Mirage77

It depends on who are the 'we' you are referring to Roberto - because as far as China, India, the Middle East and Asia is concerned, economies are booming. China & India being massive in population will keep up demand for goods in the next few years if anything should happen to the US; but truthfully the US is a major player in the global economy, and without it many of us would be worse off than before. I'm always reminded by people that the debts US has accumulated is "hidden", but I think there's enough wealth generated by the top brass in the US to keep the economy going.

Curb Zone

 

450SEL6.9

I don't think China can sustain itself at this rate of growth. It has a massive population, but the transition from rural savers to urban spenders is a lengthy one. China economic growth is uncontrollable and I think after the 2008 Olympics, there'll be economic problems and an eventual contraction. Their M3, the money supply measure not the moderately attractive car, is growing too fast and there is over-investment in property and manufacturing. Inventory levels are at mid-1990s levels and by some reports, many factories are no longer making profits.

Most of the wealth generated in America is property-wealth and property values can go up and down, not just up. If real estate values fall or crash, much of this wealth disappears and once you subtract the mortgage debt, you end up with negative asset values much like what Asian countries endured post-Asian financial crisis.

Hypersonic

I thought I would drag this old thread out of its grave and revive it ...seeing that it seems more relevant than ever.

An interesting fact I heard the other day is, once, the financial sector was directly affected by the economy (real products and services), but today the financial sector is around 10 times the size of the real economy -- that means that the vast majority of the worlds wealth doesn't actually even exist.

I heard an economist say today that he thinks we are witnessing the "fall of the Roman Empire" with regards to the USA. That the US' economic problems are so great and run so deep, with its citizens continuing to borrow to fund their lifestyles (mostly borrowed from Asian and Arab countries) .....it is time to pay the piper, so they say.

450SEL6.9

Though more relevant than ever, I doubt there is much interest in discussing it. This thread will go back into its grave within two days. Perhaps all GCZ and CZ are so rich that they are recession-proof, like Rolls-Royce buyers, which isn't true BTW. The recession of 1991 really had an effect on their sales, workforce and profits.

450SEL6.9

The question is whether the consumer will be allowed to collapse. I am in the camp that thinks the US consumer got the country out of the 2000 technology recession, which started because the tech bubble popped. It is highly possible that the stupid, reckless risk takers (banks, investment banks, mortgage companies, consumers) will be bailed out by the government socializing losses

In 2000, Greenspan cut the rates to 1% and kept them there for too long, according to many. There is a growing criticism that he helped create this mortgage bubble. However, there is also a credible argument that the consumer, by borrowing at low interest rates and taking equity out of their homes, spent the country out of recession.

This time there isn't that much equity to take out of homes, so what will get the economy out of the weeds? I still think the stock markets, Dow and S&P 500, are still far too high given this economy.

Rob, the situation is being increasingly compared to late-1980s Japan. They have arguably still not recovered from their housing bubble.

Harry Plopper

Unfortunately the crisis is very deep, and all partial solutions are can only help temporarily - for few years only perhaps.

The turbo-consumerism vicious circle is turning, and can't be stopped. So, we have to spend even more. But spend on what?

The ultimate solution is a new technological revolution. This will force all players (corporate & individual) into investments. Green tech solutions seem to be a natural choice.

Imagine everybody (incl. consumers) buying new energy saving solutions, green energy solutions, spending on completely new tech etc.

That will turn the whole industry & service sector around.

Of course a push from the investment sector (either state or privet owned) will be needed, and a strong political determination to launch the new technological revolution.

If not I'm afraid we'll be doomed in a few years - a total collapse of global economy. And in that case a temporary chaos is possible, some wars etc. Quite unstable global environment. And in such case recovery won't be quick & easy.

I hope the crucial players (eg. G8 & China + national international financial organizations (national central banks, IMF, WB) + big private investment funds & banks + big global corporations) will act rationally & wise, and allow this technical revolution to happen right here right now - when the global situation is still quite stable.

And God forbid US start a new war -- eg this time in Iran, or the Balkan conflict escalates (which could lead to the new Cold War).

But ... I guess the fosil fule rich countries (eg. Russia + Middle East states) and underdeveloped big countries (eg. China & India etc) will do everything to prevent the new revolution from happening. Yet that can be fatal for the whole global economy.

Hypersonic

I am often amused with the attitude that the high-end luxury market is not affected by serious downturns in the economy. Even the high end of the art and antiquities market (where prices have, frankly, become outrageous) is affected ....even billionaire art collectors become very cautious when times get tougher.

What about high-end real estate, do you think we will see a dramatic decrease in the value of very high-end real estate?

like this villa in France currently on the market for US$100million


Scary.

450SEL6.9

A lot of analysts and so-called experts claim super high-end companies are not impacted. I also think it is BS. The recession of '91 took Rolls-Royce down from 3,000 cars sold to 1,500, if memory serves. Also, their workforce went down by a huge number.

I think high-end real estate is arguably as overvalued as anything there is. These properties have gone up nearly in a straight line.

Around 1999 and 2000, I saw a great villa in Cap Martin, France and a beautiful country home in Baden-Baden, Germany on a luxury properties website. I've been trying to find that site ever since. Rob, any ideas?

The Dow Jones has picked up 1,000 points from last Monday's lows and it is only about 1,700 points (or 12%) below its all-time high. The S&P is off about 15% only from its high. In the last recession, the S&P went from 1,550 to 770. I think this recession will be far worse, so I think something is seriously wrong with this market. It seems littered with people hell bent on telling us the problems have passed.

Centurion

At GCZ someone posted a news article a while and go and it showed that the sales sales were down by 15% during the last quarter of 2007 compared with the previous year. I don't remember if it was for US cars sales only and I can't seem to find the thread either. On the contrary RR, Bentley and RR have presented record profits and sales for 2007. Not only that but yesterday it was reported that the RR has already sold inked the deal for 200 Phantom Coupes.

Very limited high-end luxury products are in general less impacted by recessions. Although the ultra rich see their investment and property decrease in value they don't shed a tear since tear since they will still be sitting on funds which would allow them to retire and still live a lavish life until they die.

Here in central London the most expensive properties seem unmoved by the economic crisis going on. A few weeks ago I read that a house here in central London was in the process of being sold for a record sum of £80 000 000(don't recall the exact figure). Products and properties for upper middle class people are the ones which tend to be impacted by the recession most.

The biggest economic worry at the moment is the Dollar. Many companies around the world to business with the US and my guess is that many of them are not very happy about their profits decreasing to the level that they are just breaking even. It's only a matter of time before many of them will be forced cut job..............or do business with the up coming economic super power by the name of China. Seriously, the dollar is a sinking ship with a lot of men on board. Worst is that OPEC is compensating for the falling dollar by increasing the price of the oil. Hugo Chávez wants OPEC to take the radical route of abandoning the Dollar for the Euro.

Hypersonic

^ it is obviously true that the very wealthiest individuals will not suffer much from a global recession even if the value of their assets drops for a while. But it is not correct to assume that wealthy people in general will not be affected.

Sure, luxury car sales might be strong right now but that could change. Some people lost everything during the Asian economic crisis in 1997; property billionaires saw their fortunes wiped away -- a new Rolls-Royce is hardly going to be much comfort in that situation.

Curb Zone