The global debt crisis has reached a dangerous new phase.  Unfortunately, most Americans are not taking notice of it yet because most of the action is taking place overseas, and because U.S. financial markets are riding high.  But just because the global economic crisis is unfolding Read more…

Mac Slavo: That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall Read more…

Gazprom has Europe’s natural gas market in a stranglehold and Europe is attempting to fight back, first with a raid last year on the Russian giant’s offices and then with a probe launched earlier this week against its allegedly illicit efforts to control Read more…

Jeff Nielson: Regular readers know that going back more than a year now, I have been outlining two, potential (and nearly opposite) scenarios going forward. I indicated that either our economies would plummet into a high-inflation/hyperinflation price-spiral Read more…

FOR the second time or more since May, today’s Handelsblatt newspaper in Germany carries a big picture of Edvard Munch’s The Scream. Read more…

EconMatters: The big buzz about the debt-embattled Euro Zone on an otherwise quiet Sunday came from German news magazine Der Spiegel that ECB Read more…

Although one may think that they’re not invested in the Greek crisis, many portfolios may hold equity positions and ETFs that could be effected by the European debt crisis.  The European Union is the U.S.’s number one trading Read more…

This is a followup to a previous postings suggesting how investors can take refuge in the oncoming financial storm. If you’ve not done so already, be sure to read my previous post Say It Ain’t So for a description of our dismal macroeconomic Read more…

In the prequel to this article (European Default Inevitable — Sell Your Gold?), I discussed the fact that safe-haven-seeking investors could be in for a surprise when they run to buy gold after a Greek default and find huge sellers in Read more…

“We’re not bearish enough [on China].” – Jim Chanos

Oh my… China is breaking down. Europe is slipping. And there goes the US too…with stocks down 172 points on the Dow on Friday, closing out a 6th straight week of losses.

Even if the US holds itself together, there’s a good chance that either Europe or China will drag it down.

The latest reports show China’s property bubble beginning to lose air. The Wall Street Journal reports:

After years of housing prices gone wild, China’s property bubble is starting to deflate.

Residential prices are heading downward in some major cities, damping some undesired real-estate speculation but raising the prospect that the Chinese economy may slow more rapidly than anticipated with profound consequences for global growth.

Real estate is a foundation of China’s phenomenal growth record in the past two decades, and its health is crucial to China’s construction, steel and cement sectors. Real estate is also a favored investment of Chinese looking to get better returns than bank deposits pay.

And legendary short seller, Jim Chanos, says China’s local government debt is worse than America’s subprime problem. Subprime debt in the US never surpassed 10% of GDP. China’s local governments have debt (much of it bad) of more than 30% of GDP.

We went to China recently. We were unable to form a clear opinion about it. Yes, there were plenty of buildings that looked empty…but the streets were full of people.

And there is so much money in China! A friend is an antique dealer in Paris. He tells us that the hottest segment of the market is Chinese antiquities. As soon as something comes on the market, a buyer from China snaps it up. Here’s an example. In March, an antique China vase was auctioned off at Sotheby’s. The auction firm had appraised it at $800 to $1,200. Instead, it sold for $18 million.

With that kind of cash available, why worry about empty apartments? Surely, the demand will meet up with the supply, right?

Trouble is, without the discipline of the free marketplace, you never know what the demand really is. And given a lot of extra cash and credit from the feds, supply tends to overshoot, often spectacularly.

Without the light of real, free markets, buyers and sellers wander around in the dark like blind drunks. They stumble into each other. They fall down. They bloody their noses and make an awful mess.

In the heady air of post-commie central planning, China may have less than 10% of the world’s GDP, but it buys more than half its cement – and nearly as much of its iron ore, steel and coal.

What does it do with all that? It adds supply! It builds.

From first hand observation we weren’t able to draw much of a conclusion. But theory tells us that there is no way you can invest that kind of money – often with the help of local governments – without making some major mistakes.

Of course, that’s why there are corrections. That’s why every boom caused by excess, artificial credit is followed by a bust of excess, un-payable debt. Which is also why, here at The Daily Reckoning, we like corrections. They are like soap and water. They help get rid of accumulated debt dirt. And the grease of bad guesses. And the parasites that accompany a plan-gone-bad. So, lather up. Rinse well. And you’re fresh and ready to go again.

But the authorities don’t like washing up. After all, one man’s grease is another man’s career path. And the parasites vote.

The Chinese authorities may or may not be smarter than their American counterparts. But they’ve got parasites to look out for too. Voters? Maybe not…but they’ve got plenty of officials…and some 100 million young men looking for work; they’re desperate to keep them busy.

We don’t know whether a Chinese blow up is around the corner or not. But it could happen any minute.

(One of the Chinese stocks in our Family Office portfolio is trading at only 2 times earnings. It was more when we recommended it. And if China blows up, it will go lower still. Perhaps they will give it away at the bottom.)

Meanwhile, Europe grows more troubled and more troubling. The Greeks want money. The Germans want austerity. The European Central Bank wants another bailout. Germany’s finance minister says he’ll support more money for the Greeks only if lenders agree to take a haircut first.

In the streets of Athens, demonstrations have become everyday occurrences. And the government, desperate to raise money, is said to be putting price tags on the Parthenon, the Acropolis, and several islands. “Discount!” “Going out of business!” “Inventory Reduction Sale!”

It is not our place to give advice, but we will give it anyway. It is the same advice we give to underwater homeowners.

It is obvious that Greece cannot work its way through this problem. It would have to increase GDP by 12% a year for three decades in order to “grow its way out of debt.”

Since it cannot pay its debt honestly, it should at least default forthrightly. Stop sniveling and complaining. Own up to having erred.

Don’t borrow more money, in other words; renege…walk away… Be of good cheer, knowing that lenders will suffer the losses they deserve.

Default and be happy.

America is so rich…and so wasteful…that it could probably cut its spending by half and most people would still be fat and sassy.

Here’s a report from The Daily Mail in London:

The US is providing hundreds of millions of dollars of foreign aid to some of the world’s richest countries – while at the same time borrowing billions back, according to report seen by Congress.

The Congressional Research Service released the report last month which shows that in 2010 the US handed out a total of $1.4bn to 16 foreign countries that held at least $10bn in Treasury securities.

Four countries in the world’s top 10 richest received foreign aid last year with China receiving $27.2m, India $126.6m, Brazil $25m, and Russia $71.5m.

Mexico also received $316.7m and Egypt $255.7m.

And yet despite the massive outgoings in foreign aid, the receiving countries hold trillions of dollars in US Treasury bonds.

China is the largest holder with $1.1trillion as of March, according to the Treasury Department.

Brazil held $193.5bn, Russia $127.8bn, India $39.8bn, Mexico $28.1bn and Egypt had $15.3bn.

And here’s another little item. As we keep saying, man is neither good nor bad, but subject to influence. And what’s the real effect of modern communications technology? A report from Miller McCune.com:

From reality television to dumb-and-dumber films, contemporary entertainment often amounts to watching stupid people do stupid things. New research suggests such seemingly innocuous diversions should have their own rating: LYI.

As in: Watching this may Lower Your Intelligence.

A study from Austria published in the journal Media Psychology found students performed less well on a general-knowledge test if they had just read a short screenplay about an idiotic thug. This suggests stupidity may indeed be contagious – particularly if it is presented in narrative form.

“Narratives tend to make people ‘walk in someone else’s shoes,’” Appel notes. Since that experience can be temporarily transformative, you might want to make sure the characters you follow have IQs higher than their shoe size.

Regards,

Bill Bonner,
for The Daily Reckoning

The Bigger Debt Problem: China’s Local Government Debt vs. US Subprime Debt originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
The Bigger Debt Problem: China’s Local Government Debt vs. US Subprime Debt

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Lots of pessimism since QE2 is deemed a failure and no QE3 is coming.   Here’s one article that reminds us to ensure we are risk aware and maintain an intelligently adusting protection strategy.     Posted at Seeking Alpha by Michael T. Synder   http://seekingalpha.com/article/274478-the-next-crash-could-be-a-lot-worse

The Next Crash Could Be Alot Worse

here’s a lot of emotion in this market at the moment, and the conversations among traders are nearly all leaning toward the bear side

So what are some of the signs that this downturn on Wall Street may turn into a full-blown crash?

Well, according to the Wall Street Journal, junk bonds are being sold off at an alarming rate right now. Does the following quote from the Journal remind anyone of 2008 at least a little bit?….

A steep decline in prices of bonds backed by subprime mortgages has spread through the riskiest segments of the credit markets, ending rallies in high-yield corporate bonds and commercial real-estate debt.

Also, many of the big Wall Street banks are already laying off workers. In a previous article I wrote about the potential for Wall Street to go into “panic mode“, I noted that Goldman Sachs (GS), Bank of America (BAC), JPMorgan Chase (JPM) and Morgan Stanley (MS) are all laying people off or are considering staff cuts.

The truth is that the big banks on Wall Street are not nearly as stable as most people think that they are. Moody’s recently warned that it may downgrade the debt ratings of Bank of America, Citigroup and Wells Fargo.

Another major story on Wall Street right now is oil. OPEC recently announced that oil production levels will not be raised, even though the price of oil has been hovering around $100 a barrel.

World oil supplies are very tight right now. In fact, the globe actually consumed 5 million barrels per day more oil than it produced during 2010. This was possible because the difference was apparently made up by drawing down reserves.

But if oil supplies are this tight already, what is going to happen if a major war (as opposed to all of the minor wars that are already happening) erupts in the Middle East?

The world is sitting on the edge of a financial disaster.

It is important to keep in mind that Europe is also in far worse financial condition than it was just prior to the financial collapse of 2008.

It is being reported that German finance minister Wolfgang Schaeuble is convinced that a “full-blown” financial meltdown by Greece is a very real possibility. The cost of insuring Greek debt has soared to a brand new record high, and officials all over Europe are in panic mode.

But financial problems are not just happening in Greece. The largest bank in France has just cut in half the amount of cash that customers can withdraw from ATMs each week.

Most Americans don’t spend much time thinking about the financial condition of Europe, but the truth is that what happens in Europe is going to play a major role in the months and years ahead.

Of course most Americans already know that the U.S. government is a financial mess.

As the “debt ceiling deadline” of August 2nd draws closer, the U.S. government has been raiding retirement funds in order to stay under the debt limit.

Many investors are quite nervous about what may happen if the U.S. government actually does start defaulting on debt on August 2nd.

Others claim that the U.S. government is already in default.

The only Chinese agency that gives credit ratings on sovereign debt says that the U.S. government “has already been defaulting” and the Chinese government has been repeatedly warning that the U.S. needs to get its finances in order.

In any event, this debt ceiling drama will get resolved one way or another.

The bigger question is this….

How is the U.S. government going to respond when the next financial crash happens?

Back in 2008, the Federal Reserve and the U.S. government took unprecedented steps to prop up Wall Street.

But can they really do that again if we see another major crash in 2011 or 2012?

Many believe that things will be totally different this time around. Just check out what Jim Rogers recently told CNBC….

“The debts that are in this country are skyrocketing,” he said. “In the last three years the government has spent staggering amounts of money and the Federal Reserve is taking on staggering amounts of debt.

“When the problems arise next time…what are they going to do? They can’t quadruple the debt again. They cannot print that much more money. It’s gonna be worse the next time around.”

Jim Rogers is right about that.

The next time we see a collapse on the scale of 2008 it is going to be a much bigger mess.

Global financial markets are extremely vulnerable right now and there are a whole host of potential “tipping points” which could push them over the edge.

The Federal Reserve and the U.S. government more or less used up all of their ammunition on the 2008 crisis.

If we see another collapse in 2011 or 2012 there is not going to be much of a safety net available.

The entire world financial system is simply swamped with way too much debt. The world has never seen anything even remotely close to the gigantic mountains of debt that have been accumulated around the world today.

The current global financial system is not sustainable. More crashes are inevitable. A lot of people are going to get steamrolled.

Hopefully you will not be one of them

Read more here:
The Next Crash Could Be Alot Worse

HERE IS YOUR FOOTER

There is a great deal of uncertainty among investors about what the future of the US economy may look like – so I decided to take a stab at what’s likely to happen over the next 20 years. That’s enough time for a child to grow up and mature, and it’s long enough for major trends to develop and make themselves felt.

I’ll confine myself to areas that are, as the benighted Rumsfeld might have observed, “known unknowns.” I don’t want to deal with possibilities of the deus ex machina sort. So we’ll rule out natural events like a super-volcano eruption, an asteroid strike, a new ice age, global warming, and the like. Although all these things absolutely will occur sometime in the future, the timing is very uncertain – at least from the perspective of one human lifespan. It’s pointless dealing with geological time and astronomical probability here. And, more important, there’s absolutely nothing we can do about such things.

So let’s limit ourselves to the possibilities presented by human action. They’re plenty weird and scary, and unpredictable enough.

THE MARKET FOR PROGNOSTICATION

People are all ears for predictions, whether from psychics or from “experts,” despite the repeated experience that they’re almost always worthless, often misleading and more than rarely the exact opposite of what happens.

Most often, the predictors go afoul by underrating human ingenuity or extrapolating current trends too far. Let me give you a rundown of the state of things during the last century, at 20-year intervals. If you didn’t know it’s what actually happened, you’d find it hard to believe.

1911 – The entire world is at peace. Stability, freedom and prosperity prevail almost everywhere. Almost every country in Europe is ruled by a king or queen. Western civilization has spread to nearly every corner of the world and is received with appreciation. Stunning breakthroughs are being made in science and technology. There’s no sign of a gigantic world war about to come out of nowhere to rip apart the political and cultural map of Europe and bankrupt everybody. Who imagined that a dictatorial communist regime would arise in Russia?

1931 – It’s early in a disastrous worldwide depression. Attention is on economic troubles, not on the virtually unthought-of possibility that in less than 10 years a new world war would be under way against Nazism and a resurgent Germany.

1951 – Except for Vietnam, all that remains of the colonies the West had established in the 19th century are quiescent. Nobody guessed almost all would either be independent, or on their way, in 10 years. China has joined Russia – and many other countries – as totally collectivist. Who imagined that Germany and Japan, although literally leveled, would be perhaps the best investments of the century? Who guessed that the US was already at its peak relative to the rest of the world?

1971 – Communist and overtly socialist countries all over the world seem to be in ascendance, soon to be buoyed further by a decade of rising commodity prices. The US and the West are entering a deep malaise. Little significance is attached to rumblings from the Islamic world.

1991 – Communism has collapsed as an ideology, the USSR has disappeared, and China has radically reformed. Islam is increasingly in the news.

2011 – The world financial/economic crisis is four years old, but things are still holding together. Islamic terrorism and collapse of old regimes in the Arab world dominate the news. China is viewed as the world’s new powerhouse.

BAD AND WORSE

Regrettably, I’m not much of a linguist. But I do pick up interesting semantic trivia. In Spanish they don’t say “in the future,” as we do in English, which implies a definite outcome. Instead they say “en un futuro” – in a future – which implies many possible outcomes. It’s a better way of assessing reality, I think.

Here are three 20-year futures to consider. There are, obviously, many, many more – but I think these encompass the three most realistic broad possibilities.

BEST CASE – FACTS GET FACED

Realizing what a disaster the complete destruction of their currencies would be, most governments decide to endure the pain of allowing interest rates to rise and limiting increases in the money supply. Poorly run corporations and banks are left to fail. Talk of abolishing the Federal Reserve, and using a commodity for money, becomes serious and widespread.

Shaken, the US ends its profligate ways, in part because it lacks the means to continue, and in part because everyone but collectivist ideologues has actually learned something from the brutal ’10s and ’20s.

Amidst massive protests, the government closes much of its counterproductive apparatus, eliminates many taxes, and lets 30% of its employees go. It also, albeit reluctantly, liberalizes its regulation of the economy because it has become impossible to deny that the US has been falling behind in all areas.

Although there is a resurgence of libertarian thought – reminiscent of the Reagan-Thatcher era – simple practicality is mainly responsible for forcing the government’s hand. For one thing, it can’t afford the bureaucracy needed to enforce detailed interference. For another, entrepreneurs are increasingly just doing what they please, partly from necessity and partly from a growing sense of righteousness. Interest rates go to 25%, to compensate for high levels of inflation. That’s high enough to make it worthwhile for people to save, and the capital base starts growing. The stock market has collapsed to its lowest level in living experience (in real terms), but the values available encourage people to become investors. Business is restructured on a sound, debt-free basis, with little speculation.

The US radically cuts its military spending and pulls almost all troops out of their foreign bases and wars. The War on Drugs comes to an end, and the crime rate in both the US and Mexico plummets.

The government solves most of its overhanging financial problems with a seriously devalued – but not hyperinflated – dollar. The Social Security deficit is eliminated by abstaining from benefit increases and by inflating away much of what had been promised before. Most Americans suffer a severe drop in their standard of living, as they’re forced into new patterns of production and consumption. A generation of college students find that their degrees in sociology, political science, economics, English lit, Black studies, gender studies and underwater basket weaving are of no real value.

When it’s all over, the tough times that started in ’07 prove to have been no more than a cyclical bump in the road, like all the other recessions since WW2, just much bigger.

A rough and memorable ride, but it ends with a return to prosperity.

MIDDLE CASE – FACTS ARE IGNORED

The world’s governments continue under the delusion that printing massive quantities of paper money will solve problems when, in fact, printing lies at the base of the problems. Most currencies lose most of their value. Some lose it all. This destroys the most productive people in society, the middle class, who produce more than they consume and save the difference… in currency.

And it injures successful corporations that have billions, or even tens of billions, in cash. Few of their managers know what to do with such sums other than to hold currency; at best they’ll buy their own and other companies’ stock. The result is a stock market boom in the midst of a grim depression. But only one person in a hundred will be in a position to benefit from it, because most will be living too close to the edge, and the stock market will be the last thing on their minds. The destruction of capital sets technology back quite a bit in the US, Japan and Europe. Chindia increases its relative strength.

The US government, believing it has both the obligation and the ability to “do something,” redoubles its control of the economy. Price controls and capital controls are the order of the day. Petroleum products are rationed. Enforcement of new regulations is assigned to a new agency, the “Economic Recovery Administration,” which resembles the TSA in most regards – except it has many plain-clothes employees, to better ferret out violators.

People think increasingly of politics as the way to get what they want. More and more Americans move abroad – although things are deteriorating in most places in the world. Poor, backwater countries offer the best opportunities because their governments are either weak, or corrupt, enough to allow new economic activity.

To be continued…

Regards,

Doug Casey
for The Daily Reckoning

Our Economic Future: From Best to Worst Case originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Our Economic Future: From Best to Worst Case

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

There is a great deal of uncertainty among investors about what the future of the US economy may look like – so I decided to take a stab at what’s likely to happen over the next 20 years. That’s enough time for a child to grow up and mature, and it’s long enough for major trends to develop and make themselves felt.

I’ll confine myself to areas that are, as the benighted Rumsfeld might have observed, “known unknowns.” I don’t want to deal with possibilities of the deus ex machina sort. So we’ll rule out natural events like a super-volcano eruption, an asteroid strike, a new ice age, global warming, and the like. Although all these things absolutely will occur sometime in the future, the timing is very uncertain – at least from the perspective of one human lifespan. It’s pointless dealing with geological time and astronomical probability here. And, more important, there’s absolutely nothing we can do about such things.

So let’s limit ourselves to the possibilities presented by human action. They’re plenty weird and scary, and unpredictable enough.

THE MARKET FOR PROGNOSTICATION

People are all ears for predictions, whether from psychics or from “experts,” despite the repeated experience that they’re almost always worthless, often misleading and more than rarely the exact opposite of what happens.

Most often, the predictors go afoul by underrating human ingenuity or extrapolating current trends too far. Let me give you a rundown of the state of things during the last century, at 20-year intervals. If you didn’t know it’s what actually happened, you’d find it hard to believe.

1911 – The entire world is at peace. Stability, freedom and prosperity prevail almost everywhere. Almost every country in Europe is ruled by a king or queen. Western civilization has spread to nearly every corner of the world and is received with appreciation. Stunning breakthroughs are being made in science and technology. There’s no sign of a gigantic world war about to come out of nowhere to rip apart the political and cultural map of Europe and bankrupt everybody. Who imagined that a dictatorial communist regime would arise in Russia?

1931 – It’s early in a disastrous worldwide depression. Attention is on economic troubles, not on the virtually unthought-of possibility that in less than 10 years a new world war would be under way against Nazism and a resurgent Germany.

1951 – Except for Vietnam, all that remains of the colonies the West had established in the 19th century are quiescent. Nobody guessed almost all would either be independent, or on their way, in 10 years. China has joined Russia – and many other countries – as totally collectivist. Who imagined that Germany and Japan, although literally leveled, would be perhaps the best investments of the century? Who guessed that the US was already at its peak relative to the rest of the world?

1971 – Communist and overtly socialist countries all over the world seem to be in ascendance, soon to be buoyed further by a decade of rising commodity prices. The US and the West are entering a deep malaise. Little significance is attached to rumblings from the Islamic world.

1991 – Communism has collapsed as an ideology, the USSR has disappeared, and China has radically reformed. Islam is increasingly in the news.

2011 – The world financial/economic crisis is four years old, but things are still holding together. Islamic terrorism and collapse of old regimes in the Arab world dominate the news. China is viewed as the world’s new powerhouse.

BAD AND WORSE

Regrettably, I’m not much of a linguist. But I do pick up interesting semantic trivia. In Spanish they don’t say “in the future,” as we do in English, which implies a definite outcome. Instead they say “en un futuro” – in a future – which implies many possible outcomes. It’s a better way of assessing reality, I think.

Here are three 20-year futures to consider. There are, obviously, many, many more – but I think these encompass the three most realistic broad possibilities.

BEST CASE – FACTS GET FACED

Realizing what a disaster the complete destruction of their currencies would be, most governments decide to endure the pain of allowing interest rates to rise and limiting increases in the money supply. Poorly run corporations and banks are left to fail. Talk of abolishing the Federal Reserve, and using a commodity for money, becomes serious and widespread.

Shaken, the US ends its profligate ways, in part because it lacks the means to continue, and in part because everyone but collectivist ideologues has actually learned something from the brutal ’10s and ’20s.

Amidst massive protests, the government closes much of its counterproductive apparatus, eliminates many taxes, and lets 30% of its employees go. It also, albeit reluctantly, liberalizes its regulation of the economy because it has become impossible to deny that the US has been falling behind in all areas.

Although there is a resurgence of libertarian thought – reminiscent of the Reagan-Thatcher era – simple practicality is mainly responsible for forcing the government’s hand. For one thing, it can’t afford the bureaucracy needed to enforce detailed interference. For another, entrepreneurs are increasingly just doing what they please, partly from necessity and partly from a growing sense of righteousness. Interest rates go to 25%, to compensate for high levels of inflation. That’s high enough to make it worthwhile for people to save, and the capital base starts growing. The stock market has collapsed to its lowest level in living experience (in real terms), but the values available encourage people to become investors. Business is restructured on a sound, debt-free basis, with little speculation.

The US radically cuts its military spending and pulls almost all troops out of their foreign bases and wars. The War on Drugs comes to an end, and the crime rate in both the US and Mexico plummets.

The government solves most of its overhanging financial problems with a seriously devalued – but not hyperinflated – dollar. The Social Security deficit is eliminated by abstaining from benefit increases and by inflating away much of what had been promised before. Most Americans suffer a severe drop in their standard of living, as they’re forced into new patterns of production and consumption. A generation of college students find that their degrees in sociology, political science, economics, English lit, Black studies, gender studies and underwater basket weaving are of no real value.

When it’s all over, the tough times that started in ’07 prove to have been no more than a cyclical bump in the road, like all the other recessions since WW2, just much bigger.

A rough and memorable ride, but it ends with a return to prosperity.

MIDDLE CASE – FACTS ARE IGNORED

The world’s governments continue under the delusion that printing massive quantities of paper money will solve problems when, in fact, printing lies at the base of the problems. Most currencies lose most of their value. Some lose it all. This destroys the most productive people in society, the middle class, who produce more than they consume and save the difference… in currency.

And it injures successful corporations that have billions, or even tens of billions, in cash. Few of their managers know what to do with such sums other than to hold currency; at best they’ll buy their own and other companies’ stock. The result is a stock market boom in the midst of a grim depression. But only one person in a hundred will be in a position to benefit from it, because most will be living too close to the edge, and the stock market will be the last thing on their minds. The destruction of capital sets technology back quite a bit in the US, Japan and Europe. Chindia increases its relative strength.

The US government, believing it has both the obligation and the ability to “do something,” redoubles its control of the economy. Price controls and capital controls are the order of the day. Petroleum products are rationed. Enforcement of new regulations is assigned to a new agency, the “Economic Recovery Administration,” which resembles the TSA in most regards – except it has many plain-clothes employees, to better ferret out violators.

People think increasingly of politics as the way to get what they want. More and more Americans move abroad – although things are deteriorating in most places in the world. Poor, backwater countries offer the best opportunities because their governments are either weak, or corrupt, enough to allow new economic activity.

To be continued…

Regards,

Doug Casey
for The Daily Reckoning

Our Economic Future: From Best to Worst Case originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
Our Economic Future: From Best to Worst Case

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.