Pulling the rug out

[blygh]

My overall perception of the world financial situation is giving me an uneasy feeling that the rug is about to be pulled out from under us. - Despite buyouts and takeovers - there are just a lot of negatives - the Euro, deflation, tax increasses, political grid lock, debt levels. I think there will be a resurgence of socialism as Greeks, Portuguese and French vote to take from the wealthy to support their life styles.

Anyone else feel this way? I am tempted to go to 100% cash and short term bonds . But it is just an overall feeling.

Blygh

[bankedout]

I have been in cash for a long time. I think there is great risk, and a meltdown could happen any moment. However, I'm not certain that my cash will have any value during or after a meltdown.

I would think at some point the world has to move away from faith based currencies.

[dg]

I agree. I think we should base money on the value of energy. Then people might stop mining for all the gold in the soil and start seriously mining energy from the sun and the earth's interior (where most of it exists). Based on kilowatt-hrs or its equivalent, we could have a currency that makes sense. If you think about it for just a microsecond or two, energy impacts the value of money today anyway because it affects the cost of commodities. Each time the price of gas goes up, so goes the price of everything else. If our money were based on energy, the price of commmodities would stabilize.

Thinking in kwh units, tomatoes would be about 18 kwh/lb and loaves of quality bread would cost about 27 kwh each. A gallon of gasoline would be about 17-20 kwh. A mid priced car would cost about 150,000 kwh and a mid priced home about 1,500,000 kwh. Yet a chocolate bar or an imported beer would go for about 8 kwh.

Interestingly, combustion of a gallon of gasoline produces 1.3x10⁸ joules and a kilowatt-hr equals 3.6x10⁶ joules. Thus at full conversion, a gallon of gasoline should be worth 36.1 kwh. It is probably priced lower due to engine inefficiencies (and pehaps political pressure) when viewed at the function end of the process. (If combustion temp were 500C and output temp were at 20C, engine efficiency would be about 62%; thus .62 x 36.1 = 22.4 kwh. Of course, gearing friction would further lower the final number). The point here is that the price of gasoline, although expensive to our way of thinking, is really underpriced. We in the US are only paying half price for its energy output potential -- hard as that is to believe.

I checked the internet for current cost of a kilowatt-hr and found this: www.eia.doe.gov/cneaf/electricity/epm/table5_6_a.html It seems that the cost varies considerably across the country and seems to reflect cost of living per area (being low in poor rural areas and high in metropolitan regions). I assumed the number to be approximately 15 cents when performing the above calculations. Obviously with the variations, if paid in kwhs, the money would seem less valuable in the poorer regions (unless all prices went with current kwh prices).

[blygh]

I am fascinated by the idea of faith currencies. Gold is the ultimate faith currency since its utility is minimal. It is a psychological commodity. But at least it cannot self replicate on demand. I guess I considerate it to be like baseball cards or any collectible - just more unversal than most. The method of storing unconsummed value has always been a problem. Potentially productive real estate and gold have long stood the tests of time. Energy is also interesting - but also potentially destablizing. The influx of too much gold into Spain in the 17th century destablized their economy. A similar destablization occurred with the Alaskan and Australian gold rushes. Cheap solar cells could change the energy market radically. I read recently that there is ten times more oil under the sea than under the land. Remember GS predicting $200/barrel? Patents and copyrights can hold value for a while Art works of dead artists seem to work well but are market dependent.

But on the more general question of the world economy - I sense that a lot of people - especially retirees and boomers are hovering near the exists and willbolt at the drop of a hat.

[ira85]

I'll take the other side of this wall of worry. There are a ton of problems in the developed world, Japan, Europe, and the U.S. But despite it all earnings are exceeding estimates, interest rates are low and stable, and the developing world is still expanding providing purchasing power for tech and other American exports. Slow growth, low inflation, low interest rates could start looking like a Goldilocks economy. Lots of investors are too heavily weighted in bonds. As money rushes out of bonds and people find themselves lagging and under-invested, we could see a melt up. -ira

[bankedout]

In my opinion the real focus should remain on debt. Both current and future. Our debt level is astronomical and growing quickly every day. At some point, those who have been willing to buy our debt in the past will no longer be willing to do so. This has already started on a small level. The next step is for debt holders such as China to attempt to liquidate all or some of their current holdings. That is when the rug will go bye bye, in my opinion.

[dg]

I agree with the debt argument. China has been buying gold with dollars like crazy for the last few years. It clearly wants out of the dollar. And when that action is complete, goodbye US economy! History has never shown a fiat money system to survive past its transition phase to my recollection. We are now situated in economic decline. Our economy is a house of cards, doomed to eventual collapse.

[ira85]

The huge and growing debt burden in almost all of the developed countries seems like a disaster waiting to happen. My earlier post is about the nearer term. I think we could see a surprisingly good market until something like maybe one or two European countries defaulting on their debts, sparking panic selling. Then its lights out.

But I think DG's post on an energy based currency is intriguing. Precious metals have been used for so long, I never thought that something else could used as a hard currency. If energy was a currency, wouldn't that provide strong incentives to find more efficient ways to print money/produce energy? If you wanted to stimulate the development of cheap energy, that would seem to be the way to do it.

[dg]

Energy costs drive our economy now. Raise the price of fuel and everything goes up -- food, fertilizer, pay, virtually everything. But if money were based on energy, there would be no reason to inflate prices of other things (based on energy changes). And should more efficient energy be obtained, there would be no (energy) reason for deflation either.

Another benefit would be the ceasation of mining for gold. What would be the point?

[bankedout]

ira,

I don't think anyone knows how long it will take for the bubble to burst. It could be soon. They say things usually go in one direction longer than everyone anticipates. So maybe there is more time.

I'm not sure if we are at the stage where we are borrowing money to make interest payments. That would be a bad sign. A nation revolving debt.

China and other producers are benefiting from the current situation. They are using their surplus to build infrastructure. China is also building the World's largest Navy. I'm not sure how far along that is. I'm sure it is a difficult decision for them as to how far they should let things progress.

What about a fixed World currency. Such as X amount of bills/notes. Kind of like how you play Monopoly. I'm not really good at figuring out solutions for problems this complex.

In my opinion people should take advantage of the fact that other people and businesses are still willing to accept our paper currency. Try to convert some of your paper in to fixed assets. Maybe real estate or anything else that may hold value during a financial disaster. Tools and ammunition?

It's not a good idea to think about this stuff all of the time. Too depressing.

[blygh]

The Global Dow looks like a double top AND a head and shoulders top

[dg]

This might be a good time to stock up on long term storable food items and drinking water (and ammunition enough to keep them). Canned fish, soups, canned fruits and veggies, flour and water, cold weather clothing and blankets, plus energy items such as gasoline, firewood, lamp fuel and the like. When the hammer falls, panic and looting will probably be rampant, and the opportunity for obtaining these items will be gone.

[bankedout]

Remember seeds to plant vegetables also. Rotate stock so things don't go bad while you wait. It sounds so crazy to talk of these things but I think it is a real possibility.

[sd]

Guys-
How did Gomer Pyle say it ? GOLLEEEE!

You guys are sounding like the Asteroid is about to strike planet earth! It won't be that dramatic at all- It will be much slower, Like a slow cancer.... will take several years- or decades- before the Chinese banker walks up to you with the new mortgage policy they have on your property and tells you they have to accellerate payments and are foreclosing!
While it is definitely prudent to be as self-sufficient as possible- and I believe a legally armed citizen is a responsible citizen- we are not going to fall into total chaos.....This will be a slow and gradual continual decline, over the next decade or so as our fiscal malaise slowly comes to fruition. We will give up personal rights as taxes eat us up.
While the Euro contagion is re igniting this week- with Ireland, Portugal, Spain all concerns- And Korea flexing it's muscle?
And many of these United States will be unable to support their budgets..... Start with California.......
We've had this discussion before- It's simply a rebalancing of the world economy- The US had such a higher standard of living than the rest of the world- for decades- But we gave away our competitive drive- our edge- for cheaper goods from those who wanted to improve their lives and were willing to work 7 days a week to survive. And they did so for minimal wages for decades.
We made the deal- Call it Nafta in the Bush era, it's all about the desire of people with a lower standard of living willing to compete with those that have a higher standard- Or more appropriately, the savvy businesses that know how to maximise the profits in a new world economy.
Here's the reality- The US has a 10+% unemplyment rate-
(90% of us have jobs. That's not good by historical standards, but what about the quality of the jobs that are becoming available?
I believe it's a total rebalancing- Get rid of those overpaid higher cost employees and revamp the company with lesser experienced and cheaper employees- all the while cutting the budget, the benefits and the costs line item by line item.

Ultimitely, we all become a "line item" on somebody's tally sheet. Unfair perhaps, but it's the reality we live in- People are only a commodity - necessary only when it cannot be automated.

We are no longer the US of A us older folks believed in.

My children will struggle to have as good a standard of living as they had growing up- opportunities are less.
They're not in the elite top 1% that Toffler predicted some 30 years ago....
DG will know this ratio I expect -_____ Law- Technology
advances in cycles and doubles in 18 months. Now, social development is striving to catch up with technological development.........

The world is trying to rebalance the playing field. Like we are talking about rebalancing our economy- Take from thje most affluent, and distribute to the most needy.
This is now the emerging economies time to shine-They have the cheap labor resources.
It's also politically correct - They also have the natural resources to exploit along with cheap labor-

Ultimately, there is that narrow 1% or less of individuals that live outside the constraints most of us have, who own or manipulate business to serve their ends- I guess this sounds like the definition of a capitolist unless you are on the downside and on the receiving end .

On survival>>>
I'm back in the tree stand tomorrow pre-dawn-
Since the leaves are dropping, I've taken to camoflauging my stands some 20' high in the air.
Made some pvc inserts that allow me to camo the stand with vegetation.....
Making some venison sausauge and jerky this Thanksgiving week.
My daughter cannot imagine anything so barbaric-

If it doesn't come processed from the store, how can you eat it?
My extra 40 years gives a different perspective.

I recall the lessons learned by my mother - growing up in the depression- although she was young, she remembered the lessons her family endured . Even today, she lives well within her means- lessons learned some 70 years ago.

Our children - present day- will also live the second great depression- When? hard to say- Politicians and governments can play with all the variables- and post pone the inevitable.

When I was growing up, -in 1962 everyone was ready to build a bomb shelter- because Khruschev and Kennedy were about to wipe out the civilized world with a nuclear war.
I remember my parents talking about living in the basement if the war started....
No telling how many families built a shelter and stock piled food for 6 months- Like my Mormon friends- food fora year...

When disaster comes, it will likely start with the slow attrition of personal rights and liberties over years, great inflation and tax increases , and we, the present majority will be just a weak voice in the decline years hence.

All the rest - even a melt down of Europe- it's all about the rebalancing of wealth on a world scale.

Everything will revert to the mean - eventually- May take 50 years...
And decades of war, as nations strive to fight the inevitable forces of world change.? Is this our future? Let's hope not.
When the world gets to economic chaos, wars start-
We think we are so far advanced from World War 2 , but throw this world into an economic upheaval, and there is no idea where things will erupt.
Long the EUO this week-Happy Thanksgiving all!
SD

[ira85]

Great to hear from SD!! And during deer season of all times! I think it was Moore's Law he was referring to about the number of transistors in an integrated circuit doubling every couple of years and computer speed and processing power doubling as well. Although Gordon Moore made a highly accurate prediction about computer advances, most long range predictions are full of misses. Where are the flying cars? Remember in the 1980's how Japan's economic miracle was going to dominate the world and we'd all be indebted to wealthy Japanese in the future? The Chinese of today are the Japanese of the 1980's. Muslims today are the Communists of the 1950's. There are a lot of potential perils out there. I just doubt we can identify the really dangerous ones and do anything about it. We often end up wasting time and resources preparing for threats that don't materialize. Then we're blind-sided by something no one expected. In the 1930' and 40's who would have thought the biggest U.S. public health problem at the turn of the millennium would be obesity related maladies?

Good hunting to SD!