One for the optimists

Muqbil, thanks for putting this up.

Very interesting video despite that really in the end it is nothing more than a promotional piece for MoneyWeek.

Here's my take on it and some things for people to consider as they watch and contemplate the video's message:

1. We're all technically insolvent, the UK, the US, Japan, Spain, Greece and a host of other countries. The entire financial system is technically insolvent with loses still hidden from view by accounting gimmicks and politicians, central banks and regulators who willingly continue to look the other way.

2. They totally overlook the role that today's monetary system, and the abolishment of the gold standard, has played in all this. It's not by accident that government spending charts take a sharp upward turn right at 1971.

3. They also totally overlook the role of inflation in the parabolic charts presented on government spending in the first part of the video. Had they superimposed the inflation adjusted charts on top of the charts presented then it would be clear to see that a large chunk of the parabolic spending was caused by the loss of the currency's purchasing value, not just the nanny state expanding. The nanny state kept on giving more because more was needed to keep the party going.

4. They referred to predicting the oil spike in 2009. If they predicted it, then I'd like to hear the reasons why. Did they have inside information that Goldman was spiking oil to $147 per barrel to orchestrate a short squeeze and profit by busting Semgroup with a $500 million margin call? Because it's either that, or simply getting lucky making a correct call for all the wrong reasons.

5. Just to stay with the OIL theme, I think they did their overall great piece a disservice by not once in the entire video mentioning the critical role that the world's alpha commodity plays on global growth. A pyramid of debt, no doubt, but cheap oil vanishing for ever is just as important in what is now unfolding.

6. Mentioning the words Japan and collapse in the same sentence as an example of what happens when debt to GDP ratio gets too high is completely wrong and misguided. Japan has enjoyed probably the highest standard of living in the developed world DURING their supposedly two lost decades. Many nations would envy a similar "collapse". I mentioned my views on deflation in Japan in earlier posts so I won't repeat myself.

7. Mentioning gold confiscation in the US in 1933 is again overreaching. Gold at the time was MONEY, it's not today. So to confiscate it today would be in essence no different than the government confiscating any other piece of property you own, like your house for example. Besides, how much gold is now in private hands for the government to consider it a problem and want to deal with it? Now it wasn't long ago that a nation was tattooing numbers on people's arms and sending them to die in gas chambers, so when it comes to government abuse, nothing is impossible. But the real lesson for gold owners from the 1933 experience is as follows:

According to the US government's own studies ("Gold Exchange Program" prepared by Stanley Fell and Ross Grubb for the Secretary of the Treasury, 1936), do you know the estimated number of US citizens who "sold" their gold to the USG as a result of Executive Order 6102?

12pc

Do you know how much gold was confiscated from US citizens (pardon me, I meant to say "sold" to the USG) kept for safe keeping in bank safety boxes?

ALL OF IT.

If you can't touch it, you don't own it.

8. I totally agree on the part of the government stealing the people's wealth, taking over private pensions, imposing capital controls, etc, is what will follow. They didn't mention negative interest rates and nominal GDP targeting however and they should have in my opinion because that's what's coming next. That's always been the formula for failing governments and a broken financial system, and this time won't be any different.

9. I totally agree that we are headed for a collapse, there's no return, we have crossed the rubicon, and I'll keep saying this until it sinks into people's heads on here, the system was designed to fail from the outset. Those who designed it knew damn well the power of exponents. Where I don't agree is that the collapse will be triggered by rising interest rates. Interest rates have been declining for 20 years because central banks have interfered, manipulated and broken the free market. The bond market always acted as a check to profligate government spending until the central banks stepped in.

There are no bond vigilantes any more, they have all been fired long ago betting on rising interest rates and instead running into an endless demand of government bonds by central banks pushing yields down and prices up. The central banks will continue to step in to provide liquidity to their members as their balance sheets keep imploding (the ONLY place where deflation is found) and fund bankrupt governments. They have no choice. They have climbed on the tiger's back and now they can't get off without being devoured. If they stop the system collapses right there and then. So rates WILL NOT go up. What will bring the system down is so much printing taking place to plug those massive holes that faith in fiction fiat money is lost. Same as always.

Hyperinflation is how this ends.

Another very interesting thread, imo.

I have just started reading the financials forum and i am a fan of Melanus's economic views.

I am affriad i cant have a very indepth econmic debate as my knowledge is limited in comparision to some of the posters on this forum. However, my question is this. If the finanical markets did collapse and paper money became worthless what would the future hold socially, politically and economically.

Many people seem to use history when looking to the future but surely we have moved on since the 1930's never mind similar financial collapses in previous centuries.

Man has walked on the moon and there have been so many break throughs in the fields of science, medicine and technology. These advancements would not be lost if the money markets failed. Wealth in terms of human knowledge and technology would still remain if the money markets failed.

Evolution and history are concrete, money is nominally.

What will be the solutions they suggest for safe guarding money / property / investments.

For those not wishing to subscribe to what could be a very clever piece of marketing.

paddletoe

If the finanical markets did collapse and paper money became worthless what would the future hold socially, politically and economically

There's a very high level of interconnectedness in today's financial system, so viewing this as a "localized" event understates the negative series of events that would take place.

If money became worthless and the financial markets collapsed (they will, that's where we are headed just not yet) it would be on a global scale (If the USD fails, every fiat currency around the globe would fail at the same instant). So what will ensue is CHAOS of an unparalleled scale, complete with violence, unlawfulness and disorder.

FOOD and OIL will become the biggest issue. People will go hungry, there will be riots in the streets, social safety nets will collapse, nations will come to an economic standstill, and governments will fall. That's what happens when people go hungry, EVERYTHING breaks down, the law, morality, social cohesion, everything. Self preservation becomes the only driver in peoples actions. Just like always.

Many people seem to use history when looking to the future but surely we have moved on since the 1930's never mind similar financial collapses in previous centuries

Moved on how? I think we are in a far worse situation today to deal with a collapse because of our increased reliance on OIL. We are now reliant on OIL far more than any society that collapsed into social chaos because of hyperinflation in the past. The fertilizers and pesticides that are needed to produce the yields necessary to feed the global population explosion of the last 50 years are OIL based. All the machinery that is necessary to cultivate farmland runs on OIL. The delivery system that brings food to market runs on OIL. And OIL in a collapse will become scare. Join the dots.

Man has walked on the moon and there have been so many break throughs in the fields of science, medicine and technology. These advancements would not be lost if the money markets failed. Wealth in terms of human knowledge and technology would still remain if the money markets failed

We still haven't figured out a way to create energy out of nothing. OIL has been and remains the single most important economic driver. And cheap oil is gone FOREVER. We're not drilling in the most un-hospitable environments to find it, or drilling miles down to the bottom of the ocean and miles more down to the reservoir to bring it up, because it's plentiful and cheaper that way. It's far more expensive and the energy invested to bring it up far greater. The EROEI ratio has dropped by multiples since the 40s, and overall production has remained flat for a decade while the global population continues to grow. This is the real issue facing global growth today, not money conjured out of thin air. And there's not a damn thing any central banker can do about it because this has nothing to do with theoretical economic models. It has everything to do with real geology and real flow rates and real well depletion rates.

Start seeing the world through an OIL lens, instead of a fiat money lens, and everything will become clearer.

Merry Christmas everyone.
Schoolboy error, Menelaus.
He would monetise oil, yet not the acreage of the richest country in the world. And cannot see that all econonmic considerations are prey to political power, where the USA is pre-eminent, and will be for the rest of his life-time.

Merry Christmas to you too, whoever you are.

I've heard of monetizing debt but I've never heard of "monetizing oil". Last time I filled up my car at the pump I didn't see any digital 0s and 1s pouring out of the spout, it was some kind of liquid smelly stuff that keeps going up in price.

Perhaps what you posted is a riddle, perhaps it's nonsense, but whatever it is it's in need of a well thought out explanation to pass the smell test.

So, to that end, I'm waiting.

Menelaus, all the money in the world could not buy Wyoming. Because Wyoming is in America.
That's where monetarism fails, as an indicator.
If everything could be rteduced to its value, like oil, the world could be predicted by the LSE.
Merry Christmas.

Biscuits, all the money in the world couldn't buy Manicaland and it's in Zimbabwe.

I don't think "monetarism" means what you think it means.

The LSE could indeed predict the world if it was a free market. It isn't, it never was. And neither is NYSE or anything else for that matter. That's the problem, central banks have removed price discovery from the place where buyers and sellers meet to set the price.

My post wasn't about the value of OIL, it was about the value of OIL in economic growth. The infinite growth variety to boot. The type needed in our monetary system (there's that word again) to keep the system afloat.

Merry Christmas and all the best in 2013.