Now, I haven't read the forum in a while, but upon browsing the recent Off Topic posts, am I correct that nobody's been talking about the global economic disaster?

Or maybe you all know something I don't (as always) and aren't worried about it?

I can only speak for myself, as I go out of my way to avoid looking at exactly how much money I no longer have. Luckily, all of that was tagged for far off in the future. I have some sympathy for people who were overinvested in the market relative to their risk profile, but you know they bought into the hype.

A lot of ink has been spilled on the topic. What's most interesting is what hasn't yet happened: dollar devaluation. In the market crash, stocks everywhere went down together, and the dollar has even strengthened against other currencies. My zillion dollar question is whether inflation will pick up in the U.S. and whether the Federal government will be forced to adopt austere, even draconian, budget and policy measures to deal with it. I've occasionally asked Google News for hits on stagflation. Two years ago? Almost nothing. These days? Lots more hits.

I think a real economics professor (Arjo Klamer) summarized it nicely on dutch tv recently: It's the financial markets that are in a crisis now, not the _real_ economy.

If you really believe that then I am afraid you are in for a bit of a nasty shock. The next three years are going to be as bad as 79-82. The markets crash is both a cause and a symptom of the fracture of the credit markets, which is by itself going to cause significant pain. That is overlaid by those economies where indebted consumers are going to have no choice but to rebuild their balance sheets as the value of their assets goes below their outstanding debt. It's going to be really ugly, really quickly, in the 'real' economy.

There was a similar discussion on Downsizer recently. I guess most of us don't really understand what's going on and feel powerless to influence events.

Where do you think the Federal Government got the zillion dollars they're pouring down the Wall Street rat hole? The same place they'll get the money to keep from having to adopt austere, even draconian, budget and policy measures: the printing presses are running overtime. I'm dead serious when I say that within a few years someone earning $60,000 a year will be saying "Would you like fries with that?"

Admittedly, I am no expert on economics, all I have to rely on is common sense concepts like you can't borrow your way to prosperity, and if you spend more than you earn you are heading for trouble. Maybe I'm hopelessly naive, but it seems to me that the root cause of the current difficulty is that a large percentage of the wealth of this country, of the whole world, is/was illusory. People thought they were wealthy because they had $400,000 in assets safely tucked away with Lehman Brothers. Lehman Brothers thought they were wealthy because they had a hundred billion dollars worth of assets safely tucked away in real estate mortgages. The person who owed the mortgage payment thought he was wealthy because he knew that his assets were safely tucked away in his overvalued house (assessed at three, five, or even ten times its replacement cost) that would always continue to increase in "value", and he had money safely invested with Lehman Brothers, ad infinitum. Even the people with real money tucked safely away under their mattresses will turn out to be not so wealthy, because all they have is green paper whose value will prove to be illusory just as did the "wealth" managed by Lehman Brothers, although hopefully (yes, even I can muster small shreds of the H-Word) that value will not fall to the same degree.

What we are seeing now is a global reassessment of wealth based on actual value. Contrary to popular belief, "value" is a more complex concept than the simplistic idea that something is worth whatever someone else is willing to pay; it must also be considered in terms of its true cost. This applies to services as well as material goods.

I have always valued goods and services in terms of "...how many man hours did it take to produce it?", with the full understanding that many (most?) man-hours are intrinsically worth more than mine on the basis of education, training, and skill. I question, however, the idea that an hour of Michael Schumacher's (Formula One auto racer for the non-gearheads among us) time is worth 70,000 times as much as mine. I mean if he could drive 70,000 times faster than I, he would be approaching relativistic velocities! (Those are not a made-up numbers, I did the math.)

Anybody who thinks things will get better before they get a lot worse is in for a rude awakening.

tanstaafl. (aka "Cassandra")

http://en.wikipedia.org/wiki/Amero

heh
As I drank in Fiddler's Green after the Fleet Week air show a Brit tried to convince me that W had already signed the Amero into being three years ago.

Actually value is defined as whatever someone else is willing to pay. There is no other way to value things. Think about real estate, houses in Detroit,MI are selling for very low amounts (like $1 on Ebay). It would probably be easy to find an example of a house there that is selling for less than material cost.

So the issue isn't that we are going back to some absolute idea of value, the issue is that the whole financial system is based on trust. Those with money trusted Lehman Brothers and others to be good stewards with their money and Lehman Brothers bought mortgages trusting those who said they were safe investments. That whole system of trust is now broken and it could take years for it to come back together.

No, they haven't printed new money. For one thing, most of that money is a guarantee, not hard currency. But most of the influx of money into the US has come from foreign investment.

Also, you seem to be arguing that the way the government will avoid inflation is by creating inflation. The easiest way to cause inflation is by printing more money. This increases the amount of currency relative to the buying power of the economy, and makes the dollar worth less. Most of the sane bailout packages include things like buying mortgages at a loss or restructuring those mortgages. That keeps the loss of wealth contained within the sectors that caused the loss (or, really, bubble) to begin with. Printing up money to cover that just spreads the loss to everyone, and ends up hurting the poorer rather than the wealthier.

If you owned 100 shares of some company, they remain 100 shares. No matter the current market price. Presumably the averages, over time, will leave you with an upside.

However...

If you had purchased $1000.00 of Nortel stock one year ago, it would now be worth $49.00.
With Enron, you would have $16.50 left of the original $1000.
With WorldCom, you would have less than $5.00 left.
If you had purchased $1000.00 of Delta Air Lines stock you would have $49.00 left.
If you had purchased United Airlines, you would have nothing left.

But, if you had purchased $1000.00 worth of beer one year ago.
Drank all the beer, then turned in the cans for the aluminum recycling refund you would have $214.00.

Based on the above, the best current investment advice is to drink heavily and recycle.
This is called the 401-Keg Plan.

I guess the beer gut would be a downside risk?

Pouring the beer down the drain would still have been a better investment.

How so? Beer gut-wise, if you lost your job you could make it for like 3 or 4 weeks on your fat reserves.

This is my nomination for post of the year, in the Off Topic category.

Sorry. "... than having purchased any of those stocks."

That doesn't sound right. 21.4% of the cost of beer can be recovered by recyling?

Taking an Aluminium price of $2.20/kg (in bulk). That's 100kg of Al. I'll guess at $20/carton of beer (fairly cheap I think) so 50 cartons. That means 2kg of Aluminium per carton. No way...

To reverse it around: a can only weighs about 15g. 100kg of Al is ~6600 cans. 6 for a dollar?

Even aluminium has dropped from around ~$3/kg to $2.20/kg in the past few months.

Is my maths wrong?

Seconded!

This made me feel a whole lot better about being in between jobs, and little more than over weight at the moment

Cheers

Cris.

In many states, the cans have a $0.05 deposit on them that exceeds the price of the scrap aluminum.

So, even buying cheap beer on sale, $1,000.00 worth of beer would only net you $47.62 in deposits on the cans. Still competitive with the stock markets...

LOL "Is our children learning?"

Yes- I know you guys say 'maths' when we Americans say 'math'.
Just made me chuckle.

I think you misunderstand me, Bitt. The government is not going to avoid inflation. They are going to inflate the holy hell out of the currency as the only possible way of digging themselves out of the 11 trillion dollar debt they have already run up, more than 40 trillion if you take into account the "guarantees" they have promised like medicare, social security, and oh, yes, let's not forget interest on the debt. A perspective: The U.S. spends more on military than the combined totals of the next 15 countries and the military is by far the largest portion of the national budget. The interest we pay on that debt every year would fund nearly half of the military. The debt continues to rise at a rate of more than a million dollars a minute. Don't believe for a million dollars (oh, wait, minute) that there is any way out of this morass short of paying it off with fiat money.

tanstaafl.

Yes that's the ticket- collect a bunch of cans and bottles and drive to Michigan where the deposit is highest! Oh wait someone tried that and got arrested..

In a country with a GDP of $25 million dollars a minute. It would probably be advisable for the US to reduce its debt once it's out of the current recession, but current levels do not constitute a problem, much less a "morass", unless there are fears the US will default on some of that debt. Which there's currently no reason to fear, AFAICT.

Is it just the trillions that are unsettling you here? Suppose the US had debt of $13, thirteen bucks, was due to add forty cents to that debt this year, and had an income of $9 per year. Would you be as worried?

Peter

Here's what you said, with context:


So Dan asks "what will the government do to deal with inflation" and you respond "print more money". You cannot deal with inflation by printing more money; that will only worsen the situation, and would be likely to be the root cause to begin with.

So if that's not what you meant, what did you mean?

Agreed. Even economists who normally push for deficit reduction agree that now isn't the time to do it.

http://www.nytimes.com/2008/10/20/business/economy/20cost.html

My attitude to the whole thing is that it isn't my fault and the there's bugger all I can do about it. So why worry? If I lose my job there's still a massive freelance market with a great demand for the unique skillset I possess. Admittedly it's not 7 miles down the road like my current job, but it's no biggie.

I have very little in the way of savings (everything I have is in conventional savings accounts in high street banks and building societies). I still have 4 years of my fixed term mortgage to go and my credit card debt is shrinking rapidly.

Yea, likewise.

I have 10 years to go and no other debits. I just hope by the time I get debit free my taxes aren’t through the roof. I don’t necessarily expect to retire and do nothing but it sure would be nice to kick back a little.

You say tomato, I say tomato.... well that doesn't work here. You speak "American", I speak English

Had I not abbreviated it would you then say "Is my mathematic wrong?"

LOL
Your humor is calculated.

$6.50 for a dozen 12oz cans is more like it.

$1000/ $6.50/carton * 12cans/carton * $0.10per/can = ~$184

I'm not at all sure that $6.50/12pk is the cheapest that beer can be had for. Seems I often see the stuff for sale at prices less than that of soda pop.

As always, buying low is better.

EDIT: Or should that be "Buy Low, Get High"

I'm sorry if I wasn't clear... what I meant was that the government will go to whatever lengths it needs in order to avoid having to "...adopt austere, even draconian budget and policy measures." They (the people running the government) are spending junkies and they won't stop spending just because they are out of money. They'll print more. Lots more.

Dan's question was whether "...inflation would pick up in the U.S." and my response was not just yes, but Hell Yes. As the value of our currency drops because of inflation, U.S. goods become cheaper overseas (in the short term, until production costs adjust for the devalued currency) and the debts the government owes are paid with cheaper money. Sure, why not? The only ones who get screwed by this are people on fixed incomes and the countries who lent the U.S. the money in the first place, and since the latter can't vote and the former aren't that big a voting block the politicians feel safe for the next election which is as far ahead as any of them look anyway.

tanstaafl.