Well it seems that our entire system became corrupted around the 70's, we stopped exporting oil, free trade agreements were signed soon after and our yearly trade deficit went through the roof as jobs shipped overseas and the population spiked worldwide creating more competition for resources. As a whole American's became poorer, but rather than living more frugally - American's instead put women to work and turned to credit for things that used to be paid cash like homes, cars and education. Since the 1960's the entire economic engine was a fraud, only driven by a yearly expansion in debt by both households and governments. Without yearly expansion of credit we instantly went into recession. During the last recession households deleveraged - but governments took on that debt by bailing out the same banks which households just gave the middle finger to. So the next crisis will not be so much about households, but it will be about governments that overleveraged and overpromised. The big difference is who can bail out governments the size of America or the EU? If America and the EU both share a crisis again, it could easily lead to a deflationary collapse into a depression. This is not the 1930's though; you can fully expect Alexis Tsipras style candidates to win offices, people would have food stamps, extended unemployment, government make work projects and so forth - but how much money will a government that just faced debt restructuring and cratered tax receipts really be able to issue without its populace losing confidence in its currency? Also, since money is debt, printing currency would require the expansion of debt; how does this work in the middle of a debt collapse? So perhaps America can walk this fine line and pull through, we will see. If the line cannot be walked and hyperinflation sets in throughout America and/or Europe then we can easily see a WWIII scenario.
Yes tommo, but what I was hinting at is that if safety is your concern - then you don't want free markets or globalization and foreign investment. Do you think North Korea felt the recent world financial crisis? No their auto factories hummed right along without skipping a beat. Free trade has been an abject failure for America anyway, a $500 billion dollar a year trade deficit is absolutely ludicrous. The whole concept of free trade is that we would be poorer if China never existed - do you really believe that; a world just like today, but where China, Japan and Korea never existed - can anyone seriously say that Americans wouldn't be doing great still? The credit market debt chart in my last post really tells the story - as soon as those free trade agreements expanded, Americans became poorer and debt went off the charts.
Povstanets To be honest safety isn't my main concern. It doesn't bother me if markets go up or down. There is money to be made both ways. my concern is the lack of free markets.
Nice analysis. I agree. I think it ends in mass devaluations, high inflation and a big reduction in living standards. Either way, we get a major depression. Whether its inflationary or deflationary remains to be seen.
I can understand that perspective, maybe globalization is more important to some; however, just keep in mind that free markets must be fair - you can't have free trade where your partners like China devalue their currency, have billions of slave labor workers like those at Foxconn who regularly jump to their death and where they have zero EPA style guidelines; how do you expect some struggling American company who say spends a lot on EPA and Osha compliance to compete with China in that sense? If you want free trade fine, but you need tariffs adjusted each year so that the net trade deficit is zero. In Australia for example the name brand clothes we take for granted cost a fortune due to tariffs, why isn't America doing that? Its simple things.
Good analysis. I largely agree. However I think trade tariffs are one thing. But the whole world hooked on what a central banker is going to say is very wrong. But to be honest I've yet to meet anyone outside government spokesmen that think it's a good thing
Agreeing with "povstanets" just means you haven't lost the admitted "lunatic fringe" aspect of your beliefs yet. You can't possibly be older then 35 because past decades are instructive on why some of the nuttier theories on here aren't realistic. Here's an example of how confirmation bias and doom and gloom can cloud one's judgement. The US unemployment rate was 9.8% in 2010 ( up from 2009 ), and recently dropped to 5.1%. "S2007S" decided that it was proof that the "economy was useless" because the report fell short of consensus. Basically, what he is saying is because there weren't enough new jobs to his liking, the economy is done for. Makes no sense but when someone lacks common sense and wants really badly to believe in his theories, they'll grasp at anything really. 140K in new jobs is a bad thing to him. In reality, the main thing one could argue about on these NA job reports is the quality of the new jobs. Quality of jobs doesn't really kill an economy though, it just means people's standard of living drops. In other words, less prosperity, maybe a rather flat economy constantly on the verge of recession, but depression and a collapsing economy really aren't in the cards. I suspect that in 2016, we will be back to the doubters questioning every data point as being gamed, fed propping up markets theories, "fake money" ideas, and the impending crash "like none we've ever seen" will get frequent air play on here. When markets correct, suddenly it's supposed to be a "real market", and any data point that "disappoints" is seen as confirmation of a long term bear market. So the data is only deemed "real" if it supports the doom and gloomers end game. I wonder if some of these guys realize that if they were correct, the most likely end game is they lose their jobs, there is social unrest all over the US, and most fail to trade the drop efficiently enough to make up for lost income.
Your absolutely right, past decades are very instructive - specifically 1929. The great depression was caused by a boom in stocks, real estate and consumer goods purchased on payment plans causing total credit market debt to reach almost 300% of GDP. How is today any different? The opinion I have formed has history on its side along with Federal Reserve and BIS statistics; what do you have - a hope and a prayer? Read this BIS paper and understand how credit booms precede depressions, then get back to us; The Great Depression as a credit boom gone wrong.