A Historians View of the Economic Crisis to Come [Archive] - Glock Talk

PDA

View Full Version : A Historians View of the Economic Crisis to Come


Dexters
08-22-2010, 17:57
If you are serious for prepping for the SHTF take the time to read this.

http://www.piie.com/publications/papers/niarchos-ferguson-2010.pdf


Ninth Annual Niarchos Lecture
Fiscal Crises and Imperial Collapses:
Historical Perspective on Current Predicaments
Niall Ferguson, Harvard University
Peterson Institute for International Economics
Washington, DC
May 13, 2010


Let’s come up to the present and look ahead to the future and reflect a little bit on
the crisis that we find ourselves in at the moment. As I’ve tried to imply, this is a
pretty familiar story. Countries get into positions of excessive indebtedness. The
markets overnight lose faith in the credibility of fiscal policy, and the rest you know.
Looking here at a recent paper from the Bank for International Settlements (BIS),
it’s impossible not to be struck by the extreme instability of public finance in these
countries: Portugal, Ireland, Greece, and Spain, known, rather rudely in my view, as
the “PIGS” in some quarters. Now, what’s striking about the Bank for International
Settlements projections is that they show current policies leading to debt explosions of
mind-blowing proportions in each of these countries over the next 30 years.

BWT
08-22-2010, 18:31
scary stuff. Short of Devine intervention I'm afraid our great nation is head that way. :(

oily_oink
08-24-2010, 00:55
Thanks for the link!

VBG23
08-24-2010, 03:50
Let me preface this with the fact that I read the lecture portion (and enjoyed it despite being scared at the same time) and did not read the Q and A.

However, one thing I don't see much discussion on in general is the advent of computerized financial markets and its effect on the speed at which these debt reprecussions happen. One of his points is that it is a very short amount of time from peak of power to a total collapse, and he cites a lot of relavant history. He also mentions the only times in history we have had this much debt is durring periods of world war.

Well, the last world war was almost 65 years ago. That was way before the internet revolution and the breathtaking speed at which communication and financial transactions take place now. Like the flash crash earlier this year, these "too big to fails" with their computer trading models can tank entire markets in seconds, not hours or days.

If Weimar Germany had hourly inflation rates in the early 20th century before global communications, can you imagine how fast a hyperinflationary situation could strike a country now? In Weimar Germany people had to load up buckets and carts with physical marks and walk to the store to buy physical goods with their depreciating currency. There was a time and proximity factor to how fast prices could rise in response to demand because of the physical limits of transportation. Now if a million people watching 24 hour news sense a hyperinflationary situation with the price of commodities all that is necessary is to open a web page on a computer they are probably already in front of and a few keystrokes later can sell or short anything they wish in whatever electronic quantity they have the ability to do so almost instantly.

Rather than having to check on the prices of goods hourly, the next industrialized country to deal with hyperinflation will measure price changes in computer monitor refresh rates.

UneasyRider
08-24-2010, 06:40
Let me preface this with the fact that I read the lecture portion (and enjoyed it despite being scared at the same time) and did not read the Q and A.

However, one thing I don't see much discussion on in general is the advent of computerized financial markets and its effect on the speed at which these debt reprecussions happen. One of his points is that it is a very short amount of time from peak of power to a total collapse, and he cites a lot of relavant history. He also mentions the only times in history we have had this much debt is durring periods of world war.

Well, the last world war was almost 65 years ago. That was way before the internet revolution and the breathtaking speed at which communication and financial transactions take place now. Like the flash crash earlier this year, these "too big to fails" with their computer trading models can tank entire markets in seconds, not hours or days.

If Weimar Germany had hourly inflation rates in the early 20th century before global communications, can you imagine how fast a hyperinflationary situation could strike a country now? In Weimar Germany people had to load up buckets and carts with physical marks and walk to the store to buy physical goods with their depreciating currency. There was a time and proximity factor to how fast prices could rise in response to demand because of the physical limits of transportation. Now if a million people watching 24 hour news sense a hyperinflationary situation with the price of commodities all that is necessary is to open a web page on a computer they are probably already in front of and a few keystrokes later can sell or short anything they wish in whatever electronic quantity they have the ability to do so almost instantly.

Rather than having to check on the prices of goods hourly, the next industrialized country to deal with hyperinflation will measure price changes in computer monitor refresh rates.

I have never thought about it that way but you make perfect sense. I sit on refresh watching options move and I bet that people would do the same with currency. Unfortunately I am holding in pensions and 401Ks but I have that as far from the dollar as possible.

Big Bird
08-24-2010, 08:27
After reading the whole thing my mind is a little confused.

My perspective is that for most of my adult life of 30+ years I have been listening to people tell me the US is done. Can't tell you how many people I met in the early 90's who were telling me the deficit was out of control and we would never recover. Then a strange thing happened and the economy exploded and the debt shrank to historic lows.

The US has been here before. At the end of WWII our national debt was almost identical to where it is now. So instead of taking that historical perspective these people will tell you that you this time its different. Meaning, its worse and unstoppable. Maybe, maybe not. If all you look at are trend lines then there's no bottom to where we can go. But that also works the other way and in good times there's no limit to how well you can do!


You will quickly learn that EVERY time its different. So what?

People LOVE to talk about crap like Weimar Germany but never really fully appreciate WHAT happened in Weimar Germany. When you really take the time to study the situation...not just selected anecdotes from authors with a slant to their story...but a complete history of what precipitated the German Government to print money and who they gave the money to and why...do you really begin to see there's more to the story than simply "they printed a bunch of money and had hyperinflation" end of story its going to happen here! Nobody talks about the mandatory payment of Gold from the German's to the French as part of WWI reparations and the fact that the French demanded more payment than the German economy could realistically support. Nobody talks about the French occupying German territory. Nobody talks about the miner's strike paralyzing the country from lack of fuel (coal) or that the French made the German miners work for no pay...

There's a LOT more to Weimar hyperinflation than is commonly discussed. It is a WAY more complex situation than most people make it out. But we love to throw around the cliche of Weimar hyperinflation. Because this time its not different....or maybe it is? Which is it?

Big Bird
08-24-2010, 08:37
After reading the whole thing my mind is a little confused.

My perspective is that for most of my adult life of 30+ years I have been listening to people tell me the US is done. Can't tell you how many people I met in the early 90's who were telling me the deficit was out of control and we would never recover. Then a strange thing happened and the economy exploded and the debt shrank to historic lows.

The US has been here before. At the end of WWII our national debt was almost identical to where it is now. So instead of taking that historical perspective these people will tell you that you this time its different. Meaning, its worse and unstoppable. Maybe, maybe not. If all you look at are trend lines then there's no bottom to where we can go. But that also works the other way and in good times there's no limit to how well you can do!


You will quickly learn that EVERY time its different. So what?

People LOVE to talk about crap like Weimar Germany but never really fully appreciate WHAT happened in Weimar Germany. When you really take the time to study the situation...not just selected anecdotes from authors with a slant to their story...but a complete history of what precipitated the German Government to print money and who they gave the money to and why...do you really begin to see there's more to the story than simply "they printed a bunch of money and had hyperinflation" end of story its going to happen here! Nobody talks about the mandatory payment of Gold from the German's to the French as part of WWI reparations and the fact that the French demanded more payment than the German economy could realistically support. Nobody talks about the French occupying German territory. Nobody talks about the miner's strike paralyzing the country from lack of fuel (coal) or that the French made the German miners work for no pay...

There's a LOT more to Weimar hyperinflation than is commonly discussed. It is a WAY more complex situation than most people make it out. But we love to throw around the cliche of Weimar hyperinflation. Because this time its not different....or maybe it is? Which is it?

UneasyRider
08-24-2010, 08:44
After reading the whole thing my mind is a little confused.

My perspective is that for most of my adult life of 30+ years I have been listening to people tell me the US is done. Can't tell you how many people I met in the early 90's who were telling me the deficit was out of control and we would never recover. Then a strange thing happened and the economy exploded and the debt shrank to historic lows.

The US has been here before. At the end of WWII our national debt was almost identical to where it is now. So instead of taking that historical perspective these people will tell you that you this time its different. Meaning, its worse and unstoppable. Maybe, maybe not. If all you look at are trend lines then there's no bottom to where we can go. But that also works the other way and in good times there's no limit to how well you can do!


You will quickly learn that EVERY time its different. So what?

People LOVE to talk about crap like Weimar Germany but never really fully appreciate WHAT happened in Weimar Germany. When you really take the time to study the situation...not just selected anecdotes from authors with a slant to their story...but a complete history of what precipitated the German Government to print money and who they gave the money to and why...do you really begin to see there's more to the story than simply "they printed a bunch of money and had hyperinflation" end of story its going to happen here! Nobody talks about the mandatory payment of Gold from the German's to the French as part of WWI reparations and the fact that the French demanded more payment than the German economy could realistically support. Nobody talks about the French occupying German territory. Nobody talks about the miner's strike paralyzing the country from lack of fuel (coal) or that the French made the German miners work for no pay...

There's a LOT more to Weimar hyperinflation than is commonly discussed. It is a WAY more complex situation than most people make it out. But we love to throw around the cliche of Weimar hyperinflation. Because this time its not different....or maybe it is? Which is it?

I think that the greatest differences are 1) We don't make consumer products here anymore and 2) We have fierce competition now unlike at the end of WWII when we had no competition.

Big Bird
08-24-2010, 09:12
I think that the greatest differences are 1) We don't make consumer products here anymore and 2) We have fierce competition now unlike at the end of WWII when we had no competition.

Dude, we still make 25% of the manufactured goods in the world!

In terms of your second point...there was no competition because most of the world was destroyed! Which also means they didn't have any money to buy the stuff we were making at the time...

Here's some numbers from the National Association of Manufacturers:

The Facts About Manufacturing in the U.S.
• The United States is the world’s largest manufacturing economy, producing
21 percent of global manufactured products. Japan is second at 13 percent
and China is third at 12 percent.
• U.S. manufacturing produces $1.6 trillion of value each year, or 11 percent
of U.S. GDP.
• Manufacturing supports an estimated 18.6 million jobs in the U.S.—about
one in six private sector jobs. Nearly 12 million Americans (or 10 percent of
the workforce) are employed directly in manufacturing.
• In 2009, the average U.S. manufacturing worker earned $70,666 annually,
including pay and benefits. The average non-manufacturing worker earned
$57,993 annually.
• U.S. manufacturers are the most productive workers in the world—twice as
productive as workers in the next 10 leading manufacturing economies.
• U.S. manufacturers perform half of all R&D in the nation, driving more innovation
than any other sector.


Also, there is lots of data that proves as a country we a now producing more manufactured goods than at any time in our history. BUT! That doesn't mean we have more people employed in manufacturing than ever before. And jobs is what most people mean when they talk about manufacturing.... What has happened is our productivity has gone through the roof! Meaning we make more stuff with less labor cost than anyone else...

But to say we don't make anything in this country anymore is factually WRONG... We make more stuff than any other country on the planet....

Dexters
08-24-2010, 11:56
After reading the whole thing my mind is a little confused.
My perspective is that for most of my adult life of 30+ years I have been listening to people tell me the US is done. Can't tell you how many people I met in the early 90's who were telling me the deficit was out of control and we would never recover. Then a strange thing happened and the economy exploded and the debt shrank to historic lows.


I think you are confused between the annual budget deficit and national debt (total debt owed by the US government).

In the 90s the annual budget deficits got smaller - generally because of the social security surplus and secondarily due to a good economy. Future budget deficits are estimated to be in the area of 1.8 trillion.

The USA had been a debtor nation since 1987. The current national debt is about 14 trillion (apx. the same size of GDP) and will increase each year by the amount of the budget deficit.

Big Bird
08-24-2010, 14:01
I think you are confused between the annual budget deficit and national debt (total debt owed by the US government).

In the 90s the annual budget deficits got smaller - generally because of the social security surplus and secondarily due to a good economy. Future budget deficits are estimated to be in the area of 1.8 trillion.

The USA had been a debtor nation since 1987. The current national debt is about 14 trillion (apx. the same size of GDP) and will increase each year by the amount of the budget deficit.

Nope, I'm clear on the difference. As a percentage of GDP the National Debt has been MUCH higher in the past...around 120% in the 40s and early 50's I also get the problem with trend lines and unfunded liabilities etc. But most unfunded liabilities are ultimately
only a signed law away form being solved! Want to change the course and solve the problem associated with Social Security? Raise the retirement age to 70. Done! Just like that! No other changes.

Dexters
08-24-2010, 14:25
Nope, I'm clear on the difference. As a percentage of GDP the National Debt has been MUCH higher in the past...around 120% in the 40s and early 50's I also get the problem with trend lines and unfunded liabilities etc. But most unfunded liabilities are ultimately
only a signed law away form being solved! Want to change the course and solve the problem associated with Social Security? Raise the retirement age to 70. Done! Just like that! No other changes.

Dude, you rule! Get yourself to D.C. and solve our problems. Before you go there; stop off at Harvard and straighten out that professor.

VBG23
08-24-2010, 14:50
Yea, we have had large deficits in the past. However, a main point of the above article is that the only time in history nations have had the debt-to-GDP ratios the majority of the developed worlds has now is as a result of major wars. There have not been any major wars since WWII (please don't lecture me about Korea, Vietnam, Gulf I and II, I understand they are wars but not on the scale of previous declared wars and don't include PIGS and Euro zone countries) and as a whole we are even surpassing debt ratios from those time frames as well.

During WWII, we ramped up mining and production of everything and put the entire country to work including women for the first time. What have we accomplished in the past 40 years? I believe the statistics you posted are a bit misleading (not attacking you) because we no longer produce the raw materials needed for the means of production. We sent steel overseas, we sent textiles overseas, we sent IT and computer jobs overseas. Even the now government owned General Motors has announced a brand new very expensive plant being buit to bring jobs to the area; except it is being built in MEXICO. We have a huge agriculture sector, but it is increasingly destroying family farms in exchange for corporate owned franken-farms that are actually paid not to grow things. Rome tried farm subsidies too; doesn't work.

We continue to pay more people for doing less work. We have run up these deficits yes in part with out many "conflicts" out of some misplaced duty to spread "democracy to the world." But the biggest anchor around our necks are social welfare programs. Trillions for feel good handout programs with no tangible return.

• In 2009, the average U.S. manufacturing worker earned $70,666 annually,
including pay and benefits. The average non-manufacturing worker earned
$57,993 annually.

Now there is a telling statistic. I assume those figures include the UAW workers that are an equally large anchor around the US auto industry's and by extension the US tax payer's neck. I find it odd that the average salary of the highly unionized manufacturing sector is substantially similar to the average federal employee salary. I also find it equally interesting that the average non-manufacturing salary is closer to the national private sector salary. Also, part of the debt explosion is those workers that are starting to retire and collect their generous pension benefits while no longer producing anything tangible that the auto companies can no longer pay so the taxpayer now has to cover the tab.

We are spending ourselves into oblivion. Yea you may have heard it in the 80s and the 90s and now in 2000; but the fact that it hasn't hit yet doesn't make those facts wrong. It only means that private debt is migrating into federal debt and we can only kick the can for so long. All of these "solutions" have been tried before. They don't work no matter what a deluded Keynesian will tell you.

VBG23
08-24-2010, 15:04
Nope, I'm clear on the difference. As a percentage of GDP the National Debt has been MUCH higher in the past...around 120% in the 40s and early 50's I also get the problem with trend lines and unfunded liabilities etc. But most unfunded liabilities are ultimately
only a signed law away form being solved! Want to change the course and solve the problem associated with Social Security? Raise the retirement age to 70. Done! Just like that! No other changes.

I understand your point, but they are most certainly not just a signed law away from solutions. Bureacracies are as close to eternal life on earth as anyone will ever get. Simply raising the retirement age is a necessary step, but it does not solve the entire problem. These issues were not created with one signature and will not be solved with one signature; period. The moral values necessary to solve the problems are simple, the implementation of them are not.

Our current standard of living is an anomaly in history. Our system of government (as founded not its current incarnation) that empowers the people is an anomaly is history. Why is it that everyone likes to assume that the future will look more like the last 40 years rather than the preceeding 2000?

Big Bird
08-24-2010, 19:41
Yea, we have had large deficits in the past. However, a main point of the above article is that the only time in history nations have had the debt-to-GDP ratios the majority of the developed worlds has now is as a result of major wars. There have not been any major wars since WWII (please don't lecture me about Korea, Vietnam, Gulf I and II, I understand they are wars but not on the scale of previous declared wars and don't include PIGS and Euro zone countries) and as a whole we are even surpassing debt ratios from those time frames as well.

During WWII, we ramped up mining and production of everything and put the entire country to work including women for the first time. What have we accomplished in the past 40 years? I believe the statistics you posted are a bit misleading (not attacking you) because we no longer produce the raw materials needed for the means of production. We sent steel overseas, we sent textiles overseas, we sent IT and computer jobs overseas. Even the now government owned General Motors has announced a brand new very expensive plant being buit to bring jobs to the area; except it is being built in MEXICO. We have a huge agriculture sector, but it is increasingly destroying family farms in exchange for corporate owned franken-farms that are actually paid not to grow things. Rome tried farm subsidies too; doesn't work.

We continue to pay more people for doing less work. We have run up these deficits yes in part with out many "conflicts" out of some misplaced duty to spread "democracy to the world." But the biggest anchor around our necks are social welfare programs. Trillions for feel good handout programs with no tangible return.



Now there is a telling statistic. I assume those figures include the UAW workers that are an equally large anchor around the US auto industry's and by extension the US tax payer's neck. I find it odd that the average salary of the highly unionized manufacturing sector is substantially similar to the average federal employee salary. I also find it equally interesting that the average non-manufacturing salary is closer to the national private sector salary. Also, part of the debt explosion is those workers that are starting to retire and collect their generous pension benefits while no longer producing anything tangible that the auto companies can no longer pay so the taxpayer now has to cover the tab.

We are spending ourselves into oblivion. Yea you may have heard it in the 80s and the 90s and now in 2000; but the fact that it hasn't hit yet doesn't make those facts wrong. It only means that private debt is migrating into federal debt and we can only kick the can for so long. All of these "solutions" have been tried before. They don't work no matter what a deluded Keynesian will tell you.


So you are saying its very different than anything that has come before and since we don't have any historical precedent that shows us how this all ends we don't know what is going to happen?

Big Bird
08-24-2010, 19:44
I understand your point, but they are most certainly not just a signed law away from solutions. Bureacracies are as close to eternal life on earth as anyone will ever get. Simply raising the retirement age is a necessary step, but it does not solve the entire problem. These issues were not created with one signature and will not be solved with one signature; period. The moral values necessary to solve the problems are simple, the implementation of them are not.

Our current standard of living is an anomaly in history. Our system of government (as founded not its current incarnation) that empowers the people is an anomaly is history. Why is it that everyone likes to assume that the future will look more like the last 40 years rather than the preceeding 2000?


So HERE you are saying that this has all happened before, its not different this time, and historical precedents show we can never recover?

UneasyRider
08-25-2010, 06:02
Our current standard of living is an anomaly in history. Our system of government (as founded not its current incarnation) that empowers the people is an anomaly is history. Why is it that everyone likes to assume that the future will look more like the last 40 years rather than the preceeding 2000?

My wife sums it up nicely whenever I bring any subject of prepping up, "I know your probably right but I just don't want to think about things like that."

In fairness she is on board with food and anything that I want to do except talk about it.

VBG23
08-25-2010, 12:15
So HERE you are saying that this has all happened before, its not different this time, and historical precedents show we can never recover?

If you want to oversimplify what I said so you can mock then sure, think whatever you want.

What I actually said was that taking a narrow view of history (the last few hundred years) we have not seen this many financial problems and this much debt without a world war in recent history. Also, we have never faced all of these issues at the same time before. Given how our current system as it operates has only been in effect for about 40-60 years that is no suprise.

And what I also said was that if you expand your horizon to the thousands of years that encompass human history, our system of government and our freedoms that we take for granted have really only existed briefly.

You have the right to walk into a public forum and scream at the top of your lungs that you wish then-president Bush would burn in hell. We may no longer have the right to say such things about democratic presidents, but theoretically the right still exists. Try doing something like that in a muslim nation and demand your right to free speech. Think back to feudal England and tell the King you have the right to speak in opposition to him.

I am not saying I wish these freedoms did not exist; quite the opposite. I love what our country once was, and I cherish my freedoms. That is why if we do not wake up and realize that what we have is exceptionally fragile we will lose it and it will take another 2000 years to get it back.

SilverCity
08-25-2010, 12:21
No worries. Just buy U.S. treasuries...

http://www.bloomberg.com/news/2010-08-25/morgan-stanley-says-government-bond-default-is-question-of-how-not-if-.html

UneasyRider
08-25-2010, 15:07
http://inflation.us/

Dexters
08-25-2010, 15:20
If you want to oversimplify what I said so you can mock then sure, think whatever you want.




Big Bird is accurately summing up what Niall Ferguson has said. Ferguson did not use the word 'never' but he does not have an example in history to contradict the summary.

fourdeuce2
08-25-2010, 15:45
History is funny like that. We humans seem to have a tendency to get cocky and think we know everything(just look at what we named our own species-Homo sapiens:rofl:), but history has a habit of coming up behind us and smacking us upside the head. Depending on history to predict the future might work some of the time, but history(or maybe it's Murphy) is always waiting with some surprises. Just when we get complacent, along comes reality with something to knock that complacency down a bit.:faint:

daydreamer
08-25-2010, 17:17
My wife sums it up nicely whenever I bring any subject of prepping up, "I know your probably right but I just don't want to think about things like that."

In fairness she is on board with food and anything that I want to do except talk about it.

Heh...yeah, my wife gripes about the pallets of "camping supplies" in the garage (they keep growing), but she finally admitted that she's glad we have the stuff should we ever need it.

Dexters
11-27-2011, 08:46
Bumping up because it is happening in Europe and soon (10 years?) in the USA.

inzone
11-27-2011, 09:32
I buy beans and bullets....i just dont trust the best and brightest, either way.....doom and gloom vs. the pollyannas......where were they in the subprime crisis? enron? the 911 attack? and now in europe? maybe they are clueless, maybe they are players gaming the system and pump and dumping, etc.,.....regardless, we likely wont know until it hits, or not..... i dont know if a tornado is going to blow my house away, but I have homeowners insurance....fire insurance, life, etc.....
also, I got out of paper.... sold the whole life insurance policies, sold all the stock, put everything into land, things you can actually use, invest in God and family and beans and bullets...that's my plan.... fwiw

TangoFoxtrot
11-27-2011, 09:43
• U.S. manufacturers are the most productive workers in the world—twice as
productive as workers in the next 10 leading manufacturing economies.

This statement I doubt highly! Maybe back in WWII. In present day the U.S. workers are probably some of the laziest and non productive workers compared to other nations of the world.

bdcochran
11-27-2011, 09:55
About ten years ago, I drove on a lightly maintained two lane federal highway to about 40 miles west of Natchez, Mississippi. As my dad and I passed by a couple of motels being converted into retirement units, I commented that such was the future of America.

The bulk of my fellow Yuppies will not retire to the house with the white picket fence in the country. Essentially, they will retire to rural, small apartment complexes. Yes, they will have the cell phone, color television and a 40 mile drive to the big city medical center.

A certain amount of the economic, political, and emotional problems relate to the increasing population density. Another portion relates to the aging population wherein the life expectancy of 40 years in 1900 has climbed to almost 80 years today.

The financial problems of today and the challenges of tomorrow will not be "solved" by venting, arguing, or disputing.

You will have personal survival challenges. It doesn't matter whether you have a career in plastics (The Graduate), sit on a pile of gold or have a case of beans. You will have done all that you can do by maintaining your physical health, controlling your mental health, having a program of gaining new skills, and judiciously accumulating quality tools.

cowboy1964
11-27-2011, 15:33
Unfortunately I am holding in pensions and 401Ks but I have that as far from the dollar as possible.

What do you have your 401k in that is not U.S. dollar invested?

G29Reload
11-27-2011, 17:04
• U.S. manufacturers are the most productive workers in the world—twice as
productive as workers in the next 10 leading manufacturing economies.

This statement I doubt highly! Maybe back in WWII. In present day the U.S. workers are probably some of the laziest and non productive workers compared to other nations of the world.

Nope. Measures of productivity have us at an all time high. Especially since the economy has companies forcing employees to do more with less and cutting back on employees due to O care looming and making employees into huge liabilities.

UneasyRider
11-27-2011, 17:22
What do you have your 401k in that is not U.S. dollar invested?

Large cap stocks which given my options is the only way that I feel sure that the companies will still be here when it's all over. Yes I'm still stuck in the dollar.