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Old 02-01-2008, 02:41 PM   #1 (permalink)
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An impending implosion?

For any of you who may be keeping up with the ongoing recession and/or mortgage crisis, I happened upon a very good article yesterday written by an accountant in Chennai, India.
It's pretty sad that an accountant in India knows more about the US banking and financial system than most of it's citizens, but hey, we just live here.

"The recent cut in the benchmark interest rates by the US Federal Reserve by 75 basis points from 4.25 per cent to 3.50 per cent on January 22 and a further 50 basis points to 3 per cent on January 30 as a response to a possible recession in the United States has completely surprised analysts across the world.

Unprecedented as it is, this steep cut in the interest rates effected by the Fed has the potential to dynamite the US dollar, the US economy and, by extension, the global economy.

What could surprise many is the fact that the US Fed's prescription to reduce interest rates, ostensibly to tackle the prospect of a recession might well turn out to be its Waterloo. Put bluntly, the US faces as much of a risk of a recession after this rate cut as it did before."
Why the US rate cut my kill the dollar. (Part 1)

Who cares for the dollar? Not the Fed, surely! (Part 2)

Now go hurry up and read it before they cut another undersea cable

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Old 02-01-2008, 03:27 PM   #2 (permalink)
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AndrewJ -

I've been predicting a new depression ever since "bush + 911" happened, so this is no surprise to me. Here's more of the same :

The Great Depression-2008
In 1999 Congress eliminated all the fail-safe mechanisms put in place after the Great Depression of 1929. It was the Gramm-Leach-Bliley Act and the cause of our next Great Depression. This act enabled mortgage banks for the first time since the Great Depression to get back in bed with the securities industry. Banks could now just originate home loans - regardless of their soundness- and pass off the risk to people who bundled the mortgage into a securities to sell to pension funds and foreign investors. Hence easy mortgage credit to all, and the cause of the current housing price bubble. Today we are on the threshold of the consequence of eliminating 1930's failsafe controls. Hearing Prelude. Today, we will be considering the Gramm-Leach-Bliley Act, one of the most significant laws to come out of this Committee in many years. The Act made profound changes to the laws governing the affiliation of banking, securities, and insurance firms in an attempt to promote the modernization of the financial services sector." Welcome to the next Great Depression.
Merrill: $500 Billion in Economy-Wide Mortgage Losses - December 18, 2007, 1:35 pm
Merrill Lynch may have laid down a new high-water mark for estimated losses on mortgages across all investors and institutions, pegging the ultimate tally at $500 billion.

“How did we arrive at that staggering number?” North American economist Dave Rosenberg asks in a report today. “It is the sum of projected losses of $250 billion in subprime loans, [about about 18% of the $1.4 trillion subprime market], $50 billion for Alt-A loans, $100 billion in negative amortization mortgage-backed security option ARMS, and $100 billion in synthetic CDO losses (synthetic CDOs gain credit exposure to the underlying subprime assets via credit default swaps).”
Why the Bush debt-recession will topple Clinton's equity-recession - Jan 18th 2008
If you can't pay back the bank, the bank takes your house or your car. If a stock you own loses its value, there's no collateral you can go after to cushion your loss. This is why Bush's debt recession will be far far worse than Clinton's equity one.

The stock market in the last year of George Bush's term is following a pattern that reminds me of the last year of Bill Clinton's. The Clinton market tumble -- where the NASDAQ fell in March 2000, rose through September 2000, and then began a straight down plunge through January 2001 -- preceded a brief recession in 2001. But I think that the Bush recession -- following Dow and broader market quakes in March 2007, August 2007, and the 14% decline since the October peak -- will be much much worse.


For all those individual investors who got burned by the dot-com bust, after the dust had settled they had lost lots of money in their stock market accounts, but most people still had jobs, houses, and cars. And Clinton left the Federal budget in surplus with the national debt declining to $5 trillion. Bush used that recession to sell $1.3 trillion in tax cuts and to lower interest rates to 1%. With the $2.4 trillion worth of wars in Afghanistan and Iraq, the Federal budget went into deficit and the national debt ballooned to $9.2 trillion.
Why is Economic Depression Imminent?
• Unprecedented Total U.S. Credit Market Debt Relative to Nominal GDP
• Unprecedented Level of Real Estate Overvaluation
• Unprecedented Level of U.S. Trade Deficit
• Persistent Stock Overvaluation
• Unprecedented Level of Resource Misallocation
• Intellectual Complacency
• Increasingly Destructive Monetary Policy
• Persistently Overvalued Dollar
• Increasingly Reluctant Foreign Purchasers of U.S. Debt
• Inept Government and Central Bank Leadership
• In recorded history, fiat currency has never lasted
• The herding nature of crowds when widespread fear follows their discovery of the massive asset illusions and misallocated resources


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Old 02-01-2008, 03:30 PM   #3 (permalink)
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2 days ago I was at a conference lunch on 2008 NA economic previsions. They showed a graph based on an index showing the risks of a recession in the US. 2 Days ago it was a coin flip. And now with the nonfarm payrolls news today it's not looking brighter.

You guys are not entering a recession just yet, but that's where you're heading if nothing changes.

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Old 02-01-2008, 06:59 PM   #4 (permalink)
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"The truth may be puzzling. It may take some work to grapple with. It may be counterintuitive. It may contradict deeply held prejudices. It may not be consonant with what we desperately want to be true. But our preferences do not determine what's true.” —Carl Sagan

I just started building a new house this week, so i have been watching the whole deal for about 30 years. Poured the footers Monday.

Last edited by diesel_john; 02-01-2008 at 07:06 PM..
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