[Jesse]

Yeah, we've seen what happens when a bubble bursts. What makes you say there is a 'debt bubble' though? Also, wow, you do take your anonymity seriously!

[KevinGagnon]

CB. I like your website. I enjoyed the articles there. Kevin

[Dr Caleb]

CB - from your site on US debt - "Guess what? They'll max that out in about 6 months."<p> I'm curious - 6 months from when? I wholly agree with this sentiment, and those on your site, but putting a time frame to it is kind of surprising.<p> Welcome, by the way!<p>

[canada-beware]

<P>Jvanherk: debt bubble can be measured in many ways. Twin deficits of historic highs, for starters. Unnaturally low interest rates which prompted an insane refi boom which had a multi-faceted affect:</P> <BR>- property values inflated as consumers used low rates to buy "more house" than they could otherwise afford <BR>- refinancing inflated properties (in some cases over 100% of their inflated values) put "money" in consumer pockets, which instead of investing it into capex, new businesses, etc (what you're supposed to do with debt) they bought SUVs, flat panel TVs and vacations (the stupidist possible thing to do with debt) <P>Add to this more consumers than ever have maxed out their credit cards and are making (or missing) their minimum payments.</P> <P>Add to this the lowest ever savings rate in US history. What is supposed to happen during a recession is people tighten up, save money, reduce debt. It hurts all the way around but its the only way to unwind the speculative excesses of the prior boom. But I digress. There never was a recession, was there? Just a mild one that lasted about 3 weeks back in 2001 and what we're supposed to believe now is that we're in a "jobless recovery".</P> <P>Add to this the monsterous expansion of money supply. The Fed is willing to drop T-bills from helicopters in an effort to "disuade disinflation" and the Japanese has been frantically buying them in an effort to keep their massive reserves of USD from becoming worthless. What is a T-Bill anyways? It's just monetized debt.</P> <P>The debt bubble expands because the money supply is directly derived from debt. What it amounts to is a ponzi scheme, it works fine as long as the supply is expanding. As soon as the money supply shrinks (one big default, a drop in housing prices, interest rates rise, or people go insane and pay off their debts) it all goes into reverse and collapses in on itself like a blackhole.</P> One way or another, this is going to pop. .<P>Dr.Caleb: I can't remember when exactly, I wrote that last year. The US was bumping against their debt ceiling and Congress wouldn't approve a limit increase as they were battling over the budget. They were using smoke and mirrors to keep the country solvent, moving money between overnight repo accounts, etc.</P> <p>Then over a holiday weekend (Easter?) they snuck through a bunch of things one of which included an 800+ billion hike in the debt ceiling, and by the end of the summer they had burned through half of it, ex-Iraq </P><p> I also think they snuck in an "automatic debt ceiling raise" mechanism where it just moves up automatically now whenever they hit it. You didn't hear much (anything) about it in the papers. I could be wrong on this last point, I know it was considered and it would explain why we don't hear much about it anymore. They almost certainly blew through the rest of it by now. <P><BR>

[Dr Caleb]

That's why i are a engineer, not am accountant (or engrish teacher <p> Thanks for the explanation.<p> So I see the Saudis are 'committed' to a $22 to $28 price for a barrel of oil. What do you think, could this trigger deflation? It would be good for the States, because they import so much oil, but in places like here in Alberta, we rely on the taxes collected from those oil sales.<p> I see plenty of triggers, as you say, real estate, durable goods, debt refinancing (which I agree, you pay down personal debt, not buy perishable or on-durable goods with it! My tax refund always goes to my RRSP.)<p> Any thoughts on what the most likely 'pin' will be for the debt bubble?<p>

[canada-beware]

The pin may have arrived. Rising interest rates are here. The treasury yields are off to the races ahead of official fed tightening and it looks like the big USD bear market rally has peaked out.