An interview with Dr Lacy Hunt, of Hoisington Investment Management. They have the best bullish case for government debt anywhere. They really are the only guys who I have read who don't think there is a government debt bubble. I don't know if they are right or not but being so out of mainstream thinking makes there thoughts extremely interesting to read. This was the best thing I have read in weeks. Thanks goes to Nathan.
http://www.businessspectator.com.au/bs.nsf/Article/Lacy-Hunt-$pd20090129-NR997?OpenDocument
IO: According to your quarterly review and outlook, we're now essentially in a 15-year process. Does that mean that it's going to take 15 to 20 years for this situation to actually stabilise or normalise?
LH: Well, there are other intervening events that could occur. If we would have very significant technological breakthroughs that might shorten the process, but one of the things that suggest it's long running is you can look at what happened to interest rates and stock prices after these prior debt manias. Post-1928 you had a negative risk premium for 20 years. Negative risk premium meaning the total return on treasury bonds exceeded the total return on the S&P 500. Post-1872 you had another 20 year period of a negative risk premium and we've seen a negative risk premium post-1988 in Japan. The low in interest rates after those previous debt bubbles occurred about 14 or 15 years later, for example the low post 1928 occurred in 1941 on the yearly average basis at 1.95 per cent. Once we went into World War II, then there were some very minuscule increases 20 years after 1928 interest rates were up slightly, but not very much from the lows that were reached in 1941 and that was also a characteristic of the Japanese situation and our situation in the US post 1872.
and
Debt deflations, although they're very rare, if you study them you will see that they turned the world upside down as we know it. And another difficulty with these debt deflations is that no one that's alive today has in their own personal data bank, their personal history of experiences the prior experiences because they didn't live through them. It occurred before they were born. If they were alive during those time periods they were very small children. They may have learnt something either from parents or grandparents or so forth but it is very difficult for people of experience and practicality to understand what is gripping the situation when they have not ever lived it and that's one of the great difficulties for the US today and I suspect for the world as well.
4 comments:
She may be right. We are going in a 15 year cycle, but if our government keeps up with there spending bill crap, they are going to make the dollar worthless and create hyperinflation. They are idiots.
Lacy Hunt is a he not a she.
I listened tonight to a major interview with Dr. Hunt on Australian Television (ABC - Lateline).
I also agree with Market Seer that Lacy Hunt is a very, very interesting guy to listen to. His take on the challenges facing the US in dealing with its 54 Trillion in total debt and why it is going take a long time and cause a lot of pain for many years is worth checking out.
Larry Langman
I note that about half the GDP growth just announced came from one government program that's expiring and stopped working in September. Chuck in another half a percentage point due to the tax credit for new house buyers, and another half point from the 7.9% increase in government spending—and you get your 3.5% GDP growth. The USA have real problems and spending will not fix it.
I think she is right and thanks for posting.
Post a Comment