Worst Case Scenario

[MetalMeister]

Moved everything here to separate thread...

ArsenalFan,

You knew I would weigh in...    And I gave it a tag of Worst Case Scenario so people can comment on it and not mix it with the regular thread.

Two years ago I did not have a thought in my brain about how bad things can possibly get.  About the same time I got on this forum I joined another forum www.silverstockreport.com and while much of that forum was about silver and gold (and some on uranium), there are some very smart people on there who were talking about end game economic theories based on the world currency being meaningless and inflated and the peak oil thories, credit and banking stuff, etc, etc.  That was very early 2007 and they were predicting all of this happening.  Well, it's happening to a degree right before my eyes.  What did I do?  I kept reading both the contrarians and the optimists.  I am very much a pragmatist.  They were talking about massive bank and derivative failures, on that forum in 2006, long before you every heard anything about it in financial media or let alone mass media.  They were also talking about societal disintegration.  So I reached the point where I had read enough of their posts and started researching on my own.  I have become a believer that it is all too possible.

If you have been reading the news, it is becoming all too common where cities are laying off some police and firemen.  Nothing deadly, at least not where I live.  Just did a Google search:

http://www.google.com/search?hl=en&client=firefox-a&rls=org.mozilla:en-US:official&hs=qb4&q=layoff+police+and+fire&start=10&sa=N

http://multimedia.boston.com/m/21860149/police_fire_layoffs_coming_to_new_bedford.htm

States and huge cities all over the country have huge deficits.  We all know what has happened in California.  When unemployment goes up and tax revenues go down there is a propensity for increase in crimes rates.

I called my Dad the other day and asked him what crime was like during the Great Depression.  He said not too bad.  But then most people lived on farms in those days or farms were close and the food delivery systems were local rather than huge public companies.

Check out the first chart on incarceration:

http://www.justicepolicy.org/images/upload/00-05_REP_PunishingDecade_AC.pdf

And this graph just goes to 2000.  Inmate population is now around 2.3 million.

So what am I theorizing?

Our society has changed and dramatically in just 80 years.  We have the highest standard of living in the entire world as well as the highest incarceration rate.  What happened?

Moral decay. 

My hypothesis:  If we do not get out of this world economy, and soon, we will become a virtually lawless society.  Things like this are already happening in poor countries around the world.

Get the gun back.  Move to the country.

If you study the possibility that the other world countries may decide to not purchase our debt anymore than overnight we will be a second or third world country, unable to purchase oil in the quantities we need.  Our society exists only because of oil and the belief that the dollar is a safe haven (cash is king).  More and more articles are appearing around the world questioning why buy the dollar?

When cash is no longer king and oil cannot be purchased, society will degrade overnight.

I'm not saying it's going to happen but I am preparing for it.

Having a look around at some of the forums out there and I can tell you that its pretty scary what I am seeing.  Lots of anti-semetic statements, talk of guns and ammunition, safes with gold in the basement, revolt, revolution.  Wow!  I think the internet age is having an incredible impact on peoples sanity.  Does anyone really think things will cascade to anarchy? Please post with your observations and opinion. I am starting to question whether I should be buying a gun again.  Sold the 12 guage used for bear protection last year and by the sounds of some it may have been a mistake.  For the first time in the last 2 years I actually thought about purchasing some physical gold (you win yellowcaked!)  I know there are alot of educated folks on this board and your opinion is greatly appreciated.  I live in Canada by the way, not that it may matter in the end.  Signed...confused.

[pinetree]

Thanks for the input, YC.  Now here's the other side of the argument...

I've decided to just tune most of this stuff out.  I'm new to this game but my read on market history is that people predicting the end of the world is nothing new.  I think there are a lot of pundits out there who have figured out that scaring people can be quite a profitable business.  Some of these people may have good intentions and genuinely believe what they're saying is true, but I personally believe there are some fearmongers out there as well, who are just taking advantage of "mass psychology" and laughing all the way to the bank.

It seems that every now and then there's a new scare, and these ideas start catching on again.  Back in the 70's bear market and oil crisis there was a lot of this talk.  After the 87 market crash people were talking about the possibility of a depression.  The y2k scare is another example.  Just like every bull market where people think this time is different, so the same is true in every bear.  And many people out there will say this time really is different because of this and that.  But then I think of Howard Ruff's 1975 book "Survival And Famine In America" or his 1979 book "How To Prosper In The Coming Bad Times"... or Dr. Ravi Batra's 1987 NY Times #1 bestseller "The Great Depression Of 1990".  This kind of thinking is nothing new.  I know it's easy to be dismissive of those books now but they must have been really frightening at the time they were published, just as today's world is very frightening.  This time is always different, but somehow the sky always manages to stay in place and life goes on.

At least that's how I'm looking at it.  No harm in being aware of the possibilities but for someone like me, who's trying to build a life, I don't see how planning my life around this is going to help me any.  If Bill Gates was listening to these doomsayers back in the 70s he might never have founded Microsoft because he'd have been hiding out in his bunker with cans of soup and gold coins. If this time really is different and the worst case scenario does happen and we go back to the wild west days then I guess we're all f*cked, gold coins or not.   Would they even accept gold bars at the supermarket or the gas station anyway?

[MetalMeister]

Thanks for the levity, Pinetree!

Wild west days... 

Bill Gates is almost exactly one year older than me so I remember those times.  He dropped out of an Ivy League school and I got a Masters.  Who would have thunk it?

When I was in the 70s and early 80s, I was completely oblivious to what was going on around me except for the price of gas and having a job.  Economics did not affect my outlook on the future.

Those were my college and early Air Force years.  Back then all the Bible scholars were writing books on the end times because of the nuclear threat, European Common Market, Israel etc.

The contrarians have been wrong before, so have the optimists.

I would probably not lean toward the contrarian side except for the oil issue and world currency issues.

I would love to think we have a way out of this mess but my view is it's a perfect storm.

[MetalMeister]

Latest article by Jim Willie:

http://news.goldseek.com/GoldenJackass/1236277729.php

For a decade, the nation depended too much upon raiding home equity, upon jobs centered on the housing and mortgage industry, and upon extracting cash to spend on whatever they wished, whether productive, necessary, frivolous, or wasteful. The monumental and highly visible destruction, dismantling, and deterioration of the US car industry highlights the damage done better than any words or graph.

[MetalMeister]

http://www.doctorhousingbubble.com/banks-save-while-us-consumers-are-expected-to-spend-the-convoluted-problem-of-creating-a-debt-based-consumption-system/

A dollar saved is a dollar earned.  This important caveat has been missing for many decades in the U.S.  People sometimes forget that in order to become wealthy, you actually have to save your money instead of consuming it.  Is it any wonder then, that the U.S. Treasury and Federal Reserve trying to liquefy the system with access to credit, causes extraordinary confusion with most Americans simply trying to manage their finances?

[MetalMeister]

Found this medical phenomenon to be interesting when related to our current leg up...

One highly experience contact mentioned the hilarious story of his own experience when young, working as an orderly in a hospital. The male patients who die often boast a powerful erection immediately upon death, a strange phenomenon indeed, as the blood supply finds a path of least resistance. The current situation is no different, as the foreign central bankers show their newest ledger item, the dollar swap. See the rise in USTBond holdings (in yellow), fueled by a strong rise in CB dollar swaps (in blue) just since last autumn when the official swap was announced. Foreign bankers remain on the defensive. The US$ demand is not from commerce or normal banking. It is from emergency measures to fund liquidation demands. The chart provides ample evidence. Zombie banks require powerful energy in order to keep them erect and standing. Just yesterday the Federal Deposit Insurance Corp head Sheila Bair announced that 252 banks were in danger on the official at risk list. That is the most ever.

http://www.kitco.com/ind/willie/feb272009.html

[MetalMeister]

According to LEAP/E2020, there are only two options left for the G20 leaders who gather next April 2nd in London: either they rebuild a new international monetary system, creating the conditions for a new global system that involves all the main global players, and reducing the crisis to a maximum of 3 to 5 years; or they strive to prolong the current system, thrusting the world into a decade long tragic crisis starting at the end of 2009.

http://www.leap2020.eu/GEAB-N-33-is-available!-Growing-Transatlantic-tensions-on-the-eve-of-the-G20-summit-An-illustration-of-Wall-Street-s-and_a2940.html

[MetalMeister]

Good quotes.

http://www.gold-prices.biz/the-federal-reserve-the-greatest-scam-in-history/

The Federal Reserve was created in 1913-1914 in order to bring stability to the economy and yet almost every major crash, including the great depression, can be attributed to the Federal Reserve.

[Beginner]

For all you folk worried the economic and financial meltdown will eat into your social security and pension funds there is good news.  The end of the world is said to be scheduled for 2011.  So cheer up.  There should be enough cash in the kitty until then.

[punter]

yellowcaked, it is called 'priapus', a dead guys erection. They also used to put a brick in the mouths of the dead because blood  would begin to seep out after death making people thinking that the dead were actually vampires

[MetalMeister]

Beginner,

You're an optimist after my own heart!!!  My kind of guy.  But, I thought the end was 2012???  Anyways, I'm all cheered up now.   

Punter,

Thanks for the education.  Can always count on you for tasty tidbits.  Good to see ya! 


Okay.  Here are my thoughts on worst case scenario, for the day, something I was searching/Googling on and just stumbled across...  Just happenstance...  Just lucky, I guess.

This is regards to the U.S. savings rate as compared to the Chinese savings rate.

Incredible numbers!

A pretty good reason we are headed towards third world status:

http://ablog.typepad.com/keytrendsinglobalisation/2009/01/new-data-on-chinas-gdp-and-its-total-savings-compared-to-the-us-.html

It may, therefore, already be the case that China's total savings have reached in absolute terms those of the US. More probably its savings are still somewhat lower than those of the US in absolute terms but they are already approaching it.

While China's GDP will not overtake that of the US in absolute terms for some time, China has therefore either already overtaken the US as the world's greatest source of finance for investment or will do so in a relatively short time frame.

[jjj000]

It may, therefore, already be the case that China's total savings have reached in absolute terms those of the US. More probably its savings are still somewhat lower than those of the US in absolute terms but they are already approaching it.

While China's GDP will not overtake that of the US in absolute terms for some time, China has therefore either already overtaken the US as the world's greatest source of finance for investment or will do so in a relatively short time frame.

Either that... or there is going to be some serious class warfare/revolution there in China.  It's hard to imagine how insanely large the gap between rich and poor must be there for this to be the case...

[MetalMeister]

Either that... or there is going to be some serious class warfare/revolution there in China.  It's hard to imagine how insanely large the gap between rich and poor must be there for this to be the case...

3j30, you made me do some quick Googling!  Couldn't find anything quickly on how the populous feels about the drawback in China's economy but as we know they still are about 6-7 % growth which is a slowdown but not as serious as elsewhere.  Having dated several Chinese women, I know a bit about their culture and lifestyle.  They have come so far from the days when you got scolded by your Mother for not finishing your plate and throwing food away because there were starving children in China.  Their growing economy has given the poor great hope there and for the foreseeable future.  I don't think there would be a revolution this time around while hope has changed so dramatically in the last 20 years.  State media will just make the U.S. and European countries the scapegoat, I think.

Did find this article which is interesting:

http://www.shafr.org/2009/03/can-china-learn-from-germany/

Can China Learn From Germany?

Aside from a falling dollar, there is a second reason why China is unlikely to enjoy the full value of its investment one day. In the medium term, the yuan appears poised to rise against all major currencies, perhaps substantially.[3] When it does, its trillion dollars will of course still be worth the same amount when it comes to buying goods priced in dollars. But in relative terms, the Chinese are accepting payment today in a currency that down the road will likely not be able to purchase goods and services of an equivalent value back home. The real question is not why Beijing is starting to question its investment, but why it has sustained this situation for so long.

[Bottomfeeder]

YC...I think the simple answer is to keep the yuan down and or the dollar higher to maintain competitive advantages for their exports.

So they either have to buy more of our treasuries, to prop the dollar up, if not they essentially increase the value of their own currency, slowing their export business.  I think buying our treasuries is negative for the yuan.

Everybody has counterparty risk, and China doesn't win, by not buying our dollars, they lose with us, I think.

[Beginner]

The Economist has just issued a detailed economic forecast. In this report all
countries are rated for political stability in case of world-wide economic
collapse.

http://a330.g.akamai.net/7/330/25828/20090318195802/graphics.eiu.com/specialRepo\
rt/manning_the_barricades.pdf

According to this forecast the future looks grim.