The curse of cheap money

[Skybird]

In plain English: Inflation.

I always thought that the trouble on the american mortgage market is only a first trembling, confirming that the major earthquake is still to come. The drastic growing of prices over here, and the obvious high public (=unhidden) inflation are two other warning signals.

http://www.spiegel.de/international/...514621,00.html

No shares I hold over here, not only for practical but also for moral reasons, the reserve I have put aside is in gold (the real thing, not just some stupid document saying it serves as a call option - if for any reason the trading of gold is blocked, that document helps you nothing).

The globe is becoming smaller, energy more precious, demands more vicious, readiness to wage wars for economical influence more determined, and the gap between the rich and the poor is widening fast, with few and fewer people becoming more and more rich, and more and more people having less and lesser. more wealth and power is accumulated in fewer hands. Communal systems are economically eroded, political systems corrupted, international finances messed up and in over-debts, and in many third world countries people are still breeding like crazy.

Nice future to head for. "PROXIMITY ALERT - COLLISION IS IMMINENT"

[Chock]

The mortgage crisis hitting the US is not dissimilar to what happened in the UK in the aftermath of Margaret Thatcher's era, albeit for very different reasons. In the UK, it was MT's attempt to squash the unions at any cost, that cost including letting coal mines get closed down, running down the steel and shipbuilding industry and selling off public assets into private hands, which then got 'rationalised' - i.e. lots of people got sacked. All these were union strongholds.

Regardless of whether anyone agrees or does not agree with that policy, the upshot was that a lot of people ended up much poorer, and as a consequence, a great many could not afford to maintain their mortgage payments. The wealth went into fewer hands, and as a result, the UK now cannot afford a large military and thus its influence continues to wane.

In the US, it's the influx of cheap goods from China which is one of the main causes for its indigenous industries starting to struggle. They simply cannot compete with cheap labour and cheap goods. All of which is leading to the US losing its industrial might in a vicious downward spiral, that industrial base being the engine that allowed the US to win WW2. As it declines, China and Russia are on the upswing, widening the gulf between them ever quicker, and that is the worrying aspect of it all. At what point are the US going to decide that picking a fight is the only option left before they cannot afford the military forces which they have been able to afford for so long, while they still have them?

Chock

[SUBMAN1]

Hmm - slight difference here in America. A lot of industrial jobs left, but a lot remains, especially in research. And to top it off, the companies / factories, all of it is still owned by America, so the money is still flowing in on whole. Our economy has drastically improved over the last few months, and show no sign of being dragged down by the collapse of the sub prime market, so you tell me? In Americas eyes, as long as they hold on to the money, not much can put a stop to it. It is a very different world from the MT days. Today things have gone global. In MT's time, things were still very much a home based economy.

-S

[Skybird]

The outstanding public debts of the US of over 9 trillion dollars, and the massive trade deficit, also have something to do with it.

U.S. NATIONAL DEBT CLOCK

The Outstanding Public Debt as of 01 Nov 2007 at 12:30:42 AM GMT is:

The estimated population of the United States is 303,408,709
so each citizen's share of this debt is $29,860.44. The National Debt has continued to increase an average of
$1.39 billion per day since September 29, 2006!
http://www.brillig.com/debt_clock/

Also: a history of US debts in tables:
http://www.sgipt.org/politpsy/finanz...p/usa/usa0.htm

On the deficit:

Most economists are extremely alarmed about the effect of the expanding deficit on the current account. In 2004 the deficit stood at $668 billion, or 5.7% of the gross domestic product (GDP). For 2005 we have estimated that the deficit was around $788 billion, or 6.3% of GDP. As a result of the ballooning deficit, the value of US net external liabilities, expressed at historical cost, jumped to $5.1 trillion in 2005 from $4.3 trillion in 2004. As a percentage of GDP, net external liabilities climbed to 41% in 2005 from 37% in the previous year and 4.9% in 1980.

It is held that this increase in foreign debt cannot go on forever. If the Americans do not begin reducing their trade deficit, there will come a time when foreigners will become less willing to hold dollar denominated assets. This in turn will weaken the US dollar. Consequently, once this happens the United States will be forced to increase interest rates (maybe sharply) to continue to attract foreign investments. Higher interest rates in turn will plunge the economy into recession. In short, given the size of the current account deficit it is held that the US dollar has to plunge in a big way against most currencies, and it is not possible to avoid a painful adjustment as a result of this. It would appear that the trade deficit is a major economic problem that must be urgently addressed in order to avoid serious economic disaster.

http://www.mises.org/story/2029

The second text is from early 2006, but note that it already predicted the massive plunge of the dollar against other currencies, which mayby was no difficult prophecy to do. the eurpo is stron against the Dollar, not becasue the Euro is so strong, but beacuse the dollar is so extremely weak, and weakening further. At no cost I would do financial investements in Dollars again today, these times are over, I think. We already experience widespread chair-moving of nervous nations holding huge dollar reserves. when the first major player starts to change them into other currencies, especially Eeuros, and this becomes public, the dam will break.

What does it all mean? A massive threat of national bancruptcy, combined with the vulneability that tzhe Us policy-making simply will be (or already is?) bought. a growing inflation worldwide due to the low intersts on US finance markets wich should helpt to increase sales in the US and lure more foriegn money into the national Us market - at the pörice of flooding the market with even more cheap money due to the good credit conditions (low interests). Together with the massive deficit, thios has more thahn enough potential to push the whole globe into far more serious trouble than 1929 or 1985.

It also means that the Us is doing it's stellar military investements - on tick only. By own weight, it would not be able to afford that.

The system is totally overstretched, and unsolid. It is living on tick exclusively, it seems, and war on tick as well.

Why do I say that? Because it is foreign short-sighted hopes that makes foreign investors still pumping money into this washed-out system like additional blood is pumped into an ailing body. the whole finance and stock market has it's head not inside a bubble, but is inside the bubble completely. the crash I expect to be far more desastrous than the past 2 crashes in the last century. taking benefit of this will be china's great hour, and maybe Russia as well. Loosers will be Europe, the better part of SE Asia, and North America, of course.

Most people preferred hope to ratio, and wanted it like this, and everyboy played the game, greedy, buying shares more and more. So nobody shall complain - Cheers!

[bookworm_020]

Well at least your not in Zimbabwe!
The inflation is around 11,000% and one dollar U.S. will make you a millionare over there!

[P_Funk]

Last I checked the Loonie was a buck 5 american.

Originally Posted by SUBMAN1

And to top it off, the companies / factories, all of it is still owned by America, so the money is still flowing in on whole.

Owned by who? Rich people that get tax breaks from Bush? You're the American capitalist. How does the wealth trickle down to the little people when all the trickling is happening overseas?

Originally Posted by bookworm_020

Well at least your not in Zimbabwe!
The inflation is around 11,000% and one dollar U.S. will make you a millionare over there!

Yes, but a million pieces of worthless paper isn't worth that much.

That is, unless you intend to re-cycle it.


"Of course, since we've all adopted the leaf as our national currency, we're all filty rich. Then again, due to inflation, we've had to resort to deforrestation to keep the number of leaves down."

---Hitchhiker's Guide to the Galaxy