Facing a world economic crisis
In 2006 the German economist Max Otte published a book with the title “The crash comes“, in which he pointed up the risks of the present housing bubble in the U.S. and the fact that most of these houses were sold on credit to people who actually couldn´t afford such high debits. He also predicted an enormous fall in the value of the dollar and a new world economic crisis in which all finally ended. When I read his book one year ago I thought either this guy is a bit crazy or this book is one of the most ingenious ones I ever read, nowadays I´m more given to the latter case.
Only now many people understand how serious the crisis is and the wishful thinking that governments could´t rescue every bank like they did in the case of Bear Stearns, Fanny Mae or Freddie Mac slowly disappears. But what are the consequences when the once fourth biggest investment bank of the U.S. files under chapter 11? First of all the stock quotation falls and many bank employees who believed their company are loosing everything their savings and later their jobs. That sounds bad but the real problem is another one, for example Lehman Brothers has a value of nearly 700 billion Dollars on the passive side securities, bonds, mortgages all these things are on the active side of other bank, funds or insurance companies. So if one bank falls under chapter 11 it´s logical that others will follow, but others could also be insurance companies like AIG although I´m not sure at this moment if the FED really has the nerve to let the biggest insurance company of the U.S crash. Sure this goes on so long till the market has adjusted all overratings and bad credits. That´s also why the governments won´t help the banks anymore, because they wouldn´t solve the problem and unless they help the faster the “crisis” or adjustment will be over, so we could say the crisis has just begun.
However let´s get back to the world economic crisis because a world financial crisis doesn´t absolutely have to be a world economic one, it´s just an actuator. The problem is that the people have forgotten that the international money supply has achieved absurd high worth, during the world industrial production stayed relative constant. So what did we do with all that money hadn´t that inevitably lead into an super inflation ? The answer is no because we always found ways to invest our money and funny bubbles like the Asia, DotCom or commodity-bubble arise which always burst again. By the way one reason for the incredible high money supply is also the fact that the issue banks always pumped more money into the system when a bubble burst so that the investors aren´t so gloomy. However these bubbles weren´t a big problem but the people have disregarded that since more than 10 years there accrued a new bubble, a super bubble, the housing bubble, founded on weak mortgages worth 9000 trillion U.S. dollar. This bubble burst now and what we are facing is the situation that the people have to find a new thing to invest in, before they realise that there is actually too much money in the system and this brings us to a very big danger because in my opinion the new investment target will be gold. But when the gold price will achieves to 2000-3000$ per unce the issue banks won´t be able anymore to cover the banknotes they printed. Finally the people will loose their trust in money and a super inflation coupled with a deep recession would lead into a financial failure.
There was no question that the housing market was going to destroy the American economy. In 2006 the effidence was visable in the unbalanced supply and demand of houses. Houses were being built at an unprecidented rate with no demand evident to back up the housing production. Greed was driving everyone at that point. Banks were greedy to cash in on as many mortgages as possible and consumers were greedy to sell their houses a beyond normal rates for high returns as well as builders. The government should have seen this coming and placed a hold on banks back in 2006 from allowing them to distribute mortgages like candy throughout the United States knowing that it was impossible for all these mortgages to be paid for. This was for a number of reasons. One reason is that many of these houses sit empty with no buyers. Second these Adjustable rate mortgages and housing prices were way beyond what the average american could afford.
What’s left for the American economy. I don’t believe that anyone has a solid answer to this question. I say that prayer at this point definetly can’t hurt. Personally I don’t believe that the rest of the world can stand by and watch the United States economy crumble for the fact that American spending fuels their economies.
The best solution for America, though it will take years to accomplish, is the shift of production to return to the United States. The return of production will bring about more jobs and increase individual wealth in America. That is the solution we have been waiting for at that is the bailout that is needed in America. Failure to push businesses to pursue this venture will lead to economic failure at some point.
Gold Vs Oncoming Economic Crisis
Unless you live in a cave Im sure you have noticed the economic bad news daily hapenning in the world, especially in the United States. This blog is dedicated to the free and open exchange of information relating to purchasing and investing in gold and other precious metals as a viable option for avoiding the dollars collapse
Check out my blog for an informative look at whats happening in the current economic crisis. Comments much appreciated.
http://goldvseconomiccrisis.blogspot.com/
Stumbled upon a post and thought I would share with you guys. Had a similar opinion but will just want to get your views first. http://jessescrossroadscafe.blogspot.com/2008/06/barclays-warns-of-financial-storm.html
Thanks for sharing
[...] on something more and more banks will fall under chapter 11 like I discussed in my last post “Facing a world economic crisis” yet. I think after the shock waves are finished in the banking sector they will achieve [...]
Hi,
financial crisis…is stage where proper ractification should be made… investments measures should be taken companies have too many options but not using money is there but confiedence of investment is lacking portfolio investment.. is the area ..take out new formula…of investment.. tie up wit govts reults public interest..for investment.. in asian markets.. as savings are there with people.. for US MARKETS SOFTWARE N REALESTATE.is the back bone…money generation is possible..gold deposits..mines…gives in current situation..in asian market..hold is there..but..govt intervension make it possible
Hi,
there is disturbance that yielded investors to get market clash govt should have intrvained early that would made possible to investors major holdings also led to the market crash.. beyond the norms investments taken place … pool of money withdrawn on single shot.. it made critical imbalances..in market
I congratulate World Financial Blog for this so much responsible article “Facing a world economic crisis”, which differs so much with most of analisis about the actual crisis, that are mainly useless apologetic.
Please forgive my very bad english.
Rodolfo Ornelas Chávez, from Mexico.
[...] on something more and more banks will fall under chapter 11 like I discussed in my last post “Facing a world economic crisis” yet. I think after the shock waves are finished in the banking sector they will achieve [...]
Yeah, I always thought that this crisis was predictable…
Current global financial crisis was a result of greed by large investment & financial institutions, CEOs and individual investors, whose policies dragged whole world down and resulted in inflation, unemployment, foreclosures and bankruptcies. The worst still yet to come in 2009. There is a need for more stable financial system that leaders around the world can agree on to guarantee long-term stability. In addition, the investors who personally were involved in the greed schemes that caused the economic chaos should be arrested and jailed for their involvement in the world economic catastrophe. We can’t tolerate anymore some individuals’ greedy aspirations ruining the lives of people around the world.
it is really very hard time for the common people all over the world. it came all of a sudden and no one was ready to face it. that’s why many people lost their job and many company went bankrupt. there is certain causes about this big problem that is 1. American housing policy 2. so called war against the terrorism. American banks were completely failure how and where they need to invest where highly educated CEO are working but their strategy not working properly. while making investment they need to think about long term prospective and its consequences. why other banks which are working in the world not failed or got huge amount loss. for example Standard Charter bank which is global bank and still doing well though other baks suffers lot.
the American war against terrorism is not giving good response and rather it is making us to suffer more. they pounding millions of dollar a day on its military and apparatus. there some people like brokers they found the place to make unexpected speculation about oil price and it went up to 150 dollar a barrel . They were not able to hold that and now oil price is decreasing its lowest ever price. for among all the causes Americans are more responsible and they are going down to a big well with pulling all others who are behind them. But this is very bad feelings and experiences for them and they need to think about how to make strategy and do not involve worldwide them self in the name of maintaining peace and restoring democracy. they are not the only to guide all of us to maintain democracy. Forget about other country what they are doing first solve the problem inside your country.
Unfortunately we will face the worst situation in coming 2009.
Hi,
The article is all about the US crisis and its cause. Currently US Govt face major problem of liquidity. As ” the best sollution of poison is poison itself.” Why not govt start to add more liquidity into market? Even govt can offer some good investemtn opportunity to the ivestors like, govt bond. Govt can increase their gold reserve and issur more currency into market. so, liquidity may increase. which leads demand among the people.
The steps of US govt like 700 billion dollar package, they can issue some package so banks can reform and again start to doing business. US Govt can also attract other country to invest in US by issuing Bonds. So, they will get funds, which they can use for solving the problem of crisis.
In the end, everything will be “fine” …
Thank you.
- Steven Burda, MBA
http://www.linkedin.com/in/burda
http://www.cio.com/article/print/470122
This world economic crisis is something that most people tend to take at face value. It has deeper implications than what we are merely hearing. It is a great sign of the END TIME.People should concentrate on trying to please G_d instead of their pockets.
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