You're living in a fantasy world, Fox. Seriously.
The boom in home values hasn't created
real wealth, becuase it isn't real value. The house which you bought for 150k 7 years ago may be valued at 230k due to market fluctuations, but it's not
really worth that extra money; when the market goes back down, which it will do sooner or later, that money vanishes. So it isn't exactly the same as hard dollars of wealth.
Quote: People go into debt to buy houses and cars and furniture and other big ticket items when they are confident the income will be there to pay the debt
Or when they have no other choice. Again, get real!
Total household debt has increased from 613 billion to 1000 billion in the last 4 years. That's a 63% increase in 4 years. This hardly seems like a number one would see in a healthy economy. Reading this should really worry any American:
http://www.federalreserve.gov/releases/z1/current/default.htm
Let's ask Paul Volcker:
http://www.washingtonpost.com/wp-dyn/articles/A38725-2005Apr8.html
Quote:But right now, those same boomers are spending like there's no tomorrow. If we can believe the numbers, personal savings in the United States have practically disappeared.
To be sure, businesses have begun to rebuild their financial reserves. But in the space of a few years, the federal deficit has come to offset that source of national savings.
We are buying a lot of housing at rising prices, but home ownership has become a vehicle for borrowing as much as a source of financial security. As a nation we are consuming and investing about 6 percent more than we are producing.
What holds it all together is a massive and growing flow of capital from abroad, running to more than $2 billion every working day, and growing. There is no sense of strain. As a nation we don't consciously borrow or beg. We aren't even offering attractive interest rates, nor do we have to offer our creditors protection against the risk of a declining dollar. Most of the time, it has been private capital that has freely flowed into our markets from abroad -- where better to invest in an uncertain world, the refrain has gone, than the United States?
More recently, we've become more dependent on foreign central banks, particularly in China and Japan and elsewhere in East Asia.
It's all quite comfortable for us. We fill our shops and our garages with goods from abroad, and the competition has been a powerful restraint on our internal prices. It's surely helped keep interest rates exceptionally low despite our vanishing savings and rapid growth.
And it's comfortable for our trading partners and for those supplying the capital. Some, such as China, depend heavily on our expanding domestic markets. And for the most part, the central banks of the emerging world have been willing to hold more and more dollars, which are, after all, the closest thing the world has to a truly international currency.
The difficulty is that this seemingly comfortable pattern can't go on indefinitely. I don't know of any country that has managed to consume and invest 6 percent more than it produces for long. The United States is absorbing about 80 percent of the net flow of international capital. And at some point, both central banks and private institutions will have their fill of dollars.
The economy only looks good if you don't know a goddamn thing about economics; pretty on the surface, trouble below.
Cycloptichorn
