Friday, June 13, 2008

Help required: economic modelling

Following reported opinion from Marc Faber and others that we may expect sell-offs in commodities, bonds, equities and real estate, and given concerns about the quality of our currencies, the question arises, where should we hold our cash?

It seem that in the USA and UK, we are holding down interest rates to avoid crippling homeowners, the home-loan-based economy, and what's left of our industries, and also in the hope that we can repay our debts to foreigners with devalued cash. On the other side, countries like China and Japan seem to be trying to prevent their currencies from appreciating, so as to preserve their trading advantage.

So one party is letting their currencies sink, and the other is trying to stop theirs rising. To this amateur, the world's foreign exchange system looks like a bunch of corks tied to an unchained anchor and flung into the sea. Will the string on the corks hold, or break under the strain, or be abruptly cut?

Is there any computer- or board-game-based model of the world economic system, that might make it clear to me how this wretched thing works?

And how is the ordinary person to save money and preserve its value in real terms, without having to be super-sophisticated? I know something about American TIPS and British NS&I Index-Linked Savings Certifcates, but I'm leery of handing the government what little money they haven't already extracted from me in taxes. And I don't trust them to define inflation fairly.

Does anybody know how this boneshaker of a contraption actually operates, so we can make sensible decisions?


dearieme said...

As I understand it, the bit of Economics that makes sense of the world is called Microeconomics and focuses on small one-at-a-time topics. The bit that attempts to explain everything to us is called Macroeconomics, and is a midden of misconceptions and an imbroglio of ignorance. Have you considered prayer?


DM: not in this connection, but let us hope for the efficacy of prayers of the good.

Chervil said...

My German great-grandfather sold his assets and hid the cash under the bed. Then there was hyper-inflation, followed by currency reform. He lost everything.

I have just read an interesting article in the Sydney Morning Herald, which touches upon the very issues you mention. It is worth reading, here is the link:
The author refers to David Hackett Fischer, who has studied the behaviour and historical meaning of inflation not just over the last decade, or the last century, but over the last 800 years. Hacket sees the world positioned in a dangerous moment of possibility, on the rearing crest of the fourth great wave of inflation in eight centuries.


Much obliged, Chervil, will read it now.

... and if your German ggf had kept his cash in sterling at the time?

dearieme said...

Americans who had had the good sense to stock up on Gold then had it stolen from them by FDR's Federal Government. Tough times are a real bugger.

Wolfie said...

Land and property are solid on average but you must be able to withstand liquidation temptations in a crisis.


I guess the Duke of Westminster agrees with you.