# Is there a Global financial crisis coming down the road?



## steviel (16 Sep 2009)

Was just listening to some extracts from a debate on CNBC.  Well, wasnt much of a debate, rather a pretty much unanimous view of what was going to happen in the next 2-3 years.  The gist of the views of the panel including people like Martin Wolf (Chief economist for the FT), and various former Government / central bank chiefs from across the world was this:

The crisis to date has been a private sector liquidity and credit crunch.  Concerted global government intervention and liquidity measures have avoided a 1930's style depression, but the debt burdens of the world's governments are now well beyond anything seen before.  This is especially the case in the US, and a dollar crisis is inevitable in the next 2-3 years, as the US debt burden becomes too big, and i guess other Governments stop buying, or sell, US Treasuries.    

What has happened to date feels pretty bad to all us 'little people', but what is the risk of a global government, rather than private, financial crisis?  This would presumably be 10 times worse, with governments unable to pay welfare, and support services to the extent that they do currently!  I am no economist so am interested in what the repercussions might be of the dollar collapsing under the weight of US government debt?  

Is it time to buy a gun, Mad Max style?!?


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## Purple (16 Sep 2009)

That's what I'm asking in the bonds thread. I'd liksomeone to lay it out in detail if they could.


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## steviel (16 Sep 2009)

Purple said:


> That's what I'm asking in the bonds thread. I'd liksomeone to lay it out in detail if they could.



sorry, Purple.  Must have been writing that just as you posted yours


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## spursman (16 Sep 2009)

well china have publicly stated that they are growing tired of buying US dollar. this basically will drive money into commodities and stock markets as companies are seen as hard assets. we are already in the middle of a stock market bull run that is purely liquidity driven by central banks. the dollar collapsing will lead to rampant inflation. look for oil to hit 200 dollars a barrell and gold 2000 an ounce. 

 http://blogs.telegraph.co.uk/finance/ambroseevans-pritchard/100000821/china-bernanke-and-the-price-of-gold/


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## ringledman (16 Sep 2009)

Watch Peter Schiff on youtube. 

In particular watch his Nov 2006 Mortgage Broker's Speech. 

Also watch his 2009 Google Speech. 

An excellent 2 hrs explaining why the USA may go down the pan. 

Every investor should have 10-15% of their worth in gold. I do not believe we have seen the end of the crunch. 

The next cruch will be government related.


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## GSheehy (16 Sep 2009)

- Joseph Stiglitz

Worth a read.


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## ringledman (16 Sep 2009)

2 hrs of the best insight into America's (and the Western world's) problems- 

http://www.youtube.com/watch?v=6G3Qefbt0n4&feature=PlayList&p=10E5668909719CBA&index=0&playnext=1

http://www.youtube.com/watch?v=tU8jCa_dKTM

This guy truely is one of the few decent economists out there. Marc Faber being one of the others.


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## joe sod (16 Sep 2009)

I second that with regard to marc faber, he has been almost spot on throughout, he does tend to talk the same thing over that the dollar is doomed and of the return of gold,


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## ringledman (16 Sep 2009)

joe sod said:


> I second that with regard to marc faber, he has been almost spot on throughout, he does tend to talk the same thing over that the dollar is doomed and of the return of gold,


 
I strongly recommend his book titled 'Tomorrow's Gold: Asia's age of discovery'.

http://www.amazon.co.uk/Tomorrows-G...=sr_1_1?ie=UTF8&s=books&qid=1253133662&sr=8-1

This is the best investment book ever written IMHO. 

The topics on investing in emerging markets, inflationary markets, investment manias, Asia and why America is doomed are truely fantastic. 

The guy has one of the best grasps of economic history going. 

Legend.


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## spursman (17 Sep 2009)

america being doomed is a bit much. they are still decades ahead of asia. i dont listen to any of these cnbc commentators but faber is good and so is jimmy rogers. i think you just have to sit up and listen to a billionaire when they are talking about the markets and he says the exact same thing. buy commodities, asian stocks, dont have any shorts and the dollar is toast. the dollar dying will drive the stock markets skyward so there is big money to be made people


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## Purple (17 Sep 2009)

spursman said:


> the dollar dying will drive the stock markets skyward so there is big money to be made people


Why will it do that?


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## ringledman (17 Sep 2009)

Purple said:


> Why will it do that?


 
Because all the excess liquidity being pumped in has to find a home. 

The Fed kept rates too low leading into the mess and are now making the same mistakes post the crisis. 

Anyhow what good is a stockmarket that doubles when the currency halves or inflation means the purchasing power of your investment has halved?! 

Its about real purchasing power of your investments and not nominal values. Granted the euro, pound, etc are all being devalued along with the dollar so against each other investing in the US stockmarket may seem to make sense but if inflation rages itself then the return in 5-10 years will low. 

You need to price all assets against gold or oil in order to see the true purchasing power of an investment over time.

Hence currency gains should be as important as dividend yield and potential capital appreciation when looking which stockmarket to invest in over the long term. 

Over the long term a currency is merely a reflection of the strength of an economy and on this basis the US just doesn't do it for me. Who knows what the greenback will be worth in 20 years. The Fed have managed to devalue 95% of its worth over the last decade. 

The Asian markets are generally well capitalised, low in debt and therefore these markets will see their currencies appreciation against us indebted westerners for the forseeable future.


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## spursman (17 Sep 2009)

the stock markets will rise when the dollar dies because as ringledman says the excess liquidity will have to find a home. commodities and companies are seen as hard assets and save havens in times of currency crisis. 

for an extreme example look at zimbabwe. their inflation was off the charts in 2007 and their stock market rose 12000% over 12 months.


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## Scruffy Man (17 Sep 2009)

> Every investor should have 10-15% of their worth in gold


 
why is gold a store fo wealth? its just  metal. I'm not trying to be being smart, I just don't get it. it doesn't really have a value to me so why should it have a value to anyone else. 

I have been promising myself to start reading up on economics, infaltion, gold etc but just never got round to it.


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## UptheDeise (17 Sep 2009)

Gold and silver have always been treated as a store of wealth for centuries. Put it this way, does a fancy piece of paper in the form of fiat currencies have any real value.


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## ringledman (17 Sep 2009)

Gold supply is increasing at 2% per annum. 

fiat currencies are increasing at 15-20% per annum. 

How can gold not go up against such currency debasement???

Owning gold does not really increase your wealth it merely preserves it. When times are tough gold is seen as a safe haven investment that cannot be destroyed, manipulated, supply increased, etc by poor governments. 

Gold represents all the blood, sweat and toil that has gone into extracting it from the ground. 

Priniting IOU paper fiat currencies (confetti) is as simple as turning on the printing press. 

No productive effort has gone into producing the paper currencies, it is a fake economy to think printing money will solve the Western world's economic woes. Without extra productive capital investment in order to create real money and wealth through exporting new products a country cannot create new wealth by merely creating more of their currency. It is a crazy concept to believe. 

There is a saying buy gold and hope it falls in value. I.e. gold is generally low correlated to other assets. so when everything else you own is tanking in value in real terms (cash, stocks, property) gold should hopefully do the opposite and go up in value. An inverse or uncorrelated relationship exists most of the time. 

As a simple example - if 90% of your assets are down by 10% you would hope that the 10% you own in gold doubles in value thus preserving your overall wealth. Gold maintains its real purchasing power in deflationary or inflationary environments. 

As the previous poster said gold has been a store of wealth for centuries. Money used to be backed by gold and silver. Unfortunately no more.


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## manaboutdog (17 Sep 2009)

UptheDeise said:


> Put it this way, does a fancy piece of paper in the form of fiat currencies have any real value.




If it is commonly accepted that a fiat currency can collapse, why is it not a possibilty that the concept of gold as something of value would not collapse also?

Genuinely curious.

edit: cross posted with ringledman, good post, thanks


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## UptheDeise (17 Sep 2009)

manaboutdog said:


> If it is commonly accepted that a fiat currency can collapse, why is it not a possibilty that the concept of gold as something of value would not collapse also?
> 
> Genuinely curious.
> 
> edit: cross posted with ringledman, good post, thanks


 
Fiat currencies are not backed up by anything. Gold and silver are rare and therefore deemed to be precious metals. While the value of gold and silver can collapse, it's highly unlikely they will go to zero. Also bare in mind, that gold and silver have industrial value, your computer wouldn't work without gold. History has shown time and time again that all fiat currencies devauled to zero.

Thanks for complimenting my post.


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## whitegrass (17 Sep 2009)

"History has shown time and time again that all fiat currencies devauled to zero."

could you anyone explain this statement?  thanks.


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## steviel (17 Sep 2009)

UptheDeise said:


> Fiat currencies are not backed up by anything. Gold and silver are rare and therefore deemed to be precious metals. While the value of gold and silver can collapse, it's highly unlikely they will go to zero. Also bare in mind, that gold and silver have industrial value, your computer wouldn't work without gold. History has shown time and time again that all fiat currencies devauled to zero.
> 
> Thanks for complimenting my post.



But if you are scared of armageddon, it is only worth buying gold if you are actually taking delivery of the bullion and hiding it away in your house, surely.  The exchange traded funds method of taking exposure to gold, or buying gold that is spread around the world (and all you have is a bit of paper proving ownership) is useless if the **** hits the fan.  The counterparty risk is too big, and you will likely end up with nothing.


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## spursman (17 Sep 2009)

people are over reacting here and everywhere else. armageddon is not around the corner. we are just entering a period of high inflation, stop start economic growth. this has happened before . to profit from it you have to be knowledgable on what happens in this type of scenario


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## joe sod (17 Sep 2009)

i read fabers "tomorows gold" back in 2004 , and it was a like a big light was switched on, and gave a whole new understanding of how the world works, it is grounded in economic history looking at trends stretching back to the 17th century, doing this is now fashionable among media commentators now, everybody seems to be looking at long term trends now but it wasn¨t so back in 2002 when "tomorows gold" was published, it makes more sense today than in 2002 and like all great books its stature grows with time


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## Chris (24 Sep 2009)

spursman said:


> the stock markets will rise when the dollar dies because as ringledman says the excess liquidity will have to find a home. commodities and companies are seen as hard assets and save havens in times of currency crisis.
> 
> for an extreme example look at zimbabwe. their inflation was off the charts in 2007 and their stock market rose 12000% over 12 months.



Investing in a market/country that is facing high or hyper inflation is the last thing you want to do. Even if, as you point out with Zimbabwe, the stock market rises by 12000% all that increase will be more than nullified by inflation.


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## ringledman (24 Sep 2009)

Hi Chris, 

I re-read Faber's chapter on inflation and he reckon's that the time to invest in hyperinflation economies is right at the peak, i.e. Zimbabwe 2008-09.

He provides empirical evidence to show that investing at this point can provide exceptional returns as the currency in question stabilises and the improvement against other currencies can therefore provide a huge return against one's home currency.


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## spursman (25 Sep 2009)

chris
so you are telling me that in the US had hyper inflation you wouldnt trade the US stock market from here in europe if we didnt have hyper inflation. the increase would not be nullified by inflation if your trading from a differnet country (assuming hyper inflation is not all over the world of course)

ringledman - by the way good luck in predicting the "peak" in any countries economic cycle


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## Chris (25 Sep 2009)

ringledman said:


> Hi Chris,
> 
> I re-read Faber's chapter on inflation and he reckon's that the time to invest in hyperinflation economies is right at the peak, i.e. Zimbabwe 2008-09.
> 
> He provides empirical evidence to show that investing at this point can provide exceptional returns as the currency in question stabilises and the improvement against other currencies can therefore provide a huge return against one's home currency.



Haven't read the book, but will certainly look it up. However, that scenario assumes that the currency actually survives, AND that you catch the peak of the inflation period in a time when technical and fundamental analysis is pretty much worthless.




spursman said:


> chris
> so you are telling me that in the US had hyper inflation you wouldnt trade the US stock market from here in europe if we didnt have hyper inflation.



Absolutely!!! I am not aware of any hyper or high inflationary time in the past when the increase in the stock market managed to keep up with the inflation rate.



spursman said:


> the increase would not be nullified by inflation if your trading from a differnet country (assuming hyper inflation is not all over the world of course)



Yes it would, as the inflation would impact the exchange rate in an equal or larger amount.


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## ringledman (25 Sep 2009)

spursman said:


> chris
> so you are telling me that in the US had hyper inflation you wouldnt trade the US stock market from here in europe if we didnt have hyper inflation. the increase would not be nullified by inflation if your trading from a differnet country (assuming hyper inflation is not all over the world of course)
> 
> ringledman - by the way good luck in predicting the "peak" in any countries economic cycle


 
Investing in a hyperinflation economy from another country would produce a poor return as the nominal value of your investment would soar but the real return would definitely be negative. 

This is why I am bearish on the US. The S&P may double but the dollar could more than halve, hence the return for us over here would be negative. 

Any investment whether property or stocks needs to be measured in terms of gold and not a currency that can be printed at will. 

With regards to predicting a peak or trough in any market, isn't that what we as investors do all the time? 

Or should we just make the mistake of buying yesterday's investment which has already outperformed other investments? This is bad investing IMO. 

I wan't to get in at a time when few other do and the market is rock bottom. Hence I am currently bullish on Japan after 25 years of terrible returns and the market is dirt cheap. Hence why I believe Zimbabwe is in a stage 1 market recovery currently. 

The hyperinflation has now resided. The country has huge potential within Africa. High risk sure but also high reward. 

http://news.bbc.co.uk/2/hi/business/8258723.stm


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## ringledman (25 Sep 2009)

> Haven't read the book, but will certainly look it up.


 
http://www.amazon.co.uk/Tomorrows-G...=sr_1_1?ie=UTF8&s=books&qid=1253879485&sr=8-1

One of the best investment books ever written IMO. If you are into macro investing from the top down then this is excellent.


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## VOR (30 Sep 2009)

http://www.youtube.com/watch?v=BvwKzF6TLKo&feature=player_embedded

I watched this video about the TARP money in the States. I am now convinced that we are no where near the end of this crisis.


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