Archives: 2007 June

“The US economy is in danger of a recession that will prove unusually long and severe.

By any measure it is in far worse shape than in 2001-02 and the unraveling of the housing bubble is clearly at hand. It seems that the continuous buoyancy of the financial markets is again deluding many people about the gravity of the economic situation.”

Dr. Kurt Richebacher

Dr. Kurt Richebacher is a world famous, or world infamous economist, depending upon your point of view. Richebacher has long been a thorn in the side of the world’s central bankers as he has long predicted a bad end to their blatant manipulations of money supply and interest rates.

Kurt Richebacher is also highly critical of the way the US government has changed the way it collects and reports economic data over the past ten tears or so. According to Dr Richebacher the US economy is in far worst shape than indicated by the official figures.

For example, Dr Richebacher computes that the real unemployment rate in the US is over 10% if the way the data is presented had not been changed by the Department of Commerce.

Common sense as well as history does tell us that at the end of every boom comes a corrective bust. Perhaps it is time to become extremely cautious.

After all Dr. Kurt Richebacher lives in a home overlooking the harbor at Monte Carlo, one of the most expensive places in the world to live. Over the years he has done exceedingly well with his investments.

After the boom comes the bust. Better watch out below if you have been a US housing market speculator over the past few years.

Housing market conditions are clearly getting worst. It is unlikely that any major US housing market will escape the challenges to come.

One of the greatest fears is a complete collapse in the sub prime loan market. The foreclosure rate has hit record levels with no signs of abating.

No doubt a lot of loans were made, some of them quite exotic ones, that are turning toxic in the present environment.

Look out for a sharp increase in US interest rates. While the Federal Reserve will attempt to keep rates low to combat a further housing market decline in the end market conditions of supply and demand may prevail, not the wishes of Washington, D.C. based bureaucrats.

Serious problems with loan defaults at major US lenders could spark a rush for additional financing at a time when lenders are withdrawing from the market.

Look for a long protracted difficult time ahead.