Posted by Rowan Wolf at March 20, 2008 9:59 PM
Comments
Comment #248683

Rowan, you’re way off the mark in calling this crony capitalism. If it’s online yet, you should listen to the segment on the Bear Stearns situation which aired on NPR’s All Things Considered tonight.

First of all, the Bear Stearns management and their stockholders are NOT being bailed out. They’re being wiped off the map. And the company’s assets and accounts which JP Morgan is taking over the management of are hardly a treasure trove of riches that is going to fatten the wallets of JP Morgan. This is wealth and investments that belong to others—i.e., small business owners, those with mortgages and retirement plans, etc. And which J.P. Morgan are now taking on the risk for and responsibility for managing.

Nobody, and I mean nobody, is getting filthy rich off this debacle, but a lot of uninvolved parties—possibly even you and me—are simply being rescued from sharing the same fate of the Bear Stearns executives and shareholders who’ve been walloped here.

Posted by: Loyal Opposition at March 20, 2008 10:24 PM
Comment #248700

Loyal Opp, on this rare occasion I applaud your reply above. Right on. In addition, JP Morgan has assumed responsibility for litigation against Bear Stearns and has already set aside a large figure for that (600 million if I recall correctly).

This FED effort was to prevent domino effects. It was an appropriate action to take, considering the potential consequences had they not. Something like 100 million American 401K saver’s accounts are at risk here. So, far, they are still relatively protected, though modestly diminished of late. Mine is at zero earnings for the year, significantly better than market averages for the same period. Could have been a helluva lot worse.

Posted by: David R. Remer at March 20, 2008 10:57 PM
Comment #248723

I’m not totally sure the shareholders will approve this transaction.

There certainly is not a bail out. More like a shot gun marriage.

Posted by: Craig Holmes at March 21, 2008 12:31 AM
Comment #248733

I know it’s popular with the left to invent conspiracies but you are way off line with your analysis of this (in my opinion).

The feds couldn’t give a tinkers dam about who paid money to who in the way of contributions and so forth. The stock holders BIG and SMALL were destroyed in this deal. This deal was about saving the banking industry from collapse.


They are trying to save the financial system from going belly up. They felt there was a real chance for a global panic on Monday…they started moving on the weekend to try and keep that from happening.

That’s scary stuff, to think we are that close to possible catastrophe. That’s their job, to keep that from happening, and they are doing what they can.

Myself, I think stock pickers are fools. I invest my 401K, wifes’ 403B and IRA’s into Exchange Traded Index funds and low cost, no load mutual (index) funds. My wife and I have approximately half our assets invested in overseas funds and bonds.

So I speak to you not from the perspective a rich, fat cat stock holder but just an average person who is invested in the market at large and who keeps an eye on it.

Posted by: Stephen at March 21, 2008 2:30 AM
Comment #248745

If further tremors occur, look for coordination from central banks across the world.

Nobody, except maybe short sellers, would profit from a U.S. economic collapse.

Posted by: googlumpus at March 21, 2008 8:44 AM
Comment #248764

Where Rowan has found a bogey-man, others find a Santa Claus, and the thinking knowledgeable person finds a government agency actually performing, quite well, the duties for which it was created.

Posted by: Jim M at March 21, 2008 12:16 PM
Comment #248772


It must be nice to be able to bet your savings in the gampling mecca of the world and be guaranteeded that you will win no matter what.

Nothing would be more appropriate than for the poor innocent 401K investors to loose their investment money. If you are one of these people, you are neither poor nor innocent. You have been willing enablers of the corporate takeover of our government and our nation. You rewarded the corporations that replaced millions of American workers with communist workers and illegal immigrants driving down the wages of Americans. You willingly participated in this corporate greedathon which has driven our economy into stagflation, doubling the burden on the backs of the low income workers.

If the U.S. economy were to collapse, it would cause great hardship, much suffering, and it might just force us to save ourselves before the Corporate Government Surveilance Act makes it impossible for us to do so.

Posted by: jlw at March 21, 2008 1:10 PM
Comment #248777

jlw, just where exactly would you suggest these evil workers with 401(k)s invest the money they are working for and saving so they don’t become a burden on government or others? OH, WAIT, they could pay higher taxes to government and not have any savings to invest. Or, they could buy gold or some other precious commodity. Would that be pleasing to you?

I began systematic savings when I was 14 years old making honest money with a paper route. In my 67 years I have invested in the equity markets and used IRA’s, 401(k)s, annuities, life insurance and bank savings accounts. Now, in your infinite wisdom and compassion you have the audacity to tell me “it would be appropriate for me to lose my investment money”. Somehow in your thinking I have become an enemy of the “people”. What drivel.

“it might just force us to save ourselves before the Corporate Government Surveilance Act makes it impossible for us to do so.” What does this mean jlw, and how does it relate to “economic meltdown”, the original thread title?

Posted by: Jim M at March 21, 2008 1:55 PM
Comment #248828

Rowan good article. I read most of the background information you linked to and found it very interesting.

Jim M said “the thinking knowledgeable person finds a government agency actually performing, quite well, the duties for which it was created.”

According to the Federal Reserve Act the purpose of the Fed is “To provide for the establishment of Federal reserve banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes.” Bank Panics during the robber barron days at the turn of the last century was the reason the Fed was created. So Jim M I would have to agree with you that they did at least part of their job. Do you think that if they would have properly supervised the banks to begin with that this might not have happened?

It seems as though deregulation/”free market” and trickle on economics once again needs to be replaced with something that works lest the Fed be forced to continue to bailing out the investor class. I would guess we are all thinking that Social Security isnt so bad after watching yet another display of wall street at work.

Posted by: j2t2 at March 21, 2008 9:07 PM
Comment #248836

J2t2, how is trickle-down economics relevant to the banking system? More specifically, how might it have in any way contributed to this situation?

There may very will be some new regulations coming to the fore, but I’d like to hear what they might be. I’m not necessarily against the idea, but just regulation for regulation’s sake seems an irrational response here—especially when it’s not clear (to me at least) what laws might have prevented something like this.

I’m just not sure how you can make laws against making bad investments or taking out loans you won’t be able to repay. Of course these can be bone-headed things to do, but how can you make it the law to make financial good decisions? The problem you come up against is that investments and loans are ALWAYS acts of faith to a large degree, and often what seems to be a bad investment to one person seems a good one to someone else. Only in hindsight do you know who was right and who was wrong.

I mean, right now, there are undoubtedly stocks out there (or real estate offerings) which twenty years from now we’ll look at and say—Damn, I wish I would have put my savings into THAT. Who doesn’t wish they’d gotten into Microsoft of Berkshire Hathaway early? Or bought real estate in New York City 25 years ago? But unfortunately, we just don’t know what the good opportunities are now and what are financial disasters waiting to happen. If we knew, we could all become millionaires and wouldn’t have to worry about losing our money.

What I’m saying is that maybe there are some common sense regulations that could be put in place, but there’s just no way to use regulation to either eliminate risk or ensure success.

Posted by: Loyal Opposition at March 21, 2008 11:26 PM
Comment #248862

Craig Said: “I’m not totally sure the shareholders will approve this transaction.”

I would bet they don’t approve it. The 2$ per share price, while appropriate by available high bids that day, was way undervalued in terms of assets and revenues to become due and payable which are still sound, less liabilities.

Posted by: David R. Remer at March 22, 2008 7:53 AM
Comment #248863

googlumpus said: “Nobody, except maybe short sellers, would profit from a U.S. economic collapse.”

True enough. However, to make a separate point, nobody but short sellers would profit from a sub-prime mortgage meltdown either, but, that didn’t prevent it from happening.

Posted by: David R. Remer at March 22, 2008 7:56 AM
Comment #248864

Jim M said: “finds a government agency actually performing, quite well, the duties for which it was created.”

Couldn’t agree more. But, I hasten to add that it was Greenspan’s Fed that chased this Bush dream of increasing homeownership at any cost, and the resulting bottoming of the interest rates that resulted, that fueled in no small part the current Housing price and sub-prime mortgage meltdown.

Posted by: David R. Remer at March 22, 2008 8:00 AM
Comment #248865

Loyal Opp asked: “J2t2, how is trickle-down economics relevant to the banking system? More specifically, how might it have in any way contributed to this situation?”

See my reply to Jim M, above for the connection J2T2 may be alluding to.

Posted by: David R. Remer at March 22, 2008 8:03 AM
Comment #248872
Rowan Wolf wrote: Which brings us to the current “swift” action in the form of the “bailout” of Bear Sterns.
Not a bail-out of Bear Stearns, as much as an emergency action to keep the pyramid from collapsing, which can only be accomplished by more debt and inflation.

How long can that continue? The problem appears to be much larger than Bear Stearns.

Rowan Wolf wrote: Just on the face of it, such a move raises a ton of questions. Why is the Fed assuring the funds of the private investment industry?
Yes, many questions, such as
    WHERE will the money come from to pay the interest on the $53 Trillion of nation-wide debt, much less the money to reduce the principal $53 Trillion of nation-wide debt (almost 4 times the $13.9 Trillion GDP), when that money does not yet exist, and 80% of the U.S. population owns only 17% of all wealth in the U.S. (a trend that has been worsening for decades), average national savings rates are negative, and home equities are below 50% (lowest level since year 1945)? There appears to be a liquidation that has been in progress for years, and likely to continue for many more years.

Even if the discipline existed for the U.S. to stop borrowing $3 Billion per day, and start paying down the debt by $5.81 Billion per day (it has to be that large to keep the debt from growing larger every day), it would take 272 years.

Yet, the Federal Reserve has committed $560 Billion to $800 Billion since Jan-2008 (14-Jan-2008, 28-Jan, 11-Feb, 25-Feb, 11-Mar, 17-Mar, etc.) to provide liquidity (www.federalreserve.gov/newsevents/press/monetary/2008monetary.htm).

The Federal Reserve’s primary job is to keep the financial system sound.
The Federal Reserve (and federal government) appear to be doing a bad job, as evidenced by incessant positive inflation since year 1956, massive nation-wide debt of $53 Trillion (almost quardruple GDP), predatory lending, usurious interest rates and schemes, fraud, risky loaning practices, a high 9-to-1 fractional lending rate where up to 90% of each new loan from the Federal Reserve bank is new money created out of thin air (growing the debt ever larger as a percentage of GDP). That can go on for a long time … at least until there is no more capacity to carry more debt, and nothing left to liquidate.

Posted by: d.a.n at March 22, 2008 11:13 AM
Comment #248879

LO asks “J2t2, how is trickle-down economics relevant to the banking system? More specifically, how might it have in any way contributed to this situation?”

LO David is right on the specifics and as far as the generalities, if memory serves the trickle on theory of economics was part and parcel with the early part of the past century and the lead up to the depression. It didnt work then nor does it work now. The whole Reagan thing has just not worked. Deregulation for the sake of deregulation and trickle on economics are part of this failed plan and should be replaced with something that works.

Posted by: j2t2 at March 22, 2008 2:06 PM
Comment #248883

David,

Actually, a lot of people got loans that would not have. Originators of the subprime’s made money, as well as arbitrager’s. The buyers of subprime instruments got caught holding the bag.

The difference being between a specific market and worldwide economic health. It’s similar to the “when you owe the bank $100,000 they own you, when you owe the bank $100,000,000 you own them” argument. I think if there was serious disruption here, there would be international cooperation from central banks.

Posted by: googlumpus at March 22, 2008 2:50 PM
Comment #248901

googlumpus said: “I think if there was serious disruption here, there would be international cooperation from central banks.”

That certainly appears to be what the FED is ‘banking’ on. Recently they were not disappointed either as other Central Banks played ball.

I agree with you. There would be cooperation, but, I would hasten to add that cooperation would have some pretty clearly defined limits, and very possibly, the next time, a string or two attached. Such cooperation is decided by weighing the cost benefits of cooperation both short and longer term for the foreign central bank. Scales that accurately weight the future, have not yet been invented. Ergo, the basis for clearly defined limits, and possible quid pro quo strings attached.

Posted by: David R. Remer at March 22, 2008 5:44 PM
Comment #248912

I see everyone discussing this Bear Stearns thing like it really means anything. If we can’t recognize another Republiscam rip-off by now then there’s no way of understanding anything.
Maybe the Chinese can come over with bags of cash to buy and then rent to us what we used to own. When the power mongers see the middle class as competition they go into their first rule of competition: eliminate the competition.

Posted by: Stephen Hines at March 22, 2008 6:27 PM
Comment #248927

Stephen:

This is far more complex that who is president. President’s might wish for such power!!

When we get through some of this muck this is very very good for America and our economy. It’s a bit complex to explain as it has so much to do with the whole global economy.

Here is an attempt.

1. Ever investment in technology around the world.
2. Break through in trade and finance. (The flat earth emerges).
3. Cheap labor overseas for US firms. Liquid market for overseas money.
4. Low interest rates due to glut of world wide savings.
5. Low prices for junk from overseas for US customers.
6. Dollar kept artificially high by imports of financial assets.
7. World wide housing bubble due to low interest rates.
8. Over production of housing world wide.
9. Wage inflation in developing markets.
10. Borrowing from homes to finance more purchaces of junk.

Now that we are past the tipping point.

1. Housing prices dip.
2. Excesses in debt revealed.
3. Credit markets contract.
4. Dollar declines.
5. Bubble shifts from housing to commodities.
6. US labor on more of a parity with foreign labor.
7. Savings rate turns positive.
8. Trade deficit declines as % of GDP.
9. Manufacturing stops moving jobs overseas.
10. Increases in exports.
11. Wages increase at home.
12. Inflation becomes a greater concern at home.

Winners. US laborers, those owing quality mortgages. (inflation will make them look good).

Loosers. Bond Holders. recent home buyers, foreign holders of US treasuries.

Stock investors look good intermediate term. Stocks struggle a bit longer term due to increase inflation presure.

Watch for US laborers to fair better going forward as they are in a far more competative position than earlier.

It will be a rocky road as the fed tries to help the economy transition. Remember we are transitioning to a better place.

David: This is the “turn” I was debating you about a year ago. The economy is restructuring.

Posted by: Craig Holmes at March 22, 2008 8:58 PM
Comment #248946
Craig Holmes wrote: Remember we are transitioning to a better place. … The economy is restructuring.
to a better place? Not likely.

Not when no one can yet say where the money will come from to pay the interest on the ever growing $53 Trillion of nation-wide debt, much less the money to reduce the principal on $53 Trillion of nation-wide debt (almost 4 times the $13.9 Trillion GDP!), when that money does not yet exist.

It is a unknown that is seriously exacerbated by the fact that 80% of Americans owns only 17% (or less) of all wealth in the U.S. (one of many trends that has been worsening for decades, and the wealth disparity gap has never been larger since the Great Depression), average national savings rates have been negative for years, and home equities are below 50% (the lowest level since year 1945).

There has been a liquidation in progress for years (e.g. savings, home equities), and it is likely to continue to worsen for many more years, as home equities continue to fall, and people sell off their assets. Especially with 225,000 foreclosures per month (one-simple-idea.com/DebtAndMoney.htm#Foreclosures).

Craig Holmes wrote: It will be a rocky road as the fed tries to help the economy transition.
Fed? Help?

The Federal Reserve is largely to blame, due to incessant (positive) inflation since year 1956 (for 62 years) … a result of greed and the inherent flaws (inflation, usury, predatory lending, ever growing nation-wide debt until it can grow any more) of all pyramid schemes.

  • Inflation: Consumer Price Index (CPI=100 for year 1967)

  • 700 | - - - - - - - - - - - X (=665: JAN-2008)

  • 650 | - - - - - - - - - - -X

  • 600 | - - - - - - - - - - -X

  • 550 | - - - - - - - - - - -X

  • 500 | - - - - - - - - - - X

  • 450 | - - - - - - - - - - X

  • 400 | - - - - - - - - - - X

  • 350 | - - - - - - - - - -X

  • 300 | - - - - - - - - - X

  • 250 | - - - - - - - - - X

  • 200 | - - - - - - - - -X

  • 150 | - - - - - - - - -X

  • 100 | - - - - - - - -X

  • 050 |XXXXXXXXX

  • 000 +(1800) - - - - -(2008)YEAR

Craig Holmes wrote: It’s a bit complex to explain as it has so much to do with the whole global economy.
Better yet, let’s explain it with existing trends of the past 60+ years.

Consider the debt trend for the last 62 years.

The Federal Reserve and federal regulators are doing a bad job, as evidence by incessant inflation), ever growing debt (as a percentage of GDP), erosion of the currency (one-simple-idea.com/USD_Falling.gif), and rampant usury. How is it possible that most people that work, invent, design, build, create, service, and produce are all in debt to the banks that create money out of thin air?

Craig Holmes wrote:
  • 1. Housing prices dip. {True. They were over priced. What causes these bubbles? What will be the next bubble?}
  • 2. Excesses in debt revealed.{such as the $53 Trillion nation-wide debt? Almost 4 times $13.9 Trillon GDP}
  • 3. Credit markets contract{Not much and not for long, because the pyramid-scheme will collapse if they don’t let the $53 Trillion debt continue to grow, as it has for 62 years, which will eventually collapse}.
  • (4) Dollar declines.{True; big time!}
  • 5. Bubble shifts from housing to commodities. {bubble after bubble; What causes those bubbles? Thank the Federal Reserve and federal regulattors for poor monetary policy}
  • 6. US labor on more of a parity with foreign labor.{Maybe, but not likely for years. We must become poor before we can become rich?}
  • 7. Savings rate turns positive. {Not likely for years. Certainly not to any significant degree.}
  • 8. Trade deficit declines as % of GDP. {Maybe, but only because of continued decline of wealth for most people in the U.S., continued decline of home equities, continued decline of real median household incomes, continued incessant inflation, and the continued consequences of the 10 abuses.}}
  • 9. Manufacturing stops moving jobs overseas. {Not likely. Not until most Americans are a LOT poorer.}
  • 10. Increases in exports. {Not likely. Not until most Americans are a LOT poorer.}
  • 11. Wages increase at home. {Not likely, since real median household incomes have been falling since year 1978 when also accounting for more workers per household, more regressive taxation, and the disappearing 40-hour work-week.}
  • (12) Inflation becomes a greater concern at home. {Definitely. Big time! Inflation will be the tool used to erode the debt, but it will take many years, and there is a long, long way to go with so much federal government, state and local government, and personal debt ($53 Trillion nation-wide). Even if the discipline existed for the U.S. to stop borrowing $3 Billion per day, and start paying down the debt by $5.81 Billion per day (it has to be that large to keep the debt from growing larger every day), it would take 272 years (one-simple-idea.com/53Trillion.gif).
Also, energy vulnerabilities will exacerbate all other problems.

You got a few parts right. (4)Dollar declines, and (12)Inflation becomes a greater concern at home

Get ready for a more inflation (since we’ve already head 62 years of it, there’s no reason to think it will stop now), because the Federal Reserve and government have no other choice but to create a lot more money out of thin air. Higher inflation will be the result, because defaulting on so much federal debt would almost certainly guarantee an economic melt-down, and the collapse of the ever-growing debt bubble (now 3.81 times more than GDP; up from 1.67 times GDP in year 1956).

  • $52.5T | - - - - - - - - - - - - - D (Debt=$53T)

  • $50.0T | - - - - - - - - - - - - - D

  • $47.5T | - - - - - - - - - - - - - D

  • $45.0T | - - - - - - - - - - - - -D-

  • $42.5T | - - - - - - - - - - - - -D-

  • $40.0T | - - - - - - - - - - - - -D-

  • $37.5T | - - - - - - - - - - - - D -

  • $35.0T | - - - - - - - - - - - -D- -

  • $32.5T | - - - - - - - - - - - D - -

  • $30.0T | - - - - - - - - - - -D- - -

  • $27.5T | - - - - - - - - - - D - - -

  • $25.0T | - - - - - - - - - -D- - - -

  • $22.5T | - - - - - - - - - D - - - -

  • $20.0T | - - - - - - - - -D- - - - -

  • $17.5T | - - - - - - - - D - - - - -

  • $15.0T | - - - - - - - -D- - - - - -

  • $12.5T | - - - - - - -D- - - - - - G (GDP=$13.9T)

  • $10.0T | - - - - - D - - - - -G
  • - - -
  • $07.5T | - - - D - - - -G
  • - - - - - -
  • $05.0T | D - - G
  • - - - - - - - - - -
  • $02.5T | G
  • - - - - - - - - - - - - -
  • $00.0T +(1956) - - - - - - - - (2007)YEAR
    • Where will the money come come from? when that money does not yet exist? Obviously, a lot of it will have to be created out of thin air, and that means a lot more inflation.

What do you think will be worth more 1 year from now?
A U.S. Dollar, or an ounce of gold?
A U.S. Dollar, or oil?
A U.S. Dollar, or wheat and other commodities?
Inflation drives these bubbles, and with the collapse of each bubble, the wealthy become wealthier (you only need to look at the growing disparity gap since 1976 to prove it; the 1% of the wealthiest Americans that owned 20% of all wealth in the U.S. in 1976 now owns 40% of all wealth; i.e. it doubled; never worse since year 1930).

  • WEALTH OWNED by 1% of U.S. Population:
  • 020% + - - - - - -o- - - -
  • 025% + - - - - - - - - - -
  • 030% + - - -o- -o- o - - -
  • 035% + - -o- -o- - -o- - -
  • 040% +o- o - - - - - -o-o-
  • 045% + -o- - - - - - - - -
  • 100% +(1920)_______(2008)YEAR

These trends are causing a trend of wealth transfer. The wealth disparity gap is growing.
With millions of foreclosures (225,000 per month), many Americans are being forced to liquate their assets (e.g. homes, savings, etc.).
Home equities have fallen below 50% (the lowest level since year 1945).
Savings rates have fallen below negative 0.5% (the lowest level since year 1933).
The weatlh disparity gap has never been larger since 1930.
The nation-wide debt has never been larger ever.
The total fedaral debt has never been larger ever (if you include the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 Million baby-boomer bubble approaching.

So, what makes anyone think those several trends (above) will change without first addressing the root causes ( one of the Consider the debt trend for the last 62 years, among these other 10 abuses of the past 30+ years. being the usurious and mathematically flawed 9-to-1 fractional lending system that is a pyramid scheme)?

But the most obvious question is:

    Where the money will come from to pay the interest on the ever growing $53 Trillion of nation-wide debt, much less the money to reduce the principal on $53 Trillion of nation-wide debt (almost 4 times the $13.9 Trillion GDP!), when that money does not yet exist.

Posted by: d.a.n at March 23, 2008 1:28 PM
Comment #248968

Rowan,

No surprise here! We’ve screwed ourselves firmly into a position between a rock and a hard place. The average American consumer no longer has the means to BUY beyond their means!

We are plunging towards total economic failure the likes of which not even the survivors of the Great Depression experienced! More and more American jobs have become “service” related (also meaning lower paid), and our manufacturing base has long since gone “bye-bye”!

Welcome to the “New Robber Baron Age” of the 21st century! Or, to put it another way, “debt does matter”!

Posted by: KansasDem at March 23, 2008 8:20 PM
Comment #248970

“Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 Million baby-boomer bubble approaching.”

d.a.n.,

I might add that the “time to pay the piper” is very rapidly approaching. Gore’s suggestion of a “lock box” was thought of as pretty silly, eh?

The truth is that Reagan’s “tax cuts” were balanced with increases in FICA withholding which was one of the first transfers of taxation onto the working class. Of course Bush #1, AKA Mr. “no knew taxes”, took it a step further ……………. and Bush #2 took it to a whole new dimension:

The “debt don’t matter” dimension!

Just borrow and spend!

Sheesh, and none of our POTUS hopefuls have a clue!

Posted by: KansasDem at March 23, 2008 8:32 PM
Comment #248983
KansasDem wrote: I might add that the “time to pay the piper” is very rapidly approaching. Gore’s suggestion of a “lock box” was thought of as pretty silly, eh?
With the $53 Trillion nation-wide debt at 381% of GDP, it is serious. Notice, no one has been able to answer the question:
    Where the money will come from to pay the interest on the ever growing $53 Trillion of nation-wide debt, much less the money to reduce the principal on $53 Trillion of nation-wide debt (almost 4 times the $13.9 Trillion GDP!), when that money does not yet exist.
Especially since 80% of Americans own only 17% of all wealth, and it is shrinking, and has been shrinking since year 1976, and the nation-wide $53 Trillion nation-wide debt has been growing as a percentage of GDP for more than 62 years (but very fast for the last 28 years).

The fact that Social Security surpluses were raided for decades is just one of many factors exacerbating the entire situtation.

KansasDem wrote: Just borrow and spend!
It will get probably get worse. Since money is created as debt in the 9-to-1 fractional lending system, the debt will have to continue to grow to provide the interest (money that does not yet exist). It’s a vicious circle that continues to widen the wealth disparity gap. After all, we have over 62 years of the debt growing ever larger (in magnitude and as a percentage of GDP). It’s unrealistic to think Congress will suddenly change their pork-happy, regressive-tax-happy, irresponsible ways any time soon; especially when most voters repeatedly reward the incumbent politicians with 93%-to-99% re-election rates.
KansasDem wrote: Sheesh, and none of our POTUS hopefuls have a clue!
You may be right. I don’t think McCain does, because he freely admits that economics is his weak suit. Obama and Hillary are not talking about stop spending Social Security surpluses, or fixing illegal immigration (costing U.S. tax payers an estimated $70 to $338 Billion per year), or stopping these many abuses. Therefore, I doubt much will improve until the lack of improvement simply becomes too painful. Pain and misery may be the only thing that can provide the much needed motivation for some real reforms, and increased transparency, and accountability in government. Posted by: d.a.n at March 24, 2008 9:00 AM
Comment #248984

I am looking for a breakdown on the $53 trillion government, business, personal, and domestic debt. Is there a figure somewhere for total mortgage debt, auto loan debt, and debts incurred for the purchase of small businesses like franchises? I’m not seeing it on One Simple Idea.

Posted by: ohrealy at March 24, 2008 9:20 AM
Comment #249032

YEAR 2007:

PRIVATE SECTOR DEBT:

  • Domestic Financial Sector Debt: $15.8 Trillion

  • Househould Debt: $13.88 Trillion

  • Business Debt: $10.16 Trillion

  • Other Private Sector Foreign Debt: $1.8 Trillion

  • _________________________________________________

  • SUM of private sector debt: $41.64 Trillion
  • FEDERAL GOVERNMENT DEBT 2007:

  • Federal Government National Debt: $9.4 Trillion
  • STATE and LOCAL GOVERNMENT DEBT 2007:

  • State and Local Government Debt: $2.2 Trillion

  • __________________________________________________
    SUM of Private sector, Federal government, and State and Local government debt: $53.3 Trillion.

    Add the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby boomer bubble approaching, and it is $66.5 Trillion.

    It would be interesting if someone asked on of the presidential candidates where the money to pay the interest on $53 Trillion will come from, much less the money to reduce the principal $53 Trillion of debt (which would require about $5.81 Billion per day at 4.5% interest), when that money does not yet exist?

    The only choice the Federal Reserve and government have is to create a LOT more money out of thin air. The interest on only the $9.4 Trillion National Debt is $1.31 Billion per day. The Federal Reserve has no choice but to create more and more new money to prop up failing banks and institutions. The long term result, ofcourse, is the continued erosion of the falling U.S. Dollar.

    I don’t have a break down as mortgage debt, auto loan debt, and debts incurred for the purchase of small businesses like franchises?

    However, since Household debt is $13.88 Trillion, total mortgage debt is probably a large portion of that.

    Since Business Debt is $10.16 Trillion, the debts incurred for the purchase of small businesses like franchises is probably a about 40% of that (for small business, which are numerous).

    Posted by: d.a.n at March 24, 2008 5:42 PM
    Comment #249044

    The billion dollars a day in debt service should be issue number one in the campaign, but instead we argue about sermons in church. We need a Hamilton to start the financial system over again from scratch, or do something that will stop the government from borrowing money ever again.

    On the personal and business debts, it looks like the money keeps rolling uphill, making the “have mores” have ever more, no matter how irresponsible they are. Trump is building a hotel here, which he wants to open while it is still under construction.

    Posted by: ohrealy at March 24, 2008 7:02 PM
    Comment #249129
    The billion dollars a day in debt service should be issue number one in the campaign, but instead we argue about sermons in church.
    Yes, and that $1.3 billion per day in interest is only for the $9.4 Trillion National Debt (which excludes the larger $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby boomer bubble approaching). Some think it is a scheme to sabotage Social Security. Maybe … but if true, it is a bipartisan scheme, since both parties have been plundering Social Security surpluses for decades.
    On the personal and business debts, it looks like the money keeps rolling uphill, making the “have mores” have ever more, no matter how irresponsible they are. Trump is building a hotel here, which he wants to open while it is still under construction.
    Yes. In 1976, 1% of the wealthiest owned 20% of all wealth in the U.S. Now, 1% of the wealthies owns 40% of all wealth in the U.S. Real median household incomes have decreased since 1978, when also accounting for more workers per household, more regressive taxation, and the disappearing 40-hour work-week.

    Hillary Clinton says the core of our economic problems is the housing crisis.

    Wrong. The housing crisis is merely a symptom of these 10 abuses, and the core of those abuses is human nature:

    • greed and selfishness by some (e.g. some, if not all, incumbent politicians),

    • and apathy and complacency by others (e.g. most voters) that not only tolerate it , but empower it. After all, 90% of all elections are won by the candidate that spends the most money. However, few voters are aware that 99.85% of all 200 million eligible voters are vastly out-$pent by a very tiny 0.15% of all 200 million eligible voters that make the vast majority (83%) of all federal campaign donations of ($200 or more; www.opensecrets.org/pressreleases/DonorDemographics02.asp). The result is a lack of transparency and accountability, breeding corruption, lawlessness, political dysfunction, and a growing wealth disparity gap.

    There are two groups in this country:
    • (1) One group derives concentrated power from concentrated wealth (growing ever larger).

    • (2) The other group has power only in numbers, and that power is largely squandered due to their inability to mobilize through organization (such as simply not repeatedly rewarding irresponsible, bought-and-paid-for, corrupt incumbent politicians with 93%-to-99% re-election rates).

    It’s safe to say the Republican incumbent politicians (in the last decade) have demonstrated they are worse; but not much worse than incumbent Democrat politicians.
    It’s also safe to say that many Democrat voters are dissappointed by the ineffectiveness of the incumbent Democrat voters since 7-Nov-2006 (an ineffectiveness that can not all be blamed on the OTHER party).

    The sad fact is, while incumbent Democrat politicians today may be slightly less corrupt than incumbent Republican politicians, both are failing us by refusing to STOP these 10 abuses (abuses of the last 30 years which did not all come about by mere coincidence):

    • (01) STOP lawlessness; enforce the laws and uphold the U.S. Constitution; stop pardons that put politicians above the law;

    • (02) STOP starting unnecessary wars (and stop the fear mongering and lies as an excuse to start and perpetuate wars);

    • (03) STOP all pork-barrel, graft, bloat, peddling influence, waste, and other abuses of power (e.g. such as Congress giving itself 9 raises between 1997 and 2007);

    • (04) STOP illegal immigration which is costing tax payers an estimated $70 Billion to $338 Billion annually in net losses; that could buy a lot of health insurance! WageStagnation + CheapLabor = BigProfits; reject politicians that despicably pit American citizens and illegal aliens against each other for profits and votes;

    • (05) STOP election fraud, stop blocking access to ballots; implement common-sense election reforms, and give voters a printed verifiable receipt of their vote;

    • (06) STOP the borrowing, spending, and growing the massive $9.4 Trillion National Debt; stop plundering Social Security surpluses, such as the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby-boomer bubble approaching;

    • (07) STOP inflation and force the Federal Reserve and government to target ZERO inflation and stop excessive money-printing;

    • (08) STOP regressive taxation; eliminate the numerous tax loop holes, ridiculous complexity, and other abuses; the tax system regressive, as evidenced by Warren Buffet, the 2nd wealthiest person in the U.S., who paid less federal taxes (e.g. 17.7% on $46 Million in year 2006), than his secretary (who made $60,000 and paid 30% in federal taxes).

    • (09) STOP the misinformation and ignorance; an educated electorate is paramount; an ignorant electorate will be (and are) abused and exploited;

    • (10) STOP the unnecessary middle men (i.e. government and insurance companies) and fraud in the healthcare system; stop killing 195,000 per year by medical mistakes; also, if the 9 problems above were adequately addressed, it would significantly reduce the pressues on the healthcare systems (and other troubled systems, such as education, immigration, taxation, monetary system, etc.);
    Of course, despite the few people (if any) that would dispute those things above, it is elusive.

    Why?

    Because the two-party duopoly has created a very clever and effective control mechanism:

    • the two-party duopoly and electoral system (unlike proportional voting systems), which is actually un-democratic by effectively shutting out any other parties, and reduces the voters choices to only two choices.

    • and the two-party-lever/button (i.e. to vote straight-party-ticket) which helps to ensure the security of the incumbent politicains’ cu$hy incumbency.

    Therefore, most (if not all) incumbent politicians are not sufficiently motivated to work on those problems above, because the incumbent politicians are repeatedly rewarded for ignoring those problems. in fact, it simply makes the incumbent politicians grow more and more corrupt, irresponsible, and dysfunctional.

    It is extremely effective, because it:

    • cleverly taps into the voters’ own fears, loyalties, laziness, apathy, selfishness, habitualness, ignorance, and prejudices.

    • cleverly taps into the voters’ complacency, apathy, and laziness, by making it easy and fast to vote (i.e. straight-party-ticket), effectively accepting all of the party’s candidates, instead of doing the work and research to scrutinize each candidate’s voting record individually.

    • cleverly taps into the voters’ fears and prejudices by capitalizing on the blame game, and encourages voters to believe that the nation’s problems are the fault of the OTHER party (despite those 10 abuses that have been created and perpetuated by incumbent politicians in BOTH parties).

    • It cleverly taps into the voters’ fear and prejudice by focusing the voters’ disdain and hatred at the OTHER party, rather than THEIR own incumbent politicians’ malfeasance and irresponsibility. Many incumbent politicians understand this all too well, and capitalize on it by fueling the circular, distracting, partisan warfare; pitting voters against each other, rather than the voters’ focusing on THEIR their own incumbent politicians’ malfeasance and irresponsibility. And some voters are all to happy to wallow in the partisan warfare, because it is easier to blame the OTHER party, than admit THEIR own party is little (if any) better.
    • cleverly taps into the voters’ prejudices by emphasizing minor differences, rather than major similarities; rather than encouraging unity.

    • cleverly taps into the voters’ loyalties by convincing the voters that the enemy is the OTHER party, distracting the voters from scrutinizing THEIR own party.

    • cleverly taps into the voters’ selfishness with empty promises. One-issue voters are easy to bribe with their own tax dollars.

    • cleverly taps into the voters’ prejudice against the other party. While voters may not like THEIR party’s candidates, they will NEVER vote for a challenger in the OTHER evil party; once again, ensuring high (93%-to-99%) re-election rates and the security of the incumbent politcians’ incumbencies.

    • cleverly taps into the voters’ loyalties and money, despite the sad fact that 99.85% of all 200 million eligible voters are vastly out-spent by a very tiny 0.15% of all 200 million eligible voters make 83% of all federal campaign donations.

    • cleverly taps into the voters’ ignorance by undermining education, transparency, and accountability. Why is it monetary theory is not taught in public school? Why do so few dare speak in condemnation of a system that is clearly usurious, dishonest, and inflationary? How is it that everyone that and works, invents, creates, designs, builds, and produces is in debt to the bank that charges everyone else interest on money created out of thin air?

    • cleverly taps into the voters’ desire to belong. Party identification is encouraged. Independent voters are often considered with disdain (even hatred). Main party loyalists refuse to see how the two-party duopoly and electoral system (unlike proportional voting systems) are un-democratic by effectively shutting out any other parties, and reducing the voters choices to only two choices.

    • cleverly taps into the voters’ habitualness and loyalties. Some voters will always vote Republican (straight-party-ticket) until the day they die. Likewise with Democrats.

    • cleverly perpetuates the two-party duopoly and high (93%-to-99%) re-election rates.

    It is circular and extremely effective (as evidenced by the high re-election rates, despite Congress’ dismal approval ratings).

    More education is required, and the voters must choose how they will receive their education (the smart way, or the hard and painful way).

    At any rate, the voters will have the government that the voters elect.
    And it is quite possible that the economic problems will get worse (for many years are decades), before they get better (if ever).

    Posted by: d.a.n at March 25, 2008 12:35 PM
    Comment #249147

    My question then is, to what extent did the inflation of the late 70s early 80s contribute to turning that 20% ownership into the 40% ? It looks like everything ends up belonging to the banks, and they redistribute it to the “have mores”.

    Posted by: ohrealy at March 25, 2008 3:03 PM
    Comment #249151
    My question then is, to what extent did the inflation of the late 70s early 80s contribute to turning that 20% ownership into the 40% ?
    Yes, the inflation of the mid-to-late 1970s, and early 1980s was very damaging and a major cause of the reverse in direction of the wealth disparity gap (it started growing and hasn’t stopped since year 1976). Also, the energy vulnerabilities and high energy costs of the late 1970s and early 1980s contriubuted to the problems of that period.

    Prior to that, the wealth disparity gap had been shrinking between 1965 to 1976.

    YEAR _ INFLATION
    1973 _ 06.16%
    1974 _ 11.03%
    1975 _ 09.20%
    1976 _ 05.75%
    1977 _ 06.50%
    1978 _ 07.62%
    1979 _ 11.22%
    1980 _ 13.58%
    1981 _ 10.35%
    1982 _ 06.16%

    However, 1976 and today are very different, because many things are worse now than in the mid-to-late 1970s and early 1980s:

    • (01) Total government debt is larger now (in size and as a percentage of GDP).

    • (02) Nation-wide personal debt is MUCH larger now.

    • (03) Total nation-wide debt has never been larger (both in size and as a percentage of the $13.9 Trillion GDP).

    • (04) Real median household incomes have actually been falling since 1978 (when including more workers per household, regressive taxation, and the disappearing 40-hour work week). Home equities were higher in the late 1970s and early 1980s.

    • (05) Illegal immigration is worse; costing Americans citizens an estimated $70 Billion to $338 Billion annually in net losses. The problem has quadrupled since the amnesty of year 1986.

    • (06) The wealth disparity gap has never been larger since year 1930. It changed direction in 1976.

    • (07) Taxation has been regressive since year 2000.

    • (08) Home equities have never been lower since year 1945.

    • (09) Energy vulnerability: oil and energy prices have never been higer ever (both in nominal price and adjusted for inflation; now higher than the spike in year 1981).

    • (10) Some reports show home ownership increased, but it actually decreased for lower and income groups.

    • (11) The federal government has never been larger, and continues to grow to nightmare proportions. There are now more jobs in government than all manufacturing nation-wide.

    • (12) Jobs are leaving the nation; a trend that started in the early 1970s, and helps to explain why real median incomes have been falling since year 1978.

    • (13) Social Security has never been in such dire straits and it will get worse before it gets better, because $12.8 Trillion was borrowed and spent from Social Security, leaving it pay-as-you-go, with a 77 million baby boomer bubble approaching.

    • (14) Global competition has never been stronger. Trade deficits have never been larger (China). Transnational corporations want cheap labor. At this rate, when Americans are poor enough and cheap enough, the transnational corporations may return?

    • (15) Other exacerbating problems are 2 wars in Iraq and Afghanistan, skyrocketing health care costs, declining quality and rising costs of education, election system problems, and crime rates are on the rise again, after falling for many years.

    It looks like everything ends up belonging to the banks, and they redistribute it to the “have mores”.
    That’s right.

    It’s not by accident.
    None of these 10 abuses are by mere accident.

    The monetary system is usurious, inflationary, and economically destabilizing.
    It is literally a pyramid scheme.

    You also have to seriously wonder:

      How is it that everyone that works, invents, creates, designs, builds, and produces is in debt to the bank that charges everyone else interest on money created out of thin air?

    And note, that no one can answer the question:

      WHERE will the money will come from to pay the interest on the ever growing $53 Trillion of nation-wide debt, much less the money to reduce the principal on $53 Trillion of nation-wide debt (almost 4 times the $13.9 Trillion GDP!), when that money does not yet exist?

    That is part of the reason for the hints of panic you see in the Federal Reserve and the government.

    Posted by: d.a.n at March 25, 2008 4:07 PM
    Comment #249152

    If (as they say on CNN) the ECONOMY is ISSUE # 1, voters might want to ask some of these questions.

    And why is it that these things are so hush-hush?

    And have you ever noticed the way the practically speak in code on the financial channels?

    They call creating more money out of thin air: liquidity.

    They call making credit easier to get: easing rates.

    And none of them seem to care about the nationwide debt and fedaral debt.

    But, if you are rich, why should you?
    Even when the economy tanks, most of the rich are still rich. It is the majority of Americans that feel the painful consequences. But that is what happens when one fails to pay attention to such things. Those things did not all come about by mere coincidence.

    Posted by: d.a.n at March 25, 2008 4:12 PM
    Comment #249160

    Jon Stewart was making fun of FNN last week, showing clips of some guy telling people not to sell their shares in Bear Stearns the week before that. There are always people touting specific stocks on these programs. You would think someone would look at whether or not these people have a vested interest in the price of the shares of the stocks they are touting.

    On “(08) Home equities have never been lower since year 1945.”
    Is this a function of the increased price, or are you talking about the percentage?

    Posted by: ohrealy at March 25, 2008 5:57 PM
    Comment #249173

    ohrealy, there was a great house buying boom in 1945 as the war ended and Vets came home to buy homes. Which means that were at the beginning of their mortgages and had little equity in their homes.

    The current home equity drop reflects the following:

    Debt (mort. note) to market value ratio,

    Refinancing that took place in the years before the meltdown which increased mortgage backed debt dramatically when the home values dropped precipitously over the last 7 to 8 months,

    And walkaways and foreclosures, meaning purchasers who have simply walked away from their home and mortgage without bothering to notify anyone due to a variety of reasons most of which are linked to their having anticipated property values continuing to rise at previous torrid paces, and of course the foreclosures hitting high numbers as a result of homeowners and investors simply unable to meet the terms of the mortgage (ARMs or credit card payments doubling or tripling in the wake of the dropping credit ratings resulting from missed mortgage payments.

    Posted by: David R. Remer at March 25, 2008 8:28 PM
    Comment #249174

    ohrealy said: “The billion dollars a day in debt service should be issue number one in the campaign, but instead we argue about sermons in church.”

    Truer words have never been spoken.

    Posted by: David R. Remer at March 25, 2008 8:30 PM
    Comment #249184

    People are buying much bigger homes than in 1945, oftentimes speculating, and now apparently walking away from them. I used to say that the value of a house was the asking price minus $100K for the value of the property. Recently, the value of a house could be a negative number. With all the teardowns, only the property mattered. You could sell an empty lot for more than a lot with a small house on it. Also, empty lots are rare in most suburban subdivisions. Where I am moving, the newer homes are about 5 times the size of the older ones, but not selling for even twice as much. Bubbles burst.

    Posted by: ohrealy at March 25, 2008 10:01 PM
    Comment #249209
    ohrealy wrote: Jon Stewart was making fun of FNN last week [I think it was it CNBC], showing clips of some guy [Jim Cramer] telling people not to sell their shares in Bear Stearns the week before that. There are always people touting specific stocks on these programs. You would think someone would look at whether or not these people have a vested interest in the price of the shares of the stocks they are touting.
    True. Jim Cramer said: “No! No! No! Bear Stearns is not in trouble. He later said he was wrong about that part.
    ohrealy wrote:
    d.a.n wrote: “(08) Home equities have never been lower since year 1945 [home equities are below 50%].”
    Is this a function of the increased price, or are you talking about the percentage?
    That is purly a percentage of Equity-to-Principal_debt currently remaining, which now at 50%.

    People are borrowing against the equities in their homes, reducing their equity.

    Also, average savings rates are negative (since year 2005), and at the lowest rate (-0.5%)since year 1933.
    Personal savings figure dropped from a positive 174.3 billion dollars in 2004, down to a negative 34.8 billion dollars in 2005.
    The following year in 2006, that figure went down even further when it reached negative 102.8 billion dollars.
    A negative savings rate means that U.S. consumers are spending more than 100% of their monthly after-tax disposable income.

    Personal nation-wide debt has never been larger (in size and as a percentage of GDP).
    And as debt increases and savings rates remain negative, consumption will have to decrease.
    As consumers spend less, businesses sales decrease, and layoffs follow.
    Thus, rising unemployment will rise (and has been for the last few months).

    These conditions can prompt a down-cycle in the overall economy and can be devastating for not only a few Americans, but the nation as a whole.
    When added to an already slowing economy, the effects can be multiplied and magnified, like a snowball growing bigger and bigger.
    As more and more jobs are lost, more and more consumers cease to consume.
    Each incident of another consumer who can no longer pay his debts and can no longer continue his consumption affects not just him and his family, but his community and his state, and eventually the nation as a whole.

    ohrealy wrote: People are buying much bigger homes than in 1945, oftentimes speculating, and now apparently walking away from them.
    True. And they come with bigger electricity and maintenance costs.

    However, since year 2006, home ownership has fallen for low-income and middle-income groups.
    The study found that only 59.6% of working class families owned their homes in 2003, lower than the 62.5% in year 1978.
    That is, home ownership is rising among the wealthy, while falling for most Americans that are losing wealth, losing equity, losing income, and the wealth disparity gap grows wider (never larger since year 1930).

    ohrealy wrote: Bubbles burst.
    True. But what causes these bubbles (which all eventually burst)?

    Is it a natural cycle?
    I don’t think so.
    I think it is a cycle that is well understood and exploited by some people, while many are repeatedly victims of it.
    What causes people to run all about looking for investments? Inflation.
    People run themselves ragged looking for someplace to put their earnings so that they are not eroded by inflation.
    What causes inflation? In the U.S., it is mostly excessive creation of new money (positive inflation since year 1956: one-simple-idea.com/DebtAndMoney.htm#Inflation0)), although rising costs of natural resources (e.g. oil) can contribute.

    The problem is that many of us have bought into several systems that are unsustainable; several systems requiring increasing (exponential) consumerism, productivity, debt, consumption, etc.
    Exponential growth and sustainability are not compatible.

    What we have not yet seen the big bubble burst (not since the 1930s), but there is no reason to believe it can never happen again (i.e. depression).
    Especially as the number of economic problems (one-simple-idea.com/Factors1.htm) continue to grow in number and severity, and government essentially ignores those problems (for years and decades).

    The big bubble bursting will happen when nation-wide debt is finally so large, people have nothing left to liquidate, and the pyramid-scheme monetary system finally collapses again under so much debt and inflation (as it did in the Great Depression).

    A collapse can happen at any time, if the government and Federal Reserve do not allow the nation-wide debt to grow larger and larger.
    This is the purpose of the $560 Billion in liquidity (a.k.a. new money created out of thin air) from the Federal Reserve since 14-Jan-2008.

    One has to wonder why the lack of credit is a crisis, when $53 Trillion in nation-wide debt (credit) has already been extended?
    Nation-wide net worth is about double that $53 Trillion of nation-wide debt.
    However, 80% of Americans own only 17% of all wealth in the U.S.
    20% of Americans have negative net-worth (i.e. debt).
    40% of Americans (on average) have ZERO net-worth.
    1% of Americans own 40% of all wealth in the U.S.
    The middle and lower income groups are getting squeezed, while the wealthy are getting wealthier.

    Household net-worths were estimated on DEC-2007 to be $58.6 Trillion, but that number is misleading when you realize that only a tiny 1% of all 305 million Americans own 40% ($23.4 Trillion) of that wealth.
    That means the remaining 99% of Americans own $34.8 Trillion (60%) of that total household networth.
    And if you break that down farther, most of that remaining wealth belongs to a minority, since the wealthies 10% of Americans owns 70% of all wealth in the U.S.
    Thefore, the remaining 90% of Americans (275 million) own only $17.6 Trillion (30%) of all wealth in the U.S.

    Now, compare that $17.6 Trillion of wealth for 90% of Americans, to the $53 Trillion of nation-wide debt.

    The massive debt and service on the debt helps explain why net-worths, incomes, and equities for most Americans are falling.
    Also, foreclosures are still very high.
    Foreclosures in Jan-2008 were more than any month in the past 4 years.

    FORECLOSURES:
    06-Mar-2008, the mortgage delinquency rate of 5.82% was the highest rate in 23 years (since year 1985).
    JAN-2008: 250,000
    JAN-2007: 145,000
    JAN-2006: 105,000
    JAN-2005: 70,000

    Again, consider which groups in which home ownership has increased.
    Since home ownership for middle-income and lower-income groups has fallen below 59.6% (below the 62.5% levels in year 1978), that means the wealthy are cleaning up (i.e. buying foreclosures).
    That is, overall home ownership at the end of year 2007 was about 68%, but the percentages have fallen for middle-income and lower-income groups.
    So, what’s going on?
    For the wealthy, there is a silver lining in every recession/depression, because they can now swoop in and buy up real assets at fire-sale prices.
    That’s also a good hedge against inflation and the U.S. Dollar falling like a rock.
    And consider the banks foreclosing on properties.
    There’s a myth that banks don’t want to foreclose.
    But it is not a total loss for the bank.
    In fact, indirectly (via member banks), the Federal Reserve bank has essentially converted money (created out of thin air) into real assets and property.
    But, since property values are still falling, and the bank prefers the money which can earn interest, the bank will auction off those properties.
    If property values are stable or rising, the bank may retain the property.

    Some have said that “the debt doesn’t matter”.
    Well, that all depends.
    If you are one of the 1 in 10 people that owns 70% of all wealth, that may be true.
    Now consider who says “the debt doesn’t matter”.

    It’s a pickle, the math doesn’t paint a rosy picture, and that is why this question continues to go unanswered:

      WHERE will the money come from to pay the INTEREST on the $53 Trillion of nation-wide debt, much less the money to reduce the principal $53 Trillion of nation-wide debt (3.81 times the $13.9 Trillion GDP), when that money does not yet exist, and 80% of the U.S. population owns only 17% of all wealth?

    Posted by: d.a.n at March 26, 2008 9:51 AM
    Comment #249267

    “average savings rates are negative (since year 2005), and at the lowest rate (-0.5%)since year 1933.”

    Doesn’t that mean that everyone has bought into the inflationary cycle, hoping for repudiation by inflation.

    After my first 3 car loans, I realized that I was paying all the interest up front, while still having to pay the principal. I began buying used vehicles with cash or even a charge card or cash advance from a credit card company, because you stop paying interest as soon as you pay off the loan, and are more motivated to pay it off.

    “that means the wealthy are cleaning up (i.e. buying foreclosures).”

    which they can resell later for a nice profit when the market goes back up.

    Posted by: ohrealy at March 26, 2008 6:29 PM
    Comment #249272

    Yep. It’s all starting to become crystal clear.

    Education is the key to turning it around.

    Posted by: d.a.n at March 26, 2008 7:14 PM
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