Hypothetical - the economy goes bust

[nioka]

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.

The purchase was a book transaction only they took the property for repayment of the debt. The old land title deeds used to record this.

 

[Buddy]

The purchase was a book transaction only they took the property for repayment of the debt. The old land title deeds used to record this.

Ah, I see. A bit of rape and pillage. Oh well, nice try but doesnt help the mugs in this current stoush.

 

[lakemac]

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

Hi SHane,
Thanks for that link.
Initially when I first learnt about all this in a book called "Winning with money" they talked about M1 etc. Since then I have learnt that those indices lag the credit creation cycle and are not a good indicator to use for predictive events.

A better figure is what they call "Austrian money supply" which unfortunately is only available as a proprietary index (and I don't have access to it ). That being said the next best proxy is the credit creation figures which are now published by the central banks.

 

[lakemac]

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

You da man!!!! Thank you thank you thank you

 

[lakemac]

The purchase was a book transaction only they took the property for repayment of the debt. The old land title deeds used to record this.

I have to say a big thank you to you guys for following up on all this.

My wife thanks you guys too - she had become a "widoogle" for a while there (a widoogle is someone close to you (in my case my wife) that you haven't seen for a while (hence she thought I had died in front of my laptop) because there is so much interesting information out there on Google .

nioka thanks for handling this question

 

[lakemac]

Ok people, heads up on the world model.

Get ready for the market rebound but don't be fooled. We are waiting on China to fold. They are the key to all this mess.

By the way anyone still think interest rates controls an economy?
No? Good.

Anyone still thinks governments controls an economy?
No? You at the back? No? Ok good.

Lets move on.

Consider this:
Loans are nothing more than a bank extending you their goodwill.
They do this when they TRUST you to pay the loan back with interest.
In ordinary circumstances they work this out by checking your banking history and your job history.

Loan = Credit = Goodwill = Trust

When you exchange that "goodwill" for some goods or services that "goodwill" may end up in another bank's coffers. Trouble is at the end of each day banks don't really trust each other so any difference between the amounts of "goodwill" in each bank's hand has to be covered by one of the following:
1. Another bank's trust/goodwill that both local banks trust; or
2. Central bank loans; or
3. Real cash ie. hot money, money on deposits, gold etc.

The cheapest (in terms of interest rates) is another bank's trust. Most expensive - real cash.

As soon as banks lose trust in each other because they are worried about the other banks methods of checking their customers ability to repay (read toxic collateralised debt obligations (CDOs), no doc/low doc loans etc) then banks will stop accepting the loans/credit/goodwill/trust of other banks.

Not only that the existing loans will be withdrawn as lending stops.
Now we have a credit crunch ie. the destruction of credit.
Welcome to a recession.

The amount of credit destruction determines how deep the recession goes. The length of the recession is determined by other factors.

Which brings me to those other factors.

Those of you who avidly follow my posts may remember I mentioned an article in the Economist several years ago about Africa and why they are a basket case.
The issue is private ownership of land. Without a system of private ownership the banking system as we currently know it will not extend credit.

As I have also mentioned China passed a law which allowed exactly that ie. the PRIVATE ownership of land. This allows the banks to extend credit.

So what is going on here? Simple answer - the banks want to control the land in the urban areas of China. Control that and you control the country.
Currently China has not had its credit totally withdrawn.

But it is coming. They (the people behind the banks) have to send the rest of the nations that trade with China into a recession. That is underway now.
Next will be the gradual then eventually rapid reduction of credit in China. Forclosures as happened in US 1930's, Japan 1990's will be the marker for the takeover. It will also be the marker for the bottom of the current recessionary cycle.

Personally I give it till June 2009 for the credit crunch in China to bite. Our resources stocks will tank and we will be in trouble.

All is not lost though. It takes about 12 months to achieve the transfer of land to the banks. So mid 2010 will be the starting point of the recovery in other economies.

Long term - watch out for the 401(k) schemes in the US. They are due for compulsory drawdown in about 12 years. Next big crunch 2020.

On the rebound coming - post US election. Helicopter money $700B of it, will be out looking for a home. Those clever enough to see it will buy shortly, watch the $700B enter the market, pick it up then by April - latest June, dump as China goes under.

 

[BradK]

Great posting LakeMac.. keep 'em coming.

What is your take on Ron Paul?

Brad

 

[Gundini]

I suggest a study of history.

I have found it amazing to see what has actually happened in history once you start looking. Ask an Argentinian what it's like to move from the middle to the lowest rungs of society simply because the middle was lopped off.. It's all there and it makes for fascinating entertainment as well. You don't even need to go very far back just have a look at the period 1900-2007 to begin with.

As a historical hedge I would ideally suggest farm land with secure food, water and energy supplies and the support of a strong community in a politically secure country as the best method. If you have geopolitical risk then watch out, I have read that jewelry is the best here as it's easily hidden (forget about gold bars) and even things like krugerands and other pure gold plays are not ideal for various reasons... jewelry... Interesting and I'm not making this up, it's all there for study.

** edit.. Also a wonderful hedge is mobility, the ability to move where things are better in terms of countries. Europe was a community that had evolved beyond wars and was experiencing a period of prosperity, the last crazy woodchuck who had tried to improve the world was Napoleon some 100 years ago... and then along came WW1. Stuff happens I guess, anyone else been following the military build up in the Persian gulf?

Hard to think of a better country than NZ to be in.. Australia would also rate highly even though honest J has done his best to align our image as the US's Pacific deputy.

Just wanted to bump this thread. A lot of good readibg here!

 

[lakemac]

Ron Paul is a man worth listening to.
He understands Austrian economic theory.
For anyone interested in that go to www.mises.org

 

[Frank D]

"The worse case scenario which I didn't want to see is now playing out.

A Monthly and Quarterly close below the Yearly lows constitutes a
breakout (US markets), which will lead to further erosion in stocks prices
in the 4th Quarter...and a bear market of lower lows into 2010....

US Weekly report (4th October).

Lakemac,

Interesting you should say that you have a feeling that the recession
will bottom out some time in 2010, because I posted the view that
the markets will continue down into lower lows into 2010 based on
the closing price of last Friday.

I had a best case scenario of lower prices in 2009, but last week's
close on Friday changed my view to a worse case scenario:- a continuation down into 2010.

There will be short-term counter-trend moves, and even a much
larger counter-trend move next year, but once that 'top' occurs sometime
in 2009, I have no doubt that global markets will continue down into 2010.

 

[Pommiegranite]

Where do you put your money?

Gold? Cash? The mattress?

Start up a mattress company which specializes in gold thread woven mattresses.

 

[Temjin]

http://georgewashington2.blogspot.com/2008/10/thursday-is-d-day.html
Could this be it?

the Big Mac example was clear enough, but still don't fully understand the implications of it.

Thursday is D-Day


Forget the stock market gyrations. Forget Bernanke and Paulson's ineffective, unconstitutional schemes.

Thursday's auction for Lehman's credit default swaps (CDS) is much more important.

Why?

Well, if banks are reassured by the CDS auction, it could do more to free up frozen capital than all of the Fed and Treasury's ill-conceived plans put together.

As Bill Gross, head of $721 billion dollar fund Pimco, says:

Credit markets are based on trust and when there is no trust, markets can freeze up . . . . Imagine yourself at the drive-thru ordering a Big Mac. At one window you order and pay, at the other – 20 feet ahead – you pick up your lunch. What if you thought that after paying at the first window, your 1000 calorie sandwich might not be waiting for you a few seconds later. You might not pay; business as usual might not take place. That is what is happening in the credit markets. They are frozen in “McFear.” After the failure of Lehman Brothers – an investment bank which took orders at one window, and promised to pay at another for trillions of dollars of those CDS, swaps, and other derivative “sandwiches” – institutional investors said that they’d prefer to stay at home and have peanut butter instead of risking their money ordering a Big Mac. And so their money goes into that figurative mattress instead of the register at McDonald’s, people are laid off, profits go down, bank loans become less available, our economic center cannot hold.​

An auction occurred today to determine the value of Freddie and Fannie's CDS. While there were approximately $500 billion in CDS written against Freddie and Fannie, those who issued CDS will be repaid between 91.5 percent and 99.9 percent of protection they sold. In other words, the issuers of such CDS will only have to pay out between .1 and 8.5 cents on the dollar.


For a rough, back-of-the-envelope calculation, let's split it down the middle and call it 95% of $500 billion, which means that the issuers of Freddie and Fannie CDS will only have to pay out about 5 cents on the dollars, or about $25 billion total. That's a lot of money, but not catastrophic.


On the other hand, "investors who wrote protection on a Lehman default will have to pay out between 81 and 85 cents on the dollar."

No one has disclosed how many billions of dollars in Lehman CDSs are out there. And no one knows the exact payout amount which will be determined at Thursday's auction.

But it is known that "Lehman was one of the 10 largest parties participating in credit default swaps, the New York Times reports. The company’s most recent quarterly filing said it bought and sold $729 billion in derivatives with a fair net value of $16.6 billion." And a lot of people bought CDS betting on Lehman's failure in September.

D-Day


So Thursday is D-Day, where "D" is for "derivatives".


If there are a lot of Lehman CDS out there, and if the auction price comes in high, it could greatly exacerbate the global economic crisis no matter what Bernanke and Paulson do. On the other hand, if there aren't that many CDS out there, or if the price comes in lower than people expect, it would be a huge sign of stability in the CDS market that could reassure financial institutions and investors worldwide, which could "free up liquidity" and help avert a depression (no matter what Bernanke and Paulson do).

 

[Ageo]

Fantastic posts (especially from your Lakemac).

This is by far the most interesting thread i have seen on here

Now its time off to study credit markets and central banks! and hopefully pick up some bargains before the recovery period.

 

[nioka]

Ok people, heads up on the world model.

Get ready for the market rebound but don't be fooled. We are waiting on China to fold. They are the key to all this mess


But it is coming. They (the people behind the banks) have to send the rest of the nations that trade with China into a recession. That is underway now.
Next will be the gradual then eventually rapid reduction of credit in China.


Personally I give it till June 2009 for the credit crunch in China to bite. Our resources stocks will tank and we will be in trouble.


On the rebound coming - post US election. Helicopter money $700B of it, will be out looking for a home. Those clever enough to see it will buy shortly, watch the $700B enter the market, pick it up then by April - latest June, dump as China goes under.

China will not fold. They will just build another wall or something else to keep the peasants working for their rice.

I once had a chinese couple as tennants in a shop. It was in the 80s when things were tough. They said to me "don't worry about their business being bad, Chinese will even go without food if the rent must be paid. They always pay their way."

 

[Julia]

China will not fold. They will just build another wall or something else to keep the peasants working for their rice.

I once had a chinese couple as tennants in a shop. It was in the 80s when things were tough. They said to me "don't worry about their business being bad, Chinese will even go without food if the rent must be paid. They always pay their way."

Agree. There is a different philosophy amongst Asian people. They seem to understand that they create their own outcomes.

 

[mayk]

China will not fold. They will just build another wall or something else to keep the peasants working for their rice.

I once had a chinese couple as tennants in a shop. It was in the 80s when things were tough. They said to me "don't worry about their business being bad, Chinese will even go without food if the rent must be paid. They always pay their way."

You are saying this time it will be different...Gee I wonder where I have heard that before.

 

[xyzedarteerf]

Ok people, heads up on the world model.

Get ready for the market rebound but don't be fooled. We are waiting on China to fold. They are the key to all this mess.

makes sense no wonder we are starting to hear a lot of bad press about China such as poisons on Chinese made milk , lead on Chinese made toys...what's next??
In a country with a small population as ours it will only take one death before the whole nation stops buying from China.

 

[nioka]

You are saying this time it will be different...Gee I wonder where I have heard that before.

You'll keep hearing it because it IS different. The earth doesn't stop spinning just because of a pyramid collapsing. Sometimes it's war, sometimes famine, sometimes it's new innovation. This time it was pyramid selling, fraud, greed and deception. Weed that out and we are back in business. Talking of weeds, I think I'll spend an hour or two in the garden. ( When the world wearies and life doesn't satisfy, there is always the garden.)

 

[Kimosabi]

What everyone needs to understand is that what is going on is a Financial 9/11...

The people orchestrating this don't live in caves, they live in mansions and penthouses.

Once you understand that the money is leant into existence and is used by the people who create the money out of thin air to buy physical asset's, all of those things that never quite made sense, starts making much more sense.

Just like the Great Depression 1, the Greater Depression 2 has been carefully engineered and is being executed right now...

 

[chops_a_must]

Ok people, heads up on the world model.

Get ready for the market rebound but don't be fooled. We are waiting on China to fold. They are the key to all this mess.

I think you've got it **** about here Lakemac...

China is not a debtor but a creditor nation. They have the largest foreign reserves of any country, supposedly, and one of the best savings rates. Just look at the success of HSBC...