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Why The Real, Not Nominal, Consumer Debt Burden Will Push The US Economy Lower And Force The Fed To Accelerate Its Monetary Intervention
It is no secret that both the household debt/income ratio, as well as the debt service ratio (interest expense as a % of disposable income) continue to be near all time high levels, albeit slightly lower than recent all time records. In fact, the debt service ratio has declined more in real terms than in nominal terms, making the argument that the consumer deleveraging process might not be as dramatic as some expect. Yet it is precisely when looking at the real, and not nominal, value of a projected debt service burden, that explains why consumers will continue to be faced with a crippling debt regime, why deleveraging will continue, and why the economy will be far weaker than the Fed expects for years to come. Goldman's Jan Hatzius, who continues to be more bearish on the future prospects for the economy than ever before, explains.
One important reason why we expect the economy to remain weak is that the household sector is likely to deleverage its balance sheet further. This will require households ?and the private sector more broadly? to run a large financial surplus, which will keep demand weak unless offset by substantial fiscal (and monetary) stimulus.
Once again, the Fed is caught with its pants down as it is faced with no options of how to extract an economy continuing to plunge into a deflationary abyss. And it is not so much the overleveraged mega-corporations that are hurting as a result of massive debt load, as at least they can refinance into lower interest rates: it is mostly consumers - that driving force behing the US economy - who are unable to take advantage of refinanci g opportunities on their underwater assets, that will further retrench, causing further economic stress and increasing declines in GDP.
Tangentially, and a topic that needs to be investigated in depth here and elsewhere as it has gotten virtually no coverage in the media, is what will happen to the tax shield that interest payments provide. Assume a scenario where a company with $X in debt manages to refiance all of it at near-zero interest rates. This will simply make pretax net income jump substantially, and provide for a much greater tax provision owed to the government. As everyone is aware, the number one prerogative before CFOs and corporate strategists, is how to minimize tax payments, which, in our opinion, means that soon companies, even Investment Grade, will lever over and above the level of debt suitable for their business model, with dividend recap deals coming down the line, all in the pursuit of recapturing an debt interest-based tax shield. After all, a company (and most definitely its Board of Directors) would certainly prefer to pay a dividend to its shareholders, than to give away 40% of its profits to the government, even if this means a sudden and abrupt deterioration of debt ratios across levered corporate America. And once interest rates do pick up, and the next refi/maturity wave hits in 5-7 years, then it will be really game over. But that is a topic for another day. (We are also confident that the tax code's Section 382 NOL Limitations will also soon have to be adjusted to facilitate the M&A boom which everyone expects yet never happen, as there are thousands of companies with huge NOL "assets" that could be acquired if Sec. 382 were to be changed... and it will be).
But back to the consumer, and why the expectation (and reality) of deflation will keep US buyers subdued, and continue to make the US economy ever more reliant on the government's transfer payment, aka welfare, program.
A very simple illustration of the challenge is provided in Exhibit 1, which shows that the ratio of household debt to disposable income remains far above levels prevailing prior to the asset price and credit boom that started in the late 1990s. This suggests that the deleveraging of household balance sheets still has much further to go.
But while the ratio of household debt remains exceptionally high, the ratio of household debt service?interest and scheduled principal repayments?to disposable income looks less out of line with longer-term norms. This is shown in Exhibit 2, which plots the household debt service ratio as calculated by the Federal Reserve Board.1 Although it is still above its long-term average, the gap was never as big as in the case of the debt ratio and has declined substantially since 2007. What should we make of this?
And here is the kicker, explaining why once again the Fed has misunderestimated American consumers:
While the debt/income ratio shown in Exhibit 1 is hardly the end of the story, we believe that Exhibit 2 leaves out an important factor, namely that debt service is defined in nominal rather than real terms. The calculation does not take into account the rate at which inflation erodes the real value of household debt over time. This erosion will confer a bigger benefit on indebted households in a high-inflation environment such as the early 1980s than in a low inflation environment such as now.
Hatzius is kind enough to provide a simplistic example of the impossible task facing the US consumer of deleveraging into a deflationary environment, especially when the primary debt burden is in a 100%+ LTV position, and therefore unrefinanceable.
It is easiest to explain this point by means of a simple example. Suppose a consumer with a $50,000 annual income holds debt of $100,000 on which he pays a 10% interest rate. Ignoring any principal repayment, this implies a debt service ratio of 20%, i.e. 10% of $100,000 divided by $50,000.
Now imagine two separate cases. In the first case, inflation is 8% per year. This means that the real value of the consumer?s debt is reduced by $8,000. So the inflation-adjusted debt service burden is only equal to $2,000. In the second case, inflation is 1% per year. This means that the real value of the consumer?s debt is reduced by $1,000 and the inflation-adjusted debt service burden is equal to $9,000.
It is therefore useful to adjust the debt service ratio for inflation. We calculate the ?inflation gain? of households as the level of debt a year earlier multiplied by the year-on-year core PCE inflation rate, and then subtract this number from nominal debt service to obtain an inflation-adjusted figure. This inflation adjustment shows the real debt service ratio to be much more clearly above the long-term average than the nominal ratio. In fact, it has trended down only very slightly over the past few years. This suggests that the deleveraging of household balance sheets?and private-sector balance sheets more broadly? still has a fairly long ways to go.
Further inflation declines would increase the challenge. We expect core inflation to decline to ½% by the end of 2011, which would reduce the inflation benefit that indebted households receive yet further. In theory, lower inflation should be matched by lower nominal interest rates. But many households are unable to refiance their mortgages to take advantage of the declines in primary mortgage rates because they are in or near negative equity. Therefore, it is unclear to what extent the household sector will be able to reduce its average effective nominal interest rate much further from here, even in a declining inflation environment.
And this is precisely the issue: while companies would in theory refinance all the way to a cost of capital just about the Fed Funds rate, US consumers don't have that luxury. Which means that the government will be forced to extract increasingly more "capital" out of the US corporate system, whether via tax code changes or some other yet unthought of way. Yet the far greater implication is that the Fed continues to be stuck with no recourse of how to fix the system in the long-run, once the toxic spiral of deflationary deleveraging accelerates. And yes, the only option will soon be the nuclear one, which is QE on top of QE on top of QE, all with the hope of spurring inflation, yet leading to the unfortunate outcome of loss in the US reserve currency.
Hatzius' conclusion, which pretty much the same, is somewhat more diplomatic:
The still-high ratios of debt and debt service to disposable income suggest that the household sector? and the private sector more broadly?will need to continue running financial surpluses in coming years. Unless fiscal and monetary policy provide a strong counterweight, this is likely to imply only sluggish growth, with risks tilted to the downside.
As more and more pundits realize that looking at debt burdens in nominal terms is erroneous, and that one has to apply deflation expectations to projections of real debt burdens, look for the feedback loop of lack of confidence in the economy to become ever more acute, as consumers further retrench in the saving mode so very abhorred by the Fed. And as more and more money finds its way to the mattress and precious metals, look for some incendiary decisions out of the government that seek nothing less than to devalue the dollar directly.
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Complex systems collapse at the most inopportune times. This is too far from a fine Swiss watch. Slip a gear someplace the whole thing comes to a halt. There is no amount of money that can be created out of thin air that will quell the deluge of corrupt debt that will surface. This will be a complete surprise to most and in retrospect "nobody could have seen it coming". Right.
Agreed.
Well, Fannie and Freddie are already willingly refinancing underwater mortgages, but the problem is that people simply (a) don't want to pay their mortgage at all, when their neighbors are not and still living at home for free; (b) don't want to pay on a mortgage that is underwater; (c) don't have jobs; and (d) truth be told, really don't even want to work.
The percentage of people who can actually afford to support their lifestyles during their working years and retire on their own savings, without relying on the government for Social Security, Medicare or other support, is clearly <5% of the population, and probably close to zero.
This is a clear, undeniable path to socialism and currency debasement.
Every man for himself.
That has been the Washington consensus for more than a generation.
I have managed complex systems my entire adult life. They will fuck you good and in unpredictable ways if you let them wander too far away from their strange attractor...
That sounds like my Ex-Wife.
sure does. both of them
a very enlightening comment hulk...wish you would expand on this more. what's the strange attractor in the complex system that is the socio-political-economy? goodwill perhaps?
The strange attractor in economic systems is simple:
trust
We trust that the pieces of paper and electronic digits our employers pay are transferable into goods and services.
This is a hugely complex system - but the strange attractor is under sustained attack by QE-behaviour of govt and non-prosecution of banksters and other white collar criminals who are beggaring millions of people.
How many are on food stamps?
yes, trust might be it. but the trust that you refer to is a point and strange attractors are fractal sets. could it be trust in a larger sense? trust that your contribution to society (in the form of taxes) are being managed wisely? trust that the goods that are purchased with your pieces of paper are of proper quality appropriate to the exchange? trust that the contract you enter into with a corporation will be honored? trust that your neighbor won't stab you in the back upon first sign of trouble?
how many points in the set need to shatter before the entire attractor collapses? and even more importantly, how can it be reformed anew?
My girlfriend and I drove to the park today.. It's about a 10 minute drive... Probably about 4 miles of residential... We saw no less than 20 houses for sale.. Now.. they aren't for sale because they are upgrading...
For those of you that don't know.. For the "deed in lieu" program where the bank gives you 2% of the mortgage, to walk away from the loan with house in tact, the house must be on the marked for 60 days..
I would guess most -if not all- are in foreclosure.
Defining "complex" versus "complicated" might be the greatest societal challenge of the past decade or so. All I can say is woe unto those who ignore the second law of thermodynamics. Its application can be more or less universal.
Distinguishing between "complex" and "complicated" is a challenge -- defining the difference between the two is quite straightforward. See pages 22 and 23 of Thomas Homer-Dixon's "The Upside of Down."
Its application is universal. Ever seen a burning log reform itself by sucking in the heat (smoke & ashes) it gave out?
On a related note, an interesting interview on Complex Systems Collapsing (from the Financial Sense Newshour):
"The Collapse of Complex Societies (New Studies in Archaeology) Joseph Tainter PhD James J Puplava CFPPolitical disintegration is a persistent feature of world history. The Collapse of Complex Societies, though written by an archaeologist, will therefore strike a chord throughout the social sciences."
http://www.financialsense.com/financial-sense-newshour/in-depth/joseph-tainter-phd/the-collapse-of-complex-societies
Enjoy!
This is plain, flat, factually WRONG.
The amount of debt outstanding is finite.
Therefore, the same amount of money CAN be created out of thin air. You may contest whether it WILL be created, but that it CAN is inarguable.
The amount of debt outstanding is not finite. Could you explain why you see it that way?
Hey, even a broken clock "works" if you move the hands manually. Of course, the Fed has the fattest fingers in the world, and they aren't that smart, so don't expect the clock to run smoothly or at the correct speed. Even a broken clock is right twice a day, unless someone is fucking with the hands, in which case it might NEVER be right.
And yes, there is indeed an amount of money that will quell the deluge of debt. It's just that it is so high that printing it is certain to collapse the system. That won't necessarily stop them from trying. They don't call him Helicopter Ben for nothing.
Yes it seems that all policy actions to date have bypassed the consumer except for the layoffs.
Next year, one more policy action will find its way to the consumer - higher taxes.
Go long, nylon threaded paper and ink---
Inflation benefit for the consumer? Maybe if wages were inflating at that rate, but the sad fact is they're deflating and there's nothing driving a positive wage spiral environment like surplus jobs on the foreseeable horizon.
Devalued money will only make the debt burden/service appear worse as all other costs in a high inflation environment go up while the poor consumer is treading water for wages at best(unless he has his own printing press of course). Seems like the assumptions behind this "inflation benefit" are backwards for the consumer. So the situation is likely even worse than depicted, not even considering the ill effects from Obamacare and other hidden costs that are upcoming from recent legislation.
QE will only help the government pay off debt. If BB goes full retard and pulls the nuke option he had better invest in some Level 4 body armor.
It's official. Rally on
http://www.businessinsider.com/thinking-cycles-not-endless-trends-2010-9
Sy Harding must be an idiot. No... he is an idiot.
Rocky........it's Sy D Harding.........D for Dickhead........
I read Dickhead's article.......buy and hold........buy and hold this you fucker.
BusinessInsider must have put Dickhead in charge of stirring the pablum.
What is Sy Harding smoking? If he thinks we will have a 50% rise in stock prices from a soon to-be-made bottom, then we certainly will get the collapse that many on ZH feel is coming without delay! I suspect the 666 S&P low will be crushed in his soon-to-be-made bottom scenario?
Again: "You control the debt, you control everything!"
The International
http://espanol.video.yahoo.com/watch/4397309/11788984
heard Q west call options near 600 000. Normally about 56, 000.
46 put options. Theintelweb has article on it, i dont know shit, but if true...
what does that imply?
big rock meets very hard place.
I think that the Banks thought that they could collapse the Market and the Economy, as they did in 2008. Bankrupt or Buy up all of their Competitors for Zero or pennies on the Dollar. Then reflate the Stock Market and everything would be Ok and back to normal.
It did not work and now that the average American is still devestated from their actions, they just cannot understand it. I especially think that they never in a million years thought that Americans would pay off their Debt and Save Money. Or, Default on their Debt in such mass. But, they set the example and Americans followed and did not feel any obligation to follow thru on their pledge to make payments on their Debt they just Defaulted. Plus, Americans pulling their Money out of the Stock Market at the top. Unheard of. I am sure many pulled their Money out to pay off Debt. That is a real NO NO for the Bankers. Because once that Debt is paid off the Money is not comming back into the Market. The Bankers lose two ways. The interest on the Debt and the loss of a patsy in the Stock Market to bleed dry.
It has mushroomed out of their control and they know it. They do not know how to fix it and just keep throwing Money at it hoping it will work.
Bernankie may have been a Student of the Great Depression but putting what he learned in practice is a very different thing. Teachers are never good at implementing what they teach or know. Just a fact.
Insanity: "Doing the same thing over and over again and expecting different results."
Albert Einstein
Some differential equations defy anyone's pitiful attempts to find a solution!
Yep!
Differential equations are something mathematics discovered centuries ago, and have been used since then. When I studied engineering we used them constantly. They are basic.
Modelling an economy (if possible at all) requires more than some differential equations, I can guarantee you that.
Agreed.
Economies are people. Managing or predicting people is dodgier than making popcorn with hot oil on the stove while trying to change a diaper, stuff a turkey, and talk on the phone.
The baby will have stuffing in their diaper, your cell phone will be cooked inside the turkey, and there will be a lot of fire and smoke, alarms, and burnt inedible popcorn.
When everyone wakes up they will wonder what in the hell happened.
"Economies are people. Managing or predicting people is dodgier than making popcorn with hot oil on the stove while trying to change a diaper, stuff a turkey, and talk on the phone."
LOL +++++++++ agreeing with your conclusions.
It will never stop egomaniacs from trying though.
Simple is better...keep the playing field level, get the hell out of the way & enjoy the game with popcorn made by others ;-)
I assure you that they are not all "basic", as anyone who has ever tried to solve the nonlinear variety controlling, e.g. fluid flow or many body quantum mechanics (or humans) can attest.
Solving differential equations can go from very easy to literally impossible. Its a calculus problem, and some are known, and other are still unknown so they remain non solvable (you can still aproximate).
But the concept of differential equations are old and very basic. They are nothing new or mistic. Using differential equations to model something is not that complicated, its quite simple if you have studied it. Calculating the solution is a different matter, but modeling is nothing special.
In order to truly model the economy, you would have to build a self referencing algrythm that mimics every single human brain in existance and can predict what thoughts they will have before they have them.
In other words, it is impossible. It is a a very near infinitely complex self referencing system that is influenced by non-predicatble quantum fluctuations (the chemical and electrical reactions in your brain that we call thought are influenced by quantum mechanics, meaning that very minor changes in processing speeds will agregate into enormous changes in the economy). The system also has to take into account that its own predictions will be factored into human action. This step probably makes it infinitely complex. Sort of like asking God what you are going to do next, and then doing something else.
+100
Those who know and can, do, and those who know and can't, teach. Bernanke should have headed towards academia.
"Do" what? How about this,
Those who know and can teach, do, and those who know and can't teach, teach.
Doesn't make much sense, does it?
The banks had no need to do this, because bubbles pop. There is no point on thinking that the 2008 crash was a conspiracy, because the USA economy during the last decade was a bubble. Bubbles are unsustainable and they always end up going bust, causing a crisis with size relative to the size of the bubble.
If you want to take the conspiracy route, you better look at how bubbles are created, because there is where the problem is. Once you inflate the bubble the crisis is guaranteed.
The recent japanese QE event had them giving rebates to families with children. They took the money and paid down debts or saved it. They did'nt spend it. Once Benny commences Decaf QE america will probably do the same.
Anyone with a Job is afraid they will lose it. They have to get their Debt under contol or they know they could be Homeless.
Many familys have lost one out of two Jobs. Or one of the faimly has been reduced from 40 hours to maybe 20 hours of work.
I was taking to a friend of mine who was at one time a Stock Broker. He is now working at Home Depot. Home Depot just cut his hours down to 20 hours a week. He is not happy to say the least. His Wife still has a good job but his cut in hours will hurt.
Ten to One that was so Home Depot didn't have to give him any benefits, especially health insurance.
Until maybe Obama care requires home depot to do medical benefits or face fines. so and jam the money cost to the worker.
We are reduced to part time as well. But we still have some debt. It aint much.
Try getting credit today, they start at 24% and go as high as 29% I think it is the Bank making sure they scare off the smart ones who already have money or they are going to gouge anyone stupid enough to take this kind of interest rate on.
There's a business opportunity: Child Rentals, Inc.
Know where I could rent a few?
I can rent you a couple. You gotta feed and diaper them though....
I was thinking around the age of 18, blonde, you know the rest.
Hey I missed a post you made about a week ago. But it was really fantastic. Just wanted to say.
Thailand?
I was in Thailand in the early 1970s with the mighty U. S. Air Force. Wasn't impressed with the Thai women. Stayed straight arrow for the whole year. Lots of fellow airmen came back with weird stuff. They called it NSU (non-specific urethritis) which translates as, "We don't know what it is, but you've got it".
I will wait for this decline to load up on a pullback before extreme QE2 begins. Theres NO way they print more unless it gets worse.
Las Vegas, 6 bedroom, 4200 sqft sold comp - $150,000.
Where are the jobs and the supporting income? Better yet, what is the definition of "a job". One job and its wages used to be enough to support a small family. Now "a job" is $8.75/hr with no benefits. Funny how all that race to the bottom lowers prices on most goods, yet the debt stays afloat indefinately. Word to the wise. Don't even bother filing bankrupcty - just stop paying off debt. Let them call - change your number. Chances are the creditors will be out of business anyway - all that unsecured debt to the wind. Sit down with the kids and tell them the good times are over. Character is built in times of adversity. Time for a hair cut and a paper route. Don't get emotional about your home, just walk away - because that is what the banks, Fed and the CFR are doing to the Republic. Move your money out of the TBTF bank into some local community bank.
They will print for the benefit of the central banks holding sovereign debt, but nothing will trickle down to the guy in the street. Track your receipts and measure your food and gas costs as a percentage of your monthly income, becasue that is where they are going to hurt America next. Home heating oil for the East Coast. There's a test for 2011.
After you default on all your debts, work under a fake social security number. Your creditors and Uncle Sam won't find you. When you want to draw your "benefits" move to Mexico. It works for the current crop of illegal immigrants. They draw payments but have to live outside the U. S..
SS to Pay $100(s) of Billions to Illegal Workers
the way the politics are going, i wouldn't count on that ruse lasting indefinitely.
Ingenious!
But how do I get all my PMs to Belize without Uncle Sam finding out about...wait, I'll buy a boat!
<music>...I'mmmmm SAILinngggggg a wayyyyyyyyyy, set an open COURSE for the Virgin Seas....
But....but...what about the moral hazard? Oh..sorry, that was last year.
Whats the old saw... "in times of universal deceit, telling the truth is a revolutionary act". The only hazard to morality is believing these bankster/politico swine have any.
Albus Dumbledore: "Soon will come a time when everyone will have to choose between what is right and what is easy." The Govt. keeps tilting the playing field away from what is right. (WTF??)
Its a categorical imperitive to survive by what ever means available; hunger destroys all other moral hazards.
Pay down your debt. It is the only way forward.
Use cash.
Buy Gold (have I been brainwashed by this site?)
Become self reliant in all possible matters.
And the Epiphany :
VOTE EVERY SINGLE INCUMBENT OUT OF OFFICE IN NOVEMBER.
Every Single One ...
every single one for the next 5 elections. this is the only way to flush out the cronnies.
It's actually silver you should buy, but gold is also good :)
I might add one exception--if you live in the Lake Jackson or Galveston, TX (ie Ron Paul's district).
It is CREDIT CARD debt that is the key. While it is true that mortgage debt can be refinanced (assuming the loan is not upside down) it is the credit card debt that is out there at usurious interest rates and that cannot be refinanced that is really killing the consumer. No amount of QE is going to fix that problem and the TBTF will never give up that wonderful spread.
I agree that CC interest rates are usurious, but, AFAIK, these are unsecured. If you file for bankruptcy, you can get those debts wiped out. So, why are people still paying those CC cards? Could it be because they have been brainwashed into believing that your "credit score" is all that matters in this world?
When you do the maths on these CC debts, you realize that if you keep paying just the minimum required, it will take decades to pay it off. Average Joe should simply default and file for bankruptcy.
Is a massive CC default wave the next wheel to come off the cart, once people realize "en masse" that CCs are a gigantic rip off too?
They were engineered to take decades to pay off. They must be hugely disappointed that they are required to show this on statements. For the banks, a little knowledge is a bad thing. They prefer to work in secret.
True that. Defaults on credit xcard through bankruptcy and by simply defaulting will continue to rise. It will be the only way for the masses to get from down under the binary forces of infla/defla that the elites can work but the average person can not. The sooner the masses realize this the better.
its not about money now...its about survival...in good condition
Fiscal and montary "stimulus" wont provide any real growth, because it cant. Fiscal and montary "stimulus" can stop prices from going down, but wont provide real growth.
Now a the economy is going to go to the deflationary correction again, but Bernanke will stop it, probably at the beginning of 2011, like it stopped it in 2008-2009. Then stagflation will start.
USA has US$30T in debt to unwind, the EU has US$30T in debt to unwind.
Assumptions on both numbers... EU might be slightly smaller due to Germany's surplus and the imminent defaults of Greece and Ireland etc.
But still, if that US$60T is unwound in a ten year period of US$6T per year....
The CIA World Factbook put Global GDP at US$68.1T in 2007.
We are looking at at least a decade of real Global GDP declines when valuated in
Year 2000 US Dollar = 100
That is just the US and EU.
Where is the growth engine? 3rd world housewives are to become the mass consumers needed to sustain the current paradigm of international trade?
I could almost like this Hatzius guy, if he weren't making all these valid points in an effort to prod the Fed into more QE.
http://keynesianfailure.wordpress.com/2010/09/10/delayed-deleveraging-meets-the-keynesian-endpoint/
WALL STREET KLEPTOCRACY (THE GAME)
http://williambanzai7.blogspot.com/2010/09/wall-street-kleptocracy-game....
Great. you should rollout that game just in time few years down the road.
LEGALIZE PROSTITUTION, create jobs!
and tax revenue! The government's going after Craigslist to shut em down. To hell with that, just legalize it. Everyone likes a good piece of @ss. Your senator loves it, my senator loves it......you know. From David Vitter to Elliot Spitzer everyone likes ass! Instead of making believe that the US Service Sector added some mumbo jumbo jobs out of thin air, birth death model blah blah just add real jobs. They already exists and but aren't contributing to revenue. Recognize America for what she is, a debt laden whore and help it generate some tax revenue.
Instead of pretending, and we know they're pretending after that ISM service sector survey was out get something real done. 80% of the US is service jobs.........BLOW JOBS FOR ALL!........hell it might even lower the price.
In an inflationary environment where the debt payment are considered reduced by an amount equal to the % of inflation, isn't this offset by the money spent at the gocery store, gas station and other direct commodity based goods?
One saves on the debt payment but looses it on the latter. It is the same now; there is inflation and deflation balancing things supposedly, except most people can't afford to refinance, so they're getting screwed eithewr way.
+100
Wage inflation needs to be price inflation plus a percent or two to make a difference in diminishing debt overhang.
The real rate has been zero to negative last two years. While the banksters can take advantage of ZIRP, the average joe is very lucky to borrow at 5%. IMHO most are in the 6% to 7.5% or 500 to 650 bps above the discount rate. This gap is nothing less than usury. The smaller unconnected banks will continue to fail as borrowers cannot afford such high real interest banks. The large criminal banks will live on in spite of hollowed out balance sheets.
The beat goes on.
"would certainly prefer to pay a dividend to its shareholders, than to give away 40% of its profits to the government, even if this means a sudden and abrupt deterioration of debt ratios across levered corporate America."
Could this be the reason why all a sudden dividend paying stocks are all the rage?
I'm happy with companies borrowing at 0% to pay dividends...just buy higher yield issues. As yields compress further, see some capgains.
It's gonna get flushed anyhow, so make hay while the sun shines
Very much agree with Waterfall and yes I think that dividend paying stocks will expand as an offset to the high cash balance sheets of corporations and the eventual rise in taxes. Makes a great plan if you think about it to get the sheeple back into the stock market.
You know what is really interesting is m2 vs gold and m2 vs silver.
http://news.goldseek.com/GoldSeek/1250057160.php
If this were AUD/JPY and ES geez.
Cheers!
A lot of the sheeple were around for the gold moonshot in 1979...not gonna be as easy to fool them on fiat.
Of course during inflation debt is only inflated away by the increase in your income vs fixed debt. If your income doesn't rise your debt burden does not decline. During the '70's income actually rose less than inflation.
Updated DOW weekly chart:
http://stockmarket618.wordpress.com
Thank u, i found this for a long time.
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