For those of you who have been reading my blog, you will notice that I seem to be focused on things that could be construed as negative. I can’t deny that I may be a little over the top. Just ask my wife. That being said, I still believe it is important to let you know what is going on with the current economy. I suppose I would rather endorse a safe and not sorry stance.
The current economy has become a maze to navigate and understand. The US consumer accounts for 2/3rds of economic activity in the US and cannot be underestimated in terms of importance. If the American consumer does not spend, then the rest of the world catches a cold. In fact, American’s constant spending binge has kept many other countries economically healthy as the U.S. has sought to purchase other countries goods while America has exported its jobs.
Foreign countries recognize the challenge of controlling their own economy when so much depends on the US. Foreign nations have tried to invest in themselves and create their own consumption. But the greed factor has become great, as these countries became more advanced. Ironically they have became more tied to the U.S. financial structure than some would care to admit.
Global economies have enjoyed a fantastic run over the last several years and new wealth has been created, a vast majority of that wealth has found its way back into the U.S. financial markets, buying up everything from U.S. stocks to U.S. debt. (This is what I really believe has propped up the stock market.) Interest rates across the globe have remained low, leverage was used on both sides in order to borrow much more than was needed in order to squeeze out a few more dollars on investments paying more interest than the interest owed.
We are now dealing with a massive credit crunch taking place in the U.S., means no more borrowing at a low rates to invest at a higher rate. This has put a kibosh on the easy money. The implications are significant and will be felt not just here in the US but across the world. We are starting to see just a few effects in the stock market.
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