I was surprised to hear, however, that you think there is only a 1-in-5 chance of there being a pretty significant fiscal crisis in the United States within the next ten years. Just as you’re surprised that some (most?) people who look at the same data that you do and conclude that such a thing will never happen, I think it is inevitable and will happen much sooner than most people can seriously believe, like within this year.
Bernanke, et al may think that core inflation in the US is still benign, but he does not deny that food and energy prices are up both here and all over the world. (By the way, the “energy component” of the core-CPI elements are not stripped out.) He just doesn’t care, and also hopes that they will revalue their currencies to deal with it (e.g., China’s yuan). One reason that all the QE and government stimuli is not working as planned, or at least as quickly, is because there are so many deflationary forces in play simultaneously that tend to counter the inflationary force of the central banks’ efforts. Enormous distrortions are being created that are still being masked. Egypt blew up becuase of food prices and a poor economy, not for the desire of democracy, as I’m sure you know. But Egypt is not that unique so I expect more uprisings happening all over the world soon. Starvation occurs in a matter of weeks so this isn’t a situation that can simply fester. Egypt’s government reduced its food subsidies, which exacerbated the situation, but other countries’ efforts to subsidize food costs are contributing to rising interest rates. A bond crisis is very possible this year. Let’s see how the Treasury auctions go this week ($99 billion in 2 to 7 year bonds will be sold ). Given the rates almost everywhere else in the world, I suspect the Fed is going to have to suck up most of them to keep our rates down. But the world needs to roll-over $4 T worth this year alone, so I think the CB’s will be overwhlemed and rates are going up, even if it’s just due to speculation and inflation expectations. These are only two of many examples I could give. I see no way for the US, Japan, the UK, and Europe to continue much longer. Would you buy any of those countries bonds now at these rates? China is only buying PIIG debt to maintain the Eurozone market and for strategic advantages. And, if things get out of hand in the middle east, and/or if oil goes up more than $150/B then I think the petro-dollar agreement, and therefore the US dollar itself, is toast.
I’d like to say more, but I gotta go. Thanks again.
[quote=cmorrow]On page 15 of the pdf version of his blog post David says this:
“If Rogoff and Reinhart are correct, we will default on our obligations aborad using deflation - the eat and dash model - and default on domestic obligations through inflation.”
Can someone explain how we can do both at the same time?
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It’s a little loose in concept, but I have no trouble imagining efforts to keep the locals whole by various bailouts of pension funds while destroying the currency and defaulting on other obligations. We could also agree to provide government subsidy for human services while defaulting on pure financial obligations (especially munis, for example.) Not all defaults have equivalent national and international impact. With that said, the point of your question is well taken.
[quote=Bruce C.]I liked your interview with David Collum.
I was surprised to hear, however, that you think there is only a 1-in-5 chance of there being a pretty significant fiscal crisis in the United States within the next ten years.
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The “1 in 5 in 10” is just for framing purposes. I think most people can grasp that as reasonable if not wildly conservative. Given that, how would your behavior change once you accept that premise? My hope is that most people would decide that some form(s) of insuance against that possibility would be a very good idea.
My actual assessment of the risk is 100% that some form of default is on the way for the US government. Be that a default via inflation or deflation is the open question for the dollar and debts, although I lean very heavily (and moreso every day) towards inflation.
As well there will be some active defaults meaning a reduction in the promised payouts for pensioners and retirees, if not outright cancellation for some.
How can I be 100% certain? Easy. Anything that cannot be paid back, won’t. The $100 trillion +++ NPV shortfall of the US government cannot bepaid back with current dollars. They will need to use some heavily debased form of future dollars, massive defaults, or more likely some combination of both.
The bottom line is a lower standard of living for the masses.
The writing is on the wall, the only question is how we will each individually and more collectively prepare ourselves for that future here and now.
Okay, so since I am 100% certain, the next question is about the “ten years” part. Ah, timing is everything. Suffice it to say that this is a moving target that I adjust based on what sorts of dots I am connecting and that this is the main service I perform for enrolled members, which is how this site suports itself and can offer so much for free.
[quote=KugsCheese]or can you not fight the monster?
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The trick is all in building local communities, trading inside that community, or outside, but not relying as much as possible on the dollar to do it…
Samuel
[quote=guardia][quote=KugsCheese]
or can you not fight the monster?
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The trick is all in building local communities, trading inside that community, or outside, but not relying as much as possible on the dollar to do it…
Samuel
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Well, I am in the USA so how do I divest from the dollar when the counter-party has to hold the dollar assets and might go under or not pay up full? Move out of the USA?
[quote=KugsCheese]Well, I am in the USA so how do I divest from the dollar when the counter-party has to hold the dollar assets and might go under or not pay up full? Move out of the USA?
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No, no need for that. Check the excellent “What Should I Do?” series of articles from Chris for a start… There are many ways to get by without dollars: barter, time banks, silver and gold coins, etc. We have to figure out what works for each one of us in our own situations… Moving out of the dollar is not a choice, it’s a necessity. It will be worthless at some point in the future, it’s only a matter of time.
Samuel
“The waiting is the hardest part”…or so the song goes. Reality is what it is until it is something else. Steping in front of the national or financial paradigm can be a very difficult experience. I thought a telling experience was David Einhorns short of Netflix which cost him dearly and just as he relents and takes his lose…Netflix is suddenly undercut and shown as an inferior business model it was all along. Not a discussion of the merits of Netflixs but the pain of seeing the next crash and then dying by degrees as every possible countermeasure to delay collapse is undertaken. This last(?) great bubble has every political, financial, governmental, international, etc. rationale to avoid it’s collapse. Thus it seems likely “this” will be extended beyond belief, beyond despair, beyond revolution, beyond chaos…because the only counter option is honesty, humiliation of those that led us into this (and humiliation for adults (Americans) who believed fairy tales), and a shared sacrifice to our standard of living. That would be the deflationary bust.
On the other hand, inflation is the skewed sacrifice hurting the least among us the worst, both globally and nationally…it is the palatable elixir of the .1% of elites of the world (and their vast minions). Plus as noted by so many, it is so easy to play inflation off to increased demand, decreased supply, any exogenous input that somehow doesn’t include TPTB.
BTW - I really don’t see this last burst or bust as the “opportunity” that the previous crashes were. I agree w/ Chris M’s excellent diagnosis of the 3E’s and peak everything converging to create a situation that is to be endured until a “new normal” is established and then hopefully you have the tools to be successful. Inflation, deflation, taxation, starvation, privation, conflagration, humilation, extortion, cofusion…lots of “shunnnn” to be avoided and Chris’ video series offers the best bet to skirt this for those you love; recognition.