Mainstream chatter about recession in the US

November 17th, 2007

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More than a year ago, in Tide turned, we warned that the

US economy is very sick and by implication, the stock market will eventually follow. For us, we are hedging our financial well-being with gold.

At that time, most of the mainstream consensus was that either there would not be a recession in the US or there would only be just a ‘soft-landing.’ Today, the mainstream tune is different. They are talking about the high probability of a recession in the US (e.g. Goldman Sees Subprime Cutting $2 Trillion in Lending in Bloomberg and America’s vulnerable economy in The Economist).

In the months to come, after it is confirmed that there is indeed a recession in the US economy, the mainstream chatter will be on how severe it will be. Our view stands with the Bank for International Settlements, a pre-eminent global financial institution that is sometimes known as the central banker’s central banker (see Bank for International Settlements warns of another Great Depression).

The consequences of a Greater Depression (assuming that it will happen) will be globally felt. We feel that China (and by extension, Australia), will not escape unscathed in such a scenario. The question is whether such a Greater Depression will follow the severe deflationary pattern of the 1930s or the hyper-inflationary pattern of Weimar Germany.

Please note that we are not predicting that the Greater Depression will come to us in the near future. Rather, we are warning that the risk and impact of such a happening is sufficiently great enough (i.e. a Black Swan) for us to be greatly concerned.