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

That is a possibility, but probably the national guard can keep the frequency low. That is a level of detail impossible to predict. I.e. how the details of the very bad times will play out.

I think the typical American is now less morally restrained than in the depression of 1929, and some of that did occur back then. I anticipate the cultural shock of collapsed dollar depression (worse than 1929) will cause a lot of social unrest. If the government tries to feed the people in the already decaying urban centers (food coupons or distribution centers etc.) then the inflation part of the stagFlation will become worse. If it does not, and hungry angry mobs develop it may get very ugly in suburbia.

 

Log in or Sign up to hide all adverts.

Today (9Nov07):
"... Morgan Stanley cut its forecasts for the dollar against the yen, euro and pound as the U.S. housing slump curbs expansion and diminishes the allure of the nation's assets. The yen gained against all 16 of the most-actively traded currencies after U.S. equity-index futures declined, prompting investors to shun riskier assets purchased with loans in Japan. {Billy T explains: "unwinding of the carry trade" caused yen rise (and part of dropping DOW).}

``There's going to be more dollar weakness to come,'' said Jeremy Stretch, senior currency strategist in London at Rabobank Groep, the third-biggest Dutch bank. ``The market is biased towards ongoing weakness in the U.S. economy and is pricing in more Fed rate cuts.'' ..."
From:
http://www.bloomberg.com/apps/news?pid=20601087&sid=akddsUP1Gavk&refer=home

I hope that the Chinese will act in their own best interest and wait a few years more before destroying the dollar, but it is starting to look like they can not control some of their PC members who publicly state the obvious - namely that China would benefit by investing in appreciating currencies (Brazilian Real?) instead of dollars that are steadly dropping in value. - As they said in WWII: "loose lips, sink ships." (In this case the US ship of state.) I.e. perhaps unintentionally* the Chinese are driving off the end of the pier now. If so, they (the CP) will drown with the rest of the world in deep depression.
------------------
*It is also possible that they are just being very clever -driving the cost of US dollar based assets down so they can pick some up more cheaply. I doubt this level of sophisticated market manipulation has developed in China yet. They could do this a few times as China controls when the US dollar collapses.

 

Log in or Sign up to hide all adverts.

It's also possible that some mid-level party member with no actual relevant decision making power made some off handed comments that were picked by the international press and made into a big stir.

I still think the biggest problem with your China currency nuke scenario is that such an attack on the dollar would cripple the Chinese export base, the driving force in the Chinese economy and political system. I see absolutely no indication that their domestic markets are ready to pick up that lost consumption or will be ready to anytime in the near future.

 

Log in or Sign up to hide all adverts.

I do not recal his title, but he was realtively high up in the CP. Perhaps you will search - I am not good at that, as do it so little.

I added the {CURRENTLY} in your post so I could agree completely with the above.

I think it will be nearly a decade before the combined purchasing power of China's rapidly growing (both in numbers and individual wealth and still with out credit cards or significant debt and a positive high-percentage saving rates) middle class
PLUS
exports that pay for all the imports of food stock, commodities and energy that China increasing requires

will leave nothing to sell to US and EU. Then, and only then, will it be to China's advantage to destroy the dollar, sending US and EU into deep depresion so global demand these things China must import will not be as large as if US and EU were with healthy economies.

 

I believe it was this gentleman, Cheng Siwei, Vice chairman of the Standing Committee of the National People's Congress, one of the advisory boards to the parliament.

http://www.china.org.cn/english/features/58566.htm

I googled his name just now and turned this up:

http://blogs.wsj.com/marketbeat/2007/11/07/who-is-cheng-siwei-and-why-should-we-care/

 

Thanks - that is about the level I remembered - but nice to know the details.

 

Answering thread's question: No, but it is coming closer and more seem to understand that than few years ago (when I began to warn). For example:

"...Part of the depreciation is permanent,'' says Harvard University professor Kenneth Froot, who has been a consultant to the Fed. ``There is no doubt that the dollar must sink against periphery currencies to reflect their increase in competitiveness and productivity.'' ... the dollar is now worth about a third of what it was in the days of fixed rates.

One of the main U.S. exports since then has been the dollar itself, in exchange for foreign capital to finance trade deficits and a national debt of more than $9 trillion. While the current- account deficit is narrowing from last year's record $811.5 billion, the U.S. still requires $2.1 billion a day of other people's money.

``We're getting into a very unstable situation,'' says Richard Duncan, a partner at Blackhorse Asset Management in Singapore and author of the 2005 book ``The Dollar Crisis: Causes, Consequences, Cures.''

Such a prospect unsettles U.S. allies, and concerns are mounting that the flight from the dollar is feeding on itself and threatening a crisis of confidence that the next president will have to address.

Kuwait, freed by the U.S. from Saddam Hussein's army in 1991, unhinged its currency from the dollar in May, and pressure is building for Gulf Arab neighbors to follow suit. Qatar's prime minister, Sheikh Hamad bin Jasim bin Jaber al-Thani, complained Nov. 11 that the dollar's drop is cutting oil and gas income, leaving less to invest abroad. The United Arab Emirates may drop the dirham's peg to the dollar, analysts said.

The central bank in Iraq, a country the U.S. military has occupied since 2003, last month said it, too, wants to diversify reserves away from mostly dollars.

Korea's central bank this week urged shipbuilders to issue invoices in won, the Korean currency, and take out more hedging policies to guard against a weakened dollar.

...The euro, used in 13 countries, now accounts for 25.6 percent.

``The global reserve system is fraying; it's falling apart,'' said Joseph Stiglitz, a Nobel-laureate economist at Columbia University, at a Bloomberg seminar last month in Tokyo. ``The change in mindset about the use of the dollar in reserves and the movement of the dollar out of reserves will continue to exert downward pressure.'' ..."

FROM:
http://www.bloomberg.com/apps/news?pid=20601109&sid=azto7U.TmGX0&refer=home

 

"Perfect Storms" are caused by several adverse events that happen at the same time. So far this thread has just focused on one cause, the "6L cycle" (see OP for it defined). Although I have often in the last few years pointed out that the "BABY BOOMERS" were ceasing to be great tax payers (in their highest earning years) and becoming collectors of Social Security (paid by those still working) and "negative savers" (as they consume the "nuts" they "squirrled away") There is an effect I failed to notice, which is well described in the 17 Jan 08 issue of The Economist. See:

http://www.economist.com/finance/displaystory.cfm?story_id=10534992

In summary it points out:

Older people, moving into retirement villas, apartments, or even trailers for long delayed tour of the US, etc. are net sellers of typical suburban homes, which are mainly bought by people in their late 20s to early 50s.

The yougest of the BABY BOOMERS will not be 65 until 2029. Do not expect a big upturn in real home prices until ~ 2030.*

SUMMARY: The oversupply of unsold homes will continue to grow and depress real home prices for at least a decade more. Many potential buyers will continue to wait for the prices to fall more, before buying. People who say otherwise are sellers and real-estate sales related**
---------
*That will also be about when US and EU are finally recovering from the "Great Depression", which I prediced some years ago will start between Oct 2008 and Oct 2012.
**That includes articles you read in news papers etc. (Anyone selling home ads or home furnishings etc.). Recall how news papers seldom had articles against tobacco, when those companies advertized in newspapers. There is a lot of “whistling thru the graveyard” in the FED, the Elections, the press and TV now days. GWB, main cause of the coming disaster, is now even making "stimulus speaches" as he whistles.

 

You saw following first (even details explained) in OP of this thread, but here it is again from DAVOS:

"FED is ignoring history's lessons and risks re-igniting more asset bubbles, economists at the World Economic Forum annual meeting said.
{with 0.75 rate cut} Fed is saying: "We are there to clean up after bubbles first rather than to prevent the danger,'' Stephen Roach, Morgan Stanley's Asia chairman, said in a panel discussion in Davos, Switzerland. ``It's a dangerous, reckless and irresponsible way to run the world's largest economy.''

From:
http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=alohzhP61Auo

 

You may think that simple home owners with secure jobs will not suffer much from the current GWB induced economic mess. Think again. Real estate taxes are going up more rapidly than normal. That cost will also, like higher cost food & gas, etc. lead to less discresionary spending (belt tightening). Here is why the taxes on your home will increase more rapidly than normal:

"...The most recent fears are tied to the potential failure of bond insurers, the companies that back the funding for hospitals, schools and other public works. A meltdown there could deliver another devastating blow to battered banks and force higher taxes on homeowners.
..."People are afraid to make business decisions," said Donald Light, a senior analyst at Celent. ... That uncertainty has created wild swings in the market as every bit of information is analyzed
...
A downgrade from the crucial "AAA" rating would likely end the insurer's ability to book new business. Standard & Poor's placed MBIA on a negative credit watch late Thursday and downgraded Financial Guaranty Insurance Co. Fitch Ratings had previously downgraded other bond insurers _ Ambac Financial Group Inc. and Security Capital Assurance Ltd. _ as well as FGIC.

The downgrades have led to a series of problems for municipalities who rely on the insurance. If an insurer's rating falls, bonds backed by the insurer fall as well. The lower the rating, the higher the cost. "Clearly the cost for insurance is going up," said Richard Tortora, president of Capital Markets Advisors, which provides bond advisory services for municipalities in the Northeast.

There was about $2.6 trillion in municipal bonds outstanding as of Sept. 30, the latest figures reported by the Securities Industry and Financial Markets Association. More than half of municipal bonds carry insurance, Tortora said. Any increased price on that insurance is "passed on to the taxpayer," Tortora said. Exactly how much larger of a burden taxpayers will shoulder depends on the underlying credit rating of the municipality.

"The prices for lesser-grade borrowers has widened rather significantly," said Tim Long, a managing director and investment banker focused on public finance with Robert W. Baird & Co.
...
The distress gripping bond insurers has caught the attention of lawmakers in Washington, who have been consumed for months in politically charged debate over possible remedies for the mortgage market crisis.
...
Financial institutions, which already wrote down about $150 billion of subprime-related exposure last year, could be seeing billions more in losses from bond insurers.
...
On top of any new losses tied to bond insurers, further losses from the subprime mortgage fallout are still likely. S&P said Wednesday that it is considering cutting the rating on more than $500 billion in mortgage-backed bonds, which could lead to further losses. S&P estimates total mortgage-related losses at financial services firms could reach $265 billion.

Condesed from C Schwab annalysis by Billy T. See full report at:
http://cs.schwab.com/clicker/cli?re...ilMsgID=mcs013042740784bacmr4to8oaaaaarfnsdgl

 

So...Like I said gold and bullets then? Yea taxes - even if you think you own your home, you do...but not the land it's on. The government does. You have deed - allowing you to be raped by said government anytime they wish.

 

Basically correct. Like pre-USA citizens said (about various taxes England was imposing etc. at the "Boston Tea Party" etc.):

"The power to tax, is the power to destroy."

US government under GWB has discovered an even more powerful way to destroy your wealth. I.e. GWB's wars and aids to the already rich have doubled the debt (made possible by credit from China) and eventually (when China will not loan more) "printing press dollars" will redeem the Treasury bonds as they mature.

Then both your homes and saved money will be gone in uncontrolled inflation in the midist of a great depression. (Not seen before except once in a collapsed Germany.)

 

Are they running US down so that North American Union and Amero will be accepted when presented in the middle of the misery as an only solution. ? .
Thats how it went here in Finland with € and EU back in the days.

 

Middle of misery? Canada is the U.S's #1 importer and exporter. We are paying down our debt and our economy has never been stronger...that is until our effing banks got their hand caught in the sub-prime U.S cookie jar.

Non-the-less, You might be right. This whole thing could be and elaborate scheme for the big banks to swallow small banks, then enforce a currency on N.A.

Canada will get almost as sick as the U.S if the U.S tanks, maybe more.(being we export more to them than we import).

 

Twice sorry that:
(1) I have been ignoring Canada when stating that "US and EU" would have depression soon after the run on the dollar, which I expect between Oct 2008 and Oct 2014.
And
(2) Canada is included in the depression group.

What Canada needs to do is get more firmly in the "economic colony" (of Asia, especially China) group. Forget about your "oil sands" - that oil will be too expensive. China is signing up oil supplies who produce at 1/3 that cost and the demand for oil with EU, England, and North America ("EUENA" includes Mexico also.) in depression will be significantly lower than today. Concentrate on your minerals, like nickel and uranium. (Don't mess around mining your gold. China is already the world's largest producer and they are just geting started on what is the world's largest and cheapest to produce deposit, - a band all across that entire north of China. (In purchasing power, an ounce of gold probably will have less than half its current value is less than 10 years but probably will cost many thousands of dollars in nominal prices a decade hence.)
Step up a drive to get Chinese to eat more bread (sell them your winter wheat). One thing that would help in this effort is to make better known the fact that most types of rice are WORSE THAN SUGAR in terms of the "glycemic index."

 

FED's dilemma: Cut rates to stimulate economy or hike rates to finance the debts? My bet is FED will cut 0.25% more and tell Treasury/ mint etc to get the dollar printing presses up and running to payoff the maturing bonds that will not "roll." Recall I told you about 9 months ago to buy TIPs if you had no stomach for volitile ADRs in Brazil and India.
SUMMARY: Here comes inflation that preceeds the collapse.

"... Ten- and 30-year securities declined a second straight day as investors balked at buying at this week's auctions, with yields at record lows. Investors are also betting that the Federal Reserve's five interest-rate cuts since September will revive economic growth and cause inflation to accelerate, reducing the value of Treasuries' fixed payments.

"The auction went as poorly as one could imagine,'' said Andrew Brenner, co-head of structured products in New York at MF Global Ltd., the world's largest broker of exchange-traded futures and options contracts. "There isn't a lot of demand for bonds at these levels.''
...
In today's auction, indirect bidders, the class of investors that includes foreign central banks, bought 10.7 percent, the lowest on a new 30-year bond since the Treasury resumed sales of the maturity in February 2006 after an almost five-year hiatus.

From:
http://www.bloomberg.com/apps/news?pid=20601087&sid=av8noPEML8RQ&refer=home

 

The flood of new funds from central banks (step 1 of the OP) is not over yet:

"The Bank of England is preparing to announce a plan to swap 50 billion pounds ($100 billion) of government bonds for British banks' mortgages, ...
The BBC said the plan would be the biggest special initiative by British monetary authorities to supply liquidity to the U.K. banking system and would meet banks' demands for ``longer term loans'' while escaping being accounted for in the national debt. ..."

From:
http://www.bloomberg.com/apps/news?pid=20601087&sid=agBYXqa75aoY&refer=home

PS the part of quote I made bold is an accounting trick - not fooling anyone. Might as well print new 5 pound notes and borrow Ben's helicopter and throw funds out over poor neighborhoods, IMHO.

"... The U.S. Federal Reserve last month made up to $200 billion available to banks in return for debt including mortgage-backed securities and in December created a lending vehicle to make credit available to banks as an alternative to borrowing at its discount rate. ..."

From:
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=a6dKa6OhB.FQ

With lesser central banks added in, we're near half a trillion in new liquidity. Pretty soon that will be an overload for Ben's helicopter. - It may crash.

Please Register or Log in to view the hidden image!

 

hah! this is exactly what happened this week, too!

 

Billy T has compressed the text below and added comments {inserted in these brackets}. There is nothing new. (I have told it all before), but it is well said and now comes from probably the best and largest manager of retirement funds (TIAA/CREF is Vanguard’s equal, or better):

“…In the current decade,{actually only under GWB, as Clinton had surpluses and no wars.} significant changes began to occur … The U.S. ran increasingly large trade and current account deficits. … This excessive consumption and investment was financed by borrowing from the rest of the world. {GWB DOUBLED THE DEBT - more than all prior presidents in US history, even with WWII expenses.} In addition, U.S. policymakers embarked on a triple strategy of loosening fiscal and monetary policy (i.e. tax and interest rate cuts), {GWB cut the tax on dividends to 15% from 35% and lowered capital gains tax by 5%} while increasing federal spending. Spending increases and tax cuts were financed by issuing more Treasury bonds purchased by foreigners, especially foreign central banks. The interest rate cuts helped fuel a bubble in the housing market,… {GWB’s congress also cancelled the Glass/Steagall law in 1999, which prohibited banks from packaging mortgages together and selling them as "safe diversified securities.” That made the "subprime mess" possible. - Everything for the wealthy contributors to GWB and only ”home evictions” for Joe American.}

This worked for a while, but … the value of the dollar versus an index of other currencies dropped over 25 percent. A declining dollar reflects the fact that … That is good news for foreigners who wish to purchase new goods and securities, but bad news for foreigners who are holding securities, such as U.S. Treasuries they purchased when the dollar was worth more.{I.e. even dumb foreigners now understand that the dollar is no longer a “safe store of value”. That was the main reason for the dollar’s strength.} … In the end, the declining dollar may help world financial markets reduce the imbalances caused by large current account deficits and loose fiscal and monetary policies. Other things being equal {text now explains "weak dollar boost exports & reduce imports" - simple economic text’s POV, but continues to tell small part of why “other things” are not “equal” this time.}…If foreigners are selling relatively fewer goods, services, and securities to the U.S., they will receive fewer dollars that will need to be recycled. {to US} … the demand by foreigners for U.S. Treasuries, for example, could be reduced. {It already is} Further, other countries, such as China, are beginning to shift their foreign reserves more toward riskier investments and away from U.S. Treasuries. {See my thread on Sovern Funds, 3.2 trillion dollars now.}

In such a scenario, it is also possible that inflation could continue due to the rising prices of foreign goods and services and reduced demand for U.S. goods and services. In this case, we could see later in 2008 or 2009 rising interest rates to combat inflation and to attract continued foreign financial flows. {As this crushes the economy, you will see a mix of that and “printing press" dollars. Now as always, politicians prefer inflation to voters without jobs.} If so, then we could see some pressure on bond prices and a decidedly mixed outlook for equities. {That’s a nice understatement for my long standing prediction that GWB’s economic decisions and needless wars have made a deep depression unavoidable now for US and EU, but not Asia nor their suppliers of food stocks, minerals and energy, like Brazil.} …”

Read full text and see graphs of dollar’s fall vs. trade weighted basket of 18 other currencies; inflation rates in several countries etc. at:
http://www.tiaa-cref.org/about/press/publications/market_monitor/2008_05_12.pdf

P.S. Today, I moved the small remaining fraction of my CREF funds into their “TIP fund” – Most of it was moved into TIPs more than a year ago in a “dollar averaging” mode. The “TIP fund” was up more than 10% and the equity index (now “zeroed”) down 4%, so I called it right when I told readers here, too nervous make the better ADR investments in Brazil and India, to “Buy TIPs.” (For tax reasons I could not get all of these funds entirely out of US dollars long ago – IRS bite too big if 35+ years of gains were quickly taken.)

 

I think I'd rather try to influence my government to sell water to the u.s for Gold.