I agree that the cause of the crisis is well known - excessive debt which led high consumer spending and the housing bubble. Many have been predicting for quite a while that growth in the US economy was unsustainable. I think what was not predicted by most observers was the magnitude to the crisis and the magnifying impact of insurance instruments such as CDOs which have really crippled the financial industry.
The big debate today is whether the US will have an extended period of deflation, or if we might soon encounter hyper-inflation. I think it is too early to say what might happen. For now, we are clearly in the deflation cycle. One thing to watch for is how the auctions of long term US treasuries progresses. For now, there continues to be good demand for them, and the world's investors continue to have extra-ordinary faith in the US. However, if the US continues to show weakness for say, the next 12-18 months, this sentiment may change and we could see a sharp rise in interest rates aka. hyper inflation. A precursor to this is already happening in countries like Iceland and may be on the verge of happening in parts of Eastern Europe. With the US sucking in all the money, these countries are being forced to increase interest rates in the midst of a recession. --- On Mon, 3/9/09, Mervyn Lobo <mervynal...@yahoo.ca> wrote: The cause of the economic melt down is not clueless. The cause is well known. People were given loans in California that they could not have qualified for. ALL the authorities turned a blind eye when this was happening. Now that the house of cards has collapsed, the small guy has to bear the pain of having little or no regulation.
