The Crash of '09 ?

[Dave Stringer]

Today is a holiday in Australia and New Zealand, equal to veterans and remembrance day in the USA & UK; as such it's a nice day to sit and think with few distractions after the Dawn Service. Today however, I've been thinking thoughts that bring concern rather than innovation. They went a bit like this , , , , , , , , ,

The price of an 'average' house is now 8 times the average income.
Payments on the mortgage on an average house today, with a 20% deposit, take up 82% of after tax income for the 'average household'.
A barrel of oil has increased in price by 100% in a year, and looks ready to do it again before the end of 2008
The price of commodities, (milk, wool, grains, base metals, etc.,) have also doubled in the last year.
Most (76%) of the USA's borrowing is short term (60 - 120 days) from Saudi Arabia, The United Arab Emirates and Kuwait.
The price of rice in Sri Lanka (where my wife is from) and many other countries where it is the staple food, has almost tripled in the last 15 months.
Commodities are, in the main, traded in prices set in US dollars.
The total debt of the USA government on March 1st 2008 was just over 7 TRILLION dollars.
The daily borrowing (rolling over term debt on an average of 90 days) of the USA is $77,777,777,777 PLUS another $1,500,000,000 in new debt, making it just over 88 Billion Dollars
If the friendly royal families of the middle east should be overthrown, or the USA should do something to really upset them, they could bring the USA economy, and standard of living, plunging in less than a week, as the Govt would have to print money to pay them with. This of course would lead to the collapse of the economies of the rest of the OECD at least.
The price of commodities would rise exponentially as the value of the US$ falls through the floor.
Importing energy would become an unaffordable luxury for vast regions of the world.


Then I woke up!!!!

But heck, it's not as far fetched a dream as I at first thought. With a TRILLION dollars of housing finance already written off in just the USA (the rest of the OECD is just about to really start feeling the squeeze too), and another four to six trillion still expected to fall out of balance sheets around the world, the chances of a major collapse of society as we know it is not unimaginable to me.

What do you think?

[Jeff Doak]

The fact that a house payment would be way over what the going rental rate is would be an indication to me that the market the house is in is currently inflated or that you're lucky and the landlord doesn't want to make more profit from the property.

Any landlord would not take on the proposition of negative cash flow for longer than a year.

Most people that don't own don't have the stability or credit to be able to buy. It's not because renting is cheaper, that's usually not the case.

[Dave Stringer]

So here we are. June 1st.

Markets have crashed and started the see-saw ripple sequence from that big drop. The problem as I see it is that the first wave of a drop in a pond is never the highest! Watch out for the second shoe to drop in the fourth quarter.

Alongside the balances of trade and revenue:deficit issues the world faces, how about this little gem? The USA is borrowing $210 Billion a week in rollovers and new money- who will take the currency risk on that for ever? Not me if I was running the Chinese or Indian Treasury that's for sure. It will be too easy for the US Government to solve major internal issues by savaging the value of the dollar overseas and making exports cheap - with the added advantage of being able to translate their (significant) foreign currency reserves into many more dollars than they are worth today. I see a new thing on the horizon, though I can't quite make out the detail yet - it might be a yupee (Yuan/Rupee) or perhaps the 'sol' (a single global currency that doesn't get traded as there's nothing to trade against! How many wankers - sorry Bankers - will that put out of Porsche's client list?)

Still Happy daze, and still the CO09 is on track for a traditional October birth!

[Jeff Doak]

I can't make out what it is on the horizon either, but it looks pretty ominous.

[Suleman]

Obama has changed slogan to "Spare change we can believe in"

[Dave Stringer]

Good one!!

[Mark Porter]

Hi Dave and all !

Hope you are all ok. My micro-economy (ie my biz) is doing well - plenty of work lined up for September. I hope things will improve globally too.

[Jeff Doak]

I'm glad you're doing well. I'm trying a new direction. We'll see how that goes.

[Jeff Doak]

Oh, I know. Let's poor billions into a car purchase program that only helps those who could probably afford the full purchase price anyway.

[Dave Stringer]

No a bad one Jeff. Or perhaps we could do 110% mortgages on house-boats for people who don't think land will last after Global Warming (isn't that really spelled Y2K) hits? Some strong leverage and we could package up the Ms in bundles to Green Investment/Pension plans!

AS for me. Well, an just seven days it's retirement time, so I might find myself a nice cheap place on a golden beach in the Indian Ocean, get a couple of maids to help out the trouble and strife, and watch the crash happen. Somehow, I still believe it's going to occur and I'm cashed up and ready.

Remember, October is the traditional month for a major collapse of the places people who can't make things play!

[Mark Porter]

Hi Dave! Congrats on your retirement! Have a good one!!!

[Suleman]

In Canada, we have celsius instead of farenheit. The numbers are lower from the conversion so global warming really isn't a problem

[Dave Stringer]

Yeah, they had that when I lived in Toronto too, still, I don't think it will help too much when the markets collapse, but you never know, you know!