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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: GST who wrote (90644)	1/20/2008 4:50:28 PM
From: glenn_a	Read Replies (2) \| Respond to of 110194

Hi GST. Regarded the following article posted by jjsirius: reuters.com You posted in your reply that "The article you posted makes the case -- as a thousand before it have -- that we in the US are in trouble, and that our asset prices will fall and our economy will slow." But doesn't the article suggest a more fundamental problem - that the problem is not fundamentally a problem with the US banking/financial system or economy, but with the global financial system? Actually, I don't think the article is entirely clear on this point, but that's the case I would make. As I read the article, it implies that the GLOBAL economy and markets have been operating on a sea of liquidity stemming from low US interest rates that have exported inflation globally, combined with a Yen carry trade that has further fueled the fire. My take is that the implicit suggestion is not that US asset prices will fall and the US economy will slow, but that GLOBAL asset prices will fall - particularly those asset classes most supported by the recent liquidity bubble and yen carry trade - and the GlOBAL economy will be affected. ((What is at issue is what happens to: 1) the dollar, and 2) growth in places like China and India. On these two key issues there is a divergence. There are many who continue to see the US as the center of the universe.)) Is it not possible that the important issue isn't whether or not the US is the center of the universe, or places like India and China are the new engines of economic growth? But rather, is there a risk that the entire global financial system - and that very much includes the Chinas and Indias of the world - is severely undercapitalized, and will have to reign in economic growth as they recapitalize (NOT reliquify) their banking systems? In other words, exactly what happened in the great depression. And I'm not sure this is something that you can inflate your way out of. On this point, I think I may agree with Mish - although I don't really like his rather dogmatic approach to the debate. In other words, the KEY issue of the next couple years is not primarily one of economic growth or currency valuations (although both are of course important), but rather that the entire global financial system is vastly undercapatilized and resting on an ocean of debt and credit that must see credit curtailed and financial institution balance sheets rebuilt - and that this is a global phenomena, not solely a US phenomena or even a developing world phenomena. In this scenario, I'm not sure economically-sensitive commodities avoid the "flight to solvency". I guess time will tell. Do you see any chance of this scenario unfolding? Or absolutely none at all. Regards, Glenn