by Stoneleigh
Imagine that at a certain point the US, the EU or the
Global economy reach the point where:
1.
Deflation is
inevitable due to Ponzi dynamics (see http://theautomaticearth.blogspot.com/2008/11/debt-rattle-november-26-2008-from-top.html)
2.
The collapse of
credit will crash the money supply as credit is the vast majority of the
effective money supply
3.
Cash will be
king for a long time
4.
Printing one's
way out of deflation is impossible as printing cannot keep pace with credit
destruction (the net effect is contraction)
5. Debt will become a millstone around people's necks and bankruptcy will no longer be possible at some point
6.
In the future
the consequences of unpayable debt could include indentured servitude, debtor's
prison or being drummed into the military
7.
Early withdrawls
from pension plans will be prevented and almost all pension plans will
eventually default
8.
We will see a
systemic banking crisis that will result in bank runs and the loss of savings
9.
Prices will fall
across the board as purchasing power collapses
10. Real estate
prices are likely to fall by at least 90% on average (with local variation
11. The essentials
will see relative price support as a much larger percentage of a much smaller
money supply chases them
12. We are headed
eventually for a bond market dislocation where nominal interest rates will
shoot up into the double digits
13. Real interest
rates will be even higher (the nominal rate minus negative inflation)
14. This will cause
a tsunami of debt default which is highly deflationary
15. Government spending
(all levels) will be slashed, with loss of entitlements and inability to
maintain infrastructure
16. Finance rules
will be changed at will and changes applied retroactively (eg short selling
will be banned, loans will be called in at some point)
17. Centralized
services (water, electricity, gas, education, garbage pick-up, snow-removal
etc) will become unreliable and of much lower quality, or may be eliminated
entirely
18. Suburbia is a
trap due to its dependence on these services and cheap energy for transport
19. People with
essentially no purchasing power will be living in a pay-as-you-go world
20. Modern
healthcare will be largely unavailable and informal care will generally be very
basic
21. Universities
will go out of business as no one will be able to afford to attend
22. Cash hoarding
will continue to reduce the velocity of money, amplifying the effect of
deflation
23. The US dollar
will continue to rise for quite a while on a flight to safety and as
dollar-denominated debt deflates
24. Eventually the
dollar will collapse, but that time is not now (and a falling dollar does not
mean an expanding money supply, ie inflation)
25. Deflation and
depression are mutually reinforcing in a positive feedback spiral, so both are
likely to be protracted
26. There should be
no lasting market bottom until at least the middle of the next decade, and even
then the depression won't be over
27. Much capital
will be revealed as having been converted to waste during the cheap
energy/cheap credit years
28. Export markets
will collapse with global trade and exporting countries will be hit very hard
29. Herding
behaviour is the foundation of markets
30. The flip side of
the manic optimism we saw in the bubble years will be persistent pessimism,
risk aversion, anger, scapegoating, recrimination, violence and the election of
dangerous populist extremists
31. A sense of
common humanity will be lost as foreigners and those who are different are
demonized
32. There will be
war in the labour markets as unempoyment skyrockets and wages and benefits are
slashed
33. We are headed
for resource wars, which will result in much resource and infrastructure
destruction
34. Energy prices
are first affected by demand collapse, then supply collapse, so that prices
first fall and then rise enormously
35. Ordinary people
are unlikely to be able to afford oil products AT ALL within 5 years
36. Hard limits to
capital and energy will greatly reduce socioeconomic complexity (see http://en.wikipedia.org/wiki/Joseph_Tainter)
37. Political
structures exist to concentrate wealth at the centre at the expense of the
periphery, and this happens at all scales simultaneously
38. Taxation will
rise substantially as the domestic population is squeezed in order for the
elite to partially make up for the loss of the ability to pick the pockets of
the whole world through globalization
39. Repressive
political structures will arise, with much greater use of police state methods
and a drastic reduction of freedom
40. The rule of law
will replaced by the politics of the personal and an economy of favours (ie
endemic corruption)
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