Thread: The strongest economy in the world

Yea, but the Yanks will only have to pay back half as much in real goods and services when the $US crashes under the pressure of all this borrowing, spending and printing money. Why not sucker them in while they are still stupid enough to invest in $USs and buy US govt bonds backed by nothing but blind faith? Makes a lot of sense to borrow $1 if you only have to pay it back in $0.50 worth of goods (plus 2% P/A) later on. American grand-kids wont be the ones paying for this scam, it will be the kids in other countries, especially places like China who will have to go without to fund the current excesses of USA.

^ Good points, Panda.

Here's a brief Jim Rogers interview, May 16, 2009. He's staying out of US equities (US stock market) for at least 2-3 years, and possibly even a decade:

Originally Posted by Panda

Yea, but the Yanks will only have to pay back half as much in real goods and services when the $US crashes under the pressure of all this borrowing, spending and printing money. Why not sucker them in while they are still stupid enough to invest in $USs and buy US govt bonds backed by nothing but blind faith? Makes a lot of sense to borrow $1 if you only have to pay it back in $0.50 worth of goods (plus 2% P/A) later on. American grand-kids wont be the ones paying for this scam, it will be the kids in other countries, especially places like China who will have to go without to fund the current excesses of USA.

I understand your points, but you should think that Governments and investors around the World can see this danger as well, so why do they keep on buying ?

Same reason people thought the Roman empire could never fail.

Everything else looks fragile, so you go with whats proven to be the most stable during your lifetime.

And of course, what are the alternatives at the moment?
The whole worlds economy revolves around the $US since it replaced gold several decades ago.

When investors are scared they go for the the most stable investment available.
Right now thats $USs in the lead with Euros, Yen and gold following.

There is nothing else at the moment.

Here's an article. True it's an Op-Ed. Good points, IMO, but it's also looking in retrospect. A bit shrill.

The Real Lesson of the Financial Crisis

By MIKE WHITNEY

The financial channels are abuzz with talk of a recovery, but we're not out of the woods yet. In fact, the deceleration in the rate of economic decline is not a sign of recovery at all, but proof that the economy is resetting at a lower level of activity. That means the recession will drag on for some time no matter what the Fed does.

The problem is the breakdown in the securitzation markets which has cut off the flow of easy credit to consumers and businesses. The credit-freeze has caused a sharp drop in retail, auto sales, furniture, electronics, travel, global trade etc. Every sector has been hammered. Fed chief Ben Bernanke's lending facilities have helped to steady the financial system and Obama's fiscal stimulus will take up some of the slack in demand, but these are not a cure-all for a broken credit system. If the system isn't fixed, asset prices will continue to plunge and hundreds of financial institutions will face bankruptcy.

From Tyler Durden at Zero Hedge:

"In order to fully understand currency and price movements, one has to realize that the securitization of debt, and creation of derivatives amounted to a huge virtual printing press, primarily fueled by a massive increase in risk appetite which allowed for a huge expansion in the value of claims on financial assets and goods and services. It is worth pointing out, that the Fed has little to no control over this "printing press" at this point, which at last count was responsible for over 90% of the liquidity in the system." ("The Exuberance Glut or the Dollar-Euro Short Squeeze Race" Tyler Durden, Zero Hedge)



The faux-prosperity of the last decade was largely the result of a wholesale credit system which created a humongous amount of credit via sketchy debt instruments, off-balance sheet operations, massive leverage and derivatives.(The Fed's liquidity and conventional bank loans play a very small part in the modern credit system) Securitization--which is the conversion of pools of loans into securities--is at the center of the storm. It formed the asset-base upon which the investment banks and hedge funds stacked additional leverage creating an unstable debt-pyramid that couldn't withstand the battering of a slumping market. After two Bear Stearns funds defaulted 20 months ago, the securitization markets froze, credit dried up and the broader economy went into a tailspin. Now that investors know how risky securitized instruments really are, there's little chance that assets will regain their original value or that the market for structured debt will stage a comeback.

Bernanke's Term Asset-backed Loan Facility (TALF) is a attempt to restore the crashed system by offering participants generous government funding to purchase securities backed by mortgages, student loans, auto loans and credit card debt. But skittish investors have stayed on the sidelines. The severity of the downturn has dampened the appetite for risk. So Bernanke has cranked up the money supply, cut interest rates to zero and flooded the financial system with liquidity. His actions have convinced many of the experts that the country is on the fast-track to hyperinflation, but that may not be the case, as explained in the Hoisington Investment Management's Quarterly Economic Review:

Quote:
Do people realize that the reason their home equity is vanishing, their 401ks have been slashed in half and their jobs are at risk is because Wall Street was gaming the system with leverage and financial innovation? The current downturn is not really a recession at all; it's more like a self-inflicted wound perpetrated by avaricious speculators who put a gun to the economy's head and blew its brains out. The banks and Wall Street have created a capital hole so vast that the entire economy is being sucked into the abyss. And it all could have been avoided.

Mike Whitney: The Real Lesson of the Financial Crisis


Link & Entire: Mike Whitney: The Real Lesson of the Financial Crisis

If the US gov has such a large stake in equity what are the repuccusions?

Here is 2 minute snippet from Celente, calling the Bailout, "the bubble of all bubbles."

Originally Posted by S Landreth

BankUnited changes ownership

Federal regulators swept in to BankUnited's offices Thursday afternoon and seized the teetering thrift, ending a year-long odyssey to revive the $13-billion asset institution.


New York banker John Kanas and a group of private equity firms won a bidding contest to acquire BankUnited in an auction run by the Federal Deposit Insurance Corp.


Coral Gables-based BankUnited, the largest financial institution based in Florida, will reopen for regular business hours Friday morning under the new ownership. It will have the same name, BankUnited, but drop the FSB after it.


''It's going to go by BankUnited,'' said FDIC spokesman David Barr. The FDIC said the failed institution will cost the insurance fund ``$4.9 billion.''


Under the deal, all deposits are safe. BankUnited's shareholders, however, aren't so lucky: Their equity is likely wiped out.

Link: http://www.miamiherald.com/101/story/1059722.html

shareholders, however, aren't so lucky: Their equity is likely wiped out.

Auuchh that can be someone's life savings.

^I believe your right,…..some people could have lost a life savings.

I hope most people would have pulled out during the first quarter of ‘07, when it took such a sharp dive,…..otherwise some people might have just hoped for the best (a turn around) and held on to it till the end.



Link: Quote.com U.S. Markets - Chart for BANKUNITED FINL CORP (BKUNA)=

Originally Posted by Milkman

Here is 2 minute snippet from Celente, calling the Bailout, "the bubble of all bubbles."

Hope he is wrong!

More information from yesterday’s takeover.

How does this bank failure compare with other failures the FDIC has dealt with?

``This is the third largest bank failure we've had. After bank failures of Washington Mutual and IndyMac, which were the largest failures we've had, this would be the third largest since the economic downturn.''

More questions and answers (from the FDIC) here about the Banks failure:

http://www.miamiherald.com/business/story/1059917.html

Originally Posted by Milkman

From reading as varied sources as I can (Yes, I'm a layman) I believe that next year - 2010 - will be worse than this year, 2009. I might be wrong. But the trends and the stats & numbers tell us otherwise, IMO.

Really hard to call a bottom, but looks that way to me, too. The economy is like a deranged centipede with a lot of shoes still waiting to drop; check out this Salmon blog post:
http://blogs.reuters.com/felix-salmo...es-to-default/
I had an interesting lunch with Vipal Monga of The Deal this afternoon, and he came out with a rather startling datapoint: apparently there’s roughly $500 billion of leveraged loans out there which mature between 2012 and 2014. Is there any conceivable way those loans will be able to be refinanced?
But now go back and read your Lucian Bebchuk: he says that under the stress tests, Treasury didn’t even try to guess the value of assets on banks’ books which mature after 2011.

Way too much optimism out there, too much willingness to believe that bubble can be reflated- in the US, at least, people are desperate return to "normalcy," but I think people are in for a difficult time as the definition of "normal" will have to be revised. As Whitney points out in the article Milkman posted, "Bernanke says that the securitization markets are "frozen" and that the toxic assets should eventually regain much of their original value. But this is just wishful thinking." Exactly. It is also wishful thinking to assume that a US economy based on finance/insurance/real estate (with millions of jobs dependent on the construction of exurban sprawl and ever-increasing real estate prices), consumer debt/retail spending, and low-paying "service" jobs is sustainable- and that the consumers in such an economy can continue to support mercantilist economies in Asia.

^ Houses will regain their numerical $ value when inflation takes hold.

^Correct, in stages 10 and 11 of the ecomonic forecast BKKandrew posted a long long time ago, with the baseline being early 2007...:

1. Global Housing Market Bubble Bursts
2. Global Bank Lending Implodes
3. Global Economy Begins to Contract
4. Global Banks begin to Fail
5. Global Unemployment Soars
6. Global Banks are Nationalised
7. Global Interest Rates are Lowered Dramatically to 0%
8. Global Quantitative Easing will be carried out on a Massive Scale
9. Global (Inflationary)Default on Debt
10. Global Hyperinflation
11. Global Dash For Assets
12. Global Monetary Collapse
13. Global Political Meltdown

Oh yes - and a more detailed, comprehensive debt-o-meter that just shows the situation to be as hopeless as it in fact it is:

U.S. National Debt Clock : Real Time

Originally Posted by Panda

^ Houses will regain their numerical $ value when inflation takes hold.

Quite so and that can't come soon enough for those who need to unload some property!

^The problem is that the amount raised will translate to just a few month's living expenses. That's the bugger with inflation. It would be great if you could just get off when the music stopped.

Originally Posted by Boon Mee

Originally Posted by Panda

^ Houses will regain their numerical $ value when inflation takes hold.

Quite so and that can't come soon enough for those who need to unload some property!

Inflation means the price of everything goes up, but wages dont keep pace. So everything appears to cost more. As inflation affects exchange rates also, another way of looking at it is that everyone takes a cut in pay and the currency devalues. Something that a USA living above its means needs at the moment.

Unfortunately inflation always hits the poor hardest.

Originally Posted by passengers

^Correct, in stages 10 and 11 of the ecomonic forecast BKKandrew posted a long long time ago, with the baseline being early 2007...:

1. Global Housing Market Bubble Bursts
2. Global Bank Lending Implodes
3. Global Economy Begins to Contract
4. Global Banks begin to Fail
5. Global Unemployment Soars
6. Global Banks are Nationalised
7. Global Interest Rates are Lowered Dramatically to 0%
8. Global Quantitative Easing will be carried out on a Massive Scale
9. Global (Inflationary)Default on Debt
10. Global Hyperinflation
11. Global Dash For Assets
12. Global Monetary Collapse
13. Global Political Meltdown

Appears to be on track so far. But I would have to disagree with number 13 as the end game. Instead I would go for --
#13. Global political disarray and civil unrest. then, --
#14 Reassessment of global monetary system abandoning the $US and replacing it with a productivity based basket of currencies. And finally
#15. A slow return to global trade prosperity.

I used to think this current world financial crisis would last for 3 to 5 years, but now I am thinking it might go 5 to 10 years because every country is trying to maintain the status quo of the already failed $US hegemony by simply pumping more paper money into the system. Such a move, trying to promote recovery by inflationary practices designed to sustain an unsustainable US debt is doomed to failure and only prolongs the agony period of recovery.

The big danger is that even after the inevitable crash of the $US, the world will continue to try to base international trade on the currency of just one country/region, -- be it the $US or the Euro. Such a move would inevitably lead only to another world financial collapse sometime in the future.

I do have confidance however that (eventually) after the failed experiment of the past 35 years using the $US as the worlds trading medium, common sense might prevail and a more substantial productivity based trading medium will be established.

Originally Posted by Panda

Inflation means the price of everything goes up, but wages dont keep pace. So everything appears to cost more. As inflation affects exchange rates also, another way of looking at it is that everyone takes a cut in pay and the currency devalues. Something that a USA living above its means needs at the moment.

Have to wonder if the countries that thrive by exporting (both goods and financing) to spendthrift American consumers are going to be ready for what happens to them when the USA is forced to take its medicine.

Originally Posted by Panda

Unfortunately inflation always hits the poor hardest.

True, and because core inflation is usually given ex food and energy, published rates of inflation don't necessarily indicate impact on the poor. One thing that has been mitigating the effects of the economic downturn in the US (as well as in Thailand) has been that fuel prices have stayed low. That seems to be changing. If oil prices spike again things are going to get much rougher.

A recent quick interview. About 2 mintues. Economic "apocalypse" around 2012?
Interview on May, 24, 2009.

Bold statement. But times are definitely odd.

I find it hard to believe that such a smart guy could overlook the role the $US hegemony has played in the current financial situation. Or maybe he just doesn't want to mention it just yet for some unknown reason?

Originally Posted by Panda

I find it hard to believe that such a smart guy could overlook the role the $US hegemony has played in the current financial situation. Or maybe he just doesn't want to mention it just yet for some unknown reason?

I think he does know it. He's an old economist and economic studier.

He's has talked about the dollar tanking several times.

The topic of the US dollar did not come up in this brief interview, less than 3 minutes long.