Posted on 03/02/2008 2:51:44 AM PST by TigerLikesRooster
Gold and dollar to gain in a financial meltdown
This Wednesday arguably the most pessimistic economist in the world, Professor Nouriel Roubini, Chairman of Roubini Global Economics, will address the Hedge Funds World Middle East 2008 conference in Dubai. He says the global economy is heading for a $1 trillion financial meltdown.
Sunday, March 02 - 2008
In an article last month entitled 'The Rising Risk of a Systemic Financial Meltdown', he claimed that there is now 'a rising probability of a catastrophic financial and economic outcome'.
This he sums up as: 'A vicious circle where a deep recession makes the financial losses more severe and where, in turn large and growing financial losses and a financial meltdown make the recession even more severe.'
Professor Roubini will doubtless detail his 12 steps in this downward spiral to his audience in Dubai on Wednesday.
Meltdown scenario Here is a brief summary: US house prices continue to fall in value and lose 20-30% of their value, causing further huge write-downs at the banks and major problems for consumer credit. UBS estimated the total might reach $600bn last week.
Then monocline insurers guaranteeing bank debt are downgraded, resulting in another $150bn of write-offs; the US commercial property market crashes; US leveraged buy-out loans default; overstretched US companies then default costing up to $250bn; and special investment vehicles, now under strain, collapse.
This would be followed or more likely accompanied by a collapse in the US stock market, the failure of hedge funds and downward pressure on all asset prices due to margin calls. Liquidity in financial markets would deteriorate greatly from today's already troubled position.
Could Professor Roubini be right? Well, he was one of the earliest in spotting the US recession on the horizon in July 2006. And if you fit current conditions in financial markets into the start of his thesis then you have to wonder if he is not more likely to be right than wrong.
Investment response How can you protect yourself from this catastrophe? Living in the oil-rich Gulf is not a bad start. For while a major US recession would impact on oil prices and global trade flows, the inflation created by monetary responses to the crisis is likely to support commodity prices, and the Gulf States could emerge as a relative winner from this debacle like in the late 1970s.
It is also arguable what the fate of the US dollar would be in this scenario. Logic suggests immediate dollar weakening at the start of the process, which we are seeing now.
But as asset markets implode then there is a parallel flight to the US dollar as a safe haven, and do not for one moment imagine that the rest of the world can escape the impact of this financial meltdown - if the US catches pneumonia then the body count in most emerging markets will be very high.
So if Professor Roubini is right then probably the world's reserve currency the US dollar and precious metals remain the place to hold your money. And if you do not like the US dollar then precious metals are your only option. Hence gold is approaching $1,000 an ounce and silver $20
International experts foresee collapse of U.S. economy
Posted By Hielema, Bert
Posted 3 days ago
And you thought that I had a gloomy outlook on the economy. Now the bad news pops up everywhere.
Harry Koza in the Globe and Mail quotes Bernard Connelly, the global strategist at Banque AIG in London, who claims that the likelihood of a Great Depression is growing by the day.
Martin Wolf, celebrated columnist of the U.K.-based Financial Times, cites Dr. Nouriel Roubini of the New York University’s Stern School of Business, who, in 12 steps, outlines how the losses of the American financial system will grow to more than $1 trillion - that’s one million times $1 million. That amount is equal to all the assets of all American banks.
Every day now, thousands of people all over the U.S. and Great Britain are walking away from their homes - simply mailing their house keys to the banks - as housing bailout plans fail.
With unemployment growing, the next phase will hit commercial real estate making the financial institutions the unwilling owners not only of quickly depreciating houses, but also of empty strip malls and even larger shopping centres.
The next domino to fall will be credit card defaults, and after that... who knows? There are so many exotic funds out there, with trillions of dollars in paper - or rather computer-screen money - all carrying assorted acronyms, and all about to disintegrate into nothingness. Over the next couple of years, scores of banks that have thrived on these devices, based on quickly disappearing equities, will fail.
The most frightening forecast so far comes from the Global Europe Anticipation Bulletin (GEAB), available for 200 euros - about $300 - for 16 issues annually. Its prediction is quite specific.
Where my warnings never spelled out an exact date, this think tank has it pegged precisely. Here are its very words:
“The end of the third quarter of 2008 (thus late September, a mere seven months from now) will be marked by a new tipping point in the unfolding of the global systemic crisis.
“At that time indeed, the cumulated impact of the various sequences of the crisis will reach its maximum strength and affect decisively the very heart of the systems concerned, on the front line of which (is) the United States, epicentre of the current crisis.
“In the United States, this new tipping point will translate into - get this - a collapse of the real economy, (the) final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the U.S. dollar fall. The collapse of U.S. real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down.”
The report goes on to say that we are entering a period for which there is no historic precedent. Any comparisons with previous situations in our modern economy are invalid.
We are not experiencing a “remake” of the 1929 crisis nor a repetition of the 1970s oil crises or 1987 stock market crisis.
What we will have, instead, is truly a global momentous threat - a true turning point affecting the entire planet and questioning the very foundations of the international system upon which the world was organized in the last decades.
The report emphasizes that it is, first and foremost, in the United States where this historic happening is taking an unprecedented shape (the authors call it “Very Great U.S. Depression”).
It continues to predict that, although this crucial event is global, it will be the beginning of an economic ‘decoupling’ between the U.S. and the rest of the world. However, non ‘decoupled’ economies will be dragged down the U.S. negative spiral.
Concerning stock markets, the GEAB anticipates that international stocks would plummet by 40 to 80 per cent depending where in the world they are located, all affected in the course of the year 2008 by the collapse of the real economy in the U.S. by the end of summer.
The European authors of this report - it appears simultaneously in French, German and English - state that they simply and without prejudice try to describe in advance the consequences of the ominous trends at play in this 21st-century world, and to share these with their readers, so that they can take the proper means to protect themselves from the most negative effects.
So there you have it. Three reports from three different sources, all well regarded, and all pointing to a disastrous fall-out from our monetary moves.
http://www.intelligencer.ca/ArticleDisplay.aspx?e=918803
I post this because it mentions Dr. Nouriel Roubini
Ping
” the inflation created by monetary responses to the crisis is likely to support commodity prices “
When are the Central Bankers going to learn - or re-learn - that cost-push-inflation is not addressable by monetary manipulations — in fact, those manipulations will have a good chance of amplifying the problems.
“When the only tool you own is a hammer, every problem looks like a nail.”
By the way — events could prove this author to be a pie-eyed optimist..... ;~)
Someone is getting the 1 trillion dollars that are projected to be "lost." So what's the problem? It just wealth being transferred from one segment to another.
bookmark
Maybe time (around June) to cash in some “Stuff”, and find a very large coffee can to bury it in BUMP!!!
” find a very large coffee can to bury it in BUMP!!! “
Or a very large wheelbarrow to carry it around in....
We’ve been seeing a vicious circle the last 2 weeks in that the big investment houses have been selling into any strength to cover margin calls... this of course leads to more margin calls when prices drop...
LONG IS WRONG PEOPLE!!
If everybody wants to buy some trinket owned by a worshiped celebrity, the price of the trinket could skyrocket. However, when people suddenly feel that the guy is a loser and his trinket is no more than an ordinary junk, its price will collapse.
If you were the owner of such a trinket, at one point you may have something worth $10,000,making you $10,000 richer, but when the public attitude changes and its demand collapses, its value could become 10 cents. 9,999 dollars and 90 cents was not transferred from one person to another. It simply disappeared.
If you bought the trinket for its original pre-bubble price, no economic value is lost.
If, however, you bought at the top - you paid someone.
That person, didn’t lose the money you paid.
Price can go really high and plummet with only a few transactions going on.
It was worthless in the beginning---nothing is lost.
What do you guys think of currency (forex) trading? I’ve been trying to noodle this out lately- if you’re trading the constantly changing value of one currency against another, and you’re winning, then by definition you’re insulating your account against inflation/deflation cycles.
Is it a relatively safe haven?
Just a theory, what are your thoughts?
Perhaps this is the beginning of the “redistribution of wealth” programs advocated by the Democrats.
Regardless of the majority of the ME living in poverty the oil rich shieks, including our “friends” the Saudis have performed the ultimate coup by placing an economic junta on the USA.
AQ and its allies, China and Russia, IMHO, have accomplished more havoc in the USA than bombing any one major city.
Wrong. Because of reserve banking, when somebody defaults on a loan, ten times that amount of money is destroyed creating deflation.
Because Money Is Debt.
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