Economic 'Armageddon'
November 23, 2004 8:28 PM Subscribe
Economic 'Armageddon' predicted by Stephen Roach, the chief economist at investment banking giant Morgan Stanley. He's been right before.
Meriks take 2.6 billion in investment every day in order to keep their country floating.
I've been trying to find that statistic for quite a while. I'd heard it a long time ago but was hoping to find it from a reliabile-ish source.
posted by Jerub at 8:39 PM on November 23, 2004
I've been trying to find that statistic for quite a while. I'd heard it a long time ago but was hoping to find it from a reliabile-ish source.
posted by Jerub at 8:39 PM on November 23, 2004
Well, obviously he hasn't heard about the paradigm shift in Washington!
Deficits don't matter. What kind of American is he?
posted by gesamtkunstwerk at 8:41 PM on November 23, 2004
Deficits don't matter. What kind of American is he?
posted by gesamtkunstwerk at 8:41 PM on November 23, 2004
The herd is selling US dollars; time to start buying US dollars. Remember: you heard it here first.
posted by ZenMasterThis at 8:42 PM on November 23, 2004
posted by ZenMasterThis at 8:42 PM on November 23, 2004
"Stephen Roach... has a public reputation for being bearish."
From the first paragraph of the first link. Then again, negative or not, he's been right in prediciting the economy over the last three years. They way that I have approached everything over the last 4 years of Bush is that I have to be a cynical and negative as I can and then I end up looking like a realist. It seems that Roach has the same kind of approach.
And what's the government's solution to all of this? Fiscally, it's the same borrow and spending, but economically it's an overhaul of our entire tax code. The government's solution seems to be that creating the spending tax will curb consumer spending and encourage saving.
posted by Arch Stanton at 8:50 PM on November 23, 2004
From the first paragraph of the first link. Then again, negative or not, he's been right in prediciting the economy over the last three years. They way that I have approached everything over the last 4 years of Bush is that I have to be a cynical and negative as I can and then I end up looking like a realist. It seems that Roach has the same kind of approach.
And what's the government's solution to all of this? Fiscally, it's the same borrow and spending, but economically it's an overhaul of our entire tax code. The government's solution seems to be that creating the spending tax will curb consumer spending and encourage saving.
posted by Arch Stanton at 8:50 PM on November 23, 2004
If there's a take-home message, its that everyone's in debt and we don't save. Can't keep it up much longer before the repo man comes a-callin'
posted by AlexReynolds at 8:52 PM on November 23, 2004
posted by AlexReynolds at 8:52 PM on November 23, 2004
So what are you prophets doing with your debts, investments, and savings?
How can I cash in on the action?
posted by _sirmissalot_ at 9:05 PM on November 23, 2004
How can I cash in on the action?
posted by _sirmissalot_ at 9:05 PM on November 23, 2004
Goodbye Social Security.
posted by orange clock at 9:08 PM on November 23, 2004
posted by orange clock at 9:08 PM on November 23, 2004
The main point is frankly a no-brainer. Historically, governments have always paid for their free-spending ways with inflation. It allows them to pay off the debt in a comparatively blame-free way. Fiscal responsibility doesn't give you any way to reward your campaign contributors, and tax hikes will cost you the next election or even get you recalled. So governments allow inflation to cut the value of the debt, and blaming the magic inflation fairy (since the public refuses to understand basic economics, just seems to them like bad weather or an act of god, not a consequence of bad government) is easier and politically safer than making tough choices. And we pay for our wilful ignorance very, very dearly.
posted by George_Spiggott at 9:11 PM on November 23, 2004
posted by George_Spiggott at 9:11 PM on November 23, 2004
Twenty years ago the total debt of U.S. households was equal to half the size of the economy.
Today the figure is 85 percent.
The extent to which Americans are blinded to the fake consumer society perpetuated by capitalists is astounding.
Oh, look, another car ad on my enormous tv.
posted by orange clock at 9:17 PM on November 23, 2004
Today the figure is 85 percent.
The extent to which Americans are blinded to the fake consumer society perpetuated by capitalists is astounding.
Oh, look, another car ad on my enormous tv.
posted by orange clock at 9:17 PM on November 23, 2004
I've grown rather addicted to seeing the dollar drop over the last year or so, even though the stated policy of the White House is for a 'strong dollar'. Of course, what one says and does are two different things.
posted by Arch Stanton at 9:25 PM on November 23, 2004
posted by Arch Stanton at 9:25 PM on November 23, 2004
More bad news: the one of the top economic advisors for Bush who is a member of the concord coalition, a non-partisan anti-deficit group, resigned today.
I'm not trying to turn this into a political thread...but we can't talk about this issue without talking about who is making these decisions.
posted by geryon at 9:47 PM on November 23, 2004
I'm not trying to turn this into a political thread...but we can't talk about this issue without talking about who is making these decisions.
posted by geryon at 9:47 PM on November 23, 2004
Prime Minister's office... Prime Minister speaking...
boy, the 80s really are making a comeback, aren't they?
posted by keswick at 9:53 PM on November 23, 2004
boy, the 80s really are making a comeback, aren't they?
posted by keswick at 9:53 PM on November 23, 2004
sirmissalot... pay off your debts, get out of fiat money, buy some gold and silver while they're still cheap, then hang on for the ride...
posted by ronin21 at 10:36 PM on November 23, 2004
posted by ronin21 at 10:36 PM on November 23, 2004
what's fiat money?
i was already thinking about buying the gold and silver . . . but maybe euros would be more practical.
posted by _sirmissalot_ at 10:39 PM on November 23, 2004
i was already thinking about buying the gold and silver . . . but maybe euros would be more practical.
posted by _sirmissalot_ at 10:39 PM on November 23, 2004
pay off your debts, get out of fiat money, buy some gold and silver
I'm all for paying off the debts, but I hear about investing in gold all the time, and while it has it's place, it's not the simple answer people seem to think it is, or as it was in the past.
posted by justgary at 10:53 PM on November 23, 2004
I'm all for paying off the debts, but I hear about investing in gold all the time, and while it has it's place, it's not the simple answer people seem to think it is, or as it was in the past.
posted by justgary at 10:53 PM on November 23, 2004
I've grown rather addicted to seeing the dollar drop over the last year or so, even though the stated policy of the White House is for a 'strong dollar'.
well, not everyone is addicted to the cheap dollar.
Alexei Ulyukayev, the first deputy chairman of the Russian central bank, told reporters: "Most of our reserves are in dollars and that's a cause for concern. It's a real problem.
"Looking at the dynamics of the euro/dollar rate, we are discussing the possibility to change the reserve structure."
posted by three blind mice at 11:01 PM on November 23, 2004
well, not everyone is addicted to the cheap dollar.
Alexei Ulyukayev, the first deputy chairman of the Russian central bank, told reporters: "Most of our reserves are in dollars and that's a cause for concern. It's a real problem.
"Looking at the dynamics of the euro/dollar rate, we are discussing the possibility to change the reserve structure."
posted by three blind mice at 11:01 PM on November 23, 2004
Fiat money is money by declaration, like the dollar or the Euro; essentially someone else's debt; gold and silver have intrinsic value, are no one else's debt. As to those Fool figures, trust where you will. Regarding the case for gold and silver...
posted by ronin21 at 11:35 PM on November 23, 2004
posted by ronin21 at 11:35 PM on November 23, 2004
"The herd is selling US dollars; time to start buying US dollars. Remember: you heard it here first."
posted by ZenMasterThis at 8:42 PM PST on November 23
the time to start buying us dollars is not when the herd STARTS selling US dollars, but when it finally STOPS. since this particular herd has only just begun to understand the gravity of their situation, it will be quite a long while before it stops stampeding.
roach is 100% correct. there will be blood in the streets before this one is over.
posted by muppetboy at 11:45 PM on November 23, 2004
posted by ZenMasterThis at 8:42 PM PST on November 23
the time to start buying us dollars is not when the herd STARTS selling US dollars, but when it finally STOPS. since this particular herd has only just begun to understand the gravity of their situation, it will be quite a long while before it stops stampeding.
roach is 100% correct. there will be blood in the streets before this one is over.
posted by muppetboy at 11:45 PM on November 23, 2004
That's my point ronin21, not that buying gold isn't a viable option, but that it's a complicated one. Getting out of debt is not.
there will be blood in the streets before this one is over
Hyperbole is alive and well.
posted by justgary at 11:50 PM on November 23, 2004
there will be blood in the streets before this one is over
Hyperbole is alive and well.
posted by justgary at 11:50 PM on November 23, 2004
So Russia's central bank has spoken, I wonder now what China and Japan have to say? Don't they hold the most US dollars (in American debt)?
posted by AlexReynolds at 11:53 PM on November 23, 2004
posted by AlexReynolds at 11:53 PM on November 23, 2004
How can I cash in on the action?
Don't get into any long-term debts, first off. Don't buy a house. If you own a house, sell it now while the housing market is on its last legs. Take all your money and put it somehwere more reliable. Where's that? Gold, silver, and platinum are all good, but they're pretty high right now. Euros would have been a good investment a couple of years ago, but the Euro is really high and any economic collapse in this country is going to affect Europe as well.
Basically, short the U.S. Sell any domestic stocks you own, don't buy any T-bills, for God's sake, and don't put your money in a U.S. bank.
Don't keep your money in greenback form, unless you're having trouble heating your house.
Of course, if everyone had just listened to me a year and a half ago, they'd be very wealthy right now. But noooooo.
posted by Civil_Disobedient at 12:50 AM on November 24, 2004 [1 favorite]
Don't get into any long-term debts, first off. Don't buy a house. If you own a house, sell it now while the housing market is on its last legs. Take all your money and put it somehwere more reliable. Where's that? Gold, silver, and platinum are all good, but they're pretty high right now. Euros would have been a good investment a couple of years ago, but the Euro is really high and any economic collapse in this country is going to affect Europe as well.
Basically, short the U.S. Sell any domestic stocks you own, don't buy any T-bills, for God's sake, and don't put your money in a U.S. bank.
Don't keep your money in greenback form, unless you're having trouble heating your house.
Of course, if everyone had just listened to me a year and a half ago, they'd be very wealthy right now. But noooooo.
posted by Civil_Disobedient at 12:50 AM on November 24, 2004 [1 favorite]
So when does the Internet-fueled hysteria finally begin to take on a life of its own, thus exacerbating that old time state of generalized panic?
(nothing against the Internet)
posted by crasspastor at 1:49 AM on November 24, 2004
(nothing against the Internet)
posted by crasspastor at 1:49 AM on November 24, 2004
Question: if the US dollar goes into a nosedive while US interest rates are jacked up really high.... won't that mean foreigners will want to purchase cheap US dollars and invest them at the high interest rate, thereby increasing demand and hence the value of the US dollar? It seems to even out doesn't it?
posted by Meridian at 2:09 AM on November 24, 2004
posted by Meridian at 2:09 AM on November 24, 2004
Foreigners (China, Japan, Russia) already have hundreds of billions of US dollars, and they're about to give them back.
posted by ronin21 at 2:44 AM on November 24, 2004
posted by ronin21 at 2:44 AM on November 24, 2004
Not if there's high inflation, in that case dollars that you hold will lose value despite the high apparent interest rate. A spurt of inflation seems to be the most likely consensus outcome, devaluing both public and private debt.
The Economist suggests this could all happen quite quickly.
Inflation's not all bad. For people with regular and reasonably secure jobs and high borrowing it can be a positive boon. It's people with fixed incomes (pensioners), savers and investors who suffer.
Jacking up your fixed interest debt (mortgage etc.) could be quite a smart move right now, as long as your job is safe.
posted by grahamwell at 2:47 AM on November 24, 2004
The Economist suggests this could all happen quite quickly.
Inflation's not all bad. For people with regular and reasonably secure jobs and high borrowing it can be a positive boon. It's people with fixed incomes (pensioners), savers and investors who suffer.
Jacking up your fixed interest debt (mortgage etc.) could be quite a smart move right now, as long as your job is safe.
posted by grahamwell at 2:47 AM on November 24, 2004
Meridian -
Yes. if you believe that things move smoothly towards equilibrium. If you believe that markets swing wildly, then no.
As for whether gold has "intrinsic value" or not, well, you'll never convince those who believe it - they're classic cranks.
I'd go with TIPS - they protect you from inflation, although you'll never get rich off them. If you want to try to benefit from the falling dollar, beware of foreign equities - non-american companies will be hit hard too, once their main export market (the US) becomes unable to afford their products.
muppetboy:
there will be blood in the streets before this one is over.
justgary:
Hyperbole is alive and well.
Maybe, but look at what happened last time.
posted by bonecrusher at 3:10 AM on November 24, 2004
Yes. if you believe that things move smoothly towards equilibrium. If you believe that markets swing wildly, then no.
As for whether gold has "intrinsic value" or not, well, you'll never convince those who believe it - they're classic cranks.
I'd go with TIPS - they protect you from inflation, although you'll never get rich off them. If you want to try to benefit from the falling dollar, beware of foreign equities - non-american companies will be hit hard too, once their main export market (the US) becomes unable to afford their products.
muppetboy:
there will be blood in the streets before this one is over.
justgary:
Hyperbole is alive and well.
Maybe, but look at what happened last time.
posted by bonecrusher at 3:10 AM on November 24, 2004
bonecrusher: [link to WW2 article]
Are you suggesting a falling dollar will lead to war? How exactly?
posted by Meridian at 3:14 AM on November 24, 2004
Are you suggesting a falling dollar will lead to war? How exactly?
posted by Meridian at 3:14 AM on November 24, 2004
Civil_Disobedient: in your prior post that you linked to you make mention that real unemployment isn't tracked anymore - do you (or anyone else) know of a credible source that is attempting to track real unemployment? Yeah, I know the source of the problem in that those unemployed who run out their unemployment benefits are no longer unemployed, but are then considered "unemployable." An insipid "now you see it, now you don't" political move. But I'd like to know what the current rate of unemployment, including those whose benefits have expired, is at.
posted by jperkins at 3:48 AM on November 24, 2004
posted by jperkins at 3:48 AM on November 24, 2004
Meridian -
Not so much a falling dollar, as the resulting economic meltdown that Roach believes would follow. (Which, when push comes to shove, I don't believe - ignoring my own advice above, all my money is in foreign equities).
But I'm imagining a scenario where a ruling party, faced with the prospsect of electoral defeat due to economic hard times, says "hey, look over there - Terrorists!"
Attributing WWII to the Great Depression is a gross over-simplification, of course.
jperkins -
It's a common misconception, but the official unemployment rate is unrelated to unemployment benefits. You're considered "unemployed" if, in answer to the BLS's employment survey, you say that you are not employed and that you have looked for a job in the last (I think) 4 weeks. (The problem with the question should be obvious - a solution, sadly, isn't).
A better measure may be the "labor participation rate", the percentage of all citizens who have a job. Although it overstates the problem that the BLS survey understates - if you haven't looked for a job in the last 4 weeks is it because there are no jobs to be had, or because you're staying at home with a new baby? The BLS doesn't count you as unemployed in either case, the labor participation rate counts you in both. But for year-on-year comparisons, the participation rate is probably the better measurement (working on the assumption that it's unlikely that large numbers of americans will suddenly decide to stay home for reasons unrelated to the job market).
Economist.com has "country briefings" where you can go to get the labor participation rate.
posted by bonecrusher at 4:10 AM on November 24, 2004
Not so much a falling dollar, as the resulting economic meltdown that Roach believes would follow. (Which, when push comes to shove, I don't believe - ignoring my own advice above, all my money is in foreign equities).
But I'm imagining a scenario where a ruling party, faced with the prospsect of electoral defeat due to economic hard times, says "hey, look over there - Terrorists!"
Attributing WWII to the Great Depression is a gross over-simplification, of course.
jperkins -
It's a common misconception, but the official unemployment rate is unrelated to unemployment benefits. You're considered "unemployed" if, in answer to the BLS's employment survey, you say that you are not employed and that you have looked for a job in the last (I think) 4 weeks. (The problem with the question should be obvious - a solution, sadly, isn't).
A better measure may be the "labor participation rate", the percentage of all citizens who have a job. Although it overstates the problem that the BLS survey understates - if you haven't looked for a job in the last 4 weeks is it because there are no jobs to be had, or because you're staying at home with a new baby? The BLS doesn't count you as unemployed in either case, the labor participation rate counts you in both. But for year-on-year comparisons, the participation rate is probably the better measurement (working on the assumption that it's unlikely that large numbers of americans will suddenly decide to stay home for reasons unrelated to the job market).
Economist.com has "country briefings" where you can go to get the labor participation rate.
posted by bonecrusher at 4:10 AM on November 24, 2004
Thanks for the clarification, bonecrusher. And the information available on economist.com was what I was hoping to find for an historical perspective.
posted by jperkins at 6:01 AM on November 24, 2004
posted by jperkins at 6:01 AM on November 24, 2004
bonecrusher: are you an economist subscriber? I can't find the labor participation rate (for the U.S., anyway) on the page that's available for free.
posted by rkent at 6:30 AM on November 24, 2004
posted by rkent at 6:30 AM on November 24, 2004
I'm broke, semi unemployed and now very, very scared.
posted by damnitkage at 6:53 AM on November 24, 2004
posted by damnitkage at 6:53 AM on November 24, 2004
From the end of the article: "Higher interest rates, or higher inflation: Either way, the biggest losers will be long-term lenders at fixed interest rates. "
Can someone point me in the direction of why a person with a fixed interest rate will be in trouble. I can understand if it was adjustable rate mortgages since the interest rates willl go way up, but wouldn't a fixed interest rate be fine?
posted by Arch Stanton at 7:11 AM on November 24, 2004
Can someone point me in the direction of why a person with a fixed interest rate will be in trouble. I can understand if it was adjustable rate mortgages since the interest rates willl go way up, but wouldn't a fixed interest rate be fine?
posted by Arch Stanton at 7:11 AM on November 24, 2004
Before we put all our dollars into gold, let's remember that there's always one prominent bearish economist out there, and because economics is cyclical, those that hang in there long enough will eventually be right.
And economists know better than anyone that people do what they do because of incentives, and Roach getting his name in the paper is good for Roach and good for his employer. Haven't seen a FPP about the economists holding more moderate views. Do you think there are none?
posted by luser at 7:31 AM on November 24, 2004
And economists know better than anyone that people do what they do because of incentives, and Roach getting his name in the paper is good for Roach and good for his employer. Haven't seen a FPP about the economists holding more moderate views. Do you think there are none?
posted by luser at 7:31 AM on November 24, 2004
rkent -
Hey, you're right. I could have sworn it used to be there. It's a little more work, but dividing the total employment numbers here by the population numbers here should give you what you want. The ggdc guys use BLS numbers where available (which they will be for the US).
posted by bonecrusher at 7:35 AM on November 24, 2004
Hey, you're right. I could have sworn it used to be there. It's a little more work, but dividing the total employment numbers here by the population numbers here should give you what you want. The ggdc guys use BLS numbers where available (which they will be for the US).
posted by bonecrusher at 7:35 AM on November 24, 2004
So Russia's central bank has spoken, I wonder now what China and Japan have to say? Don't they hold the most US dollars (in American debt)?
China says "Don't blame us, fix your own damned problems" and "Sorry, holy sh*t!" The Japanese, meanwhile "remain sanguine."
posted by moonbiter at 7:36 AM on November 24, 2004
China says "Don't blame us, fix your own damned problems" and "Sorry, holy sh*t!" The Japanese, meanwhile "remain sanguine."
posted by moonbiter at 7:36 AM on November 24, 2004
So it's a bad time to buy gold, silver, euros, stocks or real estate.
What does that leave, canned goods and ammunition?
posted by Faint of Butt at 7:37 AM on November 24, 2004
What does that leave, canned goods and ammunition?
posted by Faint of Butt at 7:37 AM on November 24, 2004
Holy cow, this sounds as bad as y2k. I'll never forget how horrible that was. Cascading computer failures led to the total collapse of the world economy. Essential services broke down. Mobs ran wild in the streets. I lost everything I had, and survived only because I had listened to the experts' warnings, and stockpiled powerbars and bottled water. By the end, I wound up spending all the gold coins I had hoarded in the basement just to buy a few dried out yams. Meanwhile, my neighbors, who refused to listen to all the warnings, had to sell their daughters into prostitution, and eat the grubs off their lawns.
If I were you, I'd pay attention to this guy. Because it is a well known fact that no one, ever, in the entire history of the United States has ever predicted the downfall of the U.S. economy based on some overlooked indicator that only he can correctly interpret. And no such person has ever gotten some credible-seeming people to agree with him. So you can be pretty sure that what this guy says is absolutely, without question, going to happen. If there are any naysayers out there, I can only repeat to you what well-known radio personality James Dobson said to a guest on his program who dared not to believe his apocalyptic y2k predictions: "Well, you're just wrong, buddy."
posted by Faze at 7:52 AM on November 24, 2004
If I were you, I'd pay attention to this guy. Because it is a well known fact that no one, ever, in the entire history of the United States has ever predicted the downfall of the U.S. economy based on some overlooked indicator that only he can correctly interpret. And no such person has ever gotten some credible-seeming people to agree with him. So you can be pretty sure that what this guy says is absolutely, without question, going to happen. If there are any naysayers out there, I can only repeat to you what well-known radio personality James Dobson said to a guest on his program who dared not to believe his apocalyptic y2k predictions: "Well, you're just wrong, buddy."
posted by Faze at 7:52 AM on November 24, 2004
Thanks, moonbiter. I get the feeling the US administration is playing policy games with the currency. I hope for their sake and ours that they have some idea what they're doing.
posted by AlexReynolds at 7:53 AM on November 24, 2004
posted by AlexReynolds at 7:53 AM on November 24, 2004
Faze, read moonbiter's links and ask yourself if there's a problem or not.
posted by AlexReynolds at 7:54 AM on November 24, 2004
posted by AlexReynolds at 7:54 AM on November 24, 2004
Faze: you make good sense, but you're bleeding at the eyes.
Faint of Butt: weed. Skunky, sticky, hydroponic, Northern California gold.
posted by squirrel at 8:02 AM on November 24, 2004
Faint of Butt: weed. Skunky, sticky, hydroponic, Northern California gold.
posted by squirrel at 8:02 AM on November 24, 2004
gold and silver have intrinsic value
because they're pretty?
all money is valuable by agreement between parties. Some of it can be printed at will, and some of it is dependent on nature's resources (barring alchemical breakthroughs) but value is a human concept and must be applied to the gold or silver or green paper by human agreement (it must be made into a symbol for 'worth').
posted by mdn at 8:05 AM on November 24, 2004
because they're pretty?
all money is valuable by agreement between parties. Some of it can be printed at will, and some of it is dependent on nature's resources (barring alchemical breakthroughs) but value is a human concept and must be applied to the gold or silver or green paper by human agreement (it must be made into a symbol for 'worth').
posted by mdn at 8:05 AM on November 24, 2004
The weak dollar is bad for us but is a greater threat to our trading partners. They have no substitute for U.S. markets for their goods and services, mostly in terms of raw demand, but to a great extent in shear incompatability. The standards and (especially) the sizes of goods sold in the U.S. are just not a fit for foreign markets.
A sustained $1.50 euro could mean 15% unemployment around Europe. The entire Chinese miracle could dry up and blow away if the yuan gave up its peg against the dollar; if it keeps the peg than the Chinese are forced to subsidize the American economy to the tune of billions of dollars a month.
posted by MattD at 8:20 AM on November 24, 2004
A sustained $1.50 euro could mean 15% unemployment around Europe. The entire Chinese miracle could dry up and blow away if the yuan gave up its peg against the dollar; if it keeps the peg than the Chinese are forced to subsidize the American economy to the tune of billions of dollars a month.
posted by MattD at 8:20 AM on November 24, 2004
Faint of Butt: weed. Skunky, sticky, hydroponic, Northern California gold.
That's right, squirrel. In the immortal words of the Fabulous Furry Freak Bros., "Drugs can get you through times of no money better than money can get you through times of no drugs."
posted by Faint of Butt at 8:43 AM on November 24, 2004
That's right, squirrel. In the immortal words of the Fabulous Furry Freak Bros., "Drugs can get you through times of no money better than money can get you through times of no drugs."
posted by Faint of Butt at 8:43 AM on November 24, 2004
From The Economist link:
Personal saving in America, as a percentage of household income, slumped to just 0.2%
Unbelievable. Every self-help personal finance book that seem to be selling by the thousand will tell you that 30% is the healthy saving rate -- it certainly is mine.
What are people thinking?
posted by NewBornHippy at 9:04 AM on November 24, 2004
Personal saving in America, as a percentage of household income, slumped to just 0.2%
Unbelievable. Every self-help personal finance book that seem to be selling by the thousand will tell you that 30% is the healthy saving rate -- it certainly is mine.
What are people thinking?
posted by NewBornHippy at 9:04 AM on November 24, 2004
no one, ever, in the entire history of the United States has ever predicted the downfall of the U.S. economy based on some overlooked indicator
In the 1850s no one foresaw the Civil War. Except two authors, who where not widely read. For the most part, no one predicted or saw it coming. Unlike, for example, WWII where people figured we could be in a war in Europe years before it happened (same with WWI). Sometimes big things sneak up on us, sometimes we see the train wreck happening in slow motion.
posted by stbalbach at 9:17 AM on November 24, 2004
In the 1850s no one foresaw the Civil War. Except two authors, who where not widely read. For the most part, no one predicted or saw it coming. Unlike, for example, WWII where people figured we could be in a war in Europe years before it happened (same with WWI). Sometimes big things sneak up on us, sometimes we see the train wreck happening in slow motion.
posted by stbalbach at 9:17 AM on November 24, 2004
Ok, I've heard from the naysayers. Anybody here see an upside here? Apparently, the US is trying to get other countries to take some initiative in growth, and really wants China to let its currency float.
So, there is some strategic thinking there. What are some possible positive outcomes?
Also, why so many different opinions on what to do with our personal finances? Should we buy gold? No? Stocks? No? A house? No?
In my case, 100% of my reasonably sizable assets are in either stocks or savings accounts. I am completely liquid. What would someone like me do in this situation?
posted by eas98 at 9:38 AM on November 24, 2004
So, there is some strategic thinking there. What are some possible positive outcomes?
Also, why so many different opinions on what to do with our personal finances? Should we buy gold? No? Stocks? No? A house? No?
In my case, 100% of my reasonably sizable assets are in either stocks or savings accounts. I am completely liquid. What would someone like me do in this situation?
posted by eas98 at 9:38 AM on November 24, 2004
Sheesh. What timing! I just sold my palatial country estate, I'm sitting on metric buttloads of cash, and was on the verge of investing it all in pork bellys and cheez-it futures. Oh, and a bitchin' Camaro.
Maybe I'll re-think my investment strategy.
Gold, you say? Like chains and stuff?
posted by Floydd at 9:50 AM on November 24, 2004
Maybe I'll re-think my investment strategy.
Gold, you say? Like chains and stuff?
posted by Floydd at 9:50 AM on November 24, 2004
No one has told how to make money off of this upcoming disaster.
I have student loans but no credit card debt. No mortgage. Lots and lots of savings. I'm allergic to gold.
posted by _sirmissalot_ at 9:53 AM on November 24, 2004
I have student loans but no credit card debt. No mortgage. Lots and lots of savings. I'm allergic to gold.
posted by _sirmissalot_ at 9:53 AM on November 24, 2004
Boy, am I glad that my debt is currently mostly attached to a sellable, intrinsically valuable asset (heh, actually Floyyd, an old, bitchin' Camaro!), and that I killed off all my credit card debt over the last 5 years. Which is good for me whether the economy crashes or not.
*Whew*
posted by zoogleplex at 9:58 AM on November 24, 2004
*Whew*
posted by zoogleplex at 9:58 AM on November 24, 2004
Since we are apparently less than ten years away from running out of oil and will be doomed to a cold, dark death shortly thereafter anyway, why should we care about the slide of the dollar?
(I am only being partially facetious)
posted by briank at 10:45 AM on November 24, 2004
(I am only being partially facetious)
posted by briank at 10:45 AM on November 24, 2004
Unbelievable. Every self-help personal finance book that seem to be selling by the thousand will tell you that 30% is the healthy saving rate -- it certainly is mine.
This is something I've never understood. Wouldn't you want as much money circulating through the economy as possible? Isn't a dollar saved essentially taken out of the economy? It might be used for investment but since the government lends out money cheaply it isn't needed. If everyone started saving 30% of their income consumer spending, and the economy would collapse. Can some that actually knows what they are talking about break it down for me.
posted by euphorb at 11:20 AM on November 24, 2004
This is something I've never understood. Wouldn't you want as much money circulating through the economy as possible? Isn't a dollar saved essentially taken out of the economy? It might be used for investment but since the government lends out money cheaply it isn't needed. If everyone started saving 30% of their income consumer spending, and the economy would collapse. Can some that actually knows what they are talking about break it down for me.
posted by euphorb at 11:20 AM on November 24, 2004
euphorb
I believe (econ majors please correct me) that if you are saving that dollar in a bank account (as opposed to in your mattress) that the dollar is then loaned by the bank. Also, savings, in this case, probably also means direct purchase of things like stocks and bonds (or is that strictly called investment?). In any event, if you have it in a bank, the bank is going to use it to buy Bonds and T-Bills (investments in the U.S. Government, essentially) as well as loan it out to people. This grows the economy. (Do I have that right?)
posted by Yellowbeard at 11:54 AM on November 24, 2004
I believe (econ majors please correct me) that if you are saving that dollar in a bank account (as opposed to in your mattress) that the dollar is then loaned by the bank. Also, savings, in this case, probably also means direct purchase of things like stocks and bonds (or is that strictly called investment?). In any event, if you have it in a bank, the bank is going to use it to buy Bonds and T-Bills (investments in the U.S. Government, essentially) as well as loan it out to people. This grows the economy. (Do I have that right?)
posted by Yellowbeard at 11:54 AM on November 24, 2004
But I'd like to know what the current rate of unemployment, including those whose benefits have expired, is at.
In 1995, the Bureau of Labor Statistics released a new range of unemployment measures. The media report U-3. The most inclusive figure is U-6, which is defined as "total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers." Marginally attached is a nice form of double-speak which translates to people who are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past and people employed part-time for economic reasons, but who want and are available for full-time work. The U-6 number for July, 2003 is 10.5%.
Haven't seen a FPP about the economists holding more moderate views. Do you think there are none?
Moderate views? Buddy, these are the moderate views. You can't hide behind $7 trillion in debt forever, you know? And that's not counting Fannie Mae/Freddie Mac, who's debt isn't counted as debt because, well, people are still paying off those home loans. Take them into consideration, and that number balloons to something like $30 trillion. And the banks, that are supposed to keep roughly 10% of their money in cash reserve, actually only have about 1% stashed away for emergencies. Fantastic.
Here's a quick history quiz for you: In what year did the DOW break 1,000? Go check it out. After you've re-inserted your eyes into their sockets, ask yourself: how in the hell can the stock market possibly sustain itself over 10,000? The stock market is the absolute last place I'd invest my money, unless I had some insider information that I could put to good use and get out quickly (whoops, that's illegal).
No one has told how to make money off of this upcoming disaster. I'm allergic to gold.
Well how about platinum? Iridium? Things that are shiny? Things that are made of metal? Things that can be used in high-tech gadgets? /$100,000 Pyramid
Wouldn't you want as much money circulating through the economy as possible?
Well, there's also the small issue of debt. Total consumer debt (as reported by these guys) is about $1.7 trillion. Another interesting statistic on that page: the number of people filing for personal bankcruptcy last year? 1.3 million Americans.
If everyone started saving 30% of their income, banks would be a lot nicer about lending it out to, say, new business ventures, which in turn leads to hiring, which decreases the available job pool, which increases wages, which increases spending... basically, the 1990's.
posted by Civil_Disobedient at 12:21 PM on November 24, 2004 [1 favorite]
In 1995, the Bureau of Labor Statistics released a new range of unemployment measures. The media report U-3. The most inclusive figure is U-6, which is defined as "total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers." Marginally attached is a nice form of double-speak which translates to people who are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past and people employed part-time for economic reasons, but who want and are available for full-time work. The U-6 number for July, 2003 is 10.5%.
Haven't seen a FPP about the economists holding more moderate views. Do you think there are none?
Moderate views? Buddy, these are the moderate views. You can't hide behind $7 trillion in debt forever, you know? And that's not counting Fannie Mae/Freddie Mac, who's debt isn't counted as debt because, well, people are still paying off those home loans. Take them into consideration, and that number balloons to something like $30 trillion. And the banks, that are supposed to keep roughly 10% of their money in cash reserve, actually only have about 1% stashed away for emergencies. Fantastic.
Here's a quick history quiz for you: In what year did the DOW break 1,000? Go check it out. After you've re-inserted your eyes into their sockets, ask yourself: how in the hell can the stock market possibly sustain itself over 10,000? The stock market is the absolute last place I'd invest my money, unless I had some insider information that I could put to good use and get out quickly (whoops, that's illegal).
No one has told how to make money off of this upcoming disaster. I'm allergic to gold.
Well how about platinum? Iridium? Things that are shiny? Things that are made of metal? Things that can be used in high-tech gadgets? /$100,000 Pyramid
Wouldn't you want as much money circulating through the economy as possible?
Well, there's also the small issue of debt. Total consumer debt (as reported by these guys) is about $1.7 trillion. Another interesting statistic on that page: the number of people filing for personal bankcruptcy last year? 1.3 million Americans.
If everyone started saving 30% of their income, banks would be a lot nicer about lending it out to, say, new business ventures, which in turn leads to hiring, which decreases the available job pool, which increases wages, which increases spending... basically, the 1990's.
posted by Civil_Disobedient at 12:21 PM on November 24, 2004 [1 favorite]
Gold and silver have intrinsic value based on the labor it takes to produce them. The overall value assigned to them may fluctuate a great deal, but the fundamental fact is that it takes a certain amount of labor to mine the stuff in the first place, which serves as sort of a 'soft floor' for the value. Silver in particular is consumed at a very high rate; because it is presently cheap, it's in many things around you, from film to mirrors to the monitor you're probably looking at right now.
Both gold and silver tend to be lost over time, so fundamentally their 'value' is roughly the effort it takes to replace them. If they are valued higher than that, then more mining will be done to gather profit, which will drive the price down. If they are valued less than the cost of mining, then mining will slow or stop until the price rises again.
Fiat money, by comparison, has ZERO value. As I say in my Slashdot tag: "US Dollar, n: A politician's promise to pay nothing on demand." (Unlike most, this particular political promise is one you can absolutely rely on.) Anytime the Fed wants more dollars in circulation, it can simply lend new ones out. A $100 bill costs the same to print as a $1 bill: the very small fixed cost of printing is entirely dwarfed by the value of the bills themselves. (essentially pure profit).
The government is able to use this fact to extract a great deal of value from the economy without most folks noticing. This is just a hidden tax on those who save. Inflation is a seductive poison; it feels good for awhile, but it destroys the wise (savers) and rewards the foolish (debtors). Rewarding debtors means you'll have more of them and less savers... and savings is what allows an economy to grow. (something must pay for the new machinery/processes that produce more efficiently than the old ones).
Historically, empires have risen and fallen based on the soundness of their currencies. With the abuses the Fed has been perpetrating for nearly TWENTY YEARS, I believe it is highly likely that the era of the American Empire is in its twilight.
posted by Malor at 12:42 PM on November 24, 2004
Both gold and silver tend to be lost over time, so fundamentally their 'value' is roughly the effort it takes to replace them. If they are valued higher than that, then more mining will be done to gather profit, which will drive the price down. If they are valued less than the cost of mining, then mining will slow or stop until the price rises again.
Fiat money, by comparison, has ZERO value. As I say in my Slashdot tag: "US Dollar, n: A politician's promise to pay nothing on demand." (Unlike most, this particular political promise is one you can absolutely rely on.) Anytime the Fed wants more dollars in circulation, it can simply lend new ones out. A $100 bill costs the same to print as a $1 bill: the very small fixed cost of printing is entirely dwarfed by the value of the bills themselves. (essentially pure profit).
The government is able to use this fact to extract a great deal of value from the economy without most folks noticing. This is just a hidden tax on those who save. Inflation is a seductive poison; it feels good for awhile, but it destroys the wise (savers) and rewards the foolish (debtors). Rewarding debtors means you'll have more of them and less savers... and savings is what allows an economy to grow. (something must pay for the new machinery/processes that produce more efficiently than the old ones).
Historically, empires have risen and fallen based on the soundness of their currencies. With the abuses the Fed has been perpetrating for nearly TWENTY YEARS, I believe it is highly likely that the era of the American Empire is in its twilight.
posted by Malor at 12:42 PM on November 24, 2004
As far as "what to buy" -- just don't store your wealth in dollars, in the broad stock market (energy, food, and commodity stocks are probably still good), or in real estate. The coming shift in value will move to 'things' instead of 'paper'.. Normally this would be good for real estate, but that's already in a titanic bubble, driven by massive Fed-provided liquidity, very low interest rates, and STUPIDLY low lending standards.
Palladium has dropped a heck of a lot lately, it's a possibility. Platinum looks good. Silver is likely an especially good bet, because it is a very small market and very inelastic, and nearly all the known above-ground silver stocks have been depleted oveer the last twenty years. At one time the US had something like five billion ounces of silver; we now have ZERO. (we now buy silver on the open market to mint our Silver Eagles.) And there appears to be about a 120 million ounce/year deficit in silver production... it's something of a mystery why the price has only doubled over the last few years.
Pure water, uranium, oil... most durable commodities or sources of those commodities should be good investments over the next 5-10 years. Euros are easy to buy, and at least a little bit backed by gold. PSAFX is a fund based around a rising gold price and a declining dollar. BEARX from the same company profits from stock-market declines. Other than that -- do research. There will be many opportunities, but the fundamental game of investing is changing, and what has served you for twenty years is now failing, precisely BECAUSE it has served you so well.
posted by Malor at 12:55 PM on November 24, 2004
Palladium has dropped a heck of a lot lately, it's a possibility. Platinum looks good. Silver is likely an especially good bet, because it is a very small market and very inelastic, and nearly all the known above-ground silver stocks have been depleted oveer the last twenty years. At one time the US had something like five billion ounces of silver; we now have ZERO. (we now buy silver on the open market to mint our Silver Eagles.) And there appears to be about a 120 million ounce/year deficit in silver production... it's something of a mystery why the price has only doubled over the last few years.
Pure water, uranium, oil... most durable commodities or sources of those commodities should be good investments over the next 5-10 years. Euros are easy to buy, and at least a little bit backed by gold. PSAFX is a fund based around a rising gold price and a declining dollar. BEARX from the same company profits from stock-market declines. Other than that -- do research. There will be many opportunities, but the fundamental game of investing is changing, and what has served you for twenty years is now failing, precisely BECAUSE it has served you so well.
posted by Malor at 12:55 PM on November 24, 2004
This is great stuff. Let's say the U.S. economy doesn't tank b/c the Fed pushes interest rates very high, very fast. Does that lead to big inflation? Does my money turn to dust in the bank? Pardon my ignorance, I just find this fascinating though.
(It does look like silver is the way to go, but it just seems so volatile as a something to replace your savings with . . . )
posted by _sirmissalot_ at 1:50 PM on November 24, 2004
(It does look like silver is the way to go, but it just seems so volatile as a something to replace your savings with . . . )
posted by _sirmissalot_ at 1:50 PM on November 24, 2004
The best thing you can do if you're afraid of higher interest rates is to get out of your variable rate debt. A friend of mine just refinanced his two tier mortgage (a fixed rate conforming first with a variable second rate mortgage) into a fixed rate jumbo mortgage. His payments are increasing $4,500 a year NOW ... but since every point prime rate rises costs him $3,000 more in interest on his variable second, he figures he's made the correct bet for the next five years, particularly since his and wife's jobs are unlucky to deliver the big raises it would take for him to put together the cash to pay down the second.
posted by MattD at 2:04 PM on November 24, 2004
posted by MattD at 2:04 PM on November 24, 2004
In terms of raising interest rates very quickly, there is concern that that would tank the housing market, which is highly dependent on low interest rates and which many people consider to be in the bubble zone.
Of course, it is housing values which back up much of the trillions of dollars debt that the US has incurred, so popping this bubble is not something that could be thought to stabilize the economy.
For a very good description of this, see Oldman at BOPNews.
posted by alms at 2:39 PM on November 24, 2004
Of course, it is housing values which back up much of the trillions of dollars debt that the US has incurred, so popping this bubble is not something that could be thought to stabilize the economy.
For a very good description of this, see Oldman at BOPNews.
posted by alms at 2:39 PM on November 24, 2004
Malor, maybe the sluggish silver market has something to do with the demise of film photography? Wasn't the photographic film industry the single biggest silver user?
posted by Skeptic at 3:05 PM on November 24, 2004
posted by Skeptic at 3:05 PM on November 24, 2004
Here's a good source of info on silver, a good investment, probably better than gold (percentagewise) and still dirt cheap...
posted by ronin21 at 7:31 PM on November 24, 2004
posted by ronin21 at 7:31 PM on November 24, 2004
the durability, malleability, ductility, resistance to corrosion, and (above all) scarcity of gold are what give it value.
...
Gold and silver have intrinsic value based on the labor it takes to produce them.
Those qualities that gold has does not make it inherently valuable. They just make it "gold". But we have to value those qualities to make it valuable, and these days we mainly value those qualities via tradition.
The value of work cannot be simply translated into the value of the product, so you can spend time making something worthless, and you can hit upon something worth a lot without breaking a sweat. Value is simply determined by how much the group desires something. "fiat" money is not a logically different sort of money from "pretty metal" money; it is just the recognition of how money actually works, that the fiat is the important part, not the metallic properties...
posted by mdn at 8:31 PM on November 24, 2004
...
Gold and silver have intrinsic value based on the labor it takes to produce them.
Those qualities that gold has does not make it inherently valuable. They just make it "gold". But we have to value those qualities to make it valuable, and these days we mainly value those qualities via tradition.
The value of work cannot be simply translated into the value of the product, so you can spend time making something worthless, and you can hit upon something worth a lot without breaking a sweat. Value is simply determined by how much the group desires something. "fiat" money is not a logically different sort of money from "pretty metal" money; it is just the recognition of how money actually works, that the fiat is the important part, not the metallic properties...
posted by mdn at 8:31 PM on November 24, 2004
the fiat is the important part, not the metallic properties...
Yes. If I were preparing for the Eschaton, I wouldn't want money or "precious" metals or gemstones, I'd stock up on things people are going to really want in their everyday lives, like canned chili, soap and toilet paper, bullets, liquor, etc. That is after all how the white people wound up with the USA as it is: this country was traded piecemeal for things like steel knives, iron kettles and whiskey, not bought with doubloons and treasury bonds.
Not that I'd advise actually doing it as an investment strategy, but (morality and current law aside) crack cocaine and crystal meth sound like good bets. For one thing the units are small and easily hidden and conveyed, and we've already seen what people will do to get that shit. How long do these crystalline compounds maintain their potency anyway?
posted by davy at 8:55 PM on November 24, 2004
Yes. If I were preparing for the Eschaton, I wouldn't want money or "precious" metals or gemstones, I'd stock up on things people are going to really want in their everyday lives, like canned chili, soap and toilet paper, bullets, liquor, etc. That is after all how the white people wound up with the USA as it is: this country was traded piecemeal for things like steel knives, iron kettles and whiskey, not bought with doubloons and treasury bonds.
Not that I'd advise actually doing it as an investment strategy, but (morality and current law aside) crack cocaine and crystal meth sound like good bets. For one thing the units are small and easily hidden and conveyed, and we've already seen what people will do to get that shit. How long do these crystalline compounds maintain their potency anyway?
posted by davy at 8:55 PM on November 24, 2004
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