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Author Topic: Economic Mournings  (Read 52705 times)

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Offline Ronnie

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Re: Economic Mournings
« Reply #200 on: October 29, 2008, 07:02:15 PM »
Just like poker, day traders pass money back and forth and the brokerage fees eat them all up in the long run.  Stock prices are driven by earnings and no amount of trading will or can have any long term affect.  The brokerage firms who trade for their own accounts may not get eaten up by fees but no one even tries to make the case that day traders have any affect whatsoever on the economy pro or con. 

 
Ronnie
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Offline Makkin

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Re: Economic Mournings
« Reply #201 on: October 29, 2008, 10:09:34 PM »
Kievstar,

  Your exactly right about Wall Street and the day traders.

Makkin
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Offline kievstar

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Re: Economic Mournings
« Reply #202 on: October 30, 2008, 03:07:46 AM »
I think some of you guys do not know what Wall Street gets involved with.  But I am getting off topic since it does not relate to Russia or Ukraine so will stop. 

On another note the hotel I am staying at in Brussels this week has a week long EU conference.  Was interesting talking with some of these economists / politicians last night in the lobby bar.  They want China to have a stronger EU connection and Russia to have less.  Want labor from Ukraine. 

Offline Ronnie

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Re: Economic Mournings
« Reply #203 on: October 31, 2008, 09:59:45 AM »
I think some of you guys do not know what Wall Street gets involved with.  But I am getting off topic since it does not relate to Russia or Ukraine so will stop. 

On another note the hotel I am staying at in Brussels this week has a week long EU conference.  Was interesting talking with some of these economists / politicians last night in the lobby bar.  They want China to have a stronger EU connection and Russia to have less.  Want labor from Ukraine. 


After sixteen years as a stockbroker are you suggesting I don't know what Wall Street gets involved in?   

The market reflects the economy which is driven by main street.  Some of you seem not to understand that.  Declining home values is certainly the number one reason for the current situation. Home prices got excessively high.  It's never is a bad thing to trim the excesses now and then and that's exactly what the free market does and does well.  If we believe in the forces of the marketplace, then let's stop trying to find artificial causes.





Ronnie
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Offline kievstar

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Re: Economic Mournings
« Reply #204 on: November 02, 2008, 09:20:39 PM »
Ronnie, did you live in New York - when and which firm.  thanks

Offline Ronnie

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Re: Economic Mournings
« Reply #205 on: November 03, 2008, 10:04:32 PM »
No, I did not live in New York.  The firm merged many times..started as Shearson American Express...ultimately became Smith Barney.  Then joined LPL because they had no proprietary products and didn't make market in any stock...thus keeping their impartiality intact.
Ronnie
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Offline I/O

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Re: Economic Mournings
« Reply #206 on: November 04, 2008, 05:27:09 AM »
Declining home values is certainly the number one reason for the current situation. Home prices got excessively high.

Ronnie: I beg to differ just slightly. The market place designing risky financial products which provided funding to people in no real position to buy either the first, second or third house (Depending on where they fitted in the the scene) drove the housing market to unrealistic prices. It didn't require decline to bring that undone, it only required a flattening in the real estate market to bring that to a grinding halt. The cycle was wholly reliant on growth. Therefore, I say the market, in particular financial institutions, shat in it's own nest and it was encouraged all the way by your former federal reserve chairman.

Was it Stumph (SP?) who said something along the lines of "The most amazing thing about the market is it's own ingenuity in designing new and "efficient" ways to lose money when the old ones worked just fine"?

In it's most simplistic form, take the guy on a decent salary who buys the second investment house with little or zero equity, he pushes himself a little too far and has to tighten the belt, he doesn't buy the next new car, (He and 10 000 others), suddenly car sales are down and the local car yard (Lets not even mention the manufacturing plant) lays off staff, one or more of those staff has been in the market for a house, now he is out, the house market has softened, examples house has flattened or dropped in price, bank calls it's loan, he sells at a loss, bank calls on his house to make up the short fall, he sells in a soft market (If he can sell) and he is now where? On the rental cycle or looking for even softer prices and is probably reliant on someone else going tits up to buy again and by now he has an even poorer credit rating so he is stuck with the cowboy lenders who aggressively set him right back on the same old cycle. Ultimately the banks have been bitten on the arse and who bails them out? You do via a tax revenue supported slush fund which is guess what? Borrowed money...!!! Meanwhile the pollys continue to oppose regulation of the financial sector.

I read a report containing a quote of a Silicon Valley bumper sticker from a few years ago which read "Please God, Just one more bubble". As the report went on to point out, they didn't have to wait long. It came in the form of poor lending practices into the residential real estate market (IMO, that is by no means limited to USA) and the fundamental belief that like the belief in tech stocks of the 80's, real estate would increase steadily in price (Forget value here) forever. Ultimately, it will increase in price but skinny margins for error do not allow for corrections in the market. Much of the lending was/is provided to people with very skinny margins for error.

The bottom line is I don't agree that the real estate market drove this current "crisis" if that's what it must be called, I believe the financial sector created it, nurtured it, developed it, drove the hell out of it and ultimately harvested it. IMO real estate was simply the vehicle or commodity used by the financial in the process. The process is bigger than real estate. We are now seeing the very same thing being uncovered in many funding areas. Funds lent on shaky growth based valuations onto all sorts of areas. Margin lending into the stock market is yet another one. Geeez how I hate this. Sure, well managed, in the right hands, it is a great product but in the wrong hands.....................

I'll give you an example of how simple it is. I buy and sell a handful of shares and I don't trade often. (Knowledge level is zero or less LOL). I use an internet based platform. I've never borrowed a cent to buy a share in my life but thought I would have some fun to see how stupid these banks really are. 10 minute application form ONLINE FFS, post it off with limited identification, minor information about my work, a broad salary range, no request for asset valuations or anything of the sort and hey presto, 4 days later I get a phone call to ask how I will leverage the loan/s, I say "Cash", 2 days later a written approval arrives for $400,000.00 margin loan...!! 80% LVR shares and I have to put in $100,000.00 in a volatile market with no evidence I know the first thing about buying a single share.

What is the clue here? The bank THINKS IT KNOWS the share (Hello, real estate or any other product) prices will continue to grow, it MUST assume that to provide an otherwise unsecured product of this nature. I didn't hesitate to send the approval back to them, tell them exactly what I think of their practices and I was no less direct when the "Manager" called me to discuss the result. He was quite scathing (As I expected he would be) of my attitude to the financial institution practices until I asked him whether or not he owned his home or had debt against it? He admitted to being 70% into the bank on his home and then went on to tell me how much he would make by doing so. When I pointed out that I owned mine, owned other property and assets and was NOT at the mercy of what "His" bank might do with interest rates or what the housing market might do, he went rather quiet. 

BTW, we are seeing a "Bubble" here right now with the resources industry. It has corrected slightly over recent months but it is charging ahead gangbusters and huge amounts of money are being made. Even the likes of me, 2 penny share holders, have enjoyed the benefits of investment growth, BUT one MUST keep an eye on both history and future. It will not last, at this level, forever. I suspect this bubble will probably expand for some time to come and I may well complain about what "I didn't make" by remaining circumspect, but one needs to understand bubbles do burst. I would prefer to make a little of something than a whole lot of nothing and as we have seen in the financial sector recently, many have made a whole lot of nothing.

To tie this back to Russia or the FSU, if anyone thinks the banking practices are any different there, they are fooling themselves. Exactly the same process is going on. Lending risky money to people who can't afford it based on theoretical growth. Credit cards are the most visible example. But hey, while we're at it, why not show them how from the top down. You know, lead by government example, Russia is lending Iceland how much? Based on what? With what security? Oh silly me, I forgot there may be a military base or three thrown into the bargin somewhere, I guess that represents security. ::)

I/O

Offline Gator

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Re: Economic Mournings
« Reply #207 on: November 04, 2008, 07:00:25 AM »
I/O,

You and Ronnie are both right, except you show how declining house prices was too highly levered.   In fact, declining houses would not have created a crises if the banks lending money for subprime loans had initially required more equity and a higher interest rate (the standard procedure 15 years ago).  There were other factors too.

For your analysis to be comparable to the source of current crises, the following adjustments are needed:

-  The company XYZ whose stock you purchased has a weak balance sheet, flat growth and inconsistent earnings, yet the price of the stock has still managed to increase by 30% over the past year.

-  A respected research analyst evaluated the XYZ stock and placed a “strong buy” rating with a target price 20% higher than today.

-  Instead of placing $100,000 of your own money in this $500,000 investment, you had to pay only $25,000, giving you a 20:1 leverage. 
 
-  Your personal income situation is not stable, having been unemployed periodically in the past.  Nevertheless, the bank sets a low interest rate to enable you to qualify for the loan.

-  Your “note” to pay off the $475,000 that you still owe is bundled with others just like yours in the form of a derivative and sold to European banks.

-  The price of the XYZ stock declines such that your investment is now worth only $400,000 compared to the $475,000 you owe.

-  You decide not to pay the loan and walk away, and you are liable only to the extent of the XYZ stock in your name.

-  The bank “forecloses” on your XYZ stock, while the stock continues to decline in price.

-  A few smart individuals and hedge firms, not holding the notes, saw that this was a house of cards and had purchased Credit Default Swaps betting that the bundled notes will not be repaid.  

-  The companies selling those CDS now must pay those few smart individuals and hedge firms (a few individuals made over a $1 billion in this scheme). They do not have the assets to do such and declare bankruptcy or are taken over by the government with taxpayer money.

-  BTW, before declining in price, the XYZ stock may have temporarily increased in price, enabling you to borrow money equal to the increased value, which you used to buy a HD flat TV and a car.


  

Offline Ronnie

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Re: Economic Mournings
« Reply #208 on: November 04, 2008, 03:30:08 PM »
Hi Gator,
As you know, stock prices grow even if earning are flat and the future looks murky. 

This happens when interest rates a falling.  Lower yields on bonds make higher PE ratios on common stock more acceptable. 

Further, the net increase in the amount of money flowing into retire accounts has to go somewhere. 

Further still, many companies have purchase plans which removes some of their shares from the market, thus increasing the value of outstanding shares without a supporting increase in company performance.

One of the problems with the housing crisis and I believe is the underlying reason, is that household incomes have been insufficient but subsidized by rolling refinances and home equity loans.  When the prices stopped increasing, the gravy train came to a screeching halt, thrown passengers out of their seats.

Household incomes have not risen for two reasons:

1) High paying manufacturing jobs have been moving off shore and replaced by lower paying service jobs;

2) Technical jobs that have not be outsouced abroad are being filled with H1B visa workers who accept offers on average of $10,000 less per year than the going rate.

3) Non-skilled workers are replaced with illegal workers which creates an unemployment rate of nearly 30% among some ethnic groups.

I have written earlier about this trend being perhaps by design as being in the interest of globalization.  In other words, lifting the third world out of poverty by draining the reservoir of American wealth.
Ronnie
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Offline Misha

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Re: Economic Mournings
« Reply #209 on: November 04, 2008, 03:35:42 PM »
One of the problems with the housing crisis and I believe is the underlying reason, is that household incomes have been insufficient but subsidized by rolling refinances and home equity loans.  When the prices stopped increasing, the gravy train came to a screeching halt, thrown passengers out of their seats.

In other words, a pyramid scheme. Like any other pyramid scheme, if you got in early and got out in time (bought low, sold high) you are sitting pretty. It is the poor sucker who comes in at the end who is left holding the bag. Well, I wonder what the cable stations will do now to fill the airwaves now that the "flip this house" type of show will be going out of vogue  8)

Offline Ronnie

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Re: Economic Mournings
« Reply #210 on: November 04, 2008, 03:48:07 PM »
Well, I wonder what the cable stations will do now to fill the airwaves now that the "flip this house" type of show will be going out of vogue  8)

Re-runs  ;D
Ronnie
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Offline Ronnie

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Re: Economic Mournings
« Reply #211 on: November 04, 2008, 03:49:26 PM »
We're seeing them already.
Ronnie
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Offline Misha

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Re: Economic Mournings
« Reply #212 on: November 04, 2008, 03:52:27 PM »
Re-runs  ;D

They must love rubbing proverbial salt in the wounds of those poor wannabe speculators who bought houses before the market dropped hoping with a bit of paint to make a fortune as the pyramid was growing   ;)

Offline I/O

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Re: Economic Mournings
« Reply #213 on: November 04, 2008, 11:27:32 PM »
-  BTW, before declining in price, the XYZ stock may have temporarily increased in price, enabling you to borrow money equal to the increased value, which you used to buy a HD flat TV and a car.

 :ROFL: :ROFL: :ROFL: Too true...!!! Probably all made offshore just to add to the national deficit problem adding insult to injury..!! Nevertheless, NONE of this involved me as I haven't borrowed a cracker for any of this nonsense. I'm probably more stupid than these screen jockeys. I'll probably simply lose my own money rather than being smart enough to lose large sums of someone else's money.

Anyway Gator, my point was perhaps lost in my ramblings, I feel the market and in particular the financial sector created all this and real estate was simply the vehicle on which it travelled. There is plenty of other vehicles on the lot for them to utilise in the same way again and again. Watch it happen..................

I/O

Offline IAmZon

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Re: Economic Mournings
« Reply #214 on: November 05, 2008, 07:54:52 PM »
best article I have on the subject -

http://online.wsj.com/article/SB122506830024970697.html

Dollar up in Colombia and in Ukraine to levels not seen in the last 36 months.


Offline daveyj

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Re: Economic Mournings
« Reply #215 on: November 12, 2008, 08:55:30 AM »
Russia's foreign currency reserves are down from $600 billion to $480 billion in the last several months.  They dropped by $70 billion in October alone.

Yesterday the govt "clumsily" loosened its Ruble FX trading target against a basket of currencies from 30.4 to 30.7. 
http://www.bloomberg.com/apps/news?pid=20601087&sid=anBaIErEWisY&refer=home

Also it has raised interest rates 100 basis points in the interests of supporting the Ruble (contrast that against countries the in west reducing rates by similar amounts)

The following article, albeit clearly partisan, paints an alarming picture of what is in store for Russia if the world's financial and economic problems continue.
http://www.wsws.org/articles/2008/nov2008/russ-n12.shtml
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Offline OlgaH

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Re: Economic Mournings
« Reply #216 on: November 12, 2008, 09:45:53 AM »

The following article, albeit clearly partisan, paints an alarming picture of what is in store for Russia if the world's financial and economic problems continue.
http://www.wsws.org/articles/2008/nov2008/russ-n12.shtml


Interesting website  ;D
Quote
With the US economy now shedding approximately a quarter million jobs a month, the ranks of those officially counted as unemployed have swollen to more than 10 million.

Nearly one out of eight American workers is now unemployed or underemployed, and this at what most economists acknowledge to be only the onset of a recession and the beginning of what looks to be a very cold winter.

In the face of this unfolding catastrophe, the political establishment has begun discussing an extension of the government bailout of the major US banks and Wall Street finance houses to the auto industry.

The answer to the jobs crisis created by the parasitism of Wall Street and the looming bankruptcy of the auto industry and other sectors of the economy lies not in the bailout of their owners, but rather in the struggle for socialist policies, including the nationalization of these giant corporations and their transformation into public utilities, subject to the democratic oversight and control of the working population.

Instead of pouring billions more dollars into the private coffers of America's financial elite, the huge bonuses and compensation packages that the executives have awarded themselves while leading their companies into bankruptcy should be confiscated and utilized to improve conditions of life for those facing unemployment, the loss of their homes, the shutoff of their utilities and the loss of their life savings.

Nationalization under workers' control would establish the foundations for reorganizing economic life in the interests of the majority and protecting working people from the return of conditions not seen since the Great Depression.
http://www.wsws.org/articles/2008/nov2008/pers-n12.shtml

Socialism and Nationalization will save US from catastrophe
« Last Edit: November 12, 2008, 09:47:27 AM by OlgaH »

Offline daveyj

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Re: Economic Mournings
« Reply #217 on: November 12, 2008, 10:20:18 AM »
OlgaH,

Yes, it's a biased site.  I agree that socialism and nationalization isn't the solution.  However pure capitalism has show itself to be an unsustainable economic model.

Even prior to this mess we had what might best be described as "socialized capitalism", and the recent bailouts have taken us much further in that direction.

The problem with unfettered capitalism is that eventually the workers start getting squeezed as the economic benefits aggregate with the rich.

Isn't that fair, one might ask?

Well, the problem is that if the workers can't afford to buy things then the economic engine grinds to a halt. First of course, they turn to credit and this allows them to enjoy tomorrows consumption today. But eventually their credit capacity maxes out and then you have a long period of economic downturn.

Take a look at the following article written in 1996 about the cause of the Great Depression. 

http://www.gusmorino.com/pag3/greatdepression/index.html

Now consider the rather alarming parallels of the 1920's to our own decade.

The stock market "crash" of 1929 actually took until 1933 before it reached the bottom.  Consider the following chart, which shows that there was a substantial rally in the spring of 1930.

http://stockcharts.com/charts/historical/djia19201940.html

We live in interesting times.
d
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Offline Blues Fairy

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Re: Economic Mournings
« Reply #218 on: November 12, 2008, 10:42:57 AM »
I agree that socialism and nationalization isn't the solution.  However pure capitalism has show itself to be an unsustainable economic model.

Even prior to this mess we had what might best be described as "socialized capitalism", and the recent bailouts have taken us much further in that direction.

You are contradicting yourself.  How has "pure capitalism" proven itself unsustainable if it hasn't been in place for decades?

Offline daveyj

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Re: Economic Mournings
« Reply #219 on: November 12, 2008, 10:58:26 AM »
You are contradicting yourself.  How has "pure capitalism" proven itself unsustainable if it hasn't been in place for decades?

I think "pure capitalism" in the US ended with the advent of the Great Depression.  The host of goverment programs, income replacement programs, unemployment insurance, Medicaid/Medicare, Social Security, the SEC, etc ...none of that is "pure capitalism".

The perception that the US is a capitalist economy is a simplification.  The US has been a mixed economy for the past 70+ years.  Albeit one that is more capitalist than other mixed economies such as Sweden, Canada or Great Britain.

The following link discusses different economic models
http://www.enotes.com/business-finance-encyclopedia/economic-systems
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Offline Gator

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Re: Economic Mournings
« Reply #220 on: November 12, 2008, 01:15:42 PM »

Socialism and Nationalization will save US from catastrophe

Olga,

In the last couple of months, the US government unfortunately has already taken major strides in that direction.

As bad as the economy is today, the situation will worsen.  Why?  We have two more waves of economic pain to absorb:

1.  Credit card defaults

2.  Home equity loan failures.

These are HUGE, just as large as sub-prime mortgages.  For the past few years, the US economy has grown because the consumer over borrowed using these two vehicles.  Now these vehicles will be a drain, not a stimulus.

I hope everyone has set aside the money they will need for the next 3-5 years.

Meanwhile, I assume that Russia will have to devalue the ruble within the next six months.

Offline Blues Fairy

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Re: Economic Mournings
« Reply #221 on: November 12, 2008, 01:37:37 PM »
I think "pure capitalism" in the US ended with the advent of the Great Depression.  The host of goverment programs, income replacement programs, unemployment insurance, Medicaid/Medicare, Social Security, the SEC, etc ...none of that is "pure capitalism".

Which proves exactly the opposite of what you have argued above. Social Security and Medicaid/Medicare are perfect examples of why socialism goes bankrupt.

Offline daveyj

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Re: Economic Mournings
« Reply #222 on: November 12, 2008, 02:12:54 PM »
Which proves exactly the opposite of what you have argued above. Social Security and Medicaid/Medicare are perfect examples of why socialism goes bankrupt.

I'm sorry BF, but I'm not understanding where I've contradicted myself.  I think maybe we are talking at cross purposes?  I'm not advocating pure socialism, anymore than I am advocating pure capitalism. 

I had responded to Olga's comment (intended as sarcasm I believe?) which made fun of the www.wsws.org mandates of Socialism and Nationalism as possible cures for the US's economic problems.

In my response said (intended to say?) that Socialism is already a part of the US economic model.  Further, that this had developed because the "everyman for himself"/all or nothing model of "pure capitalism" had shown its serious flaws in the 1920s/30s.

In response to to this, in 1933 President Roosevelt initiated the "New Deal" of  government programs. http://en.wikipedia.org/wiki/New_Deal

Critics such as Robert Taft denounced the New Deal as socialism, and an enemy to American Capitalism. http://en.wikipedia.org/wiki/Robert_Taft

However there is no evidence that I'm aware of which suggests that the present problems have derived from the institution of Social Security and Medicaid/Medicare.  To the contrary the US faced far worse depressions and recessions before these Social Insurance programs were instituted.
http://en.wikipedia.org/wiki/Social_insurance
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Offline IAmZon

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Re: Economic Mournings
« Reply #223 on: November 13, 2008, 11:11:25 PM »
Oh, to be objective!  To not let the popular sentiment soak into one's self. 

How many have read the book "Money Game" by Adam Smith?  It is all about contrarian philosophy in markets.  I have been in Colombia for the last 2 months, will remain extensively over the next 3 - 6 months too.  This place, and many like it all over the world live in a much different world the US.  Recession?  Please!  most are concerned with putting bread on the table - daily.  And even here, you see people start a venture and grow, grow rich.

Fortunes will be made by many over the next 36 months.  This won't help people who work for a living, or only rely on hourly wages as the solution to life's economic requirements.  This will not help those that will continue to seek opportunities in industries and structures that have already dried up, or become severely altered. But in times of sweeping change, if you look, you can see opportunity too ... everywhere.

For the mature markets, like US, life will always be infinitely easier than in the far corners of the world where the rule of law is inconsistent and the living environment is litterally dog eat dog.

I think we in, and from the US, are LUCKY and we do not realize it.  No matter how bad things get.



Offline daveyj

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Re: Economic Mournings
« Reply #224 on: November 14, 2008, 08:34:39 AM »
I just read the following article, which discusses the upcoming G20 economic summit and in particular the challenges of the present floating currency exchange system.

http://www.financialpost.com/story.html?id=956352

The thing that makes this present economic situation so volatile is that it is a global situation.  It is not just the US sub-prime market.

The article discusses how the emerging encomies the BRIC of Brazil/Russia/India/China and a others have $7 trillion of foreign currency reserves.  This money is used to manage their currencies value relative to others.  It has been "peeled off the backs of their workers" and represents wealth taken out of economic circulation. 

If this wealth was in global circulation (in the pockets of their workers?) then there would exisit much higher potential for consumption.

Given the recent juicing of the  liquidity by the worlds Central banks, one wonders what MIGHT happen if a significant proportion of this $7 trillion were to make it's way back into circulation.

I don't have any answers to any of this - I'm just an observer.  But it is a fascinating article.
Before you give any credibility to any criticism or advice you receive here, read the poster's prior 20 posts and consider accordingly.

 

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