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luke
Joined: 11 Feb 2007
Location: by the sea
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 Posted: Sat Jun 23, 2007 4:04 pm Post subject: It’s Official: The Crash of the U.S. Economy has begun |
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| Quote: | It’s Official: The Crash of the U.S. Economy has begun
It’s official. Mark your calendars. The crash of the U.S. economy has begun. It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.
Pearlstein’s column was titled, “The Takeover Boom, About to Go Bust” and concerned the extraordinary amount of debt vs. operating profits of companies currently subject to leveraged buyouts.
In language remarkably alarmist for the usually ultra-bland pages of the Post, Pearlstein wrote, “It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.”
Further, “Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines. And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption. It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.”
Samuelson’s column, “The End of Cheap Credit,” left the door slightly ajar in case the collapse is not quite so severe. He wrote of rising interest rates, “As the price of money increases, borrowing and the economy might weaken. The deep slump in housing could worsen. We could also discover that the long period of cheap credit has left a nasty residue.”
Other writers with less prestigious platforms than the Post have been talking about an approaching financial bust for a couple of years. Among them has been economist Michael Hudson, author of an article on the housing bubble titled, “The New Road to Serfdom” in the May 2006 issue of Harper’s. Hudson has been speaking in interviews of a “break in the chain” of debt payments leading to a “long, slow economic crash,” with “asset deflation,” “mass defaults on mortgages,” and a “huge asset grab” by the rich who are able to protect their cash through money laundering and hedging with foreign currency bonds.
Among those poised to profit from the crash is the Carlyle Group, the equity fund that includes the Bush family and other high-profile investors with insider government connections. A January 2007 memorandum to company managers from founding partner William E. Conway, Jr., recently appeared which stated that, when the current “liquidity environment”—i.e., cheap credit—ends, “the buying opportunity will be a once in a lifetime chance.”
The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it’s time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.
Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the “reformed” 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.
In other words, it sounds eerily like 2000-2002 except maybe on a much larger scale. Then it was “only” the tenth worse bear market in history, but over a trillion dollars in wealth simply vanished. What makes today’s instance seem particularly unfair is that the preceding recovery that is now ending—the “jobless” one—was so anemic. |
i wonder what effect this will have on the uk? |
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faceless
admin
Joined: 25 Apr 2006
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| Posted: Sat Jun 23, 2007 4:12 pm Post subject: Re: It’s Official: The Crash of the U.S. Economy has begun |
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| luke wrote: | | i wonder what effect this will have on the uk? |
Cheaper holidays to Disneyworld?
Seriously though, I'm not sure if it will have that much effect on anyone apart from those who export products there. And also the income from the tourism industry of course... |
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luke
Joined: 11 Feb 2007
Location: by the sea
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| Posted: Sat Jun 23, 2007 4:14 pm Post subject: Re: It’s Official: The Crash of the U.S. Economy has begun |
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| faceless wrote: | Cheaper holidays to Disneyworld?
Seriously though, I'm not sure if it will have that much effect on anyone apart from those who export products there. And also the income from the tourism industry of course... |
ahh, sweet  i thought maybe our economys were closely linked |
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eefanincan
Admin
Joined: 29 Apr 2006
Location: Canada
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| Posted: Sat Jun 23, 2007 5:30 pm Post subject: |
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| Our Canadian dollar is getting better and better against the US $ --- looks like I might have to take a trip to the states this fall for a little shopping |
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alan1254
King of the Marshes
Joined: 01 May 2007
Location: Thailand
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| Posted: Sun Jun 24, 2007 2:55 am Post subject: Re: It’s Official: The Crash of the U.S. Economy has begun |
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[quote="faceless"] | luke wrote: | | i wonder what effect this will have on the uk? |
Cheaper holidays to Disneyworld?
that is exactly what it would mean the $1 is already 2 for 1 against the pound how low could it go? the Thai Baht gains every week against the $, this after the tsunami, falls in tourism , huge political scandal and a military coop that has put a military government in power, and a massive lowering of 'credit rating' by the world bank, if this county continues to make gains against the $ what will the $'s value be against the worlds strong currency's? |
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alan1254
King of the Marshes
Joined: 01 May 2007
Location: Thailand
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luke
Joined: 11 Feb 2007
Location: by the sea
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| Posted: Tue Jun 26, 2007 3:20 pm Post subject: |
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| Quote: | BIS warns of Great Depression dangers from credit spree
The Bank for International Settlements, the world's most prestigious financial body, has warned that years of loose monetary policy has fuelled a dangerous credit bubble, leaving the global economy more vulnerable to another 1930s-style slump than generally understood.
"Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s. In fact, each downturn was preceded by a period of non-inflationary growth exuberant enough to lead many commentators to suggest that a 'new era' had arrived", said the bank.
The BIS, the ultimate bank of central bankers, pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.
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"Behind each set of concerns lurks the common factor of highly accommodating financial conditions. Tail events affecting the global economy might at some point have much higher costs than is commonly supposed," it said.
The BIS said China may have repeated the disastrous errors made by Japan in the 1980s when Tokyo let rip with excess liquidity.
"The Chinese economy seems to be demonstrating very similar, disquieting symptoms," it said, citing ballooning credit, an asset boom, and "massive investments" in heavy industry.
Some 40pc of China's state-owned enterprises are loss-making, exposing the banking system to likely stress in a downturn.
It said China's growth was "unstable, unbalance, uncoordinated and unsustainable", borrowing a line from Chinese premier Wen Jiabao
In a thinly-veiled rebuke to the US Federal Reserve, the BIS said central banks were starting to doubt the wisdom of letting asset bubbles build up on the assumption that they could safely be "cleaned up" afterwards - which was more or less the strategy pursued by former Fed chief Alan Greenspan after the dotcom bust.
It said this approach had failed in the US in 1930 and in Japan in 1991 because excess debt and investment build up in the boom years had suffocating effects.
While cutting interest rates in such a crisis may help, it has the effect of transferring wealth from creditors to debtors and "sowing the seeds for more serious problems further ahead."
The bank said it was far from clear whether the US would be able to shrug off the consequences of its latest imbalances, citing a current account deficit running at 6.5pc of GDP, a rise in US external liabilities by over $4 trillion from 2001 to 2005, and an unprecedented drop in the savings rate. "The dollar clearly remains vulnerable to a sudden loss of private sector confidence," it said.
The BIS said last year's record issuance of $470bn in collateralized debt obligations (CDO), and a further $524bn in "synthetic" CDOs had effectively opened the lending taps even further. "Mortgage credit has become more available and on easier terms to borrowers almost everywhere. Only in recent months has the downside become more apparent," it said.
CDO's are bond-like packages of mortgages and other forms of debt. The BIS said banks transfer the exposure to buyers of the securities, giving them little incentive to assess risk or carry out due diligence.
Mergers and takeovers reached $4.1 trillion worldwide last year.
Leveraged buy-outs touched $753bn, with an average debt/cash flow ratio hitting a record 5.4.
"Sooner or later the credit cycle will turn and default rates will begin to rise," said the bank.
"The levels of leverage employed in private equity transactions have raised questions about their longer-term sustainability. The strategy depends on the availability of cheap funding," it said.
That may not last much longer.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/24/cnbis124.xml |
another great depression?! i remember reading about the 1930s one ... things would go dark so quickly should anything like that happen again |
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luke
Joined: 11 Feb 2007
Location: by the sea
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| Posted: Thu Jun 28, 2007 1:03 pm Post subject: |
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| Quote: | 
PRESS CONFERENCE ON MIDYEAR UPDATE OF WORLD ECONOMIC SITUATION, PROSPECTS
A midyear review of the world economic situation showed that while the global economic outlook was quite positive, large uncertainties surrounded it, Rob Vos, the Director of the Development Policy and Analysis Division of the Department of Economic and Social Affairs (DESA), told correspondents at a Headquarters press conference today.
Launching the midyear update of the 2007 World Economic Situation and Prospects report, he said those uncertainties included a weak United States housing market and global imbalances.
In terms of the United States housing sector, he noted that a recession in the housing sector had continued in 2007, with a slowdown in activity and a large number of unsold homes. While house prices had not fallen, that might happen in the months and years to come if the recession continued as expected. A decline in prices would affect the domestic market, particularly household consumption in the United States, resulting in the risk of a serious recession in its economy, slowing growth from 2.1 per cent to 0.5 per cent in 2007 and 2008. That would then significantly slow the world economy and transmit the recession into the rest of the world. There had also been problems in the United States subprime mortgage market, which showed the risk of a spill over from the housing to financial markets.
Global imbalances were projected to stabilize in 2007 and 2008, but were still very large, he said. The United States deficit had increased to $860 billion at the end of 2006, and was expected to fall to $800 billion in 2007. That deficit was basically being financed by surpluses in the developing and oil exporting countries, as well as some major developed countries, in particular Japan and Germany. The European Union,at large, was projected to continue to have a slight deficit on its current account.
United States debt, which had now deepened to well over $3 trillion, might turn out to be unsustainable in the rest of 2007 or next, putting further downward pressure on the United States dollar, he said. Since its peak in 2002, the dollar had depreciated vis-à-vis the major currencies by some 35 per cent and by 25 per cent against a broader range of other currencies.
With that increased debt the risk of a sharp depreciation of the dollar continued, he said. If countries willing to invest in United States dollar assets expected further depreciation, they might be less willing to hold dollar assets, triggering a much sharper fall in the United States dollar. The risk of disorderly adjustment and the steep fall of the dollar existed. The policy challenge was how to prevent a hard landing of the United States dollar and forge a benign adjustment of the global imbalance.
Continuing, he said the current tendency in macroeconomic policy was not all in the right direction, particularly in the surplus countries where there had been a tightening of monetary and fiscal policies, particularly in Germany and Japan, making it more difficult for the United States to lower its external deficits by export growth. The United States would also need to adopt some contractionary policies to slow down its deficit. Another way to compensate without a major recession in the world economy was for the surplus countries to make more expansionary adjustments in their economies. The more expansionary fiscal policies of some Asian countries seemed to be insufficient to compensate for the possible deflationary effects of an adjustment in the United States.
The report called, therefore, for a coordinated strategy that would think about how to adjust global imbalances while avoiding recessionary tendencies in the global economy, he said. International policy coordination could take place outside of the mediation of the International Monetary Fund, provided that the Fund pushed ahead with its reforms and enhanced representation of the votes and voices of its members.
Providing an overview of the global economy, he explained that the world economy had decelerated from 4 per cent in 2006 to 3.4 per cent in 2007 and was expected to stabilize at 3.6 per cent in 2008. While still robust by historic standards, there had been a slight slowdown in the global economy in all country groups.
While the growth of the developing countries and economies in transition remained robust, there had also been a slowdown, he said. China and India remained dynamic, keeping growth rates up. Some accounts, including a report of the International Monetary Fund, anticipated a decoupling of growth between the United States economy and that of developing countries. He did not see much of that, however. A strong link still existed between growth in the United States and what happened in the rest of the world.
He noted that the major slowdown in the global economy had been in the United States economy from 3.3 per cent in 2006 to 2.1 per cent in 2007. That weakness was mainly due to the weak housing sector. Overall activity in that sector was down by some 20 per cent. While business investments in the United States had been very weak, a recovery was expected in 2008, pulling up the growth rate projections for 2008. That recovery, however, might be uncertain for a number of reasons.
Japan’s growth remained robust, he added. Its economy was expected to expand by 2.1 per cent in 2007 and slow to 1.9 per cent in 2008, basically because of having reached growth capacity. The outlook in Western Europe was for mild deceleration in 2007-2008, but growth rates would remain above the trends of the past years. Strong growth momentum had been maintained among the new members of European Union.
While there had been a noticeable slowdown among developing countries, growth remained very robust, he said. The good news continued to come from Africa, where growth was expected to remain up at 6 per cent per year in 2007 and 2008, as a result of strong commodity prices, rising mining and hydrocarbon outputs, strong public consumption and increased investment in infrastructure.
Growth in East Asia had accelerated to over 8 per cent in 2006, but there would be some moderation in 2007 and 2008, he said. China had again exceeded expectations in 2006 with 10.7 per cent growth. Other countries in the region had experienced acceleration in 2006. There would, however, be some slowdown in the region in 2007. Growth for China was expected to slow to 10.1 per cent, which was still very high, and slightly below 10 per cent in 2008. Growth in South Asia remained strong in 2006. Growth in India would slow to 8.5 per cent after reaching 9 per cent in 2006.
Growth in Western Asia and Latin America had continued to be stronger than in the past, he said. Despite the decline of oil revenues, the oil-exporting economies in Western Asia would still reach a growth rate of 5.1 per cent in 2007 and 4.9 per cent in 2008. Growth had been stronger than expected in Latin American in 2006, he added.
Turning to the least developed countries, he said growth had been strong on average, but varied among those countries, with strong growth being recorded in the oil exporting countries, including Angola and Equatorial Guinea. Some non-oil economies had performed well, with a strong expansion of public consumption and infrastructure. Several countries had recovered from political conflict and had undergone political and economic reforms. Others had received increased aid, boosting growth rates in such countries as Madagascar, Senegal, United Republic of Tanzania and Zambia. The political situations in other countries had been less favourable, and social tensions continued to limit growth, including in Haiti, Chad and Guinea. “That’s good news, but there is quite a bit of variety among the performance of these countries, particularly among the African countries,” he said.
The robust growth of the world economy was also built on a strong performance in trade, he said. World trade had grown at almost 10 per cent in 2006 and was expected to moderate to some 7 per cent in 2007 and 2008. That was still twice as much as the growth of world output, which meant that the ongoing globalization process continued with world trade increasing as a share of total output.
Trade among the developing countries had been strong, he added. Exports from China and India had increased by more than 20 per cent in terms of volume. Many other countries in Africa and Latin America had had very strong export growth in the double digit range.
Commodity prices remained robust, but seemed to have peaked, he said. Oil prices had reached an unprecedented high of a yearly average of $65 per barrel in 2006, peaking at $80 per barrel in the middle of the year and slowing down to $60 per barrel at the end of the year. Oil prices were expected to remain at $60 in 2007, which would represent a drop of some 8 per cent, and were expected to rise in 2008.
He said metal prices had increased by some 50 per cent in 2006, particularly on strong demand from China and the recovery in Japan and Europe. Some metal prices were expected to slide, moderating in 2007 and 2008. Prices of agricultural commodity prices were a bit diverse in terms of performance. Some products had a stronger performance, particularly corn in the United States, as many farmers had switched from soy beans to maize given the demand for maize for use as biofuel. Other food prices, however, had been on the decline. A diverging pattern was expected in 2007 and 2008.
Financial conditions for developing countries remained favourable, he said. The persistent current account deficit in the United States would likely induce higher benchmark interest rates, pushing up yield spreads for developing country lending.
Favourable conditions had kept up capital flows, although they were expected to be slightly lower in 2007 compared to 2006. Foreign direct investment had continued to increase, but was concentrated in a handful of developing countries. Official development assistance had declined to $103 billion in 2006, which represented a decline in real terms of some 5 per cent from 2005, he said.
The net outward transfer of financial resources from developing countries to developed countries at the end 2006 had reached $658 billion from developing countries and another $125 billion from countries with economies in transition. That trend had been continuing for decades, which raised the question of sustainability. Africa was now showing a negative net transfer of $95 billion for the continent as a whole and $10 billion for sub-Saharan Africa, excluding Nigeria and South Africa.
Responding to questions, he said the outlook for the price of oil was uncertain and depended on geopolitical factors. The market was quite tight, and supply constraints were strong. Any further shift in demand would keep the price of oil up. He expected the price to stay up for that reason. Oil prices could also be volatile because of shocks in the Middle East.
Regarding inflation, he said he saw inflationary pressures in some countries. He was not too worried about inflationary pressures in Europe, however. Inflation was still quite low. He did, however, see emerging inflationary pressure in India. While oil prices were pushing up inflationary pressures in some countries, on average they were quite low.
Asked about the “meltdown” in the United States subprime market, he said he had not seen a spill over of the problem, which had basically been contained.
Regarding differences between DESA’s research and that of the International Monetary Fund, he said the difference was mainly in method and focus. DESA’s focus was on developing countries. It tried to give as broad a picture as possible.
Asked what impact China had on the developing world and the United States economy, he said the United States economy still dominated the global economy.
“If the United States sneezes, it creates a flu elsewhere,” he said. That was still the case. China was, however, having a growing impact on the global economy. China was an important and growing factor in world economic growth, but still not the main factor driving the global economy’s overall outlook. |
from http://www.un.org/News/briefings/docs//2007/070530_Ocampo.doc.htm |
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luke
Joined: 11 Feb 2007
Location: by the sea
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| Posted: Sat Sep 15, 2007 8:31 am Post subject: |
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| Quote: | Dollar's retreat raises fear of collapse
By Carter Dougherty
Thursday, September 13, 2007
FRANKFURT: Finance ministers and central bankers have long fretted that at some point, the rest of the world would lose its willingness to finance the United States' proclivity to consume far more than it produces - and that a potentially disastrous free-fall in the dollar's value would result.
But for longer than most economists would have been willing to predict a decade ago, the world has been a willing partner in American excess - until a new and home-grown financial crisis this summer rattled confidence in the country, the world's largest economy.
On Thursday, the dollar briefly fell to another low against the euro of $1.3927, as a slow decline that has been under way for months picked up steam this past week.
"This is all pointing to a greatly increased risk of a fast unwinding of the U.S. current account deficit and a serious decline of the dollar," said Kenneth Rogoff, a former chief economist at the International Monetary Fund and an expert on exchange rates. "We could finally see the big kahuna hit."
In addition to increased nervousness about the pace of the dollar's decline, many currency analysts now also are willing to make an argument they would have avoided as recently as a few years ago: that the euro should bear the brunt of the dollar's decline.
The euro, shared by 13 countries, once looked like a daring experiment. But it has gained credibility and euro-denominated financial assets are as good as their U.S. counterparts. With a slow economic overhaul under way in European capitals, and a fundamentally sound corporate structure, a weaker dollar justifiably means a stronger euro.
"The euro has earned what it has gotten," said Stephen Jen, global head of currency research at Morgan Stanley in London. "It is not simply rallying by default."
So long as Americans buy more than they earn from exports - and they did, creating a current account deficit of $850 billion last year - the rest of the world financed the binge by bringing dollars into the United States for investment in stocks, bonds, real estate or other assets, thereby preserving demand for the dollar.
The continued appetite for U.S. investments stemmed from a track record of strong economic growth and a financial system that has been remarkably resistant to shocks.
But the latest turmoil in mortgage markets has, in a single stroke, shaken faith in the resilience of American finance to a greater degree than even the bursting of the technology bubble in 2000 or the terror attacks of Sept. 11, 2001, analysts said. It has also raised prospect of a recession in the wider economy.
While most economists just a few months ago would have dismissed the prospect of a dollar collapse outright, they now are debating the possibility that something on par with the dollar debacle of the 1970s might just happen again.
When a currency collapses, the central bank can push up interest rates to attract needed investment, but strangle the economy in the process. Alternatively, it can let the currency fall and watch prices of imports - and eventually competing domestic goods - rise sharply.
Double-digit inflation resulted in the 1970s and only a global recession brought it to an end.
Today, the dollar's current weakness is being driven by uncertainty over how central banks will react to the turmoil in financial markets, unleashed by the collapse of the U.S. market for subprime mortgages given to borrowers with shaky credit histories.
The European Central Bank put off an interest rate increase it had planned for September, but is still inclined to tighten credit at least one more time by the end of this year. By contrast, the U.S. Federal Reserve has hinted at a rate cut at its meeting next Tuesday - a step that would diminish the appeal of dollar-denominated assets, almost certainly sending the dollar lower.
But across a horizon of 18 months to two years, investors are pondering how quickly the dollar will fall, a question to which there are no easy answers.
After a run of strong growth, the U.S. economy has lurched into a phase of slower expansion, and last Friday the most serious warning sign appeared - an outright deterioration in employment growth.
The data has coincided with profit warnings from major U.S. retailers like Wal-Mart Stores and Home Depot, suggesting that consumer spending, the backbone of the American economy for years, was ebbing. This step would logically follow the rapidly cooling housing market, since Americans have spent heavily with money borrowed against rising home values.
A drop in consumer spending by Americans means fewer imports. The current account deficit peaked at 6.8 percent of gross domestic product in late 2005 and is now running at about 5.5 percent, with figures for the second quarter of 2007 due out on Friday.
A lower deficit means less capital needs to flow into the United States, and is consistent with a steady decline in the dollar. Since the middle of last year, the dollar, weighted for trade flows, has fallen steadily against a broad range of currencies, according to data collected by the Fed.
All this suggests that, in spite of headline-grabbing news about the latest low, the dollar could be adjusting gradually as the U.S. economy becomes driven less by lending on the back of rising home price.
The problem, as every economist knows, is that the current account deficit - about $770 billion - is still colossal in absolute terms.
And foreigners are being asked to provide those dollars at a time when the subprime turmoil is threatening to spill over into the broader economy.
Put another way, at a time when the psychology of crisis has gripped financial markets, intangible attitudes toward the dollar have become all the more important. And with growth strong elsewhere in the world, there are appealing places to go besides the dollar.
"The problem is that the deficit is still very, very large," Jen said. "And there are plenty of other investment opportunities outside the United States."
Pressed to make an educated guess, most economists opt for calm, believing the dollar is unlikely to go into a tailspin even as they mark up the odds of one.
The major holders of dollars - notably the Chinese, with their $1.3 trillion in currency reserves - have little incentive to see the dollar weaken, and their support provides the dollar with a bulwark of strength. And since investors need to stay diversified, and U.S. markets are deep and liquid, abandoning the dollar wholesale is hardly a realistic option.
"Rather than a precipitous decline, we are probably be looking at a move steadily lower," said Simon Derrick, chief currency strategist at Bank of New York in London. |
from http://www.iht.com/bin/print.php?id=7498043
| Quote: | The party's over for American consumers
The new numbers on consumer confidence are out. They show American consumers very confident that the economy is going down the tubes.
Over in Asia and Europe, stocks plunged on fears that Americans may no longer be able to find the second jobs and recklessly borrow the money needed to buy imported stuff. Economists now freely use the "recession" word following the report that American payrolls fell in August, the first monthly decline in four years.
American consumers, in other words, are all dried up. And the discussion has begun on what kind of baloney economy kept them lubricated for so long.
Among the jobs to be lost in coming months are up to 12,000 positions at the giant mortgage lender Countrywide Financial Corp. Like other mortgage companies, Countrywide is having a hard time these days palming risky loans off on sucker investors. This means that they can only make prudent loans, which translates into less business.
Of course, some professions thrive in tough economic times. Business should be brisk for bankruptcy lawyers. And we will need auctioneers to help unload foreclosed properties.
There will also be growth in certain "niche" occupations, such as mosquito-control technician. It seems that swimming pools behind abandoned homes in Southern California are turning green, a sign of mosquito infestation. That is a health hazard. Thus, local governments are hiring mosquito-control technicians to fumigate.
And it's vindication time for the economists who've argued for years that expanding household debt is not a brilliant formula for national greatness. And they no longer have to counter the free-lunch theories — among them that a rising population will power the housing-bubble machine unto eternity, and that if you change accounting methods, American families don't seem so much over their heads in debt.
Paul Kasriel, chief economist at Northern Trust in Chicago, has been one of the lonely voices of despair over Americans' personal finances. Last week, his prophetic warnings were reviewed in The Wall Street Journal.
For example, Kasriel wrote in 2004 that inflated housing prices created only an "illusion" of national wealth. "In recent years," he said, "growth in our capital stock has slowed and the composition of the slower growth has moved in favor of McMansions and SUVs, which do little to increase the productive capacity of our economy."
The following year, Kasriel wrote another essay titled, "Households Still Running on Empty!" (The exclamation point is his.) In it, he challenged popular arguments that personal income has been underestimated because of the way contributions to private pension funds are counted. His bottom line was that household borrowing in recent years had risen relative to household spending, and that household spending represented a record 76 percent of gross domestic product.
Today's "partying," he said, would lead to tomorrow's "hangover."
So here we are: The partygoers have downed a bottle and still they can avoid a hangover.
A recent article on the Motley Fool's British Web site offered "Five Ways to Prepare for a Recession." The prescriptions: Don't make big luxury purchases you can't pay for with cash. Build an emergency fund. Live more frugally. Reduce your debt. Find more work.
All sound advice, but consumers had better act fast — like five years ago.
It looks as though Americans will have to find an honest way to pay for the high life. Or they can learn to be happy with what they've got, which, before the McMansions and SUVs, was still quite a lot.
But there's no avoiding reality. The green in the swimming pools is not the color of money, but of happy mosquitoes. |
from http://seattletimes.nwsource.com/html/opinion/2003879888_harrop12.html |
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luke
Joined: 11 Feb 2007
Location: by the sea
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| Posted: Mon Sep 17, 2007 10:06 pm Post subject: |
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| Quote: | 
Chávez warns of impending world financial crisis
CARACAS, September 16 (PL).—Venezuelan President Hugo Chávez warned this Sunday of the danger of a world financial crisis due to the problems presented by the high-risk mortgage business in the United States.
In his TV program "Aló Presidente", the president said that the authorities are studying a combination of measures "to protect us from a large financial earthquake" that would affect the entire world.
In that context, Chávez noted that in recent weeks the Federal Reserve was forced to inject around $300 billion to avert the collapse of the dollar.
The statesman blamed the Washington administration for the current situation by cutting taxes on the rich and offering low interest rates on loans.
Now interest rates have gone up, he observed and the effect of that is extending to credits, with the threat of generating a debacle and more poverty, hunger and serious upheavals.
Hence the need to create structures like the Bank of the South and bring reserves over here, in addition to considering the possibility of changing the composition of the international hard currency inventories and moving to currencies like the euro or the Asian ones.
Chávez mentioned the turmoil generated in August when the European and U.S. Central Banks contributed billions of dollars to avoid the finance system plummeting. |
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luke
Joined: 11 Feb 2007
Location: by the sea
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| Posted: Wed Oct 03, 2007 4:42 pm Post subject: |
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| Quote: | Dollar crunch puts gold centre stage
By Ambrose Evans- Pritchard
Last Updated: 1:30am BST 03/10/2007
The dominoes are toppling. What began as a credit crunch has turned into a dollar crunch. We are witnessing a run on the world's paramount reserve currency, an event that occurs twice a century or so, and never with a benign outcome.
The US dollar has fallen through parity against the Canadian dollar and plummeted to all-time lows against a basket of currencies. This is dangerous. None of the mature economic blocs seems able to take the strain, let alone step in to restore order.
Ultimately, Europe and Japan are in worse shape than the US. A mood of sauve qui peut is taking hold.
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Is this what gold is sniffing as it breaks out against all currencies, smashing through €500 an ounce against the euro, and vaulting to a 28-year high of $743 against the dollar?
"Central banks have been forced to choose between global recession or sacrificing control of gold, and have chosen the perceived lesser of two evils," said Citigroup in a fresh report.
"We believe that the policy resolution to the credit crunch will take the form of a massive, extended 'Reflationary Rescue', in a new cycle of global credit creation and competititive currency devaluations. This could take gold to $1,000 an ounce, or higher."
The report's authors, John Hill and Graham Wark, say the avalanche of central bank bullion sales earlier this year was "clearly timed to cap the gold price".
They do not explain this explosive allegation, long promoted by the gold group GATA. But it would not surprise me if the European Central Bank's motive for selling 37 tonnes in April and May was to hold the euro price of gold below €500.
Citigroup said the game was up once the Federal Reserve slashed rates a half point and opened the liquidity floodgates.
Talk of "competitive devaluations" is a new twist, although Bernard Connolly from Banque AIG has been warning for a long time that this would be the denouement. Gold bugs often prattle about the dollar's demise - condign punishment for a country that has amassed $3 trillion of net liabilities abroad, slashed its savings rate below zero and spent itself into a debtor's gaol - but they rarely ask what currency it is supposed to collapse against.
China is a leveraged play on US shopping malls. Japan is already buckling. Its economy contracted 0.3pc in Q2. Wages have fallen for eight months in a row. The Abe government has fallen - the first sub-prime victim, but not the last.
Until now, the euro has served as the "anti-dollar", the default choice for Asians and petrodollar powers wary of US assets. This cannot last.
A rate of $1.43 (it was 83 cents in 2000) will combine, after a one-year lag, with deflating property bubbles in the Club Med bloc to cause a crisis in 2008. It will then become clear that the needs of the Germanic and Latin zones are incompatible and that a coin with no treasury, debt union, or polity to back it up cannot displace the dollar - if it survives at all.
Airbus is already underwater, unable to meet its dollar contracts unless it shifts plant from Europe. Every 10-cent rise in the euro costs €1bn.
French President Nicolas Sarkozy is in guerrilla warfare against the ECB, threatening to invoke Maastricht Article 109, which gives EU politicians power to set a fixed exchange rate (by unanimity) or a "dirty float" (by majority).
The mood is moving his way. Eurogroup chair, Jean-Claude Juncker, has stopped pretending that all is well. "We have begun to have great concern about the exchange rate of the euro," he said.
Europe will not let America export its day of reckoning to the rest of the world. It will counter with its own devaluation.
No doubt Ben Bernanke will use all means to avert disaster, including the "printing press" he invoked in November 2002. By this he meant that the Fed could inject unlimited stimulus by purchasing as many bonds and assets as it wants. He believes the Fed could have avoided the Depression if it had been more creative in 1931.
Even so, I am not sure that the Bernanke Fed will move fast enough, given fears of moral hazard, or, indeed, whether the rate cuts on offer are enough to head off an insolvency crisis. The chart of S&P 500 looks eerily similar to October 1987, the last time a tumbling US dollar set off a crash.
A Bundesbank rate rise was the trigger then. If the ECB's hawks are pig-headed enough to ram through one last rise on October 4, we might see a replay.
Large parts of the global credit system are still shut. The $2.2 trillion market for commercial paper has shrunk by $368bn over the past seven weeks as lenders refuse to roll over loans. The $2.5 trillion market for "structured finance" remains frozen.
US sales of new houses are down 21pc in a year. Median prices have fallen 14pc since March to $225,700. Builders are having to slash tariffs to move stock at all.
We wait to see what happens as "teaser rates" on some $1.5 trillion of mortgages jump with a venomous kick in coming months. The Fed should have thought about this three years ago when rates were 1pc. It is too late now.
How do you play gold rally? Citigroup says the mining shares are poised to surge after lagging badly, offering a "Gold beta" leverage of 2.36. "The market is likely to be shocked at how much cash the major Golds generate at $700 an ounce," it said.
It certainly looks as if gold has at last "decoupled" from the stock markets, regaining its role as the ultimate store of value. Whether the mining equities have decoupled is another matter.
If Wall Street takes a beating this autumn, the safest play is pure metal. |
from http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/01/ccview101.xml&CMP=ILC-mostviewedbox
i've been watching the price of gold recently ... if you buy now and it goes up to $1000 you'll stay make nearly $270 an oz! its been rocketing recently
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nico
Joined: 12 Dec 2006
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| Posted: Wed Oct 03, 2007 5:40 pm Post subject: Re: It’s Official: The Crash of the U.S. Economy has begun |
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| faceless wrote: | | luke wrote: | | i wonder what effect this will have on the uk? |
Cheaper holidays to Disneyworld?
Seriously though, I'm not sure if it will have that much effect on anyone apart from those who export products there. And also the income from the tourism industry of course... |
come-on faceless,that won't have much effect on anyone apart from those who export products to US ?
When they sneeze in US, you get a hurricane in UK, didn't you hear about Northern rock lately?
Personally I think the Bush administration has known the inevitable all along and the war and the imminent wars will be just distractions from the ominous disastrous US economy. The Romans believed "any time you have problem at home, wage a war to distract people". Nothing seems to have changed after 1.5 millenium. |
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faceless
admin
Joined: 25 Apr 2006
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| Posted: Wed Oct 03, 2007 6:01 pm Post subject: |
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| Northern Rock is a drop in the ocean though; if anything it could be seen as a test case. Not much of Britain's economy is dependent on America. I can't think of the last item I bought that said 'Made in USA' for example, and that is it's problem - they don't export enough real products. |
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nico
Joined: 12 Dec 2006
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| Posted: Wed Oct 03, 2007 6:15 pm Post subject: |
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| faceless wrote: | | I can't think of the last item I bought that said 'Made in USA' ? |
If you mean cheap commodities ok you're right, but think about service products, softwares, windows vista and etc, you'll be amazed to know how much whole of Europe is dependant on the US. |
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faceless
admin
Joined: 25 Apr 2006
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| Posted: Wed Oct 03, 2007 6:33 pm Post subject: |
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| But real value is only really in tangible items when it comes down to it - which is why the value of gold is rising so much. |
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