The chart below is self explanatory. Just to update the numbers since 2005, the ratio of total debt to GDP is now near 315% (total debt $42 trillion, GDP $13.3 trillion). Note that this does not include the debt owed to the Social Security Trust Fund (another $4 trillion) - that would take the ratio to 345%.
Source: Gabelli Mathers FundThe next chart is an index of sub-prime mortgage pool securities rated BBB-, used in pricing credit default swaps and such insurance products for the exotic mortgage market. It is calculated by Markit and the link is:
http://www.markit.com/magnoliaPublic/affiliations/abx
Sub-prime mortgage originators are facing increasing difficulties in packaging and re-selling their loans; several have already shut down. You really can't make a silk purse out of a sow's ear no matter how much financial engineering you apply - not for long, anyway.The next chart shows how much money was taken out during the housing bubble in the form of equity withdrawal (to spend on plasma screens, woolly socks and such: the Fed estimates that 2/3 of this money was consumed - not saved). The amount is now going down fast and the impact is being felt in the retail sector.
And last, but certainly not least, American households have been acquiring less and less financial assets (stocks, bonds, mutual funds, bank deposits, etc). While still adding to their portfolios, the amount is going down rapidly. That can't be all that healthy for financial markets as they make new highs - where is the fresh money coming from?
What's interesting about the two debt bubbles that you've identified in your "Total Credit Market Debt" graph is that they're only the most recent ones.
ReplyDeleteIf you go back through history, there are of course many small or regional recessions. But since the 1600s there have been only five major international financial crises: Tulipomania bubble (1637), South Sea Bubble (1721), French Monarchy bankruptcy (1789), Hamburg Crisis of 1857, and 1929 Wall Street crash.
Each of these major international crises occured roughly 70-80 years after the previous one. What you find is that each new "debt bubble" occurs at exactly the time that the generation of people who grew up during the previous financial crisis all disappear (retire or die), all at once. Thus, the length of time between these "generational" financial crises is approximately equal to the length of a maximum human lifetime.
If we think back to ancient history (the 1970s), investment advisors at that time used to distinguish between high-risk/high-return investment plans for young people (the Boomer generation), and low-risk/low-return investment plans for people near retirement (the GI and Silent generations).
Today, the GI and Silent generations are gone, and the Boomer generation is now -- incredibly -- demanding low-risk/high-return investments. It's this generational change that driving the latest credit bubble.
Our 70-80 year interval is pretty much over. The next major 1930s style Great Depression is just around the corner, with 100% certainty. Nothing can be done to stop it. All we can do is prepare for it.
John J. Xenakis
GenerationalDynamics.com
Low risk - high return...I think I'll start a new hedge fund and call it Oxymoron Invstments LLC. Or, better yet, Delusional Returns Inc. The recent rash of hedge and private equity funds seem to go after exactly that target client group that believes this is possible. The first ones in make a killing from setting up and ramping up the whole Ponzi-like game but eventually everyone loses their shirts. Always been thus..
ReplyDeleteI agree with you that the passing away of the generation that got "burned" in the previous bubble is very significant as it erases the institutional memory from the population. The new generation is thus allowed to make the same old mistakes in a brand new way.
I really like the way you set the various bubbles in 70-ish year intervals. Very interesting.
Kalimera.
Good games to a nail, lost a(wow gold) war.(wow gold) In a particular press to see(wow power leveling) such a foreign minyan: In order to (wow gold)receive a nail, we have lost a mati Tie In order to(wow power leveling) get a piece of mati Tie, we have lost a Pi Junma In order to get(wow gold) a Pijun ma, we (wow power leveling)have lost a(wow gold) jockey; To be a jockey, we lost a war victory. This is the first (Rolex)under general minyan at(World of Warcraft gold) first glance, but careful consideration, you(wow power leveling) will find that it contains a layer of the important essence of life: learn to give up, have a maturity. To a mati Tie and eventually lead to (wow gold)lose a war, this is not know how early to give up the consequences. Wise said: two disadvantages of the value comes light, the right to( World of Warcraft gold)choose the two-phase benefit. a folder to be the tail of the gecko already know how to give up the tail, the preservation of(wow power leveling) life, let alone we are full of (power leveling)the wisdom of mankind? ! in everyone's life, always (powerleveling)have in the face of choice, a choice, there is bound to give up, we have to learn is to( power leveling)pay a World of Warcraft goldpainful price, to give up local interests and preserve the overall interests. In chess, there are not "abandoning single-car" this trick? as the saying goes: not old, not new. sometimes, even (power leveling)the most precious things to know in good time to give up. when you( powerleveling)graduated from junior high school, in the face of a sincere friendship, you(powerleveling )will Yiyibushe. But power levelingthink back, and only bid farewell to power levelingmiddle school, high school usher in a(rs gold )new life, can meet new friends. The recent shift is not on this? Finally, a celebrity's life motto In( gold wow)conclusion: Life is like theater, everyone is their ownpowerleveling lives in the only director. Only Institute of power levelingchoice, people will know how to give up the Chewu life, Xiaokan life, the life Habitat has Seasky.
ReplyDelete