A Cold Front Coming?

I am very jet lagged having just arrived in L.A. after that long flight from London. In California the sun is shining, my family are well and even my lap top is working properly! The last time I was here, about 6 months before the sub-prime banking situation unrolled I wrote articles about what was happening, warning of an impending financial disaster of epic proportion. I discussed this with European bankers, economists and political friends, but the size of the financial tsunami wasn’t truly grasped by an of them. I think it still has not been understood. If our leaders deal with this firmly and immediately it can be kept to a recession that we can come out of in a year or two, but if it’s not managed we could tip over into a full blown depression not seen since the last world war. They are still talking about doing the right things, but are not yet doing them.

People in the USA seem, on first sight to have the same problems and worries that exist in Europe. The recession is biting. Prices on a variety of items are going up. Values of housing are going down. Businesses are not paying bills as fast as they should or they were. The results are obvious, individuals and organisations that operated nearer to the margins are going bust. People are cutting back, even here in LA there are all the signs of nervousness, and it’s in a more advanced stage of economic downtown with a seemingly steeper angle of decline.

Projecting just a little bit forward it’s a near certainty that the geographic locations that profited the most in the property driven price explosion offered by sub-prime finance will suffer the most disastrous falls. Florida and California are these places and the chickens are already coming home to roost. Within an hour or two of arrival I was told of a friend who had purchased a desirable residence at auction, previously valued at $800,000 he got the place for a little under half!

So, for every loser in a slump there are those who gain. There is an old adage that states, when America sneezes the rest of the world gets a cold. Well, to me its evident that America has a cold, does this mean we’re all going to suffer pneumonia?

Already the leaders of the world’s richest economies, the G7, have been meeting to figure out ways that they might meet this challenge. They’re applying pressure on the big financial institutions to keep money flowing but they are doing too little too late. The big banks who were all more than ready to profit from the sub prime bubble, easy credit that got us to this situation seem unwilling to do anything to help get us out of the hole their greed helped create. They are going to have to be made to do so, today, as tomorrow could be too late.

It isn’t yet a disaster for the general world economy, but we’re near the precipice.