A Redneck's take on the economygreenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
This forum seems to have moved away from the Y2K issue to a large degree and now the ecomomy (Bubble.com) seems to be the rage. I find this interesting in that the economy or lack of a sound ecomomy concerned me long before Y2K. I myself have not turned my back just yet on Y2K as I do not wish to be bit in the six oclock. To those of you who have done extensive preps and not been foolish enough to discard them because a massive grid failure did not occur I wish to direct my thoughts.
From my simple redneck perspective a crash is a sure thing. I am not sure if it will be a classical deflationary crash, aka 1929 - 1940 or a hyperflationary crackup, aka Germany 1917 - 1923 which by the way was followed by a deflationary bust as the German ecomomy fell back to earth. Both accomplished the same thing, the destruction of hard earned wealth. The destruction was far more complete in the German hyperflationary experience where farmers and a few politically well connected maintained their wealth and accumulated that of all other germans.
As I understand things a deflationary collapse happens when debt exceeds the productive capacity of a nation. We are now holding a royal flush in this respect. When this excessive debt is financing unproductive endevors such as new homes, SUV's, etc. beyond our needs then that debt is far more cause for alarm than debt for new plant and equipment. One need only compare current debt ratios with those of 1929 to realize that we truely are in unchartered waters.
The classical defination of inflation is an increase in the money supply. That is inflation in its most basic and benigh form. Runaway inflation is that point when prices are rising faster than the increase in the money supply. This happened in 1979 but is not the case for the most part at this point in time. Hyperflation occurs when people completely loose all faith in their national currency. This is when prices can double in a day or even an hour. The quantity of goods and services decreases dramatically as people scramble to exchange paper for goods. The value of a national currency can be completely destroyed in a matter of days.
Inflation, runaway inflation and hyperflation, a simple three step progression. We are currently in step one although some might argue validly that we are in step two. At any time now we could enter step two. The excess liquidity is there for this to happen. The esclating price of crude oil could be the booster.
Durning steps one and two TPTB can if they so desire or have the courage to, step in and put a stop to inflation. This would probably cause a deflationary crash so this is a very political decision that would have to be made. Once step three sets in, a collective decision made by the population at large, TPTB are out of the loop and complete destructon of the currency and debts is a done deal.
Recently I ordered some print head modules for our large, high speed printer. The box they were delivered in read "Manufactured in Mexico Box made in USA". We got the debt, Mexico got the assets and workers on both sides of the border got the shaft. The difference between this country and those south of the border who have experienced hyperflation boils down the the simple fact that we have a large and robust debt market and they have none. They can't float debt even for the government. Who would buy it? The people don't trust their currencies. This is why I am not sure if we will experience a 1930's deflation or a German Weimar Republic type hyperflation. Our PTB must consider the holders of our debt. On the other hand Germany had a robust national debt market for that time and they chose to let it burn. Those political decisions; so hard to make.
Back to those preps. If we experience hyperflation those preps will be every bit as valuable as they would have been had the lights gone out on 01/01/00 and stayed out. If you doubt this one bit then I suggest you spend a weekend brushing up on the history of Germany 1917 - 1923. Very scary stuff it is. If we get a deflationary bust the preps still might come handy for many of us.
We will get one or the other. My timing is sooner rather than later. Don't attempt to tie me to a specific as I wish to retain a shread of reputation. Any quesses as to which one and how soon?
-- Ed (firstname.lastname@example.org), January 17, 2000
I'm thinking that the election year factor would make it less likely that steps would be taken to rein in (deflation), supporting the inflationary scenario.
Oil futures and long bonds are the first obvious indicators of inflation. If gasoline prices follow oil without much lag, that could cause a market effect within a couple months, although market optimism could ignore even that "evidence" of inflation. Would the market have to wait for adverse earnings reports before it loses its optimism?
-- Chuck (email@example.com), January 17, 2000.
Both, its called stagflation.
-- Gambler (firstname.lastname@example.org), January 17, 2000.
YOUR POST WAS TOO LONG ED, I DIDN'T EVEN BOTHER TO READ IT. NEXT TIME..GET TO THE POINT. BE BRIEF AND DON'T GO ON AND ON LIKE AN OLD WOMEN, ED.
-- WES (email@example.com), January 17, 2000.
Cracks, in economies or houses will be first seen in foundations. The foundation of our economy has to be energy, all else flows from this.
So we look first to oil. And see that 18 days into the new year and we have a sustained long over a holiday weekend following a run up of 35% of last years total increase.
Now whisper, in 15 days we have this.
And refineries are buying product? Could it be production problems?
So we will have first an inflation led depression as energy costs reach and educate the populace as to the real costs in the world.
Then the rest of the commodities will follow. To the extent that they are energy dependent.
So it will be a general unraveling.
Hopefully, we will get off our ass and start growing our own. As gandhi observed, 'enough small acts can push the planet'.
It will be strange though. And I have to say, that my view of things is that the future is a wholey unpredictable at any level of detail. And without that, the rest is luck.
-- pliney the younger (firstname.lastname@example.org), January 17, 2000.
Pay no attention to WES, his lack of attention span is symptomatic of America's problems. It seems everyone wants instant this and instant that. Whether it be wealth, via the .com bubble, or material things, via easy credit, or the point of something, via no more than two sentences.
-- J (Y2J@home.com), January 17, 2000.
The deflation/inflation debate is an old one, but one important fact is often overlooked: in every case of hyperinflation, that countries' bond market was wiped out first. The classic image of people taking a wheelbarrel full of paper currency to buy a loaf of bread is graphic and convincing, but most don't know that German bonds were the real target. Bond holders fear inflation, and will sell at the first hint of higher prices. The US bond market is huge, and it is an absolute necessity to the survival of the federal government. Without the bond market to finance the operation of government, it would be forced to raise taxes to pay for all of the bloated programs of the welfare/warfare state. If the government wishes to continue in it's present form, then it will have to ever so carefully attempt to deflate the economy. If there was a political decision to hyperinflate, then watch the bond market for rates to soar. Or, if oversea developments overwhelm the FED's ability to mantipulate the debt markets (such as oil soaring), it would have the same end result. The only hyperinflations in American history were that of the continental paper currency, during an era when there was no debt market, or that of the Confederacy as they lost their rebellion. Today, the amount of debt owed by governments (fed, state, local), business, and housefold is truely straggering. If the debt meltdown starts, there will be deflation of truely historic proportions. At this point, the government will have to face a crucial decision: allow the deflation to continue and liquidate the debt, or destroy the bond market by flooding the country with paper money and risk losing control.
-- Sure M. Hopeful (SureM@hopeful.com), January 17, 2000.
WHAT'S THAT WES? I'M HAVING TROUBLE HEARING YOU TOO! SPEAK UP A BIT NEXT TIME.
-- Someone (ChimingIn@twocents.com), January 17, 2000.
Not to mention your denegration of old women.
-- Sheri (email@example.com), January 17, 2000.
HEY WES! YOUR COMMENTS ARE RUDE AND UNECESSARY. GO BACK TO WHEREVER YOU CAME FROM.
-- JoseMiami (firstname.lastname@example.org), January 17, 2000.
GoldIt's the next big thing. (in addition to rice and beans, er, commodities) http://www.gold-eagle.com/cgi-bin/gn/get/forum.html http://www.usagold.com/cpmforum/ http://www.usagold.com/halloffame.html And while we're on the subject of pending disasters, dont forget the
ENVIRONMENT- Bizzare Weather.
-- hunchback (email@example.com), January 17, 2000.
Ed, Stimulating post. I have been collecting Notgeld for many years. Notgeld is the colorful script issued by German municipalties as legal tender in their jurisdictions when the national curency collapsed.
IMO, we are on the Inflationary path now. The FED and other CBs infusion of liquidity for "Just in Case" Y2K stash found its way into bubble.com. Now the FED absolutely must shrink bubble.com or else bubble.com will have such a market cap that the AOl-Time Warner deal gets repeated with real assets shifting into virtual IPO/start ups. IMO, TPTB will not let that happen.
G7 meeting will be an attempt to establish an international response to engineer a soft landing. But there are some indications that some world CBs , notably Germany, favor a more conservative (read Hard asset like gold, silver) fiscal policy - this would be very bullish for gold and silver. Given the heavy short position of US investment banks, I dont see how the USA could support this. So, it appears possible that an international coordinated response may not be effective in regaining fiscal control of the planet financial engine. This bodes for a weaker dollar.
At the same time, Arab oil producers (Algeria, Iran, Iraq, Libya) are on a buying spree for sophisticated military hardware, weapons systems and delivery capability. Maybe we will get a replay of Desert Storm II, a war may be seen by TPTB as a means to offset certain economic woes and become the path of least resistance.
-- Bill P (firstname.lastname@example.org), January 17, 2000.
Desert Storm Redux. Interesting concept. One MINOR problem - the "West" can't do it again. I'm sure we could whistle up BillyBoy Rakassan [sic] to confirm, but I REALLY don't think that the US could
a) put that effort together again,
b) lead it.
We don't have the manpower, or the hardware, or the will in high places. BJC doesn't have the stones to actually LOSE a Soldier. Regardless of the validity or lack thereof of a cause. Nor does he have the stones to actually LOOSE the Warriors.
You will NEVER hear HIM "Cry 'HAVOC' and loose the dogs of War!!"
-- Chuck, a night driver (email@example.com), January 17, 2000.
Good to see you are still posting.
This link is from Frontline (PBS) and has interviews from some of the top financial folks. And not a word about Y2K :o) I believe it was broadcast last summer. Very interesting opinions. Also it would be interesting to focus more on the possible economic problems on the forum.
****frontline: the crash: will it happen again?
Top financial analysts, policy makers and economists assess the vulnerabilities in the international financial system, whether the worst of the '98 crisis is over, and--is the U.S. in harm's way?
-- Brian (firstname.lastname@example.org), January 17, 2000.
I'm mot so sure the folks working in the maquiladoras (sp.?) are complaining all that much about the shift of mfg. down there. You're earning say 50 cents a day (on a good day) before the new gizmo plant comes. Now the new plant pays you $3 or $4 a day five days a week --- what's to complain?
Of course up here the workers laid off go from $12 or $15 per hour to minimum wage at Popeye's -- that's maybe not so much fun.
-- Tom Carey (email@example.com), January 18, 2000.
Ed said: "The box they were delivered in read "Manufactured in Mexico Box made in USA". We got the debt, Mexico got the assets and workers on both sides of the border got the shaft"
Ed or someone, could you walk me through this. I'm trying to understand out that works.
S. David Bays
-- S. David Bays (SDBAYS@prodigy.net), January 18, 2000.
meant to say: "understand how that works".
-- S. David Bays (SDBAYS@prodigy.net), January 18, 2000.
Ed said: "The box they were delivered in read "Manufactured in Mexico Box made in USA". We got the debt, Mexico got the assets and workers on both sides of the border got the shaft" Ed or someone, could you walk me through this. I'm trying to understand out that works.
Actually, so am I. Basically I think you can see that if more money is flowing out of our country than in, that will reduce the money supply (Mexico got the assets). So then, to pump up the money supply, (here is where I get confused) businesses can borrow from the Federal Reserve (we got the debt). Now is this right, or is it only the Government that can borrow from the Federal Reserve?
As far as the little guy getting the shaft, well you knew that already.
-- Amy Leone (firstname.lastname@example.org), January 18, 2000.
As my simple mind sees it an American Corp. borrowed from a bank or floated bonds to build the plant in Mexico. Ten to one that debt is on the balance sheet of a US bank or is in bonds held by US investors.
The plant is a Mexican asset at that point in time when they say enough, it's on our soil so it's ours. Probably when we are on our economic back. I guess we could start another "Just Cause", but would americans buy it again?
Americans loose jobs and Mexicans gain jobs at wages which come nowhere close to allowing them to purchase the fruits of their labor. This is why they quit those jobs and move north of the border for $8 to $12 an hour in western Kansas, etc.
The company I work for just opened a plant in central America and pays wages of about 42 cents per hour. I quess I am just wistling past the graveyard when I wonder if someday those south the border will wake up. I guess thats what Fort Benning, GA is about, to make sure they don't wake up.
-- Ed (email@example.com), January 18, 2000.
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