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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Terry Whitman who wrote (3503)	3/19/2001 11:18:14 AM
From: Yorikke	Respond to of 33421

<<As long as employment remains high, debt will continue to increase, and deflation is no threat.>> Terry, the truism we are alluding to was fashioned in previous era's long before the economic identity reversed itself and set many commonly held economic concepts on their heads. Peoples tendency to continue to quote commonly held belief long after it is no longer relevant is often at the root of major disaster. Twenty years ago when Minsky and some associates played with the idea of having an economy driven by private sector debt they were laughed at. They even had to admit the idea was pretty far fetched, but discussed the theoretical implications of it anyway...just as a straw man exercise. Twenty years later we see a situation where the impossible has become the reality and implications once judged outrageous are events we are living through. The oft quoted 'truism' about employment and debt is suspect, not only because it is a 'truism', but because the conditions under which it became so, no longer hold --that's my belief at least. Private sector debt creation has driven the economy over the last 8 years or so. It is what has allowed us to create government surpluses and remain in a growth mode. But private debt is now at unprecedented levels, and the growth rates of this debt, the marginal changes that are funding the economy, are coming under pressure. Nolan refers to the debt saturation concept, that point where debt incurrance takes the swing and even with climbing debt it is at a destructively lower rate. A rate change which will lead to a bend in the curve and a return of private debt toward levels that are more in line with long term averages. This can occur even in periods of constant employment. Given the fact that the entire situation we are experiencing was written off by many as not even worthy of speculative consideration not more than 20 years ago, I suggest that debt saturation is indeed a reality, and one which will shortly have major impact on the economy. regards, yorikke