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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 (101096)	8/20/2009 8:12:14 PM
From: Elroy Jetson	Read Replies (4) \| Respond to of 116555

Creditors of American consumers and businesses will not be repaid with cheaper Dollars. They will mostly not be repaid at all! Stop and think. U.S. banks are but a small part of this picture. Creditors around the world hold this debt. Debt which is being liquidated through foreclosure and bankruptcy. What part of this is difficult to understand? You notice from the chart that U.S. government debt totals 80% of GDP and this will rise somewhat, perhaps even as high as 100% of GDP. But as you point out, the total ratio will certainly rise as high as 400% of GDP before the liquidation takes cuts it down. That's debt worth 300% of the U.S. GDP, most of which is simply going to vanish in court proceedings! This deleveraging will be the largest reduction in the number of U.S. Dollars in history. What about consumer spending? Let's see. What do you think will happen to most consumers if their debt had been eliminated a few years earlier? They will chastened, to be sure, but their income which previously went to pay for debt service is now available for consumption. I bet you can't even conceive of what is just starting to occur. .

To: Amark$p who wrote (101096)	8/20/2009 9:02:48 PM
From: Elroy Jetson	6 Recommendations Read Replies (1) \| Respond to of 116555

General Electric owes about $680 billion in debt. What happens to that debt if GE files for bankruptcy three years from now? 1.) GE shareholders own nothing; 2.) People who are owed money by GE are paid-off with shares in the new post-bankruptcy GE; 3.) GE continues to operate with far less debt. 4.) Those who watch statistics note that nearly $680 billion of US Dollar debt just vanished when the judge said "mumbo jumbo" and pounded his gavel. What about companies who own television and radio stations. A friend who's an exec with one major owner says their revenue is down more than 2/3. With more than 65% of their revenue gone they can easily pay salaries and their other costs, but they won't be able to make too many more payment on their corporate bonds. That's a pretty easy problem to solve, isn't it? "Mumbo jumbo" says the judge and the bond holders become the new shareholders. You're going to see so many deflationary feats of conjuring you won't believe what's happening. .

To: Amark$p who wrote (101096)	8/20/2009 10:47:35 PM
From: THE ANT	2 Recommendations Respond to of 116555

Inflation does not solve the problem even if it were possible to create.Do you think Brazil managed to maintain a debt/GDP of 400% during their inflationary period.Even after several good years Brazil debt/GDP ratio is 70%.With inflation there is less incentive to lend and less ability to borrow (when US rates were 16% you couldnt buy much of a house as the monthly payment was too high for your cash flow)It is the debt/GDP ratio that largely determines asset values.Assets are falling despite a mild increase in the debt/GDP ratio as the speculative bubble has been pricked and enough of us see the future to cause a fall in value.As debt/GDP goes down asset values will continue on their trip down.The problem is that not only are we about 30% poorer than we thought, but that the entire economy was geared to wealth that no longer exists or to bubble areas such as finance that appeared to be money makers but were really money losers.Many ,many jobs must be lost and adjustments made.Cheap dollars would postpone the inevitable and only make the total loss greater.