Global Financial collapse

[2genewb]

government lacks proper internal investigations with real repercussions. therefore the "haves" will screw the "have nots" for personal gain to their own demise attempting to squeeze out that last penny. it's historically cyclical and the inevitable end to every great power of it's time. unfortunately "global" is the sign of the times, so the whole world is sinking as the same ship.

here, in the U.S., i believe it's avoidable (if we stick to the premise our government is founded on). for the people, by the people... but the people have to stand up and force the hand that's refusing to feed them. unfortunately complaisance has become the norm until it's too late... then the riots begin.

reminds me of a certain movie... fight club. when the going gets tough, the alter-egos come out to play and hitting rock bottom is the only way to build up to something sustainable.

[Finnster]

Strong close in the market today, +322 on speculation and random day of optimism.

I've actually been buying back in a bit of Fri and Mon. Still thinking we're at a short term bottom here and we will see a rise as we close on the end 3Q in Sept and leadership in DC returns and starts responding to the crisis.

I think a lot of the volitility is due to eveyone out on recess/vacations and there doesn't seem to be anyone at the helm, so any bit fo news pushed the herd strongly one way or another. Not saying sunny days are here again, but I'm treating this as a buying opportunity going into Q4 and will reassess opportunities going forward.

How long can treasuries stay at this absurdly low level? Not sure I'd want to be long on them (or gold) up at these levels. Who knows tho. Crazy days for sure.

[JERRY2KONE]

Really??? You see a resolution to all of these financial problems?? Please do tell. The Gov is inept at coming up with anything that is actually going to relieve us from this madness. All I have seen and heard so far is raise taxes, lower benefits, limit social security, reduce spending, which all will create even more stress on teh people who are already feeling pretty dammed unappreciated. All of the solutions that Congress has thrown into the mix so far will put a ton of people out of work into an already drowning unemployment market. So what is it that you are seeing that is going to make this situation better? I believe from anylising the entire situation that things are about to get a lot worse. Optomisum is great when there is actually hope. I saw one example of improvements last week and that was to start the budget cuts by lowering the pay and re-evaluating the benefits of our Congressmen and Senatitors. That should be looked at before they start yanking pay from our military personel who are already struggling with the miniscule pay and poor living circumstances placed on them by our Gov.

[sikeston34m]

I get the impression that many times in the past, the Government's answer to financial problems was just print more money!

What are the over all effects of this?

This appears to give the Government the ability to "bail itself out".

But.........at who's expense? What does this do long term?

[JERRY2KONE]

Originally Posted by sikeston34m

I get the impression that many times in the past, the Government's answer to financial problems was just print more money!

What are the over all effects of this?

This appears to give the Government the ability to "bail itself out".

But.........at who's expense? What does this do long term?

Exactly, and it has to stop at some point, but we are the ones who are going to pay the penalty with lost jobs, higer taxes, rediculous cost of living increases, lower income rates, reduced social services, and a weak dollar.

[Finnster]

Hi Jerry,

So what I am looking at is the underlying macroecon, as well as perceptions that are driving the market right now, as well as historical seasonal market trends. Its also important to keep in mind that it usually pays to be contrarian in your investment strategy.

I think the market (at least the areas I'm looking at) are heavily discounted from general anxiety as well as risk of recession. I think the former (as alluded to previously) is an overreaction to the S&P downgrade, the stupid debt ceiling fight, continued weakness in job numbers, as well as a general lack of response from DC as everyone is out on vacation in Aug. Fear of the 2008 collapse is also fresh in everyone's mind, as well a general misunderstanding of economic fundamentals, especially coming from conservative circles imo.

So basically the econ is very weak, everyone knows that, but I don't think we are anywhere near 2008. GDP of 4Q08 fell 10%. We are still growing, albiet at a snails pace. Also, companies are much stronger than they were pre-crisis, and everyone has been deleverging their debt for 3 yrs. There still is a massive amount of private and public debt, but balance sheets are stronger. Basically many companies are lean, mean and sitting on hoards of cash.

As far as the public debt goes, its ugly, BUT...

The actual yearly cost of the debt is quite low in terms of GDP. This is due to the safety and strength of US treasuries and the tremendous appetite for debt by risk-adverse investors more than willing to buy debt. The prescriptions of "the gov't debt crowding out the private sector" made by some politicians are nonsense and not backed by facts (like historical low rates.) S&Ps downgrade was scoffed at. So while the numbers are staggering, its main effect will be the fear it induces rather than actual yearly cost to the economy (at least in the short/medium term.) What worries me more is the fear-induced paralysis on the policy front to address the fundamental employment and household debt problem.

The dollar may be dropping, but on a macro level that may not be a bad thing. What it means is that our exports become more attractive and competitive and should spur manufacturing growth here as well as slow down imports and improve the trade balance. This is why the Japanese, Swiss, Chinese and even Germans are upset, and are taking measures to fight the rise in their currencies. It also means the real value of our debts also go down, which can be helpful when the big problem with the econ is driven by all the household debt.

This is the major point that is missed/dismissed by the gold std/tight money folks. The major complaints versus the weaker dollar is the negative effect it will have on purchasing power of internationally traded goods, like oil. We are trying to get over an overconsumption binge, so orienting national monetary policy to accomodate that seems like a bad decision IMO. There will be higher energy costs as a result as one effect, but this is system is fairly adaptable (ie purchasing smaller cars) as well as other behavioral adaptations. I think this will be more than made up for by increased exports, and the jobs that come with it, that it shouldn't be the cause for serious alarm that some may suggest.

Also, one would think there is a serious inflation problem right now if one listened to certain news outlets. There has a been a segment of doom and gloomers that have been predicting "hyper-inflation" anyday now. They've been saying this since 2008, and they've been wrong all this time for very predictible and textbook reasons. The core inflation rate is still at near historical lows, the rises in oil and food (non-core) are very much being effected by supply and demand functions, and more so we cannot have large inflation cycle without rising wages. Wages are flat (and fell slightly in June) and home values are flat or falling. Basically you have to have the money in hand to be able to buy the goods at the inflated rate for prices to rise. The consumer is strapped and not spending, and producers/retailers are having to sell at reduced prices to be able to attract scare consumer dollars. This is a recipe for deflation rather than inflation (and is closer to the observed facts in 2009-2011.)
Also, currency values are relative, so to pull away from the $ requires you to move money somewhere else. What is this currency that will rise? The Euro? Hah! bigger mess. Renminbi? China fights to control its undervalue. That leaves what? The Yen and Franc? Rising, but hardly able to replace $ as global currency (esp as Japan is in the same situation we are in re: high debt, bad demographix and slow gdp growth.)

Comparisons of the US economy to Zimbabwe or the Weimar Republic are just off base to their fundamentals, and are more contructions of political hyperbole than accurate comparisons. Same goes for the Greece comparison as well.

Lastly, the end of quarter and end of year tends to result in a rally. Summer seasons are traditionally slow/weak for investors. Map the market this year to 2010 and its deja-vu all over again. Strong Jan-April, correction to over-confidence in May to a slow summer with talks of Euro debt crisis and double-dip, then market running on a 8mos bull run Sept 1 once everyone realized we're not all gonna die. Not saying it's fated, but I think there is a strong case the pessimism is overplayed.

The pols will be coming back to DC next week. Along with them will come job plans and the looming debt deal for Nov. Some of the talk is stupid to be sure, (as you've noted) but the effect will be to give the market news and direction to respond to. I have a small amt of optimism that Obama may be starting to pull his head out of his ass and start focusing on domestic econ issues and the neccesity of a real jobs plan. Up till now his strategy has been to fertilize the "green shoots" with loads of bullshit and little else, and just delegate the rest of the work to Biden and congressional leaders. Also, tea party popularity took a considerable hit with the self-destructive crusade to default in the fight over the debt ceiling. Their influence may be waning a bit, and their contractionary fiscal policies should get more push back. The political realm will be the most volitle for sure, and needs to be watched carefully by investors. One point of note is that the GOP did appoint tax hardliners to the SuperCommittee, but not tea party heros like Sen. Demint. The Dems nominated fairly centrist members and proven deal makers. Given this August, I see some daylight for something somewhat sensible actually getting done, if no more than to save their own asses.

So.... what does this all mean? The rules of my 401k require that I hold all funds for at least 30 days. Given all the above, am I willing to bet that they will have greater value in the short term? I think that it is a pretty strong possibility.
I'm a fairly active trader and sold almost everything in July (following the end 2Q rally from June) and before the debt fight finished. I had done a similar thing in April when things looked over-optimistic and peaky after the 8mos run, and bought back in in late May/early June when doom clouded the skies again. (Plus made sure got out in time this year, got caught holding the bag when the BP oil rig blew up last April and ended up getting stuck in things longer than I wanted.)

Basically I think it pays to listen to and read economists who know what they are talking about and have a solid track record, have some faith in govt leaders that they may actually have an idea to what they are doing, pay attention to market trends and emerging data, and be open minded to explainations and possiblities of the current situation. Turning off ideologes and propagandists, like much of Fox news or any Murdoch-run news also helps. ;) A lot of the criticism I hear is based on ideology, conspiracy theory, political opportunism, wishful thinking and mistake-proven econ theory. What I hear little off is criticism based on solid econ theories that result in reliable predictions, as well as a general lack of critical evidence and facts that weave into theories and diagnoses. Should be a flag for anyone paying attention. I certainly don't want to bet my money on the advice and opinion of perennial losers.

Here is some centrist food for thought:

-http://www.frumforum.com/time-to-dow...ditorial-colum
-http://www.frumforum.com/if-the-cons...ut-the-economy
http://www.frumforum.com/were-our-enemies-right
-How liberal Keynesian economists predicted the stimulus was too weak and ill-constructed to do the job. Jan 8, 2009
-Timid Obama aiming too low, Mar 8, 2009

As long as this post is, its just a brief overview. People can argue the politics of it all they want, but I'm not willing to risk my money on it.

[Finnster]

Originally Posted by sikeston34m

I get the impression that many times in the past, the Government's answer to financial problems was just print more money!

What are the over all effects of this?

This appears to give the Government the ability to "bail itself out".

But.........at who's expense? What does this do long term?

Somebody needs to forward this to the European Central Bank (ECB), as their inaction is threatening to destroy the Euro and send the region (if not world) into a depression. Hey, but they are fighting the spectre of inflation .

I don't know how many have continued to follow this, but it has all been quite facinating (altho scary and sad.)


The inherent weakness of the structure of the Euro is about to come apart. Greece almost totally F'd things up the other week, and managed to have their govt collapse over their bailout deal, and in the end were lucky to get back to where they started with the bailout terms (albiet with a new PM.)

However, they managed to freak the market out by clarifying European ineptitude, Italy's bond rates have been skyrocketing, and now their govt collapsed. Even with a new PM and austerty package, bond markets were not calmed, and now France's bond rates are moving up.

Basically no one is big enough to bail out Italy, but the ECB has to come in and be lender of last resort to ITL to stop the panic and contagion. They have to do Quantitaive Easing drive down rates for Italy by buying their bonds and guaranteeing lowered rates. Italy can afford their debt if it remains at reasonable rates. Fear of European inaction has pushed them up to a level that will create a self-fullling crisis.

The Germans are opposed in intervening as they are the main creditor nation and fear inflation, yet if they don't, German, French, US and many other banks and debt holders will suffer massive writedowns and potential insolvency if Italy defaults. Then the cards will just fall one by one until the whole Eurozone collapses and we see a depression. Its amazing to watch. Germany may do itself in because of far more trivial worries.

No one is safe anywhere. Oz, USA, Asia...

When politicians start talking about "end the Fed" and gold standard and not printing money, this is what it looks like in the present economic situation. Bad idea.

[sikeston34m]

Originally Posted by Finnster

When politicians start talking about "end the Fed" and gold standard and not printing money, this is what it looks like in the present economic situation. Bad idea.

What is the source of inflation? Where does inflation come from?

The Government creates inflation through their so-called "Quantitative Easements".

It's strange how if I print money, I get locked up because it's a crime, but it's ok for the Government to print money out of thin air?

NO!! It's not ok to do that.

The more money they print out of thin air, the more they de-value the dollar. They are stealing from us, the tax payers, without even reaching into our pockets.

They print money, then "loan" it to us as low interest rate loans in order to bale out the housing industry. And we pay the government back for what? Because they have a printer?

But that's still not enough to feed the insatiable hunger of too much government!

As far as the bail outs go, they never should have been done.

It's time for some evolution to take it's course Gentlemen.

If you have wealth, put it somewhere solid or you're going to lose.

I do support the "END THE FED" movement. What they are doing is illegal.

It is unconstitutional and is something our founding fathers sought to prevent.

THAT is why they came up with the Gold Standard in the first place.

You can't get out of debt by printing more money, spending more money, or borrowing more money.

The ONLY way to turn debt around, is live within your means, cut spending, and then pay the debt off!

[Finnster]

Dow up +143 pts today. Treasuries fell and gold got pounded, losing nearly $100/oz.

IE, risk aversion is loosening, and money is moving out of safety and back into equities.

Let's not call it a trend yet tho.

[Finnster]

Some fun reading on Italian default scenarios:

http://www.nakedcapitalism.com/2011/...scenarios.html

Or CNN by conservative David Frum:

http://www.cnn.com/2011/11/14/opinio...html?hpt=op_t1

[Finnster]

@Sik:

Why can't you print money? Because its not your currency. You have no authority. The $ is legal tender of the Federal Reserve. You have no more right to print $ than you do Euros, pesos, pounds, rand, rubles, or rupies etc. Printing any of those is fraud, to state the obvious.

You can print money all you want. You just have to do it in YOUR currency. There is nothing stopping you from creating Monster Dollars or whatever you want. Bitpim is a wholly invented internet currency. The US used to be a patchwork of different currencies before there was a central bank and consolidation under the dollar. Private banks even had their own notes, as well as individual states.
The trick is getting people to have confidence in the currency.

If the FED allowed people to just issue their own notes, then there would be no integrity of the currency, and it is just paper then.

[JERRY2KONE]

I have been sort of cut off from any real good quality English speaking news living in Prague, but what we have heard about as far as bailing Greece out is this. The Czech Republic was one of the "hold outs" for saying no to Greece. The main reasoning is this. The Czeh Republic is relitively new as a country let alone to the EU. They have suffered operssion and depression on many levels before gaining their own soverenty. They have ome a long way in a very short time, but they have a very long way to go before catching up to most of the other Eu countries. Here in the Czech Republic when they retire there is a Gov retirement system of sorts that pays out something in the neighborhood of $200 to $400 a month in retirement benefits. Comapre this to what Greece does, which is $1000 to $1200 a month in retirement funds for each retiree. So of coures the concenses on this end is F*&^ that. Instead of looking for a hand out from countries that live at a much lower standard of living what Greece needs to do is lower its own standard of retirement benefits. I am not a huge market person so I am not real sure of what the rest of the EU are receving for retirement benefits. I am sure that there is not a whole lot of equality between the EU countries as there are between the states in the USA. So dealing with bailouts in the Eu are going to be quite different. Like you stated Finnster there is going to be alot of growing pains for EU before any sort of equal ground is found for them to work with. As long as you have unequal sides there is going to be no long term reolution. Just like the USA if one state falls there is likely to be a domino effect. This is a risk for the EU as well. If one country falls there will be others, and once this starts just how far will it reach is the only question that cannot be answered. Germany, France, Brittain, and a few of the other giants will survive, but the devistation will be far reaching.

[sikeston34m]

"@Sik:

Why can't you print money? Because its not your currency. You have no authority. The $ is legal tender of the Federal Reserve. You have no more right to print $ than you do Euros, pesos, pounds, rand, rubles, or rupies etc. Printing any of those is fraud, to state the obvious."

NO SH!!!T

But we don't EVEN know what the FED has been doing. We only have a rough idea and it isn't good. To power up the printer and control people's lives. That seems to be what our glorious government is doing.



"You can print money all you want. You just have to do it in YOUR currency.
If the FED allowed people to just issue their own notes, then there would be no integrity of the currency, and it is just paper then."

I think ALOT of the problem IS our Money is becoming only just paper.

Whatever happened to the days when a Man could make a living for his family on his income?

Meanwhile, back at home, there was alot more time to spend being a parent, by the wife?

In this Scenario, the average "Soccer Mom" can't afford the Soccer Ball or the Gas to go to the games.

Where does this leave our Children?

I see this Government as being self serving to the Rich and the special interests, and themselves!

We have laws upon top of laws, and new ones are created all the time. Ignorance of the law is no excuse! They are laws and we are to follow them!

We also have regulations that I believe are created to be self-serving to the Governent. Why? Because they don't have enough money? I think not.

When it comes down to a society that operates and functions with Greed and Corruption being more than tolerated, we dip into an era where it's going to catch up to us. This is where we are now.

Just remember, the Constitution was written with "We the People of the United States" in mind. Our founding Fathers had a vision I believe to be God inspired.

When we trample on the Constitution, we WILL pay!

[Finnster]

Originally Posted by sikeston34m

"@Sik:

Why can't you print money? Because its not your currency. You have no authority. The $ is legal tender of the Federal Reserve. You have no more right to print $ than you do Euros, pesos, pounds, rand, rubles, or rupies etc. Printing any of those is fraud, to state the obvious."

NO SH!!!T

But we don't EVEN know what the FED has been doing. We only have a rough idea and it isn't good. To power up the printer and control people's lives. That seems to be what our glorious government is doing.



"You can print money all you want. You just have to do it in YOUR currency.
If the FED allowed people to just issue their own notes, then there would be no integrity of the currency, and it is just paper then."

I think ALOT of the problem IS our Money is becoming only just paper.

Whatever happened to the days when a Man could make a living for his family on his income?

Meanwhile, back at home, there was alot more time to spend being a parent, by the wife?

In this Scenario, the average "Soccer Mom" can't afford the Soccer Ball or the Gas to go to the games.

Where does this leave our Children?

I see this Government as being self serving to the Rich and the special interests, and themselves!

We have laws upon top of laws, and new ones are created all the time. Ignorance of the law is no excuse! They are laws and we are to follow them!

We also have regulations that I believe are created to be self-serving to the Governent. Why? Because they don't have enough money? I think not.

When it comes down to a society that operates and functions with Greed and Corruption being more than tolerated, we dip into an era where it's going to catch up to us. This is where we are now.

Just remember, the Constitution was written with "We the People of the United States" in mind. Our founding Fathers had a vision I believe to be God inspired.

When we trample on the Constitution, we WILL pay!

Sorry man, that wasn't meant to be said in a snarky way. Just a statement of the obvious to a retorical Q.

I agree with most of what you said. Life has changed dramatically. I'm 34, and its a very different America than the one my parents raised me in.

Compared to my M&D, my wife and I have to work way more hours (ie two jobs) after having to go to school much longer for way more money, we will likely pay higher taxes, see lower retirement benefits to pay off all the debt that was racking up before we really even started working.
Our house is smaller and more expensive and is falling in value, medical costs are rapidly growing, oil prices are much higher (no muscle cars for us..) and our generations wages as a whole are stagnating. That's if you are lucky to still have your job.


Its a right mess, and most of it was set-up before we even had a chance to really start voting on it, and it seems like it wouldn't have mattered anyway.

I just differ in what to do all about it. I don't want to go to the European-style system as its working even worse. I think the core of what we have works well, but has managed to get hijacked and forgotten who's interest they are working in.

As far as the Fed goes, I see alot of what they are doing as a last resort to save the economy as Congress is completely disfunctional and unable to solve even the most simple of problems. They are fairly poorly equipped to do so, but they are the only ones even trying. The idiots in Congress just barely managed to not actually default on the debt they already spent and send the country into a depression. Its sad when a "win" in Congress is only having your credit rating downgraded.

[Finnster]

Yeah thanks Jerry. Don't get me wrong tho, I'm not making an endorsement of the horrible financial pratices of the Greeks. Its more of what you do with them, and then everyone else.

Its easy to be pissed and cut off your nose to spite your face.

Reforms must be made, but forcing too much too fast can backfire too.