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To: patron_anejo_por_favor who wrote (233797)	4/6/2003 11:35:19 AM
From: mishedlo	Respond to of 436258

Debt - Let's take a look groups.msn.com From Plunger on the FOOL. He only posted the medians. The problem is not in the median but in the distribution of wealth and debt. Unfortunately detailed data to demonstrate this is harder to come by but I'll keep an eye out because I know all you skeptics won't believe me otherwise. Plunger. From Shellfish on the FOOL The problem is not in the median but in the distribution of wealth and debt. Actually, the assumption goes well beyond that. Ascribing an aggregate dollar value to assets is a purely hypothetical exercise - in many ways it is an assuption that asset holders, if they choose (especially when necessary in times of distress), could magically monetize the value of these assets simultaneously. The value of the liabilities underpinning these assets, however, are purely real (coupled with the fact that a debt is an asset belonging to a creditor - for instance, an outstanding mortgage is backed by a mortgage-backed security or money-market/bank deposit etc.). Asset values are aggregated in the same manner that total stock market capitalization is tabulated - a small percentage of the "float" changes hands on a recurring basis and the aggregate proportion is revised upward or downward (marked-to-market) to reflect the most recent market prices. This of course means that aggregate net worth is subjective to what the market can bear; supply and demand for financial assets. However, the long-term trend shows deterioration in relation to the amount of credit required to satisfy demand, i.e. the total loan-to- value required to move the "float" is enlarging. Housing values, for instance, show this dynamic quite clearly. Here is a quote from somenone in the know, the vice chair of Fannie Mae; "Back in the 1950's the average loan-to value ratio was 20% - today, it is 47% (on new loans it is more than 80%)." Acording to Federal Reserve Flow of Funds tables, households and non-profits had $11.05 in hypothetical asset value for every dollar of liability in 1955, $8.25 for every dollar in liability in 1965, $7.45 in 1974, $6.42 in 1995 and only $5.47 as of year-end 2002. The trend has been in constant, blatant deterioration for decades. Last year, nominal GDP expanded by $363.4 billion. Total net credit borrowings expanded by $1.36 trillion for non-financial sectors (government, business and household). Including the financial sector, the sum swells to $2.31 trilion, meaning total credit was inflated by more than $6 for every one dollar in economic growth. In 1956, (in the midst of a "third of a third" Elliott wave), the same figure was only $1.30 for every extra dollar in economic growth. At the heights of the "New Economy" in 1999, the same figure yielded $3.52 in new credit for every dollar increase in GDP. The deterioration goes beyond quantity, as it is inherent in terms of quality of credit created. The vast majority of credit being created today is to enhance/maintain consumption, buy real estate and other financial instruments, and keep various levels of government from financial ruin; very little credit is created to enhance production, to form new capital - the kind of credit that is self-liquidating. Economists and financial observers make almost no mention of this long-term deterioration. There is instead an almost ubiquitous belief that economic growth is weak because of a lack of confidence - but when one observes the sheer amount of credit being created and the manner in which paper is being shuffled around, how can one suggest that there exists a lack of confidence among economic participants. It seems to be quite the opposite - borrowers and lenders are more than willing to take risk in the latest hot sector. Unfortunately, this type of deterioration is almost every bit as frequent in other major industrialized nations as it is in the U.S. - Germany and Japan are already past the point of no return, piling up paper claims to the sky.