the shopping season begins...

[GSL]

I watch in awe as people spend billions of dollars on cheap Chinese goods, and the bubble grows ever larger and more frightening. The facts are:

1. America is in extreme and possibly unrecoverable debt (deficit we call it). Every American citizen currently owes something like $25,000 to a foreign debtor.
2. The money America owes is primarily to the Japanese. The Chinese are second, and are closing the gap fast.
3. The major reason that the goods are so cheap is that China pegs its currency to the dollar. So as the dollar free-falls, so does the RMB.
4. On blind optimism, Americans keep their spending habits up, increasing personal debt to record levels, just as federal debt swells.

There is only one way for a bubble to end, and that's to burst. Remember, very few professional economists and financiers predicted the end of the dot-com bubble. That may be because they benefited from the burst, or because they also just don't have a clue. Some are now predicting financial "armegeddon" in the next few years, and it's hard not to agree. We're just waiting for a trigger now. Some possibilities:

1. World banks start to panic and buy up Euros in lieu of dollars.
2. China floats its currency to a realistic market value.
3. Iraq gets worse, especially with this fiasco of an election scheduled for January (very likely to happen).
4. Anti-American sentiment grows more agressive and American products are boycotted because of our insane foreign policy (also likely).
5. Another major terrorist attack on US soil.

What to do? Nothing can be done. We lost the election, and any hope of turning this around. The biggest question is how long the bubble will keep growing for. Nobody can answer that, and everybody involved has reason avoid the burst as long as possible (including the Chinese government). It's only a question of how much material there is left to keep growing that bubble bigger.

[nadinbrzezinski]

1. China floated half of her TBills last night

to be denied this morning

This is gonna pop

Pop goes the whistle!

[VivaKerry]

2. Interesting analysis. But can I challenge one thing:

Another major terrorist attack on US soil as something that could trigger financial armageddon.

Our economy did not need to take a total DIVE after the WTC attack. It was two buildings in one city and 3000+ people died. A horror of a tragedy, but it did not trash our economy. The us govt totally subsidized the airline industry, which was, understandably, taking a hit post 9/11. But the stock market opened up how many days later?

Our financial ruin post 9/11 was the result of govtal policy. period. It wasn't from the attack. It was from bush's attack ON america post 9/11.

Anyways... if all those hurricanes that flattened Fla this year didn't take us out.... would a building blowing up take us out? Think of how many countries deal with bombs going off all the time. Turkey should be mince meat about now, but it isn't. Their govt still runs. People still go to school. Weddings still take place. The point is, the world doesn't stop when something blows up. Except in America, where we thought we would be immune from it.

I am not trying to minimize the horror of the wtc attack. But I refuse to say that another bomb or attack on a group of americans in one town/city will cause the economic bubble to burst (unless that is what bush wants, that is, and he engineers some 50 gazillion dollar 'remedy' in response).

[GSL]

3. a bubble is fragile...

I don't mean the terrorist attack will be the cause of economic collapse, it may just be the trigger that makes it all start.

But on second thoughts, a terrorist attack is not nearly as likely as the others to start the downward spiral. It may actually cause Americans to reign in some of the insanity (eg pull the troops out of Iraq, back to where they are needed). So I agree with you in general.

[VivaKerry]

4. It's definitely a flexible 'variable' in this.....

We will see....