Happy Birthday

Discussion in 'Economics' started by SouthAmerica, Oct 29, 2008.

  1. .

    October 29, 2008

    SouthAmerica: Happy Birthday - A very special date for Wall Street: October 29, 1929

    When the stock market collapsed on Wall Street on Tuesday, October 29, 1929, it sent financial markets worldwide into a tailspin with disastrous effects, and the Great Depression begins.

    The German economy was especially vulnerable since it was built out of foreign capital, mostly loans from America and was very dependent on foreign trade. When those loans suddenly came due and when the world market for German exports dried up, the well oiled German industrial machine quickly ground to a halt.

    As production levels fell, German workers were laid off. Along with this, banks failed throughout Germany. Savings accounts, the result of years of hard work, were instantly wiped out. Inflation soon followed making it hard for families to purchase expensive necessities with devalued money.

    Overnight, the middle class standard of living so many German families enjoyed was ruined by events outside of Germany, beyond their control. The Great Depression began and they were cast into poverty and deep misery and began looking for a solution, any solution.


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    Here is what happens if you up date the above historic facts to reflect todays' current events and new circumstances:


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    When the stock market collapsed once again on Wall Street on Wednesday, October 29, 2008, it sent financial markets worldwide into a tailspin with disastrous effects, and the Great Depression begins.

    The United States economy was especially vulnerable since it was built out of foreign capital, mostly loans from China and other foreign countries and was very dependent on foreign capital to stay afloat. When those loans suddenly came due and when the consumer credit market dried up, the well oiled American consumer machine quickly ground to a halt.

    As consumer levels fell, American workers were laid off. Along with this, banks failed throughout the United States. Savings accounts, the result of years of hard work, were instantly wiped out. Inflation soon followed making it hard for families to purchase expensive necessities with devalued money.

    Overnight, the middle class standard of living so many American families enjoyed was ruined by events created inside of the United States, but quickly become beyond their control. The Great Depression began and they were cast into poverty and deep misery and began looking for a solution, any solution.

    As a last resort to lift its economy from total collapse and bankruptcy the United States were looking even to the prospect of starting a new major war such as World War III.

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  2. The real question at hand is one concerning the velocity and availability of money....

    To simplify....let's look at blanket prices for three types of economies.....and how one economy type moves to another....

    The three types...

    Highly levered...in all aspects.....from the family unit to the corporation to the government...


    Moderately levered.....


    Not levered......

    ................................................

    Also one should distinguish from the different types of countries....

    Advanced....when family, corporate, and government are levered....

    Emerging....when corprate and government are levered....

    Third World....
    When government is levered....
    ......................................................

    The US....along with some European countries could very well describe the increase in their economies as attributable to debt.....and not savings.....

    When the advanced stage fails....then the emerging stage is entered....and when the emerging stage fails...then the third world category is entered....
    .........................................................

    The obvious position that the US and Euro countries will be entering will be a lower leverage advanced economy....perhaps 2/3's less leverage than before.....

    When means that there are a lot of prices that have to adjust downward....
    ....................................................

    The solution is not for the government to try to preserve prices that were in the highly levered stage....but to accept that prices will move to the lower levered stage....and must allow for it to happen.....

    Any additional costs of trying to moderate this change ....just will end up as more costs to be paid by those that can....many years later....
    .....................................................

    Thus the solution either involves a social one...or a capitalistic one....

    The capitalistic one allows for more property rights, gains, and losses to individuals.....

    The social one....just allows the individual to have some work....but the state owns the firm....
     
  3. .

    To: southamerica


    Here you go again with your constant doomsday prognostications and bashing of America...if you find our country so deplorable maybe you should go back to the promised land of Brasil...but they aren't in such great shape either, are they? Talk of an IMF bailout is what I am hearing. :eek:

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  4. .

    Gyrene Dertra: Talk of an IMF bailout is what I am hearing.


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    October 29, 2008

    SouthAmerica: Not yet. But I would not be surprised if the United States needs to be bailout by the IMF in the future after the US dollar collapses.

    Brazil is in relative good shape with $ 207 billion dollars in foreign exchange reserves, China has about $ 2 trillion dollars in foreign exchange reserves.

    But there is one country - the United States - that its foreign exchange reserves is only $ 72 billion dollars plus the printing presses in Washington D.C.

    When your economy relies only in the printing presses to print money as fast as you can and borrowed money from other countries to be able to stay afloat then you know that that country is in very deep financial trouble and probably will need help from the IMF.

    There is an over supply of US dollars flying around the world – over 70 percent of US dollars ever created is flying around the world completely outside the US Federal Reserve and US Treasury circle of influence. Basically the United States is no longer a master of its own destiny, and very soon we are going to have the Mother of all International Monetary and Financial Crisis when the only use for the US dollar will be for people to use it as Confetti and nothing else.

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  5. dtan1e

    dtan1e

    doesn't brazil has oil, how come they always in poverty
     
  6. How many times do we have to repeat that those who don't learn about history are destined to repeat it.

    Just analyzing human history, what southamerica says might just happen again.

    The economy is still highly levered, market levels will decrease as derivative unwinding precipitates.

    Loss of jobs will continue to increase,
    talking idiots on tv can deny it all they want but i can say personally that once the big 3 here in MI get done with their job cuts 30k people will be without work. Bye bye Chrysler. You can bet they will be scraped by GM once the merger is complete.

    Hospitals are closing.
    An important note about the health care industry is that the increase in unpaid bills are going to increase drastically which will cause many more hospitals to go broke and since you can't legally turn anyone away it is inevitable. If i can't pay my mortgage, credit card, or food bill what makes you think i'm going to pay a hospital bill?

    Inflation will occur and when we will feel it is debatable but one thing that is for sure is that it will come.

    There will be a conflict of some kind you can bet on that.

    People get mad about doom and gloom threads because it makes them actually come out of their fantasy land and address problems they'd rather not.

    I hope i'm wrong but i don't see any upside to the immediate future.
     
  7. .

    Dtan1e: doesn't brazil has oil, how come they always in poverty.


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    October 29, 2008

    SouthAmerica: When Americans look at the people in Brazil they see people living in poverty, but the reality is that people are living under their economic means.

    I understand that living under your economic means is a foreign concept to most Americans, but what many Brazilians do on their daily lives is earn the money first and then they spend what they can afford.

    In the United States most people are in debt up to their eyeballs and they have the illusion that they are rich.

    Brazil is a poor country that has paid almost all its foreign debt, and the ratio of Brazilian cumulative debt to GDP is very low.

    The United States on the other hand is so indebted to the countries around the world that the US has mortgaged its soul and the future of many US generations.

    The cumulative debt of the US government is growing very fast from $ 10.5 trillion dollars to God knows how much in the near future. ($ 13 trillion dollars or more)

    The US also has a ton of other liabilities that are coming due to the tune of $ 50 trillion dollars. For all practical purposes the US economy is bankrupt.

    As the US dollar starts declining and getting in critical levels, Americans will need to pay very high interest rates and the interest paid in the cumulative debt of the United States is going to explode sky high.

    Here are the actual figures from the US government, this is the actual interest that Americans have to pay on an annual basis on its growing cumulative outstanding debt.

    Interest Expense Fiscal Year 2008 = $451,154,049,950.63
    Interest Expense Fiscal Year 2007 = $429,977,998,108.20
    Interest Expense Fiscal Year 2006 = $405,872,109,315.83


    Source: http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm


    If you start using the real US GDP of about $ 10 trillion dollars in the calculations and consider the heavy load of outstanding debt plus the liabilities that are coming due then you know that the US dollar should be close to a total collapse.

    In the United States people think that they are rich because they live in a house that belongs to a mortgage company, a car that belongs to a leasing company, all the consumer goods that Americans buy is bought on credit. If you asked me that is the description of the world of illusion, and a country that just pretend to be rich.

    What happens to that fantasy world when the rest of the world decides to stop supporting such a wasteful system and society?

    You call Brazil a poor country, but Brazil is the one that is holding US$207 billion in US dollar currency. Brazil is a creditor of the United States and the United States is the country that is indebted to Brazil.


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    If you want to compare the finances of the United States with another country you get a better comparison if you compare it with the figures from Zimbabwe.

    The United States government and Zimbabwe have similar concepts of how to run the value of its currency into the ground.

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  8. Those Brazilians are too smart to be fooled into being rich....
     
  9. That isn't a birthday (more like a death day) it's an anniversary.
     
  10. .
    SouthAmerica: Reply to Red Ink Inc

    You are right we should commemorate a happy anniversary.

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    #10     Oct 29, 2008