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"This seems like a very foolhardy move"
At the end of the cycle, there are no good moves left. It's check and soon checkmate.
Every day that goes by requires more and more power to sustain the system.
Last 8 quarters, death spiral.
50812.6 51272.7 52082.5 52524.9 52882.7 52686.7 52549.1 52416.7
In 2007 credit expansion was at a $4.7T annualized rate. The fat lady is not singing but she started warming up well over a year ago. System peaked in 2007, system credit creation nose dived in 2008, system credit creation went negative in 2009.
The more I sit, wait, and observe, the more I fear you may be right.
I disagree on one point, however. If credit is completely destroyed, and we go back to a 100% cash/currency/sea shell only economy, the cost of everything (including labor and other resources) will fall dramatically. I envision a global society that survives on a much lower standard of living for awhile and don't see an apocalyptic scenario that you envision. If I am reading you correctly, your premise is that credit equals production. But my conclusion is that production will still exist, on a much lower scale (for needed goods and services only), and prices for these goods and services will drastically decline as demand falls precipitously. There will be no more credit nor demand for things like BMWs and Ferraris, and all available resources will be allocated to food, health and basic necessities. Credit destruction may equate to production destruction, but it doesn't necessarily equate to resource destruction. Those resources still exist today, and will exist in the future.
Spartan you might want to read this paper concerning resources;
A COMPARISON OF THE LIMITS TO GROWTH WITH THIRTY YEARS OF REALITY - http://www.csiro.au/files/files/plje.pdf (PDF Warning)
As shown, the observed historical data for 1970–2000 most closely matches
the simulated results of the LtG “standard run” scenario for almost all the outputs
reported; this scenario results in global collapse before the middle of this century.
The comparison is well within uncertainty bounds of nearly all the data in terms of
both magnitude and the trends over time. Given the complexity of numerous
feedbacks between sectors incorporated in the LtG World3 model, it is instructive
that the historical data compares so favorably with the model output.
When you remove the credit portion of the equation, demand and production will have to drop to even a level even I can't even imagine. That is not to say production will go to zero, as long as humans exist production will not go to zero because they must produce food to survive.
In the end, you can't feed 7 billion absent a credit system. It's not the absent of production capacity, it's the absent of demand because of the lack of funds.
"Those resources still exist today, and will exist in the future."
True, but utilization of those resources is the key, in the 30s people didn't go hunger because of the lack of resources. In Europe they were producing more than the demand yet people were starving.
Exactly every detail I don't pretend to know, I do know it will not be pretty and since cycles are a part of life, I suspect this down cycle will be magnitudes longer and harder than the last down cycle.
This isn't accurate.
What has been achieved is collective Point of Recognition that growth has stopped and will not restart.
All is driven from energy inputs, which are declining now.
Consequently, nobody is lending in the aggregate and all debts are being discounted to reflect improbability of full NPV.
Credit will still exist, but the notion that it can be supplied without regard to specific repayment circumstances is over.
Debtmoney is borrowing against the future, with interest. The future under such a system MUST represent a growth in production from today. As soon as this prerequisite appears falsified, deleveraging must occur in an eventual mad scramble to get out without a loss.
The debts our very money is based on are unpayable.
"Credit will still exist"
Sure does, never said otherwise, current US system is $52.4T of credit/debt down from $52.9T. Eventually the government will get overwhelmed, the number will at some point plunge or just not exist. That is not to say credit will go to zero, but from todays levels it surely will seem like it without the present system.
There is plenty of energy, you go around the world and see tankers just sitting around with oil, in the 30s they had plenty of energy. Energy resources were not a problem at all, more of a problem today because cheap easy to get energy but you are always at peak energy.
You are always going to have a limit, limit of demand or limit of supply, what came first the chicken or the egg?
What most of the nutbags don't understand is there is no trillions of dollars out there.
If huge backstops were not made, eventually the banks would have had to shut their doors when everyone came to take their money out.
Imagine people selling say $20T of assets but only $800B of cash.
The system just does not operate like most of the nutbags think. They read way too many stupid books. They believe in the lie, Helicopter Ben is going to come to save the day... nothing could be further from the Truth.
And you think the dollar is going to surge because of debt defaults. Get real
Exactly Mako! It took the US Govt 206 years to hit $1 Trillion in National debt and just 6 months to go from $12 to $13 Trillion. The system is a snake eating it's own tail, it requires constant growth or it collapses.
Wealth is really complexity. Today one can travel anywhere around the world in less than 24 hours, you get 100 different types of cheeses in your local supermarket, there are 10,000 or so many parts in your car. These are just a few examples of the sheer complexity of the system that is built entirely on two things - credit and energy. As the credit system collapses, purchasing power will be destroyed thus a wave of defaults and bankruptcies will flow through the World economy leading to a global collapse. Once the system goes down, the world will never return to the level of complexity and globalization that we have today. Collapse will be global and over a short period of time. Localization and community are the key to survival.
The marginal cost of keeping the system up and running has exceeded the marginal benefits of the system. These can be seen as the limits to debt, productivity, growth etc.
"These can be seen as the limits to debt, productivity, growth etc."
Really all you need to know. Exactly, there is always limits, although it can take decades to reach your limit, you do reach them, when you build a system that assumes there is no limits the outcome will not be pretty.
Nice post. You use different words than I do but it's really the same thing.
The assumption is that humans can exponentially demand and supply into the equation, Ben will fail, the Helicopter never existed, it's a lie to keep the lemmings marching thinking there is pot of gold at the end of the rainbow.
The function of the system is to expand as big and as far into the future as possible, peak, then implode.
"As the credit system collapses, purchasing power will be destroyed thus a wave of defaults and bankruptcies will flow through the World economy leading to a global collapse"
Benny and the governments and central banks of the world are trying slow the decline of the system. It would have just ended in Sept 2008 without massive help, eventually they will all get ran over by the equation.
If Ben has unlimited power, someone please tell him to send over my 99 virgins, some pizza and a 12 pack of beer. Ben has no such power, all Ben can do is try and organize lemmings to continue to buy until they can't any longer.
You're missing the point.
Ben *cannot* affect the real world with his credit engine. All he can do is change the nominal value of the FRN.
He cannot restart lending because there is nothing to DO even at ZIRP. Japan should have taught EVERYONE this. The liquidity trap exists ONLY WHEN aggregate economicality of a region itself hits zero!
Japan's ZIRP went into a massive global carry trade, because other places WERE economical while Japan was utterly saturated and of negative ROI.
The paper our system is built on is itself a debt which cannot be repaid because the future now no longer holds growth.
At its lowest level, money is a claim on use of energy. Debt is a promise to provide more energy in the future than now.
Once the system goes down, the world will never return to the level of complexity and globalization that we have today.
Never is a very, very long time. Please do not underestimate the potential of humanity to repeat the same mistakes throughout history and well in to the future, irrespective of nefarious behaviour and/or stupidity.
I know this is subjective and self-centered but I can't help it:
if there is zero chance that I will live long enough to see something happen, that's never.
this number is more than a 10% decline from like issuance in the last month
this number is more than a 10% decline from like issuance in the last month
debt being shifted back to the private sector ... [sigh]
"Checkmate sucker, next move, game over" X-clan
It's check right now, eventually checkmate... everyone is just going through the motions now. The end was always known.
Is it me or have they been issuing more on the 7, 10 and 30 year side because they know a raise is coming?
It doesn't matter.
There is zero probability that the USA can repay debt plus interest even at 0% because the future is one of LESS production.
The FRN will vanish in a hypernova. This is or should be the sole reason to buy all the real things for trade that you can now while the FRN still stands.
Should be no problem, actually. With the SEC now requiring money market funds to divest of Eurobonds and increase Treasuries, there is a mandate to feed the ponzi.
Isn't it beautiful when you can simply print money, torpedo the Euro, legislate, then capture the required new assets?
Madoff had nothin on this scam.
With the 3 month t-bill yielding 0.14%, there is obviously no worries about a funding crisis. Why should the US treasury pay 4% when they can pay nearly 0% for money? You people really aren't too bright.
Ignoring numerous fundamentals and current market conditions, you are right, there is no reason to pay more.
You may consider extending your economic time horizon which currently appears to be set on 'snapshot.'
I recall reading 2011 and 2012 debt rollover will be HUGE, someone has the actual numbers?
the term "not bright" is not one I would use with the folks on this site. having said that the unforseen Euro collapse does change matters. that was suppose to happen to our "currency union" and not their's as such we must look at our current situation anew. indeed ZH only came on board the "death of treasuries" pretty late in the game and since i'm moving back towards very powerful deflationary pressures due to the "euro catastrophe" this in fact is much more ZH positive as this is the home of Great Depression 2.0. Having said that clearly a sudden decline in issuance is due precisely to a massive lessening in funding needs for the Feds. Period. In short Uncle Sam ("that's who I am, been hidin' out in a rock and roll band") is the one most immune from this particular crisis. indeed ZH only needs to tweak it's "of what is this an instance" and plug that into their models to realize "it's not the program that's the problem here but an inability to input new data."
$8B is a sudden decline in funding needs. Might want to check out that Bloomberg article yesterday on NY state borrowing from one fund to meet its liabilities - that whole comingling thing. And NY is just the appetizer.
So is it you either gorge to explosiion or starve to implosion? or are you advocating a middle ground? Lower funding needs...lol
or maybe only maybe all the failed auctions around the world are making the fed think twice before going on its bangbuster auctions!!
Yeah... I'm thinking something more sinister by our Treasury here. Perhaps the extra month's wait will allow them to suck as much capital out of a panicked Europe as possible. They might pull off a $300 billion auction at 7-10 year durations alone in July-- and make it look easy.
$78 may have been too much....I think the time has come for the world to shun the doelarr. We will see.
Maybe the treasury is just going into off-off-off-the-record Fed monetization mode. Who needs all that pesky transparency. All they gotta do is fake a few years of tax revenue increases, and voila. Look ma, no more failed auctions!
Or, the memo has been passed around, "we've closed on the purchase of tahiti...wind things down and get your jets fueled up."
Before this is over, we will be issuing over $1 Trillion in Treasury Debt in a single day.
It is our destiny.
I agree that the systems explodes or implodes, inflate or deflate I guess, but when you talk about never rebuilding then you are going aginst human nature and general capitalism.
The problem is not growing it is the theft and free loaders on the system, If I go fishing (not in the gulf right at the moment) and have extra fish I may extend you credit to build me a house with my extra fish or if you are a builder and build extra houses and like fish maybe you extend me credit until I catch enough.
The problem we have now is the middle man of the fed/gov printing money and making credit that dose not exist. The assets and production will still be there the problem is no one will want to use it until the people who do grow and produce get to keep what is theres.
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