Hi Jim -
Want to take on items #1 and #3 on your list -
the four scariest current effects in the US Economy now:
1. 76% of the US GDP is now devoted to debt service
2. $4.5 of new MZM money supply has generated $1 in new GDP activity
3. over 90% of all US assets are matched by debts
4. personal household debt is now 107% of personal income
Items 1 & 3 on debt suffer from multiple counting cause be new financial structure.
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Example -
year 1975
Your bank gives you a home mortgage, and keeps the mortgage as an asset. Funds come from depositor's money.
You have debt of X
You have debt service of Y
Statistics show debt of X, and debt service of Y
You are wearing bell bottom pants, and thinking about buying gold.
year 1999
Your bank gives you home mortgage, and bundles and sell the mortgage to FannieMae and keeps mortgage servicing rights and corresponding fee income.
You have debt of X
You have debt service of Y
Fannie sell bonds to pay for buying the mortgages.
Fannie has debt of X
Fannie has debt service of Y2
Your bank buys bonds (value of X) from Fannie with funds from depositor's money.
Statistics show debt of 2 X, and debt service of Y + Y2
You are wearing khakis and a dark blue shirt, and thinking about buying gold.
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Item #3 also has some large biases. Debt is likely to be counted multiple times, as shown above. Assets which have not been sold recently, are not fungible (identical) and aren't marked to market, tend to appreciate and will be undervalued. Real Estate, trees, farmland, oil reserves, ore bodies, art, and gold coins come to mind. Also private equity in non-public corporations.
Government economic statistics have numerous problems.
The Hedonic pricing for the CPI is only part of the problem.
Another example : when calculating the personal savings rate, only earned income and interest and dividends are counted for consumers income. Capital gains (short or long term) are not counted.
Somone who made 50,000 in salary, spent 49,000 and put 1,000 in the bank,AND made 10,000 dollars trading Intel stock and put that money in the bank, gets counted as saving only 2 %.
Their personal income is also counted as only the 50,000.
This will have an effect on item #4
As someone (Moon ?) pointed out on this thread, about half the homes in the U.S. have no mortgage, and a lot of the mortgages are under 60,000. Debt service on 60 k is about $400 a month. A $10 / hour job can handle that.
This doesn't mean there isn't a debt problem -
It just is not as bad as these statistics would indicate.
By the way #2 ($4.5 of MZM for only $1 new GDP) is a real concern. Some of that is money moving out of the stock market into money funds where it's counted as MZM, but it still says the economy is barely responding to stimulation. |
