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At the Center of a Snowball of Debt

By: Richard Daughty, The Mogambo Guru - The Daily Reckoning


-- Posted Wednesday, 30 April 2008 | Digg This ArticleDigg It! | Source: GoldSeek.com

From Addison Wiggin at Agora Publishing, writing about the Strategic Investment newsletter, I gather that I am in for many, many sleepless nights, waking up screaming in terror, as he says that there are at least 5 "super-shocks" a-coming in the next 12 months, which will create the "coming stock market apocalypse." Yikes!

For example, right off the bat, he says that there's "a complete crash in commercial property", and then there's the burden of $2.54 trillion in consumer credit debt, which is made startlingly horrifying when he explains that credit card debt alone is already bigger than the amount of money locked up in the subprime loan debacle!

"And remember," he says, "on credit card debt, you're talking interest rates three-five times higher"! Yikes! He's right!

Immediately, my hand flew to my wrist to check for a pulse, as this is the kind of thing that I am sure will kill me one of these days, with just a glimpse of the sheer horror of the economic catastrophe that awaits a pathetic, low-I.Q. nation that thinks that they can painlessly borrow and inflate their way out of any debt, no matter how much.

And speaking of debt, as I recall, total consumer debt is now something like 350% of GDP, twice as high at the height just before the Great Depression, which means a total consumer debt of about $53 trillion in a $15 trillion economy, which comes to a debt of about $530,000 for each and every one of the 100 million workers in the whole country whose job is not a government job! Hahahaha!

And this does not even include any of the $9.2 trillion in principal-and-interest government debt that the non-government worker has to pay for, or any money towards the estimated $60 trillion of accrued liabilities of the Medicare and Social Security programs, or the $3 trillion in federal government spending that is going to take place this freaking year, or the $2 trillion spent by the states this year!

And who in the hell is going to pay, for instance, the interest/profits on a reported staggering, stunning, stupefying glut of $164 trillion in derivatives that are in the banks?

My Freaking Mogambo Head (FMH) actually aches from trying to conceive of So, So, So, So Damned Much Money (SSSSDMM) in the aggregate, so much that America's 100 million private-sector, non-government workers cannot possibly even pay the interest on it all, which they haven't been doing for years, anyway, which explains why total debt everywhere, like Old Man River, just keeps rolling along, like a snowball rolling downhill, getting bigger and bigger, which is such a strange mix of metaphors that I realize that I am completely confused and frightened.

To try and get me back to reality, you helpfully ask, "Just how much is that, relatively?" With no facts or figures at hand, I say merely that it is more than I could make in a zillion, zillion lifetimes, for one thing, mostly because I am lazy and I am apparently not worth much as an employee, which could explain why I am always getting fired, and yet it is paradoxically approximately how much money my family wants to spend per freaking month, or so it seems, and when the credit card bills come in the mail, I predictably yell and scream, and make threats, and throw things, but nothing ever changes! And the next month there are MORE charges on the credit card for their stupid visits to the stupid dentist, or their stupid prescription medications, like money grows on trees around here!

Mr. Wiggin wisely decides not to get into the middle of a domestic squabble about money, and says merely that $2.48 trillion is "more than China makes in a year. It's more than the entire United Kingdom's GDP. And more than the GDPs of Italy, France, Canada, Spain, Brazil, or Russia."

As interesting as that is, he notes with a mocking tone that seems jarringly at odds with the horror of it, "Only they're making that money. We just owe it." Hahahaha! That's right!

But to show you that Mr. Wiggin does not just sit around all day thinking of clever, mocking things to say about the utter insanity of it all, he then shows us that not all art is painted with a brush, as he says, "Here's a picture for you: If the market today falls as fast and as far as it did in 1987, you'll see more than 3,000 points erased from the Dow alone. In a single day." Yikes!

And as terrifying as that is, according to Mr. Mortgage at mrmortgage.typepad.com/blog/, who has been looking at the same spreadsheets at the NewYorkFed.org site, 89% of all Alt-A mortgages (a market that is a step above the subprime market and is 50% bigger than the subprime market) are now underwater, meaning that the owners owe more than the house is worth! Wow! 89% of people with above-subprime mortgages owe more than the house is worth! And looking at my watch to get the correct time, by this time it's probably all of them that are upside down!

And how do we know this? Well, if you are like me, you take the easy way of finding out by letting Mr. Mortgage do all of the work! And sure enough, he obligingly looks at the Loan-To-Value ratio, essentially comparing what the house is worth on the open market, versus what is owned on the old eyesore that needs paint and somebody to get up off of his Big Fat Mogambo Butt (BFMB) and mow the damn yard.

But stripped of the esthetics of the appearance of the lawn, this ratio is combined into the "Average Combined LTV of Purchases," which is helpfully explained in all capital letters, and in parentheses, "(NEGATIVE EQUITY)", just so you don't miss the significance.

This seems a good time to mention that you should be selling your house and buying gold with all your money, and if the kids have to miss a few meals or if they have to sleep in the car because I cannot afford an apartment big enough for all of us but it is perfectly cozy enough for me, that is the price you are willing to pay. You will thank yourself later!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.


-- Posted Wednesday, 30 April 2008 | Digg This Article | Source: GoldSeek.com


Visit The Daily Reckoning's website.



 



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