Economists of DU, can you please critique this article ?

[steve2470]

I usually do not make requests like this, but this article has me rather concerned for two reasons: 1) His predictions are rather dire and 2) He seems, to my layman frame of reference, to be knowledgeable.

Here is the article:

Empire of Debt I: The Great Unraveling Begins

http://www.oftwominds.com/blognov07/empire-debt1.html

[Birthmark]

1. I'm not an economist.

However, I think that his scenario is plausible, though not necessarily iron-clad. It could very well get VERY bad VERY quickly. Not much point in worrying about it, though, since we really can't do much about it.

[SheilaT]

2. I am likewise not an economist

(and I hope someone who's taken more than a one-semester intro to economics does post something) but I can say that Predictions of Gloom and Doom have been very popular for many, many years. It's not entirely clear to me from that article exactly how things will go bad and how that will impact the average citizen. What does impact the average citizen is the continued out-sourcing of jobs, the importing of dangerously contaminated pet food and toys, the lack of universal health care, the presumption on the part of major corporations that it's "too expensive" to cut pollution, the continued denigration of public schools and the aggressive de-funding of the entire infrastructure, including roads, schools, hospitals and so on.

When the stock market crash occurred in 1929, the drop in stock prices wasn't what really affected the average person. The Great Depression had almost nothing to do with the stock market, but rather with a host of other things that contributed to a severe contraction of the economy. It basically started with the farms and the over-production during WWI. Some years ago I went around asking adults who were already grown by the time of the stock market crash, and to a person they all said the economy was tanking before the crash, and that it was obvious to the most casual observer that things were going to get bad.

The same with the current situation. Global warming is a genuine problem, regardless of the cause. If sea levels rise precipitously, coasts everywhere will be devastated. Changing climate means a change in where food can be grown. "Peak oil" means a need for a wholesale shift to new sources of energy. If a new disease arises (or an old one becomes newly deadly) then an epidemic could kill or simply debilitate millions of people.

My point is, that the stuff talked about in the article will not themselves be the trigger to economic devastation, but be really the result of other things at play.

[kickysnana]

3. A critique from the "guru" of the DU Economy Forum

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x30163

They are moving heaven and earth to keep this scheme going and there is no way because they have lost trust, the thing that our monetary system is built on. People are scrambling to find "safe" places for their money to the extent that foreign countries are having to put safeguards on wild speculations.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x3062771

[Beerboy]

4. Fellow non-economist checking in,

as is Mr. Charles Hughes Smith. I don't see anything in his bio http://www.oftwominds.com/history.html that indicates he's an economist by profession. He's a good writer though.

[On the Road]

5. Don't Lose Sleep Over This, Seriously

The issue with debt is legitimate. The dire predictions are overstated. Fearmongering is usually based on legitimate issues. That technical chart is ridiculous -- the VIX spikes into the 30s and 40s probably twice a year and he's trying to make it sound like economic doom

It is very possible some large financial institutions will go out of business. That will not destroy the economy or our way of life. There have been worse financial crises in the past -- crashes, depressions, government bankrupcies, and the world has always gone on and improved.

Just be prudent and try to have a financial cushion. If you want to feel better, set a reminder for Dec 15 ("a few weeks") and see whether his predictions appear to be coming true.

[steve2470]

6. Thank you for your learned input, seriously.

Anyone else want to add something ?

[ProfessorGAC]

7. What Ribofunk Said

The impact will be largely microeconomic. (Sorry for the oxymoron.

The overall impact on the macro will be slow and not drastic or sudden. The bargain hunters in the rest of the industry that didn't get trapped will "de-steep" the slope.

I do agree that the derivatives market are not well-enough regulated and can cause financial issues, but not long term on a pure economic basis.
The Professor

[Beerboy]

8. How do you know the overall impact, if any,

will be more pronounced in currencies, than say, commodities? It's a topsy-turvy world, and the micro and macro are enmeshed. I'm glad I traded in a whole bunch of my dollars back in 2001 for cold hard sweet beautiful gold!

[On the Road]

11. Good Timing for You

The upcoming year before the election could be a good time to sell and get back into the dollar. Bush's waning time in office is going to lead to a rally at some point.

[CK_John]

9. Not an economist, money is just a concept and unless you are in the top 1% of the worlds wealth

holders, those who have wealth regardless of the concept in play, then you are just a player. When the concept gets whacked the concept is adjusted and the play begins anew.

The whole idea is to give the populations of the world something to do, something to keep them busy and pretend to pay them for their pretend services. If you go along with the pretend game you get food, shelter, right to reproduce safely and to boss people around.

[EV_Ares]

10. Steve, thanks for the posting, interesting article. Not an economist

and don't claim to be an expert in economics but I have an interest as I have an investment account and 401 along with my wife so I certainly have an interest in our economy and future economy.

I find the article not outrageous and very possible some of the things he says. However, I do not see any of those things occurring in the next few weeks as there are safety valves that can be put in place to at least delay past a few weeks. I do believe our economy is in trouble and I do believe they are hiding a lot of things and the market and economies around the world can work like a domino scenario if the right/wrong things occur. I think something like this will happen in the future sometime, don't know when and I don't think anyone knows for sure.

What you can do is first you need to find your comfort level. Are you comfortable in stocks, banks, mortgage bankers, etc. If not then look elsewhere. You can always go to gold or other commodity. You are limited to a certain extent but you can find somewhere you can go with your money and be relatively safe.

In the end, you can't dwell on something like this as we are all in it together and are powerless to a certain extent. Just be as smart about it all as you can.

You might find this article an interesting read:

http://www.businessweek.com/magazine/content/07_47/b4059054.htm?chan=top+news_top+news+index_top+story