When yesterday had a future.

Buhdy is probably going to ban me sooner or later for lazy blogolalia (like echolalia, only blog-centric).  Peter Schiff, who predicted much of the economic whirlwind that Obama is intending to put back in Pandora’s box, showed up in comments asking WTF the proprietors at The Automatic Earth, Ilargi and Stoneleigh, ever predicted.  After all, he is Peter Schiff!

Stoneleigh responded, and because the TAE feel free to post articles whole, this will be one of the few times that I re-produce Stoneleigh’s part of the post in its entirety, fair use be damned (They can feel free to sue me for all my debt obligations, then put me to work as an indentured slave milking goats).  As a one-time practicing scientist, I would consider the predictions made to be of the “strong” variety.

There are 40 specific predictions below (the numbering scheme was lost in copy/paste, and god knows, I’m too lazy to fix it).  Being incompetent in economics, it is difficult to judge the likelihood of these outcomes, but such dire outcomes are completely outside of mainstream discourse.  However, I am at least smart enough to understand that the bailout is utterly inconsistent with “free markets,” “moral hazard,” any notion of “transparency,” and that if the banks are really healthy enough to give back the TARP money, then why can’t they mark their assets to market, rather than their own “mental models” of what their assets should be worth.  In short, the official story doesn’t add up.  When is the last time it has?

Stoneleigh: People have been asking how we see the future unfold. In case you wonder what we stand for, much of our view of what’s to come can be found in the primers on the right-hand side bar. Here is an additional brief summary (in no particular order and not meant to be exhaustive) of the ground we have consistently covered here at TAE over the last year and a half, and before that elsewhere.

Deflation is inevitable due to Ponzi dynamics (see From the Top of the Great Pyramid)

The collapse of credit will crash the money supply as credit is the vast majority of the effective money supply

Cash will be king for a long time

Printing one’s way out of deflation is impossible as printing cannot keep pace with credit destruction (the net effect is contraction)

Debt will become a millstone around people’s necks and bankruptcy will no longer be possible at some point

In the future the consequences of unpayable debt could include indentured servitude, debtor’s prison or being drummed into the military

Early withdrawls from pension plans will be prevented and almost all pension plans will eventually default

We will see a systemic banking crisis that will result in bank runs and the loss of savings

Prices will fall across the board as purchasing power collapses

Real estate prices are likely to fall by at least 90% on average (with local variation)

The essentials will see relative price support as a much larger percentage of a much smaller money supply chases them

We are headed eventually for a bond market dislocation where nominal interest rates will shoot up into the double digits

Real interest rates will be even higher (the nominal rate minus negative inflation)

This will cause a tsunami of debt default which is highly deflationary

Government spending (all levels) will be slashed, with loss of entitlements and inability to maintain infrastructure

Finance rules will be changed at will and changes applied retroactively (eg short selling will be banned, loans will be called in at some point)

Centralized services (water, electricity, gas, education, garbage pick-up, snow-removal etc) will become unreliable and of much lower quality, or may be eliminated entirely

Suburbia is a trap due to its dependence on these services and cheap energy for transport

People with essentially no purchasing power will be living in a pay-as-you-go world

Modern healthcare will be largely unavailable and informal care will generally be very basic

Universities will go out of business as no one will be able to afford to attend

Cash hoarding will continue to reduce the velocity of money, amplifying the effect of deflation

The US dollar will continue to rise for quite a while on a flight to safety and as dollar-denominated debt deflates

Eventually the dollar will collapse, but that time is not now (and a falling dollar does not mean an expanding money supply, ie inflation)

Deflation and depression are mutually reinforcing in a positive feedback spiral, so both are likely to be protracted

There should be no lasting market bottom until at least the middle of the next decade, and even then the depression won’t be over

Much capital will be revealed as having been converted to waste during the cheap energy/cheap credit years

Export markets will collapse with global trade and exporting countries will be hit very hard

Herding behaviour is the foundation of markets

The flip side of the manic optimism we saw in the bubble years will be persistent pessimism, risk aversion, anger, scapegoating, recrimination, violence and the election of dangerous populist extremists

A sense of common humanity will be lost as foreigners and those who are different are demonized

There will be war in the labour markets as unempoyment skyrockets and wages and benefits are slashed

We are headed for resource wars, which will result in much resource and infrastructure destruction

Energy prices are first affected by demand collapse, then supply collapse, so that prices first fall and then rise enormously

Ordinary people are unlikely to be able to afford oil products AT ALL within 5 years

Hard limits to capital and energy will greatly reduce socioeconomic complexity (see Tainter)

Political structures exist to concentrate wealth at the centre at the expense of the periphery, and this happens at all scales simultaneously

Taxation will rise substantially as the domestic population is squeezed in order for the elite to partially make up for the loss of the ability to pick the pockets of the whole world through globalization

Repressive political structures will arise, with much greater use of police state methods and a drastic reduction of freedom

The rule of law will replaced by the politics of the personal and an economy of favours (ie endemic corruption)


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  1. I’d gladly eat my socks in lieu of that future.

    • Edger on June 18, 2009 at 6:14 am

    it could start getting bad? I’ve been living in a pay-as-you-go world for a few years now. I’m not overly concerned about not being able to afford oil products, since I really don’t want any of them anyway, and since I own no property I think I might like the idea of real estate prices falling by at least 90%, although I imagine people with mortgages are going to be a little upset.

    And I’m giving some thought to living in the Queen Charlotte Islands sometime in the next ten or fifteen years, where the majority of food that people eat comes out of the ocean and their gardens.

  2. Not only is she brilliant, but she has compassion for humanity – and wants others to understand what can happen. The concept is not to promote fear, but to understand that a paradigm shift is unavoidable.

    The basis of her economic theory is based on historical evidence, as well as basic social psychology.

    Take for instance the cost of energy.

    Energy prices are first affected by demand collapse, then supply collapse, so that prices first fall and then rise enormously

    Ordinary people are unlikely to be able to afford oil products AT ALL within 5 years

    Take a moment and look around at all the things that are made of plastic and are petroleum based. All commercially grown food uses petroleum based fertilizer. In fact, unless you compost, all the fertilizer you buy is made from petroleum. How would you feed yourself?

    Are the day to day things you use and need dependent on transport? It costs fuel to get an item from point A to point B. What would you do without?

    What about heat and air conditioning?  Cooking? Lights? TV? Internet?

    That does not even include the costs of having a vehicle.

    We in the U.S. are oil junkies. Doing without it would cause severe withdrawal. It’s a paradigm shift, indeed.

    That covers just 2 points she made.

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