October 12, 1999

An Open Discussion with Government, Foundations, Non-profits and Grassroots Efforts

Public Issue #42:

CITS DEBT WATCH

"What's $16 trillion when you can still borrow more?: Consumer borrowing surges in August"

***************

Commentary by Dr. W. Curtiss Priest, Director:

Hello? Is anyone out there?

In Issue # 35 1/2 we found that the "Growth in the Economy has been Bogus for Last 10 Years."

This was determined by noting that the amount borrowed for borrowed for "home purchase" exeeded the costs of home purchases by an annual rate approaching the rate of growth in the U.S. Economy for the past 10 years.

And, in recent months, do you suppose this trend might have slowed down out of sensibility. Absolutely not.

We float the largest stock market bubble on the tops of the largest amount of borrowing in the history of this country.

While some are watching the world population cross over the six (billion) number, how many watched the level of household borrowing when it crossed over the six (trillion dollar) number in the 2nd quarter of this year. Household debt was 5.987 trillion in the 1st quarter; 6.128 trillion in the 2nd quarter. Household debt is growing at an annual rate of 10.7 percent !

And corporations are joining them. Nonfinancial corporate debt (all firms not in the financial sector) was 3.762 trillion in the 1st quarter; 4.107 in the 2nd quarter. Corporate debt is growing at an annual rate of 36.7 percent ! Did anyone say the word "debt-leveraged merger buyout?" (Overall borrowing reported by the Federal Reserve was $16.3 trillion in the 1st quarter and $16.8 trillion in the second quarter of 1999.)

If the average growth of the economy of 2.1% for the last ten years is mainly explained by the draining of financial assets out of homes as collateral, we find fantastic levels of borrowing at a time of essentially no real growth.

In the first article, below, Ms. Aversa notes that "consumer borrowing surges in August." And, this was after she REMOVED the mortgage debt from the Federal Reserve figures. She notes that the growth in other consumer credit was at a 9.6 percent annual level.

But, she is only talking about $1.367 trillion of the 6.128 trillion that households (consumers) have actually borrowed.

And, in Article #2, we find "good news?" "Retail sales brisk in September."

Well, of course, if you are going to be borrowing and spending money at the rate of 10 percent, you'll see percentage increases in retail sales ranging from 2 to 16.6 percent (see table below).

But what about the headlines. Doesn't the word "brisk" sound positive?

What about the headline -- "Consumers continue to borrow over their heads as they dramatically overspend in September fueling the largest boom in the history of this country."

And, Dr. Batra, in "The Crash of the Millennium" (Random House, September, 1999, now at local Barnes and Nobles) finds that all of the funds for this borrowing flows from overseas. Does a record trade-deficit of $80.7 billion in the 2nd quarter of this year suggest where the money comes from? We spend $80.7 billion in a quarter, the countries that receive these monies turn around and lend it back to us. We borrow more and buy, yet, more goods from overseas.

Is this any way to build an economy? Do you suppose there is no end to how much you can borrow and how high a trade-deficit you can run?

********************************************************************** Prior issues of our newsletters may be obtained by putting CITS DEBT WATCH in the search box at:

http://www.deja.com/home_ps.shtml

-- Ponzi (The gig@is .Up), October 12, 1999