Is today start of perfect financial storm? (caused by "6L cycle")

Accounting semantics aside, you should be aware that there are now two types of 401(k). The regular one, in which contributions are pre-tax, and taxes are paid when money is withdrawn, and Roth ones, in which contributions are post-tax, and the withdrawls are tax-free.

That's one cause. Another is that workers themselves are saving less. This is happening because workers are now accustomed to good performance on their investments. The point here is that household wealth is still increasing, even as the savings rate declines.

http://www.businessweek.com/magazine/content/05_03/b3916043_mz011.htm

Indeed; European savings rates have been in decline for decades now, mirroring the aging of the population. The difference is accounted for by economic growth: the captial gains Americans are getting out of their investments are greater than those of Europe, and so Americans are able to sustain and grow household wealth with less savings than Europeans. Also, Europeans (and everyone else) end up sending part of their savings as investment in America, boosting the pool of investment capital and driving up American stock prices.

You might wish to read this:

http://www.foreignaffairs.org/20050...evey-stuart-s-brown/the-overstretch-myth.html

 

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to Quadraphonics:

Thanks for your references. It is true that education is perhaps the best investment, but not all educations, IMHO are equal. I am no doubt very biased, but think only those in the "hard sciences" should count as "savings" not, for example, music appreciation courses etc.

The second point is about their measurements or index. The first ref states:
"Overall, the U.S. spends 7.3% of GDP on education at all levels, the highest among the major industrialized nations. The lowest is Japan, which spends only 4.6% of GDP on education."

If you TEST the educatrional results insteady of the money spent, you will find Japan is well aheqad of the US in the hard sciences (including math) that I think should be counted as savings. Thus, not only does Japan (and many others) have much higher conventional measure of saving, they also have higher "educational saving" when that is more reasonably measured by results achieved instead of money spent.

China is making an enorous investment in education including "education at a distance" facilites even in early grades and buliding 50 "MIT or better" centers by "buying" the best professors from all over the world, not all ethnic Chinese, but many are. China is also getting better results in the hard sciences and math. I became so concerned about the dropping selection of the harder courses by US students that I wrotre my book trying to scare them into seeing if it was really possible that their would was about to end (by unprecident, but possible cosmic event).

I have not read all of second ref yet, but may need to leave hous soon so will comment on following from it:

"U.S. hegemony is in reality solidly grounded: it rests on an economy that is continually extending its lead in the innovation and application of new technology, ensuring its continued appeal for foreign central banks and private investors. The dollar's role as the global monetary standard is not threatened, and the risk to U.S. financial stability posed by large foreign liabilities has been exaggerated. To be sure, the economy will at some point have to adjust to a decline in the dollar and a rise in interest rates. But these trends will at worst slow the growth of U.S. consumers' standard of living, not undermine the United States' role as global pacesetter. If anything, the world's appetite for U.S. assets bolsters U.S. predominance rather than undermines it."
I think this is much like what I often accuse you of - a POV looking at what has happened instead of the the trends. How is the past leadership to continue if the best educated in the hard sciences in the next generation are not being found in the US' schools but in Asia's schools? Somehow I do not think the US can lead with "music education" as the students strong point (over stated of course, to be clear) The GWB bowing to right wing religous leaders (on embrionic research, etc. lack funding.) is another big problem as I believe bio-technology etc will be to this century what physics was to the last. US robots can work in factories but Japan also has them serving as seated receptionists and walk around tour guides, answering visitor's questions in several languages! The future is in bio-tech and machine intelligence and US is falling behind in this (with possible exception of smart space robots who do not need to interact with humans as Japan's tour-guides robots do). Look at the trends, not the past glory!

Quick comment on part of the remainer (just skimmed as parts require some thought):
Yes, foreigners will buy assets in the US (when permited - remember China's rebuff on SoCal oil company) BUT when selling "pieces of the family farm" you first cut your earning and finally run out of farm to sell, so I am not made happy as US sell it assets to foreigners. For example where do you think the profits on US sales of automobiles is going now (Detroit or Japan)?

 

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Sounds like you're talking about primary education, but the spending figure was for ALL education. And you'd have to be blind not to see that the United States is head-and-shoulders the best in college and graduate education of all kinds. Particularly science and engineering.

Again, I'll believe it when I see it. Just because Chinese policy makers want to have lots of top universities doesn't mean it will happen. Every other industrialized country in the world has been chasing after MIT for decades, and none of them have ever come close. The only contenders are other US schools like Stanford, Berkeley, CalTech, UIUC, etc. Call me when China catches up with Australia.

Also note that America has been "buying" the best professors from all over the world for many decades now, and has much more money, resources and prestige to woo them with (not to mention that they all get their PhD's in the United States in the first place). And then there's the higher standard of living, political freedoms and diverse culture the US has to offer. For another thing, Chinese law does not permit immigration, only temporary work/study/tourism visas are granted. I don't know where to find the numbers, but I'd be shocked if the number of foreigners hired as professors in China was even close to the number of Chinese hired as professors in the US.

 

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That whole trope is getting pretty tired. Trends ARE things that "have happened." The distinction between "history" and "trends" is without a difference. Whenever someone points out a trend that contradicts your predictions, you accuse them of "looking at the past," as if there is any other meaningful way to predict the future. It's not as if I'm feeding you information from the 1950's or something here...

That's not the case, but the answer is simple: they'll immigrate here, just like they've been doing for hundreds of years. We've got the universities, the research institutes, the venture capitalists, the favorable corporate tax codes, the immigration laws, the standard of living, the food, the freedom and the rock music.

Indeed, and America is still the world leader in bio-tech, Bush or no Bush. There's plenty of research funding in the US that is outside the federal government's hands. California passed a $3 Billion measure to provide funding for stem cell research, for example. Go look up 10 prominent publications in biotech and then tell me how many of them came from outside the US.

Wow, and at a cost of only 1000 times what it would cost to hire someone to do those jobs! At this rate, they'll have reduced the efficiency of their economy back to stone-age levels in a matter of years! Kidding aside, though, those robots are PR stunts to build enthusiasm for robotics research, not useful applications. The real robotics applications are things like industrial automation, space, medical devices, military, MEMS and extreme environments (deep sea, high-temperature, etc.). Microsoft, for example, has a massive robotics development group, and the US military is surely the largest investor in robotics R&D in the world.

I am looking at the trends, and you're completely off-base when you say America is falling behind in biotech and machine intelligence. America is the world leader in both fields. Take it from someone that works in closely related fields, and knows many people in both biotech and machine intelligence. or better yet, go look in some prominent journals in those fields and tell me which universities the publications are coming from (hint: it starts with "United States of ").

 

Just quick comment as call for me to leave will come soon.
That would be very interesting number to have, especially if by each of the last few years. I only knew one who went back to China and that was 18 years ago, before China started it drive. Certainly there are many like him who were granted their Ph.D.s and lived long term in the US. You are good at searching - can you find data?

A quick search hit: http://www.biomedcentral.com/browse/journals/

where an enormous numbe of bio related journals are listed - I hope to look at a few and see when the authors are working (especially if I can see same issue of a few years ago and compare to now.)

 

I've looked around, but to no avail. Frankly, I'd be surprised if the data is even compiled and made available. Moreover, I've never heard of anyone but native-born Chinese moving to China for jobs (or any other reason). I went to grad school with a large number of Chinese nationals, and all of them are still in the US. And, again, so far as I know China does not even allow immigration at all, only temporary visas.

Yes, bio is a huge area, with many sub-fields. I'm not even sure what the prestigious journals are, although I'll ask some of my biologist friends if I get the chance...

 

I would just try to find journal that is publishing papers at the core or fundamental areas, not necessarily the most respected ones if we are trying to find the changes in number of asian autors etc. There is unfortunately still some "old boy" selection process at the best journals. There was a study (or two) where well know authors allowed re wite of their paper to be submitted under a false, unknown name and it was rejected but when submitted with true author, the article with the same facts were published. This was sevearal years ago, before the then respected Korean published fradulent cloning results, so I am sure that acceptance form even respected leaders is more difficult now. Think how hard it is for an unknown (to US editiors) to get published in a leading journal. We are not interested so much in what is published, but how the trend in authorship is developing.

BTW when I say your tend to avoid looking at trends, I am not saying that somehow one can tell trends without examination of the past. I am, however, saying that when you cite one (rather than two) pieces of data it is "just some past (or near present) fact," not a trend.

To give "trend information" you need to say something like Now there are "X" and three years ago there were "Y" in the US and there are now "x" in China and was only "y'" in China three years ago. You never give "trend data", only "past facts." I may not have been clear on this when complaining that you "look to the past" instead of "recent trends."

In general, I readly admit that the US is far ahead in most everything than China (still) but in many areas the trend is with China. Often this is in part because they are comparing to a lower base, so it relatively easy to make a 20% advance etc. but even in absolute numbers (like number of mathematicains graduating with master degrees) they sometimes have the advantage. (I do not know if that example is one.)

To take an example I am sure of China's "trend leadership": New nuclear power plants. (I think the US still has more, but China is building 30 and the US has built zero in 30 years. If true, the Leadeship is with US, but the trend is with China.)

I hope you now understand what I have been saying.

To return to the specific "education point":
The trend in the US is for students to now avoid the harder science courses and take those that promiss more economically rewarding futures.* In China th university students have less choice. They go to technical schools or none in many cases, so the trend is to graduate more and better traind engineers and scientist every year. I.e. yes, the leadership is with the US still, but the trend is with China.
----------
*As you commented on and I have observed, the number of Asian in US university physics etc. classes is far above their percent in the population. I will also comment that most of my best students were Asians. - They were more focused on their studies, seemed to have no social life, etc. but the native born american of asian parents were inbetween - becoming more like americans. I am not here including Indian students. They in contrast were fatalistic. For example, when some piece of experimental equipment in the lab failed, few tried to fix it, but Chinese and American born often did.

 

I'm not sure that is what we want to find; quality is at least as important as quantity. In my field, for example, I would spend about 1-2 years on each paper, for submission to top-tier journals. People at bottom-tier schools will write 4 papers a year, published in crap journals. If you just look at the numbers, you'd say "ah, the crap schools are in the lead!" but of course nobody even reads those papers, cause they're useless. This reminds me that what we should be looking at is not publications as such, but rather citations.

I think the trend in salient research is what we should be looking for. Also, it's typically not the case that the editors are all (or even mostly) Americans. None of the editors of my papers have been Americans; they were located in South Korea and Germany. Likewise, many of the "American" editors are foreign nationals with US green cards. The big-name scholarly associations and associated journals in essentially all science and engineering fields are truly international bodies. In my field, for example, the main conference is held in Asia every third year. As far as "unknown" researchers go, the really good ones tend to end up with well-known advisors as co-authors.

Actually, the US has recently started building power plants again. There are 2 currently under construction, with 24 more proposed. Furthermore, America doesn't need to build new reactors to expand nuclear power capacity; we can simply upgrade old existing ones (this is also occurring). America has more nuclear power plants than France and Japan combined (France and Japan have the 2nd and 3rd most reactors, respectively). And that's without counting the military.

Moreover, comparing trends between vastly different countries is not terribly enlightening. That is, you can't assume that China will continue to build nuclear reactors at the same rate once they approach the same level of development as the US. So the trend does not really indicate that China will ever get into the lead; it just hammers home the fact that they have an underdeveloped nuclear industry. Note that, even if China's ambitious nuclear development plan through 2020 goes as expected, they'll still end up with less than half the nuclear power capacity that America has right now. Moreover, despite the expansion of nuclear power, electricity demand in China is growing so fast that the percentage of power coming from nuclear sources is actually *decreasing*. They're building like 10 coal-fired plants for every nuclear plant, and of course there's the big hydro projects.

 

On {1}: I am focused on the trends in education, not who has the highest quality current publications. I will even admit that the quality of education (some index) times the quanitiy of graduates (the "QQ" product) probably is still in the the US favor, despite China's larger second "Q." But the quality of Chinese education is also rapidly improving - You do not orbit humans and return them safely to Earth, landing on ground only 9 km from the designated return point with ignoramouses! (It was many years before US dropped landing in the ocean and often hours before the Navy's fastest cutters could get the sea-sick astronaughts, bobbing around in their lifeboat. I am not sure, but think the US still is incapable of a ground landing other than via the shuttle.)
Again it is the TREND that has me worried. The current US superiority provides me little comfort and is being lost. - See my {comments} near end here:

http://www.sciforums.com/showpost.php?p=1516896&postcount=98

On {2}:
Are you (unintentionally) trying to support my POV?
20 years ago, I bet not one first-rank journal had an Asian editor!
Again it is the TREND that has me worried!

 

Interestingly "perfect storm" is being used by others:

"...The Garden of Eden began to look like a perfect storm until the Fed acted last Friday. We experienced a host of "Black Swans" that spooked the equity markets. We are now experiencing a temporary reprieve that will enable the de-leveraging of credit to continue.

On Thursday, Aug. 16, Christopher Wood, emerging markets analyst at CLSA (an affiliate of Crédit Lyonnais), predicted that "the world is nowhere yet near the peak of the fear that will be generated by the unwinding of the credit bubble." ..."

FROM: http://www.forbes.com/2007/08/20/cr...820croesus.html?partner=globalnews_newsletter

It is a little early to be sure, but I continue, as stated in first post of this thread, to think central banks will save the global dollar-based financial system once more (but this is the last time the "6L cycle" will "soft land"). I.e. I think Christopher Wood is wrong - the worst is over and DOW is going to flert with 15,000 still at least by early 2008. I.e. not a "temporary reprieve" but a bottom to bounce from.

PS, as I told in post 40 and 45 "I put my money where my mouth was." - Buying 500 shares more of ADR SBS at $40.80 - now (just checked) IT IS AT 46.23 - NOT BAD FOR A FEW DAYS.
COB up date:That 46.23 was at 11AM, SBS closed friday 24Aug at $48.03 - Even better for a week invested.

 

To quadraphonics:

I just read the cover article of 20 Aug 07 Newsweek on "Global Education." Read it if you can. The trend down for US and up for China is clearly stated, with numbers there. B.Wachter, director of Accademic Copperation Association, speaking of the changes in India and China states: "its not just numbers, it quality." In one generation, China has changes from 2 to 20% college graduates* (talk about fast trends!) and is current spending 0.5% of GDP on higher education with program to take that to 4%. Also from 2000 to 2005 US foreign student increased only 17% while France grew 81% and Japan by 105%. Of the six top educational nations, the US is the slowest growing in attracting more foreign students! (in this 5 year period), etc. The US government, for first time ever, has produced and shown a student recuriting video in China, now seen by 180 million Chinese! - Recognition that US is losing the race for the best and the brightest foreign students. Subtitle of the Newsweek article is: "The race is on."

Again all, me included, admit the top dozen or so univesrity in the world are still mainly in the US, but one tier down, that is already no longer true and the TREND is clear. Read the Newsweek article -five pages, even in the Brazilian edition.
-------------------
*Note also, unlike US where students freely choose (and universities respond to those choses with new programs and courses) the Chinese government determines the program of studies for the students. Hence US is gaining more lawers, stock brokers, insurance and other salesmen etc while China is gaining the engineers etc. it needs to grow and advance. In US many students are now "following the money,"** avoiding the hard sciences, math even computer sciences for those with brighter financial futures (at least so they, unaware of the collapsing dollar, erroneously think). Microsoft etc. is forced to expand in India for lack of well trained US staff. etc.

By edit on 25Aug: I just heard on Bloomberg radio, the the AVERAGE Wall-street broker's year-end BONUS*** (Dec2006) was more than $220,000 !!!!!!!!!!!!!!!!

***God (and I hope, but doubt, the IRS) only knows what his total 2006 take home pay was. - Can you blame these student? - I can't. US's foolish infrastructure, which I often speak of, is not just the "suburban spread," "gas guzzlers," failing transport systems, and other material things ! (Anyone else reminded of Rome's last days?)

 

" ... Aug. 25 (Bloomberg) -- The dollar fell the most against the euro since March ...The yen posted its biggest weekly decline versus the euro since 2003 as investors returned to carry trades... Global stocks rose ...
... ``Things are calming down sufficiently enough for the market to go back to the trades that dominated prior to the shake-out: buying other currencies against the yen and selling the dollar,'' said Brian Dolan, chief currency strategist at FOREX.com, ...The dollar dropped 1.5 percent this week to $1.3675 per euro, for the biggest weekly decline since mid-March. The dollar rose 1.8 percent to 116.44 yen. The yen plummeted 3.4 percent to 159.26 per euro, for the biggest loss since September 2003.

``People are calmer because they expect the Fed will cut rates in September,'' said Mark Meadows, a strategist at currency-trading company Tempus Consulting Inc. in Washington. ..."

FROM:
http://www.bloomberg.com/apps/news?pid=20601087&sid=aUvZW3kAgca8&refer=home

Note that it is all going as I predicted in first post of this thread. I might add that as the flight from the dollar resumes it forced the Brazilian stock index up 9.14% in the week ending 24Aug07 as well as drove the average of Asian indices up to a 5 year high. This even though the housing starts in US were better than expected. - People are still scared of the dollar long term (with good reason as the only way US debts can be paid is by the printing press.) but the "panic" is over for at least a year, probably 3*.

There will be a sharp set back in the markets on 19Sept07 when the FED fails to cut rates as 99+% of the "experts" are expecting, but after a week or so that shock induced loss will also be wiped out and at least by early 2008 the DOW will be flerting will 15,000 as I have been predicting from more than a year.

It will be interesting to see, soon, if I must "eat crow" or if I know what is going to happen well in advance, as I have for years. A talent that has made me wealthy from a "starving student" start.

Anyone with enough guts to join the experts and now call me wrong?
---------------------------------
*As stated in Post 1, this is the last time the central banks will be able to save the global, dollar-based, financial system. I am sticking with my prediction that the run on the dollar starts in 4 + or - 3 years. (Hence earlest it might be is year from now.) Once the run starts, the deep depression in US and EU will be well developed / established / painful to many / in about 6 months. Unfortunately the destruction of Clinton's surpluses by GWB and his cowboy, shoot-first, think-later, foreign policy has made this depression unavoidable now.

 

To nietzschefan:

Here is more and strong evidence that my advice to avoid gold (given in post 5) was correct:

"...The credit hullabaloo is toppling many perceived truths. Triple-A means safe, for example. And terrified investors rush into gold. If there was ever a time for gold to demonstrate its safe-haven status, it was Monday. Yields on three-month Treasury bills plummeted almost 200 basis points as investors scrambled for government paper. Surely, this dramatic flight to quality should have pushed gold through the roof. Yet the price of gold did not shift from exactly $657 per troy ounce from Friday to Tuesday.

Either all bullion traders holiday together or investors prefer to trust the US government with their money more than they do gold. That is not as silly as it sounds. Gold is, after all, just a metal, and sentiment can be as irrational as for a high-risk asset. It is not even scarce. Nearly all the gold ever mined is still above ground. Only about 10 per cent of 2007 demand is for industrial use, whereas three-quarters of demand is for jewellery. It also provides no yield ..."

FROM:
http://www.ft.com/cms/s/ab087976-52...2ac.html&_i_referer=http://www.ft.com/home/us

 

A Princton Economics professor and more importantly, the Economist have switched to my POV that the FED will not (or at least should not) cut interest rates:

"... Mr Bernanke should be driven by his remit to support economic stability, not by the whiplash from financial markets. {investors, some histerically as Cramer, calling for rates cuts} That, arguably, was the mistake that Alan Greenspan made {Exactly my "first L" of post 1} when the Fed lowered rates three times in 1998 as financial markets seized up in response to the collapse of Long-Term Capital Management, a hedge fund.
This time, it is too soon to tell how deeply the financial crisis has affected the American economy. ... In fact, plenty of the normal mechanisms markets have for correcting themselves have yet to swing into action: there is plenty of cash still hoping to pour into financial markets when they become cheap enough, whether from oil-rich governments, {via SWFs} vulture funds, canny investors such as Warren Buffett or cash-rich companies still churning out profits. Already, Bank of America has snapped up a $2 billion stake in Countrywide, a troubled mortgage lender. To cut rates too soon would imply that the financial system cannot work without bail-outs. That would be the worst legacy of all. ..."

FROM:
http://www.economist.com/opinion/displaystory.cfm?story_id=9687367

By predicting no cut in the FED's 18&19 Sept meeting, I am still way out on a limb (99% of the experts are still debating if the cut will be 0.5% or only 0.25%) but at least not entirely alone now. These two new "no cut" advocates are doing so mainly because of the "moral hazard" POV, not my "The FED can't" as then foreigners will not continue to finance the US debt. - I.e. by cutting, the FED would trigger the run on the dollar now.)

 

IN a preverse way, here is more evidence that I am correct on both the prediction that the central banks can save the world's financial system once more (this time but not next 6L cycle) and that the FED is NOT likely to cut interest rates, even at the 18/19 September meeting:

LATIN AMERICAN MARKETS: Stocks Hit By Fed's View That Inflation Trumps Market Turmoil (Dow Jones) -- Latin American stocks moved sharply lower Tuesday, tracking a downturn on Wall Street after minutes from the Federal Reserve's latest meeting showed that policymakers expressed concern about eroding financial conditions. {I.e. This shows that many still regard the dollar as sound, despite all evidence that it is not. Old habits die hard.}
...
In the minutes of its Aug. 7 rate-setting meeting, .... The Fed acknowledged recent turmoil in financial markets, but retained its view that fighting inflation remained its top priority.*
...{Also}
Markets also reacted sourly** on a reduction in U.S. consumer confidence in August, and a downgrade by Merrill Lynch of Lehman Brothers (LEH) , Bear Stearns Cos. (BSC) , and Citigroup (C) to neutral from buy on concerns over their debt market exposure.

FROM:
http://news.morningstar.com/news/Vi...J/200708282014DOWJONESDJONLINE000548_univ.xml
-----------------------
*It is almost as if the FED now understands what a mess Greenspan (with help from GWB) created by starting the now ending 6L cycle.
**Although this does take a little of the sting out of the reaction I prediced some time ago for 19September07 there will still be a sharp downward move globally for stock on the 19 when it is an established fact that the rate is to remain at 5.25%.

Now many*** are joining me in my POV, in that at least they are "hedging their bets" instead of predicting a rate cut. - I am NOT now "all alone out on a limb" in predicting "no rate cut."

***But not the majority still:
" ... ``Concerns about upside inflation risk and their credibility will play a role in tempering how aggressively they will be willing to ease,'' said Brian Sack, vice president at Macroeconomic Advisers LLC in Washington and a former Fed economist. "It won't prevent them from easing in September.''
AND:
" ... Given the way the market is, I think it would be very difficult'' for the Fed to avoid cutting its target rate next month, said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. "The Fed will go ahead and ease 25 basis points in September and then see what happens after that.''

both FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=aaMmEh2d6CxA&refer=home

Even the majority of "experts" is now hedging their bets by noting that the FED is "restrained by inflation concerns." None yet dare to come out (as I have) and simply note that the FED can not lower the rates and still expect foreigners, who are already losing purchasing power on US treasy issues, to continue financing the debt. {I am not an "expert" -only a little boy willing to say the "King has no clothes."} See related thread "Sovern Funds ..." These foreigners do have an alternative to buying US Treasury bonds and many are taking it already.

 

shit. I give up

 

If you had listen to me a couple of years ago when I decided to tell (post at sciforums) what I had done years earlier, and recomended openly to all to "buy ADRs," you would have at least doubled your money and if ADR was well chosen at least trippled it. Some that I bought 5+years ago, before the crowd, were up more than 1000% (ten fold, no typo) but now have fallen back to only an 8 fold gain.

 

Here is Business Week's recent confirmation of my comments on LEVERAGE:

" ... the ways various financial players indulged in layer upon layer of leverage, much of it far from transparent. Mortgage lenders threw out common sense underwriting standards. Wall Street sliced and diced the loans, creating the illusion that risk somehow disappeared in the process. Hedge funds then multiplied the leverage by borrowing copiously to buy securities based on the rearranged mortgages. In their version of the game, private equity firms used loads of debt to launch unprecedented buyouts. ..."

FROM: http://www.businessweek.com/magazine/content/07_36/b4048001.htm

For late comers, here is post 1's "6L CYCLE" again:

LIQUIDITY caused the “dot.com bubble.” When it burst Greenspan’s FED, fearful that the world was heading into recession, possibly becoming a depression, pumped out more money. This lead to:

LOANS to unqualified people, who could not afford the house they bought, but both buyer and lender were confident that rising home prices would bail them out of any trouble, and it did for several years. The buyers refinanced their mortgage at lower rates provided by the FED and often for longer terms with lower monthly payments once they had some unrealized capital gain. This put cash in their pockets, which they quickly spent. This lead to a:

LINKAGE between increasing home price and the general economic prosperity, but jobs were being exported and “Mac –Jobs” replaced the lost higher-paying factory jobs. Joe American’s real wages went down for a several years and his ability to carry his mortgage decreased. That is his home became a:

LIABILITY, not an asset that he could borrow more against to live better but business, importing more services and goods from cheap Asian sources was prospering as never before, even when selling less in many cases. The US might have been able to avoid depression and only have mild recession if it were not for the

LEVERAGE, which pooled many of these low quality mortgages together in packages (diversifying the risk, while keeping their high rate of returns, especially as the ARMs in the package reset to higher rates). These packages were very attractive and supposedly “secure” because of this diversity so banks and brokerage firms allowed large investors to buy them with only small fraction of the face value. These investors and private equity firms resold the packages among themselves and to ETFs and used them as collateral for other bank loans to buy more. Perhaps at the end of the chain, only one dollar was buying 25 dollars of face value assets. But then the “failure to perform” (mortgage default rate) went up and exposed the last buyers in the chain to bankruptcy and the:

LIQUIDATION that is happening today, not only in the US, but in EU also. A large French firm, tied to the US mortgage market, just went under and hundreds of billions (if not trillions?) of stock values have evaporated over night around the world in one day. (High leverage means that only a few percent drop in homes values or increase in the default rates completely wipes out all equity of the investors holding the bag at the end of the re-sale chain. It threatens the entire banking system, but I expect that it will still be possible for central banks to save the system one more time with more

LIQUIDITY (starting this “6L cycle” again) before this house of cards all comes crashing down in history’s worst depression with the dollar collapsed to pennies of current value. The EU central bank is trying. It pumped out 125billion dollars today alone! - Here we go again, but this is the last time, I predict, before the crash.

By way of clairfication - The last sentence of "LIABILITY" was ment to be reference to the twin deficits as US spends more than it can afford, just like the home buyer who bought more house than he could afford. - When times change, these new MORTGAGES and US DEBTS are LIABILITIES not assets*

PS I tried for 10 minutes to use size cmd to make the definitions smaller, but neither [SIZE = 1] xxx [/SIZE] nor [SIZE = "1"] xxx [/ SIZE] and various combination w/wo spaces work. WHY?
----------------------
*Accountants would argue that these mortgages and debts are ALWAYS liabilies, but note that they are papers that can be trades to get good, just as money is paper that can be trades to get good, so in some sense, if people will take this paper and you can create it you are creating assets for your use.

 

Here is Yahoo New's documentation of what I have been posting / predicting for some years:

" ... To understand why China's influence is increasingly pushing past its borders, just do the math.

When 1.3 billion people want something, the world feels it. And when those people in ever increasing numbers are joining a swelling middle class eager for a richer lifestyle, the world feels it even more.

If China's growth continues, its consumer market will be the world's second largest by 2015. The Chinese already eat 32 percent of the world's rice, build with 47 percent of its cement and smoke one out of every three cigarettes.

China's desire for expensive hardwood to turn into top-quality floorboards for its luxury skyscrapers has penetrated deep into the Amazon jungle. For example, {in Brazil} one of the biggest sawmills was started by the mayor with financing from Chinese investors.

China accounts for 30 percent of the wood exported from logging operations in remote towns across Brazil's rain forest, ... Many Chinese purchasers now travel to Brazil to clinch deals, and are almost always accompanied at business meetings by friends or relatives of Chinese descent who live there.

The Bovespa stock index in Brazil has climbed more than 300 percent since 2002, riding the China wave. China is buying coal mining equipment from Poland and drilling for oil and gas in Ethiopia and Nigeria. It has poured hundreds of millions of dollars into Zambia's copper industry. It is the world's biggest market for mobile phones, headed for 520 million handsets this year. The list goes on. ..."

FROM:
http://news.yahoo.com/s/ap/20070901/ap_on_re_as/china_global_impact

Only important thing Yahoo missed (and I have noted) is that the Chinese are essentially debt free and just now learning what credit cards are. Thus, if they want to borrow to buy as Americans do, their purchasing power will exceed that of ALL Americans in about a decade - then China has no need to sell anything to the US or to accept dollars.
As I have often said, then China can tell US to "GO TO HELL - WE DO NOT NEED YOU TO BUY OUR PRODUCTS ANY MORE." That is good for China as by then the US and EU will be in deep depression and not buying (or selling) much to any one - this will reduce the global demand for oil and raw materials, making it more economical for China to buy them. (Why China will, prior to a decade, find it economically attractive to trigger the run on the dollar, which starts this depression.)
However, before that run on dollar starts, the current trend of central banks to get their reserves out of US Treasury PAPER and into REAL ASSETS (sovern funds) will drive the DOW well above 15000. See my thread on "Sovern Funds ..." for more details on them at:
http://www.sciforums.com/showpost.php?p=1523554&postcount=8 (and post 1)

 

Its kinda funny, last major communist country is actually number one capitalist player

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Thanks for this very informative thread.