From: james92c@gmail.com
Newsgroups: misc.invest.financial-plan
Subject: Re: Do you worry about debt?
Date: Sun, 27 Mar 2005 06:06:03 CST
   posting-account=dF6IOg0AAACNVg32kmUnUVUk9TFfKhk-
	processed by UCSD_GL-v1.2 on mailbox8.ucsd.edu;
	Sun, 27 March 2005 00:55:27 -0800 (PST)
	iQBVAwUAQkahrPl/I4+O31e5AQH8BgIA05RtIpUv3dXa05Llli/LRvvGCScOJirt
	9BhuTkTbYHZYNHtDeT55ydjFZV7uYHUzFbAkrd6ert4oBElaBBP1zw==
	=Pvm1

> Once you buy a house, this isn't very unusual is it?  Or is this stat

> referring to just credit cards and car loans (i.e. excluding
mortgages)?

I think it includes any borrowed money. There are many articles out
there; American household debt is at all time highs now. Part of this
is due to the money borrowed against high valued houses. If houses
significantly decline in value, many people will go broke.

> Leverage is not necessarily a bad thing.  The recent ease of
financing
> in generally credited for the economic recovery we're experiencing.

Some call it a economic recovery, others say there never really was a
recovery and now we are in a position where cheap credit has fuelled
unsustainable business practices. There are LOTS of examples where
uncontrolled borrowing has landed companies in bankruptcy later on.

I'm not saying leverage is a bad thing. But I think that free money
over the past few years has led to a corporate recklessness. I think
most large companies lack the discipline to make the most of free
money.

I found an interesting article (talks about GM too) from 1998
http://groups-beta.google.com/group/misc.invest.stocks/msg/d3931dbe593830e7

   On the supply side, companies still turn out a profit, inventory
   as a percentage of sales has fallen (instead of rising) so far in
   the cycle, debt is shrinking as a percentage of corporate assets,
   and the value of the dollar is stable or rising at home and abroad.
   On the demand side, employment is up, wages are up, consumer
spending
   and house buying are strong, and household debt as a percentage of
   disposable income has plateaued.

   So far, there isn't the buildup in supply, slack in demand, or
   financial excess that precede a recession -- anywhere on the
horizon.

So where are we now... debt has been growing as a percentage of
corporate assets (especially since 2001); the dollar has declined 30%
against world currencies; household debt has been rapidly increasing.
There are signs of the "financial excess that precede a recession",
IMHO.

This article was talking about how, amazingly, GM still is afloat.
Well, now we know that GM is screwed... its debt (bonds) were
investment grade a short time ago, but now they're practically junk.
What concerns me is that these dangerous economic conditions --
including high debt -- that these articles from a few years ago were
talking about are NOW being realized, today. With the predicted
consequences for (e.g. GM).