Greenspan is VERY much a responsible party to the position this country is in. In the early 1990s, the Fed, in an effort to reliquify a balance-sheet-troubled banking system (due to shoddy lending practices), cut interest rates drastically, engineering the steepest yield curve in decades.
Banks were able to borrow short-term and pocket up to 5 percent in profit from loaning to the bond market at the higher long-term rate. The Fed also inflated the monetary supply.
Here we are today with: Bankruptcies at record levels, savings rate at record lows, corporate/personal/government debt at astonomical levels, real wages below 1970s levels, trade deficit at astonomical levels. Consumers (which make up 2/3rds of the economy) are BROKE; studies show that 25% of Americans have less than $1,000 to their names, another 25% have less than $5,000. HALF of the US population are a few paychecks from the street.
Real estate prices are at astronomical levels (especially on the East & West Coasts), equity prices are still high (Nasdaq avg P/E over 100). In Silicon Valley, prices have vaulted over 70% over the last two years.
Banks leveraged to the hilt, for example: Freddie Mac and Fannie Mae now have issued bonds totalling over $7 TRILLION, backed by mortgage debt.
Remember the S&L crisis which blew up 1.5 Trillion in questionable real estate loans. When (NOT IF) this economy goes south, tens of millions will lose their jobs and default on these mortgages, making the taxpayer likely
to be given the big screw in the way of bailing out Fannie and Freddie.
Real estate prices are so out of touch with reality in California, loans are no longer based on appraisals, just the 'ability' of the applicant to pay his/her monthly payment. The debt/income levels have been relaxed to 50%,
up from 26%.
Bank lending standards have been deteriorating for years, this year alone, we had the largest ever series of bank failures take a large chunk out of the FDIC fund.
More info on the massive debt levels and the mother of all banking crisises that is coming when FNM and FRE default on their $7 TRILLION in bond debt.
If you think the ripple caused by LTCM was big on the financial markets, try a multi-trillion ripple from FNM and FRE. Even legislators are worried about this event. What's even better is, they want to push out another $2
TRILLION in the next year for more (even more questionable) mortgages. "We are in the American Dream Business" -- will be -- "We Helped Bring You Your Worst Nightmare".
geocities.com
Government Debt Levels (even during this so-called BOOM time, the government has paid down VERY little of the $6 TRILLION in debt, not to mention the $10 TRILLION in unfunded Social Security liabilities fast approaching.)
The Govt. Explains the Virtues of its Massive Debt:
frbchi.org.
ebt.html
home.earthlink.net
I give my clients the real deal, (let the empty suits on CNBC candy-coat and lie to the lemmings) give them access to reading materials so they can prepare themselves when the veneer of this so called 'new' economy wears off, as it already is, as the dot-coms fail, and hapless (hopeless,
clueless) 'investors' lose their retirement money and life savings. If you manage money for clients, do them, and yourself a favor, and do some reading on the economic history and familiarize yourself with the hard numbers,
before it is too late. |
