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2008-09-14 Home Front Economy

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Posted by Crinens Chese1665 2008-09-14 17:46|| || Front Page|| [3 views ] Top

#1 An note to Rantburgers: though the odds are not great, a peculiar situation may yet evolve that is in essence a worldwide collapse in credit, affecting governments, corporations and individuals all at once.

From the individual point of view, other than some degree of economic catastrophe, greater or lesser, faster or slower, what would this mean?

Ironically, massive and truly unbelievable deflation.

That is, imagine if all at once, the major credit card companies invalidated ALL credit cards, concluding all existing sales.

This would mean that the only way for anybody to purchase anything would be with debit cards, instant debit checks, and cash.

Of course, that vast majority of transactions would have to be by debit card, which would be the bulk of our national economic activity. But far fewer merchants are currently able to do instant debit checks.

This leaves cash. And how many people would you guess have over $500 in cash in their homes? But for at least a month or two, or more, cash would suddenly be worth far more than face value. A penny might be worth a dollar, because everyone would *have* to have cash.

It sounds utterly bizarre, yet the "credit society" has only existed since WWII. Before then, cash was generally how transactions were done.

And the US mints are right now working at full capacity. The government is *incapable* of producing more paper money without opening new mints. We are talking something on the order of $500 billion dollars, with corporations shuttling around suitcases full of $100,000 bills, only redeemable with government authorization.

In any event, the reason I bring this up is because, for the next six months to a year, it would probably be a very, very good idea to keep a few thousand dollars CASH in a safe place.

If the credit crunch doesn't happen by then, you will only be out a few dollars interest, so no biggy.

But if it does happen, who knows? You might be able to buy a new car for $200, a really nice house for $5000, or an s-load of gold for the price of lead.

Posted by Anonymoose 2008-09-14 19:09|| 2008-09-14 19:09|| Front Page Top

#2 I'll be looking for Osama to turn himself in also.

Posted by Nimble Spemble 2008-09-14 19:20|| 2008-09-14 19:20|| Front Page Top

#3 Lehman is an international entity.

Big, big international entity with operations in a dozen countries.

Posted by mhw 2008-09-14 19:54|| 2008-09-14 19:54|| Front Page Top

#4 I would argue that we are undergoing deflation right now. It is possible to have deflation with rapidly rising prices which can be tied to a supply and demand event, which we have in the case of our recent oil price spikes.

So, what is deflation?
I went through a deflationary event in Oklahoma during the oil bust.

Looking back on it, it wasn't bad: housing fell, wages were worth much more; you just couldn't borrow money because frankly no one had any to lend.

That may well be what the USA faces, and even in that event we could still be in a rising price environment.

If companies here cannot borrow to fund inventories, then manufacturers can't make stuff; then we have shortages or supply events and higher prices.

The solution is obvious. Government is crowding out private businesses with its voracious appetite for money, so that appetite much be curbed.

It will happen. Whether it is by an act of Congress or an act of the Fed is the choice we face now.

Government cannot continue to expand or even spend at it current level. It is hurting the economy and crowding out any chance the private economy will have to get back on its feet.

Posted by badanov 2008-09-14 20:10|| http://www.freefirezone.org]">[http://www.freefirezone.org] 2008-09-14 20:10|| Front Page Top

#5 Barclays has a lot of stuff marked to fantasy (i.e. fancy financial assets on/off its balance sheet that cannot easily be valued because of their complexity, but are clearly worth less than the amounts they owe to their creditors). Make no mistake - they are in deep doo-doo. For them to take on Lehman's liabilities would be like adding weight to a sinking ship. At the same time, if Lehman liquidates, Barclays will have to switch from marking its assets to fantasy to marking its assets to Lehman liquidation values. Barclays may not want to buy Lehman, but it was probably hoping that somebody else would.

Bank of America is buying Merrill, though. The rumor is that BAC has so many massive derivative trades with Merrill that it can't afford to let Merrill go under.

Posted by Zhang Fei 2008-09-14 22:01|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com] 2008-09-14 22:01|| Front Page Top

#6 Lehman survived, even prospered for 150+ years through depressions, panics, etc. and in periods when the govt was borrowing more than it is now as a percentage of total spending.

It is a mistake to blame govt borrowing. It is the company itself, especially the executives who awarded themselves many millions of bonuses. Certainly the govt bears responsibility for the Community Reinvestment Act which basically requires lending quotas and for several other govt actions that made things worse and, of course there is the Fannie and Freddie problem which was sort of a govt chartered and govt. coddled non govt agency.

Posted by mhw 2008-09-14 22:05|| 2008-09-14 22:05|| Front Page Top

#7 It is a mistake to blame govt borrowing. It is the company itself, especially the executives who awarded themselves many millions of bonuses.

Lehman's executives destroyed it. Period. They got carried away with leverage and also got involved in investments outside of their area of expertise where they, not the other participants, were the rubes. For once, Main Street got to stick it to the city slickers on Wall Street.

Posted by Zhang Fei 2008-09-14 22:15|| http://timurileng.blogspot.com]">[http://timurileng.blogspot.com] 2008-09-14 22:15|| Front Page Top

#8 "For once, Main Street got to stick it to the city slickers on Wall Street."

Now we're all gonna get stuck, ZF. :-(

Posted by Barbara Skolaut">Barbara Skolaut 2008-09-14 22:41|| http://ariellestjohndesigns.com/]">[http://ariellestjohndesigns.com/] 2008-09-14 22:41|| Front Page Top

#9 Predicting a Dow loss of +500 points

Posted by European Conservative 2008-09-14 23:27|| 2008-09-14 23:27|| Front Page Top

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