Amerikas unhaltbarer Boom

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08.11.04 16:59

2235 Postings, 7049 Tage AlanG.Amerikas unhaltbarer Boom

America's Unsustainable Boom

by Stefan M.I.


people were relieved when they saw how mild the 2001 recession was?in fact it
didn't even technically count as a recession since there were not two
consecutive quarters of falling real GDP?although 3 out of 5 quarters after
the second quarter of 2000 saw a falling GDP. Of course, given how lousy the
labor market has been since then most people still feel that the economic
downturn was a lot sharper than those numbers would indicate, and that the
following expansion was a lot slower than the official numbers would indicate.

Still, given the
bursting of the great stock market bubble of the late 1990s, the 2001 recession
was indeed surprisingly mild even if the official numbers underestimate its
severity somewhat. Compared to Japan in the 1990s and even more so America in
the 1930s, America today has seemingly absorbed the bursting of a stock
market bubble seemingly well. Or have the problems simply been mostly postponed?

There are some
bright spots in the American economy. The corporate sector is looking much
stronger than it looked in the late 1990s. For one thing, after-tax corporate
profits adjusted for capital depreciation are at a record level, 6.2% of 
GDP. Corporate financial savings are back at the levels they were before
the bubble economy of the late 1990s, at roughly -2% of GDP. 

Corporate debt
is still at historically high levels at 65% of GDP, but the debt burden has
fallen somewhat since its 2001 peak and is actually no higher than the peak of
the former cyclical peak in 1990. All in all, the corporate sector looks pretty
healthy, which means that business investment will likely rise from its
currently relatively low levels especially since the cost of capital is fairly
low, reflecting low interest rate and stock market valuations that are
still well above the historic average. (They are however far lower during the
late 1990s and early 2000.)  The recovery in business investment is,
however, likely to be limited somewhat by the low level of capacity utilization.

The government
sector has, under the presidency of George W. Bush, seen its financial balance
weaken to its worst levels since his father was president. Including state and
local governments, the total government deficit are at roughly 4.5% of GDP
compared to the surplus of 1.3% of GDP in 2000.

Many Bush
apologists argue that this deficit has helped households and companies improve
their balance sheets and thus enabled them to avoid drastic spending cuts which
would have created a recession. This is to some extent true. While this has also
created the unprecedented situation that the current account deficit has
increased during a recessionary period from 4.4% of GDP in 2000 to  5.7% of
GDP in the second quarter of this year, the private sector financial deficit has
been reduced from 5.7% of GDP in 2000 to 1.2% now. That is, however, still
weaker than anytime before the bubble economy in the late 1990s.

Typically the
private sector has a large financial surplus during recessions (reflecting
budget deficits and a balanced current account) and roughly balanced financial
savings during booms. But now the private sector has a weaker financial savings
than it ever had before during booms which will strongly limit its
ability to increase spending.

As we shall see,
this reflects not corporate overinvestment but the disappearance of household
savings because of the housing bubble. Moreover, the budget deficit only means
that the government is borrowing for the private sector, masking the real
overspending. In time  there will have to be spending cuts and/or tax
increases to curb the deficit. This means that the government sector is likely
to be a continued drag on the economy, inhibiting improvement of corporate and
household balance sheets from current levels.

But the sector
that poses the biggest threat to the economy is the household sector which is
spending and borrowing at an unsustainable level. The household savings rate
which in the early 1980s was more than 10% of disposable income is now only 1%
which is a record low and actually somewhat lower than when the stock market
bubble reached its peak. At the same time household debt has risen steadily,
from roughly 65% of disposable income in the early 1980s to 80% in the early
1990s to 95% in 2000 to 114% in the second quarter of this year.

In particular,
mortgage debt has risen very fast. Mortgage debt has doubled relative to
disposable income since the early 1980s from just over 40% to 85% today. Record
low savings and record high debt levels means that there is a substantial risk
of a downturn in the household sector.

In a recent
Alan Greenspan tries to downplay the risk of a collapse in the household sector
by saying that not only was household debt at a record high, but household
assets were also at historically high levels. The partially deflated stock
market bubble has lowered the total household assets to income value somewhat
from the historic highs reached in early 2000, but it is still far higher than
in the early 1980s. Household assets have risen from roughly 500% of disposable
income in the early 1980s, to 570% in the early 1990s to 730% at the height of
the stock market bubble. Now it stands at 660%.

While the rise
in asset values until 2000 was mostly a result of the recovery of stock prices
from the depressed levels in the early 1980s to the extremely overvalued levels
in 2000, in recent years the stock market bubble has deflated to a high extent,
while a new bubble, this time in housing prices has appeared.

There are,
however, several problems with Greenspan's view that household indebtness really
doesn't matter because asset values have risen too. First of all, it is in most
cases different households which have huge assets and which have high
indebtedness so for many  households leverage is very high despite the
seemingly low total debt to asset ratios. Second, given the fact that leverage
is at record high levels and given nonexistent net savings from income,
households will be much more vulnerable to asset price changes than ever before.
And third, there is always a great risk that asset values will decline, even
while debt levels are fixed.

worrisome is the high leverage in the housing market. Housing prices have risen
sharply in recent years with household real estate asset values rising from the
135% to 150%  (With a temporary peak of 155% in 1989)  range of
disposable income that it used to fluctuate within until 2000, to a record
184% of disposable income. But even as housing values have risen sharply,
housing debt has risen even faster. In the early 1980s, home mortgage debt was
less than a third of the total housing value. By the mid-1990s this had risen to
more than 40% and now it stands at 45%. Again, since housing values have risen
this means housing debt to income has more than doubled from slightly above 40%
in the early 1990s to 85% today.

Alan Greenspan
tried to put a positive spin on this by saying this meant that three fourths of
all households have less than 80% leveraged. Yet this means that if housing
prices fall back to their historical mean at slightly above 140% of disposable
income, meaning a decline of house prices of more than 20%, then one fourth of
all home owners would have their home equity wiped out and in many cases go
bankrupt.  And since this has been a credit driven price boom there is no
evidence that the relative housing price increases really reflect an increase in
the subjective value of housing from the general population. This means that
there is a very strong likelihood of an eventual price correction back to the
price range that existed for decades until just a few years ago. And with a
savings rate near zero and a quarter of home owners leveraged to a level which
would wipe out their entire housing equity this would mean a financial crisis
deeper than the one associated with the stock market bubble.

And this time,
unlike after the stock market bubble, the Federal Reserve has very little room
to reduce interest rates further as interest rates are negative in real terms
and historically very low in nominal terms, and the Federal government has
very little room for further fiscal stimulus with a historically very high
budget deficit.

Nor is the help
likely to come from abroad. To be sure, the dollar is almost certain to fall in
value which would help export industries and domestic companies which compete
with imports, but that will weaken the Asian and European economies as will the
likely recession in the United States. This will substantially weaken the world
economy making strong U.S. export growth unlikely despite the falling dollar.

One mystery
surrounding the current situation is the near record low long-term interest
rates with the 10-year government bond hovering at around 4%. With a huge budget
deficit, record low household savings rate, a housing bubble and an investment
recovery, one would expect high interest rates. Are the low interest rates
because of low inflation? No, while inflation is far below the levels of the
1970s it is not really that low. If you look at real interest rates you'll find
that they are at historically very low levels. Is it because massive money
supply increases have pushed real interest rates below their natural level?
No, the money supply is increasing at a far slower rate than it has been
for many years. So what is the cause of the low interest rates responsible for
the current unsustainable situation?

The answer is
the massive purchases of U.S. government bonds by Asian central banks,
particularly the Bank of China and the Bank of Japan. During the first half of
this year foreign central banks bought more than $201 billion of U.S. assets,
$180 billion of which was U.S. government bonds. This means that foreign central
banks financed more than 60% of the U.S. current account deficit and nearly the
entire increase in government debt.

It might seem
strange that they are so interested in buying such low-yielding securities
as U.S. government bonds. But the reason why they do it is because they want to
avoid a sharp increase in the value of their currencies against the dollar,
which would deal a heavy blow against their export industries. 

But this is in
itself an unsustainable situation. Their increasing purchases of U.S. assets
make them increasingly vulnerable to heavy losses if the dollar falls, but the
increasing U.S. current account deficit forces them to increase their purchases
to prevent their currencies from rising. The longer this unsustainable process
is allowed to continue the heavier losses that will be inflicted on both sides.

Only if either
Asian countries accept a sharp appreciation of their currencies or if the U.S. adopts
a much tighter monetary and/or fiscal policies can the situation be prevented
from getting worse. But as both solutions would create temporary downturns in
the world economy, it is doubtful that the politicians in either Asia or the
United States will be willing to face up to them.

The conclusion
is that Alan Greenspan and George W. Bush did not prevent the stock market
bubble of the late 1990s from turning into a crisis. They only postponed it.


physisches Gold kaufen wäre eine Lösung oder dritte Welt Währungen, - vielleicht ..-_)  

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