A Primer on the Coming Crash

[JustPassinThru]

hmmm........that mean my "Dollar General" and "Everything's A Dollar" stock is going to lead to a Wall Street, international collapse of the financial markets of the world when their stock falls? Perhaps in science what goes up must come down, but there isn't any guarantee that a financial boom, as we are experiencing under President Trump for the past three years, is going to come crashing down despite people predicting it.

Money and markets operate on some very simple economic principles: Supply & Demand; Confidence in the economy and currency, and the U.S. dollar has remained the reserve currency of the world for over the past 45-years, nobody is near it; and velocity - how fast, and how much money is placed into circulation regularly.

Velocity is what greases the wheels of the economic system - if the Federal Reserve, not a part of the U.S. Government but an independent agency in control of currency and interest rates, routinely continues to raise interest rates, as they have four times in two years in trying to stymie the Trump economic recovery, based on - well - nothing but the possibility that because Wall Street and money markets tend to fluctuate then the system is flawed and economic theory doesn't matter.

The Trump economic boom can go on for ages for all we - or the money changers know. Nothing has slowed it much yet. Remember, you have a man in the White House for the first time who actually understands money and economics.

Stan

We have records of boom-and-bust; and we know what Financial Engineering (a command-and-control economy) does. Or how it does, which is pretty lethargic.

Forcing down interest rates with the Fed's Free Money to member banks (ZIRP) is financial distortion. It results in mis-allocation of resources. One telling example was how General Electric has so-borrowed to buy back its own stock, that a percentage-point raise in interest made the company insolvent. All of a sudden, it owed more than it was worth.

There are many others, but that was one in the news just three months or so ago.

Money is a commodity like any other. The price of money is where borrower and lender agree. Unless you have a command-and-control economy, with the State setting prices. Then you have shortages.

In this case, with artificially-low interest rates, the shortages are in the return on lending and investing. Savers get NOTHING now. Retirees have been living off their principle, since there is little interest proceeds.

Other savers have been pressured (by chasing returns) into extremely-risky investments. Like these junk bonds. Now even THOSE returns are not coming.

IMHO, this "velocity of money" is a fake measurement to obfuscate the real problem, which is a rigged economy. When people have confidence in the future, they trade. And the velocity of money increases.

When they do not, they curtail their purchasing, their hiring, their investing, even. Less velocity of money.

Rigging the game with ZIRP or QE, does nothing to the real problem. Right now, things are going well on the surface, because people have confidence: Because the Kenyan Marxist is gone.

But underneath it all, there's this black hole of government debt that the money-printers are filling. And personal debt is at record levels, too. One ripple in the economy, and a lot of people will be defaulting.

[jirqoadai]

my reasoning was, if it crashes youll have a full five years before panic mode sets in, at the very soonest. and if you are no longer allowed to take out a second mortgage to use that credit to play in the stock market, then it wont happen anyway.

[Gator Monroe]

If you can’t afford Gas or the hospitals are swamped so health care slows to a UK crawl and crime skyrockets like The Rio Slums ( even in Red rural townships ) and your neighbor hates your guts and would take up arms against you ?

[jirqoadai]

If you can’t afford Gas or the hospitals are swamped so health care slows to a UK crawl and crime skyrockets like The Rio Slums ( even in Red rural townships ) and your neighbor hates your guts and would take up arms against you ?

cant afford gas? is that like, guns are illegal, try to get one?
sounds like a challange to me, or a small test anyway. im gonna get one of those M32-A1s. and a few crates of ammo, so i can get more M32-A1s, and more crates of ammo. then tell me your gas pumps are turned off.

[Stan Fan]

We have records of boom-and-bust; and we know what Financial Engineering (a command-and-control economy) does. Or how it does, which is pretty lethargic.

Forcing down interest rates with the Fed's Free Money to member banks (ZIRP) is financial distortion. It results in mis-allocation of resources. One telling example was how General Electric has so-borrowed to buy back its own stock, that a percentage-point raise in interest made the company insolvent. All of a sudden, it owed more than it was worth.

There are many others, but that was one in the news just three months or so ago.

Money is a commodity like any other. The price of money is where borrower and lender agree. Unless you have a command-and-control economy, with the State setting prices. Then you have shortages.

In this case, with artificially-low interest rates, the shortages are in the return on lending and investing. Savers get NOTHING now. Retirees have been living off their principle, since there is little interest proceeds.

Other savers have been pressured (by chasing returns) into extremely-risky investments. Like these junk bonds. Now even THOSE returns are not coming.

IMHO, this "velocity of money" is a fake measurement to obfuscate the real problem, which is a rigged economy. When people have confidence in the future, they trade. And the velocity of money increases.

When they do not, they curtail their purchasing, their hiring, their investing, even. Less velocity of money.

Rigging the game with ZIRP or QE, does nothing to the real problem. Right now, things are going well on the surface, because people have confidence: Because the Kenyan Marxist is gone.

But underneath it all, there's this black hole of government debt that the money-printers are filling. And personal debt is at record levels, too. One ripple in the economy, and a lot of people will be defaulting.

Thanks, disagree with your assessment, but respect your input. Velocity is always the key, because it is what controls money supply in the market. If banks, for whatever reason, begin to reduce home loan mortgages, the entire construction and housing industry collapses. Houses don't get built; building trades jobs like construction, electricians, plumbing, landscaping disappear, unemployment results. There are NO indicators in the money markets that housing prices and new housing starts, are declining, anywhere you look. Unemployment in America at all levels is the lowest in our entire history. We go back to the economic model after World War II, we collapse. We have a man in the White House who won't let that happen, and BTW, he CAN FIRE the head of the Federal Reserve if he dislikes their decisions on the economy.

It is the same for a majority of markets. The auto industry (not counting GM, which was stupid), continues to roar, cars seem to be out of fashion, crossover's and SUV's control the market and the roads, and new car prices reflect that. Very low, almost at the giveaway level; You could be serving time at Attica State Prison in New York, and get a car loan over the phone - I got approved for two of them in the past week, although I wasn't even looking to buy.

GM's problem is that it no longer is one of those too big to fail industries like Fanny May; Fannie Mac and AIG - the huge mortgage holding companies. GM is a farce. What little manufacturing they do in America, costs them $77 per hour on the assembly lines, to cover the retired benefits, medical and cost of living expenses. GM is an HMO, has been for years. Nobody makes money paying that kind of idiot rate (it is exactly the same thing as the nuts raising minimum wage to $15). There are very, very few minimum wage jobs (and it hasn't been increased a penny), in ten years, that warrant that rate. BTW, although it has been a decade since the last increase in the Federal Minimum wage, which I think is $7.25 an hour, and controlled by Congress, well, Congress voted themselves a $4500 pay raise two weeks ago. Makes you sort of ill, doesn't it?

Neither does a Malibu or an Impala. Their Volt electric car, the vehicle of the future, is a failure and being phased out of production, just when the AOC foolishness in Congress is trying to mandate electronic vehicles for our future. The only thing making money for GM is their Silverado truck, best selling truck in the USA individually, while the Ford F-150 is the best selling truck for fleet vehicles, and the Corvette.

I like to spot cars on the highways, and the Toyota Corolla and Camry; Honda's and Nissan Altima clearly are America's choice. Even Cadillac is going under, but those three brands are flying off of car dealership lots, because they know how to build solid, reputable cars, and all of them are made in America.

Whatever it is that causes stock market tumbles, usually isn't a major activity, but is rumor and reputation. Take Hurricane Brian in Louisiana this week. Terrible loss for the people of the Cajun State, but a huge boom for the construction industries which will repair the damage. Because U.S. government taxpayer monies guarantees profits in this endeavor, the mess will be cleaned up; Louisiana will not be saddled with massive debt, nor its citizens, and will return stronger then ever. Meanwhile - Haiti - Little Clinton as it has been come to be known, will forever remain in poverty and financial morass, because of unstable, dishonest government. That's the simple difference between the USA and those Central American banana republics.

The Iranian naval war isn't going to effect America, because we no longer trade with them due to sanctions. They (nor the Chinese or Mexico, Japan or Canada) can wait us out because we now are energy independent. In 1973, when Jimmy Carter was President, during the Iranian hostage crisis, America couldn't supply its own oil, and we were reduced to odd-even day filling our cars with Middle East OPEC oil. OPEC is no longer a force in American affairs, but because of the dependence on foreign oil, the rag heads punished us at the pump, and there was a subsequent stock collapse on Wall Street.

It was that way for years, until Donald Trump came along - put his foot down, opened up new drilling facilities on American soil, and pushed ahead with new pipelines - leadership acts based on a clear understanding of global economics, that we became America First. Everybody else in the world that Obama gave away, Trump has already renegotiated the trade terms and the subsequent monetary fluctuations from money manipulation. It no longer works for China, Japan, Korea or the other major industrial nations of Asia, who long ago passed Europe in trading importance to us. America can simply sit pat on China, based on the Trump tariff's, because we collect $240 billion dollars a day from forcing China to trade with us under the old Obama policies. What's the hurry?

So, just because stock market and money market funds occasionally dip and slide, based on many, many variables, some financial, some political, some on simple fear of continued success, doesn't mean there is a financial collapse coming in our future.

Stan

[JustPassinThru]

I'll just add this for @Stan Fan :

Japan has had zero or lower interest rates, mandated by their central bank, since about 1995. They have NOT gotten out of the rut they were in from the early 1990s. The Bank of Japan keeps flooding their system with new fiat, and the economy is flatlining.

Japan's culture is that of respect for authority, so there's been no major push to clean house. But with a whole generation of young people unable to afford to start families - with the males often chronically unemployed as women are given strong preference in professional openings - they may have a simmering tea-kettle also.

Time will tell...for them and for us. But I'm confident in my read of the situation.

[Stan Fan]

I'll just add this for @Stan Fan :

Japan has had zero or lower interest rates, mandated by their central bank, since about 1995. They have NOT gotten out of the rut they were in from the early 1990s. The Bank of Japan keeps flooding their system with new fiat, and the economy is flatlining.

Japan's culture is that of respect for authority, so there's been no major push to clean house. But with a whole generation of young people unable to afford to start families - with the males often chronically unemployed as women are given strong preference in professional openings - they may have a simmering tea-kettle also.

Time will tell...for them and for us. But I'm confident in my read of the situation.

America of 2019 isn't Japan of the 1990's. If you haven't noticed, most countries today are electing Trump-like leaders basically for economic reasons. Japan is one of the most backward political countries in the world, hasn't really changed much since World War II.

You read the situation as the glass being half empty, while the facts are the American economic glass is overflowing, daily. Japan hasn't caught on to the Trump economic miracle yet, and because politically it is mired in the past, probably will be the first to fall for failing to modernize.

Stan

[Mr. Independent]

Interesting review; and I can spot nothing wrong with the summaries and theses set out.

I doubt I'll wade into it, though - some things I just cannot change; and this demented new financial set of policies, is one of those things. We need to return to a Gold Standard - re-ratification of the Bretton Woods arrangement would be a good start.

But it will be painful. And we have the new breed of socialist idiots who think we can just print up money. We will have to have collapse before we can get to reform - if then.

An ideal solution might be to get rid of the idiots first, but how that works is another question.

[Old Tex]

As I've said I don't get excited in another end of times prediction. But IF I were worried about it I wouldn't be putting my wealth into gold. Gold is only valuable because of it's uses & one would assume there wouldn't be many when things go to shit or because people think that it's valuable. So your assuming that people will still think it's valuable & to me that's questionable. On the other hand people die without food & water or other people killing them. So IF I believe that it was coming I'd have a stockpile of food, water & a lot of the biggest weapons & ammo that I could find. But that's just me.

[Northern Rivers]

As I've said I don't get excited in another end of times prediction. But IF I were worried about it I wouldn't be putting my wealth into gold. Gold is only valuable because of it's uses & one would assume there wouldn't be many when things go to shit or because people think that it's valuable. So your assuming that people will still think it's valuable & to me that's questionable. On the other hand people die without food & water or other people killing them. So IF I believe that it was coming I'd have a stockpile of food, water & a lot of the biggest weapons & ammo that I could find. But that's just me.

And, me!

I have a large frost-free acreage...running streams...extremely fertile volcanic soil...and, the capacity to generate copious power. Honey, poultry, eggs, vegetables, orchard fruit, lamb/pork/beef...wild game...the ocean nearby. Way better than gold.

"Dirt Poor" was just fine after the 1929 crash.

Gold??? Why?????