The only thing that has prevented a depression or serious calamity in this country is the brand name 'USA". No other country in the world could do what we've done if it wasn't for the dollar being the worlds reserve currency. Would you invest in a country with a 2% savings rate, with federal, corporate and household debt at records levels, with a trade deficit of 5% of GDP, and with exploding money supply and credit? With such figures, a normal country would have to get their financial house in order. Interest rates would go much higher, certaintly not lower. It seems to be a virtual certainty that within 10 years, we'll experience some sort of dramatic pullback/soft depression. A country can't develop this many excesses without some snap back to reality. I would imagine at least 10% unemployment (even using the warped BLS numbers). The most dramatic pullback in the post war era. We were in much better shape financially in the 1960's, and when the excesses were rung out, the DOW had collapsed in half (non inflation adjusted). How the DOW escapes that fate after the excesses of the 80's and 90's is beyond me.
jbtrader23...I agree, When It happens the rest of the world will say hey we are next, and buy safety like USA bonds, and I think USA dollar will be very strong, as where else will other countries but the funds when they feel there next ! They certainly wont BUY GBP, AUD, NZD, YEN...
For those who think there will be some type of calamitous crash, there is one fact that is inescapeable.That would be the most important difference between now and the crash of '29.Today the fed has the ability to pump tens if not hundreds of billions of dollars into the economy in the space of a few days, if not a few hours. This type of monstrous cash infusion was not possible back then.Quite frankly,I dont think a crash like the crash of '29 is possible.Japan is an example of what happens when huge amounts of cash are injected into a sick economy,and we are probably headed down a similar path.
A '29 style crash is always possible. Economies never grow so sophisticated that they can overturn human nature and the laws of supply and demand. The FED could drop $100 bills out of helicopters if they wanted to. But ultimately, those $100 bills are only worth what someone is willing to pay. The FED seems to believe that they have created some sort of special "safety net" for the American economy; that somehow, we've overturned 5,000 years of recorded history. We're the first society with a "guarantee" that nothing bad will ever happen. It'd be great if every country had that sort of guarantee. With depository insurance, guaranteed liquidity, guarantees that banks won't fail. That kind of thinking is very complacent and dangerous and its why I want to put a portion of my assets in foreign currencies and other diversified holdings.
And was 1929 probable for most people at that time ? And was germany hyperinflation probable for most people at that time ? It is the very reason such things happen: it is because people think that it is improbable that they just let things run away without limit. Even apart from the huge majority who were as ignorant as they are today although there are clear signs showing that the abnormalities have become normalities, probably some people think that the consequence will so dramatic that by some magic mystery someone will be able to prevent the chain of events that are logically inevitable: levitation law doesn't just exist. Terrorism and maybe world war is/will be already one of the logical consequence of this dramatic degration of world economy ! Nothing is new: in the past wars and civil revolutions have always been the consequence of economic miseries that have spreaded too widely touching the low classes and then the middle classes and that some profiteers don't even realise because they are living in another world and it is only when the depression touch themselves that they say oh oh something is happening : a revolution maybe I risk now to be the target of the angry and hungry mass people and my fortune can just shrink into nothing !
Right, hollywood, this time it is going to be more of a super combustion implosion crash - nothing of the proportions of the '29 crash - very different - it should be strongly psychological. It will be worse due to two mouse clicks to link the globe - human emotions will drive it therefore no amount of money will be able to rectify it short term. Watch the Middle East for an event to trigger it. That event MAY have already occured with Yassin's murder in cold blood as it continues to divide nations. Sam
jbtrader23: YOU definitely sound like a trader. Trading your money in fx is enough as it keeps your money active and liquid, yet, if traded right, earning profit. gsr
Harry, I enjoy your posts. You seem to have a fix on quite a few things. Pls let me ask you... What do you think the fall out of Yassin's murder will be? Sam
Fears of financial bubble PRINT FRIENDLY EMAIL STORY AM - Friday, 26 March , 2004 08:26:02 Reporter: Stephen Long TONY EASTLEY: Is there a risk the world economy could be destabilised by a dangerous new bubble forming in global financial markets? Australia's Reserve Bank seems to think so. It fears that low interest rates in all the key financial centres are luring investors into high-risk, high-yield investments. And it's not alone, members of the US central bank are expressing similar concerns. Finance Correspondent Stephen Long reports. STEPHEN LONG: The last time irrational exuberance gripped the markets of the world, during the tech boom, it created a stockmarket bubble of historic proportions. And when it collapsed it inflicted extraordinary losses, destroying more than US$7 trillion of wealth, more than twice the financial cost to the US of World War Two. And critics hold US Federal Reserve Chairman Alan Greenspan largely responsible. Journalist Peter Hartcher, author of a forthcoming critical book on Alan Greenspan. PETER HARTCHER: In '96, it was clear that there was a major bubble developing in the US stock market, turns out to be the biggest in the financial history of the world. He knew he had to do the right thing by suppressing it, repressing it, managing it. And he started to with his speech, that famous line about irrational exuberance, but the political reaction was too hot and he just backed off, and decided not only would he let the bubble run, but he aggravated that by then becoming a cheerleader for something he knew was going to burst in ugly circumstances. STEPHEN LONG: The Chief Economist at Northern Trust Co in the US, Paul Kasriel, also holds Dr Greenspan responsible, as chief cheerleader for the bubble, and the supplier of its fuel. PAUL KASRIEL: Alan Greenspan aided and abetted the stockmarket bubble. You don't have asset price bubbles unless you have cheap central bank credit. STEPHEN LONG: Now, authorities fear a dangerous new mania is gripping the world's capital markets. This is what the Reserve Bank says in a new report on financial stability. REPORT EXCERPT: The search for yield by private investors has pushed down risk spreads for corporate and emerging market borrowers alike, to levels last seen before the 1998 crisis. STEPHEN LONG: It's a concern shared by members of the US Federal Reserve's chief policy-making body, the Open Market Committee. The minutes of a recent meeting, released days ago, make these concerns clear. They express a fear that the lowest interest rates in 46 years have "contributed to valuations in financial markets that leave little room for downside risks". Translation: the markets are crazy. And critics are once again holding Alan Greenspan at least partly responsible, by holding rates so low, for so long. Philip Lowe is the Reserve Bank's head of economic analysis, and a world-renowned expert on market mania. This is what he told a seminar on Greenspan's record yesterday. PHILIP LOWE: The Fed's been very good at lowering interest rates quickly whenever it saw risks, downside risk to the macro economy. But it has not been willing to increase interest rates to reduce the probability of what it sees as very bad outcomes. It was not willing to increase interest rates to try and take some of the heat out of the stockmarket. STEPHEN LONG: Philip Lowe fears investors have come to rely on the Fed to save their skin. PHILIP LOWE: Investors come to believe that the Fed will bail them out. The Fed will be very happy to cut interest rates whenever any problems come along, and that that somehow reduces the⦠or increases peoples' appetite for risk-taking, and I think we're seeing some evidence of that currently in global capital markets. STEPHEN LONG: The trouble is, with interest rates so low and the US budget deficit so high, there won't be much scope to bail investors out this time. TONY EASTLEY: Finance Correspondent Stephen Long.