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Just How Ugly Is The Sovereign Default Truth? How Self Delusions Prevent Recognition Of Reality
- AIG
- Alistair Darling
- American International Group
- Belgium
- Ben Bernanke
- Black Swan
- Bond
- Budget Deficit
- Central Banks
- default
- Dylan Grice
- ETC
- Eurozone
- Failed Auction
- Fannie Mae
- Federal Reserve
- Freddie Mac
- Gambling
- Greece
- Gross Domestic Product
- Housing Bubble
- Ireland
- Italy
- Japan
- Monetary Policy
- NASDAQ
- Nominal GDP
- Norway
- Portugal
- Reality
- Reserve Currency
- Sovereign Debt
- Sovereign Default
- Switzerland
- Tax Revenue
- United Kingdom
When psychologists evaluate human behavior, one of the most prevalent observations regarding any activity is the all too often flawed basis of perceived versus realistic outcomes that dictates our every action. As imperfect creatures, we tend to construct theories that conform with our worldview, which are subsequently reinforced by our confidence (or lack thereof) in the future. This is true in any discipline: finance, politics, gambling, mating, etc. There is hardly a better example of this than the very basis of modern economic theory where assumptions about the validity of fiat currencies determine the actions of central banks, which in turn spill over into every aspect of modern society. Yet what if the very basis of core assumptions is wrong? What if every activity exhibited by humans in the post gold-standard world has a flawed assumption at its core? Austrian economists have, of course, claimed this for ages, usually seeing their efforts conclude with a dead-end as the attempt to change the status quo hits the brick wall of quadrillions of (arguably worthless) pieces of paper which dictate the status quo. However, with the recent turn for the worse, courtesy of sovereign bail outs (as confused as they may be) could the day of reckoning be fast approaching? With each passing the day an affirmative answer seems closer at hand. Today SocGen's Dylan Grice shares his perspectives on popular delusions, and why these may soon be coming to an abrupt end.
Dylan begins:
Behavioural psychology applies to central bankers, regulators and politicians as much as it does to investors. In promising to ‘fiscally retrench tomorrow’, finance ministers are exhibiting the behavioural phenomenon of overconfidence in their future self-control. The bitter fiscal medicine required to stabilise debt levels won’t become more palatable today relative to tomorrow until the bond market makes it so. It can only do this through higher yields. Thus, Ireland and perhaps now Greece lead the way. For the Japanese it’s too late.
Why should behavioural psychology be seen as something applying only to investors? "Behavioural" finance is a well defined sub-discipline in its own right. But where is ?behavioural? politics, ?behavioural? central banking, or "behavioural" regulation? Remember the Fed policy statements around the end of the 1990s? The ones that kept referring to the "technology-enhanced" rate of GDP growth? Wasn?t this herding around a bad idea the very same herding then fuelling the NASDAQ bubble?
Nowhere is self delusion more prevalent that in the workings of the Federal Reserve duo of Greenspan and Bernanke. The issue is that any weakness, or any affirmation of faulty policy by the head money printer, will immediately be seen as weakness that could destabilize the reserve currency format. For a monetary system based on flawed assumptions that would be the beginning of the end.
As the housing bubble inflated, Bernanke in a quite staggering display of logical sloppiness, concluded that the risk of a housing collapse in the future was small because there had never been one in the past ? Weren't they then guilty of "framing" their analysis in a way guaranteed to preclude an uncomfortable conclusion? If you don't expect to see something, you're less likely to see it. Similarly cringe worthy logic was used when sub-prime rolled over, and Bernanke concluded that there was no risk of contagion to the rest of the economy because... er... there had been no contagion to the rest of the economy yet... wasn't this textbook "recency bias" whereby the importance of recent events is over-weighted?
It probably was, and it probably demonstrates that central bankers are as prone to be as systematically silly as the rest of us. Indeed, just last year a study by yet more of Bernanke's "best and brightest" concluded that “monetary policy was not a primary factor in the housing bubble”. I don?t want to pretend I?m any kind of behavioural expert, but isn't this the well documented "attribution bias" by which people attribute positive outcomes to themselves, but negative ones to others?
So with nobody willing to take blame for the massive errors of the past 3 decades, and what's worse, nobody attempting to place the blame, we happily plough along as if nothing has changed.
So here we are today, with regulators rounding on investment banks, hedge funds and tax havens, apparently in denial of the reality that the problem was not the regulations but the regulators. After all, heavily regulated institutions like Fannie Mae and Freddie Mac were at the epicentre of the crisis (as was AIG, whose financial services business model was the facilitation of "regulatory arbitrage" around Basle capital requirements). Not that it makes any difference. The regulators are merely bowing to pressure applied by politicians whose understanding today is as flawed as Gordon Brown's was in the Mansion House back then. If this sounds like a rant then I apologise - it isn't meant to be one. We're all fallible and policy making is an impossible job. But that means policy mistakes are inevitable, and I believe we?re seeing one right now.
Before we get into the gist of Dylan's analysis, we present his example which brings the self-delusion bias down to the individual level.
Oscar Wilde said he could resist anything but temptation. But doing something you know you shouldn't is easier if you can convince yourself that this will be the last time you indulge, that you won't do it again. So we convince ourselves that since we'll be strong in the future, we can still indulge today. Whether it?s smoking, eating too much or going to the pub instead of the gym, we delude ourselves into thinking that we will take the more difficult path next time.
A few years ago, two economists actually looked at the issue using gym membership data. They found that in a club in which non-members could pay a no-strings fee of $10 per visit, people preferred to pay the $70 per month for unlimited access. And since members only attended 4.3 times a month on average, they ended up paying an average $17 per visit. The authors concluded this to be clear evidence of "overconfidence about future self control."
Investors understand the affliction all too well: a stock trades at £10 and we tell ourselves that we?re buyers at £8. But how many of us buy when it gets to £8? Some of us do, but most of us don't. Most of us (I can?t be the only one!) convince ourselves that it's going lower still: “I’ll buy at £7” becomes “I’ll buy at £6” and by the time it's back at £8 we're “waiting for a pullback” Each investor has their own way of circumventing this problem. But at root, such poor decision-making is a consequence of our fundamental underestimation today of the discipline and even courage we will require in the future.
The delusion problem becomes exponentially more complex when one adds in the concept of dependence and addiction, not so much to a substance, but to an idea.
Last weekend, the G7 "committed" itself to the path of further stimulus. As politicians are wont to do, they presented it as though it was somehow a difficult decision: "the position for most countries is to support the economies now, and get the budget deficit down as the economy recovers." said the UK's Chancellor, Alistair Darling, nodding earnestly. Am I the only one who heard a heroin addict steadfastly committing to his next fix?!
Well, it got me thinking about how much governments need to retrench to stabilise existing debt to GDP levels. And although I consider myself fortunate enough to have forgotten most of the economics I learned at university, one lesson which was useful, or in any case has stuck with me, is of the arithmetic behind government debt sustainability.
And when we begin to actually dissect numbers, as opposed to demagogic propaganda, is when we get into the meat of the problem.
There are lots of books containing lots of equations outlining lots of limits and theorems about the dynamics of government debt sustainability, but the basic intuition is that if I'm a finance minister mulling out how much money I should be borrowing, I want my GDP growth (and therefore my tax revenue growth) to pay the coupons on any debt I take on today. If the GDP growth rate equals that interest rate, the incremental revenue flowing into my coffers thanks to the incrementally higher level of GDP covers my coupon payments. I don't need to borrow any more money and my debt ratios are stable. But if the interest rate is higher than GDP growth, my incremental tax revenue won't cover interest payments. I'll be in deficit and I'll have to issue more debt to plug the gap and my debt ratio will rise. The only way I can prevent further debt growth is by running a primary budget surplus (i.e. a surplus excluding interest payments).
There are nuances and qualifications to this arithmetic, and limitations too, but in essence the fault line between sustainable and unsustainable debt dynamics can be summarised as: maintaining a stable debt to GDP ratio requires governments to run a primary balance proportionate to the difference between interest rates and GDP growth.
How does all this translate into quantifiable observations:
Before seeing how our governments compare, two qualifications are necessary. Firstly, the European estimates are distorted by the recent "convergence" within the eurozone which allowed periphery economies temporarily higher GDP growth rates and lower interest rates. This makes on-balance sheet debt loads appear more stable for those economies than they actually are. Secondly, the calculations show only those surpluses required to stabilise the debt loads which are on-balance sheet. And it's important to be clear about this. According to Gokhale, most government indebtedness is in the form of unfunded pension and health liabilities, which are unrecorded and effectively off-balance sheet (see chart below). I'll come back to these shortly.
But sticking with the on-balance sheet debt for now, the calculations shown in the following chart (over the page) use the equation in the footnote at the bottom of page 2 and give a decent first stab of who needs to do what.
The countries on the right are in the fortunate position of paying a rate of interest which is below their GDP growth rate. Provided interest rates don?t change from these (historically very low) levels, they can run deficits without increasing on-balance sheet debt. The US, the UK and Switzerland both currently fall into that category. Japan doesn't. With bond yields at around 1.5%, "trend" nominal GDP slightly negative, and on-balance sheet debt to GDP at around 200%, it should be aiming for a primary surplus of 3.3% in order to stabilise its ratio.
Now look at the next chart which shows the primary balances governments have actually achieved. I was surprised to find Belgium and Italy running such aggressive primary surpluses, but this is consistent with the broadly stable debt ratios those countries have seen recently. The US, the UK and Japan especially have been running pronounced primary deficits.
If we add both charts together we can compare the primary balances governments should be running with those which they're actually running, to get a better feel for the difficulty governments are going to have to face up to in order to merely stabilise their on-balance sheet debt ratios. The next chart does this. Those on the left have been running budget balances consistent with falling on-balance sheet debt to GDP ratios, while those on the right haven't. The US, the UK, Greece, Portugal and Norway (?) all fall into this latter category.
Eyeballing this chart, one might think governments "only" need a 3% underlying contraction of fiscal policy in order to right the ship. Wouldn't doing that over a number of years be plausible? Perhaps, but I can't find any examples of it having happened before. And while that doesn?t make it impossible it does illustrate both the political difficulty of following such a path, and the behavioural biases present in politicians? confidence that they will - if it is difficult to summon the political courage today, why will it be easier tomorrow?
And here is the crux: the black swan will be not so much a totally failed auction - we are confident the Federal Reserve will never let that be the precipitating factor for the next crisis. All that is needed is for interest rates to start going up. That's it. How much longer can money be printed out of thin air so that we can all buy each other's debt and prolong the fiat fallacy for another day or two?
But consider this: all countries, and especially those to the right in the chart, are enjoying exceptionally favourable financing positions, with government bond yields near unprecedented lows. Should anything push bond yields higher, even by just a percentage point, the onbalance sheet debt situation will become explosive. This is the situation in Japan where the 8% contraction required to rein in its already explosive debt ratio is politically impossible. And again, remember that the estimated 8% required contraction assumes the Japanese government can continue to fund itself at a 1.4% JGB yield, which is clearly unrealistic.
If the on-balance sheet position today looks dicey for the rest of us, the off-balance sheet numbers are far more worrying. The following chart shows Gokhale's estimates of the perpetuity surpluses governments would have to run to meet the current outstanding obligations which are both on- and off-balance sheet. The chart speaks for itself. Such fiscal deflation is clearly a political impossibility.
Apparently heroin addicts can become so drug dependent their bodies cannot withstand the shock of withdrawal, and failure to continue taking the drug triggers multiple organ failures. I just wonder how apt that analogy is to our governments? debt dependency today. As long as governments think that taking these difficult decisions to end the addiction will be easier in the future than it is today, they will never take the decision "today." At the very least, there will have to be a sufficiently large bond market "event" to force the issue.
Today we finally saw a crack in the 30 Year Auction. And as the crack belongs to an ever more brittle wall holding back trillions in debt just begging to be revalued to fair value, and to an unmanipulated supply and demand curve, more and more fissures in the smooth and fake facade of sovereign debt will soon appear, only this time not somewhere out of sight and out of mind like Greece, but in our own back yard. At that point the financial oligarchy will very much wish the Methadone had been administered sooner (roughly about March 2009, when we first suggested it). It will however be far too late, and the decades of self delusion will finally end.
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20muleteam borax the most simple amazing product. P&G are the most evil killing corporation alive, well mansanto right with them.
Expectation is the mother of all disappointments. I kinda like to think of myself as one of the absentee fathers, soon to cut off the child support payments. The path to serenity is wholehearted cooperation with the inevitable and timing is of the essence.
Best regards,
Econolicious
substitute "timing" with "luck" and you've got something there.
In Living Color
What's mines is yours
and
WHAT'S YOURS IS MINES
in living color
HEH
-MobBarley
Ground rushing up quickly now, I am starting to make out rooftops and trees, THUD!
http://in.biz.yahoo.com/100210/137/bav21b.html
It should be noted that he is referring to nominal GDP. Governments can always inflate their way out of debt problems.
No they can't. Central banks control about 5% of money supply. The rest is the result of commercial bank lending. This is why economics professors say we have "debt based money" (a form of fiat currency - fiat being a synonym for proxy/passthrough).
The only way for central banks to print money when the economy is completely stalled and no one will borrow is to start a new currency system. Essentially, the complete elimination of currency and debt. This is altogether possible (and may be a likely outcome) but is immensely politically unpalatable, as it implies the elimination of most property rights. Insane? Not at all. This is PRECISELY what Argentina did recently.
The mechanism:
1) Lock-up all deposit accounts (the famous "corralito"). Maybe allowing some firms to access their accounts
2) Establish a new currency and force conversion
3) Renege on all international & possibly all national debt commitments (possibly by fixing interest rates)
4) Pump the economy full of the new currency and generate nifty inflation
5) Optional: Expropriate the property of anybody who was able to save too many hard assets or had too much physical currency. Probably through asset base taxation. You want to appease the newly impoverished masses (sorry goldbugs and survivalists, the taxman will be coming and he has bigger guns)
Voila you have pressed "RESET" on the world economy.
End result, all your savings will be gone. The bright side is that your mortgage may also be gone (depending if they fix rates).
I wonder if they can do it without first establishing martial law.
No shit. The snowstorms on the East coast are producing interesting "adjustments" in regards to Posse Comitatus:
http://www.infowars.com/de-facto-military-occupation-of-pennsylvania/
I think your senario is far more appealing than the one that will most probably occur.
e.g.
Feb. 11 (Bloomberg) -- U.S. unemployment peaked in October and will retreat through 2011 as the economy strengthens, according to economists surveyed by Bloomberg News.
The real delusion is the growth delusion itself. The underlying premise is that the government can make up for an exogenous shock to private demand and both fill in the gap and stimulate the private sector back to health. This has been the pattern in every post-war recession. But that's not working this time because the real model is 1929, not 1982.
Growth must happen for Keynesian economists and their government backers to be right. Their whole diagnosis of the situation and the proper cure are plain wrong. Of course, when their plan fails they'll just argue that they weren't allowed to do enough.
Buy BOOZE and CIGARETTES on CREDIT cards, all that you can, as quick as you can.
(You should have already done this with gold and silver and food, guns, and ammunition of course)
As said above. Gold deflates in nominal terms (not in real terms) and the government has bigger guns than you can ever get so you will have to conform (sorry, but it's that simple since you cannot live in an underground bunker for the rest of your life)
getting out of dodge is an option.
hat tip to: http://www.iamned.com Sovereign debt is just the beginning
LOL
> There is hardly a better example of this than the very basis of modern economic theory where assumptions about the validity of fiat currencies determine the actions of central banks, which in turn spill over into every aspect of modern society.
But why does fiat currency matter very much, if in fact the great majority of the money in the economy is credit created by privately-owned banks, a process which is basically outside of government control? (IOW, making the apparently very justifiable assumption that capital ratios and so on are basically a paper tiger.) Under these circumstances a fiat currency scarcely gives the government any more control over big inflations and deflations in the supply of "real", credit money than a gold standard would.
Unless, of course, the central bank *really* hits the panic button and blasts out the several-thousand-percent increase in cash and bonds it would take to fill the hole left by contracting credit. But if a government has the considerable political cover it would (will? - ugh) need to take this radical step, why wouldn't it likewise have the political cover to abandon or fudge (eg. bimetallism) a gold standard and then do exactly the same thing? Historical experience seems to suggest that even in times and places where the gold standard is a big political sacred cow, when the pain gets bad enough it is abandoned anyway.
See eg. http://globaleconomicanalysis.blogspot.com/2009/12/fictional-reserve-len...
False. The market or natural rate of interest rate (which is certainly not 0.025%) checks the amount of lending in which private institutions can engage. They will lend no more than is absolutely necessary to maintain the profit margin as determined by the market environment. Lending more (and thus lowering their interest rates and elligibility standards below the norm or so-called market clearing "equilibrium") would expose them to excessive risk relative to their competitors. No entrepreneur is going to submit his business to "excessive" risk unless he thinks he knows something other people don't and if he does overextend he will feel the pain. Market forces are bounded by reality and reality does not bend to the whims of greedy people.
There are other reasons the problems you describe are wholly characteristic of a fiat system but the net result of all of them is the concept of "risk" in an economy. Government control over the interest rate distorts the price premium attached to risk. Period.
"No entrepreneur is going to submit his business to "excessive" risk unless he thinks he knows something other people don't and if he does overextend he will feel the pain. "
What he knows is that he can get a 7-figure bonus every year until the house of cards collapses, and then he can go into business for himself as a "consultant" working for the companies other people like him drove into the ground.
And conversely, if he doesn't make the "objectively" bad investments, he'll lose out, and if he's managing other people's money then he'll be fired. The excessive risk might as well not exist until the certain but somewhat unpredictable and often far-off day of the crash. (And when that day comes, there is safety in numbers for those who manage others' money: it must have been unforeseeable, beacuse nobody else saw it coming either, right?) So it seems fairly plausible that the market can endogenously create bubbles in assets whose current market value is largely determined by the current consensus about their future market value. The history of speculative bubbles under hard-money regimes in the nineteenth century, and the ability of human beings to generate other kinds of Ponzi schemes without government instigation seems to support this idea.
I certainly wouldn't suggest that government interest rate policy can't prolong credit bubbles; after all, apparently all of the deflationists believe that exactly this happened over several years before Bear, and especially after 9/11. But look at the other side of the coin: here we are in the middle of ZIRP, and the banks are hoarding all the money they can get - again suggesting that government interest rates aren't the be-all and end-all of excessive lending.
There is no acknowledged natural interest rate. It is a theoretical construct impossible to determine if you have a fiat system. This is precisely Hayek's criticism of fiat and his basis for malinvestment. He in fact states that the natural interest rate is very likely HIGHER than is implied, because real money is much scarcer than plentiful fiat currency. (thus malinvestment in crap projects)
However, you are correct that banks will only lend as long as they can do so at a profit. To profit they must be able to borrow cheap and lend at a higher interest rate. Unlike what you state, the lending spread is not bounded by a concrete interest rate and could theoretically be profitable even in negative interest rate territory. (imagine a situation in which you pay a bank to protect your money and it turns around and lends it at profit - kind of what happened in the Middle Ages). The reason banks don't lend is not because interest rates or the spread are too low (though it does tend to contract in low interest rate environments), but rather because they cannot find any solvent counter-party to lend to. Thus the bank will rather sit on the money than lose it by lending to un-credit worthy counterparties.
Essentially, in low interest rates, effective demand goes down and thus lending goes down. Relative risk to competitors has absolutely nothing to do with it.
Well thought through analysis is too rare these days. Thank you!
The European Union turns out to be an association of bankers and not politicians—all running around and putting out fires because it’s all about to explode.
Now Obama’s on another last-gasp sale’s campaign telling the nation’s he’s going to add an average of 95,000 jobs a month; he and his Summers/Geithner/Bernanke GS team don’t catch anybody with that sale’s job and sob jive anymore—after a while even a high school student doesn’t buy the pitch.
How does that figure in to the 125,000 jobs that must be created each month to keep up with the new kid's on the block?
Yawn, only truth I see is Greece got bailed out and markets are grinding higher. Wake me up when you got something important to say. Till then, keep buying them dips!
take another nap. Its way to late to wake you up.
Leo, the sad truth is that you represent 95% of the Street & City PM's. Like them, you will make money until you don't. Unfortunately, as you already saw in 2008, that until you don't means a 40% drawdown as you rush to liquidate positions.
I went cash the minute those Bear Stearns funds went under and even wrote about counterparty risk exploding on my blog. Face it, Dubai was a fart in the wind and Greece just passed some wind too. Nobody is even talking about Dubai any longer, and they surely won't be talking about Greece in a few months. Stay long & strong, especially solars which are about to take off again:
http://finance.yahoo.com/q/cq?d=v1&s=csiq,jaso,ldk,sol,solf,spwra,stp,tsl,yge
The rest is just noise and farts. Stinks for a minute or two, then goes away. Power elite wants asset reflation. Hell, everybody wants asset reflation. Stick with the script boys & girls!
"Power elite wants asset reflation. Hell, everybody wants asset reflation. Stick with the script boys & girls!"
So what you are saying is that the elite did not want asset relation in 2008? Your arguement does not pass the fart test. Deflation is the result of uncontrollable market forces. Otherwise, the government would just creat a perpetual bubble machine and print the entire world into prosperity
> So what you are saying is that the elite did not want asset relation in 2008?
Steady on there. Sometimes these things just take a while to arrange. The only things a deflationist can say with certainty is that the excessive lending can't keep going up everywhere and forever, and that by and large the sooner it does stop going up the better for the economy. Actually calling the top with certainty is a trickier business. It would be mad for the Western consumer to start levering up again from here, but then again it was mad for him to lever up to this point in the first place. And of course credit reflation is a much easier process if the financial industry can find a fresh horse rather than trying to revive the Western consumer/construction nag. And now, it seems, they have a promising candidate: the developing world. As someone on Bloomberg TV said a few days ago, Bill Gross has seen that the benighted Indonesians (or was it Malaysians?) are only levered up 7x or so, and he intends to set this right. Play them out, Baseline Scenario: http://baselinescenario.com/2010/02/09/revised-baseline-scenario-februar... . Read it and weep.
good read here: http://www.iamned.com
The village idiot has spoken...
Suggesting mass death is suggesting some form of eugenics, which permates neo-malthusians, eco-fascists and many, not all, hard core environmentalists. Limits of growth is a paper written by folks at MIT, back in the 70s, and although its premises sound logical a counter balance to this argument is , found in Buckminster Fuller's "less is more" ( The Critical Path ) and how through technological advances and human ingenuity it would be possible to maintain the population on this planet. There are studies done by the DoD ( and others ) where it is estimated that the human population will balance itself at 9 or 10 billion. This "self-balancing" is yet to be seen. However this manifests it will certainly not need human intervention or ingenuity to be successful ( we are lucky this will not be up to HiFters behind computer clusters of HALLs deciding on the ultimate calculus of human survival ) although we can try to intervene ( -just like we do in the markets- through eugenics, just look at John P.Holdren ( the Science Czar ) in his EcoScience textbook ) and any other means our "ingenuity" allows us to come up with.
I guess we can choose as a humanity to leave this decision to the "Animal Spirits" of Nature itself or intervene and meddle with Nature with our freethinking.
To survive or not to survive as a species that is the human question .... and do we do something about it or not .... So far, according to our best knowledge of Geology there have been 7 mass extinctions on this planet, eliminating 97% of all species while going at it, so Nature has a good track record of renewing itself, without any meddling. In that case, should we just party like it is 1999 up until the inevitable day of reckoning comes along? Apparently, we have tried to do so and have run against a wall ... at the very least we should spread the partying a bit and let future generations enjoy this planet some ...
[Suggesting mass death]
Not suggesting, just saying. Greed would not survive a mass die-off, nor would greed survive a rolling die-off at 10 billions equillibrium, but altruism might. It's called a clue.
You and I are actually on the same page. I'm not a Malthusian, I'm a systems biologist. We do tend to get strung out on emergent properties; deus ex machina, baby. The ghost gumming up the human machine is a nasty, self-serving little beast. And I wonder what we're going to do about that ere the end. That's all.
cougar
Come on. Bucky Fuller was an incredible man, but he also speculated that humans evolved from dolphins. His idea of "ephemeralization" is attractive, much in the same way Tinker Bell the fairy is.
Great post! After the carnage is over (and who knows how ugly it will get)...everyone will look back upon this and say "Yeah...no duh...of course"...but in the meanwhile, the oligarchs will battle and manipulate to hold on to theirs and politicians will continue to do whatever they need to do to keep the dream/nightmare alive...it's like watching a train wreck and that is why ZH is becoming so popular...they are showing it to you frame by frame.
I believe that the era of fiat currency is ending. I also believe that the era of the nation-state is ending too. AND...I think it's going to take 50-100 years for the NWO---whatever that is---to become defined. (I'm hoping for tens of millions of small city-states that trade with another...but then again, I'm a fool that way.)
I'm hoping for a robotic apocalypse: never put solar cells on your Terminator.
who says they have to actually create one world currency.. they can fudge everything until all fiat currencies are equal and leave it at that
Allright, let's stop all this happy-horsesh!t nonsense about how this was the inevitable failure of a fiat system. Or how this was the inevitable failure of government intervention in markets.
Talk about cognitive dissonance!
Firstly, if a gold standard was the panacea that its proponents claim, then there would have been fewer economic problems when the US was on a gold standard. In the lead up to the Great Depression, the US was operating under a gold standard.
Secondly, economies that relied solely on precious metal coinage were just as vulnerable to currency debasement as paper money economies. The etymology of the term "debasement" is based on the fact that gold coins had their gold content "debased".
Finally, the governments around the world are unwilling to risk the wrath of their populations for a very good reason. Because they know that their populations are being setup to clean up the mess caused by the kleptocrats, like Goldman Sachs.
This goes back to Howard Jarvis, Proposition 13, Reaganomics and "starve the beast". After 3 decades of movement towards low-wage, low-tax and high-debt economies, the chickens are all coming home to roost.
The dirty, ugly secret that the financial press and the corporate media are hiding, is the fact that the economies which are best suited to weather this storm, are the high tax social democracies in Scandinavia (which have average tax burdens of over 50%).
We've had three decades of policies which enabled a kleptocracy to loot the US Treasury and steal the US middle class blind. The people who stole this wealth should be forced to return it, VIA HIGHER TAXES. Instead, we get this f#cking smoke screen about exploding government debt.
The reason why government and personal debt exploded, was because the kleptocrats used cheap debt to hide the fact that they were stealing trillions of dollars. It was just another ponzi-embezzlement scheme, financed with trillions of dollars in public and private debt.
Governments are naturally reluctant to ask their citizens to pay higher taxes and do with fewer services to clean up this mess, because the citizens know who is really responsible for this mess.
What we have here is the inevitable result of Ayn Rand's "Objectivism", implemented as economic policy by her most devoted acolyte: Alan Greenspan.
There is no Santa Claus, there is no free lunch. An unregulated system of local agents seeking local optimization does not lead to global optimization. Market forces are not the solution to the problem.
If you really believed market forces can do things, like protect the environment better than the EPA, then you wouldn't hesitate to disband the entire Department of Defense and let market forces defend the territorial integrity of the USA. If markets are capable of making the rational choice of protecting the environment, then they are just as capable of making the rational choice of protecting national security.
If national security is too precious to leave to the tender mercies of market forces, then your whole theory about the the superiority of market forces is a fraud.
People who don't believe in Santa Claus and Free Lunches understand that the world is a complicated place. A truly rational person understands, there isn't any ONE simple solution to the world's problems. Market forces have a part to play in a rational and civilized world; SOCIALISM ALSO HAS A PART TO PLAY. If a penniless orphan child is raped and murdered, then the police must investigate, the courts must try the accused and then the State must imprison if there is a conviction. These SOCIALIZED services must be provided, if we are to have a civilized society.
The question isn't whether we should have capitalism or socialism. An ADULT understands that the question is HOW MUCH OF EACH should we have? The proportionality of the two also has to be fluid, so when economic times are hard, we can have more socialism.
We are in this situation, because the "theories" of Reaganomics and the Chicago School of economics have failed. However, these theories were enormously successful for the enrichment of their kleptocratic patrons.
Now the kleptocrats and their corrupted governments want us to clean up their mess..... AND set the table for them again.
Yeah, it is going to be very tough to sell that idea to the voters. But Faux News, CNBC, WSJ and the rest of the kleptocrat enabling media will be working 24/7 to make it happen. Why not? It's been working so far.
Not that I am agreeing with any of your premise, but you've got it exactly backwards there. Imposing more socialism during economic hard times would simply be a positive feedback mechanism. If you're going to encourage government profligacy, at least do it when you can afford it.
NO . He has it exactly right. All of life is about PROPORTION.
no, he has it wrong, spending money when you don't have it only makes things WORSE. Unless you're a Keynesian or a socialist, for whom 'worse' actually means 'better'.
And it's not about 'proportion', which is a meaningless vague concept, but rather about not infringing people's rights. People who talk about 'proportion' in this context are simply looking for justification to use force to implement authoritarian measures.
Because, you know, government programs have served us so well.
Nicely argued rebuttal. Can't agree with you though, that they can just reset & do it again. Nor keep on going for too much longer. This whole mess (globally) is becoming more & more unsustainable, and I think soon that it is going to collapse.
I think the far more interesting question is what will be re-built out of rubble of the collapse?
Even after netting out the effects of the past few years of decreasing net worth, the average American is still better off than he was during the 1970's, i.e. before the theories of Reagan and the Chicago School were put in place, so how can you make this argument? That it enriched some and merely made some marginally better off isn't unexpected, given that humans differ in their ability to actually exploit the opportunities of a market-based economy.
Maybe in your mind, but there are hundreds of books about the theory of "public goods", most of which use defense as the paradigmatic "public good". Many of those books also support market economics outside of the realm of "public goods". To anyone who's thought about these issues, your strawman argument would be rightfully seen as pure sophistry. Markets are better at providing goods which are "excludable", which is the very thing that "public goods" are not.
If this were true, one would expect the Western governments' primary liability to be money owed to these "kleptocrats", no? But, in fact, Western governments' primary liabilities are unfunded entitlement programs, which are basically obligations owed to their own citizens. So, how are the "kleptocrats" to blame for the mess sovereign debtors find themselves in? Seems like it's actually the citizens, who wanted something for nothing, are to blame.
It was actually in the politicians' best interest to use borrowed money rather than tax revenues to fund their programs because if they'd raised taxes enough to cover the cost of the programs, people would have rightly started asking just what value they were getting for their money. Since most government programs are run by second and third rate individuals (ever know anyone REALLY smart who went into government work?), of course the value is going to be low.
I need help wrapping my head around these global debt numbers. I always see the analysis of every country's total on and off balance sheet debt. I always wonder about the other side of the balance sheet. Aren't these liabilities another country, entity or individual's assets? And assuming interest rates move up or down in unison, wouldn't interest income go up at the same time as interest expense? I understand that interest rates do not behave like that but isn't it a zero sum game in the end?
creative accounting destroyed the zero sum logic a long time ago
And not only that. Those who have and will have (principally Russia and maybe China) are not about to loan out real assets to bail EU and US out of coming debt-storm; apparently China is about done buying our TBs already, and the Fed is increasingly monetizing US debt. In simplest terms, via open-borders and "free trade", the NYC/DC axis of greed-driven plutocrats and crooked, power-driven politicians destroyed the real purchasing power of the working class by importing cheap labor and simply outsourced that of the middle class to China, Mexico, etc. Now there's little left here except burgeoning private debt chasing skyrocketing public debt around in an ever-tightening circle. When max compression is reached, the whole thing explodes. Not sure when, but I think the Mayans (31 Dec. 2012) erred on the optimistic side.
And not only that. Those who have and will have (principally Russia and maybe China) are not about to loan out real assets to bail EU and US out of coming debt-storm; apparently China is about done buying our TBs already, and the Fed is increasingly monetizing US debt. In simplest terms, via open-borders and "free trade", the NYC/DC axis of greed-driven plutocrats and crooked, power-driven politicians destroyed the real purchasing power of the working class by importing cheap labor and simply outsourced that of the middle class to China, Mexico, etc. Now there's little left here except burgeoning private debt chasing skyrocketing public debt around in an ever-tightening circle. When max compression is reached, the whole thing explodes. Not sure when, but I think the Mayans (31 Dec. 2012) erred on the optimistic side.
hat tip to: http://www.iamned.com
The patient is already dead. Why are so many (almost everyone) still running around acting like he's not DOA.
How are people not smelling the decomposing body?
Can we just stop pretending this is all going to work out and just
MARK IT ALL ZERO!
I only smell solar shorts frying:
http://finance.yahoo.com/q/cq?d=v1&s=csiq,jaso,ldk,sol,solf,spwra,stp,tsl,yge
LOL!!!!! Where is Robo? I miss his daily eye candy.
I would like a little serious advise as to how I can psoition my portfolio to survive this mess. Don't need to make anything and can even take some loss, but how do we come out on the other side with something left? or am I being too negative.
My advice is to take everything you read on ZH, including my own rants and posts, as well as everything else you read with a shaker of salt. Nobody can predict the future but if you're optimistic, I can share with you which sectors I like: solar, technology (broad), medical equipment, biotech, agriculture, and infrastructure. If your risk tolerance is ZERO, stick to government bonds and high quality stocks with high dividend yields. Period.
And if you're pessimestic:
http://www.thepowerhour.com/news/items_disappearfirst.htm
Get a three month supply of food, gun and ammo, practice with gun and ammo, build out the three month supply to six months, start buying silver, then gold, if there is time, then go one to even three years (I am not there) on food supply for each member of the family. Get some kind of water treatment technology (google water filters, get a big one with extra filters for the house and a small one for hand pumping water on the run). More gold, more silver.
That is if you are pessimistic.
You sound like you've been hanging around the Marketticker crowd.
Dewd. Leo. Epic. +4
I wish I could bug out to Ontario sometimes.
haaar har har har har har har.
I have notice that demand for this product has been exceeding supply in certain areas of the country.
Is this an indication that one should go long?
Carbonmutant,
Much worse...the Peak Oil crew. Hung out at Kunstler's (Clusterfucknation) for a while getting up to speed. Then Mish, MT a lil bit. Some other sites (survival blog). Still troll oil blogs from time to time. They have the news I want to know. It is how I found ZH. This was the stuff I didn't know about that I wanted desperately to understand.
This sounds trite, but this site is important.
Totally!
MsCreant,
If your interested in oil, here's a link for you, for what it's worth;
ps, I have a lot of experience in Ghana.
http://www.youtube.com/watch?v=nxN9dOrVo-k
Nice. but see this:
http://www.oism.org/nwss/s73p920.htm
I don't think we need that yet, just some good portfolio adjustments, maybe including some stuff other than paper.
MsC,
You rock, as always. Quite a strategy. If I may flesh out a little:
First: 3 month canned food (fruits, vegetables, soups), beans, rice.
Second: pistol/revolver (+100 rounds and 2+ magazines for each)
Third: water filtration:
This one in the event you must flee as a refugee (the absolute best):
http://www.amazon.com/Katadyn-8013618-Pocket-Water-Microfilter/dp/B0007U...
This one in the event you are safe from home invasion (unlikely):
http://www.berkeywaterfilterstore.com/
NOTE: ALL THREE ABOVE ARE EQUALLY IMPORTANT for 3-month survival under "optimistic" conditions in a post-collapse scenario: full financial, energy, and foodstuff infrastructure restored with few complications. (#3 may be the most important in many scenarios)
---
After having at least secured the above, one should seek to increase the depth of inventory. This also includes mental and physical skills, such as: firearm marksmanship; traditional skills: raw food preparation and storage, primitive waste sanitation, sanitation period!; bartering (knowing what the other guy wants more than he knows about you!), and maintaining a calm atmosphere during periods of high stress.
Seek out courses on self-defense and awareness. Reconnect with "reliable" family and neighbors. And for all that heaven is worth, move to a location were you can prepare - urban areas will be constantly picked over by human vultures - you can only last so long if not surrounded by a small community of like-minded individuals willing to give their lives for all that is good.
get a bike! i am still going higher up and further back.
Ok, it's time to roll it out now:
Ready?
BEANS BITCHES!!!
http://www.bisonpumps.com/
or you will have no water to filter.
i lived on a water well for 30 yrs. but didn't have any water. lived about 50 miles from the head of colorado river. a lot of land in CO doesn't have water and the level is dropping precipitously, and people have to reboot the pump deeper.
I have started a very large permaculture garden in my development. Mostly perennial foods, hazelnuts, lots of berries, wild leeks, researching lots of edible, tough plants, foliage and roots that produce their own fertilization, lots of plant material to preserve mositure.
of course, will need ammo to protect it all....
Second: pistol/revolver (+100 rounds and 2+ magazines for each (minimum)
Not to mention fuel sources to cook it all. Get yourself a solar oven unless you want to chop wood all damn day - not to mention the smoke will attract undesireables. Pessimistic? No.
And finally, touching on precious metals you should have a mix of "junk and pure" options. Know your "carats" (http://en.wikipedia.org/wiki/Carat_%28purity%29) and get the pre-1964 silver coins for minor transactions. Anything more pure than that will require a professional to evaluate or you will take a huge haircut and even gain unwanted attention and get shot on the way home if careless. 1 oz gold coins are for Gods. Don't forget it. Save them for you daughter's wedding reception, a new cabin, or a quality rifle. Dealing in the black markets with high purity stuff will get you murdered.
Good luck!
hey leo do you khow anything about these: AUCTION RATE SECURITIES - CLASS ACTION UPDATE
i got so screwed by morgan stanley and td ameritrade putting me in these things right on feb.13, 2008. they sold me hundreds of thousands under the impression they were tax free municipals? thanks
A lot of people got screwed with that crap, just like our Canadian asset-backed commercial paper debacle. Many investors here lost a fortune, ended up settling for some money after the big pensions hammered out a deal with investment banks. I am sorry you got screwed on those auction rate securities. Never trust anyone that tells you they invest in asset-backed commercial paper with AAA ratings. The good fund managers did their own due diligence and stayed away from that crap. If the guaranteed yields look too good to be true, walk away!!!
Convert your money to toilet paper and whiskey. The new currency.
If we have no process for enforcing fiscal discipline there won't be any.
"...finance ministers are exhibiting the behavioural phenomenon of overconfidence in their future self-control"
BS! There is no intention of future self control that's an excuse to justify current spending. The intention is to forward the responsibility to another party... no self control needed.
GREAT commentary, #227473!
Great News! Now the taxpayer is directly bailing out homebuilders, those completely innocent folks who just got caught unaware:
http://finance.yahoo.com/news/Lennar-shares-jump-on-FDIC-apf-410700946.html?x=0&.v=1
$627 million FDIC backed financing at 0% for 7 years.
Spread'em.
Yep. We're all broke. Now it's just printing confetti money to service confetti debt. Oddly enough, for all the confetti being printed the average person's confetti supply isn't keeping up with inflation. It's a rolling depression with debt bombs going off all over the world. The world is trying to soften the blow by monetizing the debt, one country at a time. It's not the end of the world, you just have to be careful. There's nothing wrong with currency as a convenient medium of exchange, just, don't expect it to hold it's value. In fact, few things are holding their value (the asset depression part). I think we all need to be more self-reliant, store some food, some water, some hard assets, etc.
So when the hell are we going to get a Market adjustment? This charade is getting very old.
Awesome Post
Thank you.
Okay, Tyler, you've really hit the big time, now.
Jim Sinclair 'front paged' you.
http://jsmineset.com/2010/02/11/this-is-the-end/
good investigative reporting, who is jim sinclair?
Who cares:
http://www.youtube.com/watch?v=K3HnFfS9iSI
Buy! Buy! Buy!
i get the feeling ZH is the new face (less) book & substantive tweeter. nite
Eh, yeah. An obsessive haunt for many. An entertaining read for most? How many of us are waiting for the unemployment check each week?
you're on your own buddy.
My job pays me to surf the internet (not literally) - when I've stopped posting you'll know I'm living out of my car.
Everything will begin to unravel tomorrow after this headline just hit the British Newspapers.
http://www.guardian.co.uk/theguardian/2010/feb/11/germany-greece-merkel-...
Angela Merkel dashes Greek hopes of rescue bid
German chancellor refuses to rescue Greece's ailing economy amid Berlin's domestic austerity.
Angela Merkel, the German chancellor, mounted stiff resistance tonight to any swift bailout of Greece, as a rift opened up between European capitals over how best to tackle the risks posed to the euro.
Despite a show of Franco-German unity on the crisis and the first statement from EU leaders pledging to safeguard the currency's stability, hopes on the markets of a German-led rescue plan to shore up Greece's critical public finances were dashed by Merkel, who repeatedly emphasised that Athens would need to put its own house in order and brushed aside all questions of financial support.
"Germany is stepping totally on the brakes on financial assistance," said a senior EU diplomat. "On legal grounds, on constitutional grounds and on principle." Another senior diplomat said of the Germans: "They're not waving their chequebooks."
Angela Merkel dashes Greek hopes of rescue bid
http://www.guardian.co.uk/theguardian/2010/feb/11/germany-greece-merkel-...
Tonight's PBS Newshour special on Goldman
http://www.pbs.org/newshour/bb/business/jan-june10/goldmansachs_02-11.html
Nomi Prins accuses them of frontrunning. Rare appearance by Jeff Macke.
Thanks for sharing.
nomi prins and yves smith should be called the new “truthers”
pbs is rockin right now.
PBS is another mechanism for the statist left to get in front of, and of course ultimately redirect, populist anger.
shit†
Trains don't have steering wheels.
Eventual sovereign default is hardly an ugly truth. On the contrary, the fiscal self-destruction of the continuing criminal enterprise known as the federal government is a beautiful thing. It can't happen soon enough. For insurance against the effect of the initial and subsequent multi-year economic shockwaves - and they will be epic - the answer is simple: buy as much physical gold as you can. It's been money for 5,000 years and it will be money after the fiscal collapse of the United States government.
Yes, it is sad. They will be victims. The states will file for bankruptcy, make most contracts null and void and stop paying pensions. They can't afford them and obviously never should have given in to such demands. But they did, it is done.
And when Rick Santelli, (about the only one on cnbc with a brain, gives an auction an F as he did today, well, the race has started.
As always, just the timing.
what, doesn't the scorpian and the frog turn you on
Does anyone think for one minute that this person we have as a president really understands this whole situation? Everything flows from the top in any/every organization and what we have at the top is utter inexperience at a time of great crisis..what has emerged is utter incompetence..and we have three more years of it to endure...IMO we cannot whistle and bullshit our way past this problem for three more years..it will have its day and we are woefully undergunned in terms of leadership...this is a problem that has been building over time, admittedly, but we need wise leadership at this critical juncture and unfortunately, our electorate has chosen and our system has produced mediocrity, at best....so, we get what we get...a hard rain is gonna fall on the U.S., as it should, and there will be much pain...those who are able should take precautions to protect what you have and those you love...
Total credit market debt as a percentage of GDP has risen from 130% of GDP in 1952 to 350% of GDP today. The various bailout and stimulus schemes enacted in the last year will drive this percentage above 400% in the near future..
we are doomed... hat tip to: http://www.iamned.com
The ruse is over, according to Stein's Law: "If something cannot go on forever - it will stop".
this silly discussion is an example of the point of the article. the discussion has totally taken on a pointless, reactionary life of its own, where you all seem to have it all figured out... i guess i will stay long gold for now. Idiots!
"If something cannot go on forever [such as unsustainable trends] - it will stop". This is Stein's Law.
"How self delusions prevent the recognition of reality"
GOLD IS GOING TO 6000, because everybody's going to die and we're going to print 17 trillion dollars a day before the economy gets better!
Yeah, sounds like self delusion preventing recognition of reality.
FIAT currencies are not tangible. As such, we can adjust them however we wish to ensure the survival of the species. If that means eliminating debt, it will be done.
That's the reality. Debt doesn't mean a thing in a world of digits if we don't want it to.
Breaking story on Denninger:
"Gee, it's all going to be ok and Germany is going to come to everyone's rescue!"
Nope.
Angela Merkel, the German chancellor, mounted stiff resistance tonight to any swift bailout of Greece, as a rift opened up between European capitals over how best to tackle the risks posed to the euro.
Despite a show of Franco-German unity on the crisis and the first statement from EU leaders pledging to safeguard the currency's stability, hopes on the markets of a German-led rescue plan to shore up Greece's critical public finances were dashed by Merkel, who repeatedly emphasised that Athens would need to put its own house in order and brushed aside all questions of financial support.
"See, I told you so. Twice."
Someone forgot to tell the market pumpers (along with those who started buying Euros and Pounds against the dollar) that Greece is a bit player in this mess.
What 'ya gonna do about Ireland - a nation that has enough out there in bank debt to make Iceland look like a Girl Scout picnic? Or Spain? Portugal, which has had an actual failed bond auction already?
and
One would hope that Merkel and friends in Germany aren't really stupid enough to implement such a transfer of a peripheral nation's problem to the EU's core, but then again we have seen time and time again that "can-kicking" is the mantra of the world since this crisis began. Rather than deal with the underlying problems - excessive leverage, naked swaps that the seller can't possibly pay, various forms of fraud and gamesmanship in securities issue and similar - governments have instead decided to lift up the corner of the carpet and sweep, time and time again.
Should the EU implement this with Greece they may indeed set a precedent that could easily destroy the European Union over the next couple of years. Faced with Spain, Portugal, Italy and Ireland, all of which are huge problems compared to Greece both in terms of the debt outstanding and the size of their economies Germany will find itself unable to backstop all four nations - yet it will have to, once the die is cast with Greece.
It appears that unlike Barack Obama and Ben-d-you-over-the-table Bernanke, who doesn't much care about the formalities of what's supposed to be on The Federal Reserve's balance sheet, Angela Merkel has both a brain and she clanks when she walks! ....
Read more: http://market-ticker.denninger.net/
IMO defined benefit pensions are and always have been a terrible fraud. They confabulate a goldilocks future where life, expenses, and prices are stable for many decades. Then they abuse actuarial principles and exaggerated rates of return to falsely lower the annual contribution needs. Finally the investments are sometimes risky or otherwise unsatisfactory (to be fair, with the Fed messing with interest rates and stock prices otherwise being manipulated, investment managers have very poor choices without desperately chasing yield). The entire scheme is vulnerable to exploitation in many ways, and it pits employer, employee, and pension managers against each other. Look at GE's balance sheet in the 90's where their large pension fund took large piositions in GE stock itself (should be flatly illegal, if only for diversification), thereby goosing GE's price, thereby reducing pension requirements, therby goosing GE paper earnings, ...
However, the old saying is that you can't cheat an honest man. To a certain extent, anyone who believes in a golden defined benefit pension is larcenous or foolish. Is is a terrible human tragedy? Sadly, yes. Did everyone naively set themselves up to be defrauded? Sadly again, yes.
Outside of a few useful services like police and fire, the gubmint employees provide NOTHING OF VALUE to anybody, so as far as I am concerned they have been parasites from day one. Gubmint employees shakedown the taxpayers just like mafia thugs shake down businesses. You have to pay both extortionists or suffer the consequences. The biggest difference is that gubmint employees don't even have the guts to threaten you directly. They claim that YOU democractically ASKED them to do all this stuff.
Face it, the music is stopping and there are far fewer chairs than anyone wanted to believe. If you want to give your chair up to a freeloader, that's your choice. I worked very hard for my money and don't like it supporting freeloaders who may have never done anything useful in their entire gubmint career.
we need wise leadership at this critical juncture and unfortunately, our electorate has chosen and our system has produced mediocrity
hat tip to: http://www.iamned.com
Of course the entire article is predicated on the wrong assumption. The reality is, what is occuring has been planned and is a work in progress to bring about a fundamental change in civilization.
There will be a new elite (empowered by science) with everyone else as their serfs. Along with other things the population will be reduced and those life exteding discoveries you are hearing about will of course, not be available to the masses.
Daniel
I dont know how big will this issue become, but the surprising part is that none of the investment bank have lowered their target for S&P year end.
I had posted about GS target for S&P IN H1 2010 as 1300 and H2 to be 1250.
GS maintains that number. They believe a huge short squeeze is coming.
Here is a chart showing the targets from 13 banks.
http://investingcontrarian.com/global/sp-average-target-1250-13-investme...
Just a friendly reminder:
The government has been insolvent since 1913. The people who made it so knew this. They knew the numbers would get bigger. The numbers got bigger, people sold bonds and the system survived. What is different this time?
What is different this time?
The government bank is printing money to buy the government's debt. Did you miss that part?
Just to add a bit of data for Ireland. We now have an off balance sheet item called NAMA (where all the bad property loans will disappear to) that totals €57+ billions (small peanuts for big economies, but very large for the Irish economy). The grandees in the EU allow us to hide this debt and surprisingly the bond markets seem to appreciate this accounting manouvre - so much for the bond market's sagacity.
Also per capita household debt is at 197% weighting. On top of savage wage cuts, increasing prices, soon to arrive interest rate hikes, continuing job losses, flight of non-tax avantage capital and zero local stimulus (bar massive cash injections into banks), you have happy bond markets and a large swathe of the population who will pay for the next generation. Thankfully, we have the old release valve of emmigration which is keeping the govt, their cronies, and international bond markets all quite happy.
We sure know how to service debt. If only we could find a few people to run a country properly.
My son, a GenXer, pointed out to me several years ago how he was screwed. He decided shortly thereafter that he was not going to be part of the American pyramid scheme, knowing that he would be working all his life and paying into a system from which he never would collect. He chose to leave the country, and has lived in Asia for fourteen years. He has built a life there, in an entrepreneurial manner which he never could have accomplished here within our increasingly nanny-state system. I though him wrong back when, but now see that he was correct in his analysis.
With a few million more like him, the future would look a lot less scary.
Congratulations for raising a son with some sense of adventure, risk-taking, and guts. I'll bet there were other signs along the way that he exhibited and that you must have nurtured to have him turn out as he has.
+10
At the writer: you made some BEGINNERS MISTAKES IN YOUR ANALYSIS.
1. You can not balance delta GDP with intrest rates. You need to take the tax income. So if delta GDP = 3% and nett tax income for the government is 40% the delta in income is 1,2%, forget about the 3%. And you need to multiply this 1,2% with actual GDP to get at the end number.
2. Similarly, you can not simply take the intrest RATE, you need to take the NETT INTREST as an amount. Because who cares if intrest is 20% but the additional debt is only 1 million? The delta intrest would be 20.000, nothing to worry about with a GDP of 15 trillion and a net tax growth of 1,2%...
Happy to be of service :-)
Note: posting anonymous until my account, lyingdutchman, is approved.
While the author is correct that everyone deludes themselves
with their world view, so does he. The actual supply of 10-30 year US debt is at 30 year low. Are rates going up
sometime? Sure....but not on the long end of the curve.
The direct bidders seem to get it.
While people continually urge a dealing with problems instead of kicking them down the road, as has been the way of dealing with them since Eve threatened to withhold her considerable charms from Adam unless he too ate some apples, is there not a case to be made for a continual eternal pretense that TumblingDice proffers above?
In further support of this approach, isn't it when men interfere with something that is in motion that their solutions usually fuck things up even worse or create other insoluble problems? ESPECIALLY if government workers attempt to 'fix' things, which is who created this global farce in the first place?
Anything TheBamster, and those Goldman Sucks alumni have done has only exacerbated the problems. Since it's impossible to replace them (they own all the season tickets for all seasons)it appears that whatever is in motion has already created the future and we are on a fatalistic trajectory that we can do nothing about.
" This also includes mental and physical skills, such as: firearm marksmanship; traditional skills: raw food preparation and storage, primitive waste sanitation, sanitation period!; bartering (knowing what the other guy wants more than he knows about you!), and maintaining a calm atmosphere during periods of high stress.
Seek out courses on self-defense and awareness."
The government trains people in these skills for free.
Join the Army and "Be All You Can Be".
Should catastrophe strike and civilians go "Katrina" forcing you into survival mode remember there are hundreds of thousands of veterans and active duty military in your midst that have already got the above skills and more.
Just as the Army eventually restored order to New Orleans it will eventually impose order on an out-of-control civilian population.
It may not be pretty or timely but eventually the military will get the job done. That's there job --- to clean up the mess.
They also violated the Constitution to do so:
http://www.youtube.com/watch?v=sm5PC7z79-8
http://www.youtube.com/watch?v=z8DNuavwzhA
The Army is for national defense, not national clean up. Martial law is what they want - every year they get closer to making it a reality.
They teach you bartering in the military?
Its real simple;
I got screwed by those who wished to make a profit from other peoples misery by outsourcing our whole economy to China...Henry Ford in reverse...
Those who enabled them are the bankers and government.
If/when, I don't get mine, people die, bankers, gov., don't matter at that time, the term Going Postal will take on a whole new meaning.
I wonder, if bankers taste like chicken...;-)
henry ford 1914 raised wages to $5.00hr 8-9hr days. robust manufacturing of model t. wood carton that car was shipped in could be reused as floor mats.
No governmental entity will get the job done. We as individuals will have to figure it out. And we will. It may be easy to occupy Haiti but this country is HUGE. Great article. I believe we are in massive organ failure. This whole system is a giant ponzi scheme and those schemes always go belly up eventually - law of nature trump it all. Everything is out of balance and said existence is not sustainable for long periods of time. It will be funny when fiat money is truly valued for what it actually represents. This whole thing is funny - like watching a crazy movie. You can check out of the system here also - just gotta live below the radar. My theory - top money people are in WWIII at the top of the trees - they will kill themselves without even realizing what they are doing. If they are that smart - none of this would be even occurring.
TD, great post, important and convincing read.
I gotta say, whoever started the thread hijack and turned this into a debate about peak oil, limits to growth, etc, you succeeded beyond your wildest imagination. Of course, you're totally off the mark. Most of the growth of the past 30 years was debt-fueled, so when debt blows up, guess what happens to demand? Whether this manifests itself as high oil prices, or as low economic activity, the result is the same, isn't it?
Key word ...DELUSION...mines bigger than yours so STFU
Cognitive Dissonance,
Could you please post at least some pieces of your work on collective consciousness? It may not be finance related but may help readers "figure it out" for a lack of a better phrase.
Also, what do you think of Edgar Cayce?
Who's to blame?
The friggin Government. We Boomers, paid thru the ass, for 30-35yrs+ of payroll deductions, we were told we would get a certain amount back.
Not enough for retirement, but a supplement.Ok, a LOT of us saved a lot more......as we should have.
I don't give a good damned dime if I am worth ten million dollars now, I want my MONEY!!!.
Theft, by any means is still theft...........The Gv't stole it, and now they tell us, WE are the problem?.......after passing it out to illegals, and pork projects?
Time for a New Revolution, and a damned good house cleaning.
After having hundreds of thousands taken away, INVOLUNTARILY, we get shit on, and we are looked on as Soylent Green material?.
To those that hold that view, SCREW you!.What if I held a weapon to your throat, and stole your money?....what's the difference?.Did you have a choice?.......neither DID WE.
Just send me MY money,MINE....not yours, that I paid in in good faith, and I will do fine.
What's UNFAIR about wanting what was YOURS?.
What's the difference between GenXr's, getting screwed, and US?.
We PAID for your parents SS/Medicare/Medicaid................now we're told WE are the problem?.
I CALL BULLSHIT.
Boo Hoo Hoo...listening to all these whiners blame public employees pisses me off. With 22 years into teaching, and paying into the plan as a CONDITION OF EMPLOYMENT, you are damned right I expect and have earned my pension. I haven't forgot the years of paying $750 a month into a plan where my "investment" into the plan grew by $375 per month. Unfunded liabilties they told us, and I also watched the plan's reserves grow by about 3% per year. I'm damned sure I could beat that average if I had just been given my contribution to manage on my own. Wanna blame public employees? Just give me my 150K back...
Wouldn't it be great if all these nimrods would simply post intelligible comments, and refrain from trying to prove their masculinity? All you do is prove how small you are...
You've just wasted 30.5 words of the English language. Not to mention some other innocent punctation. To ensure my post is not wasted:
GOLD BITCHES!!!
What nobody here wants to grasp is that this whole meltdown scenario was planned and beautifully executed by people whose names you would not recognize if I wrote them here.
You folks here are mumbling about minor details of a bigger picture that deliberately intends to now reduce the population of the Earth at least 3/4.
The apparently rich now like the bankers and financiers are simply patsies to these folks are are equally expendable at the appropriate time.
People like David Icke warned of this 20 years ago, but to 99% of you he is just a nutter to be ignored. Well, he was right then and he is still right now, along with people like Celente, Schiff and Ron Paul.
Paying taxes and social security now is like paying on a mortgage that is waaay upside down. But not a one of you has the guts to do it. You just keep contributing to your own demise.
not true, david icke woke me up 20 years ago. since then ive paid next to no taxes or social security, pension, insurances .etc. i live off grid with a sizable food garden and a small amount of gold. i work occasionally on the black market as a carpenter. there are quite a few like me on here.
Super read!
Here is how I think we will get out of this. The people will riot if they loose their retirements. However they cost too much to pay for. Cut public spending puts more people out of work causing more strain on the economy. Tax revenues are down.
So devalue the dollar a lot. Which will cause some issues but better than the way we are headed. Now when prices are going up wages will follow, "hopefully". Housing will go up too. Now when middle class people start making over 250k the the higher tax bracket will bring in more money for the gov. Everything will have the appearance of looking better, even though its just another gimmick. Devaluing the dollar effectively make the debit lower because your paying it with worthless dollars. Everyone keeps their retirement even though it doesn't pay the rent. No one will never know what hit them!!!
Yes we must get rid of the welfare state. Pensions and health benefits are unsustainable. Many will be told Sorry.
Look at GM and what they did to renegotiate pensions and benefits. If you are a SEIU member you will get shafted in the long run. Guaranteed. The US needs to IMMEDIATELY, freeze all COLA benefits and ALL salary increases of Public institutions. IMHO, they are all overpaid as is. NO one is safe...Police, Fire, Nurses, DWP. Let them all go on strike if they don't like it. I know of 8.4 million recently unemployed who would love to have thier jobs without the lush contracts.
So...do like all the rest of us who pay the bills...put money aside for your inevitable rainy day. I am counting on NOTHING from my many years of contributions to phantom government retirement and health benefits.
Social Security? Forget it. The year I was expected to get it was changed from 65-67 and the most recent estimations are th eyear I am elligable now it will be completely bankrupt.
Something must give.
The people we have intrusted...Elected officials...have failed us. We need a clean sweep in 2010. Sweep them all out. If they have been there the damage has been done on their watch. hold them accoutable. We need new management.
Finally, If someone runs on a platform of change then we need to see a blueprint, design, model, or script for this change. It should be debated. And it should ONLY be initiated after it can be funded...at least until we rid ourselves of this unmanagable debt.
The article is fascinating to me, as I'm always intrigued by psychology of different groups and how that affects their decision-making. Off the top of my head, I'd say there are a few different groups involved: (not limited to these, but a start)
1. Those with a vested financial interest in the outcome and the power/wealth to influence policy.
2. Those who benefit financially/politically from serving the above group, ie: politicians and bureaucrats.
3. Those who can't think independently and blindly act as tools for the above groups.
4. Those who follow the bogus information put out by the above groups...and lose.
5. The small group whose members realize the emperor has no clothes and wonder why so many seem to have drunk the Kool-Aid.
(Corporate media falls into the first four groups in varying degrees, so it's difficult to categorize them as a separate group. However, they never fall into the last group!)
I do think most people fall into the trap of not questioning things. When you look at how people just accept deficit spending and the fallacy of what both major political parties promise, yet can never deliver, it amazes me that nobody seems to do the math. Everyone seems to accept that 1+1=18. When an event or trend defies expectations, people use the excuse that "this time it's different" or "that can never happen, because it's never happened before" depending on the situation, whichever is more expedient at the time. C'mon, you can't have it both ways. In a way, it seems like our attention is diverted into partisan bickering, while both parties serve their masters...those bankrolling them.
Norway is running a voluntary deficit, with a max limit of 4% (handlingsregelen, actionrule) based on return from the sovereign wealth fund ( http://en.wikipedia.org/wiki/Government_Pension_Fund_of_Norway ).
I can now post this under my new, authorized, account :-)
At the writer: you made some BEGINNERS MISTAKES IN YOUR ANALYSIS.
1. You can not balance delta GDP with intrest rates. You need to take the tax income. So if delta GDP = 3% and nett tax income for the government is 40% the delta in income is 1,2%, forget about the 3%. And you need to multiply this 1,2% with actual GDP to get at the end number.
2. Similarly, you can not simply take the intrest RATE, you need to take the NETT INTREST as an amount. Because who cares if intrest is 20% but the additional debt is only 1 million? The delta intrest would be 20.000, nothing to worry about with a GDP of 15 trillion and a net tax growth of 1,2%...
Happy to be of service :-)
we need a radical solution! have this new commission inventory the US government assets that can be sold: parks if necessary. retire the entire debt, and make it unconstitutional to borrow (taxation without pain). the government needs to feel pain anytime it ventures to spend money!
Sending letters warning governors to resign or else, despite the fact that they don't advocate violence (they suggest legislative solutions) after the business at Eric Cantor's office means some of these guys in the <a title="FBI on the edge: Guardians of the Free Republics" href="http://personalmoneystore.com/moneyblog/2010/04/02/guardians-of-the-free...">Restore America</a> (a part of the Sovereign Citizen movement) thing might need pay day loans for lawyers before long. Of course, there is some very justified reasoning behind a lot of what these folks are about. I do not think the Guardians of the Free Republics< will achieve much, and also the right wing is getting too weird for their own good.
It's very interesting how the "business at Eric Cantor's office" is reported. Nationally reported gunshot; NOT nationally reported was the fact that the police later determined the bullet was spent and on a downward trajectory when it hit the window. In the city of Richmond, gunfire is not that uncommon. A random skyward round fallikng back to earth is what hit Cantor's window.
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