Monday, March 02, 2009

US House Hold Debt vs. GDP

One of the scariest graphs I have seen recently is this one from Credit Suisse and David Beim. It shows that the last time US house hold dept was 100% of GDP was 1929. I got this from an NPR podcast from Feb. 27th.

This tends to make one think that the down turn will be longer than any that most of us remember. It also brings back to me that I need to crack open the book Warren Buffet attributes most of his success to, The Intelligent Investor. Though first published in 1949, this book was written by Warren's mentor, Benjamin Graham, who was 35 years old and a professor of economics at the time of the 1929 stock market crash.

This is also part of the reason when I see investing pundits piling on the claims that Warren has finally lost his mind, I think they are discrediting the one person most likely to know what to do in these times. Buffet grew up during the depression and learned to invest from Benjamin Graham.

Once I finish The Interpretation of Financial Statements, also by Graham and published in 1937, I will begin The Intelligent Investor.

The same NPR show went on to cover another crisis story about a one page paper written by Joseph LaVorgna, chief U.S. economist for Deutsche Bank. You can read or listen to it at the Planet Money blog on NPR.
"Ultimately, the taxpayer will be on the hook one way or another, either through greatly diminished job prospects and/or significantly higher taxes down the line," the document says. ...
"This is a robbery note!" Johnson says. "It's saying, 'Guys, either you'll have 20 percent unemployment or national debt will go up to these dangerous levels, unless you buy toxic assets — not for what they're worth, not for what the market price is, as much as you can pay.'"
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