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Us Economy Tipping Into Unstoppable Bust

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The US economy peaked in January and is tipping into an unstoppable "bust" whether or not the Federal Reserve halts its cycle of interest rate rises, Lombard Street Research has warned.

The economic research group said the US property market was crumbling, taking away the key prop of the consumer boom.

"The real US hard landing starts now," said Charles Dumas, the chief global economist. "It's going to be a long grind for two or three years, not as bad as Japan but going in that direction." The price of new houses in the US has been tumbling for five months at an annualised rate of 18.4pc, while mortgage applications are down 20pc.

This is exactly what Geroge Soros was saying months ago. They Fed have to keep raising rates until they can see the effect of slowing inflation, but by that time it will be too late to stop a recession.

Bring it on, let this madness end...

http://www.telegraph.co.uk/money/main.jhtm.../11/ixcity.html

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Yep. This is a disaster, but many saw it coming. It has often been said that some of the predictions on here are a bit far fetched. However, this is looking very, very serious indeed. Primarily because the US has given the economy a huge "fix", i.e., 1% IRs, which has just led to an astronomical equity bubble. When that unwinds - as it is now - there will be financial armageddon. Combined with the fact that the FED have no room to cut IRs due to rampant inflation caused by their previous policies, this is shaping up very badly indeed.

September 11th may have succeeded in bringing down the world's superpower. OMG :o

Dump $ buy Gold.

Edited by karhu

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[quote name='karhu' date='May 11 2006, 11:43 PM' post='373883'

September 11th may have succeeded in bringing down the world's superpower. OMG :o

Dump $ buy Gold.

No, not that specifically, but a combination of factors chiefly derived from, as with previous dominant empires, a belief that their dominance would continue into eternity irrespective of other forces in the World.

Arrogance or blindness?

Historians have fun trying to decide.

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Guest mattsta1964

We have a family friend, a multimillionaire, whose business interests are mostly in the US

I asked him last night whether he thinks the US economy is going to crash

His answer was a resounding NO! Not yet anyway, and having known him for 20 years, I trust his judgement.

When I suggested to him that the dollar might collapse very soon, he said that if that was the case, he would be taking immediate steps to protect himself and his business interests and that people should calm down! I'm sure the vast majority of business people are remaining level headed about what's happening.

There's no denying that the US economy is in trouble but I think some of the posts on this site are bordering on hysterical. The world as we know it is gonna end tomorrow! Sell yer gaff and buy gold!

Go ahead and buy gold, but it's about the riskiest investment you'll ever make. I certainly wouldn't put all my eggs that basket.........Yet

Chill people! It's been a hot day. Have a long cool beer

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We have a family friend, a multimillionaire, whose business interests are mostly in the US

I asked him last night whether he thinks the US economy is going to crash

His answer was a resounding NO! Not yet anyway, and having known him for 20 years, I trust his judgement.

When I suggested to him that the dollar might collapse very soon, he said that if that was the case, he would be taking immediate steps to protect himself and his business interests and that people should calm down! I'm sure the vast majority of business people are remaining level headed about what's happening.

There's no denying that the US economy is in trouble but I think some of the posts on this site are bordering on hysterical. The world as we know it is gonna end tomorrow! Sell yer gaff and buy gold!

Go ahead and buy gold, but it's about the riskiest investment you'll ever make. I certainly wouldn't put all my eggs that basket.........Yet

Chill people! It's been a hot day. Have a long cool beer

Look at the financial markets, they're doing exactly that. The $ is falling on the back of strong IR rises from the FED. Gold is surging forwards.

Some of the posts on here border on prozac overdose. The alarm bells are ringing. Days before crash of 1929 and the great depression started there were guys like your friend who were fat cats and thought the situation was sustainable. A few years later they were queuing outside the soup kitchen......

Decadence. The fact that your friend has not even considered this scenario is a cause for concern. He's not lilkely to say yes if his monetary value is held in $, even if the obvious is staring him in the face.

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We have a family friend, a multimillionaire, whose business interests are mostly in the US

I asked him last night whether he thinks the US economy is going to crash

His answer was a resounding NO! Not yet anyway, and having known him for 20 years, I trust his judgement.

When I suggested to him that the dollar might collapse very soon, he said that if that was the case, he would be taking immediate steps to protect himself and his business interests and that people should calm down! I'm sure the vast majority of business people are remaining level headed about what's happening.

There's no denying that the US economy is in trouble but I think some of the posts on this site are bordering on hysterical. The world as we know it is gonna end tomorrow! Sell yer gaff and buy gold!

Go ahead and buy gold, but it's about the riskiest investment you'll ever make. I certainly wouldn't put all my eggs that basket.........Yet

Chill people! It's been a hot day. Have a long cool beer

Probably depends upon what area those business interests are in.

Who is saying the World is going to end tomorrow?

What you cannot deny is that the USA has horrendous deficits and a Government seemingly happy for those to grow.

Which countries support those deficits?

Why those who are slowly but surely moving into an increasingly important economic dominance.

The last refuge of failing empire, war, against the major rival will not be an option for the USA.

Timescale of course is never predetermined.

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Guest Guy_Montag

I find it odd that many people here, who obviously pick up on the house price bubble, are so convinced that gold is a safe place o put money. Yet gold, like most things, can also be subject to speculative bubbles. Crikley it's gone up 100% in the last x days/months/years that must mean that all fiat currencies are about to collapse & has nothing to do with people moving for one bubble into another one.

If you want to put your money somewhere safe, I suggest Tesco Value Tuna. It's more practical (anyone for a gold sarnie?) & likely to be inflation proof (currently a loss leader).

Maybe I'm just bitter 'cause I almost got into it last November, but didn't.

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Maybe I'm just bitter 'cause I almost got into it last November, but didn't.

Gold or tuna?

Or deliberately ambiguous, bit of gold bit of tuna?

Problem with that tuna is there's a sell by date, which might not coincide with a market top.

:)

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Gold or tuna?

Or deliberately ambiguous, bit of gold bit of tuna?

Problem with that tuna is there's a sell by date, which might not coincide with a market top.

:)

Lol, had to post a rye smile :D

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just love the last paragraph

"A fall of perhaps 20pc in US residential construction in the course of the next year or so is not an implausible scenario. That would be a big deal. Rates will have to come down, perhaps by rather a lot," he said.

I can't wait to see the look on their faces when they see rates have to keep going up..and up..and up...and up...

Another .25% rise this week and the dollar goes down. Hardly needs a rocket scientist to work out what would happen if Bernake even started hinting at rate cuts let alone actually making them.

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Guest Bart of Darkness
Days before crash of 1929 and the great depression started there were guys like your friend who were fat cats and thought the situation was sustainable. A few years later they were queuing outside the soup kitchen......

One of the most enduring images of the Wall Street Crash for me is this one:

USAwallst.jpg

Fred Bell was a wealthy businessman but was

forced to sell apples after the Wall Street Crash.

Mr Bell probably would have liked a long, cool beer too. Shame he couldn't afford one.

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Bring it on, let this madness end...

Interesting then that the Cassandra of Wall St (Stephen Roach at Morgan Stanley) has just now had a change of heart and thinks the IMF, through multilateral agreements, and Chinese consumers will save the day for the American and world economy. Either he has been bought or he has had a cold beer, as another poster recommended.

JY

Is the global economy really on the mend?

11.05.2006

The famously bearish Morgan Stanley economist Stephen Roach now believes the world has turned a corner and the outlook is brightening. So why the change of heart? And is he right to be upbeat? Or is the conversion of this most bearish of commentators a warning sign for the rest of us? Make up your own mind by reading his latest thoughts on the global economy below...

The current boom in commodity prices could be just the beginning of a decade-long super-cycle – one that could provide you with regular double and triple digit gains. Catch the super-cycle as it takes off!

It seems like eternity since I was last optimistic on the world economy. It was back in 1999 when I argued that “Global Healing” would allow the world to make a stunning comeback from the ravages of the worst financial crisis in 60 years. My enthusiasm was short-lived, however, as the cure led to the mother of all liquidity cycles, multiple asset bubbles, and an unprecedented build-up of global imbalances. While an unbalanced world has yet to shake its hangover from global healing, I must confess that I am now feeling better about the prognosis for the world economy for the first time in ages.

Global imbalances: central banks learn the lessons of the Asian crisis

The reason: the world is finally taking its medicine – or at least considering the possibility of doing so. Central banks are carefully adjusting the liquidity spigot – taking advantage of the luxury of low inflation to move very slowly in doing so. This delicate normalisation procedure is necessary to prevent wrenching financial market crashes that would spell curtains for an asset-dependent world.

Meanwhile, the stewards of globalisation – especially the G-7 and the IMF – have finally come to grips with the imperatives of facing up to the perils of global imbalances. They are now hard at work in developing a multilateral solution to a multi-economy problem.

At the same time, orderly currency adjustments appear to have resumed – and this time, in the right direction. Ever so slowly, the dollar is being managed lower – in keeping with the relative price shift that a long-overdue US current account adjustment needs. As always, there are still plenty of serious risks – especially oil, geopolitics, fiscal paralysis, and protectionism. But the world now appears to be getting its act together, and that encourages me.

Central banks remain leading actors in this drama. They almost blew it – especially the monetary authorities in Japan and the US. By condoning asset bubbles and their concomitant distortions of debt cycles and increasingly asset-dependent real economies, both the BOJ and the Fed flirted with the most corrosive of macro diseases – deflation.

Japan actually succumbed to a mild, yet protracted, strain of this ailment, while the US had a close brush in 2003. The Fed studied the lessons of the Japanese experience carefully and made every effort to avoid a similar fate for the US (see A. G. Ahearne et al., “Preventing Deflation: Lessons From Japan's Experience in the 1990s,” Federal Reserve International Discussion Paper, June 2002). While Japan finally seems to be exiting from its long slump, the jury is still out in America, as one bubble (equities) has morphed into another (housing).

Central banks have been aided in their post-bubble tactics by an unexpected ally – a persistent disinflation. Courtesy of a rapidly spreading globalisation of both tradable manufactured activity and once nontradable services, powerful structural headwinds have dampened inflationary pressures that might have normally arisen from a cyclical recovery in the world economy. This has provided monetary authorities with the luxury of moving slowly in weaning economies from their post-bubble medicine.

Had inflation responded more to the traditional pressures of the closed economy – namely, domestic unemployment rates and capacity utilisation rates – monetary policy would have been forced into a more activist post-bubble tightening mode. Instead, the ongoing disinflation of increasingly open economies has transformed the role of central banks.

Rather than playing the destabilising function of leaning against the inflation cycle, the authorities have been given license to focus more on a goal of “normalisation” – seeking to put policy rates on a neutral setting that is neither too tight nor too easy. This has reduced the possibility that the world will be disrupted by the boom-bust cycles that frequently plagued the economy of yesteryear.

This is a delicate operation, to say the least. We are in the midst of what could well be the mother of all liquidity cycles. Courtesy of an extraordinary monetary accommodation, financial markets have enjoyed open-ended support from central banks. This has been a key role reversal for the tough guys who are supposed to take away the “punch bowl” just when the party gets good.

Given the power of this liquidity cycle – evidenced not just by asset bubbles in major markets but also by an extraordinary compression of spreads on risky assets such as emerging-market debt and more traditional credit instruments – a serious monetary tightening could prove devastating for financial markets and increasingly wealth-dependent economies. As long as inflation remains low, however, the authorities can set their sights on the more benign target of neutrality.

The latest downside surprise on the US inflation front – another weaker-than-expected increase in the all-important Employment Cost Index – provides support for that strategy. Despite a tightening labor market, compensation growth for civilian workers slowed to just 2.8% in the 12 months ending March 2006 – down one full percentage point from the pace two years ago. This is yet another example of the power of the global labor arbitrage and good reason to believe that central banks can stay focused on the goal of normalisation rather than tightening.

Global imbalances: on the road to normalisation

The good news is that all of the world’s major central banks are now on the road to normalisation. America’s Fed is furthest along in this process, and is now sending signals that this interim goal may be in sight. The ECB is not that far behind; since it was not forced into an emergency bubble-defense drill, it does not have that far to go to take its policy stance to a neutral setting — even though it has only tightened twice in the past five months. The Bank of Japan is now very much into the normalisation drill; its latest upgrade of the economic outlook has promoted our BOJ watchers to put a 90% probability on a rate hike in either June or July. Even the People’s Bank of China has joined the ranks with its first rate hike in a year and a half; in my view, this is likely to be the first of several steps Chinese authorities will take in order to rein in the excesses of their liquidity cycle.

In all of these cases – the US, Europe, Japan, and China – inflationary pressures remain well contained. That allows central banks in each of these economies to follow the Fed’s template of “measured” normalisation – balancing the limited risks of inflation against the more serious risks of a major about-face to liquidity cycles. The authorities are, in effect, taking a calculated pro-growth risk for an asset-dependent global economy.

Against this backdrop, the recent breakthrough in long-dormant efforts to reform the international financial architecture is especially encouraging. Don’t get me wrong – I am still very concerned about the mounting pressures of unprecedented global imbalances. America’s massive current account deficit – hitting an annualised $900 billion in late 2005 – puts an extraordinary financing burden on the world. Moreover, with the three largest surplus nations – Japan, Germany, and China – all hard at work in stimulating internal demand, America is likely to have less surplus foreign saving at its disposal. With the perils of a US current account adjustment mounting, global authorities had seemed asleep at the switch.

That is no longer the case. I am pleased that they have risen to the occasion – not just by devoting a special annex of the recent G-7 communiqué to global imbalances, but also by empowering the IMF to expand its purview to multilateral surveillance and consultations. That finally puts teeth into the global rebalancing campaign. While that doesn’t eliminate the possibility of a disruptive US current account adjustment, it does mean that an unbalanced world is now taking its collective responsibility more seriously.

Global imbalances: rebalancing the global economy

The wheels of global adjustment turn very slowly. But at least they do appear to be turning. The dollar is moving lower again after a 15-month hiatus from a multi-year decline that began in early 2002. Like Stephen Li Jen, I am not a believer that a weaker dollar is the cure for global imbalances. But I certainly don’t buy the new-paradigm rhetoric of a newly symbiotic world that is built on a foundation of ever-mounting imbalances and a strengthening dollar.

By contrast, I view dollar depreciation as part of the solution for America’s excess consumption problem. Another important part of that solution is the end of the US housing bubble and the wealth-dependent excesses of consumer demand this bubble has supported. For that reason, I am also encouraged that the froth now seems to be coming out of the US housing market; recent blips in the monthly data on home sales run against this conclusion, but the trend has been decidedly lower since last summer. Moreover, the latest data on the Employment Cost Index underscores a persistent deficiency on the labor income side of the equation.

Consequently, as the wealth effects from asset bubbles fade, I continue to believe that pressures will build on income-short American consumers – setting in motion the only realistic fix to America’s gaping current account deficit.

Finally, I am encouraged by what I see elsewhere in the world. I have just returned from my second trip to Asia in the past month, and I sense a major change in the region’s global perspective. That’s especially the case in China, where the need to stimulate internal consumption has gained great traction in policy circles. If China pulls this feat off, it would do so considerably earlier in its development than Japan, Korea, and other Asian economies.

This only underscores China’s amazing capacity to leapfrog everything we know about economic development. Export-led Asia is finally coming to grips with the need to diversify its sources of growth. Given the likely consolidation of US consumer demand – long the region’s most important customer – that’s certainly a good thing. A rebalancing of the Asian growth model is a big plus for an unbalanced world.

As I put all these pieces together, I now believe that the odds are shifting away from a disruptive global rebalancing. That tempers my long-standing concerns over the possibility of a sharp decline in the US dollar and a major back-up in real long-term US interest rates that such a currency crisis might have triggered.

Lest I be accused of succumbing to the ravages of terminal jet leg, I assure you that I am still mindful of the ever-present risks that beset a very fragile world. Oil prices above $70 are especially worrisome for the world’s oil consumers. The income- and saving-short American consumer concerns me most in that regard – especially as the wealth effects from the US housing bubble now start to fade. The mounting geopolitical risks associated with the “Iran problem” – all too reminiscent of the build-up before the Iraq War – only compound my fears that oil-related disruptions of the world economy are here to stay.

Nor do I dismiss the politically-induced backlash to globalisation that has raised the distinct possibility of an outbreak of protectionism; Washington-led China bashing remains the biggest risk in that regard. And speaking of Washington, the US is rapidly becoming the global poster child for fiscal irresponsibility – not exactly a constructive development for the world’s biggest borrower.

No, I am not prepared to give an unbalanced world the green light. But it’s time to give credit where credit is due: First, to globalisation for holding down inflation. Second, to central banks for collectively embarking on policy normalisation campaigns. Third, to the stewards of globalisation for facing up to the imperatives of architectural reform. And fourth, to Asia – especially China – for recognising the unsustainability of export-led growth models.

Notwithstanding the risks noted above – all of which need to be taken very seriously – I am delighted that the global economy finally seems to be taking its medicine. Let’s hope the cure works.

By Stephen Roach, global economist at Morgan Stanley, as first published on Morgan Stanley’s Global Economic Forum

Author: Roach, Stephen

Edited by JustYield

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Yep. This is a disaster, but many saw it coming. It has often been said that some of the predictions on here are a bit far fetched. However, this is looking very, very serious indeed. Primarily because the US has given the economy a huge "fix", i.e., 1% IRs, which has just led to an astronomical equity bubble. When that unwinds - as it is now - there will be financial armageddon. Combined with the fact that the FED have no room to cut IRs due to rampant inflation caused by their previous policies, this is shaping up very badly indeed.

September 11th may have succeeded in bringing down the world's superpower. OMG :o

Dump $ buy Gold.

I travel to the US often, i have family near the Blue ridge mountains(where the Waltons lived), only last year i was still amazed at what you could get for $150,000, 1 acre, 4 bedrooms, 2 bathrooms, forest everywhere with wildlife that has not been splattered on the side of the road.

If the Yanks think they are in an astronomical bubble, what are we in.

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A US slow down at this stage could only be a good thing, taking pressure off interest rates on both sides of the Atlantic.

Aren't the central banks targeting inflation and not growth ? IRs could well be going higher than many would like...

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September 11th may have succeeded in bringing down the world's superpower. OMG :o

Perhaps this is part of what Bin Laden wanted all along... to bankrupt America :blink:

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Often the US and UK are used interchangably on this site.

Many of the alternative media presentations come from the states, etc, etc.

Many people on here own Gold even though it's more of a primary concern for Americans.

Could the same thing happen here?

M4's peaking at 12%... historically low interest rates... more than a doubling in personal debt in the last 7-8 years...

Are we next? Or are we going to be next if BoE maintains M4 at 12%+ pa? Or will America's fate sound warning bells and prompt them to reign it in?

AF.

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Aren't the central banks targeting inflation and not growth ? IRs could well be going higher than many would like...

TTRTR,

I dont this you get it. A falling dollar will bring inflation in the US & higher interest rates

And as we've seen at the first concrete signs of Americans suffering & inflation being tamed, IR's will be adjusted downwards. I'm not predicting it, I'm just saying that when the road signs start to change, they have shown that they'll act accordingly.

But more importantly to us, I'm saying that any easing of rate expectations for America is a good thing (on my side of the fence) for expectations of rates here.

USD/GBP is getting awfully close to 1.90 today.

This reminds me of some strange poster who months & months ago claimed US & UK rates both at 4.5% would mean USD/GBP parity. Now we're at 5/4.5% the exchange rate is largely where it was back then.

What a laugh & what a poor understanding!!!!!

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But more importantly to us, I'm saying that any easing of rate expectations for America is a good thing (on my side of the fence) for expectations of rates here.

Who's talking about easing of rates anywhere? If the dollar is still falling after rates have been raised for the 17th time in a row I don't think a cut is around the corner.

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I travel to the US often, i have family near the Blue ridge mountains(where the Waltons lived), only last year i was still amazed at what you could get for $150,000, 1 acre, 4 bedrooms, 2 bathrooms, forest everywhere with wildlife that has not been splattered on the side of the road.

If the Yanks think they are in an astronomical bubble, what are we in.

America is quite different though. Very spread out. Each State is more or less like its own country. One area might be totally affordable and another (like California) might be totally overpriced like the UK.

Edited by SCUMBAG

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Perhaps this is part of what Bin Laden wanted all along... to bankrupt America :blink:

Of course that was their plan. It's not Americans per se that those guys are after. It is America's financial might (and the multinationals), used to sc**w the rest of the world, that these guys are talking a pot shot at.

And this is very relevant because Greenspan reacted to stabilise the American financial markets by pumping money into the system. That was the start of the huge equity bubble that we now see.

Edited by karhu

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Guest Riser

FTSE down 60 points so far Today and chart looks like a rock falling off a cliff. :P

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I find it odd that many people here, who obviously pick up on the house price bubble, are so convinced that gold is a safe place o put money. Yet gold, like most things, can also be subject to speculative bubbles. Crikley it's gone up 100% in the last x days/months/years that must mean that all fiat currencies are about to collapse & has nothing to do with people moving for one bubble into another one.

If you want to put your money somewhere safe, I suggest Tesco Value Tuna. It's more practical (anyone for a gold sarnie?) & likely to be inflation proof (currently a loss leader).

Maybe I'm just bitter 'cause I almost got into it last November, but didn't.

That is an extrapolation of what I said.

Gold is a commodity of last resort, when you can't think of anywhere else to go. So it is inevitable in a time of serious financial instability and in particular the potential devaluing of fiat currencies that gold would rise in value. I'd say that if we receive more news like this, gold could rise almost without bounds. Almost everything is a bubble right now because the Western world has become decadent and totally unsustainable. Nobody seems to want to work, yet they expect a fantastic standard of living.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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