Originally published January 9 2006
Bush claims economy is strong, but some would beg to differ, Seattle Times says
by Mike Adams, the Health Ranger, NaturalNews Editor
The Seattle Times looks at the Bush administration's citation of the U.S. economy, which it claims has gathered strength, but many financial experts find that hard to understand.
President Bush was recently in North Carolina, urging factory workers to give thanks for the tax cuts.
In folksy mode, Bush criticized "some of those people up in Washington" who doubted that the tax cuts would make the economy golden.
Lower tax revenues and a spending spree have set off an explosion of federal borrowing, which pushes up interest rates.
Rising house prices, fed by low interest rates, have helped keep this economy going.
He notes that activity related to housing (construction, furniture and appliances) now accounts for 22 percent of the gross domestic product.
They empowered people to take out enormous mortgages --- giving them the wherewithal to bid up house prices.
Household real-estate assets have now risen to a record-smashing 150 percent of GDP.
As Rosenberg put it, "Caveat emptor (buyer beware) whenever anything approaches 150 percent of GDP."
That means Americans were spending more money than they had coming in.
In a recent paper titled "Spendthrift Nation," Kevin Lansing, a senior economist at the Federal Reserve Bank of San Francisco, largely blamed the housing bubble for this orgy of borrowing.
Rising house and stock prices, he wryly noted, are something that "households apparently view as a substitute for the quaint practice of putting aside money each month from their paychecks."
As a result, household debt relative to income has smashed records, which is not healthy.
As a come-on, lenders offer super-low payments for the first few months.
When these fantasy rates expire, borrowers will face real-world interest charges that could hike their monthly payments by a third or more.
Add on higher energy costs, and a lot of these Americans will have no choice but to unload the house in a falling market.
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