Tuesday, February 2, 2010

Great Depression II

20 reasons Global Debt Time Bomb explodes soon

Historians and behavioral economists tell us most investors are blind optimists. Investors cannot see bubbles from inside their bubble. Nor Fat Cat Bankers from inside their mega-bonus-bubble. Nor politicians from inside the beltway bubble. Why? The optimist's brain filters out bad news. They know their dreams of prosperity will come true. Then, when they finally do see that the proverbial light at the end of the tunnel is an oncoming train, it's always too late. I will say it again, gently: A new meltdown is coming. The Great Depression II is coming, soon. And yet, I know your mental filters are working, blocking warnings of a bomb.

Posted by devo @ 07:08 AM (1417 views)
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6 thoughts on “Great Depression II

  • I agree totally Devo, but the question is when as I’m totally frustrated by how long ‘they’ can keep this illusion going. It could happen tomorrow through Greece defaulting, or in another 5-10 years through QE, or whatever ‘novel’ new means is dreamt up. I’m seriously thinking that nothing will really change for another 3 odd years and that maybe it’s time to buy a house instead of paying someone else’s mortgage. It paoins me to say this, but I feel like I’ve lost 10 years of growth because I refused to play the game and risk everything, but what else to do with my savings which are being deflated away?!

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  • It’s a very difficult one Layers.

    If only plots were readily available where you want them. I’d be happy to pump £200k into my local economy to build a family home. Assuming of course the plot was sensibly priced (not as though the house had already been built).

    What I don’t want to do is put my money into an overpriced box.

    But I agree the frustration is almost unbearable.

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  • mountain goat says:

    Layers [email protected] I assume you meant “what else to do with my savings which are being inflated away?!”

    My answer to this issue is to find a comfortable place to rent for my family and to hold cash in safe accounts. As far as I can tell that means NS&I accounts or physical cash notes. Accumulate cash, because cash will be in increasingly short supply as the global debt mountain shrinks

    I don’t expect this to go like a “bomb”, or rather that is a low probability event. With fiat money, authorities have more power to dampen down an explosive situation like we had in 2008. But the debt mountain must deflate somehow. IMO it seems more likely that we will get a more orderly shrinking of debt with weak economic activity, a good hpc (because hp are so dependent on debt growth), mild CPI, and rock bottom IR for some time. QE/public-spending can always be stepped up again if debt collapse/deleveraging (paying off debt), became disorderly again.

    As str 2007 says the temptation to part with your cash will remain for some time. Buying a house now might be ok as long as you are prepared to face its asset value depreciate for years to come. Otherwise research, mental strength and patience are called for now to keep informing yourself of the reality of the situation.

    IMO that reality is that debt and asset prices peaked in 2007 and are now on a multi-year decline. Nothing monetary authorities can do will stop that, but it won’t stop them trying, bless them.

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  • @layers

    My suggestion (fwiw) is to prepare as far as possible for the long drawn out decline that MG mentions.

    Create a diverse investment portfolio, and try to understand how and why each investment strategy will grow and be vigilant to threats and weaknesses.
    Use the personal discipline that you already possess (saving when many others around us have squandered) to your advantage. Re-skill yourself, make your self indispensable at work, start a business trading skills with friends and family etc
    Keep emergency cash (I have a coupe of months worth to hand)
    Continue saving whatever you can.
    I suppose I’ve been using a mixture of common sense and siege mentality.Iun my own businss and am preparing a new venture (not using borrowing / debt)

    My rental bill is still less than the monthly mortgage bill I would receive for the equivalent home (my case…yours may be different). I try not to think about paying off somebody else’s mortgage too much .

    I’m in a similar position to you and and do feel that I’d feel more secure owning my own home, but i value my independence, and when the market does drop (I still believe it will considerably!) I don’t want to be tied to an unsellable house in an area that I may not want to live in anymore etc.

    Anyway good luck to you

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  • str 2007, MG, tudorian, general c – really appreciate the ‘pep talk’ and advice – I was slipping there, and you’ve all helped me back on the right path. Oh, and mg, yes I did mean inflate!

    i’ve been such an advocate of staying liquid in case (ie when) it all goes ‘tits-up’ that i sound like a broken record who’s missed out on the opportunity of my lifetime… anyway, I guess it’s darkest before dawn 😉

    keep the faith.

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