Saturday, March 29, 2008


I think that this link is telling of a few things. First the fact that asset backed security issuance was 83% lower the first quarter of 2008 compared to 2007, means the effects of the credit contraction are huge, but haven't been felt by the average consumer. A change of issuance from $702 Billion in Q1 of 2007 to $120 Billion in Q1 of 2008 means we are trending to a yearly credit issuance that is 1/5 of the approximate $2 Trillion issued last year. Those are big numbers. It also leaves you wondering who is lending all of the money (i.e. buying the securitized debt)? One source is leveraged money management funds, another Sovereign Wealth Funds (including the Middle East, China, India, etc. / after all one cannot both lend and borrow to oneself). Those countries have reserves instead of deficits. The dollar crunch is making paying back all this debt even harder (as we all know). So what happens next? The lagged consumption (the largest percentage of US GDP) contraction tsunami has got to hit (I think the stock market has priced in the pain, but John Doe hasn't felt it...yet). Surprisingly, recent consumption numbers only remained even. It is coming, don't worry. I think this will be the dampening effect from run away inflation (and the cause of the recent retraction of commodity prices), and I think the fed knows it. I think we are in for a massive asset price contraction (most of which we've already had). I think we are also in for a significant reshaping of the American Economy because of the dollar crash. I think America will become perceived as the cheap getaway and an influx of European and Asian travelers / opportunists will arrive. The potential recovery will be what is interesting. When I get to pessimistic, I remind myself of how many cars are packed on the 405 going to work every morning. There are a lot of educated ambitious people going to work everyday. The question is, what kind of demand will their be for their services? Likely to shift to foreign, currency strong preferences.


Witness142 said...

One possibility is that everyone ends up working in call centers servicing the wealthy consumers of Europe, Japan, China and India.

Maybe some of us could even become programmers working at cheap rates and annoying those powerful Indian software companies as we in-source jobs from them.

humuhumunukunukuapua'a said...

Won't it be a different kind of experience being an American and a citizen of a third world country all at the same time?