One of my financial gurus is Eric Janszen of itulip.com. As an introduction and an aid to understanding what’s in the interview below, FIRE is Janszen’s acronym for Finance, Insurance, and Real Estate. His contention is that over the past three decades the American industrial economy has transformed into a FIRE economy, not the “information” economy that most people have been talking about for the past dozen years.
Santa Fe Reporter – Economy on FIRE and in debt:
Can you put today’s economic situation in a historical perspective? Is there any parallel?
More than one-quarter of all homes have negative equity in the US. That’s a bad problem. But there’s a worse problem developing.
I refer to the American housing market as “the big slum.” A slum is where the market value has fallen below the replacement value. It doesn’t make sense to fix anything. You don’t fix it, you just let it go to hell. There’s no way to get your money back.
It’s not that popular to be negative when things appear to be going well. I get interviewed more by the European and Asian press than the US press. It’s part of the culture, that we don’t really like people who are skeptical, who ask questions like, “How can you grow an economy that requires $5 of debt growth to create $1 of GDP growth?”
Another thing you’ll see reported all the time is that this is the highest rise in new jobless claims since 1982. The implication is this is like the early 80s recession, except in some ways worse.What’s not reported is every recession was induced on purpose by the Fed, in order to cool down the economy. This recession was not created by the Fed. The implications of that are lost on a lot of people: They are absolutely not in control.
I get calls from members of Congress asking me what I think she should do. They don’t really want to hear the answer. I think the ultimate problem is having to write down trillions of dollars of bad debts for their campaign contributors. There’s hardly any other rational explanation.We lectured the Japanese not to do what we’re doing right now.
Japan started out where we were, in terms of public debt, back in 1992. They were at about 60 percent of gross debt to GDP. Now they’re at 159 percent—a notch above Zimbabwe, just below Jamaica. None of that spending improved their sustainability as an economy. All they did was move the debt from private to public accounts over 20 years through the stimulus programs.
This is what our rocket scientists are planning for us. There can’t be enough output to pay the principal and the interest on all this debt.
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