More Economic Bad News

[LongBlade]

The article I'm about to reference is long and fairly complicated but worth the read.

Apparently the Chinese have been taking loans against phantom collateral and it means bad news.

It also means that the Chinese economy is about to unravel.

I will quote the conclusion because you need to get through the entire article to really understand the full impact.

We now know that this has been happening in China with the most critical component of its economic growth miracle: steel. We will soon discover that all other assets: stocks, bonds, commodities (including gold and silver) and finally cash (think deposits) have been comparably rehypothecated and criminally commingled. The end result will be the most epic bank run in world history, which incidentally is precisely what the central banks are attempting desperately to delay as much as possible by generating excess inflation to "inflate" away the debt, leading to rematching of finite assets and virtually infinite liabilities. Alas, in a world in which credit-money liabilities are in the quadrillions, and in which the real assets are in the tens of trillions, only hyperinflation can seal the deal.

Or, in other words, lose-lose.

Source: http://www.zerohedge.com/news/how-chinas-rehypothecated-ghost-steel-just-vaporized-and-what-means-world-economy

[Staggerwing]

Wonder what would happen if they tried to cash out their chips in the US and we said "No, we don't have enough in the cash register for a full refund- come back next decade..."

Maybe they'll try and garnish our wages?

[DennisS]

One year of 100% inflation would blow up half of our national debt.

When a cheeseburger is $20, and the average American makes $400,000 a year, it will be trivial to pay down the national debt.

There is a logic flaw or ten in this...and I am certainly not serious, but it's an easy way out.

[LongBlade]

One year of 100% inflation would blow up half of our national debt.

When a cheeseburger is $20, and the average American makes $400,000 a year, it will be trivial to pay down the national debt.

There is a logic flaw or ten in this...and I am certainly not serious, but it's an easy way out.

Actually, you are exactly correct on all accounts.

It does have flaws. It would solve the debt problem. It would create new problems.

And it is an option. Not necessarily a good one, but it is one solution. I can dig up more info for interested parties.

[Kushan]

At this point what can we do? Anyone with a working brain knows that in the very near future money is going to be worth absolutely nothing. Not sure what we, the average person, can really do at this point to stop it.

[Windigo]

One year of 100% inflation would blow up half of our national debt.

When a cheeseburger is $20, and the average American makes $400,000 a year, it will be trivial to pay down the national debt.

There is a logic flaw or ten in this...and I am certainly not serious, but it's an easy way out.

Actually, you are exactly correct on all accounts.

It does have flaws. It would solve the debt problem. It would create new problems.

And it is an option. Not necessarily a good one, but it is one solution. I can dig up more info for interested parties.

nothing fixes debt like work and repayment

BTW given how the govt. spends money down there, wouldn't continued borrowing at hyper-inflated rates just keep the debt spiral going? Eliminating the deficit is IMO still the only way to fix this.

[eyebiter]

Can you see any politician willing to tell the American people that we have to cut back on Social Security, Medicare, Welfare, Veterans benefits, business subsidies, or other direct payments?  There is no way they would EVER get reelected. 

At this point appears it's been decided to let the chips fall.  The elites will stash their wealth overseas, while everyone else holding dollars will suffer when the US economy crashes and burns. 
Unfortunately not much the average joe can do.  Try to minimize your debt, stock up on durable goods, have cash on hand.  Do what you can to help your friends and relatives who didn't plan ahead and prepare for bad times.

My concern is once there is a world wide economic downturn, then some enterprising policymaker will step in with a "solution".  Recall the phrase never let a good crisis go to waste?

For example:

#1 - We could emulate FDR and devalue our currency by 30%.  There would be massive inflation, and likely retaliation from other nations.  If our debtor nations don't declare war in response, we could probably get away with it.  However the average family in the US would suffer a massive reduction in their standard of living.  Gas, gallon of milk, a pound of hamburger, or a loaf of bread each suddenly costs $15.  The dollar menu at fast food becomes the five dollar menu.

#2 - The USA could go with the "Escape from LA" solution - abandon greenbacks and issue a new currency.  Call them Bluebacks, Freedom Dollars, or Patriot Bucks.  To prevent bank runs, the transition would secretly be done over a federal holiday when the banks are normally closed.  Any money in banks, 401k, or other investments would be automatically electronically converted.  Those holding physical currency have a 24 month window to cash old dollars for the new currency, at say a 10 greenbacks to 1 Patriot dollar.  Overnight we take care of our international debt problem. 

#3 - Very unlikely, but there are some in the banking industry who would lobby for a 'World Currency.' Of course this idea has been floating around since the middle ages.  Not much chance of it ever actually being passed.

[Mr. Bigglesworth]

Its just a matter of which country takes the easy way out first... then what the response is. If other countries do the same nothing is really gained in terms of international debt.


Chinese steel is a boon to the world. Let them dump it. It is the main resource that is easily recycled with low cost forever. Once it is here it is a cheap foundation of advancing civilization for centuries.


No I didnt read the article. No, i dont think that is what the article was about. It just has to be said.
Now back to the regular programming.

[besilarius]

As usual, Batman leads the way!

http://www.retronaut.co/2012/09/batmans-victory-garden-c-1939-1945/