Posted on 10/18/2008 5:02:42 PM PDT by Freedom_Is_Not_Free
or those who still care or remember, I was writing repeatedly in the late spring and early summer about the vicious impacts of the Crack Up Boom (CUB) Bubble on Joe Ultra Light Sixpack. It was my contention that the CUB would reach an unsustainable point, and then crash and burn. However now that it has burned, there are several positive impacts from this in the long term.
First, the “take these dice from my cold dead hands” Berserkers are dead and buried. This would include hedge funds, reckless lenders and associated Pig Men. The policy makers responsible will be purged in January. Even the set term sycophant types like Bernanke will “resign for personal reasons” (perhaps bad ulcers?). What could be more bullish in the long run as these casino operators and their cronies have all but wrecked so called free market economics. Not only are they out of money and influence now, but stiffer regulations are sure to come, especially in an Obama administration. In the immediate past however, their demise caused the Crash of 2008.
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What the Pig Men-Berserker system did with all the games and scams I was documenting for several years was to severely imbalance the following formula: Production(P) -consumption (C)= Savings (S) and Investment (I). The new Winterism is PCSI.
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Consumption was far too high, savings was nonexistent (speculation instead), and investment (into production geared for mindless US consumption) therefore was distorted and maladjusted. This in a nut shell is what this Crash was all about.
(Excerpt) Read more at wallstreetexaminer.com ...
Pingy...
Way two is for the FED to create additional money and lend it to Wall Street to invest. This method creates money for investment by inflating the currency. Because the funds for investment are created, returns on savings are diminished, and therefore the incentive, or even the ability for private savings is diminished because of inflation in costs from government created funds.
In fact with further inflation and expansion of credit folks find themselves underwater just paying for necessities. It is the logical result of 20 years of Greenspan's credit expansion.
It is clearly obvious that this entire banking crisis was caused by the sudden quadrupling of energy prices, which caused every business and family in the US and the world to slam the brakes on spending and commerce.
That freeze on growth caused home and real estate values to stop instantly, which left countless banks and families with mortgages that cost equal to or more than the property or business was worth.
Yes — these banks and families were negligent and careless, but if not for the REFUSAL of Democrats and enviro nut jobs to allow drilling, the American economy would still be growing and prospering.
Does anyone believe that if oil had not jumped from $40 a barrel to $150 a barrel in a years time that the economy would not have tanked.
The cost of energy was only a small part of the reason for the collapse of the economy. You can only go so far only a credit card, then the bills start coming in.
No, high energy costs did not collapse the economy. Far from it. This caused enormous pain to people struggling to get by, but no effect on wall street or the FIRE economy (Financial, and Real Estate), which is where the collapse is taking place. Finance = collapse of Bear Stearns and other banks. Insurance = collapse of AIG. Real Estate = collapse of housing bubble. That is your culprit, NOT oil prices.
High oil prices were an effect, not a cause, in the economy. When the housing bubble collapsed, the hedge funds and the other speculators needed a new place to play. Don’t expect the economy to be all better now that oil is at $70/barrel.
You need to study about the liquidity crisis and how the US government tried to inflate one asset bubble after another in a futile attempt to pretend the economy was strong. Our debt-driven economy was never strong as it appeared to be and an enormous amount of wealth in the economy was just pretend wealth, it was funny money.
Say you and John Doe buy eachother’s home. It’s just a title transfer, isn’t it. If you sold your home to John Doe for $1 BILLION, and John sells his house to you for $1 BILLION, does that make both your homes really worth $1 BILLION? I mean, you both have receipts that said you sold your home for a billion dollars.
Saying something is worth more than it’s true value on the open market doesn’t make it so. That was the housing bubble. But instead of a billion dollars, houses were only going for double or so what their true value was worth against current incomes and rents.
The collapse of the credit bubble in the form of the housing crash and related assets and securities are what caused this economic collapse. Expensive oil had nothing to do with it and was nothing but a side effect of collapsing house prices.
Recall that the price of oil started shooting skyward only after the price of houses started collapsing. Oil followed housing, not the other way around. The economic crash followed housing, not oil.
The energy bubble began in late 2004 and really got a head of steam in 2005. Remember Katrina (Aug. 29, 2005)? Oil had been skyrocketing way before that, pushing the price per barrel from $30 to $70.....
THAT was long before housing collapsed... and in fact contributed to the housing crash as vast resources had to be funnelled into expensive commodities rather than (at that point) thin margin real estate investments.
If this credit crisis was caused by the US housing bubble burst, then explain why Pakistan is near default?
Why did Britain have to pump untold billions into IT'S banking system.
What, was Pakistan long on Bear Sterns. Did Britain banks have a 90% stake in Fannie Mae and Freddie Mac?
Multiple countries around the world are in financial and credit shock, and much of it cause by the instant quadrupling of ommodity prices.
Now that commodity prices of plummitted, the economies around the world will slowly begin to build.
It's that simple.
Just heard Russia's economy is near default and about to collapse.
Didn't realize the US treasury was also in the habit of purposely inflating Russian housing just to prop up their economy also.
Uruguay is in default, as are most Latin American countries. Does Uruguay also invest heavily in the US housing market??
The common denominator between nearly ALL those countries in dire financial straights (and there are dozens) is they are oil IMPORTERS.... as most exporting countries are still living high on the hog.
The quadrupling of oil and eneregy just happened to coincide with a time when many businesses were leveredged to the max -- NOT JUST American companies but all over the world.
Did the American financial leaders drop the ball too? You bet.
But had the price of a barrel of oil not spiked from $30 to $150, the US and world economy would still be plodding along in relatively good shape.
In debt.... yes, but in good shape.
Like Alan Greenspan said, "Liquidity in the marketplace is just another name for confidence in the marketplace."
People lost confidence (and froze liquidity) when energy quadrupled between 2005 and 2008.
Now that energy is back down, confidence will again return to the marketplace.
It's as natural as the incoming and outgoing tides...
Again, call me partisan... but this mess can and should be laid at the feet of the "No Drill" Democrats who refused to allow the US economy to have access to the very resources we needed to thrive.
Russia - the entire economy is built on natural resources/commodities. When those prices crash, the economy crashes. Putin was so busy taking all the money and building arms/funding Iran, Syria/rewarding his supporters that he forgot that prices that go up can also come down. Ditto for Chavez and Imadinnerjacket.
The reason the EU and the US are crashing in the bursting of the bubble in RE. When debt service can’t be sustained, prices fall. The US and EU economies are built on debt. Bad debt means failures at many levels. Energy was just one of the causes of debt unable to be serviced, as it started taking over a bigger part of the budget. Ditto with other commodities like food.
Debt is also the reason that the world economy has a long way to fall yet. Prices must deflate further, because prices can only reflect whether someone can afford to pay them.
The median price of a home has over the past century or so been 2.5x median income. In places like CA, the median price of a home in places was 9x median income - clearly unsustainable especially when recasts and resets of mortgages started to occur. Prices will need to revert to levels sustainable for the median income before deflation subsides. In the meantime, there’s a lot more job loss pain to occur, and thus more debt default, before this all ends.
Sounds right.
I was making a point to a poster that this credit crunch was launched by the quadrupling of energy prices in late 2004 thru 2007.
Oil jumped from $30 to $147 per barrel, and aluminum, copper, zinz, and all commodities spiked out of sight.
It wasn't like all of a sudden millions of people defaulted on their homes for no reason. (The poster blamed Wall Street ONLY)
Transportation, high heating, high food, etc around the world caused global businesses and homeowners to simply slam on the brakes, which caused a domino effect.
I am positive that if oil had stayed around $30 the past four years, the economy would be growing normally, at a few % a year.
My edivence includes the fact that Pakistan is near default. Pakistan had nothing to do with Fannie Mae or Bear Sterns.
Why did Britain have to take over THEIR banks and insurance co's.
Why is the russian (the one net oil exporter in the bunch) banking system near collapse. Not to mention nearly all Latin American countries?
The energy began this mess. Housing collapse was the result.
I still think you put the cart before the horse. If you look at the data, housing in CA and FL and NV started to go bad (default rates rising) because subprime started recasting and resetting in 2005-2006. The Fed pumped in more liquidity to offset bank capital losses, which the banks like Goldman Sachs and Merrill and JP Morgan used to make speculative plays in commodities to goose their returns.
You can blame the Fed. Commodity price increases were a result of too much liquidity, which was a result of the Fed’s action to shore up banks who just hid their losses in Level 3 “assets”.
So no, energy was NOT the catalyst - housing was.
Not for no reason. Housing defaults are coming mostly from those with adjustable mortgages. What happened was, the Fed raised the Funds rate to 5.75%. This ended the easy money needed to keep growing the housing bubble. At the same time, adjustable mortgages were beginning to reset and the value they were resetting to were tied to the Fed Funds rate. In the meantime, the speculators saw the housing bubble petering out and moved from housing to commodities to try to catch the next bubble. You saw this move from a housing bubble to a commodities bubble and you are mis-diagnosing the effect -- higher energy prices -- for the cause, which is the collapse of the housing bubble. So while you think high energy costs were a cause of economic crisis, they were in fact an effect of the economic crisis.
Your theory is very interesting though. If you think high energy prices caused the collapse of housing, then what caused the high energy prices? The housing bubble was caused by a flood of easy money, both low interest rates and loose lending standards. Those structural changes created the housing bubble? In your mind, the energy bubble caused the collapse of house prices, banking and the economy. If that is your thinking, then what structural change occured to suddenly cause the energy bubble and higher oil prices? OPEC didn't cut back on production. Demand didn't suddenly outpace supply. I have identified structural changes that caused the housing bubble. Now your turn. What structural changes do you think caused the oil bubble? Bubbles don't "JUST" happen. Usually they follow some loosening of government policy that steers capital into a given direction, speculators jump in and then Suzi Soccer Mom and Joe Six Pack jump in to run it up to the moon. This happened with housing when the government slashed the Fed Funds rate and demanded that lenders give loans to everybody with a heartbeat, which they salivated at to get fees. How did this happen with oil? I'm dying to hear your explanation.
I would say the prospect of China and India (and elsewhere) growing its economy and energy consumption at a monstrous clip of 12-20% per year had something to do with the oil spike, dontcha think?
>Whether realistic or not, analysts BELIEVED China would increase its power consumption 40% over the next three years, with an exponential INCREASE in growth after that.
China could be consuming more oil and energy than America by 2016. India also.
Is it any wonder oil producers kept upping their prices, even as China and India were buying up every freaking oil company and other company in sight.
China tried to buy Seagate Tech, and it bought IBM's computer division.
It tried to buy Unocal, ?? Exxon, and several other major American energy companies with its POCKET change.
It currently has about 40 million vehicles (compared to America's 160 million) and is (was) expected to quadruple that in several years.
China already has 200 cities bigger than Dallas, TX .. with a billion people thriving to use more oil.
Add India into the mix, and it's easy to see why oil contracts were being snapped up at higher and higher prices ... going out 10-15 years.
I've lost track of the Fortune 500 companies China either bought, or tried to buy.
When oil spiked so high, companies and countries suddenly stopped expanding due to both real and PERCEIVED increases to its short term outlays.
So now that oil prices have collapsed, why isn’t the economy booming?
I know the answer is that housing is still way down and mortgage defaults are still high.
If you think oil was the bogeyman, then why isn’t a return to cheap oil causing a renewal of world economic growth? Why isn’t US consumption soaring again now that people are paying under $3 for gas again?
Oil just collapsed three or four weeks ago. Now that businesses see the collapse is real, they will loosen up.
Give it a month or two, and American businesses will be booming again.
This entire "credit crunch" is 90% psychological.
Like Alan Greenspan said, "Liquidity in the marketplace is just another name for confidence."
You could pump all the 'liquidity' in the US Treasury into the marketplace (and believe me, the Bush Admin is desperately trying to do that) and that won't cause but a blip.
But you cheapen the price of oil... the essence of American economy, and the market will loosen up and take off.
Mark my words, my friend. This economy will be pushing along fairly good within three months if worldwide oil stays below $60 a barrel and especially if America gets serious about allowing offshore drilling and oil sands.
http://www.americanthinker.com/2008/10/time_for_mccain_to_ruffle_some.html
This American Thinker writer says basically the same thing I did, which is that the energy shock was largely responsible for causing the economic crisis.
"Inexplicably, the Republican Party has managed not to take advantage of the two huge shocks brought on our economy directly as a result of liberal policies: the energy price shock and the mortgage-housing crash."
If American policies were solely to blame, why has the world lapsed into economic default and crisis?
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