The ‘Aftershock Economy’
And according to the authors, the series isn’t over yet; the current lull is just a mid-season break. There are two more bloated bubbles still floating our economy in grotesque cartoon-defiance of gravity. These are the biggest and baddest bubbles of all: the dollar bubble and the enormous U.S. government debt bubble.
As the authors tell us, it is supply and demand that determines the price of the U.S. dollar compared to other currencies. In the decades after World War II, demand for the dollar was strong, and its supply was managed with relative prudence. But beginning in the early 1980s, the U.S. government began to dramatically increase the country’s debt burden. That debt was financed in large part by foreign investment, which flows into the United States in the form of dollar-denominated asset purchases. Now, almost thirty years later, the U.S. government continues to live on credit, and total U.S. debt is expected to reach $20 trillion by 2015.
The trouble for the U.S. economy is that the value of the assets being purchased by foreign investors is now being stabilized — propped up — by the cumulative inflow of that same foreign capital.
The collapse of the housing and stock markets forced consumers into a corner, clinging to their jobs and managing their personal debts by cutting back on discretionary spending. The Federal Reserve — fearing the worst — escaped the immediate catastrophe by printing money — $1.7 trillion in 2009 alone.
This sudden increase in the supply of money — and the inflationary pressure it portends — functions to decrease the overall value of the U.S. dollar, thus making it less attractive to foreign investors.
“One way to look at this is to think of the United States as a big mutual fund,” the authors write. “When our performance is good, foreign investors throw their money at us, but when performance is not so good, they throw less money at us. And when performance becomes bad enough, they are going to want to take their money and go home.
“Based on our analysis, we foresee foreign investors beginning to significantly lose confidence in their U.S. holdings sometime in 2010 to 2011, and increasing over time, with the likelihood of a mass exit by 2012 to 2014 becoming very high.”
The amount of debt held by investors, which include China and other countries as well as individuals and pension funds, will rise to an estimated $9.1 trillion this year from $7.5 trillion last year. When the dollar implodes, the U.S. government debt — now at a staggering $13 trillion and set to exceed GDP by 2012 — will surely be called-in by its owners.
And with the news that Social Security is now running a deficit this year — at least five years sooner than economists had expected — these last two epochal bubbles might burst far sooner than anyone thinks.
So what do you put your money in to avoid getting hosed by all this?
Canned food and Ammo.
Seth:
I suggest you write a check and send it to President Obama. He is afterall the Messiah and perhaps he will have mercy on your soul in return for your contribution.
Don’t worry about your body if you’re over 65. He will have squads to handle that issue, headed up by a fellow Marxist, who by the way will have managed to circumvent the nasty propblem of getting confirmed by the U.S. Senate.
Oh yeah, and you should probably write or e-mail your congressman. Perhaps he or she doesn’t know what Mr. LaSalle explains in this article and this sage advice has worked well in the past, dont you agree? Oh yes, be sure to vote, even thought your choice will have to be between Marxism and Marxism Light.
Wishing all Americans the very best, I remain CGW, just another one of the Little People who dances to the tune of the gang of thieves in D.C. while maintaining my hope and waiting for more of the Messiah’s change to improve my life.
P.S. I would be more hopeful if Victor Davis Hanson would run for President in 2012. But that’s not likely to happen is it? The RNC and Fox News will see to that. Their horse in the race will probably once again be John McGoofy McCain, a real Conservative American Hero.
Tongue in cheek but true. Tongue in cheek but true. Tongue in cheek but true.
Put your money in a tin can, and bury it in your back yard.
But seriously, folks, one point of this story is that money
is going to have its value inflated away, therefore one should
exchange it for other forms of wealth which will maintain, or
_increase_ their value after the shock.
Ruebacca may be a bit extreme, in specifying only food to eat
and ammo for the guns needed to protect the food from robbers,
and from the local government’s rationing agents – same thing
though if things get that bad, everything else will be available
for free, after the die-off.
Assuming that life after the shock is no worse then life in
Argentina today, the best preparation is to move to a middle
sized town (100K) wait out the socioeconomic aftershocks, and
do what one can to help with the political reform and economic
recovery.
P.S. Planning for individual or family survival will produce
a suboptimal result; A multifamily group, a community of
coworkers, and a town full of responsible citizens each offer
an improved chance of survival.
Inflation is a tool of the central banks to recoup the wealth citizens have saved. Since they create money by the issuance of debt, they have created a slave class that sees their labor stolen by inflation and debt.
I see no solution save a total collapse of the world banking system and the bursting of this bubble. Pain for all….greater pain if we continue in our denial.
Learn to grow food, make soap, and defend yourself. This is no less than a declaration of war against our lifestyle.
Like I said before the emaculation, buy ‘Guns, ammo, and gold’.
Weapons and Ammo!
After World War II the German and indeed the European economy lay in ruins. The exchange medius could no longer be money but became cigarettes and hershey chocolate bars; maybe its time to store up cartons of cigarettes and tons of hershey bars along with guns, food and ammo. America is on the fast lane to collapse.
learn to can, buy lots of dry beans, they last for forever and will keep you healthy. Rice, salt, sugar, guns, crossbows, ammo and a good slingshot or two just to be sure. Then head for the hills.
I live in the hills. Don’t come here!
All you dreamers who think you are going to come to the hills with your guns and your crossbows and survive don’t know what you are talking about. There isn’t enough game to feed the people who already live here if that’s all we have to rely on. And in winter there is practically nothing else to eat unless you like tree bark. The aboriginal people survived by storing food they gathered or raised and processed over the summer. So whose land are you going to crop? The soil is gone from the hillsides. And don,t forget to bring your plows and draft animals ,all of you. And the harnesses I know you have stored somewhere. And are you going to bring seed stock? There are more of us living in the hills now than there were in the day of the mule, and a lot more than in the day of the bow and arrow. If the teeming millions who live in the cities go on the road and think they are going to be fed here, well it will be a sad story. So you better come up with another plan.
Learn to raise your own food. Suburban living makes one woefully unprepared for this. Learn to garden, raise chickens (and goats if possible). Give up processed, non-nutritious foods and learn how to make supplies stretch. You’d be surprised how easily soda is given up, after a few weeks it tastes disgusting and you’ll crave water instead (or beer and wine, which are far more nutritious than carbonated water infused with corn syrup or artificial sweeteners). Give up most restaurants. My family only goes to family-owned places and avoids chains like the plague (you’ll lose your taste for them quickly). Above all, learn to live frugally and lose your ego over the types of employment you’re willing to accept. I don’t forsee a “Mad Max” scenario but I do see real poverty coming to this country, not the subsidized comfortable type we have today.
Again, I do not agree with your analysis at all.
I do agree with: “buy and store food and be prepared to defend it”.
My analysis on this subject is that the only “thing” that could collapse the “dollar”, as the world currency, is the substantial destruction of the country.
The last time the world assumed the barter system was during “Weapons Deal 1″ (AKA: WW1, world war one). By 1917 trade between countries was not in currency; it was your widgets for my widgelets… and a lot of gold was moved around different countries vaults in the US.
The US dollar is the world currency because everyone, except Islime terrorist, wants it to be.
If “they” did not want the US dollar as the world currency it would already be gone. “they” (AKA: everybody, except Islime terrorist)!
They want the “Fed” to do what ever is necessary to keep enough green backs in circulation and inflation/deflation under control.
There is no apparent replacement to the dollar; and the idea of your corn for my TV sets makes everyone Love the dollar.
The dollar is and will remain the gold standard until there is a replacement that everyone will accept…good luck with that…
Lets see…special drawing rights; not backed by anything/country, so which well to do country would trade their currency/sovereignty for that? Canada, Britain, Australia, Arab oil states, China…don’t think so.
Who will want Chinese currency as the…try spending them outside China; same with all other currencies except the US dollar.
So they may not love it, but they all accept it, and every merchant the world over accepts it and that is why the dollar is better than gold! And your “collapse theory” is more likely to collapse than the dollar…because no one wants it to collapse because all alternatives are far far worse!
Pretty sure merchants and laborers the world over would gladly accept gold or silver. I know I would. It does not follow that the coming collapse of fiat money(money backed solely by the full faith and credit of a country) will necessitate a “my corn for your tv” scenario. Most likely silver will once again rule as the standard worldwide for trade.
As for the dollar.. good riddance, and good riddance to the central bank control that comes with it.
“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”
Works the same way w/ other critters, fruits and vegetables. Learn to produce your own food off whatever land you have. And buy guns, ammo and gold. Tangible assets like canning equipment, farming implements etc are good too.
This downturn is going to last much longer than the amount of canned food you manage to squirrel away in your bunker. Be part of a community of like-minded people and work together to become self-sustainable without outside help.
http://www.oftwominds.com/survivalplus.html
The only good thing to come out of this scenario would be the imprisonment of Obama.
I’m sure if this does come to pass, it will be all Bush’s fault, not Obama’s.
I find it amusing that the left could constantly beat a drum advocating the death of President Bush, even made a movie about it, mention this sort of stuff in connection with obama and you are going to have uninvited company wanting to put you away, so, impeachment and jail for him.
Well, well,well. Don’t our wonderful politicians SEE this? Where does all this money GO? ALL indicators show that what they are doing is SUICIDAL! So why are they not doing all they can to STOP IT?!?! Are they that suicidal, narssistic, stupid and incompetent? Or is it all intentional, so that they can get rid of the one thing that they dispise and hold in comptent, our Constitution?
Let us hope this will forment revolution. If the economy of America fails, the cities will rise and rampage.
Be prepared, store ammunition, be prepared to defend what is yours against the animals from the cities who will want your stuff.
I am 59 and have never believed that SS would be around to help me. Everybody knows it will become means tested. So, having solved that problem with the monumental betrayal we all expect, we still have the government worker’s pensions based on impossible growth projections. To pay them we would have to give up current services and face anarchy!
In my view we must elect politicians who have the courage to bring down government worker’s unions and bust up their pension promises just like ours will be busted. Also, the right-to-work laws need to go federal to break the union’s grip that is choking our competitive position.
I see that, for at least as long as I’ve been alive, governments all over the world have printed currency and ‘advanced themselves money’. The result is, of course, that currency loses value. Inflation. Lately they’ve printed far more, our own government FAR more than anyone. The result is guaranteed. Currency loses value, catastrophically in our case.
this will all settle out eventually, as one party or another finally begins to try to protect themselves by withdrawing while some value remains. The collective movement will speed up, and eventually something like collapse will occur. It is the inevitable redistribution which is brought on by irresponsibility in govt. All lifestyles will decrease dramatically, INCLUDING the poor (probably the hardest hit, ironically, by leftist monetary policy).
it has to even out eventually, fast or slow. Wealth cannot be created by printing it. They are diluting real wealth, which would be bad enough if govt was PAYING ITS OWN DEBT by removing value from citizens. But it’s even worse, as they are INCREASING their debt while simultaneously wrecking the ability of the citizens to repay it through taxation.
Big bubble/trouble developing: International speculation buying up US foreclosed real estate residential and commercial. Relative just rented a large Miami area upscale home on a lease……owner Chinese……who are skipping those weak TBills in favor of real property speculation and renting it out in a very hot market. Advised by the Relocation Specialist that the Chinese are buying foreclosed depressed property faster than you can imagine and rental prices are skyrocketing in gated upscale areas. People who walked away from mortgages are also coming back as renters at prices lower than their payments. Chinese are turning out to be quite the capitalists but how is that going to affect recovery?
The dollar exists relative to other currencies — and commodities. It will fall if people — globally — decide there is something better than dollars. The Euro is not going to replace it. The Yuan sure is not. Nor is the ruble. But if some kind of “petrodollar” surfaces that becomes the defacto currency for buying oil — the dollar is in trouble. In the mean time, I think gold will continue to rise as people “hedge their bets” against the dollar sinking.
As for inflation — best thing that could ever happen as it will bail out all the homeowners. Based on my experience in the Carter years — salaries chase after inflation. But if you have fixed cost debt — like say a $200K mortgage at 5% — and over an 8 year period your salary doubles — the cost of your mortgage payments have effectively been cut in half. I know for a fact that a whole boatload of people now in their 60′s and 70′s made out VERY WELL due the inflation of late 70′s and early 80′s.
If we the people adhere to the constitution and it’s laws (pre foolishness) and
stop paying taxes, use civil disobedience, become the law ourselves and hold to
the things that make this country great, love thy neighbor and band together with the common goal of reversing this insanity we can remake this country into
it’s great self again. We must remain United, in heart and purpose.
This will pass and we will survive,,,,,, there will be an accounting.
“This sudden increase in the supply of money — and the inflationary pressure it portends — functions to decrease the overall value of the U.S. dollar, thus making it less attractive to foreign investors.”
Not to pick nits here, but this has not happened….yet. The broadest definition of the money supply, M3 ( which by the way the government stopped reporting in 2006) shows a massive drop in late 2009 and 2010. See it here in it’s recontructed glory.
http://www.shadowstats.com/alternate_data/money-supply-charts
What about the riots that will surely come after the One?Even after an honest election?They will never accept it.
That Dec. 2012 end-of-the-Mayan calendar date sure looks surreal.
The dollar will not fail unless all international commerce fails. If it comes to that, we’re all in a lot more trouble than we can get ourselves out of.
The reason the dollar will not fail is that every nation on earth (with the possible exception of some sandboxes) wants the dollar strong. Every other nation in the world has an economy that lives and dies with the US economy. Even China, which has been a bugaboo to some recently, wants the dollar strong. They are heavily invested in the dollar and any depreciation is money evaporating right before their eyes!
On the bad side, if the dollar DOES fail, you can expect famine to follow. Famine leads to war; war leads to displaced people; displaced people leads to pandemic; pandemic leads to isolation; isolation leads to subsistence living, 18th century-style. 18-th century subsistence living means slavery, feudalism, city-states and worlords. THAT is a scary idea. Who among us will manage to avoid being one of the 6 BILLION worldwide who will die in the process???
Find a place where you can walk to the sea. Learn to fish. Wall, then plant a garden with basic fruits and vegetables. Use a short and a longrange firearm proficiently and lay in some ammo. 45acp and 7.62×39 preferred. Put some space between you and your nearest neighbor. A generator, some gas and some medical supplies might come in handy. Basics like water and toilet paper need to be considered.
Our money will be worthless, inflated to zero value and then replaced by a global currency or credit card. If one is not both selfdefending and selfproviding, one must steal, starve or slave “foh massa ‘bama.”
Your choice.
Step 1: Debt monetization – Ongoing
Step 2: Debt Repudiation – Coming soon to a country near you
Step 3: $100,000,000 notes
Learn to get along with other people. Walk across your suburban lawn and get to know your neighbors. Call your relatives, ask them how they are doing. If you are churchly, get to know the people in your congregation/temple/whatever.
My father lived through the Great Depression and the people who got along with each other got along. Period. Families banded together. Church ladies made sure people had food. Men helped other men fix their houses and cars.
Regardless of your feelings about politics and all, you are not going to survive with a crossbow and several rounds of ammo. Normal people don’t do that. Normal people band together. If you can’t grok that, learn. It’s how we got this far from being troupes of prosimians in the veldt to people who built empires.