Re: Google - "Economy Slowest in Three Years"



On Fri, 3 Feb 2006, Marc wrote:


"Marc" <someone@xxxxxxxxxxxxx> wrote in message
news:AMOdnfj0W8H_Mn7enZ2dnUVZ_tqdnZ2d@xxxxxxxxxxxxxx

"Aging_Recycled_Scientist" <biker3a@xxxxxxxxxxx> wrote in message
news:1138471737.525029.273490@xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
The great crash of the US economy and the world economy of the 21st
Century is beginning.

I would recommend that you convert all your assets and cash into
tangible goods. These might include guns, cars, hardware, gold..
real estate (apartments), , that can be exchanged for other tangible
goods. These goods might include gold, silver or diamonds.

The big crash is coming...

If I had a dollar for everytime I heard the big crash was coming I'd be
rich, and then I wouldn't worry when the big crash came. The problem with
betting on the big crash and converting all your assets into tangible
goods is that if you bet wrong your money will have been invested into
depreciating assets. Then you're screwed. I recommend instead a balanced
portfolio of overseas stocks, water futures, utility bonds, a stock of
canned goods and collector wines. Its amazing what people will trade for a
good bottle of wine when the world looks its bleakest. When the bottom for
a while at the bottom and they dont make land anymore.

Somehow the last sentences got scrambled. My followup advice was when the
bottom hits take all your wine prfits and plunge into real estate.
Carpenters will be had cheap for a while at the bottom and they dont make
land anymore. (except in Hawaii)

I would appreciate some extended and expanded discussion on the above lines of thinking.

I don't think one can come up with a single strategy for handling the next "depression" because what you do will depend on what resources you already have plus the assumptions about how long and deep the depression will last.

For most items/assets one can think of, most of them will lose value anyway in a depression (since, on average, most people will have no or less assets than before the depression) and for most retail transactions, only dollars are legal tender. Shortages, as in during WW2, did cause prices for those items to go up (but then ration coupons and black market deals were also available [what I read indicate that all plans to control the black market and rationing didn't work too well, anyway]). The only winning strategy is to be rich, buy up the real estate at depressed prices, then when (and if) the economy picks up, then you make out like a bandit. The diversification into other currencies (eg. gold) is fine if and only if the depression is localized (eg. the Asian economic crisis of '97-98 and gold prices didn't change much then, anyway [but in the last 1-2 years, gold is up quite a bit]).

I tend to agree that something major is going to change in the future and it won't be good for our economy. Marc's first sentence above ("If I had a dollar for every time I heard....") seems to denounce the notion of a future major crash but it and the following sentences provides no basis for "not to worry" and I'm not sure the recommendations are that good unless one is thinking of stocking up commodities that only rich people use and keep up one's lifestyle by then selling those commodities to them. My recollection is that in past slumps, even the rich people cut back, too. Today, I'll bet that rich people are more leveraged than at any time in the past, so if the economy tanks, its going to take a lot of them with the rest. And, the bankruptcy laws just changed to make it much tougher to walk from debt. Derivatives? All that I read is that very few people understand them. Re-insurance? That whole fabric can come unraveled quickly, too. Going "short" in a continuously declining market will lead you to zere or close to it.

So, will there even be a crash? No proof is available. No calculation can be made. And, there are lots of rationalizations against it (banks don't go out of business any more because the Fed will step in first and close the bank before a run will kill it, and because the FDIC is there. The markets will also suspend trading, broadly or narrlowly, if things are not right [eg. the Hunt/Silver debacle of ~1980+]). I have read books written 30 years ago that say that our "debt crisis" is getting worse and it will kill us and kill us soon and yet the wheels keep going round and round. What caused the crash of '29? Books have been written about this, casting blame in many directions. I think no one has a complete answer but I favor the soft notion that the crash of '29 was a shock to the investor class and the real damage began some 1-2 years later when general "confidence" in the future _began_ to fall appart and that led to a slow, long, and continuous _decline_ which showed up as: i) decreased buying, ii) layoffs, iii) cessation of all expansions, and that all turned into a growing snowball coming off the top of a snow-covered mountain. That period lasted some decade+.

Could this happen again? The Asian economic crisis of '97-98 was understandable in hindsight (see Duncan's book "The Dollar Crisis" which describes all of this, and other economic crises [including the Russian debt crisis ~1992, Mexican debt crisis ~1980s, LTCM crisis, etc] very well) and not as well understood by me to explain here without going back to the book but central banks (including the Fed) pay a lot of attention to world economic details that are far far far beyond my time, tallent, and resources and they have limited resources (they can buy or sell currency, bonds, etc.) to handle to limited degrees economic shocks. And, that is where the rub is. If some economic shock is beyond those limits, then "boom" (as in explosion). If some kind of sudden chain reaction takes place, then "boom" (eg. Enron/Andersen), and particularly if the chain reaction takes place suddenly and spreads outside the range that it can be controlled (eg. the so-called Japanese real estate "liquidity trap" where, for about the last ten years, interest rates there were zero and the whole thing humbled the Japanese mindset from the decades before where they were begining to think they might have reason to start thinking of themselves as a "master race" [remember the book "The Japan That Can Say No"?]).

So, could this happen again? Anyone who cares to read the history of markets and banks may be surprised to learn that, over the last 500 years, bank processes that everyone thought were just fine ended up, through one circumstance or the other, causing quite large numbers of people to lose all of their money (Griffin in "The Creature from Jekyll Island" covers this the best of all the books I've read and/or heard about, but also "Devil Take the Hindmost" [forgot the author's name just now] is another
good book). Basically, we have, today, all these very clever "safety
mechanisms" and substantial "trust" in brokers (without mentioning the
constant level of background associated _crime_ and legal cheating
[depending on whom you talk to <ask me for a list of titles, some of
which I have read, including Michael Lewis' "The Money Culture" most of which is not that great, but the few chapters on scams will open your eyes>]).

The US crash of '87 has been analyzed (see the book "The Secrets of the Temple" by Grieder or Greider [I'm in the beginning of this book, now]) and was caused, from what I gather so far, some combination of forces set up by Paul Volcker and the Reagan tax cuts. Yet, when it happened, so the story goes, the Fed "saved the situation" from spreading out where it would go out of control. So, there are lots of real-life events which have happened recently that could have spread and this is mentioned in some of the books I've read. The Asian economic crisis of '97-98 never touched the US economy simpley because as a fraction of the size of our economy, the Asian economy was: i) pretty small, and ii) they handled the necessary corrections pretty well, pretty rapidly (so the books say).

If we don't have a rapid, catastrophic crash, then the other preferable outcome would be a "soft landing" decline. Many books have appeared recently that talk about signs of this at present and others have been around for decades if not centuries on past declines and ends of empires (eg. Gibbon on the Roman Empire, but other experts disagree about this), at least conceptually if not historically, so the pheomenon is being recognized. Population growth in Japan is expected, this year, to be virtually zero and they are talking about a population contraction from here on out. The demographers are even projecting for most other countries, including the USA, the same tipping point and I think there is no thinking about how to have a capitalist economy if the population goes into long term contraction.


Marc is thus invited to expand on his strategy (strategies) for combating a crash by buying up expensive wine and then investing the profits in land, etc. I say it might be OK for a few very rich people who can ride out a slump, but its not going to help the masses.


.

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