Collapse of U.S. Economy Imminent

Jerry_B

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Others say the sheer size of the numbers is misleading. Yes, the budget deficit is a record, but they point out that as a percentage of gross domestic product it is actually less than in the mid-Eighties. There have been previous scares, they point out, and the economy and Wall Street are still growing strongly.
That's an important point to bear in mind. Even if the figures seem high, if the strength of the economy in general is high then such figures are small in terms of the GDP (Gross Domestic Product). It's all about measures of scale. So whilst $11 trillion may look alot on paper, if it's only a sum that makes up a few percentiles of the GDP then the economy can handle it. An anaology would be if you have $100 dollars, lend someone one or two dollars (with interest), you can afford it. Plus the fact credit brokers are not going to just give out credit for no reason - they must have enough confidence in the US economy in order to do this.
 
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Jerry_B said:
That's an important point to bear in mind. Even if the figures seem high, if the strength of the economy in general is high then such figures are small in terms of the GDP (Gross Domestic Product). It's all about measures of scale. So whilst $11 trillion may look alot on paper, if it's only a sum that makes up a few percentiles of the GDP then the economy can handle it. An anaology would be if you have $100 dollars, lend someone one or two dollars (with interest), you can afford it. Plus the fact credit brokers are not going to just give out credit for no reason - they must have enough confidence in the US economy in order to do this.
According to a quick Google on USA GDP;

United States — GDP: $ 11,750,000,000,000
According to http://www.cia.gov/cia/publications/fac ... 1rank.html - More sources »
This would indicate that their GDP is the same amount as their debt, although their debt is more likely to rise than their GDP.
 

Jerry_B

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But AFAIK US citizens don't actually owe the US govt. the $11 trillion quoted. Their debt could be owned by a variety of non-US sources, thanks to internatonal banking ;)
 
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Jerry_B said:
But AFAIK US citizens don't actually owe the US govt. the $11 trillion quoted. Their debt could be owned by a variety of non-US sources, thanks to internatonal banking ;)
Oh - I was under the impression that the US national debt was at least $8 trillion.

Is this not so?
 

Jerry_B

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It's around that mark. But even then it's not a 'hard' figure - debt is malleable. That is, the US may owe that much, but it's extremely unlikely that the sum total of that debt will ever be called in by creditors. If the GDP is growing each year, then the economy could still be said to be strong. GDP is much more of a 'hard' figure because it represents an immediately sum of money - money in the bank, as it were. So the US may owe $8 trillion, but it's not under any siginificant pressure to pay off those debts in one go. Debts are on-going and a culmination of years of borrowing, not something peculiar to just the current administration (although the 'war on terror' has increased debt by quite a bit IIRC). Problems should only really occur if the US currency get's devalued (i.e. via inflation), or the economy slows down too much, or if it's creditors decide to call in significant chunks of debt. So for the time being the US can still afford it's debts - it's just problematic whether it choses to cap it's borrowing and take other economic measures to control them (i.e. by raising taxes, making spending cuts, etc.)
 

crunchy5

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It looks like poor people the world over are getting sick of supporting the US deficit.

http://www.informationclearinghouse.inf ... e13141.htm

05/22/06 "Information Clearing House" -- -- “If one day the world’s largest oil producers demanded euros for their barrels, it would be the financial equivalent of a nuclear strike”. Bill O’ Grady, A.G. Edwards

On May 10, Russian President Vladimir Putin ignited a firestorm that is bound to sweep across the global economy. In his State of the Nation speech to parliament,, he announced that Russia was planning to make the ruble “internationally convertible” so that it could be used in oil and natural gas transactions. Presently, oil is denominated exclusively in dollars and sold through the New York Mercantile Exchange (NYMX) or the London Petroleum Exchange (LPE) both owned by American investors. If Russia proceeds with its plan, the ruble will go nose to nose with the dollar on the open market sending several billions of surplus greenbacks back to the United States. This could potentially send the American economy into freefall; triggering a deep recession and an extended period of hyper-inflation.

“The ruble must become a more widespread means of international transactions,” Putin said. “To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in rubles."

Currently, the central banks around the world carry large stockpiles of dollars to use in their purchases of oil. This gives the US a virtual monopoly on oil transactions. It also forces reluctant nations to continue using the dollar even though it is currently underwritten by $8.4 trillion national debt.

Putin’s plan is similar to that of Iran, which announced that it would open an oil-bourse (oil exchange) on Kish Island in two months. The bourse would allow oil transactions to be made in petro-euros, thus discarding the dollar. The Bush administration’s belligerence has intensified considerably since Iran made its intentions clear. In fact, just yesterday, Secretary of State Condi Rice said that “security guarantees were not on the table” regardless of any Iranian commitment to stop enriching uranium. In other words, Washington will not provide Iran a “non-aggression pact” whether it follows UN Security Council guidelines or not.
 

tastyintestines

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How could poor people support a deficit? A poor person by definition has little to no money and any they have is spent on basic survival. Supporting the deficit would mean they were buying war bonds(which get paid back no matter what) or investing in US businesses or interests. When did we back Chechnyan rebel groups?(As the article also states)

Do you understand what agendas are at work here? Why are you supporting them? I know that you will say you are just posting a relevant article to the thread and that you don't support US fiscal and populace destruction, but you do perpetuate propaganda. Sometimes I wonder...




(sorry for any offending, I take these things personally)
 

sebastianp1

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:?: Isn't the US economy in double deficit? That means both the public (government) sector and the private sector are running deficits. Surely this is reason for concern! If the public sector has limited or no capacity to offset the private sector's profligacy, as is the case if they are both in deficit, then the country concerned is in deep doo-doo!

Dick-headed policy such as a half-arsed invasion of Iraq really doesn't help the situation :cry: . According to one rumour I heard, the invasion was pulled on because Iraq was planning to denominate their oil sales in Euros. So the invasion was to prevent this happening? Bloody stupid outlay of funds to support the US$ if so!

No, sorry, I just can't believe that the US economy isn't a disaster just waiting to happen. If Iran actually goes ahead and denominates oil sales in Euros the US now has almost no capacity to invade and head it off.

:twisted: :twisted: STIFF!!!!!!!!
 

feen5

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Ok this thread was started in January and the collapse seems no closer, it might be time to change the thread title from Collapse is imminent to the Collapse is going to happen some time soon possibly? And we can continue on changing it from there as needs be.
Further thread titles can be Collapse is going to happen some time but were not sure when, Collapse may have happened but for certain unforseen circumstances, Collapse didn't happen when we said the first time but now we have our dates right it will definatly happen soon.
Its a bit like the asteroid, comet, and certain UFO threads they are always coming but they just never quite seem to make it.
 
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tonyblair11 said:
How could poor people support a deficit? A poor person by definition has little to no money and any they have is spent on basic survival. Supporting the deficit would mean they were buying war bonds(which get paid back no matter what) or investing in US businesses or interests. When did we back Chechnyan rebel groups?(As the article also states)

Do you understand what agendas are at work here? Why are you supporting them? I know that you will say you are just posting a relevant article to the thread and that you don't support US fiscal and populace destruction, but you do perpetuate propaganda. Sometimes I wonder...

(sorry for any offending, I take these things personally)

Poor people make rich people rich - it is the reason why rich people are rich and poor people are poor.
 
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Anonymous

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feen5 said:
Ok this thread was started in January and the collapse seems no closer, it might be time to change the thread title from Collapse is imminent to the Collapse is going to happen some time soon possibly? And we can continue on changing it from there as needs be.
Further thread titles can be Collapse is going to happen some time but were not sure when, Collapse may have happened but for certain unforseen circumstances, Collapse didn't happen when we said the first time but now we have our dates right it will definatly happen soon.
Its a bit like the asteroid, comet, and certain UFO threads they are always coming but they just never quite seem to make it.

Depends on what you would define as imminent.

There was speculation about March 2006 - so you are right at least that it did not happen.
 

Heckler

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coldelephant said:
Depends on what you would define as imminent.
.
Precisely, I don't think anyone is trying to sell copies of Watchtower here..... ;)
 

bazizmaduno

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Interesting post, Crunchy5

Like it!

I reckon that Russia, America and Iran have done a deal.

The Russian rouble-bourse and the Iranian euro-bourse will kick off on the same day/time. A tripartite system of currency-bourses for oil/gas will be far less damaging to the US economy than a single opposing one - or, maybe not!!!
:D
 

crunchy5

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A bit more on the same.

http://www.aljazeera.com/me.asp?service_ID=11445

Many analysts suggest that Saddam Hussein’s switch from the dollar to the euro for oil trading was one of the core reasons for the 2003 U.S.-led invasion. Now Iran, the 2nd largest OPEC producer, is getting ready to open a new oil bourse that will trade in euros. And Venezuela is said to be actively discussing the same move.

Russia too joined the bandwagon. Earlier this month, President Vladimir Putin announced the creation of a Russian bourse trading oil and gas in Roubles. Moreover, the Russian President said that work on making the Rouble an internationally convertible currency would be completed by 1 July 2006, six months ahead of schedule. “The rouble must become a more widespread means of international transactions. To this end, we need to open a stock exchange in Russia to trade in oil, gas, and other goods to be paid for in roubles,” he said.

According to an editorial on the Online Journal, Iran, Venezuela and Russia possess about 25% of the export market in oil. If they stop trading their oil exports for dollars, the U.S. currency will seriously be affected, raising interest rates, increasing the cost of imports in the U.S. and leading to an inflationary economy or a recession. In the short term, the inflationary route always seem to be the less painful, but it would ultimately lead to a crisis of confidence in the U.S. dollar, when traders dump dollars for euros.

“What we are witnessing is a battle for oil currency supremacy. If Iran’s oil bourse becomes a successful alternative for international oil trades, it would challenge the hegemony currently enjoyed by the financial centers in both London (IPE) and New York (NYMEX),” according to an article by William Clark on the Energy Bulletin.

At the same time, some Middle Eastern countries have been switching percentages of their dollar reserves for other currencies. In March, the UAE Central Bank said it was mulling converting 10% of its dollar reserves to euros following the Dubai Ports World debacle. Kuwait and Qatar also hinted they might do the same.

Moreover, the Commercial Bank of Syria has already switched all the country’s foreign currency transactions from dollars to euros after Washington demanded all U.S. financial institutions to end correspondent accounts with Syria.

And last month, Sweden cut its $21 billion foreign reserves, from 37% to 20%, with the euros share rising to 50%, causing the dollar to tumble almost 2% in one week. Announcing its decision, Sweden’s central bank said the move was aimed at stabilizing its foreign currency reserves and reducing volatile currencies.

Iran, Venezuela and Russia’s relations with the United States are tense, and their proposed switch from dollars to euros is thought to be partially, if not wholly, politically motivated. However, if the dollar value falls as a result, then central banks around the world will be left with devalued reserves, and may have to start switching as well.

According to David Smith, economic editor for the Sunday Times, much of the dollar fall is further “prompted by America’s $800 billion current-account deficit.” This deficit isn’t shocking, when more than $280 billion has been spent on the Iraq War and the Bush Administration’s proposed tax cuts which mostly benefit mega corporations and the wealthy.

Gulf states, particularly the UAE and Qatar, are said to be suffering inflationary pressures on their economies due to the weakened dollar and there is debate raging over whether the dirham and the riyal should be released from their longtime hinge to the greenback.

Some economists are also making the case for Gulf currencies to be linked to a basket of foreign currencies instead.

In May, Kuwait, the third-largest Arab oil producer, revalued its dollar-pegged dinar by one percent. According to the Kuwaiti finance minister, the move was aimed at offsetting the impact of the dollar slide on investments and inflation.

According to an article on the Emirates Bank website, written by its general manager, there is a more important issue than the pegging of GCC currencies. “A more important question therefore, may be whether oil exports should continue to be denominated in U.S. dollars,” he says. “This might well be something that OPEC or OEAPC can consider as to the pros and cons but is a matter that is best decided by a dialogue between the importers of oil and the exporters.”

The United States’ aggressive foreign policies have also been one of the main reasons behind the surge in oil prices. If the U.S. launched war against Iran, or interfered in the internal affairs of Venezuela, oil could hit the $100 dollar mark with severe repercussions on the United States and other first world economies.

Iran’s President Mahmoud Ahmadinejad has threatened to respond to any U.S. attack by blocking the Straits of Hormuz; the waterway that links the Persian Gulf with the Gulf of Oman and controls oceangoing traffic to and from the oil-rich Gulf states. And Venezuelan leader Hugo Chavez threatened to halt oil exports to the United States if threatened with invasion.

It’s well known that any trouble in the U.S. economy affects the rest of the world, and this is certainly true when connected to the weakness of the U.S. currency. Last week, London Blue Chips dived due to the weaker dollar and U.S. inflation concerns, while Asian Stocks also felt the pinch.

The United States seems unconcerned, and moreover, it is sending out confusing messages. For example, China was badgered to unpeg the yuan from the dollar, and to revalue the currency so as to give U.S. exports a competitive pricing edge, but since, the U.S. Treasury Secretary John Snow has stated that a strong dollar is in the nation’s interests.

In the meantime, Beijing is buying up Washington’s debt in the form of T-bills; some $200 billion worth. If China decided to abandon the U.S. T-bills, perhaps in response to a row over Iran’s nuclear program or more likely Taiwan, the United States could find itself in trouble.

Meanwhile, the world is watching, hoping that the great powers really know the consequences of their decisions. The questions that should bother us all are how low will the dollar go, and what actions will the U.S. take to stop its slide?
I'm fully aware of the world of hurt this will entail for me and my family, that's why I wish Bush would realise his folly and talk his way out rather than trying to hold onto all the golden goose when the other parties have decided it's worth a scrap to get their fair share.
 

crunchy5

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A good piece from the information clearing house.

http://www.informationclearinghouse.inf ... e15440.htm

A report in The Sydney Morning Herald stated, “Australia’s Treasurer Peter Costello has called on East Asia’s central bankers to ‘telegraph’ their intentions to diversify out of American investments and ensure an ‘orderly adjustment’….Central banks in China, Japan, Taiwan, South Korea, and Hong Kong have channeled immense foreign reserves into American government bonds, helping to prop up the US dollar and hold down interest rates,’ said Costello, but ‘the strategy has changed.’”

Indeed, the strategy has changed. The world has come to its senses and is moving away from the green slip of paper that is currently mired in $8.3 trillion of debt.

The central banks now want to reduce their USD reserves while trying to do as little damage to their own economies as possible. That’ll be difficult. If a sell-off ensues, it will start a stampede for the exits.

There’s little hope of an “orderly adjustment” as Costello opines; that’s just false optimism. When the greenback begins listing; things will turn helter-skelter quickly.

In September, we saw early signs that the dollar was in trouble. The trade deficit registered at $70 billion but the Net Foreign Security Purchases (NFSP) came in at a paltry $33 billion. That means that our main trading partners are no longer buying back our debt which puts downward pressure on the greenback. The Fed had two choices; either raise interest rates substantially or let the currency fall. Given the tenuous condition of the housing bubble and the proximity of the midterm elections, the Fed did neither.

A month later, in October, the trade deficit hit $69.9 billion but, then, without warning, a miracle occurred. The Net Foreign Security Purchases skyrocketed to a “historic high” of $116.8 billion; covering both months’ shortfalls almost to the penny.

Coincidence?

Not likely. Either the skittish central banks decided to “stock up” on their dollar-denominated investments or the Federal Reserve (and their banking-buddies) is buying back its own debt to float us through the elections.

This is exactly the kind of hanky-panky that people expected when Greenspan stopped publishing the M-3 last March keeping the rest of us in the dark about what was really going on with the money supply.

Are we supposed to believe that the skeptical central banks suddenly doubled up on their T-Bills while they’re (publicly) moaning about the dollar’s weakness and threatening to diversify?

That’s a stretch.

According to the Wall Street Journal the Chinese Central-bank governor Zhou Xiaochuan stated unequivocally that “We think we’ve got enough.” The Chinese presently have nearly $1 trillion in USD and US Treasuries.

“Enough”?

The United States runs a $200 billion per year trade deficit with China. If they’ve “got enough” we’re dead-ducks. After all, it doesn’t take a sell-off to kill the dollar, just unwillingness on the part of the main players to stop purchasing at the same rate.


Of course, everyone in Washington already knew that doomsday was approaching. That’s the way the system was designed from the very beginning. It’s all part of the madcap scheme to “starve the beast” and transfer the nation’s wealth to a handful of western plutocrats. That’s explains why the Fed and the White House whirred along like two spokes on the same wheel; every policy calculated to thrust the country headlong toward disaster.

The administration never created a funding mechanism for the $400 million tax cuts or for the 35% expansion of the Federal government. Defense spending increased by leaps and bounds as did the “no-bid” contracts for friends of the Bush clan. At the same time, interest rates were lowered to rock-bottom to put as much money as possible into the hands of people who couldn’t meet the traditional criteria for a mortgage. And, if gluttonous waste, reckless overspending and “Mickey Mouse” loans were not enough; the Fed capped it off by doubling the money supply in 7 years; a surefire prescription for hyper-inflation.

So, which one of these policies was not deliberate?

The financial crisis that we now face was created by design. It is intended to destroy the labor movement, crush the middle class, quash Medicare, Medicaid and Social Security, reduce our foreign debt by 50 or 60%, force a restructuring of America’s debt, privatize all public assets and resources, and create a new regime of austerity measures which will divert more wealth to the banking and corporate establishments.
In the last few weeks the Bush administration has passed the Military Commissions Act of 2006 which allows the president to arrest and torture whomever he chooses without charging him with a crime. Also, unbeknownst to most Americans, Bush signed into law a provision which, according to Senator Patrick Leahy, will allow the president to unilaterally declare martial law. By changing The Insurrection Act, Bush has essentially overturned the Posse Comitatus Act which bars the president from deploying troops with the United States. The John Warner Defense Authorization Act of 2007 (as it is called) also allows Bush to take control of the National Guard which has always been under the purview of the state governors. Bush now has absolute power over all armed troops within the country, a state of affairs which the constitution purposely tried to prevent. The administration’s dream of militarizing the country under the sole authority of the executive has now been achieved although the public still has no idea that a coup that has taken place.

So, how will this cadre of plutocrats coerce the other nations to continue to use the dollar while it plummets from its perch?

Oil.

As long as oil is denominated in dollars, the central banks will be forced to stockpile American scrip regardless of its value. It’s no different than holding a gun to someone’s head. They will use our debt-plagued greenbacks or their cars and trucks will sputter, their tractors and factories will wheeze, and their economies will grind to a halt. It’s just that simple.

America cannot maintain its superpower status unless it continues to control the global economic system. That means the linkage between the dollar and oil must be preserved. The Bush troupe sees this as an existential issue upon which the future of America’s ruling class depends. By 2020, 60% of the world’s oil will come from the Middle East. Bush will do everything in his power to control the resources of the Caspian Basin, thereby expanding US dollar-hegemony and paving the way for a new American century
 
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Did Greenspan Set America Up For A Second Great Depression?

http://www.onlinejournal.com/artman/pub ... 1777.shtml

The second Great Depression
By Mike Whitney
Online Journal Contributing Writer


Feb 22, 2007, 00:45

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“The US economy is in danger of a recession that will prove unusually long and severe. By any measure it is in far worse shape than in 2001-02 and the unraveling of the housing bubble is clearly at hand. It seems that the continuous buoyancy of the financial markets is again deluding many people about the gravity of the economic situation.” --Dr. Kurt Richebacher

“The history of all hitherto society is the history of class struggles.” --Karl Marx

This week’s data on the sagging real estate market leaves no doubt that the housing bubble is quickly crashing to earth and that hard times are on the way.

“The slump in home prices from the end of 2005 to the end of 2006 was the biggest year over year drop since the National Association of Realtors started keeping track in 1982.” (New York Times)

The Commerce Dept announced that the construction of new homes fell in January by a whopping 14.3 percent. Prices fell in half of the nation’s major markets and “existing home sales declined in 40 states.” Arizona, Florida, California, and Virginia have seen precipitous drops in sales. The Commerce Department also reported that “the number of vacant homes increased by 34 percent in 2006 to 2.1 million at the end of the year, nearly double the long-term vacancy rate.” (Marketwatch)

The bottom line is that inventories are up, sales are down, profits are eroding, and the building industry is facing a steady downturn well into the foreseeable future.

The ripple effects of the housing crash will be felt throughout the overall economy; shrinking GDP, slowing consumer spending and putting more workers in the growing unemployment lines.

Congress is now looking into the shabby lending practices that shoehorned millions of people into homes that they clearly cannot afford. But their efforts will have no affect on the loans that are already in place. One trillion dollars in ARMs (adjustable rate mortgages) are due to reset in 2007, which guarantees that millions of over-leveraged homeowners will default on their mortgages putting pressure on the banks and sending the economy into a tailspin. We are at the beginning of a major shake-up and there’s going to be a lot more blood on the tracks before things settle down.

The banks and mortgage lenders are scrambling for creative ways to keep people in their homes, but the subprime market is already teetering and foreclosures are on the rise.

There’s no doubt now, that former Federal Reserve Chairman Alan Greenspan’s plan to pump zillions of dollars into the system via “low interest rates” has created the biggest monster-bubble of all time and set the stage for a deep economic retrenchment.

Greenspan’s inflationary policies were designed to expand the “wealth gap” and create greater economic polarization between the classes. By the time the housing bubble deflates, millions of working class Americans will be left to pay off loans that are considerably higher than the current value of their homes. This will inevitably create deeper societal divisions and, very likely, a permanent underclass of mortgage-slaves.

A shrewd economist and student of history like Greenspan knew exactly what the consequences of his low interest rates would be. The trap was set to lure in unsuspecting borrowers who felt they could augment their stagnant wages by joining the housing gold rush. It was a great way to mask a deteriorating economy by expanding personal debt.

The meltdown in housing will soon be felt in the stock market, which appears to be lagging the real estate market by about 6 months. Soon, reality will set in on Wall Street just as it has in the housing sector, and the “loose money” that Greenspan generated with his mighty printing press will flee to foreign shores.

It looks as though this may already be happening even though the stock market is still flying high. On Friday, the government reported that net capital inflows reversed from the requisite $70 billion to AN OUTFLOW OF $11 BILLION!

The current account deficit (which includes the trade deficit) is running at roughly $800 billion per year, which means that the US must attract about $70 billion per month of foreign investment (US Treasuries or securities) to compensate for America’s extravagant spending. When foreign investment falters, as it did in December, it puts downward pressure on the greenback to make up for the imbalance.

Everbank’s Chuck Butler put it like this: “Not only did the buying stop by foreigners in December, but the outflows were huge! Domestic investors increased their buying of long-term overseas securities from $37 billion to a record $46 billion. This is a classic illustration of ‘lack of funding.’ So, the question I asked the desk was . . . ‘Why isn’t the euro skyrocketing?’”

Why, indeed? Why would central banks hold onto their flaccid greenbacks when the foundation that keeps it propped up has been removed?

The answer is complex but, in essence, the rest of the world has loaned the US a pair of crutches to bolster the wobbly dollar while they prepare for the eventual meltdown. China and Japan are currently holding over $1.7 trillion in US currency and US-based assets and can hardly afford to have the ground cut out from below the dollar.

There are, however, limits to the “generosity of strangers” and foreign banks will undoubtedly be pressed to take more extreme measures as it becomes apparent that Team Bush plans to produce as much red ink as humanly possible.

December’s figures indicate that foreign investment is drying up and the world is no longer eager to purchase America’s lavish debt. The only thing the Federal Reserve can do is raise interest rates to attract foreign capital or let the dollar fall in value. The problem, of course, is that if the Fed raises rates, the real estate market will collapse even faster which will strangle consumer spending and shrivel GDP. In other words, we are at the brink of two separate but related crises: an economic crisis and a currency crisis. That means that the unsuspecting American people are likely to be ground between the two mill wheels of hyperinflation and shrinking growth.

In real terms, the economy is already in recession. The growth numbers are regularly massaged by the Commerce Department to put a smiley face on an underperforming economy. Industrial output continues to flag (in January it was down by another .5 percent) while millions of good-paying factory jobs are being airmailed to China where labor is a mere fraction of the cost in the USA. Also, automobile inventories are up while factory production is in freefall.

In addition, new jobless claims soared to 357,000 in the week ending February 10. Forty-four thousand more desperate workers have been given their pink slips so they can join the huddled masses in Bush’s Weimar Dystopia.

December’s net capital inflows are a grim snapshot of the looming disaster ahead. As the housing bubble loses steam, maxed out American consumers will face increasing job losses and mounting debt. At the same time, foreign investment will move to more promising markets in Asia and Europe, causing a steep rise in interest rates. This is bound to be a stunning blow to the banks that are low on reserves ($44 billion) but have generated $4.5 trillion in shaky mortgage debt in the last 6 years.

It’s all bad news. The global liquidity bubble is limping towards the reef and when it hits it’ll send shockwaves through the global economic system.

Is it any wonder why the foreign central banks are so skittish about dumping the dollar? No one really relishes the idea of a quick slide into a global recession followed by years of agonizing recovery.

Maybe that’s why Secretary of Treasury Hank Paulson has reassembled the Plunge Protection Team and installed a hotline to his Chinese counterpart, so he can quickly respond to sudden gyrations in the stock market or a freefalling greenback; two of the calamities he could be facing in the very near future.

Greenspan successfully piloted the nation into virtual insolvency. In fact, the parallels between our present situation and the period preceding the Great Depression are striking. Just as massive debt was accumulating in the market from the purchase of stocks “on margin,” so too, mortgage debt between 2000 and 2006 soared from $4.8 trillion to $9.5 trillion. In both cases the “wealth effect” spawned a spending spree which looked like growth but was really the steady, insidious expansion of debt which generated economic activity. In both periods wages were either flat or declining and the gap between rich and working class was growing more extreme by the year.

As Paul Alexander Gusmorino said in his article, “Main Causes of the Great Depression”: “Many factors played a role in bringing about the depression; however, the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920s, and the extensive stock market speculation that took place during the latter part of that same decade.”

The same factors are at work today except that the speculation is in real estate rather than stocks. Just as in the 1920s the equity bubble was not created by wages keeping pace with productivity (the healthy formula for growth) but by the expansion of personal debt. Also, one could buy stocks without the money to purchase them, just as one can buy a $600,000 or $700,000 house today with zero down and no monthly payment on the principle for years to come. The current account deficit ($800 billion) could also weigh heavily in any economic shake-up that may be forthcoming.

Bob Chapman of The International Forecaster made this shocking calculation about America’s out-of-control trade deficit: “US debt was up 10.1 percent to $4.085 trillion and accounts for 58.8 percent of all the credit issued globally last year. That means the US expanded credit at a much faster rate than the economy grew. This was borrowing to maintain a higher standard of living and attempt to pay for it tomorrow.”

Think about that; the US sucked up nearly 60 percent of ALL GLOBAL CREDIT in one year alone. That is truly astonishing.

There are many similarities between the pre-Depression era and our own. Paul Alexander Gusmorino says: “The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually all of the industrialized world. The depression began in late 1929 and lasted for about a decade. . . . The excessive speculation in the late 1920s kept the stock market artificially high, but eventually led to large market crashes. These market crashes, combined with the misdistribution of wealth, caused the American economy to capsize.”

“[The income disparity] between the rich and the middle class grew throughout the 1920s. While the disposable income per capita rose 9 percent from 1920 to 1929, those with income within the top 1 percent enjoyed a stupendous 75 percent increase in per capita disposable income . . . A major reason for this large and growing gap between the rich and the working-class people was the increased manufacturing output throughout this period. From 1923-1929 the average output per worker increased 32 percent in manufacturing. During that same period, average wages for manufacturing jobs increased only 8 percent (This ultimately causes a decrease in demand and leads to growth in credit spending)

“The federal government also contributed to the growing gap between the rich and middle-class. Calvin Coolidge’s (pro business) administration passed the Revenue Act of 1926, which reduced federal income and inheritance taxes dramatically . . . (At the same time) the Supreme Court ruled minimum-wage legislation unconstitutional.

“The bottom three quarters of the population had an aggregate income of less than 45 percent of the combined national income; while the top 25 percent of the population took in more than 55 percent of the national income . . . Between 1925 and 1929 the total credit more than doubled from $1.38 billion to around $3 billion.”

Just like now, the growing wage gap has spawned massive speculative bubbles as well as a steady up-tick in credit spending. Wage stagnation forces workers to seek other opportunities for getting ahead. When wages fail to keep pace with productivity then demand naturally decreases and business begins to flag. The only way to spur more buying is by easing interest rates or expanding personal credit, and that is when equity bubbles begin to appear. That’s what happened to the stock market before 1929 as well as to the real estate market in 2007. The availability of credit has kept the housing market afloat but, ultimately, the result will be the same.

On Monday October 21, 1929, the over-valued stock market began its downward plunge. It managed a brief mid-week comeback, but seven days later, on Black Tuesday, it plummeted again; 16 million shares were dumped and there were no buyers.

The game was over.

Confidence evaporated overnight. People stopped buying on credit, the bubble-economy collapsed, and the mighty locomotive for growth, the American consumer, hobbled into the Great Depression. Tariffs were thrown up, foreigners stopped buying American goods; banks closed, business went bust, and unemployment skyrocketed. Ten years later the country was still reeling from the implosion.

Now, 77 years later, Greenspan has led us sheep-like to the same precipice. The economic dilemma we’re facing could have been avoided if the expansion of personal credit had been curtailed by prudent monetary policy at the Federal Reserve and if wealth were more evenly distributed as it was in the ’60s and ’70s. But that’s not the case; so we’re headed for hard times.
 
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Anonymous

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Mods - I think this should be moved to the US Economy about to collapse thread.
 
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Pirue

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coldelephant said:
Mods - I think this should be moved to the US Economy about to collapse thread.
Can someone post a link to that thread?
 

Jerry_B

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Mortgage concerns hit US markets

US shares have tumbled amid fears that a wobble in the mortgage market may prompt a global credit crunch.

The Dow Jones index fell 199.24 points, or 1.5%, to 13,458.62. The S&P shed 1.7% and the Nasdaq lost 1.4%.

European indexes slumped earlier after the European Central Bank said it was pumping money into the banking market.

There also were reports that the US Federal Reserve was doing something similar to ensure that there was enough cash available for banks to use.

Analysts said that the markets would remain volatile in the near future.

"Markets are taking this latest news seriously with the risk appetite on the back foot," said David Corbell, analyst at IFR Markets.

BBC Source
 

crunchy5

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Don't forget that those shares are priced in dollars which have fallen in value by a third in the last couple of years, so look back two years see what the stock market stood at and increase that value by a third, you'll be shocked at how far the value has fallen in real terms. The falling dollar is one of the reasons that oil has gone up in dollar terms on the barrel, a hundred dollar a barrel oil is actually only seventy dollars in pound value.
 

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er, what are the smart people putting their money into?

:spinning
 

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JamesWhitehead said:
er, what are the smart people putting their money into?

:spinning
A farm, a huge electrical fence, and lots of guns.

Actualy, this is my childhood dream.
 

crunchy5

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JamesWhitehead said:
er, what are the smart people putting their money into?

:spinning
Big Bill Gates got out of dollars publicly early this year, IIRC, and take a look at what gold has done in the last few years. ;)

I read a far out conspiracy piece a couple of years ago alleging that the US and French arms of the Rothschild family were having a spat with the US side backing oil and the French side backing gold, the UK was stuck in the middle with the pound and the city as battle ground and reserve currency, at the time I thought it was crap, not so sure now.
 

Jerry_B

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Iggore said:
A farm, a huge electrical fence, and lots of guns.

Actualy, this is my childhood dream.
Best that you purchase the farm outright (rather than have a mortgage) - if the credit bubble bursts you'll be faced with negative equity, then probably have to use those guns on repo men ;)
 

crunchy5

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Iggore said:
A farm, a huge electrical fence, and lots of guns.

Actualy, this is my childhood dream.
The Bush clan have just bought a country sized ranch in iirc Uruguay, it just happens to be over an untapped aquifer, I suspect they've already got loads of guns'n stuff, but even if they didn't the US state will be paying a fortune for their security for as long as there is a US.
 
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The global credit crunch fiasco carries on in the headlines...

http://news.bbc.co.uk/1/hi/business/6939757.stm

Now I’ve been trying to get my head around this.

Apparently people in the US have taken out loans against their mortgages, called sub-prime loans – called sub-prime because the loans should not have been made really.

The people could not afford a conventional loan and got rejected because their credit rating was poor.

They got given sub-prime loans – I would imagine that they would have to pay back more interest than they would with a conventional loan.

They cannot afford the repayments – they default on the loan and go bankrupt, and lose their houses.

The banks have to write off the sub-prime loans because there is no chance of getting their money back from those who have gone bankrupt.

Am I right so far?

The reason why this affects the entire world is because banks and financial groups all over the world have bought the debts and loans surrounded by debts.

I was a little confused about this – but I think that this means that banks et al loan people money, and that loan might be used to pay debts and maybe buy a car or a holiday or something.

The loan is therefore surrounded by debts including interest on the loan and the debts (such as credit cards or cars or mortgages or whatever).

Only – if one bank buys a loan from a bank, then that other bank is now the bank who is owed the money and may even charge more interest.

It’s like an investment.

Only – if the loan is defaulted on and is not paid – and if it is written off, then you lose the repayments and the interest and all that money you spent buying the loan.

Whoops.

Apparently this buying of loans has been going on for years and years and lots of loans and debts have been bought up and buoyed up the US mortgage, shares and equity markets – keeping the US liquid in other words.

If that is removed because banks and financial institutions sell off the loans and debts they bought up originally and also shift US dollars to try and stabilise the market they just broke up – then you have a calamity and a half.

Did I get this right?

I just read a bit more - and apparently after buying the loans/debts, the banks then repackaged them and dressed them up as mortguage backed bonds.

Bonds are where you loan money to companies, government or banks and get low interest but it is supposed to be a safe investment.

Imagine if the loans you invested into as bonds disappeared in a cloud of smoke?

Wonder how much this will affect things?
 

Jerry_B

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The whole area is problematic because it relies on a certain amount of market confidence (which helps to fuel investment and trading, after all). Not only do the type of loans made seem to be an unsteady bet, when they were first brought to the market part of the way that they envisaged recouping any losses was to sell the property on which the defaulting mortgage/loan was based. Unfortunately, the US housing market has been going through a very bad phase, and so trying to recoup the losses made on the loans once owned by defaulters is not so much of a viable protection. So in general terms there's a whole lot of investment and credit going on out there for which there seems to be a less valuable return. This in turn means that other parts of the market are trying to get out of such fluid (and now unstable) areas and moving money elsewhere, or taking it out of circulation by reining back on their trading. It also means that some banks that are heavily involved in the problematic loans and credit systems could collpase, taking large chunks of money and various bits of various pies out of the market as a whole. The problem with that is that it could have a knock-on effect in various ways which the market as a whole would not be too keen on seeing take place, and so what's going on now is alot of nervous trading. Not so much rats deserting a sinking ship, but certainly making sure they make enough life rafts to get away safely ;)
 

faith2faith

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Actually, the whole thing is the fault of the Federal Reserve Bank. To stave off the recession in 2001, then-Fed Chief Alan Greenspan lowered the interest rates to almost nothing... which encouraged mortgage banks to give out those idiotic subprime mortgages (subprime, because they were offered to people who would normally not qualify as borrowers) and people to take them.

In contrast to fixed-rate mortgages, for which you need a certain income level, a good credit rating and a solid down-payment, subprime mortgages were ARMs (adjustable-rate mortgages) and interest-only mortgages, often with no down-payment whatsoever.

With ARMs, the monthly payment adjusts with the interest rate. So it's basically a gamble that interest rates stay low.

Interest-only mortgages are even worse -- for about 3 years you only pay interest (which of course revvs up the principal on your mortgage), and then start paying both, which significantly adjusts your payments upwards.

In short, people (and banks) were speculating on a) the interest rate staying low and b) housing prices going up, up, up. Stupid, because financial markets are cyclical, and nothing goes up, up, up forever. Most people don't get that, though, thus the current debacle.

So now 80-some mortgage banks have gone bankrupt, soon millions of homes will be in foreclosure (foreclosure rates have already risen 65%, from what I heard last), and people will have to rent or live in their car.

It's a disaster of biblical proportions, and I'm fairly sure it will lead to a recession or even another depression.
 

Traprain

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Yes, it was all part of central bank policy. Getting the masses to spend 4/5/6 years worth of wages in 3 years to help the economy and the War on Terra.

Everyone with over £10k of credit card debt should maybe get a campaign medal.

"We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn't possibly be sustained into the medium and long term."

"My legacy to the MPC, if you like, has been 'sort that out',"
Comments from former head of the Bank of England
http://news.independent.co.uk/business/news/article2377729.ece

Looks like it's all hitting the fan now and I have a feeling Britain will be worse hit than the U.S. before it all blows over.

Well, unless they cut interest rates again and postpone the reckoning a wee bit longer.
 
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