Foreseeing and preparing for the next fiscal meltdown.

[Baa_Baa]

This started on the NZX thread, with a discussion about how Greece's fiscal problems and its effect on their European creditors. I wondered if anyone might be interested in discussing whether NZ faces any future issues, and what we might do as individuals to foresee and respond to that. I'll copy my last three posts and see whether that generates some discussion here.

BAA

[Baa_Baa]

Post 1.

Imho, Greece get the money because they threaten to default, not because some ungraciously call them unproductive sloths, nor even whether they can repay. This threatens the Euro fiat currency experiment, of destroying in a cascade of relative productivity from weakest to strongest, the European nations house of cards, until one or none are left standing.

But it's not better in the USA, or South America, or northern Asia, or Oz, or or or, not even here in NZ or countless other sovereign nations. Where unprecedented escalating sovereign debt and printing treasury bonds to generate liquidity from equally indebted sovereign nations, has become the panacea for national and global fiscal liquidity and to heck with the end-game.

Should we worry? It's all that sloshy debt sourced capital that underpins sovereign nations ability to continue to invest heavily and constantly where wealth is ultimately accumulated perversely in banks that cannot lend enough of it out. And the fortunate few who accumulate enough capital to participate in wealth creating markets, albeit the wealth denominated in flawed fiat currencies underpinned with extraordinary sovereign debt. Lord help the indebted and the taxpayer who are propping all of this up, albeit unwittingly.

The second best evidence of impending fiscal calamity aside from monumental escalating sovereign debt is global sovereign competitive currency debasement, which is moving into full swing right now. And on the end of that whipping hose is NZ with it's soaring currency, for no good reason, certainly not an ability to foot it on the global fiscal stage. We don't have a QE machine working overtime, nor a balance sheet to create enduring increasing debt (bonds), nor the cash to manipulate our currency position, nor a surplus to pay our sovereign debt while meeting expenses, nor an economy productive enough to build sufficient surplus, nor an angel nation that we can fiscally threaten so that they float us for eternity.

The whole world is financially in a terrible mess, and we may be too. It would be great to see discussion about how that affects NZ and what if anything can be done about it, like if there is an immunity pill for NZ, where do we get it or how do we create it, and when do we take it so that NZ fiscally survives the next and inevitable global fiscal meltdown?

BAA

[Baa_Baa]

Post 2.

It's easier to keep ones head in the sand and mock those who dare to raise that the world is not all fiscal peaches and cream, than have considered discussion on rationale responses to an inevitable downturn, for whatever reason it occurs. The 'Investment Strategies' might be better place for the discussion, I agree it is not well placed here.


Originally Posted by BIRMANBOY
if you change your avatar to an angel and your name to "WhitePeter" you may not need to. There seemed to be an inordinate number of conspiracy theorists, survivalists, bunker nuts and assorted "oh whoa is me's" on the Gold thread..however the only traffic there was going in circles, so dunno. How about a nice walk outside?

[Baa_Baa]

Post 3.

Good point, though my suggestion to discuss it is not about changing the world, it's about what we, you or I do, as individuals (many with associated responsibilities and dependents), otherwise I agree it is a waste of time trying to change the macro economics. So few saw the previous fiscal liquidity/debt burdens relationship to the market crashes that came about I thought it might be helpful to point out that if anything, global liquidity underpinned by unsustainable and potentially un-repayable sovereign, business and personal debt, has increased umpteen-fold (since even the last crash) and so with it comes the greed and risk taking, which pre-cursors market failures. If we don't or won't consider that, or the personal consequences of ignorance, are we not neglecting our personal responsibility to protect our own meagre place in it?


Originally Posted by BIRMANBOY
If you could actually accomplish anything or implement changes then I might bother being interested....until then...its all a waste of time. However by all means don't let me stop you.

[Baa_Baa]

Post 4.

If that is so, why are stock markets around the world hitting all time highs?

It's about liquidity Onion, and what generates that money, and where it eventually ends up, because it has to go somewhere, so the stock markets are just one of the logical destinations.

The point though is by who, how and even is it possible, to repay the sovereign debts that underpin the liquidity, granted by the government and guaranteed by the tax payer, and what can you or I do about foreseeing this and protecting ourselves from the inevitable next rout?

As an aside, the trigger for the recent meltdown (but not the root cause of the problem) was pure greed, by previously respected financial institutions, who lent money beyond the ability of the debtor to repay, who then sold the loan books to the suckers who eventually realised they weren't going to be repaid. Then the house of cards came down and it rippled around the world, including NZ where the NZX dumped. Not quickly like '87, but fast enough to catch many out.

Today there is substantially, even inconceivably more global liquidity, underpinned by sovereign debt, sloshing around the world, including in NZ, making the haves feel happy, and the risk takers less worried and the greedy more emboldened.

The cycle continues. Are we even interested to consider whether it's a problem or whether we as individuals can do anything about it, like foreseeing it and preparing ourselves in advance?

BAA

[Baa_Baa]

Post 5, and last to start the thread.

Well yes, meagre in the scheme of things, but that's all I have, and it's worth protecting. I thought that given a conversation about Greece's problems, that maybe we could sheet it home to something a bit more real. I'll start a thread in the Investment Strategies and post copies of my recent comments.

Meagre are you?? Ok I am now channelling Yoda..so bear with me.... If you want to start a thread...how about
NON-Investment strategies, because that's what that leads to. It means you consider withdrawing from mainstream investing and focus instead on protecting what you have. Problem is of course where do you draw the line...banks fail..better withdraw funds and bury gold bars in the back garden, stock markets collapse so you better cash up and ...and....and...what...? Dwelling on and planning for unknown and possibly unlikely scenarios is all well and good if you know when and how. Either you have an optimistic outlook and believe that the basically intelligent animal that we are will find a way through the difficulties, (as we do and have been doing for centuries), or you start gnawing on your fingernails and start looking for the signs of imminent financial disaster. Up to the individual of course however if you feel strongly maybe start a new thread over in the Investment Strategies.

[BIRMANBOY]

Ok to help the discussion along, here are a few thoughts. Finding answers and solutions are much easier if the problems are identified and quantified so how do you see the Greek financial situation impacting on us here in New Zealand? If you try and understand the complexity of the Greek/German/European situation you will be over your head, no disrespect intended, since the most financially astute and experienced have been trying to figure it out for years. if you bring it closer to NZ you may be able to see some clarity. Basically what you are trying to figure out is "how will NZ be impacted" and then "how will that impact on me"? Personally, not being an economist, or a Govt. forecast specialist, I have no idea but one would expect there to be the phrases, balance of payments, dairy exports, energy imports, unemployment statistics and national growth sprinkled into the discussion. Too many variables for me to even get my head around the possibilities. How would you protect your assets?

[Baa_Baa]

Great summary.

I think firstly we have to accept that there is a global fiscal problem, which is getting worse not better, and that we in NZ are already victims to its effect. For example our currency inflation is illustrative of nations exporting their deflation, hindering our ability to be competitive in global markets. That's just one example.

I don't think Greece is helpful except as an observation that even the most indebted nations can avoid repaying sovereign debt by exploiting the taxpayer and in their case angel nations who cannot afford to have a fiat currency collapse. It is sideshow though informative, you don't have to be an economist to observe the fiscal dysfunction all around us.

We could insert here a rant about the USD, the global reserve currency, it's inconceivable devaluation from inception to now, and the emergence of new super economies etc. But save that for later if we need to.

We could also talk about intrinsic value, like accumulating precious metals as a store of value, to insure against and overcome the inevitable demise of global fiat reserve currencies. But again let's save that for later if we need to.

So to home and real life, some are fortunate to have accumulated wealth and participate in appreciating instruments of cash, bond repayments, equities and property -mainly. Wealth is relative though, it really doesn't matter how much more you've got than you need to exist, as a relative percentage of what each of us have, it's worth protecting. We have seen a number of times how vulnerable our wealth is, to domestic effects and international.

At a personal level, if one accepts there are risks that we cannot change, I think we have three responses:

1. Keep an eye on the macro events that foretell of impending problems. Like for example excess liquidity on a grand scale, unredeemable debt etc. But domestically, sloshy money looking for a home, in higher risk ventures like loan sharks, P2P lending, crowdsourcing, and even equities that rise well above fair value, property prices that exceed rationale explanation, debt instruments at all time low repayment levels, cash that is worth nothing after tax ... and so on. Look for opportunities for fraud as well, where the story is too good to be true (a big lesson from the last fall out). Point being when and how is it likely to all implode, and why.

2. Ride the waves of growth that are within our individual and manageable risk tolerances. There's no harm in being on board a growth instrument as long as we know how to get off. More of that shortly. The point here is being realistic about risk, and being invested in only the things that we are comfortable with and prepared to monitor closely. I see no place for passive investment strategies, or higher than individually acceptable risk taking, in an overall risky fiscal economic environment.

3. Knowing how to get out, quickly. For example in equities it may be simply about tightly setting and closely managing stop losses, letting the market take you out when your threshold of pain is hit. In cash it's about picking the bank you think is least likely to fold, or storing some out of the banking system just in case. In bonds and property you're basically stuffed, there's no quick way out.

So there's some thoughts to get a discussion going. Do we accept that the world has gone mad and is even more insane fiscally than the last time it dealt to NZ, and do we have sensible responses to an event if and when it happens.

Keen to hear peoples thoughts.

BAA

Ok to help the discussion along, here are a few thoughts. Finding answers and solutions are much easier if the problems are identified and quantified so how do you see the Greek financial situation impacting on us here in New Zealand? If you try and understand the complexity of the Greek/German/European situation you will be over your head, no disrespect intended, since the most financially astute and experienced have been trying to figure it out for years. if you bring it closer to NZ you may be able to see some clarity. Basically what you are trying to figure out is "how will NZ be impacted" and then "how will that impact on me"? Personally, not being an economist, or a Govt. forecast specialist, I have no idea but one would expect there to be the phrases, balance of payments, dairy exports, energy imports, unemployment statistics and national growth sprinkled into the discussion. Too many variables for me to even get my head around the possibilities. How would you protect your assets?

[winner69]

An inverted yield curve is generally not good news, a bearish outlook toward the future direction of the economy.

Check out the latest swap rates ....yield curve looking ugly

Bugger

[winner69]

We are doomed

http://www.radionz.co.nz/audio/player/20174756


ECB mistakes will cause another financial crisis - economist