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

To: Hawkmoon who wrote (102088)	9/16/2009 7:31:12 PM
From: Elroy Jetson	4 Recommendations Read Replies (3) \| Respond to of 116555

Think about what you're saying, it's exactly what happened. Debt to income was at a stable ration until 1980. After 1980 the level of debt relative to income began to rise exponentially. This ultimately causes an economic depression. Since 1980 money has become less valuable, costing less to borrow and earning a smaller return. Yet lenders having ever more money on deposit to lend, had to reach out to ever more risky borrowers to find someone who was willing to borrow. We're now at zero-bound, as Japan reached some years ago. This means the cost of money is zero after you add on the administrative costs. Because no new debt is entering the system asset prices have stopped rising and begin to decline. As they decline marginal borrowers default, further pushing down asset prices and causing more borrowers to default. In a free market the wave of bankruptcies and foreclosures during the economic depression brings debt to income levels down to sustainable levels. The return on capital and interest rates again rises to healthy levels as the excess amount of money has been vaporized. If you fight this process of deleveraging as Japan has done, the bad debt hangs on for decades and your economy remains in a coma supported by government spending. Japan now has the highest level of governmental debt, relative to the size of their economy, of any industrialized nation in the world and their economy is still in a coma. Is this the eternal death you want for America, or do you want to simply work our way through the required debt liquidation and just get it over with? .