Crises come quickly because nobody likes to dump until they absolutely have to. That is, when everyone else is dumping. Markets thus exhibit self-organising criticality.
Endogeneity doesn't help, either. Wall Street doesn't react because it assumes Congress isn't insane. Congress doesn't believe it's insane because "the Dow is down barely a point from a month ago!"
Essentially, volatile events are not evenly spaced-- volatility tends to cluster around events.
The probability of the critical point being tripped could be heteroscedastically distributed. But that's not the same thing as saying the market judgement is endogenous to its prediction.
Marc Faber, Jim Rogers, Kyle Bass, Peter Schiff, list goes on and on.
Hoarding gold since 2005 and tell you one thing - just can't wait.
I don't want to burst your bubble, but if things go tits up, it will affect the demand of useless shiny metals and as a consequence, their value. If I were you, I would hoard toilet paper. Historically, for some reason, when the shit hits the fan, there is never enough toilet paper around to wipe up the mess.
US Treasuries at the most expensive price point for the past 300 years. That's for you, if you're looking for bubbles.
If: labor + energy to extract gold > gold price
we have a bubble?
;-) LOL
That said, gold's price is determined by supply and demand, just like for any other good. Certainly part of the price is supply, which is determined to some extent by mining costs, but there is also the demand side of the equation. You will find demand for precious metals greatly diminished during a recession or any kind of economic hardship. They are a luxury good. Toilet paper, on the other hand, is an inferior good whose price will not be affected by any economic hardship. In fact, it may even increase during such a crisis.
Buy toilet paper.
So, I'd say, it's more like poor will be using cigarettes, alcohol, etc. to trade just to survive while wealthy will use gold and silver as the currency. Because if you're this guard in Aushwitz, how do you know if Germnay wins the war. Or the US? You don't. That's why you'll prefer currency gold to national currencies.
Edit: I don't think that defaulting on or debt wouldn't lead to catastrophic consequences. Nor am I an economist.
I wonder if there are "emergency powers" that the Executive branch can invoke (kind of like - "we are under attack" type powers) that would allow them to go around Congress and just ignore the debt limit.
I can't imagine the US defaulting on it's debts....but then again....you never know.
http://www.nytimes.com/2013/10/08/opinion/obamas-options.htm...
The fallout would be epic.
Ex-Treasury official: "As a straightforward matter the Federal Reserve wouldn’t give Treasury a trillion dollars for that coin."
That said, he's keeping with the party line that the US "always pays it's bills on time", so take it with a grain of salt (the US defaulted twice or more in the 20th century, depending on how you count)
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/10/03/w...
"Here in the Anglo-Saxon world—never mind how few of us in it have any substantial proportion of our ancestors coming ashore with Hengest, Horsa, Esc, Ella, Cymen, Wlenking, and Cissa to loot, pillage, rape, and burn—we have not seen any government default since the “stop of the exchequer” of Charles II Stuart, when he simply got sick of paying his bills and decided to balance his budget by defaulting on his debt and then accepting bribes from Louis XIV of France, who was desperately anxious that Britain not help the Dutch resist his invasion."
http://delong.typepad.com/files/20120221-the-budget-and-macr...
http://en.wikipedia.org/wiki/Liberty_bond#Default_of_the_Fou... http://www.npr.org/2011/07/11/137773341/looking-at-when-the-...
Traders and investors are incentivized to assess risk correctly and make good bets, while Congress is incentivized to engage in brinkmanship and make as much political noise as possible.
[0] http://finance.yahoo.com/echarts?s=%5EVIX+Interactive#symbol...
http://www.bloomberg.com/news/2013-10-07/a-u-s-default-seen-...
Curious how likely you feel some of these possible outcomes are..
Experiment is the only true arbiter of truth.
To address your rebuttal: To get better statistics, more-local democracy, and reduce the likelihood of catastrophic failure, we could partition those 300 million into roughly 50 subunits and let each partition vote on what ought to happen.
That is not a true statement. If a company's revenues are growing, the amount of debt they are holding can increase over time and they can be perfectly capable of servicing that debt in perpetuity as long as the cost of the debt isn't growing faster than the revenues. Revenues can grow both because of real growth (in the company's market or in the economy, depending on whether we are speaking within or without the analogy) and because of inflation (especially if the inflation rate is greater than the interest rate on the loans, which I believe is the case with some government debt).
But that can't hold true forever since the size of their debt is increasing, unless interest rates are 0, eventually the cost of holding onto debt will cross revenues.
and btw, printing money on the current scale will eventualy cause devaluation, and so is in itself a kind of default.
Past 17 October the U.S. Treasury can prioritise payments, i.e. make interest and perhaps Social Security payments while blocking others. This makes the U.S. plunging back into a recession probable. It also virtually assures Federal Reserve (The Fed) intervention.
Some time before 1 November all bets are off. There are big payments due that will force the Treasury to be creative (e.g. minting a $1 trillion coin, issuing original-issue-premium debt, or blatantly ignoring the debt limit) or default. The Fed could open swap lines with the banks in an attempt to de-couple the U.S. financial system from its political system. The odds of success are low.
An unknown number of pieces, with uncertain capabilities on a shifting board, collectively daring or being dared to test new limits. This is an interesting situation.