Zeev,
This is an excerpt from tonight's Bill Fleckenstein's article . Your thought please. Could we see another crash like 1987 later this year?
"Returning to the dollar decline, I think it might be useful to lay out the psychological progression, whereby folks' complacence turns to perception of a potential debacle, and what that might mean. First they have to recognize that something serious is under way. Next they have to react to that awareness. Then they have to take action. Then we usually see excessive action. Then we see wild overreaction. This entire sequence is still in front of us, because very few people have even identified the dollar decline as a problem. In fact, I continue to hear the same misguided talk about how a weakening dollar is great for us. That has been completely predictable, as I have noted, because it's what people always say when the dollar starts to weaken.
The problem is, you cannot get your currency to go down a little bit to where you want it, and then assume it will stop there. Once these things are put into motion, they always go longer than you think possible, and they always overshoot. I think we have an incredibly dangerous period in front of us, as our financial, economic, and balance sheet situation is far riskier than the last time we had a dollar crisis, which was in 1987. The economy was overheating then. Now I believe it's getting set to contract. The world is swimming in dollars. We have a monstrous amount of debt outstanding. The size of our trade deficit, $1.5 billion a day, is just gargantuan. Plus, we've got trillions of dollars' worth of derivatives exposure. So, if you wanted to set the stage for a potential dramatic accident, it's been set.
I can only shake my head at the economic folly of the last seven or eight years as we have tried to speculate our way to prosperity. So many people have been misled into thinking the policies were all good or manageable. How this all plays out is not yet knowable, but it's a given that we face financial and economic turmoil. When one's own government, against a backdrop of precarious fundamentals, stands up and says, "Sell our currency," which is basically what Snow did, it's a recipe for disaster."
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