Will anything really happen?
I’ve been reading and looking through these forums for a couple of weeks now .I’ve also just finished watching the crash course as well, though I must admit I will probably have to go over some things a few more times – there is a lot in there to try to remember (I confess I know very little about fianance, it really isn’t a subject I’m big on!).
But after watching the crash course, and knowing what is going on in the news and the banks and employment and soforth, it does make me wonder – will any coming problems or collapse be really bad? Or maybe it won’t even happen?
Only reason I say this is because I’ve read many posts here and watched the crash course, but yet I don’t see (btw I’m not an american; I’m from the uK) the (for example) huge unemployment levels that we had in the UK during the early 80s; if anyone here is older than me and recalls the 70s (I’d have been too young) the UK even got to a point where there were sometimes empty shelves on supermarkers and power (electricity) going off at 10PM! But it dosen’t seem to be happening, despite all the debt.
Also will there really be anything like a currency collapse? I’ve visited the USA a few times in the recent past; the last time I visited the pound was still quite strong against the dollar (though the pound has dropped dramatically now). But it dosen’t seem to be dropping any more, however. Prehaps there won’t be a dollar or pound collapse?
And what’s to stop goverment "ending" the debt problems by doing something such as ….. well, just writing off the debt (say) and starting the process all over again. After all surely goverment is goverment and they can do whatever they so wish?
I don’t know, I do understand about the colossal amounts of debt that we’ve accuired, and about peak oil and the retirement of the baby boomers, but my point is that out there, IRL, I’m just not seeing some of these things. Life just seems to go on ‘as normal’. So if this collapse/trouble/panic/whatever occurs, is it going to be a sudden thing? Will it happen?
How bad is it really going to get is a question that many of us on these forums think about all the time. There are several issues that are going to have a negative impact on the world economy in the coming decade such as peak oil, boomer retirement, financial distress, too much debt, etc.
There are many different scenarios that can unfold in the next several years. The best way to try to project the future is to look at which crisis is affecting us first.
Right now we are in the deleveraging phase. All the debt that has been accumulated cannot be repaid so defaults are occuring en masse. Much of the real estate was purchased with credit, and now that credit is no longer loosely available there are more sellers than buyers which is pushing the prices even lower. This will continue to take place until there are more buyers than sellers, and once this point is reached real estate prices will stabilize. I dont know when this will happen but in the US and UK, the more unemployment rises the more deleveraging that will take place. I dont know enough about the UK but i do know that the US has a horrible trade deficit, horrible government and state deficits, red red all over. Consumer spending which accounted for 72% of GDP, will at least fall to 62% of GDP, causing more retail and service bankruptcies in turn causing unemployment to rise, causing more deleveraging to take place. US household debt is 14 trillion, financial debt is 16 trillion, and total US debt is 52 trill, basically 375% of GDP. This will fall and it must or otherwise the US will have a currency crisis which will be far worse than the debt deflation phase we are currently experiencing.
Peak Oil is currently underway. However, the price issue is not a malefactor because worldwide oil demand has fallen by 3%. Nevertheless, with governments and policymakers so keen to avoid a 1930’s style depression they will print print print til their hearts desire. There is the possibility that these dollars will make their way into the system as government infrastructure projects worldwide will increase oil demand. However, there is a possibility that governments will not be successfull in their reflation attempts. Take, for example, the scenario of hyperinflation. If this occurs, then the world economy will be hurt even more further depressing oil demand as buyers and sellers will not be making transactions becuase prices will be so out of control. Eventually, the crisis will pass (i dont know how long) and the world will resume its economic growth. Keep in mind that India and China are still growing at 5 to 6% a year!!! Also, Cantarell, the world’s biggest oil field is in rapid decline. In 2007 it was producing 2.3 million barrels a day; as of April of 2009 it is down to 777,000 a day!! Thats a 1.6 million barrel a day decline in a span of 18 months!! Moreover, many of the middle eastern oil fields are also in decline. When the world economy recovers, even to the point where growth is flat and no longer falling, oil prices will creep up again and this could easily surpass the 147 dollar record of July 2008. This will cause another recession as world economies will be fragile and consumer sentiment weak.
Boomer retirement issue
This is at least a decade away but will have a impact in the US within years as social security inflows will be less then the outflows, requiring more debt monetization by the fed.
No, I don’t expect that it will be a sudden thing where we wake up one morning and there is no food.
If you note bubble graphs one can see that these bubbles tend to taper down similar to the way they tapered up.
Also we can look at history. In the great depression of the early 30s the stock market crashed in 1929, there were then ups and downs until it finally bottomed out in 1932. The market did not fully recover until around 25 years later in the 50s.
My question this with current economic downturn is how will it ever fully recover?
If it further falls and then recovers, will it take 25 years? If so how can it ever recover if we are on the back side of the oil bubble and these economists who calculate that we have only 30 years of oil left are shown to be correct.
You see, they didn’t have a peak oil problem (or for that matter peak everything) in the 30s like we do today.
So my prognosis is rather bleak.
I think it will never fully recover and that in a few years as gas becomes so high that shipping becomes erratic and store shelves become bare or food becomes so high that people can’t afford to buy it, the world as we have known it will change permanently.
Of course, that is the optimist side of me as TS COULD HTF next week due to a number of varied factors.
As described by Chris in the Crash Course, we’re currently facing the three E’s, Economic Downturn, Energy Crisis, and Environmental issues.
How bad this will be is anyone’s guess, and it’s also highly dependant on how your country relies on imports of Energy and Resources, and how other countries respond to falling energy, and resource pools (i.e. will they attempt to take these by force). Then the final thing is how the nation responds politically to help assuage, or control public concerns (which may or may not lead to civil disturbance). Will they explain the situation and be benevolent, or will they instigate draconian laws and restrictions.
My planning is centered around TSHTF, leading to civil disturbance and potential collapse of currently supplied national services (transportation, food distribution, power distribution, law enforcement). I’m becoming non-reliant on these things, and have both the skills and equipment to keep what I have running (with a little luck) for the rest of my life.
I actually think that looking at what will affect us first is belated, we’re already in a global economic crunch that we’re trying to buy our way out of, with money we do not (and may never) have.
To use a metaphor, the Jumbo Jet carrying the world economy has lost all four engines, and it’s 2000 miles from the nearest airport, it’s going to crash, and there are mitigations that can be done to try to crash in a more comfortable place, but it will still be a crash. You mention some good points about what must be done, however the current plan of record in the US seems to be spending our way out of the problem. This will not reduce the national debt, nor increase the GDP in fact to move back to my metaphor the US government seems to be trying to get further in the Jumbo, lightening the plane by removing the weight of the wings.
The critical question is has the damage already been done or can it be salvaged, and if it can, who will do so, since Congress and Senate have already shown the strategy they seem to want to take to fix the problem, politically it could be suicide for them to reverse that strategy, will those that voted for the Stimulus package throw their political careers away to save the US Economy.I think not, so that means more rounds of expenditure of cash we don’t have.
Even if by some miracle we survive the current economic crisis, then the issue is just delayed, it’s estimated that in 10 years or less Mexico’s current oil surplus will be gone, since it’s internal energy market is increasing, needing more oil, and they do not have enough reserves for increased production to support the US; we get a high percentage (2nd exporter to the US after Canada) of our oil from. Then what? At the same time there is reducing production elsewhere, so where can this shortfall be made up? How much will oil rise, then fall, and will the US economy be in any shape to import the needed oil resources? Finally 26% of US exports are in the form of organic chemicals, (From the CIA demographics for the US) which require oil (and energy) to be manufactured, so not enough oil affects US exports as well as internal energy markets. What would happen if those exports dropped to Zero?
Boomer retirement is a red herring, I would be very surprised if there is not a complete overhaul of the Social Security system and Medicare that reduces the overall cost of the system, and the benefits supplied. Social Security has been robbed blind by previous governments, to the point that I think it’s total worth now is only on paper. I don’t think that it’s sustainable in any way. With other economic issues, then I think that reliance on Social Security for retirement is reliance of faith.
Intresting, some points there I didn’t know 🙂 !
If china is still growing, how are they managing to do so? Prehaps china’s just well…..maybe (and I have no idea!) they are going to be a little like a very bright lightbulb – that is, it glows very brightly for a short period of time, then *ping* it’s burnt out.
It sounds like this whole thing after reading the above (and I rewatched some parts of the crash course) that this thing is more like a slow dribble away to nothingness rather than my previous thought which was that was all going to hit all at once very soon.
If there is civil unrest, I wonder what shape it would take in the USA? Last time we saw civil unrest over the economy in the UK that was (I think) something like the brixton riots way back in the early ’80s (though there were economic policy protests later, such as in the late 80s with the poll tax protests).
BTW Welcome .
I’m originally from the UK and remember both the Brixton and Toxteth Riots (and others) and the Poll Tax protests, at that time I was a renter, and we got clobbered with poll tax, since the previous council rates were applied to the property owner not the residents.
I think that the answer to the civil unrest question is like many things it depends. In the US I think we’re already seeing some things over here, such as the April 15th Tea Party meetings. Full Scale rioting along the lines of the Rodney King Riots in LA might be a little way off, but who knows, we’ll find out in late summer I guess (power use goes up, and people get stressed, and short tempered). It also to a large degree depends on the response of the authorities, if for instance in the UK Riot Police are deployed, you know that a peaceful protest will likely turn violent.If in the US police are deployed there may or may not end up being more violent protests, but it’s not a guarantee, like it seems to be in the UK. Protests over in the US seem to be a little more focused on the politics so tend to be less derailed into rioting. Rioting on the other hand seems to spontaneously appear when people get upset enough.
I think the best description I’ve heard on when this will happen, is "very slowly, then all at once" (Thanks Sager XX).
We live in interesting times.
This is like asking whether a smoking volcano will erupt. There may be hints of an eruption, but there is a great chance that nothing severe will happen. On the other hand, there is the possibility that there will be a crisis.
I don’t think Chris has ever argued that a crisis was a certainty. He has, I believe, tried to make the arguement that under the current conditions there is at least a real possibility that one might occur.
Whatever the chances are of one or more crises as the world adjusts to a new energy reality, it is misleading to gauge the future based on how things seem to be going now. Monetary crises are like earthquakes: they tend to develop suddenly (over a period of weeks or less), based on pressures which have been building for years.
I think we may be a little more insulated here in the UK than the USA, because of the concentrated nature of our population and resources. We have plenty of coal, still some North Sea Oil and Gas, and most towns have local bus services. Also, there are less likely to be poverty riots due to our social security and National Health Service.
We may see some currency collapse which will lead to imports getting expensive. (Have you noticed petrol creeping up lately.) This is a symptom of the government printing money to give to the banks. (The actual cost comes out of the pockets of those like me who have some savings in the bank, who see our money devalued.)
In view of this, I am buying flats to let out here in Reading for what cash I still have. I always buy ones on bus routes, and fairly near shops, so I hope they will aways be in demand. I also price them around £50-£100 a month less than the competition, so that they are always occupied.
My opinion is there is no such thing as TSHTF. It’s a useless obsession as shown by the endless posts of what will I miss, what won’t I miss, is it imminent, and what does it mean to me?
As always, a better idea is to prepare for the worst and hope for the best.
There is valid evidence that we are at or past the point of peak oil production. This means that there will still be oil around, only incrementally less and less at higher prices. One plausible result I recently saw predicted is the "stair step" model where as the economy gets better oil prices rise, then the economy contracts, then oil prices lower, then the economy improves, etc, where each improvement in the economy is less than last time. There won’t be some sort of TSHTF switch turning everything off in other words.
The huge multi-trillion size economies we are talking about also carry with them a lot of inertia.
There may or may not be more violence but there is also a lot of evidence of cooperation. People understand they have to work together to fight a flood, they can understand they have to work together to go on living. For this reason, I think rising cooperation and rising violence may cancel each other out.
Buying a gun to protect yourself and family against home invasion may be a good idea anyway as it randomly occurs today. I’d recommend a good safe to put it in.
The markets have an inherent cycle which the fed has been interfering with for years.
The market will have it’s way eventually.. Martin Armstrong has identified the underlying cycles.
here is an article that says April 19 -20 will be possibly a ‘Turning"point for some market .