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Saturday, November 6, 2010

Public financial earthquake scenario

According to the U.S., "Atlantic Monthly," September 2 reported that most of the signs that the U.S. economy is slow but steady recovery, but if the pessimist view is correct, the United States did not embark on the slow lane of economic recovery, but toward the other side of the cliff - drove the second bottom, will be? To find this second source of decline may begin, "Atlantic Monthly" editor Derek - Thompson and his colleagues assumed that the five "financial earthquake."

1. Housing for the micro-bubble U.S. economy, perhaps no more concern than the housing market. It is unclear the government by supporting the buyer's credit, lower interest rates and mortgage adjustment plan, the effect of efforts to stabilize the market. After beginning the withdrawal of government support, will lead to a way of another micro-bubble?

Assumptions: With the weakening domestic sales and foreclosures continued to increase, the situation will lead to increased residential unmarketable. This will result in two consequences: first, it will lead to a lack of attractive new homes, further reducing employment opportunities for the construction industry; second, will put pressure on prices, so the more difficult for struggling homeowners to sell their house, forcing them to lose foreclosure, the property further shrink. The Dow Jones index will fall, further tightening the credit markets, private investment in the housing market dropped sharply, and consumers slash spending, economic growth may be negative.

2. Consumer spending significantly reduce the "debt bubble" years later, U.S. consumers will focus more on savings. But, as every general knows, once again all the soldiers loaded the weapons and ammunition, after all, the soldiers are even more vulnerable to attack, the economy as well.

Assumptions: that people will slow down consumer desires, and spending will once again become negative. Additional small business forced to delay the time goods or increase workers wages and working time is frozen, 10-month rate approaches 10%. Congress will be paralyzed from the mid-term elections because only a few weeks. With the decline of business income, rising unemployment, congressional inaction, the stock market may crash. Americans are worried that their spending will be reduced further next month, leading to stagnation of economic growth.

3. Toxic assets back if you pay close attention to the bank rescue, then you should know that it is not simply the money into the bank. Instead, the Treasury plans to buy toxic assets from banks, they are investors worried about bank instability. But the Treasury did not act quickly, so that these programs take effect as soon as possible. Result, banks still can not get out into the whirlpool of toxic assets, but we do not know just how bad the situation in the end.

Assumptions: the real estate market problems still persist. Once the foreclosures started to decline, we will see an "influx of loan default," and then break for the rate (that is, again, more than 30 days without contributions) from 30% to 50%. Commercial mortgage-backed securities continued to deteriorate, with the reduction in consumer demand, some business will be in trouble. Residential and commercial real estate and the value of the underlying assets behind will continue to decline, the exposure of these toxic bonds, banks will face a new round of huge losses, investors will question their stability. Market decline, credit freeze, and economic growth going.

4. European division as the world's ability to repay debt in Europe continue to restore confidence in Europe appear to have avoided the fate of total collapse. But things can happen surprising changes in the debt crisis of the Greek story has never inflow into the mainstream media's front-page news.

Assumptions: Greece, Spain and Italy and other countries, slow economic growth, weak, or even into negative growth, which will enable those who invest in U.S. government debt, investors demand higher returns frightened, soaring government debt ratio. These countries may further the purposes of fiscal austerity, such as tax increases and spending cuts. European Central Bank's response may be a Bank of America announced the same program. With the soaring debt, the dollar value, U.S. exports will be further hurt. With the increase of trade deficit, the manufacturing sector will also be a dead end, the stock market crash, resulting in U.S. household wealth has shrunk dramatically. Restore the family balance sheet, will cut spending, U.S. manufacturers will lose U.S. consumers and European buyers, economy into negative growth.

5. Treasury debt low interest rates soared today as investors more confidence in the U.S. for a reason. But if people give us money suddenly lost faith in the United States, then all this will change rapidly.

Assumptions: the International Monetary Fund recently said that in the near future, the United States, 25% chance of higher interest rates. But the stock market may be no warning strike, as happens in Europe earlier this year. If this is the situation of political uncertainty and a reflection of the interest rate will make us more difficult to repay the debt, 55% of the bonds will be rolled into the next three years. With the Government debt-related book value of pension and public funds will be reduced, Americans save more. We are left with two bad choices: tax increases or tax cuts to stimulate consumer borrowing in order to entertain people. But it is essential to avoid the second bottom too late.

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