[evilgenius]

In addition to global warming there is now an economic reality to deal with in the run-up to the peak. The dollar's position as world currency is falling apart. Dollar hegemony could survive most other calamities but it is falling before peak oil because to continue it is poison to so many countries.

The US would like to institute a regime of dollar inflation that it can pass on to the rest of the world like a tax but for the first time the rest of the world won't have it. The US no longer controls enough of the oil flow to hold its influence. Over-production isn't possible anymore without a huge investment which may not pay off.

Much of the world is simply too developed now for the Ameri-jingo fantasy of dollar hegemony to continue under peak circumstances. They need a return on their investments. The proof is in the interest rates. The US is about to climb back into a rate structure like what used to exist before the 70's and the petro-dollar. The housing market is in danger because rates have been too low for too long. Adjustable rates will increase. Lenders trapped paying more out in a rising rate environment when their assets are earning them old scale income will suffer. Wages haven't gone up with house prices so there remains only so much available to pay for housing on a monthly basis. House prices will have to fall.

Gold is battling so well because the rest of the world has come to a consensus about the dollar and though they haven't a replacement gold is handy for the moment. That isn't helping much though because gold can only hold value, it can't circulate it. I would like to see someone go to the store and buy something with gold. I would like to meet the person that would use asset protecting gold to buy toilet paper.

The US markets are doomed.

With all of the fear that this current administration has engendered what will happen next?

[firestarter]

Interest rates are going up...way up! Stay tuned for a soon to come repeat of the 1970's squared. We'll muddle through the summer but come September all hell's breakin loose.

[Tanada]

$this->bbcode_second_pass_quote('firestarter', 'I')nterest rates are going up...way up! Stay tuned for a soon to come repeat of the 1970's squared. We'll muddle through the summer but come September all hell's breakin loose.

[firestarter]

$this->bbcode_second_pass_quote('Tanada', '')$this->bbcode_second_pass_quote('firestarter', 'I')nterest rates are going up...way up! Stay tuned for a soon to come repeat of the 1970's squared. We'll muddle through the summer but come September all hell's breakin loose.

[FoxV]

A lot of people make comparisions between now and the 70's for the oil crisis, and late 80's for the housing bubble.

The problem with this is that the US (and so the world) is in far worse shape than it was than either the 70's or 80's

The amount of people with 0% down I/O (or even negative) mortgages is insane. This is going to cause a lot of foreclosures (if not everyone one with an ARM going belly up). When banks and bond holders start taking it on the chin, they will demand huge interest to componsate for the damage.

This will cause a downward spiral of joblosses and more foreclosures, and because there is more US debt and cash held outside the US than inside, there is nothing the Fed will be able to do to stop it (that won't make the situation worse)

Ben Bernanke's "Pushing on a string" conundrum will soon become "Pissing up a rope"

[dbarberic]

$this->bbcode_second_pass_quote('firestarter', 'I')nterest rates are going up...way up! Stay tuned for a soon to come repeat of the 1970's squared. We'll muddle through the summer but come September all hell's breakin loose.

[firestarter]

I found this over at Safe Haven, which I think is quite good for buttressing my point:


$this->bbcode_second_pass_quote('', '.')...In 1980, the Short-Term Treasury-Bill Rate
Zoomed from 6% to 16% in Four Months!

It was the fastest, zaniest, and, for some, the most wildly profitable market surge of all time. Hard to believe, but true. And I remember those days intimately.

Like today, I had a partner who worked with me closely and helped me write my reports. And like my partner today, he was specialized in interest rates.

I'm talking about my father, Irving Weiss.

Dad knew what sometimes causes rates to move in dramatic and massive swings. He often knew what kind of surprises interest rates held in store for us. And he gave us frequent tips on how to transform those surprises into profit opportunities.

One investment, for example, representing interest rate options, could be bought for a meager $500 or less with the potential to control $1,000,000. All you needed was a relatively minor move in rates and the investment could be worth many times more....


....When the Fed lost control over interest rates in 1980, gold had recently surpassed $700 -- just as it did last week.

Bond investors took one look at surging gold in 1980 and gasped. They were scared skinny that runaway gold prices signaled runaway inflation ... that the inflation would destroy the value of their dollars ... and that the falling dollar would gut the value of their bonds.

So they dumped 'em -- by the truckload. Bond prices plunged and interest rates surged still further.

C. To help convince investors to start buying U.S. bonds again, President Jimmy Carter had to offer the most attractive interest rates in the history of our country -- even more than the rates offered by President Abraham Lincoln during the Civil War.

So Fed Chairman Volcker forced up the official rate (on Federal Funds) by as much as two full percentage points at a time -- all the way up to 20%. Why? He had no choice. That was the only way he could persuade investors he was serious about fighting inflation and the only way he could get them to buy bonds again.

Today, Wall Street squirms when the Fed jacks up its rates by a meager quarter point at a time. Hah! Wait till they see the real fireworks that are possible when the dollar falls and inflation fears run amuck.....

[mullen112280]

Does anyone predict the situation will result in hyperinflation? I believe they call the Fed. Chairman "Weimar Ben". We might be burning our greenbacks to keep warm.

[perdition79]

$this->bbcode_second_pass_quote('mullen112280', 'D')oes anyone predict the situation will result in hyperinflation? I believe they call the Fed. Chairman "Weimar Ben". We might be burning our greenbacks to keep warm.

[OilsNotWell]

For those with the time and inclination to read this article I found illuminating, you will be rewarded with a deeper understanding why the Fed defended the dollar 'to the death' against gold, and why they may not win this time...It's a long read, but worth it I think for
the mere fact that I haven't seen anything else like it. His suggested solution doesn't seem to me much better however.

$this->bbcode_second_pass_quote('', '
')
http://johnlaw.wordpress.com/2006/05/19 ... -collapse/

Why the global financial system is about to collapse
May 19th, 2006
The global financial system is about to collapse because the US dollar is about to collapse.

The US dollar is about to collapse because of a simple economic fact that no one has the power to change or conceal.

The fact is that the spontaneous remonetization of the precious metals is a Nash equilibrium.

What this means in English is that an ideal financial strategy for everyone on Earth is to buy as much gold and silver as they can, as soon as possible.

To oversimplify wildly, the reason to buy gold and silver is just that everyone else should buy gold and silver, too. There are two reasons to do it as soon as possible.

One is that anyone with an investment account can move money into gold and silver with a few mouse clicks. They trade on the US markets as the stock symbols GLD and SLV.

Two is that once this information becomes widely understood, US and probably global financial markets will be closed.

[ohanian]

$this->bbcode_second_pass_quote('mullen112280', 'D')oes anyone predict the situation will result in hyperinflation? I believe they call the Fed. Chairman "Weimar Ben". We might be burning our greenbacks to keep warm.

[grabby]

Interesting.

[Euric]

$this->bbcode_second_pass_quote('ohanian', '')$this->bbcode_second_pass_quote('mullen112280', 'D')oes anyone predict the situation will result in hyperinflation? I believe they call the Fed. Chairman "Weimar Ben". We might be burning our greenbacks to keep warm.

[rwwff]

Couple points.. Of course everyone remembers the wierdness of the 1980's upswing in rates; what they don't remember is the coming down period. Lots of banks stuck holding CD's paying 12% interest when the current interest rate was down to like 8%.

I don't think the banks or the fed are excited enough to bid blindly, forgetting the pain they felt in the 80's. I suspect the fed, the bond market, and the international players are going to work deliberately to lower the dollar as gently as possible, this means a slow, drawn out, strangling regime of interest rate hikes and inflation increases. I think everyone has figured out that the imbalance is rediculous, now they all want off the bullet train with only a few bumps and bruises. Fortunately for all concerned, I think they figured out that a panic means no one gets off, and deliberate order means that most everyone can step off without getting hammered. Think years, not months.

Expect to see lots of inflow of dollars looking to buy hard assets, or at least stuff that they can use to make money.

[Euric]

$this->bbcode_second_pass_quote('mullen112280', 'D')oes anyone predict the situation will result in hyperinflation? I believe they call the Fed. Chairman "Weimar Ben". We might be burning our greenbacks to keep warm.

[Euric]

$this->bbcode_second_pass_quote('rwwff', 'C')ouple points.. Of course everyone remembers the wierdness of the 1980's upswing in rates; what they don't remember is the coming down period. Lots of banks stuck holding CD's paying 12% interest when the current interest rate was down to like 8%.

I don't think the banks or the fed are excited enough to bid blindly, forgetting the pain they felt in the 80's. I suspect the fed, the bond market, and the international players are going to work deliberately to lower the dollar as gently as possible, this means a slow, drawn out, strangling regime of interest rate hikes and inflation increases. I think everyone has figured out that the imbalance is ridiculous, now they all want off the bullet train with only a few bumps and bruises. Fortunately for all concerned, I think they figured out that a panic means no one gets off, and deliberate order means that most everyone can step off without getting hammered. Think years, not months.

Expect to see lots of inflow of dollars looking to buy hard assets, or at least stuff that they can use to make money.

[jdumars]

Here's something to think about... in some ways, we've already been in a period of hyperinflation, at least in terms of the housing market. The interesting thing about this is that earnings never rose even close to the rate of housing inflation, so in order to "keep up," people borrowed against the hyperinflated values. Now that wages have remained largely stagnant, and the money from the bubble is running out, we're up against a truly frightening situation where:
- the cost of real goods goes up relentlessly and probably dramatically
- wages (except in a few key areas) stay stagnant or reverse
- businesses go under or layoff workers due to the high cost of raw goods/energy/supplies

I can tell you right now, there's no way in hell businesses are going to throw 7%-10% COLAs for their employees. In fact, most businesses cap out at 4% for their VERY best employees, and employee benefits are slowly being phased out. Also, the "review" cycle has become semi-annual at best, and more typically annually. The rate of hyperinflation is going to make this time gap critical for a majority of workers. I'm already seeing an interesting trend where new employees are asking for considerably more money than their already-employed counterparts. This has always been true to some degree, but right now it's extreme.

I am having a hard time formulating a realistic vision of what this situation is going to look like. Anyone care to draw a picture?

[rwwff]

$this->bbcode_second_pass_quote('Euric', '')$this->bbcode_second_pass_quote('rwwff', 'C')ouple points..
snippity do dah...
Think years, not months.
.

[greenworm]

I wouldn't put too much faith in SLV or GLD, these are ponzi schemes like the rest and there is nothing backing them except a piece of paper that says you own them. I would honestly shop around for better ponzi schemes There are much better changes in x over the changes in y out there The commodity itself seems to demand the spot price consistently, I learned this on ebay, not sure if this is true after the nosedive it just took.

Big money is letting the dollar slide on purpose, they did it the first time the euro gained considerable ground. Why? Cause they be makin' a profit, if you don't think there will be a correction, I think you might not have thought it through. They can't profit without the correction, there is just too much dam money to move. Anyways, the gold bugs really are having a tough time of it as of late, core inflation is getting a bit ugly and the commodity drops like a brick because helicopter boy decides to give a speech to turn off the spigot. If the gold bugs were smart they would ditch the gold and create their own money, let me think, oh yes they could create their own "peakoil trust fund". Underwrite it themselves, so the thieving whores such as goldman sachs and other hedge funds can't get their hands on it. Everytime someone signs up to the website they are asked if they would like to protect their assets from an unstable world Make some rules such as you cannot cash out until it has matured a certain time period and you cannot cash out before whoever invested before you. It will act like a bond where you know you will get the investment back unless peakoil.com folds. Definitely gonna need a secure server for this puppy! Finally a ponzi scheme with no risk (unless no one buys into it) and might possibly beat inflation or cause it immensely!

[evilgenius]

Yes, I think the slow unwinding is what the various central banks would like to do. I also don't think they will be able to. The reason is that oil has peaked!

Has peaked? What do I mean? I mean that at the beginning stages of the peak it will still be possible to overcome peak conditions with technology, for a few years at best. There is no guarantee, however, that the level of technology at any given time will be operable in the areas that it needs to be in order for peak condition to be held at bay.

Put another way the US can no longer rely on the Saudis to ramp up production enough to offset the high price of crude. The margin the Saudis have to meet is too excessive. Maybe next summer they will be able to meet the margin, maybe not then either?

Meanwhile the inflation that high oil prices engender finds itself let loose in a world that wants to enjoy deflationary world-market conditions. That inflation can't be stopped by the subtle measures that work in the deflationary universe. That spells high volatility. There won't be any slow and ordered exit.