• Question
  • The Impending Global Liquidity Crisis

    Asked on 6/9/2007

    The Impending Global Liquidity Crisis
    By Mike Whitney

    June 6, 2007

    Stock markets across the world have been skyrocketing lately. In fact, Forbes reported on Tuesday that: “all 22 of the developed-world markets tracked by Morgan Stanley Capital International are in positive territory year-to-date.

    Emerging markets are looking just as flush. Of the 29 emerging market countries that MSCI tracks, only four--Argentina, Sri Lanka, Russia and Venezuela--are in negative territory.”

    Yahooo! The markets are soaring and we’ve entered a new “globalized” Age of Prosperity.

    Sounds great doesn’t it?

    There’s just one little problem; the U.S. Commerce Department announced yesterday that that GDP in the first quarter '07 was revised downward to a measly 0.6%.

    Are you kidding me? Economic growth is underwater and yet the Stock Market is still flying-high? What gives?

    It’s easy. The markets are just responding to the GROWTH IN THE MONEY SUPPLY which is in double-digits just about everywhere around the world.

    When there are more Dollars chasing the same number of Assets---stocks go up. It’s just that simple.

    What we’re seeing isn’t the result of Investor Confidence or Industrial Output. Heck no! Stocks are rising because our $800 Billion Current Account Deficit is recycling into the Stock Market.

    What we are really seeing is the first signs of Inflation---galloping inflation which will soon spill over into the broader economy.

    If we eliminated the “frothy” exuberance of America’s Trade Deficit, then the Stock Market would be sucking air through a tube right now. And, you can bet that as soon as our foreign creditors wise-up and start raising Interest Rates, the Dow Jones will quickly become the Dow Doldrums and the economy will nosedive into a 1929-type Depression.

    Does that sound overly pessimistic?

    At present, the “don’t worry, be happy” crowd still thinks the good times will roll on forever.

    They don’t see that the US Consumer is running out of gas and won’t be able to sustain his gluttonous spending spree much longer. He’s already stopped siphoning the Equity out of his home ($600 billion last year) and now he’s has started to max-out his credit cards. (Credit Card Debt increased 9.2% last month alone!)

    Now, US onsumers are facing a blizzard of bad economic news---rising prices at the gas pump, a 6.7% increase in food prices, and a sickly Dollar that keeps losing ground on the currency exchange. (Kuwait is the latest country to announce they will be dumping the Dollar for a basket of currencies)

    Currently, the US gobbles up two-thirds of the world’s credit each year with no conceivable way of paying it back. That won’t last much longer. Central Banks around the world are increasingly hesitant to accept are our flaccid greenbacks and the Chinese are the only ones who are still buying our Treasuries.

    That’s mainly because it gives them power over political decision-making in Washington. The truth is the Chinese are planning to send the US into Receivership and take over as the World’s Bank. With dollar-backed reserves of $1.3 trillion, their plan appears to be going “full-steam ahead”. (In addition, the Oil Exporting Nations hold another 2.6 Trillion USD's in their Reserves.)

    The bottom line is that we are buried beneath a $9 trillion mountain of debt and there’s no way to dig out. If there’s a break in the liquidity-flows to our Stock Market---stocks will crash, unemployment will soar, and we’ll be pulled into a Deflationary downspin.

    Economic soothsayer Elaine Supkis puts it like this:

    “World wealth isn't growing, world DEBTS are growing and the place they are growing the fastest is the US which is the sole terminus of world trade at this point. The biggest growth industry today is selling debt instruments. The entire existence of Hedge Funds, for example, is to funnel profits from uneven trade with the US back into the US via dumping debts onto the backs of any corporations that

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