It’s Official: The Crash Of The U.S. Economy Has Begun

[Admiral Valdemar]

It’s Official: The Crash of the U.S. Economy has begun

by Richard C. Cook

Global Research, June 14, 2007

It’s official. Mark your calendars. The crash of the U.S. economy has begun. It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.

Pearlstein’s column was titled, “The Takeover Boom, About to Go Bust” and concerned the extraordinary amount of debt vs. operating profits of companies currently subject to leveraged buyouts.

In language remarkably alarmist for the usually ultra-bland pages of the Post, Pearlstein wrote, “It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.”

Further, “Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines. And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption. It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.”

Samuelson’s column, “The End of Cheap Credit,” left the door slightly ajar in case the collapse is not quite so severe. He wrote of rising interest rates, “As the price of money increases, borrowing and the economy might weaken. The deep slump in housing could worsen. We could also discover that the long period of cheap credit has left a nasty residue.”

Other writers with less prestigious platforms than the Post have been talking about an approaching financial bust for a couple of years. Among them has been economist Michael Hudson, author of an article on the housing bubble titled, “The New Road to Serdom” in the May 2006 issue of Harper’s. Hudson has been speaking in interviews of a “break in the chain” of debt payments leading to a “long, slow economic crash,” with “asset deflation,” “mass defaults on mortgages,” and a “huge asset grab” by the rich who are able to protect their cash through money laundering and hedging with foreign currency bonds.

Among those poised to profit from the crash is the Carlyle Group, the equity fund that includes the Bush family and other high-profile investors with insider government connections. A January 2007 memorandum to company managers from founding partner William E. Conway, Jr., recently appeared which stated that, when the current “liquidity environment”—i.e., cheap credit—ends, “the buying opportunity will be a once in a lifetime chance.”

The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it’s time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.

Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the “reformed” 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.

In other words, it sounds eerily like 2000-2002 except maybe on a much larger scale. Then it was “only” the tenth worse bear market in history, but over a trillion dollars in wealth simply vanished. What makes today’s instance seem particularly unfair is that the preceding recovery that is now ending—the “jobless” one—was so anemic.

Neither Perlstein nor Samuelson gets to the bottom of the crisis, though they, like Conway of the Carlyle Group, point to the end of cheap credit. But interest rates are set by people who run central banks and financial institutions. They may be influenced by “the market,” but the market is controlled by people with money who want to maximize their profits.

Key to what is going on is that the Federal Reserve is refusing to follow the pattern set during the long reign of Fed Chairman Alan Greenspan in responding to shaky economic trends with lengthy infusions of credit as he did during the dot.com bubble of the 1990s and the housing bubble of 2001-2005.

This time around, Greenspan’s successor, Ben Bernanke, is sitting tight. With the economy teetering on the brink, the Fed is allowing rates to remain steady. The Fed claims their policy is due to the danger of rising “core inflation.” But this cannot be true. The biggest consumer item, houses and real estate, is tanking. Officially, unemployment is low, but mainly due to low-paying service jobs. Commodities have edged up, including food and gasoline, but that’s no reason to allow the entire national economy to be submerged.

So what is really happening? Actually, it’s simple. The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.

Of course we got ourselves into this quandary by shipping our manufacturing to China and other cheap-labor markets over the last generation. “Dollar hegemony” is backfiring. In fact China is using its American dollars to replace the International Monetary Fund as a lender to developing nations in Africa and elsewhere. As an additional insult, China now may be dictating a new generation of economic decline for the American people who are forced to buy their products at Wal-Mart by maxing out what is left of our available credit card debt.

About a year ago, a former Reagan Treasury official, now a well-known cable TV commentator, said that China had become “America’s bank” and commented approvingly that “it’s cheaper to print money than make cars anymore.” Ha ha.

It is truly staggering that none of the “mainstream” political candidates from either party has attacked this subject on the campaign trail. All are heavily funded by the financier elite who will profit no matter how bad the U.S. economy suffers. Every candidate except Ron Paul and Dennis Kucinich treats the Federal Reserve like the fifth graven image on Mount Rushmore. And even the so-called progressives are silent. The weekend before the Perlstein/ Samuelson articles came out, there was a huge progressive conference in Washington, D.C., called “Taming the Corporate Giant.” Not a single session was devoted to financial issues.

What is likely to happen? I’d suggest four possible scenarios:

1.
Acceptance by the U.S. population of diminished prosperity and a declining role in the world. Grin and bear it. Live with your parents into your 40s instead of your 30s. Work two or three part-time jobs on the side, if you can find them. Die young if you lose your health care. Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor’s prison like they’ve done in Dubai. Meanwhile, China buys more and more U.S. properties, homes, and businesses, as economists close to the Federal Reserve have suggested. If you’re an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.
2.
Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II. Conditions in the coming years could be as bad as they were then. We could have a really big war if the U.S. decides once and for all to haul off and let China, or whomever, have it in the chops. If they don’t want our dollars or our debt any more, how about a few nukes?
3.
Maybe we’ll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, etc., combined with some kind of military or forced-labor dictatorship. We’re halfway there anyway. Forget about a revolution from the left. They wouldn’t want to make anyone mad at them for being too radical.
4.
Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

The latter is the only sensible solution. There are monetary reformers who know how to do it if anyone gave them half a chance.

Richard C. Cook is the author of “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” A retired federal analyst, his career included work with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is now a Washington, D.C.-based writer and consultant. His book “We Hold These Truths: The Hope of Monetary Reform,” will be published later this year. His website is at www.richardccook.com.

Richard C. Cook is a frequent contributor to Global Research. Global Research Articles by Richard C. Cook

Cash in your chips now.

[Cos Dashit]

Does this mean I should buy all the gold I can and move?

[Darth Mortis]

Yawn, same thing has been said since the depression. So much hope for failure on this board sometimes. Stiffer penalties for failure to pay on your debts and regulation of the trade industry are ahead, I agree, but let's not start digging our fallout shelters yet.

[Siege]

If they don’t want our dollars or our debt any more, how about a few nukes?

Lacking meaningful knowledge of economics I can't really comment on the article (apart from that it's an interesting read and that if the predictions it mentions turn out correct I'll be glad I don't live in the USA), but that sentence jumped out for me: how plausible/possible is it that any Big Power essentially holds the world ransom in a "let us borrow your money or we'll nuke you/mess up your shit" scheme? Because that sounds like an interesting scenario (as long as it remains entirely hypothetical, of course...)

[TheMuffinKing]

I disagree. I think the economic fallout began back in 1981. In light of that I disregard this article as sensationalist anti-American drivel! Off to the secret torture camp for you Commie!

[Stravo]

Jeez, you mean we're going through another recession/depression? I haven't seen 5 of those in my lifetime.

[Admiral Valdemar]

Jeez, you mean we're going through another recession/depression? I haven't seen 5 of those in my lifetime.

Unless you're a lot older than I expect, say born prior to 1929, I don't think you've seen anything like this. The cards are stacked far more precariously this time than '87 or '01.

[Tribun]

I wonder: why now of all times?

I have to admit, despite reading through the text carefully, I didn't understand all of it (mostly because I'm not familiar with the conditions in the U.S. and I didn't understand some of the terms because English isn't my first language). Maybe someone can shrink it down to the bare facts?

Btw., this also shows again, that the West is NOT a monolithic economy block, that stands, walks and falls always together. I say it, because in Europe we are currently in a phase of economic growth. (f.e. in Ger. the experts have just corrected the predicted economic growth this year from 2.8% up to 3.2%) Still many forget that there are vast differences between the west and east sides of the Atlantic Ocean.

[Alferd Packer]

Makes me glad I live well beneath my means.

[Mobiboros]

I wonder: why now of all times?

I was thinking the same thing.

I do live in the US and I work for a bank, and something just seems off about the article. Like it's missing parts or something. It seems too doomsayer without presenting much in the way of evidence and uses too many terms like "Realization". I almost get the feeling the writers want to predict this now, just in case of recession/depression so they can feel they've washed their hands and can say "Told you so.". But likewise if it doesn't happen they can say "See, people listened to us and averted disaster."

[Kane Starkiller]

If I had a dollar for every time I heard predictions about the "imminent fall of US economy" in the last 15 years I could pay for it's entire external debt.

[Stravo]

Every recession/depression that has occurred in my lifetime has been signalled well ahead of time by economists in the paper and especially on tv holding up signs saying the End is Nigh. This is purported to be the biggest economic collapse since the Great Depression and no one saw this coming until it happened? Yeah, I think that's bullshit.

EDIT: The market shows on Sunday just a three weeks ago were touting this as the greatest job market in American history for College grads this year. I will believe in this collapse when I feel it in my pocket and considering my raise this year I won't be feeling any pinches for awhile.

[Admiral Valdemar]

Every recession/depression that has occurred in my lifetime has been signalled well ahead of time by economists in the paper and especially on tv holding up signs saying the End is Nigh. This is purported to be the biggest economic collapse since the Great Depression and no one saw this coming until it happened? Yeah, I think that's bullshit.

EDIT: The market shows on Sunday just a three weeks ago were touting this as the greatest job market in American history for College grads this year. I will believe in this collapse when I feel it in my pocket and considering my raise this year I won't be feeling any pinches for awhile.

You watched Crude Awakening and you're actually standing by what you just wrote there?

And have you actually looked at what your dollar buys you today? I hope your raise was well over double digits, because food and energy alone are making you poorer, not richer. Americans have no wealth. You're the single biggest debtor nation in history, and yet you all seem to believe those greenbacks in the bank actually mean something still. If the US believes everything is A-OK, why does the Fed no longer print the M3? Why does inflation not count energy and food? Last I checked, most Americans use energy and food somewhere in their lives. I may be mistaken.

This is going to be one heck of a wake up call for the US. I look at the media frenzy over your gasoline prices harming consumer confidence, despite having just about the cheapest gas in the First World. It's certainly not like the markets look forward more than 6 months or so, which is how such things happen.

Anyone check housing lately? Let me know when you have a month when foreclosures don't practically double.

[Big Phil]

Their likely scenarios are loads of shit - if things are so bad economically, where are these multiple jobs we're all supposed to have coming from? These guys get paid to make people read their articles - would anybody care if the wrote "yeah, we're heading for another recession, and people need to stop borrowing so much, but we'll get through it," or would they rather scare people with "GREAT DEPRESSION 2 IS COMING!!!"?

It's like all the threads about peak oil leading to the end of civilization... please; things will change, humans will adapt, and life will go on. People forget that while the great depression sucked balls, we didn't see a massive die-off of humanity - we saw people go hungry, but we didn't see mass starvation.

[Big Phil]

Every recession/depression that has occurred in my lifetime has been signalled well ahead of time by economists in the paper and especially on tv holding up signs saying the End is Nigh. This is purported to be the biggest economic collapse since the Great Depression and no one saw this coming until it happened? Yeah, I think that's bullshit.

EDIT: The market shows on Sunday just a three weeks ago were touting this as the greatest job market in American history for College grads this year. I will believe in this collapse when I feel it in my pocket and considering my raise this year I won't be feeling any pinches for awhile.

You watched Crude Awakening and you're actually standing by what you just wrote there?

And have you actually looked at what your dollar buys you today? I hope your raise was well over double digits, because food and energy alone are making you poorer, not richer. Americans have no wealth. You're the single biggest debtor nation in history, and yet you all seem to believe those greenbacks in the bank actually mean something still. If the US believes everything is A-OK, why does the Fed no longer print the M3? Why does inflation not count energy and food? Last I checked, most Americans use energy and food somewhere in their lives. I may be mistaken.

This is going to be one heck of a wake up call for the US. I look at the media frenzy over your gasoline prices harming consumer confidence, despite having just about the cheapest gas in the First World. It's certainly not like the markets look forward more than 6 months or so, which is how such things happen.

Anyone check housing lately? Let me know when you have a month when foreclosures don't practically double.

What makes you think that, if the US economy collapses, the rest of the world won't be right behind it. Just because you're predicting we'll jump off the cliff and hit the bottom first doesn't mean you're not right behind us.

[Admiral Valdemar]

Their likely scenarios are loads of shit - if things are so bad economically, where are these multiple jobs we're all supposed to have coming from? These guys get paid to make people read their articles - would anybody care if the wrote "yeah, we're heading for another recession, and people need to stop borrowing so much, but we'll get through it," or would they rather scare people with "GREAT DEPRESSION 2 IS COMING!!!"?

It's like all the threads about peak oil leading to the end of civilization... please; things will change, humans will adapt, and life will go on. People forget that while the great depression sucked balls, we didn't see a massive die-off of humanity - we saw people go hungry, but we didn't see mass starvation.

I'm glad that's all been sorted. Thank you for your highly enlightening post.

I shall sleep like a newborn babe tonight now.

What makes you think that, if the US economy collapses, the rest of the world won't be right behind it. Just because you're predicting we'll jump off the cliff and hit the bottom first doesn't mean you're not right behind us.

Obviously your English reading comprehension is on the scale of a blind retarded Angolan. Please, pray tell, point out where I said the rest of the world would be perfectly fine WHEN THE WORLD'S LARGEST ECONOMY GOES INTO RECESSION?

The capitals are for your benefit.

[Keevan_Colton]

Their likely scenarios are loads of shit - if things are so bad economically, where are these multiple jobs we're all supposed to have coming from? These guys get paid to make people read their articles - would anybody care if the wrote "yeah, we're heading for another recession, and people need to stop borrowing so much, but we'll get through it," or would they rather scare people with "GREAT DEPRESSION 2 IS COMING!!!"?

It's like all the threads about peak oil leading to the end of civilization... please; things will change, humans will adapt, and life will go on. People forget that while the great depression sucked balls, we didn't see a massive die-off of humanity - we saw people go hungry, but we didn't see mass starvation.

Except this time we've got almost an order of magnitude more people to support...and there are people starving already around the world today...or do non-Americans not count as part of humanity?

[Big Phil]

Obviously your English reading comprehension is on the scale of a blind retarded Angolan. Please, pray tell, point out where I said the rest of the world would be perfectly fine WHEN THE WORLD'S LARGEST ECONOMY GOES INTO RECESSION?

The capitals are for your benefit.

So why the apparent glee in your posts? If we're all really so fucked, why are you wasting your time online instead of burying school buses in the earth and stockpiling food and water?

[Keevan_Colton]

What makes you think that, if the US economy collapses, the rest of the world won't be right behind it. Just because you're predicting we'll jump off the cliff and hit the bottom first doesn't mean you're not right behind us.

Perhaps you're not quite grasping the idea? Us Non-Americans are particularly concerned because of the fact that when the US goes down the shitter it's taking a lot of the rest of us with it.

I suggest you take a look at what's been happening with the dollar in terms of its status as a reserve currency. Folk have been quietly getting off the US of A boat and seeking some other currency to nail their flag to.

[Admiral Valdemar]

So why the apparent glee in your posts? If we're all really so fucked, why are you wasting your time online instead of burying school buses in the earth and stockpiling food and water?

Care to point out my rampant glee that the world as I have known it is about to change radically? I'm having a hard time finding work today in a supposedly booming UK economy, why on Earth would I be wishing for a time of high inflation, unemployment, low energy and a general lesser standard of living in the future?

I notice every time I bring up articles like this, as with Iraq years ago, there's always one dumbshit who comes up with a "Why don't you join them!" post.

I suppose if even Business Week is even printing articles on something being up, you know awareness is spreading.

The ignorance in America is astounding. You think you're hot shit when everyone is trying to offload the increasingly worthless dollar as fast as they can without causing a panic and subsequent collapse? Wake the fuck up, already!

[Mobiboros]

Why does inflation not count energy and food? Last I checked, most Americans use energy and food somewhere in their lives. I may be mistaken.

It does. Inflation takes into account goods and services. Goods including food and services including household energy costs. It also takes into account commodoties markets.

[Tags fixed]

[Stravo]

Every recession/depression that has occurred in my lifetime has been signalled well ahead of time by economists in the paper and especially on tv holding up signs saying the End is Nigh. This is purported to be the biggest economic collapse since the Great Depression and no one saw this coming until it happened? Yeah, I think that's bullshit.

EDIT: The market shows on Sunday just a three weeks ago were touting this as the greatest job market in American history for College grads this year. I will believe in this collapse when I feel it in my pocket and considering my raise this year I won't be feeling any pinches for awhile.

You watched Crude Awakening and you're actually standing by what you just wrote there?

One thing is to hide the fact that oil is running out and the collusion of the oil inductries and lack of will of politicians to do something about it, but to say that an economic collapse is occurring right now and no one saw it coming is quite another.

The market can be skittish and people are always worried about something like this happening yet I can't recall any shows or articles that touched on this collapse.

I am skeptical because of the utter lack of warnings about this. Even with the oil crunch there were people in the 70's warning about it as you saw in Crude Awakening. Now if these warnings were restricted to those in the know well there's not much I can speak to on that front.

And have you actually looked at what your dollar buys you today? I hope your raise was well over double digits, because food and energy alone are making you poorer, not richer. Americans have no wealth. You're the single biggest debtor nation in history, and yet you all seem to believe those greenbacks in the bank actually mean something still. If the US believes everything is A-OK, why does the Fed no longer print the M3? Why does inflation not count energy and food? Last I checked, most Americans use energy and food somewhere in their lives. I may be mistaken.

Well, if that is happening (price spikes and loss of dollar power) I may be insulated from the price shock for several reasons

I don't own a car so gas prices aren't felt dirtectly by me.

I don't own property and although I am in search for some the prices here in the metropolitan area are pain inducing and have been for some time. The real estate market has been exploding for awhile now.

NYC area is one of the most expensive in the world so prices for alot of things are already high and I have not seen them rise dramtically yet.

And yes, it was in the double digits.

This is going to be one heck of a wake up call for the US. I look at the media frenzy over your gasoline prices harming consumer confidence, despite having just about the cheapest gas in the First World. It's certainly not like the markets look forward more than 6 months or so, which is how such things happen.

Anyone check housing lately? Let me know when you have a month when foreclosures don't practically double.

Gas prices have always been relatively cheap here, I will never forget two british guys sitting by the pool side in Miami talking about our gas prices and how we Yanks are ridiculous for screaming about gas going at $3 a gallon, This was 2 years ago during that first gas price rise that scared alot of people here. Just last night my cabbie pointed to a gas station's price of over $3 a gallon and shaking his head saying it was crazy these prices. So yes, when the gas prices finally skyrocket it will get nasty.

There was a recent housing foreclosure scandal that rocked the market a few months ago when foreclosures went up something like 300% because of these shitty ass hidden high interest rate high risk loans these mortgage companies were making to people. The market took a downward trend for a few weeks and some of these mortgage companies went out of business. It triggered a government investigation into those kind of loans IIRC and there were some lingering questions about foreclosures growing in general but I haven't followed up on it.

I'm just doubtful of an all out collapse as stated in the article that no one has heard of before. Color me economically ignorant but who knows, I was clueless to the depth of the oil situation until recently.

I think Valdy, one thing you have to understand is that things don't seem bad over here in terms of jobs and money. So it's hard to imagine a collapse happening like the Great Depression when everyone is generally employed and making good money. Outside looking in we may present a different picture.

[Admiral Valdemar]

One thing is to hide the fact that oil is running out and the collusion of the oil inductries and lack of will of politicians to do something about it, but to say that an economic collapse is occurring right now and no one saw it coming is quite another.

The market can be skittish and people are always worried about something like this happening yet I can't recall any shows or articles that touched on this collapse.

I am skeptical because of the utter lack of warnings about this. Even with the oil crunch there were people in the 70's warning about it as you saw in Crude Awakening. Now if these warnings were restricted to those in the know well there's not much I can speak to on that front.

No one wants to warn anyone. I've gone over the why before, but the short answer is companies don't make a lot of money when they go "Hey, you know our number one product - oil? Well, we're running out. But don't worry, keep investing billions in us".

Given how shortsighted and retarded the markets are, I don't expect anything better. Remember cyclone Gonu? Most powerful cyclone in recorded history sails right up the Persian Gulf. Markets don't do shit. Still not got Oman online yet, but there were people on CNBC and Bloomberg saying everything's fine, and they have MBAs! It must be okay then.

Y'know, like how they predicted Katrina as a non-event.

Well, if that is happening (price spikes and loss of dollar power) I may be insulated from the price shock for several reasons

I don't own a car so gas prices aren't felt dirtectly by me.

I don't own property and although I am in search for some the prices here in the metropolitan area are pain inducing and have been for some time. The real estate market has been exploding for awhile now.

NYC area is one of the most expensive in the world so prices for alot of things are already high and I have not seen them rise dramtically yet.

And yes, it was in the double digits.

Then it will be in areas you've not noticed properly yet, as with most Statesiders. Food, housewares, services etc. Many things are rising far higher than wage increase. The middle-class don't really feel the pain of near $4 gas, but believe me, the working-class does and it hurt their consumer confidence hard, even if there was an anomalous spike last month. Not everyone feels these things at the same time. There are plenty of folks earning $100k a year who will continue driving Hummers even with $4 gas. Why? Because they can and because it's a good status symbol showing you can afford to.

Gas prices have always been relatively cheap here, I will never forget two british guys sitting by the pool side in Miami talking about our gas prices and how we Yanks are ridiculous for screaming about gas going at $3 a gallon, This was 2 years ago during that first gas price rise that scared alot of people here. Just last night my cabbie pointed to a gas station's price of over $3 a gallon and shaking his head saying it was crazy these prices. So yes, when the gas prices finally skyrocket it will get nasty.

There was a recent housing foreclosure scandal that rocked the market a few months ago when foreclosures went up something like 300% because of these shitty ass hidden high interest rate high risk loans these mortgage companies were making to people. The market took a downward trend for a few weeks and some of these mortgage companies went out of business. It triggered a government investigation into those kind of loans IIRC and there were some lingering questions about foreclosures growing in general but I haven't followed up on it.

Foreclosures have gone up something like 8,000% in the last 18 months and the number of mortgage and realty firms going bankrupt went to 62 last time I looked at the numbers last month. There are places in California where the monthly mortgage cost is over $1500, and that's the cheapest. The same thing is happening in the UK and the bubble has assuredly burst in Spain for British and other foreign land investors hoping for a villa on the Costa Del Sol. It's a matter of time before the UK market goes the way of the US one. The funny thing is listening to estate agent CEOs quip about how great the times are and how they see no end in sight. Because what goes up doesn't come down, right? If I trusted these jerks, I'd be insolvent.

But I won't be buying a house any time soon, if ever. Renting is bad enough.

I'm just doubtful of an all out collapse as stated in the article that no one has heard of before. Color me economically ignorant but who knows, I was clueless to the depth of the oil situation until recently.

This isn't the best, nor the first or last article on this matter, I'll admit. I only posted this to see whether anyone was paying attention and had anything else to add, being as there are plenty of Americans here to say whether they've felt the pinch or feel something is up. I find the articles at Financial Sense and The Daily Reckoning are good for keeping you up-to-date on what's going on, and not being too technical to lose someone curious on what their money can buy them and who didn't study eco. somewhere.

I think Valdy, one thing you have to understand is that things don't seem bad over here in terms of jobs and money. So it's hard to imagine a collapse happening like the Great Depression when everyone is generally employed and making good money. Outside looking in we may present a different picture.

Employment is under-reported here and I believe so in the US, though I'd have to check that again. It's not so much that, but how the markets will develop knowing what they know and how this affects the dollar itself. It's all very well being in a job that pays good money, but if your money is buying you less, your property is becoming worthless and you can't afford to commute further afield to a new job, then things start looking shakier.

For the record, I don't know when anything major will happen, though I do expect a recession sometime by the end of the year to come about. This, of course, won't be what I'm really expecting will shift things, which this article doesn't touch on or doesn't as well as others have.

It does. Inflation takes into account goods and services. Goods including food and services including household energy costs. It also takes into account commodoties markets.

The CPI doesn't, and that's the measure that can mean a whole lot.

[FedRebel]

It’s official. Mark your calendars. The crash of the U.S. economy has begun. It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.

OMG! A newspaper journalist is predicting the crash of the US economy! Run for the hills!

Pearlstein’s column was titled, “The Takeover Boom, About to Go Bust” and concerned the extraordinary amount of debt vs. operating profits of companies currently subject to leveraged buyouts.

So this is about private businesses bankrupting themselves by buying too many competitors too quickly?

In language remarkably alarmist for the usually ultra-bland pages of the Post, Pearlstein wrote, “It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable.

Unless every company operates like Enron, I'm sure that the accountants and executives of these various corporations are aware of their delicate financial situations and have measures in place to deal with them

When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.”

...fire and brimstone will fall from the sky

Further, “Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines. And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption. It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.”

Given the comparison to economic "travesties" in the 80's and 90's, what makes one think this'll be any worse?

Samuelson’s column, “The End of Cheap Credit,” left the door slightly ajar in case the collapse is not quite so severe. He wrote of rising interest rates, “As the price of money increases, borrowing and the economy might weaken. The deep slump in housing could worsen. We could also discover that the long period of cheap credit has left a nasty residue.”

Seems like a lesson that really needs to be learned

Among those poised to profit from the crash is the Carlyle Group, the equity fund that includes the Bush family and other high-profile investors with insider government connections. A January 2007 memorandum to company managers from founding partner William E. Conway, Jr., recently appeared which stated that, when the current “liquidity environment”—i.e., cheap credit—ends, “the buying opportunity will be a once in a lifetime chance.”

Okay kids! time to put on your tin foil hats! It's Conspiracy Theory Time!

Bush's actions are designed to actually ruin the nation so he and his friends can get richer.

...this has been "Conspiracy Theory Time'

The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it’s time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.

It's just a fucking newspaper, not the omen to the apocalypse

What makes the Post superior to any other? Subjective reputation?

People can be wrong, and reporters of all types have a habit to sensationalize stories.

Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the “reformed” 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.

People get what they deserve

If you live beyond your means, you will get burned

...so it's time the torch got lit

Neither Perlstein nor Samuelson gets to the bottom of the crisis, though they, like Conway of the Carlyle Group, point to the end of cheap credit. But interest rates are set by people who run central banks and financial institutions. They may be influenced by “the market,” but the market is controlled by people with money who want to maximize their profits.

Here's a possibility, they don't get to the heart of the matter because they don't know what it is.

All they may see are some variables that arranged 'creatively' make a sensational story

About a year ago, a former Reagan Treasury official, now a well-known cable TV commentator, said that China had become “America’s bank” and commented approvingly that “it’s cheaper to print money than make cars anymore.” Ha ha.

We got greedy, we want more for less and we got it, the long-term wasn't taken into account

What is likely to happen? I’d suggest four possible scenarios:

This'll be fun

1. Acceptance by the U.S. population of diminished prosperity and a declining role in the world. Grin and bear it.

Not happening

Live with your parents into your 40s instead of your 30s.

Works on paper, in practice is another matter entirely

Work two or three part-time jobs on the side, if you can find them.

People are lazy, and that strategy is only 'wise' for a High School dropout

Die young if you lose your health care.

Not going to happen

Why? Unions, they will grow as people look for job security and benefits

Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor’s prison like they’ve done in Dubai.

Already done, or did the subject matter of the article throw you off?

Meanwhile, China buys more and more U.S. properties, homes, and businesses, as economists close to the Federal Reserve have suggested.

Sounds kind of creepy in a way

If you’re an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.

The solution to that problem is quite simple

Here's a hint it doesn't involve a wall, rednecks, or visa's

One more hint, we did it before

2. Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II. Conditions in the coming years could be as bad as they were then. We could have a really big war if the U.S. decides once and for all to haul off and let China, or whomever, have it in the chops. If they don’t want our dollars or our debt any more, how about a few nukes?

No....


...the nukes are reserved for the Middle East, and if anyone is stupid enough to think that they could win in an exchange

For China we breakout the chemical stockpiles and give the PLA some free "air fresheners"

Additionally if it came to war it would be started by the US seizing all foreign reserves under it's protection

3. Maybe we’ll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, etc., combined with some kind of military or forced-labor dictatorship. We’re halfway there anyway.

I'll place bets on military dictatorship

Forget about a revolution from the left. They wouldn’t want to make anyone mad at them for being too radical.

Depends, some on the left may see revolution as the only means to better the country

4. Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

This would depend on the details involved to get from point A to point B

[Mobiboros]

There are places in California where the monthly mortgage cost is over $1500,

That's not very expensive. $1500 a month? I pay more than that. That's relatively cheap for a mortgage. That's a good price to get if you live on LI. But to contrast this there are people in the midwest and rural south that pay like 300-500.

The CPI doesn't, and that's the measure that can mean a whole lot.

Yes it does take them into account.

http://www.bls.gov/cpi/cpifaq.htm#Question_4

Bolded/underlined part mine.

4. Is the CPI a cost-of-living index?
The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. BLS has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or standard of living. Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this to also take into account changes in other governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime that would constitute a complete cost-of-living framework.