Wednesday, October 12, 2005

China Pulls the Plug

My last post was a tad pessimistic…I’m still of the same mind. Yesterday, I ran into a friend who owns a furniture business in town. In fact he owns several of them. He told me that shipping costs from China have just risen to $2900 per container up from $2000 a couple of months ago. This does not bode well for the world economy. The rising costs of transportation are making globalization an expensive proposition. However, this is the least of our problems.

In an official newspaper of the People’s Republic of China, Lau Nai-keung, pretty much repeated what I have been saying for quite a while. The most troubling aspect of this article is that it is the only truthful account of the current state of the U.S. Economy to be found. Read it, it is important.

“It is well known that the US is the world's biggest economy, taking up about 30 per cent of global GDP, but it is now also the world's biggest debtor country. According to the most authoritative person on this subject, the US Comptroller General David Walker, who audits the federal government's books, the tab for the long-term promises the US Government has made to creditors, retirees, veterans and the poor amounts to US$43,000 billion, US$145,000 per US citizen, or US$350,000 for every full-time worker.”

Then she goes on to say…

“The US is now clearly in huge trouble, economically, socially, politically, and internationally. The Bush Administration bungled big in cyclone Katrina's aftermath in New Orleans, and then a minor rerun from Rita in Houston, and this will trigger the general outburst of people's dissatisfaction with the government, leading to great internal turmoil lasting for many years. In all likelihood, long-term interest rates are going to rise, and the greatest property bubble the world has witnessed is going to burst in the next one to two years.

The countdown is in progress, and there is no way that anybody can do anything to reverse it either by short-term measures such as fiscal and monetary policy, or through long-term reform of tax policy, entitlement programmes and even the entire federal budget. This is as inevitable as gravity, and it will take place under a new and inexperienced chairman of the Federal Reserve Board. I do not want to sound alarmist, but I see very bad omens.”

The cash out seems to be happening. World markets are markedly lower over the past two weeks and gold is going up. A crisis is nearing. The crash is probably going to happen in the next two weeks based on the bankruptcy of Delphi and the impact that it will have on GM stock. Imagine the financial crisis that occurs when GM announces it is bankrupt next week. This article outlines some of the larger implications.

What is going to happen...what is going to be the open calalyst for the fall?

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