# If economy does not expand will the whole debt system implode causing deflation ?



## lonewolf (Jun 12, 2012)

Since about the 1930s the economy has been expanding with corrections along the way. A trend can not last for ever @ some point critical mass will be hit. Do you think critical mass has ben hit for expansion of the economy & will a change in trend to a contracting economy cause deflation ?


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## tygrus (Mar 13, 2012)

Well look only at the debt to GDP generated ratio from all the recent episodes of stimulus to restart the economy. In recessions back in the 1980s/90s, a dollar of stimulus bought almost a dollar of GDP.

In the recent correction, that ratio was 4:1 which tells you a couple things. Its getting harder to restart the beast every time and the accumulated debt is becoming more of an anchor each time. On top of that, the market distortion and excesses are amplified each time. Combine that with two other trends such as demographics of baby boomers and deflationary pressures across the globe and it could be kaboom.


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## Davis (Nov 11, 2014)

Since the 1850s people have been predicted the collapse of the free market system. It hasn't happened yet -- it always seems to bounce back. But that doesn't seem to stop people from predicting that it will. Why can't a trend last for ever? It seems that global population has been on a generally upward trend for thousands of years now....


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## sags (May 15, 2010)

The last financial crisis was caused in large part, by the woven interconnections around the world and synthetic derivatives created by financiers.

These derivatives were created for profit............without any oversight or regard to downside risk. 

In many instances, the CEOs of the financial institutions didn't even understand what small groups of employees were doing in their remote offices, or at least they claimed a lack of knowledge.

Since then...........what has happened to ensure it doesn't happen again ? The answer is nothing much.

Regulations have proven to be not up to the task. The derivatives have continued to be created across the globe.

The world "bought" it's way out of the last problem..........but still owes the debt created by the "solution".

There is no capacity to do it again. Any future crisis will be much worse than the previous one.

I don't believe it can continue and a "black swan" event is likely to bring down the world's economy.

Those who haven't learned from the past..............are destined to repeat it.

Unsupportable bubbles are growing in different economic areas..........real estate, stock markets, student loans, car loans...............and they all represent a danger.

The demographics going forward present a dismal outlook at best. 

An aging population with little money to support themselves. Higher medical costs. Larger debt loads and no savings.

The "problems" of demographics are already in place. The people who are growing older are already approaching their "golden years".

The massive problem of too few people, trained and educated to do the available jobs, is already in place. Those people are already born and in schools.

Companies will be starved for "the right people"............and there will be millions of unemployable people depending on the government.

This does not bode well for the future economy.

Immigration, the often vaunted solution, is no solution at all. Many countries have the exact same problem and there is no point bringing in "untrained" people.

A better question would be............how can an economic system possibly continue with all these growing problems.

Consider..............that no one in authority is even looking for a solution.

Our elected politicians are too busy running in place..............to take serious measures to address the growing problems.

A better question would be............what will the collapse look like ?

Do I worry about it.............not at all. I simply recognize that it is coming............and there is nothing I can do to prevent it.

When it happens...........we will all be in the same boat, and somehow we will struggle through it.

If only because we will have no other choice.


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## sags (May 15, 2010)

When communism fell in Russia...........more or less, the people were ecstatic.

They envisioned a prosperous new era, and the west promised to be there every step of the way.

After a few years, the light faded............times were tough, and many people longed for the return of the socialist state.

It became much more important to them...............to have food on the table, than the chance to buy a pair of western style blue jeans.

Hence, Russia has never become a free and open society..........totally committed to free market capitalism.

Perhaps,............who knows, a collapse in world economies will bring about a future of socialist states.


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## dotnet_nerd (Jul 1, 2009)

I'm just curious......................................... about something

When did the extended elipsis..............................become part of English punctuation?


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## sags (May 15, 2010)

dotnet_nerd said:


> I'm just curious......................................... about something
> 
> When did the extended elipsis..............................become part of English punctuation?


Personal speech cadence, I guess.

I tend to write as I would speak, and the elipsis is reflective of a momentary pause.

Perhaps it comes from enjoying one too many stirring and memorable speeches over my lifetime.

It all started with the Billy Graham crusades on television..............his fault.


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## Michel (Mar 7, 2014)

If you look at world as a whole, demand for goods and services will essentially grow for the foreseeable future, unless some major catastrophe happens like nuclear war or a giant meteor. Most of the world is poor and all these people want to and are gradually moving out of poverty. Secondly, there's no fundamental reason why humanity wouldn't be able to meet demand for these goods and services. Of course we'll need to adapt our modes of production because the world cannot sustain the level of waste, ecological destruction and mass consumption of the industrialized world, especially North America; the demographic decline in industrialized countries is another important challenge that will put a dent in economic growth overall; but it seems clear to me that technological and social progress will surpass these difficulties. Therefore economic growth should continue.

I'm firmly with Elon Musk who thinks humans will eventually become a multi-planet species. Our economic activity and growth has just begun.


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## lonewolf (Jun 12, 2012)

Michel said:


> I'm firmly with Elon Musk who thinks humans will eventually become a multi-planet species. Our economic activity and growth has just begun.


 Without being able to control the accumulation of gravity in the species man I don't see it happening. We don't understand how to screen gravity or increase the accumulation of gravity. Future becomes present becomes past. A different rate of the accumulation of gravity by living on another planet would put mans survival @ risk. We would need the upward pull of the gravity of the moon so we would not be short like ants, when the moon was closer life forms were taller i.e., dinosaurs & we need the stronger gravity of the earth so we get old & saggy as we succumb to the accumulation of the larger gravitational force of earth compared to that of the moon.


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## Michel (Mar 7, 2014)

There are many more risks involved than gravitational differences  But I don't see anything insurmountable in the long run. At the rate at which science and technology are progressing it's matter of a few centuries, which may seem a long time but is nothing in the entire history of mankind. Sure humans living on a lower gravity planet will evolve differently, but humans have evolved differently on different continents on earth already - people living in Africa have developed skins very resistant to the sun etc. There will be more diversity among humans but does that threaten our survival? I don't see why.


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## Rusty O'Toole (Feb 1, 2012)

Economics is the driver of politics, and politics is based on the slick trick, the quick fix and the gimmick. As long as economists and politicians agree that increased spending and inflation are good for the economy, and as long as we have a debt based economic system, and as long as our so called prosperity depends on consumer spending of money we don't have, on things we don't need, to impress people we don't like, the money supply and therefore debt must increase every day. 

Not only can none of the debt ever be paid back, if it stops growing the whole Ponzi scheme collapses.

I don't know how long this crazy scam can go on. I am surprised it has lasted this long. Somehow it keeps mutating and adapting, and we keep adapting to it. Every day we do things and accept things our grandparents would have called absolute lunacy and don't even notice.


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## Rusty O'Toole (Feb 1, 2012)

One small correction. The world's economy has been expanding since the 1820s. It is only since the end of WW1 that inflation has been an everyday part of life. The industrial revolution and the rise of capitalism were achieved under a gold standard with no inflation, in fact there was considerable deflation in the cost of everyday goods thanks to efficient mass production. Only in the second hundred years of this process did deflation and inflation become household words.


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## Topo (Aug 31, 2019)

*Drowning in Debt or Floating with a Martini in Hand*

From BNN Bloomberg:



> *Canadians ‘drowning in debt’ as 47% struggle to cover costs: MNP*





> Forty-seven per cent of respondents to a survey conducted on behalf of insolvency firm MNP said they don’t expect to be able to cover basic living expenses over the next year without taking on more debt.





> ...Deputy Governor Lawrence Schembri said elevated household debt levels “remain the main risk to Canadian financial stability.”


Could the bubble burst? Are we in for a deep and protracted recession? Or is this more hype than substance?

https://www.bnnbloomberg.ca/canadians-drowning-in-debt-as-47-struggle-to-cover-costs-mnp-1.1338497

Similar article in the Financial Post:

https://business.financialpost.com/...osable-income-pushes-more-canadians-into-debt


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## sags (May 15, 2010)

It appears to be more of a debt servicing problem. The key to the story is.........people expect to take on more debt to pay their bills.

Until someone takes away the credit .....people will bump along life's highway.

The ultimate financial remedy is default on the debt via bankruptcy or consumer proposal. The consumer eliminates their debt, reset their finances and move on.

Despite all the dire reports, lenders are fighting over new customers. They are accepting higher risk to gain market share. 

Some of those lenders could go out of business, especially the high interest payday loan types of companies.


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## james4beach (Nov 15, 2012)

Topo said:


> Could the bubble burst? Are we in for a deep and protracted recession? Or is this more hype than substance?


While headlines like this are eye-catching, there have been stories like this -- constantly -- ever since I started investing 20 years ago. At any given time, there is always a strong argument to be made about how the current situation isn't sustainable, big trouble is brewing, or disaster is imminent. And equally strong arguments for the opposite.

A great illustration is ZeroHedge, which has been running the end-of-the-world-as-we-know-it stories _daily_ since the web site appeared. But it happens elsewhere too. All major media outlets run a mix of mostly bullish/positive stories, with a few very bearish stories sprinkled in.

I'm not saying every bearish case/story is wrong, but I've observed that these stories, and their very compelling bear cases, pop up awfully frequently. Which one will stick? There's no way to know.

A plummeting junk bond market (2015), the enormous fraud of the Chinese shadow banking system, historically unprecedented central bank stimulus, enormous stock valuations (CAPE) ... any one of these could be the reason for an eventual downturn. I think it's just about impossible to predict which one will do it, and when it will happen.

I've stopped trying to anticipate these things like market downturns, based on macroeconomic fundamentals. Increasingly, I see global markets and the economy as a human system which is inherently unpredictable and irrational. The economy isn't a scientific thing... it's just human psychology. And bots that allocate capital according to silly algorithms. And central banks that manipulate markets based on the current popular themes in economics and whatever is popular at the LSE these days.

Hypothetical scenario 1: next week the trading bots may turn violently bearish based on _esentially random_ prices, then there's a very bad US GDP release, then those US repo problems continue. All it would take is a confluence of events. Suddenly you've got a money market panic, then various psychological processes occur in a billion humans, and bam -- recession or depression. It's the end of the bull. Who knows!

Hypothetical scenario 2: while asset bubbles and debt levels teeter on the edge the whole time, things continue to work out (psychology does not crack), the bull market continues for another 7 years, then finally meets its end for some totally different reason.

Concerns about a downturn? End of a bubble? Yes, I have those concerns. For the last few years I have been carefully baking all my concerns into my asset allocation plan. But I am making no attempt to time this thing... just sticking to my asset allocation targets.


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## Topo (Aug 31, 2019)

sags said:


> Despite all the dire reports, lenders are fighting over new customers.


I see this as somewhat concerning. I remember before the credit crisis, in 2007, I would regularly receive mail from all sorts of financial institutions saying that I was pre-approved for lines of credit that I could cash out immediately, etc. They dried up after 2008, even though I was at a better position to pay of a loan by then. Maybe aggressive lending is a sign?


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## Topo (Aug 31, 2019)

james4beach said:


> For the last few years I have been carefully baking all my concerns into my asset allocation plan.


That was the main reason I brought up this issue. Let's say there is a credit crisis in Canada. I doubt that Canada would recover as soon as the US did, so we would be dealing with a long and deep recession (maybe a la Greece). The loonie will dive. Interest rates will go to zero or negative and stay there for a while. The US did not see inflation, but if the loonie gets hit hard, our imports could get more expensive.

Which assets would be hit the hardest? Those will be FI stocks, REITS, and Canadian real estate in general. 

It seems to me that energy and foreign stocks, gold, US dollar, GICs, and high quality bonds will be the best hedges in this type of scenario.


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## james4beach (Nov 15, 2012)

Topo, I agree with what you described, though I think it's very unlikely to happen. Have you looked at the Permanent Portfolio? It's designed to hedge for this kind of thing: https://www.youtube.com/watch?v=SIPf6Anuch0

I use the permanent portfolio (slightly modified) because the performance should be about the same as 50/50, with the addition of gold to protect against currency disaster and high inflation.


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## Topo (Aug 31, 2019)

james4beach said:


> Topo, I agree with what you described, though I think it's very unlikely to happen. Have you looked at the Permanent Portfolio? It's designed to hedge for this kind of thing: https://www.youtube.com/watch?v=SIPf6Anuch0
> 
> I use the permanent portfolio (slightly modified) because the performance should be about the same as 50/50, with the addition of gold to protect against currency disaster and high inflation.


The permanent portfolio is a great idea for protecting against financial crises, without sacrificing returns. I hadn't looked at it from this perspective before.


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## james4beach (Nov 15, 2012)

Topo said:


> The permanent portfolio is a great idea for protecting against financial crises, without sacrificing returns. I hadn't looked at it from this perspective before.


I responded in detail in this other thread: Harry Browne's Permanent Portfolio


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