Posts Tagged ‘boom’

“…the world has been binging on debt like never before.

The International Monetary Fund reported last month that total nonfinancial-sector debt has ballooned to an all-time record of $152 trillion… while the global debt-to-GDP ratio has also soared to an all-time high of 225%, up from 200% just 14 years ago.

Worse, we’re seeing record debt at the government level, the corporate level, and the consumer level (via auto and student loans, in particular). The boom in corporate borrowing is especially concerning…

U.S. companies have already borrowed $1.4 trillion this year to date, according to data firm Dealogic. This is on pace to shatter last year’s previous all-time record of $1.5 trillion.

Unfortunately, most are using this money to refinance existing loans… buy back stock and pay dividends… and finance expensive (and often questionable) mergers and acquisitions. This will do little to help the economy. But it greatly increases leverage… and risk.” -Justin Brill

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“The Fed (Federal Reserve) and the government have created a false boom.  It’s not sustainable.  The last boom—from 2003 to 2007—was a false boom, too.  So was the one before that.  By manipulating interest rates, the Fed injects adrenaline into the economy and stimulates it.  But this doesn’t allow the market to cleanse itself of the sins of the previous boom (which the Fed’s stimulation also caused).  So, the malinvestment builds up and compounds.  And the issues that caused the crises never get addressed.” -Tom Dyson

“Like the repeated doping of a horse, the boom is kept on its way and ahead of its inevitable comeuppance by repeated and accelerating doses of the stimulant of bank credit.  It is only when bank credit expansion must finally stop or sharply slow down, either because the banks are getting shaky or because the public is getting restive at the continuing inflation, that retribution finally catches up with the boom.  As soon as credit expansion stops, the piper must be paid, and the inevitable readjustments must liquidate the unsound over-investments of the boom and redirect the economy more toward consumer goods production.  And, of course, the longer the boom is kept going, the greater the mal-investments that must be liquidated, and the more harrowing the readjustments that must be made.” -Murray Rothbard

“In a free market economy, money gets allocated to where it’s treated best.  But when you introduce the government, you get a business cycle.  You get a boom… which should be followed by a bust.  But that’s not what happens in our economy… Booms are followed by government intervention.  It’s done to prevent the busts from fully occurring.  But it just causes another—more extreme—boom and bust cycle.” -Tom Dyson

“In 1964,… the US had a total debt load (private and public) of $1 trillion. Today, the economy carries a debt load of $59 trillion.  In 1964, annual US GDP was $656 billion.  Let’s see… today it is about $17 trillion.  Divide $17 trillion by $656 billion and we find that GDP has gone up 26 times – not even half as much as the debt.”  (Debt load up 59x, GDP up 26x).

“Any credit in excess of actual savings is a fraud. It produces a fraudulent boom, which must be followed by a bust. Eventually, the phony credit must go back whence it came.” -Bill Bonner

While driving the long highways of America the other day, I thought I was going to have to pull my car over to keep from wrecking.  An “expert” on the radio declared that people must put their personal debt worries aside so that they could stimulate economic growth by spending more.  I thought I was going to swallow my tongue.  It’s no wonder our country has suffered through a huge debt crisis, and why there will certainly be another.

People were enticed into spending the equity in their homes in order to enjoy the American dream of having everything they wanted.  This created a huge boom in economic activity.  But, once this debt spending became maxed out the economy crashed, and crashed quickly.  If we as a society continue to fall into this type of unbridled spending, there will be nothing more than continued booms and busts.

So, now that people are gaining a step on their debt, the experts want them to spend with debt again.  Ludicrous!  Reasonable spending, with saved money, is what will help decrease the roller coaster ride we seem to find ourselves on.  Please people, listen to your own common sense instead of “experts”.