All good stuff on this thread and an important reminder that the world will be reversing its appetitie for goods and services in the near future and start a depression, Australia included.
Question: Governments can print money - is that true?
The Government can influence policy as the Fed Governors are appointed by the Senate, however it is the Reserve that controls money supply. The Fed Reserve is an independent privately owned company. They can buy and sell bonds from/to the Government (expanding and contracting money supply) and then issue the money into and out of the system ... as I understand it. As a fair bit of that money is profit for goods and services from other countries the money disappears to places like Japan, China and so on as Sony, Toyotas and TV's are bought, contracting the supply of money in the USA and therefore demanding that the Fed buy more bonds from the Government, putting the Government into further debt (but stimulating the economy and keep it going). It is arguable as to whether the USA government can pay back their debt now ... in simplistic terms this is why the USD is going down (too much USD out there and it weakens like any commodity, plus a loss of confidence in the country's ability).
Australia will stand up better than the US and Europe due to the resource boom however there will be limited winners - the dollar (relative to the USD), the worker in the mine and the Government through tax collection from the mining industry (welfare, education health and the old age will benefit through hand outs ... noting that the tax base will reduce in a depression, so that's all an oxymoron, ... well I suppose the impact will be less severe if that makes sense). Make no mistake resource share prices will get whacked when the whole market takes it in the neck, of course they will recover faster and be the buy of the century after each correction.
Yes I agree most of the damage will be done in the first half of the decade.
Housing in Australia looks like falling after the stock market crash in line with most cycles. It has fallen in the USA due to interest rate rises (debt overload and banks reacting) and over supply of housing. Here in Australia the one third that have mortgages, the majority (apparently 90% according to the CBA) have been able to absorb the rate rises ... so far, and it seems there is a reprieve from the Reserve Bank for the near/medium term as they leave rates alone.
The depression will start when the financial markets decide to have a bad hair day ... there will be some "reason" for the panic. I refer to it as Peak Consumption - when the western world has peaked in its demand for goods and services. There will be a down turn for 10 to 12 years due to the drop in birth rates from 1962 to 1975 (X generation) forward projected 48 years which is when they peak spend (1962 plus 48). This will creat UNEMPLOYMENT, which will really get the depression going - all assets except cash (and then bonds) will be whacked - stocks 70%, housing at least 40%, maybe 60%.
Dent is sticking with end 2009/early 2010, this last pick up will be the last one (I suppose we should see 5 waves)- he is writing a new book to be released next year "The crash of 2010". Anyone serious about protecting their hard earned wealth should get it and read it - The Next Great Bubble Boom is the current book, which explains it all. I have just read The Second Great Depression by Warren Brussee (cc 2003), he predicted 2007 to 2020. Well, so far he is pretty close to the mark as financials have been falling since mid 2007 which was the first sector (and expected sector) to tumble. Brusse works on debt overload and the inability of people and governments to pay back the money borrrowed. Then a whole bunch of statistical models on how to beat the market by switching in and out of TIPS - I'm not sure that TIPS will be the best investment as I am not sure what happens in a deflationary environment, if they hold all adjusted inflation increases they would be the best investment going around (working more like bonds).
I could ramble on ... but time to get on with other things.
(20min delay)