The sub-prime crisis has started to become a major contagion, with investors in Japan and Australia, not just in Europe, taking a direct hit. As confidence by US home builders have dropped to low levels, this has definitely affected the credit markets and consequently pushed equity markets southwards, with gains achieved over the past year virtually wiped out in a matter of days. Should these developments significantly affect access to capital, US demand may be affected as well. A slowdown in US demand (or consumption) means a tailspin everywhere else. In the age of globalization, people, we're more connected than ever before. A hairpin dropped in the Argentine pampas can be heard in volcanic Rejkavik or in God-forsaken Timbuktu. You get the drift, don't be literal.
I digress again. Since almost all major investment banks have poured funds into US treasuries, if the sub-prime woes spill over to other sectors, we'll have another financial crisis. I'm just concerned about China. With over US$1 trillion in reserves which is the largest in the world, a considerable chunk of which is in US treasuries, I wonder how big is its exposure, direct or indirectly, to the sub-prime mortgage market.
But jaded market observers like me believe that what is happenning is basically a cycle that has to run its course and is in fact, a healthy correcting mechanism. As a frustrated economist-wannabe, I believe various forces will always work towards a state of equilibrium, and the boom-and-bust cycle is just a manifestation of this natural order of things. What goes up, goes down.
See, I have a nice way of rationalizing my losses, albeit incoherently.
I digress again. Since almost all major investment banks have poured funds into US treasuries, if the sub-prime woes spill over to other sectors, we'll have another financial crisis. I'm just concerned about China. With over US$1 trillion in reserves which is the largest in the world, a considerable chunk of which is in US treasuries, I wonder how big is its exposure, direct or indirectly, to the sub-prime mortgage market.
But jaded market observers like me believe that what is happenning is basically a cycle that has to run its course and is in fact, a healthy correcting mechanism. As a frustrated economist-wannabe, I believe various forces will always work towards a state of equilibrium, and the boom-and-bust cycle is just a manifestation of this natural order of things. What goes up, goes down.
See, I have a nice way of rationalizing my losses, albeit incoherently.
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