Tuesday, October 28, 2008

Dr Doom: "Global depression on a scale never seen before"

DAVID McGREGOR FROM Sovereign Life writes:

    the global economic "meltdown" continues apace - with no sign of a let up -- even though governments throughout the world are throwing trillions of dollars at the problem.
    Now they are talking up a "Bretton Woods II" -- whatever the hell that might mean -- as a way of reforming the global monetary system. I'm not holding my breath though, as I don't expect people who have no understanding of the underlying problem to come up with a workable solution. What we will likely get instead is more government control of the global marketplace -- without any measurable improvement in affairs.
    In fact, it's almost dead certain now that a global economic depression of a very serious nature is upon us -- and that current government actions will only prolong the pain.

ONE ECONOMIST WHO'S SUDDENLY "popular" is Nouriel Roubini - aka "Dr Doom." He gets this title as a result of his persistent warnings over the last year or so regarding an impending economic crash. And while he was derided in the "good old days", he's suddenly become very popular in the light of his predictions having come TRUE.
    In fact, he is now in great demand around the world by people who want to know what he is predicting will happen NEXT! Well I'm afraid it's NOT good news. In fact Mr Roubini is stating with certainty that the "worst is yet to come."
    He says his most optimistic scenario is a global depression on a scale never seen before, and that the global economy is heading for a hiding. He also says that all government actions to date have failed (and will fail) to stem the impending panic.
    You can watch a very interesting series of 5 videos of Nouriel Roubini addressing the current situation on YouTube here:

    I've just watched the whole 5 and certainly recommend you do the same.
    The major points I gleaned from him are as follows:

  1. A major depression is imminent and will be prolonged even over a number of years.
  2. The USA's status is seriously going to be challenged in this recessionary environment - as it finds itself with little room to move as the world's largest debtor nation. Roubini even predicts possible geopolitical "horse trading" as the US deals with countries like China - trying to get financial assistance.
  3. A systemic panic is about to get underway, and it's even possible the US will shut down the stock market for days or even a week at at a time, in an attempt to stem investor panic.
  4. This depression will cause a vast over-capacity in the productive areas of the world - China and Asia - which will have to contract considerably in the face of falling global demand for their goods.
  5. This excess productive capacity means the price of goods will fall, as will assets - leading not to rising prices -- as we've become used to -- but a time of falling prices.
  6. Steadily falling prices means that CASH will become worth more, and all forms of assets and consumables worth less.
  7. His advice is to build up cash reserves - and also invest in US T-bills. (Although I personally would not want to hold US Treasuries in the light of what he says!)

    Nouriel Roubini has his own information service entitled Ecomonitor, which you can access here.
    From what I've read, I haven't seen any particular recommendations from Mr Roubini - as to how best manage this process, or even more importantly, how to set things up so this type of thing doesn't happen again, but there is nothing any politician or demagogue can do to waive the fundamental laws of economics... 
    Unless the monetary reform promised to us by our "leaders" looks deeply into the inherent problems caused by government issued/controlled fiat money (money declared "legal tender" by government fiat or command), then don't expect any miracles. Ultimately the only sane solution is to completely remove the issuance of money from government hands, and allow it to be a function of the market. More importantly, such private money needs to be anchored against either a commodity like gold, or a basket of commodities, to act as a break on run-away credit creation.
    As I've stated before, the best strategy in such circumstances is to get out of debt, build up your cash reserves, look for safe-haven stores of value, and position yourself to go "bargain hunting" when the time is right. For as Doug Casey has said, "Crisis = Opportunity."

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4 Comments:

Anonymous Anonymous said...

or even more importantly, how to set things up so this type of thing doesn't happen again

Dream on. why do think "this type of thing" is a) preventable, or b) a bad thing?

Capitalism - like any other metastatic system - relies on both positive and negative corrections.

Globalisation - clearly a good thing - has integrated the world economy: these cycles now happen globally.

This is a global negative correction dealing primarily with bubbles formented in the US and EU via deficit spending (the US for the war, the EU by welfare) and then by Asia keeping exchange rates low and building their economies on the back of the US and EU deficits.

That bubble - as they always do - has burst.
The medium term bubble has lasted since the 1990s: the coming second great depression will last as long.

10/28/2008 09:06:00 am  
Blogger PC said...

Another shining example of why ninety percent of anonymous comments aren't worth the electrons with which they're printed.

If your comment is worth making, it's with putting a name to it. At least that will give commenters an incentive to put together something coherent enough to put their names behind, unlike this waste of space above.

10/28/2008 09:45:00 am  
Anonymous Sean said...

PC,

Stop giving warnings and delete these idiots! They have no intention of responding to your polite and resonable reguest.

10/28/2008 09:58:00 am  
Anonymous LGM said...

How depressing (!). I'd like to say wrong, wrong, wrong, but that would be wishful thinking. There could be some opportunities but, in the main, a lot of people are going to suffer horribly and un-necessarily. Meanwhile the pollies will run amuck. They'll try every statist, collectivist idiocy to stay well fed and in power. I'm just waiting for someone to re-state the lie that wars are good for the economy. Then, no doubt, a war will be tried. After all, according to the great myth WW2 helped save the economy.

LGM

10/28/2008 11:17:00 am  

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