Thursday, May 17, 2007
Asian analysis of world economy
Asian Tiimes Online: Liquidity boom and looming crisis
Sorry about posting 3 articles today but this one caught my eye and I'm away from IT for a few days. The Asian Times, (which has a slightly better quality journalism then UK rags) gives a good report of the world markets, predicting a downward trend for the US. "Now in 2007, a looming debt-driven financial crisis threatens to put an end to the decade-long liquidity boom that has been generated by the circular flow of trade deficits back into capital-account surpluses through the conduit of US dollar hegemony."
Posted by talking rot @ 08:31 AM (174 views) Add Comment
6 Comments
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1. talking rot said...
It is particularly bad form to comment on one's own posting but check this quote from page 4 of the article.
"Inflationary pressure in the US and other OECD economies makes a cyclical bear market inevitable and an orderly unwinding unlikely. Central banks cannot ease because of a liquidity trap that prevents banks from being able to find creditworthy borrowers at any interest rate. Banks could be pushing on a credit string and global liquidity could decline, causing asset-risk valuations to contract suddenly and sharply. A liquidity trap can also occur when the economy is stagnant and the nominal interest rate is close or equal to zero, and the central bank is unable to stimulate the economy with traditional monetary tools because people do not expect positive returns on investments, so they hoard cash to preserve capital. Capital then becomes idle assets."
And
"A global financial crisis is inevitable. So much investment has been sunk into increasing commodity production that a commodity-market bust, while having the effect of a sudden tax cut for the consuming economies, will cause bankruptcies that will wipe out massive amounts of global capital. "
See you all in a few days.
2. taffee said...
big question is when not if
3. royston said...
Look out for an unrelenting annual drop in house prices over the next 30 years!
4. fahrenheit451 said...
I agree with royston, but there is a basic concept under which will dictate the price to which houses will drop. It's the rule of 1/3rds. 1 part land cost, 1 part construction cost, 1 part profit. Profit also pays for marketing, sales, taxes, loans, etc. so its not really 100% profit in your pocket. Which is the same as any other business (1 part materials, 1 part labour, 1 part profit).
So if we start from "how much does it cost to build?" then we can deduce the rest. Currently its about £1000/sqm for one off designs, say £750/sqm for a development. If the average 3 bed detached house is 100sqm this gives a cost of about £75,000. Which gives a house price of £225,000. Now look around you and adjust for your local market. So London should be about £400,000 max, the South urban areas should be about £225,000, the North should be about £175,000.
You have the of cost of materials as constant everywhere and a small regional variations in labour prices, the rest is divided between the Land Owners and the Developer. Sombody is making a packet. They also make huge donations to the government in the hope of getting a peerage ... the rest you can work out for yorself.
5. sold 2 rent 1 said...
Great find TR,
A long read but well worth every word.
My best parts:-
"China's purchasing power is too weak to save the global economy from a deflationary depression"
"A commodity burst could cause correlation trades to unwind in other markets, which could snowball quickly into a massive financial crisis."
"A global liquidity trap of with $50 trillion of idle assets will implode like a doomsday machine."
"Not many economists or regulators have yet focused on this structural defect of CDO securitization. The recent congressional hearings on subprime mortgages completely missed this obvious structural flaw."
6. Hot said...
The rule is pretty simple I’ve always believed that there is a simple 1/3 rule, land, materials and labour. And for new build this is absolutely correct, any advantage of economy of scale the builder has is factored into the builders profit (what business wouldn’t)
Then of coarse there’s the ¼ rule!!! And if you subscribe to the ¼ rule there’s the stupidly factor to consider. This makes any measurement of fractional division imposable. This rule often include in excess of ½ to the stupidity factor,