Massive Imbalances In World Economy Still Tipping

Us Downwards
Bob Chapman
Posted: May 16 2009

Life with the Dow in a different place, massive money injections fail to boost CPI, warnings of a Weimar republic, and risks of budgets, Fed to supply smoke and mirrors, TARP bailout enriches speculators at public expense, Chrysler and UAW dont get such a good deal as TARP counterparties.

We have come a long way from Dow 14,168 and we have just completed a strong bear market rally based on little but hopes, dreams and the assistance of the “Working Group on Financial Markets” under the guidance of the Treasury and the Fed. We believe the bear market has a substantial distance to fall as the debt sector is purged. A 50% retraction of debt, which is far above GDP has to be completed, excess capacity has to be rung out of markets, consumer spending, which is now 70% of GDP, has to return to the long-term average of 64.5% of GDP. Once real estate bottoms in 2011 and 2012, we will probably be half way to the overall bottom. We have 2/3’s of the way to go before credit card debt is purged. We are just beginning to see failure of commercial and industrial loans and that could last another 3 to 4 years. Presently we are about 40% to the bottom. Then the question arises how long do we bump along the bottom – probably 5 years or longer – dependent on how bad the structural damage is, whether we still have a Federal Reserve; how many banks are left; whether we have WWIII or whether we have revolution. America and the world are in for a difficult time.

There are still massive imbalances in the US and world economy. Fiscal and monetary policies in almost all countries have gone over the edge. In a panic to subdue deflation governments and central banks have way overused fiscal and monetary policies, which is sure to end in hyperinflation. Any natural pause or mini recovery is doomed by the massive amount of monetary aggregates racing through the system. Over the next year and one-quarter negative GDP of 6.3% from the last quarter of 2008 should rise to even. That is no negative growth in the fall of 2010. ( KNOW MORE AT )