The last drop in interest rates of 0.25% lead to the biggest weekly decline in the US stock market. "A recession is in the works,'' Andy Engel, who helps run the $1.81 billion Leuthold Core Investment Fund that has outperformed 97 percent of its peers this year, said from Minneapolis. "You're seeing definitely the impact from the crisis in the credit industry. But we're also seeing that spread into other areas.''Still, the drop in interest was not enough.3. Financial speculation and dubious financial planning?
Mr. Kuttner, in his new book, The Squandering of America, describes how a very small fraction of the very rich is harvesting the largest chunk of winnings from the market. Not only is this leading to a widening of the gap between the rich and poor, but as their wealth goes abroad in the form of outsourced jobs and investments, it is also increasing unemployment and consumer debt in the US. In the last few years, the economy has shifted from projected surplus to infinite deficits while the prospect of a crash grows increasingly closer.
Poor long term financial planning in the form of hedge funds has become the norm. From a couple hundred in 1992, there are now more than 8,000 hedge funds in the US managing about $1 trillion in assets. Secrecy, lack of regulation and accountability (unlike mutual funds, hedge funds are not required to register their transactions under the Securities Act of 1933), and the ability to use strategies like short selling, benefiting from the decline in price of a commodity, have led to several questions about the trading practices of hedge funds. Ken Griffin, the founder and CEO of one of the largest US hedge funds, Citadel Investment Group, is a self-made billionaire who started two funds and began making trades from his Harvard dormitory in the late 1980s. Today he is one of the 400 richest people in the word, according to Forbes magazine.
5. There is always the option to print money. That would go something like this. The US has a massive debt, so it prints money to ease the debt payments. This devalues the dollar. OPEC and China divest from the dollar, and then the dollar will devalue further.Theoretically, this would be good for exports if the US were not buying goods from China, Japan, Germany, and UK as well as service from India and Ireland. Jobs will move abroad, leading to increased unemployment. Things are already headed that way."It's conceivable that we entered a recession in the fourth quarter of this year,'' said Paul Kasriel, director of Economic Research at the Northern Trust Co. in Chicago and a former Fed economist. He goes on to predict that people would be spending less money in the holiday season this year as unemployment rates climbed to from the November figure of 4.7 percent to 5.6 percent next year.What is the bottom line?According to Part Two of the Motley Fool analysis, the recession facing the US economy is spelled out in the frozen credit market and the real estate crisis that refuses to go away and may in fact lead to a crisis of foreclosures, as well as the need for higher interest rates for foreign investors which will ultimately cripple the economy.Their advice to the consumer is to avoid businesses that require debt to function (it’s not just a local issue either, e.g. Centro, in Australia, which owns over 700 US malls, has slumped in the marke,t and has concerns of solvency after February), stay out of debt (no Holiday skip-a-pay!) and save your money. Easier said than done, especially right in the middle of the holiday season.
Article comments
1 - Juan dela Cruz
The impending US economic collapse looks artificial. With all those scientific and technology achievement America has attained, America still has all the capability to bounce back. Unless, your leader wants to pull out the plug. As a peron who lived in impoverished country all of his life your case is not really a big deal. As long as America has a military superiority those who are pulling America down the drain have to think twice.
2 - Dave Nalle
You should have posted this article to the Politics section. It would have generated some interesting discussion there.
One issue:
redit card debt alone was at $753 billion in 2005. Today, the total consumer debt is around $10 trillion. $10 trillion divided by the number of households or 300 million people is equal to $33,333 per capita â€" and increasing â€" thanks to subprime mortgages, continuing credit accumulation, and dubious schemes.
First off, you're comparing apples and oranges and second, you don't provide complete context for your figures.
Credit card debt was only $904 billion in 2007. That's an increase of about 20% from 2005, of course it's not as large an increase as you might think because of inflation and the number of new people who entered the workforce, but at least is IS an increase. The real problem is that your $10 trillion of total personal debt (assuming that figure is accurate) is substantially LESS than the $11.4 trillion in total personal debt owed in the US in 2005.
What that tells us is that the debt reducing impact of refinancing mortgages at lower rates in 2004-2006 massively outweighs the increased debt of people buying new houses, regardless of what terms they bought them under. Overall, the housing situation remains more positive than negative, even with the current problems.
Dave