Assume for the sake of argument that the private economy collapses eliminating the need for private borrowing. Will the remaining public borrowing cause interest rates to rise, or will there be so much money looking for a home that rates will fall?

At what point of collapse would the Treasury begin to print money and pay its debts without borrowing, thereby flooding us with worthless notes?

-- Puddintame (achillesg@hotmail.com), May 26, 1999

Answers

I see interest rates rising at the end of the year due to the banking industry attempting to keep money in the banks. I see the interest rates droping after the new year if and thats a big IF the systems doesn't collapse. At any point I don't see money becomming worthless, if that happens this discussion would only be academic. justthinkin

-- justhinkin com (y2k@justthink.com), May 26, 1999.

Ummmm- how about now??

Seriously, fears of hyperinflation are one of the biggest econ concerns I hear GI friends discuss. Inflation in any form has been the main Fed bugaboo for so long that I can't see them allowing it to happen as long as they have any degree of control (DO they have any degree of control?)

This whole thing seems pretty unpredictable to me. A lot depends on how people (all over the world, not just here) might react if they discover the hard way some of the essential facts about what they've blandly accepted as money for so long. It's 1999, and all bets are off. ALL of them. You simply can't afford to take too much for granted right now.

-- Lee (lplapin@hotmail.com), May 26, 1999.

Based on supply and demand, I would expect to see much higher interest rates in 1Q-2000. Remember the double digit inflation in early 1980s with double digit interest rates.

With the FED ready to pump more greenbacks into the system to stall a panic, that money could all come back to cause a hyperinflation - especially of essential goods and services like gasoline, coal, and hard assets like gold.

The big banks are working harder to hedge their positions to weather a rise in interest rates this year. I forget for the moment how many trillion are due to be refinanced in second half of this year. I believe it was Goldman Sachs that forecasted an economic slowdown in second half 1999.

As to returns on investment, IF the stock and/or real estate market drops than one should be able to buy in at a 21st century low after the drop.

-- Bill P (porterwn@one.net), May 26, 1999.

Further thoughts on How to buy in at the low after the drop:

Watch Warren Buffet of Berkshire Hathaway. He is one of the most astute investors with an eye for real, long term value. Last I heard he was accumulating silver as a position from which to launch a 21st century investment strategy.

Holding greenbacks may loose their purchasing value in period of hyperinfaltion.

-- Bill P (porterwn@one.net), May 26, 1999.

Keep in mind that this advice is free, and worth as much as you are paying for it.

The market will crash in August give or take 3 months.

As companies begin to struggle with the added costs of more an more computer problems and find fewer and fewer available engineers, costs will begin to rise.

I think 73-74 oil shock with '79 oil shock combined is what we're headed for. Some of it depends upon the responses of the policy makers, both at the Fed and in Congress, but mostly at the Fed. If the Fed tries to provide liquidity after the market crashes, they can forestall the collapse in security prices. Unfortunately, we are headed into a time period of not just added costs in terms of keeping things on line, but even decreased productivity.

How many people will show up to work when the lights go out? When they aren't sure if they'll receive a paycheck this month?

There will be a lot of money floating around, and not enough stuff to buy with it. Result: rising prices and hungry people.

Interest rates are everywhere a monetary phenomenon. I agree with Bill that it is likely that interest rates would go up in the Fed's efforts to keep money in the banks and choke off the inflation upticks we will see this fall.

The best investment strategy right before a period of stagflation: Buy real assets like houses and gold. I have both now without any debt. Good luck.

-- nothere nothere (nothere@nothere.com), May 26, 1999.

I had expected that interest rates would increase sharply by the end of the year. However, the Fed's announcement that it plans to offer special Y2K liquidity loans to banks could mean that banks don't call as many loans...and continue to loan at reasonable rates. Overall, perhaps a slight increase due to uncertainty and another increase due to inflation.

If the U.S. and world economies drops severely and we go into a major recession/depression, the rate will probably eventually decline. More so because the Fed will want to spur the economy.

-- Mad Monk (madmonk@hawaiian.net), May 26, 1999.

IMO the Treasury notes will become worthless when people will not accept them in exchange for food and other critical survival goods in early 2000, and everyone figures out that greenbacks won't fill your stomach if no one will accept them. Also, I believe you can definitely forget about bank operations in most of 2000, certainly until a precious metal-backed currency evolves, probably starting at local levels rather than being originally imposed from on high. Read the "An Introduction" article on my website to see why I hold this position, if you wish.

website: www.y2ksafeminnesota.com or http://y2ksafeminnesota.hypermart.net

-- MinnesotaSmith (y2ksafeminnesota@hotmail.com), May 26, 1999.

Personally, I expect the Fed to lurch sideways in late 1999 and 1Q 2000, trying to cope with a situation in which raising rates will choke liquidity and lowering rates will explode inflation. Put another way, Y2K impacts are likely to criss-cross classic monetary theory and leave no clear path. Put a final way, every decision the Fed makes will probably explode in their face.

-- BigDog (BigDog@duffer.com), May 26, 1999.

A friend of mine told me the story of how he saw his mother trade her wedding rings for some potatos in Nazi occcupied Holland in WWII.

No one would take the Nazi occupation money!!!

Fool's Gold is Green!!!!

Inflation is any medium of exchange that the first user gets for nothing and the last user gets nothing for it. Mellenium Bug = Gateway to the Cashless Society

Difference between a FREEMEN and a SLAVE. Freemen own their labor and and own guns, slaves don't own either one!!!!!

Ern

-- Ern (edsexcel@ameritec.net), May 26, 1999.

The economics of Y2K in your scenario are going to lead at least two major results: 1) Smart investors (defined as pre-knee jerk reaction) will sell out most of their positions in the market-starting now. Called "Flight to Quality". Quality defined as Treasury Notes, Bills & Bonds. This flight will in deed raise these financial products prices with the subsequent "real rate of return" declining.Followed by the "Johnny Come Latelys". Depending on how fast and how many a person could expect to see current yields down as low as 1-1.5%. Point # 2 - We will probably not see much in the way of inflation, rather the results will be a serious deflation. Deflation will be far more devastating to the average individual than inflation. A little deflation is good, a lot, is terrible. Look at the markets and economy during the late 20's & early 30's. Finally, Americans debt load, through credit cards and the I want it now philosophy will be the cause for numerous losses - Houses, boats, cars, etc. This will flood the respective markets for those items thus (supply & demand) supply will be high, with qualified buyers (those with cash) very low. In your scenario it could get to the point that banks won't call very many loans, due to the fact that they won't accomplish anything. The Treasury printing paper dollars will help support the demand for cash-cash will truly be King. Opportunity will be present, but will buyers?? I seriously doubt there will be a lot of money looking for a home. But as Dennis Miller says, this is just my opinion and I could be wrong.

-- Kelly Buck (cask336@aol.com), May 26, 1999.

nothere said,

"The best investment strategy right before a period of stagflation: Buy real assets like houses and gold. I have both now without any debt. Good luck."

No no no. Sell your house now at a good market value - live in rented accommodation. After y2k the odds are your house will be worth pennies on the dollar. THAT's when you should buy. By all means buy gold now, it is artificially low, it will skyrocket after rollover. Same with silver. But above all but food, water and barter items now - items that you will not be able to buy after rollover - e.g. coffee, tp.

-- Andy (2000EOD@prodigy.net), May 27, 1999.

Andy sez:

No no no. Sell your house now at a good market value - live in rented accommodation. After y2k the odds are your house will be worth pennies on the dollar. THAT's when you should buy. By all means buy gold now, it is artificially low, it will skyrocket after rollover. Same with silver. But above all but food, water and barter items now - items that you will not be able to buy after rollover - e.g. coffee, tp.

Have to respectfully disagree. If you don't own a house prior to rollover, 1) remember that qualifying for a loan anytime in 2000 may be difficult, and 2). Homeowners will likely occupy their homes right up until the sheriff shows up. (Exceptions here would be very expensive, highly-leveraged homes). Homes at bargain-basement prices (via HUD) probably won't be available until early-mid 2001.

My suggestion: if you don't own a house, but want one, and plan to live in it for at least a couple of years, buy it now. Liquidate all other debt prior to rollover: if your income is unchanged, you'll be able to take advantage of big-ticket give-aways such as boats, autos, undeveloped land, un-occupied vacation property, small businesses, etc. Tacky as it sounds, being a small-time financier for a couple of years (cars, boats, appliances, mobile homes, etc) is almost a sure shot, until the credit market rebounds.

The oil bust of the '80s combined with the S&L crisis taught me this. If not for the threat of infrastructural loss, here and abroad, I'd be ready to claim that with regard to Y2K: we've been there, done that, messed up our credit, etc. It'll just be a longer road back this time.

-- Lisa (lisa@work.now), May 27, 1999.