Economic death spiral: can we survive?

Global economic meltdown will not happen, so don't sweat it.  And if I'm wrong, well then, dig your bunker now and start hoarding ammo, the currency of the post-meltdown America.

Well, speaking of bunkers... I did watch some of those prepper/bunker shows... that's fine for a hiding place, but once you are found, you are done. You still have to breath.

Well The Great Depression was sort of bad, and I was looking at that and read it was 25% unemployment... that does not really sound that bad, 1 out of 4. But of course the other 3 were making pennies. What about half... that would pretty much count for a "melt down" I would think?

In the article it said there are as much as "20 times the global GDP of risky derivatives on the market". A melt down is not impossible.

There absolutely WILL be a global economic meltdown, but nobody knows how severe it will be and to what extent.  Will it just be a really bad recession/depression for 5 years, or will governments fall and zombies start roaming the streets?

My personal opinion is that we are on a path of fiscal destruction and some day (1 year, 2 years, maybe 5 years) it will pop.  Just like the dot com bubble and the mortgage bubble, everyone thought everything was fine until it wasn't.

The government will try to keep it from popping by pumping money into the economy and funding entitlements, but they won't be able to lend any money so they will just be "printing" money to dump into the market.  Inflation will raise quickly and prices of everything will go through the roof.  If we continue to use foreign oil the price of oil will be the biggest impact to peoples everyday lives.  If it happens quickly there will most certainly be a panic with everyone running to the grocery stores and draining the shelves, but I'm guessing it will be a slower pop.

The government will have to severely cut spending, and the entitlements are the biggest portion of that spending.  So, there will have to be severe cuts to handouts.  This will result in the poor taking the brunt of the impact of the meltdown.  This is where the danger comes in because desperate people do desperate things.  If you're poor, don't have a job, and don't have any way to get food, you're going to find a way.  Crime will increase substantially.

Now, as for the matrix breaking down.  I don't really buy that.  We as a society have skills and abilities that won't go away just because of a market crash.  Even if the currency implodes people will still do things of value and people will pay for that value with whatever they have of value.

So, what am I doing to plan for it?  Not a whole lot at the moment.  We do plan to buy 100 acres out in the country when our youngest goes off to college in 5 years.  We're not doing this because of the collapse, we've just always wanted to live in the country, but it does provide the benefit of insulating us from any potential civil unrest.  
I'm also not paying my mortgage down quickly because the inflation will make it a lot cheaper to pay our house off down the road.
I have several weapons and the ability to protect myself in the event of law enforcement being either cut or taxed to the extend they can't respond in a timely fashion.

I've always wanted a bunker.  I was a huge Hogans Hero's fan and always wanted to have tunnels and secret bunkers all over my property.  lol 
We do have a large underground storm shelter attached to the basement in our house now.  9" rebar reinforced concrete all around and on the top with a steel door.  I guess I could call it my bunker, but I need to install a periscope in order to be official.

Did you see on the other thread that Walmart is having a sale on Reynolds Wrap?

If we can get the rich to pay their fair share until they don't have any money either, the way I see it I'll ashes by then.

In other news, less than $15 Billions away from the historic $16 Trillion mark.

Spend baby spend!!!

I spent some time in Nepal when my daughter was studying abroad there. At the time, there was effectively no government, and being a very poor country, infrastructure was not too good either. But it was not a lawless wasteland, with Mad Max gangs running around. People did what they needed to do for the most part. Even the Marxist gangs followed a code of behavior for the most part.

I suspect if civilization as we know it (reliable sources of food, energy, and infrastructure) ends, and all the "wealth" (that apparently is being built not on actual ownership of anything, but on the "perceived value" of those things) goes away, what will happen in the short time will not be pretty, but after a period of self-correction, life would go on. Sure, we all would miss spending time hanging out on BT COJ, and using our smart phones to settle disputes or recall who exactly was that actor and what else did we see him in, but the basics would return to a normal routine. I would expect fewer mega farms and more people moving back to arable areas - some to farm and produce food in smaller, more labor intensive fashions, some to be close to the food sources while engaging in their arts (medicine, plumbing, performing arts, whatever). We would have a more powerful reason to master solar and/or nuclear energies, and make do until we adjusted.

Some areas might well do very badly in the short term. Especially those areas that are already doing poorly - due to poor education, few resources, and general lawlessness and disregard for the current social norms. But the "range" of such people is not likely to be the entire countryside (unlike the latter zombiepocalypse or coming robot uprisings). Maybe a few miles at best. Such people are in general very uncomfortable getting even a few blocks from their "turf".

There have been many times in the history of civilization that people achieved some pinnacle, only to have it undone by some factors beyond their control - marauding huns and mongols, extended droughts, collapse of the local ecosystem. And yet, on the whole, we rebuilt, with pockets of knowledge being preserved and later built upon. To me, the bigger risk is that with the current anti-science slant of the far right, we here in the US become the Europe of the "dark ages", where superstition and anti-science attitudes stall us for an extended period, and other countries move ahead of us. And that is a problem for me primarily because I expect my kids and grandkids someday to be here and not in the new golden lands. 

Ya, but those 75% of employed people were making a fraction of what they used to. And they talk about the working conditions back then... that there was a crowd of people outside more than happy to have your job if you stepped out of line.

The difference I see to all our historical examples is how completely most of are disconnected from being self sufficient. Do you think the people in South America cared when Rome fell? The vast majority of our agriculture is not family farms, it is big huge conglomerates. Sure we have people that like to hunt, what do you think will happen to our wild game when half of the country does not have adequate food on the shelves?

We had our little melt down and it shook some things. I could see that it would not take much more of a push to make it much worse. While many skilled workers lost their job, it was only bad in context to what we are used to. We still have a TON of consumer based industry, and when there is a big shortage of consumers, I can see jobs being shed in the millions in a short period of time.

But even Napal has achieved a balance. Nobody has to be America to have a decent way of life.

But look at that bubble the article talks about. The wealth you say is percieved... what if half of it vanished, 3/4s... that the global economy would be "reset" back to value/wealth based on hard assets and hard goods. Well there is still value. It isn't going to be reset to zero... but that would be a HUGE colamity on the entire world. Not a regional one, or a national one, a global one. To say it would not be pretty short term I think is bit of an understatement.

I do agree that we would not just be nuked and have to start from scratch. Eventually things would normalize and stabilize. But the truth is lots of people would die. I don't know how many, and I do think "society would survive", but health care would not be affordable for many. Millions of people around the world are surviving on what others provide them, they are already on the margin. Even here, money would be next to worthless. All those people living on subsistence and pensions and retirment... what happen when all thet value based on markets gets wiped out. We would not need to leave the country to see millions on the margins of survival.

How exactly do you "invest in solar and nuke" when the worlds exchange market collaps, and people are starving? First, nuke is not the answer, and you don't need solar when you can burn dirt. I find your "anti-science" remark about the far right funny. Especially when the far left would love to turn off all the power and go back to hugging trees. See how easy it is to make a straw man argument with out any truth.

You're right the world is much more interconnected today than then, But you can look at Greece, Spain, and Italy and the whole of Europe right now and see what they are going through and how much it is effecting us.  In the same breath, look at what has happened to us in the past five years and see how much it effected the rest of the world.  If I understand correctly we are talking about government defaults and there is no doubt that the proposition is quite frightening, but I think that is a doomsday scenario of the extreme, and there is an overly optimistic scenario of us paying off debt in 10 years that is to the other extreme.  As in most times I think the reality lies somewhere in the middle.

BTW, I just assumed the article thinks of the US as the center of the universe.  I didn't see anything in it that talked about the world economy even though the main source was with the world bank.  America means a lot to the world but it isn't EVERYTHING, and I suspect where we fall off another will take our place (see China).  I find our interconnectedness to be a bit of a safety net globally.  Think of it as the ultimate "diversification".

Ya, I'm not trying to argue the sky is falling, I just thought it was interesting. But even with the US... toxic mortgages were wrapped up as assets into derivatives then replicated over and over again with no real assets backing them. Ecomomic theory is certainly not my strong suit, but this is not new. Now there are whole ecomomies based on making money off of making money off of making money. There is nothing backing it. Even mortgages... mine was sold over and over again, and banks made money, until the market crashed. Look at "futures" and what "speculation" does to market... moving money and growing wealth/profit/value off of a speculation and not what is actually sitting on the ground.

What the article is talking about is credit bubbles and markets based on bubbles. When they pop, it is going to pop everything. I don't have to take it as gospel, but I found that staggering to think that there is as much as 20 times the global GDP right now in deriviatives.

I don't think the US is the center of the universe... but if we fall it all goes. China woudl go broke just holding our debt. At least we would not have to pay it back. And the Europe mess is most certainly having an effect on our markets. The credit economy we are now based on is based on "confidence" and that confidence has not returned. We continue in this drawn out "lack of recovery", and the prediction is for us to enter another recession next year... according to some. Now that is fine, recession is not collapse.

I just think this stuff is interesting, and I wondered what would everyone do if we didn't have a job and a paycheck was worthless.

Global warming, claims relating to sexuality ("rape doesn't get women pregnant", "abstinence only teaching works"), questioning whether or not evolution is real.. These are positions held not only by the far fringes (the equivalent of your straw men lefties who oppose all forms of tech and want to apparently live like cave men and women), but by mainstream right political figures and thinkers. I'll stand by my "anti-science bias" comment. 

Perceived wealth - is exactly what I mean. My mother bought her condo for around $90k. A few years later, it was valued at $250k. She just sold it for around $150k. So what was the actual value of her real estate, a component of her wealth? It depended on the perceived values of the real estate market at any given time. Whereas a loaf of bread at any time will provide the same nutritional and life sustaining values no matter when it is produced and eaten (well, ok, if it is old and moldy, it's value is seriously diminished). 

I agree that many would die - supply chains would fall apart, medical care would become much more primitive, etc. What strikes me is that argument ("we have to do something to prevent lots of people from being harmed") is the exact reason I support universal single payer health care, and believe that we have a duty as a rich society to provide for those on the lower rungs economically - positions which put me clearly on the left here.

The far ends of both political spectrums scare the crap out of me and both ends have mainstream members. But at least be clear of what we are talking about... we are not talking about political beliefs, we are talking about religious beliefs... which yes, many on the right end of the political spectrum also have.

So we are talking about unsustainable credit spending... Obama care was simply charged on a the same credit card Bush used... exactly what do you think happens when it all falls down? How exactly does a bankrupt country and government pay for health care?

It isn't like I will completely dismiss the need and the merit of can we pay for it... I just find it funny to discuss it in the context of this thread... programs and spending that are unsustainable that may or may not be leading us to economic collapse.

Health care costs are out of control, and paying for them is a problem whether it is coming from the overall government, insurance companies, or individuals. Part of the problem is the need to practice defensive medicine, part of the problem is the culture of entitlement (everyone thinks they deserve the best and most healthcare available), and part of the problem is that most of us in practice will not simply skip providing services before people pay (or prove they can pay). It is a tightly interlocked problem.

This may be of interest to you: http://www.pgpf.org

It appeared to me that the article is saying the sky is falling.  There are a couple of things to take into account though, which I don't think they are.  Some of the assumptions are that if it goes down, it ALL goes down, hence "death spiral".  Complete and total collapse of government and economy.  Not sure that's in anyone's best interest.  So why would they let that happen?  Take a look at the banking collapse just recently.  Organizations were forced to do things they did not want to do.  Loans and liquidity were forced on organizations that did not need it so that the whole could stay afloat.  As far a government goes, we have forgiven countries' debts in the past.  Other countries can forgive our debts.  We can print money.  The most utilized way of expanding debt is through inflation.  If worse came to worse, we just inflate ourselves out of it.  Ugly, but true nonetheless.  I think they would start there.  Defaults would likely be made on a partial basis or only on certain forms of debt.  Funding for projects would be slashed before it spiraled out of control.  Greece is trying to figure out how to have a wind down of defaults.  Banks are accepting .20 cents on the dollar from where they had originally bought bonds and notes.  This is a practice that is less publicized but not so uncommon.  When faced with the unavoidable reality that you can either get .20 cents for every dollar you gave them, OR you can get nothing, they take the .20 cents.  So let's take your China example of them going broke if we went broke (they wouldn't be hurt most by it, by the way, we own the most of our own debt, so it would be us).  If we told China that we were going to 100% default on Chinese debt holdings, don't you think they'd try to figure something out?  In any default, it's up to both parties whether a default happens.  It's not a guaranteed process.  It's just like a contract.  As long as both parties agree to the changes, any contract can be changed.

Futures and speculation are healthy for the market.  They are a form of check and balance.  They get a bad wrap because they are difficult to understand, but technically they are beneficial.

Europe isn't having much of an effect on us.  I haven't checked US exports since the beginning of the year, but I think US exports to Europe were on the rise year ending 2011.  I believe US exports are up overall so far this year, but it wouldn't surprise me if they were down a little to Europe specifically.  I just talked to a business associate in Greece last week and they are in a full blown depression.  1930's style, 70% economic decline, depression over there.  It's SERIOUS and it's BAD.  The people we deal with in Spain  and Italy are pooing their pants right now (last I heard from them was a couple months ago), and what's scarier about spain is that they don't have the same type of bankruptcy over there.  When you buy a house and default on it over there, the bank may take your house, but you still owe the debt.  Here it's forgiven.  It's scary over there right now but people are making it.  And frankly that is the future I see.  I don't see the "death spiral" because what they are describing is, in my opinion, exactly what is going on in Greece, Spain and Italy (Italy MAY be ok, doubt it though).

Markets and economy are 2 separate things.  You're right markets are largely confidence based, economies take confidence into account but fundamentals rule (combo deal I suppose).

Personally, I think we'll have pockets of growth and pockets of recession with overall growth as a nation next year.

And yes, it's an interesting discussion to have.

Fair assesment.

And even I have come around to see that it is a cost whether you want to admit it or not, and it will be payed for by either the premium payer or the tax payer like it or not. So it is something that should be dealt with. Yet we didn't really deal with it, we played more shell games and partisan BS. that does not fix the problem.

Cool, I'll look around there.

True, the article is saying the sky is falling and that before it was just kooks, but now it is that guy which is supposed to lend credibility to the possibility. I found it particularly funny at the very end that people need to get their finances in order to deal with it.... how exactly does one do that when it all crashes and your dollar is now worth a penny?

I guess it is all relative... 100,000 pennies is still better than 100.

The way I see it though is that we had a serious shake... and we shored it up with imaginary measures. We didn't actually fix anything strucurally, we just put more on a credit card and manipulated currency. Fine if it stopped the bleeding, but it seems to me it just "hid" the bleeding. Feel free to correct me, this is just my John Q. Public opinion and that is shaky at best.

And with pockets of localized failings, seems they can be propped up too... but if the dominos start falling, then it seems to me there is nothing to help prop anything up.... or rather if the foundation turns to sand, there is no way to keep the house standing.

But I get what you are saying.... even at that, it is still along way from being reset to zero. That emergency measures would be taken to sever limbs to save the body and if everyone is looking at collapse then everyone is more than willing to work on the problem instead of saving their own hide. That a global "Great Depression" would be bad, but it would not be a "death spiral" to the bottom.

It's still something I hope I never see in my lifetime.

.... yet it isn't that wacky to think it possible either....

We can and will survive it, but I am confident it will happen as there has been no serious solutions presented so far and we are @ $16 trillion.   Politics prevents common sense austerity from taking place and instead of a soft cut back, it will have to come in the form of a swift kick in the rear.   Complaining about reduced pensions?   Wait till there are no pensions.  401k not earning enough?  Please dont assume gov't can not and would not pilfer those funds as well when desperation hits.  

I am not a gloom and doomer, just have not seen 99% of the things discussed that are necessary to keep this Country where I beleive it deserves to be.   We can take small sacrifices now or pay much deeper price down the line.  I think as a Country we have made that choice.   Maybe when the # of municipalities who are bankrupt climb to a certain threshold, we will start to get the message.  I am not fortunate enough to be in the highest tax bracket, but if I was, I would be giving serious thought to living abroad where my $$$$ was seen as an asset vs. liability.   2 cents.   If it got bad enough, I think this would be a strong trend and then who would we lean on to pull the tax weight?

I haven't ran into too many people who disagree that our current trend is maintainable...   So what will change?  I'm going to assume not much and plan ahead.  Diversify liquidity and assets, plan a 2nd option career wise based on core need vs. financial industry as we know it, etc.  

There was an interesting moment of panic that ocurred on September 19, 2008 - a fascinating day in the woprld of finance.  (This is an interesting read)...

On Monday, 9/15/08, Lehman Brothers Holdings Inc. filed for bankruptcy.  The very next day, Tuesday, Reserve Primary Fund, the oldest money market fund, "broke the buck" when its shares fell to 97 cents after writing off debt issued by Lehman Brothers.  This "break the buck" is critical to understand...

There are long-term, loans, short-term loans and then commerical paper.  What is commercial paper, essentially an extremely short-term loan used to cover things like furl and payroll.  The example here is Goodyear Tire & Rubber in Dayton, Ohio.  The company doesn't keep enough cash reserves on hand to cover payroll every week.  Many companies don't.  That's a lot of cash to keep lying around.  On Thursday they would contact their commercial paper broker and ask for payroll and how many 'points' it costs.  Say their payroll is $20 million weekly; the transaction is done verbally over the phone, the money is deposited into the account to cover payroll on Friday and on Monday, the company pays it back plus a point fee of maybe 0.5%.

Where does this cash come from?  MONEY MARKET FUNDS!  Typically, money market accounts are "safe haven" places for wealthy investors to keep some cash.  They return maybe 1-5% interest and they're safe and protected.

But when a money market "breaks the buck" - goes below $1 per share - you're actually PAYING THE MONEY MARKET TO KEEP YOUR MONEY THERE!  When Reserve Primary went to $0.97 per share, if you have $10 million invested, you're actually PAYING THEM $300 thousand to keep your money there!  At that point, the money market can't loan out any cash on the commercial paper market.  If companies can't use commercial paper to cover things like payroll, the threat of paychecks bouncing would cause MASSIVE NATIONWIDE PANIC!!!

Other money markets went into crisis on Wednesday and Thursday and shut down access to liquid capital.  The commercial paper industry ground to a hault on Thursday the 18th.  On Friday, September 19, 2008 (one of the most important days of the economic crisis) Fed Chairman, Ben Bernanke went to President Bush in the wee early hours of the morning, explained the situation and said they needed to dump billions of government cash intot he money market industry to stabilize commercial paper.  The request and order for $50 billion, they say, was a single page, about 6 sentences long.  The number $50 billion was, "just a large number picked out of the air to instill confidence in the market to make sure that payrolls would be covered that day."

If there was a day that the world came close to "the end" due to the economic collapse - it was 9/18/2008.  Not many people know this.  There have been some moments during the economic downtown that social unrest and breakdown were serious concerns.

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IMHO, the answer is a combination of both liberal and conservative philosophies.  The economy is a self-sustaining pendulum.  It naturally swings back and forth.  The market self-runs and the government should inject artificial ideolistic measures to change it.  But that pendulum should have a maximum swing in either direction.  A set of stops to prevent wild swings one way or the other.  Those stops should be government regulation and inspection.  "Bubbles" are swings too far in one direction due to a lack of oversight and/or people taking advantage of a situation or legal loophole.  That's where the government should be - to prevent artifical bubbles.  Sub-prime mortgages, over-leveraged financial institutions, CDOs, single entities too large to fail...  All of which are the pendulum swining too far.  That's where government regulators should be.  Not to guide the swings, just to be on the ends to prevent the swings from getting too large.

IMHO.