The World Economy

[Frederik Magle]

It seems like we could possibly be heading into (or in fact already are in) tough times for, not only the American, but most of the world economy. Stock markets all over the world are going down. Now, this may very well be just a hiccup, but it may also forebode hard times ahead, which would affect hundreds of millions of people all over the world one way or another, and not just stock owners.

What's your take, where are we heading? Is the recession for real, and if so what do you think it will mean? short term and long term.

(On another note I just want to wish everybody, who may get affected by this, good luck, and hang in there even if the road gets very bumpy ).

[Contratrombone64]

The world is full of ups and downs, in fact a flat playing field just doesn't happen. I can only say some will suffer and some will flourish, depending on the industry you work for. I work for a company that provides water and wastewater management solutions, and since where I live has been in the grip of a horror drought for 10 years, we're thriving, and we'll continue to thrive regardless of the stockmarket.

[Corno Dolce]

Hi CT64,

I'm happy to hear that you're in a business which is used by most people.

Cheers,

CD

[marval]

I expect some people will be hard hit. I once worked for a fund management company, and unfortunately it went bust, because you can never totaly rely on the stock market to stay buoyant. When I worked in the food industry, it was a fairly safe thing to do, people always needing food. The trouble is, certainly in England that the price of petrol goes up and up, thus causing a chain reaction. We have just been told that our rail fares are the highest in Europe. Being unemployed at the moment just means that I have to count the pennies, but there are some people who will really struggle, if a reccession hits.

[Contratrombone64]

Corno - everyone has to crap and wee ... sorry to be blunt, hence, I'll never be out of work especially as more "green" ways of dealing with human waste products is good business.

[Corno Dolce]

Hi CT64,

You've got a great sense of humour. I play the organ for weddings, baptisms, confirmations, church services and funerals. Since people want to get married but they die eventually, I figure I'll have employment way beyond my retirement.

Cheers,

CD

p.s I apologise for making fun of your big feet - I've got Sasquatch paws myself - I wear size seventeen shoes.

[Krummhorn]

. . . Since people want to get married but they die eventually, I figure I'll have employment way beyond my retirement.

That's quite true for me as well, Corno Dolce ... except more memorial services than weddings in my aging congregation. I still have to buy gas for the car, pay utility bills and my monthly medical insurance premiums which keep escalating at least 12% higher each year - there's got to be a breaking point at some time with incomes onle averaging 3% to 5% per year.

When I retired from my full time (non music) job, I was guaranteed certain "perks" ... one was paid medical ... then suddenly the rules changed, but my pension checks were already cut, so there was no turning back - the stupid union is what screwed me out of that ... so much for being thankful for organized labor!! I scrimped and saved all during my employment, invested heavily into my own retirement fund and a 401k so that I could enjoy being semi-retired.

I still have to save as much of my pension as possible ... investing heavily in my IRA's, which are not doing so well lately.

. . . I've got Sasquatch paws myself - I wear size seventeen shoes.

Size 13, EEE width for my clod-hoppers ... used to be size 12 D in younger years - seems the feet spread out more (just like the gut) in later life

[Corno Dolce]

Hello Krummhorn,

Thank you kind and dear sir for sharing a little bit on how you cope with "Life". I'm glad that you seem to be proactive with investing. I grieve with you and am angry that the Union has run roughshod over you and countless others

These days the Unions are about advancing candidates for political office, not caring for the dues paying members. So I'm not a friend of the Unions - they are a politically sanctioned Mafia.

Cheers,

CD

[Sybarite]

Corno Dolce – I'm going to assume that you're talking about trade unions in the US, because that is not my experience of trade unionism in the UK.

Recession? Possibly. What will it mean? Oh, probably the same as it did in the 1980s – people losing their jobs and their homes (as I did). Communities devastated and people thrown onto a scrapheap, while others rake in personal fortunes.

And yet people will still think that capitalism is in some way 'moral' and that the casino economy is a proper (and the only) way to organise the world economically.

Crazy.

[Contratrombone64]

Sybarite - I like your term casino economy, it is just so true about the West's finance system.

[Corno Dolce]

Hi Sybarite,

You are absolutely correct - I was referring to the Unions in America. Before I became an independent contractor providing music, I had worked in a couple of different industries where one was automatically signed up as a Union member and paying a percentage of ones earnings pre-tax - talk about highway robbery and those Unions supported political candidates which I would not touch with a ten foot pole.

Cheers,

Corno Dolce

[rojo]

I doubt anyone really knows with any certainty what the market will do. So perhaps it's best just to stay calm; business as usual, and perhaps try to keep things as steady as possible. These things usually have a way of 'evening out' in the long run, in most cases.

[Corno Dolce]

Dear Ms. RoJo,

That was one of the most level-headed replies I have yet heard in my life. Thank you dear Ma'am for sharing a real pearl of wisdom. You rock, baby!!!

Humbly,

George

[NEB]

The problem with the comment about evening out in the longrun is that a severe and prolonged recession would in fact be the world economy evening itself out from the long period of excess.

That the federal reserve has chose to reduce rate in an out of regular meeting devision by 3/4% and is expected to quite possibly reduce by a further 1/2% at its next regular meeting next week with potentially two more such 1/2% reductions anticipated by most analysts over the coming several months is testimony that the fed is so worried that they have decided to print even more money, the very process that contributed to encouraging so many of the practices that have led to the subprime mortgage situation, with various knock on effects to CDO's and various other less obvious problems within the bond markets, rating of re-insurers, those who back the various bond issuances and so forth.

The worst of the news is still to come, and the dollar is likely to come under continued pressure as it becomes a much less attractive place to hold funds. There is even the possiblility that the Dollar could become a funding curriency for the carry trade. Interest rate differentials are likely to worsen considerably for the dollar.

A recession in the US would have a knock on effect to the rest of the world, but the slow downs in other regions might be more muted given that the US is not their only customer.

So much money resided in assets in the US and other high yielding currency areas as a consequence of being able to borrow cheaply in Japan or Switzerland, and then invet in much higher yields in other countries like US, UK, Iceland, Australia, New Zealand and so forth. But that is a very high risk approach, and considering the levels of gearing these funds have employed, when things start going astray, they are going to run for the hills and start unwinding these carry trades, and preferably without losing too much in the process. Commodity producing nations have fared well due to their incomes being bolstered by increased prices of those commodities. The oil situation has not been so severe in other many areas due to the falling dollar muting the effect of high Dollar prices for oil. This has meant that second round inflationary effects have been muted in places like the EU for example.

Deficits don't matter? the mantra served up many time in the last 12 months? So why did the fed need to drip feed so many 1/4 point increases into the system rather than credibly tackling the inflation issues (the numbers for those are distorted by the way and true inflation is higher than stated even now!). The answer is that they needed to attract in enough inward investment to cover the twin deficits i.e. budget and current account. As long as the money keeps flowing in, then all is hunky dory, but more recently it hasn't been...

Combine the housing ATM closed down so consumer spending is under pressure, Combine the foreclosure situation leaving excess supply in the housing market, Combine the knock on effect in the Bond markets, various derivative, CDO's and a whole alphabet soup of related product, A banking secotr that has seized up. (Note Northern Rock of the UK as a high profile caualty of the interbank lending system in temprorary spasm)

THis is not something that is going to be worked through easily or quickly. I read today one report that suggested that the main reason everyone is so scared of a full blown recession is that with all the woes that now exist in the system, it would spill over into a depression and that is the reason they will attempt to avert a recession at all costs.

So what does borrowing another $150bn dollars do? (note Bush's fiscal stimulus package) it means the deficitis just got bigger. Deficits don't matter huh? You try living on Outgoings bigger than incomes for a long period and it will come to roost. But I suspect that is what many in Britain and the US have done for many years...

I'm of the opinion there will be some serious casualties along the way before all this is over, and there will be many times when it all looks like it hase been contained and we're back to 'business as normal'. False dawns if you like are a feature of this stage of the cycle.

[Contratrombone64]

NEB if the federal reserve keeps dropping interest rates for American mortgagees, sooner or later the banks will be paying them bonuses!!