Boston- oops just saw your post.
This is a long thread and a lot of ground is being covered.
US dept, value of the Dollar, gold speculation, the ongoing recession- causes trajectory, EU dept/problems, any handy stick anyone can poke in my eye etc etc...
As initiated- the topic is the dept burden carried by the United States (Public and external) and its effects.
Honestly I don't find much interest in this topic.
Outside of the political football of how we got here, the problem though important is fairly straight forward.
Most fail even describe the problem in the correct terms in any case- we have a huge economy- the numbers are fairly meaningless. Parse the dept obligation against revenues.
The topic I find which holds real interest to me is the cause and trajectory of the current economic downturn. This is the feature in our landscape which brings to the fore all
the secondary faults which most discuss here.
Economies are under stress- what caused the stress, are the now apparent faults systemic or are they simply limits which are not crossed during periods of normal economic activity. Can
we as nations simply weather the storm as it were or are changes needed or even essential to recovery.
I further depart from the threads origins by not being willing to describe the woes/responsibility of any individual country as being totally separate from the global features which I
feel are defining this downturn.
I said earlier that "main street" is as more responsible than "wall street" for the current down turn and therefore should stop complaining...
and your rejoinder:
If I remember the "crisis" began when mortgages were deceitfully defined as low risk, packaged in lots then sold as backing for securities. ............. During a time of a known housing bubble.
I'm not sure where you logic is on this one bntii
Etc etc.
This is a common response that details the failure in our economies as having its cause squarely set on the investment banks, the vehicles formed to trade mortgage dept, and the regulatory
failure to control the action of both of these entities.
I don't agree with this assessment and my logic is as follows:
Assets are a common or even required component of an economy. Be it a persons or that of a nation; assets serve as a vehicle to hold wealth which has accumulated over time. Assets take
many forms. They can be simple currency, property, or as it the case of businesses and countries the aggregate of advancements made in such disparate areas as infrastructure, resident
businesses, established universities and the level of economic potential of residents as defined by training and education.
All assets vary in value over time.
The nature of this change serves to define how assets are used in a economy and the secondary treatment of these stores of wealth as investment vehicles.
Of the varied classes of assets used as a store of wealth, some are structural components of the economies in which they are found. As such, the variation in value over time has the
potential to alter the structure of the economy. These changes can have beneficial or deleterious effect if the asset class is tied to the rate of economic activity.
Housing in the United States and many other regions is a traditional store of wealth which also serves as a strong structural component of our economy.
Simply put- the housing market experienced a asset bubble.
Housing as an asset changed from a store of wealth to a speculative asset.
This change in a asset which has such an important structural role in the US economy produced a economic boom which was based on an artificial change in value of the underlying asset.
Well a bubble it was- it extended far broader than the machinations in the US financial market; it was global in effect and is still unfolding.
In the United States the prices doubled in 5 years. At its height, fully 40% of all homes purchased were not primary residences and were purchased on speculation.
IN one years time the assets drawn from the inflated equity increased by 500%
Property speculation become a valid pastime for nonprofessionals from every walk of life.
"There was the greatest bubble I've ever seen in my life...The entire American public eventually was caught up in a belief that housing prices could not fall dramatically."
The accelerating valuations forced the market into a building boom.
This building activity in addition to cash equity withdrawn and market confidence led the economy into a increased rate of growth.
The financial instruments you mention above are to my mind a secondary action which occur in every asset boom; as valuations increase, credit thresholds are lowered in response to a false security in a perceived
continued rate of growth.
I have posted research in this thread which supports this point of view.
You in fact summarize this position quite clearly in your own post:
sold as backing for securities. ............. During a time of a known housing bubble.
I also do not believe that they of their own right serve in any meaningful way to accelerate the already fully accelerated boom conditions of a asset bubble.
The subprime debacle ran to the extent of 1.3 trillion dollars in the US against some 70 trillion of inflated value which was present in the worlds property bubble.
I do not favor an assessment that the threat to these instruments are the real cause of the financial downturn following the collapse of the property bubble. To my mind (perhaps the weak link
), the real cost to the economies of the world was from a slowing of the economic activity which has been artificial accelerated by the boom in a structural asset; property.
One of the ways to crack the code as it were would be to provide a careful comparative analysis of the economies which are under stress following the collapse in the property boon.
I would imagine that those countries who had lower rates of new construction would see less stress. I attribute this to a lower secondary effect on economic growth from the
ancillaries to this industry. That is the economic foundation of these countries would have seen less of a bubble matching the building growth and therefore be less vulnerable
to a collapse of that industry.
So to summarize- I blame the market more than the financial institutions or any government entity.
That market is comprised of the buyers and sellers of property and it occurred on 'Main Street'
Until I see some evidence to the contrary -I see no reason why the economies of the world should not see a recovery from this downturn with nothing more elaborate than the simple passage of time.
