The US Economy - It Never Rains, It Pours

Dear Friends,

As the saying goes, "It never rains, it pours". Here is an excellent video clip of the interview between Aaron Task and guest, Howard Davidowitz of Davidowitz & Associates in the article enitled, Worst is Yet to Come: Americans' Standard of Living Permanently Changed.

Mr. Davidowitz asks us to take into account -

• US$8 trillion loss from Declining Home Values
• US$10 trillion loss from Financial Markets
• US$14 trillion Debt owing by Consumers with fast rising retrenchments and bankruptcies
• Rise in American's savings rate to more than 3%.
  

In last night's interview with CNBC, billionaire, Mr. Mortimer Zuckerman of Boston Properties said that US$1 trillion of US Consumer Spending will be reduced, as Americans start to save. Imagine what the effect of a drop of US$1 trillion in Consumer Spending on a total GDP of US$ 14 trillion. That's a Negative 7% drop in GDP, not accounting for the multiplier effect in the economy.

Also, it should be noted that in a separate interview with Bloomberg, Mr. Zuckerman also said that about US$160 billion of CMBS (Commercial Mortgage Backed Securities) are due for payment this year, 2009, when bank credit is frozen, and thus, isn't available.

Also, a company called General Growth Properties has US$27 billion of CMBS debt that they have difficulty to refinance. What will happen to the Commercial Properties Market this year?

On the other side of the world, Japan faces a high maturity of bond debts as well this year, 2009.

Will this be the year of the World Bond Market Collapse? This depends on whether the Banking Crisis Situaton can be resolved. The repercussions of a failure to solve the Bank Liquidity Crisis will certainly be severe.

Best wishes,

Ooi