Well. it’s not as if bashing Bush is completely without merit in this regard. Historically the Republican party stood for fiscal responsibility and smaller government. Just the kind of qualities one would like to see in a national fiscal crisis. So far he has done absolutely nothing to head this off. To blame him entirely for it would be foolish, for Americans appetite for defecit spending goes back decades. But to wish that he’d act like a Republican is not baseless. And folks in his party need to step up and point this out.
By the way, there’s no schadenfreude over here. The situation means that us Europeans are in increasing danger of not being able to sell our products to the largest market in the world. Also, US companies with large offices in European nations may soon find it difficult to justify the expenses of maintaining rents and salaries that are rising dramatically relative to US workers.
When America sneezes, the world catches a cold, as the saying goes. And this time it looks like America’s catching a cold, which means we’ll get pneumonia.
There is a new investment vehicle for gold (letters GLD) which is pegged at 10% of the current price. This isn’t a gold mining stock or collection of stocks, or a futures contract, so it is simple. I’m getting into that - but not all the way. Diversification is still the way to go.
The real danger of the tanking dollar is not imports or exports. It is that our deficit is financed by the Japanese and the Chinese. If the dollar tanks, they lose a lot of their investment, and if they stopped buying T Bills, the interest rate will start to skyrocket. Then we are in serious trouble, especially with our exploding deficit.
True. However, this thread may not be the correct place to discuss the perceived causes of the Economic crisis that may or may not be looming in the near future. Since I have already been slapped down for my previous comment, I will now address the OP:
There is cause for worry, and has been since we started this latest round of irresponsible Government overspending. It’s been a long time since we’ve had a genuine economic disaster here, though, and in a sense the truly global nature of the economy has a lot to do with that. There is a much wider economic equilibrium now than ever before. Many times in the last 20-30 years people have been predicting economic disaster is around the corner and it fails to materialize. '87 market crash! Yeah, a lot of people got hurt, but it didn’t trigger a Depression. When Japan crashed, it didn’t trigger a worldwide depression. Ditto the dot-com pop. There are a lot of things to worry about looming in our lifetimes. I think caution and moderation (in other words, triple-think every time you get ready to borrow money or make an investment, and diversify your assets as much as you can) should be enough to see you through.
I’m concerned and getting out of dollar and dollar linked assets. I think the US stock market will have this as an overhang for the next several years.
Two key points. One mentioned above. The holders of US government debt will either reduce those holdings or the interest rates will have to rise to give a risk premium. Rising interest rates are bad for corporate financing, holders of variable debt (credit card and homes), the stock market, etc.
Other key point not mentioned is that a soft landing from the .BOMB bubble was engineered via low interest rates and individual mortgage refinancing. Essentially, a lot of liquidity was put into the system because individuals refinanced their homes at a lower (and floating) interest rate. Net-net, it means more money for consumption and circulation *as well as * effective reduction of savings levels.
What this really means is that Americans have more debt and less savings, which is not what one wants when going into a bad cycle. If it gets to the point where people can’t make house payments and you start to see a repeat of significant number of repossessions, then we’ll be in some pretty big trouble.
I agree with several other posters here - save, and save in stores that are independent of the American dollar - land, precious metals, maybe euro accounts (although you then have a greater tax burden).
I’m not as pessimistic as Roach, but we are headed for many economic crises. One that didn’t get mentioned in the article is that while American population keeps going up, the actual workforce will go down as the population ages - baby boomers are nearing retirement. It doesn’t matter how many dollars you have if your economy has fewer goods and just as much demand.
Calm down. It’s hogwash. I used to work in this field (financial and market forecasting) and I’ve seen it all before, and so has every generation before this one.
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Understand this: **economists do not know what is going to happen about anything, ever. ** For every economist who predicts x, there are just as many, just as ‘qualified’, who predict not-x. If you predict *any * market scenario for long enough, sooner or later you’re going to be able to say ‘I told you so!’ or ‘Look, it’s almost happening like I said it would!’. You might have to wait 5 days or 50 years, but you’ll be right or right-ish eventually. Or, just make 10 different predictions every Monday. Again, you’re bound to be right some of the time. That doesn’t mean you actually know what’s going to happen, does it? You might just as well panic based on your horoscope.
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The ‘argument’, such as it is, is made up of alarmist ‘projections’ based on a handful of generalisations about a selection of statistical indicators. But there are hundreds of financial indicators and statistics published every day. You can pick and choose whichever ones you want to produce an argument for just about any future scenario. Politicians play this game all the time. Those in power cite the stats that look good, and the opposition cite the stats that look gloomy. If you’re sufficiently choosy about what you include and what you ignore, you can paint just about any future-scape you want and make it sound plausible. A zebra is a horse if you only look at the white bits.
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It’s sloppy, make-it-up journalism. It’s allegedly a report summarising some informal responses about what some people think they heard one guy say behind closed doors. Yeah, that’s solid rock on which to panic. Conveniently, the story is like an urban legend in that there’s nothing we can actually go and check regarding the source. Maybe Roach said something along the lines reported, and then again maybe he didn’t. Maybe that’s all he said, or maybe that was a small part of one hypothesis he discussed and maybe many other things he said were more optimistic. Maybe other people present got the same impression as those ‘quoted’, and maybe they didn’t. Maybe the reporter has correctly summarised their views, and maybe he hasn’t. It’s like trying to chew fresh air.
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The report is innumerate. “30 percent chance of a slump soon and a 60 percent chance that” are meaningless percentages based on nothing at all. The ‘percentage chance’ that anything will happen is simply the number of all possible outcomes divided by those that fit a given criterion. The percentage chance that a coin toss will result in heads is 50 percent. The ‘percentages’ cited make the report sound factual and solid when in fact we’re not given any clue as to how those percentages were arrived at, what they’re based on (if anything) and whether they are reliable.
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It is good to get out of debt and pay less interest, but that’s only because this is always good advice, whatever the future holds (well, it is for 99% of people leading normal sorts of lives with normal sorts of money). When you have debts, you’re working to pay interest instead of working to have spending power.
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I’ve got a shelf full of books containing predictions made by major forecasters and prognosticators of the past, financial and otherwise. They’re laughable. None of them get things right any more often than they get things wrong.
I love it when everybody blames this on the good ole evil USA! The fact is, the USA has been keeping the world from recession for the past 10 years! WE are the ones buying the output of Japan, China, Germany…and the dollar’s weakness is precisely BECAUSE those countries practice mercantilism!Take China…they sell everything and buy nothing (from us). Therefore, they have a trade surplus with us…so what do they expect? The fact is , WE have allowed the export of OUR jobs to these countries, and in buying their output, we have kept them from recession.
Now, suppose the dollar drops by a huge amount…the Chinese will immediately devalue their yuan, because they do not want to lose their export market. Who would they sell to? They are locked out of europe (Chinese products DON"t have that cute litle “CE” mark), so they cannot be legally imported into the EU(nice little non-barrier there).
There is no question: we have an enormous trade imbalance, but it is not totally our fault (I would imagine that the Congress shares a good bit of the blame for the government deficit-they clearly don’t CARE when they can’t control pork-barrel spending.) If you think those clowns (Congress) care about deficits, you should see the new capital recepetion center…now 8 years late and 200% OVER BUDGET-with “leaders” like these, its not surprising we cannot control government spending.
What can you do? I’m betting that the government will inflate the currency (print money) to balance the books-and inflation will come back (like it did in the days of sainted Jimmy Carter). In this case:
(1) borrow /mortgage yourself to the hilt
(2) dump stocks-keep your cash in Money Markets and gold
(3) when its all over, you will own a lot of property for virtually nothing! 
Who’s blaming the USA? Just observing a massive fall in the value of the dollar and the economic indicators that have led to it. I hate it when people are so damn defensive that they interpret non-glowing comment as criticism. :rolleyes:
Or more precisely: American companies, in their drive to maintain or maximize profitability, have exported jobs to those countries. There’s nothing noble about it.
This is a gross exaggeration, about a situation regarding some food items, for hygiene reasons, that has now been eased.
If your main worry is about the drop in value of the dollar, look north to your largest trading partner. When I was a brat the $Cdn was worth more than its US counterpart, then it tanked-- and tanked again less than a decade ago. As a result, Canuck exporters – if they have any sense-- have been making money hand over fist which they’ve reinvested in upgrading productivity. Even in raw material fields, like softwood lumber where the US has repeatedly imposed punitive protectionist measures to make it as difficult as possible to compete, Canadians have become so efficient that a falling $US means American lumber producers may be able to stand on their own feet for the first time in a generation.
There’s a lot to what ianzin said, but I wouldn’t go quite as far as calling it hogwash.
To forecast a crisis is silly. I’m a working economist and we don’t have anything like the knowledge required to forecast tipping points. And with floating exchange rates and liquid markets, there’s no particular reason to imagine that there has to be a moment of crisis anyway.
The talk of armageddon for the economy in general is just silly. Sure, highly geared people are at risk, but that’s the game. But it is clear that serious adjustment is needed and that the obvious mechanism - fiscal consolidation - is not on the political horizon. There will be costs, and big ones, but a real meltdown of the US economy on a par with Argentina or Indonesia in the last decade? - no way.
Mmm, a couple of bulls, or at least, not-bears. I was beginning to worry.
What everyone else said: Pay off debt and save. That’s by far the most important part. Put a portion of that saving into a hedge against the dollar if you’re in the US. Gold is a good alternative if you’re in the US, but if you’re not, just limiting exposure to US assets will probably do the trick.
Besides GLD, there’s also CEF, a closed-end fund that is backed by gold and silver bullion, and which I believe can be used by Canadians in their retirement accounts, since it’s issued in Canada, assuming that you want to own another hedge besides your own Canadian dollar.
You can also use a pool account at www.kitco.com. Good if you can’t scrape up enough to open a brokerage acct, as there’s no minimum investment, and no need to buy whole ounces. You can buy and sell 24 hours a day, seven days a week. It costs about 1% going in and 1% coming out, though. If you decide to do this, CALL THEM! Their phone number is on their web site, as I recall. They’ll answer whatever questions you have.
And of course don’t put all your eggs in this one basket. 5%, or 10% if you’re really bearish on the dollar, of your savings should do fine, and just add to it incrementally as your savings increase to keep that proportion the same.
Above all, don’t just assume the dollar’s going to fall, and certainly don’t assume that gold is going to rise, all the time. If everyone and his brother is saying it is, well, the crowd is usually wrong. The only sure thing in the markets is that there is no sure thing.
I do believe, FWIW, that the dollar will tank one day. But it will happen when you least expect it, not when you most. Which is why you do the above not as a short-term thing, but as a long-term strategy.
There is going to a major continuation of the Bush II depression over the next 3 years. (It never really ended, the numbers were selectively fudged.) But the Economic Apocalypse isn’t going to hit America until 2010-2012. In the short term it will be a bad depression, not as bad as the Great One, but later on the US economy will just nosedive into nothing. Nada, zip, zilch. That’s all folks.
Some points:
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Investing in real estate. Prices are too high now. Wait until the crash then buy it up for far, far less. Good farmland will be great. People will need food. If you want a house, get a very modest one now with a fixed rate mortgage. Just keep in mind, that when you lose your job you won’t be able to sell it. Figure out how to finance it with a couple of McJobs. Modest, remember.
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Gold: traditionally quite good in this scenario, but tradition is over. Govts. used to hoard gold to stabilize currency. Now it’s just a bunch of yellow stuff taking up space and not earning interest. When gold prices go up, they’ll sell some of it off to make money. That’ll keep gold prices from going up as high as they should. An okay investment but not a great one.
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The , the Euro and oil. For the reasons given, the is tanking (which has been overdue). The Arabs are not getting as much for their oil as they'd like. So they're jacking up the price of oil (trying to keep it stable w.r.t. the Euro). The Chinese are rapidly increasing their imports of oil so that keeps demand high enough they can pull it off. This is a bad, bad cycle. Oil goes up, the US trade balance goes up, the goes down, the price of oil goes up.
At this point, there’s no reason for people overseas to buy US dollars. Which means there’s no reason to buy T-bills.
And what’s worse, all possible scenarios as to change in oil supply that could alter this, all change it for the worse. I just finished reading “Sleeping with the devil” by R. Baer. Scary, very scary.
- It’s just not the US. A lot of major players are on the edge. Russia, the Arabs, China, Japan, etc. China’s banking system is a joke and they’re oil imports are skyrocketing. They’re already starting to feel the beginning of the real estate bust. There goes China’s banks, there goes a lot money to fund development, there goes the last remnants of Japan’s economy, there goes the major buyers of T-bills.
A special note that “nobody can predict economic futures.” Oh yes they can. The traditionalists went nuts during the dot-com days. They were warning everyone left and right that the “new economy” talk was idiotic. They kept bringing up the insanity of the P-E ratios during the bubble. And they were right but it kept on going for a couple more years. (I myself predicted a 3 month range when it would crash. It happened in the first month of that range.) Actually spotting a bubble is quite easy. But bubbles happen because people ignore basic logic and equations.
The US national debt became a bubble the day Reagan took office. It was taken back a notch during Clinton but other than that it’s been an completely unchecked monster. Borrowing money and promising future spending never works in the long run. Anyone with basic economic knowledge knows this. But the media (being controlled by ultra-conservatives) has tried to prevent the public from learning this.
I didn’t read all the replies, but during reaganomics we ran 8-11% inflation rates and the US economy survived. It even had a really strong burst in the 90s.
I suggest you ask your parents what they thought of 16-18% mortgages.
Such as his assertion that economics is as soundly footed as astrology? Respectfully, that sort of assertion seems more the product of arrogant ignorance than an understanding of the subject. Mathematician Ian Stewart made an interesting remark that physicists have the luxury of dealing in only a few dimensions whereas economists have to juggle myriad dimensions—no wonder they have such trouble.
I just scanned the article again and I didn’t see any mention of any date or time frame. As I indicated above, my interpretation of the story is not that we need to start speculating in gold. Putting one’s money into non-productive assets like that doesn’t seem wise, especially considering what a dangerous game market timing is. There must surely be an implicit ceterus paribus clause in his remarks, because it beggars belief to think that people engaged in significant negative saving would continue to do so if their position and prospects took a dive.
I see his remarks as something a CDC official might have to say to shock jaded officials into some sort of action appropriate to the level of threat. Imagine a small-pox researcher grabbing a Senator’s top assistant, shaking him, screaming, “It’s the end of the world! AAARRRG!!!” just to get a few research dollars funneled into finding out whether Soviet small pox strains stayed locked up. It would be irresponsible to take his comments out of context and report them to the world at large, which is what it sounds like the Boston Herald has done. Irresponsible reporting is the charge I’d make.
It seems hard to believe that the U.S. economy will never experience a wicked downturn. And it may certainly be true that Americans are overspending. But the tone of the remarks sound to be so over the top and outrageous that the only reasonable explanation for them I can think of is that they were embedded within an attempt to shock the complacency out of some people who are in a position to take some positive steps toward ameiloriating (sp?) a bad economic position.
Well, it appears that in light of possible economic difficulties for the US, you can save a lot, leverage yourself to the hilt by running up huge debts and let inflation take care of them, buy gold, shun gold and buy stocks, hedge by buying foreign currencies, or even better keep everything in greenbacks. By the way, you should worry a lot, a little bit, and not at all. Aren’t you glad you came here for insight?
Briefly, I wanted to say why I thought saving was a particularly good idea. After the business cycle burst in 2000, Greenspan acted immediately to lower interest rates in the hope that people would start spending like crazy, and generally speaking, in the hopes that the dollar would fall a little bit (making our exports more profitable, and causing people to spend on domestic products). I have read that he cut so aggressively because he failed to cut aggressively enough in 1990, and this was a reaction brought upon by experience. The theory is that consumer demand picks up, as a result business investment picks up, and the down turn is mitigated. In addition, the federal government runs a deficit, which means more money is in circulation, which ought to increase demand (and, in theory, can be paid back at the top of the next business cycle, when lots of money is sloshing around). While one may disagree with the implementation, the theory is pretty sound, even if reasonable people may disagree on whether that theory is correct.
Anyway, it didn’t exactly work. Consumers did their part, and they can’t really be faulted. Borrowing when the cost of borrowing is close to or less than the cost of inflation is reasonable and understandable. Failing to save when one is not rewarded for saving is also reasonable.
Why was borrowing so cheap? Because the other major economies, India, China and Japan, were lining up to lend us money. It is believed by some that this is going to change, and as a result the cost of borrowing will increase dramatically. The average American will be unable to lend money to anyone, since they owe all of theirs to their credit card and mortgage companies. That means those who saved up until that point are in a very good bargaining position: they have dollars, other people need dollars. When lending said dollars, either by putting them in a savings or money market account or buying bonds, they can charge a “I saved and you didn’t so there” premium.
In addition, a falling dollar, a lack of willing lenders, and inflation are all solved the same way: by raising the interest rates. In fact, if things get moderately desperate, then start thinking Volcker in the early 80s: a series of steep and strong interest rate raises to cool inflation quickly. A falling dollar, I predict, will make it possible for savers to get rates from safe investments (e.g. CDs, bank accounts, investment grade bonds) significantly above inflation. While gold has traditionally been a hedge against inflation, I have to agree with the poster who pointed out these aren’t traditional times. A lot of people have lost a lot of money on gold. A lot of people have made a lot. Consider carefully before purchasing gold stocks.
The major world economies aren’t going to dump the dollar out of spite; they are going to spend the dollars they have to improve the infrastructure in their homelands. The US has been a supplier of heavy equipment, expertise, and manufacturing hardware for a long time, and China and India building up infrastructure will demand those things. That’s why I recommended purchasing manufacturers with a significant overseas presence.
There is a joke: it is a downturn when your neighbor loses his job, and a recession when you lose yours*. While I do think the US dollar has a fairly long way to go, and that interest rates are going to go up significantly, causing many people to lose homes and have bad years, I don’t think it will be much worse than, say, the early 90s, and the American economy tends to be more resilient than one might believe, so the worst of it will be over within a few years. How bad that will be is largely a function of how over-extended you are.
- and a depression when the economist loses his.
OK, can I ask this another way?
I have the following investments–
[ol]
[li]A savings account.[/li][li]A CD, established just before the DOTCOM bubble burst. Still good until two years into Bush term 2.[/li][li]A 401K.[/li][/ol]
I have never invested in any other way.
I make $19K as a State Employee.
I am vested in the State Employee’s Pension Fund, which is not under the control of the Legislature, & is rated as the most secure in the South, & has been for the last 20 years.
What can I do with my limited skills & resources so I’m not sleeping in a cardboard box when I’m 65?
Here is a link to the website of a U.S. bank that offers FDIC-insured foreign-currency certificates of deposit, something that may interest posters in this thread. It’s mentioned regularly in the excellent Grant’s Interest Rate Observer.
ColonelDax, long physical gold bullion and commodity stocks
I say, Don’t do it. Buy a beater (or keep the one you have) and literally ride out the storm.
Now is not the time to be sinking working capital (i.e., rent and food money) into luxuries. Gas is expensive; damn the SUV.
Cars in general are a ridiculous expense, truly wasters of money, even when you are not paying interest on their rapidly sinking worth.