How bad can the global economy get?

[John Edward Mercier]

Hm yeah, I wouldn't expect strong USD to last either, unfortunately, but I guess this situation might be buying us some time (months, maybe a year?) so we can diversify (I ought to start getting paid as much euros as possible).

Probably not the same for Croatia, but in the US I-Bonds work well.

[Friday]

Fed offers unlimited support
Fed to offer dollars to Bank of England, European Central Bank and Swiss National Bank to lend to private banks.

Oh, come on now.... even running 24/7, the printing presses can't offer unlimited support.  Sooner or later they're going to break.  They must just be adding digital zeros now...  Digital zeros for the U.S., digital zeros for Europe.  Zeroes for everyone!!

[John Edward Mercier]

Its always done digitally. They only print/coin currency when the physical need for it exist. Which is getting less and less.

What the central banks seem to be trying to do is inflate the monetary base to support the commodity prices, in a coordinated manner that maintains relative currency valuations.

During the Great Depression there was a false bull that resulted during the time it takes for the main street economy to catch up to the market... once it did the fall continued the rest of the way.

I still haven't seen the spending contractions and lay-offs that come with a minor recession in this area...

[memenode]

Hmm, yeah, inflate all currencies so relative to each other none lose. Brilliant, until it finally starts affecting prices and we're all just as fraked up as we'd be anyway. Plus in the long term it makes all currencies weaker and more prone to hyperinflation, right?

The one consolation I find from this plan (if that's what they're doing) is that it probably means I wont see a sudden fall of USD any time soon so I can still hope to outrun the crisis by simply generating more revenue, in whichever currency, including USD (which is internet's currency).

I'm more and more of opinion that the USD collapse might not happen as soon as it seemed. Rich governments like China and Israel are holding huge reserves of FRN's which AFAIK they aren't selling yet, and that protects the value of the currency. China is merely using them as bargaining chips to corner the US on certain issues. Secondly, since the value of USD is perceived relative to other currencies, and all currencies are going down then if there's going to be a collapse, it'd be both EUR and USD about the same time. So we're in this together, on both continents...

Anyway, perhaps what the "ruling elite" wants is to bring both EU and US to the wall and then replace both USD and EUR with a new global currency??

[John Edward Mercier]

Don't know.
Prefer the time before the Euro.

[memenode]

Don't know.
Prefer the time before the Euro.

I gotta say.. I agree.

Edit: I just realized I might have understood you wrong. I thought you said you prefer to have more time than to save euro's as a way to shield yourself from dollar collapse. What a concotion on my part! 

But anyway.. in a sense that I don't like what euro and EU represent, I still do agree.

[memenode]

I don't know if anyone's seen it (if you're reading LewRockwell.com AND following links maybe you did), but there are apparently first reports on food distribution freezes that could affect food supply globally.

As William Norman Grigg says:

If, as some very capable analysts anticipate, the short-term commercial credit system were to seize up, one immediate result would be shortages at grocery stores and gas stations. In fact, this process is already underway.

He is linking to this article which is providing some rather alarming information about what's actually happening right now. I'm not sure how to verify all this, but considering everything I've read elsewhere it sure doesn't seem like things aren't getting worse. I think it's probably going to be enough for anyone of you to confirm that lack of commercial credit can cause food not to be distributed for me to take this as the cue I've been waiting for to start stockpiling on food.

Conveniently I even found an online store of a local groceries chain where I can have it delivered for free. I just need to make my picks, set the quantity, pay by the card and wait for the delivery. My first stockpile order may cover me for one to three months worth of nonperishables.

This is so darn sad, what's happening. I've held a tiny bit of hope that the big one wont come to pass now, that the depression isn't really starting, but it seems like it will. Hell, at the time when I opened this thread it still seemed like nothing really unusual is happening in Croatia. Fast forward to today and the local stock markets have had record crashes while the EU is pushing a 2 TRILLION EUR bail out package.

Things are happening too fast.

[Friday]

I don't know if anyone's seen it (if you're reading LewRockwell.com AND following links maybe you did), but there are apparently first reports on food distribution freezes that could affect food supply globally.

As William Norman Grigg says:

If, as some very capable analysts anticipate, the short-term commercial credit system were to seize up, one immediate result would be shortages at grocery stores and gas stations. In fact, this process is already underway.

I don't know... I've seen several reputable libertarian sources talking about how there never was a credit freeze, that it was a bunch of fear-mongering crap to help get the bailout/looting pushed through.  I don't know where that leaves us, though. The U.S. economy is still unsustainable.  Meanwhile, silver is at three-year lows?!  I'm so confused.   

FYI, I found this lecture entitled Austrian Economics and the Present Crisis on the Future of Freedom Foundation website very interesting, not that it answered any of my questions above:
http://www.fff.org/comment/com0810j.asp

[John Edward Mercier]

Credit contractions are deflationary... and result in dropping commodity prices.

A credit contraction can occur whenever the lending institutions and hedge funds decide to narrow their leverage (fractional reserve lending/margins).
So while Lehman failed at somewhere around 30 times leverage... it resulted in a pull back of leverage of several institutions.

Its seems more severe due to decreasing per capita resource availability.
Though you can expand money supply and marginal index to meet the elasicity of labor... the underlying resouces have limited expansion. This was the premise of Malthus.

[Friday]

Apocalyptic aside: Both the cities of San Francisco and Oakland are overdue for "the Big One": earthquakes that are known full well ahead of time will take out most of each city.  Americans think Katrina/New Orleans was expensive, and chaotic, and disruptive to the U.S. economy?  Or perhaps the island of Galveston recently?  Please...  you ain't seen nothing yet.  There will be martial law, and hundreds of thousands of people living in tents for months, when either earthquake hits. California will be dragged to its knees.  And with an economy equivalent in size to that of France, the financial drag on the rest of the U.S. will be cataclysmic.

Geesh, and neither earthquake has even happened yet.  Hold onto yer butts...   

California controller to suspend tax refunds, welfare checks, student grants
from the LA Times, Saturday

[William]

"Some smart people have been watching and analyzing the money supply data for hints as to how this deflation/inflation warfare will play out."

http://scottrayno.wordpress.com/

[anon88241661]

I am holding my breath for when the USD ceases to be the international currency for pricing major commodities.  Could be any day now.

Does anyone recommend a particular English-language news site or blog for monitoring this sort of thing?  Obviously CNN is a joke, and the BBC is not much better.  The Economist is somewhat better. 

Bloomberg ( bloomberg.com ) is the absolute best major financial news site that I know of.  They actually report on how bad things are - and not just in the US, but all around the world.  Unlike CNBC, they're not constantly trying to get you involved in stock and option trading so that you'll watch their shows.  Bloomberg considers them selves a small niche news outlet for professionals.  So, they're not trying to broaden their base to bring in more advert revenue like CNBC.  Bloomberg, seems to be just trying to serve their niche well.

I learned a lot from watching CNBC, especially the "Fast Money" show.  But, when the market crashed and I got to see how biased and dishonest CNBC was and how they stack their commentators I completely stopped watching them and reading their website.  CNBC is as bad as CNN.  CNBC Europe actually censored Peter Schiff w/ "technical difficulties" when he started talking about why TARP wouldn't work and why the dollar could collapse in the near term.

    - anon

[anon88241661]

Btw, speaking of saving cash, don't save in USD. Buy euro's or Japanese Yen or maybe Hong Kong Dollars. The latter two seem most stable according to some graphs I saw (that is, they don't have that long term decline the way USD and even EUR to a lesser extent has.

Be very careful w/ Yen.  Japan is the second largest holder (574 Billion USD) of US Gov't Debt after China (585 Billion USD).  They hold a massive amount, enough that if something happened to the USD the Yen would likely fall a long side it.  Japan would not only be hurt by us not buying lots of their great cars any longer, but they would also lose much of their reserves.  I very strongly recommend that people only buy Gold.  I have been buying Canadian Maple Leafs which come in many sizes including 1/10 Oz (3.3g) and I think 1/25 Oz (1g) but I haven't seen the 1/25 Oz around myself lately.

Buying Canadian also reduces the amount of money the US Gov't makes off the transaction there by reducing the amount of pain they can inflict on the people of New Hampshire.  I try not to buy any American products any more - the idea being like a legal form of Agorism that will hopefully eventually badly weaken the US Gov't (just as buying tons and tons of crap from China and Japan has done in the last decade).  I even started drinking Canadian Beer. 8-)

Other large holders of US Debt:

    http://en.wikipedia.org/wiki/United_States_public_debt

    - anon

[anon88241661]

Here's something interesting.. The Data Don't Justify Financial-Market Panic

One of the things that caught my attention is that US inflation is only 3%. Inflation in Croatia is currently 7% and it doesn't seem like we're gonna hyperinflate any time soon so what the hell? Given that and that USD is currently highest this year (and compared to last too actually), it's like the USD is stable and the real catastrophe just isn't happening. So what the hell?

How can inflation in US be so low after all that happened?

The US is in a period of deflation, right now (or very close to being in one).  Basically, deflation is when prices go down because people won't buy anything.  Every $1 printed by the Fed gets spent 10x before it's saved or totally back in the government's hands due to taxes.  That 10x multiplier effect is called the Money Multiplier Effect.  The unit of measurement used in the Money Multiple is called velocity (basically how many times money is spent).  When people get scared, velocity drops way down because people let any money they get sit in their bank accounts, stuff it under their mattresses, or buy US Government Bonds with it (there by giving it right back to the government).  The Federal Reserve tries to fight deflation by printing so much money that even if velocity fall very low and the Money Multiplier drops to a 3x (due to hoarding) from the normal 10x multiplier the same amount of "cash flow" takes place.  The idea is that the Fed is very afraid of deflation because once people see prices drop they wait for them to drop some more and it becomes very very hard to get people to spend their money and consume - they keep waiting for the prices to drop further.   If consumption falls, tax revenue falls.  Also, if consumption falls, employees are laid off and tax revenue falls.  The Government is more afraid of deflation than inflation since inflation just hurts people who saved, buy deflation hurts the Government.

Since the US dramatically expanded the money supply to keep deflation from happening (TARP, Bush Tax Rebates, etc., etc.) there's a lot more money out there.   When people start to spend again and velocity starts rising, the Fed will try and reduce the size of the money supply.   But, that's not only difficult to do, it's very difficult to time correctly.  So, the Fed will likely get it wrong, and that's when the inflation will happen.  I think it will start around the first months of 2011 or maybe the second half of 2010.

Hyper Inflation of the US Dollar could happen if other countries stop lending to us thereby making it so much more expensive for the US to borrow money that we need to print a ton of money just so we can make the interest payments on what we borrow.  Or, hyper inflation could happen if everyone started selling all their dollar assets super fast pushing down the value of the dollar in relation to other currencies.   Both scenarios don't seem very likely right now because Japan, China, India, the Oil Producers, and many others, all depend on American demand to fuel their own economies and have large amounts of USD in their reserves.  So, if we go down they go down too.

What I think will happen is US inflation will creep up to 10%-15% a year in 2010/2011 and stay there for a long while.  That will make America a poor enough country that it will no longer be the primary source for world consumption/demand.  People in other countries who are now all buying USDs and US goods (like Russia, Zimbabwe, etc., etc.) due to this down cycle in the world economies will start buying Gold, Swiss Francs, or Euros, or something else instead of USD which will further the cycle of decay.  Likewise, countries will start to move out of the USD as a reserve currency and move to Gold and other currencies. 

I think the USD will be worth substantially less in 20-30 years.... maybe 1/75th - 1/100th of what it is now.   But,   I don't see it collapsing in the next few years like the Zimbabwe currency did.   Keep in mind the USA has some of the largest Coal, Nat Gas, Oil, Gold, and Silver, reserves still untapped in the ground of any country of the world.  So, if things got really bad the fact that we could sell those natural resources to other countries would prevent hold off hyper inflation in most cases.

As for why Silver is dropping in price, as Friday asked, there are two reasons.  1.  Silver's primary use is in industry (making mirrors for example) so when demand for manufactured goods falls, demand for Silver falls as well pushing the price down.  2.  Silver is not seen as as much of a safe haven as Gold is.  People traditionally flee to Gold in times of crisis pushing its price up.  Gold's primary use is Jewellery rather than industrial uses like Silver and Gold is much more rare.  So, Gold able to hold its value better in times of recession and deflation.  While Gold will drop too during deflation, it won't fall as hard as a manufacturing demand based precious metal.

The reason Silver fell is the same reason why Platinum and Palladium have fallen so far recently - their primary usage is industrial (catalyst in vehicle exhaust systems) and we've all seen how many fewer vehicles have been made in the last six to twelve months. 

It's just my personal prejudice, and I'm sure there are some on the form who will strongly disagree, but I think people should buy almost all Gold and have very little Silver.  If the underground Silver economy in NH is very robust, that's great.  But, if you expect to have to trade with people out side it or change in your metals in for a new domestic currency ("New Dollars" or what ever), you're much better off with Gold since manufacturing demand would be very low immediately after an upheaval such as a currency failure.  Many investment advisors recommend clients keep 10% of their savings in physical gold.  I keep 25% of my savings in Gold Coins.  I will probably increase that starting at the end of the year to 35%-50% or so depending on how things look.

(Opinions my own... Wikipedia and books on the subject have better and more accurate definitions/explanations of the economics and terms than I've given here... etc., etc., blah, blah, blah.)


                 - anon

[memenode]

Interesting info Anon. It's even somewhat comforting to think hyperinflation isn't gonna happen as soon as so many have predicted (Peter Schiff, for example, said it could "fall like a stone" in Feburary.. that's any time now). I'm fairly dependent on USD even though I don't live in US because my business is web based so at least half of what I get is in USD. It's known as the "internet currency".

As for saving, I ended up not buying any foreign currencies like EUR or YEN. I simply save in cash of the local currency because that makes it possible to spend immediately when needed and I'd say the local currency, being not entirely dependent on EUR and USD is stable enough. I do check the inflation reports though. Our inflation seems to have dropped by the end of last year too..

I also bought some silver last year, not much (slightly more than a dozen ounces), but if I buy any more any time soon I might heed your advice and get gold, though my savings are likely to progress slowly and I'll probably be able to afford only very tiny amounts of gold.. like measured in few grams. I have only 1 gram of gold so far. 

Still, it's not the weight, it's the value that counts, right?

So, those cash savings, plus a little metals combined with being debt free and still liquid, as well as keeping my eyes open on the crucial events, should probably make me fairly capable of weathering this storm. I also work on a business idea that might do even more than just keep my boat afloat.

Thanks