We are having an election for Governor in Virginia this year and, as could be expected, inboxes and mail slots are already filling with messages from the candidates.
Most of the messages, naturally enough, concern the economic downturn and promise to increase jobs and restore economic growth - for running on anything less upbeat this year is likely to be a surefire looser. There is no way that people are as yet ready to vote for prophets who talk about increasing troubles ahead and peak anything. Talk of the end of the American dream and the need to hunker down and prepare for hard times ahead is just not in the cards at the minute.
However, we are living in one of those rare occasions when foretelling the future - at least in a general way -- seems unusually easy. All indicators say the global economy will continue to spiral down. This could last for a year, or two or three, but also could last for decades. Think about the South after the American Civil War - it took nearly a century to get going again. If we are lucky some of the "stimulating" that is going on might make things look better for awhile, but this is bound to be short-lived. Without major structural changes to the world's economy, the increasing demand for oil and other forms of energy will send energy prices right back through the last summer's highs and the downward spiral will start all over again.
Government borrowing will probably reach $2.5 trillion during the fiscal year ending Sept. 30, according to Goldman Sachs Group Inc.The crash in the markets during the last couple of months was the "beginning of the end". When (I think there is NO IF) the scenario described above by Gross comes to pass, I would describe that as the "middle of the end". I hope it is ways off, but it might occur sometime in 2009.
Speculation has risen that China, which holds $681.9 billion of Treasuries as the single largest investor in U.S. debt, may stop or slow the purchases of U.S. debt as its own economic growth slows.
“To the extent that the Chinese and others do not have the necessary funds, someone has to buy them,” Gross said. “It is incumbent upon the Fed to step in. If they do, that will be a significant day in the bond market and the credit markets.”