Cain, here's a question for you.

[The Good Reverend Roger]

How long before America buckles and tries to inflate its way out of debt, ala Mexico in the first half of the 20th century?

How long before Britain does?

[Cain]

Good question.  I'll come back with answers in a bit.

[The Good Reverend Roger]

Good question.  I'll come back with answers in a bit.

Righteo.  I think it IS going to happen.  I don't see how it won't.

[Cain]

This might be relevant.  http://www.ft.com/cms/s/0/b82d2b96-bc02-11de-9426-00144feab49a.html

Wolfgang Munchau was one of the guys to correctly point out how fucked we were, economically, before it was popular, and so is worth reading.

Going by this, he expects to see inflation make a return in late 2010 or so, and then we fall into the wonderful Financial Instability Hypothesis trap:

The single reason for this renewed bubble is the extremely low level of nominal interest rates, which has induced people to move into all kinds of risky assets. Even house prices are rising again. They never fell to the levels consistent with long-term price-to-rent and price-to-income ratios, which are reliable metrics of the property markets' relative under- or over-valuation.

But unlike five years ago, central banks now have the dual role of targeting monetary and financial stability. As has been pointed out time and again, those two objectives can easily come into conflict. In Europe, for example, the European Central Bank would under normal circumstances already have started to raise interest rates. The reason it sits tight is to prevent damage to Europe's chronically under-capitalised banking system, which still depends on the ECB for life support. The same is true, more or less, elsewhere.

Now, I agree there is no prospect of a significant rise in inflation over the next 12 months, but the chances rise significantly after 2010.

Once perceptions of rising inflation return, central banks might be forced to switch towards a much more aggressive monetary policy relatively quickly – much quicker than during the previous cycle. A short inflationary boom could be followed by another recession, another banking crisis, and perhaps deflation. We should not see inflation and deflation as opposite scenarios, but as sequential ones. We could be in for a period of extreme price instability, in both directions, as central banks lose control.

This is exactly what the economist Hyman Minsky predicted in his financial instability hypothesis.** He postulated that a world with a large financial sector and an excessive emphasis on the production of investment goods creates instability both in terms of output and prices.

While, according to Minsky, these are the deep causes of instability, the mechanism through which instability comes about is the way governments and central banks respond to crises. The state has potent means to end a recession, but the policies it uses give rise to the next phase of instability. Minsky made that observation on the basis of data mostly from the 1970s and early 1980s, but his theory describes very well what has been happening to the global economy ever since, especially in the past decade. The world has witnessed a proliferation of financial bubbles and extreme economic instability that cannot be explained by any of the established macroeconomic models. Minsky is about all we have.

His policy conclusions are disturbing, especially if contrasted with what is actually happening. In their crisis response, world leaders have focused on bonuses and other irrelevant side-issues. But they have failed to address the financial sector's overall size. So if Minsky is right, instability should continue and get worse.

Our present situation can give rise to two scenarios – or some combination of the two. The first is that central banks start exiting at some point in 2010, triggering another fall in the prices of risky assets. In the UK, for example, any return to a normal monetary policy will almost inevitably imply another fall in the housing market, which is currently propped up by ultra-cheap mortgages.

Alternatively, central banks might prioritise financial stability over price stability and keep the monetary floodgates open for as long as possible. This, I believe, would cause the mother of all financial market crises – a bond market crash – to be followed by depression and deflation.

In other words, there is danger no matter how the central banks react. Successful monetary policy could be like walking along a perilous ridge, on either side of which lies a precipice of instability.

Highlighted the most important pieces.

[The Good Reverend Roger]

Well, that kind of confirms my gut feeling, though I didn't know the precise mechanism.  Something's got to give.

[Cain]

http://www.nakedcapitalism.com/ and http://www.zerohedge.com/ are probably the best financial sites to keep an eye on.  Between the two of them, they are skeptical enough and financially literate enough to know what is going on.  Going by their articles, the possible contenders for that "something" which will finally give way are quite numerous.

[The Good Reverend Roger]

http://www.nakedcapitalism.com/ and http://www.zerohedge.com/ are probably the best financial sites to keep an eye on.  Between the two of them, they are skeptical enough and financially literate enough to know what is going on.  Going by their articles, the possible contenders for that "something" which will finally give way are quite numerous.

Thanks.  I'm gonna give them a read as soon as I'm on a comp that will let me.

[Elder Iptuous]

zerohedge has good stuff.
thanks for the other link, Cain.

So the question is, TGRR: what are you going to do to prepare for a possible economic shitstorm?
Do you have the gut feeling that economic turmoil will lead to catastrophic failure in our sustaining infrastructures?  like our distribution networks that are highly tuned for efficiency but not terribly robust?

[Triple Zero]

who are these zerohedge fellows btw? when I first came across them I didn't really know what to think with the shiny Tyler Durden/Fight Club metaphors and such. They do seem to have the goods on interesting information, however.

[The Good Reverend Roger]

zerohedge has good stuff.
thanks for the other link, Cain.

So the question is, TGRR: what are you going to do to prepare for a possible economic shitstorm?
Do you have the gut feeling that economic turmoil will lead to catastrophic failure in our sustaining infrastructures?  like our distribution networks that are highly tuned for efficiency but not terribly robust?

What do you think?  We've stolen stones from the foundation to build a 3rd floor.

[Elder Iptuous]

zerohedge has good stuff.
thanks for the other link, Cain.

So the question is, TGRR: what are you going to do to prepare for a possible economic shitstorm?
Do you have the gut feeling that economic turmoil will lead to catastrophic failure in our sustaining infrastructures?  like our distribution networks that are highly tuned for efficiency but not terribly robust?

What do you think?  We've stolen stones from the foundation to build a 3rd floor.

Ya, ya...
I guess what i'm hinting at, is do you think adopting a survivalism type mindset is wise, or a fools errand?
your posts generally seem to have a fatalistic outlook from an observational point of view, but from a strategic personal point of view, i'm curious as to whether you are simply planning on enjoying the crash as best you can, or whether you intend to jump ship in some fashion.
If i'm not mistaken, you have children, right? what do they think about future prospects?

[The Good Reverend Roger]

Ya, ya...
I guess what i'm hinting at, is do you think adopting a survivalism type mindset is wise, or a fools errand?

Neither...It's simply a matter of preference.  I'm treating it as a spectator sport.

If i'm not mistaken, you have children, right? what do they think about future prospects?

My daughter says she plans to beat me when I'm old, and encourage others to do the same to their parents.

[Cain]

who are these zerohedge fellows btw? when I first came across them I didn't really know what to think with the shiny Tyler Durden/Fight Club metaphors and such. They do seem to have the goods on interesting information, however.

"Tyler" is Dan Ivandjiiski, a former hedge fund analyst done for insider trading.

http://nymag.com/guides/money/2009/59457/

[BabylonHoruv]

zerohedge has good stuff.
thanks for the other link, Cain.

So the question is, TGRR: what are you going to do to prepare for a possible economic shitstorm?
Do you have the gut feeling that economic turmoil will lead to catastrophic failure in our sustaining infrastructures?  like our distribution networks that are highly tuned for efficiency but not terribly robust?

What do you think?  We've stolen stones from the foundation to build a 3rd floor.

Ya, ya...
I guess what i'm hinting at, is do you think adopting a survivalism type mindset is wise, or a fools errand?
your posts generally seem to have a fatalistic outlook from an observational point of view, but from a strategic personal point of view, i'm curious as to whether you are simply planning on enjoying the crash as best you can, or whether you intend to jump ship in some fashion.
If i'm not mistaken, you have children, right? what do they think about future prospects?

I'm thinking resilient communities ala John Robb on Global Guerrillas is the answer.  People by themselves with stockpiles are just going to be prime targets for the looters.

[Elder Iptuous]

zerohedge has good stuff.
thanks for the other link, Cain.

So the question is, TGRR: what are you going to do to prepare for a possible economic shitstorm?
Do you have the gut feeling that economic turmoil will lead to catastrophic failure in our sustaining infrastructures?  like our distribution networks that are highly tuned for efficiency but not terribly robust?

What do you think?  We've stolen stones from the foundation to build a 3rd floor.

Ya, ya...
I guess what i'm hinting at, is do you think adopting a survivalism type mindset is wise, or a fools errand?
your posts generally seem to have a fatalistic outlook from an observational point of view, but from a strategic personal point of view, i'm curious as to whether you are simply planning on enjoying the crash as best you can, or whether you intend to jump ship in some fashion.
If i'm not mistaken, you have children, right? what do they think about future prospects?

I'm thinking resilient communities ala John Robb on Global Guerrillas is the answer.  People by themselves with stockpiles are just going to be prime targets for the looters.

I like his resilient community idea as well, but if you're not living in a place that is doing that, then you'd better take initiative on your own.  It is certainly agreed that people with known stockpiles are going to be prime targets, which is why one should KYFMS, and also establish a network of like minded individuals in your area, and elsewhere if possible.  a la the 'tribe up' type stuff J Robb has written.