Reply #68: ‘ARMs’ Against a Sea of Troubles

[54anickel]

http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=46576

Hamlet – a tragedy of inaction. How appropriate. In this second line of this play’s most memorable monologue, which begins, “To be or not to be,” we see Hamlet questioning whether or not to take action. Should he suffer in solitude from the hidden truth that he is privy to, or should he confront the situation, deal with the consequences, and bring true resolution to Denmark, his country?

Perhaps, Greenspan and other government officials thought it nobler that our country should take no radical action and suffer the slings and arrows of outrageous fortune. Yet what we need is what we’ve needed all along. We need the resolve to take the necessary actions to set our economy on a sustainable path. That was always going to be difficult; now, it looks as though it will be so even more.

If I started at the beginning, I’d end up with a novel the size of War and Peace, which neither of us would read. So, I’ll start somewhere in the middle, though I’m quite sure where we’ll end.

After coming off the final remnant of the gold standard in 1971, with the whole world now on fiat currencies, we were free to inflate. And so, we did. Our reasons were, and are, complex, some good, and some bad. But that is another article for another day. We began inflating and we began our journey to becoming the world’s greatest debtor nation.

Thus began the great bull market in credit. From 1982 to 2000, the Dow went from 875 to 11,722, our trade deficit expanded from $24 billion to $378 billion1, our nation’s total non-financial debt growth rate went from $439 billion to $836 billion, and the household mortgage borrowing rate increased from $47.6 billion to $368 billion. 2 & 3

more...