Collapse of the American Economy?

[Kurn, son of Mogh]

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Inflation+Credit Crunch FTW.

Housing Bubble = POP
Stocks Bubble = Soon to be POP.

Both asset classes were/are high due to massive inflation (of the money supply) via money as debt.

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There was a report on my local news (WJAR TV in RI) this morning that Countrywide (the nation's largest mortgage lender) was hinting that the housing market was already in free-fall.

Mortgage rates kept artificially low for 7 years, massive numbers of people funding overgrown lifestyles by borring against paper equity, 1929, here we come.

Maybe in a year or so, I'll come out of the woodwork and buy some nice piece dirt cheap.

As the Baron von Rothschild was reputed to have said - "The time to buy is when the blood is in the street."

[The once and future king]

In Britain we are about to follow suit but with bells on.

Our housing market is even more inflated. People are even more in debt (highest personal debt levels in the developed world) and our interest rates are now higher (and going higher still)
and as you have said the borrowing against notional equity has been massive.

[mosdef]

You may find this article interesting. It doesn't provide all the answers, but it's a start.

http://www.mises.org/story/2637

[DcifrThs]

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You may find this article interesting. It doesn't provide all the answers, but it's a start.

http://www.mises.org/story/2637

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wow. i gotta tell ya, that is a well written, but wholely fairly incorrect view imo.

things it overlooks:

deflation doesn't cause lack of spending on certain goods. but those goods (computers) have a very interesting dynamic. tech goods typically are desired so badly upon release, that high prices are paid regardless and the falling prices brings them into the reach of more and more people. but what about a new car? if you knew a car would be cheaper in a montha nd you had no immediate need for it, wouldn't you wait 1 month to purchase it? in fact, you would wait until the marginal loss of your waiting about equals the marginal gain in the fall of prices. food won't be affected greatly since you need that to survive.

but what does deflation do to business investment? one major thing that schiff appears to overlook is that high price medium volume does not always equal lower price higher volume. the reason is that many costs involved in production are sticky (i.e. cannot be decreased without productivity increases): wages and benefits. scale may reduce some of this effect, but not as much as he bets i think.

further, if you look at business cycle amplitude, it has fallen very significantly as a result of management of growth and inflation by central banks. if there is deflation, there isn't much of anything a central bank can do and if there is a recession AND deflation, you are in a japenese type environment (1991-2005 or so). there are things the bank can do but they are few and not as powerful as rate changes in terms of generating spending and investment.

finally, he talks about "core" inflation and correctly states the downward bias it applies. but, other types of inflation do take fuel and food into account as well as a proxy (maybe a poor one) for housing prices.

ironically, his conclusions are fairly valid: falling dollar, credit crunch coming up etc.

i just think he comes about them from a flawed vantage point.

Barron

[Sharking4Fishies]

You might want to read my blog. I agree 100% with your gloomy view about the US economy. It IS headed for the p*sser. The banks will eventually bring it to a point where they will force a new (common) currency on USA + Canada + Mexico, in effect making it one big country with 3 "different" governments. The first wave could hit in 2010. Most baby boomer will not be able to retire. I think the market will have a final bull market into 2009-2010 before reality sets in. I trade hedged options spreads on the major indicies (SPX, etc...), and am thinking of trading gold futures options to stay safe from the imending doom. Anyone here wanna start a hedge fund? [img]/images/graemlins/wink.gif[/img]

[Fishhead24]

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You might want to read my blog. I agree 100% with your gloomy view about the US economy. It IS headed for the p*sser. The banks will eventually bring it to a point where they will force a new (common) currency on USA + Canada + Mexico, in effect making it one big country with 3 "different" governments. The first wave could hit in 2010. Most baby boomer will not be able to retire. I think the market will have a final bull market into 2009-2010 before reality sets in. I trade hedged options spreads on the major indicies (SPX, etc...), and am thinking of trading gold futures options to stay safe from the imending doom. Anyone here wanna start a hedge fund? [img]/images/graemlins/wink.gif[/img]

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Interesting thoughts.