My Rant On Debt, Debt and More Debt

Debt is scourge on the American people. According to America’s Total Debt Report, 2008 debt was $186,740 per man, woman and child - - 6.4 times higher per capita than in 1957. The report also shows that higher debt reduces the level of real national income while adding little to the economy. In fact, according to the report, every dollar of economic growth requires more debt per dollar than ever before. Consider this:

Household debt is made up of consumer debt plus mortgage debt. The Family Income Report shows real median family incomes stopped growing in 1970, and thereafter families tried to keep up by going deeper and deeper into debt ever since - at near 3x the rate of national economic growth - to an all-time high today. Consumer debt payments % disposable income are at historic highs. The Family Income Report cites the reason, with dramatic pictures.

This is just to give you an idea of what lies below the surface. There is a lot more in the entire Grandfather Economic Report series. You should go read it for yourself. All of his debt information is supplied from Federal sources, by the way.

Here is the question Americans, and even those abroad, must answer. If debt got us all into this economic mess, why do we believe more debt will get us out? Everyone should know that you can only leverage your earnings so far before you produce a diminishing return due to interest requirements. According to another source, “In 1946 the debt hit 121.7% of the GDP due to WWII, it's currently (as of 2003) at 62.4%.” These figures are referring to total debt—business, household, government, etc. What does that mean in real terms for today? According to a March 3, 2009 MSN Money article:

Consumer credit ranged between 12% and 14% of the GDP from 1965 through 1995. It currently stands at 18%. With the GDP at $14 trillion, the American consumer will have to shed $600 billion of debt to achieve a 14% level. It will take years of debt reduction and GDP growth to rebalance the economy.

Put in perspective, that means almost $1 of every $5 earned is paying for debt, rather than producing anything meaningful.

So, I repeat my question. If creating so much debt, which actually reduced economic growth despite driving industrial production, got the world into this economic mess, why do the powers that be believe more debt will get us out? Simply put, debt allows more goods to be purchased, thereby maintaining economic output, if not increasing it. So, in order to keep producing goods and everyone have a job, more debt must be created. But debt actually reduces economic gain after it reaches a certain size. That’s one reason why the US dollar keeps dropping in value as we create more federal debt.

The result of the banking and financial mess was the cessation of the flow of credit. No money is reaching the market. This causes people to be unemployed, because goods are not being produced, which causes a further drop in spending, creating a further reduction in spending, and more goods left on the shelves. In order to counter that, prices would have to fall. This is something called deflation. So, the Federal government is working to cause credit to flow again, by creating more debt. The result being that the viscious cycle just continues.

The one way to guarantee the cycle stops is to cease the increase of debt. But, that would mean 10s of millions of Americans, hundreds of millions of people world wide, would suffer catastrophically. And that is political suicide for anyone in a public office. It is, or should be, morally repugnant to most people. The alternative method is to limit debt, that is place restrictions on the ability to borrow—perhaps using long abandoned security requirements (such as 20% down for mortgages). Unfortunately, that would probably have the same result, just to a lesser degree depending on how limited credit actually becomes

The simple truth is Americans cannot continue to let debt continue to get out of control. We need to stop being the selfish cretins we have become, demanding government bail us out of the messes we create. And, we need to take responsibility for our own actions. I fear, however, that we have forgotten how.

09/30 Morning Report

Deregulation and greed go across party lines. Before we blame it all on Bush, it’s important to remember that some of the deregulation occurred during the Reagan years, with Democratic controlled Congresses. But, deregulation is not the only issue involved here. think of the debt that's caused all of this...real estate and other kinds of debt, like credit cards. I think most of us realize how spread out the debt risk of those mortgages is. But, that isn't the only debt bought and sold and repackaged in the economic system today.

Let’s start with a brief overview of the money multiplier effect. Banks are required to keep a certain percentage of every deposit at the Federal Reserve. So, assuming that to be 10%, if someone deposits $100, the bank puts $10 at the federal reserve, and loans the rest. Assume that $90 is deposited somewhere. The fed gets $9, and the rest is loaned out. And so on, and so on. In the end, you have something like $100 at the fed, and thousands of dollars of debt held by a large group of people. In other words, according to this viewpoint, our economy is based on debt creation. Most companies buy and sell debt in order to increase returns or immediate cash flow. Many times Company A will sell their receivables for a discount in order to have cash now, instead of say 3 months from now. This keeps factories going, workers employed, etc. However, without that debt, we would not have the standard of living or economic growth we have today--worldwide.

Now, let's carry the example a bit further. Let's just look at mortgages. If I buy a house (which we just did), the mortgage company is probably going to sell that loan to someone for a discounted rate in order to have cash to make another loan. The other firm probably borrowed or leveraged that deal by using some type of debt. Freddie Mac and Fannie Mae, for example, bought a lot of that debt. They, and many other lenders, then repackaged it as various types of bonds and notes, selling that to use the money to buy up more mortgages and so on. Companies bought those, and used the interest to pay their own debts. When people could no longer pay those fancy mortgages developed to get more people to buy houses and put more money into the economy, things started to unwind. As you can see, following the line of reasoning behind this particular viewpoint, the dark cloud we are under suddenly looks a lot worse.

Now, back to the point about deregulation being the cause. I agree that deregulation was involved, as was human greed. But, was it the main culprit? There has always been a measure of sub-prime debt. But, banks and lenders always tried to minimize that debt amount. The amount of sub-prime lending actually took off during the Clinton years. And, that happened under the banner of stopping racially based lending (so-called "red lining")--which needed to be stopped. But, to finance the increased borrowing, or more accurately compensate for the increased risk, banks needed to find a way to get money back...and that's what lead to the increase of derivative debt instruments behind so many problems today. Now, before anyone rants about blaming Clinton, here are some sources on these claims:

The Law & Economics of Subprime Lending
Boston Globe article: Subprime Lending Misconceptions
Investors Business Daily aarticle: The Real Culprits In This Meltdown
Investor’s.com Editorial: Whose Bailout Is It?

Whether the solution is a government bailout, with payback requirements as there were for Chrysler, or not something must be done. Many people have pointed out it isn't just the Republicans and the Bush administration who did this. This is the cumulative effect of many years and administrations--from both parties. The finger pointing and politicking has to stop before America bleeds to death economically.

02/05 Morning Report

Did you know it isn’t enough to talk about overcoming racism? Now days, at schools, you also have to support the anti-family agenda of the left.

You may know Ken Hutcherson's name from his pro football days or, more recently, his pro-family activism in defense of traditional marriage. But Hutcherson's daughter was introducing her father at her high school to talk about how he overcame racism thanks to the work of Dr. Martin Luther King, Jr.

"And then she says, 'But the most important thing is, this is my Dad.' I stood up to walk up to the microphone and there were some boos. They started booing."

Hutcherson, senior pastor of Antioch Bible Church in Kirkland, Washington, ignored the hecklers and gave his presentation, which never mentioned homosexuality. But the homosexual activists who booed Hutcherson were not finished. After his speech, they challenged him directly in front of the entire assembly.

"The sponsor of the Gay Straight Alliance stood up and yelled out, 'I know that I am not on the program, but why is this man here when he doesn’t believe in equal rights for everybody?'" says Hutcherson.

The woman accusing Hutcherson was Kit McCormick, his daughter's favorite teacher. "And I felt like I couldn't sit and not say anything," says the teacher. "I felt like this was a moment that I had to stand up and say something."

McCormick told KING-TV that Hutcherson was misrepresenting himself. "He is not about equality for everyone," she asserts. "He's about equality for some people."

Hutcherson says the teachers' behavior was inappropriate and [the behavior] would never have been tolerated if they had been pro-family activists criticizing a pro-homosexual speaker.

It’s obvious that Hutcherson is right. Those on the left are just as exclusive towards their conservative opponents as they claim conservatives are towards them. It’s immaterial the crux of the disagreement is whether homosexuality is natural or not. It only matters that those on the left want their way, and they will intimidate and shout down anyone who opposes them…all in the name of “equality”, of course.

(…I guess that makes the left just as wrong as the right, unless your on the left…or teaching our children…not that this is anything new…)


Islam is having it’s own public image problems lately. Wikkipedia’s entry on Islam is causing quite a stir. Why? It shows images of the Prophet Muhammed. Supposedly there is a prohibition about showing people’s pictures in Islam. But…

Paul M. Cobb, who teaches Islamic history at Notre Dame, said, “Islamic teaching has traditionally discouraged representation of humans, particularly Muhammad, but that doesn’t mean it’s nonexistent.” He added, “Some of the most beautiful images in Islamic art are manuscript images of Muhammad.”

The ban actually dates only to the 20th Century. There was an on-line petition with some 80,000 signatures sent to Wikipedia, and a lot of emails. One interesting point about the uproar…

The petition has more than 80,000 “signatures,” though many who submitted them to ThePetitionSite.com, remained anonymous.

“We have been noticing a lot more similar sounding, similar looking e-mails beginning mid-January,” said Jay Walsh, a spokesman for the Wikimedia Foundation in San Francisco.”

(…hhhmmm…sounds like Islamists have learned how to use SPAM to intimidate…)


Not to be outdone by possibly fictitious rules, requirements and actions, the French bank Société Générale is facing some more problems. It seems bank policies may have let the rogue trader get as deep into trouble as he did. There are apparently several holes in the argument that Mr Kerviel is the supervillain he is portrayed as. Us authorities are investigating the bank as well. Specifically, they are looking at bank board member transactions in the days before the scandal broke. Meanwhile, Agence France press reports that while French trader Jerome is saving any substantial statements for the judges, he is refusing to be a scapegoat for the bank.

(…another rousing success for the French…)

01/25 Morning Report

There are more donation scandal problems facing Democrats. This time, it’s about Obama, the apparent closet Muslim. Along with taking donations from Antoin "Tony" Rezko, who is now under investigation by federal authorites on corruption charges, Obama also bought a piece of real estate from him while Rezko was under grand jury investigation. Obama claims everything was above board. But, even considering he gave all the campaign donations to charity, those are not actions that speak well of anyone running for the presidency.


Indiana’s voter identification law is being reviewed by the Supreme Court. Sure, the rules should not violate the constitution. But, without identification rules, what proof is there that someone really is the voter in question? Or is even a real citizen and entitled to vote at all? The AP does the usual media hack job of citing a couple of special cases, which do need to be addressed. Several solutions are avaialbe like states where

…voters can present other forms of ID - such as a Social Security card, a utility bill or a student ID bearing a photograph- or they can sign an affidavit affirming their identity.

But, in conjunction with “voter’s rights” groups, the writer, and MSM in general, totally ignores the larger issue. And, as usual, the fight breaks down along party lines. It’s pretty obvious this is going to get uglier as time goes on.


And, for those who think the sub-prime mortgage problem has been bad, it could get worse. Officials are now worried about bond insurer failures.

Regulators fear a possible chain of events in which the troubled bond insurers, MBIA and Ambac, might be unable to keep their promise to pay investors if borrowers default on their debt.

That could leave nearly $1 trillion in bonds, and their holders, uncovered in case of corporate default.

(…bet the Feds can’t cover that much with a bailout…time to get over our belief that government can solve all our problems…and regulate morality…)


On the subject of investing, have you ever wondered why the securities industry is the most regulated group behind nuclear power? Well, you could ask French bank Societe Generale. They just uncovered a massive fraud problem, supposedly caused by one man. The damage is approximately $7.1 billion. The suspected individual dealt in futures for the bank. The scariest part of the announcement?

Speaking to the BBC, [Nick] Leeson, [the rogue trader that brought down Barings Bank], said he was not shocked that the latest fraud had taken place - only its scale.

"Rogue trading is probably a daily occurrence within the financial markets," he said.

"What shocked me was the size. I never for one moment believed it would get to this degree of magnitude, this degree of loss."

(…that just fills you with confidence in the financial markets…doesn’t it?…)