Everybody needs to read this one.
He basically says Bernanke(Fed) with Greenspan got us addicted to low interest rates, and now we are trapped!
I have to say, I am very worried about this Bernanke guy who Bush appointed. And the trap.
Visible proof of a finance-based economy is offered in Charts I and II which point out the growth in U.S. finance over the past several decades. As shown in Chart II, debt as a percentage of GDP has skyrocketed over the past 20 years and is now at historically high levels approached only briefly during the depression of the 1930s. The ratio then was a function of the heady roaring ‘20s to be sure, but also to its aftermath in which GDP fell nearly 26% during the payback of years that followed. Now, our debt and its distribution are much more sophisticated. Government, business, and consumers can borrow freely, and their individual debts are aggregated and then split into strips, IO’s/PO’s, CMO’s, and CDO’s, which are then “repo’d” – we have “O’d” or “owed” our way to prosperity in more ways than one it seems. Whatever the reason, whoever is at fault – whether it’s PIMCO for buying it or Greenspan for blessing it, or Wall Street for pushing it – we are at a point where there’s a lot of it. That point no one can deny. And the fact that our economy has prospered in the midst of it cannot be refuted either. What is up for debate is whether our economy has prospered because of it and whether it will continue to. New Agers would basically argue that yes we have a lot of debt, but it’s because we as an economic society have made wise choices – borrowed the money to invest in productivity-enhancing innovations, or from the government’s side, to protect our way of life from the ravages of terrorists around the globe. They would also argue that because of today’s low yields, the servicing burden of that debt remains under control.
But so-called vigilantes would counter by pointing to consumerism and the ongoing cycle of buying ephemeral “things.” They would suggest that we have hardly invested wisely – witness the millions of miles of still unutilized fiber optic cables and the farcical parade of the “dot coms” as recently as a few years past. They would then top it off with an observation that Republican Bush with his Republican Congress seem to observe no limits whatsoever in the budget. $500 billion may only be a start if in fact we’re going to the Moon, Mars, and beyond. The CBO in fact has just conservatively estimated a $2 trillion addition to the national debt over the next decade.
Here's the link:
http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2004/IO_02_04.htm
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