Friday, February 06, 2009

The paradox of debt

From Princeton University economist Paul Krugman:
Consumers are pulling back because they’ve realized that they’re too far in debt. The economy is shrinking in large part because consumers are pulling back. And the result, almost surely, is to leave household balance sheets worse than ever. I can’t do this accurately until the Federal Reserve’s flow of funds data have been updated, but almost without question the ratio of household debt to personal income has been rising, not falling, as consumers try to save more.


  1. Yes ... and we have the naysayers and those who capitalized on the naysayers' message to blame. Thank you BHs, thank you Obama Campaign.

  2. Lance,

    Are you actually George W Bush? Is this what you are doing now that you are out of a job?

    "There's no bubble. There's no REAL economic crisis. It's just the fault of people who THINK those things exist" LMFAO

  3. Anon ... yes, now you're starting to understand. It's the whole self-fulfilling prophesy bit. We don't have a gigantic drought out there ravaging our food supply. We're not coming out of a world war having ravaged our industries. We're not running out of energy. In short, there's nothing out there preventing us from creating economic goods ... other than fear itseld. The same fear that has kept the banks from lending out the funds that we the taxpayers gave them to lend out, the same fear that has caused people to stop spending ... and thus cause everyone to start "saving".

    Again, thank you BHs and thank you the Obama Campaign for doing your share to make this mess.

  4. "The economy is shrinking in large part because consumers are pulling back."

    and why are consumers pulling back? because they are tapped out... and know it.

    OA had a pretty good post the other day on the Paradox of Gluttony and the unsustainable borrow/spend/borrow that we got ourselves into:

  5. Lance-

    You can go on trying to wish away these problems, but water and energy problems are real. Here is a story about drought in California:

  6. Jack,

    California has had water problems for as long as I can remember ... Now when I get a chance I want to read Guy In. Cognito's link closer (I just glanced quickly at it now). I would suspect inflation would be a release valve for the paradox of glutony ... It cheapens the real value of debt. I know this happened in the 70s/80s ...

  7. "there's nothing out there preventing us from creating economic goods ... other than fear itself..."

    I agree, nothing is preventing industry from producing goods. But to suggest that there isn't a real economic crisis is absurd.

    The banks made terrible business decisions, lost a ton of money, some collapsed, many more would have without federal assistance,and now they have a much more conservative approach to lending.

    People grossly overpaid for houses whether they were speculating or not, and now realize that they might not be able to sell them in the next few years (or more) without losing a ton of money -- so now they are reacting with a conservative approach of saving more and buying less.

    The current economic crisis is just a correction. A correction of waaaaay overpriced housing, and an overvalued stock market. The country's wealth as measured by real estate and stock prices was neither realistic nor proportional to the ACTUAL amount of wealth that was being created in the last economic upswing.

    You reap what you sow.

    //end rant

  8. "Again, thank you BHs and thank you the Obama Campaign"

    Youre welcome Lance. I will be buying a home in Montogmery county next year at a quarter of the price it was listed for just 2 years ago!

  9. "But to suggest that there isn't a real economic crisis is absurd."

    I never said there wasn't a real economic crisis. On the contrary, I said 'thank you' to BHs for their part in helping create it with their 'doom and gloom projects' pronouncements over the last 5 - 7 years. A small sector defaulting on their loans isn't enough to stop everyone from producing and buying. But fear, of the type fostered by the BHs, will stop people from buying ... which in turn means production drops since people aren't buying. It's a scary cycle which feeds upon itself ... once kick started. Yes, there's a real financial crisis now. And thank you BHs for helping kick it off.

  10. * ... 'doom and gloom' pronouncements ...

  11. Lance,

    I'm glad to hear that you believe that there is a financial crisis -- that's a major relief.

    How can you blame "doom and gloom pronouncements" over the last "5-7" years as the contributing factor???

    A small sector defaulting on loans?!?! -- That "small sector" was enough to bring the largest financial institutions in the US to their knees.

    Keep blaming peoples "predictions of doom" as the cause of the mess, I'll stick with blaming banks that gave out horrible loans, and people that bought ridiculously overpriced housing.

  12. Who cares whos fault it is that we are in this mess? It is what it is....regardless of what Lance believes.

  13. Actually it does matter how we got into the mess. People who bought overpriced houses and/or speculated on real estate and the stock market caused the mess along with the banks that gave out bad loans. Now, the SAME actors are demanding assistance (or in Lance's case, denying the severity of the problem).

    Yes, it DOES matter how we got into this.