Thanks for an almost poetic set of ideas here. You raise some valid points. A lot has happened since I wrote this post in Feb. With some bad news coming from the financial markets and gas prices through the roof, things are not looking good. The mood in the USA is very negative. I believe voters will take it out this November and there will be a major shake up in the power structure. For better or worse.

Just a perspective from Oz.

Our ecomomy has been booming for a while, but like the US, private debt is at levels not seen since before the great depression. We have a 2 speed economy. Mining is booming thanks to China et al. And the rest of the economy is challenged. Official Interest Rates are 7.25% and mortgage rates are about 9%.

Fortunately Public debt in Oz is moderate.

The sharemarket is expecting a signifiacnt slowdown (it has dropped 20+% since October 07).

So we have only got a few breezes from the Hurricane but expect it to start picking up speed. The average Joe in the street will soon see their retirement savings returns for the 2007/08 year and will not be happy (average of 10% down).

There is debate about whether we are immune from a US downturn given our trade with Asia now.

I don’t think we are by a long shot. Who is going to buy all the stuff that China makes?

Then there’s food and fuel. The food situation is really scary. Our food bowl (the Murray-Darling basin) is drying up

There is consensus that we need to tackle climate change head-on, but nobody wants to pay for the cost of change.

I think we need our politicians to start giving it to us straight.

There are no quick fixes. We have to change things, and it’s going to hurt, and it’s best if we share the pain.

Instead of waiting for a world war to sort out the economy, let’s start a world war on non-sustainable living.

We need forth-right far-sighted political leadership of the sort that we haven’t seen for decades.

How’s that for a ramble.

Cheers
Tas

Thank you for taking the time for such a constructive comment. I read a few weeks ago about the “Education of Ben Bernanke” and I do recall his expertise being the Great Depression. That was a great piece in The Times but I never finished reading it. I need to go back.

I think what you say is very true. Perhaps the 0.75%drop in rates was a difference in style between Greenspan and Bernake - maybe it shows Bernake as being more confident in his actions. Whichever is the case I certainly am not at ease at the moment with the current situation.

I know what I’ll be doing more of in the future. That is reading your blog to balance out my thinking.

Shailesh, you said — I think the Fed is flying blind.

That’s where we take different paths. I think Bernanke has handled this the same way he implied he would in his book. He’s possibly one of the world’s foremost experts on the Great Depression, what led to it, what triggered it (unnecessarily mind you), and what made it orders of magnitude worse than it needed to be.

Long story short, he’s been doing exactly what should have been done back in 1926 or ‘27. It’s his core belief the real estate collapse of ‘27 was the first falling domino. Furthermore, it’s my opinion, based upon his actions as Fed Chairman, he believes it’s deja vu all over again.

Fortunately we should see one way or the other, maybe by Labor Day, whether the light at the end of the tunnel is the beginning of recovery or a train barreling right at us.

As final thought, if we were indeed headed for the mother of all meltdowns, would multi-billionaire’s be investing in the bond insurance business?

Very true. There is a local morning talk radio host who has been telling people to buy gold for at least three years. He’s been saying the exact same thing for that time period and has been predicting this economy. I laughed him off back then. I wish I had listened. But it’s too late now…..

The time to really throw money into gold has probably passed. I know this because I’ve seen a few “OMFG Look at the price of gold?!?!” news reports on the evening news. Meaning, it’s too late to catch that train.

As to what to do… accept that income may be spotty at times for the next few years, but that what you do will lay the ground work for the up time after that.

I agree that Phoenix is a different animal. I’m not so much concerned about the local economy and the local market as much as the global picture of the financial markets and the stuff that is happening there. I think an aura of invincibility has overtaken the manager types in Wall Street. I think the banks are over extended. I think the Fed is flying blind. So, that is causing me worry. Just a thought. I hope I’m wrong. I hope very much so actually.

Chris S,

Yes, as I said to Chris B above, those who should “know” are flying blind right now and I can forgive the average Joe about not knowing. I think there is a disconnect between earnings/savings/consumption and this imbalance at the micro level is being played out at the macro level. A government that continues to spend money like there is no tomorrow, a market culture that thinks the old rules don’t apply.

Brian,

I think you’re right. I get about 5 e-mails a day from borrowers in distress. I have taken about 5 applications a week where the borrower is over extended, upside down or both. So, maybe being in the line of work I am in I am getting a first hand look at the real financial health of the economy and it’s not pretty. If this is the eye of the hurricane I can only imagine what it will be like once the hurricane has passed.

Complete deflationary collapse is possible but somewhat improbable. As the rest of the world experiences our woes, lower oil prices and a stronger dollar will materialize.

If you ask me, the Titanic is on collision course and the crew is trying everything to avoid the iceberg. The only problem is that the ship does not turn on a dime, its too close to steer completely clear and a collision is inevitable. Passengers on the ship just noticed that something is wrong but are still enjoying the cruise while the captain is getting ready to brake the bad news. Hopefully the crash won’t be too hard and the ship as enough lifeboats to accommodate all passengers.

It may not be a bad idea to buy some gold.

Now I am getting paranoid again and hope that I am sooo wrong…