Stock Market As a Substitute Debt Market & Consumption Debt

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Subject:	Stock Market As a Substitute Debt Market & Consumption Debt
Date:	Wed, 18 Aug 2010 17:09:13 -0700
From:	Jas Jain

Stock Market As a Substitute Debt Market & Consumption Debt

"Hello Jas, Somewhere in your Peak Debt article, you mention that stock market is a substitute debt market. Can you elaborate what you mean? Also from where did you collect the consumption debt data? Best, Sabri"

 

Stock Market As a Substitute Debt Market

An entrepreneur has two avenues, or alternatives, open to him for raising capital for a continuing venture, or new venture—debt market and the stock market. In good old days, before America's CROOKS gave birth to the Scam Market, the expectation was that the stock market "debt" would be serviced with dividends just like a debt issuance is serviced with the contracted interest rate and payment of principal at the end of duration, or installments that reduce the principal to zero at the end of the duration, e.g., fixed rate mortgages. Thankfully, this intuition of mine was also confirmed by an authority (either I read it in a book by Galbraith or Schumpeter). That is why I started to use "It Is the Debt, Stupid!" in some of my comments on the Scam Market in late 1990s. The companies that do not pay a reasonable rate of dividend, e.g., 3% for a growth company and higher for others, are Ponzi schemes. In good old days the bubbles burst sooner because the companies wouldn't be able to pay increased dividends that kept up with the rise in the stock prices!

 

Consumption Debt

With the exception of large-scale wars the federal debt is consumption debt (by collecting less in taxes than the expenditure the govt. is funding excess consumption, as is the case presently in Europe and the US). The debt taken by households, including the mortgage debt, is clearly consumption debt. Once again, households are consuming more than the income. So, in my estimate of the consumption debt, or a good proxy, is the sum of the federal debt outstanding and the total household debt, both reported in z.1, quarterly. There is a great chart of household debt, courtesy of Calculated Risk, here.

Jas

 

 

 

--   best regards Kirk Lindstrom http://kirklindstrom.com/ Blog: http://kirklindstrom.blogspot.com Newsletter: http://forbestadvice.com/Newsletter.html Online Store: http://home.netcom.com/~kirklindstrom/Gifts.html