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

To: Amark$p who wrote (101090)	8/20/2009 7:00:43 PM
From: Elroy Jetson	3 Recommendations Read Replies (1) \| Respond to of 116555

Total Credit/Debt as a percentage of GDP will continue to climb, just as it did in the early years of the Great Depression, as real GDP declines faster than debt is liquidated through bankruptcy and foreclosure. You will notice, in your chart, the prior meteoric rise in this ratio over the six year period from from 1929 to 1935. If you believe our current depression began in Fall 2008, this chart could suggest the Debt to GDP ratio will peak in 2014. This six year period of time was a hugely deflationary event. Japan in 1990 chose to inflate their way out of their consumer and business debt problem which has created the largest Government Debt to GDP ratio in the industrialized world. This "inflation" also slowed down the decline in prices for everything in their economy. But don't go looking for nominal price inflation, you won't find it. This is the Milton Friedman solution, which is currently being touted by Anna Schwartz and Paul Krugman. Instead we are currently pursuing a policy which is half-way between: A.) the Friedman advice for the government to spend as big as consumer and businesses are not, and; B.) the advice of a U.S. Treasury Secretary about a hundred years ago when asked what should be done to solve the economic depression of that day, "Every American should sit under their own fig tree and vine until the depression passes." During the Great Depression, which resulted from the creation of a credit bubble after WW-I, the U.S. government also chose policies which were half-way between Option A and Option B. So the policies today should result in similar results except that they're being done sooner. So today, government funding of the FDIC actually preceded and precluded the bank holiday. You might ask, why in the world does it take six years to liquidate all of the debt? Look around today. You see home owners and banks attempting to sell their homes for far more than market price. You see banks failing to foreclose because they don't know what to do with the homes right now, and they're waiting for that "quick recovery" which is not going happen. It's a good guess that between now and five years from now, all of these heavily indebted consumers and businesses will have finally thrown in the towel and eliminated their debt through foreclosure and bankruptcy.

To: Amark$p who wrote (101090)	8/20/2009 7:29:01 PM
From: Elroy Jetson	Read Replies (1) \| Respond to of 116555

It could be we're just beginning to see some towels thrown in. . guardian.co.uk US home repossessions rocket to record levels Las Vegas is worst hit, while the overall records show an alarming 32% increase in repossessions year-on-year Andrew Clark in New York guardian.co.uk, Thursday 13 August 2009 -- Home repossessions have rocketed to a new high in the US as a tide of misery sweeping through the mortgage market stubbornly resists large-scale programmes by the Obama administration to keep struggling borrowers from losing their houses. Foreclosure documents were filed on 360,149 properties during July – a rise of 7% on the previous month, and a 32% increase year-on-year. It was the third time in five months that foreclosure activity set a new record. America's repossession capital was the desert casino city of Las Vegas, where foreclosure documents were filed on one in every 47 homes. Nevada, California, Florida and Arizona accounted for more than half of US foreclosure activity, as a vigorous housing boom driven by rapidly expanding cities in the middle of the decade turned to a spectacular bust. James Saccacio, chief executive of RealtyTrac, the online marketplace that compiled the figures, said: "Despite continued efforts by the federal government and state governments to patch together a safety net for distressed homeowners, we're seeing significant growth in both the initial notices of default and in the bank repossessions." More than 860,000 families in the US lost their homes during 2008 as risky subprime mortgages proved unsustainable, and the figure is set to be even higher this year, in spite of a series of government initiatives pushing banks to amend delinquent loans to provide relief for struggling borrowers. A $75bn (£45.2bn) programme established by the Obama administration in February provides incentives for banks to help borrowers. It is intended to help as many as 4 million homeowners, although figures released earlier this month revealed that banks have made "uneven" progress in refinancing loans, with 230,000 altered under the scheme to date. One of the difficulties facing lenders is that job losses continue to mount, with recession-hit employers cutting more than a quarter of a million positions each month. When mortgage customers lose their jobs, they no longer qualify for refinancing as they generally have no means of meeting even cut-price repayments. A surprise drop in retail sales delivered a further blow to economic sentiment. Figures from the US department of commerce showed that till receipts dropped by 0.1% in July, confounding analysts' expectations of a rise of between 0.7% and 0.8%. After stripping out car sales boosted by the government's "cash for clunkers" subsidy programme, retail sales fell by 0.6%. Ian Morris, head of US economics at HSBC in New York, described the figures as disappointing: "Although 'cash for clunkers' will boost things in the short run, today's retail data is a reminder that excluding extraordinary stimuli, underlying consumer trends remain fragile." .