Is Economic Armageddon avoideable?

MrBishop

MrBishop

Well-Known Member
Stephen Roach, the chief economist at investment banking giant Morgan Stanley, has a public reputation for being bearish.

But you should hear what he's saying in private.

Roach met select groups of fund managers downtown last week, including a group at Fidelity.

His prediction: America has no better than a 10 percent chance of avoiding economic ``armageddon.''

Press were not allowed into the meetings. But the Herald has obtained a copy of Roach's presentation. A stunned source who was at one meeting said, ``it struck me how extreme he was - much more, it seemed to me, than in public.''

Roach sees a 30 percent chance of a slump soon and a 60 percent chance that ``we'll muddle through for a while and delay the eventual armageddon.''

The chance we'll get through OK: one in 10. Maybe.

In a nutshell, Roach's argument is that America's record trade deficit means the dollar will keep falling. To keep foreigners buying T-bills and prevent a resulting rise in inflation, Federal Reserve Chairman Alan Greenspan will be forced to raise interest rates further and faster than he wants.

The result: U.S. consumers, who are in debt up to their eyeballs, will get pounded.
Less a case of ``Armageddon,'' maybe, than of a ``Perfect Storm.''

Roach marshalled alarming facts to support his argument.

To finance its current account deficit with the rest of the world, he said, America has to import $2.6 billion in cash. Every working day.

That is an amazing 80 percent of the entire world's net savings.

Sustainable? Hardly.

Meanwhile, he notes that household debt is at record levels.

Twenty years ago the total debt of U.S. households was equal to half the size of the economy.

Today the figure is 85 percent.

Nearly half of new mortgage borrowing is at flexible interest rates, leaving borrowers much more vulnerable to rate hikes.

Americans are already spending a record share of disposable income paying their interest bills. And interest rates haven't even risen much yet.

You don't have to ask a Wall Street economist to know this, of course. Watch people wielding their credit cards this Christmas.

Roach's analysis isn't entirely new. But recent events give it extra force.

The dollar is hitting fresh lows against currencies from the yen to the euro.

Its parachute failed to open over the weekend, when a meeting of the world's top finance ministers produced no promise of concerted intervention.

It has farther to fall, especially against Asian currencies, analysts agree.

The Fed chairman was drawn to warn on the dollar, and interest rates, on Friday.

Roach could not be reached for comment yesterday. A source who heard the presentation concluded that a ``spectacular wave of bankruptcies'' is possible.
Smart people downtown agree with much of the analysis. It is undeniable that America is living in a ``debt bubble'' of record proportions.

But they argue there may be an alternative scenario to Roach's. Greenspan might instead deliberately allow the dollar to slump and inflation to rise, whittling away at the value of today's consumer debts in real terms.

Inflation of 7 percent a year halves ``real'' values in a decade.

It may be the only way out of the trap.

Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates.

You wouldn't want to hold 30-year Treasuries, which today yield just 4.83 percent.
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Source

WASHINGTON - Employers slowed their hiring as they headed into the holiday shopping season, adding just 112,000 new jobs in November for the weakest gain in five months.
 
Adding "just" 112,000 in 30 days ain't bad.

Yes, it's avoidable, and I think it WILL be avoided, but I don't think there's much of a doubt that some pain is on the horizon. God knows a balanced budegt isn't in the near-term cards. The real question is when. The best that a single consumer can do is to stay out of debt as much as possible, and book long term FIXED rates where you can (house notes).

As an investor, it's even more worrisome, but there are certain adjustments you can make, Stay away from the LTD markets and financials. I haven't owned a bank stock since 2001, somewhat with this in mind.
 
Nice. :nono: Too bad the only way to end this is to raise taxes and cut spending. Congress won't save, though. Too busy adding riders to spending bills that give 'pork' to their home districts...just to get re-elected and do the same thing over again...:(
 
Adding only 112k is pretty bad condiering they were hoping for 200k instead. Bush still has a net job loss since taking office of 313,000 and just two months to make it up. Since hitting rock bottom with a loss of 2.6 million jobs in August of last year, the economy has managed 15 consecutive months of job gains, totaling an increase of 2.3 million jobs through November.
 
The only 'good' thing about this is the fact that I have about 100 Euro's sitting in a jar in the living room. I got them last time I went through Europe. In 5 years, according to this guy, I may actually have a tidy sum... :lol2:
 
Hope your retirement accounts are filled enough.
A large portion of the economy is going into a 1920's style depression. As the baby boomers retire the economy will crash because they won't be buying SUV's and such anymore.
 
I've been concerned about the inevitable retirement of the boomers for awhile. It'll be fun to see the Congress, trying to made the oldsters (huge voting bloc) happy while not destroying the next generation (the ones providing SSI & bearing the tax burden).
 
If the American ecenomy implodes, the only currency that will mean a damn are bullets and rice. Time to fill up the old bomb shelters with Perrier.
 
US dollars are already a glut on the world market. It's all about the trade deficit. Some countries might not even be that affected by the implosion of the American economy. Enough would, though, that I suspect steps would be taken to prevent it. As far as the boomers (I'm at the tag end of them, BTW) retiring, I figured out in my twenties that there was virtually no chance that social security would be available when I retire. It ain't gonna be pretty though.
 
Greenspan holds out little hope for dollar
By Edmund Conway (Filed: 20/11/2004)


The dollar hit a new all-time low against the euro yesterday as Alan Greenspan said there was little anyone could do to prevent it falling further.

The chairman of the US Federal Reserve warned the European Central Bank from intervening in the foreign exchange markets as he spoke in Frankfurt ahead of the meeting of the G20 industrialised and developing economies in Berlin this weekend.

"It seems persuasive that, given the size of the US current account deficit, a diminished appetite for adding to dollar balances must occur at some point," said Mr Greenspan, sending the Dow Jones plunging by over 100 points in afternoon trading. The dollar dropped almost three quarters of a cent against the euro to close in London at $1.3058.

Mr Greenspan said: "Current account imbalances, per se, need not be a problem, but cumulative deficits, which result in a marked decline of a country's net international investment position - as is occurring in the United States - raise more complex issues."

It is not the first time Mr Greenspan has raised concern over the US current account deficit, which amounts to 5.7pc of the country's annual output. However, he also echoed the US Treasury Secretary John Snow's warning earlier this week that he would not support central bank intervention against the falling dollar. He said intervention could have only a limited and short-term effect.

Mr Greenspan said the best action the Bush administration could take would be to cut its spending and reduce the budget deficit.

The dollar is expected to be one of the most heated topics for discussion at the meeting, since European policy-makers have complained that its weakness, and the euro's consequent expense, has hit exports and manufacturing.

Gordon Brown is expected to call for the International Monetary Fund to investigate and compare the fiscal positions of G20 members. The Chancellor is thought to believe this comparison would show the UK is well-placed compared to other major countries, despite recent criticisms about its fiscal position, and the Treasury's slimming chances of meeting his borrowing rules.
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How many people here can see Bush reducing spending? With the 'war on terror' just beginning, with more troops being sent to Iraq, with more money needed to help in job creation, promisses to be kept? I don't see it...at all.
As for retirement...that'll hurt, plus the increased load on the medical system as it is, as retiries get sick and die.

You may not like me saying this..but the war may just bankrupt the coutry, especially if it has to be taken to Iran or NKorea. The troops might have to be pulled home far earlier than expected and a longer rebuilding strategy expolred. In the meanwhile...might I suggest buying Gold and Silver...they're on their way up!
Source
 
Is Economic abundance avoidable?

Is Economic abundance avoidable?

MrBishop said:
You may not like me saying this..but the war may just bankrupt the coutry
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(country)
I don't mind you saying it.
Besides being the dumbest thing I've read all day...

Yup Um like I think the total cost of the war so far is what? 118 to the lie of the Demorat campaign of 200 billion? and the war began in what? 2003?

And the U.S. Fed budget is running like what two trillion? So 200 Billion will absolutely finish the US of A!

Tell ya what 200 Billion might hurt Canada with it's GDP of $958.7 billion (2004 est.)

How fuckin' funny Canada's whole 2004 federal budget was $342.7 billion in 2004 lol

Nah buddy don't fret over the USA with a GDP of 11 trillion in 2004 200 billion is pocket change. We could start smacking the crap outta five more countries tomorrow morning. If the poor in this country could forgo government supplied cable TV and SUV's and food stamps we'd have enough spare change to take on the whole world Ha Ha HA!
 
And yet...the dollar is still tanking!
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Your deficit is up, your import vs export ratio is up, you're borrowing funds to feed a deficit that's growing daily and your debt is in excess of 34trillion with another trillion+ added per year.

When you max out your credit cards...its not the time to buy that new BMW

Ooh...almost forgot :canada: We've got a surplus :canada:
 
Did you know that the dollar 'tanking' is on purpose?

What effect does a 'cheap' dollar have on our debt and trade deficit?

As for your 'surplus' sheesh does that not just mean they are taking to damn many dollars from you?
 
Like I said...raise taxes and cut spending. has to be both, but nobody wants to hear that. It's a 'me, me, me' world...especially in the US. People want all these goodies, but don't want to pay for them. Too many rights, and not enough responsibilities. We could most likely save millions per month by printing federal forms in English only...but, if we do that, how many naturalized citizens would bitch? We could also raise the gas tax 50 cents a gallon...but how many citizens of every type would complain about that? We could even roll back all of those child care credits, and tax credits that the government bought off the citizenry with...nobody missed it before the government gave it back, anyway...but how many people would complain about that? See where I'm going here? Has anybody actually sat down, and thought about how to fix this, or are those in power only trying to placate the masses with 'feel-good' programs designed to give them another term in office? How about eliminating all federal programs that have nothing to do with the day-to-day operation of the country? Think we don't have any? Look at welfare. Look at medicare/medicaid and the electric wheelchair debacle. Look at the way the government spends money in your own home district, and tell me exactly how important that program was/is/will be to the future of our country.
 
Winky said:
Did you know that the dollar 'tanking' is on purpose?

What effect does a 'cheap' dollar have on our debt and trade deficit?

As for your 'surplus' sheesh does that not just mean they are taking to damn many dollars from you?
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Its supposed to mean that American goods will be sold in Europe and Asia more, because of the cheap dollar...but the trade deficit is too large to deal with unless the American dollar 'really' tanks....maybe to the .25c mark. In the meanwhile...imported products (like oil, beef, wood etc...) are getting more expensive for the average consumer. You'd need a reduction in Imports to go along with the increase in Exports. In the meanwhile, your shopping dollar isn't going as far anymore, your grocery bill will get bigger, and the American spending habits aren't changing. This means more individual debt. The dollar will eventually have to be brought back in-line...this means an increase in interest and lending rates. Less money in the consumer's pockets etc etc...
Its a viscious circle. Gato said it best.... the GVT has to reduce spending dramatically and find some tax money somewhere.

Yeah...the surpluss means they're taking too much. It also means that they can afford to pay off the debt, continue healthcare and secure retirement for this generation and the next...all with the same money they took from me last year. They're just spending it more wisely and cut the fat a bit.
 
Damn Bish the number of assumptions based on false premises you were able to cram into one post is simply astounding!!!!!

Oh by the way we print the dollar and can do any damn thing we please with the world economy.

Now when the worlds economy begins to be denominated in Euro’s we’ll talk.
 
Bish said:
When you max out your credit cards...its not the time to buy that new BMW
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We can afford the whole dealership. Our credit card issuers are US. If we had to pay off the debt today...who gets paid?

Gato said:
nobody missed it before the government gave it back,
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Au contraire mi amigo (like the mixing of languages-who says we're not multilingual). First off, it's mine & I damned well did miss it. Secondly, they didn't give anything back. They just quit taking what wasn't theirs in the first place.

However, cutting spending....real cuts, not political cuts, should be mandatory. Start with getting the feds out of the states, and the peoples, business.
 
Most of the US debt is owed to China and Japan.
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Besides the financial dangers there are also concerns that the growing budget and balance of payments deficits may have adverse implications for the conduct of US foreign policy. An article by Sherle R. Schwenninger, entitled “America’s ‘Suez Moment’”, published in the latest issue of the Atlantic Monthly points out that while its military might is unchallenged, the US economy is dependent on the inflow of foreign capital with China and Japan holding so much US debt that they could “exert enormous leverage on American foreign policy.” If China were to disagree with a particular policy initiative, such as a decision to invade North Korea, it could move to dump US Treasury bills and other dollar-denominated assets, causing the value of the dollar to plunge and leading to a “major crisis” for the US economy.
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http://www.wsws.org/articles/2004/feb2004/defi-f04.shtml
 
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