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FORUMS › General Discussions › Business › The real problem
TOPIC: The_real_problem__
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What is wrong with our economy? What is the root source of all the troubles?

Simple. For the last decade, wages have not kept up with inflation, yet we've continued to increase our standard of living. Consumer spending increasing faster than inflation while wages are not keeping up with inflation... How is this possible.

Simple. DEBT.

More and more of our consumer spending has been financed.

The Fed produced a report called the Z.1.

Just look up Federal Reserve z.1 report on Yahoo or Google. Then look at table D.3, debt outstanding by sector.

1993: $4.224 trillion in consumer debt and $3.681 trillion in business debt. 2008: $14.011 trillion in consumer debt and $10.909 trillion in business debt.

1993: 92-ish milion households and $44K in debt per household 2008: 116 million housholds and $126K debt per household.

180% increase in per household debt. 20% increase in incomes over those 15 years.

For the last few years, it got so bad, the AVERGAGE American consumer was spending 10% more than they earn. Much of it supplied by borrowing against rising real estate values.

That can not continue forever.

Just to stop getting further into debt would require a 10% drop in consumer spending. With an economy 66% consumer spending, that alone would be the worst recession since the Great Depression. The ripple effect as that spending cut results in unemployment, resulting in bigger spending cuts, resulting in less spending.... You get the idea.

But it is much worse than just having to begin living within our means. Much of the existing debt is going to go away, meaning many people that think they are rich, will find out they are not.

The real estate bubble has popped, and now real estate prices will return to 2001 (+10% for wage growth). As prices correct, there will be a net $3 trillion in upsidedown-ness of houses with mortgages. Since not every house with a mortgage will be upsidedown, the houses that are upsidedown will be upsidedown by a total of some $5 trillion.

To put this into prospective, all the federal budget deficits for the last 30 years summed up = $5 trillion.

This giant $700 billion bailout will cover losses for about 6 months.

And, commercial property is every bit as overpriced and over mortgaged as residential. As that bust gets rolling, there will be trillions more in lossess.

This is ugly beyond anything we've seen since the Great Depression, and may end up being even worse than that.

Good thing our favorite hobby, sex, isn't too expensive.

Glendale AZ
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TOPIC: The real problem
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