Denial as a strategy

It seems like no one is much worried about the global financial crisis any more. Most markets are up 50% from their lows. Interest rates are low - prosperity is just around the corner ....

I don't believe it. I just read a comment by Charles Hugh Smith (Oftwominds blog) which went:

Denial is a wonderful survival strategy until suddenly it isn't.

I think we're well and truly in this stage of denial.

The US is fundamentally and structurally stuffed - I think they have a long way to fall before the fundamental goodness and soundness of the American people kicks in. It's funny, but the thing they're most proud of - their system of government - is probably the thing that is dragging them down. The reality is that many (if not most) first world countries have a better performing system of government than the US. And there is no better example of this than US health care.

What I think is underestimated is the extent of China's vulnerability. Things I read suggest to me that there is a huge correction somewhere in the works. It's not clear to me that China has the structural capacity to adjust. I hope they do, but it won't be pretty. It seems to me like they're building an asset price bubble bigger that California real estate. Perhaps more like Japanese real estate in the late 80s - when the value of downtown Tokyo was said to be worth more than all the real estate in - where ever ... Turns out it wasn't!

And where goes China - so goes Australia - at least in the sense of being the miracle economy that is cruising through everything else. In the last few weeks there has been much talk about the A$ being a proxy for China - and that investment in Australia is now a low risk way of investing in China. Methinks there is an asset price bubble building in Australia.