For an interesting (as in the old Chinese curse) analysis, there is a "Global systemic crisis Alert" from Europe2020 titled
Summer 2009: The US government defaults on its debt.

Oh, come on. Superpowers NEVER default on their debt!
And even if they did, what's the worst that could happen?

If the US did default on it's debts a lot of other countries would too. If you don't believe me look what happened with Europe- a couple days after the US announced the bailout they were saying things like "the US needs to get it's house in order, we are insulated from this event etc etc.." then Iceland imploded and Europe collapsed too. It would be financial armageddon if this happened.

And you still think it won't? For years I've... no. I've said it over and over, no more.

tanstaafl.

Not speaking the name... Is unlikely a useful tactic.

Is it bad that I can't understand any of that? Expansion? I think finance is well outside my skillset. As long as the number in the bank is above zero that's all I need to know.

Ah, but that's the problem, isn't it? Do you think that a bank with assets of, say, a million dollars, has a big vault filled with thousands of $100 bills?

No, they have maybe 10% of that amount, the rest of their assets being promises from the people they lent the other 900 thousand dollars to that someday they'd pay the money back. But it gets worse -- that $900K dollars is likely to get recirculated through other (or even the same) bank and re-lent to the point where the original million dollars is magically transformed into ten million dollars (more or less) and the only tangible backing for it is the original $100K held as reserve at the beginning. Go back and read Music's post from a few days ago in this very thread, he explains it much better than I. When the promises backing the other 90% are supported by mortgages on seriously over-valued real estate it's possible we could have problems in the financial world. Oh. Wait... Didn't I see something not too long ago in the newspaper about that?

tanstaafl.

I think what they're saying is that if the system collapses and the bank folds, then your number is effectively zero.

It's a system of trust... but we're trusting gamblers.

"Armageddon" isn't an exaggeration of what it would be like for the U.S. government to truly default on its debt. I'm hardly a financial sage, but I can safely predict that trillion-dollar bailouts are going to run into something of a brick wall. You can't keep allocating that kind of money without doing something extraordinary, like cranking up taxes, deleting the Department of Defense, printing money like it's Zimbabwe (i.e., hyperinflation), or whatever else. Since none of those steps are in the slightest bit palatable, the only other solution is to let things run their course. That could mean a recession or maybe we get lucky and have a recovery of some sort.

The collapse of oil prices has dropped gas costs in a huge way, which will have a variety of positive effects on the U.S. economy. For oil states (or wind farm speculators), not so much.

Unfortunately the high price of gas didn't last long enough to make lasting changes in American driving habits.

The nascent threat that oil prices could yet go back up may yet have a lasting impact on the cars Americans drive. When even BMW is advertising its cars as being gas efficient (seen yesterday in the airport), you know things have changed.

When I was in the states a couple of months ago I remember seeing an advert for the right to exploit more the US' oil and gas reserves. In it a man is seen filling his car up at the petrol pump and he says 'If I'd known the price of gas was going to go up so much I would've thought about buying a more efficient car'.

Hello!?!?! Would someone really go to car dealers and say 'Excuse me, could you show me the car that gets the shittiest gas mileage?'.

They wouldn't go and say that exactly, but a lot of people really didn't factor fuel efficiency into their buying decision at all. Dealers wouldn't bring it up either, and next think you know, the streets are filled with 1 star crash rated 5 miles per gallon truck built SUVs that have exploding tires and like to roll over. A lot of people were just concerned with keeping up with their neighbors in suburbia, and had to run out and buy a bigger vehicle when Bob came home with a shiny Hummer.

I suppose that's the difference between the UK and US. To me a 2 litre 4 pot is still a big engine.

To add to this a bit, heres an example of cost of fuel for people back when the SUV craze was going on. Lets take a Hummer H2 that didn't even have to publish the fuel efficiency numbers. And with that vehicle, lets take a drive across the UK, from East May, to Dover. Google shows 764 miles, and various reviews seem to average the H2's highway rate at 10mpg (23 L/100k). Fuel in 2003 when the H2 came out averaged $1.51 a gallon. So, a trip across the UK would have only cost $115. It took gas rising to nearly $4 to get people here to really think about fuel economy.

Ford dropped some of it's more gas-guzzling vehicles from production. I'd say that's a pretty big change in a lot of people's driving habits right there. In fact, a lot of the large SUV makers are cutting back on their biggest makes. I just bought a motorcycle. Admittedly, it was more about fun and less about fuel efficiency, but hey, I can go 160 miles on a tank of gas (3.4 Gallons). If nothing else, lower gas prices will help by bringing the cost of goods transport down. Who else has seen $1-$2 surcharges added to pizza delivery?

Of course, while food costs went up after fuel went up due to transport costs, don't expect it to go down. Food companies base their price largely on their compitor's prices. If no one lowers their cost first, no one has to ever. We HAVE to buy food.

Hey! Enjoy the bike!

On the subject of motorbikes being more economical, I've had a thought that I'd like to share.

Our current stock of production vehicles follow stringent safety rules and crash survivability testing. All of this adds cost to the car and weight, practically negating all of the technical advances that have occurred over the last 30 years (wrt fuel efficiency/performance). We have cars today that are more powerful than cars of yesterday and still only get the same mileage.

Yet more people are buying motorcycles with the intention of being more economical- foregoing the safety of a car.

Why can't we have micro cars that are not as safe as 'normal' cars, yet efficient enough to keep people on four wheels (or even three)? There should be a waiver that you get to sign when you buy a micro car that says, "I understand this car does not survive crashes like a Buick."
Then off you go to get 45+mpg with your 750cc, 1200lb microcar.

My first four cars were Honda N600 and AZ600s. Great little cars! Where is such a car today?

Wasn't there a Civic that could do 50+mpg back in the day? This is why I'm not impressed with the numbers being posted by today's hybrids.

Anyway, look at the Smart car. I'm starting to see them on the roads here in Seattle.

Yes, the Honda Civic CRX HF

We had a Nissan Sentra back in 1984 that got 40 mpg. 40 mpg is what my Prius driving friends say is about what they get, so where's the great advantage?

The thing about driving a bike is, I feel it's less dangerous than driving a micro car. The bike can go faster, stop faster, turn faster, and fit in tiny gaps. In my Sentra, I had none of this, and a weak body structure too.

I'd love to drive a tiny, efficient car, but not with moms in SUVs with kids and cell phones distracting her right behind me...

1. An accident in the Prius is, joule for joule, more survivable than one in that Sentra.
2. The Prius is more environmentally friendly than the Sentra in terms of emissions.
3. The Prius is more comfortable and quieter to drive, and has more amenities than the Sentra.

Edit: I know I'm playing devil's advocate against your point, which was the same thing I was espousing just a few posts up. That's just how I roll.

Which, since they didn't import the diesel version, doesn't get very good mileage. Well, it's good, but it's still less good than hybrids.

I picked up a 2009 Jetta TDI wagon. A nice size cargo area, and I am currently getting a bit over 37MPG (US) on my hilly commute. Best tank I've gotten was 42.7MPG on a relatively flat, all-highway run.

This is with the DSG automatic. Definitely not too shabby. The TDI has tons more power than a Prius and handles really well. Too bad there's no black smoke of death coming out the tailpipe. That's something I miss from my Benz diesel.

I have a bike too and love the 56 miles per gallon. I agree with all you've said about a bike's safety however when there is a Hummer on your ass it doesn't matter how fast I can stop when the guy in front of me slams on the brakes I'm road kill.

I do the speed up and slow down thing when someone is riding my butt (not rudely but just a little). Eventually they usually back off a bit.

Oh yeah, loving the bike. The only downside is I'm still burning about as much gas as I would in my car, but only because I always take the loooong way home just for fun.

Meanwhile, according to the New York Times, maybe we should be more worried about deflation, a vicious circle where prices are dropping, forcing businesses to lay people off, who then can't afford to buy anything, and thus pushing prices still further downward.

Favorite quote from the article:



For some reason, I find this to be less than completely reassuring. You're saying we can always devalue the dollar faster than the value of products can drop.

Pop quiz: in a deflationary/inflationary cycle like this, what's the optimum investment strategy?

I'm betting it's not WoW gold.

For deflation, cash. For inflation, real estate.

The deflation we're now experiencing is due to credit becoming harder to obtain, thus contracting the money supply.

I drive a tiny Mazda MX5 with a 2l engine that has been laughed at on a few occasions (for its size). In New England (Boston and surrounding States), people seem to believe you have to drive an All Wheel Drive 4x4 SUV Tank to get through the winter. Many of the middle States drive crappy huge cars because Detroit tells them to, Texas just doesn't get it (on many things - but it's a nice place to visit briefly), and California should know better.

That said, I am confident that the economic downturn will finally convince a few people here to care more about what actually matters - and size really isn't one of those things. Hopefully, one day we'll be proud to buy American cars, but until then Detroit needs to learn a hard lesson (bail out or no bail out, and if the former then it better involve reform).

Jon.

(please correct me if I'm wrong because I'm still trying to learn this)

In times of tight credit (~deflation), your investment dollar goes farther because less people are willing to invest/lend. This drives down the price of investments as people "cash out before they loose it all".

Legendary investor Warren Buffett has said "Be fearful when others are greedy, and be greedy when others are fearful." The former describes a bubble, when loan sharks and financial jackals are creating money and driving prices up - be fearful of the burst. The latter describes a bust, when people panic and sell, or hesitate to invest - snatch up the good deals.

Now may be a good time to buy into under-priced quality companies, both expecting their stock price to go up and expecting dividends from their earnings (though meager, the quality companies may still scrape together something).

Maybe buying into real estate is a good investment now. Get a condo and rent it out, planning to keep it long term or at least until the real estate market rebounds.

There must be ways to legitimately profit (none of this day trading, short selling crap) during a down market.