Friday, January 30, 2009

The credit bubble - repeat of Japan?

James Quinn at Seeking Alpha has one of the best analysis of the current economic turmoil.    Best of all, he found the charts I have mentioned before!!  Read his article!!

Anyhow, here are the charts I was mentioning...

Here is total government debt to GDP.  Notice how it started growing faster than GDP after we started the great cyclical bull market in bonds in 1982, where interest rates peaked.   This credit growth fueled bubbles in real estate in the mid to late 80s, capex in the early 90's, tech stocks in the late 90's, and real estate again just recently.  Now look at just household debt...

Now this one just looks at household debt.  Same trend - saving thrown out the window - Hello McMansion, new Escalade and 52" plasma TV!    Down payments are for chumps!

Finally - throw that in with the fact that people don't save anymore, thanks to no money down easy credit, and the widespread attitude that the government will take care of us.. and we're gone from a nation of savers to a nation of creditors.

Do you really think the way to fix this problem is to issue even more debt and depress future consumption?   Read the solutions - what should be done versus what will probably be done.   It is depressing.

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