The U.S. is heading towards a major depression

[DanS]

Lyndon LaRouche

[Tripledoc]

Originally posted by Sten Sture
(edit in: that article is full of bizarre assumptions -> 30% debt to GDP is much better than most of the world, and certainly not South American levels; household debt is lower as a percentage of income than it was 10 years ago, etc, etc. Strange article)

Yes the article is politically slanted, but the facts on gold are right, maybe.

A third possible scenario with gold is that improvements in extraction technology will undermine the longterm value of the metal. That is basically what has happened of late, the cost of finding and mining the stuff has declined, so production of $350oz researves can come on line once the strike price is reached, such as we are seeing now. This caps any upward move and limits the potential returns. A similar thing happens in the oil business. As the price per barrell declines, production at expensive sites are shut down. Conversely at a time like this, rig counts are going up pretty strongly.

If the costs of mining gold are declining that might be because miner's pay is being eroded. Also an expansion of gold supply would that not mean that some of it would be kept in reserve, like diamonds, artificially stabilizing the price.

Also I don't know where gold is mined (Australia and South Africa?) but certainly some gold producing countries are vulnerable to political destabilization, which might increase the price of gold too.

Of cause in the very long term gold will decline in value as it has since antiquity. But the value has been declining at a very steady an miniscule rate. And in times of economic crisis there is a surge. Or rather the relative value is increased as fiduciary money goes down, which then in turn means a further increase in the value of gold as the demand for it rises. Sort of a self perpetuating process.

[Tripledoc]

Originally posted by DanS
Lyndon LaRouche

Yes he is WEIRD!

[el freako]

Originally posted by Sten Sture
that article is full of bizarre assumptions -> 30% debt to GDP is much better than most of the world, and certainly not South American levels; household debt is lower as a percentage of income than it was 10 years ago, etc, etc.

Well both the EU and Japan have net assets relative to GDP, but 30% is not disasterous being around the level that Australia has (but bear in mind that 10 years ago that figure was 10%).

Originally posted by Sten Sture
Household debt is lower as a percentage of income than it was 10 years ago, etc, etc.

Sorry Sten that's incorrect.

US household's debt as % of disposable income:
1991: 88%
2001: 109%

Souce:
OECD, tab six (HldWealth&Indebt) in the workbook.

[Sten Sture]

el freako - You are again correct - I should have said: debt to net worth and debt service to income are better than they were. And those two are substantially more pertinent.

According to the just published Survey of Consumer Finances, Household debt as a percentage of total assets declined from 14.5% in 1992, to 12.1% in 2001. (SCF table #10, pg 21) and the debt service declined from 14.0% of household income in 1992 to 12.5% in 2001.

Households with more than 40% debt service to income was 10.8% in 1992 versus 11.0% in 2001, and households with some debt payments 60 days late increased from 6.0% in 1992 to 7.0% in 2001, though that was down from 8.1% in 1998.

https://www.federalreserve.gov/pubs

Curiously, interest payments by individuals through the third quarter (saar) were $189.3B the lowest level in years, while interest INCOME still dwarfs payments at $1,080.7B according to the BEA's most recent release. www.bea.gov/bea/rels.htm

[Lawrence of Arabia]

About that article

1. As it is right now, the US dollar is overvalued. The Economist did a survey once of big mac prices in the rest of the world, and then used the official conversion rate to change the local currency into dollars. On nearly all of the countries surveyed, the US dollar bought more then the exchange rate was. In otherwords, its overvalued

2. Because the dollar is overvalued, other countries goods seem cheaper for us. Which is why webuy so much stuff from other countries, and which is why he have a huge current account deficity. Who cares? As long as the capital account surplus cancels it out, we dont have a problem

3. The US has a huge capital account surplus because the dollar is overvalued. People invest more into the US then into any other country because once they get the dollars, they can spend it almost anywhere and the goods will be much cheaper.

4. When the dollar loses value against other currencies, our goods appear cheaper which will increase exports and decrease the current account deficit

Sure, we are buying more and more goods from abroad. But more and more countries are investing into us. Its necessary. As the price of labor goes up, due to employment and education, these heavy industries will move to cheaper locations. Our economy has become one of services. Is there anything wrong with that? Not at all.

Conclusion: this author is making a whole lot of noise out of nothing.

[el freako]

Originally posted by Sten Sture
el freako - You are again correct - I should have said: debt to net worth and debt service to income are better than they were. And those two are substantially more pertinent.

According to the just published Survey of Consumer Finances, Household debt as a percentage of total assets declined from 14.5% in 1992, to 12.1% in 2001. (SCF table #10, pg 21) and the debt service declined from 14.0% of household income in 1992 to 12.5% in 2001.

Yup debt service is lower (hardly surprising with the huge fall in interest rates over the last 10 years).

But debt as % of assets has not declined (according to the OECD survey above anyway) - it increased slightly, from 15.2% in 1991 (debt was 88% of disposable income and assets were 578%) to 16.4%in 2001 (debt was 109% and assets were 665%)

As for the figures for 2002 well I'm pretty certain that debt rose one helluva lot faster than assets!