GreyWolf

The main factor, above all, is debt man. It's the root cause of almost all problems and the ripple effect is fairly extensive.

The policy of the FED was maintain the status quo without shaking the deck of cards and at any time there was a rumble, they just injected more notes into the system to keep liquidity.

When the debt is unsettling and not actually being addressed, it can take very little to cause an earth tremor. And that "little" thing was the home market.

The home market is little more than exuberance - it was not real and encouraged by predatory lending by financial institutions in the form of sub-prime mortgages. They were promoting their own asses, but selling an unsustainable dream where the mortgagees were not in a position to maintain these mortgages.

This may have, who knows, suited the Fed at one stage. It mean't a boom in the construction industry and more jobs and showed a positive side for the economy overall. But... the foundations were on sandy ground and not financially sustainable.

The bad side re the home industry is that this accounts for around 24% of total economy when you all add related industries which cater to the home market - construction companies, realtors, kitchen equipment manufacturers et al. When these companies are hit - there can be considerable job loses. This ripple effect also extends to retailers and, little doubt, they are on the hit list already.

There is now a growing backlog of homes available for sale, but not going to be sold in the forseeable future. That scenario is not good when a developer is considering construction of still more homes and it places him in a precarious position where he can lose serious money - and unlikely he is going to employ 400 people on whatever project - less jobs on the market.

There has been a concept that everyone should buy real estate and the idea that "this will make me rich". Purchases of a home were not necessarily on the basis of what a home is for - living in. Sure, it can, and for many, it does make them rich, but again, many folks have over-extended themselves and put what they had accquired into jeopardy. Homes for the average person are not "profit centers" - unless it is a home development development biz.

The third problem... tho related and as a result of the above, is a credit crunch. This has already started and the Fed have dumped... (can't remember exactly), but around $150 billion into the system in the last month to keep liquidity with banks etc. People *need* to earn and have floating money - not just to pay off the maxed-out cards and already consolidated loans, but for mortgage payments, food and daily living. If there is a lack of funds, it is again going to hit mortgage lenders, retailers ad nausea. The mortgage lenders will be left with more homes than they could possibly move on and, if that keeps increasing and homes keep depreciating - they will go bust.

Who knows how deep the credit crunch may be? At worst is recession, but hopefull it will go nowhere near that.

Because of all of the above (plus a few other elements), the dollar is being put under pressure. Investors have been withdrawing from the market for a fair time now - it's hard to expect managers of hedge funds etc to keep their client funds in an depreciating or unstable market. This stuff is a vicious cycle.

Each time the dollar depreciates, sure on a personal level it affects webmasters resident outside the US, but, that is peanuts in relation to the effect on the US economy. Oil prices will rise with each depreciation of the dollar, exports become more expensive, further pressure is put on US folks economically. There are no winners either way in this scenario and the main effects will prob start to show in the US before the year end.

If it was not for internal US debt and the home crunch, - the dollar would probably be fine. Tho there is an underlying problem in that the US economy has been running at a deficit for many years and is not sustainable, (basically over-consumption and instant purchasing without having the ability to pay - the credit card syndrome where the debt is constantly increasing), tho has been managed fairly well by the Fed, but at a cost.

It's hard to see any light at the end of the tunnel yet. There has been no plan forthcoming from the Treasury or the Fed. I just don't like any of this - if it was a corp, I'd vote to liquidating it - but, ya can't do that with nations. It needs a plan to work out of the problem - there is a long way to go and 100% certain it will get worse and ya can't help but feel for folks who could be seriously affected.

The Fed are kinda stuck between the devil and the deep blue sea - they can lower or raise interest rates, inject more paper into the ecomomy etc. It's a *very* fine balance which needs to be struck to keep the boat stable - and sure not easy. It is prob fair to say, it can't just rely on the Fed alone - govt needs to take a lead along with industry towards a plan for actual wealth creation, increase employment prospects and put money into the pockets of the public. Constant loans are not a solution in the long term - that policy managed to accumulate prob over a $10 trill worth of debt so far.

Botton line - debt is the problem and it's hard to counter other problems when you are already deep in debt. It's also prob not helpful exporting industries to other nations in an effort to get something cheaper. There is always a cost.