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Thread: another 2010 prediction - A New Tipping Point of the Global Systemic Crisis

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    Default another 2010 prediction - A New Tipping Point of the Global Systemic Crisis

    (snip)"LEAP/E2020 believes that the global systemic crisis will experience a new tipping point from Spring 2010. Indeed, at that time, the public finances of the major Western countries are going to become unmanageable, as it will simultaneously become clear that new support measures for the economy are needed because of the failure of the various stimuli in 2009 (1), and that the size of budget deficits preclude any significant new expenditures.

    If this public deficit « slip knot » which governments gladly placed around their necks in 2009, refusing to make the financial system pay for mistakes (2) is going to weigh heavily on all public expenditure, it is going to particularly affect the social security systems of the rich countries in always impoverishing the middle classes and the retired, and setting the poorest adrift (3).

    At the same time, the general context of the bankruptcy of an increasing number of states and other authorities (regions, provinces, federal states) will entail a double paradoxical event of increasing interest rates and the flight out of currencies towards gold. In the absence of an organised alternative to a weakening US Dollar and in order to find an alternative to the loss in value of treasury bonds (in particular US ones) all central banks will have, in part, to « reconvert to gold », the old enemy of the US Federal Reserve, without being able to state the fact officially. The bet on recovery having been, at this point, totally lost by governments and central banks (4), this Spring 2010 tipping point is thus going to represent the beginning of the huge transfer of 20,000 billion USD of « ghost assets » (5) in the direction of the social security systems of the countries which have accumulated them. "(snip)





    (snip)"The ten most vulnerable countries on a debt/GDP ratio (in blue; public debt; in orange: private debt) – Source: Crédit Suisse, 03/2009


    Reality quickly fuelled GEAB N°39’s anticipation which indicated that 2010 would be a year noted for three trends, one of which would be state bankruptcy (7): from Dubai to Greece, via more and more worrying reports from the rating agencies on US and British debt, or the draconian Irish budget and the Eurozone suggestions for grappling with public deficits, states’ increasing incapacity to manage their debts is making press headlines."(snip)

    (snip)"The Greek [ creditworthiness downgrade - sic ] case is rather the same. Not that there isn’t a crisis in Greek public finances (that is the reality), but the supposed consequences for the Eurozone are overestimated, whereas this crisis indicates increasing tensions surrounding sovereign debt, the Achilles heel of the United States and Great Britain (9).





    (snip)"But with a country producing 2.5% of the Eurozone’s GDP (and 1.9% of the EU’s) we are far from a dangerous situation weighing on the single European currency and the Eurozone. By way of example, the California’s default (12% of US GDP) entails far more risks of destablisation of the Dollar and the American economy. Moreover, since the same analysts usually like to make lists of all the Eurozone countries facing up to a serious crisis in their public finances (Spain, Ireland, Portugal, to which we can add France and Germany), for the sake of completeness it should be pointed out that in the United States, besides the fact that the Federal State would be technically bankrupt (11) if the Fed weren’t printing Dollars in unlimited quantities for the purpose of buying, directly or indirectly, Treasury Bonds for an equal value, and besides California (the richest state in the Union teetering on the edge of the abyss for months), there are altogether 48 States out of 50 with growing budget deficits now (12). As summed up by the title of the December 14th edition of Stateline, an American website specialising in the US States and municipalities, said « Nightmare scenarios haunt the States », all the states of the United States are afraid of defaulting on their debt in 2010/2011."(snip)

    with massive thanks to Leap2020 ...

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    Default Re: another 2010 prediction - A New Tipping Point of the Global Systemic Crisis

    Should we all move to Estonia?

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    Default Re: another 2010 prediction - A New Tipping Point of the Global Systemic Crisis

    I chose someplace closer ... and warmer ! Although, I'm actually travelling back to the 'great white north' tomorrow in order to spend some of my IRS legally allowed 35 days per year inside the USA with family in NY.

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    Default Re: another 2010 prediction - A New Tipping Point of the Global Systemic Crisis

    and here's another 2010 prediction along the same lines ...



    (snip)"Moreover, our economies have hit the big fearsome brick wall of diminishing returns. Today we have a situation where for every dollar that an individual or a company borrows, the system gets out maybe 10 cents or less of growth. In the 1950's, it is estimated that every dollar borrowed would generate 3 dollars of growth. That's a large part of the reason why all those trillions in bailouts, guarantees, subsidies, loans etc are having such negligible impact.

    So we have trillions of borrowing and record spending to get a few paltry billions in 'growth'.

    A debt saturated society is thus faced with two conundrums as time progresses.

    1) The ability to service the debt plus interest declines steadily over time leading to cash flow problems.

    2) The usefulness of that extra dollar of debt also steadily declines. Thus we are moving towards a point where for every dollar borrowed we have a contraction (I was going to use that ghastly word 'negative growth' but decided against it) due to debt saturation.

    Hence, the marginal cost of taking on one more dollar of debt will become detrimental to society as a whole, as the marginal benefit of that one more dollar is negative. This is precisely how societies decline and as in our present debt based monetary system, the principal must be paid with interest by society as a whole in one form or the other.

    This is either done through:

    1) A deflationary depression where debt is defaulted upon and living standards plummet and millions are left broke and homeless - a societal disaster.

    2) A hyperinflation that leads to the complete debasement of the currency and the utter failure of the monetary system - a societal disaster.

    Some deflationistas focus on the mechanics that will make deflation the driving force initially and for the foreseeable future - constrained lending by banks, hoarding of cash, the inability of the Fed to keep pace with credit destruction and the unwillingness of foreigners to finance government deficits indefinitely as their balance sheets are constrained by declining export income (we're looking at China and Japan, the Gulf). When, but only when, an economy has become isolated enough can hyperinflation take place, and as a reaction to deflation. The American economy knows no such isolation, and can therefore not be hyperinflated at the moment. In five years, yes, but the world will be a whole different place by then.

    By the way, actually paying back the debt is impossible in a system that requires constant debt creation just to keep even, remember the Red Queen in Alice of Wonderland? One has to run faster just to keep up.

    So next year we look all set to see the beginning of shortages of goods and services in the western world, as companies go bust due to their target market having barely enough money to survive. Bank runs and heightened fear are highly possible, but always remember at the height of that fear, Mr. Market will once again create a slope of hope much like 2009, but much worse, because at the time it will look like a God-send, a "recovery is finally here" will be the cry across the land. Here the battered and the wounded will be given hope and motivation, only to be suckered into finding out they are yet again on a slope of hope.

    The slope of hope that leads to the abyss. I hope one now appreciates and understands Ilargi's all time classic line, "Heads you lose, tails you die"."(snip)

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    Default Re: another 2010 prediction - A New Tipping Point of the Global Systemic Crisis

    Melonie, do you believe gold could fall to 600 should we have major deflation as projected by the article you gave us link to? And if gold does indeed fall that low, wouldn't it be unwise for those who bought it at higher levels (I am talking about the physical) to sell it before it falls? I am thinking it may be priced at 600, but not available for sale for those who unload now and want to buy at the bottom!

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    Default Re: another 2010 prediction - A New Tipping Point of the Global Systemic Crisis

    Well I can only speak for myself in this regard ...

    - shares of gold mining company stocks, shares of gold based ETF's etc. are still just 'paper promises' ... thus if you 're looking to profit from rising gold prices you can always trade in and out of these as market trends change.

    - IMHO ounces of physical gold are another animal altogether ... they represent real value in the absence of any 'promises' needing to be kept. India, China etc. as well as some hedge funds as well as private investors have indeed been buying physical gold. And indeed there are some serious shortages of small denomination physical gold ( i.e. the US mint stopped producing Eagles even though it is their DUTY to produce them !!!).

    For this reason, and within the USA an particular, I would be very reluctant to sell off any physical gold for fear that it could not be replaced in kind in the future !!! And even when physical gold is available for purchase, the retail 'markups' now typically exceed $50 an ounce in small quantities. As such, I look at my physical gold holdings as 'insurance' rather than tradable investments.


    In regard to the deflation versus inflation argument, while 'the market can remain irrational longer than small investors can remain solvent', in the short term at least there just seems to be no reductions planned in US gov't borrowing and spending. Additionally, huge amounts of <1 year duration US treasury debt must be 'rolled over' in addition to printing enough 'new' US treasury debt to fund a couple of trillion dollars worth of 'new' 2010 gov't spending commitments. The 'gold foil hat' crowd will probably tell you that the recent decline in gold price = recent rise in US dollar exchange rate is the result of yet another 'flight to safety' bid by international investors in response to Greece / Dubai etc. But many international investors are already getting extremely curious as to what's really going on with 'new' US treasury bill auctions ( i.e. the so-called Sprott Report, indicating that the US gov't is essentially printing up new money out of nowhere in order to purchase its own newly issued Treasury bonds ). IMHO there is little to fear re deflation ... especially in the medium to long term. Also keep in mind that future 'deflation' of certain asset prices i.e. US stocks, US real estate etc. may be totally divorced from global commodity prices as denominated in US dollars.

    ~
    Last edited by Melonie; 12-26-2009 at 03:02 AM.

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