Economic Collapse: the breakdown

[Zombie]

plus other nations are speaking of switching the reserve currency. if it happens, gas is gonna be, like, $20 a gallon or so. it will be ridiculous.

i would advise people to invest in gold, silver, so on but who can afford it anyway?

maybe i should buy some bitcoins? haha

[seanD]

Problem with the gold and silver bugs, at least the ones thinking that this is the be-all end-all hedge against the dollar and to protect their assets, is that they're assuming there will always be a functioning system of government and some form of civil infrastructure in place. But if things get as bad as they can get, where we end up in "The Road" type scenario where government and infrastructure completely breaks down because it can't fund itself or handle the civil unrest, then gold and silver will be worthless. The most precious commodities you could have in that situation will be things like food, water, gasoline for your vehicle, and of course weapons. Imagine in the "Book of Eli" type situation where you're hoarding gold and silver thinking it's worth something.

"They shall cast their silver in the streets, and their gold shall be removed: their silver and their gold shall not be able to deliver them in the day of the wrath of the LORD" -- Ezekiel 7:19.

[Zombie]

if things get that bad then yeah, survival goods and SKILLS will be more valuable, but when society gains a bit of stability and trade emerges, metals will find value.

i know how to extract fresh water from the environment, hunt for food and dress it, how to make shelter, and most of all how to avoid others if i need to....
your basic boyscout skills haha.

i doubt things will get that bad but you never know.

[seanD]

if things get that bad then yeah, survival goods and SKILLS will be more valuable, but when society gains a bit of stability and trade emerges, metals will find value.

i know how to extract fresh water from the environment, hunt for food and dress it, how to make shelter, and most of all how to avoid others if i need to....
your basic boyscout skills haha.

i doubt things will get that bad but you never know.

What you stated about survival and living off the land is the very reason why I think things WILL get that bad, and worse than what people think. First of all I think most people are totally unaware of how dire the economic situation is on a global scale and the position that the US is in. It's already gotten this way in Europe and is spreading. Greece is on the brink of a revolution. But the US has far greater consequences than these countries not only for its insurmountable debt that exceeds the debt of the EU countries combined, but because of its position and weight on the global economies. IOW, we'll see the same signs in this country that we see in countries like Greece that we have yet to see, only the bigger they are, the harder they fall. So from a technically economic perspective things will get that bad. But even if they got as bad as they did in the 30's, we need to remember that most people during the Great depression were still basically rural, mechanically literate, and knew how to live off the land. 80 years later we are talking about a technological generation of people brainwashed by mass mainstream media, who barely know which end is up in regards to complex matters like this (even most of the economists who do understand these complexities are in denial, because the ugly reality is simply not an option to them), and who can't even function without their iphones let alone living off the land. Political disillusionment, panic, and desperation will erupt like a volcano all at once, or like a chain reaction, that has been held back for so long in this country. So just the psychology of this tells me it will be bad even with the technical economic issue, which is also far worse, aside.

[seanD]

Global derivative market. Here’s a good video breaking down how derivatives work in its most simplistic way here. Basically it comes down to one company, or in some cases, cities, states, even countries taking on the liability of losses of another with capital it doesn’t have. Imagine you insure someone’s vehicle with collateral you don’t have, so you get X to take on the liability of the insurance claim you made on the vehicle for a premium fee. X doesn’t have the collateral, so it gets Y to take on the liability for a fee. Y then gets Z, and on and on. Yet not only does X not know that Z is involved, but I don’t even know that Y or Z is involved. No one knows how big this market is because it’s under the table, but can only guess. The global derivative market in 2008 was half the size it is now, estimated anywhere between $600 trillion-1.5 quadrillion dollars, so imagine this web of corporations, economies, markets all interconnected with these investment liability vehicles that far exceed the GDP of the entire world many times over, and you can imagine a potential disaster of apocalyptic proportions.

Wild cards:

EU and the euro. Much like the banking scenario, if the EU and the euro collapse, everyone else goes down with it. Presently, things in the EU are in suspension mode, with about five nations on the verge of uncertainty – Greece, Ireland, Spain, Portugal, Italy. Though some of these nations are negotiating bailouts via the IMF, this will just create civil unrest in the short term due to imposed austerity, and will also affect things in the long term, as these nations are not only suspending their inevitable collapse while just mounting even more debt, but will be unable to ever dig itself out of this mounting debt hole, further adding stress of a euro collapse.

Why don’t EU officials want Greece to default?

"It’s the $616 billion question: Does the euro crisis have a hidden A.I.G.?

No one seems to be sure, in large part because the world of derivatives is so murky, but the possibility that some company out there may have insured billions of dollars of European debt has added a new wrinkle to the sovereign default debate.

In years past, when financial crises in Argentina and Russia left those countries unable to make good on their government debts, they simply defaulted. But this time around, swaps and other sorts of contracts have become so common and so intertwined in the financial markets that there are fears among regulators and financial players about how a Greek default would play out among derivatives holders."

http://www.nytimes.com/2011/06/23/bu...ewanted=1&_r=1

Derivatives. This was the point of the connection between the derivative market and the EU I was making in the OP. This is the forgotten entity that hangs over the head of the entire global financial system. It’s forgotten and not talked about much probably because it is unregulated and under the table – out of sight, out of mind – and likely because most people don’t even about it or what it is. It’s an invisible spiderweb of debt and liability that links or integrates the entire global financial system and is estimated to be around $600 trillion – $1.5 quadrillion, which we know are liabilities that can’t possibly be covered. The article claims that it's over $600 billion for the EU alone, but I don't think they really know and it's a whole lot more. Nonetheless, when someone defaults because of their debt, this affects outside parties who are probably not even associated with them. There are allegations, conspiracy theories, that European parties are secretly involved in these deals which is why this is affecting their decisions not to default… but that’s another subject and not really important here. And the bigger they are, the bigger the effect is, hence the reason AIG had to be bailed out in 2008 because they couldn’t pay their derivative deals. Now take a country like Greece. There are two reasons why Greece cannot default. The first is that no one knows what outside party liabilities this will affect which might end up like a chain reaction of liabilities, and if you read the article, the officials involved, who have some connection to the financial system, seem scared to even talk about it. Secondly, if Greece defaults, then Italy, Portugal, Ireland, and perhaps Spain would be persuaded to choose that route as well, which will not only affect other EU countries like the UK, but will trigger even more and bigger outside party liabilities and a bigger chain reaction. But in order for Greece not to default, they must be bailed out, and in order for a bail-out, severe austerity must be enacted in order to appease the creditors providing the bail-out. But making a loan is really just putting off the inevitable and puts Greece in an even bigger and ever increasing debt hole with the eventual day of reckoning being even worse. And of course, the people of Greece, who aren’t concerned about Keeping Up With the Kardashians or Bachelorette and know exactly what is going on in the world around them and in the financial system, aren’t tolerating austerity because they know the real reason why they’re being forced into it, which is why they’re on the verge of a bloody revolution if it is attempted. So not only is the EU in a pickle, but the entire global financial system is one because of the spiderweb derivative market that is at risk of unraveling. Now imagine a derivative effect on a country like say… the US. This is why we won’t default, nor will we cut what we have to cut, because in order to cut what we have to cut, we would have do some MASSIVE draconian cuts, and such cuts would spill angry US citizens into the streets like Greece and Egypt. Thus is why the US will take the easy route and hyperinflate their debt into oblivion. One way or another, this is why we’re in trouble, from financial matters that are both inside the US and outside the US.

[Zombie]

interesting times we live in huh?

i say let them default, fail and let the party start!

[seanD]

Banks don't want that. And banks run the show.

http://www.reuters.com/article/2011/...76R0J020110728

[little_monkey]

Problem with the gold and silver bugs, at least the ones thinking that this is the be-all end-all hedge against the dollar and to protect their assets, is that they're assuming there will always be a functioning system of government and some form of civil infrastructure in place. But if things get as bad as they can get, where we end up in "The Road" type scenario where government and infrastructure completely breaks down because it can't fund itself or handle the civil unrest, then gold and silver will be worthless. The most precious commodities you could have in that situation will be things like food, water, gasoline for your vehicle, and of course weapons. Imagine in the "Book of Eli" type situation where you're hoarding gold and silver thinking it's worth something.

"They shall cast their silver in the streets, and their gold shall be removed: their silver and their gold shall not be able to deliver them in the day of the wrath of the LORD" -- Ezekiel 7:19.

Well leaving the bible aside, the problems in the US are NOT economical but political. It would take a few tweekings to get the economy to grow and later on, one can deal with the sovereign debt.

[seanD]

You have it just as wrong as you had it in post #9.

Your statement is the complete reverse. Why do you think all these uprisings, riots, strikes, protests, government shut downs, bailouts are happening not just in the States, but all around the globe? What does that tell you? Sovereign debt is not the only issue and it is a separate issue apart from why our economy is in the shape it's in. Our debt indeed makes our situation worse, but we'd be in the same economic situation with NO debt. Most people don't understand this. At a point in history, it may have been political, but now it's purely economical. Our situation is a result of systemic corruption on every level of government and our financial system and there isn't a thing that can be down to change what's happening in both the EU and the US aside from a total global collapse. All this political haranguing and finger pointing between left and right is from people who don't have a clue how the economy works, the history of our economy, or why we're in this situation, and I would expect there will be more insults and blaming exchanged between political factions because these are just the typical symptoms that occur before it all comes down.

[little_monkey]

You have it just as wrong as you had it in post #9.

Your statement is the complete reverse. Why do you think all these uprisings, riots, strikes, protests, government shut downs, bailouts are happening not just in the States, but all around the globe? What does that tell you? Sovereign debt is not the only issue and it is a separate issue apart from why our economy is in the shape it's in. Our debt indeed makes our situation worse, but we'd be in the same economic situation with NO debt. Most people don't understand this. At a point in history, it may have been political, but now it's purely economical. Our situation is a result of systemic corruption on every level of government and our financial system and there isn't a thing that can be down to change what's happening in both the EU and the US aside from a total global collapse. All this political haranguing and finger pointing between left and right is from people who don't have a clue how the economy works, the history of our economy, or why we're in this situation, and I would expect there will be more insults and blaming exchanged between political factions because these are just the typical symptoms that occur before it all comes down.

There's a lot in what you say that I agree with. The problems have accumulated for the last 20 years, and perhaps even beyond that. Nevertheless, there are solutions within reach, and it would take some time before seeing real growth, IF we would start right now. But that's the problem: the political situation with a dysfunctional government is that it's not going to give us those solutions, and the more we do nothing, the worse it will get.

BTW, my post #9 was written way before the debacle over the raising the debt ceiling.

[seanD]

There's a lot in what you say that I agree with. The problems have accumulated for the last 20 years, and perhaps even beyond that. Nevertheless, there are solutions within reach, and it would take some time before seeing real growth, IF we would start right now. But that's the problem: the political situation with a dysfunctional government is that it's not going to give us those solutions, and the more we do nothing, the worse it will get.

BTW, my post #9 was written way before the debacle over the raising the debt ceiling.

The debt ceiling is not a good excuse because it also happened before I knew the debt ceiling would become a major issue in the House, yet I still knew the facade of a recovery would be exposed by this time. How did I know this if it's all just based on the debt ceiling? Obviously the debt ceiling is not the issue, it's being used as a political tool to veil the real issue. You see the government is lying to you and you're believing it which is why your analysis of the economy is off.

And it's not the political situation. People tell themselves this because they want hope in a hopeless situation. They want to believe that its the fault of the right or the fault of the left because they want to believe that if they can just get "their leaders" in office things will change. But it's not the political system, it's the entire finacial system that is corrupt, and this influences the political system. So this is well beyond just a political issue. If you kick out one or even a bunch of incumbents, the newcomers are still either influenced or under immense pressure by the corrupt system, thus the entire system has to be discarded.

[little_monkey]

The debt ceiling is not a good excuse because it also happened before I knew the debt ceiling would become a major issue in the House, yet I still knew the facade of a recovery would be exposed by this time. How did I know this if it's all just based on the debt ceiling? Obviously the debt ceiling is not the issue, it's being used as a political tool to veil the real issue. You see the government is lying to you and you're believing it which is why your analysis of the economy is off.

First, you don't know what my analysis of the economy is. Secondly, no political party in Washington will be honest. Both major parties are seeking control, and are entranched in political ideologies. Nevertheless, there are economic indicators that gives us more or less clues of what the state of the economy is, and in which direction it is moving. The debt ceiling debacle was an eye-opener that the economy won't get fixed by the present players in DC.

And it's not the political situation. People tell themselves this because they want hope in a hopeless situation. They want to believe that its the fault of the right or the fault of the leomyft because they want to believe that if they can just get "their leaders" in office things will change. But it's not the political system, it's the entire finacial system that is corrupt, and this influences the political system. So this is well beyond just a political issue. If you kick out one or even a bunch of incumbents, the newcomers are still either influenced or under immense pressure by the corrupt system, thus the entire system has to be discarded.

There's no denying that there is an unhealthy alliance between the political parties and big money, and that has corrupted the system. And you are right in pointing the likely hood that a new crop of politicians voted in might be as corrupted or shackled than the incumbents who were thrown out. But we get the politicians we deserve. In the end, the American population has itself to blame for the mess we're in. Unfortunately, it might take a disaster of cataclysmic proportion, 1930's Depression style, to see real reforms. But Depression can last as long as 15 to 20 years. I hope this doesn't come about as today's young generation getting into the labour market will have their dreams of a better life completely destroyed.

[seanD]

First, you don't know what my analysis of the economy is.

I know what you're economic analysis was...

Except for job creation, a new report shows signs that the recovery is on its way:

Obviously you wouldn't have posted that if you didn't actually believe it. And I bet I could even guess what you're analysis is because now it would be obvious to anyone who can read the headlines

[little_monkey]

I know what you're economic analysis was...

Key word: was. That post was made in March 2011. If you know anything about economic principles, then you should know that the economy does not stand still. It can go either way: into positive territory as well as into a negative territory. Compare it to a car: you might have it tuned up, but then driving it through a series of potholes, hailstorms and episodes of wreckless driving might easily damage it.

[seanD]

The problem is that this is not an excuse either. As I showed you in the following post you were getting your numbers wrong, so your whole analysis was skewed from the get-go. Moral is, the government is lying to you, and so are the economists who rely on government numbers for their own analysis.