Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
The Gold Stocks Correction and What Lays Ahead - 19th Oct 19
Gold during Global Monetary Ease - 19th Oct 19
US Treasury Bonds Pause Near Resistance Before The Next Rally - 18th Oct 19
The Biggest Housing Boom in US History Has Just Begun - 18th Oct 19
British Pound Brexit Chaos GBP Trend Forecast - 18th Oct 19
Stocks Don’t Care About Trump Impeachment - 17th Oct 19
Currencies Show A Shift to Safety And Maturity – What Does It Mean? - 17th Oct 19
Stock Market Future Projected Cycles - 17th Oct 19
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Time to Bunker Down as the Global Debt Mountain Implodes

Economics / Global Financial System Nov 02, 2008 - 05:05 PM GMT

By: Dr_William_R_Swagell

Economics Best Financial Markets Analysis ArticleGlobal Panic Spreads - The largest debt bubble in the history of mankind is on the verge of deflating and collapsing as world leaders and central bankers fly around the globe to one crisis meeting after another. No sooner is one panic quelled or some hasty band-aid fix slapped into place to stop a financial collapse than another breaks out somewhere else. The bad news just keeps on coming;

  • ICELAND...Bankrupt...Oct.2008 nationalises banks; turns to International Monetary Fund for help.
  • BALTIC DRY INDEX...Down 90%... a leading indicator of shipping rates & global trade.
  • JAPAN (NIKKEI) ... Down 81%... from all time high of 38,957 on December 29th 1989.
  • RUSSIA (RTS & MICEX) ... Down 77%... exchanges shut down several days to stem panic.
  • CHINA (SSE)...Down 72%... from all time high of 6,029 0n October 16th 2007.
  • KOREA (KSE)...Down 68%... from high in May 2007.
  • ARGENTINA (MERVAL)...Down 64%... moves to take over $30 billion in private pension funds.
  • INDIA (BSE)...Down 60%... since January 2008.
  • TURKEY (ISE)...Down 59%... from high in November 2007.
  • HONG KONG (HANG SENG)...Down 55%... past 12 months.
  • ITALY...Down 53%... past 12 months.
  • BRAZIL (BOVESPA)...Down 52%... from May 2008 peak. Trading suspended 5 times in 3 weeks.
  • FRANCE (CAC)...Down 50%... from June 2007.
  • GERMANY (DAX)...Down 50%... year to date.
  • GREAT BRITAIN (FTSE)...Down 47%... from all time high of 6,930; now “officially” in recession.
  • MEXICO (IPC)...Down 47%... since June this year.
  • AUSTRALIA (ASX)...Down 45%... from all time high of 6,829 on November 1st 2007.
  • U.S.A (DJIA)... Down 46%... to 8,154 on Oct.10th 2008 from 14,198 on Oct.11th 2007. Interesting that the American market (where this crisis all began) is down less than so many others...but not surprising really with the U.S. Fed prepared to monetise as much debt as necessary to avert a Financial Armageddon.
  • OIL...Down 54%... after peaking at $139 in June 2008. OPEC Nations hastily cut supply.
  • COPPER...Down 50% from July 2008 high.
  • NICKEL...Down 62% year to date.
  • GOLD...Down 26% +... from high of $1,010 on March 17th 2008.

The statistics speak for themselves. The world is undoubtedly experiencing what Alan “I made a mistake” Greenspan described as a “once in a century event” ... thanks for that Mr. Greenspan.

The only question now is how long might it last?

Most observers have now resigned themselves to the realisation that we are most unlikely to have a “V” shaped recovery (i.e. a short, sharp recession lasting only six months or so). Many believe the extent of damage that has been inflicted on world markets ensures that we will have to endure at least a “U shaped recovery” that will not see an end to hard times for at least two years (i.e. a recovery sometime in 2010). Some arch-bears (like NYU Professor Nouriel Roubini) are warning that what may be coming our way is an “L shaped recovery” meaning we will flat-line along the bottom in a recession/depression for many years to come before we emerge out the other end.

A Dash to Cash...and Unintended Consequences.

Following the lead of other world banks, the Australian Government acted quickly to guarantee the savings deposited in its banks (even though the top four Australian banks are included in the top safest 20 banks world-wide with a AA+ rating ).

Rather than ensuring calm among nervous investors it triggered a mad scramble for the safety of government-guaranteed deposits that resulted in a deluge of withdrawal requests from investors outside this safety umbrella. The unintended consequence of this was that mortgage trusts and other non-bank funds were swamped with withdrawal requests and were forced to freeze all withdrawals .

So this nation of just under 22 million found itself with more than 250,000 Australians with their funds frozen in accounts valued at $25 billion.

Many of these investors are retirees. One distressed elderly gent, in tears, was featured on the T.V. news complaining that he didn't even have enough cash at hand to take his wife out to lunch at the local seniors club. Another retiree described how he couldn't sleep nights and kept waking at three in the morning worrying about how he and his wife would manage in the future.

The only consolation and advice forthcoming from Australia's Treasurer was for them to head down to their local welfare office to find out if they might be eligible for a government handout until this problem was sorted out... not exactly what they had planned for and counted on in their retirement!

Similar concerns have been raised by Martin Weiss Ph.D. of Weiss Research Inc who goes so far as to suggest that massive, erratic flows of “Hot Money” from deposits around the globe may result in some kind of international bank holiday having to be declared. Meanwhile, Prof. Roubini predicts hundreds of hedge funds will go bust and that many more stock markets will be forced to shut ...perhaps for up to a week. Also, Charles Wendel (Financial Institutions Consulting) fears that of the 8,000 plus banks in America's fragmented banking system...up to 1,000 will disappear within two years.

The message seems to be... have some cash on hand...ideally enough to cover your living expenses for a couple of months or three if possible.

Australians certainly seem to be doing so according to Alexander Symonds (Australian Financial Review October 29th 2008)... “ CASH IS BACK UNDER BEDS...There's a run on $100 notes but the Reserve Bank of Australia's message is...don't panic. Armaguard had advised small businesses it was short of $100 bills and expected to be for some time...wealthy people (are blamed for) walking into bank branches and withdrawing all their cash ‘to the point where we now have a $100 note shortage in Australia”.

Killed by Debt.

As the world economies stumble from one crisis to another, it is sobering to hear how horribly the global debt bubble is destroying the lives of some poor, naive, unsophisticated individuals in emerging countries. The credit implosion in India, where the masses were recently introduced to freely-handed-out-money and a new-found consumerism, has resulted in a recent tragedy that is sickening.

Indian police were this month called to a suburban apartment where they discovered four bodies. The father (70 years of age) and his wife (60 years old) had committed suicide by swallowing poison. Nearby, their middle aged daughter and son had hanged themselves. 73 credit cards were found in the apartment as well as evidence of the overwhelming debts they had gotten themselves into. Not understanding how the interest charges would compound, the family had dug themselves so deep into a hole that in the end shame and despair led them to kill themselves. No walking away from their obligations and declaring bankruptcy for them.

Greed is NOT Good!

“We've seen the triumph of greed over integrity... The triumph of speculation over value creation... The triumph of the short term over long-term sustainable growth. It is perhaps time now to admit that we did not learn the full lessons of the greed-is-good ideology. And today we are still cleaning up the mess of the 21st-century children of Gordon Gekko.” Kevin Rudd, Prime Minister Australia.

Adding another slant to the recent behaviour of “The Masters of the Universe” on Wall Street and their outrageous remuneration packages.

“I am old enough to have known both the CEO's of 20 years ago and those today. I can assure you that we CEO's of today are NOT 10 times better than those 20 years ago.”
William McDonough, Former New York Federal Reserve Governor.

Simple the New “Chic”.

The times for conspicuous consumption, trying to overtake the Joneses, piling on more debt, leveraging up, and big risk taking are over.

Simple is the new “chic”. Frugal is good...greed and overindulgence is bad. Working to rebuild savings is good. Paying down credit card debt is good. Entering into new credit arrangements, especially for expensive discretionary items you don't really unwise.

Savings deposits should be with banks that are rated A+ and preferably have government guarantees. Real estate investments where mortgage repayments might prove crippling if tenants move out, interest rates rise or your income is reduced (Heaven forbid you lose your job) should be disposed of where possible. Down-size if necessary.

Baby Boomers should be prepared to help their kids out if they're able (some kids might even have to move back in with the old folks to save rent). If Boomers have suffered serious losses to retirement nest eggs they may need to consider working longer before retiring, going back to work if already retired (at least part-time), and not get spooked into taking risky gambles to try and “get it all back”.

Being in denial won't cut it. Nor will the old clichés about “it's not a real loss if you don't's only a loss on'll come always does”, “I'm in for the long haul...I'll dollar-cost-average-down”, etc. Good financial advice is essential...preferably from someone who has been through tough times before and can come up with a sound survival strategy.

Personal safety for you and your family may become more of an issue in the turbulent, uncertain times that lie ahead because unemployment looks certain to rise as will unruly behaviour.

The tough times will pass...but in the mean time it's time to bunker down.

All the best, Joe.

Copyright © 2008 Dr William R Swagell
: This newsletter is written for educational purposes only. It should not be construed as advice to buy, hold or sell any financial instrument whatsoever. The author is merely expressing his own personal opinion and will not assume any responsibility whatsoever for the actions of the reader. Always consult a licensed investment professional before making any investment decision.

Dr William R Swagell Archive

© 2005-2019 - 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

6 Critical Money Making Rules