olhorseman
Sharpshooter
As future Warlord of the Southeast I am going to build a wall to keep you Midwesterners out. BTW I will make you pay for it.
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Global Market Crash Nearer Than Ever
- Thread starter mrjarrell
- Start date
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Fair question. The best answer is, of course, "it depends."
This is kinda how I see it. (This idea of "cycles" is purely my own. I think. Someone else may have done the same thing, but this is my own construct. I didn't really take it from anyone. This is purely my own speculation.)First, the farming and price of goods questions are related. Keep in mind, there is a fairly significant time lag in farming. Next season's crops are already planted (depending, of course on the time of year, but generally speaking, some farmer somewhere already has next season's crops planted). That company (let's drop the charade of family farms for a moment) probably also has in place the resources to harvest it. So, we let's assume 1 season of farming is already paid for.
Second, consider the price of risk. In the buildup to a collapse, the financiers will start increasing costs of short-term borrowing, so they can make money short term to survive long term. Prices of things will go up somewhat. Think of the bump we're having right now in gas. Supply and demand. Lower supply, static demand = higher prices. The same thing goes for money. Static supply of money (we can't keep printing it), increased demand (financial hoarding basically) = higher prices (interest rates, premiums, etc.).
Third, keep in mind that banks generally don't have enough money in them to cover everything. "Its a Wonderful Life" kinda thing.
So, global economies collapsing, people can't get their hands on cash, and what they can buy is more expensive. You still have a job and it pays the same, because your employer (either private or public) isn't really making any more money, and is probably making less (fewer customers and higher costs to borrow). The power plant employees are in the same position. The farming company, though, has the harvest sitting there and they're trying to figure out what to do about it.
For the first cycle, the industrial customers probably still want it. But, they can't really afford to advance credit, because they're not sure who will be able to pay. Or, there's a captive system, where a subsidiary farm "sells" to its parent company. Either way, that first harvest is relatively business-as-usual. Until it becomes time to transport.
That's the first weak spot. Transport costs are much higher now than when the contract was signed. So, the farm customer has to decide if it is still worth it. Let's say they arrange to bring the harvest to the production facility and make it consumer-ready with what they have on hand.
Now, the farm company has to decide what to plant or whether to. That is typically a credit-based decision, at least in part. But, they can't afford credit now, and aren't sure what to plant anyway. Let's say they invest in planting whatever they were going to before the crash, and are able to pay for it with the narrowest of margins. Now they wait a couple months.
Meanwhile, you and me cut down to buying essentials only for this first cycle. And try withdrawing as much cash as we can. There are limits, but we stand in line like everyone else. Enough people start doing this that some goods just go unsold. That cuts into the profit of groceries, which are already suffering reduced margins because wholesale costs are higher.
Now the second cycle. This is where the supply-demand-price dynamic gets a bit more complicated due to the reduction in liquidity. People have less means to pay for things. So, the demand might be there, but the ability to pay for it is reduced.
The "global collapse" is a still the news, but a new normal is emerging. We're dealing with higher prices. Getting more staples. People are staying home more, cutting back on unnecessary things. Crime is probably going up, with thefts being more predominant. Violent crime is probably about the same, but people are more frustrated, under more pressure. You and I are probably still getting a paycheck that is about what it was before - it is just more paycheck to paycheck. We're still taking cash out as best we can, and trying to protect it.
The groceries are having to lay people off. Places like Best Buy are making plans to close down. Unemployment is going up. Financiers are not investing because it is too hard to price for the risk of investments. The gov't is in a tough spot. They need banks to loan money, but the banks either don't have it or don't want to make risky loans. Inflation, then hyperinflation, becomes an issue.
Since it is a global collapse, imports become an issue. Walmart can probably afford to buy foreign-made things, at least for awhile, but those countries are suffering the same issues, likely worse. If the paycheck isn't enough to buy the things they need, then why work?
In the second cycle, Walmarts still have things, but are starting to worry about bringing in more shipments and getting them to the stores. Prices continue to rise. Things like sales taxes become interesting. Credit cards will work for awhile, but vendors become worried that they'll get the money from the banks. More people use cash, partly because they may be able to negotiate a discount. Vendors are still obligated to charge sales tax, but then they have to decide whether to actually turn that over to the state or to hoard it.
State and municipal revenue from sales taxes start to fall. That starts to jeopardize state and local government jobs. We're still in the second cycle, so people are cautiously optimistic. But, parts of the private sector - particularly service jobs - are hurting. Dual-income households are becoming more single-income, so they don't need to pay for child care. Which removes those kinds of jobs from the economy. Power plant employees are still working because people are still paying their bills, as much as they can. Some stress there, because harder hit people - and businesses -are prioritizing.
This is where the survivalist/hoarders start laughing at the rest of us.
So we enter the third cycle, a few months post-crash. Farm company has to get resources to harvest. Transport again is the issue. The US has made great strides in the last decade away from foreign oil. There will still be some supply but demand will be difficult to sort out. More importantly, how will the farm company pay for it? It will certainly be more expensive, so the wholesale price is even higher than it was before. Let's say they get the harvest in. Hopefully, the commercial customer is still in business, too.
But their price has also continued to rise. The inflationary effects are not necessarily linear. If the producer needs to raise prices 50% to cover costs, and the "factory" needs to raise prices another 50% over that to cover costs, and the retailer needs to raise another 50% over that.... you get the idea. In this cycle, it becomes cheaper and easier to steal and/or scavenge. The power plant employees are going to start being laid off because people aren't paying their bills. Gov't may intervene and force them to stay open.
But, if things like law and order break down, people might not risk going to work. Instead, they'll stay home and try to protect what they have. Electricity keeps running. Unemployment is very high. Banks may be subsidized by the gov't, but tax money that goes for that is money that can't be spent on other stuff. (Some of which INGO doesn't like anyway.) Local governments cut back. Banks half-heartedly foreclose on properties that they think can be resold pretty quickly. But, many people just aren't paying their mortgages. So, there's less money for banks to loan or to support deposits, well, any deposits that people still have at banks. Much of commerce is now in cash.
No one is laughing now.
By now were more than 6 months in, I figure. If things break the right way, the worst might be behind us and we might start coming out of it by re-engaging domestic manufacturing. People get back to doing the hard work that needs doing. Many people die, though. There is still great stress in society.
If things don't break the right way, the next cycle is all about hyperinflation and the further breakdown of society. Think about that stuff that happened to people during the breakup of Yugoslavia (I think that's where those stories came from) or Bosnia. Instead of cash, it is a barter economy, at least in certain areas. People migrate to where they think jobs are, or at least family, so they can pool resources.
By now, the gov't is struggling, in the sense that tax revenue is WAY down.
Really not sure what happens then. Too many variables. Honestly, there are too many to even support this super-long post. This is just how I think it might play out. Sorta slow-motion collapse. Which is part of the strategy. The longer the collapse is strung out, the more opportunities for it to be mitigated.
BehindBlueI's
Grandmaster
- Oct 3, 2012
- 26,608
- 113
I stopped reading that when I saw Paul Krugman's picture.
BehindBlueI's
Grandmaster
- Oct 3, 2012
- 26,608
- 113
We aren't Zimbabwe. The US dollar is a global currency used extensively in international trade, and of course our economy is not on the same scale.
Pray tell, how may I subscribe to your blog?
Things go up and down, I figure the next bad one will start with civil unrest stopping manufacturing in china. When the boats stop coming everything that was made here, but now comes from china will be in real short supply. Factories that made those simple things can't be conjured up overnight assuming a multinational bank would make a loan knowing that once the crisis passed the new factory would close. All of that would require a federal guarantee which would have to make it through the dc law/lobby swamp of competing special interests. Your electricity will be on but your house will be dark, because you can't find light bulbs in the store.
Whatever happened to Howard Ruff?
Whatever happened to Howard Ruff?
BehindBlueI's
Grandmaster
- Oct 3, 2012
- 26,608
- 113
We aren't going to start hyperinflation, and certainly not to reduce our debt. We don't care about our debt. We owe most of it to ourselves, so it's not like a family who has a mortgage. It's like if Rhino took $500 from his gun fund and bought a knife, then took $200 out of his knife fund to buy bandages. He owes himself $700 to replenish those funds. If he defaults...so what? Obviously an over simplification, but you get the idea.
Oil is traded in US Dollars. What's traded in Zimbabwean currency?
Zimbabwean GDP in USD billions: 13.66
US GDP in USD Billions: 17,419
How much debt can you service with a 1% increase in GDP given both of those numbers?
Zimbabwe is a hot dog stand on the global economy.
Even John Kerry mentioned this past week that there is, bubbling out there, a move towards the world de-dollarizing themselves. This will not be good.
De-Dollarization Complete: Iran Abandons US Dollar In Foreign Trade | Zero Hedge
De-Dollarization Complete: Iran Abandons US Dollar In Foreign Trade | Zero Hedge
That has been circulating for years now. First it was the Chinese dollar, now it is Swiss franc or German Deutschmark.
this is a funny thread in that I sold a gun to a guy that was talking about the collapse of the U.S. Dollar on Oct 20 of this year.....we will see I guess.
young people will never reieve social security (meincluded)...and some thieves out there have most of our pertinent info, therefore making them able to destroy our credit, and kill our savings...something bad is destined to happen...fight club style....the next great depression/recession will be the fact that nobody has an identity anymore, because everyones has been stolen....I could see that being the fall of modern america
BehindBlueI's
Grandmaster
- Oct 3, 2012
- 26,608
- 113
C'mon, you know Iran is about style and not substance. They changed to the UAE Dirham.
Guess what the UAE Dirham's value is calculated on? It's pegged to the USD at a fixed rate, and has been since 1997.
They didn't de-dollar, they added a middle man.
Economists see no reason to scrap US dollar-dirham peg | The National
And ISIS is the JV.
Don't matter how big your economy is if you start pumping up the currency. And as that happens, who's going to want to deal in dollars?
We won't hyperinflate? How are we going to dig ourselves out of $17 trillion in debt and rising. With new entitlements coming down the pike?
You are far, far more optimistic than I am...
Glad you're dug in. Lots of Americans aren't. If SS goes belly up and we get inflation, you'll have some p*ssed off old folks. Don't assume they're just going to die quietly.
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