Global Collapse and You

Discussion in 'Off Topic' started by LineInTheSand, Nov 2, 2012.

  1. LineInTheSand

    LineInTheSand USCGA 2006

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    Take a look at these videos and think about what this means for you... then we'll discuss. It is an issue that has HUGE security implications for the United States.

    U.S. Debt explained (in an easy-to-understand way...maybe perfect for members of Congress)

    http://www.youtube.com/watch?v=Ln6VGCB8f_c

    And this is the one that should really scare you. I couldn't find the graph from I.O.U.S.A (it's very easy to understand from that graph how unfunded liabilities affect us now, and how they will not too long into the future).

    http://www.youtube.com/watch?v=WFP-2_iDYMU


    The horror story (and if you saw the HBO movie "Too Big to Fail" you'll remember the rumor that Russia approached China with a story not too distant from this.

    http://www.youtube.com/watch?feature=fvwp&v=uPREuFcYKmM&NR=1
     
  2. Jason922

    Jason922 Future USNA Candidate '20

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    The National Debt is a huge problem and there is no denying it that like the democrats in Congress. Unfortunately, Congress has rejected most budgets that have gone through, and the deficit will continue to stay around 1T/yr for a while. We're moving towards a collapse like the days of 1929.

    I seriously hope someone runs as a reformist and puts the economy above all.
     
  3. goaliedad

    goaliedad Parent

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    There is an old saying that goes like
    When you lend out a little bit of money, you have a debter.
    When you lend out a lot of money, you have a partner.

    As much as the panic-sellers love the attention that an Armageddon scenario brings, it simply isn't going to happen unless the leadership at the top of the world financial powers panic and don't support each other (the partner scenario).

    The 3rd video paints the Chinese as the partner that pulls out. I would say that this is the least likely one. Chinese leadership stresses stability above all. They are not risk takers and the actions portrayed in the 3rd video are not the actions of risk aversion, but a country out to destroy its adversaries. They realize that we are now partners (much like the old Soviet Union and US were partners in a balanced system of military power). Once we had the USSR falling apart, we realize that we needed to control the decline and stabilize the situation, lest we have wider spread governmental instability. I suspect that if the Chinese suspect our (or European which is actually less stable than our financial situation) situation is about to collapse, they will actually server to buffer the fall, unless they really want to take their own economy down (along with their own grip on their own populace).

    The secret to unraveling this debt race to the bottom (remember, we aren't the only ones doing this), is to coordinate the gradual deceleration of the debt situation. And strangely enough, it is an increase in inflation that will be the secret to making it all work.

    Yup, we need to devalue both the dollar and euro against the Chinese yuan probably about 100% over about 15-20 years. This will take the cooperation (and considerable financial loss on paper) by the Chinese. At some point, they will understand that all the foreign reserves in the world are worthless when those economies collapse.

    The thing that keeps them from moving more quickly in this direction right now is that their export-driven growth is stalling (partly because of our predicament, partly because the growth curve does have limits) and they haven't made the transition to a domestic-focused manufacturing/service economy necessary to keep domestic stability. The other thing that is slowing this is the massive income inequality in their society, which is driven by the lack of rule of law that allows the wealthy to perpetuate their control. Unfortunately it looks like too many of the Chinese leadership are implicated in this mess, which strangely enough is the problem we need to fix first.

    What China needs is their equivalent of Henry Ford who decided that he wanted to use his manufacturing advantage to grow the market (through his paying workers enough to buy their products).

    That all being said, in the game of financial Armageddon, I suspect the Chinese would be the biggest loser. Quite frankly, they meltdown would not be as fast as pictured in the 3rd video, and I could see the US government going to a rationing system for critical resources (oil being the first) given a shutdown of global trade. While the temporary adjustment to a financial/trade meltdown would be incredibly painful (even more than the great depression because we are more trade dependent than we were then), we have the energy resources (i.e. natural gas) and the flexibility to adapt to changes that other cultures don't have.

    The Chinese actually can't feed themselves, nor have oil. Their social/political structure is far more brittle than ours. Their people are well experienced in hardship, but that was when there was equality (everyone was poor under Mao). When you close all the big export oriented factories in a trade war, you have a large number of displaced people with no social net and a large distrust for those in power. They have no institutions they trust except their families. That is where we separate ourselves from China.

    The Chinese government recognizes the fragility of their system and goes to great lengths to protect it. They nip everything in the bud. They put stability above all else. Thus my comment about China being highly unlikely to start the issue.

    OTOH, we would be the most likely ones to start such a financial war, given our history and political culture. Our political system moves quickly (in comparison to China) with significant political movements every 20 or so years. Right now it is the Tea Party. We had the Reagan Revolution in the '80s and the Great Society/Civil Rights movement in the 60's. We can be almost reactionary at times, especially bad times.

    This takes me to the comment about 1929 by Jason. Actually, we had our 1929 event with Lehman. This time we did a better job of escaping the liquidity trap the bursting bubble caused. The event that actually killed us was Smoot-Hawley that took a weakened economy and made a major disruption to it. The last thing we need right now is another similar move when dealing with the Chinese.

    Ultimately, we are going to have to deal with the debt/deficit. Of the ways out - default, harsh fiscal correction, inflation - the only one that has any semblance of control is inflation. Actually, the QE stuff the Fed is doing is part of that longer term strategy. And inflation has the benefit of being efficient at spreading the pain. Default causes incalculable ripples through the system based upon who holds the most cards in the game of bluff. Harsh fiscal correction (implemented as budget cuts/tax increases) while seemingly easy to correct year to year is operated by Congress, an institution that is not stable and isn't necessarily committed to fixing the problem. Inflation engineered by the Fed has a small number of people guiding it who have a longer time to implement changes before they must be re-appointed than Congress. Even then, they won't push things too far. That is what cost Volker his job after harshly fixing inflation at the end of the 1970's.

    While I am in no way a Bull on our economy, I'm not buying the survivalist mentality that the 3rd video seems to be pushing. In fact, those types and that message can be a self-fulfilling prophecy if it gets too much traction. Let's not listen to the voice of panic. And let's not listen to the voices that are saying a radical change to some magic bullet (balanced budget next year/gold standard/etc.) is going to fix our problem. It isn't just OUR problem and we need the entire world on board to fix it. This just takes everyone to stay focused and not to panic.
     
  4. LineInTheSand

    LineInTheSand USCGA 2006

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    I'm sure Bear Sterns would agree with you on that one.

    That said, the world is no where close to taking the correct steps, and neither the world, not China specifically, are as stable as I would like to see.

    One thing you can be sure of, when social security and entitlements start adding to the straight debt, and it really adds up, nationals will pull their "investment" in the U.S. sovereign debt, and we're done. I agree China has a lot to lose, and that is exactly why they would pull before they lost it all.
     
  5. Chockstock

    Chockstock "Forever One Team"

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    Man some of this stuff just goes right over my head and its almost impossible for the average person to even grasp the enormity of money that is dealt with between our governments and the economy

    Interesting and educational videos, thanks for sharing. I admit that I laughed a couple times because its so pathetic and sad on how we got into this mess.
     

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