Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
Financial and Commodity Markets Become Scary: Crash Point Or Turning Point - 5th July 15
A Revolutionary Pope Calls for Rethinking the Outdated Criteria That Rule the World - 5th July 15
Forget 'Haircut', Instead Syriza Plans Beheading of Greek Bank Depositors, Theft of Deposits - 5th July 15
The Pentagon’s 2015 Strategy For Ruling the World Through Endless War - 5th July 15
United States Celebrates the Disastrous Secession From Great Britain - 5th July 15
Greece Referendum Vote Result Forecast Yes Win, But Depression Will Continue - 5th July 15
The Great Greek Economic Depression - 4th July 15
Happy 4th of July Stock Market Analysis - 4th July 15
The Most Pressing Reason Yet You Want to Avoid Investing in Retail Stocks - 4th July 15
Fed’s Full Normalization and the Stock Market - 3rd July 15
The U.S. Dollar's 2014-2015 Rally: Wave 3 in Action - 3rd July 15
Stock Market Where are we? And where are we Going? - 3rd July 15
Xi’s Anti-Corruption Campaign Is Key to China’s Prospects - 3rd July 15
How the New Iranian Nuclear Deal Will Impact Crude Oil - 3rd July 15
China's Stock Market Rollercoaster Ride Continues - 3rd July 15
Gold Stocks Cheap to Buy but Not for Long - 3rd July 15
Capital Controls and a Bank Holiday in Greece… Here’s How You Can Profit - 3rd July 15
Greece's Varoufakis: I will Resign if there's a 'Yes' Vote - 2nd July 15
The Student Loan Bubble: Gambling with America’s Future - 2nd July 15
Inflation Is Lurking, but This Asset Can Protect You - 2nd July 15
Three Total Wealth Stock Investor Tactics You’ll Need Because Greece Isn’t Over - 2nd July 15
Why This $5.6 Trillion Investor Profit Boom Is Set To Take Off - 2nd July 15
Greek Debt Crisis: "Too late to prepare now" - Video - 2nd July 15
Guaranteed US Dollar Death Dynamics - 2nd July 15
The Greek Stress Test & The Reality Of Incremental Changes - 2nd July 15
Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros! - 2nd July 15
Greece Debt Crisis Trigger for Stock Market Crash or Bull Rally? Video - 1st July 15
Gold Stocks Break Below 2008 Low - 1st July 15
SPX Stock Market Retracement May be Over - 1st July 15
Silver Tunnel Vision 'Experts' - 1st July 15
Gold And Silver - Monthly, Quarterly Ending Analysis - 1st July 15
Europe’s Controlled Demolition - 1st July 15
The End of Dow 18,000; Bailouts No Longer Extended  - 1st July 15
Athens Mayor: Greek Government Should Resign - 1st July 15
China Stocks - This Is What a Bubble Looks Like - 30th June 15
Stocks Plunge on Greece Euro-Zone Financial Armageddon Blackmail - 30th June 15
Greece Crisis Shows Importance of Gold as Europeans Buy Coins and Bars - 30th June 15
Stock Investors Express Route to Profits in the Healthcare Sector - 30th June 15
Beyond the Greek Impasse - 30th June 15
Gold GDXJ : Impulse Move Pending - 30th June 15
Fed Interest Rate Increase Could Be Best Thing to Happen to Gold - 30th June 15
Marc Faber - Greece is Basically Bankrupt - 30th June 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

Economic Depression: Who will Suffer the Least?

Economics / Economic Depression Aug 28, 2008 - 12:50 AM GMT

By: John_Browne

Economics Best Financial Markets Analysis ArticleThough few may have noticed, the past few weeks may be regarded as a global economic turning point. Evidence is mounting that the United States is entering a recession, with increasing signs that it could morph into a depression. While the current Administration appears resigned to bail out or nationalize large tracts of American commerce, the presidential candidates drift towards Great Society era spending proposals. At the same time, America’s principal economic rivals appear to be charting courses that are not in line with U.S. interests.


The Russian invasion of Georgia has revived tensions that have not been seen since the most frigid periods of the Cold War. With the Olympic Games over, China can relax and now exert its muscle without risking any politically motivated boycotts. Between them, these global players hold well over a trillion dollars, or 10 % of U.S. government debt, which they can use in as leverage in any strategic, economic or political confrontation with the U.S. There is also evidence that America’s economic power is even waning in our own back yard. This week, Honduras, a traditional U.S. ally in Central America, announced that it was throwing its lot in with a Latin American trade bloc dominated by Venezuela and Cuba!

For two years I have warned readers of a severe, real estate led recession and encouraged extreme asset allocations to cash, particularly short-term, hard currency government bonds, and gold. Last year, I urged short positions in financials and U.S. stock markets. Some ridiculed me. The financials are currently down some 84 percent. Apparently, the real estate crash is biting deeper than just about any market “expert” had imagined.

The size of the problem is enormous. A fall of just 20 percent in U.S. house values, (which is confirmed by the latest Case Shiller data release) wipes almost $5 trillion from the wealth of American consumers and businesses. This amounts to more than one third of America’s GDP and half of the total U.S. Government debt! How could the fallout be anything less than systemic?

Imprudent lending behavior, inspired by the housing boom, placed the security of banks depositors and shareholders at undisclosed and unprecedented risk. The banking problem is so large that failures cannot be allowed. The government has bent rules regarding financial reporting and the Fed’s lending criteria to keep the financial ship afloat.

The main focus for now is on government sponsored lenders Fannie Mae and Freddie Mac, who are now understood to be hopelessly undercapitalized. Despite the complete predictability of this outcome, even conservative investors, including many banks, had been persuaded that securities issued by both Fanny Mae and Freddie Mac were risk free. And although shareholders for both entities are likely to be wiped out, corporate bond holders, and those individuals and financial institutions who hold mortgages backed by both the GSE’s, correctly assume that the government will back their assets. However, hundreds of billions, perhaps trillions, of Federal dollars will be needed to make whole all who foolishly loaded up on Fannie and Freddie debt. Unfortunately, the Federal cupboards are bare.

This week, the Federal Deposit Incurrence Corporation (FDIC) announced that its problem list had increased from 90 banks to 117. Worse still, the FDIC announced its fund had fallen below its legal deposit ratio, forcing it to increase its levy on member banks. This, just when the net income of its member banks, in desperate need of retained earnings, has fallen by some 86 percent. As more banks begin to fail, the ultimate cost to the Federal balance sheet is hard to imagine.

But, as the old saying goes, ‘What’s good for the goose is good for the gander.’ So, if government financial ‘favors’ are granted to reckless investment firms (Bear Stearns) and now mortgage borrowers, what about other economically vital ‘multiplier’ industries like: automakers, airlines, credit card and insurance companies and even corporate real estate lenders? The logical conclusion for this current drift is hyperinflation. In order to make good on its promises the Federal Government will have to resort to the printing press…with a vengeance.

With America facing severe recession, many regions around the world will suffer. So who will suffer least? Nations that have run relatively prudent economic policies and those who ‘produce’ goods required even in an economically depressed world will continue to prosper increasingly, relative to the U.S.

The differential may become magnified as America’s government hyper-inflates. Investors will then increasingly dump dollar paper assets and buy hard currencies, government bonds of ‘producer’ nations and gold. Investors ahead of this depression curve will likely suffer least!

For a more in depth analysis of our financial problems and the inherent dangers they pose for the U.S. economy and U.S. dollar denominated investments, read my new book “Crash Proof: How to Profit from the Coming Economic Collapse.” Click here to order a copy today.

By John Browne
Euro Pacific Capital
http://www.europac.net/

More importantly make sure to protect your wealth and preserve your purchasing power before it's too late. Discover the best way to buy gold at www.goldyoucanfold.com , download my free research report on the powerful case for investing in foreign equities available at www.researchreportone.com , and subscribe to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp

John Browne is the Senior Market Strategist for Euro Pacific Capital, Inc.  Mr. Brown is a distinguished former member of Britain's Parliament who served on the Treasury Select Committee, as Chairman of the Conservative Small Business Committee, and as a close associate of then-Prime Minister Margaret Thatcher. Among his many notable assignments, John served as a principal advisor to Mrs. Thatcher's government on issues related to the Soviet Union, and was the first to convince Thatcher of the growing stature of then Agriculture Minister Mikhail Gorbachev. As a partial result of Brown's advocacy, Thatcher famously pronounced that Gorbachev was a man the West "could do business with."  A graduate of the Royal Military Academy Sandhurst, Britain's version of West Point and retired British army major, John served as a pilot, parachutist, and communications specialist in the elite Grenadiers of the Royal Guard.

John_Browne Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

great dane
01 Sep 08, 10:14
who will suffer the least?

Who will suffer the least, indeed? It will be those of us who are already poor. We're used to it, and it will make no difference to us. We know how to survive. Depression? Recession? Listen to me, all you experts. It will be neither. It will very soon be total economic collapse. Look to the sky.


Wayne
03 Sep 08, 05:40
Russia - Georgia Conflict Facts
You must check your facts in regards to the Russian invasion of Georgia. It was actually the Georgians who tried to ethnically cleanse the South Ossetians after first turning off their water 2 months prior.

Apart from that you article is correct and shows good insight into the US Fed and government as well as a balanced account of the twin (Fannie and Freedie) soon demise.

Post Comment

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

Biggest Debt Bomb in History