[BlueGhostNo2]

The U.S. Import Bubble Is Bursting

The above article makes the case that the current financial woes are a result of huge excessive debt burden in the US, it claims that the Wall Street and London financial system has rigged the global economy such that producing countries (China, Saudi Arabia etc) are lending to the US so it can buy their goods with no hope of re-payment.

It claims that an imminent collapse from the unwinding (as communicated by the dramatic fall in stocks recently) is inevitable and unavoidable... The end is nigh.

Now sadly the above article was written in 2001 just about half way through the Dot-Com market crash. The rest as they say is history. The markets dropped for 2 further years. Peoples attention was sucked suddenly by the tragedy on 9/11 then war in Afghanistan and Iraq. Around 2003 with the start of the Iraq war and interest rates reduced from over 6 before the crash to under 2% the economy, stocks and a housing bubble all started to grow. (2)(3)

So, why is this time different? The FTSE 100, DJIA, NASDAQ and S&P500 have all yet to drop below their post Dot-Com boom crash levels. There also doesn't seem to be any particular lack of appetite for US Gov debt with some yields even going to Zero. Clearly in 2001 commentators an doom mongers were just as convinced that these were the end times as some posters here are now. (1)

My question is why? And I don't want some wishy washy 'it feels different', 'the mayan calendar predicts it' or 'omg the lizard people have suddenly decided social collapse is good for them' BS, so mods please nuke any that crop up.

If people could only reply with some rational reasoning preferably backing up your facts and assumptions with data. That'd be ace.

(1) [url=http://finance.yahoo.com/echarts?s=%5EIXIC#chart7:symbol=^ixic;range=20000120,20090112;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined]Yahoo indicies charting[/url]
(2) US house price graph
(3) US federal fund rate

[notill]

I'll take a shot at this. I think that eight years years ago the US was still largely viewed by the world as mystically wealthy, and lending to us was a sure bet. The rapidly increasing information age, and the realization of Americas stunning debt, has dispelled that notion. Now the US is beginning to be rightfully viewed with repulsion for its excesses.

The prosperity of the last eight years was built on debt, going forward, we have a completely different "financial statement" than we did in 2001, our bank is in trouble, and our free wheeling loan officer has been replaced.

[jedinvest]

With the banks collapsing all around us, the 'collapse' is now real rather than predicted. That's the difference that eight years makes.

The aura of the U.S. is tarnished, our credit-rating slashed.

You could say we once exported services rather than real goods. Our financial services that the world at one time desired are now recognized for the false-promise that they were, i.e. the toxic assets that are no asset at all.

Our technical know-how was exported as well, but we may not be generating enough of it anymore to make any difference. Peak technology may have also arrived.

[Snowrunner]

I'll take a shot at this. I think that eight years years ago the US was still largely viewed by the world as mystically wealthy, and lending to us was a sure bet. The rapidly increasing information age, and the realization of Americas stunning debt, has dispelled that notion. Now the US is beginning to be rightfully viewed with repulsion for its excesses.

The prosperity of the last eight years was built on debt, going forward, we have a completely different "financial statement" than we did in 2001, our bank is in trouble, and our free wheeling loan officer has been replaced.

There is that, but also that 9/11 gave the US "sympathy points" in the rest of the world. Maybe not consciously, but it had an impact on how people perceived the US, it was a horrific and unheard of act and most people, at least for a while, sympathized with the US afterwards.

But things like Abu Ghraib etc. have made people question the US' self image and with the rising problems in the markets the look has gotten even harder. I do not think that there is any sympathy left at this stage and unless Obama can somehow convince the world (doubtful considering some statements he has made over the last few weeks) that America has found it's way again on ALL fronts the rest of the world will try to figure out how to reduce their exposure to the US as quickly as possible without having the ceiling come down on their heads.

As a side note. I found it funny to read a few years ago that the Euro was actually a US project, the idea apparently being that the member states would not be able to agree on the "limits" that the Euro would require and thus weaken Europe as a whole. Right now it looks like this may have backfired as many countries seem to see the Euro as a viable alternative to the USD.... My, what a change a decade can make.

If we wouldn't chronicle most of this in electronic form historians would have a field day with this 200 years from now.

[JPL]

If people could only reply with some rational reasoning preferably backing up your facts and assumptions with data. That'd be ace.

You know, grab a load of this, I heard this guy on the internet the other day saying that we're about to run out of oil. Jeez, can you believe that??? How do you do predictions based around that kind-of crazy stuff?

JP

[bratticus]

...the Wall Street and London financial system has rigged the global economy such that producing countries (China, Saudi Arabia etc) are lending to the US so it can buy their goods with no hope of re-payment.

Boo-hoo, we p0wn3d them so bad they looked like this when we were done:

[BlueGhostNo2]

Well bratticus you completely missed the point of my post but nvm hey, you did manage some thing to backup your statement.
JPL, I have no idea what point you're trying to make in the context of the original post but ho hum.
Mod's can you please remove JPL and Bratticus' posts? They're just noise.

Notill: I agree with you that things are not as rosy as 8 years ago The whole system is certainly in a worse state, the US in particular. The dollar index has been dropping more or less steadily since 2002 so the scale of the loaning has had to grow.(1) However it is not correct to say the US is having difficulty obtaining credit, yet. There are people talking about what happens when stability returns and US treasuries seem a less safe bet but we're not at that point YET. So for now the music keeps going and people keep lending us the dough, so if that continues there's no reason to see a total collapse as imminent. Belt tightening as our banks can no longer lend debt to the populace, but no government failure or hyper-inflation.

Jedinvest: the US credit rating has not been modified at all, people are talking about it yes but it has not happened (you'd hear about it if it did!) can we stay away from making patently false statements?

I do agree that we used to manufacture and export goods, then we lost our competitive advantage and switched to knowledge and services now it seems we're losing even that competitive advantage and so we'll find it even harder to maintain the huge gap in quality of life.

BUT, we've no definite proof that people will stop financing our excess, we still have very rich citizens and corporations who own vast swathes of the resources all over the world this cannot be ignored and so long as these companies and people want to live in the US / UK they cannot be written out of the equation.

Snowrunner: Yup I think the key here is "without bringing the ceiling down on their heads' it is not in the interests of those with huge US holdings to trash them and collapse the system.


(1) US dollar index graph

[Sixstrings]

Mod's can you please remove JPL and Bratticus' posts? They're just noise.

I don't think the mods delete members' opinions just because you happen to think they're "just noise."

I would say that the difference between the current financial bubble collapse and the dot-com collapse is that a monetary collapse is exponentially more troublesome than any other sector -- when financials collapse, all sectors are affected.

The mantra we're hearing in every Western nation lately is "banks aren't lending money." I don't remember hearing that in prior recessions. Also, I don't think Paulson was full of it when he ran around warning everyone of "something worse than the Great Depression."

I'm certainly no expert, but I do find this fascinating. It seems to me that all this money going into treasuries is money that should be pumping into the private sector. The world is in a deflationary recession, so the more that private money enters the black hole of government spending, the worse the private economy gets.

Given this state of affairs, in theory it would help if government would take all this incoming t-bill cash and loan it right back out to private enterprise, but this money is needed to fund our wars, bail out a few financials, bail the states out etc. etc.

So that's how I see things. The current exceptional demand for treasuries is really an anomalous transfer of private wealth to government. And government is *not* efficient at dispersing this money back out to private enterprise.

[Keith_McClary]

My, what a change a decade can make.

You mean, eight years?

[bratticus]

Mod's can you please remove JPL and Bratticus' posts? They're just noise.

Mods, can you please merge this thread with the usual China import/export one?

http://www.peakoil.com/fortopic49669.html

Thanks!

[BlueGhostNo2]

I don't think the mods delete members' opinions just because you happen to think they're "just noise."

It's not about what I 'happen to think' the posts are in the context of the op just noise. The mods of course can do whatever they want. But if they wish to preside over a useful form where data gets shared and facts are rationally discussed they'll need to actually do some policing. If they just want an emotionally charged ranty doom hole well I'm sure they can work out how to create that environment.

Other than that I agree with most everything you've said, but you're really only describing how the current crisis is different from the 2001 dot-com what is the logic that takes us from financially driven recession into depression, doom and zombie hoards? I can think of some arguments but the purpose of the thread was to find other peoples reasoning & see what data they threw out to back it up.

[Sixstrings]

Ah, I see. Personally, I don't think a zombie horde scenario will come to pass. A GD Redux, at worst, is more like it.

That's still a pretty big development.. it means the end of the world as we've known it for the past 60+ years.

[Snowrunner]

My, what a change a decade can make.

You mean, eight years?

Not really, this started already under Clinton's watch around '98 in earnest (obviously the root causes are much deeper / older).

[BlueGhostNo2]

Ah, I see. Personally, I don't think a zombie horde scenario will come to pass. A GD Redux, at worst, is more like it.

That's still a pretty big development.. it means the end of the world as we've known it for the past 60+ years.

Ok Sixstings so what is the argument which takes you from the current financials driven recession into there being a depression?

If the big difference is that this one is lead by financial woes can it not be fixed by government financial wrangling. In other words what stops the solution of printing money to resume lending from working? I think it is unlikely to spark massive hyper-inflation due to the money destroyed in loans paid back and more importantly the huge drop in the velocity of money. Of course we could be in trouble when the velocity of money goes back up, but by then the crisis will be averted and it'll just be another stealth tax on savers.

[shady28]

The U.S. Import Bubble Is Bursting

Now sadly the above article was written in 2001 just about half way through the Dot-Com market crash. The rest as they say is history.

So, why is this time different?

...

It isn't different this time. The problem with the argument here is that what is happening now started in 2000 / 2001. In other words, when referring to 2000/2001 and now, this time is that time.

Here is one bit of evidence, from a technical / market perspective, to back that up :

Inflation adjusted DJIA :

http://sybilstar.blogspot.com/2007/04/i ... d-set.html

What I am saying here is that - after the dollar was devalued by a combination of excessive lending and artifically low interest rates - in real terms (ie, constant dollar value terms) the markets NEVER RECOVERED from 2001.

Another way of looking at this is that you would have been better off putting your money into a weighted distribution of various currencies rather than the markets - EVEN AT THE DOW HIGH of 14000!

Here is another point of reference :

http://www.newfinancialwisdom.com/dow-j ... -adjusted/

On January 14, 2000, the DJIA closed at 11,722.98, which was the highest at the time. However, adjusted for inflation during the last 8 years, it should be at about 14,586.90. Clearly, even at it’s highest point of 14,000 (which it is not currently), the Dow Jones is not even keeping pace with inflation! In fact, given the recent DJIA of 12,182.13, you could say that the DJIA has declined OVER 20% (inflation adjusted) over the past 8 years. This decline is only inflation and does not account for management/trade fees or capital gain taxes.

If you think it is bad for those 30 companies, looking at the broader market is even worse. The S&P500 was at a peak of 1451.30 on January 18, 2000 and is closed today at 1331.29. It is lower BOTH in nominal and real pricing. Inflation adjusted, the S&P 500 has lost nearly 33% over the past 8 years