World Turned upside down

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Submitted by Bubblesitter on February 10, 2008 - 6:14pm

When General Cornwallis surrendered to the Americans at Yorktown in 1781, the band played "World Turned Upside Down". So shocking and unexpected was their defeat that they felt the world had truly "turned upside down"

I am seeing more and more talk of a potential system breakdown of the world financial system. These are not by crackpots but more mainstream economists.

Are we heading to another event that is so shocking, so unexpected potentially leading to a Great depression? I think that it is not outside the realm of possibility now. I am worried.

In a nod to good British journalism, here's a link to a recent FT article. The fact that the author feels the needs to dispel talk of another great depression is saying something in itself!

http://www.ft.com/cms/s/0/73bc130a-d7f2-...

Bubblesitter

Submitted by patientrenter on February 10, 2008 - 6:50pm.

Meteors large enough to destroy life on earth lurk in the outer reaches of the solar system. Carbon dioxide is building to levels that will cause a sudden and catastrophic melting of the ice caps and runaway global warming. North Korea will launch nuclear weapons at LA when the regime collapses. Al qaeda will set off dirty bombs in the 3 largest US cities, rendering them unusable for hundreds of years....... Oh, and the most severe deflation in 100 years will take hold in the US and cause another great depression and political turmoil.

In my opinion, thinking about these things in moderation is entertaining, possibly slightly useful for a few hundred disaster specialists in the world, and a waste of time for most other people and purposes.

For some perspective, look at the economic history of 1973-1984. I think you will find that big bad things happened, lost of people complained a lot, and we all got over it and moved on and, obviously, mostly forgot about it.

Patient renter in OC

Submitted by kewp on February 10, 2008 - 6:58pm.

Remember when Japan was going to take over the world in the late 80's? The whole "Rising Sun" stuff?

Didn't quite turn out that way. Japan didn't return to the stone age, either.

I think the main event that is going to happen is that lots and lots (millions) of Americans discover, out of the blue, that they are nowhere near as wealthy as they thought they were.

Submitted by patientrenter on February 10, 2008 - 7:17pm.

Thanks, kewp, you said it better than I did.

Patient renter in OC

Submitted by Multiplepropert... on February 10, 2008 - 8:49pm.

We started our own organic garden just in case. My 5 year old is working on digging a well to make sure we have water. Yeah, like Kewp suggested. The world was supposed to end a 1000 times before and we are still here. Maybe there is a bigger player in the game then just us keeping it all going, but that discussion is for a different forum then this.
Have Peace,
MPO

Submitted by alarmclock on February 11, 2008 - 8:01am.

I'm sure that we are not going to have to shoot zombies in the streets to get through this downturn. So no, life will not end.

That said, it sure would be nice if those with better historical (hysterical??) sense would weigh in with specific recommendations.

For example (this is just a silly example):

Expert Prediction: It is going to be prohibitively expensive to keep your family cars in working order.

Expert Recommendation: Consider buying a pre-fuel-injection pickup truck and learn to strip it down to the block and rebuild it.

Submitted by gdcox on February 12, 2008 - 10:19pm.

Graham
It is worth noting that economists screwed up big time last year. As an economist , I can see that some of them are over-doing it now to make up.

I might start getting boring on this excellent site by asserting that this house price crash will come to an end when the rental yields on average properties become irresistibly attractive to landlords (and rental payments are higher than mortgage payment to house value for those considering dumping their homes) .

That will be before doomsday,

but clearly we are not near that
inflexion point yet.

Submitted by kewp on February 12, 2008 - 11:09pm.

That said, it sure would be nice if those with better historical (hysterical??) sense would weigh in with specific recommendations.

Well, I'm not claiming to have any more historical sense than the next guy, but as I've been planning for this since '05 I'll share some of my experiences.

First off, think of the basics. How do you make your money? Is your job recession-resistant? Does it depend on consumer spending? Is it at all related to real-estate?

In my case, I decided to work in higher education. About as recession-resistant a gig as they come *and* its one of the few things we are still competitive in on a global scale.

If you have debt, consolidate it then get rid of it. If you have any dollar denominated assets or real estate, sell them. Get in gold, hard currencies or foreign bonds. If you want to speculate, short the RE and financial sectors.

If you need to commute, consider renting near enough work to bike or take public transit. Thats what I do. The savings are huge, plus if I have problems with my car, I can wait till the weekend or a telecommute day to fix them. I don't have to waste money on a rental.

In general, much of what we are going through is due to an extended national period of over-consumption. And for better or worse, many Americans are going to be forced into a starvation diet. Get ahead of the game and practice under-consumption.

Some things I do:

30% of income to either debt reduction or saving/investment.
Skip one meal a day
Strict weekly budget
Nothing on credit, cash only
Eat vegan a few days a week
Drink water only
Have a 'simple year', no big purchases and focus on de-cluttering for a full 12 months

I'm reasonably sure that a few years from now, the used goods market will as big or bigger than retail. Prepare now and enjoy the deflation while you can!

Submitted by 34f3f3f on February 13, 2008 - 9:13am.

Kewp, there was an interesting article in the NY Times about exporting education, and the figures are big. I'd want to be careful in which country I set up my University though. Warren Buffet was asked what tips he'd give young entrepreneurs, and one of them was don't use credit cards. The trouble with selling dollars and buying others currencies or assets is that the dollar is already weak. I like the idea of under-consumption, but it needs a more marketable title, something like the value-sum-game, a kind of trend-setting fad to occupy the mind during those long evenings when you sacrifice cable TV. The only thing I couldn't do is 'drink water only'. Got to have that mandatory glass (or two) of wine.

Submitted by Aecetia on February 13, 2008 - 11:39am.

You can also brew your own beer if you do not want to drink water: http://www.wikihow.com/Brew-Your-Own-Beer

Submitted by Andy on February 13, 2008 - 1:07pm.

I'm neither a fan of the fed or of the tactics the gov't employs in order to juice the economy. However, I do think that they will do all in their power to keep our financial system going. So no, I do not believe a depression is around the corner. Yes, one day we will have to face this as this will be unsustainable. I just don't think it will be now. I think that central banks around the world have too many dollars, too much at stake, to let this crumble without a fight.

I think that if they believe they need to blow another asset bubble to keep our economic way of life alive for another round, they will try it. And they will try it with tools that we haven't even considered yet.

Submitted by Running Bear on February 13, 2008 - 3:08pm.

Kewp,

I like your strategy of keeping your costs down and the term I use is "living beneath my means".

The reason why I am replying to you however is I wouldn't assume higher education is recession proof. As we can see from California, states are beginning to feel the impact of the housing downturn and this will begin to effect more and more states. Colleges and Universities that receive Federal and state money are going to see a reduction. They will either have to reduce staff, reduce programs, or both.

Sallie is in serious trouble right now with her loan portfolio and this is only going to get worse. Loans for college students will get harder and harder to get and rates will go up. I don't have the time to go too deep into this but I think you get the point.

Obviously this will be determined by the length and depth of this downturn. The longer and deeper it is the more impact something like higher education will feel the hit. Remember that most people have to borrow large amounts of money to pay for school. The ability to borrow money and take on debt is getting harder and harder and at this point, difficult to determine where it will ease.

My2Cents

Submitted by Bubblesitter on April 5, 2008 - 6:11am.

Going back to the original post.....

I hate to admit it, but the government was right to intervene in the Bear Stearns fiasco.

Without intervention, the collapse would have perhaps triggered a "world turned upside down" scenario. It seems that everyone is now talking about systemic financial collapse.

Here's a quote from recent Congressional testimony....

A failure to save Bear Stearns, said Timothy F. Geithner, the president of the Federal Reserve Bank of New York, would have led to “a greater probability of widespread insolvencies, severe and protracted damage to the financial system and, ultimately, to the economy as a whole.”

http://www.nytimes.com/2008/04/04/busine...

Bubblesitter

Submitted by patb on April 5, 2008 - 6:58am.

those of us with cash would be fine

Submitted by Bubblesitter on April 5, 2008 - 7:21am.

I guess it depends on the type of cash. The Dollar has been hammered the past year, and will probably continue to decline. If you have owned Euros or Loonies you have done very well.

Is your cash parked in an FDIC-insured institution?

Is your cash in money market funds?
http://www.fool.com/personal-finance/sav...

Is your cash parked in a 5year CD? If inflation (stagflation like the 70s) rears it's head, you are locked in a CD with a poor rate of return on top of a weakening dollar.

In the event of a systemic meltdown, I'm betting on gold (via GLD ETFs) will do well. I'm holding a much bigger % of Gold in my portfolio than any time in my life. I'm also using Gold as a hedge against inflation.

Bubblesitter

Submitted by Arraya on April 5, 2008 - 8:37am.

I hate to admit it, but the government was right to intervene in the Bear Stearns fiasco.

How do you know? Just because the same federal reserve the created the problems tells you. And at the same time they are telling you this they are asking for more power to fix the mess. I thought the fed was created for stability? Is that what we have now?

I got news for you the economy is screwed regardless if Bear Sterns went BK or not. Is Bear Sterns going to lower gas prices, fix the deficit, pump all the money back into the economy that is missing from mortgage equity withdraws, bring manufacturing jobs back?

Submitted by barnaby33 on April 5, 2008 - 9:29am.

I hate to admit it, but the government was right to intervene in the Bear Stearns fiasco. Bubblesitter, upon what set of facts do you base this claim? All you have are the people who's direct vested interests were served by the bailout telling you it was necessary. Again thats like asking a barber if you need a haircut. Don't bother the answer is always the same.

If the Bear Stearns deal was truly necessary, fine put all the chips on the table. Its not that hard for a public accounting of all of BS assets and liabilities to be made public so the public can know exactly what its bailing out.

The reality is it wasn't necessary and we don't know if Bear posed a systemic risk. If it did we're fucked anyway. Do you think Bear was the only firm with large amounts of toxic crap on its balance sheet?

The mindless repetition of the mantras of the grand pubahs of our financial systems sound quite hollow. Everything Bernanke has said about the economy so far has been wrong. It ain't contained, it ain't sub-prime and more money cannot solve or ameliorate the problem. The people in charge are lying, caveat emptor.

Josh

Submitted by Deal Hunter on April 5, 2008 - 9:32am.

It will be more like a slow leak - but eventually we (in our older age) and our children will find themselves in a world much different than today. When my parents were my age they could buy a house and pay it off in 10 years, there were no such things as credit cards, education all through college was free, and my father had a guaranteed pension from his company for life and you could drink water straight from the tap, any tap in town.

By the time my kids are my age, most of the population will be living in large residential complexes (single family homes with back yards will be extinct). Each nuclear family of husband, wife and child will also be living with 4-6 of their older relatives. There will be hardly any cars on the road and everyone works, shops and goes to school within walking distance. Drinking water will be more expensive than fuel.

Sounds like armageddon, but it will evolve slowly enough throughout our lives that we will eventually come to accept each little change as something we can live with or have to live through. It won't feel topsy turvy as changes will come about ever so slowly one thing at a time. Only looking up in hindsight will anyone really see the magnitude of the change.

Submitted by HarryBosch on April 5, 2008 - 8:30pm.

FDIC adds staff for bank failures

http://www.washingtontimes.com/article/2...

Federal bank regulators plan to increase staffing 60 percent in their bank-failure division in coming months to handle an anticipated surge in troubled financial institutions.

The Federal Deposit Insurance Corp. wants to add 140 workers to bring staff levels to 360 in the division that handles bank failures, John Bovenzi, the agency's chief operating officer, said yesterday.

"We want to make sure that we're prepared," Mr. Bovenzi said, adding that most of the hires will be temporary and based in Dallas.

(Another sign of our worsening economy.)

Submitted by barnaby33 on April 5, 2008 - 8:43pm.

Still waiting for ANY compelling evidence of systemic failure. Not just here on piggington, but other news sources as well.

Josh

Submitted by Bubblesitter on July 11, 2008 - 9:36am.

This is one potential event that is most troubling.
We as taxpayers will be on the hook for this.

Loss of confidence in Fannie Mae, Freddie Mac will have huge implications on the housing market.

Fannie and Freddie shares under siege
Remain under pressure on report U.S. mulls takeover of mortgage firms
By MarketWatch
Last update: 10:50 a.m. EDT July 11, 2008Comments: 254BOSTON (MarketWatch) -- Shares of Fannie Mae and Freddie Mac dropped nearly 50% Friday, plunging for the fourth time in five days as investors increasingly believe the mortgage giants that made the American dream of home ownership possible for millions will need to be bailed out by the U.S taxpayer.

http://www.marketwatch.com/news/story/fa...

Submitted by Bubblesitter on July 11, 2008 - 9:55am.

More on the doomsday scenario

http://money.cnn.com/2008/07/09/news/com...

Submitted by Bubblesitter on July 11, 2008 - 10:07am.

Goes to show the power of an ill advised comments.

Investors in Fannie and Freddie are losing confidence at rapid pace. I hope this can stabilize.

http://www.businessweek.com/ap/financial...

Submitted by PadreBrian on July 11, 2008 - 10:13am.

Dubya, ain't helping. He always sends the wrong message.

Submitted by stockstradr on July 11, 2008 - 10:46am.

kewp's reply to this thread is pure genius, and kewp's response is NOT overreacting.

Others have replied “Don’t worry. Be Happy!”

I agree with the “Be Happy!” part of that. I don't agree about not worrying.

They said “Don’t worry about the stock market. Be happy.”

But they saw their retirement portfolios tank as the markets have already fallen 22%. Was it smart to “not worry” and not take precautions?

"Don't worry. Be happy!"

I work for a huge multinational. Last week the building in which I work had hundreds of employees not worrying, just being happy little worker bees.

SEVENTY-FIVE PERCENT of them were laid off YESTERDAY with zero notice. I saw nearly every person within sight of me packing up the personal belongings in their cube and get walked out the door.

Me? I worried six months ago as I looked at the division in which I worked and saw it wasn’t adding value, and was due for a layoff. I got out. I didn’t get laid off yesterday. I worried. I took precautions.

“Be Happy. Don’t worry about Fannie and Freddie”
Are you JOKING?
I’m buying more and more GOLD. An economic DEPRESSION is absolutely not out of the question. Kewp is right on track. Hey, I bought a bike and a backpack I can use to carry my laptop so I ride the bike to the light rail and use mass transit to get to work.

Live in CA? "Don't worry about earthquakes. Be happy!"

I have earthquake sensors in three separate locations, on all axes, in our home. When our washing machine goes on spin cycle, the alarms on all those sensors go off. That's how sensitive they are. We never park both cars inside the garage, which has the second floor of our house above it to crash down upon our cars in an earthquake. We have earthquake insurance. We have backpacks (containing the essentials) near the front door, so we can grab them as we run out of the house in the middle of the night and stand in the street watching our home crash down upon everything we own. But we'll still have essential personal belongings and at least one working car. We have our essential documents, including a massive hard drive with all our photos and soft copies of key documents all kept in a safety deposit box. We worry. We prepare. A massive earthquake in the Bay Area is inevitable.

I could go on and on.

Our strategy is to WORRY, then FULLY PREPARE, take needed precautions, then don't worry and be happy knowing you've prepared.

What am I most worried about?

All signs indicate the Lunatic in the White House is conspiring with the Israelis to have them attack Iran, so the USA has an excuse to get into a war with Iran. That would take us within a few steps of world war. That scares the hell out of me. I anticipate Israel will attack Iran, and the USA will then be at war in Iraq, Iran, and Afghanistan. Oil prices will sail above $200/bbl, and all hell will break loose.

Submitted by Casca on July 11, 2008 - 11:14am.

Well there you go. Worry enough, and you end up absolutely loopy.

Submitted by feraina on July 11, 2008 - 12:15pm.

Deal Hunter wrote:
By the time my kids are my age, most of the population will be living in large residential complexes (single family homes with back yards will be extinct). Each nuclear family of husband, wife and child will also be living with 4-6 of their older relatives. There will be hardly any cars on the road and everyone works, shops and goes to school within walking distance. Drinking water will be more expensive than fuel.

Sounds like modern Europe to me. :) The quality of life is pretty good there. It's kinda nice to be able to go to work, school, and shopping all by foot, and also live in a close-knit community and you can drop in on friends on the way to the supermarket just to say hi.

Submitted by Portlock on July 11, 2008 - 1:03pm.

Can you believe the AUDACITY of kewp? How DARE he live totally within his means! He’s also finding happiness in a lifestyle that is not overly consumptive!! And then he goes ahead and PREPARES for future events good or bad while the rest of us live paycheck to paycheck! What’s with this guy? Does “Keeping up with the Joneses” mean absolutely NOTHING to him?? (sarcasm off)

Submitted by kewp on July 11, 2008 - 1:05pm.

I don’t think kewp’s idea is loopy at all.

I don't think that was directed towards me, but the support is appreciated regardless. And anyways, cutting consumption is healthy for yourself and the planet regardless of the economic climate.

But hey, if using the money I'm saving renting and walking to work to short the financial sector is loopy, then call me crazy!

I'll laugh all the way to the bank (until it goes under, that is).

Submitted by OC Burns on July 11, 2008 - 5:24pm.

Aecetia wrote:
You can also brew your own beer if you do not want to drink water: http://www.wikihow.com/Brew-Your-Own-Beer

You can also drink your own urine. I think it's in the Vedas.

I do this with lunch just to get ready for the Greater Depression.

Submitted by jennyo on July 11, 2008 - 6:57pm.

I think kewp is right on, I wish I had his (assuming kewp is male) discipline.

Does anyone here think WaMu will fail within the next 90 days? My husband, as executor of a relative's will, has over $700K in WaMu and he is getting ready to distribute the funds but the court date keeps getting pushed back. Should we worry, since only $100K is insured? Court date probably in late August now.

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