1-Jul-10 News -- World economy in deflationary spiral

[thomasglee]

It's because for some period under such a scenario, almost certainly for the rest of our lives, civilization will cease to exist. There will be no storage of anything, just day to day survival, and that implies barter at best.

The reason gold came into being as a form of exchange (I believe anyway) is farmers at some point were able to consistently store excess crops and that became a form of money. Then eventually farmers saw the logic of trading their excess storage for something that had better inherent qualities as money.

But under the scenario you are describing, a level of civilization which allows for some kind of widespread storage of excess is likely to cease to exist except maybe in isolated pockets here and there. Instead, the norm will be depopulation, breakdown, destruction, etc.

While I agree with you to some extent, never underestimate the average man's penchant for 1) not recognizing what's going on around them and 2) greed. Some will think, sure, things are bad now, but it will get better so I better trade what I can for gold now so that I will possess much later.

[Higgenbotham]

While I agree with you to some extent, never underestimate the average man's penchant for 1) not recognizing what's going on around them and 2) greed. Some will think, sure, things are bad now, but it will get better so I better trade what I can for gold now so that I will possess much later.

I agree with that. But whether you will get the equivlent of $1200 worth of today's goods per ounce will be the wild card. I think it's not likely in most places, but there would still be a market for some period of time.

[Higgenbotham]

The world is not rejecting dollars. Ten year Treasury yields are at historic lows.

"Rejecting dollars" is too strong for what we have so far. There is much talk and complaint about the dollar's exorbitant privilege, but only limited amounts of action so far. Some central banks have reduced dollar holdings, on average central banks went from selling gold to buying gold, and an oil producer or two that don't accept dollars as payment. But it might be enough to indicate the beginning of a trend.

One consideration would be how loyal the particular parties are to their decision. The current bond holders may be less loyal. They may be parking money "for now" whereas the parties who have rejected dollars may have decided they are not going back. Of course, we don't know and can't really speculate. All we really know is that it could be a consideration. I guess short term sentiment surveys could be some help there.

[vincecate]

One consideration would be how loyal the particular parties are to their decision. The current bond holders may be less loyal. They may be parking money "for now" whereas the parties who have rejected dollars may have decided they are not going back.

It seems the bond money has moved to very short term. To me this indicates little faith in the dollar or an expectation that interest rates will be going up.

[Guest]

One consideration would be how loyal the particular parties are to their decision. The current bond holders may be less loyal. They may be parking money "for now" whereas the parties who have rejected dollars may have decided they are not going back.

It seems the bond money has moved to very short term. To me this indicates little faith in the dollar or an expectation that interest rates will be going up.

If they move their money out of Treasuries, where will they move it to?

[thomasglee]

If they move their money out of Treasuries, where will they move it to?

There are a myriad of places to move it. It can be moved into the stock market (you can have a rising market during an economic depression), foreign currencies, gold, silver, commodities, paying debt or even in the mattress.

[vincecate]

So after fiat currencies are collapsed, why would gold do me no good? If you mean food supply and guns are more important, I agree. But if you mean that gold and silver coins would be of no use at all, I am confused and ask why?

It's because for some period under such a scenario, almost certainly for the rest of our lives, civilization will cease to exist. There will be no storage of anything, just day to day survival, and that implies barter at best.

Many many countries have had hyperinflation. Most of them get through surprisingly well really. Some with only a very modest increase in crime.

Now this will be the first time a world reserve currency has had hyperinflation, so it will be different, and much worse. I doubt that most places will have a "breakdown of civilization" and even those that do I doubt it would be even a year long. I think the best locations are where the fewest people live off of government money. If paper money fails the various governments can not support nearly the number of people they currently support. It will be a very bad year.

[vincecate]

If they move their money out of Treasuries, where will they move it to?

Bunkers, food storage, guns, gold, silver, radios, solar panels, batteries, electric cars, etc. The kinds of things you will wish you had if all the stores are closed for a long time.

[Guest]

If they move their money out of Treasuries, where will they move it to?

Bunkers, food storage, guns, gold, silver, radios, solar panels, batteries, electric cars, etc. The kinds of things you will wish you had if all the stores are closed for a long time.

How do you move a billion $ invested in Treasuries into solar panels or your mattress?

[thomasglee]

How do you move a billion $ invested in Treasuries into solar panels or your mattress?

You mention only two of the many places that were mentioned where the billions can go. Sure, the mattress and solar panels are not enough. But when you start considering the (I repeat) MYRIAD number of places it can go, it's not as far fetched as you seem to think.