So what actually lies ahead once the crash starts? Well let’s look at an economic fact that has a track record dating back over 210 years to the Panic of 1797 – when financial bubbles burst, markets crash and economies follow suit rather quickly.
The following aspects of the current global economy are three financial bubbles which have grown to the bursting point and will greatly affect the US scenario:
The air is being let out of the global property balloon – big bonuses in the London market and on Wall Street, the recycling of petroleum funds in the Middle East and in Russia, and a lowering of lending standards for the average consumer have driven property values up on a global scale.
The private equity explosion is now on the verge of a serious “fizzle” – certain signs of a financial bubble become all too prevalent and oftentimes become fatal symptoms as well. There are too few economic goods out there in the marketplace and too many dollars being thrown at them when they are in short supply. For instance, some companies are selling for 20 to 30 times what their annual earnings are truly worth and the fuel for this economic conflagration has been the lowering of interest rates.
Some lending institutions have even lowered their interest rates below the prime rate which is, to say the least, an unprecedented event in the lending industry. Additionally, they are leaving themselves very little legal recourse to try and collect these funds when people default on the payback.
Introducing the latest economic juggernaut, “Chindia” – this is a convenient slogan that has recently been adopted by global economists to describe the inevitability that China and India are growing into a position of global economic prowess just as Japan did in the 70’s and 80’s.
Given the fact that “hindsight is 20/20”, it becomes very apparent that the economic crash in the United States is right around the corner. So what do we have to look forward to as a result of this? Here are three events that you can anticipate happening:
The US economy will shift from being the hare to becoming the tortoise (only he may not win his own race) – some economists have claimed that we as consumers have weathered the current economic slowdown. In response to this, I only have one question regarding that statement. What have these “experts” been smoking??? But seriously, the combination of a collapsing housing market, corporate earnings that have not seen this slow of a growth pattern since 2002, and a skyrocketing national debt will equate to the “crash and burn” stage for the economy in the United States.
In the meantime, European economists are scoffing at the US as not being the global economy’s big kid on the block anymore. However, according to Nicholas Vardy, Global Guru Capital’s Chief Investment Officer and Founder, as well as an investment advisor for the SEC, he scoffs back at the European analyst’s attitudes. As he states, “it’s still the case that when the United States sneezes, the world catches a cold.”
Interest rates will once again start rising, and continue to rise – if you look at all the economic and financial assumptions behind the government’s spreadsheet models which have been justifying private equity firm’s investments, raising the interest rates will derail that financial train. Additionally, commercial real estate deals stand to suffer in the wake of these events as well. All of this leads to one eventual result – a collapse of the American economy and quite possibly an impact to the global economy as well.
The Chinese economy collapses and is felt on a global scale – roughly 36 months ago, the Arab markets crashed, yet nobody really noticed. However, despite this fact and unlike that Arab Market, should the Chinese market crash, it could drag the Western markets down with it. So it is no longer a matter of speculating if that market collapses, it’s a matter of calculating when it’s going to happen.
Analyzing the current economic situation is not really that challenging, even for the laymen who is either uneducated or uninformed, or possibly both. However, planning the proper course of action and then implementing it is where the difficulty lies. Since we have been witness to an unprecedented growth rate in the areas of credit spending and trade deficits, the stability of all the global markets has become relatively uncertain. Furthermore, these so-called economic analysts and experts supposedly claim to have the answers, when in reality, most of them haven’t been doing their homework.