Reflections on the sovereign debt crisis. Edward Chancellor, GMO.
Credit crunch 2010? Michael Snyder, Daily Markets.
Gary Shilling on Bloomberg. via YouTube.Over the past several decades, one of the primary engines of U.S. economic prosperity has been a constantly expanding debt spiral. As long as the U.S. government, state governments, businesses and American consumers could all continue to borrow increasingly large amounts of money, the economy was going to continue to grow and “the greatest party on earth” could continue. But many of us knew that if anything ever came along and significantly interrupted that debt spiral, it could cause a credit crunch even more severe than we saw at the beginning of the Great Depression back in the 1930s....
once a deflationary cycle starts, it tends to feed on itself....
Now that governments around the world are pulling back and are beginning to implement austerity measures, the “sugar rush” of the stimulus money is wearing off and the original economic decline is resuming. All that the trillions in “stimulus” did was to give the world economy a temporary boost and get us into a whole lot more debt.....
the United States is in the early stages of a truly historic financial implosion
- calls for Euro parity (its up now, but we're in calm btw 2 storms)
- likes US long bond to get to 3% and 10-year to 2%
- due to a decade of very low growth, deleveraging and deflation
Q&A With David Rosenberg: The Bearish Outlook. WSJ via ZeroHedge.
it would seem reasonable to expect that the equity market will trade down to a valuation level that is historically commensurate with the end of secular bear markets. This would typically mean no higher than a price-earnings multiple of 10x and at least a 5% dividend yield on the S&P 500. So, we very likely have quite a long way to go on the downside....
when the equity market was hitting its recovery highs in early spring, it reflected a widespread view that the green shoots of 2009 would be extended into a sustainable growth phase into the future. Not a good assumption then; and not one now....
the recovery has really been one part bailout stimulus, to one part fiscal stimulus, to one part monetary stimulus, to one part inventory renewal....
This is what keeps me up at night — kicking the can down the road in terms of addressing the global debt problem will only end up making the situation worse. Governments seem to believe that the solution to a debt deleveraging cycle is to create even more debt. But delaying the inevitable process of mean-reverting debt and debt-service ratios back to historical norms will be even more painful....
with the median age of the boomer population turning 55 in the U.S., there is a very strong demographic demand for income and with bonds comprising just 6% of the household asset mix, this appetite for yield will very likely expand even further in coming years
along those lines...
The answer is the domestic private sector. Rebecca Wilder, News N Economics.
Alex, the question is "who will buy all the debt?"
an almost apocalyptic but interesting take on history of fiscal finance:
Welfare and Warfare. The Burning Platform.
The United States has hit the proverbial jackpot, with a rapidly aging population, a $106 trillion unfunded liability, an administration that has piled more unfunded healthcare obligations upon our future unborn generations, spineless politicians that refuse to address the crisis, and as icing on the cake 700 military basis spread throughout the world and an annual defense budget of $895 billion....
The United States of America is the modern day Roman Empire. Any reasonably intelligent person with a calculator can figure out that this will end in economic collapse. And still, we do nothing. Not only do we do nothing, we push our foot down on the accelerator by spending $2 trillion on wars of choice, commit $16 trillion to new drug coverage for seniors, and national healthcare for all at an unknown cost. There is one law that cannot be skirted. An unsustainable trend will not be sustained....
[a trend] took root in the United States in the early 1980s. Citizens became consumers. The only way for a country to achieve long-term growth is for its citizens to save more than they spend. These savings can then be invested within the country to insure that prosperity could continue for future generations. A country of only consumers will eventually collapse under the weight of debt and lack of investment
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