I am seriously starting to become anxious about what's going on in the U.S. I'm a pretty smart guy and I know more than the average person about what's going on, but I have no formal economics education and so can't make a truly educated guess about how this is going to play out. Can those of you who really know your stuff when it comes to economics give me a worst-case scenario for the next 1-5 years? I'm starting to get carried away with (involuntary) fantasies about a second American Revolution, true hyperinflation, etc. Basically, I know enough about what's going on to make me scared ****less, but I don't know enough about it to come up with my own plausible worst-case scenario.

http://www.youtube.com/watch?v=rH6_i8zuffs

Just mean...but sadly something that has a nonzero chance of happening.

OP,

Perhaps if you explained why the US is on the verge of doom in your mind, the replies might better address your case.

http://www.youtube.com/watch?v=NieRx4HPLTs

The McAlvanys have done a pretty good job in putting together videos about what is going on. Their youtube page is here.

They basically recommend the following...

33% of your savings in gold coins in a safe-deposit box in the bank
67% in cash equivalents (short term US or Canadian T-bills)
3-6 months cash savings on hand in a safe (not a bank account)
3-6 months of food stored up in your house
An exit strategy if things get really bad (have passports ready and have means of buying your way out of the country)

Here is a post on the inflation/ deflation debate. J.R. posted some really good links about half way down the first page that explains both sides pretty well.

Mish is an economics blogger who says that there is not going to be hyperinflation but the economy is going to get a lot worse with heavy unemployment and more bankruptcies for some time.

Robert Murphy thinks there will be stagflation i.e. recession and inflation with prices rising about 25% per year. This can be very dangerous as the politicians will come out with wage and price controls on food and other items causing massive shortages so it is good to be prepared.

http://www.youtube.com/watch?v=AMY3a...eature=related

It's ok though, it all blew over pretty quickly in Germany.

i'm sorry, but HAHA. is this the same mcalvany that thought Y2K would cause an economic collapse???

OP, I suggest listening to PhD economists only about this stuff. Whatever your personal feelings toward them about how much they should or should not have been able to predict (and/or prevent) our current situation, they are, by and large, VERY smart people. You won't see any of them suggesting you stock up a half year of food in your house in case.... (fill in the blank here, I honestly can't imagine a feasible situation in which that would be necessary).

Just btw, the recession is many many many magnitudes more likely to cause deflation than hyperinflation. Basically, absent divine intervention, you have nothing catastrophic to worry about.

Nearly the entire forum disagrees with your, check out The Federal Reserve will not monetize the debt for example. Maybe you would care to explain why deflation is more likely to happen, even though money is being printed in incredible numbers?

Hyperinflation is simply monetary panic in the face of (price/credit) deflation. They go together.

(Price/credit) inflation and hyperinflation, despite the similarity in name, are two different entirely phenomena.

i think the best thing to do is just get prepared. get storable food, precious metals, water filters, guns, etc. if you have lots of money, get some of your money offshore so that it will be waiting for you if you have to leave the country. then once you're all set... just sit back and relax... and watch the collapse if it happens.

also... i think you'll feel better about the situation if you stop fearing the collapse and actually embrase it. sure, things could get really crazy, but maybe our generation will actually stand up and do something that will go down in the history books. the next 10 or 20 years could be a very interesting time to be alive and you should be thankful to be a part of it...

and you know what... whatever happens happens... no need to stress out about something you can't control

We have deflation right now by many measures...so the hyper inflation is baked in already...is that what you're hinting at JR?

Deflation doesn't automatically mean hyperinflation- its just that normally hyperinflation occurs during economic stress such as deflation.

I understand that...but that seemed to be what JR was hinting at. I just wanted him to clarify.

This is absolutely the wrong place to go to be "calmed down." In my opinion the worst case scenario is a decade of lost growth and the U.S. loses its preeminence as the world superpower. To me the more extreme predictions which are commonplace around here are fairly unlikely. So I hope that helps, then again if you're having fantasies about revolutions maybe this isn't what you want to hear.

I am baffled, that's all. Anyone worried about hyperinflation please point me to statistics that show a massive increase in the money supply... I don't see them. Let's go back to Econ 101 here guys, prices don't just shoot up astronomically at random.

?

Show me a statistic that doesn't show a massive increase in the money supply.

How do you think they payed for all the bailouts and for the 'stimulus' packages? And that's just the stuff that went through the congress. The FED doesn't have to go through congress you know.

wow that is depressing

Most of that hasn't been lent out though, I don't think.



/edit the difference in the size of the spikes is only about $90b.

The money is there for a reason.

Truth.

This spike in M1 is offset somewhat by decreased growth in other, larger components of the money supply.

Still, all measures of money supply have been growing dramatically over the last few years, just not as dramatically as that BASE graph implies.

http://www.shadowstats.com/alternate_data/money-supply

How the Fed can double its balance sheet and not have hyperinflation:

All the increase in the Fed's monetary base did was temporarily patch up the holes in the largest banks' balance sheets. The major banks were mindblowingly insolvent, ie their liabilities were much larger than their assets. What the Fed (among many other things, but this is the gist of it) did was create reserves to buy the "toxic assets" off the banks' balance sheet at ridiculously overvalued prices. Banks get cash, aren't insolvent anymore, Fed gets a bigger balance sheet. So this has not created any inflation because the banks CANT lend this money or put it into circulation, otherwise they would be back to being insolvent.

This is why the Fed's balance sheet has not tracked various money supply metrics. Normally, the banks would have said, "Thanks for the cash", turned around, lent it, and booked the profits. This would have expanded the money supply and continued the inflationary boom, some business would have acquired a loan, hired people, they would have spent their wages, etc, eventually there would be upward pressure on prices. But in the situation we are in now, the upward pressure on prices can't happen.

The Fed talks about "withdrawing liquidity" from the system, which is the opposite of the above process. Instead of expanding the assets on their balance sheet (ie, that graph going whoooosh upwards), they have to make it go downwards. They have to trade the assets on their balance sheet for cash held by private institutions. The only thing is that this is completely impossible, since the assets on their balance sheet are the so called toxic assets which they removed from the financial system in order to say it. They are only going to be able to withdraw a very small amount of cash from the system.

Imagine if the Fed has $2T of assets, and one of those assets is Bernanke's baseball card collection. It is valued at $500b. When Bernanke goes on ebay and starts an auction for his Upper Deck collection, how much cash is he going to raise and "withdraw" from the system? That is the situation we are in. According to the Fed's uber stylized version of how this will go, he will start a Buy It Now for $500b, and will get a buyer in about a week or so. Then we will be back where we were before all this, they added the liquidity when there was a liquidity trap and we were facing financial armageddon, the system repaired itself, and then once the economy was healthy and able to bear it, they removed that cash.

Fat chance. It's not very complicated, adding liquidity is the easy part, withdrawing it is the hard part.

So what happens if the Fed never withdraws, and plays the shell game indefinitely? Not trolling, really trying to learn more.