"The western world has embarked on a speculative journey for which all the historical precedents are ominous." —Peter Warburton

Although many are now having to acknowledge the worldwide impact of the sub-prime crisis, some are still singing optimistic tones that demand from China and India can buoy the world economy and keep growth humming along without solvent US consumers. But an inconvenient truth screams back at this hopeful sentiment.

Over the past year, American consumers spent close to $9.5 trillion, compared with the meagerly $1 trillion spent by Chinese consumers and the downright paltry $650 billion spent by Indians. Indisputably, US consumers have been the superstars of world consumption. They have gorged on more stuff than one could ever imagine and in doing so have accounted for a record 72% of US Gross Domestic Product. But their earnings growth has not kept pace with their habits. Consumption has been paid for by soaring debt levered off of raging asset bubbles and and enabled by insane "innovative" credit derivative products now estimated outstanding at some $50 trillion. Over the past 5 years some $1.1 trillion of equity has been extracted from American homes, which represents almost half of the increase in total consumer spending over the same time period. Household debt at the end of Q2 2007 stood at over $10 trillion versus $4 trillion in 1999, an increase of more than 136% in 8 years!   more »

For those who are interested, here is a link to my BNN interview Business News Network (BNN) this morning Dec 17 at 9:20, on Market Lookahead.

Pain and suffering created by the greed and reckless lending of this business cycle will plague us for some time to come.

Social service agencies say homeless rates are on the rise not only as families lose their own homes to foreclosure but also as renters are evicted after their landlords default. Financial analysts warn that state and local governments will soon feel the pinch of sharply reduced property tax revenue. And counsellors say divorces and reports of abuse are rising as families burdened by impending foreclosure take their stress out on one another. See Mortgage crisis inflicts collateral damage.

This is the full cost accounting of greed and reckless lending over the past few years. It is not just the staggering financial losses, and the wide-spread contraction that this is bringing to our global economy. It is the emotional and psychological carnage this crisis is inflicting on real life families and our society as a whole. It is a systemic malaise that will over-burden already stretched social agencies and public services for months and years to come, precisely as tax revenues fall off.
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A sober article in the UK Telegraph today underlines a concern I have shared for many months now: How can the global economy decouple and bounce along happily without the US and Europe when so much of global demand over the past 5-year expansion cycle has come from our western world over-consumption?:

"The rising economies of Asia are too small and deformed to rescue world growth as America, Britain, Australia, and Club Med face their day of debt reckoning. China may make matters worse, not better.

The seven pillars of global demand over the last year - measured by current account deficits - have been the United States ($793bn) (£388bn), Spain ($126bn), Britain ($87bn), Australian ($50bn) Italy ($48bn), Greece ($42bn), and Turkey ($34bn). Most are facing a housing bust. All are in trouble.

China cannot possibly step into the breach. Jahangir Aziz and Xiangming Li argue in a new IMF paper that China's economy is now so geared to the US and EU markets that a 1pc fall in external demand will lead to a 4.5pc slide in exports and 0.75pc fall in GDP.

Assumptions that it will weather a global shock are "likely to be wrong, perhaps dramatically."

Some of the strongest voices for the decoupling argument have not surprisingly come from the investment sales firms that have reaped record profits the past few years from selling the global growth story.
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This clip offers an oasis. Dive in.   more »

Thanks to Michael Campbell for having me on Money Talks this weekend.   more »

I believe that the Internet and its open and democratic exchange of ideas is the most important development of our generation.

This is especially true as the objectivity of the media has increasingly been sold out for advertising dollars and the political interests of vested power.

The Internet cuts through barriers and speaks truth to power, straight-up for all to consider and discuss. Anyone who can read and access the Internet, can see and think for themselves.   more »