Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

2008 Epic Battle Between Credit Crunch and Central banks Liquidity Flood

Stock-Markets / Financial Markets Jan 01, 2008 - 05:03 AM GMT

By: Money_and_Markets

Stock-Markets

Best Financial Markets Analysis ArticleMartin Weiss writes: The year 2007 is closing — and 2008 is about to open — with an epic battle between two of the most powerful economic crosscurrents we've seen in a lifetime:

  • An unprecedented credit crunch threatening to strangle the debt-addicted U.S. economy, and ...
  • Equally unprecedented money pumping by a Federal Reserve determined to flood the economy with all the cash it needs to overcome the crunch.

With the Money and Markets issues of recent days, my team has done a great job in laying out some of the potential consequences. So on this last day of 2007, I will be very brief, summing it all up with some simple questions and some not-so-simple answers:

Question #1. Which of the two crosscurrents will prevail in 2008? The credit crunch or the Fed's money pumping?

Answer: Neither force will neutralize the other. The credit crunch will continue to spread. Delinquencies and defaults will continue to surge among consumers, corporations, even local governments. And in response, lenders will continue to pull back, deepening the crunch.

Meanwhile, to combat the credit shortages, the Fed will take some of the most extraordinary measures ever seen, even to the point of virtually requiring banks to make more loans.

Question #2. Which of these two forces will impact the economy and the financial markets?

Answer: Both! The credit crunch will drive the U.S. economy into one of its worst recessions since World War II.

But at the same time , the Fed's efforts will help pump up inflation, sending more money into inflation hedges like gold and other natural resources, safe-haven currencies like the Japanese yen, plus foreign stock markets.

Question #3. At some point, isn't there a risk that either (a) the credit crunch will cause a deflationary collapse or (b) the Fed pumping will create hyperinflation in consumer prices?

Answer: At some point, perhaps. But not now.

Question #4. How will we know that critical point has been reached? How will we know when the Fed has won or lost its epic battle against the credit crunch?

Answer: The market for long-term Treasury bonds will give you the best signal. As long as there are buyers for long-term Treasuries, the Fed can continue to attack the credit crunch with every weapon in its arsenal. But on the day that those buyers vanish — the day the U.S. government itself has serious difficulties raising the funds it needs — the game will be nearing an end for the Fed.

Question #5. What should I do about all this?

Answer: First, keep a big chunk of your funds in the safest securities in the world today — short-term U.S. Treasury securities. That helps protect you from the shockwaves of a credit crunch.

Second, allocate a substantial portion of your funds to investments that help protect you — or profit from — the kind of inflation that's now gathering momentum: Gold investments like the gold ETF (GLD), foreign currency investments like the Japanese yen ETF (FXY), and the others our team has recommended.

Above all, remember that conditions will change. So stay flexible. Don't lock yourself into investments with big exit penalties. And for most of your money, avoid those with illiquid markets.

Good luck and God bless!

Martin

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in