What are you doing to prepare for the collapse of the US Dollar?

I suppose I should be booking some flights and a holiday. Vegas or Orlando would suit.

Hoping what little possessions and stock piles of gold and silver I own carry me through until times get better. After the greedies of the world take everything I have I don’t know what I’ll do.

If I thought that’s going to happen I’d plan to get as self-sufficient as possible. Get off the power grid and grow your own food. If you’re trying to surf the money wave one could invest in commodities that are sure to at least stay needed if not actually rocket up in price.

Buying lots of balloons and helium, confetti, cake, renting a party hall and a rockband.

@CaptainHarley Can you please list one or two credible sources? Glenn Beck is not a credible source.

There are risks, as Moody’s has pointed out, if we don’t raise the debt ceiling. That would result in worldwide economic collapse, not hyperinflation.

What am I doing to debunk doomsday conspiracy theories? Listening to advice of renowned scholars and internationally acclaimed financial experts. There’s a difference between in trouble and being doomed.

I, too, am interested in knowing who is included in this “great number of very knowledgeable sources.” Krugman says it’s all about morality and points out where the predictions don’t match reality. DeLong agrees, even going so far as to say we have too little inflation. Even the American Enterprise Institute finally realized that there was more threat of dangerous deflation a year ago.

So, I guess what I’m doing to prepare for this threat of hyperinflation is: reading.

Same thing I do every day.

@mattbrowne You’re the only one so far calling this a “doomsday conspiracy theory”. As far as I can see, @CaptainHarley is just interested in how people intend to change their behaviors as a response to changing circumstances.

As for credible sources on economic collapse/downturn: Dmitri Orlov, Fernando Aguirre, Aric McBay, Mike Ruppert, and Gerald Celente. As far as I can tell, only the last one has made specific date predictions, the rest more point to general trends and indicators that predict economic collapse. Orlov and Ruppert I recommend above the others.

@incendiary_dan – I have no doubt that we’re eventually headed for collapse, but I don’t see it coming from the angle that @CaptainHarley is suggesting. The only reasons I didn’t come right out and call it a “doomsday conspiracy theory” are (1) too polite, I’d rather hurl better things than insults, and (2) I’m not sure it’s as organized as a conspiracy would need to be – it seems more like free-range fear and misinterpretation of reality.

@laureth That’s basically my thought about it, but I think a lighter version of the collapse of the dollar will be one of the major factors in the eventual economic collapse. As a mental exercise, I do prepare for the collapse of the dollar and hyperinflation, but I prepare for zombies so that isn’t saying much.

I find resource scarcity, particularly oil and rare earth metals, combined with the growing food crisis (both caused by crop failure and distribution issues) to be more likely routes of causing major disruptions. The government won’t really have the physical goods to follow through with debts or back currency. Seems like the main avenues previous collapses have followed, though we shouldn’t discount the Argentinian collapse ten years ago caused mostly by abstract financial blunders.

We’re of like mind, @incendiary_dan – but I have suspected that for a while. Mining our topsoil down to the bone, and offshoring most of our value-added enterprises also come to mind.

@laureth Right on.

I moved away in the Reagan years. I guess I must be psychic.

@incendiary_dan I don’t find those people you mentioned as particularly credible. And they are not predicting or anticipating what @CaptainHarley is talking about. Peak oil is a different question to debate.

@zenvelo They’re not so seperate issues as you seem to think. Nor is your statement about their predictions entirely true: All I’ve mentioned have talked specifically about the possibility of hyperinflation, particularly Aguirre and Celente (though I admit, I am less familiar with the latter’s works, having mostly seen interviews with him). But if you don’t find them credible, I doubt any appeal to their good scholarship would sway you.

I’m in favor of a barter system.

@YARNLADY Definitely barter, particularly if augmenting a gift economy. Those sorts of systems are probably fairly resilient to changes in the market.

You and me both @YARNLADY.

Barter is perfect, until you need something that “Bob” has, but “Bob” doesn’t want what you have in trade. Then you have to find someone who has what “Bob” wants, but wants what you have. If this works, good on you. If not, that’s why money was invented.

You guys are so funny. You know you’ll be using Euros. The US dollar collapsing will be assisted by the fact that the Norwegian government has had enough of the silliness with the oil in US dollars and go over to the Euro, pleasing OPEC and allowing them to change the oil currency, finally, to the Euro, boosting that currency. The dollar will loose what ever value was left in it and Europe will have to come to the US’s aide.

@incendiary_dan – Hyperinflation would be a major disaster. People who are floating this idea want to create fear. For example for political gains. Vote for us. We’re the saviors. I say we should be careful about believing in shocking scenarios some people are creating on purpose.

The global economy is interconnected. If the dollars loses more value against the euro it will make American products more attractive in Europe. Which will help the American economy. Which will slow down the dollar losing value. There are many parameters. The story is very complex. But a total disaster is very unlikely. Let’s deal with the trouble. But let’s not waste time ruminating about exaggerations.

@mattbrowne

That is unadulterated bullshit! The one man in political life I trust the most, Ron Paul, has repeatedly warned against allowing the Federal Reserve to print more and more money with nothing to back it up. There are ample examples from history to illustrate the dangers of doing this, the Wiemer Republic being one of them.

In the past I have gone along with most of what you have to say, Matt, because you at least usually use logic and facts, but this is nothing more than following the Democrat line. You disappoint me.

Well here are some facts:

‘In economics, hyperinflation is inflation that is very high or “out of control”. While the real values of the specific economic items generally stay the same in terms of relatively stable foreign currencies, in hyperinflationary conditions the general price level within a specific economy increases rapidly as the functional or internal currency, as opposed to a foreign currency, loses its real value very quickly, normally at an accelerating rate.

As a rule of thumb, normal monthly and annual low inflation and deflation are reported per month, while under hyperinflation the general price level could rise by 5 or 10% or even much more every day. A vicious circle is created in which more and more inflation is created with each iteration of the ever increasing money printing cycle.’

The last time this happened in the United States was during the civil war when the Confederate dollar had less and less value, until it was almost worthless by the last few months of the war.

http://en.wikipedia.org/wiki/Hyperinflation#United_States

Hyperinflation isn’t a just a problematic inflation. Of course there’s the risk of increasing inflation. But the fact is this: hyperinflation the general price level could rise by 5 or 10% or even much more every day. The US is nowhere near this. Moderate Republicans share this view. Scare mongers don’t. We should be disappointed about scare mongers and sensationalists.

By Wiemer Republic do you mean Weimar Republic?

Those aren’t “facts.” They are Keynesian economic principles, which are definitely not “facts.”

Simply stating that those warning against the Fed repeatedly engaging in “quantative easing” are “scare mongers and sensationalists” does nothing to address the issue.

It absolutely addresses the issue. It’s saying, ‘what issue?’ and ‘Stop making things up.’

Look, @CaptainHarley, I understand that you are concerned. Americans are concerned. Europeans are concerned. The economic situation is serious. But predicting the advent of hyperinflation does far more harm than good. Many people will panic. Therefore, from my point of view, it makes total sense to counter the alarmist rhetoric. People should stay concerned, but not panic. People should demand that politicians take the situation seriously. That there are many talks on a national and international level. And everyone deals with the situation properly.

Well, all I can say is that I hope you are correct. I would love to be proven wrong on this, but the proof of the pudding with be in the eating thereof.

I hope the pudding is crow flavoured.

This is another good post from DeLong that might be reassuring from an evidence-based point of view.

Good article, @laureth and it clearly shows that there’s a difference between a serious situation and a catastrophic situation. That’s all I wanted to point out to @CaptainHarley. We are not close to a situation where general price levels could rise by 5 or 10% every day.

You don’t go from ~2% inflation to ~20% inflation without passing ranges in between. It took three years to go from “about the same as the rest of Europe” to the OMGWTFBBQ! levels of the Weimar Republic. It took a quarter century for Zimbabwe to build to its record-breaking inflation rate. I know it’s good political theater to suggest we might all wake up tomorrow in a world where the prices of everything, except what our employer sells, doubled overnight, just because people “lost confidence.” But that’s not how the world works, at least not in the last 800 years.

@laureth Thanks. All this disaster speculation acts like it would happen overnight. And a lot of the structural problems existent today originated from the borrow and spend/lower tax policies from 2001–2009. Much could be solved if we just repealed the tax cuts for those earning over $250,000.

@mattbrowne My bad, I forget that other people are so tied in to and identify with the global economic system that they view these things as a “major disaster”. I’m tied in to and identify with my landbase.

@laureth What about Argentina? If I remember correctly, their hyperinflation occured much faster than your examples.

Argentina was coming out of a military dictatorship and tried establishing a brand new currency. Apples and oranges, my friend.

So am I to understand that none of you are making any preparations then??

I made my preparations in 1988 when I left the country. Living in a lovely country now with a nice stable economy based on oil, so the sooner oil is traded in Euros, the sooner my evil plan will be complete.. Muuuaaahahahahaa. (mine is an evil laugh) (sorry, can’t really take this subject completely seriously.)

@CaptainHarley You know that I am, though that’s just how I live anyway. The resiliency against market changes is just a benefit. :)

@cazzie That was almost twenty years prior to the economic collapse, and Argentina had already established its peso by 2001. The economics were fairly similar to the U.S. just prior to 2001.

@incendiary_dan – Argentina took about six years from when the military dictator was replaced with an elected President (and inflation was about what the U.S. had) to when their hyperinflation got all crazy. And, what @cazzie said. The 2001 crisis was not inflation. 1989 to 1991 was the inflation crisis, and 2001 was Argentina having trouble getting enough dollars to supply all the people who wanted to convert pesos to dollars. Two different problems. (They pegged their peso to be equal to one dollar, in effect giving up control of their own currency. That works fine until something goes wonky. In this case, their manufacturing base was destroyed, because imports were cheap – something like what’s happening now with Chinese imports to the United States.)

@CaptainHarley – I do not see a need to make preparations for the event you are talking about, because I do not see the future going your way like that. I am, however, slowly preparing for the events I think will come to pass, as best as I can for now. It doesn’t mean investing in the gold bubble, but something closer to honing my skills growing food, making things by hand, and looking into buying a plot of land where I can make it happen.

What would be the point of preparing for something we regard as non-existent? Most of us who follow that sort of thing are “preparing” by making well thought-out, informed choices.

@incendiary_dan Look at Dec 26 2001.

http://fpc.state.gov/documents/organization/8040.pdf

@YARNLADY What would be the point of preparing for something we regard as non-existent? Like I said above, I go so far as to prepare for the zombie apocalypse. I don’t really think it’s gonna happen, but for some of us those sorts of things are good mental exercise. Plus, if you prepare for such outlandish and extreme scenarios, anything that’ll actually happen seems like a breeze by comparison.

@laureth Interesting. I’ve heard accounts that sound quite different from that in regards to history and the timing of events. Always more to read, eh?

@cazzie Thanks, I’ll check that out.

@incendiary_dan – I’m looking here. When they couldn’t sustain the peso-to-dollar exchange, their currency devalued. The devaluation that led to inflation is the second problem. Always more to read, yes yes. :)

@incendiary_dan I am too busy with real life

@YARNLADY Well sure, if you’re into that sort of thing. I guess. :P

This conversation got me around to finally watching this, and I have to say I’m having trouble seeing how this wasn’t hyperinflation. Maybe I’m mixing up terms, but not only does this seem like hyperinflation occuring in 2001, with the currency being massively devalued, but it seems the U.S. dollar is in a similar predicament in terms of foreign debt owned by China, not to mention the fact that S&P is threatening more every day to downgrade the U.S.‘s credit rating. A few months back OPEC had mentioned the possibility of changing their default currency away from USD. Compound that with the resources scarcity issues I mention above, it seems like the U.S. will have similar problems backing the currency, as is sure to happen in any system based on infinite growth on a finite planet.

Edit: Oh yea, and that whole “quantitative easing” thing. The printing of lots of new currency is pretty typical right before hyperinflation, isn’t it?

First, I buy a gun.

Second, I shoot my stock broker

Third, I shoot myself. I am too old to live is a world of survivalists and Mad-Max movies.

Comeon @Ron_C, we can start a tribe of gray survivalists and probably get on a lot better than the young ones. And really some of those Mad Max vehicles look like they would be fun to drive!

@YARNLADY

Well I certainly would never want to make any of THOSE sorts of choices! Tisk! : P

@rooeytoo O.k. as long as no one under 60 is included. I would like to live out my days at the end of the country in piece and am not ready for the gun crazy drama queens of the younger generation.

I still intend to shoot my broker.

@CaptainHarley – You asked: So am I to understand that none of you are making any preparations then? Well, I’ve always been making preparations for serious economical situations i.e. saving when times are good and resisting overspending when times are good or bad. My saving approach always involves a diversified portfolio using the recommendations of financial advisers I trust. I’m not making preparations for any of the catastrophic scenarios you were referring to such as the total collapse of the euro, or the dollar, or the advent of hyperinflation.

What I don’t like about your question is the sneaking in of tacit assumptions. As if they were real. It’s like asking: What are you doing to prepare for the meteorite impact that will hit Earth on December 21, 2012?

@mattbrowne

Then you are a very wise man to have done so. My hat’s off to you.

All the evidence I have access to says that hyperinflation is all but inevitable. I honestly hope that it never happens. But even if it never happens, I will still be in pretty good shape.

I seriously doubt that many ( if ANY ) of you will read this, but this is the sort of report I have been reading for quite some time now:

The official U.S. unemployment rate rose during the month of May to 9.1%, up from 9% in April, with only 54,000 non-farm jobs being created for the month. The real unemployment rate including short and long-term discouraged workers is now 22.3%. The Bureau of Labor Statistics (BLS) used the birth/death model to produce a positive monthly bias during the month of May of 206,000 jobs, up from 175,000 in April, 117,000 in March, and 112,000 in February. Without the birth/death model, 152,000 jobs were lost during the month of May.

By utilizing the birth/death model, the BLS is assuming that during the month of May, the number of new jobs created by start-up businesses were 206,000 greater than the number of jobs lost from companies going out of business. NIA finds this assumption to be absurd and believes it is likely that jobs lost from companies going out of business were actually much higher than jobs created by new start-up firms. It is obvious to us that the BLS is using the birth/death model to manipulate unemployment figures to make the U.S. employment situation seem far less worse than it truly is. There is absolutely no legitimate reason for the birth/death model upward bias to have increased 84% over the past three months.

McDonald’s recently had their own “National Hiring Day” in which they encouraged Americans to apply for new jobs at the company. All together, 1 million Americans applied for 62,000 jobs at McDonald’s and over 900,000 Americans had to be turned down. To us, this is a sign that despite government economic statistics that are bottom bouncing from their lows due to the Federal Reserve printing trillions of dollars out of thin air, the U.S. economy is still in a severe downturn without the possibility of a real recovery. It is NIA’s belief that the Fed needs to allow the U.S. economy to enter into a severe depression where all bad debts can be liquidated and the free market can rebalance the economy from the ground-floor with a solid foundation.

The fact that the BLS needs to resort to deceptive birth/death model manipulative practices to give the appearance of any job creation, proves that the Federal Reserve’s destructive monetary policies of zero percent interest rates and endless money printing are not creating a sustainable reduction in the unemployment rate. Bernanke can claim all he wants that America’s inflation is transitory, but the only thing transitory about our economy is the artificial decline in the official U-3 unemployment rate from its peak in October of 2009 of 10.1%. The real unemployment rate has increased since October of 2009 and NIA believes that the official unemployment rate will likely rise back into double-digit territory in 2012.

From October of 2009 until now, the number of employed Americans has increased by 1.09% while the U.S. population has increased by 1.12%. The only reason the official unemployment rate has declined from 10.1% down to 9.1% is a decline in the labor force participation rate from 65.1% down to 64.2%. Based on what the labor force would be today if the participation rate had stayed the same over the past 20 months and factoring in the increasing population, 2.1 million Americans have completely given up looking for work.

The 1.09% increase in employed Americans over the past 20 months comes at the expense of a $1.30 increase in the price of gas from $2.48 to $3.78 per gallon for a gain of 52% during this time period. Many agricultural commodities have increased over the past 20 months by an even greater percentage than gas. Although prices of all commodities are volatile and have many short-term ups and downs, NIA believes that gas prices are heading to $5 per gallon over the next 12 months and food inflation is going to rapidly accelerate in the months and years ahead.

Prices are now beginning to rapidly rise for U.S. goods outside of the food and energy sectors. 90% of sporting goods manufacturers have seen their input costs rise substantially this year and 41% of them have already announced major price increases for athletic apparel, footwear, and sports equipment. As the 8,000 toy manufacturers in China are forced to raise the wages they pay their employees, Toys R’ Us is now beginning to see major wholesale price increases for their products, which they will have to pass on to U.S. consumers. Hasbo recently raised prices on all of their products by 6% to 7%. Mattel recently imposed an across the board high single digit price increase after reporting a 33% decline in quarterly profits (despite sales surging by 8%) due to skyrocketing raw material costs.

The U.S. is about to be cut off from its two largest foreign lenders China and Japan, which means the Federal Reserve will need to fund all of the U.S. government’s deficit spending through outright money printing. Federal Reserve holdings of U.S. treasuries just reached a new record of $1.532 trillion. Meanwhile, China’s U.S. treasury holdings have fallen five months in a row down to $1.145 trillion. Chinese central bankers are now calling for the country to reduce their foreign exchange reserves, which have increased by $200 billion this year up to over $3 trillion. Japan is currently the third largest holder of U.S. treasuries with treasury holdings of $907.9 billion. Unfortunately, Japan is in desperate need to raise $300 billion to fund their rebuilding efforts and this will likely come from them dumping some of their U.S. treasuries, during a time when the U.S. desperately needs Japan to buy more U.S. treasuries than ever before.

If we look back at previous occurrences of hyperinflation in countries like Bolivia and Brazil, hyperinflation broke out as soon as their central banks were forced to begin monetizing the bulk of their government’s deficit spending, as foreigners stopped lending. China’s inflation crisis is a direct result of the Fed’s quantitative easing and the monetary inflation that we have exported to them in return for their sporting goods, toys, and other products they produce. If China stops buying U.S. treasuries and decides to instead use their foreign currency reserves to accumulate gold that can be used to back their own currency, the Fed will have no other choice but to become the U.S. treasury buyer of last resort. Not only will we see quantitative easing to infinity, but we will see the $1.5 trillion in excess reserves currently parked at the Fed enter into the money supply and increase the money supply by as much as $15 trillion.

Besides gold, one place where the Chinese are investing their money in order to diversify out of U.S. dollars is Real Estate. Housing prices in Beijing and Shanghai rose 28% and 26% last year respectively. With concerns that Chinese Real Estate is becoming a bubble, the Chinese are now buying Real Estate in North America. However, they are avoiding the U.S. Real Estate market because of the civil unrest that will take place in major U.S. cities during hyperinflation due to empty store shelves. The most popular destination for the Chinese in North America is Vancouver, where Real Estate prices are now more expensive than New York City. While New York City Real Estate prices still haven’t finished deflating, Vancouver Real Estate prices are soaring to new record highs due to Chinese buyers, with the average Vancouver home price rising 14% last year. In the Westside section of Vancouver, housing prices are up 77% since 2005.

Canada’s GDP grew by 3.9% in the first quarter of 2011 on an annualized basis, up from 3.1% in the fourth quarter of 2010, 2.5% in the third quarter of 2010, and 2.3% in the second quarter of 2010. Canada’s GDP growth has increased for four straight quarters. U.S. GDP growth in the first quarter of 2011 declined to 1.8% on an annualized basis, down from 3.1% in the fourth quarter of 2010. Canada’s Prime Minister Stephen Harper just announced plans on Friday to attract more foreign capital and diversify trade in an attempt to protect Canada from a collapsing U.S. economy.

The U.S. still has a AAA credit rating even with its 2011 budget deficit projected to reach 43% of government expenditures, exactly the same as Brazil’s budget deficit as a percentage of expenditures right before they experienced hyperinflation. There is a major charade taking place in Washington today where Republicans are calling for spending cuts to take place in order for them to approve an increase in the debt ceiling. NIA predicts that the debt ceiling will be raised no matter what, most likely at the very last minute. We have zero confidence that Washington will implement any kind of meaningful spending cuts. The U.S. government clearly chose inflation over austerity in its attempt to stimulate the economy. It doesn’t make sense for them to reverse course now, because then they will look incompetent for not having chosen austerity to begin with.

The U.S. currently has a budget deficit from Social Security, Medicare, Medicaid, and other mandatory programs alone, without even paying the interest on our national debt. Major entitlement spending cuts are necessary if we are going to have even the slightest hope of balancing the budget and preventing hyperinflation. Unfortunately, most Americans have become dependent on entitlement programs and government transfer payments just to survive. These Americans fail to realize that the reason they are dependent on food stamps and other transfer payments to survive is because of the government’s deficit spending and the Federal Reserve’s massive monetary inflation. Only when the dollar completely collapses and Americans’ unemployment and Social Security checks aren’t worth enough to pay for the gas needed to drive to the bank to cash them, will they understand the need to elect a President like Ron Paul who will mandate a balanced budget and return the country to sound money, but by that time it will be too late. The only way America will survive as an industrialized nation is if we educate as many Americans as possible to the facts and truth about the U.S. economy that the mainstream media ignores, so that as many Americans as possible can prepare for hyperinflation and we have enough resources to rebuild afterwards.

@CaptainHarley I read that (where is it from?) and there are factual errors and suppositional errors, which will take me a long time to list.

I am not saying we are in the clear economically, there are a lot of problems, but the “sky is fallng” approach is not helpful, and calls for reactions which will actually kill the economy.

More later. In the meantime, read this from this week’s Barrons:

THE 1830s CERTAINLY STARTED OFF quietly enough on Wall Street. On March 16, 1830, the New York Stock and Exchange Board (as the NYSE was then called) traded a grand total of 31 shares, a low never again approached. The prosperity that had begun in the 1820s increased as the 1830s dawned. New England manufacturing grew quickly, and Southern cotton production (much of it brokered through New York) expanded greatly.

The federal government was running big surpluses as Andrew Jackson, determined to pay off the national debt, refused to sanction the “internal improvements” so beloved by members of Congress. And Jackson was determined to destroy the Second Bank of the United States, which he felt worked for the Eastern “money interests” rather than the common man. He vetoed the renewal of its charter and withdrew government deposits, putting them in what his critics called “pet banks.”

There the money helped fuel a bubble in Western land, as banks, which more than doubled in number in these years, were able to issue more banknotes and lend them to speculators, who bought government land. In 1832, the federal government had sold only $2.5 million worth of land. By the summer of 1836, it was selling $5 million worth a month (the origin, by the way, of the phrase “doing a land-office business”).

Jackson determined to stop the speculation and issued the “Specie Circular” requiring that speculators had to pay for the land they bought with specie—i.e., gold or silver, not bank notes. Meanwhile, Congress decided to transfer much of the government surplus to the states. The pet banks, faced with the prospect of shrinking deposit bases, began to call in loans.

THE GREAT BOOM OF THE 1830s came to a screeching halt, as interest rates spiked sharply higher and stocks fell. By April 1837, Philip Hone, a former Mayor of New York, was lamenting in his famous diary that, “The immense fortunes which we heard so much about in the days of speculation, have melted like the snows before an April sun.” Federal government revenues in 1837 were half what they had been in 1836, and state governments were similarly affected.

For Pennsylvania, that was a disaster. It was carrying a state debt of $20 million—huge for the time. It soon couldn’t roll over the debt or even pay the interest on it in a timely manner. The state defaulted. The major Philadelphia banks, carrying lots of state debt in their reserves, were devastated. And the Second Bank of the United States, its federal charter expired, converted to an ordinary state bank. Its power as the nation’s central bank—and the power it gave in turn to the Philadelphia financial market—was soon a fading memory.

@CaptainHarley I can only speak from personal experience and tend not to follow published statistics.

I travel extensively all over North America, Asia, Europe, and occasionally South America. For the last two years, our company has had a constant flow of orders for new manufacturing equipment and for rebuilds of older models. I ask my customers in the metals and automotive industry about their business. There is virtual agreement that business is picking up. In fact the more it picks up the bigger the demand for their products and the more people are need to manufacture them.

My customers also make parts for appliances, aero-space, and medical companies. The worst report I had was “about the same as last year but better than the year before”.

If congress would concentrate on jobs instead of their petty idological differences we would be well on our way to a full recovery and possibly shortage of people to work in factories.

@Ron_C What about the shutdown of a significant portion of the manufacturing going on in Japan due to inconsistent power? I’ve been hearing on NPR and reading elsewhere that this is leading certain automotive companies in the U.S. to halt production. I guess that wouldn’t effect the companies that get their parts from in the country, though.

@incendiary_dan Toyota stated last week that their supply chain is back in full production and therefore so is their new car production.

Quantitative easing was done because it put an influx of cash into an economy that needs an influx of cash. (Every market signal there is, is screaming for more cash. If there was too much cash out there, we’d have the sort of inflation we had, back in the last couple of Carter’s and first couple of Reagan’s years in office. Before QE was mentioned, we were on track to hit deflation in the late spring of 2011. Japan was in a similar state a couple of decades ago. The Japanese failed to heed the call. As a result, almost no Japanese under the age of 40 have ever worked as anything other than a temp.)

The stimulus was supposed to provide that influx of cash, but it wasn’t nearly big enough. So the Fed was trying to help out in a back door kind of way, also too little, but it was the only way that was left, what with the “shut down spending, screw the recovery and let’s take the bitter pill instead” caucus tying the purse strings. And most of the cash from the QE is still locked in bank vaults.

The economy won’t get going until the banks release that money. Unless we want to live in a nation with a persistently depressed, Japan-like economy, we’ll just have to bite the bullet and accept that inflation will grow all the way back to the average of the George W. Bush Administration. Maybe even farther, to the average inflation rate of the Reagan Administration.

Quantitative easing is the printing of money without any backing. This has been shown time after time to cause inflation, and sometimes runaway inflation. The current spate of quantitative easing was begun specifically to stop impending deflation. The problem is that we will never be able to pay even the interest on the national debt if we continue to print money.

@CaptainHarley – That’s why QE was small and limited. And eventually, those dollars will go home and be X’d out when the Fed sells the Treasury bonds that they bought with that cash. It’s not permanent money. It’s just trying to be enough to get things rolling again. We’re not “continuing to print money” as a permanent state – QE ends this month.

But I hate to tell you, it’s not just the QE “money printing” that has no backing – all money printed since we went off the gold standard isn’t “backed with anything.” Except it still works, because what it’s really backed with is what people expect to get for the money when they spend it again.

“Time after time it has shown to cause inflation” – because inflation is the opposite of deflation. To get from “deflation to zero,” you have to inflate. It’s medicine that must be used judiciously, like chemotherapy, because you don’t need it all the time, but when you really need it (like we do now), you REALLY need it.

@incendiary_dan The industry in which I am employed makes most of the parts for Japan. Almost any country with a good industrial base already has the equipment necessary to make those parts. I believe that more Toyota’s are made outside of Japan than in the country.

Guess we’ll just have to wait and see.

Well here’s another way of looking at the matter:

The ‘Too Big To Fail’ principle does not only apply to large financial companies. In recent times it applies to large countries or union of countries as well. The rest of the world wouldn’t stand idle and watch. Motivated by self interest. The US would be supported.

It wasn’t my intention to frustrate you @CaptainHarley ! For many months now I’ve appreciated your comments and style of debate. I strongly disagreed with you in this particular case, because we are nowhere near any of the doomsday scenarios. Spreading panic is not the right thing to do. If we want to play the what-if game just for the heck of it, how about rephrasing your question? For example like this:

Suppose we’re seeing the advent of hyperinflation and the collapse of the dollar is imminent – How would you prepare for this?

Here’s my answer: In addition to sticking with a diversified portfolio I would do the following

1) Buying larger amounts of swiss francs, euros, Kuwait dinars, and other foreign currencies
2) Converting money into durables that are easy to sell on the black market such as cigarettes, expensive liquor, jewelry, silver and gold coins

I would also try to learn from people’s behavior in countries that experienced hyperinflation and the collapse of their currency. I think the general rule is: get rid of your worthless money as fast as possible, so on pay day buy something as fast as possible.

Okay. That was a hypothetical scenario for the US. No need to panic. This isn’t real. I was just playing the what-if game.

We’re just going to have to agree to disagree, I suppose. As far as I’m concerned, there is no such thing as “too big to fail.” If, for example, General Motors can’t keep up with the competition, they need to either make a better attempt at adaptation, or close their doors. The fact that there are labor unions which supported your election campaign shouldn’t enter into it, although in the real world, it does. : (

@CaptainHarley said “As far as I’m concerned, there is no such thing as “too big to fail.””

I’d take that a bit further and say that basic laws of thermodynamics dictate that there’s such a thing as “too big to succeed”. A constant growth economy has to collapse in on itself and go to a lower energy state at some point. No system can use ever increasing amounts of energy on a finite space. But that’s more of an overarching principle, and doesn’t necessarily mean hyperinflation.

Thanks for all the input everyone, by the way. I’ve gotten a lot more depth of understanding about hyperinflation, though I’m still closer to @CaptainHarley on this one; the U.S. situation reminds me way too much of Argentina.

@incendiary_dan

I tend to agree with the assessment that there is such a thing as “too big to succeed.”

I also agree about Argentina.

According to U.S. Treasury data, China’s holdings of short-term bills have dropped from $210 billion in May 2009 to $5.6 billion in March 2011, a 97 percent decrease.

I agree about “too big to succeed” as well. We’ve been pushing that envelope since, well, the agricultural revolution.

@CaptainHarley – However, according to the Treasury Department, as of the end of March 2011, China held $1,144.9 billion in Treasury securities. Is someone lying? Perhaps not. If China has been trading short-term debt for long-term debt, they could both be telling the truth.

More importantly, China hasn’t been buying Treasuries as a favor to us. They’ve been buying Treasuries as a way to make Chinese-made goods relatively cheaper, and American-made goods more expensive, than international trade patterns would otherwise make them. If China ceased the practice, it would make US products more price-competitive internationally; this would most likely increase US employment and tax revenues, reducing the need for government borrowing.

Even the insolvency of the United States does not necessarily lead to hyperinflation or the complete collapse of the dollar. Creditors would lose some money and it would send shock waves through financial markets around the world. The IMF would get involved. European and Asian countries would get involved, above all China and rich Arab nations. The US congress would be forced to raise taxes significantly and cut spending. Perhaps the US would decide to cut spending on the wars in Iraq and Afghanistan. The dollar would lose value against other currencies.

It’s not very likely that such an insolvency of the US takes place.

What leads you to say that, “It’s not very likely that such an insolvency of the US takes place?”

U.S. debt to exceed size of economy this year

Discuss?

This country’s spending problems could be easily reduced.
1. Re-institute progressive income taxation.

2. Use a graduated capital gains tax, starting at 100% for stock held for less than a day to 5% for real long term holdings that are held for a year or more.

3. End the war on drugs and tax drug sales to adults similar to the way liquor is now taxed.

4. End the occupation in Iraq.

5. End the occupation in Afghanistan.

6. End oil subsidies

7. End crop subsidies to agribusiness farms

8. Close down Homeland Security and revert to the former separation of agencies FBI for domestic problems, CIA for international ones but insist on information sharing.

9. Re-regulate the banking industry and re-establish the fire-wall between investment banks and commercial banks.

10. Re-establish the state university system to make them tuition-free to state residents (establishes a new generation of engineers, teachers, entrepreneurs, and artists)

11. Abolish all government grants to religious charities.

12 Eliminate health insurance companies and re-establish not for profit agencies to distribute medical payments from individuals, business, and government insurance programs.

13. Invest money and man power away from the war industry to building infrastructure, rail, and personal transportation. (The Army Corps of Engineers would be a good core group to establish a nationwide organization aimed toward improving our environment and infrastructure).

14. Make strategic lawsuits illegal

15. Start prosecuting the Iraq war criminals to restore the U.S. reputation for integrity.

16. Close Guantanamo P.O.W. camp for the same reasons stated in item 15.

17. Eliminate “Rendition” and prosecute those involved (Item 15 reasons)

18. Restore the status of corporations to that of a fiscal entity simply as a financial fiction to expedite business.

19. Restore our founders position on corporations and make it illegal for them to provide funding for political reasons.

20. Reestablish the inheritance tax to prevent forming a U.S. aristocracy.

If we do this, the failure of U.S. currency will be very unlikely.

@CaptainHarley – Insolvency happens when the US cannot find new creditors. This would have happened in Greece without the intervention from the IMF and the EU.

My point exactly. We’re running out of people to borrow from because we’re repaying our loans with inflated currency.

There is still incredibly strong demand for U.S. sovereign debt, as evidenced by the low interest rates. (The Treasury auctions set the rate.)

If the Congress does not raise the debt ceiling, however, the whole economy will collapse because of debt uncertainty.

Makes a good argument for Obama to compromise on the budget, don’t it? : D

It also makes a good argument for the Republicans to compromise on the budget.

LOL! You first! : P

@Ron_C – ga (on most!) :-)

The Republicans don’t compromise. I truly believe that they would like to see a complete melt down, even a depression because they hate the idea of a black president doing well and their financial supporters have little to fear from a depression. They expect to step in and “save the country” thus establishing a permanent republican majority.

It really doesn’t matter, to them, how many children get sick or lack education, they don’t care if grandma eats cat food. Their main and only interest is the acquisition of power and the establishment of a permanent American elite. If you can understand that you can understand all of their decisions and stubborn obstructionism.

This does not apply to all Republicans, @Ron_C. There are honest, well-meaning and caring Republicans too. It’s time for them to take back their party. And work together with the Democrats and the President to deal with the serious situation.

@mattbrowne There are honest, well-meaning and caring Republicans too. but they no longer have a voice. It seems that only the corporate arms of the party have anything “news worthy”. Almost everything you hear and all of the policy statements come from the neocons or the Tea Party, the delude-rs and the deluded.

@Ron_C – I’m under the impression that only a minority would want the situation turn catastrophic. A radical minority. In 2050 no one except a few history professors will talk about the Tea Party. But many people will remember Barack Obama, the first African-American president.

@mattbrowne the minority has a disproportionate voice because they are backed with literally billions of dollars from the richest corporations that operate in the U.S.

In this country one billion dollars shouts much louder than 1000 righteous persons. The supreme court made that legal.

What do you guys make of this??

On the rare occasion that I’m bored, I like to watch 24-hour news television for entertainment. It’s hilarious watching the talking heads spin out of control in apoplectic fits when they’re essentially arguing the same point; they might be from different parties, but they’re merely battling over small details of the same government-sponsored solution.

Recently I caught one of these talking head financial experts on TV arguing about debt levels in the United States. He was saying that the US debt doesn’t matter all that much because the US government has so many assets to offset its debt.

For example, he suggested that things like the highway system, national parks, and strategic petroleum reserve would more than offset America’s liabilities, so the looming national debt isn’t such a big deal after all.

He couldn’t have been more wrong.

The Government Accounting Office (GAO) puts out an annual financial report that looks and feels like corporate financial statements… of course, the US government doesn’t have to abide by the same accounting principles as the private sector, so they get to cheat quite a bit in overstating their position.

The most recent report is signed off by Tim Geithner and includes oodles of newspeak from the Ministry of Plenty about how dazzling their economic recovery measures have been. Needless to say, the numbers paint a different picture.

Even when you add up all of the assets, right down to every desk, chair, and lifeguard stand, and even if you throw in a healthy boost to the asset column to account for premiums in the market value for land and “gold” in Fort Knox, the government is still in the hole to the tune of over $10 trillion. It would take more than 300,000 years to count that high.

And yet, the fake recovery is vanishing, the dollar keeps falling against anything of real value, and the average guy on the street is realizing limited benefit for his share of the debt and inflation burdens. How is this possible?

I’ve often said that bureaucrats and politicians have an extremely limited playbook consisting of taxation, regulation, and inflation. These three ugly sisters of bureaucracy effectively serve to steal from people, make things more difficult for them, and rob them of their purchasing power… and yet they’re dressed up as solutions instead of problems.

Consider the case of Illinois—the state is completely insolvent and running out of cash quickly. It doesn’t have the luxury of printing its own currency, and is thus being forced to deal with its fiscal reality… much like Greece.

Rather than trying to make their state more competitive in order to attract talent and capital, they’ve opted for the old playbook… starting with taxes. Specifically, Illinois lawmakers have targeted companies like Amazon, arguing that online transactions through the company’s Illinois-based affiliates are within the state’s sales tax jurisdiction.

For Amazon, the calculus involved is totally objective—once the Illinois legislature passed this legislation, the cost of doing business in the state exceeded the benefit, and Amazon cut all ties to its Illinois affiliates.

Thousands of people across the state who used to earn a portion of their living as an Amazon affiliate were stripped of their income thanks to do good lawmakers trying to squeeze a little more dough out of a productive company.

Peoria, Illinois based Caterpillar Inc. is in a similar position, now threatening to leave Illinois because the politicians keep raising income taxes. Now the financial powerhouse CME Group is echoing this sentiment. The impact this would have to the state economy is devastating.

These steps that Illinois lawmakers are taking, along with their destructive consequences, are reflective of what will happen when the federal government is finally forced to deal with its own fiscal reality.

$10 trillion in the hole and facing a steep downward trend, the US government is either looking at substantially higher borrowing costs, substantially higher inflation, or both. Investors are getting jittery about loaning money to the United States, so they will either demand a higher return, or the Federal Reserve will hyperinflate the currency to mop it all up.

Regardless of the scenario, Congress will reach deep into this playbook until they chase away every productive citizen and company they can… In fact, it’s already happening.

The number of people renouncing US citizenship has been more than doubling year-over-year for the last several years. Meanwhile, many businesses are moving overseas, or at least focusing on international operations and shifting profits offshore.

It’s easy for companies to move… much more difficult for people who have emotional ties, fear, anxiety, etc. that maintains their geographical inertia. As such, it will ultimately be the individual citizens remaining behind who will be exploited like malnourished milk cows to pay for the destruction.

@CaptainHarley It it all very simple. If the republicans were open to a package of slightly higher taxes in some parts of the economy, reduction of subsidies for companies that don’t need them and a list of spending cuts that don’t target the middle class and poor, there would have been a budget passed and there would be no “crisis”.

As wimpy and spineless as the Democrats are, they have shown that they are willing to compromise even when it is against their own best interest.

The Wall Street Journal aired an interview with famed commodity bull (and U.S. bear) Jim Rogers on its website today. After discussing China, on which Rogers is bullish, the interviewer asked Rogers about the U.S. debt problem. Rogers, who despises Ben Bernanke and his loose monetary policies, responded, “I hope that somebody will wake up and say, ‘Goodness knows we’ve made a lot of mistakes in the past 40 years… We’ve got to do something about it.’”

Rogers understands what our government does not. Eventually we must take measures to reduce our debt – or “cut spending with a chainsaw,” as Rogers put it. We cannot grow our debt into perpetuity. Rogers continued, “These are simple facts that have to be dealt with. No country in history that has gotten itself into this kind of situation has gotten out without a crisis or a semi-crisis. The only way you’ll get their attention in Washington is to have a crisis.”

He believes once we have a crisis, the electorate will throw the politicians out. And we’ll restock Washington with a new group who will manage the crisis.

@CaptainHarley What is missing from that analysis is raising taxes. The lower tax rates of the last ten years did not create jobs, they just reversed the surplus budgets of the Clinton years into deficits.

We can cut expenses, or raise revenue.

I honestly don’t know how everyone gets confused about this. Yes, Clinton did run a surplus in the BUDGET, but the National Debt has been there for many years.

Yes, but the debt was being retired so quickly that the Treasury stopped issuing 30 year bonds.

Is Alaska worth $14.32 trillion ? Russia sold Alaska to the United States because the Russian Tsar needed money. Suppose there were an auction, what would be a realistic price? And relax, this is just a thought experiment. Although several people have suggested that Greece should sell off some of its islands to the highest bidders.

The government racked up $5.3 trillion in new fiscal obligations last year alone — bringing the current unfunded tab for future expenses on things like Medicare, Social Security and military medical and retirement programs to a whopping $61.6 trillion, or $534,000 per American household.

Then there’s today’s bills: We’re borrowing $125 billion a month that we have no hope of ever paying back on our current course.

The growth in GDP declined to a measly 1.8 percent in the first quarter of 2011 as consumers hung desperately onto their wallets. Job growth has completely collapsed. Fully 60 percent of the electorate thinks the country is on the wrong track. No wonder the daily economic briefing, once on a par with the intelligence briefing, has vanished from President Obama’s schedule.

And now Obama says he’s not worried about a double-dip recession. Easy for him to say: For Americans not feeding at the government trough, the first recession never ended.

What’s needed now is a radical re-thinking of economic theory and the tax structure. Until the economy is addressed, we can’t make rational, realistic decisions about anything else, including foreign policy.

Richard Fisher, the president of the Federal Reserve Bank of Dallas, dropped by our offices this week and relayed a remarkable fact: Some 37% of all net new American jobs since the recovery began were created in Texas. Mr. Fisher’s study is a lesson in what works in economic policy—and it is worth pondering in the current 1.8% growth moment.

Using Bureau of Labor Statistics (BLS) data, Dallas Fed economists looked at state-by-state employment changes since June 2009, when the recession ended. Texas added 265,300 net jobs, out of the 722,200 nationwide, and by far outpaced every other state. New York was second with 98,200, Pennsylvania added 93,000, and it falls off from there. Nine states created fewer than 10,000 jobs, while Maine, Hawaii, Delaware and Wyoming created fewer than 1,000. Eighteen states have lost jobs since the recovery began.

The data are even more notable because they’re calculated on a “sum of states” basis, which the BLS does not use because they can have sampling errors. Using straight nonfarm payroll employment, Texas accounts for 45% of net U.S. job creation. Modesty is not typically considered a Texas virtue, but the results speak for themselves.

Texas is also among the few states that are home to more jobs than when the recession began in December 2007. The others are North Dakota, Alaska and the District of Columbia. If that last one sounds like an outlier at first, remember the government boom of the Obama era, which has helped loft D.C. payrolls 18,000 jobs above the pre-crisis status quo. Even so, Texas is up 30,800.
...
What explains this Lone Star success? Texas is a big state, but its population of 24.7 million isn’t that much bigger than the Empire State, about 19.5 million. California is a large state too—36.9 million—and yet it’s down 11,400 jobs. Mr. Fisher argues that Texas is doing so well relative to other states precisely because it has rejected the economic model that now prevails in Washington, and we’ll second that notion.

Mr. Fisher notes that all states labor under the same Fed monetary policy and interest rates and federal regulation, but all states have not preformed equally well. Texas stands out for its free market and business-friendly climate.

Capital—both human and investment—is highly mobile, and it migrates all the time to the places where the opportunities are larger and the burdens are lower. Texas has no state income tax. Its regulatory conditions are contained and flexible. It is fiscally responsible and government is small. Its right-to-work law doesn’t impose unions on businesses or employees. It is open to global trade and competition: Houston, San Antonio and El Paso are entrepôts for commerce, especially in the wake of the North American Free Trade Agreement.

Based on his conversations with CEOs and other business leaders, Mr. Fisher says one of Texas’s huge competitive advantages is its ongoing reform of the tort system, which has driven litigation costs to record lows. He also cited a rule in place since 1998 in the backwash of the S&L debacle that limits mortgage borrowing to 80% of the appraised value of a home. Like a minimum down payment, this reduces overleveraging and means Texas wasn’t hurt as badly by the housing crash as other states.

Texan construction employment has contracted by 2.3% since the end of the recession, along with manufacturing (a 1.8% decline) and information (-8.4%). But growth in other areas has surpassed these losses. Professional and business services accounted for 22.9% of the total jobs added, health care for 30.5% and trade and energy for 10.6%.

The Texas economy has grown on average by 3.3% a year over the last two decades, compared with 2.6% for the U.S. overall. Yet the core impulse of Obamanomics is to make America less like Texas and more like California, with more government, more unions, more central planning, higher taxes. That the former added 37% of new U.S. jobs suggests what an historic mistake this has been.

In my opinion American taxes are far too low, especially for people who can afford to pay higher taxes. It’s the same problem in Greece. Rich people there don’t pay any taxes at all. I watched a documentary about this recently. It’s all about greed and selfishness.

In the US it’s cynical to put the blame on Obama, a smart and successful guy who turned down Wall Street firms to work in Chicago as a community organizer. A guy who was opposed to the Iraq war (this war alone has cost America close to $0.8 trillion to date). A guy who opposed neoconservative deregulation of financial markets (deregulation damaged the American economy extensively because of the great recession triggered when the giant unregulated bubbles burst).

I can’t think of anything more unfair than putting the blame on Barack Obama and using inflammatory rhetoric such as Obamanomics. So please, let’s be fair here when we look at the root causes of America’s serious (but not catastrophic) economic situation.

I understand your anger @CaptainHarley and I’m angry too. But trying to find scapegoats won’t solve the situation. What we need here is a huge bipartisan effort. And a discussion of moral and ethics. Paying taxes must become a patriotic duty.

Let’s all be patriots here.

So Harry Blodget of Business Insider asks what the Democratic Party hopes will be a helpful question? Are Republicans Intentionally Sabotaging The Economy For Political Gain? It’s an interesting theory and perhaps the makings of an excuse for the profoundly inexcusable. You see according to Harry Blodget’s friend and colleague Dan Gross, the GOP is on an economic sapping mission in the run-up to the 2012 Elections.

Republicans are doing everything they can to ensure that the economy remains a mess when it comes time for the 2012 election. The Republican hope here, Dan explains, is that Americans will vote with their wallets in 2012–and, in so doing, vote more Democrats out of office.

(Daily Ticker, ObCit.)

This thesis explains several things. The Republicans do evil things like propose and pass budgets. Since 2009, no Democratic Party controlled body of the US Congress has successfully passed one. Pelosi whiffed in 2010, and Harry Reid’s Band of Bothers is running 770 days behind schedule. John Boehner got his done in the appropriate allotted time.

One prime example of economic sabotage involves The Boeing Company’s efforts to open a new airplane factory in Charleston, SC. The Obama NLRB has done everything in its power to prevent Boeing Company from opening a new, modern aircraft manufacturing plant in Charleston, SC. South Carolina has been among the top ten states in unemployment for pretty much the entire time President Obama has been in office. Yet still, his NLRB fights to prevent economic progress.

I guess the GOP complaints about people getting ObamaCare waivers could be a bone of contention. Of course, the Dems could have given all of America a break, and not passed that horrendous law in the first place. If you have to give over 1,000 of your closest buddies exemptions to your signature piece of social legislation, that’s a pretty solid hint that it probably wasn’t quite the brilliant idea that it was originally advertised as.

As unemployment crossed back over 9.0% even as the work force remained six million smaller than it was when President Obama came into office, almost all of this administration’s original economic team has bailed and parachuted to the safety of the academic groves and the Left-Leaning think-tanks. Only Sec Treasury Timothy Geithner continues to man the trenches. But no, this has nothing to do with why the misery persists. Obviously, the GOP is deliberately sabotaging everything.

There is a more intelligent, probative answer to why the suck pervades our national economic life. Jim Rogers offered it on CNBC yesterday.

“The debts that are in this country are skyrocketing,” he said. “In the last three years the government has spent staggering amounts of money and the Federal Reserve is taking on staggering amounts of debt. “When the problems arise next time…what are they going to do? They can’t quadruple the debt again. They cannot print that much more money. It’s gonna be worse the next time around.”

No mention of GOP economic Kamikaze flights leaving the tarmac yet. Rodgers ponders on.

“The U.S. is the largest debtor nation in the history of the world,” he said. “The debts are going through the roof. Would you keep lending money to somebody who’s spending money and not doing anything about it? No you wouldn’t.”

So there you have it. The Democrats have controlled at least one if not both houses of Congress since 2006. They have held the White House since 2008. They have spent every dollar we have and humongous piles of dollars that don’t even exist yet but have been borrowed to our future detriment. In return for all of this benefice, we are now EBT Card Nation. With the political process preparing to gear up, and the sitting president’s approval rating in the toilet along with his economic plans, it’s no big surprise we hear outraged accusations of GOP economic sabotage.

Just out of curiosity @mattbrowne, what tax bracket in the US do you fall into on federal taxes?

@CaptainHarley – Just out of curiosity, do you also read sites that print commentary that disagrees with your worldview? It’s one thing to stick to people you can always agree with, but it’s by reading dissenting facts and opinion that you can gauge how close to reality your side is. I’m asking, because I notice you are doing a lot of copy-and-paste posting from right-wing sites.

But that’s why I belong to Fluther! ; ))

Funny, that’s one reason I read Fluther, too.

You have good taste! : D

@bkcunningham – I pay about 40% taxes on my income (salary, rental income, interest on savings, dividents etc) plus 10% for the compulsary public social pension fund plus 7% compulsory health insurance plus 1.5% compulsory unemployment insurance contribution. And then there’s 19% VAT. And then a gallon of gas costs more than $8 over here most of which are taxes. People who only earn half only pay half for compulsary public social pension fund and compulsory health insurance and so forth. And less than 25% income tax.

Germany believes in wealth. But wealth is also seen as a responsibilty. To contribute more to the common good. I live a very comfortable life. More money would not make me more comfortable.

Here are two questions:

Suppose the 10 million most wealthy Americans had to pay twice the amount of taxes per year. How many years would it take to cut the natinal debt by half? And would any of the 10 million suffer or would they still live a comfortable life?

If the government acted immediately and cut expenses across the board by 50% including entitlement programs, and the Federal Reserve raised interest rates to at least 5% or 6%, we believe hyperinflation could be prevented. However, the government doesn’t believe inflation is a problem because the Fed looks at the core consumer price index (CPI), which excludes food and energy, because the Fed says food and energy inflation is transitory. The core CPI is mainly comprised of rents, which is very misleading because rents aren’t going to rise by much in the short-term being that we just had the largest Real Estate bubble in history that still isn’t done deflating.

Even core CPI will begin rising dramatically eventually. When price inflation becomes so large that the government realizes something must be done and can no longer ignore it, it will be too late. Our budget deficit as a percentage of annual government expenditures is at a level that many other countries were at right before they experienced hyperinflation. What triggered hyperinflation in prior instances is when foreigners stopped lending and a country’s own central bank needed to print the money to fund the bulk of a country’s deficit spending. We believe our two largest foreign lenders China and Japan are about to pull the plug on the U.S. and the Federal Reserve will become the U.S. treasury buyer of last resort. The Fed already owns more U.S. treasuries than China and Japan, but soon the Fed will be the only treasury buyer left.

If we wait another year to make dramatic spending cuts, it will be too late because soon we will have to deal with rising interest payments on our national debt. The annual interest we pay on our national debt is currently only around $200 billion per year due to our artificially low interest rates. When rates start to rise, annual interest on our debt could easily exceed $1 trillion and cause our budget deficits to explode even higher. The first place the U.S. needs to cut is the military.

Food prices are rising in large part because of scarcity of food, not excess of cash. Ditto oil.

Thing is, when you go into a Great Recession, taking on extra debt is in the cards. You pretty much have to do it, like taking medicine when you’re sick. Either you borrow in order to infuse cash where needed, or you take a hit to your tax base (unemployment, foreclosures, businesses collapsing) and need to shore up that way.

Talking austerity now, is like saying you should starve yourself when you’re sick to prove that you’ll eat a moderate, balanced diet when you’re well. Good luck making it through the sick times when you’re compounding it with austerity. We need to borrow now, no two ways about it. When things are going again, that’s when you start setting aside to pay off what you borrowed. (If you borrow money to buy a power-interview suit and that suit lands you a job, you’re much better off – even paying for the expensive suit – than you would be if you were still digging returnable cans out of the trash to take back for the deposit.)

@laureth scarcity of food? Where? I´m visiting the US right now and went to a Walmart store today. No scarcity of food there.

@laureth Food prices are rising because of speculators in the markets, adding as much as 40% of the final commodity price.
But I agree that austerity now will be a killer to the economy.
What’s needed is a return to proven/workable tax rates.

Oh, for God’s sake! You could tax the entire population at a 100% rate for twenty years and STILL not pay off the $60 TRILLION debt the US now has. And food is going up in cost because of inflation, whether you like to admit it or not.

Re: food shortages

Declining crop yields

A Torturous Spring – Wheat is dying in the fields.

Extreme Weather, Food Inflation – “Texas farmers and ranchers are in an extremely critical situation as we prepare for June and the hot summer months. Crops are shriveling in the field. Pastures are burning. Many farmers likely will have little or nothing to harvest. Some ranchers already are selling their herds.”

Here, they predict more corn based on a linear scale from past years, but acknowledge, “As of May 8, 2011, only 40 percent of the 2011 corn crop has been planted, which is down sharply from the 5-year average of 59 percent. The slow pace of planting is a result of extremely wet weather throughout much of the corn-growing regions. States where planting progress has lagged the most include Ohio, Kentucky, Indiana, Tennessee, and Michigan. Considerable planting occurred in Iowa during the first week in May, allowing that State to catch up to the planting progress for the previous 5 years. Planting progress also occurred in Illinois, but it still lags considerably behind the 5-year average.”

Soybeans have been down because of white mold. White mold hits soybeans the hardest in cold damp conditions. What’s this year’s weather been like in soybean country? Colder and damper than usual.

In other words, unless the rest of the world has bumper crops to make up for America’s readily forecastable shortfalls, this fall, we’ll see the prices of staple foods far in excess of normal. It’s really nobody’s fault, unless someone is deliberately causing drought and flooding in states right next to each other. And it doesn’t look like Europe is going to pick up our slack, either. Drought in Europe hits wheat crop – which would drive up the grain price worldwide.

And it’s only going to get worse, especially when paired with declining oil production. Even now, Saudi Arabia is having to extract heavy oil, as that light sweet crude is running out. Don’t forget that we basically eat fossil feuls even when the weather is good.

Weather affects crop yields, and we’re experiencing extreme weather this year. In Texas, October 2010 to April 2011 was the driest October-April period since they began keeping track, back in the 1850s. Some are calling this a hundred-year-drought, which understates things rather badly. It appears likely that Texas’ cotton crop will be around 20% of normal, wheat crop no larger than 40% of normal, and its rice crop nonexistent. Ranchers are selling their herds down to the fraction they can feed, and significant parts of its grazing land went up in smoke already; this means low prices for beef soon, and astronomical in six months or so.

I bet when prices hit the fan later this year, they’ll be blaming Obama. ;)

Now, @cazzie – of course you won’t see it quite so bad in the U.S., because we’re some of the richest people in the world. The crisis will be the least visible to us, because we will pay a little extra, or accept less food for the same price, or put up with cheaper, inferior ingredients that cut costs while giving us the illusion of maintaining the status quo.

It’s the poorer nations that feel the bite first. Don’t forget that the Arab Spring revolutions are inspired, in part, by rising food prices. According to Oxfam, “High global food prices risk hunger for millions of people. Poor people in developing countries spend up to 80 percent of their income on food. For them high food prices mean selling off their land or sacrificing their child’s education simply to put food on the table.” I’m not saying that market speculation has nothing to do with the rising price, but the speculation becomes more profitable because food is becoming a scarcer commodity. The two build on each other.

If you have money and the price of food rises, say, fifty cents, you just pay a little more for your peanut butter, or cut back on meat. If you live on a dollar a day, that can drastically cut how much you are able to eat. In Haiti, being unable to afford that rise in prices means that you eat mud. That is why you can look around at Wal*Mart and see a gluttonous amount of food and be mostly unaware of a looming food shortage, but the rest of the world has a harder time living in ignorance of that.

@CaptainHarley The US debt is 14 trillion, less than a quarter of what you cite. Why are you exaggerating?

Any notice that fuel prices have dropped rapidly the last three weeks? from $4.35 a gallon in SF Bay Area to $3.95 yesterday? Does that mean a near 10% deflation over three weeks? I don’t think so. But is hows the disconnect between monetary policy and certain prices.

Price changes are affected by supply and demand. Friedman and his monetary teachings did not change that. Global food prices, which are not caused by American monetary policy, are refelective, as @laureth has pointed out, of food shortages dating back to last summer’s Russian, Ukrainian crop failures and fires.

@CaptainHarley You keep talking about all this inflation, but current inflation has been minimal, and long term interest rates (the best predictor of future inflation) remain low.

As I’ve said before… we’ll see. I sincerely hope the Obama School of Salvation by Government is right, but I fear that it’s very, very wrong.

Saying “Obama School of Salvation by Government” is like saying the “Republican School of Salvation by Anarchy.” It’s more sarcastic and soundbitey than anything. I suspect we both want some kind of middle ground that hurts the least number of people, but we disagree on what that set of methods is.

Hey @CaptainHarley – does the Government making a profit on the bailouts make you feel better or worse about that government spending?

@laureth Maybe I missed it: did you mention the fact that the bulk of food in the industrialized world is grown using oil…which is declining in production?

Oh, I can be sarcastic toward the Republicans too! : D

@incendiary_dan – Totally got that bit covered.

Yea, saw that right after commenting. Kudos. :)

Permaculture, companion planting (particularly the Three Sisters), fishing, trapping, and an array of other self-sufficiency skills and tactics are what I was referring to in my first comment as “what I do every day”. Not that I’m particularly worried about economic collapse (quite the contrary, even), because I don’t need to be; my way of life is becoming more independent from the economy every day, because I like to live that way. Thought I’d share these specifics, since some of you might find them useful, and I’ve been talking about permaculture and gardening more now.

Does anyone here remember rationing in Europe during WW2 and a bit after? Has anyone here experienced REAL shortage of anything? My family can remember having shoes made of bark and paper. They can remember using ground up bark instead of coffee to make ‘coffee’. They can remember saving their sugar rations to make cookies and cake without eggs for Christmas. We get through things. Hard times come and go. It’s not the ‘stuff’ in our life and the money in our banks that make the difference. It’s keeping your family together, sharing what you can with neighbours and keeping your integrity when times are hard that separates the wheat from the chaff.

America is a nation that has gotten used to ‘stuff’. There is so much in the stores here that my eyes blur over and I go a bit dizzy. I don’t know how such a bountiful country has come to experience a mentality of stinginess and fear of want. How much more could people want here? Why so scared?

@cazzie It’s keeping your family together, sharing what you can with neighbours and keeping your integrity when times are hard that separates the wheat from the chaff.

Right on.

@cazzie

Good answer! The reason there is so much fear is because the people instinctively know that their “leaders” do not have their best interests at heart. They instinctivelly sense that too much dependence on government leaves them vulnerable to being manipulated.

@cazzie – I agree with you, to a point. I think you are speaking of shortages in emotional terms, and I am speaking of shortages in economic terms.

Let’s say you have 10 bowls of rice, and 10 hungry people. As long as it’s distributed fairly, you will have 10 satisfied people, and bowls of rice will be worth a fair amount. But if you take away two of those bowls of rice, and everybody needs one, suddenly rice will be much more expensive. The people with the most money will pay whatever it takes to get a bowl of rice. And the two people with the least money will be priced out of eating that day. The rice will be rationed by peoples’ ability to afford it, and the price will be decided by how much the top 8 bidders are willing to pay – much like the way medical care has been rationed in the U.S.

For the top 8 of those rice-eaters, the world will not have changed much, except perhaps they put a little less money in savings, or on the low end, they don’t buy the soy sauce packet to eat with their rice, but they’re still doing OK. That is most Americans. But the two who are priced out of being able to eat rice – it is a disaster for them.

You are right that most of us have that lack of regard for others, as long as we get our bowl of rice. Some of them may even hog two or three bowls of rice and let five of them go hungry – especially in a free market. But while you’re talking sharing and rationing, I’m talking pure economics. Less food means prices rise, and prices rising means people do without food – somewhere. Maybe not here. Maybe they’re just Haitians or Egyptians, or people on welfare or minimum wage in America. Those last ones are the ones hurt – and who would have to make bark coffee – if the austerity that @CaptainHarley favors becomes the way we go.

Root coffee is better.

@laureth I’m talking about shortages in REAL terms, not emotional. I’m talking about things that actually happened. You’re talking about the most speculative and assumptive of ‘what if’s’ scenarios. Fearmongers are trying to create an emotional response now and that is what you are experiencing.

@cazzie – I know your shortages are real. By “emotional terms,” I mean things like “why do you fear” or “why can’t we all just get along and share the rice?”. Touchy-feely responses to shortages. I’m talking economics, which is just as real, but I’m trying to describe the mechanical workings behind the shortages.

My links up there in that long response ^^ back a ways, those link to real shortages. The extreme weather we’re having means that, literally, not as much food is growing. It is not a fear-based set of links. They describe real events, going on now or very recently. It was in response to Cap’t. Harley saying that the Fed says “food and energy inflation is transitory.”

@laureth Economics IS emotional. People are stupid and their pack response is illogical and easily lead. Irrational decisions based on emotion drives economics. When they say that wheat had a lower yield, they’re trying to drive up commodity prices because someone has put a huge bet on the futures market. Your understanding of economics is a bit naive, I’m afraid.

@cazzie Don’t just tell someone they’re wrong and call them naive, particularly when you’re being arrogant and simply denying physical reality. Get on the reality bus or stop playing. @laureth has presented you with clear, real life facts, and you pull some bullshit about commodity prices? Or are you too busy projecting emotionalism onto other people to hide your denial defense mechanism?

@cazzie The current food shortages in the world are real, because of crop failures in parts of the world. Economics takes all the emotion out of transactions; and the pack response is usually the most efficient way to distribute scarce goods. You can’t just say that an announcement of crop yields is simply to drive up futures prices.

China ratings house says US defaulting

SIGH! : ((

@incendiary_dan – From your recent link: “The US government will run out of room to spend more on August 2 unless Congress bumps up the borrowing limit beyond $14.29 trillion—but Republicans are refusing to support such a move until a deficit cutting deal is reached.”

This is a forecast of what will happen if the debt ceiling isn’t raised, but the headline is phrased as if it is currently happening. If we just read the title, it would be a bit misleading.

At the end, perhaps why they’re phrasing it that way: “The Chinese agency, which is trying to build an international profile, has given the United States and several other nations lower marks than they received from the the big three.”

@cazzie – If you cannot understand how a lack of food, due to actual crop failures, drives up prices and makes food less affordable to hungry people, I can no longer help by trying to simplify it further.

I´m not saying that supply and demand economics is bogus. I´m saying that the people in the US are barely going to notice it. They´ll hear the reports on Faux News and then go to Walmart Superstore and choose from the stacks of what passes for bread here. The bread is going to be on the shelves. I couldn´t even count the number of brands of sugar and all the varieties it came in when I was there two days ago.

Driving up prices through scare tactics is real too.

A few years ago, reports of rice crop failure was eagerly broadcast. The rice was still on the shelves in our stores in Europe. So was pasta and potatoes so our starchy carbohydrate needs were met just fine. No body starved because of scarcity of food that time.

Continuity Bias is the tendency of people to believe that things will continue to be as they have been, or alternatively, that radical, disruptive change is not going to happen.

@laureth It also says:

“In our opinion, the United States has already been defaulting,” Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.

Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies—eroding the wealth of creditors including China, Guan said.

That’s kind of a big statement to make.

@incendiary_dan – Don’t forget, instead of letting its currency strengthen as it should, China generally keeps their currency weak and prefers a strong dollar so they can keep selling us cheap imported crap and taking manufacturing jobs. Is it better to artificially manipulate your own currency as China does, or to let it fluctuate and find its natural level on the world market, as we do?

In the 15th century, the highest standard of living in the world belonged to China. Places like Nanjing had reached the pinnacle of civilization with incredibly modern infrastructure, robust economies, substantial international trade, great healthcare, and a rising middle class.

Across the globe, Europeans were living out short, mud-filled, brutish lives in squalid poverty, dying off by the thousands from the bubonic plague. They were practically Neanderthals compared to the Chinese, and explorers like Marco Polo wrote fanciful tales of wealth and opulence in the east.

If you had told a Chinese merchant at the time that, over the course of the next several hundred years, global primacy would shift to Europe (and a relatively unknown American continent), you would have been laughed at. It was simply unthinkable given how advanced China was over the west.

And yet, it happened. History shows us that the great things about western civilization (Industrial Revolution, technological achievement) and the not-so-great things about western civilization (imperialism, slavery, genocide) caused the tables to turn and primacy to shift from east to west.

Ironically, the tables are turning yet again, and its driven by a number of factors.

At the tail end of World War II, a new global financial system was concocted that was heavily biased to disproportionately benefit the United States. Over the subsequent decades, foreign countries would obligingly mop up US government largess and finance out of control retail consumption.

It got to the point where people felt it was a natural right of Americans to have huge homes, cheap gas, and oodles of junk, as well as a government that could buy anything it wanted without giving a second thought to fiscal discipline. All of this was made possible at the expense of peasant workers overseas.

For years, they imported US inflation and suffered a tremendous disparity in standard of living, all because of how the global financial system was set up. This system, based on the United States as the center of the economic universe, is now completely fractured, and it’s the biggest game changer in centuries.

Is it possible that such a force can be stopped or reversed? Highly unlikely.

These huge sea changes in the global order happen slowly, like titanic ships changing course in a tight canal. The initial seeds of change were planted decades ago when the US began running consistent budget deficits in the early 1960s, and even before that when the Federal Reserve Act was passed in 1913 (which forever corrupted the nation’s money supply).

The negative momentum has been building for an exceptionally long time. Today’s debt, inflation, and unemployment crises are merely the latest symptoms of a cancer that has been growing for decades.

In total objectivity, the patient is beyond cure at this point… and the math is quite simple.

The US debt situation is already very precarious, and even the government’s own budget shows continued deficits for years and years to come. Undoubtedly, this represents some level of risk for the nation’s creditors, and market participants will require a greater return on investment in order to justify the risk of loaning money to the US government.

Even assuming that all existing debt is rolled into new bonds, higher borrowing costs will absolutely cripple the Treasury. The more money they borrow, the higher their borrowing costs will become; yet, the higher their borrowing costs become, the more money they’ll have to borrow to make interest payments.

Nations typically enter this vicious cycle once they start having to borrow money just to pay interest on what they already owe. The US is already way past this point.

If you study US financial conditions, you’ll see that mandatory entitlement programs like Social Security and Medicare soak up over 75% of all federal tax revenue collected. That’s before paying a penny in interest on the debt. The rest of the budget constitutes several trillion dollars in other expenses like genital-groping TSA agents.

As such, given the current budget just for the sacrosanct areas like defense and senior benefits, tax revenue falls over $400 billion short. America has to borrow to pay its interest expense.

Is it possible for a white knight to come riding in and slash spending by the necessary (and brutal) 50%++ just to break even? Possible, but extremely unlikely without granting him/her dictatorial powers. Getting a majority of 435 members of Congress to sign up for such painful political consequences is dubious at best.

Even still, such cuts would just be enough to break even. In order to actually make progress on paying down the debt, one would have to make even steeper cuts… and that’s just at today’s levels. The debt grows worse by the day, as do useless ‘economic recovery’ spending measures.

As such, borrowing costs are set to rise, causing the budget deficit to spiral out of control towards an eventual default.

Since so much of the global financial system is based on the US treasury market, this will set off a chain reaction of bank defaults and commercial bankruptcies, not to mention trigger a wave of credit default swap and other derivative obligations to the tune of several trillion dollars.

The other (more likely) possibility is that the Federal Reserve will continue to finance the deficit by conjuring additional money supply out of thin air, eventually leading to a loss of confidence in the dollar as a reasonable store of value.

The only reason this hasn’t happened already is because there is no viable alternative yet, however there are clear signs that investors and foreign governments are scrambling for a quick solution. Smaller alternatives like the Swiss franc, Singapore dollar, and gold are all at record highs.

Barring a benevolent dictator or some kind of miracle, this situation is unstoppable and irreversible until the next cycle of the global pecking order turns the tables once again.

@CaptainHarley – Another paste from a right-wing site? Oh well, no matter.

Regarding the spending vs. tax receipts pie, at the end of the Carter Administration, the receipts pie was bigger than the spending pie. So we elected the guy who promised that cutting taxes would increase revenues. As soon as the tax cut went into effect, we wound up with the spending pie larger than the receipts pie, and it never caught up.

At the end of the Clinton Administration, the receipts pie was bigger than the spending pie again. So, again, we elected the guy who promised that cutting taxes would increase receipts. Once again, as soon as the tax cut went into effect, we wound up with the receipts pie being smaller than the spending pie, and it never caught up. (It does seem like if you care much about the deficit getting smaller, a Democratic President is the way to go. Just sayin’.)

Then we had tax receipts drop by a half trillion and costs for unemployment/medicare jump almost that much, thanks to the housing crash, and its spread to the rest of the economy. The Fed, thank you, is trying to fix that.

(By the way, without the Fed, we had similar banking crises in 1814, 1818, 1825, 1836, 1841, 1857, 1861, 1864, 1873, 1884, 1890 and 1907, or an average of one every 8 years. (But who will bail the US out, like the Bank of England bailed us out in 1836 and 1857, and J.P. Morgan in 1907?) I tend to favor the banking system that had banking crises in 1914, 1929, 1984, and 2008, or an average of one every 25 years.)

One more thing about that Chinese rating agency that is using the non-standard definition of “defaulting.” Am I the only one amused, that American Conservatives are taking seriously the publications of an organization founded by a man “recommended” by the People’s Ministry of Finance, and whose senior staff has work histories in the National People’s Congress and the only bank whose head is a full minister in the People’s State Council?

I’m sure there’s no agitprop intended, none at all. ;)

@laureth The right wing prefers the opinion of a free market Communist as opposed to a government assisted Capitalist.

Whatever. : /

A recent Wall Street Journal survey of 54 economists predicts the economy will add around 2.2 million jobs over the next 12 months – that’s down from last month’s forecast of 2.5 million jobs. This is the first time the forecast has been lowered since October.

Unemployment is currently 9.1%. The weak employment forecast would only slightly decrease unemployment. On average, the economists estimated unemployment at 8.2% by June 2012.

I would love to know what everyone makes of this:

http://youtu.be/XySGw-g2tyk

For the last few days, we’ve been having an important discussion about the magnitude of the economic challenges in the west; if you didn’t read yesterday’s letter , I really encourage you to do so before proceeding because it’s important to understand why the west has truly passed the point of no return.

Simply put, the United States and much of Europe are borrowing an extraordinary amount of money now just to pay interest on the money they’ve already borrowed. They cannot even self-fund their mandatory entitlement programs without going into the hole, and their options are limited:

Option 1: Continue borrowing, keep the party going.

As long as the government CAN do this, they WILL do this. Regardless of their intentions, though, more debt only worsens the situation, creating higher borrowing costs in the long run, and even more debt. As this happens, the pool of buyers begins to dry up, especially from overseas.

Option 2: Inflation

The more buyers stop purchasing Treasury securities, the more the Federal Reserve will mop up the excess liquidity. In doing so, the Fed essentially conjures up money and loans it to the government.

No matter what the government monkey statistics say, this is inflationary, plain and simple. The more money they print, the greater the level of inflation in the long-term. Meanwhile, as foreigners simultaneously reduce their US dollar holdings, this inflation will become more acutely felt in the US.

Option 3: Austerity

There’s going to come a time when the US government is forced to face its economic reality and make some incredibly deep cuts that would be felt across society, from Wall Street and the military industrial complex to project housing on the other side of the tracks.

Option 4: Default

Eventually, the debt burden is simply going to be too much, and the most obvious solution will be to default. Politicians will make China out to be the enemy and they will probably invent a war just to have an excuse to default on Chinese owned debt. Americans will wave the flag and celebrate defaulting on their enemies.

Option 5: Economic Cannibalism

In the best traditions of Atlas Shrugged, the government will continue its persecution of the productive class—professionals, investors, entrepreneurs, and skilled workers. Existing taxes will rise, new taxes will be created, trade barriers will be enacted, and a maze of cost prohibitive regulations will be passed.

The first option (keeping the party going) is what has been happening for years. Politicians make small concessions to show they’re “serious” about fiscal discipline, cutting laughably small programs while dumping hundreds of billions of dollars into wars and entitlement programs.

The worse the debt situation becomes, though, the higher the borrowing costs become, and the worse the debt situation becomes. It’s not an enviable position. Existing lenders will continue backing away from the US Treasury market, giving option 1 a half-life measured in months at best.

In the longer term, only options 2–5 remain: inflation, austerity, default, and cannibalism. Each of these remaining options will shake the financial system to its core. More importantly, each of these has the power to create widespread social upheaval.

When inflation eats away at a family’s already meager standard of living, when austerity eliminates the benefits to which recipients have grown accustomed, when default vanquishes a retiree’s savings, when high taxes make workers feel like they’re just government serfs—this is when the real turmoil will begin:

* Rising crime: devoid of a job or means to support their families, people will turn to crime out of desperation

* Class warfare: with dividing lines drawn between have’s vs. have-not’s, it will become unpopular and even dangerous to be successful

* Corruption: low-level public service officials will look to supplement their income through bribery and kickbacks

* Black economy: An underground, cash-only (probably gold or foreign currency) economy will emerge with people getting paid in envelopes

* Censorship: Of course they’ll blame it on national security, but the idea will be to prevent public disparaging of government policy

* War: The government will need another major event to distract people from the real problems

* Protests/Riots: This is when things turn bloody

* Police state conditions: The government will close ranks and send the cops out to show all the little people who’s really in charge

There are a number of other manifestations, and many are already showing signs of emergence. The US and European police states are alive and well. Crime is on the rise.

In Europe, cops are doing battle in the streets with their citizens. Think it can’t happen in the US? Remember tanks in the streets during the LA riots? Remember New Orleans? Remember any number of G8/G20 protests?

Here’s the bottom line: all you have to do is glance at the headlines to see what happens when you strip people of their livelihood, of their benefits, of their ability to put food on the table for their families.

The US has been able to kick the can down the road with the most blunt social implications simply because the country benefits so much from a US-oriented financial system. This is coming to an end very, very quickly.

As a rule of thumb, the greater the economic distortion, the harder the collapse. The US economy has been in a fantasy world for so long, and when its dominant primacy is yanked away, the collapse will be at freefall speed.

Listen… I’m not talking about the end of the world here, I’m talking about difficult times ahead, and the things that go beyond economics. It’s time to face facts and look at how society will change (and has already changed).

Most of the focus in the U.S. is on our public debt, which is $14.3 trillion. But that doesn’t include money slated for entitlements – Medicare, Medicaid, and Social Security – which totals around $50 trillion, according to government numbers. The government also must pay for debts related to bailout spending. Altogether, Gross calculates the total at nearly $100 trillion. Greece’s total debt stands around $492 billion.

“To think that we can reduce that within the space of a year or two is not a realistic assumption,” Gross said in a CNBC interview. “That’s much more than Greece, that’s much more than almost any other developed country. We’ve got a problem and we have to get after it quickly.”

From zero hedge: DOE Announces Details Of Strategic Petroleum Reserve Firesale

Thought those who had been following this thread would be interested.

Wrong time, wrong method.

I saw this article and I thought of y’all. :)

http://blogs.wsj.com/economics/2011/07/01/u-s-needs-massive-public-works-program-hedge-fund-investor-says/

Interesting, but it’s still a method dependent on income redistribution, which always falls disproportionally on the middle class, which is already suffering.

Do you think it’s disingenuous to refuse to tax the rich at a higher rate, and then dismiss a program because it falls disproportionately on the middle or lower classes?

Not at all. Check and see how many of “the rich” actually pay the taxes they are supposedly taxed at via the tax tables.

@CaptainHarley great observation the folks in the top brackets don’t actually pay the published rates.
And there is often a fuss about our corporate tax rates being high compared to other countries, which on the tax tables is true, but just about no company actually pays a rate near the published rates and we have effectively one of the lowest corporate tax rates among industrialized countries.

@dabbler

Exactly. In my opinion, just another example of how chaotic the taxation system in this Country is. But you can rest assured that there is chaos because someone with influence WANTS things to be chaotic!

My personal take on the tax system is to totally elminate all taxes on everything except the income tax, eliminate all the deductions and exemptions and exclusions, and charge everyone above a “living income level” the same PERCENTAGE of any and all sources of income, no exceptions for any reason!

Since Obama was elected President on November 4th, 2008, the U.S. dollar has lost 48% of its purchasing power. Americans today spend 48% more for gasoline than they did the day of the last election. Americans today also spend 105% more for sugar, 78% more for coffee, 58% more for corn, with similar gains for many other agricultural commodities. The U.S. government and Federal Reserve created all of this inflation in an attempt to reinflate the Real Estate bubble, yet the median U.S. home price declined by 2.4% during this time period. Meanwhile, the real unemployment rate has increased from 16.8% to 22.3%.

@CaptainHarley You should at least rebase your numbers on January 20, 2009. Where did you get your 48% decrease in purchasing power?

Gasoline prices are 50 cents a gallon cheaper today than they were in June of 2008.

Corn prices would drop dramatically if we dropped the ethanol subsidy.

Food would also be cheaper if we didn’t have floods, fires, and droughts in prolific succession in these last few years. I know you Righties mock Obama as being the Left’s “messiah,” but I didn’t know you really believed he had the power to control nature.

We would just be glad if he could control his own staff!

BTW… I’m a Libertarian. In case you don’t know what that is, the Web is a veritable font of information. Let me know if you need instructions on how to use Google. : )

@CaptainHarley – Thank you. ;) From what I’ve seen, there are very few Libertarians to the left of me and a multitude of them to the right. Sure, they like a few of the social issues I care about, but it tends to be out of apathy (who cares if gays get married?, for example), and seem to be worse than rabid Republicans on the fiscal issues (gold standard, eliminate taxes, it’s my money and I’ll spend how I wanna). I want to like their ideas, but many of them seem to be based on some kind of ideal world that doesn’t exist here. In other words, yes, I’ve heard of Libertarians.

You should listen to some of Ron Paul’s videos. : )

I’ve heard enough of Ron Paul.

Oh, I take it you don’t agree with him. Well, sorry about that.

If I could take pieces-parts, then he’d be better. But the whole package is outweighed by his fiscal policy lunacy.

[ drops head into hands… weeps ]

Hey, if it makes you feel any better, Ron Paul has come up with one fiscal policy lately of which I approve.

Remember back up there ^ when we were talking about Quantitative Easing? It works like this: we can’t put out any more stimulus because of political pressure, so, in a desperate attempt to do everything it can to make the economy better, the Fed temporarily bought back a bunch of Treasuries to inject cash into an economy where every market signal is screaming for more cash. This is where folks start worrying about inflation from cash injection, not realizing that the other half of QE is where, once the economy improves, the Fed once again sells those Treasuries on the open market, bringing that erstwhile injection of cash home again to blip out of existence, rendering worries about inflation worthless. That’s the plan as it stands.

Anyway, Mr. Ron Paul has an idea. As his own end-run around the looming debt ceiling, Paul is proposing to take all those Treasuries that the Fed just temporarily bought under Quantitative Easing, and cancel them. The amount of debt that the government owes would be instantly reduced… giving us a couple more years to discuss debt-ceiling options. But in the meantime, that infusion of cash that has people like you worried, would never be able to come home and get blipped out of existence again. In other words, Ron Paul is endorsing the very thing you fear, @CaptainHarley. Isn’t it wacky?

If you want, you can check it out here.

It makes my head spin! LOL!

“The euro must fall. The never-ending bailouts of Greece, Ireland, Italy, Portugal, Spain, and every other overleveraged euro-zone nation is going to take its toll. It has to happen. It’s an economic certainty.” – Jeff Clark, July 6, 2011, S&A Short Report

Emperically verifiable prediction.

My garden is doing awesome. All the flint corn and squash vines are flowering or starting to, and some of them are already fertilized and producing. At least a couple ears per corn plant, and a plenty of what look like female flowers forming on the pumpkins and squash. Next year, wherever I live, I’ll do two or three times as much planting. I’ll probably include sweet corn and summer squash so I have two major harvests; this year it’s flint corn and squash and pumpkins that mature in the fall. Might stay here just because one area is already dug up.

We have a couple months of dried and canned food in our pantry, which is mostly to supplement foraging and can therefore be spread over as much as a year.

There are too many squirrels, woodchucks, and deer running around this year because of the great acorn production last fall. Plenty of turkeys around here, too. I’ve got a couple thousand .22 rounds, and a couple dozen sabot slugs. And a longbow and slingshots. I have traps and a few hundred yards of snare wire and fishing line. I can make deadfalls easy enough. I live on a major river that goes to the ocean. I also have several pounds of those acorns ready for processing. There’s plenty of wild food out there that doesn’t run around, too. Even if it’s a poor acorn year, there are enough to stay fed. More than enough cattails.

Bring on the dollar collapse. Bring on good times, bring on bad ones. Bring on whatever. I’m feeling plentiful. :)

@incendiary_dan

More power to ya, dude! : ))

If I may as, is this property you own, or rent, or what?

@CaptainHarley Rent, but I’m working on a couple ways I might either own or be in a collective village type setting. The place I rent is at least near a public park that is full of stuff to hunt and forage.

I admire your perseverance and creativity. : ))

@CaptainHarley Would you please put quotes around the text you are copying from others, and provide links to the sources? Otherwise it can seem like you are writing yourself instead of copying.

@Zaku

Oops! Sorry about that. You are correct, and I was being lazy.

@CaptainHarley Thanks. This was an interesting thread, BTW.

It seems to me, that if I were fairly convinced that it were likely that my local currency was going to plummet to 10% or less of its value (which I’m not, and I’ve been hearing such stories since 2006 or earlier), and if I had significant assets I wanted to protect, I would liquidize some of those, and invest them in the currency or economies which I thought would be the ones that would become worth 10x or more as much, which would cover any loss if I invested at least 10% of my assets in such, and would actually gain more in my local currency, if I invested more or the problem turned out to be even more extreme.

And, of course, I would think a little bit about what I would do in times of economic disruption in my country, and read up on accounts of past situations.

My view however is that Ron C’s thread (my favorite post of all recent political forum posts I have read in a long time) starting, “This country’s spending problems could be easily reduced.” is dead on, and I wish there were such an agenda in our government.

@Zaku

It’s true that “this country’s spending problems could be easily reduced,” but we don’t agree on the details… such as WHICH programs and things to reduce.

I am indeed firmly convinced that the purchasing power of the US dollar is about to plummet to virtually zero. My preparations lean more toward silver and gold than to any other currency though.

@Zaku – we all agree that things could be cut. Like @CaptainHarley said, we just all of us think it should be the stuff the “other guy” likes.

@CaptainHarley – Thinking of investing in the precious metals bubble, eh? ;)

@laureth

Already did, long ago. : )

@CaptainHarley I hope it’s not in those coins everyone in the prepping community seems so big on. Fernando Aguirre noted that the main form people were willing to trade in in Argentina in the past ten years has been junk gold. Jewelry and such.

@incendiary_dan

I have a nice mix of different sorts. Did a lot of reasearch and a great deal of thinking before I launched into this.

@CaptainHarley I suggest 99.9% pure silver wire. You can make it into something more valuable. Ever hear of colloidal silver? With superbugs becoming more common, people might really appreciate such a super medicine.

Good thought. : )

@incendiary_dan drinking colloidal silver is a dangerous hoax.

http://www.quackwatch.org/01QuackeryRelatedTopics/PhonyAds/silverad.html
http://dermatology.cdlib.org/111/case_reports/argyria/wadhera.html

Colloidal silver is different from soaking silver in water.

http://www.rdmag.com/News/2009/08/Life-Sciences-Taking-Advantage-Of-Silvers-Antibacterial-Properties/

http://www.sciencedaily.com/releases/2011/02/110223151941.htm

Hahahahahaha!

Common sense>bought doctors

Ohhh, no you don’t! I refuse to get dragged into the debate over “Big Medicine!” : P

S&P Downgrades U.S. Rating

@incendiary_dan

Yes. It’s inevitable.

Play stupid games, win stupid prizes.

From the linked article:

“What’s changed is the political gridlock,” said David Beers, S.& P.’s global head of sovereign ratings, in an e-mail several days before a debt ceiling agreement was announced. “Even now, it’s an open question as to whether or when Congress and the administration can agree on fiscal measures that will stabilize the upward trajectory of the U.S. government debt burden.”

Excellent point, @laureth. It isn’t necessarily the raising of the debt ceiling that earned the downgrade, but the foolish way the Right chose to argue and fuss and fight.

You’re living in a fantasy world, having gorged yourselves on Democrat propaganda.

S&P’s full text of downgrading US debt. A few excerpts, with commentary, follow.

‎“The political brinksmanship of recent months highlights what we see as America’s governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy.”

Translation: Y’all are squabbling more like spoiled children than responsible adults. Particularly frightening to safety-conscious investors was the specter of Members of Congress saying there would be only good consequences arising from default.

“It appears that for now, new revenues have dropped down on the menu of policy options.”

Deficits can be erased by cutting spending, increasing revenues, or doing both. The easiest way is to do both at once. The fact you’ve dropped increasing revenue from the list of options means you’re doing this the hard way.

“In addition, the plan envisions only minor policy changes on Medicare and little change in other entitlements, the containment of which we and most other independent observers regard as key to long-term fiscal sustainability.”

Increases in Medicare are where the big increases in future spending are expected to come from. Refusing to touch it means you’re making this harder than it has to be.

“In our view, the difficulty in framing a consensus on fiscal policy weakens the government’s ability to manage public finances and diverts attention from the debate over how to achieve more balanced and dynamic economic growth in an era of fiscal stringency and private-sector deleveraging (ibid).”

The economy will only get better after the private sector pays down its debts. The fact Congress is squabbling so hard over such basic things as the government’s budget only makes this harder for everyone else.

“Our revised upside scenario- which, other things being equal, we view as consistent with the outlook on the ‘AA+’ long-term rating being revised to stable- retains these same macroeconomic assumptions. In addition, it incorporates $950 billion of new revenues on the assumption that the 2001 and 2003 tax cuts for high earners lapse from 2013 onwards, as the Administration is advocating.”

Letting the Bush tax cuts expire is part of what it’ll take to keep us from downgrading y’all again. Or rather, if you don’t let ‘em expire, you need to come up with a trillion more in budget cuts than you’d otherwise need.

Chomp chomp chomp. Mmmm, propaganda.

Dmitry Orlov talked about his grandfather’s donkey, whom he used to feed Soviet propaganda papers. It proved, in his mind, that donkeys can digest any sort of cellulose, no matter how saturated with communist propaganda it was.

With his usual dry Russian wit, Orlov then noted that if he ever gets a donkey, he’ll feed it the Wall Street Journal.

All writers are propagandists. The underhanded ones will try to slide premises by people.

Funny… I don’t even LIVE in that country with the propaganda… soooo… who is feeding on what propaganda?

Oh come on! Don’t be so damned disengenuous!

Perhaps S&P is writing the Democrats’ propaganda? ;)

[ Shakes head sadly ] Sigh!

I find it ironic that S&P were one of the main instruments of this decline because of their AAA ratings of worthless derivatives. Now they are finishing the job by stabbing our country in the back. The real irony is that their executives should be writing their ratings from a jail cell.

@Ron_C

Now THAT I can readily agree to! : )

Here’s an article that may be of interest.
Big Think: 5 Takeaways From Economists After Market’s Wild Ride

No collapse yet. ;)
Betting on Bernanke Returns 28% for Treasuries

Thanks, @CaptainHarley, sorry for the delayed answer, I’ve been traveling.

Still no collapse. Relevant article

@laureth that link requires a “Log In”

@Ron_C It’s free to sign up, and does not require credit card info, just demographics.

@laureth, good read, I did not realize that M1 has tripled in the past few years – but of course it’s all sitting in banks reserve accounts. To the extent we have required increased capitalization of major financial institutions ( to reduce risk of failure) the public have funded it.

[ it amuses me that the bottom of the article says “David Brooks is off today.” I know it’s not what they mean but Brooks is usually pretty ‘off’, not sure why they keep him around.]

…Still holding…

Fed May Inject Over $1 Trillion To Bail Out Europe

US Closes 2011 With Record $15.22 Trillion In Debt, Officially At 100.3% Debt/GDP, $14 Billion From Breaching Debt Ceiling

Spain Releases Another Stunner: Deficit Could Be Greater Than 8% Of GDP

Apparently zerohedge is my best source. Didn’t intend to only post from that site.

As far as the Euro crisis, you’re right, that might tumble over a cliff.

On the other hand, in the United States right now, jobs are more important than debt.

That’s one of the big weak spots right there, since Europe and the U.S. are such big trading partners. If the Euro fails, the Dollar will probably fail too. Between that and the reality of declining oil supplies finally catching up with the markets, not to mention growing tensions with Iran. Oil prices jumped at just talk of Iran shutting down the Strait of Hormuz, and with Obama and the others ramping up their anti-Iran propaganda there’s gonna be some bigger jumps on the horizon.

Internal stability is kind of illusionary in my opinion.

Also, I read that Krugman article shortly before you posted it here @laureth, and I’ve been pondering it. It feels to me that Krugman is kind of reaching for something to be optimistic about, making tenuous historical comparisons. The factors are different today as compared to the 30’s and 40’s. An industrial economy can’t rebound if the energy the industry runs on is scarce. I suppose that’s the typical mainstream blindspot to the limits of physical reality.

If the Euro fails, the trade partner relationship will likely cause another recession in the U.S., but we’ve had a large number of recessions without the dollar failing. There are many differences between the dollar and the euro. For one, the Euro Zone is a confederation of countries who have largely given up their ability to manage their currency, we have not. For another, the very crisis that is affecting the Euro nations is driving investment into the dollar.

I hear what you’re saying about the blind spot of energy scarcity, though. (You may know that I’m not a backer of the permanent-growth economy, from things I’ve written elsewhere.) Austerity (the alternative to taking on more debt) may cause a resurgence, but we’re talking on a generational scale. It does nothing for the people currently living here, though, as has been shown by Ireland and other EU economies that have had austerity thrust upon them by outside governments. All it does is make them falter and further weaken their ability to recover. (I suspect you and I have somewhat different definitions of “recover,” though.)

Let me put it this way. A guy loses his job. He can’t find another. He can take one of two routes, here. The first, “austerity,” is when he gives up buying things in order to save money, and starts going for what income he can get when he is homeless and looks like a bum – maybe he pulls cans out of the trash in the park for the deposit money, maybe he panhandles. If he does this for a couple lifetimes, he may save/earn enough money to buy a razor and an interview outfit, or a piece of property on which he can farm. However, if he takes out his credit card and just buys the razor and a suit, he can probably get a job a lot faster, and be able to pay off that credit card within the first few paychecks.

The Euro won’t fail. Norway is bailing the sucker out. Now, Norway is the sucker.

Inflation: Still low. :)

I’m getting some fat on my bones for the great starvation that will come… I am also learning as much as I can so that my knowledge will be worth something come doomsday.