Why It's So Slow

Hedge fund billionaire Ray Dalio has a simple way to explain why the economy is so slow. Imagine someone who makes $100,000 a year and has a net worth of $100,000 with no debt. That person can safely borrow about $10,000 a year for several years, meaning they can spend $110,000 a year, even though they only make $100,000. The flip side to all that spending is that someone else is earning $110,000 a year. "For an economy as a whole," Dalio writes, "this increased spending leads to higher earnings, that supports stock valuations and other asset values, giving people higher incomes and more collateral to borrow more against, and so on."

But it can only last so long. Eventually, debt service payments take up too much of income, and the tide shifts. "The person spending $110,000 per year and earning $100,000 per year has to cut his spending to $90,000 for as many years as he spent $110,000" to pay down the borrowing spree, Dalio says. That means someone else can now only earn $90,000.

It's called deleveraging, and it's by far the largest reason our economy is so slow.

Some of the debt figures are truly staggering. According to hedge fund manager Kyle Bass, global credit rose from $80 trillion in 2000 to $210 trillion today. In America, household debt rose from $6.5 trillion in 2000 to almost $14 trillion by 2008. As a percentage of disposable income, household debt rose from 59% in 1960 to 130% by 2007.

It all adds up to an incredible amount of consumers like those in Dalio's example, spending more than they earn, which allows others to enjoy a higher income, which allows even more borrowing, and so on. That created an illusion of prosperity: Without drawing down on home equity loans, the economy would have been in or near recession for most of the last decade.

None of this is new -- it's well-known that too much debt got us into this recession. But the impact it has on our recovery is less appreciated. If a debt binge caused the recession, and a debt hangover is keeping the recovery tepid, then one of the most important numbers in today's economy is how long it will be before enough debt is paid off to allow us to get back to normal.

There are a few ways to look at that question. The last time household debt as a percentage of net worth touched current levels was in the early 1930s, as the Great Depression devoured asset prices. The ratio then dropped consistently for 20 years before bottoming in the 1950s at around one-third its previous peak. Deleveraging by the same amount today would require household net worths to more than double, rising by around $60 trillion. That might seem implausible, but it's actually feasible. Even with the housing crash, nominal household net worths are currently double 1997 levels. If net worths continue the same growth rate going forward and debt levels stay flat, households could be fully deleveraged by around 2025.

The Federal Reserve looked at it another way. In a 2009 study, it looked at how high our personal savings rate would need to be to bring debt-to-income ratios down to 100% in 10 years -- roughly what Japan accomplished in the decade after its debt bubble burst. The Fed's answer: a savings rate of 10%, up from 3.5% today. Even with a 10% savings rate, debt-to-income ratios wouldn't fall to average historic levels until well into the 2020s.

In either case, the answer to the question of how long deleveraging could persist is frightening: about a decade longer, maybe more.

And these figures only look at household debt. When government and corporate debt is added in, the outlook is even bleaker. Total economywide debt as a percentage of GDP currently stands at 350%, up from an average of 150% from the 1950s through the 1980s. Households and businesses are indeed shedding more debt than the government is adding, but federal borrowing slows the overall deleveraging process -- exactly what it's designed to do. Over the last year, total debt to GDP fell by 8 percentage points. At that rate, it could be another 15-20 years before deleveraging brings us back to historic averages.

These are rough estimates at best, and all are simply extrapolations from current trends. Any number of things could speed the deleveraging process up -- faster economic growth, a touch of higher inflation, a higher savings rate, and maybe most importantly, more willingness by banks to write off debt that consumers will never be able to repay.

What's clear, however, is that the deleveraging must take place. Having too much debt is not a psychological problem that can be overcome by animal spirits, and it's not driven by uncertainty that will be cleared up with new leadership. As Dalio notes, "It is primarily driven by the supply and demand of and relationships between credit, money and goods and services. If everyone went to sleep and woke up with no memories of what had happened, we would all soon find ourselves in the same position."

Check back every Tuesday and Friday for Morgan Housel's columns on finance and economics.

Fool contributor Morgan Housel doesn't own shares in any of the companies mentioned in this article. Follow him on Twitter @TMFHousel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On November 29, 2011, at 5:03 PM, DJDynamicNC wrote:

    This really makes me wonder why, if we had to recapitalize the banks with fistfuls of free money so urgently, we couldn't have done it by just paying off the subprime mortgage debts working class Americans hold with the banks. The money still gets there, but the velocity impact is doubled since it passes through extra sets of hands - and since the debts in question are already toxic and unlikely to get paid off, the bank isn't actually losing any real asset value from the payoff.

    If our strategy is going to be "free money for the banks," it might as well be "free money for the banks that also deleverages the consumer economy."

  • Report this Comment On November 29, 2011, at 5:39 PM, xetn wrote:

    There should never be any bailouts; that is why we have bankruptcy laws. Having a Fed and an FDIC around, just creates so much moral hazard that the banksters can't pass up betting on "a sure thing". Why not, since they don't have to suffer the. consequences. With the help from "BIG BRO", they can just push their mistakes on to the citizens.

  • Report this Comment On November 29, 2011, at 6:02 PM, DJDynamicNC wrote:

    Hey, I'm actually with you on this one - we should have broken up the big banks and let them fail or succeed on their own merits in a proper bankruptcy drawdown, and if they are "too big to fail" then they need to be made "exactly big enough to be able to fail." Of course, that would require an application of government ala Teddy Roosevelt's trust busting (or a protracted depression, which is the less appealing option to my mind).

    Anyway, I'm only saying that since the solution we all apparently got stuck with was free money for rich people, it might as well have been free money for working people that then got passed on to rich people, and I don't see why it wasn't.

    Or rather, I see exactly why it wasn't, but it's worth pointing out once again that the banksters call the tune and all we do is dance to it.

  • Report this Comment On November 29, 2011, at 6:05 PM, karlm1 wrote:

    We will eventually find ourselves in the same position anyway. When greed is a motivation memories tend to be short.

  • Report this Comment On November 29, 2011, at 6:06 PM, DJDynamicNC wrote:

    To follow up on that - the situation we were in would likely still have required injections of money into the economy, and we can debate over that til the cows come home because we'll likely never agree, but I think we both agree that we should never have let it get to the situation as it was. There needs to be a way of preventing any bank from getting "too big to fail" and also from getting "big enough to buy every Senator not named Bernie Sanders." I would suggest regulation, and I'm sure there is some free market thing you'd suggest, but while our means would likely differ, our end goal is roughly the same.

  • Report this Comment On November 29, 2011, at 6:25 PM, TradeDragonfly wrote:

    People get so upset about the "too big to fail" mentality that they fail to focus on a simple fact as to why they are too big to fail. If the banks defaulted, went bankrupt, and had to close completely people would loose all but the FDIC backed money. Hundreds of thousands of people would be without jobs. I don't agree that someone should decide what too big to fail is, but where would the country be without the bailout? If you worked for one of the big banks, you wouldn't want your job to be on the line because of decisions you had nothing to do with. There is lots of greed in the big banks, I'm not denying that, but to cite the sole reason for the bailout as being lobby-ism is pure ignorance. The government was doing what was right for the people.

  • Report this Comment On November 29, 2011, at 6:35 PM, techexec wrote:

    Over the weekend I watched "It's a Wonderful Life." There's a scene where Potter wants the Bailey Building and Loan dissolved after George's father has passed away. The reasons and dialog were strangely reflecting the same attitudes and thinking of today. The rub: we didn't learn anything from the mistakes of the past. Further, from my POV, and I don't really like to call these creditors "banksters," but anyone who lent money with very loose credit terms between 2000 and 2009 needs to come to terms, just as those who are now underwater are struggling to do.

  • Report this Comment On November 30, 2011, at 4:09 AM, Wade32ru wrote:

    Great post and I totally agree with Morgan that this hangover is going to last a long time. The Fed can't keep printing money to "stimulate" the economy forever. In the US Government's attempts to provide a "softer" fall for the economy, it has leveraged itself to unsustainable levels and devalued the dollar (a hidden tax). When will we realize that we can't just print money out of thin air and accumulate debt at the federal level to help consumers pay down their own debt. No real value has been created - in fact it'll bring more harm than good via inflation and government de-leveraging. So, we're just delaying the pain, and the net long-term adverse effect, I fear, will be worse than if the government had done nothing at all.

  • Report this Comment On November 30, 2011, at 9:37 AM, jasenj1 wrote:

    This is what frustrates me about the Federal government's attempts to "fix" the financial crisis. Change in behavior and time are what is needed to fix it. Anything beyond that is just thrashing around trying to look good.

    I suppose the other thing the government could do is let all those bad loans be settled in bankruptcy and watch huge amounts of non-existent money evaporate like the smoke it is. But that would hurt - badly - and make the politicians look uncompassionate.

    Or, something like for every bailout dollar a bank is given, they must forgive debt that is owed to them. But that horse left the barn long ago with "OMG!! We need huge piles of money with no strings attached NOW!!!"

  • Report this Comment On November 30, 2011, at 12:33 PM, FelixHoenikker wrote:

    For those of you familiar not with H, S. Dent's demographic predicitions, the slow economy is one result of the aging baby boomers who are past their prime spending years.

    Based on demographics, he doesn't predict a significant upturn in the economy until the early 2020s.

    With the debt overhand being what it is, we are in for a long, slow recovery.

  • Report this Comment On November 30, 2011, at 1:22 PM, jdp245 wrote:

    Most of these comments reflect a very poor understanding of how the "bailout" actually worked. Virtually all of the TARP funds that went to banks and other companies were in the form of loans, asset purchases, or equity purchases. Statements that these funds were handouts to banks are simply false. When all is said an done, the TARP program will cost the taxpayers less than $20 billion because most of those loans are repaid and the government has seen gains on many of the assets and equity that it purchased.

    DJDynamic suggested instead that the government should have paid off loans of subprime borrowers instead of making these loans and asset purchases from the banks. This would have been a true handout, ultimately costing taxpayers hundreds of billions of dollars. Also, people forget that many subprime mortgage holders are still paying their mortgages. How would DJDynamic have discerned in 2008 whether a borrower would have repaid their loans? Why should I as a taxpayer pay for someone else's mortgage? And doesn't this create an unintended incentive for people to simply stop paying their mortgages? I think the suggestion is a terrible idea.

    (Note: I am not commenting here about the bailouts of Fannie Mae and Freddie Mac. This is a whole other animal, but these aren't the "bank bailouts" that people are talking about here.)

  • Report this Comment On November 30, 2011, at 1:44 PM, DJDynamicNC wrote:

    "In the US Government's attempts to provide a "softer" fall for the economy, it has leveraged itself to unsustainable levels and devalued the dollar (a hidden tax)."

    The majority of the current deficit is due to the Bush tax cuts and the recession's impact on tax revenue. See this graph: http://www.cbpp.org/images/cms//12-16-09bud-rev6-28-10-f1.jp...

    Remember that stimulus dollars targeted on lower income people get spent, meaning they increase revenue to an extent and generate additional economic activity by bumping up the velocity of money in the suppply, whereas the Bush tax cuts were largely targeted to the wealthiest among us, who have been stockpiling money rather than spending it, locking that additional money up. The narrative that they try to push is "job creators" but the real job creators are consumers (by far the majority of the economy) who generate demand which then necessitates jobs; a rich person who creates a job where there is no demand is acting extremely inefficiently. It's very definitely a demand-side problem.

  • Report this Comment On November 30, 2011, at 1:48 PM, DJDynamicNC wrote:

    @jdp: Fair point. In my defense, TARP is hardly the only bailout going right now:

    http://money.cnn.com/news/storysupplement/economy/bailouttra...

    It's easy to make the case that TARP was necessary because it is easy to make the case that SOMETHING was necessary; I just don't think that TARP was necessarily the best option. Why was TARP better than nationalizing the banks and breaking them up?

  • Report this Comment On November 30, 2011, at 3:12 PM, NEMnyWtch wrote:

    What bothers me most is the amount of time we spend pointing fingers and analyzing the myriad of contributing factors that got us into this boat. How about we all pick up a paddle, and think of a way to get out of it? Although I am a huge fan of Morgan's articles and wisdom, I must disagree that a change in ideas and leadership wouldn't give this country a little dose of Immonium AD where our fiscal dysentery is concerned..

  • Report this Comment On November 30, 2011, at 3:56 PM, DJDynamicNC wrote:

    We already had a change in leadership - two, if you count the 2010 elections as a change from the Dem takeover that occured in 2008.

    If a well is poisoned, extracting a bunch of water and putting more water in isn't going to help. Until the money gets out of DC, then DC is going to stay corrupt.

    Counteracting Citizen's United and ending corporate personhood would be decent first steps along that path.

  • Report this Comment On November 30, 2011, at 4:04 PM, sgt1917 wrote:

    I said it then and still believe it...the Gov't really screwed the USA when it bailed out GM and Chrysler (again). We should have let the backruptcy proceedings take their course. All would have been better by now. Heck, Chrysler might still be a US company instead of French (what a deal).

    It was all about protecting the Unions, obviously, at taxpayers expense. Robbery and wealth-sharing.

  • Report this Comment On November 30, 2011, at 4:04 PM, wasmick wrote:

    "What bothers me most is the amount of time we spend pointing fingers and analyzing the myriad of contributing factors that got us into this boat. How about we all pick up a paddle, and think of a way to get out of it?"

    Great reply.

    The short reason? It's South Park politics.

    "Saving people is not what's important right now, what's important is figuring out who to blame."

    That way uninformed idiots can continue to discuss this forever, not actually solve anything and - best of all - feel really good about themsleves because they're not smart enough to realize they are part of the problem, when it's all said and done.

  • Report this Comment On November 30, 2011, at 5:03 PM, DJDynamicNC wrote:

    @Sgt - funny how you singled out Chrysler and GM for getting bailouts worth 30 or 40 billion dollars (since paid back) but didn't have a word to say about Bank of America and Citi getting bailouts worth hundreds of billions of dollars (since paid back).

    Why the double standard?

    TARP was't a great option but unfortunately because of how screwed up we've allowed capitalism to get, something needed to be done.

    There barriers to entry for a car manufacturer are immense. The automobile market being such as it is, with demand so high and our screwed up sense of priorities making a car such a necessity, that letting the big automakers go under would have been a complete disaster. It's distasteful to bail out failing businesses, but waiting for a startup to ramp up to meet demand currently being met by one of the largest companies in human history is simple fantasy.

    Arguing that two of the largest employers in the United States, providing one of the most critical resources for the nation's population in an industry that is very difficult to enter and even more difficult to scale is basically just handing over that sector to the Japanese and Germans. To say "well the company deserved to fail" is to make a moral judgment, not an economic one, and you can argue morality all you want, but it would have been an economic disaster through and through. If you think that's a bad system, then I'm inclined to agree - but it's the system we've chosen.

    The entire premise behind capitalism is that corporations and people will act to accumulate wealth. We should not then be surprised that this winds up leading to massive corporations with a ton of accumulated wealth, and all the dangers associated therein. Greed, it turns out, is NOT good.

  • Report this Comment On November 30, 2011, at 5:05 PM, DJDynamicNC wrote:

    @wasmick: Not sure if you were intentionally being hilarious by complaining about all the people who were just fingerpointing and immediately pointing a finger at those people for being part of the problem, but it was priceless and hilarious either way.

  • Report this Comment On November 30, 2011, at 5:27 PM, daveandrae wrote:

    To give one a more positive perspective, I recently refinanced my (modest amount of ) credit card debt. As of today, the total interest rate currently stands at 2.81% on an annualized basis, down from an annual percentage rate that was roughly 12% over the last twelve months. The interest rate on my home currently stands at 15 years @ 4.75%.

    On the other side of my balance sheet, as of today's close, my investment portfolio gained 13.90% in total return over the last twelve months. Meanwhile, my dividend income has soared. Up over 29% year over year.

    Net, year over year, my total credit card debt is down roughly 11%. while the "dollar weighted growth" of my equity portfolio up roughly 16%.

    What is the moral of my post?....Simple.

    Given the wholesale expansion of credit, and the fact that the s&p 500 has been gyrating around the same price level for the last thirteen YEARS, asset reflation is likely to accelerate at a much, much, faster rate than most people realize.

    I ask you to think about something.

    The last time the s&p 500 closed lower in market price over a thirteen year holding period was very recently, November 25th 2011. The market price was roughly 1150 compared to 1175 in 1998. The last time this happened was during the December 31st period of 1961-1974. You wanna know what the total return was for 1975?

    35%

    Again, think about that for a moment

    a 35%+ probable total return form the equity market from the November 25th 2011 close over the next 12 months vs. money practically being given away at 2.81% on an annualized basis.

    Given the disparity in interest rates, you could see a pick up in the economy in the next SIX MONTHS!

    Now I ask you, take a hard look around. Just how many people do you know that are positioned for a 35% return from the equity market over the next twelve months, because other than myself, I do not personally know anyone that is.

  • Report this Comment On November 30, 2011, at 8:56 PM, hbofbyu wrote:

    I don't buy the baby boomer argument. Maybe there is a bubble of a certain age group but we have had quite a lot of immigration (legal and illegal) to take their place. And at retirement all they ARE doing is spending.

  • Report this Comment On November 30, 2011, at 9:01 PM, hbofbyu wrote:

    I like how Morgan uses "a touch of higher inflation" as if it were a dash of cinnamon in a recipe. I just hope the cap doesn't pop off the bottle when that dash is applied.

  • Report this Comment On December 01, 2011, at 11:16 AM, NEMnyWtch wrote:

    @wasmick - Thank you. My point exactly.

    @daveandrea - You wrote what I took out of mine, we all need to be responsible for our own pieces, our own balance sheets. I totally agree, and I am also positioned for a huge rally once we all realize the world really just might not end, the banks all don't freeze up, and unemployment doesn't hit 100%. Staying in cash, waiting for the world to end is a losing bet, even if you are right!

  • Report this Comment On December 02, 2011, at 1:54 PM, brownyamiga wrote:

    Any company is monitored and receives bad marks when they overextend into credit and borrowing money. But consumers are not, for them it is OK to buy stuff with money that they actually don't have. This is because everybody looks for consumer spending for growth, but I fear that the growth of the last years has all been hot air. As the article states, built on borrowed money that was not real. This is an example of short sighted business practices, to make a sale no matter what, because if I make the sale, I get my provision as a sales person or look good on paper as a CEO, but realizing that it might kill the company (or economy) later on is too far away.

    Any company forms reserves to be able to not just fold up in rainy times. Consumers should do the same, having a financial buffer is a must.

    And about the banks, I wonder what happened to the antitrust laws? How come it does not apply to banks? The banks have way too much power over all of us and know it. They are too big to fail and since they know that they will be bailed out, no matter how bad they screw up, the immense power that they have has just been freed from the responsibility and accountabilty that comes with it.

    Also, like a ship has bulk heads that compartmentalize it and makes sure one hole does not make the whole ship sink, so should the financial industry start to be compartmentalized.

    Currently, it is one ship, no bulk heads, if one market dies, all of them do.

    Too big to fail is a unnatural construct in free capitalism, companies must die when they screw up too badly, as natural selection rids species from unfit specimens.

    Regulating banks seems to be a thing that nobody wants now, but consider what would have happened if Standard Oil or Bell would not have been regulated and split up.

    So to close, I feel that growth in the last years has been "borrowed growth", not real one. Companies are trying to sell to customer no matter what, more more more, not knowing that what they sell now, will make a hole now that has to be filled tomorrow. And tomorrow that same customer will have to catch his/her breath and won't be able to consume anymore, paying of debt. I wonder how much of the growth curve of the US economy years before have actually fake and built on borrowed money.

  • Report this Comment On December 02, 2011, at 4:00 PM, ynotc wrote:

    excellent article. I usually find fault with your commentary but this was excellent.

  • Report this Comment On December 03, 2011, at 10:20 AM, wolfman225 wrote:

    I'm currently 100% equities in my 401K and I'm continuing to DCA into the volatility. I fully agree with daveandrea that the eventual rebound is likely to be huge; even if I don't know exactly when it will happen, I'll continue to build a base now to grow from later.

  • Report this Comment On December 03, 2011, at 11:43 AM, devoish wrote:

    "I ask you to think about something.

    The last time the s&p 500 closed lower in market price over a thirteen year holding period was very recently, November 25th 2011. The market price was roughly 1150 compared to 1175 in 1998. The last time this happened was during the December 31st period of 1961-1974. You wanna know what the total return was for 1975?

    35%

    Again, think about that for a moment" - daveandre

    ok.

    During 1972 and 1973 the Fed funds rate shot upward from 4% to 10% to 12%. During 1973 and 1974 the S&P500 dropped 15% and 27% a combined loss of 42%.

    During 1974 the Fed dropped the rate from 12% down to 6%, and during 1975 the S&P 500 recovered 38%.

    Beginning in 2004 though 2007 Bernanke raised interest rates from 1% up to 5%, ultimately triggering the end of the refinance boom, the housing speculation boom, and the market boom that had been decades in the making. We all know what happened in 2008, down 38%

    Beginning in 2008 through 2009 Bernanke dropped the rate from 5% down to under 1% and the market recovered 27% in 2009 and 14% in 2010.

    Recently we learned that the the Fed has lowered lending rates from 1/2% to something called .001%.

    My guess is it is going up from 0%. Or at best unchanged.

    My problem is that the Fed doesn't know me. The Fed knows Hank Paulson, and Jamie Dimon and is giving them money and they have nothing they need to buy so they buy "investments", and that helps the stock market and investors, who will someday buy my farm out from under me if the cash out before the end which is as soon as there is no money to be cleaned out of borrowers through lending, or consumers through oil dependencys, or energy dependencys.

    A guy like Jamie Dimon can hang on through a deleveraging way longer than I can.

    Or those kids in debt to and on Wall Street, or their parents who cosigned, or most of the rest of us, including most of the Tea Party, the Republicans and the Dems. And the Greens and Right to Life and the Rent is too Damn High Party.

    In every stock trade there is a winner and a loser. But when the loser doesn't have a job, how does he get back in the game?

    In 2007 65% of Americans were invested in the stock market.

    In 2011 54% of Americans are invested in the stock market.

    It is possible Americans got scared away by the 2008 crash.

    It is also possible that Americans lost their jobs, cashed out their IRA's and 401k's trying to hang on to their houses and pay their debts, and now they are gone.

    Since 2007, 11% of Americans no longer own stocks.

    Since 2007, food stamp usage in the USA has climbed over 5%, from under 9% to 14.5%.

    Does anybody else want to think about it anymore?

    Best wishes,

    Steven

  • Report this Comment On December 03, 2011, at 6:15 PM, daveandrae wrote:

    ^

    I've read your post three times and I still do not understand what you are trying to say. Why some people choose to make something that is relatively simple to comprehend so ridiculously complicated is beyond me.

    Once again, the last time the s&p 500 closed lower in market price over a thirteen year holding period was during the December 31st 1961-1974 period. The subsequent total return in 1975 was 35%.

    I just calculated my portfolio's performance since the November 25th 2011 close. So far, in aggregate terms it is 8.67%, or just under $18,000 in capital appreciation. Now I don't know what planet you live on, but here on earth, that's called Asset Reflation. The net effect of which is tremendously positive in a low interest rate economy.

    Now if you believe history will continue to repeat itself, as I do, then you continue to invest in equities.

    If you don't, then who cares really.

    Nuff said.

  • Report this Comment On December 04, 2011, at 10:01 AM, devoish wrote:

    Daveandre,

    I reread my post and it is difficult to understand. I switched paragraphs pretty badly this time.

    So let me make my point easier for the investor in you.

    The last time the S&P 500 finished lower over a thriteen year period, that thirteenth year began after two very harsh down years and then recovered a very nice part of the way back up.

    The last time the S&P 500 finished lower over a thirteen year period, the recovery was triggered by a flood of debt refinancing when the Fed lowered the funds rate from 12% down to 6%.

    This time, the S&P 500 is lower than it was thirteen years ago after two up years so the thirteen year coincidences are different this time than last time.

    This time, the Fed will not be lowering interest rates from 12% down to 6% in order to flood the market with new money, because the current interest rate stands at .001%.

    Last time, the S&P 500 was lower most employees had pension plans which invested a portion of their money before they ever had a chance to spend it on birthday partys for their kids.

    This time most employees have an optional 401k or IRA which they are not putting money into or, worse for the S&P, taking money out of in order to hang on to their houses or avoid bankruptcy.

    I could go on.

    But the last time the S&P 500 finished lower over a thirteen year time period it went up the following year, so surely nothing else matters.

    Best wishes,

    Steven

  • Report this Comment On December 04, 2011, at 3:03 PM, daveandrae wrote:

    Steven-

    Your words are quoted. Mine are in parenthesis.

    "The last time the S&P 500 finished lower ( in market price) over a thirteen year (holding) period it went up (dramatically in market price) the following year, so surely nothing else matters."

    BINGO!

    When you boil our discussion down to its core, this is what lies at the center. Thus, in my mind, it does not matter what the fed "does". Nor does it matter what "circumstances" led to us to this point, nor does it matter how many Americans are "invested", or where interest rates "are" or will be.

    Such things are the very essence of Noise. Not only will they be forgotten about twelve months from now, they won't even be remembered.

    The only thing that matters in this business is whether YOU, Steven (insert last name here) believe market history will repeat itself over the next twelve months?

    Obviously, I do as I am already fully invested.

    Good luck and God bless.

  • Report this Comment On December 04, 2011, at 6:15 PM, CaptainWidget wrote:

    Clever. Great article, and then, at the end....just a "touch" of inflation recommendation. As if no one would notice..

    Because the best way to help people build their assets and eliminate their liabilities is steal the value of their savings..........amirite??

  • Report this Comment On December 05, 2011, at 4:28 PM, DJDynamicNC wrote:

    ^^ Of course, if the nation were going through a vast period of deleveraging, and the population was carrying far more debt than savings, then a touch of inflation would be a pretty big boon for most of the population of consumers (and thus for the economy in general), wouldn't it?

  • Report this Comment On December 06, 2011, at 9:20 AM, GenYfool wrote:

    This should tell everyone that salaries are simply too low, cost of basic necessities are too high, etc.

    Simple economics.

  • Report this Comment On December 16, 2011, at 2:53 PM, thidmark wrote:

    "funny how you singled out Chrysler and GM for getting bailouts worth 30 or 40 billion dollars (since paid back)"

    Paid back? Hardly. The government still has a 30 percent stake in GM and would need GM stock to rise well over 100 percent to be made whole.

  • Report this Comment On August 31, 2012, at 5:46 PM, rma1344 wrote:

    I wonder to what extent high unemployment and underemployment contributes to this problem? After all these folks have no income or lower income so the denominator is lower than normal. If they had good jobs the ratio would improve.

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