03-08-2009, 01:46 PM
We are officially in recession, globally. The question is when will we go into depression. Job market is 25-year low. All the ingredients of recession are there. Shrinking economy size, rising unemployment, excessive money supply, defaulting mortgages. What's making worse worst is government intervention by buying out all the toxic assets. Citigroup's stock has already become penny stock. Don't forget we are talking about biggest commercial bank in the world. 40% of it will be nationalized. This is a vicious circle fed by greed and irresponsible gambling with investors' money. US is giving a support to falling banks but so far first stimulus plan hasn't had desired effects. Fed have cut rates to historically low levels. If all this isn't working so the big question is what will work? Obviously, there is something big coming. Also note that the mortgage default rate we have seen so far was just for residential properties, the second leg of mortgage failures is yet to come. Commercial properties haven't adjusted for their values so far. Business closure rate is rapidly rising. How much can a government print to bail out every single home or business? Not many probably. The big question is if nothing is working that what will? Govt. stresses there is an ever more need for regulation of markets but where were all these analysts when Bernie Madoff was giving people more than normal returns on investments. Hedge funds to this date have no regulation. Despite all this companies' CEOs are enjoying same perks and bonuses. If you don't know the biggest investor in US and the richest person maybe until few months back, Warren Buffet is $30 billion down. He blames it on his investment mistakes. Alan Greenspan has admitted to mistakes in formulating economic policies. What does all this suggest? It shows that when times were good everybody was reaping benefits of high returns, in bad times no one knows what to do. Why has Kuwait decided to hold basket of currencies? Some of my comments might have been what you see on TV everyday but the big question is where were all these hot shots when the bubble was forming with fundamentals being out of sight. Most of the wealth we saw evaporated was of retirees, old people.
I read all thats said above about money supply, fed fund rates etc. I think Fed shouldve tightened money supply when bubble was forming not now when its burst. Now even low rates can't help much. Consumer based growth is suffering because people are saving more and spending less. Businesses are closing due to no buyer of their products in market. If they try to get a loan or something there is no bank that can loan them any money. There is a run on the bank. Everybody wants to get out of stock market, bond market and any such thing. There is massive sell off in stock market but no buyer. Speculators have dried up people's saving after getting in and out of different sectors. If you see the pattern, first it was stock market(remember dot come bubble?), then it was housing market, now it is commodity market(remember the oil prices hitting 140 a barrel?) or simply look at grain prices. There is no increase in demand in grain in the world, how can there be in simply two years span? These highly leveraged bets can devastate economies.
TORONTOBOY, currency notes circulation can definitely increase if central bank becomes a printing press. This is exactly what is happening around the globe, there are too many notes chasing too few goods. If notes had remained the same and especially floating rate currency notes, there wouldn't be any hyper inflation in third world countries but another factor is that dollar is dominant currency in the world. Brettonwood agreement was about supporting one currency if other declines, but the question is how long can one currency support other? Can a country perpetually support other currency ignoring it's effects on its own economy?
Regarding employment, is there anything that's creating jobs? None. zip.Nothing. There is 1 out of 4 people unemployed in US at the moment. Where is govt. going to get tax from?
Now in nutshell, this disaster was bound to happen due to overspending by people. I saw people in Pakistan financing cars like they had no problem paying for them. Same is the case in US, you could easily get a 400K house without sufficient income. The thing is all that wealth has evaporated, speculators have played the same game they did back in 90s during Malaysian/Indonesian credit crisis.
I don't think it's the economists that could do anything, it's the lack of transparency and corruption of epic proportions. But that can't be blamed due to rising poverty in Pakistan.
What we should note is why have all these economic theories failed? What is so wrong that can't be fixed? Why were these corporations made so big that they caused global recession?
These are just my views based on my own findings Please don't take these as an advice or any predictability of future events.
I read all thats said above about money supply, fed fund rates etc. I think Fed shouldve tightened money supply when bubble was forming not now when its burst. Now even low rates can't help much. Consumer based growth is suffering because people are saving more and spending less. Businesses are closing due to no buyer of their products in market. If they try to get a loan or something there is no bank that can loan them any money. There is a run on the bank. Everybody wants to get out of stock market, bond market and any such thing. There is massive sell off in stock market but no buyer. Speculators have dried up people's saving after getting in and out of different sectors. If you see the pattern, first it was stock market(remember dot come bubble?), then it was housing market, now it is commodity market(remember the oil prices hitting 140 a barrel?) or simply look at grain prices. There is no increase in demand in grain in the world, how can there be in simply two years span? These highly leveraged bets can devastate economies.
TORONTOBOY, currency notes circulation can definitely increase if central bank becomes a printing press. This is exactly what is happening around the globe, there are too many notes chasing too few goods. If notes had remained the same and especially floating rate currency notes, there wouldn't be any hyper inflation in third world countries but another factor is that dollar is dominant currency in the world. Brettonwood agreement was about supporting one currency if other declines, but the question is how long can one currency support other? Can a country perpetually support other currency ignoring it's effects on its own economy?
Regarding employment, is there anything that's creating jobs? None. zip.Nothing. There is 1 out of 4 people unemployed in US at the moment. Where is govt. going to get tax from?
Now in nutshell, this disaster was bound to happen due to overspending by people. I saw people in Pakistan financing cars like they had no problem paying for them. Same is the case in US, you could easily get a 400K house without sufficient income. The thing is all that wealth has evaporated, speculators have played the same game they did back in 90s during Malaysian/Indonesian credit crisis.
I don't think it's the economists that could do anything, it's the lack of transparency and corruption of epic proportions. But that can't be blamed due to rising poverty in Pakistan.
What we should note is why have all these economic theories failed? What is so wrong that can't be fixed? Why were these corporations made so big that they caused global recession?
These are just my views based on my own findings Please don't take these as an advice or any predictability of future events.
