Originally posted by: OS
Originally posted by: Hayabusa Rider
I think the US (if not the world) is on the edge of economic collapse as it is, we don't need another Great Depression.
All economies have a certain amount of inertia. After that changes happen. In this case very bad things.
Consider you for example in a hypothetical situation. Suppose you are in a family who plans to put you through college. Oops. Well not now.
Why?
Well, inflation has just kicked in. You see, not only do cars run on oil, but does industry. Costs of materials, energy, transportation etc. have just gone up. Way up. Dad's company is now forced to cut, and the only option is people.
Welcome to unemployment. Well, that's not so bad right? Well, all those costs of doing business get passed to individuals in the form of inflation. Everything, and I mean everything costs more now.
That home your parents bought that has had a nice increase in value? Well it did, but inflation means people aren't going to buy as much, especially when coupled with rising unemployment.
So the housing market collapses. The value of that home is gone. Worse, it's lower that it was. Negative equity.
Oh, interests rates are skyrocketing too.
People buy even less. Now there are more layoffs, more unemployment.
So what part of the above scenario seems good to you?
None to me.
If you don't already, you should read
Stephen Roach at Morgan Stanley weekly commentary
Basically, global economic inbalances are at all time, unprecedented highs. Inflated asset values, trade deficit, national debt, over extended consumers. Savings rate of american individuals is now actually below zero, they spend more than they earn. Spending fueled by overleveraged, inflated home values instead of income growth.
Subzero saving consumers are completely unequipped to deal with sudden jumps in energy prices and general inflation. They have no more unused income to deal with increases in cost. The global economy is US driven, and the US economy is american consumer driven. If energy prices go up, and home values collapse, it will stall the US economy, and economic damage will be felt around the world.
It's too soon to tell the true economic damage of Katrina, but it might be the event that triggers the next big recession. Of course it's bad to wish it upon everyone, but at the same time, anyone who reads economic news can't say they didn't see it coming. The end of the easy credit, easy motoring, easy money american lifestyle may be around the corner.
