Get ready for a Long Depression

[Jovial Monk]

The second leg of the GFC is due to "austerity" aka "deficit hawks" which leads countries to cut govt spending in order to reduce deficits and eventually I guess to arrive at budget surpluses—in theory. Ireland shows it don't work, 1937 showed us it don't work. MMT tells us govt surpluses lead to private deficits unless there is a strong trade surplus. So Germany would be alright but the PIIGS, the US etc will end up with high levels of private indebtedness. The UK and Germany are now going to enforce nation-crippling austerity. The Balkans and Baltic states have major economic/budgetary problems that too will be "fixed" by austerity.

The individual US states have huge budgetary problems and of necessity are embracing austerity because not being sovereign issuers of currency have to borrow to fund budget deficits. Laws to legalise and tax marijuana are just one of the desperate measures states like California and Arizona will be taking. Either the ECB prints money to provide for capital works to reduce unemployment and the deficits of the PIIGS or the eurozone will splinter if not completely disappear.

China is trying to slow its economy to burst property bubbles etc and India has some similar problems. Then these two major growth economies will be impacted by austerity in Europe and the US and that will impact us.

A much more commonsense point of view would be to redirect spending to grow the economy which will grow the tax base and trade accounts. In areas like the PIIGS, Balts etc wholesale cultural change is needed and this takes decades not years--but in the meantime people need to live and the area should contribute to a vibrant Europe.

The Australian economy supplies minerals, food, natural textiles and services to China and India and elsewhere esp Japan which has its own set of problems that will take a brave leader to fix. If this idiotic austerity cult spreads we will suffer another, bigger and much longer-lasting cut in mining manpower and exports. If the Australian economy is hit by the worldwide contraction that is now inevitable then we do have some great nation building projects we could undertake to lift our economy:

The NBN: ( http://www.polanimal.com.au/viewtopic.php?f=5&t=271 ) and the associated new services/applications made possible by the roll out.
Tapping Qld water to feed the MD: http://www.polanimal.com.au/viewtopic.php?f=13&t=714

With the jackboot of mining removed from the Australian economy it could well be possible for the govt to encourage the manufacturing and very high added value tech sectors etc.

On top of that the structural budget deficit Costello created will have to be removed— http://www.polanimal.com.au/viewtopic.php?f=13&t=715 —so cash splashes should be used while slowly re-adjusting tax rates esp upper brackets and a renewed attack on middle class welfare and the "churn" of income tax being collected then paid out in childcare and the like--a huge bureaucratic waste bequeathed to us by Howard & Costello. An ETS could reduce our emissions and be a way to redistribute money to those on the lower income scales.

Krugman and Modern Monetary economists like economics professor Bill Bowe have been warning about the austerity craze that is going to radically increase unemplpyment.

Gold, the traditional safe haven is zooming up up and away.

[Sappho]

A much more commonsense point of view would be to redirect spending to grow the economy which will grow the tax base and trade accounts. In areas like the PIIGS, Balts etc wholesale cultural change is needed and this takes decades not years--but in the meantime people need to live and the area should contribute to a vibrant Europe.

The whole point of austerity measures is to reduce govt. spending to the essentials so that any remaining money can be directing into debt repayment. Govt. cannot afford to default on debts... the chain of consequences were they to default is mind boggling. Much of the money owed in Europe is to France and Germany and neither nation is in any position to retire debt obligations... they have their nations to run and a continuing financial crisis to manage.

I expect China to continue inflating their yuan. The US wants it and the US will pay... literally... for such demands. As global demand shrinks, expect China to turn its attention onto its own people by raising their standards of living and buying power.

Be very worried about any further 'too big to fail' banks, brokers and insurers failing, for they may learn that they are not too big to fail after all. Govts. are no longer in a position to bail out these megaliths of capitalism gone awry. Govts. have their own debts to consolidate and repay.

[Jovial Monk]

Austerity to cut deficits. . .ummm Ireland tried that and its deficit is bigger than ever! Cut spending, cut jobs. Ireland has about 16% unemployment and the unemployment benefit bill being paid is so large it has increased the deficit.

A government budget is not a business or household budget. Government budgetary decisions have direct and indirect consequences (e.g. cutting spending means unemployment increases. If a budgetary decision causes the country’s currency to appreciate then imports become cheaper and manufacturing jobs will be cut.)

A country that issues its own fiat currency and borrows in it need never default on a debt, it just “prints” money to pay the debt (retire bonds) and pays the debt that way. There is no inflationary risk in creating money to pay debts to overseas borrowers.

The EuroZone countries no longer issue their own fiat currency, they have euros. That means they can’t “just” print money and with the ECB there to look after Germany & France the PIIGS will be completely fucked.

There are huge costs to a long depression, loss of skills, loss of businesses etc. Ireland is suffering because its best and brightest are emigrating to more prosperous countries.

[AiA in Atlanta]

I have decided to close my account at with my stockbroker and buy gold, specifically American Eagles. Anyone else?

[Jovial Monk]

Cash and gold sound good, as do goldmining shares.

Gold gives no return other than capital gain so make sure you get out in good time.

[AiA in Atlanta]

Have heard that silver may go through the roof. It is a bargain now, at about only 70% of its all time high, I think I might get a smaller amount of it as it is just too heavy.

[Jovial Monk]

Well, that is up to you, I am no commodities broker.

[Sappho]

I have decided to close my account at with my stockbroker and buy gold, specifically American Eagles. Anyone else?

You should have bought gold about May 2006... This gold bubble is old and about to explode. For those who got in early and have enjoyed the ride seeing their asset values almost double, if not double... now is the time to think about getting out and put that money into agriculture.

[IQSRLOW]

I am no commodities broker.

You're no economist nor political savant either.

Idiot savant would be giving you too much credit

[AiA in Atlanta]

I have decided to close my account at with my stockbroker and buy gold, specifically American Eagles. Anyone else?

You should have bought gold about May 2006... This gold bubble is old and about to explode. For those who got in early and have enjoyed the ride seeing their asset values almost double, if not double... now is the time to think about getting out and put that money into agriculture.

Hard assets are they way to go and agricultural land is certainly a good one. Disagree about gold. And anyway, I plan to buy and hold and am not looking for short-term profits.