http://gonzalolira.blogspot.com/2011/04/causes-of-mess-were-in.html This pretty much says it all. I thought I might add my own summarization of what will eventually occur and probably much sooner than you might think. 1/ Demand destruction caused by a blow-off-top in the price of oil leading to margin compression and a 1930s style deflationary collapse, the downturn causing a flight to safety (ie, USD denominated monetary assets, treasuries, and maybe gold) causing a massive downshift in credit supply and a major run of bank failures with no possibility of recapitalization as was possible between 2009 and now and therefore no chance for equilibrium after deflation (ie, the industrial base will be devastated regardless of the merciful decline in oil prices - it will be too late to save most of the industrial capacity which will bring us to the ONLY alternate scenario). Think Great Depression. 2/ Inflationary collapse caused by excess liquidity and a flight to quality from USD denominated assets into non-USD denominated assets and commodities, ESPECIALLY gold AND silver - in which case the massive upward surge in price action will occur regardless of the oil price when such inflationary collapse begins in earnest, and most importantly, this will NOT only be based on fundamentals due to extreme liquidity but also on systemic risk. This will have been caused by POMO when it becomes apparent that the dollar has been debased beyond a certain threshold. There will be a massive assault on treasuries and the bond market will collapse. The US government will be, more or less, forced, by way of catastrophic change in social mood, to admit to what it has caused and declare a SOVEREIGN DEFAULT under Title 12, Chapter 3 of the USC. A deflationary collapse far worse than the 1930s is predicted to occur if such crisis comes to pass. Think Oil Shock 1970s X 10 - and then followed by Great Depression X 10. Regardless of what happens, this is going to get very VERY #$%&ing ugly.
Really like Gonzalo Lira's Blog. Benjamind, are you still buying up USD, in preparation for the coming rise in the USD vs AUD?
I honestly think this shtf scenario would be different than the great depression one. As in the great depression, people had demand destruction and since the USD was backed by gold people saw their cash as a store of value. What happens when there is demand destruction (deflation) but the government printing like mad (inflation) to keep the economy artificially propped up? I think people there would be a two stage economy in which people decrease purchase of non-essential goods (demand destruction) thus causing a deflationary spiral but any good even remotely associated with being essential would skyrocket in price (inflation) as too many people would spend the dollars they get from the government on too few goods. When essential goods start inflating quickly, people will start recognising the value of gold and silver as a store of value as cash is quickly devalued by overprinting governments.
Why can't they recapitalise?...why can't they just get bailed out by more 'funny money' like in '08? Could you give an example of this sytemic risk? What is the proceedure for sovereign default? They don't pay their bills and...then what happens? does the Govt dissolve? Hands over land to it's creditors? No arument here. I wouldn't mind knowing how to cushion the blow though.
There is really no way to 100% cushion yourself from the blow. One way or another unless you have multiple hundred thousands in cash, several Kg of gold and maybe 50kg of silver you are going to struggle. That's just tough.
Have a read of Stoneleigh's comments on Mr. Lira's views: http://theautomaticearth.blogspot.com/2011/02/february-17-2011-inflation-for-innocent.html You can download audio of their pre-debate here and make your own mind up: http://financialsurvivalradio.com/023-the-stoneleigh-vs-lira-debate-deflation-vs-hyperinflation/ This is an earlier response to a pair of articles Lira wrote: http://theautomaticearth.blogspot.com/2010/12/december-15-2010-debunking-gonzalo-lira.html Ilargi sums up their position like this:
