Sunday, Oct 15, 2006

The greatest financial train wreck in history

MoneyWeek: Why the US is heading for a currency crisis

The Washington elite and their compulsively clever counterparts around the world have set the US (and global) economy up for a currency crisis of gargantuan proportions.

Posted by nearly30 @ 09:32 PM (448 views)
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1. little professor said...

Here's the most interesting part for HPC'ers:

The debt Americans have been building up isnt just a number that sits on a balance sheet. And it isnt spread evenly through the population and through the economy. It is concentrated in one area, residential real estate. And it is concentrated in an unstable fashion, thanks to the governments efforts to stimulate the economy.

After the equities boom faltered and the US economy showed signs of weakening in 2000-2001, the Fed started cutting interest rates and worked its way almost to zero. Americans borrowed and spent as never before. Anyone who didnt own a house borrowed to buy, increasingly with no money down or with interest-only loans. Those who already owned a house borrowed against it to buy furniture, cars, boats, yard-wide televisions and trips to Hawaii.

Empowered by ultra-low housing rates, people bid up the prices of existing houses, allowing their owners to draw even more spendable cash at the refinancing window or to use their equity to bid on an even more expensive house, or even second and third homes, in the process taking on even bigger house payment commitments and pushing home prices ever higher.

The US housing boom is over. Prices have softened in many areas and in others prices are beginning to decline. The reason? Interest rates have risen to a point where housing loans no longer look like free money. If interest rates keep going up, US home buyers will cut back on what they are willing to pay, so prices will decline.
Homeowners will see their equity shrink and then disappear. Housing loan lenders will swallow huge losses as many home owners default.
Homeowners with variable-rate housing payments will be squeezed; and many will be forced to sell, so prices will decline. The rest will cut back on consumer spending in order to keep their houses and so will push the economy toward recession.

Monday, October 16, 2006 01:35AM Report Comment

2. the bald man said...

Does this not look just like Gordans miracle economy? Growth generated from a house price boom. No increases in productivity. A society with a mountain of debt. In addition we have high taxes, poor infrastructure and a very expensive civil service. But of course we can keep borrowing against our houses!!!

Monday, October 16, 2006 10:47AM Report Comment

3. sold 2 rent 1 said...

I have now got my hedge against a dollar currency crisis/inflation sorted out.

Just transferred some previous years ISA unit trusts to new gold funds.
I use a account

The funds I transferred into are:
Merrill Lynch Gold & General Acc
Investec Global Gold Fund A Acc

If gold does rocket then there will be no CGT to pay

Monday, October 16, 2006 04:35PM Report Comment

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