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.

Monday, January 26, 2009

Great site on TARP and the financial system

I cannot say enough of the great works by the people at the Institutional Risk Analytics site.  They have the best insights into what is going on in the banking system and in my opinion, probably the best solutions offered.   It is obvious they are not fans of the current actions being done, nor are they fans of the economic teams, recent and present, who are spearheading this.

I strongly recommend you take a look, and pour a stiff drink first and foremost.

Sunday, January 25, 2009


The trouble we are not experiencing is the end of a credit bubble whose origins go back to the early 1980's.  After record interest rates in 1982, total debt has grown at a faster rate than GDP.  The past few years have shown this to be rather acute.   We have sustained this all by debt financed consumption - sacrificing future economy activity for the present by the use of debt.   It has finally caught up to us, and what should happen is a period of lower economic activity as we make up for all that debt financed consumption by de-leveraging the balance sheet.

So what do the wise sages of the political class propose.   More debt financed consumption under the guise of "stimulus".   

All we are doing is delaying the inevitable with fiscal chicanery.  Switching consumer debt spending binge with a government debt buying binge to be paid for with future taxes.

So what do we call someone who does the same thing over and over and expecting a different result?