At the center of a flood of
debt By The Mogambo Guru
From Addison Wiggin at Agora Publishing,
writing about the Strategic Investment newsletter,
I gather that I am in for many, many sleepless
nights, waking up screaming in terror, as he says
that there are at least five "super-shocks"
a-coming in the next 12 months, which will create
the "coming stock market apocalypse". Yikes!
For example, right off the bat, he says
that there's "a complete crash in commercial
property", and then there's the burden of US$2.54
trillion in consumer credit debt, which is made
startlingly horrifying when he explains that
credit card debt alone is already bigger than the
amount of money locked up in the subprime loan
debacle!
"And remember," he says, "on
credit card debt, you're talking
interest rates three-five times
higher"! Yikes! He's right!
Immediately,
my hand flew to my wrist to check for a pulse, as
this is the kind of thing that I am sure will kill
me one of these days, with just a glimpse of the
sheer horror of the economic catastrophe that
awaits a pathetic, low-IQ nation that thinks that
they can painlessly borrow and inflate their way
out of any debt, no matter how much.
And
speaking of debt, as I recall, total consumer debt
is now something like 350% of GDP, twice as high
at the height just before the Great Depression,
which means a total consumer debt of about $53
trillion in a $15 trillion economy, which comes to
a debt of about $530,000 for each and every one of
the 100 million workers in the whole country whose
job is not a government job! Hahahaha!
And
this does not even include any of the $9.2
trillion in principal-and-interest government debt
that the non-government worker has to pay for, or
any money towards the estimated $60 trillion of
accrued liabilities of the Medicare and Social
Security programs, or the $3 trillion in federal
government spending that is going to take place
this freaking year, or the $2 trillion spent by
the states this year!
And who in the hell
is going to pay, for instance, the
interest/profits on a reported staggering,
stunning, stupefying glut of $164 trillion in
derivatives that are in the banks?
My
Freaking Mogambo Head (FMH) actually aches from
trying to conceive of So, So, So, So Damned Much
Money (SSSSDMM) in the aggregate, so much that
America's 100 million private-sector,
non-government workers cannot possibly even pay
the interest on it all, which they haven't been
doing for years, anyway, which explains why total
debt everywhere, like Old Man River, just keeps
rolling along, like a snowball rolling downhill,
getting bigger and bigger, which is such a strange
mix of metaphors that I realize that I am
completely confused and frightened.
To try
and get me back to reality, you helpfully ask,
"Just how much is that, relatively?" With no facts
or figures at hand, I say merely that it is more
than I could make in a zillion, zillion lifetimes,
for one thing, mostly because I am lazy and I am
apparently not worth much as an employee, which
could explain why I am always getting fired, and
yet it is paradoxically approximately how much
money my family wants to spend per freaking month,
or so it seems, and when the credit card bills
come in the mail, I predictably yell and scream,
and make threats, and throw things, but nothing
ever changes! And the next month there are MORE
charges on the credit card for their stupid visits
to the stupid dentist, or their stupid
prescription medications, like money grows on
trees around here!
Mr Wiggin wisely
decides not to get into the middle of a domestic
squabble about money, and says merely that $2.48
trillion is "more than China makes in a year. It's
more than the entire United Kingdom's GDP. And
more than the GDPs of Italy, France, Canada,
Spain, Brazil, or Russia."
As interesting
as that is, he notes with a mocking tone that
seems jarringly at odds with the horror of it,
"Only they're making that money. We just owe it."
Hahahaha! That's right!
But to show you
that Mr Wiggin does not just sit around all day
thinking of clever, mocking things to say about
the utter insanity of it all, he then shows us
that not all art is painted with a brush, as he
says, "Here's a picture for you: If the market
today falls as fast and as far as it did in 1987,
you'll see more than 3,000 points erased from the
Dow alone. In a single day." Yikes!
And as
terrifying as that is, according to Mr Mortgage at
mrmortgage.typepad.com/blog/, who has been looking
at the same spreadsheets at the NewYorkFed.org
site, 89% of all Alt-A mortgages (a market that is
a step above the subprime market and is 50% bigger
than the subprime market) are now underwater,
meaning that the owners owe more than the house is
worth! Wow! 89% of people with above-subprime
mortgages owe more than the house is worth! And
looking at my watch to get the correct time, by
this time it's probably all of them that are
upside down!
And how do we know this?
Well, if you are like me, you take the easy way of
finding out by letting Mr Mortgage do all of the
work! And sure enough, he obligingly looks at the
loan-to-value ratio (LTV), essentially comparing
what the house is worth on the open market versus
what is owned on the old eyesore that needs paint
and somebody to get up off of his Big Fat Mogambo
Butt (BFMB) and mow the damn yard.
But
stripped of the esthetics of the appearance of the
lawn, this ratio is combined into the "average
combined LTV of purchases," which is helpfully
explained in all capital letters, and in
parentheses, "(NEGATIVE EQUITY)", just so you
don't miss the significance.
This seems a
good time to mention that you should be selling
your house and buying gold with all your money,
and if the kids have to miss a few meals or if
they have to sleep in the car because I cannot
afford an apartment big enough for all of us but
it is perfectly cozy enough for me, that is the
price you are willing to pay. You will thank
yourself later!
Richard Daughty
is general partner and COO for Smith Consultant
Group, serving the financial and medical
communities, and the editor of The Mogambo Guru
economic newsletter - an avocational exercise to
heap disrespect on those who desperately deserve
it.
(Republished with permission from
The Daily
Reckoning .
Copyright 2008, The Daily
Reckoning.)
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Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
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