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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: SouthFloridaGuy who wrote (97030)4/26/2009 3:35:17 AM
From: Skeeter Bug1 Recommendation  Read Replies (1) of 116555
 
LG, i'm intrigued by your "up, up and away" economy call for 2009 since it is so contrary to my view.

i don't want to argue but i would like insight into your thought process.

1. the bubbles of the past were effectively all based on a credit bubble. i believe this game is over because debt to income ratios are 88% now. compare this to half as much in 1987. folks in debt, losing their jobs, losing their homes, etc... tend to not take on more debt and banks will tend to not loan money in such a terrible environment.

2. the american economy is 71% service oriented. jobs drive the service economy and we are shedding jobs at an alarming rate. the unemployed and underemployed in CA is nearing 20% - and unemployment alone popped from 10.5% to 11.2% in march alone. i'm told this way under reports the actual numbers as it misses lots of self employed people.

3. state and local taxes are being dramatically increased - they can't print money. tax receipts are collapsing - i think they were down 40% in april.

4. every single economic indicator is dramatically worse now compared to 1998 except interest rates. housing is still over 2x the prices compared to 1998 on a nominal basis - at least in san diego. given the unemployment, the tax increases (CA recently had the largest tax increase in US history!), the reduced income, the reduced benefits, the reduced retirements, the increased savings... the math points to less spending, not more.

5. commercial real estate is leveraged to the hilt and selling at 50% off compared to 4 years ago.

6. the debt burden requires $3.5 trillion in new issue debt - $2 trillion to fund government and $1.5 trillion to reissue matured debt.

i guess my main question to you is, "what will be the driver of the improvement of the economy?" i don't see one, assuming the credit bubble game is over - and i don't think that's up for debate.
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