2009 Economic Forecasts...what will happen, when?

Technically, No. However, they can get to points like Zimbabwe where the government does not have enough cash to buy the paper to print more money.

If it gets bad enough (hyper inflation) the country may move to another currency. But modern economies can control their currency....it can be increased and decreased. It can be managed.

Industrial nations are not facing hyper inflation now. We are all looking at deflation.

 

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First part is very easy with fiat money. Even with metal coin it can be done (and has been since Roman times) by reducing size and/or precious metal percent.

When people and institutions have faith in the country's economy, reducing money in circulation is also easy - just issue bonds. Much to my amazement, the faith that the US treasury bonds are the best store of value continues and they are selling at very low interest rates, NOW. IMHO, it is only a question of when, not if, the flood of printing press dollars destroys that faith. When it happens it will be like a dam bursting - everyone wants to sell the bonds and dollars for real assets.

 

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That's exactly how the system is going to fail this year if they don't stop the presses and stop the "bailout" by throwing money at it. We will be mired in paper that will devour our nation as we know it and a pure socialistic or even communistic country will arise.:soapbox:

 

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I doubt the "pure" part but do think it likely that the banks will be nationalized, the government will decide what infrastructure is needed, with very little worry about the enviromental impact, the concerns of the population, etc.

I.e. When a collapsed US and EU sees that China is still growing, improving the lot of its populations, many of the "democratic liberties" will be lost. Americans, when hungry and out of work will not think these things as important as they do now. They will demand a "working government", somewhat along the lines of the Chinese one. This is probably the greatest cost of 8 years of GWB.

 

Well Billy T I don't think the west needs to see that China is still growing to adopt a Chinese style government. I think George II was taking us down that path quite rapidly. But with Obama, I think it is at least on hold. Obama was totally unexepected by the American political elite and power brokers. I think he is their worst nightmare.

Next week we are scheduled to hear Obama's solution to the banking crisis. And it looks like the Senate is going to approve a stimulus bill. All of which should be good news to the equity markets.

 

Probably true.

They sure deserve one, considering the "Daytime Nightmare" many Americans now have about paying the mortgage, feeding & clothing the kids, saving for college and old age, etc. not to mention worring: When does my job "evaporate"?

 

One good thing im hoping comes from all this is that Universities/Colleges go back to places of "Higher learning" rather than the current "Corporate Training" ground.

 

Don't hold your breath.

The college students need to be very career minded.

Corporations still want the Universities to do do research for them upon which the corporations rather than the Universities will own the Patents.

The bloated University bureaucracies and highly paid University executives will be worrying about falling revenue and will roll over for any money tossed their way by corporations.

The well funded right wing political machines are only about 1/4th of the way done with their long term project of overturning academia's liberal (pursuit of the truth has a liberal bias) bias and replacing it with a conservative bias.

 

Thread's "What will happen when" - well here is a clue to one thing in the next month or so:

“General Motors Corp. and Chrysler LLC may have to be forced into bankruptcy by the U.S. government to assure repayment of $17.4 billion in federal bailout loans, a course of action the automakers claim would destroy them.

U.S. taxpayers currently take a backseat to prior creditors, including Citigroup Inc., JPMorgan Chase & Co. and Goldman Sachs Group Inc., according to loan agreements. ...
If federal officials fail to get a consensual agreement to change their position regarding repayment, they have the option to force the companies into bankruptcy as a condition of more bailout aid. The government would finance the bankruptcy with a so-called “debtor in possession” or DIP loan, a lender status that gives the U.S. priority over other creditors, ...

“{US is} negotiating to see if they can reach an agreement {with first inline bank creditors},” ... “If not, {US is} saying ‘We are pretty darn sure that a bankruptcy judge will allow us’” to be first in line for repayment. ..."

From: http://www.bloomberg.com/apps/news?pid=20601087&sid=awUP2iWPHQ2E&refer=home

I.e. not as good as it sounds for Tax payers as it is another "lose/lose" plan.
If the US gets what little can be saved from GM & Chrysler (and the banks do not) the banks go under or US gives the money anyway. If the banks get the money salvageable from GM and Chrysler, then they will need less (for a while) from the tax payer, but the tax payer gets zip back from the loans to GM and Chrysler. I.e. either way, it is lose or lose for the tax payer.

(so what else is new?) :bawl:

 

I'm hoping China invades Japan myself and we sit by and watch

 

GM & Chrysler have recieved approximately $10,000 for every car they have made since the federal aid was granted! The buyer is also getting a big tax break (but I forget the value) Total makes it almost like tax payers are giving cars away, or at least matching the buyer's contribution. That is effective "Buy American."

No wonder, France is giving 6.5billion Euros to its car makers, If they do not fire employees AND CEASE TO MAKE PARTS IN US etc.
We live in a more sophisticated age than 1929 - lots of ways now to hide protectionism, but the results will be the same: Depression.

Cannot document that $10,000 / car as it was stated in one of the financial video I watched yesterday. Ain't "free enterprise" wonderful?

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PS to Kmguru:
If you flip your post 30 graph, top for bottom, it shows part of US borrowing - total borrowing is a more steeply rising curve - well above a trillion in 2009 - as much of 2009 borrowing will be stimulus related, not trade deficits.
China may not lend what US needs. China is earning less with exports now and has larger (compared to GPD) stimulus plans than the US.

But look on the bright side: When this collapses the dollar, it will be easier for Treasury to pay off even 5 Trillion in bonds maturing in 2010 or 2011.

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Nobody wants to get into banks yet. Is it too early to be getting into financials? I think Geithner will eventually come up with an acceptable plan over the course of the next few weeks which will be beneficial to banks. I don't think he is going to kill the equity owners...but time will tell.

 

Not so long as he must set a value on the toxic assets. Low enough to attract the current very risk adverse investors will bankrupt the banks. High enough to save the banks selling toxic assets will find no buyers for assets that no one knows what they are worth. The only way out is plan I offered, even before Congress voted the first time on Paulson's TARP. See: http://www.sciforums.com/showpost.ph...40&postcount=1

But here is a quick summary I have posted elsewhere, including The Economist:

Why not have FHA buy (for price of unpaid mortgage balance) ALL homes going to foreclosure that do not sell for that amount (and then usually rent back to occupant) instead of trying to sell the "toxic assets" to investors? This makes these assets non-toxic as ALL mortgages in the tranches will be paid in full. Banks and other owners can then sell these assets* to raise funds for making new loans, etc. ( A perfect and cheaper antidote)

“Cheaper” as most mortgages in the tranches are being paid. – No need to buy ALL the mortgages in the tranches. It also avoids needing to set any value on the toxic assets. Also keeps these houses off the "for sale" market for a few years. (Stems the slide down of home prices.) Tax payers get real, rentable assets for their dollars with probable capital gains in a few years, not “toxic trash.”
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*The tranches becomes slightly more valuable than their owners even dreamed they would be as all tranches were structured with an assumed default rate, which now becomes zero.

Geithner’s just announced plan, TARP 2, for selling toxic assets will fail too because:

(1) Private investors are not investing. Not even the banks know what toxic assets are worth; yet need to set some value on the toxic assets.

(2) Deep discounts needed to attract investors the banks cannot accept and tax payers should not as they will then need to give the banks more funds.
The toxic assets need to be, and can be, made non-toxic as explained above.

(3) Does not address the fundamental cause of the crisis. – Too many bought, via “creative mortgages” homes they cannot afford. They need to become renters of their houses or downsize to house (or even a trailer, if need be) that they can afford.

 

I agree Billy T...a good solution.

 

I bet China has already stopped buying 30 Year US Treasury bonds.

"... As the recession and the credit freeze worsen, even U.S. government bonds are no refuge for investors, except for owners of two-year Treasury notes. Treasuries, the traditional haven in times of financial stress, are off to the worst start to a year since 1980, according to Merrill Lynch & Co. indexes. Prices are falling, led by the 12.7 percent drop in 30-year bonds, because the government needs to finance the $11.7 trillion bailout of the U.S. banking system and another $787 billion for President Barack Obama’s economic rescue package that may increase the federal budget deficit to $1.75 trillion in fiscal 2009. ..."

FROM: http://www.bloomberg.com/apps/news?pid=20601087&sid=atBRoa83KQuE&refer=home

 

Inflation is actually quite nice!
Hard as it is to believe, the economic crisis is being well handled by most governments. The world is saddled with too much debt, and the best way of reducing it is by inflation. What is needed is to reduce the value of each of the world's major currencies by about two-thirds, thus reducing the level of debt to about one-third of its current level. However, governments must not openly confess to such a policy -- hence the pretence that "at the present time, the real threat comes from deflation", etc.

The episode of accelerated inflation, when it strikes, will be one of political turbulence. A lot of people will be hurt as their money savings are ravaged in value. A lot of people will gain as a large chunk of their debt is washed away. The former group is likely to be angry. Despite the good it accomplishes, the episode will be regarded as one of economic failure.

However, the reduction of debt will be amazingly stimulating. Negative equity will become positive equity. Companies will be able to pay more of their profits to shareholders. Capital investment will grow. Central and local governments will reduce taxation as the burden of interest payments is reduced. Think of debt as friction! Liberated and well-oiled economies will embark on fresh adventures of healthy economic growth.

Well, that's the optimistic scenario. The pessimistic one is that attempts to curb inflation will consign the world to a recessionary economic limbo.

 

Yes, I think there will be or is a Treasury bubble. I am sure there will be a bunch of shocked folks when that bubble bursts.

 

Yes, River Ape is right.

Inflation is often good for society, especially one like China where the people are not in debt (And should be to stimulate more domestic economic growth) but saving 40% of their incomes. They need some more inflation and are about to get it thanks to the wisdom of the CCP with stimulus greater than the US's (wrt the GDP). It will be painful for these savers to learn to be debitors but it is a lesson they need. Domestic growth must accelerate. (US will soon not be buying -as broke.)

Brazil has a goal of inflation = 4.5% with + or - 2% tolerance band. Brazil has done quite well for more than a decade now as has kept inflation within the limits or nearly so.

However, River Ape is also correct that too rapid correction of “inadequate recent inflation” can be a disaster. US certainly does not currently have "adequate inflation" for long term stability.

American culture is basically against saving. We are the "I want it now" people so have excessive debt.
We need lower inflation goal than Brazil or China - not much is need to cause people to buy today instead of save and wait until tomorrow, buying with the higher inflated prices tomorrow (like savers often do). We may have needed negative inflation rates for some years to cause deferral of buying / encourage saving for buying tomorrow. China did all it could to help keep inflation in US low (cheap goods at Wal Mart) but it was not enough - American still wanted it NOW and did not save to buy tomorrow.

US will probably get the worse possible conditions: high inflation (promoting even lower rate of saving for tomorrow buying)* AND rising government deficits, which China will no longer fund, forcing "economy killing" interest rates, but there is hope or at least one bright point:

When the dollar collapses "instant inflation" will make paying off the national bonds easy. - Probably why China only buys short term bonds now.
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*But no buying today either as credit card is already maxed out and banks will not lend.