Sunday, February 7, 2010


Well, any who follow the market noticed that the "better than expected" employment numbers didn't do much for the Dow. I had expected wild optimism after the marked decline of the previous day. What happened? Perhaps the numbers were not believed or employment wasn't the reason for the decline after all. Many in the know, of which I am not, believe the current fear is largely due to debt. Massive debt from the consumer level up to and including states and countries. Of course the world runs on debt. Most never think about it but look at your own spending. How much would you consume if you paid cash for everything excluding houses and cars. Not nearly as much I'll wager.

The thing is, there's really nothing wrong with some amount of debt. It keeps consumers consuming which creates jobs. That's obvious. Most of us use credit in one form or other. Mortgages, car loans, credit cards. The first two are revolving- for most of us they have to be. Credit cards are another thing all together. Everyone I know says they pay their balance off each month but the stats I have seen indicate otherwise. So we keep on consuming and our credit card minimum payments continue to rise. Maybe you can keep up but eventually something unforeseen happens like an illness or job loss. Multiply that scenario my millions and and you have USA 2010.

Of course, we aren't just talking credit card defaults. A personal situation of serious magnitude nowadays will often result in the loss of a home or automobile or both. What happens when a city, state, or even country can't cover it's bills. I as I have said, I'm not an economist but it doesn't sound like a good situation to me.

I recently heard James Galbraith on a late night talk radio program. The thrust of his talk, if I understood correctly, was that all the debt amassed by the US really doesn't matter and that in reality the government will never run out of money because we can continue to print it. Wow! Doesn't make sense to me but then who am I anyhow. The only thing is, if it doesn't matter, why are investors all over the world worried about it. It seems to me, in my woefully inadequate understanding of these matters, that debt makes you beholden to someone for something. I guess maybe the important question is what you owe and to whom.

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