A former emperor with no clothes is finally telling the naked truth. His name: Alan Greenspan. His primary role in history: Chief architect of the boom-and-bust cycle that caused the fiscal madness he now condemns. Greenspan Warning #1 Greece is a wake-up call for the U.S. and most of the developed world. Greenspan says that Greece should drive U.S. authorities to make "a tectonic shift in fiscal policy." Agreed. Sovereign debt defaults are the next shoe to drop. ... Greece is rapidly sliding down the slope toward default. ... Spain is in trouble because it experienced its own gigantic housing bubble, one that has long-since popped. ... Then there's the U.K. Its budget deficit is running at 12 percent of GDP, the highest in the Group of 20 community of nations. ... And what about the US? The fiscal 2009 budget deficit here soared to $1.4 trillion, the worst ever. The next big victim could be the one country for which no bailout is possible — the United States. Greenspan Warning #2
How do you know if the sovereign debt crisis has hit the United States, or not? To the lay observer, it's often murky. But to an interest-rate analyst, the clues are straightforward: When the federal government has to pay a higher rate for its borrowings than a supposedly riskier private corporation, you know the sovereign debt crisis is here. That's precisely the situation Greenspan describes for the U.S. credit markets today: Based on one key measure, the U.S. government was recently paying 0.13 percent MORE for 10-year loans than private borrowers! The U.S. Treasury is paying more to borrow money than Procter & Gamble, the company behind brands like Tide detergent and Charmin toilet paper; Lowe's, the home improvement retailer; and Johnson & Johnson, the firm that makes Band-Aids, medical devices, and baby shampoo. Greenspan Warning #3 Interest rates could skyrocket like they did in the 1980s. Greenspan's exact words: "Long-term rate increases can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose almost four percentage points." Yes. Plus, in the same year, 30-year Treasury bond yields rose five percentage points; Treasury bill rates catapulted from 6 percent to 16 percent in six months; and the prime rate hit 21.5 percent. We don't expect to see interest-rate surges of that magnitude and speed, but even if rates rise by only a small fraction of their 1980s explosion, the consequences can be catastrophic. Greenspan Warning #4 Surging gold prices are the harbinger of future fiat money collapses. Greenspan writes: "It is little comfort that the dollar is still the least worst of the major fiat currencies. But the inexorable rise in the price of gold indicates a large number of investors are seeking a safe haven beyond fiat currencies." Day of Reckoning Near Thank you, Mr. Greenspan, for making very much the same arguments as we have been for the past 12 months and even more. But alas, there is one argument you make that we feel is unrealistic in the extreme — that budget contraction will not induce renewed economic decline. The reality: The economy is addicted to stimulus. This isn't rocket science. The U.S., Europe and Japan are addicted to stimulus. But instead of more injections, governments are now prescribing cold turkey. Even if they don't cut very much, instead of more economic recovery, we will inevitably see severe withdrawal pains and another major slump. Now here's the clincher for investors: As long as the Obama administration and Congress had the political capital — and the sheer gall — to spend and stimulate endlessly, they were able to persuade the world that the crisis was over and the recovery was for real. They not only manipulated the economy but also investor psychology. But now, proponents of more stimulus and bailouts are discredited. Apologists for massive deficits have been silenced. And even establishment economists like Greenspan are writing about the same dire consequences we've been warning you. Without more stimulus, subsidies and bailouts, the modest improvements we've seen in housing, jobs, and corporate earnings will soon come to an abrupt end ... the stock market rally that began in March of last year is in its final stages ... and the widely feared double-dip recession is on its way. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
http://in.groups.yahoo.com/group/investwise/
INVESTMENTS IN INDIA
We are low-risk, long-term investors.
Stocks, mutual funds and the entire investment gamut. Only financing/investment avenues in India will be discussed.
For any assistance, questions or improvement ideas, contact investwise-owner@yahoogroups.co.in
****************************************************************
NEW! ==== Check our LINKS and FILES sections for a world of information. REGULARLY UPDATED.
NEW! ==== Check "Tracklist" in Links and Files sections for Investment Ideas.
****************************************************************
No comments:
Post a Comment