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alstry (< 20)

What we are all about to learn-THE HARD WAY!!!!



June 19, 2008 – Comments (6)

For the past seven years, bags and bags of money has been given to American individuals, businesses, and governments.  Some years, the hand outs totalled over 2 trillion dollars or over 15% of the GDP.

These handouts came in for form of loans.  Mortgages, HomeEquity Loans, Private Equity Debt, Auction Rate Securities, Credit Card Debt, Auto Loans. 

Each time money was borrowed, we accumulated debt.  Never in our nations history did we borrow so much.  Not only that, we thought our assets would keep rising in value so if we ever had to pay it back, we could just sell assets and everything would be fine.

We borrowed.  Banks lent.  We spent.  Incomes were wonderful so long as we could service debt.....and boy did debt higher levels than our nation has ever seen before.

About a year ago, banks stopped lending so easy.  We stopped borrowing so much.  We spent less.  Business slowed.  Incomes decreased.  And when our savings ran out, we started defaulting on debt.  Defaulting debt starting causing our assets to fall in value.  Now many of our assets are not worth enough to cover debt.

Right now, America has something less than $10 trillion of cash in the bank and something over $50 Trillion of debt.  As our incomes have fallen to the point where it can't service debt, we either have to tap savings or default if savings runs out.

America is finally waking up to the fact that free bags of money is no longer forthcoming.  As a result we have started spending less and selling assets.  Auto sales are down 30%.  Airlines are shutting down.  Banks have few to lend to and its loans are defaulting.  Restauarants are slowing.  Retailers are shutting down.  Office and Retail vacancies are skyrocketing leaving even less income to service debt.

We currently face a very serious problem.  How do we replace the trillions of stimulous we became dependent upon.  The amount was massive.  Not only was the stimulous massive, but the accumlated debt has become a huge drag on our economy.

As our incomes decrease, debt consumes a greater and greater percentage of income and there is little left to spend in the economy.  The contraction has been growing steadily and really started to accellerate in June.  Just ask shippers, restaurants, retailers, auto companies, airlines, health care companies....just about anyone you want to outside of energy, agriculture, and defense.

Energy, agriculture and defense only account for a relatively small portion of our employment base.  The more resources we spend to those sectors, the less available for the rest of the population....and let's make no bones about it, over the past six months, the amount of money flowing to food and fuel has sucked the life out of many other areas of discretionary spending and ability to meet debt obligations.

Without the stimulous of easy credit and the current burden of excessive debt...our economy is breaking at a pace never seen before.  You are hearing it from government officials who have never seen tax receipts evaporate so quickly.  Businesses wondering why many of their customers are cutting back and when others will come back.

Folks, the evidence is everywhere, jobs being lost, homes being foreclosed, businesses closing, vacancies rising, and tax receipts evaporating.

Now what are we to do?  Income is shrinking.  Savings is depleting.  The banks can't lend.  Business is slowing.  And we have to keep on going and pay down debt as our assets are crashing in value.

The only asset really not crashing in value is the stock market....for now.

Anyone have an idea what's next????







6 Comments – Post Your Own

#1) On June 19, 2008 at 4:52 PM, alstry (< 20) wrote:

Folks, when you build an economy based on credit, and the credit is taken away, the economy contracts.  You add in inflation, and the economy contracts quickly-every week it is likely to get worse until we find a substitute stimulous.


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#2) On June 19, 2008 at 5:56 PM, jmt587 (99.51) wrote:

I'm relatively new to the finance department of a company that produces and sells product in North America (some sales outside of N. A.).  Volume is down about 25% so far this year compared with the same period last year.  The former CFO told me that in his 30+ years in the company, he never saw a drop like that.  Once in a generation, at least.  Scary.

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#3) On June 19, 2008 at 6:10 PM, alstry (< 20) wrote:

Can you tell me what kind of products you sell?

Further, how has the trend been for June?

Any other CAPS members with their own perspective about non Food or Fuel or Defense orientated business please chime in.

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#4) On June 19, 2008 at 7:10 PM, DarkToast (32.27) wrote:

I work for Intel, and business is great. We have a new generation of excellent products and we are aggressively taking market share in almost all markets. Unprofitable or volatile businesses have mostly been spun off. Record breaking quarter, probably a record breaking year. Our stock is usually pretty ho-hum though, trading in a narrow range for a long time now.

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#5) On June 19, 2008 at 7:42 PM, alstry (< 20) wrote:

What if the purchase of computers by consumers, business, and government slows down due to declining revenues????


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#6) On June 21, 2008 at 1:31 PM, jegr5347 (< 20) wrote:

I can't disagree the economy is facing a major slowdown and a lot of people will need to adjust their lifestyles to new realities, including bad personal financial decisions made as a result of easy credit that now is gone.

But your shotgun position that the US economy is in a free fall is not currently supported by national economic figures, specifically GDP figures, at least thru the Q1 of 2008. So is the Bureau of Economic affairs lying to us when YOY GDP grew by .9%? Not beautiful but not a depression either.

Is your view that of the US or of the global economy as a whole? If the US is driving down the path you portray I can tell you the rest of the world is not too far behind. For one, the USD/Euro exchange rate now is just a mirage in the desert. Europe's exports are suffering and anti growth economic policies such as the mandated 35 hr work week and major subsidies of industrial and agricultural concerns will soon catch up. There is also a real estate bubble there too that is only now coming to light.

See DarkToast comments above and there are many more examples out there. The current dollar valuation will only fuel this.You underestimate the ingenuity of the American economy.





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