Posted on 11/23/2004 5:07:35 PM PST by tmp02
I'd like to see the data behind these assertions. As I recall mortgage rates were around 10% in 1984 and today they're about 5.5%. So if total consumer debt has gone from 50% of GDP to 85% of GDP, then total interest payments have probably declined in the last twenty years. This is assuming that 90% or more of consumer debt is mortgage debt, which I would expect it to be after all the refinancing of mortgages in the last few years. I don't see how we can be spending more of disposable income on interest payments than we were in 1984 when much lower rates and the mortgage interest deduction are factored in. I remember a lot more griping about high mortgage payments and mortgage debt in the 1980's than I hear today.
Finally, I don't expect much inflation even if the dollar continues to fall. While there will be limited inflation of imported oil and minerals, imported manufactured goods will continue to decline in price here in the U.S. because of increased manufacturing productivity, esp. in electronic products which are a big percentage of our imports. For example, the same VCR made by the same company that cost me $200 in 1997 (when the dollar was stronger) only costs $69 today. So much for "economic armageddon." Let the dollar fall and bring manufacturing jobs back to the U.S. as Dell Computer is doing now.
The idea of debt is an interesting thing. It's like the old saying, if you owe a bank $10,000 they own you. If you owe a bank $10,000,000, then you own it.
If (and I'm only saying "if") the economy crashed like a Pinto, then it would be the banks and mortgage companies that would take the real hit. Consumers would get walloped for sure, but the financial institutions would suffer badly indeed.
Boy, or not, do you have problems.
In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.
Umm...if the dollar keeps falling, won't our exports become cheaper and the imports more expensive? Per the Law of Supply and Demand, won't our trade deficit start to shrink as less consumers buy expensive imports and more foreigners buy cheaper American products? The thing about Captialist Economics, is that it has self correcting mechanisms in it that prevent the kind of straight-line extrapolations that Roach is predicting.
...and that bar will only continue to rise. The reason being, you're no longer in competition for a job with the guy down the street. You're in competition with the guy in Bangalore or Hong Kong. And he's more than willing to do the job cheaper than you -- so employers will constantly be asking, "what do you offer, what can you do that the guy in Bangalore can't?" That's why brain power is now our most precious natural resource.
Get a grip folks. Economies will be cyclical as long as crystal balls remain a myth. I'm not sure what I'm seeing as a problem here, but a lot of folks seem to be paranoid about the Dollar/Euro imbalance. From where I sit, its the Euro thats too tight, not a weak dollar.
As for China, they have a GDP the size of Italy. In a trade war with the US they have a squirt gun and we have a nuke - bring it on!
The US economy is a freakin juggernaut right now. Greenspan is working the levers like a PS2 champion. The press, in league with the European left, will spin the economic war as another Bush failure while we bring Chirac and Schreoder to their knees.
We are growing - they are not. Take any economic indicator you want as a comparison of economic strength and we beat the world hands down. Frankly, they need us worse than we need them. We are the consumers that keep them in business. A cheap dollar will make them find more efficient means of competing. A little creative destruction would be good for the lazy, vacationing, bureaucratically fed, non-working, yellow toothed, non-bathing cretins east of the prime meridian.
bttt
I agree with you to the extent one has to factor in all realities to make any kind of judgment. How is it that you intend to protect yourself?
Don't bother, they won't listen. They won't believe it until it happens.
"Either the social welfare juggernaut has to be reversed or America will collapse from the spending cancer."
But I didn't see that statement in the original article...
However,
"Face this fact.........the social welfare juggernaut will NOT be reversed until America collpases and becomes a third world nation under the control of a foreign power."
No third world power is required, unless you count the UN.
A deficit because or a war is one thing, refusal to adjust failed social programs, and refusal to stop creating new failed social programs, is another thing entirely.
It's entirely possible that we could fall on our collective ass entirely on our own efforts.
One other item I forgot is that home ownership is now at record levels and this factor increases consumer debt while generally not increasing the consumer's after-tax housing payments at today's mortgage rates. The loser in this equation may be the federal and state governments, who are probably losing a record amount of tax payments through greater mortgage interest deductions.
Very perceptive. George Bush intends to revamp the way we are taxed, tackle the Social Security debacle, kick butt over at the State Department: win in Iraq, correct Carter's failed Iran policy, Kennedy's Cuba debacle, Truman's twin failures in Korea and China. He will establish American supremacy for decades going forward. He wants to make the US more energy independent, beginning with opening up ANWR. He will push tort reform and reform the judiciary with conservative appointments
This is a major threat to domestic bureaucrats and they are scared. Soros is a currency speculator who couldn't buy this election with his millions, but he'll do what he can to manipulate currencies and oil prices. These Demo-flaks have their predictions and an MSM to tout them.
Bush remains unphased and will tackle the entrenched interests head on. People like Roach fear Bush's coming successes at trimming the power of the entrenched, and they want to project their patholic fears like they did during the election campaign. What these jerks really fear is any hint of returning power to the governed and away from the Washington/world power pigs that stand to lose ultimately.
tmp02 is no troll!! A well respected member of FR. Give him a break.
Priceless image! Oh man, priceless!
These predictions have been rolling around the internet and business pages for years now. Warren Buffett came out with dire warnings. So did Volcker.
But I do agree with you on the "creative destruction" thing.
"I have three goals. To be a great lover. A great horseman. And a great economist. I've accomplished two of those." -- Schumpeter
Is this prediction or wishful thinking?
What some (but certainly not all) Americans offer is the Western Tradition and Judeo Christian values. I don't want to stake my reputation on Confucian, anti Western warm bodies who may later stab me in the back. Is that too much to ask?
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