An argument against a near term collapse

Hi Bearmarket,

there is the greatest possibility that demand out-stripped supply in 2008. The trade markets appear to me as a game of Nintendo, becoming more and more unhinged from reality ...

 The question I like to ask myself daily so as to keep me on the straight and narrow is :-

Can I value money as energy?

I see a dislocation ...

I think that may well be where your wires are getting crossed with Mike?

I found this for you and believe it'll be an interesting read, particularly as it was written by Chris Martenson :-

http://www.chrismartenson.com/martensonreport/united-states-insolvent

[snippet]

" Prepare to be shocked.

The US is insolvent. There is simply no way for our national bills to be paid under current levels of taxation and promised benefits. Our combined federal deficits now total more than 400% of GDP.

That is the conclusion of a recent Treasury/OMB report entitled Financial Report of the United States Government that was quietly slipped out on a Friday (12/15/06), deep in the holiday season, with little fanfare.

Sometimes I wonder why the Treasury Department doesn't just pay somebody to come in at 4:30 am on Christmas morning to release the report. Additionally, I've yet to read a single account of this report in any of the major news media outlets, but that is another matter.

But, hey, I understand. A report this bad requires all the muffling it can get. "

........................

This is both chilling and unstoppable it seems :-

http://www.usdebtclock.org/

.......................

I feel Gail The Actuary absolutely nailed it back in March this year :-

http://www.theoildrum.com/node/5230

[snippet]

" Nearly all of the economic analyses we see today have as their basic premise a view that the current financial crisis is a temporary aberration. We will have a V or U shaped recovery, especially if enough stimulus is applied, and the economy will soon be back to Business as Usual.

I believe this assumption is basically incorrect. The current financial crisis is a direct result of peak oil. There may be oscillations in the economic situation, but generally, we can't expect things to get much better. In fact, there is a very distinct possibility that things may get very much worse in the next few years. "

................

It is speculative to create a thread called 'An Arguement Against A Near Term Collapse'. What would be near term enough to be 'close' in any respect?

Best,

Paul

My gut reason for a near term collapse is, to use Chris' Fenway Park metaphor, that the water is lapping at our feet.... the exponential explosion is rarely felt until it is waaaaaay too late. It's only a matter of seconds before the water is over your head. Have you got the key...?

I have.....

Mike

 

It is speculative to create a thread called 'An Arguement Against A Near Term Collapse'. What would be near term enough to be 'close' in any respect?

By near term i mean within the next two years. Basically by 4th Qtr 2011, based on the above data, it appears farfetched that the US monetary and banking system will "blow up".

With regards to the US being insolvent, it is insolvent from a unfunded liabilities basis but not from a current basis. Recently, social security payments were not increased because of the low CPI numbers. This gives a guide for the future in that the government is going to lowball all the people depending on uncle sam. People are going to get far less than they are expecting to. The British Empire also lost its world currency status a long time ago but they are still around today. They did pretty well for themselves a good 60 years after losing their reserve currency status. Just because the US is reckless with its money today doesnt mean it will be forever. At one point the money printing will stop whether or not the currency collapses. And even if it does they will start with a new currency just like Germany did and look at them today. Besides, US has the nuclear arsenal and they will use it if necessary. Not that I support the use of the bomb just stating the facts. When Rome owed money to Carthage the latter was wiped out as was the liability.

bearmarkettrader,

Your arguments are well reasoned, persuasive and engender lively discussion which makes for a great thread. Keep it up! I'll be back to challenge your premise (after I do some homework!)

Thanks.

Thanks for the compliment! You know, im basically trying to form a balanced mental, rational and emotional approach to the difficult times that are coming. At first glance, looking at all these facts, the emotional side of our brains make us think that its all going down. Perhaps this is caused by the infusion of information. Before, most of us believed that america was wealthy and we were trying to make our own piece out of the large wealth pie. Now, after learning more about the truth, we see that the country isnt nearly as wealthy as was first assumed. But will this place called america just collapse? Will the outstanding debt, impending inflation and energy supply constraints cause this nation to implode into a third world country within a few short years? As one who doesnt have denial as a personality trait this scenario can happen to any nation. However, in modern times its been a long time since this has happened. Assyria, Babylon, Carthage were wiped out quickly. However, Rome, Athens, London, Berlin, yes even Berlin that was bombed to dust is back and stronger then ever.  Even Moscow which was the captial city of the old USSR is still around and things are pretty good even though the USSR suddenly collapsed.

Here is basically where i stand: stocks will get pummeled, the currency will lose alot of its value, the nation as a whole will become much poorer, violence and social unrest will grow, but at the end of the day the US will be a power to be reckoned with for at least another century.

"The four largest U.S. banks by assets -- Bank of America Corp., JPMorgan, Citigroup and Wells Fargo & Co. -- have increased their combined liquidity by 67 percent to $1.53 trillion as of Sept. 30 from $914.2 billion in June 2008, before Lehman's collapse, according to the companies' third-quarter reports. The amount equals 21 percent of the banks' total assets, up from 15 percent."

"In the second quarter, the 500 largest nonfinancial U.S. firms, by total assets, held about $994 billion in cash and short-term investments, or 9.8% of their assets, according a Wall Street Journal analysis of corporate filings"

Read more at: http://www.huffingtonpost.com/2009/11/02/citigroup-bank-of-america_n_341949.html

http://www.huffingtonpost.com/2009/11/02/citigroup-bank-of-america_n_341949.html

Looks like the big boys are sitting pretty with trillions in liquidity.

bearmarkettrader,

I'm not sure whether I agree or disagree with your assertion but since you hung the pinata out there, far be it from me to pass up a chance to take a whack at it.  But first, for the purposes of this dicussion, how should we define "collapse"?  For many of the 9.8% of the unemployed (really 20%) or the foreclosed,  it's already collapsed.  "Near term" has been defined:

By near term i mean within the next two years. Basically by 4th Qtr 2011, based on the above data, it appears farfetched that the US monetary and banking system will "blow up".

 If we find that:

stocks will get pummeled, the currency will lose alot of its value, the nation as a whole will become much poorer, violence and social unrest will grow

should we not view that as a collapse?  (Leaving aside for the moment:)

at the end of the day the US will be a power to be reckoned with for at least another century.

If:

   ~Stocks get pummeled. If the Dow retests the March lows of 6500, and doesn't bounce,                                                                                                 

   ~Currency loses alot of it's value. If the dollar breaks, what, say 70? Is that alot?

   ~The nation as  a whole becomes much poorer.  If house values decline below Case-Shiller index, pensions get further decimated (are there any left?), unemployment goes to 20% or even 25%, foreclosures double, states like California default, cities like Los Angeles and New York default

   ~Violence and social unrest grows

 doesn't that concede the point? Or should we put a significant drop of GDP, failure of the FDIC, loss of dollar reserve currency status, as part the equation?

If the discussion is narrowly limited to just the finance sector, then one could argue it has already collapsed, but was "reanimated" at it's death by the infusion of trillions from the Fed.

As to the notion that the banking system is now stabilized because "the big boys are sitting pretty with trillions in liquidity", where did this liquidity come from? Wasn't it just about a year ago that Paulson, Bush et al bailed them all out? If that's someone elses money that's not exactly sitting pretty.

I am normally a pretty optimistic guy, not typically taken in by apocalyptic scenarios, sometimes even displaying a foolhardiness usually found in those much younger than me. When I became concerned about the economic conditions of our country, it took considerable compelling information to move me out of my complacency. As such, it will take a significant amount of compelling info to calm the waters once again. On this thread some disquieting facts about our condition have been put into a context that would seem to diminish the threat posed.

However, there is just so much more out there unfortunately. I've heard of the following problems before but this report brought them up anew.

 http://www.financialsense.com/fsu/editorials/2009/1103.html

Some highlights:

A combination of failed financial regulation, endemic corruption and computerized fraud have synergized to create a very fragile financial system. A system that is so incredibly huge, so incredibly un-transparent and so very unstable, that it currently still teeters on the brink of a greater collapse.

Many comparisons have been made to past crises and prognosticators argue whether we will see deflation or inflation, but its very possible that such arguments are invalid for three main reasons that predominate in markets today more than at any time in the past; these being mass, velocity and interconnectivity. Not only are the size of the debt/derivative/fraud problems so utterly underestimated and so much larger than at any other time in our history, but also modern day computer-driven trading means that should a crash sequence be initiated, subsequent price action declines will manifest very rapidly indeed. Combine this with the fact that global markets are now so interconnected and you have the recipe for the mother of all crashes.

The US is now saddled with a bloated and weakened financial system riddled throughout with a huge mass of unstable and largely unknown debts, awaiting any number of possible activatory triggers. I put it to the reader that the majority of market pundits do not fully comprehend either this current weakness of the system OR this incredible size and interconnectedness of toxic debt and fraudulent shares. Moreover, they underestimate the total speed with which such a system is now capable of collapsing should the appropriate trigger arise.

Derivatives As A Collapse Catalyst
Much has been written about derivatives however Buffet’s original and most fitting 2002 analogy is really all one needs to know – that they are indeed “financial weapons of mass destruction”.

....we have now seen this market balloon into a $592 trillion monster (as at end 2008, down 13.4% from 2007). Some commentators still insist the notional value is in excess of one quadrillion dollars.

So here we sit ten years on, with a whole web of OTCD contracts, conservatively valued at an official $592 trillion, woven intricately throughout a global banking system that is, at best woefully under-funded, and at worst insolvent.

Buffet’s nuclear analogy is totally apt as a failure of a significant counterparty will set off a chain reaction of further counterparty blowups. The will not be a set linearly collapsing dominoes where one brings down another then another in orderly sequence. This will be a exponential fission reaction where one sets off two, then four then eight, then sixteen, etc. Thus, in an already unstable system, well disseminated derivatives will act as the catalyst that speeds up the collapse reaction.

Kinda scary, huh?