Originally Posted by lfe2211
I missed your post first time around. IMO, you're way off the mark with your predictions of a 1992 recession repeating itself in 2007. Why? The world economy is much different than it was 1992 (yes I remember 1992 very well). We now have a global economy whose growth is booming in places like China,India, Russia, Brazil and elsewhere. In fact, many US companies like John Deere, Catepillar, Cummins Engines, Foster Wheeler, Fluor, Dell (alas not Apple yet) and many, many others are participating in this infrastructure/agriculture/industrial boom, creating a significant number of new jobs in the US, higher wages and increased liquidity to fuel consumer spending without
increasing inflation due to the Fed's over-arching fear of the inflation monster. This situation is much different than 1992 when the global economy was much, much different. Think about the state of China and Russia in 1992. Also Real
interest rates compared to 1992 are actually quite low. Finally, I think the Fed will ease in Q4 07 or Q1 08, negating many of the large increases in sub-prime mortgages and allowing recovery of the US housing industry, thereby creating more jobs, increasing consumer spending, etc.
First all those things are indeed true and demonstrate why we have gone since 1992 within a major contraction of any sort. However as with all good things, they must come to an end. China, India Russia and Brazil are going to play Japan in this version of the recession. The insane growth within their own economies are leading to issues with possible hyperinflation already. When the U.S. slows even a bit, their own lack of domestic demand will cause their respective speculative bubbles to burst, force their exporters to cannibalize each other, and finally will lead them in a deflationary recession just as they did Japan.
The United States, as you noted has had no liquidity issues at this point because the excess profits from these exporters, profits which are not being used to create domestic demand, are instead being sent here and trying to earn a return. The trade surplus has continually been held and invested into dollar-based investments. When that paper speculative wealth evaporates within their own countries, those monies will be needed more at home and will not be able to be sent back over here. This means less liquidity here, and higher borrowing costs.
People have been arguing that the fed has essentially been outsourced because they had raised the overnight borrowing rate so many times and had seen no corresponding rise in bond and interest rates for mortgages and other types of lending. Those rates have finally started budging up because inflation is not tamed, and secondly because there is simply less money chasing a return here. The overseas markets are providing insane returns and people will begin pulling their dollars and converting them into their own respective currencies to grab those gains. Those created bubbles will pop and their deflationary cycles will start.
China, India and others do not keep this from being 1992. They will insure it is just like 1992. Trade imbalances and an unbalanced economy driven totally towards exports and not at all towards generating domestic demand cannot be sustained.
I totally disagree. You are completely ignoring the global boom which has allowed non-inflationairy expansion of the US job market, wages,etc. See my previous post.
It wasn't non-inflationary. The inflation was merely siphoned off. Trade deficits are basically just knocking part of our GDP off and sending it abroad. That money has kept coming back and looking for a return creating speculative bubbles here in housing. If it had been converted to the currencies of the respective countries, then it would have created speculative inflationary bubbles there. However now we have the perfect storm. We have a deflating housing bubble here, due in part to ridiculous financing schemes with neg-am, crazy ARM loans that should not be made available to the general public, and seeing the slower growth here, countries have already started converting dollars (raising rates here) and creating speculative bubbles within their own economies. What they invest in though are export driven sectors which leads to bubbles within the export based industries.China Bubble
The bubbles will pop. Growth will revert to the mean. Nothing new is revolving around the sun.India Bubble