[nostrademons]

Unpopular and pretty far-out opinion: 2023-2024 is going to be a bigger financial crisis than 2008-2009, and is potentially a civilization-ending event.

The brewing crisis is that the Fed needs to trigger a recession (with job loss) to bring down inflation, because the root cause of the inflation is that there are too few workers for the available roles in the current structure of the economy, and so the economy needs to be refactored to drop non-critical industries and inefficient firms. But that's going to cause a cash crunch, since laid-off workers start pulling cash out of banks instead of making it at their jobs. Plus many consumers are drawing down on their savings and going into debt now because of inflation. And it's going to happen right at the greatest velocity of interest rate increases, when Treasuries are at their lowest. So we're going to see bank failures on top of job losses, right as interest rates hit their highest.

IMHO we're already off the cliff, we just haven't realized it yet. It was going to hit in ~2024-2025 anyway as demographics started creating a labor shortage, but COVID accelerated it with a bunch of early retirements and supply chain snags.

[JohnFen]

> is potentially a civilization-ending event.

Civilization-ending? How is that even remotely in the realm of possibility?

[nostrademons]

These banking failures and mass unemployment would come right as interest rates are spiking. They also go hand in hand with banks dumping Treasury Bills for liquidity, which would cause a sharp decline in T-bill prices and a rise in T-bill rates.

The government finances its operations by issuing T-bills. If nobody is willing to buy T-bills, the government can't get cash to pay government employees, including the FBI, CIA, military, etc. It's unlikely that people are going to continue working if they don't get paid. Historically, governments that don't pay their soldiers, police, intelligence forces don't remain governments for long.

[JohnFen]

Perhaps we have different definitions of "civilization-ending". Even if what you describe here actually happened, I wouldn't characterize that as a civilization-ending event. it would just be the passing of another nation. Civilization would continue, just as it has when nations have fallen in history.

Although, I do need to add, while your scenario is technically possible, I do think it's vanishingly unlikely. The US has been down that road before and survived, as have many others.

[nostrademons]

I was torn on what to call it - debated using the term "state failure", which I think is more accurate but few people truly know what that means. Basically, I'm referring to an event that breaks our conceptions of what it means to be "civilized" - basically, that you follow laws, adhere to contracts, respect government authority, have a well-defined political process, pay with a stable currency, can count on your personal property rights and past savings being respected, etc.

You can have civilization-ending events that don't involve everyone dying - the fall of the Soviet Union in 1991 was one. It was still hugely disruptive to everyone who lived in the Eastern Bloc. The U.S. Civil War is another one, though plenty of people died then too. It's not the end of all civilization, just the civilization we're in.

[JohnFen]

OK, I understand better now. We do define "civilization-ending" (and perhaps even "civilization") very, very differently. Fair enough! I appreciate your explanation, thank you.

[athinggoingon]

> The government finances its operations by issuing T-bills. If nobody is willing to buy T-bills, the government can't get cash to pay government employees, including the FBI, CIA, military, etc.

If nobody is willing to buy T-bills, the Fed will just monetize the debt, which is something they have been doing since 2008.

There's a reason the Fed's balance sheet is now around 8 trillion dollars.

[p10_user]

Will banks dump that many short term t bills to cause a problem? Short term t bills are very popular- I’m sure some b2b loans could be settled with a t bill as payment. As long as the us govt is still good for the interest payments I think plenty will be happy with that arrangement, reducing need to convert so much into cash.

[nradov]

There have been plenty of recessions and depressions so far and none of them have ended civilization. Another recession is certainly possible this year, but some people are always predicting those. Do you have a record of making accurate recession predictions without false positives?

[nostrademons]

Predicted 2000, 2008-09, and 2020. Predicted growth from 2003-2007. Falsely predicted a double-dip in 2011. Predicted growth from 2012-2020. Correctly predicted that 2015 and 2017-2018 would not result in recessions at a time that media and some friends were saying they would. Incorrectly predicted that 2020 recession would last longer than it did - I reversed opinion in early 2021, which was a little late to capture much of the upside. Correctly predicted the 2020+ inflation.

In general I've got close to 100% success at avoiding major disasters, but also tend to be a little bit jumpy on the trigger and sometimes forecast disasters that do not happen. ("A little bit" meaning about a 30-40% false-positive rate, not a perma-bear.) I also usually predict a higher severity and longer duration than actually occurs.

[rlonn]

It’s like they say: bears have predicted all 25 of the last 5 recessions

[selimthegrim]

Civilization ending because it affects ability to respond to climate change?

[nostrademons]

I explain a bit more what I mean here:

https://news.ycombinator.com/item?id=35087159

I consider climate-change to be another potential civilization ending event in that it's going to create ripple effects that will likely lead to present-day governments falling. But I'm not referring to it as an effect here - TBH, I think the consequences of climate change are already locked in at this point and we're going to face them regardless of what we do.

I mean "civilization ending" as in "the rules are unknown or non-existent". As in, our civilization ends, not civilization for all time ends. There will be new forms of cooperation and political organization - I suspect they'll grow out of local governments.

[GreenPlastic]

We've been in one long cycle since 1998, continuing with the .com bubble and the GFC and finally Covid. With each one we've had to print more and do more to get out of it. Where it ends is anybodies guess...but each crisis requires a larger response

[resters]

FWIW I think it's an amazing time to be a debtor.

[patch_cable]

> pulling cash out of banks

In practice, the cash still probably ends up at a bank, just in a different account. I don't think anyone is going to pull it out and start burying it in their back yard.

[nostrademons]

It still can trigger bank failures like the article is describing, though. Consumer pulls it out of one bank, creating a cash crunch there, and forces them to liquidate treasuries and realize large losses that had previously only been on paper. That bank is now insolvent. The bank that the recipient deposits them into now has more cash in hand, but they weren't facing a cash crunch in the first place. Some (bigger and more conservative) banks are going to end up doing great, but the financially weaker ones are going to get flushed out.

Think of it like a pot of superheated water. As long as it remains undisturbed it continues to be un-boiled, even though the temperature is above the boiling point. As soon as you jostle it, though, everything erupts. The movement was just a catalyst - the problem was that the underlying state existed in an unstable equilibrium.

[CapstanRoller]

Why would it get pulled out of the bank? Where would it go? I don't believe we'll see an epidemic of folks suddenly wanting to store their life savings under the mattress.

[nostrebored]

My family has withdrawn ~95% of our bank holdings after looking into the health of banks and the broader financial system. Not going to say too much, but the funds didn’t reenter the banking system.

[credit_guy]

Also fairly unpopular opinion: it's not going to be a financial crisis because of GPT. Yes, the Fed needs to keep rates high to fight inflation, and this would normally trigger a recession. But GPT bots will increase productivity tremendously in the next few years, so we'll be able to weather the Fed high rates without dipping into recession.