4 ms·

Why the US is collapsing

41 points by nickb 19y ago

davidw 19y ago
!HN
mixmax 19y ago
Very interesting article, However I don't know enough about global economy to assess whether he is right or not. He does make some pretty big assertions and accusations though. Anybody know whether this is right, total b.s. or somewhere in between?
- admoin 19y ago
  near-total bs with a moderate grounding in fact
  - mixmax 19y ago
    That's what I thought ;-)
  - dreish 19y ago
    That's pretty much what I was going to say. To be more specific, though, the author is right that there are a lot of dollars out there being hoarded because the USD is the global standard currency, and that its fall from that status will have some interesting consequences. Pretty much every other factual claim of the article is nonsense. His explanation of fractional reserve banking is upside-down. He pulled the conjecture "if the interest rate is 4%, then 4% of all credit will default" from the deepest recesses of his rectum. The assumption that the economy will revert to the state it was in just before the end of Bretton Woods reads more like the lazy premise of a short story than an economic theory.
    - admoin 19y ago
      Yep. I actually was somewhat credulous until he got fractional reserve banking backwards (getting a $1000 deposit with a 10% reserve requirement means you can lend out $900 of it, not that you can magically lend out $9000 that you don't have), and then it was all downhill from there. There are a lot of relatively decent arguments that the US economy is in for a prolonged recession, but I would group the article with the crazy goldbug paulites rather than with legitimate, usually fairly well-reasoned economic criticism with which I disagree (Krugman, etc).
      - anewaccountname 19y ago
        That actually isn't strictly true; you could loan out that 900, which gets spent by the person you loaned it to, and can then could be redeposited by the person who sold him something, in the same bank. And this can be repeated up until it asymptotes off, which (from memory), with a 20% reserve requirement, would occur at $5000. You can do the math on your own for a 10% reserve (I'm guessing it happens at $10,000, which minus the original $1000 is the author's $9,000).
        michaelneale 19y ago
        sorry for the meta comment: but the above comment thread is why I think news.YC is the greatest at the moment. Compare this sort of conversation to reddit, or anything really. Doesn't compare.
        ashu 19y ago
        fascinating. thanks for your insight.
        admoin 19y ago
        Right, that assumes the proceeds of the loan are redeposited into the banking system. If instead the money remains in circulation or is otherwise kept in physical form, the multiplication stops.
        maximilian 19y ago
        Its a geometric series. In math: Let r=(1-reserve requirement) and Total = 1000 * sum(1-r^n,n=0,infinity) = 1000 * 1/(1-r) Now I'm probably wrong with my indices because I'm a little confused about connecting my infinite sum to people running around at the bank. If I plut in .8 for r (the same as the comment above used, I get 1/(1-.8)=5, or $5,000 so I'm right that far. For 10% its: 1/(1-.9) = 10 or $10,000. So the author is right in numbers, but arguing against this would be ridiculous. How could any bank guard against this? Why would they want to?
        anewaccountname 19y ago
    - elai 19y ago
      If you believe that all money is just loans, then that 4% interest has to either to be defaulted on, or another loan has to be created to cover the original interest on a global scale. If you take out another loan to cover interest, then money will balloon to infinity. It's internal logic is consistent.
henning 19y ago
A "we're all going to die" article? On the Internet? No way!
monkkbfr 19y ago
Being an economics major in college, I have to say it's not BS, but it's tactical, not strategic in it's thinking. Politics and greed will keep the worst case scenario's from happening. A crash of the level he's talking about wouldn't take down just the US, it would effectively trash the entire world economy; possible, but highly unlikely.
- david927 19y ago
  I disagree (without the economics pedigree, so forgive me if I'm missing something). Politics and greed aren't all powerful and they certainly existed in the 30's. But I think he's exaggerating some aspects. In 1971, the US went completely off the gold standard not from bankruptcy but because it could. And it worked. In a sense it was a coup because it enabled unprecedented growth. The problem is that letting government completely control inflation (an invisible tax that rewards investment and punishes hoarding cash) is like letting the kid in the candy store -- with similar binging consequences. In the end, I agree with the author that we'll see a downturn worse than the 30's. Most people didn't see that one coming either.
- pohart 19y ago
  As another Eco Major I think I agree with you. The problem is that runs on banks are like a giant prisoner's dilemma. Everyone is better off getting out if there is a problem, and no worse off if there is not. What he is talking about is similar, and even if the politicians from the other countries realize what is happenning, they will probably be more likely to do what the people want so they can an keep there jobs and be on top during the depression than to try and save the world economy and end up out of office.
  - dejb 19y ago
    I agree that it is like a prisoner's dilemma. Perhaps more like the iterated version which does actually allow for cooperation to be the optimal solution. I think countries holding large amounts of US dollars have a large incentive to talk up its value while quietly selling it off. However those countries can probably use their influence over the US dollar to influence US policy and perhaps that is a benefit they have factored into to their currency holdings. I'd say the chances of a collapse are unlikely unless the US decides to play 'chicken' with its creditors and is unwilling to align its spending and earnings.
mynameishere 19y ago
People are arguing about whether or not this is true, but the whole thing is laughable mainly for trying to be a justification for IP violation. As for the "collapse"...always look to the fundamentals. Demographics, natural resources, culture. Not that that's reasurring.
- ashu 19y ago
  I think dismissing the article as laughable only on the basis of the IP violation is an unnecessary insult to an otherwise well thought out article. Oppose it on the basis of what it argues for, not the (very light) rhetoric.
  - mynameishere 19y ago
    I'm not opposing it. It's just that articles like this are a dime-a-dozen lately. It sounded like any other, with the main distinction being a comical "This is what the pirate party is all about" line tacked on.
albertcardona 19y ago
"News of my death have been greatly exaggerated" -Mark Twain [I live in the USA. All clear and normal so far. Just a couple of yuppies making less money than they have grown used to.]
- ovi256 19y ago
  It is not the yuppies that decent people care about. A yuppie who's revenue goes down 20% will simply keep driving his BMW for another year before buying the next one. Nobody's (except luxury products manufacturers) heart is breaking for them. But working class people who lose 20% of absolute revenue in a year? Out goes their health insurance, no more saving, and things get ugly pretty fast. And any society who ignores this deserves to go down. You can judge a society most not by how it treats his most powerful members, but by how it helps the least powerful. And in a society as rich (in all senses), inventive and powerful as today's Western World, it is a pity that we cannot offer our least able dignity in their life. Economically difficult, you say? Give me a break.
  - albertcardona 19y ago
    I live with my own tunnel vision, embedded as I am in an academic environment.
anon101 19y ago
I'm an European and the US economy is holding some of my money hostage :-) I have $8000 that I got from selling some stock options of mine. I let it remain in the US for a couple of months because I needed to get some information from my bank and never had the time to call them... When the dollar started sinking, I decided to wait because the dollar has its ups and downs. BAD DECISION! Now I will lose 1/6 of the money when I transfer it to my local currency.
noonespecial 19y ago
Wow. It started out quite well reasoned and then, making larger and larger leaps of logic, ended in "stock up on gold and ammunition". I found myself adjusting my tin-foil hat on a regular basis. I think I liked them more when it was "Music was meant to be free".
agentbleu 19y ago
What about the unsaid scam of the day, that the US banks have actually tried to con other nations banks into paying for their crisis, by fraudulently selling 'financial products' that were in effect nothing more than black holes. If you buy something that is unfit for the propose it was marketed, then that is fraud.

41 points by nickb 19y ago

!HN

Very interesting article, However I don't know enough about global economy to assess whether he is right or not. He does make some pretty big assertions and accusations though. Anybody know whether this is right, total b.s. or somewhere in between?

admoin 19y ago
near-total bs with a moderate grounding in fact
- mixmax 19y ago
  That's what I thought ;-)
- dreish 19y ago
  That's pretty much what I was going to say. To be more specific, though, the author is right that there are a lot of dollars out there being hoarded because the USD is the global standard currency, and that its fall from that status will have some interesting consequences. Pretty much every other factual claim of the article is nonsense. His explanation of fractional reserve banking is upside-down. He pulled the conjecture "if the interest rate is 4%, then 4% of all credit will default" from the deepest recesses of his rectum. The assumption that the economy will revert to the state it was in just before the end of Bretton Woods reads more like the lazy premise of a short story than an economic theory.
  - admoin 19y ago
    Yep. I actually was somewhat credulous until he got fractional reserve banking backwards (getting a $1000 deposit with a 10% reserve requirement means you can lend out $900 of it, not that you can magically lend out $9000 that you don't have), and then it was all downhill from there. There are a lot of relatively decent arguments that the US economy is in for a prolonged recession, but I would group the article with the crazy goldbug paulites rather than with legitimate, usually fairly well-reasoned economic criticism with which I disagree (Krugman, etc).
    - anewaccountname 19y ago
      That actually isn't strictly true; you could loan out that 900, which gets spent by the person you loaned it to, and can then could be redeposited by the person who sold him something, in the same bank. And this can be repeated up until it asymptotes off, which (from memory), with a 20% reserve requirement, would occur at $5000. You can do the math on your own for a 10% reserve (I'm guessing it happens at $10,000, which minus the original $1000 is the author's $9,000).
      - michaelneale 19y ago
        sorry for the meta comment: but the above comment thread is why I think news.YC is the greatest at the moment. Compare this sort of conversation to reddit, or anything really. Doesn't compare.
      - ashu 19y ago
        fascinating. thanks for your insight.
      - admoin 19y ago
        Right, that assumes the proceeds of the loan are redeposited into the banking system. If instead the money remains in circulation or is otherwise kept in physical form, the multiplication stops.
      - maximilian 19y ago
        Its a geometric series. In math: Let r=(1-reserve requirement) and Total = 1000 * sum(1-r^n,n=0,infinity) = 1000 * 1/(1-r) Now I'm probably wrong with my indices because I'm a little confused about connecting my infinite sum to people running around at the bank. If I plut in .8 for r (the same as the comment above used, I get 1/(1-.8)=5, or $5,000 so I'm right that far. For 10% its: 1/(1-.9) = 10 or $10,000. So the author is right in numbers, but arguing against this would be ridiculous. How could any bank guard against this? Why would they want to?
        anewaccountname 19y ago
  - elai 19y ago
    If you believe that all money is just loans, then that 4% interest has to either to be defaulted on, or another loan has to be created to cover the original interest on a global scale. If you take out another loan to cover interest, then money will balloon to infinity. It's internal logic is consistent.

henning 19y ago

A "we're all going to die" article? On the Internet? No way!

monkkbfr 19y ago

Being an economics major in college, I have to say it's not BS, but it's tactical, not strategic in it's thinking. Politics and greed will keep the worst case scenario's from happening. A crash of the level he's talking about wouldn't take down just the US, it would effectively trash the entire world economy; possible, but highly unlikely.

david927 19y ago
I disagree (without the economics pedigree, so forgive me if I'm missing something). Politics and greed aren't all powerful and they certainly existed in the 30's. But I think he's exaggerating some aspects. In 1971, the US went completely off the gold standard not from bankruptcy but because it could. And it worked. In a sense it was a coup because it enabled unprecedented growth. The problem is that letting government completely control inflation (an invisible tax that rewards investment and punishes hoarding cash) is like letting the kid in the candy store -- with similar binging consequences. In the end, I agree with the author that we'll see a downturn worse than the 30's. Most people didn't see that one coming either.
pohart 19y ago
As another Eco Major I think I agree with you. The problem is that runs on banks are like a giant prisoner's dilemma. Everyone is better off getting out if there is a problem, and no worse off if there is not. What he is talking about is similar, and even if the politicians from the other countries realize what is happenning, they will probably be more likely to do what the people want so they can an keep there jobs and be on top during the depression than to try and save the world economy and end up out of office.
- dejb 19y ago
  I agree that it is like a prisoner's dilemma. Perhaps more like the iterated version which does actually allow for cooperation to be the optimal solution. I think countries holding large amounts of US dollars have a large incentive to talk up its value while quietly selling it off. However those countries can probably use their influence over the US dollar to influence US policy and perhaps that is a benefit they have factored into to their currency holdings. I'd say the chances of a collapse are unlikely unless the US decides to play 'chicken' with its creditors and is unwilling to align its spending and earnings.

mynameishere 19y ago

People are arguing about whether or not this is true, but the whole thing is laughable mainly for trying to be a justification for IP violation. As for the "collapse"...always look to the fundamentals. Demographics, natural resources, culture. Not that that's reasurring.

ashu 19y ago
I think dismissing the article as laughable only on the basis of the IP violation is an unnecessary insult to an otherwise well thought out article. Oppose it on the basis of what it argues for, not the (very light) rhetoric.
- mynameishere 19y ago
  I'm not opposing it. It's just that articles like this are a dime-a-dozen lately. It sounded like any other, with the main distinction being a comical "This is what the pirate party is all about" line tacked on.

albertcardona 19y ago

"News of my death have been greatly exaggerated" -Mark Twain [I live in the USA. All clear and normal so far. Just a couple of yuppies making less money than they have grown used to.]

ovi256 19y ago
It is not the yuppies that decent people care about. A yuppie who's revenue goes down 20% will simply keep driving his BMW for another year before buying the next one. Nobody's (except luxury products manufacturers) heart is breaking for them. But working class people who lose 20% of absolute revenue in a year? Out goes their health insurance, no more saving, and things get ugly pretty fast. And any society who ignores this deserves to go down. You can judge a society most not by how it treats his most powerful members, but by how it helps the least powerful. And in a society as rich (in all senses), inventive and powerful as today's Western World, it is a pity that we cannot offer our least able dignity in their life. Economically difficult, you say? Give me a break.
- albertcardona 19y ago
  I live with my own tunnel vision, embedded as I am in an academic environment.

anon101 19y ago

I'm an European and the US economy is holding some of my money hostage :-) I have $8000 that I got from selling some stock options of mine. I let it remain in the US for a couple of months because I needed to get some information from my bank and never had the time to call them... When the dollar started sinking, I decided to wait because the dollar has its ups and downs. BAD DECISION! Now I will lose 1/6 of the money when I transfer it to my local currency.

noonespecial 19y ago

Wow. It started out quite well reasoned and then, making larger and larger leaps of logic, ended in "stock up on gold and ammunition". I found myself adjusting my tin-foil hat on a regular basis. I think I liked them more when it was "Music was meant to be free".

agentbleu 19y ago

What about the unsaid scam of the day, that the US banks have actually tried to con other nations banks into paying for their crisis, by fraudulently selling 'financial products' that were in effect nothing more than black holes. If you buy something that is unfit for the propose it was marketed, then that is fraud.