For those with some understanding of economics and how our country currently stands (National Debt is HUGE), I have a question: what would it take for the US economy to crumble almost overnight?
Interesting. The Chinese are the "biggest" threat to America or so I've been told.
I have an MBA but it was in Human Resources not Finance / Economics. I'm in the midst of a discussion with folks about our future as a country. I've been "told" that the Chinese would be cutting their own throats as much as ours if they worked to unfold us. But I'm not sure exactly how and such which is why I ask.
The Chinese don't really have to unload their US Bonds....they just have to stop buying them on a regular basis. We would have to raise our yields to attract different buyers, none of which have the buying power of the Chinese. The Trade Deficit with China was not as big a problem as the powers imagined.
event that could cause the grid to go out could result in a close to immediate destruction of the economy, but other than that, there's little to suggest something could have such a catastrophic impact.
Even a stock market crash like that from 1929 wouldn't probably be immediate crumbling
I'm talking our credit lines are no longer there; the value of the dollar drops 25% or more (esp. if US military is no longer the world's best and capable of protecting us from all threats), etc.
I'm talking our credit lines are no longer there; the value of the dollar drops 25% or more (esp. if US military is no longer the world's best and capable of protecting us from all threats), etc.
it would take a catastrophic even
Massive meteor strike
Old Faithfull blowing
Nuclear war
things along those lines
Assuming no Force Majure and that overnight means within a year Â
Yes, worse than 2008 - 2010. Much of the 2008 crash had to do with our GREED and were of our making. The US economy can survive a stock market "crash" but I don't think we could survive if countries (esp. China) stopped buying bonds and such.
After 9-11 i believe once the market re-opened it was the largest one-day and one-week drop I believe in history or at least since the great depression.
So another 9-11 like attack maybe has an impact like that.
RE: Assuming no Force Majure and that overnight means within a year Â
But I think that the crumble would have to occur during an entire 12 month stretch, not a short term event like Oct. 19, 1987 that occurs within that time frame.
Either due to terrorism or a massive Geomagnetic Storm (solar storm) which damages a significant portion of the power grid. Imagine the NE US without power for several days or weeks.
I wonder if anyone really knows the answer to this question Â
and by anyone, I don't mean a bunch of guys on a football board, I mean bank regulators, senior risk managers, etc.
The last time, we supposedly came a few bucks in Lehman stock from the monetary supply running dry, and huge bailouts ensued. Now we've got stress test after stress test to hopefully prevent it from getting that close ever again, but with this bubble in the housing market and credit still being pretty loose and cheap, are we sure that we never get back to what almost happened?
they are taking over the New York Relestate Market and pricing Americans out of housing.
Add in they bought one of the largest commercial construction companies in NYC (Plaza Construction).
My landlord in queens used to talk about how the Chinese would come in and buy property straight cash in the Millions of dollars.
On top of that, the babyboomers are retiring, and there are not enough people to replace them in jobs that they will be leaving behind.
Are there numbers/studies about you point on retiring baby boomers?
I'm not disagreeing with you, but in my little corner of the work world that really is the opposite of what I've been seeing for the last decade. Labor is the one area where must of my clients have trouble filling positions, but most of those positions aren't made up of baby boomers to begin with.
RE: FMIC hit it....A massive extended power grid failure Â
Either due to terrorism or a massive Geomagnetic Storm (solar storm) which damages a significant portion of the power grid. Imagine the NE US without power for several days or weeks.
The market remained closed after 9-11 for a almost a week.
So in your scenario, the outage would have to last more than a week?
We are not talking about those unforeseen circumstances Â
that have caused recessions and depressions in the past. Depressions happen periodically but can't be predicted, just analyzed after they happen, so they are beyond the frame of this discussion.
What about the intentional acts of individuals or nations that wish to harm us economically? One can't be positive, but I suspect that there is enough anti-US sentiment in the world that if it could be done, it would have been done already.
Well, a power outage would cause a LOT more damage Â
but I think the grid is more resilient than people think. I don't doubt it could be knocked offline for a few hours, but a catastrophic failure impacting a large swath of it for days on end doesn't seem very likely.
Incidentally, having spent a lot of time around equity research Â
types, the most interesting thing I've heard was the potential for economic collapse from a pandemic. This was something I caught the last time the avian flu was a big deal, and they were saying that a rapidly moving pandemic could bring about an almost untenable run on the banks.
Catastrophic failure woulf be an unforeseen event that paralyzes the supply chain. There are too many possibilities to list, let alone defend against.
Structural failure is a breakdown in the existing dynamics of our society. The most obvious is the combination income inequality and a shortage of cheap labor that leads to both inflation and working class revolt. You can see parts of it now. Workers always get screwed. That tax cut was completely negated by oil prices and trade wars. as inflation rises, wokers will need even more money just to break even, and the titans who feel that income inequality is non-negotiable will resist....
- China holds approx 5.7% of the US natl debt
- Japan holds approximately the same amount and was just recently overtaken by China as largest foreign holder
- China and Japan each only represent about 20% of foreign owners of debt, meaning 80% of foreign held US debt is owned by other govnts
- U.S debt-to-GDP is at about 77%...Eurozone is at 87%, Japan at 223%
- While China’s federal debt-to-GDP is very tame, their corporate (160%) and household (49%) debt is very high and growing rapidly
- US floats it’s currency and remains the leading reserve currency
- Approximately $10 trillion global debt is still in zero or negative yielding territory....as US yields grind higher, any reluctance to buy higher yielding US debt by Chinese buyers would quickly be met by other buyers
RE: FMIC hit it....A massive extended power grid failure Â
Either due to terrorism or a massive Geomagnetic Storm (solar storm) which damages a significant portion of the power grid. Imagine the NE US without power for several days or weeks.
RE: FMIC hit it....A massive extended power grid failure Â
they are taking over the New York Relestate Market and pricing Americans out of housing.
Add in they bought one of the largest commercial construction companies in NYC (Plaza Construction).
My landlord in queens used to talk about how the Chinese would come in and buy property straight cash in the Millions of dollars.
On top of that, the babyboomers are retiring, and there are not enough people to replace them in jobs that they will be leaving behind.
Are there numbers/studies about you point on retiring baby boomers?
I'm not disagreeing with you, but in my little corner of the work world that really is the opposite of what I've been seeing for the last decade. Labor is the one area where must of my clients have trouble filling positions, but most of those positions aren't made up of baby boomers to begin with.
It's a social science and a bi product of industrialization and one of the main reasons Italy recently crumbled and China limited their population growth to 1 boy and 1 girl in the past few years
Basic premise, is that as a country gets more industrialized, and technology increases, there is no longer a need to produce as many children.
Non-Industrialized nations need a ton more children to:
A) Combat the Death Rate
B) Man the farms to make money (Most non-industrialized countries are agricultural)
Post Industrialization children cost money, instead of making you money, but people don't realize this until a few years down the line, so there is a huge population jump called population momentum.
I'm sure you have elderly friends that were like 1 of 12, and your parents were like 1 of 4.
Today's US population growth is 2 adults to 1 child. The days of the 12 kid family being a normal thing are long gone.
At the same time, the death rate drop, and people can live longer because technical, and medical advances.
So right now, the people working are going to have to start supporting way more elderly then ever before. Jobs are going to be available and I would suspect unemployment will be at an all time high. That's why you hear a ton about social security running out.
A power grid failute would be devastating, for sure Â
Our power grid infrastructure is 'aging" but we won't build nuclear reactors to compensate for many reasons, chief of which is no one wants a reactor near them.
Fukishima Japan alone is still pouring gallons upon gallons of waste into the ocean, polluting it though you don't hear much about that.
but these are very dramatically less than they were in 2005-7, as are other forms of bad leverage such as SIVs:
--The extent of liar loans is a tiny fraction of what they were.
--The ratings fraud which led to ridiculous amounts of leveraged MBS is gone.
--The generation of CDOs and the like has pretty much disappeared--no one around to play the AIG role as guarantor.
My concerns are more long-term. Sure, technology will ultimately lead to greater productivity, but what happens during the transition, when disposable income declines? What happens to state and local pensions? Will there be resources to pay for the major infrastructure transitions that are going to be needed? Will there be a sharp drop in auto manufacturing and demand for fossil fuels as EAVs take hold? How much will automation eat jobs? How do we deal with a growing post-retirement population combined with historically low fertility rates? Will there be increased populism and trade war as technological disruption takes hold--and hts jobs and disposable incomes ? Does climate change damage regional economies?
In other words, my concerns combine technological, geopolitical and demographic concerns. Changes will be disruptive, and disruptive changes include massive uncertainties and a need for strong leadership response that doesn't seem to exist. Note the global rise of ugly populism and the erosion of democracies. Part of this is, I think, a response to climate change concerns related to a migrant crisis, part to worries about jobs.
There's lots more, but it isn't about China selling our debt.
event that could cause the grid to go out could result in a close to immediate destruction of the economy, but other than that, there's little to suggest something could have such a catastrophic impact.
Even a stock market crash like that from 1929 wouldn't probably be immediate crumbling
Ted Koeppel recently wrote a book on this - I attended a talk where he touched on the book but haven't read it myself yet.
exist that solves the problems of their people or where the people solve their own problems??
To that end, US citizens have solved a ton of problems throughout history. While we aren't perfect, to make it sound like all of the people sit on their hands and expect somebody else to do everything for them is quite the broad stroke.
I know some of really like discussing this stuff Â
but I am issuing a warning -- I've deleted at least 12 comments on this thread already -- if this thread keeps straying into politics it will get deleted
-over spending (not spending correctly) under taxing (wrong taxes to the wrong population)
-Military over reach
-under funded Military (he who has biggest stick makes the rules)
-Over reliance on global partners
-Over population ("The trouble with Scotland...is that it's full of Scots.")
-Mishandling foreign trade (who's our buddy today instead of who's going to stay our buddy)
9/11 did result in a sell-off and minor recession but GDP only contracted 30bps and the recession lasted 8 months. That is less than half as long as the 07/08 recession of 1.8 years.
The Atlanta FED just released their projected Q2 GDP estimate at 4.2%. For the US to enter into a massive recession at this point in time you would have to see a serious collapse of international economies, which would then trickle its way to the U.S. - but even so, that would take time as our economy is fairly self sufficient - 70% of our economy being the US consumer.
It is safe to say based off of recent economic date that the US economy will continue to grow over the next few years. Could a natural disaster cause market declines, yes, but it is unlikely to take this growing economy off course. Fundamentals look strong.
If it happens again rather than delete, can you lock the thread? Those comments will be gone but the thread will stay, as there is some interesting and informative contributions.
crumble "overnight" where it would be unrecoverable, short of a worldwide catastrophic event and even then we would likely be the country to withstand it.
As to China, they need us (consumers) a lot more than we need them (suppliers). The inconvenience of a different supplier or increase in costs because of shifting to another supplier would be minor. Like Japan in the 70's, China is built on a house of cards. China has been surviving by cheating and stealing from other countries businesses and intellectual property. Even now they are trying to steal natural resources from Viet Nam, Philippines, Borneo and other South China Sea nations by building artificial islands and then claiming the waters in between as EEZs.
Nassim Nicholas Taleb's book "The Black Swan: The Impact of the Highly Improbable" is an absolutely fascinating read. It's very deep. I first read it a little over 10 years ago and I'm getting ready to start reading it - in the next month or so - for the 4th time.
In its simplest terms, he posits that "history" is dominated by the occurrence of very improbable (unforeseen) high impact events.
The really fascinating aspect of his thesis is human kind in every society proceeds through life as though life changing improbable events are very unlikely. When in truth, highly improbable impact events occur regularly.
According to Talib's thesis, the destruction of the US economy - were it to happen - will be caused by unanticipated and unforeseen event(s).
that becomes a worldwide pandemic would cripple the economy.
While I'm not very fond of our government's spending habits I think places like the HHS, CDC, NHI, etc should always be priority spending.
On the debt, it is dangerously high in my view. I think it's the highest ever - next to WWII spending? - as a % of our economy. Fortunately, we own 70% of our debt. In theory, a China or Russia could wreak havoc by suddenly dumping our bonds. But that would be a very stupid move and highly unlikely. They need our debt, for example, to deal in trade and keep their currency stable.
RE: I know some of really like discussing this stuff Â
but I am issuing a warning -- I've deleted at least 12 comments on this thread already -- if this thread keeps straying into politics it will get deleted
Yes, I noted in my initial question that politics IS NOT what this thread is about. It is for me (and those I share some takeaways with) to LEARN.
that my comments were deleted. I made absolutely no mention of any political party, any office, any politician, any political stance or position on any policy whatsoever. I can only guess I got deleted because I mentioned the U.S. Government.
Hard for me to decipher what's allowed and what isn't. I understood clearly how some earlier posts were deleted as they were clear rules violations, but my own posts seemed entirely within bounds as far as I could tell.
about the economy, the climate, health and or social matters is a prescription for disaster here and has been for many yrs. Its bascially Giants football, what bands are you listening to and where is the best pizza. Take it for what it is.
RE: Dan - How is a comment about the US Government Â
I didn't mention anything about a political party, a political policy, a politician, or a branch, division, appointment, or even a function of the government. The government is a system made up of many entities, but not all of it is political. At least not that I'm aware of in the sense that has been banned here.
Serious question - is the Post Office political? What about the military, or the labor department or the federal reserve? Perhaps within certain contexts I suppose, especially when discussing policy or other news-related controversies.
And it's not that I didn't only not mention any of the banned items but I didn't insinuate or hint at any either. My intent/viewpoint was an entirely apolitical one, just a historical one. I'm surprised it offended anyone and/or surprised that it crossed the boundary for what is allowed. I honestly did not intend to do that - only wanted to discuss potential risks to our nation's economy and prosperity from a historical perspective.
Sorry for breaking the rules. I guess I couldn't help myself.
is one that injects a bias or invokes a party or makes a disparaging assumption about a political figure.
I didn't think discussing the Government in the macro sense would even come close to being political. It would be like saying a thread on Anti-trust topics would be political. Or discussing NASA.
Talking about Gov't actions to avoid a financial collapse isn't political. It's institutional. Neither Dan nor njm had political posts, both were pretty informative, yet they were removed.
massive grid failure is not hypothetical, it is inevitable. It's called a Carrington Event. It's a massive coronal mass ejection that creates an EMP that fries electronics, including the power grid. We almost got hit with one in 2012, which would could have caused as much as $2.5 trillion in damage. A cyber attack might be able to do the same, but that seems less likely since the attack would have to destroy the entire grid simultaneously.
I have an MBA but it was in Human Resources not Finance / Economics. I'm in the midst of a discussion with folks about our future as a country. I've been "told" that the Chinese would be cutting their own throats as much as ours if they worked to unfold us. But I'm not sure exactly how and such which is why I ask.
Add in they bought one of the largest commercial construction companies in NYC (Plaza Construction).
My landlord in queens used to talk about how the Chinese would come in and buy property straight cash in the Millions of dollars.
On top of that, the babyboomers are retiring, and there are not enough people to replace them in jobs that they will be leaving behind.
Even a stock market crash like that from 1929 wouldn't probably be immediate crumbling
Quote:
10 drop in the dow or business stop operating?
I'm talking our credit lines are no longer there; the value of the dollar drops 25% or more (esp. if US military is no longer the world's best and capable of protecting us from all threats), etc.
it would take a catastrophic even
Massive meteor strike
Old Faithfull blowing
Nuclear war
things along those lines
After 9-11 i believe once the market re-opened it was the largest one-day and one-week drop I believe in history or at least since the great depression.
So another 9-11 like attack maybe has an impact like that.
But I think that the crumble would have to occur during an entire 12 month stretch, not a short term event like Oct. 19, 1987 that occurs within that time frame.
The last time, we supposedly came a few bucks in Lehman stock from the monetary supply running dry, and huge bailouts ensued. Now we've got stress test after stress test to hopefully prevent it from getting that close ever again, but with this bubble in the housing market and credit still being pretty loose and cheap, are we sure that we never get back to what almost happened?
Add in they bought one of the largest commercial construction companies in NYC (Plaza Construction).
My landlord in queens used to talk about how the Chinese would come in and buy property straight cash in the Millions of dollars.
On top of that, the babyboomers are retiring, and there are not enough people to replace them in jobs that they will be leaving behind.
Are there numbers/studies about you point on retiring baby boomers?
I'm not disagreeing with you, but in my little corner of the work world that really is the opposite of what I've been seeing for the last decade. Labor is the one area where must of my clients have trouble filling positions, but most of those positions aren't made up of baby boomers to begin with.
The market remained closed after 9-11 for a almost a week.
So in your scenario, the outage would have to last more than a week?
What about the intentional acts of individuals or nations that wish to harm us economically? One can't be positive, but I suspect that there is enough anti-US sentiment in the world that if it could be done, it would have been done already.
Structural failure is a breakdown in the existing dynamics of our society. The most obvious is the combination income inequality and a shortage of cheap labor that leads to both inflation and working class revolt. You can see parts of it now. Workers always get screwed. That tax cut was completely negated by oil prices and trade wars. as inflation rises, wokers will need even more money just to break even, and the titans who feel that income inequality is non-negotiable will resist....
- Japan holds approximately the same amount and was just recently overtaken by China as largest foreign holder
- China and Japan each only represent about 20% of foreign owners of debt, meaning 80% of foreign held US debt is owned by other govnts
- U.S debt-to-GDP is at about 77%...Eurozone is at 87%, Japan at 223%
- While China’s federal debt-to-GDP is very tame, their corporate (160%) and household (49%) debt is very high and growing rapidly
- US floats it’s currency and remains the leading reserve currency
- Approximately $10 trillion global debt is still in zero or negative yielding territory....as US yields grind higher, any reluctance to buy higher yielding US debt by Chinese buyers would quickly be met by other buyers
Many of us in New Jersey don't have to imagine after Sandy.
Quote:
they are taking over the New York Relestate Market and pricing Americans out of housing.
Add in they bought one of the largest commercial construction companies in NYC (Plaza Construction).
My landlord in queens used to talk about how the Chinese would come in and buy property straight cash in the Millions of dollars.
On top of that, the babyboomers are retiring, and there are not enough people to replace them in jobs that they will be leaving behind.
Are there numbers/studies about you point on retiring baby boomers?
I'm not disagreeing with you, but in my little corner of the work world that really is the opposite of what I've been seeing for the last decade. Labor is the one area where must of my clients have trouble filling positions, but most of those positions aren't made up of baby boomers to begin with.
It's a social science and a bi product of industrialization and one of the main reasons Italy recently crumbled and China limited their population growth to 1 boy and 1 girl in the past few years
Basic premise, is that as a country gets more industrialized, and technology increases, there is no longer a need to produce as many children.
Non-Industrialized nations need a ton more children to:
A) Combat the Death Rate
B) Man the farms to make money (Most non-industrialized countries are agricultural)
Post Industrialization children cost money, instead of making you money, but people don't realize this until a few years down the line, so there is a huge population jump called population momentum.
I'm sure you have elderly friends that were like 1 of 12, and your parents were like 1 of 4.
Today's US population growth is 2 adults to 1 child. The days of the 12 kid family being a normal thing are long gone.
At the same time, the death rate drop, and people can live longer because technical, and medical advances.
So right now, the people working are going to have to start supporting way more elderly then ever before. Jobs are going to be available and I would suspect unemployment will be at an all time high. That's why you hear a ton about social security running out.
Fukishima Japan alone is still pouring gallons upon gallons of waste into the ocean, polluting it though you don't hear much about that.
--The extent of liar loans is a tiny fraction of what they were.
--The ratings fraud which led to ridiculous amounts of leveraged MBS is gone.
--The generation of CDOs and the like has pretty much disappeared--no one around to play the AIG role as guarantor.
My concerns are more long-term. Sure, technology will ultimately lead to greater productivity, but what happens during the transition, when disposable income declines? What happens to state and local pensions? Will there be resources to pay for the major infrastructure transitions that are going to be needed? Will there be a sharp drop in auto manufacturing and demand for fossil fuels as EAVs take hold? How much will automation eat jobs? How do we deal with a growing post-retirement population combined with historically low fertility rates? Will there be increased populism and trade war as technological disruption takes hold--and hts jobs and disposable incomes ? Does climate change damage regional economies?
In other words, my concerns combine technological, geopolitical and demographic concerns. Changes will be disruptive, and disruptive changes include massive uncertainties and a need for strong leadership response that doesn't seem to exist. Note the global rise of ugly populism and the erosion of democracies. Part of this is, I think, a response to climate change concerns related to a migrant crisis, part to worries about jobs.
There's lots more, but it isn't about China selling our debt.
Even a stock market crash like that from 1929 wouldn't probably be immediate crumbling
Ted Koeppel recently wrote a book on this - I attended a talk where he touched on the book but haven't read it myself yet.
To that end, US citizens have solved a ton of problems throughout history. While we aren't perfect, to make it sound like all of the people sit on their hands and expect somebody else to do everything for them is quite the broad stroke.
-Military over reach
-under funded Military (he who has biggest stick makes the rules)
-Over reliance on global partners
-Over population ("The trouble with Scotland...is that it's full of Scots.")
-Mishandling foreign trade (who's our buddy today instead of who's going to stay our buddy)
Just some thoughts from past failed world powers
The Atlanta FED just released their projected Q2 GDP estimate at 4.2%. For the US to enter into a massive recession at this point in time you would have to see a serious collapse of international economies, which would then trickle its way to the U.S. - but even so, that would take time as our economy is fairly self sufficient - 70% of our economy being the US consumer.
It is safe to say based off of recent economic date that the US economy will continue to grow over the next few years. Could a natural disaster cause market declines, yes, but it is unlikely to take this growing economy off course. Fundamentals look strong.
Might I suggest that your definition of political is quite a bit broader than what was previously used. So be it.
As to China, they need us (consumers) a lot more than we need them (suppliers). The inconvenience of a different supplier or increase in costs because of shifting to another supplier would be minor. Like Japan in the 70's, China is built on a house of cards. China has been surviving by cheating and stealing from other countries businesses and intellectual property. Even now they are trying to steal natural resources from Viet Nam, Philippines, Borneo and other South China Sea nations by building artificial islands and then claiming the waters in between as EEZs.
IMHO
In its simplest terms, he posits that "history" is dominated by the occurrence of very improbable (unforeseen) high impact events.
The really fascinating aspect of his thesis is human kind in every society proceeds through life as though life changing improbable events are very unlikely. When in truth, highly improbable impact events occur regularly.
According to Talib's thesis, the destruction of the US economy - were it to happen - will be caused by unanticipated and unforeseen event(s).
While I'm not very fond of our government's spending habits I think places like the HHS, CDC, NHI, etc should always be priority spending.
On the debt, it is dangerously high in my view. I think it's the highest ever - next to WWII spending? - as a % of our economy. Fortunately, we own 70% of our debt. In theory, a China or Russia could wreak havoc by suddenly dumping our bonds. But that would be a very stupid move and highly unlikely. They need our debt, for example, to deal in trade and keep their currency stable.
Love my BBI, 20+ years and counting!
And thanks for the warning, i had no idea this would be something you dissaprove of
Hard for me to decipher what's allowed and what isn't. I understood clearly how some earlier posts were deleted as they were clear rules violations, but my own posts seemed entirely within bounds as far as I could tell.
I didn't mention anything about a political party, a political policy, a politician, or a branch, division, appointment, or even a function of the government. The government is a system made up of many entities, but not all of it is political. At least not that I'm aware of in the sense that has been banned here.
Serious question - is the Post Office political? What about the military, or the labor department or the federal reserve? Perhaps within certain contexts I suppose, especially when discussing policy or other news-related controversies.
And it's not that I didn't only not mention any of the banned items but I didn't insinuate or hint at any either. My intent/viewpoint was an entirely apolitical one, just a historical one. I'm surprised it offended anyone and/or surprised that it crossed the boundary for what is allowed. I honestly did not intend to do that - only wanted to discuss potential risks to our nation's economy and prosperity from a historical perspective.
Sorry for breaking the rules. I guess I couldn't help myself.
I didn't think discussing the Government in the macro sense would even come close to being political. It would be like saying a thread on Anti-trust topics would be political. Or discussing NASA.
Talking about Gov't actions to avoid a financial collapse isn't political. It's institutional. Neither Dan nor njm had political posts, both were pretty informative, yet they were removed.
Carrington Event - ( New Window )