I think this is the beginnings of an economy based on perpetual growth and fossil fuel energy running headlong into geological energy constraints. Basically I see an undulatory downward path for the rest of my life. From here out, I think any rallies in our economic condition are going to be met with spiking commodity prices that knock us right back down.
“As pointed out by Financial Intelligence Report (FIR) in its April issue titled "Oil: The Critical Key to the World Economy", the specter of rising inflation, directly as a result of sustained high crude-oil prices, hangs over the US and other economies. In the United States, artificial and unsustainable short-term measures are currently being employed to stave off that specter of inflation. The Federal Reserve has lowered interest rates to record low levels, and kept them very low, in an effort to combat any rise in inflation caused by high oil prices and to try to minimize the tremendous negative effects of the huge deficits the US has been running. But the powerful upward force of sustained high oil prices will soon break through any such artificial short-term measures, and inflation will break loose, prompting the Fed to raise interest rates. When that happens, the deeper and more strategic ill effects of both the short-term measures that have been undertaken and the huge deficits will settle in within the US economy. Inflation will further weaken the already weak US dollar, and the rate of decline of the dollar will accelerate. And it will be the sustained high prices for black gold that will be the trigger.
FIR also notes that US government reporting on inflation has been "dishonest" for some time. Commodities such as crude oil are not factored into calculations for the current rate of inflation. So its actual rate is already much higher than what we are being told. The US economy is fundamentally in real trouble, in spite of the "recovery" currently being trumpeted loudly. The sustained high prices for black gold are the primary catalyst that will soon bring to a head the day of reckoning for the US economy.”
Bringing the total on a wopping 340% of the Gross Domestic Product, a figure which was last seen in october 1929 just before the Great Depression.
A bit of inflation is healthy in an economy. However higher inflation leads to higher interest rates. The interest rates are set by the banks and for the purpose of making money you need interest rates to be higher than the inflation.
Inflation thus leads to higher interest rates, leads to more debt, leads to more currency deflation, leads to more inflation.
From the banking world there are also some warning signals
Macfarlane sounds warning bell on Fed policy
By John Garnaut
April 26, 2004
If you're an employer, lock your staff into three-year employment contracts and set your future buying prices now. If you own bonds, cut your losses from last month and get rid of them. If you're about to buy property, then that's your fault, but at least think about locking in your mortgage rates.
Because a fortnight ago the world's most successful central banker, Ian Macfarlane, came as close as any governor has probably ever come to saying Alan Greenspan has fluffed it. If Greenspan doesn't take his foot off the pedal very soon he'll put the world at risk. .......His board colleague, Professor Warwick McKibbin, told the Herald there was a striking likeness between what we are seeing now and the inflationary spiral that started 30-odd years ago, when the US printed money to pay for the Vietnam War and fuelled oil price shocks and a decade of stagflation.
.....We have seen a dramatic upswing in commodity prices, including oil, and are watching them flow through the supply chain. Crucially, the one thing above all others that cured inflation in the world through the 1990s - the cranking up of Chinese factories ahead of demand - is now over. Chinese deflation turned to inflation at the beginning of last year and has now hit 3 per cent. Chinese producers are facing soaring energy and commodity costs and rising wages and it's only a matter of time before these production costs are passed offshore
Joined: Apr 03, 2004 Posts: 6976 Location: My Grandkids' Farm
Posted: Thu Apr 29, 2004 5:36 pm Post subject:
Smiley, good bit on the debt vs. GDP!
In the short term I’m MUCH more worried about the economy than oil peak, in fact if the economy tanks it will prolong the peak.
The real estate bubble: I’ve read that 40% of first time purchasers have ADJUSTABLE rate loans! Both coasts are incredibly inflated – 100% increase in the value of my home in 1.5 years! And yes, I’m selling as soon as the kitchen is finished and moving east.
The stock market illusion: in any currency except US dollars the market was has been essentially flat last year.
The debt bubble is just waiting for an increase in rates to make the world realize we are broke and can’t pay our bills – just watch what happens when the people we borrow our operating capitol from decide to put their money somewhere safe.
Inflation is already happening, I’m buying materials like lumber, plywood & romex, for the kitchen at 50% to 100% more than what I paid last year for a similar project. The CPI is basically a front for the re-election campaign like the EPA, DOE, and most other administrative agencies.
Joined: Apr 17, 2004 Posts: 984 Location: Tulsa, Ok
Posted: Thu Apr 29, 2004 7:06 pm Post subject: Yep
Yep Me too
I am worried about the economy and peak oil as a part of the hole geopolitical economic military mix.
Isn't this all a part of what we are all concerned about. The cost of oil increasing up up up and the economy not able to sustain the impact of it all. War included.
I am looking at how I can do everything in my power to keep food on the table for the future if everything go to crap.
I see 3 different things that are troubling to me.
1. the economy, won't take to much to send it into the poop can.
2. the future with oil peaking then declining.
3. the war, with the idea that so many Muslums dislike us mostly Christian USA and they control the oil that affects our economy so much.
bump _________________ "When you understand why you dismiss all the other possible gods, you will understand why I dismiss yours." - Stephen F Roberts.
There is no way this number can be true (CPI june):
It isn't. Under the Bush administration the definition of the CPI has been changed several times. These changes have made the CPI insensitive to everything.
A very strange change is the introduction of a hedonic inflator.
If you buy a computer now it will have about the same price as last year. However, for that money you get a better CPU, a larger memory, larger harddisk etc. If you would have bought a computer with the same specs last year it would have cost you a lot more money, maybe twice as much. This is called hedonic inflation. So according to the CPI, computers became twice as cheap since last year (Yeah sure).
Remember a lot of things depend on these numbers. For instance the unemployment benefits are each year inflation adjusted. Strong inflation will lead to more government expenses and thus to a weaker dollar.
Besides the GDP figures are also adjusted for inflation. I think that a lot of the economic growth that Bush is posting is actually inflation, which slipped into the GDP numbers under the new CPI definition.
So if they would show the real (higher) inflation numbers, the value of dollar would drop like a brick. That will induce more inflation. Rates would have to skyrocket to counter the dollars decline, but they can't raise them because the financial institutes (Freddy and Fanny) would collapse.
Maybe it is morally wrong what they are doing, but honesty would in this case be a sure path to bankruptcy.
Joined: Jul 17, 2004 Posts: 490 Location: Amerika (most of the time)
Posted: Sun Jul 18, 2004 5:00 pm Post subject:
Thanks for this thread. It answers alot of questions that I posed on another thread. Anyway here is my two cents. Yes the US economic situation does seem to be built on a house of cards, but one of the only bright spots that I see is that we are literally to big to fail. All countries recognize this and this is why Japan and China have been taking in our debt in enormous numbers. If the US fails, all hell breaks loose and nobody wants that to happen so everyone is going to continue bailing us out. I guess the only wildcard here is inflationary pressures due to oil prices.
What I find amazing is there are people still out there buying brand new cars?! I mean what idiot wouldn't look around and hear all the warning signal?
Sure, if you're super wealthy have the new car. But I see middle class people buying stuff like that, I'm like, "How stupid are you?!!"
Joined: Apr 10, 2004 Posts: 143 Location: Tulsa OK
Posted: Mon Jul 19, 2004 1:27 am Post subject:
Big Rc Said:
"Yes the US economic situation does seem to be built on a house of cards, but one of the only bright spots that I see is that we are literally to big to fail."
I follow your reasoning but if I may rephrase it " The U.S economy is a house of cards, but it is a really big house of cards".
I don't really see a bright spot in that. It seems to mean that when the economy fails it will bring the world down after it. _________________ ------------------------------------There's the way things are, and the way they oughta be.What you do is more important than how you "feel".
Joined: May 09, 2004 Posts: 65 Location: Bavaria, Germany - for the Americans here: this is in Europa ;o)
Posted: Mon Jul 19, 2004 1:43 am Post subject:
smiley wrote:
Quote:
There is no way this number can be true (CPI june):
f dollar would drop like a brick. That will induce more inflation. Rates would have to skyrocket to counter the dollars decline, but they can't raise them because the financial institutes (Freddy and Fanny) would collapse.
Maybe it is morally wrong what they are doing, but honesty would in this case be a sure path to bankruptcy.
good post, America'sGDP is really inflated by those hedonic numbers which also exaggerates the growth rate since at least the mid Nineties- the same way the Sovjetunion used to manipulate it's economical numbers to demonstrate the world it's econmical superiority. Does someone know the story of the emperor who wears no clothes? Why does it come to my mind?
But a falling dollar an thereby rising interest rates would also lead to more expansive ARM, which would lead to panic-sales of homes and to a meltdown of house-prices. So no new credits would be taken- in 2003 more than 900 Billion USD were taken as mortgages plus fürther 500 Billions new credits by the the Bush-Admin plus xx by the states (about 40 Billions from California alone) plus xx Billions for consumption (credit cards, car sales, furnitures etc.) and by companies. It is not exaggerated to say, that 15 to 20% of demand and thereby of the GDP in 2003 was created by those credits.
How much of credits will be taken if the interest rates are rising fast and if many older credits will not be serviced anymore (which in case of mortgages serve as security for more credits, who would then also suffer)?
If you're interested in credit figures for America:
This article also goes along way in explaining my point. The US is too big to fail so everyone is going to make sure that is doesn't happen. Yes I know this is screwy logic but we are in a really screwy situation. How did we get in this stupid predicament?
Joined: May 24, 2004 Posts: 102 Location: Cornwall, NY
Posted: Mon Jul 19, 2004 12:39 pm Post subject:
The US isn't too big to fail. It is so big that other countries like China and Japan will do everything in their power to prevent it from happening. That doesn't mean it can't happen; it just lends credence to the fact that if it does fail, the rest of the world is coming down with us.
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Does someone know the story of the emperor who wears no clothes? Why does it come to my mind?
