Scary looking Chart http://www.contraryinvestor.com/imagesCImain/creditmarketdebtgdp011604.png Interesting take on the current environment. Quite sobering. http://www.contraryinvestor.com/mo.htm
And do you remark when economic crisis burst and widespread all over the world ? At the same moment because money instead of financing real economy has been pumped into stock market and so compete with the real financing creating UNCOMPETITIVENESS OF REAL INVESTMENT COMPARED TO FINANCIAL INVESTMENT. It's easy to understand why: When I was in petroleum engineering school we were even said that it was "necessary" to cheat sometimes with the real return of a project as they would appear to be less worth than financial interest ! That's why many real investments have been abandonned as some industrial firms have more and more converted their real activities into pure financial activities ! So the crisis because no real activity = UNEMPLOYMENT, POVERTY OF MASS, AND SO SOCIALISM AND SO DEBTS TO ASSIST THE POORS, AND SO TAX AND SO A DISASTER FOR 20 OR 30 YEARS AHEAD. It is of course through the power of central bank that they could completely distort the true Economy in favor of a fake new economy of debts !
Not to be dismissive but, it is always an error to simply accept a chart at face value. Anyone who has slapped a lot of charts togethor for presentations or publication knows how easy they are manipulate - so easy it would shock most people. "Contraryinvestor.com" doesn't define "total credit market debt," though we would hope they use the same "GDP" numbers everyone else does. For instance, one question I would have is whether securitization by the likes of Freddie Mac, Fannie Mae, Credit Card & Auto companies, have created a data distortion in that back in the 50's and 60's those debts wouldn't have fallen under contraryinvestor's definition of "total credit market debt." This is something I want to look into more, and I'm not dismissing the notion that US debts, at least of the federal government, are at worrisome levels. Still, at this point my gut tells me the graph put togethor by 'contraryinvestor' is exagerated and sensationalist. Any good argument addresses the critics - I'm halfway through the article and there no point / counter-point ...
Does securitization of debt remove it as a debt? It just shifts the income stream/asset to new hands. The guy still owes 150K on his mortgage.
The financial measures of "the street" have so overtaken our economy that few, if any, companies take on projects where their investment will not create financial returns within the next several quarters. Our time horizon has been so shortened that we have nearly eliminated true long-term, forward thinking innovation. In past eras, both government funded programs and larger, nearly monopolistic companies could afford to undertake R&D that may/may not payoff for several years. But with today's quarterly conference calls, mid-quarter financial updates, and constant FINANCIAL disclosure, nobody is willing to take any risk! It is no wonder that today's most successful engineers are FINANCIAL ENGINEERS who create no value but rather shift risk and reward amongst other financial engineers. And doesn't it seem like a huge misallocation of valuable resources when we see that our country's young and budding PHd's in mathematics, physics, or the hard sciences are wooed to wall street where they create TA black boxes for futures trading? Something is definitely wrong here. I'll get off of my soapbox now. That is all. BigMike
Well .... Maybe the institutions that these PhD's are fleeing from are part of the problem ? Once was the day when you took a cut in wages to work for the government on important research and you understood - and the government or University understood - that the bargain was that in return for your voluntary pay cut you obtained job security. This bargain has vanished as government research labs have broken this unspoken contract by firing people rather than moving them onto other projects - all to save money pcketed into managers hands. Universities mave simply moved towards H1B or other visaed workers and students brought in to work cheaper than US citizens. Similarly private industry has essentially moved to a management by fear mentality against its most highly trained employees: essentially telling them that are worth nothing and can be replaced by cheaper labor if they dont do the work of two or three people. Its a market economy worldwide and smart people - like Phd's - have to take the best deal for themselves and their families and if it doesn't lie in the traditional research arenas then its not their fault.
I totally agree with you that it's not the Phd's fault, but rather a fault of the system that they are working in. My whole point is that research and all of it's worth are not appreciated in our short-term oriented society. I would never fault a rocket scientist for trying to make a better life for himself and his family on the street. I do find fault with the bureaucrats who have been pushing them out the door for the past 15 years. I think we're on the same side on this one, CalTrader. That is all. BigMike
I just wanna point something out. Credit Cards They have only truly caught on in the last couple of decades. Before that, consumer debt was mostly store credit. So when you think about it, the high rise in consumer debt is mainly due to the credit card mania. Comparing to the late 1920s, we are actually in a much better position. As someone who has dealt with CCs and Debt collectors, this industry is basically barely bothered by the already record bankruptcies. They are still making a killing. Looks like the rise in consumer debt still has more room to go up up up.
The changes we are talking about are permanent - well over the forseeable future - and have been brought about through a variety of factors. The biggest change is that now, government and university work environments look like private industry, with a 20% salary penalty and with benefit packages that are moving towwards those present in the private sector. Hence, these employers are caught in a feedback loop where they need to find more foreign workers since US citizens are unwilling to take their deals and as they hire more low wage workers they continue to believe that they can keep pay low and cut benefits. At some point the foreign workers get green card status and leave. The institutional knowledge base is hence transient and these once world class research facilities have been reduced to mediocrity in many cases. Most of the pioneering research now goes on in private companies or organizations and as a result many advances never get published and are known to only a handful of people that can not discuss them in public.