(snip)"The first phase of the mega-storm saw prices rise for everything needed in our domestic supply chain. The bull market in commodities is broad, all these items being in hot demand in Asia. That bull will surely return and be resuscitated once the November elections conclude in the United States, like clockwork. In contrast, the Asian trade routes have brought to US shores cheaper finished products over a broad range, involving home electronics, housewares, appliances, and furniture, even as US-based factories were shuttered. Is that progress? The depreciated USDollar value spawned a supply cost increase with a correspond finished product price ceiling. Businesses have been squeezed unmercifully in the cost explosion. They have reacted by replacing workers with equipment, a surefire productivity enhancement, but also by outsourcing to Asia, a trusty low-cost solution. The tragedy lies in how the solutions impoverish the nation. Hence, US domestic wages did not increase, as they have in all past cycles"(snip)
"The mega-storm will develop and grow more destructive in the next phase. The contrast of greater high pressure against greater low pressure will add to the storm differential. Its power will increase, just like a hurricane. Higher pressure will come from human monetary inflation, otherwise known as liquidity infusions, credit growth, and further leveraged speculation, ongoing carry trade activity, as officials will fight the good fight, urged on by bankers, politicians, corporate chieftains, and influential individuals. Lower pressure will come from the shrinking value of the housing sector, from the diminished credit lines off flat home equity, and from eventual cutbacks in household spending. The reckless drain of home equity is soon to end. The mega-storm will worsen as the USFed next executes its response to the worsening real estate crisis. They will be slow on the uptake, however. New stimulation will eventually accomplish the same effect as the last few years, more cost stress. The stock market loves the new liquidity guarantees and steady influx of easy money, at least initially. The true havoc will come when the mortgage backed securities (MBS) writedowns occur. Their trading is not in the forefront of financial media screens, but rather in the banking world background, in the banking balance sheets and portfolio management.
Europeans describe the American practice of spending home equity as “burning their furniture to heat their homes” whereas mine is more “actively dissolving their home foundations while continuing to live in them.” A new class of poverty is soon to arrive on the scene: the bankrupt homeowner. Reports of negative home equity are rampant and growing, without the mindful alarm.
A more pertinent, fitting, and applicable description is one offered by Antal Fekete. Without reference, only to cite his thoughtful assessment, his depiction is more frightening at the same time. He claims the United States lies in the midst of a grand liquidation of capital. My assessed explanation claims it is in direct response to the brutal effects of globalization. This liquidation is being utilized to pay for the rising costs, to finance our pathetic profligate lifestyle, to fund our reckless rampant consumption. Legitimate income has vanished from a gigantic central backbone in the US manufacturing sector long ago dispatched to Asia, where labor has an absolute advantage and will continue to have that upper hand forever. Foreign nations somehow feel motivated or obliged or compelled or coerced to support the USEconomy and its capital needs.
What will stop this trend? TRADE WAR, then wider MILITARY WAR, and growing geopolitical conflict, not just baseline strain. Trade quotas, motivated by protection from the damaging onslaught, will soon be sold to the US public, if not this November 2006 election season, then undoubtedly in Nov 2008 during presidential elections. The destructive message sells well to the public full of angst, as it repeats the songs sung before the Great Depression over 70 years ago. Politicians will choose to paint China as evil, rather than to make difficult choices."(snip)



Reply With Quote

Bookmarks