Letters to the Editor
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Nore sure what you're implying ...
What's your point Andrew? Maybe I'm being obtuse here but are you saying this is the flavour of the month gloom prediction? Or are you saying it's uncanny how reports and books and politicians all start using the same phrases as though they've just emerged from the global unconscios? Please clarify.
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Root cause of credit crisis
Once again, the credit crisis is laid at the feet of subprime mortgages. I am curious as to whether this assignment is strictly correct, given its magnitude and sudden onset. Mortgage failures are certainly higher than historical norms, but not that high. To what extent is the crisis really the failure of mortgage-backed securities and other derivatives, rather than the mortgages themselves? In other words, who should bear more of the blame -- individuals who took too big of a mortgage under unfavorable terms, or the investment banks that resold these mortgages in little pieces, but couldn't keep the pyramid scheme going?
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@mrgeek
I understand fully that several weaknesses may be at play here. But I would like to point out that a model already exists for what is going on here. The model is nearly the same, though it differs in scale. (Full disclosure - this was a model in a fiction novel, so some details may be incorrect, but the novelist is well-known for good research on background material.)
In the late 80's and early 90's, the Japanese created a mini-bubble (in terms of the US - for them it was huge) of real-estate. US property holders realized they could bilk the Japanese out of huge sums of money because they had inflated ideas of what real estate was worth (in Japan, land is extremely expensive). Japanese concerns bought highly overpriced commercial property, and lots of it.
Again, I concede there may have been other weaknesses at play here. One possibility is the US was in a recession when this happened, making their imports less attractive.
Not in dispute is what happened (though causality may be debated). When that bubble popped, the Japanese economy tanked hard, causing a decade-long recession. Major firms had to lay off workers (something unheard of since their recovery from WWII) and some actually went bankrupt. This is a nation with a robust manufacturing economy.
Now consider the US - real estate bubble, house-of-cards CDO structures, huge government debt, monstrous trade deficit. To top it all off, we have an anemic (if not downright comatose) manufacturing sector.
When I saw this bubble, I knew we were in deep guano. Nothing I've seen so far has changed that opinion.
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Apocalypticism is very vogue now.
Can you top this? Why I read a report that cannibalism will return to America this year.
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@Electro Robot
Why I read a report that cannibalism will return to America this year.
I hate to say it, but that might happen if fuel supplies are disrupted. The U.S. has lots of people living in areas that do not produce much (or any) food locally.
It might not happen this year, but it will probably happen eventually if we continue to concentrate large populations in areas that cannot support them.
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Looking Forward to the Kevn Phillips Review
Phillips has been pretty much on the mark over the last several years with his critiques of the current state of the American economic/social/political morass. In "Wealth & Democracy" "American Theocracy" and "American Dynasty" he has been quite unsparing in his jeremiads against the direction this country has chosen to travel for the last forty years. A tough read for anyone who loves this country, but brutally honest.
I look forward to the new book, but somehow I am not expecting a new, sunny, optimism from Mr. Phillips.
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What is the IMF?
These things confuse me. What is the World Bank? The IMF? Are they the same thing? Note that the Washington based lending institution is closing offices around the world. According to Wikipedia they manage the international payment system. The governor is Henry Paulson, alternate governor Bernanke. The US holds 17% of the voting power, no one else has more than 6%.
There is a whole lot more there, point being who are these guys, just the same old dog faces hiding behind some corporate shell?
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@electro
Yes. Absolutely. Cannibalism has already returned. Republican polititians are already eating their young. This election cycle will probably see the largest Democratic majority since the great depression.
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@Bryan H.
"To top it all off, we have an anemic (if not downright comatose) manufacturing sector."
No. We have an extremely talented, mature manufacturing sector that's curently a little under employed. It's so good that it now spends most of it's time training the rest of the world in the best ways to build things. And largely for the same corporations that we used to build things for here. The US is still a brain drain on the rest of the world for engineering and technical talent, because this is still where the most of the product developement is happening. But that isn't going to last unless we start developing then next generation of senior assemblers and technicians. There just aren't any entry level jobs ot there for semi-skilled labor. US corporations are eating their seed corn.
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And the actual results
will be a measure of the accuracy of the HTWW world view. I'm betting against you. I'm betting that there'll be a downturn. But the US has done such a good job of imposing sanctions on other countries and refusing to allow companies to do business with other countries that there's a thriving world business that doesn't depend on the US in any way because they can't. I'm thinking that the world will feel a chill, then realize that the world as they know it hasn't come to an end, and then get on with finding new markets and doing business. The end result will be a stronger not-dependent-on-the-US world economy.
By the way, you need to be a bit more sagacious about bandying about the Great Depression phraseology. When an American says The Great Depression, he refers to the depression that occurred in the US in the 1930s which itself was one of many depressions around the world which caused a world wide depression. That world wide depression's proximate cause was not the Fed's mismanagement of liquidity in America, it was the mercantilist policies of many of the world's major powers (hence the importance of the Bretton Woods agreements in 1944 which stressed the importance of multi-lateral trade). So, while we have liquidity issues in the world, we don't have the same trade issues (except, of course, the US which I've just mentioned).