Politics Are we heading for a global economic collapse?

[SDNR]

Many economists believe the world is heading for major economic turmoil - put simply, the Western world is living way beyond its means - the most frightening example is the USA -the world's largest economy is in serious trouble.

Take an example by the British financier and author Jim Mellon; ....every man, woman and child in the US imports approximately $16 worth of foreign products every day, but they only export $9 - there is a gap of $7 - now 7 dollars every day for every man, women, and child in America (285 million) multiplied by 365 days a year = $650 billion of deficit - The US national debt is over $8 trillion - and the Chinese and Japanese central banks buy the US government debt - but sooner or later the US will have to pay it back - check this website U.S. National Debt Clock. Also we are seeing huge job losses - Ford has just announced that it will be dropping a quarter of it's workforce.

Of course the US is not alone, the entire western world is living well beyond it's means - many people are living with vast personal debt while others have invested much [borrowed] money in over-inflated real estate markets.

Western manufacturers are finding it impossible to compete with cheaper imports (or labour costs) from Eastern Europe and particularly China.

Here is a recent book you might find interesting - it is about this looming international crisis.
http://books.global-investor.com/books/22713.htm?ginPtrCode=00000&identifier=

Here is an interesting article.
http://www.economist.com/finance/displaystory.cfm?story_id=5408129

 

[EnI]

No, no, no ...

Everything will be OK.

Just ignore the crisis and all the bad stuff, and they will disappear.

 

[SDNR]

HA - if only - I know a few people who are like that - they live so well...yet have virtually no money - thank God for credit cards aye.. he he he

 

[450SEL6.9]

I haven't read Jim Mellon's book, but I've read his comments on the global economy. I think he's spot on. I've been planning to read it though, but can't seem to find it in a brick and mortar book store.

Debts must be repaid and American property owners don't seem to realize that. I think some of the more regional US banks might be hurt severely. Borrowing short and lending long against property is the classic way a bank gets into trouble. Mellon in particular is bearish about global property. I believe any global economic collapse will start will the American property bubble bursting. I've said before household debts are at depression-era levels. Most economic analysts say rubbish like it's different this time and that GDP growth in the US is strong at 4 percent-plus. By the way, GDP was growing at 5 percent before 1929.

Roberto, I have a family friend who lives very well with four properties near San Franciso and Simi Valley, but he's really skint with no money. He's a rising chef at a local restaurant and doesn't earn enough to pay four mortgages, then again not many people do. I asked him how he can afford it. He said he has a mortgage that allows him to borrow some of the interest! What the bloody hell? It's the anti-mortgage and what a mortgage should not be! The principal owing should go down after each payment, not rise further. I also asked him what he'll do if the collateral, the property, falls in value. I'm still awaiting my response. I don't know why property has become so hot all of a sudden and it's very international, not just Asia, Europe or Australasia. The artificially low interest rates can't explain all of the gains in property prices. Any ideas?

 

[Yperion]

No nation or no person can live with borrowed money for ever that's for sure. My question is since most countries in the world are bunkrupt or have to borrow money who is actually lending them? Do banks actually have the huge amounts of money to lend to nations or we are living in a world where wealth and debts are virtual?

 

[450SEL6.9]

A nation can live with borrowed money so long as they can print money, find buyers for their bonds or massive inflation.

To answer your question, Yannis, the money comes from Central Banks and particularly, the reserves of foreign currency and foreign bonds that each hold. The Chinese have been buying American bonds for the past years. The Japanese are the largest owners of US government paper. If or when they sell, since the US dollar is unsound, the American economy is in a heap of trouble. Dollar falls, yields rise and maybe the property bubble has burst. If the US goes into a severe recession, there'll be a global recession. China is not autonomous from the rest of the world regardless of what those crooked economists and stock market analysts like to think. I don't see how they think China can keep growing at 9, 10 percent without a strong American economy.

 

[SDNR]

Roberto, I have a family friend who lives very well with four properties near San Franciso and Simi Valley, but he's really skint with no money. He's a rising chef at a local restaurant and doesn't earn enough to pay four mortgages, then again not many people do. I asked him how he can afford it. He said he has a mortgage that allows him to borrow some of the interest! What the bloody hell? ideas?

LOL - it sure is crazy - much like people with 10 credit cards that they use to just keep shifting [and accumulating] debt - I don't know how they can sleep - I would have stomach ulcers...with worry.

I think the US is in for some very tough times (as is the Western world as a whole) - many Americans are likely to see a significant drop in their standard of living over the coming years.

 

[SDNR]

No nation or no person can live with borrowed money for ever that's for sure. My question is since most countries in the world are bunkrupt or have to borrow money who is actually lending them? Do banks actually have the huge amounts of money to lend to nations or we are living in a world where wealth and debts are virtual?

Ha - it's interesting isn't it - the thing is, a sizable percentage of the world's wealth doesn't actually exist - rather, it is money owed (with interest of course). Debt in itself isn't necessarily a bad thing - companies borrow money in order to expand etc.. and in turn help grow an economy - the problem is when individuals [particularly] in large numbers borrow money just to buy "stuff" (plasma televisions, the new Mercedes, a holiday house in southern France) - the purchasing of these things will stimulate an economy for a while and even create employment in the retail sector, but long term it is not productive, and eventually things either slow down...or crash.

 

[450SEL6.9]

I have no problem with people borrowing at low interest rates to invest for the future. It's just an investment loan. Most people who take equity out of their homes with subsequent mortgages and remortgages are just buying consumption items or goods that rapidly lose their value. A car is a good feel-good purchase to prove you have indeed arrived at a certain status, but it is the worst investment you can make since you're nearly guaranteed to lose money.

The problem is that all economies are so connected today. A severe recession in the US cut put the brakes on economic growth, especially unsustainable growth in parts of Asia.

 

[Giannis]

BTW, guys what do you think of your local economy?

As for me, i think that economy is neither in a good nor in a very bad situation. It think we are exactly in the middle. I work for a company which has to do with houses and staff. We sell high quality products, but the target group is people oh upper-middle or high income, who build or reconstruct (right verb?) their houses. What i see, is that we have less customers that some years ago (same goes for the other companies with the same products), but those customers have much money, they demand much, they are willing to pay as money is needed, and they buy many more staff that others. We still have some middle income customers who buy our products (but not the high-ends), but sadly they are not many, and almost all of them pay in a monthly payment system, with a bank.

 

[Mr. M]

It depends on who are the 'we' you are referring to Roberto - because as far as China, India, the Middle East and Asia is concerned, economies are booming. China & India being massive in population will keep up demand for goods in the next few years if anything should happen to the US; but truthfully the US is a major player in the global economy, and without it many of us would be worse off than before. I'm always reminded by people that the debts US has accumulated is "hidden", but I think there's enough wealth generated by the top brass in the US to keep the economy going.

 

[450SEL6.9]

I don't think China can sustain itself at this rate of growth. It has a massive population, but the transition from rural savers to urban spenders is a lengthy one. China economic growth is uncontrollable and I think after the 2008 Olympics, there'll be economic problems and an eventual contraction. Their M3, the money supply measure not the moderately attractive car, is growing too fast and there is over-investment in property and manufacturing. Inventory levels are at mid-1990s levels and by some reports, many factories are no longer making profits.

Most of the wealth generated in America is property-wealth and property values can go up and down, not just up. If real estate values fall or crash, much of this wealth disappears and once you subtract the mortgage debt, you end up with negative asset values much like what Asian countries endured post-Asian financial crisis.

 

[SDNR]

Bush warns 'entire economy is in danger'

Associated Press - September 24, 2008 11:43 PM ET

WASHINGTON (AP) - In a televised address, President Bush has warned that the "entire economy is in danger" if a $700-billion plan to rescue shaky financial firms isn't approved quickly.

Bush warned that failure to act could result in wiped-out retirement savings, rising home foreclosures, lost jobs and closed businesses. He also said there could be "financial panic" if the crisis isn't solved.

Bush stressed that he was reluctant to put taxpayer money on the line to help businesses that had made bad decisions and that the rescue is not aimed at saving individual companies.

The president took to the airways because his plan has met with skepticism from Democrats and Republicans.

Bush also said in the 12-minute speech from the White House East Room, that he has invited Barack Obama and John McCain to attend a Thursday meeting with congressional leaders going over the administration plan.

 

[Gullwing]

Several years ago my parents moved out to Las Vegas right at the beginning of the housing boom out here. They were lucky enough to get a house (the best house they could get for WHAT THEY COULD AFFORD). They signed the papers and sat back and watched the prices go through the roof. Before the ground was broken on the house its worth was up $50K. At that point we wanted to buy several more houses to make money on to pay for the house we live in plus to have some "spending money", but we did not. Within a 1/4 mile of the house many people did buy several houses to make money on. Others bought one house they could not afford and to go with the new house they bought one or two new cars when they moved in. After a year or two the housing prices went way down and many many houses were for sale. Now many houses in the area have been or are bank owned, which I called two years ago.

I know a family who owned one house several years ago and when the prices started to rise were talked into taking out a second with the equity of the first house to buy another house to make money off of. Beginning of last year they bought another house for way more then they could ever afford by itself. Well right now two of the three are bank owned and they still live in both of them, the third is ok and rented out. Not sure W T F is going on, but will be interesting when I find out.

I spent two and a half years working to get a down payment for a house, because I knew I could not afford a medium to high monthly payment. I did not just run out and buy something hoping prices would go up and everything would be fine. I was 22 and much smarter then thousands of people who have now f88ked up so bad the economy could crash.

 

[Merc1]

Wow, our stories are so similar. I was 24 when I bought my house. Like you I saved up and made sure I was within or slightly under my means. I just so glad I didn't buy another, bigger, much more expensive house a few years ago when everyone else was doing so. I know too many people that have houses they can't afford. They can't get sick, take a vacation, miss any time off work for any reason or needing 3 pay periods to pay for their mortgage. Its ridiculous.

This big bail out package is needed I guess, but it kinda suck that the people who bought smart (you and I) don't get anything out of it. That said there are many who simply didn't read the fine print and/or weren't properly briefed on what they were signing. On a new property that second year can be a real wake up call when those taxes are added in and that mortgage adjusts upward by one percentage point - I've seen it happen.


M

 

[SDNR]

I have read that there are many Americans who hate Wall Street so much they view this bail out as "corporate welfare for corrupt bankers". Bush is right when he says this bail out is really about the American people -- for it is the ordinary Americans who will suffer the most if this strategy fails.

 

[DaSilva]

as long you don't have a loan or stocks, everything is great..
Yes that's me..

 

[SDNR]

Hmm, well I'm not sure it is quite that simple Jules -- but hey, I love you signature

 

[Sunny]

I have read that there are many Americans who hate Wall Street so much they view this bail out as "corporate welfare for corrupt bankers". Bush is right when he says this bail out is really about the American people -- for it is the ordinary Americans who will suffer the most if this strategy fails.

Well the problem is Bush also insists that there must be no oversight over how his administration spends the money. So while the bail out might be required, considering how incompetent and dishonest this administration is, I don't trust them with my money. And he doesn't help the case, when he tells the congress, "you have to do this by Monday or the sky will fall, but if you don't give me exactly what I want, I will veto the bill and screw the sky falling part".

 

[SDNR]

^Yeah, it is a very bad situation all over.

To be perfectly honest, I know some commentators are being very optimistic ...but I can't help feeling that things are still going to get worse yet.