Hypothetical - the economy goes bust

[MR.]

I am getting ready for a period of high, if not hyper inflation. Get out of cash get into hard assets - commodities, real estate, mining companies. China is doing this right now. The days are numbered for the US dollar. The only reason it is holding up is there is no ready alternative for a world currency. Change that and the US dollar becomes about as valuable as a peso.

We are heading into inflation - not if, when. I give it till the end of the year when we see the signs of inflation hitting.

Interest rates rise because of the “lack” of money as what appears to be beginning now. (deposit interest) Remember it’s not the interest rates it’s the money supply. RBA has no control over rising interest rates unless they start printing excessive amounts of the stuff. Food goes up and basic living items because the loans which produce these products and get them to our tables, have risen. What about the other items? The items we don’t really need! They want to put them up but no one is buying them. So they continue to drop in price just to get a sale.

Meanwhile contractors and manufacturers are lowering their quotes and the average persons wage can now drop. I am still having trouble seeing how inflation comes into the equation without more leverage by the public.

Now is the time to get out of cash?

Is it? I keep thinking it’s not. I get into real estate as you suggest. The properties both sides are reduced in value because of the “lack” of cash causing foreclosures etc. Your/my new property is now valued as per next door. We just lost money because it could have been better spent.

I‘m saying “Now is too early.........”
I would like to be convinced otherwise.....

On a side note:
China has a tonne of US dollars which if they converted will unpeg their currency from the US, makes China’s currency rise which in turn makes China less competitive in exports. Could China be buying metals by the likes of Copper because it’s better than holding US dollars? Inflation? If the US domestic consumption is slow to return and China happens to get it's domestic economy increasing strongly "beyond stimulas". The Chinese won't want their Yuan pegged to the USD anymore will they!

 

[MS+Tradesim]

On a side note:
China has a tonne of US dollars which if they converted will unpeg their currency from the US, makes China’s currency rise which in turn makes China less competitive in exports. Could China be buying metals by the likes of Copper because it’s better than holding US dollars? Inflation? If the US domestic consumption is slow to return and China happens to get it's domestic economy increasing strongly "beyond stimulas". The Chinese won't want their Yuan pegged to the USD anymore will they!

I initially sent this as PM to MR but for the record I'll share my unsophisticated thoughts in the open....

Up front, I'm not that economically inclined. I don't really know the ins and outs but I do know how people think and that's what I'm betting on.

China recently made some comments about having the IMF special drawing rights become the reserve currency. I don't know if I see that happening, or certainly not soon, because the USA will take a protectionist policy stance. They won't give up their position lightly.

However, China understands what most of us know - the US dollar has got big problems. They're inflating the crap out of the dollar with the amount of debt they're issuing in order to pump back into the system to try and support their already debt-based economy. We know that can't end well. Debt supporting debt. That's how the current crisis originated. It's beyond credulity to think it will be the solution, yet that's the play of Western govts. It's my belief that the US dollar will eventually lose its reserve status and that's when their chickens will really come home to roost.

I believe that will be informing Chinese policy as they shore up gold reserves, base metals etc in order to deplete their US dollar reserves and have something more tangible backing their wealth reserves.

So I'm just thinking out loud there to say I completely agree with you. China has to wind back their reliance on exports and the safest way for them to do that is to internally provoke consumption demand. How they will do that from a policy perspective I have no idea. But I do know human nature and the way I see it, the Chinese are getting a taste of Western consumerism and they like it. The growing middle class are enjoying their new found 'luxuries', especially those who are children of the revolution that endured a quite spartan lifestyle for decades. They're not going to just sit back and wait for the USA to start filling Chinese coffers again.

Further, unpegging their currency will increase their own foreign purchasing power. What can we expect to result from that? Given they currently have the market cornered on cheap manufacturing what are they likely to want to buy from other countries? Apart from raw materials, I don't know yet but I'll be doing some more thinking on that to look for opportunity. Possibly food. Will some countries basically become farms to feed China? Fertiliser companies to increase farm productivity? Wool for clothing? etc etc. Like I say, I don't know but there is a large domino play here which will prove very lucrative for those who get it right.

I don't know the timeframe this will play out over. I'm not banking on it in the near-term to profit off in the next week, or month or 6 months.

As a side-note, one long-shot that might unfold is America becoming the next China....massive unemployment, debt-distressed economy, rising Asian and Chinese affluence....perhaps the future of the USA is cheap manufacturing.

Just some of the thoughts I'm ruminating on these days.

 

[saiter]

China has to wind back their reliance on exports and the safest way for them to do that is to internally provoke consumption demand. How they will do that from a policy perspective I have no idea.

I've heard of this idea on other forums but I don't understand how it would make China "grow" (assuming that this is what the Chinese government wants).

The way I see it, all money from the government/corporate sector would be paid to the worker through wages which will then be paid back to the government/corporate sector through consumption. All they're doing is passing the buck around and they're just "sustaining" themselves. If they were exporting, then money would be flowing in from elsewhere and allow for growth.

As a side-note, one long-shot that might unfold is America becoming the next China....massive unemployment, debt-distressed economy, rising Asian and Chinese affluence....perhaps the future of the USA is cheap manufacturing.

Yup, and the official language will become Chinese : If the USA ever gets to that stage, then I think they'd just rape (with their awesome military) all other countries for money so that they could get back to their previous lifestyles.

 

[MS+Tradesim]

The way I see it, all money from the government/corporate sector would be paid to the worker through wages which will then be paid back to the government/corporate sector through consumption. All they're doing is passing the buck around and they're just "sustaining" themselves. If they were exporting, then money would be flowing in from elsewhere and allow for growth.

It's not either/or. It's both/and.

Chinese have a high savings rate. IIRC, their savings/income ratio is the highest in the world. One simple way for them to grow is to spend more of their savings.

http://news.xinhuanet.com/english/2009-05/03/content_11305373.htm

Hopefully they don't fall into the debt/consumerism of some Western countries.

 

[Wysiwyg]

http://news.xinhuanet.com/english/20...t_11305373.htm

This Roach fella is quite bearish on the Chinese economy as seen in another article.

their savings/income ratio is the highest in the world.

It would be interesting to know whether the record car sales this year in China are debt laden or owned. After all, the second biggest outlay for the majority is a motor vehicle and the ensuing running costs.

 

[MS+Tradesim]

Could China be buying metals by the likes of Copper because it’s better than holding US dollars?

MR,

Reckon this will interest you.
http://www.bloomberg.com/apps/news?pid=20601009&sid=a5yhtDZx75kw&refer=commodities

 

[MR.]

MR,

Reckon this will interest you.
http://www.bloomberg.com/apps/news?pid=20601009&sid=a5yhtDZx75kw&refer=commodities

Makes a bit of a mockery out of the assumption that when copper prices start to rise it’s the first sign of a recovery!

with thanks.......

 

[RazzaDazzla]

Just watched Money as Debt and am downloading money as debt II as I type this.

Scary stuff! I never thought of myself as a "conspiracy" theorist, but it all makes perfect sense. As an example, I was even offered a credit card the other day by HSBC. If I accept the deal, they'll give me $60 once I make a purchase on the card! This is ludicrous that a bank would pay someone money to borrow money!

Anyway, yeah; very thought provoking stuff!

How does one avoid the end of money as we know it? Stay consumer debt free and only borrow to buy appreciating assets?