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JerkDogg

So what do you see as a good investment given that the dollar/Euro is likely to no longer defy gravity over the next 10 years and come crashing down? My worry is that the traditional strategy of hedging this by investing overseas might be risky since a drop in the dollar/Euro is likely to trigger foreign governments that got screwed to seize foreign assets in retaliation. Gold/primary metals seem cliche.

GK

JerkDogg!

USD/Euro is not really the thing to watch, but rather USD/Yuan and USB/Rupee. Placing money in emerging markets equities (through ETFs like EEM, FXI, IIF) would be good. Once can smooth out returns and still earn double digits through high-yield EM bond funds like TEI.

I agree, gold is not good enough, as we want equity returns + currency returns.

jeffolie

I predicted the Housing Bubble when Greenspan kept interest rate too low for too long and Derivatives started to balloon.

I have long predicted Crisises. The Crisis in the Summer of 2008 and The Crisis in the Fall of 2009. With unemployment near 10%, I feel that The Crisis in the Fall of 2009 prediction has come true.

I have long predicted that there will be a Dollar crisis by 2012-13 that will bring The End of the Financial World As We Know It. The falling Dollar will bring very rapid inflation and very high interest rates. The economy will distort and collapse.

I have long invested in Silver collectables and junk coins plus some Gold Commeratives. I got out of stocks near the top in 2007 and still hold a small short position that I entered near the top with a double inverse mutual fund in a Roth IRA. I bought Silver well below $10. I hold my precious metals in physical form, no ETFs nor mutual funds.

I advise having fixed rate debt if you must have debt. I have no debt. I advise Roth IRAs. If you decide to hold stocks, then hold them in Roth IRAs.

I predicted the bottom or at least the stabilization of housing prices sometime in 2010. My prediction is based on political and Fed actions that will start to cause inflation and jobs programs before the outyear elections of 2010.

After the Dollar/world financial crisis of 2013, there will be a period of political instability but democracy will survive in America. After all there have been American currency crisises before and there was no resulting overthrow of the government. Hopefully, I have enough metals to ride out the political and financial storm.

I have earned credibility with my predictions and expect the worst to be ahead of us.

American

China will be far more relevant, as will the whole of asia, than the US and EU of today... It had to happen... Empires come and go... We are no different. It was fun while it lasted though.

Geoman

hmmmmm.

Yep, an entirely avoidable 2011 recession is coming, yet the goverment will do nothing about it. There is nothing wrong with American right now that could not be fixed by the government reducing spending, future liabilities, and interfernece in the private economy. Unfortunately we have elected idiots to office, so buckle up and enjoy the ride.

I do think there will be a massive repudiation of Obama and the Dems in the 2010 elections, which may serve to temper things for 2011.

The 2017 recession - maybe. There are lots of ways things could unfold to avert the recession. But I agree that there will be significant turbulence.

China's currency must appreciate with growing properity. As it rises exports will decrease. But China must keep growing. The only solution is to stimulate internal demand. Fortunately there is a lot of internal room to grow. China will continue to prosper.

U.S. exports will increase, but only to a point. Other low cost suppliers will be developed in what remains of the third world. China's appreciating currency will cause a spike in development, mostly in Africa and South East asia. It will usher in a wave of growth and development for those in a position to take advantage of it. Let's make a short list: Sri Lanka? Vietnam? Indonesia? Botswana? Tanzinia? Kenya? You can guess the rest. All will see a sharp increase in growth and properity. The next wave. At the end (say 30 years) only a few recalcitrant countires like Somolia and Afghanistan will be left under developed.

Unless the window closes, and computors and robotics take the place of even the lowest cost labor. I don't think it will, but you never know.

Commodities would seem to be the place to park money - they will track inflation, and as China creates demand prices will increase. Bonds will get destroyed by inflation - stocks generally do better than bonds when inflation spikes. But stocks indices will be a rollar coaster for the future.

As to indivdual countries? The U.S. will survive, if not prosper. The EU? Ditto. Stable, resource rich countires will do very well indeed (Canada, Chile, Australia). Unstable resource rich coutnires (Russia, Saudi, etc) will do okay.

Brazil and India? I think both will prosper. Either via internal growth, or feeding the demand of China. There are too many pathways to success there.

I don't agree with you on the gravitational pull hypothesis - why have forced currency appreciations? Certainly China avoided this problem for a long time by pegging to the dollar. These countries will just peg to China's currency and ride along.

Good post GK.

GK

Geoman,

I do think there will be a massive repudiation of Obama and the Dems in the 2010 elections,

We can hope. If the main message is that the tax cuts should not be let to expire, and spending cuts are a must, hopefully enough seats shift to forestall the tax increase (and thus avoid recession).

The 2017 recession is mainly a sorting out, as the US and EU adjust to having a smaller share of world GDP. Prosperity will not drop, there will just be many dislocations of industries and asset values.

The world average HDI will cross 0.800 by 2015 or so, which means that more people are living in 'developed' economies than in less developed ones.

I don't agree with you on the gravitational pull hypothesis - why have forced currency appreciations?

It is not forced, it is automatic. India cannot have too much of a PPP gap with China, so the Indian Rupee will rise whether it is ready for it or not.

These countries will just peg to China's currency and ride along.

Effectively the same thing.

jeffolie

I believe.

I believe in economic cycles that are not precise nor ridgid time periods. I believe in the Kondratief theories as written by that author, not in the multitude of books and newsletter.

I believe in creative destructionism with the exception of extinction of economic-political empires. Within a single, existing economic-political system whole industries and institution come and go until that eonomic-political system dies. In a kind of Darwinian approach, economic-political empires are mutated, created and die, only to have the consequential vacuum be replaced elsewhere in the world. For example, there were decades of modern culture and economics in the mideast until the resurgence of fundamental Islam reversed the change. These are mega, macro events spanning decades or even centuries.

In the shorter time span of economic cycles, technologies are replaced with different, new technologies. This is creative destructionism that everyone can see and believe in.

I predict the end of the financial world as we know it as propogated by a Dollar crisis by the end of 2013 and starting as early as 2012. Applying my belief in Creative Destructionism, a new political-economic system will replace the old, existing financial system. It may not be better. Currencies have come and gone throughout history as have economic-political systems.

========================================================

Creative destruction

Polaroid instant cameras have disappeared almost completely with the spread of digital photography.The economic concept of creative destruction was first introduced by the Austrian School economist Joseph Schumpeter.

In Capitalism, Socialism and Democracy, Schumpeter popularized and used the term to describe the process of transformation that accompanies radical innovation.[1] In Schumpeter's vision of capitalism, innovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power.

Theory and examples

Companies that once revolutionized and dominated new industries – for example, Xerox in copiers[2] or Polaroid in instant photography[3] – have seen their profits fall and their dominance vanish as rivals launched improved designs or cut manufacturing costs. Wal-Mart is a recent example of a company that has achieved a strong position in many markets, through its use of new inventory-management, marketing, and personnel-management techniques, using its resulting lower prices to compete with older or smaller companies in the offering of retail consumer products. Just as older behemoths perceived to be juggernauts by their contemporaries (e.g., Montgomery Ward, FedMart, Woolworths) were eventually undone by nimbler and more innovative competitors, Wal-Mart faces the same threat. Just as the cassette tape replaced the 8-track, only to be replaced in turn by the compact disc, itself being undercut by MP3 players, the seemingly dominant Wal-Mart may well find itself an antiquated company of the past. This is the process of creative destruction.

Other examples are the way in which online free newspaper sites such as The Huffington Post and the National Review Online are leading to creative destruction of the traditional paper newspaper. The Christian Science Monitor announced in January 2009[4] that it would no longer continue to publish a daily paper edition, but would be available online daily and provide a weekly print edition. The Seattle Post-Intelligencer became online-only in March 2009.[5] Traditional French alumni networks, which typically charge their students to network online or through paper directories, are in danger of creative destruction from free social networking sites such as Linkedin and Viadeo.[6]

In fact, successful innovation is normally a source of temporary market power, eroding the profits and position of old firms, yet ultimately succumbing to the pressure of new inventions commercialised by competing entrants. It has been the inspiration of endogenous growth theory and also of evolutionary economics.[7]

Creative destruction can hurt. Layoffs of workers with obsolete working skills can be one price of new innovations valued by consumers. Though a continually innovating economy generates new opportunities for workers to participate in more creative and productive enterprises (provided they can acquire the necessary skills), creative destruction can cause severe hardship in the short term, and in the long term for those who cannot acquire the skills and work experience.

http://en.wikipedia.org/wiki/Creative_destruction

Thucydides

> I don't agree with you on the gravitational pull hypothesis - why have forced currency appreciations?

It is not forced, it is automatic. India cannot have too much of a PPP gap with China, so the Indian Rupee will rise whether it is ready for it or not.

Forgive my ignorance -- you are probably right, but could you please explain why India cannot have too much of a PPP gap with China, thus resulting in currency appreciation in India and other countries near China?

GK

Thucydides,

Because their economies are too intertwined by then, and the Indian balance of trade would be too distorted. The same reason China's currency is under increasing pressure to rise against the dollar.

The sum total of the expensive world (US + EU + China) would be too big for India to stay as low for very long, by then.

Only the most dysfunctional, least economically intertwined countries will be able to stay low after China rises.

Thucydides

Thanks, GK. That makes total sense.

Zyndryl

If the Reps don't take at least one chamber in 2010 (the House, most likely), then we can all look forward to the 1930s Part II at worst or the 1970s at best, going into the next decade.

I say that not because I don't think the Reps have their acts together. They are supporting a liberal RINO over a conservative in a House special election in Upper NY State for crying out loud.

I say it because gridlock will at least further damage from happening. Obama will keep vetoing extending the Bush tax cuts but the Reps can defund his precious Public Option poison pill for our health care system. Maybe a trade-off will occur that makes things overall slightly more worse. But given the vindictiveness of the Messiahcrats, I doubt there will be much accommodation even with a pack of treasonous RINOs elected.

Joseph

These predictions are very much standard, conventional wisdom consensus economics. Therefore I would caution people that they are probably inapplicable to our current economic situaton.

First, in a normal situation where a country's currency inflates, that country's exports boom. But the US has already frittered away most of its manufacturing, and much of its remote services, to outsourcing. So exactly what "exports" are you referring to? A while back, Business Week even reported when a sharp economist (a female whose name escapes me) noted that the US overestimates its GDP because most of the gains from outsourcing inure to host countries' economies, not to the US economy -- even when the companies doing the outsourcing are American.

The implications of hyperinflation in the US are far-reaching. For many Americans, it will make foreign travel prohibitive, at the very time when so many jobs and economic activity are migrating overseas.

The inflection point will be when US companies no longer have the liquidity to lobby, and foreign-owned companies (and US-based front groups controlled by them) are able to outlobby American-owned industries. When that happens, US laws will be loosened still further to allow more and more US assets (including strategic ones, like ports) to be sold to foreign interests.

The end point of all this is that our children will all probably work for foreign-controlled companies, wherever they work. Even state governments and the federal government may be indirectly controlled by foreign interests. The US will be a vassal state and its citizens a global serf class.

GK

So exactly what "exports" are you referring to?

America has all sorts of exports already. They just happen to be less than imports.

Week even reported when a sharp economist (a female whose name escapes me) noted that the US overestimates its GDP because most of the gains from outsourcing inure to host countries' economies, not to the US economy --

On the contrary, BusinessWeek's chief economist, Michael Mandel, has said that the US understates GDP by not accounting for the export of knowledge and expertise.

The end point of all this is that our children will all probably work for foreign-controlled companies, wherever they work.

Do Americans who currently work for Sony, Honda, UBS, or Siemens currently have bad lives? Of course not. Many Americans voluntarily leave GM fo Honda, or Merrill Lynch for UBS.

The US will be a vassal state and its citizens a global serf class.

I am unimpressed with such doomster hyperbole. The US will continue to be one of the wealthiest nations, just by a smaller margin than before, mostly due to others rising than the US falling.

Miguel

Joseph, you are a lousy economist. It is not your strong point after all, as you are better for political analysis, sociology or even political economy. We all have limitations and it is better to know them well.

Miguel

Joseph, I recommend you read Richard Cantillon's "Essay on the Nature of Commerce in General". It is the book that layed the groundwork for the development of economic science, further expanded by Francois Quesnay and Adam Smith (the founder of the classical school of economics).

Geoman

One thing GK, have you considered possible demographic busts in your predictions? Certainly Europe and Japan are facing them. China too. In 2050 30% of China population will be over 60.

The U.S. is probably okay, as is Brazil. Russia seems completely doomed.

Just curious.

GK

Geoman,

Low birth rates will transfer a lot of GDP out of certain countries and into others. That being said, many developed nations are seeing a small uptick in fertility.

In 2050 30% of China population will be over 60.

Human lifespans might be 120 by then, so people at 60 might still have many decades of productivity in them.

Remember that rising lifespans may extend careers. The death rate is also falling, in addition to just the birth rate. Both contribute to a rise in average age.

The US might have a very vibrant economy in the 2030s, even if the average age is over 50, on account of a large segment of people being economically productive even at the century mark.

SS has to go bust, of course, unless they take the sane step of indexing it to life expectancy.

Geoman

Social security should be indexed to inflation, not wages. But I get your point, index the retirement age to increasing lifespans.

But here's a thought - retirement is not based on age or social security. It is based on wealth. There are loads of people who essentially "retire" in their 40s and 50s because they made a bundle. So even if our lifespans go to 120, or 150, or whatever, won't many people still retire in their 60s and 70s?

GK

Geoman,

I don't think retirement and wealth are corelated. Many billionaires keep going full speed ahead even at a late age, simply because they love what they do (which is a prerequisite to great wealth anyway).

Warren Buffett is 80, and hundreds of other examples abound.

Furthermore, research shows that retirement results in boredom which accelerates Alzheimers.

jeffolie

George Orwell would be proud to use this line in a revised Animal Farm novel. Orwell had the dominating pigs deny retirement to the overburdened, aging horses.

"Furthermore, research shows that retirement results in boredom which accelerates Alzheimers."

I completely disagree with you that retirement accelerates Alzheimers.

GK the 'dark side' of the force is strong in you. You need to go to the light side where workers can enjoy life beyond the job. There is much more to enjoying and thriving than slaving away one's life in the service of employers. Money cannot buy happiness. But the lack of money brings misery.

One can overcome boredom in much better ways than being a drone working for an employer. Not all work is done like serfdom but much is unfulfilling. It would be great if workers enjoyed their work but workers can and do find joy in retirement. You are wrong.

GK

jeffolie,

You are moving the goalposts. In fact, it is you who are reducing a worker's choices, whereas I am increasing the choices available to them.

The fact is, most people in upper income brackets choose to continue on in full capacity well after age 65. We see this in the Senate, and with billionaires.

Forcing theoretical platitudes onto them will not have any effect.

jeffolie

Retirement is great.

Working on the other hand limits your locations, activities and choices.

You can do whatever you want in retirement whereas workers are the ones with limited time and locations as dictated by their employers.

If you love your job, then you should continue to do it. I am not against working per se.

The work ethic is strong and meaningful. I have no problems with the work ethic to find fulfillment in life. You can find fulfillment and happiness in many ways including work, religion, hobbies, families, and simply enjoying entertainment. Fulfillment is a choice that most can not afford as they struggle to provide a reasonable lifestyle.

What are the goalposts, goals of life? What is the meaning of life? If I am moving the goalposts as you say, then I have no problem with doing the moving because my goals and yours may well be very different. I believe my goals, goalposts are where they should be and have moved them many times in my life. My goals do not currently include working.

jeffolie

The democracies of the world are failing. The people are not demanding responsible fiscal government anywhere. Governmental deficits and debt are soaring as if there was a World War justifying the deficits and debt.

Americans are passive and stupid when it comes to responsible economics. And it turns out that most of the world's developed cultures are just as passive and stupid in this regard as well.

Where are the Ron Pauls of this world?

They are ignored by the passive and stupid.

There will be a 'day of reckoning' and I have been predicting the end of the financial world as we know it for 2012-13. What will follow? I hope democracies survive and adapt with a righteous backlash against the irresponsible governmental actions. Who or what will be the future leadership in the backlash? In the underdeveloped world the answer has been and continues to be the flourishing of fundamental Islam as a rejection of the Western values. Will most of the World turn into banana republics or the thuggish rulers of Africa?

The passive and stupid, irresponsible people of the world will support those promising reform and change when the financial world collapses by 2013. This is a dark opinion. On the brighter side I expect that America will muddle through politically and not politically sink into the worst of all political worlds. America has survived collapses of its currency, Depressions and political massive changes before and I expect America to still be governed by the same Constitution and form of government. The same passive and economically ignorant American people are not disgruntled enough for political revolution.

GK

jeffolie,

I am not sure about 'collapse'. There will be another 2011 recession, and the economy will be soft until 2013 for sure.

But 'collapse'? State your case again in 3-4 tight bullet points. Brevity is the key to selling this idea.

Riley

GK do you see a scenario in the US where there is total collapse anytime in the near future?

What are your views on peak oil?

GK

Riley,

No collapse. Only gloom and frustration.

Peak oil is a bogus fear. No need to worry about that at all.

http://www.singularity2050.com/2008/03/rebuttal-to-a-f.html

Johnson

Hello Sir,

Can you explain why peak oil is bogus fear ?

GK

Johnson,

The link immediately above (and below) explains.

http://www.singularity2050.com/2008/03/rebuttal-to-a-f.html

Geoman

"However, barring a seismic shift in the 2010 congressional elections that dispose of many Democrats and replace them with fiscally conservative Republicans (themselves an endangered group within the Republican Party), I do not see the government taking prudent preventive action."

Any revision in light of the Scott Brown election? It seems like the peasants are revolting!

GK

Geoman,

If the scheduled tax increase on 1/1/2011 is forestalled by an influx of fiscal conservatives, then the 2011 period will avoid a recession, and merely be sluggish.

Remember, however, that a large part of the current economic malaise is due to various manifestations of misandry, as explained elsewhere. Republicans, many of whom are whiteknights, are certainly not going to do anything about that.

Conservatives are not even *aware* of the various types of leftism that have become malignantly rooted in society in the last two decades. Hence, conservatives winning elections does surprisingly little to advance conservatism.

Soila Maller

Good explanation; it looks like the first recession will not be sidestepped and will probably end up being a long drawn out depression, as all the resources to soften the blow of the first recession have already been spent. So their will not be anything left to help the next; except try to spend our way out of debt, which seems to be Obama's strategy for everything. Although Bush was no saver either, put one after another and the country goes to deep to recover. Out of all the canidates all we could come up with was McCain and Obama, give me a break. I think I am moving to Panama.

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