Many people have tried to compare the current economic situation with events that have occurred in the past, by comparing individual factors, and wondering whether the same will happen again.
For example people have said we will have another great depression like 30's America, because of the deflation of a credit bubble.
But this is not exactly comparable because then base money was fixed (gold standard) whereas today's money is inflatable fiat.
Another example is people saying that we will go Weimar Germany, but forgetting that the principle cause of that hyperinflation was too-high debt in foreign currencies, whereas today's problem in America is too-high debt in domestic currency (the dollar).
So it seems to me that the only way that we can find out what is going to happen is to work out what are the particular characteristics of the current economic situation, and identify a historical situation that shares ALL of these characteristics, not just some of them (as in the above 2 examples). Only then can we have a greater confidence that "history will repeat itself" having identified the correct historical scenario.
So the purpose of this thread is to write a list (below) of the particular characteristics of the current economic situation, and ask you experts whether you know of a historical situation that matches ALL of the criteria. And to say (naturally) what happened in the end, and why.
I am writing this from an American perspective, as it is the dominant player in the situation (easier to understand and compare).
Here is the list:
1. Most powerful country in the world economically and militarily.
2. Huge credit boom just bursting. Boom based on overconfidence, financial innovation, and some fraud.
3. Debt denominated in the domestic currency (dollar). No signicant foreign currency debt.
4. High debt to GDP ratio.
5. Economy mainly based on debt-based importing, and domestic service companies. Few exports and little manufacturing.
6. Central bank creating money to give to banks to keep them solvent as a result of credit defaults (Quantitive easing)
7. Good historical reputation in the world, but perception of corruption and other bad aspects creeping in.
6. (dollar hegemony theory - not sure about this one): Because of 1. able to demand purchase of raw materials (oil) from foreign countries using domestic currency (dollar) knowing that the recipient won't spend it (much), and can be inflated away.
Any others?
What is the historical period in the last 1000 years anywhere in the world, what was the situation, and what happened in the end? hyperinflation, inflation, or deflation, or - nothing :-)
Thanks
Full Version: When in history has the current situation occurred
http://en.wikipedia.org/wiki/Japanese_asset_price_bubble
probably the closest.
with a mix of early 30s mischief.
probably the closest.
with a mix of early 30s mischief.
QUOTE (Thread Killer @ Nov 5 2009, 05:52 PM) 
Another example is people saying that we will go Weimar Germany, but forgetting that the principle cause of that hyperinflation was too-high debt in foreign currencies, whereas today's problem in America is too-high debt in domestic currency (the dollar).
I actually think the American debt to foreigners although in dollars won't always remain that way. I can see the creditors asking for treasuries to be issued in their own currencies over the coming years, especially with the quantitative easing currently being the US and UK solution to their problems.
If the US can no longer sell their debt in dollars, they will be forced to sell it in another currency (SDR?). Could this be part of what will be raised at the G20 this weekend?
QUOTE (Pixel8r @ Nov 6 2009, 06:31 AM)
I actually think the American debt to foreigners although in dollars won't always remain that way. I can see the creditors asking for treasuries to be issued in their own currencies over the coming years, especially with the quantitative easing currently being the US and UK solution to their problems.
If the US can no longer sell their debt in dollars, they will be forced to sell it in another currency (SDR?). Could this be part of what will be raised at the G20 this weekend?
If the US can no longer sell their debt in dollars, they will be forced to sell it in another currency (SDR?). Could this be part of what will be raised at the G20 this weekend?
Does america sell debt or do people with USD who dont want to buy jumbo jets grain tractors software hardware real estate etc because they are savers get a low return on their usd they dont want to sell?
QUOTE (aliveandkicking @ Nov 5 2009, 06:47 PM)
Does america sell debt or do people with USD who dont want to buy jumbo jets grain tractors software hardware real estate etc because they are savers get a low return on their usd they dont want to sell?
I can't see a reason for anyone to be buying US government debt as the rate of return is so low, other than the chinese and other nations who are running large trade surpluses.
If you were a saver with excess dollars, would you be happy buying a 10 year on 3.53 yield?
QUOTE (Pixel8r @ Nov 6 2009, 07:08 AM)
I can't see a reason for anyone to be buying US government debt as the rate of return is so low, other than the chinese and other nations who are running large trade surpluses.
If you were a saver with excess dollars, would you be happy buying a 10 year on 3.53 yield?
If you were a saver with excess dollars, would you be happy buying a 10 year on 3.53 yield?
If i am wanting to provide work for my employees and a market with money is open to me then i am going to sell there even if i dont have an immediate need for jumbo jets or tractors or grain
If the market is the largest economy in the world i might be quite happy to trade there
QUOTE (Thread Killer @ Nov 5 2009, 05:52 PM)
When in history has the current situation occurred, that is truly comparable to the present, not an approximation
the fall of Rome is the closest.
QUOTE (Thread Killer @ Nov 5 2009, 05:52 PM)
What is the historical period in the last 1000 years anywhere in the world,
none in that case.
QUOTE (InternationalRockSuperstar @ Nov 5 2009, 07:34 PM)
the fall of Rome is the closest.
none in that case.
none in that case.
How Empires Really End
Mises Daily: Monday, October 25, 2004 by Sean Corrigan
http://mises.org/story/1656
QUOTE (InternationalRockSuperstar @ Nov 5 2009, 07:34 PM)
the fall of Rome is the closest.
Maybe very similar for the western Roman empire. Inflation, oppresive taxation, corruption, constant internal power struggles. Amazing how most versions of history declare the fall was due to pressure on the Eastern borders from the rise of the Mongols, even though the eastern empire lasted another 1000 years.
http://www.galmarley.com/FAQs_pages/moneta...istory_faqs.htm
QUOTE
The episodes are not easily comparable with modern states of today. But perhaps similar to our own times were the circumstances in Kublai Khan's China. Its borders were secure, it was enormously confident in its institutions of state, it had enjoyed a prolonged period of considerable economic success, and built its civic and commercial infrastructure on what amounted to capital issued for nothing. Credit - in the form of state and corporate paper - had been injected in quantities which had never previously been imagined.
It left a population of savers holding paper promises of wealth, of which there were such a massive number that everyone was happy.
In Khan's China the very best living standards were enjoyed - not surprisingly - when people worked for something which it cost the state almost nothing to put into circulation in ever greater amounts. To be possible this required near unanimous confidence in the system, and not surprisingly the period was recognised as one of enlightened economic management - a view which persisted for several decades during a period of steady currency inflation (which was also experienced by Athens during its magnificent decline in the 60 years following 400BC).
Yet the most prosperous and confident period preceded rapid financial and political decline. When the confidence in the currency gave way there was wholesale destruction of the value of savings in almost all forms at once, and the popular energy required to sustain empire rapidly disappeared. As its hitherto reliable institutions imploded the state itself was overthrown from the inside within a few years.
At that time the few holders of gold - which had no formal monetary role whatsoever - saw their personal purchasing power increase quickly.
It left a population of savers holding paper promises of wealth, of which there were such a massive number that everyone was happy.
In Khan's China the very best living standards were enjoyed - not surprisingly - when people worked for something which it cost the state almost nothing to put into circulation in ever greater amounts. To be possible this required near unanimous confidence in the system, and not surprisingly the period was recognised as one of enlightened economic management - a view which persisted for several decades during a period of steady currency inflation (which was also experienced by Athens during its magnificent decline in the 60 years following 400BC).
Yet the most prosperous and confident period preceded rapid financial and political decline. When the confidence in the currency gave way there was wholesale destruction of the value of savings in almost all forms at once, and the popular energy required to sustain empire rapidly disappeared. As its hitherto reliable institutions imploded the state itself was overthrown from the inside within a few years.
At that time the few holders of gold - which had no formal monetary role whatsoever - saw their personal purchasing power increase quickly.
QUOTE (fitkid @ Nov 5 2009, 07:43 PM)
How Empires Really End
Mises Daily: Monday, October 25, 2004 by Sean Corrigan
http://mises.org/story/1656
Mises Daily: Monday, October 25, 2004 by Sean Corrigan
http://mises.org/story/1656
interesting read. some highlights:
QUOTE
…
The thrifty and the enterprising still, on the whole, fared better than the prodigal and the unthinking. In fact, freed of the crushing exactions laid upon them by a Rome always eager to bribe its vast, unproductive military class into quietude, they may even have been left to enjoy more of the fruits of their own labors than usual. But, the academic historians have always sought to ignore things like this, for these are concerns of common people—of traders and farmers—and historians focus mainly on the swaggering fools at the head of the State—on generals and governors.
…
New archaeological evidence and recent reinterpretations of old data suggest the towns had been undergoing a continual period of slow decay for many years prior to 410 a.d. and that the cause was not to be found in barbarian depredations, but in Rome’s own dysfunctional society. For far too long, Rome had lived by conquest—through seizing, by force of arms, what its spendthrift patricians and Caesarian mafiosi could not hope to gain by trade alone.
But once the Empire came to butt up against lands too infertile to be worth the taking, or against terrain too inhospitable for its Legions to control in the face of active native "insurgents," this predatory State turned increasingly inward to devour its own wealth producers instead. Punitive taxes were needed, above all, to pay the vast numbers of soldiers.
In some strikingly modern ways, it was mainly the military contractors and the tradesmen (and trollops) in the towns (vici) which sprang up alongside the legionary camps who did well out of equipping and servicing (in all sorts of ways) their oppressors. Naturally, in response to these tolls, rich men sought to keep their wealth to themselves, as far as was possible. Rather than squandering money—some of it borrowed at hefty rates of interest—to build public edifices, such as baths and temples, solely for reasons of prestige, the urban elite began actively to avoid such impositions.
Indeed, the former privilege of Roman citizenship and the pride of holding the offices which accrued to it became such a burden that the wealthy retired to the Dominican Republics of their day, their country villas. There, they could minimize the loss of their property to overt taxation and there they could avoid the constant, unsubtle pressure for those contributions aimed at displaying their loyalty to the regime. So, unrepaired and unfrequented, town centers began to look dilapidated, long before any unwelcome barbarian tongues were heard in their near empty streets.
…
Added to all this was the presence of that perennial, wasting affliction, that debilitating disease so often visited by reckless rulers on their long-suffering subjects—monetary inflation. Long before Alaric’s Goths had plundered the so-called Eternal City, its money had become so debased that Imperial tribute and taxes were having to be levied in kind, not in cash. This greatly decreased the efficiency of the process. It also hurt the leadership indirectly, because it made tax collection more personal and more violently confrontational. Increasingly, its farmers and merchants were seen as nothing more than tax slaves to be exploited in order to provide the Dole to the restless urban proletariat and to buy the fickle loyalties of the ever-important soldiers.
…
Inflation, arbitrary government, swingeing taxation, the confiscation of property—often undertaken on the flimsy pretext of punishing dissent, or after the accidental infringement of some obscure regulation: these we would all recognize as things which plague us today. The development of an increasingly remote, self-serving and fabulously wealthy governing elite; the destruction of the bedrock middle class; the reliance of the poor on State grants and subsidies; the inhibition of free enterprise and the pervasive militarization of society—these are all things we also know all too well.
…
As the noted British archaeologist, Sir Mortimer Wheeler summed it up, after a lifetime of work in the field:
"I suffered from a surfeit of things Roman. I felt disgusted by the mechanistic quality of their art and by the nearness of their civilization at all times to cruelty and corruption."
…
The thrifty and the enterprising still, on the whole, fared better than the prodigal and the unthinking. In fact, freed of the crushing exactions laid upon them by a Rome always eager to bribe its vast, unproductive military class into quietude, they may even have been left to enjoy more of the fruits of their own labors than usual. But, the academic historians have always sought to ignore things like this, for these are concerns of common people—of traders and farmers—and historians focus mainly on the swaggering fools at the head of the State—on generals and governors.
…
New archaeological evidence and recent reinterpretations of old data suggest the towns had been undergoing a continual period of slow decay for many years prior to 410 a.d. and that the cause was not to be found in barbarian depredations, but in Rome’s own dysfunctional society. For far too long, Rome had lived by conquest—through seizing, by force of arms, what its spendthrift patricians and Caesarian mafiosi could not hope to gain by trade alone.
But once the Empire came to butt up against lands too infertile to be worth the taking, or against terrain too inhospitable for its Legions to control in the face of active native "insurgents," this predatory State turned increasingly inward to devour its own wealth producers instead. Punitive taxes were needed, above all, to pay the vast numbers of soldiers.
In some strikingly modern ways, it was mainly the military contractors and the tradesmen (and trollops) in the towns (vici) which sprang up alongside the legionary camps who did well out of equipping and servicing (in all sorts of ways) their oppressors. Naturally, in response to these tolls, rich men sought to keep their wealth to themselves, as far as was possible. Rather than squandering money—some of it borrowed at hefty rates of interest—to build public edifices, such as baths and temples, solely for reasons of prestige, the urban elite began actively to avoid such impositions.
Indeed, the former privilege of Roman citizenship and the pride of holding the offices which accrued to it became such a burden that the wealthy retired to the Dominican Republics of their day, their country villas. There, they could minimize the loss of their property to overt taxation and there they could avoid the constant, unsubtle pressure for those contributions aimed at displaying their loyalty to the regime. So, unrepaired and unfrequented, town centers began to look dilapidated, long before any unwelcome barbarian tongues were heard in their near empty streets.
…
Added to all this was the presence of that perennial, wasting affliction, that debilitating disease so often visited by reckless rulers on their long-suffering subjects—monetary inflation. Long before Alaric’s Goths had plundered the so-called Eternal City, its money had become so debased that Imperial tribute and taxes were having to be levied in kind, not in cash. This greatly decreased the efficiency of the process. It also hurt the leadership indirectly, because it made tax collection more personal and more violently confrontational. Increasingly, its farmers and merchants were seen as nothing more than tax slaves to be exploited in order to provide the Dole to the restless urban proletariat and to buy the fickle loyalties of the ever-important soldiers.
…
Inflation, arbitrary government, swingeing taxation, the confiscation of property—often undertaken on the flimsy pretext of punishing dissent, or after the accidental infringement of some obscure regulation: these we would all recognize as things which plague us today. The development of an increasingly remote, self-serving and fabulously wealthy governing elite; the destruction of the bedrock middle class; the reliance of the poor on State grants and subsidies; the inhibition of free enterprise and the pervasive militarization of society—these are all things we also know all too well.
…
As the noted British archaeologist, Sir Mortimer Wheeler summed it up, after a lifetime of work in the field:
"I suffered from a surfeit of things Roman. I felt disgusted by the mechanistic quality of their art and by the nearness of their civilization at all times to cruelty and corruption."
…
QUOTE (Thread Killer @ Nov 5 2009, 06:52 PM)
Many people have tried to compare the current economic situation with events that have occurred in the past, by comparing individual factors, and wondering whether the same will happen again.
For example people have said we will have another great depression like 30's America, because of the deflation of a credit bubble.
But this is not exactly comparable because then base money was fixed (gold standard) whereas today's money is inflatable fiat.
Another example is people saying that we will go Weimar Germany, but forgetting that the principle cause of that hyperinflation was too-high debt in foreign currencies, whereas today's problem in America is too-high debt in domestic currency (the dollar).
So it seems to me that the only way that we can find out what is going to happen is to work out what are the particular characteristics of the current economic situation, and identify a historical situation that shares ALL of these characteristics, not just some of them (as in the above 2 examples). Only then can we have a greater confidence that "history will repeat itself" having identified the correct historical scenario.
So the purpose of this thread is to write a list (below) of the particular characteristics of the current economic situation, and ask you experts whether you know of a historical situation that matches ALL of the criteria. And to say (naturally) what happened in the end, and why.
I am writing this from an American perspective, as it is the dominant player in the situation (easier to understand and compare).
Here is the list:
1. Most powerful country in the world economically and militarily.
2. Huge credit boom just bursting. Boom based on overconfidence, financial innovation, and some fraud.
3. Debt denominated in the domestic currency (dollar). No signicant foreign currency debt.
4. High debt to GDP ratio.
5. Economy mainly based on debt-based importing, and domestic service companies. Few exports and little manufacturing.
6. Central bank creating money to give to banks to keep them solvent as a result of credit defaults (Quantitive easing)
7. Good historical reputation in the world, but perception of corruption and other bad aspects creeping in.
6. (dollar hegemony theory - not sure about this one): Because of 1. able to demand purchase of raw materials (oil) from foreign countries using domestic currency (dollar) knowing that the recipient won't spend it (much), and can be inflated away.
Any others?
What is the historical period in the last 1000 years anywhere in the world, what was the situation, and what happened in the end? hyperinflation, inflation, or deflation, or - nothing :-)
Thanks
For example people have said we will have another great depression like 30's America, because of the deflation of a credit bubble.
But this is not exactly comparable because then base money was fixed (gold standard) whereas today's money is inflatable fiat.
Another example is people saying that we will go Weimar Germany, but forgetting that the principle cause of that hyperinflation was too-high debt in foreign currencies, whereas today's problem in America is too-high debt in domestic currency (the dollar).
So it seems to me that the only way that we can find out what is going to happen is to work out what are the particular characteristics of the current economic situation, and identify a historical situation that shares ALL of these characteristics, not just some of them (as in the above 2 examples). Only then can we have a greater confidence that "history will repeat itself" having identified the correct historical scenario.
So the purpose of this thread is to write a list (below) of the particular characteristics of the current economic situation, and ask you experts whether you know of a historical situation that matches ALL of the criteria. And to say (naturally) what happened in the end, and why.
I am writing this from an American perspective, as it is the dominant player in the situation (easier to understand and compare).
Here is the list:
1. Most powerful country in the world economically and militarily.
2. Huge credit boom just bursting. Boom based on overconfidence, financial innovation, and some fraud.
3. Debt denominated in the domestic currency (dollar). No signicant foreign currency debt.
4. High debt to GDP ratio.
5. Economy mainly based on debt-based importing, and domestic service companies. Few exports and little manufacturing.
6. Central bank creating money to give to banks to keep them solvent as a result of credit defaults (Quantitive easing)
7. Good historical reputation in the world, but perception of corruption and other bad aspects creeping in.
6. (dollar hegemony theory - not sure about this one): Because of 1. able to demand purchase of raw materials (oil) from foreign countries using domestic currency (dollar) knowing that the recipient won't spend it (much), and can be inflated away.
Any others?
What is the historical period in the last 1000 years anywhere in the world, what was the situation, and what happened in the end? hyperinflation, inflation, or deflation, or - nothing :-)
Thanks
You are joking right?
http://mjperry.blogspot.com/2009/10/us-sti...nufacturer.html
http://www.industryweek.com/articles/the_w...ence_16494.aspx
QUOTE (InternationalRockSuperstar @ Nov 5 2009, 07:34 PM)
the fall of Rome is the closest.
none in that case.
none in that case.
Charlie Bean reckoned it was worse.
QUOTE (Rothschild @ Nov 6 2009, 01:31 PM)
You are joking right?
http://mjperry.blogspot.com/2009/10/us-sti...nufacturer.html
http://www.industryweek.com/articles/the_w...ence_16494.aspx
http://mjperry.blogspot.com/2009/10/us-sti...nufacturer.html
http://www.industryweek.com/articles/the_w...ence_16494.aspx
I wasn't joking.
If US manufacturing is so large -world's largest manufacturer- then why is the US trade defecit so large? What imported items are even larger than the US manufacturing exports?
QUOTE (Thread Killer @ Nov 6 2009, 02:27 PM)
I wasn't joking.
If US manufacturing is so large -world's largest manufacturer- then why is the US trade defecit so large? What imported items are even larger than the US manufacturing exports?
If US manufacturing is so large -world's largest manufacturer- then why is the US trade defecit so large? What imported items are even larger than the US manufacturing exports?
Well you could be making the assumption that the US exports all its manufactured goods. I, however, am not.
Hmmm Edward Gibbons thinks it was a gradual process, starting point when the Praetorian Guard auctioned the throne to the empire - corruption at the highest level and all that.... Sound familiar ? Thats why the lobby system the US has needs to be killed.
In 193, the praetorians even arranged an auction for the throne, an auction won by Didius Julianus. After seizing power and executing Didius, Septimius Severus cashiered the current praetorian units and established an entirely new guard of 50,000 men from soldiers loyal to himself.
http://www.websters-online-dictionary.org/...rian+Guard.html
+ http://en.wikipedia.org/wiki/The_History_o...bbon.27s_theory
As Gibbon calls them at the outset of Chapter V: The Praetorian bands, whose licentious fury was the first symptom and cause of the decline of the Roman empire... He cites repeated examples of this special force abusing its power with calamitous results, including numerous instances of imperial assassination and demands of ever-increasing pay.
In 193, the praetorians even arranged an auction for the throne, an auction won by Didius Julianus. After seizing power and executing Didius, Septimius Severus cashiered the current praetorian units and established an entirely new guard of 50,000 men from soldiers loyal to himself.
http://www.websters-online-dictionary.org/...rian+Guard.html
+ http://en.wikipedia.org/wiki/The_History_o...bbon.27s_theory
As Gibbon calls them at the outset of Chapter V: The Praetorian bands, whose licentious fury was the first symptom and cause of the decline of the Roman empire... He cites repeated examples of this special force abusing its power with calamitous results, including numerous instances of imperial assassination and demands of ever-increasing pay.
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