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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (9069)	7/11/2004 5:29:27 PM
From: Tommaso	Read Replies (1) \| Respond to of 116555

In the United States, as we all know, and in other countries as well, the last few years have seen huge increases in credit debt--mortgage debt and short term consumer debt (i.e. credit cards). Personal debt is not like a national debt. It is supposed to be paid off. What would be the effect of, say, a 40% decline, or reduction, in debt balances outstanding? Would that not be profoundly delationary, since that would imply a huge decrease in spending and hence in economic activity? I realize that this is the same old fat chewed over and over, but I find that fundamental economic patterns are very hard to grasp. Certain things seem very clear to me: (1) that most equities are terribly over valued; (2) that energy--oil and natural gas--is greatly undervalued; (3) that bond prices are doomed to fall because of interest rates rising. But what I am totally unsure of is whether there might be a terrible contraction of many forms of economic activity because of debt liquidation--the sort of doomsday called for by the Mises Institute people. The only other way out, it seems to me, is a rapid rise in nominal wages and income, but I don't know what is going to produce that. Anyway, the U. S. cnetral bank has sure allowed one hell of a mess to develop and I don't see how we get out of it.