This is just a crock in so many ways. But the rhetoric contained therein actually bolsters my argument, that our economy is built on a foundation of pudding; our ‘prosperity" is all smoke and mirrors.
U.S. Treasury Secretary Henry Paulson said on Wednesday that the market impact of the U.S. subprime mortgage fallout is largely contained and that the global economy is as strong as it has been in decades.
First of all, no one’s arguing that the GLOBAL economy isn’t strong, to a certain extent. There are a lot of very strong economies out there, and two of them are poised to overtake us as the largest economy in the world within a decade or less. In fact, I’ll vote for less. China and the European Union are growing very well, thank you very much.
It’s the US economy that should worry us, mostly because we have to live under it.
And one of the reasons is that our economy since 1981 has been built largely on illusions; a series of scams and schemes, the latest of which is the ‘subprime" mortgage scam. And it’s not only not "contained," its effects are likely to be felt for a very long time to come.
In a nutshell, selling homes to people who couldn’t afford to actually buy them, created a bubble; an artificial spike in home prices that created a lot of short-term profits for the people who perpetrated this scheme, but left a lot of people with overpriced homes. In other words, a lot of people are left with a lot of negative equity in their home, IF they can afford to keep it. Foreclosures are beginning to rise, and probably won’t peak for a few years, and that will cause a glut of available housing.
Not only that, but mortgage companies only have so much money available to lend, and when they have a boatload of mortgages on homes that are worth far less than the value of the mortgage, it makes it very difficult to lend more money to qualified people.
Paulson may be trying to put lipstick on this pig, but it’s still a pig.
European and Asian stocks tumbled on Wednesday following a sharp drop in U.S. shares on Tuesday, after American Home Mortgage Investment Corp. (AHM.N) said it may have to liquidate assets, fuelling worries over problems in the subprime mortgage market spilling over into other sectors.
This is the problem, folks, in a nutshell.
When the American economy sneezes, the rest of the world gets a cold. That is still true, but a lot of developing economies are getting sick of the frequency of the colds. The only American product in great supply these days is the dollar, and several of them are considering a switch to Euros. If that happens, then we will no longer be the 900-lb. gorilla in the world economy.
The recent volatility in global stock and currency markets reflected a repricing of risk and the unwinding of excesses in U.S. mortgage and leveraged buyout financing, Paulson said.
"There’s a wake-up call, and there’s an adjustment to this repricing of risk, but I see the underlying economy as being very healthy," he told reporters before leaving Beijing, where he pressed top officials to let the yuan strengthen more quickly.
On the yuan , Paulson said he had told the officials that allowing it to appreciate more quickly would help both the Chinese and world economies.
We’re in economic trouble, folks, and the Bushies keep lying to make it better. It’s not getting better.