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Legend [15492]
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For those wiser than me on markets, is this a problem?
Nov 21, 2018, 11:46 AM
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Perhaps this booming economy isn't 'all that glitters is gold'?
(unrestrained capitalism= putting you, your family and your children's future families in the hands of those who's only interest is their own, personal, immediate wealth)
"At first glance, it looks like a $9 trillion time bomb is ready to detonate, a corporate debt load that has escalated thanks to easy borrowing terms and a seemingly endless thirst from investors."
https://www.cnbc.com/2018/11/21/theres-a-9-trillion-corporate-debt-bomb-bubbling-in-the-us-economy.html
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Oculus Spirit [81076]
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So debt is a problem now with rising interest rates.
Nov 21, 2018, 11:58 AM
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In other news, the sky is blue and water is wet.
Wait until we're spending >40% of our GDP just servicing our debt and the dollar becomes completely worthless.
You've seen The Walking Dead, right? It'll be something like that, but with no zombies, and probably worse.
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All-In [34597]
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but "unrestrained capitalizm"***
Nov 21, 2018, 12:25 PM
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110%er [6101]
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Re: For those wiser than me on markets, is this a problem?
Nov 21, 2018, 12:30 PM
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Perhaps it's the nonstop rate hikes by the Federal Reserve and their threats to issue more. That's a good way to tamp down growth.
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Heisman Winner [111625]
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Re: For those wiser than me on markets, is this a problem?
Nov 21, 2018, 12:54 PM
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do you know what the rates where in 1983, before we started having these massive trickle down recessions?
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Oculus Spirit [81076]
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And before we had a president that doubled a $10 Trillion
Nov 21, 2018, 1:40 PM
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national debt?
What were they? Oh yeah...in the 10-15% range. Thanks JC!
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Oculus Spirit [97731]
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President doesn't spend a penny. That's Congress, and their
Nov 21, 2018, 1:49 PM
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vote buying. 1983 was a whole other ballgame. We could absorb 10% inflation in 1983. We can't absorb half that now with our debt. We're freaking out from a half-point increase by the Fed. Lord knows what happens if we get 5% or 10% inflation. It won't be 1983 again, promise you that. It will be something worse than 1933.
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All-In [25721]
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Oculus Spirit [97731]
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Before we had a debt problem that was the MO
Nov 21, 2018, 1:35 PM
[ in reply to Re: For those wiser than me on markets, is this a problem? ] |
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Inflation creeps up, raise rates, slow growth. Happy medium. All is well.
But what if Americans do REALLY well and get a 8% inflation raise? Well, raise rates, slow the growth. All is well. Except we default on our national debt, we get another mortgage crisis, student loans become insolvent, as does the federal government.
When you're leveraged with 20-30 year financial instruments tied to inflation and interest rates, at rates as low as 3-4%, that's an inevitable disaster waiting to happen if the economy improves. A half-point. That's what we're talking about here. The Fed has raised interest rates HALF of a SINGLE point. And we have panic. That's because if they raise it 2-3 points back to a more normalized level commensurate with a growing economy (with normalized increases in wages that we enjoyed for decades before the 1980's), that is catastrophic.
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Oculus Spirit [83127]
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Oculus Spirit [97731]
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Yes, it is. In fact, all debt is a bomb if/when we see
Nov 21, 2018, 1:11 PM
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"real" economic improvement. By real I mean increased wages. $9 trillion in corporate debt? Several trillion in student loan debt. Trillions in credit card debt. Tens of trillions in mortgage debt. 21 trillion in national debt. Yes, it is ALL a problem. There is a huge irony that when people start getting more money in their pockets, real increases in wages, salaries climb, and goods correspondingly become more expensive, then that creates a crisis that shines a bright light on 3 decades of living off of debt beyond our means.
When the economy REALLY improves, wages go up. When the prices of goods go up, wages also climb. It's called inflation and we've had 30 unprecedented years of stagnant inflation, and that's very much by design. Real wages have been largely FLAT for decades now. Free trade and illegal labor are the two biggest things that have been used to keep wages flat for decades now. Get rid of illegal labor, relying on a finite supply of domestic labor, and tacking tariffs on imports, those two things are a double edged sword. They create economic improvement because steel becomes cheaper to make in Pittsburgh than to import from China. It's still 20% more though. Americans make that steel now at a higher wage. The cost of building a house goes up 10-20% if you have American workers versus illegal workers. Housing costs go up. Picking lettuce gets more expensive. Agricultural products cost more. ALL this is "good" in that jobs are created, wages rise, Americans have work, all peachy.
BUT....inflation. We all know and hear about Venezuela and Weimer Germany, and hyper inflation. That's not going to happen. We are so leveraged now with debt, we don't need hyperinflation to have an economic collapse. 1982 inflation will MORE than do the trick. 5% we're in a bad situation. 10% and we probably collapse. See, when you're paying %1.75 on our $21 trillion national debt, you only pay around $300 billion to make that minimum interest only payment. GENTLY nudge that up to 2.25% ad the Fed did last year, and the cost to pay that interest goes up north of $400 billion. That's an increase of $100 for a half-point increase, or a 25% increase on what it costs to remain solvent. At 5%, the cost of servicing our national debt goes right up there with Social Security as one of our largest expenses. North of 5% and it IS our biggest expense. And that's just with our national debt.
Corporate debt is another matter. Say you fund your company entirely with debt. You take out a $100 million loan at 4%. If you can make a profit of 10%, then you pay your 4% interest on your loan, and you're in the green and your company is wonderful and stable, and all is well. But say interest rates go up to 8%. Same company, same product, same sales, and you're bankrupt. This is how you get all these tech startups hawking ridiculous products, and how venture capital firms can go out and make a killing. Cheap debt. So corporations are over leveraged too.
Take your mortgage. Say it's a 30-year fixed mortgage at 4%. Your loan has already been passed off from your lender to Freddie or Fannie, and then resold as a mortgage backed security (hello housing crisis). If inflation creeps up to 5% or 10%, that security becomes a liability as the return will never keep up with inflation. Mortgage backed securities then crash, not from bad loans to people who can't pay, but to good people who can. Instead of defaults causing a crisis, it's inflation.
Credit cards? This is perhaps one area where the economy is "safe" because they all have variable rates. They will survive no matter what.
Student loans? Fixed also and likely to fail.
Trump's very solid moves to improve the economy can, and may, kill us. We're painted into a corner and have been for a while. We simply can not afford a booming economy. Period. And the fed will do whatever it takes to keep inflation under control, but they're limited in raising rates without collapsing the economy. Kind of a catch 22 really.
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Oculus Spirit [81076]
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One point here....
Nov 21, 2018, 1:44 PM
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"We all know and hear about Venezuela and Weimer Germany, and hyper inflation. That's not going to happen"
If we can no longer service our debt, what do you think will happen to the value of our dollar?
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Oculus Spirit [97731]
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The fed will sink us to oblivion before killing the dollar
Nov 21, 2018, 2:08 PM
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The dollar stands, all else be ######.
Of course the fed has two options if we get inflation up around 5% or more. One is to hike rates, and possibly (probably) send us into a depression. That's bad. Horrible. Other option, is let it ride. Keep the rates low, and watch the dollar tank in value until we get to be Venezuela or Weimar Germany. NOT AN OPTION.
Sucks either way really. But I'd bet the dollar gets the deference at the expense of the debt.
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Oculus Spirit [81076]
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We wouldn;t have any control over.
Nov 21, 2018, 2:13 PM
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You'd hear whispers, than some poorer countries shouting it, then our larger creditors like Japan and China would start demanding governmental changes, austerity etc. By that time the damage is done, our debt is basically unsellable, interest rates have to go sky high in order to attract new debt customers, and you're taking a wheel barrow full of cash to Publix to buy a loaf of bread.
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Legend [15492]
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Re: One point here....
Nov 21, 2018, 3:13 PM
[ in reply to One point here.... ] |
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"We all know and hear about Venezuela and Weimer Germany, and hyper inflation. That's not going to happen"
If we can no longer service our debt, what do you think will happen to the value of our dollar?
You are correct I think. Unfortunately to take active measure you have to convince some that they must be restrained in some fashion. Most aren't willing. Remember, regulation is bad!
I still marvel at deregulation of Wall St under Bush and the housing bubble that cost the world trillions of dollars. They just watched it till it burst. Unfortunately for most Americans, those responsible for it actually made money while millions of American's lost homes, savings and lives. Obama Administration biggest mistake, in my view, was not to prosecute or at least attempt to prosecute those responsible.
No regulation got us the Great Depression, Monopolies, children working 18 hours a day, and environmental disasters like Love Canal (look it up).
Unrestrained capitalism is exactly that....unrestrained. Taken to it's logical, inevitable conclusion, unrestrained capitalism will ultimately lead to 1 person having all the wealth.
Society has to be protected so as to insure it's own survival.
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Oculus Spirit [81076]
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Lets back up a bit.
Nov 21, 2018, 3:41 PM
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I can't solely lay the blame "unrestrained capitalism" as the reason for the housing bubble burst.
There are valid arguments that it actually started with government intervention, and "The Housing and Community Development Act of 1992". Basically, that law made certain that Fannie/Freddie had a mandate of specific targeted amounts for "affordable housing" loans, and over time, HUD increased that unsustainable loans were made to customer who couldn't afford houses.
Even Bill Clinton was in on it. Clinton signed the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act. He also signed the Commodity Futures Modernization Act, which exempted credit-default swaps from regulation. In 1995 Clinton loosened housing rules by rewriting the Community Reinvestment Act, which put more pressure on banks to lend in low-income neighborhoods.
And hey, you don't have to agree with me. Obama's own reports stated this, too:
https://oversight.house.gov/report/the-role-of-government-affordable-housing-policy-in-creating-the-global-financial-crisis-of-2008/
And what happened to those who were responsible for the housing burst? Here's the maddening part: SOME OF THEM WENT TO WORK FOR OBAMA.
https://www.commondreams.org/news/2009/12/13/obamas-big-sellout-president-has-packed-his-economic-team-wall-street-insiders
https://www.theguardian.com/commentisfree/2013/jan/23/untouchables-wall-street-prosecutions-obama
"Society has to be protected so as to insure it's own survival."
Lulz..And I guess the Democrats are the ones to protect us? I'll take my chance with capitalism, thanks.
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Legend [15492]
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Re: Lets back up a bit.
Nov 21, 2018, 8:25 PM
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I believe you are correct. I was only making a broader point that all regulation isn't bad just because it's regulation.
I agree, Bill Clinton was a source of a lot of problems we've experienced, as was Bush, Obama and most of our leaders.
Actually, I don't think Democrats are better at it than Republicans. They used to be, but they sold out to corporate interests to raise money.
As you've undoubtedly noticed, in the last couple of decades both parties have sold us out to special interests to fund their reelection campaigns.
That is one of the appeals of Trump. As crass and illogical as he may be, he's still a thumb in the eye of the career political class.
It is no mystery to me how he got elected.
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110%er [9174]
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Yes, sell everything so I can buy low now
Nov 22, 2018, 4:41 PM
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-Doc
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