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The Party Is Over

The latest from the Comstock Boys…

The party is over. The major factors facing the economy and the market that we have been discussing in past comments (please see archives) are coming to a head as the reality of a post-credit crisis economy becomes more and more apparent in the period ahead. The massive monetary and economic stimulus that saved us from another great depression and led to the current weak economic recovery is now creating more problems than solutions and there is no way out that does not involve some economic pain.

Virtually all of the problems facing the economy today are a result of the massive increase in household debt over the last few decades, particularly the last two. For years we have staved off the problems by keeping interest rates near zero for extended periods of time and using fiscal and monetary policies to pump up housing. Consumers are overburdened with record debt loads at a time when income is stagnant and house values are dropping. As a result the government has substituted government debt for private debt in the hopes of getting the economy to grow on a self-sustained basis. The problem is that increasing the federal debt much more places the nation in great jeopardy, and we are rapidly reaching the breaking point.

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