Contraction of Global Economy

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eurowizard
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Contraction of Global Economy

Post by eurowizard » Fri Feb 12, 2010 4:47 pm

I'm a believer in Harry Brown's Permanent Portfolio. I noticed that Gold and Stocks both went down pretty big the last 6 weeks and LT bonds barely went up.

I wonder what would happen if there was a global contraction of the economy. Would nothing be safe? The global economy is NOT a zero sum game. Isn't it possible that over stretches of time, the aggregate "value" of what all humans own decreases?

I imagine the Black Plague did something like this. I'm not writing a doom and gloom thread - "go buy guns and ammo" - thats not what this is.

Just curious if a complete global contraction has occured in the last 200 years, how long it has lasted, and what safety nets could there be for investors?

neverknow
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Re: Contraction of Global Economy

Post by neverknow » Fri Feb 12, 2010 6:41 pm

eurowizard wrote:Isn't it possible that over stretches of time, the aggregate "value" of what all humans own decreases?
...
Just curious if a complete global contraction has occured in the last 200 years, how long it has lasted, and what safety nets could there be for investors?
The "Great Depression" was a global contraction, wasn't it? (I don't know for sure)

Your question reminds me of
A consequence of this law is that energy can neither be created nor destroyed, it can only be transformed from one state to another.
http://en.wikipedia.org/wiki/Conservation_of_energy

I am reminded of this, because after my husband read Greenspans book, he hotly disagreed with Greenspan, because of this law of physics, and wrote him, personally (and got no response, of course).

This week in all markets made very little sense (my opinion) - other then a bunch of big hot money sloshing around. Basically the question is "Is there a global economy that can stand on it's own (without government support - all governments globally, not anyone in particular) or isn't there? At the heart of this mess is the currencies - this is what is sloshing everything around. And these currencies are moving in big increments, not little gradual increments - which is what is causing the instability everywhere else.

I do trade some, but I have gotten out of the way. No one knows what is going on, and we all hope some one is smart enough to figure it out. In the mean time, the hot money is pushing prices all over the place. The shorts are out in force.

Cash is good :D

For whatever that is worth.
neverknow

Topic Author
eurowizard
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Post by eurowizard » Fri Feb 12, 2010 8:23 pm

The easiest way to consider that the law of conservation of money is a false belief, is what if everyone on Earth but ONE person died. What would the value of the money be? Nothing - because the last person would have no one to trade it to.

I believe the total global economy is based on people's continued willingness to create and barter goods and services in exchange for money. The more "stuff" and services created, the larger the global economy becomes. If unemployment shoots up and people dont make or do anything then the global economy should contract - I believe.

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Dan Moroboshi
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Post by Dan Moroboshi » Fri Feb 12, 2010 9:02 pm

I would have thought that World War 2, with the widespread destruction of productive capacity in most of the world's most advanced and productive nations, would have resulted in a contraction of the world economy.

But I was wrong: http://www.onwar.com/articles/0302.htm

anakinskywalker
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Post by anakinskywalker » Fri Feb 12, 2010 9:49 pm

Dan Moroboshi wrote:I would have thought that World War 2, with the widespread destruction of productive capacity in most of the world's most advanced and productive nations, would have resulted in a contraction of the world economy.

But I was wrong: http://www.onwar.com/articles/0302.htm
GDP is a flawed measure of economic well-being. A war can raise GDP even though it provides no economic benefit to either side. It does usually provide economic benefits to neutral third parties that are able to do business with the sides fighting the war, but net-net war is bad for the world economy. And yet it often raises GDP. Those who don't understand the limitations of the GDP concept get confused by this.

Anakin

EyeDee
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Post by EyeDee » Fri Feb 12, 2010 11:27 pm

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Locked - Although discussion what "safety nets could there be for investors?" in a difficult economy as request by eurowizard is allowed, the later posts have gotten more and more into discussing the economy (including later post by eurowizard) instead of providing actionable investment advice. Discussion of economics is not allowed.
Randy

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