[shrinkermd]

FYI. Sorry about no tables. This is one of the gloomiest articles I have ever read in Barron's. In forty years, I can recall some pessimism from time to time, but no outright suggestion that a classic, deflationary, debt repudiation depression is in the wings.

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[Fury]

Thanks for posting an informative article.

[First Amendment]

Some of us (or at least one) are not financial-savvy and business articles like this make me brain-sore - would someone mind translating this into simple layman's language for a simple mind? TIA -

[Alberta's Child]

As soon as I see comparisons between the U.S. and Japan in an article like this, I tend to question the author's credibility.

Japan offers a good lesson for the U.S., but not for the reasons the author uses. There are really only two ways for an economy to grow in real terms -- increases in population and increases in productivity. Japan's real problem is that the stagnating population growth has resulted in a deflationary situation where the agin population simply cannot be supported by their younger demographic groups, not only in terms of the cost of social services but in terms of reduced consumer consumption.

[Dec31,1999]

In essence, then, the American home is a bulwark for the economy. As long as housing values stay high, the nation is sheltered from a detonation of the debt bomb.

As long as immigration keeps rising, the housing market will sustain home values. It's a matter of supply and demand.

[4Freedom]

Excellent article. A must read for all conservatives observing the continued massive spending and growth of our 'national debt' by a Republican led government.

[Kay]

Economics is not my forte, however, it has always appeared to me that the 1929 Crash was caused by people borrowing money to invest (margin?). President Hoover warned the banks about lending money for this purpose but they mocked him, telling him that he was old-fashioned.

Thus, it seems that we have repeated the same scenario. People have borrowed from their real estate this time to invest in stocks or just plain "things". Is this a set up for a major crash? No idea.

[LouD]

Interesting (and sobering) article.

Some good points about inflation versus deflation. I've always thought it was economic hubris to assume that we could achieve equilibrium at the razor's edge of zero inflation or deflation.

Moreover, for every argument against inflation (old people eating cat food because their the purchasing power of their passbook savings account has eroded) there was a countrbalancing argument for inflation (the student who borrows heavily to finance his education, and then pays back the loans with dollars worth less than those he borrowed).

It is probably better, not to mention easier, to have low, but consistent and predictable inflation, rather than attempting to achieve zero inflation. That is, assuming we could preclude the inflation driven expansion of the public sector that was fueled by bracket creep and capital gains that in the past consisted largely of inflated prices, not value appreciation.

[uncbob]

My biggest fear for the economy has always been the instant gratification generation with 5 credit cards maxed out
I want it so I buy it with no thoughts to the future
It can blow sky high The speculative market that was going to those crazy highs was just another example of get rich quick pie in the sky etc etc mind set of modern day Americans

[junta]

Especially since the financial press for a decade at least was the marketing arm for the Street. I have the foolproof plan for reflation though, everyone takes his money and converts it to single dollar bills then goes home and cuts them in half, each half being worth one dollar per the government hence we become wealthier and go out and spend. Call it informational era coin clipping and no doubt as effective as the Roman's version.

[dennisw]

btttttttttttt

[Servant of the Nine]

It sounds gloomy, but the actual number $31 trillion is not important. It is the ratio of debt to Gross Domestic Product, and of Debt to The Total Asset Value of the Nation.

The People at Barron's know those numbers are more convincing and I believe the only reason they didn't include them was that they don't support their pessimism.

So9

[BlackJack]

Thanks for posting the article. If you come across other good
articles please post them also!

[Tauzero]

"So, in a sense, about a third of today's aggregate debt total is being double-counted."

B.S. Debt is debt. This is just a bull rationalization.

The very fact that so many companies today are acting as debt intermediaries tells you just how much our culture and economy are simply soaked in debt.

And why stop at the particular financial transactions the bulls have in mind? When a bank makes a loan, that money is deposited in other banks, which then lend the money out again. Why not count that as one loan? Carried to the logical extreme, the "double counting" argument reduces total debt to about $55 billion, the core money supply.

No, this debt counts -- ALL of it.

[Red Jones]

bump

[secretagent]

FYI

[eno_]

I see some evidence for an assest fire sale. For example, I have been researching buying a large tract of land. I heard from a town economic planner in the area that all the paper company holdings in the area I was looking at would come on the market soon. Some of this land is owned by investment firms, like Prudential that sell logging concessions. So there is a direct link to large firms that might be itching to raise cash.

But overall, I think the following is key: "Fortunately, however, the federal budget stringency of the past decade and spirited economic growth in the late 'Nineties has driven total U.S. governmental debt down to under 50% of total GDP, versus 70% in the early 'Fifties and 65% in the mid-'Nineties. The U.S. has a long way to go before governmental debt proves damaging by "crowding out" private credit demand and boosting interest rates. Other developed nations have far higher government debt-to-GDP figures; Japan's is about 150% yet its 10-year government bond yields less than 1%."

So some deficit spending can safely help the Fed at this point. Let's go to Mars!

[SierraWasp]

Thanks for posting this intensly interesting article!

[Richard Kimball]

Bump