THE WORST IS YET TO COME

[flourbug]

CREDIT CRISIS - THE WORST IS YET TO COME
Financial System Upside Down

Mark Twain once said that “if you don’t read the newspaper, you are uniformed. If you do read the newspaper, you are misinformed”. It is no surprise then, even to people who don’t follow the news, that a truly serious financial crisis is sweeping the world.

The headlines of newspapers and internet portals speak for themselves. Readers are inundated with facts about what is taking place. At one moment, bank write-offs to the extent of trillions are being discussed. The next moment, notice is given of guardian-angel intervention by governments and interest rate cuts by central banks. Aid packages in the trillions exceed the calculation skills and comprehension capabilities of ordinary people by a factor of several times. The main message conveyed by all of this “information” is mostly emotional. While write-offs may lead the reader to pessimism – what will become of my life, the government creates a feeling of security with the aura of a paternal figure, adding trillions of dollars to banks and “guaranteeing” that bank deposits and security holdings won't simply vanish. Those geniuses are on the task and will never let the system collapse, the reader thinks, so he turns his attention to the next page of the paper.

What is missing is a deep analysis of the causes of the crisis, as well as possible future scenarios – papers look neither in the distant past, nor in the distant future. The cause of the financial crisis is claimed to be driven by two emotions - fear and greed; blame goes to poor regulations and greedy Wall Street investment bankers; rhetorically is added the fact that crises accompany capitalism, that they have regularly occurred in the past, and that they will continue to occur in the future. Some stock broker releases investment advice that from a long-run perspective, now is a good time to buy stocks.

Unfortunately, investing in stock markets is never as simple as it sounds. If every time we buy when stocks are down and afterwards stocks go up, then we would be all fabulously wealthy. Naturally, it is forgotten that this is accompanied by inflation and a drop in the purchasing power of money. Moreover, the fact that the world’s largest companies and banks can go bankrupt is never mentioned in financial publications; neither is the possibility that the assets of shareholders could be completely wiped out. Bankruptcies of large companies and banks are regarded only as a theoretical possibility and relegated to the pages of abstract economics textbooks.

Fundamental Causes of the Crisis

But let’s start at the beginning, with the question of why the current financial crisis has occurred. The reasons are quite fundamental, not fear and greed, nor a lack of faith in the markets. The problems are not caused by loose regulations either. The crisis also has nothing to do with herd instinct, which helps along, of course, in the deepening of the crisis. These are, after all, only symptoms of the underlying problems.

To gain a better understanding, one must first take a look at history. Unfortunately, from inside the system, it is difficult to view the system as a whole; all that is visible are individual problems and attempts to fix them, instead of understanding that perhaps the entire system is basically built on flawed and shaky basis, that the foundation of out global monetary system is built on sand and the current financial crisis and the resulting economic crisis are objectively inevitable.

The current attempts by the government are, above all, a desire to preserve the status quo, a desire to sustain the unsustainable, a desire to extend the life of a pathological system doomed to failure from the beginning. But governments have always set the goal for themselves of preserving the system. An exception would have been Gorbachev’s declaration, were he to have announced that the socialist system is destined for destruction and should be replaced by a capitalist system. Also excepted are central bank press releases, where it is announced that the current financial system is fundamentally wrong. As stated – inside the system it is impossible to see the system’s faults.

The main fault in the current system is that monetary historical experience is largely ignored. Throughout history, all successful monetary systems have, in one way or another, been tied either to gold, silver, or some other real asset of intrinsic value. If money has been only a piece of paper or a piece of copper, the system has always collapsed.

Beginning in 1971, for the first time in the history of global finance, no currency in the world has been backed by anything. This monetary experience should be properly called an experiment, which is now reaching its logical conclusion. This includes some curious facts, such as the Estonian kroon, which is backed by a reserve currency, primarily the Euro, while at the same time the Euro itself is backed by nothing. And the Estonian Kroon is not backed by euro banknotes, but instead, in all likelihood, is backed by a mixture of German, US, and Japanese treasury bills. These are only government promises to pay that will, at the end of the crisis, make Estonia’s entire foreign reserves, gathered for bad times, almost worthless.

If money is backed by nothing more than government seals, decorated paper, and strongly voiced promises, greed enters into play. No army in history has hindered central bankers and governments from creating money out of thin air and then spending it according to their own vision. The modern term for this is credit money, the loaning of credit by the central bank that becomes money itself. In normal and stable systems, bankers have only been able to loan out money that they have in their own vaults, and they were also always ready to exchange issued paper money and obligations for the gold bars stored in the vault of the bank. However, there has come a moment when bankers realised that people were not coming back to request gold, the result of which was that worthless pieces of paper (read: banknotes and electronic impulses) were placed into circulation and if they issued supplementary paper currency, which lacked any coverage, nothing happened, at least initially. In the old days, the mess would eventually surface and the matter ended with either the bankruptcy of the bank or the destruction of the state’s monetary system through hyperinflation.

Currently, the entire monetary system is global, and therefore has lasted longer than usual. The process, which took place in Germany in the 1920’s over a period of 3-4 years, will last for 3-4 decades on the global market. Throughout history there has been no monetary system that was not backed by a precious metal or some other equivalent accepted by all, ever, without exception, that has remained standing. The current experiment cannot remain standing either. We have created financial “capital” in a heretofore unseen extent. This “capital” is incorrectly believed to be wealth, because it could be exchanged for actual wealth during certain historical stages. Unfortunately, all this financial “capital” and all of this financial “wealth” have little backing in real goods or productive assets. This is an inherent property of our modern-day fractional-reserve banking system. Te result is that, whether we want it or not, the entire global financial system will fall into chaos and will destroyed, and hopefully a new and better system will be created.

What will happen is another important question, and impulse psychology comes into play here. People have a tendency to view things, above all, with a short-term time horizon. This “short-termism” can be seen on the stock markets and by the developments in the financial world. Even though the crisis had already been predicted at the end of the 1990’s, financial analysts were guided by “mystical” numbers and assessed the condition of the current situation as good. This type of analysis reminds of the anecdote where a man falls out of a skyscraper; when asked by someone from the fifth floor window how things are going, he answers “so far so good, I’m simply moving quickly”.

The Initial Phase – Financial Crisis

Unfortunately, the depth and length of the crisis are currently being discounted. At the moment, the crisis is in its initial phases. What is taking place only has affected mostly the financial sector; there has been only a minimal effect on the real economy. However, at the latest by next year, the second phase of the crisis will begin, with spillover effects into the economy. In 2009, the weakness of the global economy will become central.

The current economic system is built on providing loans in ever increasing amounts, not on saving and the repayment of debt over time. If a private person builds his life on a series of new loans, where he repays old debt with new debt, then he would be considered crazy and would inevitably end up either in debtor's prison or bankruptcy. If the same thing were to take place at the corporate and state level, then nobody would dare say anything. It would be considered perfectly normal. Where is the child from the fairytale who wasn’t afraid to cry out that the king was naked!

Companies have become accustomed to taking new loans, although the financial system is attempting to correct. A contraction of bank credit to the private sector is in place, and inevitably the economy will not receive the money (read: credit) that it was planning on receiving. In addition, financial companies are unable to sell financial securities to finance themselves, since even the currently successful companies that kept free funds in shares and securities in order to earn a higher return, have lost over half of their value.

This first initial phase is well familiar to us. We have lived with it for almost two years. The media has called it by various names: “The Subprime Crisis”, “The Credit Crunch”, and “The Credit Crisis”.

The Second Phase – Economic Crisis

The lack of money becomes evident in the second phase of the crisis – the financial crisis is replaced by an economic crisis, triggering massive bankruptcies that would spread globally in a chain reaction. After the series of initial difficulties encountered by home borrowers and the construction companies, there have been no bankruptcies so far in manufacturing, shipping, media, food processing, not to mention luxury goods like luxury cars, yachts and watches, or exotic businesses like space tourism. But their time will come. During the second phase of the crisis, another large sum of capital will “evaporate” from the market, because a company which is going bankrupt will leave nothing for shareholders and very little for its bondholders. In the second stage of the crisis, unemployment will begin to grow along with the wave of bankruptcies. The final quarter of 2008 is only the beginning. Remember that in 1931-1932, the unemployment rate in the USA was 20%, with one in five people unemployed.

The Third Phase – Hyperinflation

Throughout the series of crises, politicians will attempt to interfere in the game, but the third stage of the crisis will nevertheless begin. Since banks were “saved” with large bailouts, politicians will also begin to lavish corporations with various aid packages. The recent charade of automakers begging for money is only the beginning. Thus, measures will be undertaken that, in the opinion of politicians, will help the economy and save jobs, something that will likely become known as Obama’s “New New Deal”. This will include a multitude of spending programs and, above all, the loaning of credit with astronomical increases in the money supply, together with the classifying of the corresponding numbers into the trillions. Just like now nobody talks any more in terms of millions, so in the not so distant future no one will be talking any more in terms of billions. Trillions will be the order of the day. Perhaps bank lending standards will be relaxed. Perhaps the government will lavish the banks with a lot more money than it does today, just to keep them lending. Perhaps the central bank will directly monetize private debt. Perhaps the government will guarantee many more corporate loans, just like it recently guaranteed the securities/loans of the GSEs. Perhaps GSEs will proliferate throughout the economy, transforming the U.S economy into the “GSE Economy”, transforming a former great capitalist economy into a modern-day nationalsozialistische economy. Perhaps the government will implement all of the above.

It will seem for awhile that peace has arrived, that the crisis has been overcome, as if the bankrupt companies have been “saved”, although this will only be the calm before the storm. If there is already more money in the financial system than actual goods, then after the subsequent injections of money, more like dropping money from helicopters or showering corporations with money, the economic ship will begin to heel.

In this stage, the third stage, the hyperinflation scenario will begin when people realize that the money in banks will buy them next month half as much as it did this month. Then panic will ensue. People will begin to buy essential and non-essential items, just as long as there is something of value that can be obtained in exchange for their colourful pieces of worthless paper. Manufacturing enterprises would no longer want to sell goods, because the money received in exchange for the sale of their goods is not sufficient to purchase the new raw materials. Everyone who sells an actual object or good for paper money is a loser, since the same money is no longer enough to purchase again the same goods. Money created out of thin air electronically has brought tremendous benefits to the initial users and issuers, but at the expense of the wider masses through the collapse in their standards of living in this stage.

The third phase will be chaotic and difficult. The details are difficult to predict, but if history is any judge, the politicians won’t be asleep. They will likely pass a number of important laws, prices will be fixed, wages will be standardized, foreign currency accounts will be frozen; in general, everything that could be done, will be done, and this will only serve to extend the agony. Social upheaval and riots will be suppressed by brute force; many democratic freedoms and values will likely be lost. As of today, the hyperinflation spiral and Zimbabwe Syndrome have reached the point of no return.

Final Phase – Monetary Collapse

In the event that democracy survives, then the fourth and final phase will begin, a phase which can be called The Darkness before Dawn, the final agony before the rising of the sun. This is the ultimate destruction of the monetary and financial system, the loss of all electronic and financial values that is accompanied by monetary reform throughout most of the world.

In the worst case scenario, this will result in the creation of a Global Government; in the best case scenario, the process will take place separately in each country. For example, at the end of the Tulip Mania of the 17th century, all futures transactions with which tulips were bought and sold for millions of florins were declared void. Similarly, all electronic assets, contracts, securities, and futures contracts will be declared void, because the world doesn’t have a court or executive power which is capable of enforcing bankruptcies and debt collection resulting from millions of non-performing contracts. Only the actual collateral for loans will be demanded - land, houses, apartments. The losers will be private persons, while legal entities, along with their debts and non-existent collateral, will be lost in the virtual world, the place from whence they came.

Things will begin again with a clean slate. We will once again all be on an equal level. Railroads and planes, bridges and houses won’t disappear. All real wealth will remain, lost is only the paper wealth, those things that people believed they had and that they believed someone else (read: government, banks, pension funds, etc) will preserve for them. At that moment, faith will truly have been lost, as the fruits of a person’s life will have, through several metamorphoses, been transformed into banking sector profits and executive bonuses that had been spent by the suits long before the crisis even began.

The new economic system will be different than the current one. Its type, shape, or form is impossible to predict at the moment. Similarly to the end of the slave-holding system, it was not possible to see the creation of the feudal system. It was also impossible to foresee the blossoming of capitalism before the industrial revolution in England in 1785. So, it now is impossible to predict all the changes, although those changes are inevitable. Each process must go through its historical development and must reach its natural conclusion.

History shows that every changeover from one organisation of society to another has been very painful. Nevertheless, each following step, no matter how painful, has moved humanity forward and offered a better life to more people. Hopefully it will also go forward this time. All we have to do is hang on.

http://www.financialsense.com/editorials/petrov/2008/1208.html

[free ranger]

The new economic system will be different than the current one. Its type, shape, or form is impossible to predict at the moment. Similarly to the end of the slave-holding system, it was not possible to see the creation of the feudal system. It was also impossible to foresee the blossoming of capitalism before the industrial revolution in England in 1785. So, it now is impossible to predict all the changes, although those changes are inevitable. Each process must go through its historical development and must reach its natural conclusion.

History shows that every changeover from one organisation of society to another has been very painful. Nevertheless, each following step, no matter how painful, has moved humanity forward and offered a better life to more people. Hopefully it will also go forward this time. All we have to do is hang on.

True. This is a cycle - and while there were attempts to change it - it will carry on.

[Susie]

So what do we do just now....hold our collective breath?

[BirdGuano]

So what do we do just now....hold our collective breath?

Prepare for a deflationary depression, followed by a hyperinflationary depression.

:beer:

[mordan]

Prepare for war.

[Ben Franklin]

So what do we do just now....hold our collective breath?Party while you still can, and take pictures of it so that you'll have something to transport you back to better times when things get really bad.

And speaking of comfort, don't forget to stash lots of the imported luxuries you might not be able to afford in the future, like coffee, tea, and chocolate.

[sandyd]

Prepare for a deflationary depression, followed by a hyperinflationary depression.

:beer:

Buy the stuff you can use cheap now?--(maybe even land if you can?)

Save up cash

Buy Gold and Silver before hyperinflation hits?

[penguinzee]

Well, it looks like Phase 2 is about to kick in, with GM and Chrysler possibly being bankrupt by Monday (no I have no inside knowledge of this!). Everybody I've spoken to, both socially and in my industry, are terrified of January, myself included... and with the news that GM is furloughing all its plants for January, those fears are becoming more well-founded every day.

The only thing I can say on a personal note: be flexible and open to change that's good to you, and for you. Dogmatic, rigid thinking is going to get you killed, just like the big banks and big industry is getting killed right now.

And learn how to barter...

Franc (penguinzee)

[rryan]

So what do we do just now....hold our collective breath?

Adapt and take advantage of the situation.

No matter how bad things get some people always do well ---hard times weed out the competition and create opportunity

[BirdGuano]

危機

Chinese word for crisis.

=Danger + Pivot point + Opportunity

Many fortunes were made in the last depression.

[watcher]

...and many more were lost...

[Oric]

hyperinflation is bad ... Turkey lived with it for almost 20 years. The financial system does not have to end because of it. There are well known reciepes and techniques to dfeal with it. It will be painful but not end of the world as we know it

[flourbug]

There are well known reciepes and techniques to dfeal with it.

Perhaps they are well known in Turkey, but do you mind sharing with the rest of us? It seems to me if there is not enough money to buy what you need, there isn't much you can do besides barter.

[jason]

Clearly the solution is to print more money yesterday so you can afford the inflated prices of today.

[Oric]

fb : by simple analogy : today the state has opened all valves to pump water (money) into the system. when this money causes hyperinflation then they will close all valves (gradually), the economy will contract, joblessness will increase. It will take about a decade after this "tighten the belt" scheme, the surviving actors continue ...

[flourbug]

Oric, we seem to be doing both at the same time. We're seeing lots of layoffs in big companies, but that doesn't begin to reflect the many many small businesses that are closing and letting people go. Meanwhile, we have the Fed handing out money by the billions and trillions.

[jason]

The only thing the fed seems to be doing well is causing people to lose faith in our money.

[Misty]

This sort of catastrophic scenario is being chatted about in various places on the internet. If you're interested in one, check out http://www.chrismartenson.com/. His 'Crash Course' is well done. If you'd like to know more about Chris himself, he shares his background and how he came to his conclusions here http://www.chrismartenson.com/about

I like the guy. I also hope he's wrong about where things are headed.

[sandyd]

fb : by simple analogy : today the state has opened all valves to pump water (money) into the system. when this money causes hyperinflation then they will close all valves (gradually), the economy will contract, joblessness will increase. It will take about a decade after this "tighten the belt" scheme, the surviving actors continue ...

So you are saying that Turkey did a semi controlled inflate and then slow down to let things catch up.....but how did most the people who started out without a job survive? And did employers give raises to keep up with some of the inflation?

I think you are looking at it from the big picture of the economy and gov and how they tried to balance the money supply.....


How did normal people cope?

[Christy]

So you are saying that Turkey did a semi controlled inflate and then slow down to let things catch up.....but how did most the people who started out without a job survive?

Sandy, good point. A lot of Turkish people work in other countries. They send money home and that is how entire remote villages survive.
Turkey could stay in it's hyperinflation for a while because the rest of the world was relatively stable and money was coming in in foreign currency. A lot of money in fact.

If this goes global, there is no way to save your behind.
All I can think of is buy land, food, supplies, tools and make them functioning now. Because a deflation is historically always followed by hyperinflation.

It's going to get ugly soon and already overhere, things are cracking at the seams. We have the most stable economy of the EU and factories are closing left and right overhere.

[jason]

http://money.cnn.com/galleries/2008/fortune/0812/gallery.market_gurus.fortune/index.html?cnn

8 really, really scary predictions (http://money.cnn.com/galleries/2008/fortune/0812/gallery.market_gurus.fortune/index.html)

Dow 4,000. Food shortages. A bubble in Treasury notes. Fortune spoke to eight of the market's sharpest thinkers and what they had to say about the future is frightening.

We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst U.S. recession in the past 50 years. It's the bursting of a huge leveraged-up credit bubble. There's no going back, and there is no bottom to it. It was excessive in everything from subprime to prime, from credit cards to student loans, from corporate bonds to muni bonds. You name it. And it's all reversing right now in a very, very massive way. At this point it's not just a U.S. recession. All of the advanced economies are at the beginning of a hard landing. And emerging markets, beginning with China, are in a severe slowdown. So we're having a global recession and it's becoming worse.

[Ben Franklin]

I think most people here are in favor of transitioning to a cashless economy to the extent that it's possible ...... having a large garden and maybe some egglayer chickens or whatever, riding bikes or walking, and extensive bartering.

It's difficult to do that with rent though, or mortgage payments and property taxes. I suppose one could buy precious metals now, and then sell just enough of them at any given time to make those payments.

Or maybe some of us could send people from our villages to Mexico to get work, and they could wire the money back. ;)

[BirdGuano]

We are in the middle of a very severe recession that's going to continue through all of 2009 - the worst U.S. recession in the past 50 years.

Think multiple financial panics of 1800's (http://recession.org/history) and the multi-year fallout of each, and you may have a more accurate picture of what's to come.

:beer:

[sandyd]

I have a lot of trouble imagining the way people lived in the 1800's and translating that to how we will live in the future.
Does radio come back and TV lose cuz few can pay for cable and DISH?
What about the internet?
Just the way food is grown and raised in one place and then transported over miles and miles-even from country to country now, makes me have trouble seeing how to put 'then' with 'now'.

Can anyone paint a clearer imagine of what they think might be our future?

I wonder at times, if the parks in towns/cities will become community gardens....maybe most will have chickens...apartments will tear up the parking (who has a car? we all ride bikes, right?) for gardens......

[Ben Franklin]

Reember that probably at least 2/3 of people will have a job or enough part-time jobs to afford things like internet and satellite TV, Sandyd, and that should be enough to keep those industries alive if not maintained perfectly.

From what I've heard of people flying over thirdworld countries, there are plenty of satellite dishes. I know that I'd sacrifice a lot for internet access, though TV could go by the wayside as far as I'm concerned, I haven't had cable or satellite for some years now.

Those without jobs will probably latch onto friends and family for support, turn to prostitution, sell drugs, or become theives and robbers.

I think things will be more like today's Mexico or Egypt rather than the Great Depression, when values were different and there was plenty of cheap land to grow a garden and keep a few chickens or rabbits.

[BirdGuano]

I have a lot of trouble imagining the way people lived in the 1800's and translating that to how we will live in the future.


I didn't say we would be living in the 1800's, I said the economic model more closely resembles the 1800's with multiple sharp and long economic downturns.

For a model of HOW we will are probably going to end up living, one needs to look no closer than any 3rd world country with a large population.

http://www.oftwominds.com/blogdec08/govt12-08.html

[Therese]

Well, it looks like Phase 2 is about to kick in, with GM and Chrysler possibly being bankrupt by Monday (no I have no inside knowledge of this!). Everybody I've spoken to, both socially and in my industry, are terrified of January, myself included... and with the news that GM is furloughing all its plants for January, those fears are becoming more well-founded every day.

The only thing I can say on a personal note: be flexible and open to change that's good to you, and for you. Dogmatic, rigid thinking is going to get you killed, just like the big banks and big industry is getting killed right now.

And learn how to barter...

Franc (penguinzee)
Franc

I just want you to know that your post and your advice was very timely. :)

I had become increasingly concerned about my DH's job and they just gavecthe pep talk that "eveythings fine" even though they stopped all overtime for the first time in years and they are behind in filling orders. My DH is paid at a rate over the pay scale and even though he is one of the most valuable employees there, there is no confidence he would be retained.

I gave it all up to God a couple nights ago and the next day my DH gets a job offer that not only would pay significantly more, but also has a high degree of upward mobility (which there is virtually none of where he is at now.) They are booming and growing at an incredible rate since he last saw them this past summer and appear well situated to weather this storm.

However, it requires the flexibility you spoke of. :) The job is outside the US and requires travel on a rotational basis 2weeks there, 1 week home.

This suddenly feels like deja vu . . . . . .

[Samen]

Wikipedia has an list of countries that have had hyperinflation and some numbers.
http://en.wikipedia.org/wiki/Hyperinflation

--- Here is one story of a nurse coping with hyperinflation on 140 billion a month (they hard to find, thease stories) ----

http://www.zimbabwetoday.co.uk/2008/07/survival-in-zim.html
Survival in Zimbabwe today

How one young nurse keeps body and soul together

Westerners and Europeans all pose the same question: how is it humanly possible to survive in Zimbabwe in 2008, when there is nothing in the shops, inflation is rocketing beyond belief, and wages are pitifully low? Here is one personal story that might provide some, but not all, of the answer.

Docus Chririnda has been a nurse for 16 years. Her salary is Z$140 billion a month. Her bus fare to work is Z$100 billion a day. So she walks. But why bother to go to work at all, you may ask, when the new Zimbabwe $100 billion note, just issued, this week buys little more than two loaves of bread?

The answer is, Docus is a dealer. Her real income comes from poultry. She breeds chicken, and sells them, and eggs, to her hospital colleagues.

She told me: "Yes, I'm a poultry dealer. If you are not a dealer you will never surive in Zimbabwe. There is not a single person in this country existing on their salary alone. We use our workplaces, and our colleagues, to conduct our deals. And we hold on to our jobs, in the belief that one day things will improve, and we will regain our dignity."

But Docus has another string to her bow. As a senior nurse, and with her superiors turning a blind eye, she can take up to three months of unofficial leave. This means she can slip across the border, quite legally, to take temporary nursing work in South Africa.

This work will often be demeaning, with Docus being given the more unpleasant jobs. But it is well paid. And when the time is up, she will return to Zimbabwe with a big parcel of cheap South African groceries and other necessities of life. Some she will sell, using the money to pay her rent and other bills. The rest she will use herself, to survive.

Nearly everyone in Zimbabwe, especially those who have no food sent in from relatives abroad, has some scheme or fiddle going. For example, civil servants regularly charge individuals for items, such as birth certificates and identity papers, which should be issued free.

Even our policemen earn less than necessary to live. They have now taken to stopping individuals in public places, searching them, stripping them of any edible goods they carry on a charge of illegal trading, and confiscating any foreign currency they may have for the same reason. The currency goes straight into their own pockets, the goods straight into their own stomachs.

These are a few of the ways the Zimbabwe people manage to live. And those of you in the West should know that as Africans we have coped with extreme poverty in the past, and we will do the same today. We can live on almost nothing, if we must. We can find a way to survive.

[Misty]

I think things will be more like today's Mexico or Egypt rather than the Great Depression, when values were different and there was plenty of cheap land to grow a garden and keep a few chickens or rabbits.

BF you might be right about that.

I think over the next 10 years you'll see more federal money to improve affordable mass transit and affordable internet access/phone communication. More young people will go to the military for assured employment because there will be fewer jobs available. Families and friends will double and triple up in housing units so they can share the expenses or carry the people who aren't able to afford a place of their own. Young people may be less inclined to get married because they feel insecure about legal financial bonds with another person, or about having kids. Marriages in general will be under more stress as people try to deal with all sorts of worries in their lives. It will require more stringent budgeting to pay for ever increasing taxes and energy costs. What began as a slight squeeze this year will become tighter and tighter next year and beyond.

On the good side, I see the possibility of people feeling more connected with one another again, just as they did during the Great Depression. Some of it will be face to face and some of it will be through the internet and phones; this has already started. Family and friends become even more important. I think there will be a lot of backyard gardening to save money and to have better control over what's on the food we eat. Shopping via garage sales and via bartering will become a normal way to get much of what you need.

Things that will no longer be nearly as popular as they've been in the past 20 years: big cars, big expensive vacations, attending stadium events that cost lots of money for a ticket, shopping for the sake of shopping, using a charge card, eating out often or at the more expensive restaurants, buying gifts for fringe friends/co-workers,....well you get the picture. Less consumerism, less discretionary spending.

It will take a lot of adjustment by all of us, perhaps especially so by anyone under the age of 60. Most people are capable of adjusting to change, and they will. We'll learn to be much more careful with our money and our relationships. We'll learn more about protecting ourselves from being victims of crime. Our do-it-yourself skills will grow. Our ability to enjoy simple pleasures will expand and delight us. We'll still find reasons to have parties, laugh, find deep meaning in life and have hope for the future.

Like all the generations before us, we'll find that things constantly change and some things leave scars, but life goes on. Time is like a river that carries us along a changing landscape; there are beautiful sunrises, lovely forests, a few swamps, and lots of fun passengers on the boat.

[BirdGuano]

Even our policemen earn less than necessary to live. They have now taken to stopping individuals in public places, searching them, stripping them of any edible goods they carry on a charge of illegal trading, and confiscating any foreign currency they may have for the same reason. The currency goes straight into their own pockets, the goods straight into their own stomachs.

We saw some of this after Katrina.

It's definitely not out of the realm of probability here in the future.

[BirdGuano]

http://www.oftwominds.com/blogdec08/govt12-08.html


End of Work, End of Affluence V: Government--Reinvention or Insolvency (December 12, 2008)


Government at all levels has a stark choice: either reinvent itself to serve a financially diminished populace or become insolvent and perish. Some local governments "get it" and are seeking new sustainable, entrepreneur-based models, most are not and will go bankrupt.

In a way, only someone who has risked all as an entrepreneur/small business owner can truly understand this entry--but everyone else will gain a valuable insight into the End of Work, End of Affluence Depression we are entering by reading this.

Small business is the real workhorse of the U.S. economy. Wall Street and multinational corporations get the headlines, but for context, compare global colossus IBM's entire global workforce of 386,000 with the U.S. workforce of 135 million. (The majority of IBM employees work outside the U.S.)

The plight of small business is partially illuminated by this entry, When Belief in the System Fades (March 12, 2008). ...

Government and its employees fundamentally assume the workhorse of small business and its millions of employees will always be there to pay for government via taxes. I think government and its employees are about to discover that small business "belief in the system" is fading fast or has already been depleted.

At some point, the pressures on the people carrying much of the responsibility--be they Army captains, division managers, or entrepreneurs--reach a point where the person realizes, "This isn't worth it." That is, the sacrifices made to sustain The System (U.S. Army, the business, the division, billings, etc.) are not being compensated by either the inner rewards (sense of purpose, sense of being appreciated, prestige or respect factors, etc.) or the tangible rewards (financial compensation, security, etc.)
...

Many in high-stress government jobs also feel the asymmetric burdens. Those who work in law enforcement and emergency medical care (for instance) carry huge responsibilities, and the increasing workloads can raise the same question: "Is it worth it?"

Even though it's devastating for an entrepreneur to close the business they've dedicated their life to, it's also an enormous relief; the long struggle to maintain solvency is over, and whatever comes along will be easier. There's always a way to pick up the pieces, and always a niche in the underground/barter/cash/informal economy.

What gets blown off is skyigh rents, taxes, employees, paperwork and stress. It's astonishingly easier to make a living as a sole proprietor in the informal economy than it is to make a living with employees in the formal economy of junk fees, high rents, etc.

Note to commercial landlords and local government: you think we need to operate this business? Well guess what, we don't. Here's the bankruptcy papers, have fun trying to collect a dime. We're too tired to care how it all pans out, we're moving on to a life without employees, rent, regulations and taxes.

Now multiply this scenario by a million and you get a taste for what lies ahead. Beneath the headline-grabbing greedfest of the past 20 years--one bubble after another in the make-believe debt-fueled world of high finance and flipping houses you never even lived in--those struggling to make a living in small business have seen the rewards decrease and the hassles, taxes and other costs increase.

Government is about to discover "the impossible" is happening: nobody's paying taxes anymore because they no longer have a job or formal small business. The City and County of San Francisco has about 800,000 residents and a budget of $6.5 Billion. The enormity of that number doesn't faze the politicos or government employees at all; everything they say tells us they think "that's as it should be." Never mind the budget was only $4 billion not that many years ago--now $6.5 Billion is the new baseline, and anything less than that "will cause dramatic cuts in core programs," blah blah blah.
...

A very few local governments are responding to reality rather than screaming for more taxes to raise more revenue. Correspondent Freeacre from the excellent Freeacre & Murph blog, sent me this story about Salt Lake City's drive to create a "Sustainable Economy" city code: SLC mayor wants green rules in black and white.

Here is Freeacre's comment, and the relevant excerpt from the article:

Thought it was interesting, especially the city making it easier to have entrepreneurial in-home businesses and selling stuff from front porches, etc.

from the article linked above

"It's kind of reshaping the way we look at our city ordinances and our policies," says Becker, who characterized the enterprise as fast but appropriately sensitive. "We are the first city in the country to have a comprehensive sustainability ordinance."

Bennett hopes to spur urban gardens by making it legal to sell backyard produce in front yards. "Make that a right that they could have a small-home business," she explains. She points to talk from the pioneer era that people were told they needed two fruit trees to boost the food supply as the valley was settled. "Wouldn't it be neat if we had that much fresh fruit."

Clearly, this kind of ordinance is a baby-step, but at least it's a baby-step in the right direction in two key ways: by encouraging/enabling "legal" informal business and by encouraging the small-scale production and profitable marketing of food.

Astute correspondent Kevin M. sent in this account of how informal businesses once had places to gather and do business: and not just at the open-street farmer's markets:

Your entry today on the potential for the growth of informal businesses is supported by a similar development which occurred in the U.S. decades after the Great Depression. In the economic malaise of the late 1970s/early 1980s, many big box retailers closed down stores leaving a vast oversupply of large retail centers. Many of those retail spaces were converted to flea markets and swap meets, as scores or even hundreds of independent and often informal vendors filled WalMart-sized buildings selling everything from popcorn and soft drinks to jewelry and TVs. More significantly, at the crest of the wave, many of the buildings would be packed with thousands of patrons on weekends, crowds comparable to or even exceeding typical weekend mall activity today. This was even more pronounced leading into the Christmas holiday season.

As I remember, you could lease a space for an extended period of time, months maybe, or you could rent a table for a day or a weekend. There was a level of flexibility which is completely lacking in the current economic picture, as well as a chaotic environment reminiscent of a Middle Eastern bazarre. It was free enterprise at it's best, working from the ground up, occurring at the same time that large corporations were laying off hundreds of thousands of workers. Some of those laid off workers were running stands or shops in the flea markets--it was the only source of income once unemployment benefits ran out.

One of the things I remember most about the flea market phenomenon was the enthusiam it engendered on all sides. Obviously it was an opportunity for building landlords to generate cash flow on properties which had something close to zero chance of bringing in a single large tenant, as well as to local authorities who ran the risk of lost tax receipts on dormant buildings. Many people were selling, but many more were looking for deals on anything they could find. I can still remember people bragging about how many things they bought and for how little, while many others brought goods in to sell, some making a side or full time business of it while expressing a real sense of accomplishment at finally having their own businesses. Initially people were emptying their attics and basements, selling second hand goods; but very quickly stands opened up selling new (usually off-brand) goods, which seemed to fit well in a declining economy.
...

So local and state government, here's your choice: reinvent and re-scale your ordinances and operations to what our economy can support, or continue squeezing every last dime out of small business and watch your tax revenues plummet to the point where bankruptcy is the only option left.

[Samen]

Here is a another example

http://www.rogershermansociety.org/yugoslavia.htm

The Worst Episode of Hyperinflation in History: Yugoslavia 1993-94
Thayer Watkins, Ph.D.

Between October 1, 1993 and January 24, 1995 prices increased by 5 quadrillion percent. That’s a 5 with 15 zeroes after it.

--snipet--
The telephone bills for the government operated phone system were collected by the postmen. People postponed paying these bills as much as possible and inflation reduced their real value to next to nothing. One postman found that after trying to collect on 780 phone bills he got nothing so the next day he stayed home and paid all of the phone bills himself for the equivalent of a few American pennies.
--

[leistb]

Here is a another example

http://www.rogershermansociety.org/yugoslavia.htm

The Worst Episode of Hyperinflation in History: Yugoslavia 1993-94
Thayer Watkins, Ph.D.

Between October 1, 1993 and January 24, 1995 prices increased by 5 quadrillion percent. That’s a 5 with 15 zeroes after it.

--snipet--
The telephone bills for the government operated phone system were collected by the postmen. People postponed paying these bills as much as possible and inflation reduced their real value to next to nothing. One postman found that after trying to collect on 780 phone bills he got nothing so the next day he stayed home and paid all of the phone bills himself for the equivalent of a few American pennies.
--

I was living and working in Bosnia and Croatia during some of this period and what isn't mentioned in this snippet is there was a war going on. The preferred currency was the German Mark or the US dollar. It was also acceptable to use the Croatian Kuna but you had to ask depending where you were as not everyone liked each other.

Having said all that, society functioned just fine relative to currency (as much as possible considering there was live fire all around). Depending on where you were things were available -their prices were just pegged to a different currency and inflation was based on the dinar.

Black market and greased palms helped immensely. So did the possession of an AK-47. :D

[Ben Franklin]

Most people are capable of adjusting to change, and they will. We'll learn to be much more careful with our money and our relationships. We'll learn more about protecting ourselves from being victims of crime. Our do-it-yourself skills will grow. Our ability to enjoy simple pleasures will expand and delight us. We'll still find reasons to have parties, laugh, find deep meaning in life and have hope for the future.
It'll be very difficult, very painful to make the transition to a simpler, more localized world without reliable fuel or electricity .... and some may not survive it, especially if they can't afford their meds or freeze in the winter. But ultimately people are indeed adaptable .... I'm hopeful that things will be better maybe 7-8 years from now, especially if there are no further stresses on the system such as nuclear terrorism or a severe pandemic.

My ancestors lived in a harsh environment without electricity or cars and trucks, we can also do that. Or at least our descendants will find life to be tolerable and even fun on occasion.

[sandyd]

I said the economic model more closely resembles the 1800's with multiple sharp and long economic downturns.

Sorry....my mind didn't think 'model' of the money/stocks, it keep thinking "how we gonna live?"

[BirdGuano]

Sorry....my mind didn't think 'model' of the money/stocks, it keep thinking "how we gonna live?"

Mode of living is an economic model.

ie: you can model exactly what impact the loss of 70% of the consumer contribution to the economy is going to have on your personal operations.

Hint... It ain't pretty.

[flourbug]

I think the best case scenario is a third world country, but I am terrified that we'll see the starvation of millions in the midst of plenty... An Gorta Mor, the Holodomor, Mao's Cultural Revolution... history repeats.

[Mountain Man]

:eek:It is hard for me to believe that our situation will collapse to the point as discussed above.But obviously it could happen.The Feds are actually nearly broke,many counties,cities and other governmental units will soon feel the pinch.
Most people I know,or observe, in central Arkansas are merrily going about their daily lives with no sign of problems.Large scale layoffs have not occured here.Maybe it's on the way.Traffic is heavy,gas is $1.39 a gallon.
If tshtf as predicted, it will be a fairly slow "stall" that will take months to hit.So is it to be a rather severe recession,or Great Depression II???? What do you think?

[frodo]

Problems Are Only Opportunities in Disguise. Once things get "bad" enough, change becomes possible, unimaginable change, because people mostly go through life with their views "frozen", and it takes a cataclysm to "unfreeze" them and start people using their heads for something besides a hat rack.

Now lets start thinking about opportunities..........

1. How about a green economy? Pollution = waste, and waste costs money. The smartest of my neighbours are putting solar panels on their roofs and selling excess energy to the grid, some of them are cash positive and since you are saving after tax dollars the reurns are quite good. Same with smaller more fficient cars and less polluting industrial processes - these save MONEy, not just the environment.

2. Healthcare is a mess. The idea that employers should pay healthcare costs and pensions for long retired employees is unsustainable. The medical insdustry is a mass of bloodsuckers and lawyers. A "No Fault" medical malpractice insurance scheme would go a long way to making healthcare mroe affordable.

3. Financial market re regulation and the removal of some of its more questionable practices is agood idea.

4. Getting rid oif hidden subsidies and industry "protection", which always costs more jobs than it saves is another idea.

5. Investment in infrastructure.......

I could go on, there are plenty of things to do while the will for change is there.

[flourbug]

I'm in one of the worst hit areas - 20% of the homes in my development are in foreclosure and I hear a nearby area is leading the country in the number of business bankruptcies. I live in a fairly upscale area - the houses are almost all new within the last 4 -5 years, new malls, etc. I can give you many examples of going out to restaurants, supermarkets, stores, and they are almost empty. Sales are WAY off. Prices are WAY up. I swear every time I check out the person in front of me is handing over a WIC card or sorting groceries according to what can be paid with Food Stamps. Tonight the county police called me with a recorded message, telling me to take my purse with me and not to leave it in the car when I park in school parking lots as there have been a number of "smash and grab" robberies. Moms leave their purse in the car and walk over to the main gate to pick their child up from school - and thieves are targeting them.

Yet, people who are still working are completely unaffected. They ARE merrily going about their lives. Their shopping carts are full, they are buying the big ticket items, they are taking advantage of lower prices. I never noticed 'classes' before... but we're moving into a time of haves, and have nots.

[rb.]

Ah, but fb, the difference between the haves and havenots could be as little as a single day, with a single piece of paper from an employer. And I suspect a lot of the haves will soon have not much as their credit is cut back dramatically. Like my dad always said, the bigger they are, the harder they fall.

[Ben Franklin]

:eek:It is hard for me to believe that our situation will collapse to the point as discussed above.But obviously it could happen.The Feds are actually nearly broke,many counties,cities and other governmental units will soon feel the pinch.
Most people I know,or observe, in central Arkansas are merrily going about their daily lives with no sign of problems.Large scale layoffs have not occured here.Maybe it's on the way.Traffic is heavy,gas is $1.39 a gallon.
If tshtf as predicted, it will be a fairly slow "stall" that will take months to hit.So is it to be a rather severe recession,or Great Depression II???? What do you think?Actually the state and more local govts are going to be hit harder than the federal govt, since they can't print more money. California is especially close to collapse. My vote is for GD2, hitting us before another half year passes, especially if GM goes under despite bailouts (which is likely to happen sooner or later) .... what a terrible economic tsunami that will be, taking most of its suppliers with it. Think of all the unemployment insurance that will be required from state budgets which are already strained.

[BirdGuano]

GD1 took YEARS to have it's effects fully felt. This won't happen overnight and there are some safety nets this time around, so it will be an "unseen" Depression for a long period of time this time around.

[Fiddlerdave]

Ah, but fb, the difference between the haves and havenots could be as little as a single day, with a single piece of paper from an employer. And I suspect a lot of the haves will soon have not much as their credit is cut back dramatically. Like my dad always said, the bigger they are, the harder they fall.Very true. Many of the well-to-do found this out with that eastern investor's ponzi fraud collapsing, and secondary collapses from that of entire hedge funds he managed are now occurring.

Entire companies, ones about which there is not a clue of failure, will be disappearing overnight more often now too. Many of those will be by choice, owner(s) bankrupting out (or just leaving behind) of any employment contracts, pensions, expense report payoffs (keep those up-to-date!) even vacation and severance as owners take stock of the lack of future and simply go, taking every liquid asset they can with them.

Employees may want to size up any of the office or company equipment they might want to take home for "safekeeping" when top management or paychecks simply do not show up one day.

[sandyd]

Mode of living is an economic model.

ie: you can model exactly what impact the loss of 70% of the consumer contribution to the economy is going to have on your personal operations.

Hint... It ain't pretty.

I think the best case scenario is a third world country, but I am terrified that we'll see the starvation of millions in the midst of plenty... An Gorta Mor, the Holodomor, Mao's Cultural Revolution... history repeats.

I'm usually pretty good at detaching and thinking/modeling a concept.

This time, my mind shies away....it's getting better but for awhile, I would read about it and literally have to take a nap. Like some kind of fuse blew and needed resetting.....now I don't nap but I still can only read so much, do so much and I have to get away from the thoughts. So, no, so far, I can't model exactly the impact it is going to have on my personal operations.

I suspect because the glimpse I get is as you said BG....not pretty. fb's image is even worse!

:(

[Fiddlerdave]

I'm usually pretty good at detaching and thinking/modeling a concept.

This time, my mind shies away....it's getting better but for awhile, I would read about it and literally have to take a nap. Like some kind of fuse blew and needed resetting.....now I don't nap but I still can only read so much, do so much and I have to get away from the thoughts. So, no, so far, I can't model exactly the impact it is going to have on my personal operations.

I suspect because the glimpse I get is as you said BG....not pretty. fb's image is even worse!

:(Americans will have it pretty bad. We are not used to significant portions of the population being publically expendable and expended. It will be very traumatic.

Nor do we have much set up in cooperative institutional frameworks. I really don't understand the idea we have more "safety nets" than in the past. Particular in things like public health infrastructure, which deals with the effects of wide scale edge-of-survival-poverty like epidemics and such, we have far less than in the past. The violence that comes from the exposure to hopeless situations is extreme, and the perpetrators will be indifferent to government or personal threats of punishment. Fortunately for the better-off, I think suicide will be the most common form of violence chosen by people without hope.

Significant numbers of people having no opportunity to work for long periods of time changes the very fabric of the society. Food self-sufficiency will require a whole new infrastructure to grow significantly, which will take time and considerable megacity population reduction. The megacities are a hopeless case for food, have money to eat or die, once government subsidy fails to keep up with the very many new hungry people the megacities will break down. Read up on 3rd world slums for examples of daily life.

[clark]

http://www.quinnipiac.edu/other/abl/etext/irish/pictures203/p19.html

I think the best case scenario is a third world country, but I am terrified that we'll see the starvation of millions in the midst of plenty... An Gorta Mor, the Holodomor, Mao's Cultural Revolution... history repeats.
http://www.quinnipiac.edu/other/abl/etext/irish/pictures203/p19.html

http://www.quinnipiac.edu/other/abl/etext/irish/pictures203/p19.html

Clik on the URL above for the image

EVICTED! One of the most distressing features of the English rule in Ireland has been the prevalence of "tenants-at-will" - that is, tenants who have no leases, and who occupy their farms at the pleasure of the landloard. This unfortunate class of people can be evicted whether they pay their rent properly or otherwise, and the landlord has the power to raise the rent at any time that may suit his purpose.

[clark]

http://www.quinnipiac.edu/other/abl/etext/irish/pictures203/p66.html


VICTION SCENE.-The accompanying sketch shows the landlord's emergency men, who have been using battering rams against the barricaded door of an Irish peasant's cabin, in full possession of the place, aided and abetted by the, in Ireland at least, omnipresent Royal Irish Constabulary, and a body of English hussars. Were it not for these potent auxiliaries, oppressive landowners in Ireland would find it impossible to collect their exorbitant rents from the unfortunate people. The English government in Ireland, especially under Tory rule, is a landlords' government. Even the English Liberals, unless under pressure from able Irish leaders, like the late Mr. Parnell, are not friendly to the Irish tenants. In looking at the ransacked cabin, depicted above, the average American citizen will be tempted to think that people ought to demand compensation for being compelled to "live" in such a "shack" rather than pay rent for it. It is, indeed, a miserable hovel, from the American, or any other standpoint. But the greedy Irish landlord, whose forefathers obtained the soil by brute force, most probably, from the ancestors of the evicted tenant, is determined to have his money, no matter at what cost of human misery. Fat cattle, in his estimation, are preferable to human beings.




http://www.quinnipiac.edu/other/abl/etext/irish/pictures203/p66.html

[Oric]

So you are saying that Turkey did a semi controlled inflate and then slow down to let things catch up.....but how did most the people who started out without a job survive? And did employers give raises to keep up with some of the inflation?

I think you are looking at it from the big picture of the economy and gov and how they tried to balance the money supply.....


How did normal people cope?

Employers always seem to give raises but it never made the same purchasing power on the spenders end ...

First of all to level the discussion. I refuse to believe that USA will have a hyper inflation (> 100%), but I predict you will have "high" inflation (> %20 annual ). In a high inflation environment the easiest way to earn money is to invest in high gain securities. The manufacturing business becomes unprofitable because instead of taking risks you can earn easy money from the government securities (government has high deficit so has to borrow). Rich becomes richer, poor becomes poorer. "High inflation is the worst way of taxing a nation"

During those bad years people survived only by relaxed laws. You could build a home without a permit (=no homeless), you could start a business without a permit, sell groceries on a four wheel cart (=no jobless). It was chaotic. Never did we have a civil unrest, but you know Turkey is (was) close to be a perfect police state for years ...

[rb.]

This time, my mind shies away....it's getting better but for awhile, I would read about it and literally have to take a nap. Like some kind of fuse blew and needed resetting.....now I don't nap but I still can only read so much, do so much and I have to get away from the thoughts. So, no, so far, I can't model exactly the impact it is going to have on my personal operations.
:(

And I thought it was just me and my Panic Disorder.

[flourbug]

clark, this is exactly what I mean. The Irish did not lack food. They did not "depend" on the potato. While they starved, 50 to 70 BOATLOADS of food were exported from the country EVERY DAY - enough to feed 18 million people a year. Livestock, grain, seafood, fruits and vegetables. Ireland grew enough food to feed every man, woman, and child in the country almost twice over. They are an island surrounded by the bounty of the sea, and they had vast open lands full of game - all belonging to the British. If a man hunted or fished he would go to jail or was transported, leaving his family behind to starve. This was a genocide. The Irish could not own land. The British owned it all. The Irish were tenants who worked the land in exchange for being allowed to use a small portion to grow food for themselves and their families. The best use of the land was to grow potatoes. The potato blight had hit before. It hit other countries besides Ireland. When the crop failed, the British inflicted a tax on every house in Ireland... so heavy that the Irish tenants had to sell their food to pay the tax, or face eviction.

What has changed for us? NOTHING! We have millions of people ready, willing, and able to work, who want to pay their mortgages, who want to bring food into the cities and sell it, and buy it. WE are the same. It is outside forces that are trashing our economy. We see the mushroom cloud on the horizon, but at this moment the air around us is still cool, the leaves fresh on the trees. All too soon all that will change.

It's not empty shelves in supermarkets we need to worry about. The shelves will be full. No one will be able to afford to buy the food!

Taxes will rob us of our homes. We can prep till the cows come home, we can save food and grow chickens, and set aside gold, but when the tax man comes... and he will come during hyperinflation.... our taxes will not be $5000 per year. They could be $500 billion per year. Pay in gold? The exchange rate is what the government dictates, and they will set it low enough that you run out of gold far before they seize all the houses. People far richer than you can hold out longer.

History shows, when TPTB cannot work us to satisfy their greed, they will seize what we have.

You know, I read people who think the police and the army will never allow the government to "hurt" the people in any way. They will. They do every day, under the guise of enforcing laws. Constitution, you say? Change it. Just re-write the laws and you already have a government and an army pledged to defend it. Taxes? Those who have should help those who have not, right? Isn't that what we just voted in?

We think we're special. We think it can't happen here.

It will, and this time there will be no place else to run to. This is the end of the line.

[flourbug]

Employers always seem to give raises but it never made the same purchasing power on the spenders end ...

First of all to level the discussion. I refuse to believe that USA will have a hyper inflation (> 100%), but I predict you will have "high" inflation (> %20 annual ).

Oric, that's what we have NOW. Forget the government figures. They juggle numbers to make themselves look good. Reality is different. In the early 1970's, when I was 20, the food budget for my husband and myself was $20 per week. I bought lobster, steak, lamb, cheese, ice cream, (no liquor) all good food for us for a week. Now those same groceries would easily top $200 per week. That's 1000% inflation. It was not a slow steady rise - it stepped up, with big jumps in the early 70's, 1986-86, and then more recently just these last two years. One example: Winn Dixie house brand vegetables. In 2005 they were 20 for $4. 2006 they were 20 for $6. Last year, 10 for $4. Now they are 20 for $10. That's more than 20% per year. Housing prices went up similarly until 2006. My first car was sticker price $5600. A similar car is now over $40,000.

I can deal with 20% per year.

We're DEFINITELY going to see higher than that in the future.

[Misty]

I agree with Oric that the US won't see hyperinflation but very well may see it go up to 20%.

IMHO, there won't be mass starvation in the US or widespread loss of homes to the rich-and-politically-connected because of real estate tax escalation. There might be true hunger in some places, but I suspect that the real complaint will be that people can't have their former preferred foods. Simple soups on a regular basis sound awful and unfair when you're used to pizza, burgers with fries and a Coke, and bags of potato chips.

I think we're nipping at the heels of a possible GDII. If it comes to pass, it will build up in bits and jerks like we're seeing now but it will be different in many ways from the former one. Similar hardships but different responses and 'solutions'. My personal impression is that right now there's about a 80% chance for GDII emerging within the next year or so. If it does, it would take a decade or more to resolve.

Of course if you throw in terrorism, pandemic or some of the other nasties, that changes the equation.

[Susan4]

clark, this is exactly what I mean. The Irish did not lack food. They did not "depend" on the potato. While they starved, 50 to 70 BOATLOADS of food were exported from the country EVERY DAY - enough to feed 18 million people a year. Livestock, grain, seafood, fruits and vegetables. Ireland grew enough food to feed every man, woman, and child in the country almost twice over. They are an island surrounded by the bounty of the sea, and they had vast open lands full of game - all belonging to the British. If a man hunted or fished he would go to jail or was transported, leaving his family behind to starve. This was a genocide. The Irish could not own land. The British owned it all. The Irish were tenants who worked the land in exchange for being allowed to use a small portion to grow food for themselves and their families. The best use of the land was to grow potatoes. The potato blight had hit before. It hit other countries besides Ireland. When the crop failed, the British inflicted a tax on every house in Ireland... so heavy that the Irish tenants had to sell their food to pay the tax, or face eviction.

What has changed for us? NOTHING! We have millions of people ready, willing, and able to work, who want to pay their mortgages, who want to bring food into the cities and sell it, and buy it. WE are the same. It is outside forces that are trashing our economy. We see the mushroom cloud on the horizon, but at this moment the air around us is still cool, the leaves fresh on the trees. All too soon all that will change.

It's not empty shelves in supermarkets we need to worry about. The shelves will be full. No one will be able to afford to buy the food!

Taxes will rob us of our homes. We can prep till the cows come home, we can save food and grow chickens, and set aside gold, but when the tax man comes... and he will come during hyperinflation.... our taxes will not be $5000 per year. They could be $500 billion per year. Pay in gold? The exchange rate is what the government dictates, and they will set it low enough that you run out of gold far before they seize all the houses. People far richer than you can hold out longer.

History shows, when TPTB cannot work us to satisfy their greed, they will seize what we have.

You know, I read people who think the police and the army will never allow the government to "hurt" the people in any way. They will. They do every day, under the guise of enforcing laws. Constitution, you say? Change it. Just re-write the laws and you already have a government and an army pledged to defend it. Taxes? Those who have should help those who have not, right? Isn't that what we just voted in?

We think we're special. We think it can't happen here.

It will, and this time there will be no place else to run to. This is the end of the line.

Your post gave me a chill fb :( The thing that's different, that may inadvertently save us or some is that there was more holding it together back then. People who knew how to hard scrabble, with no strong dependence on electricity grids and JIT supply networks. Maybe the harder crash is better in the long run. Sad and frightening either way.

[frodo]

Flourbug:

What has changed for us? NOTHING! We have millions of people ready, willing, and able to work, who want to pay their mortgages, who want to bring food into the cities and sell it, and buy it. WE are the same. It is outside forces that are trashing our economy. We see the mushroom cloud on the horizon, but at this moment the air around us is still cool, the leaves fresh on the trees. All too soon all that will change.

It's not empty shelves in supermarkets we need to worry about. The shelves will be full. No one will be able to afford to buy the food!

Taxes will rob us of our homes. We can prep till the cows come home, we can save food and grow chickens, and set aside gold, but when the tax man comes... and he will come during hyperinflation.... our taxes will not be $5000 per year. They could be $500 billion per year. Pay in gold? The exchange rate is what the government dictates, and they will set it low enough that you run out of gold far before they seize all the houses. People far richer than you can hold out longer.

History shows, when TPTB cannot work us to satisfy their greed, they will seize what we have.

You know, I read people who think the police and the army will never allow the government to "hurt" the people in any way. They will. They do every day, under the guise of enforcing laws. Constitution, you say? Change it. Just re-write the laws and you already have a government and an army pledged to defend it. Taxes? Those who have should help those who have not, right? Isn't that what we just voted in?

We think we're special. We think it can't happen here.

It will, and this time there will be no place else to run to. This is the end of the line.

Flourbug, you are starting to sound like a Liberal. There are simple cooperative models to feed everyone.....but until enough people start to go hungry because they can't afford brand name food from supermarkets, these models are useless - because people are still into "woolly thinking".

The trouble for you is that TPTB want to maintain the current models - because it advantages them.

Try and understand that it doesn't have to be this way.

...But until you apply the blowtorch to Congress so that they start working for the man in the street, instead of their rich donors, you aren't going to get very far.

[sandyd]

Employers always seem to give raises but it never made the same purchasing power on the spenders end ...

First of all to level the discussion. I refuse to believe that USA will have a hyper inflation (> 100%), but I predict you will have "high" inflation (> %20 annual ). In a high inflation environment the easiest way to earn money is to invest in high gain securities. The manufacturing business becomes unprofitable because instead of taking risks you can earn easy money from the government securities (government has high deficit so has to borrow). Rich becomes richer, poor becomes poorer. "High inflation is the worst way of taxing a nation"

During those bad years people survived only by relaxed laws. You could build a home without a permit (=no homeless), you could start a business without a permit, sell groceries on a four wheel cart (=no jobless). It was chaotic. Never did we have a civil unrest, but you know Turkey is (was) close to be a perfect police state for years ...

I suspect only the areas with relaxed laws will survive here.

[Oric]

I suspect only the areas with relaxed laws will survive here.

I will give you one example of a recent "work around"

The price of natural gas (used at homes and apartments) nearly doubled in the recent 3 months. It became too expensive to heat homes with gas. In Istanbul almost all the homes are converted to gas and it is MANDATED to use.

Now !

The ruling party (AKP) started handing out cheap coal to the poor through their regional offices. These guys have big database of the needy and the poor for almost 15 million people living in this city

What we have today is SMOG. Those who can not afford gas have switched to free coal.

P.S. we have local elections coming in March 2009

So relaxed laws & partisanism and ("let them do let them pass") will save your day. Good luck !

[sandyd]

This is the end of the line.

If that happens, we may see another civil war....as states choose to leave the USA and cities and counties fight to protect themselves.

To be honest, I can not see it getting that bad.

Third world country bad, yes....where there are homeless digging in trash and begging for food....seen that before here and this time will just be worse.

And people will have to protect their purses and wallets from being stolen a lot better than now....I see people at stores step away from carts that have the purse it in and wonder when a teen will grab and run. Not yet, but it's coming......

I may even take to keeping everything that matters NOT in a wallet but a pocket in a bra or belt under my clothes.....

[flourbug]

frodo, you are starting to get a clue. :)

I have LONG understood that it doesn't have to be this way. That's why I do not support Democrats OR Republicans.

http://www.chicagotribune.com/media/acrobat/2008-12/43789434.pdf

Criminal complaint against Gov Blagojevich.

Page 67,

102. Later on November 10, 2008, ROD BLAGOJEVICH and Advisor A discussed
the open Senate seat. Among other things, ROD BLAGOJEVICH raised the issue of
whether the President-elect could help get ROD BLAGOJEVICH’s wife on “paid corporate
boards right now.” Advisor A responded that he “think[s] they could” and that a
“President- elect . . . can do almost anything he sets his mind to.” ROD BLAGOJEVICH
states that he will appoint “[Senate Candidate 1] . . . but if they feel like they can do
this and not fucking give me anything . . . then I’ll fucking go [Senate Candidate 5].”

---
Advisor A is described in the affidavit supporting the complaint as “a former Deputy Governor under ROD BLAGOJEVICH who is currently a lobbyist.”

frodo, the Dems are every bit as much corporate flunkies as the GOP. They are two sides of the same wooden nickle.

[US Blues]

it'll start out as a Red Dawn senario, move towards The Patriot, and end up like the Postman.

:beer:

[flourbug]

it'll start out as a Red Dawn senario, move towards The Patriot, and end up like the Postman.

:beer:

Oh, aren't you a ray of sunshine. lol!

I saw a sign this weekend on the front of a small store: "This establishment is not participating in the Recession"

I think the same will be true, politically. It will get worse and worse until we decide not to participate, or until we are unable to do anything at all.

.

[frodo]

The state of Victoria, Australia almost went bankrupt in 1992 and we elected a reformer, Jeff Kennett. The economy was broken, unions had run rampant and the State treasury was almost empty. The joke in the rest of the country was: "What's the capitol of Victoria?" Answer = "Two cents".

Over the next Four years, Kennett slashed public service numbers, privatised a lot of government functions, crushed the trade unions, closed schools and sold the land they stood on, got rid of millions of dollars worth of in unneeded public assets. Built new roads, started new public events, and basically did the "unthinkable", balanced the budget, attracted new industries and created thousands of jobs and got the state to where it was the envy of the rest of the country. People were just too shocked and dismayed by the original downfall that they didn't stand in his way.

I was part of the team that did that. I was part of a group that was 50% senior public servants and 50% private sector senior people from "outside' like me. Our job was to attract investment and get industry going again, which we did. The public sector people taught me about Government, I taught them about running a business, and together we were unbeatable in attracting investment and jobs if I do say so myself.

So don't be all "gloom and doom", things can be done and can happen, all you need is a "can do" attitude and a bit of intestinal fortitude. Frankly, cleaning up the car industry would be a very nice challenge, and not too hard in my opinion, provided someone was also cleaning up the healthcare and retirement income issues at the same time.

If I was Obama, my message would be "Come on! Snap out of it!"

[vince08]

sorry if its a bit off topic but one of our local supermarkets has had an increase in the number of people filling there trolleys with food and just walking out,im not sure how they get away with it.but on our local radio station the supermarket in question is know employing security guards.

[rb.]

We've had a few incidents of that locally the last two weeks, too, RF.

[CanadaSue]

There's no way getting through this is going to be 'easy' except for the very small number of truly wealthy who can buy their way out of difficulties, who can insulate themselves from the pain of others.

Most others will find this extremely difficult one way or another & most probably - each will find their own unique combination of problems & issues to work through. I suspect the same will hold with each community we live in. Depending on what kind of leadership communities find vested within their elected governments, as well as community leadership - varied communities will fare very differently.

A problem that's glaringly obvious I suspect to most here, is the problem associated with any number of federal & state,(provincial), laws as well as municipal bylaws. We brought in many of those laws in the interest of health & safety but many of those went far beyond the realm of protecting, trying it seems, to coddle & insulate us against any potential for harm. We can't legally drink raw milk, many areas won't allow you to give away, never mind sell food that hasn't been inspected to death & had to conform to a ton of protective laws. Damned difficult for a small enterpreneur trying to keep her family alive to make homemade sausages for sale while conforming to many of these laws.

Another example crossed the pages of this site a few weeks ago - the story of the 3 year old boy who might be forced to give up his 'therapeutic' pony even though the family owned an acre of land. Those same laws & others similar in nature currently prevent beekeeping, small flocks, rabbits for meat & other small livestock.

You can't simply set up a food or clothing stall without permits, location approval... you can't have any kind of pushcart selling stuff without the same roadblocks.

In my community, there are groups trying to coax the city into allowing more allotment gardens for the use of those without land. IF the city ever approves, it will have to be done 'right' by their standards. Around here, that means I'll be long in my grave before that ever happens. A more useless bunch of dithering idiots I rarely saw...

I suspect in many communities, citizens will simply say: "Screw it! I'm doing it anyway - what are they going to do - arrest & jail all of us? They can't!" And those people will be right. Smart communities need to be taking a good, long, hard look at their eroding tax base & start thinking outside the box. I think one of their biggests concerns might be potential legal liabilities & yeah, a lot will hang up right there.

I can't see too many communities changing laws outright at first - especially those that have a hint of risking safety. Or, Gawd ferbid in affluent communities, changing laws that make unscale communities look pretty. Having said that, not too many months ago, my province wrote & passed a piece of legislation that overrode municipal & homeowner association rules about hanging laundry out to dry. As the Premier more or less put it - it was absurd for the province to be encouraging saving electricity which they're really been campaigning, yet not permit those willing & able to hang wash out to dry.

That's a start. I'm hoping in the next few years, we'll see areas zoned rural-residential relax bylaws about keeping small critters on small acreages. It's a start.

Sandy - your idea of using land for gardens has merit but I suspect it will take some time for that to happen. But it will. Ripping up parking lots won't be where it starts - that's too expensive what with having to tear out paving, then replacing the subsoil & topsoil. But increasingly, communities are having a hard time maintaining public parks & starting with those rarely or lightly used, some conversion could be made to incorporate garden plots.

People are already starting to run businesses out of their homes to lower their overhead & I suspect that will increase. Why pay rent if you only need a room or two for an office & file storage? Illegal? Who's going to know?

That's how it will start - small steps & many changes in laws & bylaws will probably be done after the fact; after citizens have collectively said: "Screw that!" & simply doing what works best for their skill set & situation. Along with that attitude, they'll be casting baleful looks in the direction of town governments who they see as standing in the way of survival - THAT should result in some changes.

Or will communities bother to go through the tedious process of changing laws? The local governments will have bigger issues to deal with & may simply be willing to direct local police to close their eyes to breaches of this sort of bylaw.

Who knows what will happen though? The turth is, we haven't been there yet - we're simply taking our first steps down that road. It behooves us to learn what lessons from past hard times we can but we can't ever forget we live in different times facing different circumstances.

And me sitting here in my apartment have completely different circumstances to face than does Toner or Fart, flourbug or ukmom. All of us, each & every one will be affected differently & will have to adapt & cope as best we can based on what we know, what we can do & most importantly - what we can learn.

The only thing clear to me is that this is world wide - there's no escaping at least some effects for most of us.

It will at the very least, strip us of excess.

And boy, do we have excess that we can do quite well for a long time using up.

[Samen]

I was living and working in Bosnia and Croatia during some of this period and what isn't mentioned in this snippet is there was a war going on. The preferred currency was the German Mark or the US dollar. It was also acceptable to use the Croatian Kuna but you had to ask depending where you were as not everyone liked each other.

Having said all that, society functioned just fine relative to currency (as much as possible considering there was live fire all around). Depending on where you were things were available -their prices were just pegged to a different currency and inflation was based on the dinar.

Black market and greased palms helped immensely. So did the possession of an AK-47. :D
I Would like to hear more from your experience.
Both of the stories I posted worked on the assumption that there was work to be done in neighboring countries or as you sed foren currencies could be used, but they would have to be first obtained, in your case you maybe had them but the average citizen, how did he get them

And then whee come to the situation where US is in a inflation of say 100 % or 100 000 % which is not that much, would the US population go to work for money in Mexico or Canada, the Canadian would probably only have 90% of the US inflation but still, in Mexico I don't have a clue.

I personally think as one option we should consider that there wont be any neighboring country where you can go to work and send money home and one should extract from these thoughts that:
Your alone and you have what you have to bater with, you have no country to go to, to earn money. ( to to to).

Il post later in the prep room on the separate kitchen I'm building, its a slaughterhouse bakery, straight from a Tarantino movie, with a little better hygiene, as a separate unit to my house, grain, sawdust, rat meat and whatever will make some great meat balls to bater with.

To Oric, I would like to hear some personal survival tactics in the inflation you had in Turkey, as I understood it there was a lot of money sent in by Turkish workers working in neighbouring countries, how did families cope who could not send someone abroad?

[CanadaSue]

Just read the posts on grocery thefts & wanted to relate something that happened to me a few weeks ago. I HAVE noticed an increase in the number of 'aisle walkers', (security types), used at the 2 stores I use most often.

Now I walk to do my groceries & carry a largish backpack which I use to carry my groceries. Rarely do I visit both stores on the same trip. The afternoon I went for my flu shot, I stopped at one of the 2 stroes to grab a few loss leaders I needed. Then, I stopped at the store I use the most for the bulk of my purchases. I chatted with the clerk while she rang me up, then took off my backpack, (for the 1st time since I entered the store) & loaded up my purchases.

I'd not gotten 10 feet from the door when store security stopped me & 'invited' me to come into the office for a chat. I wasn't having it & loudly enough to be heard, (albeit politely), asked what there purpose was in asking such a thing. They responded that I'd probably not want them to say so in public. I insisted.

Yup, I was profiled as a thief - not terribly nicely dressed & with a honking big backpack. No kidding - it was snowing, right around freezing & I was dressed in 'work harness' not for nice. Did I mention I wasn't particularily in a good mood? I insisted they tell me, right there & then, what the problem was - I didn't care WHO heard. They more or less accused me of theft but weren't willing to commit to saying WHAT I'd 'stolen'.

I had the advantage of having my receipts & the knowledge that the items I bought at the 1st store aren't sold at that one. I knew they couldn't physically restrain me or wouldn't - without being able to clearly state what I had that I wasn't supposed to have - probable cause. I told them if they wanted to call the police & have the police follow me to take me into custody - fine. I was tired, hungry & was going home. And off I went - no police.

All this to say stores are being far more careful now. We're seeing random attempts at theft, more breakins than usual even for the Christmas season & sadly, too often, the attempted thefts are of food & clothing - necessities rather than stuff to sell, pawn or whatever.

I don't carry a wallet. I carry one piece of ID & any money/bank cards in an inside coat pocket or front pocket of tightish pants. Too easy to have a purse sntached.

[CanadaSue]

Samen - they might try to come to Canada but trust me, we have no work here for those coming across the border. I'm not trying to keep people from working - the sad fact is, we simply are facing the same problems the US currently faces. We're 6-12 months behind US effects in many areas but many employers are proactively laying off, looking to conserve cash. Others sell to drastically declining US markets & if they're not laying off, they're not hiring.

[flourbug]

Yup, I was profiled as a thief - not terribly nicely dressed & with a honking big backpack.

That happened to my former in-laws, only they were ARRESTED. Same story - it was snowing, they were shoveling all afternoon and went to the store looking all shabby and sweaty. They picked up a couple of steaks, paid for them, and rather than carry another bag on the slippery ice, Grandma double bagged the meat in plastic and stuck the package in her huge grandma purse. Store security nabbed them on the way out the door, knocked them to the floor and handcuffed them, dumped the bag out on the floor, and AHA! there were steaks. The receipt went flying along with all sorts of other things. All the while they were pleading, "just ask the cashier, we paid!" They were ignored and hustled into a police car, brought to the station and booked. Grandma suffered a broken wrist when knocked down. They sued - and when store records showed they had paid after all, they got enough money to buy a lifetime supply of steaks and a nice car to bring them home.

Next time, handle it better, okay Sue? ;)

[CanadaSue]

Damn! Instead of simply being loud & firm, I should have turned just this shade of belligerent.

What gets me is how meekly so many people will simply go along with anyone who tells them to do something. Store security here may NOT knock anyone to the ground - not without expecting to be charged & sued. I can't believe they knocked down your Grandma like that - sad comment on our times. I suppose she's lucky she wasn't Tasered the way things are going.

[BirdGuano]

Your post gave me a chill fb :( The thing that's different, that may inadvertently save us or some is that there was more holding it together back then. People who knew how to hard scrabble, with no strong dependence on electricity grids and JIT supply networks. Maybe the harder crash is better in the long run. Sad and frightening either way.

No the thing that's different between Potato Famine Ireland and 2009 United States is the 2nd Amendment to the Constitution, giving us the last-resort power to reboot government when/if necessary.


:beer:

[Misty]

The Economist has more on India and China: http://www.economist.com/displayStory.cfm?story_id=12773135&source=most_commented

China and India
Suddenly vulnerable
Dec 11th 2008
From The Economist print edition

Asia’s two big beasts are shivering. India’s economy is weaker, but China’s leaders have more to fear ..............

See article.

[ltow]

Re: reboot

ahh the joys of using a computer
it gives all users the same feeling of frustration AND a common tongue with which to share and template all of life's other problems
what do they call that when an idea is shared by all that one word can sum it up?
I KNOW there is such a word and cannot think of it






And people will have to protect their purses and wallets from being stolen a lot better than now....I see people at stores step away from carts that have the purse it in and wonder when a teen will grab and run. Not yet, but it's coming......

I remember working with some rough fellas a decade or so back who lamented the fact that when they rolled someone they usually came up empty - "nobody carries cash anymore."

Being a bit naive about these things - makes me ponder what has changed that anyone would want a wallet/purse these days

[frodo]

Groupthink, and it's not a good idea.

[Ben Franklin]

I remember working with some rough fellas a decade or so back who lamented the fact that when they rolled someone they usually came up empty - "nobody carries cash anymore."

Being a bit naive about these things - makes me ponder what has changed that anyone would want a wallet/purse these daysCredit cards and ID that can be used to get more credit.

[Therese]

Re: reboot

ahh the joys of using a computer
it gives all users the same feeling of frustration AND a common tongue with which to share and template all of life's other problems
what do they call that when an idea is shared by all that one word can sum it up?
I KNOW there is such a word and cannot think of it

Paradigm :)

[Ross]

.

http://i260.photobucket.com/albums/ii27/BJH431/dogbertoninvesting16122008.gif

[BirdGuano]

Paradigm :)



The synergy of the reboot paradigm.

:tt2:

[frodo]

Subvert the dominant paradigm.