The Fading of the Mirage Economy

[flashl]

Suddenly, it seems, we're getting hit from all directions.

Energy and food prices are soaring. The housing market continues to collapse. Government revenue is falling, and taxes are rising. Airlines are jacking up fares and fees while reducing service. Banks are pulling credit lines. Auto companies are cutting production once again. Even investment bankers are losing their jobs.

The tendency is to see these as separate developments, each with its own causes and dynamic. Fundamentally, however, they are all part of the same story -- the story of the global economy purging itself of large and unsustainable imbalances that for a time allowed many Americans to think they were richer than they really were.

...

While there's an ongoing debate about why the price of oil has doubled over the past year, there is little doubt that the declining dollar is a significant factor. The decline is the result of years of large and growing U.S. trade deficits that should have caused the exchange rate to adjust years ago but didn't because so many of our trading partners in Asia and the Middle East were intent on linking their currencies to the dollar. In the process of maintaining those dollar pegs and reinvesting those surpluses in Treasury bonds and Fannie Mae and Freddie Mac securities, they created a surfeit of cheap credit that spawned all those bubbles.

Now that the process is reversing itself, the overvalued dollar is being repriced. But in the short run, it has played havoc with the cost of commodities, most of which are priced in dollars. Producers have raised their dollar prices to prevent a decline in the global purchasing power from their commodities sales. At the same time, some of the excess credit that financed mortgages and corporate takeovers has been shifted to commodity speculation, turbocharging the swings in prices of everything from corn futures to jet fuel. At some point, that speculative bubble will burst and energy prices will plunge. When things finally settle down, the new equilibrium price is almost certain to be well above where it was last year at this time.

Washington Post

[marmar]

1. Eventually, even a Pyramid scheme runs its course....

:scared:

[Warpy]

2. MIRAGE is right

because you can substitute debt for wages only so long before servicing the debt load reaches a point where people can do that and subsistence, only, no matter how far you lower interest rates or how many credit card comeons they get every week.

Eventually the whole thing will collapse a consumer economy completely, something we're in the early stages of right now.

[SergeyDovlatov]

3. Mirage for some... getting very wealthy for others