The first comments I recall on the dangers of basing world trade in real goods and services on the $US was made by Neil McInnes in the AFR in about 1972 ('What do we do with these worthless US Dollars?'). Keynes was probably on the right track at Bretton Woods when he wanted to introduce an international trading currency for trade in real goods and services but the USA was the hegemonic trading power at that time and won the argument.
Once the USA became a debtor economy and became seen as the consumer of last resort by the politicians of any country wishing to export its potential unemployment, (yet the USA was still seen as a source of real capital rather than of the ficticious savings of its wealthy classes) it was fairly obvious to McInnes the muck would eventually hit the fan. Political leaders have spent thirty years pushing back the day of reckoning.
We are not out of the woods yet and we won't be until a new trading currency, based on a weighted package of all major trading currencies, is in place. Administering that currency will require the wisdom of Solomon by competent men and women of good will and that requirement disqualifies all bankers and many economists and politicians. Who in future would be confident to trade in the long term with trading contracts written in $US?

Mark a very interesting perspective. Thanks. Everybody owns some of the truth and it is very wise of you to recognise that.

Is that P/E ratio likely to go as low as 10.0? I've seen forcasts of a 60% fall in the value of Australian stocks, from the peaks of last year.

If you think so then that logically would be the point to re-enter the stock market? Don't you think?

This is an enquiry on an entirely selfish basis.

Kind Regards.

So, we've talked banks.

How does the collapse of AIG, Lehmann brothers and trouble of Merrill Lynch fit into all of this if it is just about an American real estate bubble bursting?

Keith - sorry I wasn't around yesterday.. picking the bottom is real tough. Most pros don't even try .. just hold off putting in more money when the market is going down is all..

Anansi - an excellent question.. why should a collapse in the American property market do all this? I made a suggestion.. but apart from that I'm fogged.. as I noted nothing like this has happened before..

“Confidence” is the commodity which we all need but no one can ever set a price for.

Marks article is interesting from the perspective he acknowledges the nature of markets, the herd mentality of investors, be they private or institutional and the failure of the banking system to see the Elephant in their room, bodgey loans 'uncovered' because of inadequate security (insecure-security, in a word).

I recall the dot com bubble back in 2000, a small company which manufactured Z drives, early mass storage devices, was picked up in a whirl of buying frenzy by day-traders. The stock price soared to the point that P/E or Yield of any sort became meaningless. Nothing wrong with the company, a lot wrong with amateur investors

My gut feel is these things are bound to happen every decade or so.

It is a generational thing, in which every generation has to learn from its own errors and not the errors of its parents.

Doubtless it will occur again, I only hope before it does, we take the other elephant, “government” to task and strip it of some of its powers from which it feels presently entitled to throw taxpayers funds around, whilly-nilly.

If more people managed their own money, understood and considered the merits and the risks of the investments which so called “professionals” and “governments” make on our behalf, I am sure the incidence of many of these dramas would disappear overnight.

Hi Mark

Now that is a truely revealing response.

It indicates you don't know ... and that is great and an attitude I usually adopt and truely appreciate... but that you think it might just be going lower. And that too is my inclination.

Col

I am expecting to go on the record and say ... Swan and Rudd's spending bonanza is pointless ... it won't stop what is coming.