In Europe, policy is still on deflationary settings, with protestors in Athens fighting back against austerity measures
Posted on 10/02/2011 10:24:52 PM PDT by bruinbirdman
The world savings rate has surpassed its modern-era high of 24pc. This is the killer in the global system. It is why we are at imminent risk of tipping into a second, deeper leg of intractable depression.
In Europe, policy is still on deflationary settings, with protestors in Athens fighting back against austerity measures
The International Monetary Fund (IMF) expects the savings mountain to rise yet further next year as the governments of Europe, Britain, and the US tighten belts, in unison, by up to 2pc of GDP.
This is double the intensity of the last big synchronized squeeze in 1980.
They will do so before the private sector is ready to grasp the baton, and without stimulus from the trade surplus states (Germany, China, Japan) to offset the contraction in demand.
Put another way, there is a chronic lack of consumption in the world. "This probably comes as a surprise to most people, gorged on propaganda about excessive debt and the need for retrenchment," said Charles Dumas from Lombard Street Research.
The inevitable outcome of one-sided austerity polices in the Anglo-sphere and Club Med is a self-feeding downward slide for the whole global system, a variant of 1930s debt-deflation. "Excess savers refuse to acknowledge that if world savings are demonstrably too high, healthy recovery depends on the surplus countries saving less," he said.
Mr Dumas said China's "grotesque and destructive" policies of over-investment (50pc of GDP) and under-consumption (36pc of GDP) are unprecedented in history, but at least China's currency advantage is being eroded by wage inflation.
His full wrath is reserved for the "fallacious and malignant policies" of Angela Merkel and Wolfgang Schauble in Germany. They are enforcing a Gold Standard outcome on the whole eurozone. "Suffused with self-righteousness, they insist that the
(Excerpt) Read more at telegraph.co.uk ...
Heh, deflationistas have known this for awhile now.
Interesting how he argues against a common currency and for a common currency all at the same problem. Greece’s problem is that they no longer have a Drachma and are roped to the Germans through the Euro. If they had their own currency then they would be far better off and could let it sink.
As for the Yuan peg, all pegs cost money. The ‘self-fixing’ mechnanism is market inefficiency associated with the Peg. China’s burning money to keep their peg up.
I wish I understood all this better.
Thanks for the explanation. I have wondered how the small nation of Greece could be bringing the whole world down.
Then there is of course all governments spending borrowed money rather than taxed revenue.
Then there is vast production overcapacity.
yitbos
Me, too. The details are hard for me to follow, but I get the impression we are watching a train wreck in slow motion.
My problem is managing a retirement account for a relative who has Alzheimer’s and not knowing how to preserve it’s value so there is support for them. It has lost 1/3 value since February.
Perhaps a different account manager?
Majority of assets are locked up and are an all or nothing distribution. The ideal would have been to roll at the beginning of the year. The challenge would be where to invest that is not volatile. Not so easy.
Well it’s not just Greece. It’s the fact that they are all so overleveraged. Consider Greece the straw that broke the camel’s back. Greece isn’t as heavy as the other burdens, but Germany can’t carry everybody else AND Greece.
What has been happening is that they are coming to Uncle Sam for help. Which is problematic because Uncle Sam doesn’t have the money anymore to keep the system going.
If you take the entire world, We are currently about 50 trillion in debt on 70 trillion in income. Meaning that the debt buffer is about 20 trillion dollars and expanding about 3 or 4 trillion a year. The problem is that overspending is expanding existing debt faster than the economy is growing.
The good news is that stopping spending will still stop the train. The bad news is good luck getting most of the world to agree with it.
It went from $243 Trillion in 2007 to $700 Trillion in 2011.
As I mentioned to a friend this evening, the turmoil in Europe actually helped shore up our 30 year notes. The flight from gold to treasuries sure didn't hurt us in the long run.
Unfortunately, we've already reached the tipping point, where growth in the FedGov creates a corresponding contraction in the private sector. That's why counterfactuals on Bush's "rescue" and Obama's stimulus show the economy ending up in the same shape as if they had done nothing at all. We can't keep going down the same path as Europe, throwing money at the problem in the hopes it will resolve itself or attempting to inflate our way out of debt.
Some folks can position themselves to make money in the ensuing tumble, but the majority of Americans can't. It won't be pretty.
time to hire a fee only pro.....sounds like you have broken the make a plan and stick to it rule
Unwinding them simply has to be done, and best done now. That means *gasp* deleveraging.
I'm thinking it all depends on what folks are tied to; where they put their nest eggs (or where their fund managers put their nest eggs).
Folks who have collective retirement accounts (unions, etc.) could get screwed, massively. What little we've got left is all in 401Ks and whole life policies. Great when times were good (saw some excellent returns on the NW Mutual acccount), but years of medical bills depleted our savings account.
I know too many people who saw their retirement strategy blow up in their face. So far, ours hasn't...
In TX? Probably not too bad.
TX has a couple of long term advantages, a relatively young population, jobs for the most part, housing prices that are reasonable and a good standard of living.
Other places though? I’m much less sanguine. I’m thinking we see anywhere from a 30 to 50 percent decline in the overall standard of living.
I had an argument with a professor friend of mine who was insisting that the baby boomer generation would outlive their parents, and I said, that was doubtful. I would expect them to live much less longer than their parents, on average, simply because of unhealthy lifestyles.
I unfortunately was right about that with my father who died at 53. His mom and dad are still around and all of his great grandparents lived for a long time.
What can people do to protect themselves? Deleverage wherever possible. Don’t own anything you don’t need and pay off your debts.
The second thing is to ‘invest’ in disaster preparation. Things that will become necessary in the event of trouble. I myself haven’t gotten to this point yet, but I have all my bills paid.
It doesn’t have to be big things, just some simple things. Having enough food on hand in the case of an emergency. Having a backup method to cook food in the case that power goes out. Little things like having buckets and stuff for water, basic tools.
It doesn’t have to cost a huge amount, but look around and ask yourself how you would survive say 2 weeks without power. Anything that would be difficult make sure you’ve got some of it.
At the very least none of your preparations will be wasted and will come in handy in lesser emergencies.
As for investment, I’m not the best person to ask as I am sitting out the Obama presidency. Bonds are doing well right now. Some stocks are still worthwhile, ie, whatever things people are going to buy and need in the future.
The worst thing for TX would be a power outage in summer, people will be dying and you would need a way to get by without air conditioning.
As you can see, I’m not really an optimist. I’m sure there are others who would laugh at my prediction of a 30 to 50 percent drop in the standard of living.
Like you, we paid off our mortgage and other debts about 5 years ago. Have begun stocking up on emergency supplies and foodstuffs.
Yeah, pretty much. Used car is paid off, I bought it for cash. :)
Got a pretty good deal. Student loans are paid off, now I just need a full time job and I’m set. As it is having to work a couple jobs to make ends meet isn’t a bad spot to be in, compared with the folks with large debts.
Your life sounds like heaven to me. Now finding someone else willing to go for it is something different. :) I’m tired of moving around for work and want to settle down.
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