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US still Doomed

 
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melonrightcoast



Joined: 22 Feb 2009
Posts: 236
Location: metrowest

PostPosted: Wed Jan 13, 2010 4:11 pm GMT    Post subject: US still Doomed Reply with quote

Segment on Tech Ticker. I really hope what Marc Faber says does not come to fruition, but i think it is definitely possible:


http://finance.yahoo.com/tech-ticker/fed's-record-profit-does-not-change-anything.-us-still-%22doomed%22-says-marc-faber-402728.html;_ylt=AvKzB34rIMAbINPKOecdJfdk7ot4;_ylu=X3oDMTE3ZjFsc2N1BHBvcwM1NARzZWMDYXJ0aWNsZUxpc3QEc2xrA2ZlZHNyZWNvcmRwcg--?tickers=spy,dia,qqqq,tlt,tbt,udn,uup
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admin
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Joined: 14 Jul 2005
Posts: 1821
Location: Greater Boston

PostPosted: Wed Jan 13, 2010 4:13 pm GMT    Post subject: Reply with quote

Here's an abbreviated version of the URL that should work with the forum's like parsing: http://tinyurl.com/y9hqer8

- admin
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Renting in Mass



Joined: 26 Jun 2008
Posts: 381
Location: In a house I bought in December 2011

PostPosted: Wed Jan 13, 2010 5:23 pm GMT    Post subject: Reply with quote

Quote:
The only way out is for the government to print more dollars. Of course, that leads to inflation and a weak dollar.


Hard to argue with that...
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melonrightcoast



Joined: 22 Feb 2009
Posts: 236
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PostPosted: Wed Jan 13, 2010 6:44 pm GMT    Post subject: Reply with quote

thanks admin Smile.
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john p



Joined: 10 Mar 2006
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PostPosted: Wed Jan 13, 2010 6:49 pm GMT    Post subject: Reply with quote

The Doomed:

http://www.youtube.com/watch?v=8ZWV2pHCL0A

Seriously, when considering how much increasing the money supply can bring about inflation there are a few factors to consider. Sometimes printing money is used to stop a deflationary downward spiral and it is just a supportive reaction force to sustain the value of the dollar. As long as the other players in the global marketplace are experiencing similar forces it might not drive up hyperinflation.

Imagine it like this, citizens across the world have so much debt that they are bonded so far up they can't breathe. Currency manipulation by a government can devalue people's debt levels so they can breathe and spend again. The fault lines aren't national borders or currencies, it is between borrowers and lenders. It is basically that the ownership rich have drained the general population and that emerging markets have undercut and priced out workers in the rich nations. Think of it as the general population all filing bankrupcy and settling their debt with the lenders. The lenders don't want an economic collapse and the debtors need breathing room because the market is frozen unless people can spend.

http://www.economicshelp.org/2008/12/money-supply-and-inflation-in-us.html

http://www.economicshelp.org/2008/10/what-is-more-likely-inflation-or.html

http://www.economicshelp.org/2008/09/us-dollar-collapse.html
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Wed Jan 13, 2010 9:06 pm GMT    Post subject: Reply with quote

You need to be careful because inflation drives up the cost of borrowing. When that happens, the Fed has to step in as "the lender of last resort" to keep lending at low rates, completely starving out private loans. That can occur two ways: taxes (forced investment) and new currency. Taxes add friction to the economy, slowing growth, and new currency devalues the currency and, if it gets bad enough, citizens, which we know from a recent Economist article America depends on to be competitive. There's no free lunch here. So far we've been getting away with borrowing from other countries in lieu of taxes. Eventually we'll have to pay back those loans and I don't think at that time those countries will want to continue loaning to us. I'm sure most of the world is looking for ways to decentralize from America right now. Even the Pentagon admitted that China is only 10 years away from becoming the largest economy in the world, at which point the world will no longer have a need for us. We need to rid ourselves of that debt by that point while we still have leverage but looks like the plan is to have trillion dollar deficits for the foreseeable 5+ year future.

I agree with John that there's a significant imbalance between not just emerging markets but also what he calls ownership rich. There's been a mass migration of wealth from poor and middle class to upper classes and I suppose inflation rectifies that situation. Unfortunately, it will also hit bystanders in the middle class (like me) who've amassed ownership not by favorable wealth transfer policies but rather by working hard and cutting consumption. I certainly won't stop working hard but as time goes by looks like the debt problem is being solved by transferring wealth from mostly the remaining middle class to the lower class rather than the upper class.

I just don't get how bankers feel that as a whole they're actually providing value to society that justifies their increased compensation (and higher percentage of GDP). And it's too bad that the rest of the country doesn't even try to compete with them. Their strongest tool is simply outrage over pay, rather than fighting anti-trust in the courts, demanding more efficient business models, etc. that would bring bankers in line.
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john p



Joined: 10 Mar 2006
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PostPosted: Wed Jan 13, 2010 9:28 pm GMT    Post subject: Reply with quote

That was a great perspective.

Another way to think about inflation is:

Imagine a person who makes $50k a year and for a few years live beyond their means to the level of someone earning $80k and they amass a big debt of say $30k.

What our government is doing is trying to infuse $30k into the system to get that person back to neutral (giving us a mulligan).

NOW, moving FORWARD, the guy still makes $50k. Now, ask yourself, if you bailed out someone who lived beyond their means does that mean that moving forward everything is somehow going to magically cost more? At a certain point, the lenders and the government care that if they don't give the $30k today that the guy won't even be able to make $50k in the future in which case they'll get less in the long run.

Inflation is about the future value of money. If things are deflating, capital will remain cheap. If they add just enough money into the system that it brings things back to balance, rates will stay the same.

The most critical point as to whether we get inflation or not is IF I GIVE THAT GUY $30K IS HE SOMEHOW GOING TO MAKE MORE MONEY IN THE FUTURE WHICH WILL PUT UPWARD PRESSURE ON PRICES... IF WE GET DEFLATION WE CAN PUMP MONEY IN AND IN AND IN AND IT MIGHT NOT CREATE INFLATION; IF THIS IS THE CASE WE'RE TOTALLY FUCKED.

Baylor, you're totally right, the steeper and steeper our debt becomes the higher the taxes become. Lots of people used to say, China gives us stuff and we give them paper. Notice when our dollar got cheaper, their stuff also got cheaper...

When China does become the biggest economy, hopefully we'll export to them. This decade is about bringing currencies in balance, aligning regulations so one Nation doesn't have an arbitrage advantage and essentially we march to the basic rules of business models, labor and environmental laws.

This is why I was so disappointed with Copenhagen (environmental summit) and the G-20 (economic summit). If we got heads of agreement on some basics we could have taken the regulatory arbitrage off the table and we could get a better look at rebalancing currencies and it would have reduced a lot of risk in the markets. I would have rather had a technocrat than an orator and saw some basic agreements banged out. I mean McCain did have experience sitting down with an opposition candidate and the McCain/Kennedy Immigration Bill was very practical and it was done by rivals....
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Boston ITer



Joined: 11 Jan 2010
Posts: 269

PostPosted: Wed Jan 13, 2010 9:37 pm GMT    Post subject: Reply with quote

As long as the US doesn't end up like the scenario below, I think we'll trudge through somehow.

http://www.youtube.com/watch?v=_TL4XZdyo3g
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john p



Joined: 10 Mar 2006
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PostPosted: Wed Jan 13, 2010 9:55 pm GMT    Post subject: Reply with quote

Oh, one last point, not only am I upset that we didn't get international agreement on economic or environmental terms (responsible leadership); we didn't do anything to hold individuals accountable, we still have to deal with "Moral Hazards" (responsible followership). This is why I rant so much about our individual "constitution" and how in a Government of the People requires individuals to be responsible.

Number one, I don't trust power and government and I like to see power held by the many. So perhaps in my core I'm a Democrat because Democrats want to keep the power in the people. In order to take load people can't be expecting entitlements, they need to earn their keep. I support the bailout insofar as it provides people a chance to go out and work hard for a future. I see lazy people who want handouts as a threat to dissolve the integrity in the Government of the People.

Lastly, if individuals are smarter and stronger we won't have to worry about the Banks porking us because we won't be easy prey. I think you build a society from the foundation up; I don't believe in superheros.
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john p



Joined: 10 Mar 2006
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PostPosted: Wed Jan 13, 2010 10:05 pm GMT    Post subject: Reply with quote

For posterity on this website.

In 2007 the wife and I bought a 42" plasma 1080P on Black Monday for $1200 or so. Today, that's about what $500.

Car prices seem to be cheaper so "stuff" is less expensive than during the bubble. Even if salaries stagnate, if stuff gets cheaper it will help. Things like MBTA passes, taxes and fees will go up which is essentially the Public Sector taking a bigger bite out of us. The MBTA is hiking rates because they have a huge debt to service. Our big concern in Massachusetts is that we're the biggest debtor State and we overpaid for projects and made Unions fat and happy so much that we couldn't sustain it and we're paying today for the bacon we gave them in the past decades, and instead of them getting their fair share, they're trying to get MORE from the taxpayer. The Unions have a stranglehold on the Democrats so there isn't a nice scenario where the Unions never get held in check and drive us into bankrupcy. This is why New Jersey, a very, very blue UNION State voted a Democrat out. That was unheard of, but the reality got so bad nobody could deny that the Unions, and runaway government spending killed them. I do not want to have to experience that first hand to learn that lesson, but politically people have to suffer before they change....
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balor123



Joined: 08 Mar 2008
Posts: 1204

PostPosted: Wed Jan 13, 2010 10:19 pm GMT    Post subject: Reply with quote

john p wrote:
Baylor, you're totally right, the steeper and steeper our debt becomes the higher the taxes become. Lots of people used to say, China gives us stuff and we give them paper. Notice when our dollar got cheaper, their stuff also got cheaper...


They aren't done pillaging our economy yet.

john p wrote:
When China does become the biggest economy, hopefully we'll export to them.


Don't worry we'll be exporting plenty. We just won't be getting anything in exchange and there'll be less stuff around here to go around. Actually that's not true. We will be getting goods in exchange we just won't be getting them then. We've been getting them for the past 20 years. That's how debt works - time shifting of goods. Of course, inflation has an effect on the amount of goods that are exchanged but there's only so much fudge that nations will tolerance when it comes to debt. We can't turn $1 trillion in today's money into $1 million. I don't know if that implies war but traditional wars aren't necessary to make life really unpleasant for us, especially once China becomes the dominant economic power. It's also not clear that Americans or the world will tolerate a war that involves forcing another country just to give us money.

john p wrote:

This decade is about bringing currencies in balance, aligning regulations so one Nation doesn't have an arbitrage advantage and essentially we march to the basic rules of business models, labor and environmental laws.


China has certainly manipulated its currency to steal business from us but we were long doomed to lose this war anyway. They've just accelerated it from 100 years to 50. Other places like Brazil are doing a fine job destroying our economy without cheating. Our discompetitiveness is really to blame here and debt is the enabler.
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