see my diary

When through hell, just keep going. W. Churchill

I've been paranoid about the US economy/stock market now for 6-8 years.  Avoided the tech puke out but not making much while waiting.  Still can't pull the trigger to invest in this world market....

The greater fool theory is not running out of fools so far.  Either that or our shared pessimism is totally misplaced.

San Francisco's housing market is cooling down...and causing worries:

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2006/03/29/CALECON.TMP

"Once in awhile we get shown the light, in the strangest of places, if we look at it right" - Hunter/Garcia

the most interesting is the debate that followed

US keeps the lead in governmental debt raising

Good to see that my concerns are shared by ET's number 1 ! This is more than flattering.

When through hell, just keep going. W. Churchill

now I see why I could not understand anything !
How do you expect me to fit into the ET graph standards if you keep changing the rules ? :)

When through hell, just keep going. W. Churchill

Well, I live in L.A. and though I sold my house last year after 4 years and made some money, my profits aren't getting me near re-entering the market.  So I'm waiting for the debt-funded bubble to pop as well.  I'm just afraid the downturn is going to be more than just a "correction."  Ugh.  More importantly, I'm making plans to be in Paris to teach a class next January, and I'm really worried about exchange rates.  The fundamentals of the dollar don't look well either.

Imperiophile Niall Ferguson had some interesting things to say about U.S. debt in the NY Times last year (here's a cached copy):

In effect, the Bush administration's combination of tax cuts for the Republican ''base'' and a Global War on Terror is being financed with a multibillion dollar overdraft facility at the People's Bank
of China.

The U.S. current account deficit is now within sight of 6 percent of G.D.P., and net external debt stands at around 30 percent. The precipitous economic history of Latin America shows that an external-debt burden in excess of 20 percent of G.D.P. is potentially dangerous.

It is only when your power wanes -- as the British learned after 1945 -- that owing a fortune in your own currency becomes a real problem. As opposed, that is, to someone else's problem.

... according to a growing number of eminent economists, this arrangement simply cannot last. The dollar pessimists argue that the Asian central banks are already dangerously overexposed both to the dollar and to the U.S. bond market. Sooner or later, they have to get out--at which point the dollar could plunge relative to Asian currencies by as much as a third or two-fifths and U.S. interest rates could leap upward. (When the South Korean central bank recently appeared to indicate that it was shifting out of dollars, there was indeed a brief run on the U.S. currency--until the Koreans hastily issued a denial.)

If the dollar fell by a third against the renminbi, according to Nouriel Roubini, an economist at New York University, the People's Bank of China could suffer a capital loss equivalent to 10 percent of China's gross domestic product. For that reason alone, the P.B.O.C. has every reason to carry on printing renminbi in order to buy dollars.

How long can the Chinese go on financing America's twin deficits?  The answer may be a lot longer than the dollar pessimists expect.  After all, this form of tribute is much less humiliating than those exacted by the last Anglophone empire, which occupied China's best  ports and took over the country's customs system (partly in order to flood the country with Indian opium). There was no obvious upside to that arrangement for the Chinese; the growth rate of per capita G.D.P. was probably negative in that era, compared with 8 or 9 percent a year since 1990.

... there is one key difference between the United States and the countries south of the Rio Grande. Latin American economies have trouble with their foreign debts because those debts are denominated in foreign currency. The United States' external liabilities, by contrast, are almost entirely denominated in its own currency.

Point n'est besoin d'espérer pour entreprendre, ni de réussir pour persévérer. - Charles le Téméraire

The real question is, if you believe there is going to be an economic meltdown, how do you protect yourself from it?

During the 1970's crash in the US the stock market tanked, inflation ramped up which made bonds sink as well, and high inflation had rich people moving money into art works and collectables before it lost too much of its worth. Because of the strength of the unions most working people with few assets essentially stayed the same. Wages tended to (almost) keep up with inflation.

This time with all the outstanding debt it would seem that the results will be different. Those with variable rate loans will be in trouble. Since credit card interest rates already reach 24% there is little risk of them increasing, but banks will be squeezed by the cost of borrowing. With no union power it is doubtful that wages will rise with inflation so consumers won't be able to pay down debt with devalued dollars.

I think we will see a fair amount of house defaults which will cause families to double up. Adult children will move back in with their parents (whose houses are paid off), or the elderly will move in with their children because they can't afford the heating bills and other expenses of living separately.

I've been thinking of defensive steps to take for many years now, and I'm still at a loss as to what could work.


Policies not Politics
---- Daily Landscape

refinancing because of low interest rates.

I'm way beyond the top of this graph (as is any new homeowner) because I've stuck to the old idea that you can afford a house three times your income. Right there, that puts one at 300% debt to income, and when you add car payments, student loans, etc., there you go. I suspect there are a lot of people who had built equity in their house who then decided to refinance and use the proceeds for....what? That's my big question.

Low interest rates like these seem to come along once every 50 years. I'd like to see that graph extended a bit prior to the 1980s. In the 70s/80s, of course, rates were north of 12-15%.