Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
If You Don’t Understand Bonds, You Don’t Understand Investing - 25th Aug 19
Gold's Next Move - 25th Aug 19
Fresh Water Crisis Unfolding - 25th Aug 19
Newbie Guide to Currency Pairs in Forex Trading – Review - 25th Aug 19
When A 16-Year-Old Earns $3 Million, You Know It's Not A 'Silly Fad' - 24th Aug 19
The Central Bank Time Machine - 23rd Aug 19
Stock Market August Breakdown Prediction and Analysis - 23rd Aug 19
U.S. To “Drown The World” In Oil - 23rd Aug 19
Modern Monetary Theory Could Destroy America - 23rd Aug 19
Seven Key Words That Explain "Stupidly High" Bond Market Prices - 23rd Aug 19
Is the Fed Too Late Prevent A US Housing Bear Market? - 23rd Aug 19
Manchester Airport FREE Drop Off Area Service at JetParks 1 - Video - 23rd Aug 19
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

The State of the American Economy in One Chart

Economics / US Debt Nov 12, 2009 - 01:31 PM GMT

By: Ceri_Shepherd

Economics

Best Financial Markets Analysis ArticleThey say a picture paints a thousand words. Well this picture paints very clearly the American Economy for the last 30 years.

Ever decreasing Bond Yields which = EVER EXPANDING DEBT.


The chart below shows that interest rates have been decreasing by approximately 0.5% every 2 years. Put simply, As the price of debt becomes cheaper more is created and then spent, and that effectively is the economy.

chart 

In 1981 the 30 year bond which is a good approximation for mortgage rates, was yielding 14% today it yields 4%. Mortgages will be slightly higher as it is perceived that it is safer to lend to a bankrupt Government than the public.

The interest rate has dropped over the last 30 years because the Fed has constantly dropped the short term Fed funds rate and we are now at 0%. The longer dated bonds will follow, as the 30 year Bond chart above very clearly shows,!! it is simply maintaining the yield curve.

Considering that virtually all lending by the banks is SECURED in some way on property. As secured lending accounts for well over 90% of all consumer lending. By constantly dropping interest rates, in line with the trendline above or 0.5% every 2 years, you will GUARANTEE A CONTINUOUS HOUSING BOOM.

Which is exactly what we have had for the last 30 years.  

That is until the market runs ahead of itself and then crashes WHICH HAS NOW HAPPENED, or until you reach the ZERO BOUND position of 0% interest rates WHICH HAS NOW ALSO HAPPENED.

The economy is 70% based on the consumer, and the consumer has been trained over the last 30 years, just like Pavlov dogs to expect ever decreasing interest rates and attendant increasing property prices. However the Fed have a problem they have no more food for the dogs, as they are now at 0%.

When you look at the chart above, have the Fed actually been setting interest rates? Or have they simply been adjusting them, to maintain the downward sloping trend line of the 30 year bond?

In the good old days as soon as the consumer creaked the rallying call went out DROP INTEREST RATES. The theory being if he/she can afford 50,000 of debt at 10% then he/she can afford 100,000 of debt at 5% !!! the 50,000 of new debt money will be spent in the economy and can be booked as “Growth”.

The Consumer is tapped out, so now the Government has taken over the perpetual debt machine, as they are the only big debt spender left in town.

The so called economy is nothing more than a consumption Ponzi Scheme. That has needed continuous feeding with a diet of ever decreasing interest rates and ever increasing consumer debt to survive. When you take on a loan they only lend you the PRINICIPAL they do not loan you the INTEREST, so either more debt is created by continually dropping interest rates, to cover this interest. Or you make the population bigger, more people entering the perpetual debt machine and taking on debt, hence all the immigration over the last 10 years. Whatever happens the total debt outstanding made up of Government, Consumer and Corporate debt. Must I repeat MUST get bigger or the system implodes. PONZI SCHEME.   

Now we are at the 0%, and this gigantic Ponzi scheme of an economy has been exposed for what it really is nothing more than an elaborate financial PONZI SCHEME, there is no plan B. Apart from the Government spending lots of freshly printed Dollars therefore devaluing the purchasing power of all existing Dollars, Ultimately, it will be death by inflation.

By Ceri Shepherd
www.trendinvestor.info
http://trendinvestor.blogspot.com/

© 2009 Copyright Ceri Shepherd - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules