Global Debt Time Bomb explodes soon

[TheGunslinger]

That's also how Gross Domestic Produce is measured as well.

It also makes my eyes roll almost into the back of my head when people suggest that military spending is a 'good' way to kick start the economy.

[drunkensurvivor]

20% unemployment is only a surprise if you're not looking for it.

Those numbers are so artificial, I don't think they mean a thing. Sure, you can shed jobs real easy, and put them on real easy. Shed the fat, add jobs at the very bottom. Of those created jobs, how many are at McDonald's or Jack in the Box? How many of those jobs put people in the market for a new house, or a car, or other major purchase? There's really no indication of the quality of these jobs, and that's what will determine how much money they'll pump back into the economy.

THAT is the truth. Here in Nevada, in all the towns I've seen, people who hold graduate degrees are fighting for cashier jobs at Wal-Mart. It used to be a ton of paperwork to get food stamps at the welfare office, surrounded by scuzzy people, and now we're conversing with teachers, managers and state employees in the line while getting processed as fast as possible. The House For Sale signs I've seen have been faded out by snow and sun from when they were planted last year. People are either driving their current car with scratched paint and missing bodywork or reparing and driving vintage 1970 sedans and vans, I assume because those cars use less gas and they're actually owned. Two weeks ago my mother and brother stood in the rain with 300 other people waiting for the food bank at the local church to open. Instead of going into their cars to wait, people opened umbrellas. No state income tax, no tax on food items, three years allowance to pay property taxes in full, other goodies. This is supposed to be a state that's very pro-business, and nobody's generating any jobs.

Henry Ford was smart enough to not only offer a minimum wage to his workers, but a high enough wage that his employees could buy the cars they made to keep him in business. Only when enough corporations remember that lesson will we see more permanent jobs, if they ever do.

I assume you live in a part of Nevada that was hit very hard during the housing collapse. Maybe you should move to North Dakota:
"Job Service North Dakota (JSND) reported that labor statistics released today show North Dakota's April not seasonally adjusted unemployment rate was 3.8 percent. The rate is lower than prior month (4.9 percent), and 0.7 percentage points below the same period of prior year (4.5 percent)"
http://jobsnd.com/

[Vicarious_Lee]

For instance, someone I know recently said, "I suppose I could hire one person to drive all over town in the dead of night and shatter people's windows. Then, I could hirefive more people to replace those windows each following day......thereby creating SIX NEW JOBS!!!!!!!"


It terrifies me not only how close that is to the truth of the matter, but how many people actually believe that sort of thing is good news, unlike the person who said it, who was being fatalistically sarcastic at the time.

Thank you for the opportunity to mention the broken window fallacy.

Wow. I didn't know about that. That was hard to read. Like, I wanted to punch the people that wrote it, but couldn't. Not because they were on the internet, but because they were wearing glasses. Thick, nerdy glasses. That made my brain hurt.

I'll never mention the Broken Window fallacy again after this. Hell, I didn't even know what it was before.

[TheGunslinger]

Sorry, are you disagreeing with the fallacy or something? Who are you wanting to punch?

[Old_Man]

Several Investing advisers and one investing house is basically screaming the markets are about to go under....depression style.

BMO Capital Markets is now advising their clients to go completely liquid. This isn't the only investing advisory group I have seen these types of comments from recently.

"The global credit environment is worsening. Cost of capital is going up and availability is going down. There are large gaps between where the credit market prices risk and where the equity market is priced. Equity is lagging the deterioration in credit conditions. Moves in currency, equity and commodity markets are mirroring the moves in the credit market. Global growth, in a credit-constrained environment, will slow. Profits will be squeezed by the higher cost of capital...We advocate a zero weight toward equity, and that investors convert their equity positions to cash."

[url]http://www.zerohedge.com/article/bmo-has-simple-message-its-clients-go-cash-now
[/url]
Anthony Fry of Evercore Partners and Bob Janjuah of RBS are in get out of dodge.

Fry..

"“I don’t want to scare anyone but I am considering investing in barbed wire and guns, things are not looking good and rates are heading higher,” he said."
"The comments mirror those of bearish Bob Janjuah from RBS, who told CNBC on Friday that we are facing big stock market losses and told investors to get into gold before G20 governments attempt to throw another $15 trillion in quantitative easing in a bid to jump start the economy.

http://www.cnbc.com/id/37549417

[raptor]

Several Investing advisers and one investing house is basically screaming the markets are about to go under....depression style.

BMO Capital Markets is now advising their clients to go completely liquid. This isn't the only investing advisory group I have seen these types of comments from recently.

I have seen this advice also. The problem with it is simply no really knows what that would look like if indeed it happens. Would it be another 2008 crash where everything except cash got smacked including PM or will PM and commodities hold up while other securities tank because (insert explanation du jour here) or ....who the hell knows.

There is not doubt in my mind that we are entering another phase of the liquidity crisis and that we will see more sovereign debt issues. This will have to have an impact on the financial markets world wide. That said, I do not agree that having 100% of your portfolio sitting in US$ in a money market, bank or even short term T-Bills is the thing to do.

In my case I continue to have diversity in my portfolio; albeit at a mix that includes a significantly lower percentage of stocks and bonds in any market. I believe that a diversity of holdings (not just cash) is a safer long term strategy.

[phil_in_cs]

"Going Liquid" can have some major tax implications too, as you have to pay your capital gains taxes. Also, it depends on your investing horizon. If you think this event will last a few years, and have a 20 year horizon, your choices are different than someone who will need the money within the next 4-5 years.

[raptor]

"Going Liquid" can have some major tax implications too, as you have to pay your capital gains taxes. Also, it depends on your investing horizon. If you think this event will last a few years, and have a 20 year horizon, your choices are different than someone who will need the money within the next 4-5 years.

This is absolutely correct on all counts.

[Vicarious_Lee]

Sorry, are you disagreeing with the fallacy or something? Who are you wanting to punch?

I don't disagree with it, it's just so nerdy it makes my head hurt.

[Valarius]

I assume you live in a part of Nevada that was hit very hard during the housing collapse. Maybe you should move to North Dakota:
"Job Service North Dakota (JSND) reported that labor statistics released today show North Dakota's April not seasonally adjusted unemployment rate was 3.8 percent. The rate is lower than prior month (4.9 percent), and 0.7 percentage points below the same period of prior year (4.5 percent)" http://jobsnd.com/

Yeah. I live in Lyon County. Five years ago it was the fastest growing county in the United States, with all the construction. The county's unemployment rate is officially 18 percent. Thanks for the link, but most of those jobs start at $10.00 an hour, and I'll probably spend most of it on rent. We're trying our hand at farming here.

Here's some more news on Hungary: http://dealbook.blogs.nytimes.com/2010/ ... to-greece/

The economy minister, Gyorgy Matolcsy, said in an interview on CNBC that the government would stick to a budget deficit target of 3.8 percent of gross domestic product for 2010. He acknowledged that the government, led by the Fidesz party, had made a series of verbal gaffes in recent days but added that it was obvious that “Hungary is not Greece.”

Mr. Varga said the government was considering instituting a flat personal income tax of 15 to 20 percent. Other government officials said the possibility of a tax on banks was also being discussed. Mr. Orban was expected to present further measures before Parliament on Tuesday.

[WhoShotJR]

Link

Financial Armageddon describes government actions thus:

Throughout the financial crisis, policymakers have focused on keeping things afloat until the storm passes. They've spent vast sums of taxpayer funds trying to jumpstart growth until the economy is back on track. They've encouraged people to keep the faith until businesses start hiring again.


Servicing existing debt is impossible because income levels are not high enough to do so. The economy cannot grow large enough fast enough to offset this problem. Debt will be liquidated by default/forgiveness.

Government has been unwilling to accept a downturn, adding more debt in hopes of generating a miracle that cannot arrive. The danger, as expressed by Financial Armageddon, is that the presumed "untils" do not happen:

But what happens if all those "untils" turn out to be wide of the mark? What if the carnage we've experienced so far is structural, not cyclical? If that's the case, then Americans are going to find that instead of experiencing better times ahead, they are going to be much worse off than they were -- or are.


Additional debt is of little value. Debt's marginal value, with respect to creating additional GDP, has gone negative. The government has fired all of its bullets. It has nothing left that will affect real output on any sustainable basis.

As the economy continues to devolve, deflationary forces grow stronger. The private sector continues to shed debt. The public sector attempts to offset this with greater deficit spending and more stimulus packages. The private sector is contracting faster than the government can expand.

How We Get Inflation

Our government is bankrupt many times over (see Spiraling to Bankruptcy), as are the democratic socialist states of Europe (see Welfare States - R. I. P.). For political reasons, none of these countries is either willing to cut back on its spending or accept a recession. Mish provided a description of both the U.S. and Europe (my emphasis):

For Europe, $1 trillion is not enough, nor would $10 trillion. There is no plan that can possibly work. But that will not stop politicians from trying. Politicians do not care about math or logic, or the fact that piling on more debt cannot possibly be the cure for a problem of too much debt with no possible way to pay it back.


We are witnessing the death of democratic socialism. No politician wants it to happen, but none can prevent it. We are at the point where the Ponzi concept of "extend and pretend" has been extended beyond social commitments and banking systems to entire economies. We are approaching what Ludwig von Mises described as "the crack-up boom":

There is no means of avoiding the final collapse of a boom brought about by credit [debt] expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit [debt] expansion, or later as a final and total catastrophe of the currency system involved.


Political cowards around the world have chosen Mises' second outcome -- "a total catastrophe of the currency system involved."

None of the countries have the resources to continue to fund current programs. As their economies deteriorate, they will "print money" in order to continue meeting obligations and stimulating. At some point, the money supply will explode vis-à-vis the goods available.

We have seen many "impossibles" in the last couple of years. Be prepared for the next -- a hyperinflationary depression. It is not impossible, it is not an oxymoron, and it should surprise no thinking economist. It is nearly upon us.

Your lifestyle will depend on how prepared you are to meet this newest, biggest, and most horrific Black Swan. This beast will destroy economies, overthrow some governments, and alter the nature of the world.

Thoughts?

[DannusMaximus]

We have seen many "impossibles" in the last couple of years. Be prepared for the next -- a hyperinflationary depression. It is not impossible, it is not an oxymoron, and it should surprise no thinking economist. It is nearly upon us.

Your lifestyle will depend on how prepared you are to meet this newest, biggest, and most horrific Black Swan. This beast will destroy economies, overthrow some governments, and alter the nature of the world.

Thoughts? Well, prepping for this scenario is sort of like prepping for a meteor strike or a monstrous EMP that fries everything electrical in the world. And by that I mean, you can't prep for it.

SO, since it is impossible to be prepared for the complete collapse of the global economy and our planet being thrown into a fuedal state, it's not something I'm preparing for. Man, life is easier now that I'm not stressing about that!

[TheGunslinger]

Well, you can't lump all of the world in together.

In some countries, it would be palatable to cut services instead of printing money.

I don't think it's the 'death of social democracy' in any real sense. I'd also suggest that it's not a hard and fast rule that we're going to head directly into a hyperinflationary depression, either.

Are we going to have another liquidity crisis? I don't think anyone can really say for sure. I'd say we're going to have a double dip recession, almost certainly.

Personally, I'd start cutting services before hitting inflationary spending. Depending on the nation that I was, I'd also default on my obligations than meet the repayments.

The austerity measures imposed by Greece and so forth would work in a country that had the discipline to do it. They are unpalatable and yes, would see a change in government in a lot of countries - but that's not the death of social democracy by a long stretch.

[nyiangelo]

The austerity measures imposed by Greece and so forth would work in a country that had the discipline to do it. They are unpalatable and yes, would see a change in government in a lot of countries - but that's not the death of social democracy by a long stretch.

That's the kicker right there. No one has the discipline, because they fear for thier jobs. It's going to take someone who has the guts to do it and people who have to suck it up and deal with it.

Another note. Number is just mind blowing. If it keeps going higher (which does it really matter at this point?) it's either gonna be a default or inflation.

U.S debt to rise to $19.6 trillion by 2015
WASHINGTON
Tue Jun 8, 2010 6:19pm EDTWASHINGTON June 8 (Reuters) - The U.S. debt will top $13.6 trillion this year and climb to an estimated $19.6 trillion by 2015, according to a Treasury Department report to Congress.

http://www.reuters.com/article/idUSN088462520100608

[NoAm]

Link to the National Debt Clock....... Click on the link and it shows the current debt at any given moment

http://www.usdebtclock.org/

Give it a minute to load everything
How can I tell our 14 y/o daughter that she is already in debt of $118,500 as of today?

[TheGunslinger]

Those debt clocks are misleading, though .

It only calculates the debt as if it was yours personally. It doesn't factor in that a lot of the debt is debt that one part of the US government owes the other. It is also not something you are personally liable for, either - a lot of these clocks forget that the vast majority of revenue isn't personal income taxes, but company taxes of some description.

As to austerity measures - governments are going to fall one way or another. If you cut services to service debt - you lose. If you print money to get out of situations - you also lose.

Personally, I'd see inflation and some services cut, but that's because I'm still relatively young and I don't have massive amounts of savings.

[Mister Dark]

I have been giving a lot of thought to this scenario for a couple of years, and really it is my biggest TSHTF concern. I don't think "the world is gonna end", but a governmental financial collapse will have drastic implications for all of us. When the financial markets collapse and take down the dollar (and the Yen, and the Euro, and everything else to one degree or another) the government will have no choice but to curb spending. Drastically. They simply don't have any more cash, and nobody is going to buy their debt. The machine will grind to a halt, and it is gonna be a mess.

Millions of government workers will be laid off, those that still have jobs will find (like the rest of us) that the money they make isn't enough to pay for food, as the dollar buys less and less. Private sector businesses will have a HUGE "correction". Individuals will see their "credit card lifestyle" crash and burn. ...ohwait, thats already happening. Ok, well imagine MORE of that. But basically the whole monetary system will fail from the top down, and jobs/income/savings will fail along with it. It will be a massive correction, and nobody will escape it.

More scarily (and we are starting to see this pop up here and there) people will become quite irate as the various government entitlement and pension programs shut down. I can see riots occurring all over the country as food stamps stop being accepted, as welfare checks stop showing up, and as unemployement dries up. And there wont be anything we can do to stop it once it starts. This is what concerns me.
In the 1st great depression, life was incredibly hard for almost everyone, but many people knew how to farm, knew how to sew and repair their clothing, knew they could only count on themselves to pull thru. My Grandfather had a very successful mercantile business throughout the '20s, he was even one of the first in the county to have a truck! When the crash started, grandad did what he always did and extended credit to all the farm folks who came in needing to buy seeds, flour, fabric, and whatnot. When their crops couldnt sell and they couldnt pay him back, his business failed. My grandfather swallowed his pride, wiped his hands, and worked out a deal sharecropping 40 acres with a former customer. That 40 acres kept his family fed through all the bad years, and as he came out of it, he moved from sharecropping to renting, to purchasing the land, to buying more and more in the area. When he passed on in 1974, he once again was on top, with a very successful cattle farm, and over 500 acres under the plow.
Why do I mention him? He, like almost everyone of his generation (and the next as well) knew how to get by. If they couldnt make do with what they had, they simply made do with less. People these days just have no concept of that. While I am sure that there will be people who can survive, even thrive by the sweat of their brow, I am deeply concerned about the millions of people who have never had to work to earn their way. When the checks stop coming, what are they going to do? One thing my grandfather DIDNT have to deal with was rioting masses, with no idea how to prepare food, no way to provide for themselves, and in a rage to just TAKE whatever they can.

Thats what scares me about all this.

[WhoShotJR]

Why do I mention him? He, like almost everyone of his generation (and the next as well) knew how to get by. If they couldnt make do with what they had, they simply made do with less. People these days just have no concept of that. While I am sure that there will be people who can survive, even thrive by the sweat of their brow, I am deeply concerned about the millions of people who have never had to work to earn their way. When the checks stop coming, what are they going to do? One thing my grandfather DIDNT have to deal with was rioting masses, with no idea how to prepare food, no way to provide for themselves, and in a rage to just TAKE whatever they can.

Thats what scares me about all this.

That's what scares me most as well. The dollar could disappear tomorrow and I'd be fine for a while. The real hairy question is how people would react. We've all seen circumstances where small events cause big problems. What happens when we have big problems?

[raptor]

I have been giving a lot of thought to this scenario for a couple of years, and really it is my biggest TSHTF concern... edited for brevity...

The scenario you point out is certainly possible and I agree that is truly a scary scenario. However, I personally put that scenario in the possible but not likely category.

I do see think aspects of it as likely though in several countries including the US. The governments around the world are running out of credit and will have to cut spending. That means reduced benefits, laid off workers and higher taxes (which means private sector layoffs). This high unemployment has historically lead to domestic problems and violence in many countries. So I personally think a large population of unemployed and disaffected people in any country would not react well to cuts in benefits.

A currency collapse is is certainly possible for the Euro, Yen and USD. However when people say currency collapse they think EOTHAWKI situations or Wiemar Republic style hyperinflation.
Yet a more likely scenario is less dramatic but almost as bad. It involves a general devaluation of these currencies through inflation and an increase in prices for core items like fuel. A 10% inflation rate for a few years will wreck a population's wealth very quickly.

In the end all you can do is watch the markets, keep a diverse portfolio and live well within your means to ensure that you have sufficient financial reserves to deal with these issues.

[KnightoftheRoc]

Why do I mention him? He, like almost everyone of his generation (and the next as well) knew how to get by. If they couldnt make do with what they had, they simply made do with less. People these days just have no concept of that. While I am sure that there will be people who can survive, even thrive by the sweat of their brow, I am deeply concerned about the millions of people who have never had to work to earn their way. When the checks stop coming, what are they going to do? One thing my grandfather DIDNT have to deal with was rioting masses, with no idea how to prepare food, no way to provide for themselves, and in a rage to just TAKE whatever they can.

Thats what scares me about all this.

That's what scares me most as well. The dollar could disappear tomorrow and I'd be fine for a while. The real hairy question is how people would react. We've all seen circumstances where small events cause big problems. What happens when we have big problems?

When I consider the "diet of violence" teens and young adults have been raised on, and the utter lack of a sense of respect for others- the "I'll gets mines" mindset- I have some very real concerns for when we hit our next depression. And I do believe that it's coming. There will be more than enough people who simply 'lose it', and end up in the mobs of takers, but there's an entire sub culture in our country who seem to be tailor made for this type of thing, and are, knowingly or not, simply waiting for it to happen so they can take the streets, and anything else they decide they want.
Day by day, the news tells of someone just opening fire, for no good apparent reason. It used to be a real rarity, now we get so many of these things happening, that it needs to be a slow news day for the story to go beyond the local news level. To me, these are just indicators of the boiling point being quickly approached, and a harbinger of what will come when it does. So, I pray I'm wrong, and prepare as if I'm not.

[Mister Dark]

Here's an odd question. The Treasury auctions have been returning lower and lower rates for several years, to the point now the 28 day note is almost but not quite actually losing money, if you factor in inflationary pressure during that timeperiod. What happens when we officially hit 0% ? Will anyone even want to buy them? What exactly would the treasury do if they had an auction completely fail?

[raptor]

Here's an odd question. The Treasury auctions have been returning lower and lower rates for several years, to the point now the 28 day note is almost but not quite actually losing money, if you factor in inflationary pressure during that timeperiod. What happens when we officially hit 0% ? Will anyone even want to buy them? What exactly would the treasury do if they had an auction completely fail?

During 2009 and part of 2010 the Federal Reserve has been buying US Treasuries and the interest rate going down was deliberate effort by the Fed to keep mortgage rates and interest rates down. They announced plans to buy $300 billion during this time frame and did just that. LINKY

However with the recent surge in the dollar and plunge of the Euro has pushed up demand for USD which is also driving the yield down.

In answer to your question of what happens when the US treasury has a failed auction? Some say this has happened since the Fed was the primary buyer in a couple of auctions. However this cannot continue thus what will happen is that if no one buys treasuries then the price will go down and yield (interest rate) will have to increase (price and yield are inverse). You will then see interest start to climb how fast and how far is subject of endless debate. However, I am sure we will see the answer within the next couple of years.

[Blacksmith]

It is also not something you are personally liable for, either - a lot of these clocks forget that the vast majority of revenue isn't personal income taxes, but company taxes of some description.

Where are you getting this information from?

[WhoShotJR]

You can't take a country that's over-borrowed and make it more creditworthy by lending it more money," he said. "They're throwing Greece further and further and further in the hole by not addressing the problem directly and properly."

http://www.economicpolicyjournal.com/2010/06/analyst-to-money-managers-take-your.html



This summarizes my feelings pretty well. The more we deny and delay our problems, the worse we'll all be in the end. It's like kicking a snowball down the side of a mountain. It's hard to stop, but the farther it goes the more damage it can do.