Good Book, Scary Title

[admin]

“The Second Great Depression (Starting 2007, Ending 2020),” by Warren Brussee.

Mr. Brussee does a good job laying out the case why we’ll have tough economic sledding ahead. His primary point of contention is with consumer debt levels, and how those are now unsustainable and will trigger the economic downturn.

Interesting analog: Brussee says that the Japanese lost decade (’90s) was triggered when consumer debt/disposable income reached 130%. Brussee, who wrote his book in ’05, predicted that U.S. consumers would reach such level in ’06 or ’07, triggering the U.S. downturn.

He paints a picture of what life in a depression would be like. He also lays out why the Japanese were in better shape at the beginning of their downturn (they had a savings rate of 11%; ours is negative) and why the U.S. government will largely have its hands tied, fiscally (lower tax revenue from lower economic activity, higher outlays due to higher interest rates, must work from a balanced budget to convince foreigners to lend us money, even at high interest rates).

Also, Brussee does a good job laying out the mechanics of how to optimally invest in TIPS and the stock market, going forward.

Good food for thought, the book is.

[powayseller]

Thanks for the tip.

I am somewhat concerned with the falling dollar, and don’t see how that trend can reverse. Bloomberg had an article today about the falling dollar. The dollar lost 30% until the Fed started raising interest rates, which attracted foreign capital to the US. Now that our rates are steady, and Europe is raising its rates, foreigners have a good alternative in the euro, making dollar investment less alluring. If the Fed lowers rates and the ECB keeps raising, look out below… I don’t see how the Federal Reserve could even think about lowering interest rates.

[powayseller]

Ben Bernanke’s essays say that staying on the gold standard caused the depression.

“Bernanke rigorously explains the economics of the Great Depression – the holy grail of economics. For a long time there were different theories as to what caused the Depression, but recent rigorous economic studies, especially from an international perspective, have determined through massive data that the new, flawed gold standard of the 1920s was the main cause of the Great Depression. The banking collapse also was a major cause, as well as other lesser causes.

Bernanke shows that one country after another joined the flawed gold standard of the 1920’s, which caused a massive monetary contraction. The Great Depression quickly followed. The countries that abandoned the gold standard the soonest, such as Britain, were the ones that faired the best. The countries that clung to the gold standard the longest, such as France, were the ones that suffered the longest. The countries that were not on the gold standard avoided a Great Depression!…”

Do you think it’s true – that the gold standard limits economic growth, because you cannot grow beyond the amount of gold in existence?

[Anonymous]

As of Q2 ’06, per the Federal Reserve Z-1, household debt (L.1) to disposable personal income (F.100) stands at 129%. The end is here (given that the purported Japanese trigger was 130%)!

[CardiffBaseball]

My household debt is shameful. And no house to bail us out. Counting 401k (in case of emergency) and other retirement cash, we are not near break even in terms of net worth, so we contribute little to the economy. Pay ‘da bills, (overpay on credit cards) and for some of the kids activities and that’s about it. We are in bill paying mode.

In fact I really have no realistic hope of being debt free by the end of 2007. However with GI Bill I can technically get into a house without 20% down though around here the market would have to continue downward to be able to use it. My best estimate is no car payments, and no credit card payments around middle of 2008.

[Author]

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