Likelyhood of financial breakdown

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basovink's picture
basovink
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Likelyhood of financial breakdown

As a Dutch guy living in Argentina I have learned a lot.

The Dutch basically invented the banking system and I grew up putting my money in a bank account. BIG buildings and parents convinced me of the safety of my money there.

Living in Argentina for 2,5 years I learned it is not very unlikely for a currency to collapse. Go search for it on the web. 2001 for most argentineans is a number less connected with terrorism but more connected to losing 2/3 of ones savings.

And those 'trustworthy' banks? Apart from one cooperative bank they al happilly followed government rulings: One dollar was now 3 pesos, but since those dollars were bought with overvalued pesos we'll just consider them pesos.So 'all yur doller belong to us'.

RSLCOUNSEL's picture
RSLCOUNSEL
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Re: Likelyhood of financial breakdown

There will not be a financial breakdown in the U.S.

A lot has been discussed about the excess "printing of money".  However, hyperinflation results from new money being added to the system in situations were all existing money has remained intact.  That is, a net increase in money.

However, if trillions of dollars of wealth have been destroyed prior to government printing AND the government is simplying printing money to replace the wealth already, previously destroyed-- then no additional money has really be added.

Do the math.

If hyper-inflation was in our future AND if you believe that markets are forward looking, then gold should be at $2,000 an once whether in physical or paper form.  But it is not.   Why not?

Now is the time to place some bets on the traditional U.S. economy. 

Before year end, I bought Dow Chemical after all the bad news was out.  At my purchase price, it as yielding a dividend rate of 10%.  Since my purchase, the stock has moved up 6%.  I have stop orders in now that will ensure I never lose any money on this investment leaving me with only upside.

This is a big difference between blogging and doing.  I prefer to do both.

What are you doing?

 

 

 

Brainless's picture
Brainless
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Re: Likelyhood of financial breakdown

My math is different because there were no dollars destroyed. Every dollar on the stock market is a real one.

Printing money makes real dollars and inflates the number in circulation (paper and bits).

As such inflation has to happen. If you make 10% on investment you have to hope you keep up with inflation.

I think the likelyhood is big. When, if inflating the number of dollars works this time it will fail later.

More important is trust. Banks don't trust each other, people don't trust their advisors and government. It can happen quickly that people loose their trust in the dollar, when that happens the dollar is worth zero as people will not accept it anymore in exchange for products and services.

 

 

 

 

Ray Hewitt's picture
Ray Hewitt
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Re: Likelyhood of financial breakdown

There will not be a financial breakdown in the U.S.

I wouldn't bet against it. Given that expansion and the size of government has expanded way beyond what they were in the 30s, this breakdown will be considerably worse. You can be certain that the federal government will run out of credit and have to resort to creating money directly. It will default on its debts and obligations. The value of the dollar will go to zero as all world fiat currencies will do. This will all happen because those trends are not sustainable. It's the timing and the course of events that are impossible to predict.

 

Mike Pilat's picture
Mike Pilat
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Re: Likelyhood of financial breakdown

Ray:

I pretty much agree with this approach. The politicians are victims of groupthink and their actions apparently indicate they believe they can keep the game going indefinitely.

My question is this: We've already heard a lot from the Europeans on the "New World Financial Order" and even gotten some hints from China. Rumors abound regarding Saudia and Russia requiring payments made in gold. The point is, the world is hungry for a new system. Is it possible that the world is helping to prop up the dollar only long enough to help smooth a transition while a new plan is being worked out? Surely the governments are talking about this in closed door meetings that never get reported on the news.

As much as I fear the notion of even bigger and more interlocked government, I equally fear other nations completely dumping the dollar at once. In that situation, we would very quickly find out what a massive trade deficit really means.

Mike 

castlewp's picture
castlewp
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Re: Likelyhood of financial breakdown

Mike, Ron Paul couldn't express this issue better.

"A World State might bring peace, but it would
be the peace of dictatorship and it would not last long. A few years
would bring a world-wide civil war of ideologies. Any international
organization which is worth the paper it is written on must be based on
retaining the sovereignty of all states. Peace must be sought, not by
destroying and consolidating peoples, but by developing a rule of law
in the relations among states.”

 

Mike Pilat's picture
Mike Pilat
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Re: Likelyhood of financial breakdown

Yes, Dr. Paul got my vote this election and I am a huge fan.

It's interesting to ponder that the broader the political boundaries, the more intense the Revolution might be that would inevitably follow. No dictatorship lasts forever.

The sad truth is that most people in this country don't seem to do a good job of learning from history and connecting the dots in our own lifetimes on this earth. It seems to be human nature to ignore both the future and the past, at least in a broader sense. Most people, in my opinion, do not plan years in advance, and likewise quickly forget the history of the recent past. Certainly, all of history that existed before their lifetimes is unimportant, right????

Empires, resource wars, and absolutism are not unique. In fact they seem to play a dominant role in history. As the blogger formerly known as Student of Jefferson and a strong supporter of the Liberty movement, I hate to admit it, but absolutism seems to be the most common system, historically speaking. Playing the devil's advocate, I suppose it is worth ponder at least, whether true Liberty can exist only in a world of rapid resource expansion? Certainly, a world of resource decline will put pressures on Liberty like we have never seen, as new found elitists seek to "take care of" people with the intention of plundering the remaining wealth.  Henry Paulson, Ben Bernanke, and recent Presidents all come to mind.

On the flip side, declining resources will make it harder and harder for massive centralized systems to trade and operate. Big Government requires Big Economic Surplus and once that evaporates (now??) it's going to be hard to run an empire. I tend to be on this side of the fence and think that World Government would be nearly impossible with the energy and population situation as it is. That said, smaller absolute governments have existed for millenia and a sort of feudal system could eventually emerge again as well.

The only thing that can save the people from what would otherwise be inevitable is an education on these issues. People need to understand that private property, gun rights, etc. are absolutely necessary to true Freedom. Without ownership of the capital (tools, property), the means to protect it (fair laws, gun rights), and republican form of government, we face a very bleak future. 

Mike

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Mike Pilat
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Re: Likelyhood of financial breakdown

As an afterthought: Can you even begin to imagine what a Peak Oil Relief and Mitigation Package from the Federal Government would look like??? What a disaster waiting to happen! The word Cluster-you-know-what a la James Howard Kunstler comes to mind.

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Re: Likelyhood of financial breakdown
Ray Hewitt wrote:

There will not be a financial breakdown in the U.S.

I wouldn't bet against it. Given that expansion and the size of government has expanded way beyond what they were in the 30s, this breakdown will be considerably worse. You can be certain that the federal government will run out of credit and have to resort to creating money directly. It will default on its debts and obligations. The value of the dollar will go to zero as all world fiat currencies will do. This will all happen because those trends are not sustainable. It's the timing and the course of events that are impossible to predict.

 

 

Ditto that Ray.

In the 1930's, the US was still on the gold standard, representing the last "brake" on the runaway debt-train that we have reached the near-end of track on.  As even Alan Greenspan stated (when he was still aligned with near-Austrian school teachings and Ayn Rand's movement) - "In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. ... This is the shabby secret of the welfare statists' tirades against gold. Deficit spending
is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
  (that FDR "remained" on the gold standard, after confiscation and revaluation, was the best thing he ever "did"...).  

Even gold as the last protector of US sovereignty, and obstacle to runaway and profligate governmental debt was removed by Nixon in 1971, so we're really setting up for the big "poof".

In the 1930's the US was the world's largest creditor, a net exporter, and producer of manufactured goods to the world in a positive balance of trade. Today, the US is the world's largest debtor, and produces almost nothing of export value.

Further, the savings rate per capita in the 1930's was much larger than today, nearly 7%, as opposed to 2007's record-setting "first" - the US averaged a negative -1% savings rate!  There is nothing to build upon going forward.  In the 1930's there was still a basis for capital investment and marginal sustenance of the populus.

The current Paulson/Bernanke plan (and Obama plan) - a continuous action of pumping more debt, to sustain prior debt, creating a further and further gap between the GDP of the nation and it's ability to pay, will just create a larger collapse - and at this stage, the "debt gap" against GDP, is far beyond the Great Depression. 

Either the US Gov will attempt to eliminate the debt through pure monetization, leading to a hyperinflationary currency collapse (more likely) or a deflationary bond default, leading to a currency collapse.  The only other option is to allow for debt redemption and default (very painful, and becoming more painful by the year...)

 

 

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GDon
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Re: Likelyhood of financial breakdown
Mike Pilat wrote:

As an afterthought: Can you even begin to imagine what a Peak Oil Relief and Mitigation Package from the Federal Government would look like??? What a disaster waiting to happen! The word Cluster-you-know-what a la James Howard Kunstler comes to mind.

Mike -

Agreed.

And if I can risk being bold, one of the interesting dichotomies in Chris' CC.

Chris has done a good job of pointing out the debt-basis of our current fiat currency, in one of the "3 E's".   He has also done a good job of pointing out to his readers the myriad of events along this same theme (and thank you Davos for your Daily's!).

This has attracted a number of Austrian, free-market, and Constitutionalist readers, and rightly so, as Chris legitmately understands the role which gold and silver play in sustaining a working economic system, and the systematic socialism of our economy.

Interestingly, Chris has also pointed out the additional pressures which "Environment" and "Energy" may place, coincident with an economic dislocation (the other 2 "E"s). 

As such, there is a lot of discussion on HOW these other 2 might be "controlled", including an extrapolation of how world population might be "controlled". 

In a contradictory logic-step, much (not all) of the discussion on the other 2 E's, often leads some to a conclusion that some sort of "superior" governmental control is the answer, at the expense of individual liberty, private property and the fundamentals of the US Constitution and Founders.

In this vein, I trust I won't be overstepping bounds by pointing out, that this agenda, which has spawned a number of movements contradictory to the sovereignty of America and it's Constitution, has been gently and economically pushed and coerced by the United Nations (and IMF) for a world movement toward reduction in private property and/or use of that property. 

Much of the philosophical foundation for that latter position, was presented at the "Agenda 21 Conference - The Earth Summit Strategy to Save Our Planet" held in Brazil during the early 1990's, on the issue of "Sustainability".  178 Nations were signatories and adopters of Agenda 21 (Bush the First signed that "non-treaty", a bit unconstitutionally), and agreed to review it's implementation every 5 years, which Clinton and Bush II have done through Executive Orders.   

Perhaps a coincidence, but the Agenda 21 program pushed for "3 E's" as well - Equity, Economy and Environment.

Some have taken these early platforms, under the guise of "Sustainable Development", in adherence to Agenda 21, and have pushed for (and received!) increase governmental control over individuals, with particular ferocity against the fundamentals of America's freedom underpinnings and private property

For example, Harvy Ruvin, Vice Chair of the International Council on Local Environmental Initiatives (ICLEI - an arm for Agenda 21 implementation in the USA) and Clerk of the Circuit and County Court in Dade County, Florida, has stated explicitly, that, "individual rights will have to take a back seat to the collective...".  

There are many, many more encroachments which one needs to be wary of.  Many common buzzwords, like "Smart Growth" and "Community Consensus" on unconstitutional environmental initiatives have been, and are increasinly, used in support of Agenda 21 initiatives.

For further insight into Agenda 21, a different set of "3 E's", including the fight to minimize the US Constitution, eliminate private property and individual freedom, and increase the strong-arm of government, I strongly suggest a visit to the following sites:

http://www.freedom21santacruz.net/site/

https://www.takingliberty.us/TLHome.html

I suggest that this is an issue which requires clear thinking, and discretion, in Chris' Crash Course, to avoid a further collapse beyond the issue of "Economics", into a philosophical contradiction pushing for a truly monstrous unconstitutional and freedom-destroying growth in governmental power.

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