Mina Kimes and Reihan Salam take a look at A Harold and Kumar Recession and discuss (with a humorous note) whether working and saving make sense if economic apocalypse is approaching.
Humor aside, I think they offer up a false choice: a continuation of business as usual in which savings and investment makes sense versus an approaching apocalypse that justifies living in the present because the approaching financial disaster will destroy accumulations of wealth. Even if financial götterdämmerung approaches I want to take a more triumphant approach with my own life. But seriously, if you think the economy is going to collapse then spend your money to buy stuff that will be valuable after the collapse. Save up to buy a ranch or a hand pump for your back yard or photovoltaics for your house or a buried treasury of dried foods in an underground room. There are plenty of ways to prepare for assorted disasters (economic or otherwise) when the economy is still functioning.
Chris Martenson thinks resource limitations are going bring an end economic growth and he outlines why in a talk entitled Unfixable: Welcome to the new abnormal. Martenson advocates preparing for the approaching economic hard times. I agree.
I think business as usual is viewable only in our rear view mirrors. The technological advances needed to adjust to Peak Oil aren't coming fast enough. I can't tell you how long Peak Oil and other problems will cause hard times and declining living standards. But at least the next 10 years look bleak and probably much longer.
Before world oil production goes into terminal decline Europe's handling of the euro zone solvency crisis could bring about a pretty bad depression if the dominoes fall thru the entire dollar-denominated banking system. After all, OWS and the Tea Partiers oppose bank bail-outs. So if the populists get their way what prevents an economic depression from coming sooner than necessary?
This is the worst-case scenario from Europe, and it just might come true: Italy defaults on its debts. Every major Italian bank collapses. Recession grips the eurozone. Sovereign defaults and bank failures ripple across the Continent. Saddled with bad loans to nations and lenders in Europe, American banks hemorrhage cash. Credit freezes in the United States. Multinational companies, unable to raise money, curb U.S. investment and hiring. Wall Street demands, but fails to get, new bailouts. The entire developed world plummets into recession and, quite possibly, depression
Tim Duy says the Fed should be ready to prevent falling European economic dominoes from bringing down the US financial system. I agree. But plenty of Tea Party and Occupy Wall Street populists both oppose bank bail-outs. So time to have another depression in order to refresh everyone's memory?
The Fed is responsible for protecting the US financial sector, and needs to do so, when possible, even if the threat is eminating from overseas. US banks may not be in need of dollar liquidity, but their foreign counterparties might be - and failure to provide it would more rapidly turn a European problem into a US problem.
I ask the people who are angry about the huge loans the Fed lent out to financial institutions during the 2008-2009 crisis: Want the Fed to hold back next time? Let those banks fail?
|Share |||By Randall Parker at 2011 December 04 06:20 PM Economics Disasters|