[frign]

I'm preparing for a crash in 2016. Unlike back in 2008, when the FED was able to "balance" it out by dropping the interest rate to almost 0%, we now won't have an airbag to save us.

The crash will come, sooner or later, and compared to that, 2008 was only a road bump, with all of us sitting in a big oil truck heading at a steel wall of a nuclear plant.

[simonebrunozzi]

Stop with this apocalyptic stance. The only effect you will have is to freak out some people.

Either provide data, or avoid pretending you know what the future will be.

[frign]

The broad scope of this topic won't be justified in a short comment like this, but it's general knowledge that the economy goes in cycles.

My special area are rare earth metal bonds and EU government bonds. The derivative markets are not a good direct indicator for stability (because they are unstable), but they set the bar for what one can expect. If you look at the M1-data by the FED [0] (M3 is _censored_), you'll see how large the bubble really has become. And this is consistent across all global markets.

Call me an apocalyst, I don't even care. Invest, crash and burn, have fun!

[0]: https://research.stlouisfed.org/fred2/series/M1

[WalterBright]

> cycles

Implies periodicity. But it isn't periodic, it's a chaotic system.

[SatoshiRoberts]

Can you ELI5 the significance of the "money stock" in the graph you linked to?

[frign]

When it gets hot, the FED prints money (they call it quantitative easing) (for 5-year-olds: throw money at the problem). Look at 2008, where they ramped up the money stock like crazy. And afterwards, all these upward bumps were quantitative easing steps to "stabilize" the markets.

However, just realize this is exponential growth. You don't need a maths degree to realize that you can't keep on printing money like crazy and expect the markets to stay stable for much longer.

It takes one person to dig into the matter and ask the question: "But what covers this money?" and bang, you got a stock market crash.

And let's not call it money. What the FED "prints" is currency, sheets of paper. Money has inherent value (gold is money for instance), but not this FED-Dollar lie we live in every day. Since 1914, America has been tricked into believing into this system. When Nixon turned off the Gold standard in 1971, the entire Bretton-Woods-System (built on top of the Dollar) sort of went Berserk.

It's a system built to fail.

[vezzy-fnord]

Fiduciary media is money. Money need not have inherent value for value is subjective and thus cannot be inherent beyond people's achievement of various ends.

The gold standard was turned off far earlier than 1971. In fact, all commodity money standards have suffered subversion or suspension by financial institutions (suspending convertibility of notes) and governments at various times. Nor was gold arrived at by the will of market forces. It was imposed through bank charter, displacing the then-dominant silver in the process. Nor was the international gold standard well designed, for R.G. Hawtrey and Gustav Cassel presciently anticipated its collapse and resulting great depression thereof.

Monetary reform is definitely in order, but commodity money has nothing to do with it. Convertibility requirements can be satisfied with interbank clearinghouses and other means.

[jwallaceparker]

> Nor was gold arrived at by the will of market forces. It was imposed through bank charter

Haven't gold and silver been used as money for thousands of years?

Carl Menger's Origins of Money makes the argument that gold/silver naturally emerge as money through the barter system.

Precious metals best satisfy the characteristics of money:

- Durability - Portability - Divisibility - Uniformity - Limited supply - Acceptability

https://www.stlouisfed.org/education/economic-lowdown-podcas...

[AnimalMuppet]

> And let's not call it money. What the FED "prints" is currency, sheets of paper. Money has inherent value (gold is money for instance), but not this FED-Dollar lie we live in every day.

You don't get to redefine terms like "money" to make your arguments work better - not if you want to talk to the rest of the world. And by the definitions the rest of us use, you are factually wrong.

[jwallaceparker]

I think you're both right.

Commodity money and fiat money are both forms of money.

https://en.wikipedia.org/wiki/Money#Types

But it's fairly simple to see which money holds its value better over time. Gold/silver have held value over millennia while fiat moneys live and die with the states that oversee them.

[ThrustVectoring]

You're confusing what money represents with what it is. Money represents an obligation for society to provide you with something of value. Money itself is simply a measure of accounting. Gold isn't money, and many things would work exactly the same if people agreed to pretend that gold was moved from one vault to another instead of actually physically moving gold around.

[jwallaceparker]

> Money represents an obligation for society to provide you with something of value.

What does that mean?

> many things would work exactly the same if people agreed to pretend that gold was moved from one vault to another instead of actually physically moving gold around.

This is how commodity money works. The dollar (as well as almost all paper currencies) originated as commodity money. The paper dollar was backed by and convertible to gold.

[bcg1]

If gold isn't money, then why do central banks have so much of it in their vaults?

[seoguru]

Dollars certainly do have value. They are effectively tax credits.

watch Warren Mosler: https://www.youtube.com/watch?v=Z1uWVj0YJ3M

[vezzy-fnord]

Legal tender laws are likely more qualitatively significant than ability to pay taxes in of itself.

I'd be wary of the chartalist/state theory of money, since it's somewhat of a truism (state theory of money is correct for money chartered by the state). It tends to ignore that many local currencies have also emerged through different channels.

MMT as promoted by Mosler, Wray, Kelton and Tcherneva is also a syncretic and often uncredited mix of a variety of economic ideas, generally as a clout for the policy activism that its founders promote.

[nugget]

Let's say I buy into the theory that QE indeed caused significant inflation, but in equity assets and specifically housing, rather than in consumer goods and services where people were watching for it. Now rates are near zero, equities and housing are still relatively high (but not in orbit given their yield relative to bonds paying nothing). Consumer goods and services and commodities remain cheap. Given this macroeconomic picture and the Fed's toolkit, what happens next?

[AnimalMuppet]

I think that depends on what the Fed does next. If it continues to unwind QE, that means that equities and housing come back down, and bond yields slowly rise (presuming that the economy doesn't fall apart too badly in the meantime).

If the Feds return to QE, stocks and real estate go up further. I think stocks do so first, and real estate a bit more slowly.

And I think that what the Fed wants to do is unwind QE reasonably quickly, without causing the economy to tank (the real economy, not just the stock market). The real question is, how rapidly can the Fed unwind QE without damaging the real economy? Or can it unwind it at all?

[apta]

I don't know why you're being downvoted. Not only is it the issue of moving money away from gold and other physical commodities, but it's also the fact that the system is built on exploitation (mainly in the form of interest, bonds, and similar concepts).

[ktRolster]

   > My special area are rare earth metal bonds and EU government bonds.

A gold bug who has chosen rare earth metals instead of gold. Fascinating.

[NotSammyHagar]

Yeah, someone who says the us economy has been a big scam since 1914, we should all go to gold. You just have to laugh. I feel sorry for him. Yes, there will be depressions and growth spurts in your life, if you are fortunate to live long enough. You can pick one of them and claim that your bizarro econ theories are true, but regardless of being on gold or off it, there will be periods of bust, boom, and depressions. They happened without us being on gold, and happened with us being on gold. so what does being on gold fix?

[ktRolster]

Generally I don't talk to anyone about gold-standards unless they can also discuss the advantages and disadvantages of a bi-metallic standard. That is my 'shibboleth' for determining if they have knowledge or not.

If they don't, I send them off to think about the bi-metallic standard.

[eli_gottlieb]

But why should there be a crash and depression, as opposed to a mere correction and recession?

[NotSammyHagar]

Excellent question. "Because of the secret float of the fed or something. You cannot trust those guys." That's always the answer.

There are non-crazy things to worry about the future - where will jobs come from for average people after we increasingly automate? Not everyone can be a programmer, and we don't need 95% of the population to do that. You can say medical care of palliative care or something. I don't know where the jobs are coming from.

And people that work in the financial industry, trading gold or CDOs, you aren't actually doing anything that helps society. If we stopped have people making money by trading on gold, would it matter to the world? No. Create something useful, that helps people, a new kind of drug. Teach kids. Don't sell real estate or work on faster stock trading algorithms. Grumpy me, my programming is the good kind, not the useless kind :-)

[spangry]

At least for regular stock exchange, I can see why they're necessary (although it took me an embarrassingly long time, given my profession, to figure this out). When a company does an IPO, they're raising capital. All good and productive there. Why do people buy stocks? Two reasons: for a share of the company income (dividends) and to make a windfall gains when the company grows by selling the stock (capital gains).

If you're in it for the second reason, you wouldn't buy the stock if you know there isn't someone else to sell it to in future. The second buyer needs a third buyer, the third need a fourth and so on. And presto. Stock market.

CDOs and other synthetics are a little more questionable. Some arguably lower stock market transaction and search costs: derivative markets provide a source of information that allows stocks to be efficiently priced. Other instruments like CDSs allow risk to be spread and hedged throughout the economy (which in some cases is efficient, particularly if at least some people have risk averse utility functions).

But I'm still learning; I'm a little allergic to finance in general. HFT just seems like cheating to me and adds uncertainty to other transactions. But maybe there's some good argument out there (and feel free to enlighten me if you have one).

All that aside, I personally have much more respect for 'the makers' than 'the ticket clippers' :)

[jqm]

Ya, well, we're all gonna die one day too. (Maybe). I can't prove it though and I'm unsure of when. But please indulge my worrying about it's immanence. I am a glass half empty kind of guy.....

As for the apocalypse, I've been waiting since 1980. And its coming to the point I've about given up. I'm still eating long term dried food rations packed in 2006 and they don't taste very good. I'm kind of starting to suspect that things change but somehow life keeps right on going.

Never let the future disturb you. You will meet it, if you have to, with the same weapons of reason which today arm you against the present.

-Marcus Aurelius

[codingdave]

The best way to live is to be prepared for continued success and prosperity in our society, yet also know what to do in case of utter collapse, or of anything in between.

Hence my coding job and investments on one hand, and living on a self-sustainable homestead on the other. If I never need to use my homestead, and just end up giving my children a piece of land worth enough to retire on... that sounds just fine.

[ZanyProgrammer]

"Hence my coding job and investments on one hand, and living on a self-sustainable homestead on the other"-Probably not very possible for most people. I suppose living in a rural area with a good job allows that, but a lot of people in rural areas/small towns aren't upper middle class programmers who live off the grid with "sustainable homesteads".

[viraptor]

I think you're talking about extremes here, but that's not necessary.

> but a lot of people in rural areas/small towns aren't upper middle class programmers who live off the grid with "sustainable homesteads".

Just moving out of a big city with a similar job gives you a lot of extra cash for saving / planning. It gives you extra time, because you don't need to commute and the one shop is just down the street. You get calmer, more relaxing life.

You don't need to live completely off the grid or fully sustainable. But the extra savings gives you ability to invest in some solar energy/heating. And a tiny garden requires next to no effort and can give you a lot of food once you get a hang of it.

And actually yes, there are a few remotely working tech people in my village of ~2k.

[denim_chicken]

There is loads of data that suggests an economic collapse around the corner. Right now there are so many indicators of economic health that are reporting poor results, that it's worth taking seriously the prospect of a looming economic collapse.

[ZanyProgrammer]

I'm pretty much convinced that (as someone with an actual academic background in economics) that most economic predictions are bullshit, regardless of who makes them. The economy may very well be headed to a downturn, but there's zero way to accurately tell how bad it'll be-Great Recession, early 00s, early 90s bad, something worse, something better? "Economic collapse" is so vague and alarming as to be useless (unless you have shares in a Prepper biz you are trying to inflate).

[rconti]

And especially when "everyone" is predicting a collapse. That makes me more confident than anything that everything will be okay.

[peteretep]

If everyone was predicting a crash, then we'd have one already, because the markets would reflect that.

[cylinder]

People seem to have forgotten that we can have recessions without financial crises or "collapses."

[viraptor]

Sure, there are indicators, but we're terrible at predicting those results. Or specifically predicting when they happen and when they don't. I'm sure some collapse is coming soon. (for high values of soon) Then again, people collectively predicted >100% of the economic failures so far.

So unless you say when, why, and what are the steps to validate it on the way, why should anyone believe the collapse happens in their lifetime?

[eru]

Or at least put your money where your mouth is, and sell shorts.

[rubiquity]

I don't understand what becoming a merchant of comfortable Summer clothing has to do with predicting a market collapse.

[eru]

Actually funny. But you know exactly what I meant.

[merb]

Why it will crash is because there are certain startups valued at too high value for producing exactly nothing.

It won't be to apocalyptic, but it will hopefully bring the gold rush in the internet erä down. I'm not sure if it will be in 2016, however I'm really sure that once in a while the markets (not just the us) needs to cleanup from everything overvalued. Also even when that happens, it will happen again, once in a while it must happen cause we (the humans) are just too dumb to learn from our mistakes.

the bad part of this, is actually that mostly renewable energy will also suffer from big market drops since investores will be scared a bit from 'new' technologies after a bigger hit into the market.

However what I'm telling is nothing special, it happens as there a people who handle everything based on their greed.

[vezzy-fnord]

Hopefully one day dumb humans learn from their mistake of blaming "greed" and various other nebulous exogenous factors instead of focusing on robustness of institutions.

[infecto]

The market for startups will have little impact on the broader market health.

[ZanyProgrammer]

A lot of the startups that are ridiculously overvalued don't really seem to produce tangible items ("lets monetise our bullshit social media app!"). At least renewable resource startups seem like they'd be a more solid investment than serving up ads in creative ways.

[sliverstorm]

The only effect you will have is to freak out some people.

... which might be his goal. Short the market, and spread FUD.

[n0mad01]

problem is that when enough people think like him the prophecy fulfills itself.

theres a lot of that sentiment around since '08.

[WalterBright]

> sooner or later,

It's a meaningless prediction, as it is non-falsifiable. and non-actionable.

[peteretep]

    > The crash will come sooner or later

I wonder if there's ever been a point in human history where that wasn't true?

[mark_l_watson]

I don't know why you were down voted. I gave you a +1 to balance things out.

I also am preparing for a continuing slow burn (i.e., slow and steady downward trajectory in our economy and the world's economy). I would bet that there is less than a 10% chance the there will be a huge crash this particular year.

The thing is, and the reason I basically agree with you, is that preparing for a long slow downward economic trajectory is the same as preparing for a possible crash: maintain your health (physical, mental, spiritual); without going crazy, try to reduce your debt as much as is possible while still caring for our families; when possible spend some non-working time on education to learn new skills.

I think it is important to keep a cool head though - I believe that your last sentence was an overstatement.

[gozur88]

>I'm preparing for a crash in 2016. Unlike back in 2008, when the FED was able to "balance" it out by dropping the interest rate to almost 0%, we now won't have an airbag to save us.

They may not be able to drop interest rates (much), but they can always print up money and use it to buy things as a way to inject cash into the economy. That's what QE was, after all.

You may be right about The Crash, and if your only time frame is "sooner or later", you are certainly correct. We will eventually have some sort of large economic downturn. But that's like predicting rain will fall, eventually. It may not happen until everyone reading this is long gone.