So, I'm still looking for opinions about whether a collapse of the US economy is likely. My understanding of business cycle theory would suggest that the continuation of a bubble through extreme money creation will be followed by a bust. Well, since the 2008 recession the US has created more money than ever before:
So is a bust immanent? And how big will it be? Do you guys believe the stuff Peter Schiff and Doug Casey are talking about? Does the fact that Trillions of Dollars are sitting in foreign reserves exacerbate the crisis, as they might be dumped at the first sign of trouble?
Feel free to post any opinion without having read the thread.
The situation is too complex and nuanced to simply say that the economy will collapse.
To paraphrase Marc Faber: We're all doomed, but that doesn't mean that we can't make money in the process. Rabbi Lapin: "Let's make bricks!" Stephan Kinsella: "Say you and I both want to make a German chocolate cake."
Daniel Muffinburg:The situation is too complex and nuanced to simply say that the economy will collapse.
In other words, it is impossible to know. Well what's the good and bad scenarios? What likely to happen in your opinion? Or is it just paranoid internet nonsense?
Look at Robert Murphy's latest video on Bernanke's exit strategy.
Good thread.
I personally see a weimar style hyperinflation. I think Ben Bernanke would rather see hyperinflation than any deflation.
I really don't see how we couldn't experience hyperinflation, because I can't imagine Obama/Congress cutting spending when the creditors stop lending and when people stop paying taxes. After that, who the hell knows what will happen? Will it be a one world government? The NAU? The 2nd coming of Christ? Armageddon without the 2nd coming of christ? Another Holocaust? Or could the American people actually wake up and decide to reinstate the Articles of Confederation?
I believe there are new complexities from the time Mises wrote Socialism. First, investors are much more inflation-aware than they have ever been in history. Inflation is no longer treated as "pesky but inconsequential" by anyone but academics and politicians. The heavily inflationary environment is precisely what is driving the new boom in the hedge-fund industry. Hedge-funds are essentially inflation-avoidance vehicles for the wealthy which is the real reason the pols are all up-in-arms about them.
Second, I believe that policy-makers like Bernanke are frankly two-faced - they say "inflation will save the economy" for the TV cameras because that's what they're supposed to say but, behind closed doors, I think they (Federal Reserve board and whoever their superiors are...) understand ABCT even while they publicly renounce it. The way the Fed inflated during 2009/2010 was so odd... they flooded the reserve accounts of member banks at the Fed but didn't actually put that much new money into the economy beyond what was needed to bail out their buddies. So, it's like they were pretending to inflate but were reluctant to really inflate. Bernanke said, "even a credible threat of inflation" is sufficient to drive investors out and get the economy flowing again. I find his choice of words ... "credible threat" to be very interesting. I think the Fed is playing games at a much more sophisticated level than it did in 1929.
The net effect of inflation is to tax and it's important to remember that. Inflation is a particularly bad kind of tax because it distorts the capital structure of the entire economy... that's ABCT. But every tax distorts the market to one degree or another. Inflation centralizes economic decision-making by putting more wealth in the hands of the central planners in the State. This doesn't automatically entail that the economy will crash but it does entail that we're all going to be getting a lot poorer as the division of labor is broken down and we are driven backwards into a tribal barter economy. The longer the US government is able to persist in this game the worse things will become in the long run. At some point, people will begin starving in the streets as production becomes so discoordinated with demand that even the most primitive forms of production (i.e. farming) break down. This is the road to serfdom and we're all in a forced-march on it right now.
I do believe there was some kind of coordinated, secret political plan that began in September 2001 but which began breaking down around the time of the Copenhagen climate summit in December 2009. That is good news. My hope is that things continue to break down further but without an outbreak of open war. You can see that the messaging for a global currency has broken down. China and other developing countries are not playing ball with this carbon-tax and cap&trade nonsense. The whole global warming thing appears to be going the way of the ozone hole... to obscurity and eventually the memory hole. But the problems on the home-front remain... we're in for either massive privation or massive social unrest as the promises of the Federal government to retirees become unfulfillable without putting working-age people in chain-gangs to pay their Social Security "obligations." I predict that, within a decade, Social Security will not exist in its present form. This is the biggest change coming within the United States. Health care is going to change big-time as well since I believe the purpose of Universal Healthcare was to make an end-run around the Medicare problem. Basically, at a convenient time, Medicare will be absorbed into the Universal Healthcare system. All those "unfunded obligations" will simply evaporate and we will have fully nationalized health care instead.
Sorry for rambling... back on-topic... the money that's been printed so far may or may not lead to massive inflation, depending on how the Fed sets its internal policies to either sop up the excess cash or spread it far and wide. But that's all tactical (important for short-term decisions... but it doesn't tell us anything about the long-term). This is where you have to turn to Marc Faber... his argument is that basically the US government has no choice, their back is up against the wall. They can't collect significantly more tax revenues because the American public simply won't tolerate it. Wealthy Americans are, by and large, already defending themselves against any strategy the US government might deploy to try to soak them... they're buying immovable assets overseas, they're moving their money into cash or bullion or other forms that cannot be traced by the Feds. So, "raising taxes" is a joke, not gonna happen to any meaningful degree. They can't borrow much more than they're already borrowing... we're at 97% debt to GDP, by next year it will be over 100% debt to GDP... China isn't going to bail us out by buying more of our crap bonds and other institutional investors have lost interest in US bonds... and even domestic investors don't want US bonds, either. Everybody's running for the exits because nobody can see how the US government is going to continue business-as-usual and collect enough surplus to keep paying the interest on its debts. Once the point is reached where bond investors no longer believe the US government can continue business-as-usual and pay interest on its debts, the US government is going to wake up and find out that there are forces in the world much, much more powerful than itself. All the aircraft carriers in the world won't deliver the US government from a crash in the US bond market.
This logically leaves only one possible option: print, print, print. And Faber says it best, they will print and print and print until the final collapse. And this is what I envision happening:
1) We will wake up one morning and the bond market is crashing... US gov't blames speculators, asks Europe for help reining in financial "vigilantes"... they already have a smear-term ready to deploy on the bond traders. News will probably emerge that China has been secretly dumping its US bond holdings and is holding a fraction of the bonds it has publicly stated it is holding.
2) As the crisis progresses, it will become way, way, way bigger than anything that can be addressed by slapping fines on PIMCO or raiding the offices of hedge funds... there's an across-the-board run for the exits. The US government will literally have to stop sending benefits checks out and stop payment on paychecks to all "non-essential" personnel. US revenues will take a good 25%-30% cut in a matter of weeks.
3) Emergency measures will be deployed by the government in response to the financial crisis. The Fed will print money like there's no tomorrow. The dollar will begin a true crash in the FOREX, maybe plunging as low as 10 cents on the dollar.
4) Now will be the time for overhauling Social Security due to the "crisis." The trillions sitting in 401(k) and IRA accounts will be earmarked for transition to a new "national retirement system" - sure, you will be able to opt-out but you will have to pay a 50% exit tax.
5) This will staunch the bleeding for a few years but people will be really upset when they start collecting their shiny new national retirement pensions. They will find that while the national retirement pension is nominally the same as the 401(k) or IRA they had cashed in a few years ago, the dollar was cut to 10 cents of its original value in the interim by a tsunami of new money printing.
How else do you think the Rahm Emmanuels and Cass Sunsteins can be so damn smug? They've alreayd worked out how they're going to handle this thing when it crashes... for now, they just gotta keep it on the tracks until we all reach the cliff... then they'll break out the "parachutes" and you can pick your poison.... lose half your money on the exit tax or keep the nominal value in the national retirement fund and ride the dollar devaluation all the way down to the bottom.
Clayton -
I agree with most of the post, however IMO i think that it really hinges on poeple's faith in fiat. AS long as people accept dollars, I think a "crash" wont happen. I dont consider the 2008 crisis a crash. Furthermore, i find it disgusting that the fear mongering actually convinced people that they would suffer if we didnt bail out the banks, when in fact it would mostly be the elite that suffered.
EmperorNero: Daniel Muffinburg:The situation is too complex and nuanced to simply say that the economy will collapse. In other words, it is impossible to know. Well what's the good and bad scenarios? What likely to happen in your opinion? Or is it just paranoid internet nonsense?
What does it mean for an economy to collapse? That GDP and employment collapse? If so, then so what?
Why think in aggregates?
The economy is always in "recovery mode," but the Fed and the feds intervene and distort the market process.
With that said, yes, I do agree with Doug Casey, but I haven't been keeping up with Peter Schiff.
Also, the foreign reserves are definately being "dump." See: http://www.latimes.com/news/local/la-me-0505-tower-lane-20110505,0,1748645.story http://www.google.com/search?aq=f&ie=UTF-8&q=china+buying+africa
------------ Since the spell checker is broken, I take no responsibility for misspeelings.
Thanks for all responses. Clayton, very interesting post.
Clayton, excellent post.
Pretty sure its a controlled demolition. Alex Jones' White House sources said that they are planning on crashing the dollar in the immediate future. The endgame is here folks, hold onto your butts because the dollar is in for the ride of its lifetime.
And yes, that stuff is real. Especially a lot of the Rothbardian libertarians dont want to believe this, because they like to think of the government as incompetent, to keep alive their fantasy of eliminating government. But as has been said, they are only incompetent at providing services. At taking your money, they are at their a game.
My source1 tells me that the Fed will crash the dollar on purpose in the immediate future too.
1. My source is The Bernank.
Do you have a quote handy?
"The truth of the world is that it is chaotic. The truth is, that it is not the Jewish banking conspiracy or the grey aliens or the 12 foot reptiloids from another dimension that are in control. The truth is more frightening, nobody is in control. The world is rudderless." - Some dude 20xx
This is a bastardization of Terence McKenna (from one of his many lecture-discussions, available online):
The real truth that dare not speak itself is that no one is in control [of the world], absolutely no one. Now there may be entities seeking control; the World Bank, the Communist Party, the rich... But to seek control is to take enormous aggravation upon yourself because this process that is underway will take the control freak by the short and curlies and throw them against the wall.