Economy in meltdown?
- Thread starter Lucky_UK
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Cassin
Senior Member
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- 78
JayBear said:
I think the Gardener needs to explain that, not me. I was listening to NPR on the way home yesterday and this guy made a convincing case why we need to bring it back. I barely understood it so I was hoping someone more knowledgeable than me could explain it if I tossed the term out there.
Supposedly at its core it helps stocks from plummeting too fast.
badasshairday III said:
¨Inflation is always and everywhere simply an increase of the money supply (i.e. units of currency or means of exchange), which in turn leads to a higher nominal price level, as the real value of each monetary unit is eroded, loses purchasing power and thus buys fewer assets and goods and services.¨
Right now you are having a massive inflation of the US dollar but because of the govt not reporting M3 money supply as well as altering the way they make the statistics they are making themselves look better to the uninformed thus prolonging reckoning day.
http://www.shadowstats.com/alternate_data
A temporary reversal swing in some commodities (oil, etc..) does not make it deflation. It is simply a price change. Markets go up and down and there are reversals in any bull market. For real deflation the money supply would have to constrict.
The US dollar has been gaining for about a month after a huge market intervention on the quiet; probably to make McCain look better before the elections - failure there. The Euro now has problems cause of bank failures in the EU so the Euro is not having a good time. Japanese yen is going up is because of the unravelling of the carry trade.
Slartibartfast said:
I think the US in the end will go hyperinflation as it is the only way out of the mess they are in.
http://www.shadowstats.com/article/292
Some cash might do ok - in the past it was always Swiss Francs but the Franc is no longer on the gold standard
so it is unlikely to have the safe haven potential that it had in the past. Then again most people still believe there are numbered accounts in Switzerland with not even the bank knowing the account holders identity.
http://www.entrepreneur.com/tradejourna ... 46312.html
RIP Swiss Franc gold standard 1999
http://query.nytimes.com/gst/fullpage.h ... A96F958260
RIP Swiss banking secrecy 1992
http://en.wikipedia.org/wiki/Numbered_bank_account
badasshairday III
Established Member
- Reaction score
- 0
Yay!
http://news.yahoo.com/s/ap/20081009/ap_ ... debt_clock
Hip hip hooray!
Woohoo!
Do we still claim that we are the richest country in the world? :x
http://news.yahoo.com/s/ap/20081009/ap_ ... debt_clock
Hip hip hooray!
Woohoo!
Do we still claim that we are the richest country in the world? :x
badasshairday III
Established Member
- Reaction score
- 0
Maybe we should sell Guam and a few other south pacific islands off to China for a cool 5 trillion dollars?
Harie
Experienced Member
- Reaction score
- 5
Dow under 8700 for the 1st time since Mat 2003...And to think exactly 1 year ago today, it was at the highest point ever. My how things change quickly.
So what's rock bottom for the DOW? I honestly never thought it would drop below 9,000 even when all the talk about 700B bailout packages started. Does anyone think it'll hit 8500? Below 8,000?
I think the DOW will recover tomorrow because people will buy in tomorrow after the freefall week and fall again next week as those same people dump what they'll buy.
So what's rock bottom for the DOW? I honestly never thought it would drop below 9,000 even when all the talk about 700B bailout packages started. Does anyone think it'll hit 8500? Below 8,000?
I think the DOW will recover tomorrow because people will buy in tomorrow after the freefall week and fall again next week as those same people dump what they'll buy.
The Gardener
Senior Member
- Reaction score
- 25
The timing of the freefall, late in the day, inclines me to believe that this is institutional money getting out. The institutions tend to do their big lot trades late in the day, so they can observe the ticker behavior before placing their orders, because their orders are so large. I'm guessing this is 401k redemptions, hedge fund redemptions, etc.... and since a lot of the institutional positions are highly leveraged, there will be margin calls. My humble guess is that tomorrow morning sees a bit of recovery, and then another huge dump towards the end of the day as the institutions liquidate more assets in order to cover margin.
The Gardener
Senior Member
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- 25
Massive inflation of the US dollar??? Did you look at the chart you cited in your URL?gazza2208 said:
http://www.shadowstats.com/imgs/sgs-m3.gif?hair loss=ad
This is the Money Supply chart from your link. Looks to me like M3 is falling off a cliff (deleveraging debt deflation), and M1 (hard printed currency) is in decline as well. There's no new money being introduced here because the interventions have all been financed through treasury bond sales, and judging from the surprisingly low treasury yields there certainly appear to be eager buyers of these new debts. In fact, in a rush to safety, people are flocking to US treasuries, so this is an excellent time for Uncle Sam to spend some money. The downside is that this will steepen longer term rates, which unfortunately bodes ill for those still stuck in adjustable mortgages, and for those hoping to buy, the cheap mortgage rate will soon be a thing of the past in the near future.
Now, I AGREE with you that the government and banking system have been inflating the US economy in stealth since 2000... but the unwind of that won't be more inflation, it will be deflation. Unless you believe that the US is going to monitize all the lost bad loans a'la Weimar Germany, which is highly doubtful, as it would devalue the wealth of Bernanke's secret paymasters in Riyadh.
The money supply is constricting, as the chart you cited up above shows. It's not being constricted by lack of willingness of the Fed to issue credit, rather, it's being constricted as M3 money supply, which is money supply provided by bank credit largesse, is unwound violently at ratios of over 20/1!... and for continental European banks, at breathtakingly speculative and risky ratios of over 50/1! The only temporary swing in commodities that I see is not the current relatively low price of oil, but rather, the extreme upward swing in oil prices that we saw last summer. This was due to people fleeing false expectations of inflation and wanting to park their money in a fungible commodity. It turned into a mini bubble... and now this is correcting back as the bubble has burst. If this current downward swing in oil prices were truly a temporary thing, then I question why OPEC would be hosting a meeting to try to put a floor under oil prices by cutting production. ( http://apnews.myway.com/article/20081009/D93N6TR80.html )gazza2208 said:
I agree about the dollar getting some support. The Chinese are eager to see the dollar appreciate as it would keep their Renminbi weak and prevent their export economy from crashing. But the Chinese support is being done through purchases of US Treasuries... this is keeping short term interest rates low, which is inflationary, but the inflationary pressures of this are in single digits, and are in NO way able to offset the deleveraging and contraction of credit that is at factors of 20 or 30 to 1, or in the case of continental Europe 50 to 1, nor the slowing of demand, as the US and majority of the global economy sinks into an increasingly nasty recession... and recessions are ANTI-inflationary.gazza2208 said:
I would not disagree that the US economy is in a very bad place right now with some serious implications... but, I don't see hyperinflation YET, I see deflation. And deflation is not a good thing... prices will come down, but the other side of the coin is that everyone won't have nearly as much credit as they used to, and there will be a significantly higher number of people in the US who won't be making any money at all. Those who have jobs and can live within their means without using credit, and still have some discretionary money left over, will have some nice buying opportunities.
Good post, Gazza, I enjoy hearing different points and I respect yours... but I have a different take on it.
The Gardener
Senior Member
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- 25
Well, Cassin, I really can't make a prediction. Many people saw this coming, but seeing this coming was not rocket science for someone who monitors the financial markets on a daily basis. Making a prediction of the details of how this will impact us is well over my intellectual ability... we are dealing with irrational markets, and as a result, anything can happen at this point.
I don't know how this is going to manifest itself after the melting rubrick of a fundamentally unsound financial system starts to take its toll on Main Street, but I have some ideas, and I don't think its going to be pretty. I don't think we are talking Mad Max, but I think we have ahead of us a period of a "shabby" level of existence, kind of like the late 70's, but maybe just a tad worse.
Here are my ideas on this, total conjecture: I'd expect some unemployment numbers that will drop your jaw. But more insidious, I expect the worst problem not to be unemployment, but rather, underemployment. Everyone's credit will get a haircut. Expect unused credit lines to be taken away. If you have a balance, we may very well enter a period of time where as you make your monthly payment, the amount of credit you pay down will immediately be deducted from your credit line. And the credit you do have will increasingly come with higher interest rates associated with it.
Car loans for new cars will only be given to people with spotless credit. If you don't have spotless credit, you'll have to get a lower cost loan with a total credit line that will probably only allow you to buy a used car.
I can't see how we can get through this without a serious reduction in government services. Municipal governments might privatize transportation systems... we may see more toll roads, and our subway and light rail links operated by foreign owned companies. In general, I see lots of foreigners snapping up assets. We've already seen the Chrysler Building in New York, for example, sold to the Arabs. I expect this trend to continue.... we might see a significant selloff of commercial real estate to foreign holders of dollars.
The second-to-worst case scenario is a total freeze up in money markets. This would entail people getting letters sent to them from their employers warning them that their salaries might not be deposited into their accounts on the scheduled pay day, and there may be delays in these payments if the banks are frozen. Credit/debit card purchasing would be turned off, and currency controls might be placed on ATM cash withdrawals, to prevent people from completely pulling their wealth out of the banking system's reserves all at once.
The absolute WORST case scenario is a dislocation in the government bond markets. Odds of this happening are quite low, but the scary thing is that its not a scenario that can be ruled out. If the US has a bond auction failure, then we're talking about the government being in a position where they would need to reduce real cash expenditures IMMEDIATELY. This might begin with IMMEDIATE cuts in social security and entitlement payments. This would be a slippery slope to armageddon.
My basic guidance for ten months... financing costs and premiums will go through the roof. This is a mixed bag, the interest rates on personal credit will go much higher. Think you have a fixed rate interest credit card? Think again. Expect 4 to 5 percent increases on your interest rates. On the flip side, if you are a net saver, your savings account interest rates will go up, which means that net savers stand to MAKE money. In short, THOSE who, after the dust settles, have a JOB and have EXCESS free cash flow will be able to make great money by putting it into the system in banked savings. Net borrowers will suffer... net savers will not only see increased demand for their dollars, and increased interest rates on their savings accounts, but will also have an opportunity to buy assets at bargain basement prices.
The downside of this is that MANY Americans who consider themselves to be "net savers" will, thanks to the economy and unemployment/underemployment, find themselves amongst the ranks of the net borrowers. If you can keep your job, and manage to save money without resorting to ANY credit card usage, you'll get through. That is my humble opinion.
I don't know how this is going to manifest itself after the melting rubrick of a fundamentally unsound financial system starts to take its toll on Main Street, but I have some ideas, and I don't think its going to be pretty. I don't think we are talking Mad Max, but I think we have ahead of us a period of a "shabby" level of existence, kind of like the late 70's, but maybe just a tad worse.
Here are my ideas on this, total conjecture: I'd expect some unemployment numbers that will drop your jaw. But more insidious, I expect the worst problem not to be unemployment, but rather, underemployment. Everyone's credit will get a haircut. Expect unused credit lines to be taken away. If you have a balance, we may very well enter a period of time where as you make your monthly payment, the amount of credit you pay down will immediately be deducted from your credit line. And the credit you do have will increasingly come with higher interest rates associated with it.
Car loans for new cars will only be given to people with spotless credit. If you don't have spotless credit, you'll have to get a lower cost loan with a total credit line that will probably only allow you to buy a used car.
I can't see how we can get through this without a serious reduction in government services. Municipal governments might privatize transportation systems... we may see more toll roads, and our subway and light rail links operated by foreign owned companies. In general, I see lots of foreigners snapping up assets. We've already seen the Chrysler Building in New York, for example, sold to the Arabs. I expect this trend to continue.... we might see a significant selloff of commercial real estate to foreign holders of dollars.
The second-to-worst case scenario is a total freeze up in money markets. This would entail people getting letters sent to them from their employers warning them that their salaries might not be deposited into their accounts on the scheduled pay day, and there may be delays in these payments if the banks are frozen. Credit/debit card purchasing would be turned off, and currency controls might be placed on ATM cash withdrawals, to prevent people from completely pulling their wealth out of the banking system's reserves all at once.
The absolute WORST case scenario is a dislocation in the government bond markets. Odds of this happening are quite low, but the scary thing is that its not a scenario that can be ruled out. If the US has a bond auction failure, then we're talking about the government being in a position where they would need to reduce real cash expenditures IMMEDIATELY. This might begin with IMMEDIATE cuts in social security and entitlement payments. This would be a slippery slope to armageddon.
My basic guidance for ten months... financing costs and premiums will go through the roof. This is a mixed bag, the interest rates on personal credit will go much higher. Think you have a fixed rate interest credit card? Think again. Expect 4 to 5 percent increases on your interest rates. On the flip side, if you are a net saver, your savings account interest rates will go up, which means that net savers stand to MAKE money. In short, THOSE who, after the dust settles, have a JOB and have EXCESS free cash flow will be able to make great money by putting it into the system in banked savings. Net borrowers will suffer... net savers will not only see increased demand for their dollars, and increased interest rates on their savings accounts, but will also have an opportunity to buy assets at bargain basement prices.
The downside of this is that MANY Americans who consider themselves to be "net savers" will, thanks to the economy and unemployment/underemployment, find themselves amongst the ranks of the net borrowers. If you can keep your job, and manage to save money without resorting to ANY credit card usage, you'll get through. That is my humble opinion.
Cassin
Senior Member
- Reaction score
- 78
Lot of people will have to change how they spend and live.
I have been living below my means now for 4 years and I am so thankful I have been doing that.
Cash only unless its an emergency.
I always buy technology after its a couple years old so the price goes down. video ipod...ps3...
Instead of going crazy on credit I bought a 42 inch 720 HD I can afford instead of a gigantic 1080. cash
Instead of eating out a lot I cook most of my own food.
No billion channels on satellite.....I have a good service package but I have netflix.com for movies.
I have a 9 year old car with 160,000 miles that I take excellent care of that runs perfect and is in great shape. Its amazing how long cars last if you take care of them. People just trade in cars every 4 years and dig a bigger hole.
So thankfully I won't have to change anything.
I wouldn't even call myself thrifty...just patient.
I have been living below my means now for 4 years and I am so thankful I have been doing that.
Cash only unless its an emergency.
I always buy technology after its a couple years old so the price goes down. video ipod...ps3...
Instead of going crazy on credit I bought a 42 inch 720 HD I can afford instead of a gigantic 1080. cash
Instead of eating out a lot I cook most of my own food.
No billion channels on satellite.....I have a good service package but I have netflix.com for movies.
I have a 9 year old car with 160,000 miles that I take excellent care of that runs perfect and is in great shape. Its amazing how long cars last if you take care of them. People just trade in cars every 4 years and dig a bigger hole.
So thankfully I won't have to change anything.
I wouldn't even call myself thrifty...just patient.
bubka
Senior Member
- Reaction score
- 16
When I got out of grad school, everyone was in a competition to buy a new car, people ask me when I was going to get a new one. I am in my 20's, I am going to SAVE, not spend. I am by no means a "cheap ***," I probably do buy too many clothes, although I am bargain clothing shopper only... but but you have to live within your mean, and don't be a materialistic wh*** and buy crap you don't need.
Also too, don't eat out, (as you said), you can live of food from the store for the same price as what a meal costs to eat out for two. Plus less chance of becoming a fat *** who as health problems and additional costs.
Also too, don't eat out, (as you said), you can live of food from the store for the same price as what a meal costs to eat out for two. Plus less chance of becoming a fat *** who as health problems and additional costs.
Cassin
Senior Member
- Reaction score
- 78
bubka said:
I have real nice cooking stuff...excellent cooking knives and pans etc....makes cooking easier and I have gotten pretty good at it. Has saved me a fortune and since I stopped eating out (and drinking beer) the weight is shooting off me that I have slowly put on.
Not to get too far off track but its small things like that everyone will have to get used to fast and I think its a good thing.
Here is Bush's last chance to do something right.
http://money.cnn.com/2008/10/11/news/ec ... 2008101108