Friday, July 27, 2007

Stock Market Tipping Point?


in layman's terms, the USA 'creates' money by selling houses to each other. Think about it - does the US make anything any more? Yes, they create intellectual property in the forms of software and other intangibles (think Microsoft, TV Networks, movie and music studios). They used to make things (like cars) but have fallen behind, so that their biggest automakers are now going out of business (think Chrysler, FORD, GM etc). They do make computers, but actually most of the internals are built in 30 different countries, and only sold under a US brand name (IBM, DELL etc). The only thing the US really produces (as tangible products) are homes and hamburgers.
Meanwhile in other news: - ’n Droewige Donderdag.

Nie net op die JSE nie, maar markte oor die wêreld heen het gister onder onsekerheid deurgeloop en een na die ander verlies gely. Die JSE se indeks van alle aandele het met 1,78% gesak tot 28 585,84 punte en die indeks van top-40-aandele is met 1,9% af.

So the American economy is based on Americans selling houses to each other. The next biggest industry is hamburgers (who someone wanted to class as 'Manufacturing'.

Second mortgages are routinely taken out on homes (with the assumption that the value of homes will increase into eternity). Thus money is created, and since the USA has the biggest economy in the world, it means a growing US economy supports demand and growth in a world economy integrated, globalised and dependent on the US engine running at a nice warm level.

Unfortunately, all good things come to an end, including house prices that increase ad infinitum. Now that the housing bubble is bursting, all that credit is going to have to go back. Time to pay the piper. When that happens, the world markets are going to bleed.

It's coming, but we might not be there yet now. Perhaps we are. But when we are, you'll see:

...the dollar to be quickly substituted by another currency: eg petro dollar for the euro dollar.
...China, Japan and the rest of Asia to be very unhappy financially (as the US owes them a crapload of debt.
...all sorts of clever funnelling of money into instruments like hedge funds etc. Not that this will help any. The chronic delusion that we've imbued the markets with will probably overwhelm them completely, leaving the world in an economic depression the likes of which we have never seen before.

Sorry, I wish I could offer a better ending. But I'm sure we can all agree that it was good (food tasted good) while it lasted, as unhealthy as it was. And then we can start concentrating on the obvious issues around us: the weather,and some time later, how to get around without oil, how to manage without the lights on. This will not just be a local issue, say in South Africa. It will be everywhere. Wars bwill be fought over countries who insist on driving their cars and having electricity to watch tv. We're living in a world where there are just too many people, and too little to go round, and too many disruptions of what was once a smoothly flowing mechanism.

The next era will be about INEFFICIENCY.

More background below on the financial shake below:

LONDON ( -- Global stock markets were roiled Friday after a plunge on Wall Street sent the Dow Jones industrial average down 311 points.

Credit woes and ongoing concerns about the housing slump sparked a sharp fall in U.S. stocks Thursday. The Dow Jones industrial average, a barometer of the stock market which tracks 30 large companies, sank 2.3 percent. It was the biggest fall this year since Feb. 27, when a swoon in global markets triggered a 416 point loss for the Dow.

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