Stockman Scott's Political Debate Porch Message Board

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Politics : Stockman Scott's Political Debate Porch

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To: Jim Willie CB who wrote (5287)	8/28/2002 1:16:56 PM
From: pogbull	Read Replies (1) of 89467

Another interesting piece of that same article: Debt continues to grow even though 257 public companies with $258 billion in assets defaulted last year and went bankrupt. Household debt, corporate debt and credit market debt is now almost $30 trillion. That is 2.9 times GDP with far less collateral compared with previous recessions. The current account deficit is 5% of GDP and savings are 4-5%. The government says inflation is 1%. We say its 6%, but deflation is on the way. We see prices continue to fall for goods. Some services have held and some have moved higher. Goods prices are at a point that we believe consumers will wait for even lower prices. That is what has happened in Japan. They have had lower prices for 33 months and there is no end in sight. The Japanese have one advantage: they are big savers and that is what probably has kept them from falling into deep depression over the past 10 years. Our low savings puts us very much at risk for deflation. We have low interest and mortgage rates, which continues to liquefy the consumer. The problem is those loans they are taking out represent 105% of equity. Once house prices fall some owners will have serious problems. Debt problems are super serious. At the top of the bubble household debt was 72% of GDP, today it's 79% of GDP. What professionals refuse to recognize is that the problem is systemic. It is not going to go away like in other recessions. This is a 1929 scenario. One very interesting phenomenon we are seeing in the market is that investors are taking gains instead of letting them run. They have been offsetting losses for the past two months. That is why it is very important that Congress cancels capital gains taxes and lets investors take $20,000 in losses giving them less taxation. Better yet let them write off all the losses they can. The market cannot launch any kind of sustained rally with funds leaving the market, foreigners selling and funds with 4.4% in cash. They need the cash for redemptions. Investors' ownership of stocks has dropped as a percentage of financial assets from 46% in 3/2000 to 35% today, which is still way above the 50-year norm of 24%. Then there are derivatives. Once one major counter-party goes under the whole house of cards will fall. It's only a question of when?

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