In September 1998, the collapse of Long Term Capital Management, a giant hedge fund, led to a meltdown in the financial markets similar, in some ways, to what’s happening now. During the crisis in ‘98, I attended a closed-door briefing given by a senior Federal Reserve official, who laid out the grim state of the markets. “What can we do about it?” asked one participant. “Pray,” replied the Fed official.
Our prayers were answered. The Fed coordinated a rescue for L.T.C.M., while Robert Rubin, the Treasury secretary at the time, and Alan Greenspan, who was the Fed chairman, assured investors that everything would be all right. And the panic subsided.
Yesterday, President Bush, showing off his M.B.A. vocabulary, similarly tried to reassure the markets. But Mr. Bush is, let’s say, a bit lacking in credibility. On the other hand, it’s not clear that anyone could do the trick: right now we’re suffering from a serious shortage of saviors. And that’s too bad, because we might need one.
What’s been happening in financial markets over the past few days is something that truly scares monetary economists: liquidity has dried up. That is, markets in stuff that is normally traded all the time - in particular, financial instruments backed by home mortgages - have shut down because there are no buyers.
This could turn out to be nothing more than a brief scare. At worst, however, it could cause a chain reaction of debt defaults.
The origins of the current crunch lie in the financial follies of the last few years, which in retrospect were as irrational as the dot-com mania. The housing bubble was only part of it; across the board, people began acting as if risk had disappeared.
Everyone knows now about the explosion in subprime loans, which allowed people without the usual financial qualifications to buy houses, and the eagerness with which investors bought securities backed by these loans. But investors also snapped up high-yield corporate debt, a k a junk bonds, driving the spread between junk bond yields and U.S. Treasuries down to record lows.
Then reality hit - not all at once, but in a series of blows. First, the housing bubble popped. Then subprime melted down. Then there was a surge in investor nervousness about junk bonds: two months ago the yield on corporate bonds rated B was only 2.45 percent higher than that on government bonds; now the spread is well over 4 percent.
Investors were rattled recently when the subprime meltdown caused the collapse of two hedge funds operated by Bear Stearns, the investment bank. Since then, markets have been manic-depressive, with triple-digit gains or losses in the Dow Jones industrial average - the rule rather than the exception for the past two weeks.
But yesterday’s announcement by BNP Paribas, a large French bank, that it was suspending the operations of three of its own funds was, if anything, the most ominous news yet. The suspension was necessary, the bank said, because of “the complete evaporation of liquidity in certain market segments” - that is, there are no buyers.
When liquidity dries up, as I said, it can produce a chain reaction of defaults. Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C - and those who do have cash sit on it, because they don’t trust anyone else to repay a loan, which makes things even worse.
And here’s the truly scary thing about liquidity crises: it’s very hard for policy makers to do anything about them.
The Fed normally responds to economic problems by cutting interest rates - and as of yesterday morning the futures markets put the probability of a rate cut by the Fed before the end of next month at almost 100 percent. It can also lend money to banks that are short of cash: yesterday the European Central Bank, the Fed’s trans-Atlantic counterpart, lent banks $130 billion, saying that it would provide unlimited cash if necessary, and the Fed pumped in $24 billion.
But when liquidity dries up, the normal tools of policy lose much of their effectiveness. Reducing the cost of money doesn’t do much for borrowers if nobody is willing to make loans. Ensuring that banks have plenty of cash doesn’t do much if the cash stays in the banks’ vaults.
There are other, more exotic things the Fed and, more important, the executive branch of the U.S. government could do to contain the crisis if the standard policies don’t work. But for a variety of reasons, not least the current administration’s record of incompetence, we’d really rather not go there.
Let’s hope, then, that this crisis blows over as quickly as that of 1998. But I wouldn’t count on it.
Paul Krugman is Professor of Economics at Princeton University and a regular New York Times columnist. His most recent book is The Great Unraveling: Losing Our Way in the New Century.
© 2007 The New York Times
The title of the article is___ ‘”VERY” Scary Things’, withh the emphasis on the word VERY.
Indeed, and the final sentence in the article is perhaps the most appropriate.
‘Let us “HOPE”, then, that this crisis blows over as quickly as that of 1988,___ but I wouldn’t count on it.’
Those two words, (VERY and HOPE), each stand out like red flags in a bull ring. When one considers the author of this article is a professor of economics at Princeton University, I do believe we may have reached the breaking point with the financial mess Bush has merrily driven us into and are now on the brink of tumbling into a depression.
Not my opinion, I’m an idiot on the subject of, The Theory Of Economics. I have to trust the good judgment of the professors and Wall Street analysists who argue the issues. I’m going with Mr, Krugman this time.___ Pleh, pleh!! Sorry,___ I write and speak backwards when I’m VERY scared.
Man. It’s scary. Should I sell all my stocks now and just put them in an ING account?
Cash them in and buy a ton of beans and rice and some corn meal. Find a warm cave in the mountains and wait for the smoke to clear. Take some aspirin and some plastic sheeting to condense water too. You might survive.
Former Fed chairman William McChesney Martin once described cutting interest rates as “like pushing on a string.” In other words, rate cuts are ineffective when there are no buyers.
The answer to this problem is simple, as it always is, in the land of the tooth fairy: Buy duct tape & plastic sheeting.
There, it’s fixed!
hubcab_halo;
I sold everything and opened an ING account almost two years ago. Yeah, I missed the last 1500 pt. ride in the market, but you never know when the bottom is going to fall out. I also feel better knowing my money is not helping Wal-Mart, GE, General Dynamics, etc. Now, just find an environmentally aware community that might be able to survive the coming collapse of everything we have known. Start at the Fellowship of Intentional Communities “www.ic.org”. Good luck to all of us who know what is coming. We probably won’t be able to convince our co-workers, friends and loved ones the truth of what is happening, let alone get them to join us, but we can be the ones to survive.
I must have missed something here. A bunch of capitalists are about to lose a pile of money because they bet wrong on the markets and the government is unable to bail them out. I thought that was how the system was supposed to work.
‘Former Fed chairman William McChesney Martin once described cutting interest rates as “like pushing on a string.” In other words, rate cuts are ineffective when there are no buyers.’
I think the “you can’t push on a string” metaphor was from John Maynard Keynes.
To really understand our monetary situation you must see “The Money Masters” http://www.themoneymasters.com/
This non-fiction documentary explains where our money came from and the many wars that were fought by the international banking community in their attempt to control the world today.
The numerous quotes from many of our past presidents are enough to make anyone take note that we were duly warned about what is surely to come in the near future: another depression; the likes of which we could never imagine. Plain and simple, this documentary explains how the banking community controls ALL the world’s governments. Remember Roosevelt said: “In politics, nothing happens by accident. If it happens, you can bet it was planned that way.” I don’t know how to protect my money, but I’ll listen to any advice after you’ve watched this movie. Right now, stocking up on canned food and lots of water is a good idea. Oh, and finding a cave might be very good advice indeed.
An economic “adjustment” may be just what is needed to wake up the sleeping masses. The news media hasn’t informed Joe six-pack of the dollar’s devaluation around the world vis a vis the Euro, Yen and Pound. The media hasn’t reported on our utter reliance on China to buy our securities - i.e. finance our government. We’ve been in this pot of boiling water for so long we don’t realize how hot it truly is.
The worse, the better. C’mon Dow! (or will it soon the Rupert?) Down, down down!
Yes, Ill. Ind., we are frogs sitting in gradually heating water, and will certainly cook. The only people who stand to gain at the moment are the Zionists who have quietly garnered at least 40% of the gold reserves in the world. Laila Selk’s quote of Roosevelt is sooo appropriate,
“…nothing happens by accident. If it happens, you can bet it was planned that way”.
The only thing I see preventing a nuclear detonation in NYC, or the Chinese calling in all the loans they have made us because of this stupid war, is they realize the collapse of world financial markets caused by either of those two events would initiate a worldwide depression that would affect (read seriously hurt here) EVERYONE, (except perhaps Kem & Laila hiding in their cave defending their bags of beans & rice).
Paul, I don’t entirely agree that this will hurt EVERYONE. Globalists with high euro liquidity are just itching to come in and walk away with everything in the USA for ten cents on the dollar, just as the vultures did in the USSR. Just watch, that’s why they have engineered this cheneybushslut economic collapse…
“The Fed coordinated a rescue for L.T.C.M”
Wonder how much that one cost us?
P.S……and, they have engineered this state of affairs with the full cooperation of cheneybushsluts. Talk about treason, wow.
All financial booms and busts are engineered by the Wall St money power, for their benefit. Markets are pumped up by the analysts, and the public is induced to buy stocks. After the insiders have sold out, the market is pumped up even more, then crashed intentionally. Joe Six Pack loses his shirt, and the insider vultures come back in and buy assets at pennies on the dollar. That’s how it works. The rich never lose. The keep getting richer off the backs of the rest of us.
Whe the US Government defaults to China, and China breaks up the country to sell it off in parts to recoup, I’m planning on buying Texas cheap, and reselling it back to the Mexicans for a tidy profit.
Its one way to get rid of Bush.
We have the great decider pontificating about how good the economy is, but this has been a credit card economy. The Munitions companies are doing phenomenally well with all the no-bid contracts they are being awarded, BUT it is all being paid for with China’s credit card.
What happens when we get the bill at the end of the month and realize we do not have the money to pay for this robust economy? The market crashes.
Give your child a credit card and tell them they can buy whatever they want. Your child will tell you that things are great and they are doing very well thank you.
They have a new large flat screen TV in the media room a brand new BMW convertible and the vacation to Monaco was spectacular. According to them the economy is doing fine. The stock market just got the bill for the wild spending your kids were doing with the credit card and now everyone finally realizes there is no money in the bank to pay it. This is the fantastic economy W has given us.
Now that you’ve read Krugman, read about how China has leverage over the US dollar: http://counterpunch.org/roberts08102007.html
If the US continues to antagonize China we could find our economy rapidly swirling the toilet bowl.
nickhart:
EXCEPT if cheneybushsluts attack China. Or maybe if they establish the new Amero in place of the US dollar: all debts wiped away with the stroke of a pen.
Not to worry.. the Amero is coming to save us all. Dollars are so 2007.
“Cash them in and buy a ton of beans and rice and some corn meal. Find a warm cave in the mountains and wait for the smoke to clear. Take some aspirin and some plastic sheeting to condense water too. You might survive.”
I’m getting cigarettes, chocolate, and coffee… none of which I use, but I know that those addictive items are gonna be selling really high when the crash comes.
“Reducing the cost of money doesn’t do much for borrowers if nobody is willing to make loans…”
This is what some economists refer to as “pushing a rope”. You can pull one, but pushing one is futile. If things are not demand driven based on sound expectations of the future, you are only hoping.
Very ominous indeed. Did not really ever think I would seriously have NEED of a firearm. I agree with whoever posted earlier that the best course might be to organize within your community for these possibilities. Plan shared gardens, division of labor, etc. Of course I am fortunate as my family lives in a semi-rural area. What the people in the large cities are going to do once the food trucks stop coming I cannot even imagine. Thanks to whoever provided the information on the Intentional Communities website. Good luck everybody.
One more thing, if you can afford it, make sure to have one or two bicycles, preferably with off-road tires and one of those thingies that hitches to the back for moving cargo. Make sure to buy a supply of inner tubes and a pump for the inevitable flats…
What is so disheartning is most Americans who have faith in the corporate media and the stock market will be wiped out.
Those investments, retirement accounts, stocks, or mutual funds will evaporate. American Mortgage lost 90% if their value in a day!! New Century Mortgage; Belly up. This should serve as warning signs.
Money is flowing out of the stock market and into gold or foreign markets. Unfortunately, most of investors flying out of the stock market are the very, very rich. Have you noticed the price of gold lately??? But don’t worry when things get so bad and there is blood in the streets, they will come back and buy our assets for a fraction.
In Dec of last year, I sold my mutual funds. I suggest that people do the same. Even having your savings in cash accounts is very scary because of the the shaky dollar.
The end result will be, as usual, the rich end up losing money they couldn’t have spent in 50 lifetimes anyway, and the rest of us will be screwed even worse, if that’s actually possible.
It’s all a ploy designed to smash “the little guy” and leave him no choice but to take the $40,000 US Army sign-up bonus.
Twister22 said
“I am getting chocolate, cigarettes, and coffee…”
I am buying beer. Thus when the ignorant people go broke, they will want to get drunk while they watch their houses, SUVs, boats, etc. get repossessed by the banks. I can barter with these people (for whatever they have left) for beer.
“Of course I am fortunate as my family lives in a semi-rural area. What the people in the large cities are going to do once the food trucks stop coming I cannot even imagine.”
As someone who has lived in both “semi-rural” (i.e suburban?) areas and the city, I found the city neighborhoods to be more close-knit than suburbs or exurbs where everyone pretty much ignores each other. City neighborhoods will pull together, simply becaue many are already having to pull together under the economic neglect they already often suffer. In contract, the suburbanites are more likely to have an “every man for himself” attitude and get out their guns.
Maybe these observations are peculiar to Pittsburgh, but I don’t think so. There are plenty of places to plant gardens in the city too by the way - although the idea of even food distribution breaking down seem too far fetched to be credible.
As far as “division of labor”, maybe such a crisis would be a good time to instead try the “balanced job complex” concept of a ParEcon - where everyone shares both the drudgeery and empowering work together.
Hey Claudius.. maybe you and I can set up a general store together..lol
Guess I should invest in some alcohol too. Vodka.. don’t think that ever goes stale does it?
Twister22,
Sounds good to me. Vodka works. It’s kind of like Twinkies where it can sit on shelves for a long period of time without an expiration date…lol
When you two figure all this out, let us know, we can franchise
I’ve been waiting for years to find out what will happen when the Boomers are faced with the horrors of actually preparing the soil, carying the water, and pulling the weeds that must be pulled, hauled and hoed before the stuff is ready to eat.
Then there is the horror of pulling the husk back on the corn to discover a healthy crop of borers eating YOUR dinner!
Oh YUCK! How can anyone eat this stuff?
And the little slugs that lurk at the base of the lettuce if it’s not carefully cleaned by all those dirty Mexicans that break into Fortress America in hopes of earing a living.
Those weird looking slugs can carry a virus in their slime that sickens mammals, including humans, btw.
Worse yet, those of you who still eat balanced diets are faced with the simple puzzle of cutting up a chicken. If you don’t know the secrets your Mom didn’t want to learn from Granny, you’ll wind up with a plate of unidentified chicken parts like they serve at the Colonel’s and McDonald’s.
Life is hell, but making friends with the neighbors might not be a bad idea. They might help pull the weeds in return for some of the crop - And, who knows? Maybe he’s a hobby fisherman…
xntrk,
You mean we will have to clean the fish too??
Paul Krugman was one of the earliest in the MSM to sound the alarm over the right-wing radical nature of the Bush regime, and he has never been a friend of the global anti-corporate movement named “globalism” by the PR firms hired to sanitize it.
“I’ve been waiting for years to find out what will happen when the Boomers are faced with the horrors of actually preparing the soil, carying the water, and pulling the weeds that must be pulled, hauled and hoed before the stuff is ready to eat.”
The end of the consumptive lifestyle isn’t equivalent to reduction to an agrarian one.
If there is anything good about this, it’s that it is happening under bush’s watch, not
3 months after a democratic president takes over in 2008. [Not that It’s much to look forward to]
People who wish great pain and suffering on the American people simply because they think it will improve the chances of their political ideas are just sick. They are just as sick as Bush and his friends causing pain and suffering by bombing other people just because they think it improves the chances of their political ideas. Anyone who thinks that way must be shunned, avoided and always kept from power.
BTW, everyone is not hurt in a downturn. People who were truly rich and wealthy before the Great Depression came through it just fine. Oh, they may have had some depressing meetings with their accountants where they received a report that they had lost some money. But you didn’t see the Vanderbilts suddenly hopping freight trains looking for jobs picking fruit in orchards.
The people who are hurt are the lower and middle classes. The middle classes create the scare stories of people jumping from windows when the stock market goes down. But that’s only because they deluded themselves that they were well off when in reality they weren’t anywhere near the same league as the Vanderbilts and the Rockefellers. When the markets crashed, the middle classes were the once that realized their supposed wealth had only been illusionary and on paper.
When the Dow Jones average was 1000, two-digit fluctuations were not all that unusual. Now that’s it’s above 10,000, three-digit losses wouldn’t seem like something to get upset about.
The price of gold has little to do with the stock market. Gold is essentially a commodity with a value that changes very little over time. What does change however is the value of the US dollar. What you’ve seen if you’ve been paying any attention is that the value of the US dollar has been steadily falling for the last two years. Thus the price of gold has been steadily rising for the last two years. It just takes more dollars to buy the same amount of gold because the dollar is worth less than it used to be.
COMarc,
You raise some good points. Of course it would be sick to profit off people while they suffer, especially the middle and lower classes (it is just our bad sense of humor in coping with the coming economic disaster). Historically, eleven of the wealthiest men in the United States committed suicide before the stock market crashed in 1929, followed by the Depression. True, the wealthy do survive. That is why in another thread on a different article I remarked how interesting it would be to see Blackwater mercenaries protecting high-rise condominium towers and gated upscale communities.
What is not mentioned by Krugman or posters is the cause of this “credit squeeze.” Hedge funds colluded with top wall street banks to short the abx index (a dirivatives index providing the mark-to-market valuation for MBS backed bonds–the lifeblood of all mortgage lenders) and withdrawl credit from “sub-prime” mortgage companies with tyhe intent to cause the latters’ failure and subsequent take-over by said hedge funds and banks at pennies on the dollar. What was not anticipated was the escalation of the “credit squeeze” up the food chain of mortgage providers. The posts by the owner of sanitycheck.com and research done by folks at NCANS.org and other sites provide much greater insight into the huge problems existing in US and global financial markets.
The greedy in a gamed system became overly greedy. Allowing the gamed system to continue is a bipartisan goal, similar in scope to the goal of ensuring continued expansion of the US Empire. That both goals are on the verge of collapse at the same time is No coincidence, IMO.
Hey Canuck, holy smoke! When the depression hits, don’t go near your border, much less Texas. Don’t worry about the Mexicans havng to buy it back, they will be pouring across the border to take it back.
Anyone who believes this is funny has a great sense of humor and would make jokes about drowning their married mate in a bathtub.
Which reminds me.
Let’s see…its illegal to “kite” credit cards, you can’t “kite” checks anymore…it pretty damn hard to take out a loan to pay off another loan and that’s the way it is for all of us average people and small business oerators…however that is exactely how the hedge fund operators make millions and millions a year and now they are getting help from the feds…wtf?
The housing bubble was so obvious…in my nieghborhood in suburban LA…houses that sold new for 300k 10 years ago routinely sell today for well over a million…also check out the 60’s cheeseboxes that sold for 20k now selling for over a million in towns all over SoCal…imagine a postage stamp lot, one bathroom and no garage for a cool million plus and you’re only a mile from the beach!
Jager
RE: financial news update
More action by Fed today, another large mortgage bank files for bankruptcy. Panicked markets. Watch out…
Some great humor up there, hope we can still laugh when it happens. Again, anyone who thinks a depression will be funny, has a hidden cave and a ten year stock of beer, chocolates, vodka, beans and rice and good company. A mate who has lost their sense of smell.
Sorry, it will not be funny, it will be like the gates of hell were opened.___ We’ll see.
Just remember while your broker tells you it will be alright. Not to panic they are most likely selling and when they are done getting out is when they will let you know it’s time to leave the market.
Get a garden and some canning jars and grow your own smoke to be able to sit back in that cave and listen to the end of the world by Elvis Costello…
So after all the billions of intervention today the slide moderated. The next question is: Will this bring people back into the market or will it convince even more to cash in before another big “correction”?
What would you do Poet?
The real estate crash, which has not — and may not — happened may actually be a mixed blessing. As others have noted in other discussions, these sorts of issues are always framed from the wealthy investor’s perspective. So would be all that terrible of a thing of the median home once again became almost affordable to the median wage earner?
The only way I can see it hurting the remnants of the middle-class is for those people who’ve bought a home in the past 8 years or so when the market was criminally inflated, and perhaps taken out home equity loans against fantasy/concocted values at that time. They’ll end up with not zero equity — but negative equity. They’d have been better off under slavery (no equity to lose).
So we’ve had run amok lending, sheer usury by the banks, and negligent regulators during two terms of Shrub.
What’s Hillary’s solution? Let’s look very, very, carefully in the next few months. Will it be a bailout such that industry’s criminal activity, and D.C.’s negligence is wholly justified, a great falsification of the “crime doesn’t pay” motto?
If so, it’ll be like a replay of the S&L debacle. Good crook/bad crook thing. One crooked administration lets the books get cooked, the other bails “us” (them) out.
Why don’t they instead round up the predatory lenders and put them in jail for things that should have been crimes at the time, but weren’t? Bush is into pre-emptive justice and pre-emptive wars.
Let’s just call this new concept “retroactive justice”.
As I understand it in lay terms, the folks that have got extra bucks have to put it somewhere. They don’t like to stuff it under their mattress because cash not invested can’t keep up with inflation. It loses value under the mattress. So, they have a choice. They can put it in money markets and bonds (asset backed investments) where they can earn interest, or they can put it in stocks. Now, the assumption is that in a Bull market, it’s better to put your money in stock. When the stock market looks like it isn’t going to do too well, they put it in the money markets. It’s the old supply and demand thing.
The problem we have today, as far as I can figure out, is there isn’t enough money in the money markets to lend to people that want to borrow it or cover the loans they already have. Further, they invested their dollars, euros, yen, or whatever in hedge funds and mortgage backed assets. Then those investments went belly up and they couldn’t get their money out. Hence, the banks around the world don’t have enough money to cover their loans, investments, etc. So, governments around the world are printing up money like mad and infusing it back into the money markets through the banks. Not to mention what is going on in the stock market because a bunch of stock was bought on credit and now they don’t have the bucks to pay the piper.
So far so good?
Well, what we have seen this week is really weird. It’s not your normal average meltdown of the stock market. The problem is in the money markets and what they call “liquidity”. That means that if you want to get out of stocks so you can get your money back, too bad, so sad. Nobody has the bucks to buy your stock. They don’t have any liquidity (bucks) either. So, just like your house that you’ve had on the market for 6 months with no takers, you have to lower the price. Shazam! Alakazam! The bottom falls out of the stock market.
Then you can throw in some other fun things, like hyperinflation where the bucks have to be hauled in wheelbarrows to buy a loaf of bread….. That’s what happened in Germany and why Hitler came into power.
This could get very ugly for a VERY long time. I don’t think I’d invest in gold right now if you don’t have a HUGE amount of money that you need to park somewhere for the duration. Stocking up on luxury items, cigarettes, liqour, and long term storage food stuffs is the way to go. A solar powered generator wouldn’t be a bad idea either. I like the idea of a horse to augment the bicycle. They can haul a lot more stuff and can plow the field as well.
And don’t forget to plant gardens with your neighbors. That’s REALLY important. You can live just so long on beans and rice.
So, are we set?
Oh, I almost forgot. Boycott on 9/11. No work. No buying. No driving. No nothing. Take the day off and work on that garden.
Peace
Kem Patrick taunts–
What would you do Poet?
*********************
There is no one “sure thing” for all people to do under this situation. Investments should be done according to ones income, age, and financial goals in the long term.
Too many of the people who are playing the stock market today are engagiing in nothing more or less than a variation on casino gambling.
Virtually 100% of the hedge funds that are leading the market melt-down right now are nothing more or less than legalized Ponzi schemes with august financial institutions being the “downline shills” instead of poor illiterate immigrant peasents.
This wouldn’t be so bad except these very same institutions have collateralized their “investments” with OPM–other people’s money–the little people who believed them when their pension and trust-fund managers said “have I got a deal for you”.
The twin ideas that “when you wish upon a star your dreams come true” and that you can get something for nothing have been, are presently, and always will be lies.
These opinions are not original with me, writer James Howard Kunstler has a very good website you or anyone else who wants to get a glimpse at financial reality would do well to check out.
I got all As, except a D- in the Theory of Economics and spelling. However, that said, this is what I do know.
Half of the people who have home mortagages in the United States are more than ( 90 ) days behnd in their mortgage payments. HALF? No, actually is is slightly more than half. Is that worrisme to anyone? Well Paul the housing crash may not be,___ but it will be.
In addition, the ones who have the adjustable rate mortgages are beginning to feel it, with their payments doubling and they can’t afford to make the payment they already have. Oh-Oh.
What’s that song Bush sings? Plastic Jesus, sitting on the dashboard of my car, I don’t care if it’s dark and scary, as long as I’ve got magnetic Mary, ridin on the dashboard of my carrrrrrrrr. He don’t care either.
Poet - You seem to be the expert here. Are we headed for inflation (like the 1929 crash) or deflation (like happened in Germany)?
PS To my above post. Don’t forget your pets. Expecially cats. They don’t do so well on a diet of rice and beans.
“When liquidity dries up, as I said, it can produce a chain reaction of defaults. Financial institution A can’t sell its mortgage-backed securities, so it can’t raise enough cash to make the payment it owes to institution B, which then doesn’t have the cash to pay institution C - and those who do have cash sit on it, because they don’t trust anyone else to repay a loan, which makes things even worse.”
Does anyone else see the fundamental flaws of an economic system based on debt and unlimited growth. The big crash is bound to happen eventually, maybe now is the time.
Of course the job market will crash, the middle class and upper middle class will not be able to afford to pay their $2k per month mortgages. No one will have money to buy food, but it won’t really matter since the massive cross country trucking industry that we depend on for food distribution will likewise crash.
Stocks and $$’s will be worthless. Homesteading skills will be priceless. Local gardeners and farmers will be called upon to produce food for local markets, but no one will be able to pay them. Starving people in cities will turn into marauding hordes, pillaging the rural country side trying desperately to find something to food, murdering skilled farmers who could help feed hundreds for a single meal. Lawlessness will rule the day and millions will be killed.
This could give w a great excuse to declare marshal law and suspend what’s left of the constitution.
Very Scary indeed!
I was not taunting you Poet, I wanted to know what you would do, what your opinion was?
YOU had asked a valid question and I didn’t know the answer, figured you might. Of course, I’d let it momentarily slip from ny mind, of what a nasty dispositioned person you are and should have thought better to ask you anything. You are a solipist, one who believes only they are worthy of any respect and one who knows it all and ayone else’s opinions are not worthy of respect. Of course I really could care less of what you think. I’m only replying to your rudness because it is approprpriate to let you know what I think and of course you could care less also. Therefore, from now on, let us attempt to ignore one another.
Marcoeconomically:
The USA has only one real export. National security. The del is, you sell goods to the US in exchange for greenbacks, then you use those greenbacks to buy oil. The US controls the oil because it exchanges control of the oil for the security of the Saud regime (and others).
But … but … the US is losing the war in Iraq. Nations that lose wars cannot sell their services as security providers. That’s why previous presidents were careful ony ever to go after two-bit countries like Grenada. With the loss of its military prestige, the US has no product left to sell. The behaviour of the markets is ephemera - the root of the problem (as usual) is the real economy.
Microeconomically:
Liquidity is drying up because a few people control most of the wealth, and those few people are getting nervous and unwilling to lend, aka: invest. An individual really does not need billions of dollars to live on, so all their expenditure is optional.
You need macroeconomic policies to move real added-value work back into the US, and microeconomic policies to redistribute wealth more broadly so as to make the economy less subject to a relative few people. Tthat means massive tarrifs on imports starting with both ends of the supply chain (raw materials and finished consumer goods) and working inwards; and big hikes in the minimum wage and re-unionization.
Paul,
Thanks for the economics explanation. Please correct me if I am wrong, but isn’t the current concern with China that it is threatening to dump our T-Bills if we put a high tariff on Chinese imports?
Pets? Sorry gals and guys, after about ten days with empty super markets, pets will be “good” pets. Yummy–yum. Hard to believe or accept? Try not eating for ten days. Many won’t, but don’t let em out of the house.
Plan a defensive system Rebel Farmer, join forces with your neighbors and be fully prepared. Really, have meetings and plan ahead. Be prepared for roaming, armed gangs. after sixty days or so, most of them will be dead.
Make pipe bombs, gasoline bombs, a good cannon can be fashoned with a five foot length of three inch steel pipe and a couple of welded on legs. Put a cap on the lower end, and drill a small hole there in the pipe. Tape the hole. When needed, you shoot in some acetylene at the open end, and then a good squirt of oxygen and quickly stuff a rag in with a ready ram rod. Pour in some broken glass, nails, pieces of metal and then pull the tape off and put a match to the drilled touch hole. KA-BOOM! It will fire off an orange or a potato, that will sail for almost a mile.
You are going to have to defend your farm. It’s serious. You could have a few dozen of those and keep marauders at bay. If you kill a few, get their weapons, ammo, gas and anything of value. Buy some night vision binocs and set up booby traps.
It is going to be guerilla warfare. Mad Max in real life, in live and living color. it isn’t going to be fun or funny. If a depression doesn’t hit, at least you will have some orange cannons for the next forth of July. Don’t put in too much of the ammo mix, try it out and practice. Nite.
Twister22 wrote: “Guess I should invest in some alcohol too.”
What happens when you’ve sold your alcohol?
I’m building a still. THAT’s an investment in capital — means of production.
But I do think people are over-reacting. This is merely the first of a long series of chaotic events. Yea, there’ll be a recession, which will cause the price of commodities to crash, which will cause a boom, which will sow the seeds of the next, deeper recession, etc. etc. etc. There will be several opportunities to take advantage of this chaos before the big one — energy starvation — hits.
I took the “logistics equation” that is used for (among other things) modeling predator-prey relationships. The famous example is the snowshoe hare and the lynx. Populations go into chaotic gyrations periodically, as the lynx starves due to lack of hares, which results in hares multiplying like crazy, which is followed by a surge in lynx.
Instead of hare-lynx data, I entered petroleum as the prey and humans as the predator. Guess what? The system went into overshoot, then a period of chaotic instability, then BOTH predator and prey went extinct!
Peak Oil happened in late 2005, by all accounts. We’re in a plateau at the moment, just entering the period of chaotic instability. Fasten your seat belts, folks, the roller-coaster ride is just beginning.
Dichterfreund wrote: “The end of the consumptive lifestyle isn’t equivalent to reduction to an agrarian one.”
It must be, as the energy decline progresses. Two hundred years ago, it took fifteen farming families to support one in the city. Today, one farmer can support thousands. Is this due to technology, which we will have forever? No, it, and technology, is due to cheap energy, which is coming to an end.
It may well take two hundred years before most people are back on the soil. But I sincerely believe that two types of people are going to do well in the near future: those rich enough to grab all the resources and land that is burdened with debt, and those with debt-free land and skills to grow their own food and energy.
Today, I cut, split, and stacked two cords of wood that I gleaned from construction sites.
Jan Steinman wrote: “Two hundred years ago, it took fifteen farming families to support one in the city”.
Let’s see, that would have been in the year 1807. By your figures, for a city having a population of ten thousand families, such as Philadelphia, there would have been 150,000 farmer families required to feed them. I do believe you had a serious mis-print there. There were farmers at that time who each brought wagon loads of food to the farmer markets in the cities. On average, the farms then were 120 acres and they had large crops, far enough to feed hundreds of families. On a 250 square foot garden, I can grow enough crops in a year to supply the basic food needs for fifteen families.
One farmer can support thousands? The big farmer in America today, generally does not grow the crops we buy at the super markets, with the excepton of a few in California and Florida who grow some of the salad types.
In a depression, the super markets will be empty in two days and they will not be re-stocked. The big farmer crops such as soybeans, alfalfa, corn, wheat, sugar beets, barley etc, will rot in the fields. Imports of food will cease. Sorry, a depression will cause riots and anarchy across the nation.
Hey Claudius and Twister….I can make both vodka and beer and have most of the equipment already….time to start forming and reforming those affinity groups!
Jan, seriously, if you have cut and stacked pine 2 by 4s and such from a constuction site, be very careful burning them in your fireplace. That type of junk wood can cause dangerous chimney fires. Pallets are fine, most of those are white oak. There is a lot of tar in pine, and anymore construction wood is pretty green and chip board is even worse.
Kem Patrick retorts:
I was not taunting you Poet, I wanted to know what you would do, what your opinion was?….Of course I really could care less of what you think. I’m only replying to your rudness because it is approprpriate to let you know what I think and of course you could care less also. Therefore, from now on, let us attempt to ignore one another.
###################
It’s okay Kem Patrick, this intense summer heat makes me irrational and quick-tempered at times too! Just remember that:
No man (or woman) is an island
No one stands alone
Each person’s joy is joy to me
Each person’s grief is my own.
We all need one another,
So I will defend
Each person as my sibling,
Each person as my friend.
Go get a big iced tea and chill–and I will too!
I rather doubt there will be a overall breakdown in our social fabric, armed pillagers, etc. We already have those — but they’re in positions of institutionalized power.
RebelFarmer:
Good reading, but there is a difference between money, wealth and power. Money and wealth are propped up by power (threat of violence, whether vigilantism or institutionalized). Money is a symbolic representation of power, and often a smokescreen (for instance, money laundering). It could be that someone’s actually got too much money, and need to concoct a reason to explain themselves. One wonders how many business on today’s American landscape are actually losing operations. I’ve noted the expense of running a Big Box, the sheer amount of energy/heating, employee salaries, etc. and many of these stores at least in my neck of the woods are often relatively empty. Honestly, how can they actually be making money? Evidently they’ve got a sweet tax deal, and never had to pay the poor tax to the bank (borrow money for the land, construction, etc. and pay back the interest).
At any rate, those with a legitimate excess of money can lean more toward wealth — which I feel is less symbollic — more of a physical thing. As others have indicated, it’s about owning means of production, tangible goods, etc. If I had a lot of extra cash I’d probably collect expensive and rare art pieces, rare celebrity memorabilia, etc. These aren’t subject to gaming in the stock market. And as inflation (and rarity) go up, your money will be in the form of tangible wealth.
Of course this all assumes liquid assets among potential buyers. If that’s not there, you’re hosed in the event you need to sell quickly. Still, you can look at all the nice art decorating your McMansion, which is a lot more interesting than staring at digits on a bank statement. Indeed — I’d not call that wealth at all.
KEM PATRICK wrote: “Jan, seriously, if you have cut and stacked pine 2 by 4s and such from a constuction site…”
Boy, you are great with those assumptions! I re-read my posting three times before I discovered the mention of “pine 2×4s” — you not only knew what size I had gleaned, you knew from what tree they came from! Incredible! I’ll bet there’s a good job in the Bush administration waiting for you, finding weapons of mass destruction and such.
These were trees felled for construction. And thank you for the pointers about pine and chipboard. I’ll file all that in my “innocent arrogance” folder.
Jan, I do believe I wrote IF. Did you miss that big word?
You see sir, I was not attempting to give you lessons, it was just the poor manner you wrote your message as it turns out, where you could perhaps entice some who took your advice, to go to a construction site and use the scrap lumber that is normally used for building the houses being thrown up all over the country. I hoped that some would understand it wasn’t a good idea to use that type of lumber for fire wood. including you, IF, IF, that was what you did use.
Sorry to have tweaked your nerves, if you had explained the type of wood you did use, it would not have necitated this mundane discussion. I won’t bother to file it away.
Finally, I do not believe I wrote it in a rude manner. You see, a fella who lives in the community a few miles from our ranch, had a massive chimmney fire one night from burning junk pine wood and it killed all four of his kids who were sleeping upstairs.
IF, IF, IF IF IF IF IF__ Get it?
KEM: I love most of your posts and consider you one of the most educated contributors at CD. But I have to agree with Poet today. I don’t know why you seem to be so pessimistic and arguementative lately. All of us here are really trying the best we can to understand and prepare for what is probably going to be a very diffecult and scary future. PLEASE tone down the rhetoric. If taking a big breath and having a glass of ice tea doesn’t do it, you can always go to the garage with some scotch for a while like Abbywood does. Maybe it will help if you let go of your black feelings against Billy as well. It’s not good for you.
Peace
Rebel Farmer; they don’t keep their extra money under the mattress because the feds don’t
need a warrant to search your house anymore.
Rebel Farmer. Thank you for the wake up call Rebel. I am a little touchy lately. I’ll graciously accept YOUR advice and cool it.
Billy? nah, we joke with each other, I like him. Guess I got a little heavy there one day. He really is full of it though. He’s a planted troll by the nuke guys, but he believes himself. Paul M. Smith usually sets him straight.
I get so damn frustrated that Conyers won’t set the impeachment process in high gear and very few seems to believe that DU is gonna kill all of mankind,__ forever! The looming depression and the threat of our country nuking Iran. Who isn’t a little touchy? But, I will take your advice,__ as long as others are fair to me. Thanks.
Paul Bramscher, I do belive there will be a complete breakdown of our social structure if we have a full blown depression. When the food supplies run out, world war three will be right here without the nukes. The food supplies WILL run out, power will be out in much of the county and the police and our military, national gaurds, will be out looking for food also.
Look at what is still occurring in New Orleans, the police are nearly helpless there and there is no depression. We’ll, we’ll see. Just hope and pray a depression doesn’t hit us. It is not a fall of the stock market that will bring it on, it’s lack of jobs, our debt ridden society and the falling value of the buck that will. A crash of the stock market won’t help any.
Let us remember who wrote this article too. The man has the necessary credentials to be very well informed and the article is titled Very Scary Things. Indeed.
It sure is hot, and Kem and Poet are both great guys… they’re my friends (virtually, at any rate). Here we get to practice citizenship and tolerance while volleying ideas seldom as energetically delivered in any other US forum today. It’s all in the practice, my friends…
Way up the thread, Vern wrote:
“’The Fed coordinated a rescue for L.T.C.M’
Wonder how much that one cost us?”
The Federal Reserve, despite its name, is not a government agency. So, it didn’t cost us anything … directly. The cost comes in the form of artificial inflation over time as the monetary supply expands to cover these kinds of catastrophes.
The Fed is a central bank under a more ambiguous (and hence, palatable) name. Past presidents said it would be the death of our liberty and it looks like they are finally being proved right.
http://www.themoneymasters.com/quotations.htm
KEM PATRICK wrote: “I do not believe I wrote it in a rude manner… it was just the poor manner you wrote your message…”
That’s a great example of what Diana Leafe Christian, author of the intentional community bible: “Creating a Life Together,” calls “innocent arrogance.”
It’s a form of passive aggression, when someone swears up and down that they’re behaving in a civilized manner, all the while shoving a knife in your back. Okay, sorry about the hyperbole — it’s when someone says they aren’t rude, just after making a rude remark. Most people aren’t even aware they’re doing it.
Too bad this forum doesn’t have an author kill list.
I can’t see where my original blog at 6:19 on Aug 11 was in ANY manner rude. I was mildly concerned that someone may believe that it was alright to use lumber from construction sites for firelace wood, as you had stated you had gotten wood from contuction sites. It waS that innocent and you were offended and came back with rudness, saying I would be a good person to work for Bush etc.
I then explained why I wrote what I did write to clear the air and now your feeble attempts to justify yourself and continue your rudness is ludicrous, childish and displayes that you are a solipist. I won’t reply to you further. If you feel so hurt, write to the webmaster and complain. They have a zap list.
Paul, did you notice the stock markets yesterday and the bankruptsy of another major lending firm? Oh-oh. You are right.
Kem,
I assume you are being tongue in cheek about all this?
Nearly all those stories of chaos and “breakdown of order” in new Orleans were largely racism-inspired myth. Few turned out to be true, the people in the superdome and civic center, largely just quietly sat, even as some were dying of dehydration, waiting for help to come.
In real cases of severe economic breakdown (like Argentina a few years ago), or even war or natural catastrophes the people pull together.
There is something very troubling about the USAn psyche that leads them to imagine that catastrophes, even economic depressions, leading to marauding armed gangs, every man for himself, etc. I think few other nations harbor these notions. Some of you may recall that Michael Moore, in Bowling for Columbine, suggested it was bred-in, archetypal, racism-inspired phenomena dating back to fears of black slave revolts or still-defiant native Americans.
I repeat, in all the historical examples of natural or man-made disasters and famines, people have pulled together and cooperated. There are a lot of nasty-violent aspects to USAns, but I don’t think they are so far gone that it would be different here.
PJD Believe me, I would like to agree with you but I cannot. No, I was not tongue in cheek and here is why I say that. Hope I’m wrong too. Keepin n mnd that this is my opinion and one should consider their sources. Most of my opinions however, are based upon facts and daily events that may be observed by any.
America is not what it used to be, not even close. If you haven’t heard what is still occurring in New Orleans, you haven’t been keeping up with the news and public statements made by their mayor. There are numerous murders a day there, similar to Chicago, Phila, LA, Detriot, Phoenix and Houston, etc. only worse in New Orleans. We usually only hear brief reports of the murders, not the incredible numbers of the other major crimes that are rampant in every meto area of the nation.
The main theme of my opinion is, within a few days, likely two or three at the most, there will be a total lack of food in the metro areas if a depression does hit. The assumption that people will kill for food is not unrealistic. Many will attempt to pull together, especially those in small rural ares and the Morman communities for instance.
When the cities are burning, the ‘millions’ of small gangs of marauders from the large metro areas will migrate to those smaller communities and farms,___ primarily seeking food and weapons. It will be hell on Earth and our military will not be able to stop it to any degree.
I imagine we will end up with a military takeover of our government, very possibly several different large military groups, who will end up fighting one another to gain power or territory. It will be a lot like some of what is now occuring in some of the African nations.
In addition, the ‘melting pot’ of America is now nothing more than a myth. We have the white racists, the black, the Asian and Latino racists, just as we see in our prisons. They will be gangs who stick together and will not co-mingle with any of another race.
In addition, in every large community, the Italians have their private clubs, as do the Polish, the Jews, the Germans, the Cubans, etc. We are not a united nation anymore, sad to realize, and when a depression hits, the people of each of the different races will band togeather, just for protection, anyone else will be an outsider. That of course will not be so in every single town, but in the sprawling metro areas, where the largest population centers are located, it will be just like that. (Very Scary Things). __ Sorry, PJD it won’t be nice. The United States will cease to exist.
Edit, edit, edit. Common. I did it wrong again. Dang.
It all goes to show, this war on “terror” is for all intents and purposes, totally bleepin STUPID. America does not need even one single enemy to be destroyed. WE are destroyiing it OURSELVES.
But then again most of us are seeing that it will be no great loss. The BS we swallowed about the good ‘ol USA, about honesty, fairness, the American dream; must have been smoke and mirrors.
Regarding snarky and snide comments:
This forum sucks. Granted, it is useful, but like most of these online “communities” Even well written comments get taken the wrong way. It is impossible to adequately convey tone and facial expression and body language, all of which we rely on for efficient communication. So lets stop jumping to conclusions. If someone wants to flame you, they are free do do so, no holds barred. If they aren’t outright flaming you then asume it’s a friendly conversation between friendly people. C’mon people! Don’t you ever razz or harangue you’re friends?
We are a small group of likeminded people, (except me. I’m obviously a troll) If we can’t get along, how can we expect nations to?
Jeez
yep! frog boiling! the federal reserve is a legalized ponzi scheme. a scam for the wealthy to fleece the poor under the guise of sound economics.
but, nothing but 21st century bloodletting at the core.
all the juicy details a free paper I wrote called “fractional reserve banking as economic
parasitism”
endorsed by two phd economists. printed in nexus
magazine, 60k world circulation. #1 top downloaded
economics paper. used by economics
teacher in australia as standard classroom material.
more info on request.
“fractional reserve banking as economic parasitism”
http://econpapers.repec.org/paper/wpawuwpma/0203005.htm
recent supporting material: “confessions of an economic hit man”
http://www.democracynow.org/article.pl?sid=04/11/09/1526251