Definitely *not* physics…

Time to build a transporter?

This post is definitely not about physics, unless we’re applying a “what goes up must come down” principle to Wall Street. It’s just that I have a lot of conversations with people about the economy lately — including a few conversations that make me want to beam to another galaxy.

I woke up this morning pondering what is happening to the US economy, and intrigued by how things might unfold in both the short- and long-term. Many of my friends are moving money around these days — out of the market and into savings accounts. Some are convinced that their money is safe or somewhat safe in those accounts because they are FDIC insured.

I’m no economist, but I don’t think the US dollar is “safe,” period… And I know the FDIC can’t handle another major collapse without needing to be bailed out itself.

As far as FDIC-insured accounts are concerned, the FDIC is seriously undercapitalized. They only had net assets of $53 billion *before* the collapses of IndyMac, Fannie and Freddy — to cover over $13.4 trillion in deposits. It’s been estimated that 2,200 of the 8,500 FDIC-insured banks will go belly up, amounting to $410 billion in FDIC payouts. That’s 10 times what the FDIC has left. With the failure of even one more major bank (i.e., WaMu), the FDIC will need additional capital… So where will that money come from?

If this current situation plays out as anticipated by many economists, the dollar will lose as much as 80% of its purchasing power. Though there may not be a run on the banks like there was in the 1930’s, this ongoing contraction of the investment markets cannot be controlled via bailouts and the end result will be the same: More money printed to replace the money lost. And the more money printed, the less that money will be worth. All to say that as these failures and buyouts continue to occur depositors will probably get their FDIC-insured money back (albeit at their own expense as taxpayers), but that money will purchase a *lot* less than it did when it was first deposited.

Also, thanks in large part to the US spending $720 million a day on an unjustifiable (and ultimately unwinnable) war in Iraq, our government is now dependent on foreign investment to float its growing debt. It’s a sure thing that as the dollar continues to depreciate, foreign investment in our deficit spending will grind to a halt… And when countries like China stop providing investment in US debt, we’d best plant vegetable gardens and take our FDIC-insured dollar bills and use them for fireplace kindling, ’cause that paper sure as hell ain’t gonna buy groceries or pay the heating bill.

What to do as this scenario plays out?

I mean, what’s the call?

Buy gold?

Latinum?

Real estate? … In another country?

On another planet?

I don’t know, but short-term or long-term, the US dollar looks like a fool’s bet now. Personally, I am having the urge to spend while the spending is good, lol…. And then plant that aforementioned garden.

Better yet, I’d like to build a transporter…. Ah, yes… I hear Andevian II is lovely this time of year.

Open to discussion on this… Hit me back with your thoughts if you feel so inclined.

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~ by theobservereffect on September 22, 2008.

4 Responses to “Definitely *not* physics…”

  1. I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.

    Tim Ramsey

  2. I wish I had enough money that it could be moved around. Alas I’m about as poor as is possible while still being labeled “middle class” (whatever that means).

    Not sure what to do about it, but you’re dead on about what’s happening economically. We’re screwed.

  3. It might be worse if you had money to move around. I am fairly certain that our current, debt-based economy will pretty much fall apart within the next few years. (Yeah, I know, I sound crazy. I also sounded crazy seven years ago when I predicted that George Bush disallowing the SEC’s examination of finance banks’ claimed assets would lead to the current financial crisis.)

    The evidence upon which I base my new prediction: The size of the toxic assets in the US banking system is estimated to be at least five times the planned bailout; on the other side of the Atlantic, the size of the banking crisis is even disproportionately larger relative to the size of those countries’ economies.

    The biggest difference between the Great Depression and the one we are going to experience in the coming years is that, today, the majority of us are huddled into cities with no means of self-sustenance such as agriculture and farming.

    On the upside, such circumstances will certainly solve the US obesity epidemic.

  4. Well even as concerning and malignant as debt-based economy is, I want to keep the hopes up that as the intelligent beings we are, we will find a way to replace it without to much grief. And if not, hey, after the collapse, we probably won’t do it again ūüėÄ

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