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Rajiv
04-26-09, 07:52 AM
The Great Asset Bubble (http://www.chrismartenson.com/martensonreport/great-credit-bubble) - another great educational piece from Chris Martenson


Where are we going, and what lies next? To address these questions, we need to know how we got here in the first place.

I want to share with you an interesting observation that I think will provide great clarity and insight into our current predicament, as well as indicate that our recovery, such as it is, will be protracted and incomplete.

It begins with our old friend, the Debt-to-GDP chart (below), with our long-term average circled in green and our recent debt experiment in red. Today we're going to focus on what happened there in the 1980s, when we began our long climb to our current levels of over-indebtedness.

http://www.chrismartenson.com/files/u132/Debt_to_GDP_with_Reagan_box.jpg

Now, this is not a partisan statement by any means, because both parties played along, but Ronald Reagan's terms in office (1981-1989) are marked by the blue box. It was during his tenure that we initially began our experiment with ever-larger piles of debt. Somewhere in the early 1980s, we clearly broke out of a long-established normal range of debt and into new territory. Something happened there, but what?
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The great illusion created by the demographically-driven rise in asset prices was the notion that one could park excess money in some form of paper or housing asset and "get wealthy" over time. For a while, it seemed so simple. Buy the right index fund and sit back and wait. Just buy a house and wait. Just pick the right stock and wait. That's all it took to ‘get rich.' Right?


But if you stop and think about it, this is really not possible, at least not in aggregate and certainly not over the long haul. It is a cheap, temporary illusion. Real wealth is created by people producing things. Once a company has sold stock through a primary offering, no new capital is "invested" in the company, by virtue of the fact that people are bidding up its stock in the secondary market. So all secondary stock-market purchases are really just bets on the prospects of the company to earn future money, not actual capital investment.


The impact of the failure to save

Real wealth comes from actual production. Somebody, somewhere, has to turn sand into a silicon wafer, and somebody else has to turn that into a semiconductor chip, which somebody else has to turn into a computer. That's creating value. Along the way, it is vital that the property, plant, and equipment of these manufacturers be refurbished and replaced as necessary. Unless we want to fund these investments from a steadily rising mountain of debt that will someday collapse on itself, the borrowings must come from savings.
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Rajiv
04-26-09, 08:42 AM
Also very good from Chris is - It's Simple: Trust Yourself (http://www.chrismartenson.com/blog/its-simple-trust-yourself/17344)


I was recently asked how it was that I knew to sell my house prior to the bursting of the housing bubble, why I sold out all my stock holdings in favor of gold and silver long before that was an obviously sensible move, and why I am convinced now that the recent actions by the Fed and the Treasury Department are likely to fail.

But most of all, how did I get it right, when so many others missed it entirely?

While I do root around in masses of complicated data, the answer to these questions is surprisingly simple: I trusted myself.

More specifically, I trusted myself enough that when I saw something that didn't make sense, something that just "felt wrong," I took actions accordingly.


It didn't make sense to me that a nation could consume beyond its means forever.
I was stumped by how an economic system predicated on continual expansion of credit would make a graceful transition to a no-growth environment.
I didn't understand how people making $50k per year could buy $500k houses with no money down and have any hope of paying that back.
The concept of turning a bunch of subprime loans into higher grade securities, while extracting money along the way, puzzled me deeply.
It didn't seem possible to me that money could continue to expand faster than the economy, long-term.

My work and my passion are centered on helping you spot these same sorts of disconnects listed above, so that you can see things more clearly and with less confusion about the direction of things.

The key to navigating during moments when the dominant story is ‘wrong' is to consciously block out the ‘programming' that is constantly reinforcing the status quo and to examine each assertion made by authorities (and by advertising and journalists, and any and all experts, myself included) as though it were possibly a live hand grenade.
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thunderdownunder
04-27-09, 05:48 AM
Ok this is my first post as a middle aged Aussie male who is (or was) an optimist. Im still personally uneffected by all the kerfuffel going on as I have no debt at all and super has for 10 years been in capital secure.
What I don't understand is where does the money that has been lost disappear too, into cyberspace. Clearly if someone enters into a binding contract to borrow X amount of dollars to purchase an asset class and then that asset ends up with no or little value due to what has happened, the borrower still owes principal and interest. Even if you don;t borrow and buy using after tax savings for purchase that money has disappeared and is no longer available to even buy a cheese sandwich.
So then the government of the day uses Quantitive easing and prints, as long as they don't print more than what has been lost surely they are not inflating the money supply available but simply making up the unrecoverable ???. So if the US government prints $1.7 Trillion and that goes into the fractional banking system, the banks deposit back 10% to the fed and have $17 Trillion less 10% so $15 Trillion hits the economy.If you assume some $13Trillion has been (to use an Aussie vernacular) pissed down the drain as has been reported the end result is money supply has grown but not enough to inflate. An old saying is "that there is no Inflation in a graveyard" and thats what you have, will hold true. Maybe I have a simplistic veiw of it all But I am willing to learn and debate - over to you - Regards Alec
Ps: not a bad site at all I have generally enjoyed the topics and responses (some are a bit over my ability to digest)