After The Foreclosure Related Walls Street Carnage

September 29th, 2008

It seems that after the foreclosure related Walls Street carnage, life will follow a different course. But some experts differ. They say that there would never had been this housing cum financial bubble allowed to blow up and then burst flat had not there been huge funds that were foreign-owned parked in USA as also in UK. It is there. This is an unchangeable factor.

The money that has been overwhelming Wall Street for the past ten years has its source in the unspent savings of the Asian economies running on the fast track. China leads the race. For the moment these Asian countries might temporarily limp but they will continue to store loads of funds. These funds lack investment opportunities within the borders of their own countries. Hence the fund will try to seek an outlet on western shores.

Asia has developed an appetite for oil and raw materials. This need is not going to be abruptly switched off because of the foreclosure related debacle of last week. The countries that export oil and raw material will continue to hoard billons of dollars and euros that cannot be spent. Now the opportunity has come following the foreclosure crisis to park the funds directly in western financial houses or inject it straight into the western markets.

Needless to say, the owners of these funds will be more cautious after noting the lessons learnt from the foreclosure crisis but the moot point is that the money is there. This great credit bonanza would not have happened had not there been a low permanent inflation with its accompanying low interest. This phenomenon will not change. More industries will be switched off in western factories while others will be switched on in Asia.

One instances is the outsourcing of office work to English speaking India. This will not come to a sudden halt. If inflation continues then interest will also be low. The result will be the borrowing of cheap funds by financial bodies to be used as capital in their own investments.

The deregulation of the markets did lead to the foreclosure crisis. But it is part of a bigger movement – the developing or enabling of the market state so that the individual gets the maximum opportunity. This enabling-state privatizes or semi-privatizes those items that were so far the sole duty of the government. For instance today hospitals given more scope to manage their own activities. High finance has got a temporary thrashing but it will soon surface.