Asbytec

Why This Isn't Financial Armageddon

Greetings from La Union, Luzon, a safe haven and good place to ride it out. Better here than southern California.

I feel decoupling is chained to at least two facts. First, Americans are not importing nearly as much. A good friend of mine in Manila can attest to that. He's an exporter. Chinese exports are way down and falling. The second is risk aversion. All our markets seem to rally then fall almost in unison. We're all feeling the affects of falling commodity prices. Decoupling is a myth, mostly.

There is another major difference between the great depression and now. The US is on a fiat currency system. That's probably good. But, the amount of money tied up in MBS and less risky derivatives is tremendous. That money is ceasing to flow through the economy. Essentially, our economy is falling off a higher cliff.

You are correct about another aspect, the US did and will survive. It will be painful for an undetermined period of time...a year, two, a decade. But we will emerge out the other side in good shape.

Now, will we survive a recession or a depression? Good question. My gut and readings tell me, unless radical action is taken (more radical then the $700bn bail out and stimulus package) a depression is a real possibility. I don't say that to spread fear, I just feel the depth of this thing is, by far, greater than any recession we've ever had.

Whether the EU is in better shape or not than the US is debatable. But, one thing is for certain, they are behind the power curve. Anyone with exposure to failed mortgages (and other derivatives) is in trouble.

China does still have positive growth. It takes a while to wind down from 12%. But, whether or not they will escape recession is to be seen. We, and the rest of the planet...he developed world...are just entering recession ourselves. I think this thing will not be resolved by Jun 09, as some have put forth.

I think the Fed knows it, too. They have been very creative out of necessity, but they are getting close to running out of tools. i suspect that's why the Fed now has it's hands on the secretive $2tn. It's gonna need it. We're gonna need it.

You can continue to buy those expensive artifacts in dollar terms, thanks to the current dollar strength. As in oil, two pressures are working to slash prices. First, lower demand and fears of more. Second, oil is priced in stronger dollars.

I, too, have had thoughts of talking our way into depression. There is some truth to the idea that what we say can come to pass. But, indicators don't lie. As the author points out, all sings point down. And my readings have shown me the extent of the trouble we (might be...LOL) are in.

Government intervention, I feel, is a necessity at this point. It was necessary a year ago when Bernanke asked congress to shore up the GSEs and save mortgages. They failed to act decisively. I bet they regret that, probably because they were trying to talk themselves into believing everything was gonna be okay. Or maybe because most of them were "let them fail" conservatives. Or, maybe the final push for oligarchy control over the masses is in motion...

Anyway, greetings from La Union.