Hypothetical - the economy goes bust

[stargazer]

Hi Lakemac

When you say keep an eye credit not interest rates where does one look?

Most can find what interest rates are doing.

Credit i am not so sure. Most will keep having to borrow for assets and investments is this what you mean.

Also i am curious if this information has helped you at all in th elast 8 years what i mean by this is that did you develop concern of the state of things and stayed out of investing or property.

Chees
SG

 

[gfresh]

Obviously, everyone, especially the young (like myself) are suffering from the recency psychological biases. That we have lived through propersity time and since we never lived through a bad recession or a depression, we never thought about the possibilities and implication of it.

Exactly.. most do not even understand the concept of 'saving' for anything of worth, and this is not in fact encouraged by any government policy (other than Super, which is forced, housing, which again is forced saving). It's all barely mentioned credit contracts, '36 months interest free!!' and all the rest. This is all fine when the going is good. All I have to go on is the early 90's when things were a lot harder, employment was around 11%, interest rates above that, my mother nearly lost her home, and that wasn't even a full 'crash' compared to the 70's, 30's, etc which things may head towards.

I see it all around me, every day, people loading up on $5k plasma TV's, brand new cars (just today, first 1 million new cars ever sold in Australia last year apparently), etc, etc - when the hard times are just ahead... and they should be aiming for the opposite.

You can also see the attitude in many of the stock forums, with the "young" (sub 30's jumping over the latest stocks like there is no question that eventually it's going to go 'big', without any thoughts about the broader risks and the possibilty that the good times may not last much longer. Companies do actually go bankrupt, get delisted, etc.

As they always say, it's easy to make money in a rising market when times are good, or even great. When times get tough this sorts the men from the sheep.

 

[Kimosabi]

Exactly.. most do not even understand the concept of 'saving' for anything of worth, and this is not in fact encouraged by any government policy (other than Super, which is forced, housing, which again is forced saving). It's all barely mentioned credit contracts, '36 months interest free!!' and all the rest. This is all fine when the going is good. All I have to go on is the early 90's when things were a lot harder, employment was around 11%, interest rates above that, my mother nearly lost her home, and that wasn't even a full 'crash' compared to the 70's, 30's, etc which things may head towards.

I see it all around me, every day, people loading up on $5k plasma TV's, brand new cars (just today, first 1 million new cars ever sold in Australia last year apparently), etc, etc - when the hard times are just ahead... and they should be aiming for the opposite.

You can also see the attitude in many of the stock forums, with the "young" (sub 30's jumping over the latest stocks like there is no question that eventually it's going to go 'big', without any thoughts about the broader risks and the possibilty that the good times may not last much longer. Companies do actually go bankrupt, get delisted, etc.

As they always say, it's easy to make money in a rising market when times are good, or even great. When times get tough this sorts the men from the sheep.

Meanwhile, the crafty ones are already moving into Assets that retain their intrisic value and that can't be created out of thin air.

 

[lakemac]

It's Official: The Crash of the U.S. Economy has begun

I had a quick read of the article in the link you provided Temjin, the first bit was good but it then failed in the second part in relation to who is financing a country's debt.

I will consider the US and China in this dissertation.
Mainstream economics considers that when a country such as the US begins to import product from a low cost nation such as China they incorrectly assume that it is the low cost nation that is somehow supporting the failing high cost nation. From that article:

The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.

That doesn't make sense. Consider this, the bulk of the trade deficit between the US and China is exactly that - trade. That means someone in China selling goods to the US and in return getting paid in $US. Ok now you need RMB (that is local Chinese currency) to pay your bills so you convert your $US to RMB via your friendly local bank. Now the bank has $US. Normally local banks don't have much of their assets denominated in foreign currency so they go to the *central* bank to exchange thier $US into RMB. Now the central bank has the $US.

However who issued the $US in the first place - you guessed it the US Federal Reserve - they *own* the $US the other central bank has in its computers. Now look at the published accounts for the US Fed and pay close attention to the foreign credits - in this case RMB (which are owned by the Chinese central bank). Quid Pro Quo. You can only have $US if the Federal Reserve has created them in the first place. Yes other banks may hold $US but remember they are just thin air...

There is a side issue here (yet another piece in the puzzle) to do with how exchange rates move. It has to do with the relative creation/destruction of credit between central banks rather than some currency dealer (eg. George Soros) moving a few billion around the place.

The fiscal (or investment) imbalance is not a real issue as most of that is made up of thin air remember. Besides the same rules apply to investment. If you were in Australia and a Japanese investor wants to buy your Gold Coast property, are you going to accept Yen or would you have to convert it to $A.

It's amazing that when you go out and ask everyone you know about this sort of stuff, they would say you are a pessimistic guy and such thing will never happen. Obviously, everyone, especially the young (like myself) are suffering from the recency psychological biases. That we have lived through propersity time and since we never lived through a bad recession or a depression, we never thought about the possibilities and implication of it.

You are lucky to even be aware of this information if you are young. I only learnt about it recently (I am close to 50). It is worth reading Rich Dad's Prophecy for another spin on what is coming down the road for 401(k) schemes in the US.

It's so naive to think that the world economy will continue to function perfectly in the next 50 years and your future is secured simply by working for a company and do what everyone else are doing by investing into the share market or properties through advises from so called "professionals".

Hence my first question to any financial adviser "Are you rich?..."
That aside I have structured myself so that I can move my investments (including my super) between stocks and cash at short notice. I don't own property, although as an asset class it has several advantages (people always need housing). The reason I don't own property is that its return is too low relative to a well structured stock portfolio.

 

[lakemac]

Hi Lakemac

When you say keep an eye credit not interest rates where does one look?

Most can find what interest rates are doing.

Credit i am not so sure. Most will keep having to borrow for assets and investments is this what you mean.

Also i am curious if this information has helped you at all in th elast 8 years what i mean by this is that did you develop concern of the state of things and stayed out of investing or property.

Chees
SG

The RBA publishes credit creation figures - have a look on their website for publication "D06 - lending commitments all lenders". It is in the form of an Excel spreadsheet.

The US Fed doesn't publish similar figures unfortunately. By proxy we can only go on M1 (cash deposits) figures which lag the credit creation process by quite a margin. If anyone has a better source of US Fed figures I would be interested myself.

Japanese window guideance figures are similarly hard to obtain. I know Richard Werner (Princes of the Yen) publishes the figures he works out but at a price

England - similar issue to the US Fed.

Has this knowledge helped me - yes. I kept my super out of the market during the 2000-2003 bear market. I noticed the Fed M1 supply figures started to drop in early 2000. My first success.

On the down side I did miss the property boom from 1995 to 2003. Partially because I didn't know about how the credit creation system worked until 2000 and partially because property is not my "thing" mainly due to low returns relative to stock. Mind you it did stop me entering the real-estate market at its peak in 2003. Instead I went looking for a way to trade options... (I still have a share portfolio tho).

 

[Kimosabi]

MOGAMBO GURU - What is a dollar worth these days?

 

[Lucky]

Excellent thread which I thought was worth bumping for those that may have missed it. Some very thought provoking issues and subjects addressed well worth the time to read.

 

[Shane Baker]

I know its an old thread but since it has been "bumped" I thought I post where you can see global money supply numbers by country for atargazer/Lakemac as I missed this thread earlier.

Here it is in the bottom rt hand corner

http://www.financialsense.com/monitor.html


Cheers

Shane

 

[Sir Osisofliver]

KAAAA BUMP!!!

 

[Glen48]

Seems to me there is this big beach ball of Money floating around the world looking for some where to land we had Japan buying up the Gold Coast and the rest of the world the Imperial Palace at one stage was worth more that Canada the Jap banks were lending money to some one to buy a block of land so the owner cloud sell to another person at a higher price both using the same bank and land was 1k"s a SQ meter. the next place for the Ball to land was Dot.Com and then sub prime ..where will it land next Solar going green electric cars if oil goes below $70-80 which seem to be the figure it become un viable to produce.

Have a look at the Money Manager on line and see how wars were financed by banks for both side to fight each other.
Sadly most people don't worry about whats happening out there as it is to much trouble and and only want the Fed's to do somefing when its to late.

 

[deadset]

Check out this guy, I saw this about a month ago :
This is for a laugh, but its food for thought in any case.

He warns "come sept 08, the economy is cracked, cracked" :
http://www.youtube.com/watch?v=o3H2HM0Fypg

He winds up into a speech after the 2 minute mark.

 

[xoa]

Don't put your money under the mattress, buy a few thousand rolls of toilet paper instead. There will always be demand for it. After our government is finished debasing our currency, the money under your mattress won't be worth the plastic it's made out of.

 

[pepperoni]

With the huge defaults, Id image alot of recently created money will "dissapear" which would contract money supply.

So cereris paribus, its deflationary.

Or is it ... hoping one of the experts can chime in on this one.

We all saw the massive undersupply of US dollars this week and the skyrocketing US dollar last week??

 

[ozambersand]

Many moons ago, in posts on this thread, LakeMac made the following comments:

Great Depression - prior to 1913 the US did not have a central bank. Its banking system (despite several attempts by some bankers to create a central bank in the past) was regional with hundreds of individual banks each issuing its own notes. In 1913 the Federal Reserve Act was passed creating the US central bank know as the Federal Reserve. It is not owned by the US government but by its member banks. By the late 1920s it had taken over the role of printing notes in the US. It had through its member banks increased credit massively. Stock market rose to a peak, people were hooked on credit. Then it pulled the plug. It told its member banks to withdraw credit. Again on a massive scale. Why? It wanted total control over the banking system. In the 1920's it still did not control all the banks in the US. By withdrawing credit the hope was it would cause a panic and a run on smaller non-member regional banks. It did. The most liquid form of money is in the stock market. So if you had to repay credit to the bank - the stock market is the first place you would go to get liquid assets. Sept 1929 - Stock market crashed. Why - first round of credit reduction.

The Federal Reserve through both itself and its member banks continued to withdraw credit from the economy until it had what it wanted. Control.

If you understand that the Great Depression was caused by the destruction of massive amounts of credit by the Federal Reserve and you know that they were after control, ever wonder why and when the Great Depresssion stopped? It stopped when the last non-member bank closed its doors in March 1933 (there is an image of the front page of the New York Times from the time which I can't find right now which refers to the one week "bank holiday").

During that time, real cash, not even deposits and certainly not credit was king. Eventually people were forced to sell their land and homes at cents in the dollar. Guess who bought it - the people who owned the banks and the people who were told to cash out before the 1929 crash.

LakeMac, I notice in a few posts on other threads that “credit” and the availability of it all is crucial to understanding what is going on at the moment.

Therefore, given the points you made earlier in this thread, do you think there is any manipulation of credit going on at the moment (ie deliberately withholding it but not just from a fear of not getting it back).

If you think this manipulation using credit is happening, who is doing it and why.

I suppose this also creates the question, how much of what is going on currently is deliberate and how much is an inevitable response to what has gone on before?

 

[BradK]

Therefore, given the points you made earlier in this thread, do you think there is any manipulation of credit going on at the moment (ie deliberately withholding it but not just from a fear of not getting it back).

If you think this manipulation using credit is happening, who is doing it and why.

I suppose this also creates the question, how much of what is going on currently is deliberate and how much is an inevitable response to what has gone on before?

Good question - did the Banks just hold a gun to the head of Congress right under the eyes of the world?

Brad

 

[xyzedarteerf]

Many moons ago, in posts on this thread, LakeMac made the following comments:
If you understand that the Great Depression was caused by the destruction of massive amounts of credit by the Federal Reserve and you know that they were after control, ever wonder why and when the Great Depresssion stopped? It stopped when the last non-member bank closed its doors in March 1933 (there is an image of the front page of the New York Times from the time which I can't find right now which refers to the one week "bank holiday").

source full article
http://www.bos.frb.org/about/pubs/closed.pdf

 

[ozambersand]

NEW YORK, Oct 7 (Reuters) - U.S. stock index futures fell on Tuesday after the U.S. Federal Reserve announced its fourth-quarter term auction schedule, unnerving investors who anxiously await signs of some coordinated response by global central banks to unfreeze the credit markets. Initially futures had risen on speculation that global central banks might mount a coordinated response to calm jittery markets and thaw the credit freeze.

So one could speculate given comments in posts above, that the answer/cause of the problem is once again a move to centralise banking. In the 1930's it was to create a central US bank. Now, is it to create a global bank? (Not the "World Bank") but some new entity?

 

[CoffeeKing]

Don't put your money under the mattress, buy a few thousand rolls of toilet paper instead. There will always be demand for it. After our government is finished debasing our currency, the money under your mattress won't be worth the plastic it's made out of.

Agree, toilet paper is so much softer... plastic too slippery

 

[THE BUZZ]

just spent the last hour and a bit flicking through this thread, really has opened my eyes, appreciate everyone's thoughts, to you LAkemac well done for your efforts and posts, great stuff.
Also agree sorbent for me............................best thing to have when were in the SH_T !!!,. cheers.

 

[Buddy]

From the Lakemac quote:
"During that time, real cash, not even deposits and certainly not credit was king. Eventually people were forced to sell their land and homes at cents in the dollar. Guess who bought it - the people who owned the banks and the people who were told to cash out before the 1929 crash."

This begs the question:
If "the people who owned the banks" purchased "land and homes", how did they pay for it? With folding money, with money held in some sort of bank account, credit?? from their mates? What was it? If we can find out the answer to that question maybe we can work out a way of protecting cash and assets, should everything go belly up in this current mess.