Tuesday, October 21, 2008

Eric Janszen on the financial collapse

Eric Janszen is the founder of iTulip.com, an investor, and an economic analyst. Whenever I read Mr. Janszen, he has something interesting to say. I first read him earlier this year in Harper's. He wrote an article titled 'The Next Bubble: Priming the Markets for the Next Big Crash.'

Recently, I found him here, being interviewed by Harper's. Again, interesting stuff, and quite bearish.

1. Is the Dow still inflated?

It is. My Dow target since 2006 has been around 5,000.

. . . .

5. How much worse will it get, and has anyone been able to beat this market?

It happens like this:

the dollar, declining;

import prices, rising;

goods prices, flat to rising;

wages, falling;

asset prices (stocks, bonds, real estate), falling;

long-term interest rates, low but rising;

short-term interest rates, low but flat to falling.

The probable outcome will be an inflationary recession or an inflationary depression–a toxic and complex mix of asset-price deflation, wage deflation, and energy-price inflation that will have an impact on food prices.

I don’t think most Americans understand just how much trouble the country is in. We are backing ourselves into a corner. Our debt-laden economy is highly sensitive to increases in long-term interest rates, and those since 2003 have become largely determined by foreign capital inflows from central banks, sovereign wealth funds, and other official (as opposed to private) sources. If a significant geopolitical shift away from financial support of the U.S. takes place–due to, say, military conflict between U.S. creditors, or perhaps due to rising economic and financial crisis at home–the source of those inflows may quickly dry up.

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