Paying The Piper

"In 2010-13, they will be getting hit with the bill from the lavish years, through increased taxes and the loss of millions of jobs. Economies which became excessively consumer-oriented are going to be forced to slim down. Meantime, governments have been reluctant to tighten their belts, and are trying to restore "the old normal", by borrowing money aggressively, and spending it recklessly on poorly-designed stimulus programs. The foreign holders of dollar, sterling, and euro debts, will try to get the taxpayers to foot the bills for the excesses of their banks and the governments. But there is an increasing risk that taxpayers will revolt, and refuse to pay the full amount of those debts. We have already seen a rejection like this already in Iceland, and it seems this sort of drama will soon be played out in Greece, and the other PIGS countries in Europe, and also in many American states. Eventually, the larger economies of the UK and the US may also face the same problems, when debtors begin to reject lending fresh money to over-stretched sovereign borrowers."
Michael Hampton, AKA Dr.Bubb - February 10, 2010

The entire article:
http://financialsense.com/fsu/editorials/hampton/2010/0210.html

Not The "V" or the "W", But The "Y"

"The best we can hope for is to delay the inevitable, and/or to make a very severe recession or depression as quick and painless as possible. Recent actions by political leadership and monetary authorities in the US and the UK have delayed the most severe part of the recession. But the cost has been high, and the eventual downturn may be worse than if they had taken different actions or simply done nothing. My expectation is that the next economic downturn will come quickly starting about mid-year, and those who fail to prepare will be blindsided, and suffer a very large loss of wealth. The time to make preparations is when confidence is high, and the cost of preparations is low, because fear has receeded. After a strong nine months rally in global stocks (which by the way, I forecast back in March as the market was turning up), there is now widespread denial of problems, and huge complacency. Preparations can be made now, and hedges put in place, at a low and bearable cost. The basic problem that I see is two-fold: Too much debt, and widespread malinvestments. There is no longer a reasonable balance between the funds needed to service the debts and the cash flows generated by investments. The severity of the problem is masked, but only temporarily, by ultra-low interest rates. Even with the low rates, debts are continuing to default, and the number of troubled loans is increasing. When the inevitable rise in rates comes without a big rebound in earnings and cash flow, debt problems will multiply, and the financial sector will seize up with another severe credit crisis."
Michael Hampton, AKA Dr.Bubb - February 10, 2010

The entire article:
http://financialsense.com/fsu/editorials/hampton/2010/0210.html