DJIA 0.31% 26,683 dow jones industrials

why a global financial meltdown in unavoidable

  1. cya
    3,836 Posts.
    I hope this is easy to read for the folks that dont follow such things.

    Lets start with the US consumer and the chances of a US recession

    Firstly sentiment

    http://www.changewave.com/freecontent/viewalliance.html?source=/freecontent/
    2008/02/alliance-021208-ChangeWaveRecessionProjectionsProvedAccurate.html

    Lets look at a few of the more credible academics who have good track
    histories

    Here Professor Martin Feldstein from Harvard suggests that the recession
    has already begun and may be deeper than any in modern history

    http://online.wsj.com/article/SB120347007609178711.html

    Here Professor Noriel Roubini from New York University again suggest that
    the US is in recession and it may be much worse than we expect

    Roubini has been consistently the best forecaster through the sub prime
    crisis and is one of the most distinguished and respect economists on the
    planet

    http://www.rgemonitor.com/blog/roubini/209779

    and here he outlines the steps toward complete economic meltdown

    http://www.rgemonitor.com/blog/roubini/242290/

    Here Stephen Roach Chief Economist for Morgan Stanley presents on the
    Sub prime being "A Canary in the Coal mine"

    http://www.morganstanley.com/about/press/articles/3465.html

    So why is this happening ?

    During Greenspan's initial reign he expanded the
    money supply more than 50% this caused the dot.com period bubble. This wasin keeping with Fed theory that had its genesis the 1990's where the Japan struggled to overcome massive deflation. The US economist theorized that on this crisis and developed a theory that the Bank of Japan could avoided this situation by a series of measures , simply put they were;-

    Lower Interest rates and increase money supply

    Money funded tax cuts , that is they could cut taxes and remain fiscally neutral to budget, taxes would appear to be lower by measurement as a percentage but because of increase money supply the net effect would to actually collect more in dollar taxation

    Depreciate the currency, this allowed increased debt to be inflated away,a country could borrow more money but because of the dollar depreciation would offset the increase in debt.

    In this way money could be transmitted through the credit channel to consumers this credit would bid up asset prices and through what he refersto as the "wealth effect" the consumer feeling wealthier would consume through the utilization of this extra equity.

    These policies were enacted after 2002 correction , folks did not realize that they were not witnessing an increase in value of their housing investment there were just more dollars in circulation and so their assets were in fact not rising at all there were just more dollars and more debt
    to go around to buy those assets.

    These actions caused a credit bubble that channeled credit to consumers through the housing , commercial property, auto and card sectors. We have heard allot about the sub prime real estate market, we are yet to see the sub prime Commercial Property, Auto and Card sectors. These sectors
    are in just as dangerous situation as the Real Estate market and problems here are about to unfold.

    Greenspan and Bernanke seeing the inflationary forces of their policies to take hold instigated a series of rate hikes to offset inflation and instigated a series of meddlesome changes in the various economic indicators eg Chiefly inflation and unemployment to basically fool the
    consumer into thinking that these economic indicators we under control

    This was no accident this was policy

    http://www.youtube.com/watch?v=pHHyjd-RrcI&feature=related

    On the following site you will see the way the US government have manipulated the numbers. This is not a conspiracy theory this site has tracked the changes in detail and applied them so the real numbers can
    become known to investors. The real inflation numbers are 5% higher than the US is reporting

    http://www.shadowstats.com/


    The Central Banks have lost control of the economy. Bernanke's 125 basis point cut a few weeks ago reflects this fact.

    http://www.moneyweek.com/file/26571/how-the-fed-lost-control-of-the-money-su
    pply.html


    Here is another commentator that outlines the same scenario as I describe above


    http://www.fpif.org/fpiftxt/4996


    Note the George Soros and Stephen Roach comments from a recent Bloomberg article (note these are pretty strong comments from the Chief Economist of one of the worlds largest Investment Banks)

    http://www.bloomberg.com/apps/news?pid=20601087&sid=aMZccLja3o0w&refer=home

    and much is to come

    http://globaleconomicanalysis.blogspot.com/2008/02/credit-default-swap-tsuna
    mi-approaches.html

    http://globaleconomicanalysis.blogspot.com/2008/02/borrowed-reserves-and-tin
    -foil-hats.html

    The US credit bubble has caused extreme over production in China this has caused extreme demand in the resource sector in order to make the products that the western countries borrow to buy from them, but all business cycles come to an end and this cycle is at great risk of coming to an end
    in ways not seen since World War 2. We all have exposure to US markets as globisation has strongly correlated all markets.

    Here are some contrarian market forecasters with substantive track histories


    http://www.youtube.com/watch?v=l_0pqHzK324&feature=related


    Schultz still sees an apocalypse

    http://www.marketwatch.com/news/story/story.aspx?guid=%7BAD492AD9%2DDA65%2D4
    944%2DA514%2D03C7FBACCFA2%7D&siteid=rss


    George Soros

    http://www.foreignpolicy.com/story/cms.php?story_id=4203


    Marc Faber

    http://www.howestreet.com/articles/index.php?article_id=5608


    Motely Fool

    http://www.fool.com/investing/dividends-income/2008/02/12/a-market-crash-is-
    coming.aspx


    Robert Prechter

    http://www.marketoracle.co.uk/Article3500.html


    Jim Rogers

    http://video.google.com.au/videoplay?docid=-7492747426517299839&q=jim+rogers
    +meltdown&total=7&start=0&num=10&so=0&type=search&plindex=6


    Market Oracle

    http://marketoracle.co.uk/Article3725.html

    The meltdown is unavoidable as Marc Faber suggested on Lateline last night Australia is in good postion as the commodity run has a long way to go, if you study the Kondratiev cycle and the geo economic impacts of this cycle we are in a period of economic transition from the US to China/India. If you look at the historic transitions like Britain to the US in 1900-1940 they can the most economically volatile time imaginable.

    We may well survive and prosper but massive corrections will come upon us on our journey. Highly leveraged companies of any type should be avoided at all costs. All the Aust banks have heavy exposures to the downturn in the credit cycle , all but the highest quality specs should be avoided.

    Dont put all your eggs in one basket, Bernanke will send the USD to 2.00 Euro by the end of the year 2 years from now the AUD could be 1.50. Gold is a hedge against the US dollar and could go to 2-5000 in 3 years. If you like gold spread it out between asset classes, if your investing your super be extra careful. The DJIA could drop by more than 50% as measure against EUR and AUD, folks who measure the DJIA in USD are missing the major trend.
 
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