Financial topics

[malleni]

A fantastic movie...it gives a picture of disintegration of the US service economy.

Higgenbotham,
For me it looks quite clear that US is already passed over "the point of no return".
(I would appreciate if you can give some opposite exemplar of - as you mentioned - "the Congress and executive branch of the US are (are NOT) derelict in their duties..."

Las Vegas is just an extreme, obvious picture and since I like to check always extremes, this is a great opportunity to "taste a near future of US"

The “Lost Vegas” video should give an idea what this will look like (24 minutes great movie):

http://www.youtube.com/watch?v=rFTZ3fls ... r_embedded


BUT on the end, it is not at all so pessimistic in long run.
I think that this movie giving also the right direction for the future American economy....
Of course AFTER the painful adjustment and destruction of this unsustainable US service economy.

[John]

Today's article by Ambrose Evans-Pritchard makes a number of
fascinating points, in the course of which he admits to being
"tortured by self-doubt" about "this extraordinary situation."

** Gold bugs at last have their perfect trinity
** http://www.telegraph.co.uk/finance/comm ... inity.html

He says that the world's top hedge fund manager John Paulson is
buying up many billions of dollars in gold in a "a liquidity-reflation
play" -- that is, anticipating massive inflation, and a surge in the
price of gold.

> He may be wrong, of course. In his early fifties, he belongs to
> the baby-boom cohort most psychologically vulnerable to the 1970s
> "paradigm-error". And perhaps he has never lived in
> Japan.

He then quotes numerous stats to show that in fact we're headed for
deflation, as in Japan's lost decade, and America in the 1930s.

> What we know is that inflation is already negative in Ireland
> (-3.5pc), China (-1.5pc), Thailand (-0.9pc), Korea (-0.5pc), US
> (-0.7), Japan (-0.3), Switzerland (-0.3, Spain (-0.2pc). The
> eurozone may be negative by July. Alistair Darling said Britain's
> retail RPI inflation used to set wage deals will be minus 3pc by
> September.

GDP has been crashing around the world:

> The "yen GDP" of Japan has shrunk by 10pc in one year; the "euro
> GDP" of Germany has shrunk 6.2pc, and Italy's by 4.7pc ; the
> "dollar GDP" of the US has shrunk 3.3pc. Debts are not shrinking,
> however.

> GMO's Jeremy Grantham says in his latest note, Last Hurrah And
> Seven Lean Years, that the market value of equities, houses and
> commercial property in the US reached $50 trillion in the boom.
> This "perceived wealth" sustained $25 trillion of debt.

> The crash has cut this wealth to $30 trillion, but the debts are
> still there. America's debt-gearing has exploded, as it has in the
> UK and Europe. This looks awfully like Irving Fisher's "debt
> deflation" trap of 1933. It will be a long slog for households to
> bring their debt-to-wealth ratios down to manageable levels.

The above contains some interesting figures, that the values of
assets have been reduced by $20 trillion, but all the debts that
people sustained remain. So there's $20 trillion less in assets to
pay off all the debts.

He uses a phrase like Higgie's "deflationary jolt":

> You can argue – as do UBS, Merrill Lynch, ING, and Capital
> Economics, to name a few – that massive global stimulus is merely
> struggling to off-set a massive deflationary shock.

I can't figure out whether his last few paragraphs are predicting
that gold will rise or fall. On the one hand he says that the's a
"gold bug," but on the other hand he says that such gold runs "tend to
finish with a 'parabolic' blow-off before they die."

Sincerely,

John

[malleni]

That is not first time that Ambrose Evans-Pritchard writes absolute nonsense.

Fortunately, it is easy to check all of it.

Typical Anglo-Saxon nonsense.
Unfortunately, there are many who believe in this too.

[Higgenbotham]

A fantastic movie...it gives a picture of disintegration of the US service economy.

Higgenbotham,
For me it looks quite clear that US is already passed over "the point of no return".
(I would appreciate if you can give some opposite exemplar of - as you mentioned - "the Congress and executive branch of the US are (are NOT) derelict in their duties..."

Las Vegas is just an extreme, obvious picture and since I like to check always extremes, this is a great opportunity to "taste a near future of US"

The “Lost Vegas” video should give an idea what this will look like (24 minutes great movie):

http://www.youtube.com/watch?v=rFTZ3fls ... r_embedded


BUT on the end, it is not at all so pessimistic in long run.
I think that this movie giving also the right direction for the future American economy....
Of course AFTER the painful adjustment and destruction of this unsustainable US service economy.

Your post is a good synopsis of what The Fourth Turning (the book that inspired John's web site) is about. Las Vegas is a perfect example of Third Turning excess. When the Third Turning dies, Las Vegas dies. But at the same time, something else regenerates. The regeneration is spontaneous and unexpected and it comes from the masses of the people, not the leaders. The leaders lag behind.

On this point, I'm sure the old standbys from the Fourth Turning forum can provide better details than I can. It's all in the text of The Fourth Turning by Strauss and Howe though. I can remember one quote something to the effect that the glitz and the glamour stop, there is a dark foreboding, the Fourth Turning is at hand.

But here's what I would say about productivity and the service economy. We know that as the accounting stands today, Americans import about 5% more than they export (as a percentage of GDP). That can easily be turned around. The first step is for Americans to consume about 10% less, maybe 15% less. That can easily be done. In my observation, Americans could easily consume 50% less. Most could eat 50% less. The second step is for Americans to produce more. Once most Americans are eating 50% less and can bend over to pull weeds and use a hoe, etc., then they can probably grow 50% of their own food if they need to. If they don't need to, it will be because they are too busy producing something else of value. A lot of this is already happening at the grass roots level, but Washington and the rest of the world haven't caught on yet. The media doesn't run any stories like "10,000 Americans Worked Hard Today Cutting Consumption in Bangor, Maine" because that doesn't sell very well.
_________________________________________________________________________

Here's a link to the monthly trade numbers:

http://www.census.gov/indicator/www/ustrade.html

It looks like the monthly trade deficit has been cut in about half in the past 3 or 4 months. The change has occurred very quickly and I was asleep at the switch on this one. I changed what I wrote above to "Cutting Consumption" because that's the first step in the process of reducing the trade deficit. The second step will be to produce and sell more of our own products. While harder than cutting consumption, that shouldn't be too difficult once the deflationary jolt hits and the cost structure comes down. In the not too distant past, Americans were very good at producing high quality goods, much better than the junk we import from overseas nowadays. Once the cost structure comes down, producing in America and buying American will be a no brainer. We just need the idiots in New York and Washington to get with the program. If they don't get with the program, my guess is that they will soon face serious consequences.

[John]

Here's a link to the monthly trade numbers:

http://www.census.gov/indicator/www/ustrade.html

It looks like the monthly trade deficit has been cut in about half in the past 3 or 4 months. The change has occurred very quickly and I was asleep at the switch on this one. I changed what I wrote above to "Cutting Consumption" because that's the first step in the process of reducing the trade deficit. The second step will be to produce and sell more of our own products. While harder than cutting consumption, that shouldn't be too difficult once the deflationary jolt hits and the cost structure comes down. In the not too distant past, Americans were very good at producing high quality goods, much better than the junk we import from overseas nowadays. Once the cost structure comes down, producing in America and buying American will be a no brainer. We just need the idiots in New York and Washington to get with the program. If they don't get with the program, my guess is that they will soon face serious consequences.

Very dramatic graphic:



John

[aedens]

Things have not stabilized and the ripple effects are still spreading. Be carefull out there....
My opinion was a 40 percent lagging drop to overall demand. I do not know now at all
when stabilization will accure; October IMO is a tipping point

[Higgenbotham]

On this point, I'm sure the old standbys from the Fourth Turning forum can provide better details than I can. It's all in the text of The Fourth Turning by Strauss and Howe though. I can remember one quote something to the effect that the glitz and the glamour stop, there is a dark foreboding, the Fourth Turning is at hand.

Americans will have had quite enough of glitz and roar, of celebrity circuses, of living as though there were no tomorrow. Forebodings will deepen, and spiritual currents will darken. Whether we realize it or not, we will be ready for a dramatic event to shock the nation out of its complacency and decay.

The Fourth Turning will be at hand.

From The Fourth Turning by Strauss and Howe, p. 253

What is taking place in Las Vegas reminded me of that part about how, "Americans will have had quite enough of glitz and roar,..." and it sure looks like they have.

John quotes this passage more extensively down near the bottom of this post from 2007:

http://www.generationaldynamics.com/cgi ... gd.e070504

Kudos to John, as a google search turned this passage up in only two places on the Internet. Strauss and Howe really nail it here and this is where we are. It's coming.

[aedens]

Summer of discontent is here
------------------------------------
Mass layoffs threaten San Francisco city workers:

City Supervisor Sean Elsbernd said, “There’s no way I am ever going to consider supporting revenue measures on the November ballot. I am not inclined to ask taxpayers for more money to pay for raises.” Elsbernd makes it sound as though city workers are demanding that taxpayers foot the bill for their living on easy street. In fact, the federal government—supported by the entire political and media establishment—has given billions in taxpayer money to billionaire bankers and speculators on Wall Street not only to keep their businesses afloat, but to finance their exorbitant bonuses and pay raises as well. Jennifer Friedenbach, director of the Coalition on Homelessness said, “This means that people in San Francisco are going to be bearing the brunt of negotiations gone bad. We are not talking about equal pain here. What we’re really talking about is health and human services being totally devastated.”
The media reported Tuesday that the Health Commission will hold hearings on how the department plans to cut $140 million from next year’s budget. This target had been set by Newsom even before SEIU members rejected the contract concessions. Now he wants the health department to cut an additional $23 million. These cuts include $15 million to mental health and substance abuse services, the outsourcing of security at hospitals, and cuts to HIV services, the latter a particularly egregious act in San Francisco, which has been devastated by HIV/AIDS for decades.

The lefty and liberals will show there face very soon.
Given the reread of material on John's insight to GD
it sharpens the focus for sure. Sad thing is over the last 2 to 3
years a few color within the lines on basic acountability would of
been better then red lining the debt mining industry. Oh well
history will record that so where not needed...
Now the feds will maximum ruin the country with the
mega debt bubble we have been trying to circumvent.
Really no need other than avarice over time. Have read many
experts discount GD since it has stricken a few nerves.
And no John your like some of us who have a day job, your not sleeping
at the switch.

[malleni]

...

Here's a link to the monthly trade numbers:

http://www.census.gov/indicator/www/ustrade.html

It looks like the monthly trade deficit has been cut in about half in the past 3 or 4 months. The change has occurred very quickly and I was asleep at the switch on this one. I changed what I wrote above to "Cutting Consumption" because that's the first step in the process of reducing the trade deficit. The second step will be to produce and sell more of our own products. While harder than cutting consumption, that shouldn't be too difficult once the deflationary jolt hits and the cost structure comes down. In the not too distant past, Americans were very good at producing high quality goods, much better than the junk we import from overseas nowadays. Once the cost structure comes down, producing in America and buying American will be a no brainer. We just need the idiots in New York and Washington to get with the program. If they don't get with the program, my guess is that they will soon face serious consequences.

Higgenbotham,
Figures are perhaps not ugly, but they are far from good.
I can not agree with statement - "Very dramatic graphic", before I do not check more details in this statistic.

I remember that couple months ago i read about US deficit and actually REAL numbers behind this US administration statistic (always with very much vigilance!):
Here it is:
http://blogs.cfr.org/setser/2009/03/13/ ... rade-data/

I am sure you will love it.
Even if it is couple months older and there are some slight improvement since March 2009 - the things are not changed so "dramatical" as some believe...
For example the Exhibit 9 can be used to compare what Mr. Setser pointed out at March 13th, 2009 and today.

-------------------------------------------------------
I also agreed with other part of your post and strong believe that you are right, BUT after 2-3 years of totally destruction of the present system based on US dollar AND US "consumption economy".

This two are connected (in my point of view) because:
1. falling state can not have "a strong currency" (even if this currency is international reserve currency). Simple - it is in my point of view against all base logic. Also I am sure that you could not find anything similar in the history (i.e. falling state=strong currency).
As soon as state (17th century bank - remember) is economically fallen - the currency it issues will depreciate or even, in extreme case - disappear... depending on "confidence" in it.
With other words - falling US can not support its currency EVEN if state US try to provoke a "black swan" (big war, pandemic... or something similar)
The "erosion" of confidence is - irreversible.

2. With collapse of state US "consumption" economy (something as on this movie) - the new forces will start to build up new healthier one. This is inevitable too.
There I agree with you.
But I think that you are agreed with followed too:
1.Path to this better economy will be painful... (at least 2-3 next years)
2. The "total recovery" US state can perhaps reach after prolonged period, but this "consumption spree" probably will never ever happened there again.
3. US will loose its main role in World economy. With it, the role of "World police officer" too - since the power constellation will shift (I imply that US will NOT provoke a "big war" too)

[Higgenbotham]

[Higgenbotham,
Figures are perhaps not ugly, but they are far from good.
I can not agree with statement - "Very dramatic graphic", before I do not check more details in this statistic.

I remember that couple months ago i read about US deficit and actually REAL numbers behind this US administration statistic (always with very much vigilance!):
Here it is:
http://blogs.cfr.org/setser/2009/03/13/ ... rade-data/

I am sure you will love it.
Even if it is couple months older and there are some slight improvement since March 2009 - the things are not changed so "dramatical" as some believe...
For example the Exhibit 9 can be used to compare what Mr. Setser pointed out at March 13th, 2009 and today.

I agree. There is a long way to go. Yesterday I calculated that the drop in the price of oil was responsible for half the improvement in the trade deficit. Setser says more than half, but I don't see his percentage.

-------------------------------------------------------

I also agreed with other part of your post and strong believe that you are right, BUT after 2-3 years of totally destruction of the present system based on US dollar AND US "consumption economy".

This two are connected (in my point of view) because:
1. falling state can not have "a strong currency" (even if this currency is international reserve currency). Simple - it is in my point of view against all base logic. Also I am sure that you could not find anything similar in the history (i.e. falling state=strong currency).
As soon as state (17th century bank - remember) is economically fallen - the currency it issues will depreciate or even, in extreme case - disappear... depending on "confidence" in it.
With other words - falling US can not support its currency EVEN if state US try to provoke a "black swan" (big war, pandemic... or something similar)
The "erosion" of confidence is - irreversible.

2. With collapse of state US "consumption" economy (something as on this movie) - the new forces will start to build up new healthier one. This is inevitable too.
There I agree with you.
But I think that you are agreed with followed too:
1.Path to this better economy will be painful... (at least 2-3 next years)
2. The "total recovery" US state can perhaps reach after prolonged period, but this "consumption spree" probably will never ever happened there again.
3. US will loose its main role in World economy. With it, the role of "World police officer" too - since the power constellation will shift (I imply that US will NOT provoke a "big war" too)

The shorter term path that the dollar will take is where we differ (2-3 years is a good time frame, but I'd rather talk about the next 6-12 months and then go from there). With regard to the points you are making, the first thing that comes to mind is Jimmy Rogers being in the media about 18 months ago making these same points about the dollar. The dollar was at around 76 at that time. Today it is about 81. He had immediate (his time frame appeared shorter than 18 months) concerns about a dollar collapse and was comparing the US to Britain and talking about how the British pound lost 80% of its value. That much is true. Throughout the 1930's, even as it was acknowledged that the British empire was in trouble, the pound remained strong. It was only after Bretton Woods in 1944 when the pound was officially replaced by the dollar as the world reserve currency that the pound incurred most of that 80% loss and it took another 40 years (until about 1985) for the 80% loss to occur. The next question would be whether the US is relatively better or worse off in relation to other countries than the British were in the 1930s. I've considered that question over the years and really don't know the answer.

As to the immediate future coming up, what I think will mostly determine the value of the dollar is how much money gets destroyed in comparison to how much the economy sinks. That would include destruction of long term US government bond values. It's my guess that the US economy will contract somewhere in the range of 25-50%, but the effective money supply will contract much faster, at least at first. In fact, during this "deflationary jolt" that I keep talking about, I believe it is possible that the money supply could contract 25-50% in one day and that is what will precipitate most of the economic fallout. That is because right now the Fed has guaranteed everything and so the US is operating as if the money really exists when minus the guarantees a lot of it wouldn't. What most people would say is that is no problem, the Fed can just go ahead and print up whatever is lost right away and nothing will change. But if you'll notice that hasn't even happened in this first round of deflation and that was relatively mild. During this first round, the Fed also had traditional tools like instant decreases in the interest rate they could use right off the bat as well as support (or ignorance) from the public and the critters in Congress.

I should also add that the "loss of confidence" that will first occur will not be loss of confidence in the dollar. It will be "loss of confidence" in the Fed to guarantee the value of junk or bogus dollars. That is when, as mann puts it, the "game of grab" will start and what they wil grab for will be real dollars instead of this bogus junk that the Fed has supposedly guaranteed. To compound the problem, as I've stated before, excess government borrowing has turned long term US bonds into less desirable dollars, so the doorway to the real dollars is a lot narrower. In my opinion, that will make the panic and the deflation much worse. All my opinion, of course. Everyone has to educate themselves to the greatest extent possible and make their own best judgements.