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Michael Pento Says Double-Dip Recession Is Now Guaranteed
As usual, Pento's TV appearance are about as contained and demure as Alan Greenspan on Ambien: "[Bernanke's statement that the economic recovery is intact] guarantees that we are going to have a double dip recession, because his track record is 100% accurate, but it is 100% accurate in the wrong direction. I look at markets and I look at economics, and since this whole rebound was derived by artifical means, why would I ever believe that we are not going into double dip recession. Should I listen to Ben Bernanke or should I listen to the price of oil which contracted from $85 to $72 a barrell in few weeks, should I listen to the 10 Year that went from 4% to 3.2% in a few weeks, should I listen to Doctor Copper that went from $3.50 a pound to $2.77 a pound: where would I want to put my allegiance with, markets or Ben Bernanke. We need to sell assets, and we need to allow the deleveraging process to consummate. We are going in a wrong direction and that's the double dip recession is virtually assured. 2008 taught us very clearly that decoupling is a dodo bird's philosophy. The US is headed down. You'll see home starts, permits, sales plummet in the next few months, that's going to add more supply to the housing market, that's going to put bank assets under duress, that's going to put their capital under duress, and that's going to help bring us into a double dip recession." Pento's asset allocation advice: high levels of cash, hide in the short-end of the Treasury curve, and own gold, precious metals and high-paying dividend commodity stocks.
When the man speaks the truth and nothing but the truth, there is little to add.
h/t Adam
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We have Hugo Chavez light in the White house - why would anyone want to own equities?
+10,000
Why indeed, he is TRYING to burn the economy down.
"We need to sell assets, and we need to allow the deleveraging process to consummate."
" Pento's asset allocation advice: high levels of cash, hide in the short-end of the Treasury curve, and own gold, precious metals and high-paying dividend commodity stocks."
Isn't there a contradiction here?
It is not a contradiction. It is a hedge, it is liquid, and it allows for flexibility.
It is a recognition that the secular trend is deflation, with currency debasement a function of the political winds.
"It is a recognition that the secular trend is deflation, with currency debasement a function of the political winds."
Best explanation (most succinct also) in this thread
One time try: Inflation OR Money Supply Growth works its way to Price Inflation over a given period of time depending on various factors. In this environment that delay time is about 36 months. As confidence in money decreases due to awareness then that time delay may decrease.
Here is the M3 ShadowStats Chart for the recent past:
http://www.shadowstats.com/alternate_data/money-supply-charts
As you can see the Price Inflation that is "baked in the cake" from mid-2008 at 18% money supply growth will not maximize its effects in Price Inflation until mid-2011 at the earliest.
That doesn't take into account MBS purchases, the world bail-out, hidden horse-skittles, and other little counterfeit printing games.
These folks are control freaks and thieves, they make currency worthless, and pocket your wealth. That is ALL they ever do. To say that they will deflate and that dollars will become worth MORE is: "It is a crime to leave the sucker with any of his money." :: W.C. Fields.
Oh, by the way, they ARE the government. And when they are done playing they burn the house down to cover their tracks. As Mr. Faber so eloquently says, "Its going to be war. Find yourself a nice place in the middle of nowhere, because the cities will be gassed and power will be out and you will not be able to get home there." (paraphrase)
And then he smiled, kind of half-heartedly, as a man who has stared into the fires of hell does, and said, "We're all doomed."
LeBalance
"One time try: Inflation OR Money Supply Growth works its way to Price Inflation"
____
And I'll be a good sport and try more than once.
Inflation is money supply growth (+ credit growth + instruments of debt that traded as if money)
price inflation = result of inflation.
It's fiat money + credit + derivatives etc = total money
That's why Bernake has problems.
Lots of money has been destroyed.
You have effect as cause.
But it seems to me that to say "credit = money" is only appropriate, if at all, in those markets in which credit was a major factor, such as real estate and housing. Otherwise, as credit radically ramped up in the 1990s and 2000s, we would have seen a corresponding radical increase in across-the-board inflation, which we did not --- except, again, in those markets such as stocks, houses and real estates.
So my guess is that we will only see "deflation" in those same markets as credit contracts --- which seems to be the case. For those of modest means, and not reliant on debt such as retirees, the cost of living is NOT decreasing, and in fact continues to increase.
"But it seems to me that to say "credit = money" is only appropriate, if at all, in those markets in which credit was a major factor, such as real estate and housing. "
It's fiat money + credit + derivatives etc = total money
I think you made my argument for me, didn't you?
The money created, itself created the bubbles!
___
Again people confuse the effect, higher prices with the cause.
SEE http://blog.mises.org/12846/marc-faber-video/
Also the marc-faber video was on zerohedge
The Austrians have got this right, all this enphasis on price inflation is part of the brainwashing
I think we are saying exactly the same thing:
Cause == Money Supply Increase (aka Inflation).
Effect == Price Increase (aka Price Inflation).
How you could take my quote:
"One time try: Inflation OR Money Supply Growth works its way to Price Inflation"
any other way is troubling.
Your quote of:
"It is a recognition that the secular trend is deflation, with currency debasement a function of the political winds."
calling for deflation was the point of my post. It still is and you have said nothing about your post.
Well, if you say it that way (more explicitly for the ADD challenged amongst us, that is to say, myself, only.)
"Cause == Money Supply Increase (aka Inflation)."
"Effect == Price Increase (aka Price Inflation)."
Then, you're right (we are saying the same thing) and I made an ass of myself.
I did agree and said so with the statement "It is a recognition that the secular trend is deflation, with currency debasement a function of the political winds."
--
although, of course, I still believe that BB and others may yet succeed in creating high price inflation with QE v2.0, 2.1, 3.0 ... in spite of the heavy headwinds of the massive credit destruction that has occurred (and of what is yet to come)
QE N are a given.
I pay homage to playing the ass my self quite frequently, there is no learning without the realization of the gulf. It is the mark of a Living Being.
bada boom didnt you mean to say we need to "sell asshats"? Thought i heard you wrong.
Micheal is spot on and pretty much what most of us here at Zero Hedge figured out well ahead of everyone else. What they are attempting is insurmountable. It defies logic to believe that if all this intertwined banking, excessive leverage and false pricing is based upon free money which later turns to debt that we will not simply be exacerbating the end result and pain.
I will take it one step farther from Micheal and say all those new home buyers who thought they were getting a bargain will find themselves underwater and will connect the dots very clearly to highlight his point:
* Housing had already fallen to a modest level. Only drastic intervention by the government and the holding back of an armada of housing inventory in exchange for not taking losses allowed more moderate stabilization in housing prices.
* The tax credit and illusion that home prices were stabilized induced those few with jobs and savings looking to buy homes to step in. I will also go as far as to say 35% of home "buyers" were the equivalent of day traders in real estate looking for a quick turn around flip. The flip mentality was still alive and some investors were unscathed so they push in believing what they see on the television that home prices are a bargain and hoping for additional demand in coming months since the stock market faked them into believing a recovery was around the corner.
* So even with all these buyers of perceived bargains we are still seeing home prices decline. Why is that? Unemployment is the answer. Without jobs no savings can be accumulated and homes cannot be purchased.
* Many previous home buyers have their credit decimated and cannot participate even if they would like to participate.
* Now we have an entire legion of those who preserved capital pushing into assets such as Real estate with intact credit about to find themselves underwater from new purchases about to have the rug pulled out from beneath them when banks finally unleash their armada of invetory. Then we see their capital evaporate, we see their tax credit disappear in one month as their home values fall and their credit destroyed. So now we have unscathed investors now scathed and now adding to the glut of inventory.
* So what happens since jobs are not being added and unemployment disappears? We see the velocity of money tank and begin to impair a new set of loans. As the market collapses and jobs fall we see increased pressure on small and medium sized business who then are forced to layoff more previously safe jobs and that is where it becomes interesting.
* These new previously safe jobs in service sector utopia America now begin to go on unemployment as their home values are falling and those who bought when they had jobs find themselves without jobs and find their new purchases underwater. Well with the number of Americans they are finding out are not paying mortgages and living rent free for a year they assume the small loss of their down payment and enter default and foreclosure maybe a year from now.
* As the credit markets seize we see credit card companies reign back their lending and credit limits to such scarce levels panic sets in with anticipation of consumers turning to their credit cards as a lifeline.(This has all been pointed out in ZH for months now that consumer credit is falling of a cliff) Credit lines have been used as welfare and minimum payments have been made.
* The real catalyst for unlocking financial armageddon is state and city jobs. We are seeing it now with teachers, municipal workers and transit that this fat needs to be cut to meet budgetary needs. There is no need to have 3 people sitting around doing the jobs that one can do. As these previously safe jobs are sucked out of the economy we will more small local business impacted since jobs which have been safe for decades are no longer in the consumer equation.
*Meanwhile we have 99'ers falling off claims in mass this summer for the first since this began and the steady 450 will fall off every month afterwards.
* Interest rates will rise regardless of Bernanke's plans because money will become so scarce that capital will be given it's rightly yield.
* We have record babyboomers retiring pretty much even where they were a decade ago (for now) withdrawing from the markets more than is being contributed through 401ks and pensions because without jobs there is no contribution. We do however have a legion of retirees who are ready to head to Boca.
* Incorporate the newly laid off turning to their 401ks for withdrawals that they are more than happy to take an early tax haircut on because they are eligible for "hardship" withdrawals since there is NO MORE CREDIT,NO MORE JOBS & NO MORE UNEMPLOYMENT CHECK.
It is the end of all things. The problem is there is no money.Only debt and by the time the real withdrawals come and home on the market rise 60%+ the markets will already be down below S&P 650 and just like that the "wealth & Savings" stored in the markets and homes evaporated in months and all the hardwork and savings along with productivity that went into those savings will be gone.
And then America will wake up and see where it all went and that it was extracted by banks and Wall Street long before they could take their money out of the ponz. We have spent trillions and changed accounting rules and accumulated debt at near retardation levels in the hopes that this time we would get it back to even and reorder the system but it has failed. And just like the central bank interventions in the Euro and the massive ramp jobs to squeeze shorts they are yielding small results and becoming less effective.
The only cure is healthy beautiful deflation and default and the return of jobs from overseas to America. See Wall Street believed they had found the secret to alchemy. They believed they could turn lead or paper into gold but even the man Isaac Newtown himself who discovered "What goes up must come down" after tireless efforts found alchemy to be impossible. The Wall Street profits were fraud and not alchemy all along. And all the Harvard degrees, connections and secret handshakes cannot turn paper into gold. You can paint the lead to look like gold but eventually it is discovered not to be gold.
So when anyone ponders why gold climbs in 2010 with all the technology we posses the answer is that it has and always will be a storage of productivity and wealth because you can engineer a flawless perfect diamond in a laboratory but you cannot create gold. You must mine it and it requires labor and there is a finite amount. Economics 101.
Home prices will fall to mid 1980s level..and then we will be cured.
I agree with a lot of what you have said, but
"but you cannot create gold. You must mine it and it requires labor and there is a finite amount."
There is a lot paper gold, futures. It may or may not be to the benefit of real gold.
Right which is why PHYS has it's deserved premium. Gold will be impacted by deflation at some point but it will be substantially higher at that point. The economic world is learning from history that gold and silver are money. Even gold cannot be immune from deflation but first it must find it's true value.
I don't think you can find gold's true value because of the use of derivitives. If everyone was forced to buy physical gold, yes we would find it's true value.
that will happen in an orgy not unlike the "Days of Terror" in Revolutionary France, but that party was a warm-up.
When paper gold goes, we will have the party. As Buffett said (in another context), we will find out who was swimming naked.
Let's go streaking!
I agree with every point. When you can buy the DOW closing with an ounce of gold, we will have bottomed. That is what I am waiting for... Then I will trade my bubble gold for some real estate somewhere.
Great post John McCloy !!
Wonderful summation, as grim as it is!
Thank you John!
I use real estate as an example because it is what I am familar with on a personal level as a RE broker here in Manhattan. I will tell you that our prices are near 2005 bubble prices and I will also tell you that 75% of my clients/tenants are Blackstone, Goldman, Barclays, J.P. Morgan, Price Waterhouse, Private equity and the only reason Manhattan exists in the bubble we have is:
#1) Wall Street got their money. They are hiring I have a larger influx of the new grads from Harvard, Penn, Wharton, UPenn, Dartmouth, Yale & Princeton than I can ever remember.
#2) The financial industry currently unlike the rest of the world is in a bubble because of their generous gifts from the Fed.
#3) Manhattan is the ground zero for finance in the U.S. and they all want to live in the East Village, West Village, Soho where we possess most of our property.
#4) The attorneys, PR, Marketing, Startups all follow the money that Wall Street provides along with restaurants, bars and nightclubs to service the Wall street money.
#5) It is a tiny island with limited supply of housing and all the wealthy and trust fund babys of the globe be it Europe or Asia have their children wanting to come to this small isle to live the life they see in films so we are relatively immune...for now.
Remove Wall St. jobs from the equation as we saw in 2008 and it is armageddon and I saw it first hand.
There was a fire sale on Manhattan props 30 years ago....ugly.
I've been stuck here for the last day or so....
If the Fed can print money and relieve debt (allegedly on the back of the tax payer...) Dick Cheney says the debt doesn't matter... Why do I fucking work again? Seriously, it angers me that these fucks can create wealth, make markets, and destroy wealth, relieve debt with no regard for anyone. If you work hard you are punished. If you spend within your means, you are punished. You are paid to not look for a job. If you are getting a hand out, you shouldn't work because that would take jobs away from those that do. Why is there a value associated with anything if they are simply controlling who can have and who can't? Almost makes me want to cash out and get into organized crime. The rules would be easier to follow.
Well put and there you go.
Explain to us why you can print away bad bets in the trillions and debt yet you cannot print away the taxes paid annually? Seems like apples to apples to me. The bottom line is most of America is distracted and unaware. They are still in the "Blame Bush", blame the republicans mode and too blind to see that most all politicians are complicit and centrism is the key. Like gold intelligence is a scarce commodity.
This is why Zero Hedge is so illuminating and a beacon for liberty akin to the revolution. You must come to two conclusions and all is understood.
#1) Evil exists and the ability to take advantage of the weak through power exists and is in herent in human nature and tyranny has taught us that through history unequivocally.
#2) Intelligence can be harnessed for either good or evil. That is what makes mankind and freewill so beautiful. We can choose to use our intelligence to exploit, control, extract and impart our will on others without intelligence. Or we can use our intelligence to go the more difficult path which is for the betterment of society and assisting others.
Most choose the betterment of themselves but the gift of man is to be able to choose between what is free will. We can choose to be animals or humans.
"The only thing necessary for evil to triumph is for good men to do nothing"
-Edmund Burke
Please explain how the bad debts were printed away. The 1.2T FED MBS purchases are reversible, right? Liquidity injections to the banks are loans which are parked yielding interest at the FED (stealth QE program).
Ozz
Has Ben not been giving banks absurd cash for assets not worth anywhere near where they claim to be in order for them to buy T-Bills at 3% yield? They lend us back our own money do they not? Dont they use this money to add to their reserves?
Correct, and that's the stealth QE I was referring to which is recapitalizing their books but my question was in regards to the FED MBS purchases. If housing was to sink further, which I totally agree with, aren't the banks still ultimately responsible for these assets?
I'm not debating your comments, I just want to understand the final outcome of all that shadow inventory that is not only non performing but depreciating. Who will ultimately be forced to hold the bag? I doubt the tax payer can absorb anymore.
No. The Fed owns the bad debt and the banks have been cleared.
Well I stand corrected.
http://www.dsnews.com/articles/feds-mortgage-purchase-program-sunsets-20...
If the GSE's are expected to absorb the bad debts, then i guess it's the tax payer again.
Well i guess they will assume the taxpayer can assume it all until they riot.
Maybe you can help me out with this. I assumed MBS purchases are just that and purchases and not repos or swaps.
So what I have always feared is who will buy the MBS when Ben decides to sell? I cannot imagine banks repuchasing their own shit if housing is falling off a cliff.
I think Ben plans on holding the MBS for decades since we are the almight FED and all and he can sell at break even.Am I wrong..is it a swap?
You are correct sir. Good luck trying to swap that garbage.
lol: when you charge an expense, the money does not exist until you "request" it. Banks do not loan you anything, they facilitate trade by creating the vehicle that you request into existence.
When a bank makes a mortgage loan of $1M and receives ANY thing back they have made an infinite profit because they loaned you nothing of value to themselves, they merely facilitated your economy by your choice.
Everybody gets this right? This is fractional reserve wealth transfer 101.
What has this whole society been paid for with? What do the insiders spend to vacation, their money, their wealth? Have we ever been in an environment not charged with the co-caine of fake electro-shock therapy money? Rhetorical.
Well it's the banks charter to expand the money supply by suppling you credit. Nothing wrong with that even with a 10:1 reserve ratio. What shits me is the lack of reserves when collateralized debts (homes) go bad. Miss a car payment, they take the car. Miss a house payment, well come and take the house without recourse, but no no. Credit cards on the other hand are a form of non secured loans or signature loans which is why they demand 20%+ interest.
if the fed buys a crashed Mercedes for the new price, the owner has the money to spend on whatever they want.
The crashed MB has lost value. Provided that the FED purchased at market price, then the owner has destroyed credit or deflated the money supply.
So you see nothing wrong with the expansion of money supply at the 10:1 ratio? But then you are aghast that there are no reserves? There ARE NO RESERVES. There is NO VALUE.
A single question for you. Just one:
"Is it in a Bank's Charter to steal the wealth of a nation, destroy it, then own it in perpetuity as the lord with the masses as their unknowing slaves?"
Steal as in they do no work. Supply no value. Just walk in and take it.
"Is it in a Bank's Charter to steal the wealth of a nation, destroy it, then own it in perpetuity as the lord with the masses as their unknowing slaves?"
Yes.
lol: CC: as you can see some people like to say assinine stuff that makes no sense, but when called to task, they refuse to see their own feces on the floor, much less learn from them, or attempt to clean them up.
Yes, is the right answer, of course.
To Ozzy:
"
Read and realize!
Louis McFadden was assassinated by poisoners, after a number of unsuccessful attempts.
The are many details, but note the 12 Federal Reserve Districts, going about with the Head in the District of Columbia. !2 Disciples of the Lord. Not a "mistake."
The 10:1 leverage ratio (30:1 in Europe) banks extended is no where near the 20:1 (5% down) leverage so many people took on their homes or the infinite leverage with zero down. The housing collapse was caused by the banks extending credit to sub prime borrowers beyond the sustainable 1-2% default rate. That was their mistake which I wish they were held accountable for.
But ask yourself, have you ever applied for a loan? Was it collateralized? What was YOUR leverage? Do you use credit cards (infinite leverage maybe)?
I bet the answers here are profoundly yes. So if you want to blame the banks for extending the credit to you, then please take some responsibility for demanding it.
On the other hand, if your answers are no to all the above, then good luck getting a loan if you need it. I can only guess your attitude would sway in the opposite direction once you get rejected. I experienced this when a 17 year old punk bank intern rejected me for a $5000 signature loan due to lack of credit when I first arrived in the US 9 years ago. I was brought up in Australia not to use credit. Everything was paid for up front. Only the rich had credit cards then and there. I quickly noticed only the poor really needed credit cards in the US.
John McCloy, you are really something. As I have had to say various times to other smart folks here at ZH:
Please never leave us!
+ $1230
John McCloy
The best set of posts I've seen on ZH.
Tyler should grant you contributor status.
*****
Bingo, John. The failed experiment, as always, collapses all around its creators, dragging everyone else down too.
I agree that deflation is the optimal, desirable resolution. It would accelerate the coming of the next phase but be painful in the short run. However I fear that there is currently no political will to tolerate it. Although its conventional wisdom to say that deflation hurts borrowers, the real problem is that creditors are on the chopping block because borrowers simply decide that default is the only logical response given economic realities. And THAT means very rich and powerful people are threatened.
Given that TPTB will resist deflation at all costs, I believe that the global response we're witnessing will continue for quite some time, damaging the system and people's lives as it drags the economy along the rough road. We'll get monetization. We'll get fiscal stim. Bazookas will get replaced with Howitzers. And the rationalization will always be that we must avoid deflation (which they'll also call "contraction"), that we can't let big things fail and that if we kick the can just one last time we'll get back on track.
As a result, as I've posted quite a few times, we'll have a mix of inflationary and deflationary forces with a net result that's worse than deflation alone.
"Political Will"
Exactly and that sums it up entirely. The pols have been told there is a simple solution just trust me:
1. We will print money and fill gaps.Middle class will hardly notice
2. You can grandstand about all the hardworking you do to give the middle class "Free money"
3. We pass the debt onto our kids.who cares. We will be dead and re-elected
4. If you go along with us and playball we will provide for you and your clan via contributions,cushy jobs aka Dodds wife on the CME board.
5. We keep the language as complex as possible to hide the simplicity of out of your millions of pockets into mine
6. We use our wealth to influence media and TV to spin in for the American Idolites
7. We create a Fed and pretend it is a govt necessity.
8. We steal from them via inflation so they do not notice via smaller candy bars in the name of price stability
"Political Will"
Exactly and that sums it up entirely. The pols have been told there is a simple solution just trust me:
1. We will print money and fill gaps.Middle class will hardly notice
2. You can grandstand about all the hardworking you do to give the middle class "Free money"
3. We pass the debt onto our kids.who cares. We will be dead and re-elected
4. If you go along with us and playball we will provide for you and your clan via contributions,cushy jobs aka Dodds wife on the CME board.
5. We keep the language as complex as possible to hide the simplicity of out of your millions of pockets into mine
6. We use our wealth to influence media and TV to spin in for the American Idolites
7. We create a Fed and pretend it is a govt necessity.
8. We steal from them via inflation so they do not notice via smaller candy bars in the name of price stability
Yup. Points 1-8 are fully operational. And they'll try and keep the game going as long as they can. But slowly at first, then rapidly we'll get a political reaction. Because trying to keep the game going is in essence a political decision in favor of TPTB, the status quo. There'll be growing resistance to the existing power structure. As the effects of deflation are felt employment will decline, real incomes will shrivel, real assets of course will tank and (as I predicted) retirement assets will vaporize.
Now if they let deflation have its way the cost of living would deflate as well. There would be a grand reset on the 3-5 year time scale. Then new opportunities would arise and the ground would be fertile for new enterprise.
But since TPTB will resist deflation, the cost of living will actually inflate due to monetization. Hence my Double Whammy Theory: personal assets and income deflate while cost of living inflates if current policies are maintained. In such an environment there is only one inevitability: radical political change (which, I believe, is already beginning to happen).
+ $1230 to you too Caviar Emptor (one of the best names here at ZH).
Please never leave us!
Don't be clingy.
Attachment is suffering you know.
Hah!
Wise!
Like!
I agree with most of your analysis of the crisis but the big question for me is what comes after. If there is a big reset, will we change our economic models? Will we return to local economy via jobs coming home? What will those jobs be?
I'm not being critical - I am just very curious - and I have no clue as to what things will look like in 10 or 20 years or how to predict those changes.
Like most here I am bearish on the market but I am bullish on humanity (probably self selecting bias but what the hell ;)
Re: And then America will wake up and see where it all went and that it was extracted by banks
You had me until there. Here's the reality: the dumbass will be told the simple story of "those people" again; you know: “how those people ruined this great and glorious nation” (, yeah the exact same one, wink wink). They’ll believe it because they are dumbasses. When peasants realize they're screwed they'll do exactly what peasants throughout history have done and rip-out each other throats. The nobility and their vassals will stand around laughing and cheering on the peasants males killing each other.
Different clowns same circus, for the last 10000 years.
+1 manufacture of consent
You say:
"It is the end of all things. The problem is there is no money" and then you say:
"The only cure is healthy beautiful deflation and default and the return of jobs from overseas to America".
Ok. Why not create real money and put it in the hands of the public? (not banks). We have over-capacity in everything (except possibly energy) then why not use it?
Also, let me know what do you think about my thoughts on:
Modern Monetary System, Banks, Money Supply, Recessions and Depressions
Modern monetary theory seems almost too good be true. It seems as if "one is getting something for nothing". Too many people who understand and write about modern monetary systems are very professor-ish and don't really answer the basic question: How can one get something for nothing?
We do get something -- a lot, actually -- for very little effort. How?
All goods and services (i.e., wealth) creation involves not only production (the engineering part) which is easy to see but also exchange (i.e., trading of one’s produced output for produced output of another person). The exchange part is hard to see unless one is involved in barter. Getting money for one’s produced output and buying other people's produced output with that money is just an extremely efficient form of barter. Therefore, going through this thing called "money" makes barter (trading) extremely efficient. So, there you have it. One is getting something (one becomes extremely efficient at barter) by using fiat money that costs very little to produce.
Of course, the producer (the seller) must trust that the money received will retain its value over time to a sufficient degree. This is the main challenge of all currency management by governments or anyone else: Maintain the trust.
Currency failure occurs when this trust is compromised (actual rampant inflation or an expectation of rampant inflation).
But we have major problems with fiat money: Who gets to create it? How much should be created or destroyed and when? And once created how should it be introduced into circulation? And if some money needs to be destroyed, whose money should be destroyed?
Once one realizes that 97% of economic exchanges (trade) is done using bank deposits (yes, bank deposit=modern money) then one will begin to see why banks are so important because they create (and destroy) and distribute (by lending) this very important commodity. It is a common misconception that governments create money (yes, they create some, called base money or cash - coins, paper bills, reserves at the central bank) but most of it is created (or destroyed) by private banks as they are able to leverage (pyramid) up to 10 or more times the government created money or deleverage and destroy money.
It is this private banking industry’s money creation or money destruction that enables booms (more money creation via more lending) or recessions (less money creation via lending less) or deflationary depressions (credit crunch--very little lending). One way to counter a recession or a credit crunch is for the government itself to create money (or borrow) and spend it (fiscal stimulus or even bailouts or purchases of crap assets by the central bank, etc). This is an attempt to counter the money destruction (money is destroyed as loans are paid back by borrowers and new loans don't entirely replace the destroyed money). This is what Japan (since 1990) and U.S. (since 2008) have been doing.
Both governments are waiting for the credit crunch to go away and more normal private (bank) money creation (i.e, lending) to resume. Which many people think will not resume until bad debts are wrung out of the world economy (i.e, take the hit of a worldwide deflationary depression). A worldwide deflationary depression (I think) will lead to much, much chaos and probably wars and extreme poverty.
But I think that there is another way. We need to modify the process of money creation and distribution itself so the real economy (trade) is not so severely impacted (one major reason for extreme booms and depressions is severe changes in money supply that occur due to too much lending or too little lending).
Summary:
1) Money is extremely useful because it greatly facilitates trade.
2) Fiat money can be created very cheaply and there is no problem keeping up with demand for money.
3) Most money creation (by far) is performed by private banks.
4) Decline in the supply of money (electronic scrip=bank deposits) in the economy greatly hampers trade.
Here is my proposal:
a) Remove government bank deposit protection insurance schemes (e.g., FDIC deposit insurance) and allow “Free Banking”. Allow banks to fail. This will greatly reduce the ability of banks to create bank deposit private money.
b) Give the public the option to “store” money electronically risk-free in a government owned bank which can only “store” electronic money and clear checks but not lend it out. 100% reserve credit risk-free money storage for a small fee.
c) Allow new money creation in all forms (coins, paper bills or bank deposits) by the treasury department.
d) The new money should be put into circulation by spending it on legislature approved government expenses and projects and/or the new money can simply be credited to the citizens’ bank accounts and the public itself can decide what to do with it.
e) The object of the government will be no deflation and no inflation (stable purchasing power). I realize purchasing power is hard to measure and the process can be gamed by the government but benefits are so great that this risk should be taken and managed.
f) If inflation ensues the government can tax and destroy the money.
g) If deflation ensues then the government can create new money and spend it on legislature approved government expenses and projects and/or the new money can simply be credited to the citizens’ bank accounts.
You say:
"It is the end of all things. The problem is there is no money" and then you say:
"The only cure is healthy beautiful deflation and default and the return of jobs from overseas to America".
Ok. Why not create real money and put it in the hands of the public? (not banks). We have over-capacity in everything (except possibly energy) then why not use it?
Also, let me know what do you think about my thoughts on:
Modern Monetary System, Banks, Money Supply, Recessions and Depressions
Modern monetary theory seems almost too good be true. It seems as if "one is getting something for nothing". Too many people who understand and write about modern monetary systems are very professor-ish and don't really answer the basic question: How can one get something for nothing?
We do get something -- a lot, actually -- for very little effort. How?
All goods and services (i.e., wealth) creation involves not only production (the engineering part) which is easy to see but also exchange (i.e., trading of one’s produced output for produced output of another person). The exchange part is hard to see unless one is involved in barter. Getting money for one’s produced output and buying other people's produced output with that money is just an extremely efficient form of barter. Therefore, going through this thing called "money" makes barter (trading) extremely efficient. So, there you have it. One is getting something (one becomes extremely efficient at barter) by using fiat money that costs very little to produce.
Of course, the producer (the seller) must trust that the money received will retain its value over time to a sufficient degree. This is the main challenge of all currency management by governments or anyone else: Maintain the trust.
Currency failure occurs when this trust is compromised (actual rampant inflation or an expectation of rampant inflation).
But we have major problems with fiat money: Who gets to create it? How much should be created or destroyed and when? And once created how should it be introduced into circulation? And if some money needs to be destroyed, whose money should be destroyed?
Once one realizes that 97% of economic exchanges (trade) is done using bank deposits (yes, bank deposit=modern money) then one will begin to see why banks are so important because they create (and destroy) and distribute (by lending) this very important commodity. It is a common misconception that governments create money (yes, they create some, called base money or cash - coins, paper bills, reserves at the central bank) but most of it is created (or destroyed) by private banks as they are able to leverage (pyramid) up to 10 or more times the government created money or deleverage and destroy money.
It is this private banking industry’s money creation or money destruction that enables booms (more money creation via more lending) or recessions (less money creation via lending less) or deflationary depressions (credit crunch--very little lending). One way to counter a recession or a credit crunch is for the government itself to create money (or borrow) and spend it (fiscal stimulus or even bailouts or purchases of crap assets by the central bank, etc). This is an attempt to counter the money destruction (money is destroyed as loans are paid back by borrowers and new loans don't entirely replace the destroyed money). This is what Japan (since 1990) and U.S. (since 2008) have been doing.
Both governments are waiting for the credit crunch to go away and more normal private (bank) money creation (i.e, lending) to resume. Which many people think will not resume until bad debts are wrung out of the world economy (i.e, take the hit of a worldwide deflationary depression). A worldwide deflationary depression (I think) will lead to much, much chaos and probably wars and extreme poverty.
But I think that there is another way. We need to modify the process of money creation and distribution itself so the real economy (trade) is not so severely impacted (one major reason for extreme booms and depressions is severe changes in money supply that occur due to too much lending or too little lending).
Summary:
1) Money is extremely useful because it greatly facilitates trade.
2) Fiat money can be created very cheaply and there is no problem keeping up with demand for money.
3) Most money creation (by far) is performed by private banks.
4) Decline in the supply of money (electronic scrip=bank deposits) in the economy greatly hampers trade.
Here is my proposal:
a) Remove government bank deposit protection insurance schemes (e.g., FDIC deposit insurance) and allow “Free Banking”. Allow banks to fail. This will greatly reduce the ability of banks to create bank deposit private money.
b) Give the public the option to “store” money electronically risk-free in a government owned bank which can only “store” electronic money and clear checks but not lend it out. 100% reserve credit risk-free money storage for a small fee.
c) Allow new money creation in all forms (coins, paper bills or bank deposits) by the treasury department.
d) The new money should be put into circulation by spending it on legislature approved government expenses and projects and/or the new money can simply be credited to the citizens’ bank accounts and the public itself can decide what to do with it.
e) The object of the government will be no deflation and no inflation (stable purchasing power). I realize purchasing power is hard to measure and the process can be gamed by the government but benefits are so great that this risk should be taken and managed.
f) If inflation ensues the government can tax and destroy the money.
g) If deflation ensues then the government can create new money and spend it on legislature approved government expenses and projects and/or the new money can simply be credited to the citizens’ bank accounts.
Accidental double post. sorry
You mean we're NOT gonna get rich taking in each other's washing? I am shocked, I tell you.
Will anyone take a guess as to when we will see the sp below 1035? the suspense is killing me, and I think that will be the first shot across the bow of the USS recovery.
Bottom line is the Government cow came into the barn and everybody grabbed onto a teet and started sucking. They sucked and sucked until wasted milk was running down their cheeks. Oh what a milk fest everbody had! Now poor Bessie's utter looks like an oversized raisin and the rosey cheek milk whores are going to have to fend for themselves. The only question at this point is , how many more cows will they bring into the barn?
SHUT THE HELL UP with all this Double Dip Recession CRAP!!! How in the hell can you claim a Double Dip when we never came out of the SINGLE DIP! In fact, we went from RECESSION into a DEPRESSION, which to this day garners refusal to admit.
Damn It !!!!!
No shit. We've been on reduced hours for the past 18 months where I work, and still laying off. Silver lining... it's given me more time to convert the yard into a garden.
especially herbs, right? ;-)
Condo dweller Bearing cannot grow a garden, especially herbs...
+ Infinity!
We are in a depression and it is going to be evident within the next 6 months.
I did a new post, after 1 week of holidays. Hope you like it.
We are due for a crash big time
http://midasfinancialmarkets.blogspot.com/2010/06/watch-out-bellow.html
And please short AUDUSD :)
That's one hot asian chic!
Reality? This is a small bounce in a much larger economic decline. If you look at the twenty year chart of the S&P 500 there is a clear double top formation and the potential for a pullback between 400-600. Pento has nailed it again. Good for him.
A repeat of sound advice --
"I recommend you panic"
ie the opposite of this. http://www.youtube.com/watch?v=xS358WbnS_k
Another repeat of other sound advice, from Gordon_Gekko:
Buy. Gold. Now.
Especially if you do not own any.
And silver!!!
How the hell is Joe6Pack supposed to understand all this Central Bank shit so that we can critisize the govenor in an educated manner?
I admit that I cannot find good resources to understand central bank mechanics in great technical detail without spending a lifetime doing it. The only objective book I've found so far that is a good starter is: 'Monetary Economics in Globalised Financial Markets' by Belke, Polleit Springer 2009, 839 pages. This book talks about the gold standard, the Austrian school, and of course modern fiat. What other book is there?
Contents:
Money and Credit Supply
Money and Credit Demand,
Interest Rate Theories,
Financial Market Asset Pricing,
Causes, Costs, and Benefits of Sound Money,
Theory of Monetary Policy
Transmission Mechanisms
Monetary Policy Strategies
I hope I am not out of line here as I mean no sarcasm.
"How the hell is Joe6Pack supposed to understand all this Central Bank shit so that we can criticize the governor in an educated manner?"
Collect videos that others have posted here. The ones where the culprits own words condemn them.
Simple pie charts/slides that show what one dollar bought in 1950 and what it buys today.
It doesn't matter if the intended audience is a surgeon or attorney, start slow.
RIGHT NOW THERE IS A DEBATE IN CANADA ABOUT RETIRING THE PENNY FROM CIRCULATION.
ONE OF THE ARGUMENTS PUT FORWARD BY THE CENTRAL BANK IS THAT IT HAS DECLINED IN VALUE 95% SINCE 1913.
NOBODY I HAVE READ HAS NOTED THAT THE DOLLAR HAS AS WELL, OR THAT IT IS DUE TO CENTRAL BANKING POLICY.
IT IS HOPELESS.
we as a mass arent learning fast enuf and so will be largely unprepared. many have been living in tents for a good while. Tents leak, offer no security and the unemployment checks are running out while prices get higher.
Little to no attention is paid to the suffering of our people , much like our soldiers only getting attention when its in the interest of politicians.
Gulf oil disaster has a huge cover up element to it and many of us common people are in agreement that it is no longer our country.
I see folks cleaning the beaches and hear reports how all alaska oil spill clean up workers are dead now. These folks will sicken and die from that work, yet nothing is done for them and BP has them all in fear. This is more than criminal, its MURDER. And our government is complicit for allowing it.
I am actually pissed. I like suffering personally, builds character. But this is needless suffering stretched out over time. The coast air is dangerous to human health until proven otherwise is the way it should be handled. Dont people care?
Lion:
Good question. Other posters suggest starting here. Don't. This is a good site, but there's as much BS in these comments as useful information. Start at a research library. Find a major university. Research the Coinage Act of 1873. Start there. Once you understand why going off a bimetal standard to straight gold was bad for farmers and laborers, then you can begin to understand the history of the Fed. There are a number of great books on the subject. Also read "The Creature from Jekyll Island" It's an older book but goes over the history of the Fed wonderfully in language even we laymen can understand. Good luck.
Sit on your ass, click over to Mises: read Huerta De Soto's:
http://mises.org/books/desoto.pdf book.
Then read the classic "Economics of inflation":
http://mises.org/books/economicsofinflation.pdf
Whatever. The methods of banks don't change.
There are some good utube videos as well. I recently saw meltup. It was worthwhile. And Zero Hedge is agreat place to learn much that is pertinent now. ^ months in a library and history will pass you by. Its all moving very fast now.
Food storage, guns, seeds , silver and good neighbors
Looks like you need to start with baby steps:
part 1 http://www.youtube.com/watch?v=KyDU4X8GSmE part 2 http://www.youtube.com/watch?v=M3KjyhNX5E0&NR=1 part 3 http://www.youtube.com/watch?v=lgdfA9x287o&NR=1 part 4 http://www.youtube.com/watch?v=d-pSfYDrWaQ&NR=1 part 5 http://www.youtube.com/watch?v=7Wtccf0UUpE&feature=relatedThis is why we collect like flies to the light at ZH. Because the person that started this site chose to impart his financial knowledge and the intricacies of the way the world works upon us. We all knew something was wrong..and we all sought answers and we found each other because we are like minded. We all would like to make money but the fair way. There is a reason a site such as ZH which is growing in popularity is not lucrative and the answer is because it is incorruptible. Do not think for a second Goldman would not love to throw $1 million at this website to purchase it and just make it go away. Because this site and its founder/contributors tell the truth is what they fear. But ZH chooses to do the proper thing and they are poverty stricken and reliant upon donations and ads to do the fine work Tyler provides us with on a daily basis. For christ sakes they cannot even keep up with traffic in 2010 so what does that tell us? It is inspiring and it compels me to get as many people as possible turned onto this site. When the history books are written they will discover that blog with the courage to not sell out helped undo the monolith which is Wall Street.
Once again, well said!
The only thing discouraging about ZeroHedge, as I see it, is that the vast majority of people would seem to have a knee-jerk negative response to such information as is presented here, simply because it makes them feel "uncomfortable". But damn it, unless you are a criminal or a sociopath, the truth is NEVER your enemy! Why can't more people realize that fact?
Because unfamiliar is really really far away from their energy and their present image of themselves. If they would want to move to ZH-like energy they would have to allow change in their lives. That change for many is impossible, but they recognize in the depths of their souls the value here. For those folks the reaction is anger and denial.
Imagine, we here at ZeroHedge are revolutionaries! Kind of exhilirating actually...
Truth often is uncomfortable, as Cog Dis is working to show us.
Break the bonds! Buy gold too.
John: you are spot on. That's what attracted me to this site (the truth)! I happily donated last week and would encourage others to do the same. The knowledge I get here at ZH is irreplaceable and and the comments are thoughtfully submitted. So get up off of some of that money; GOLD BITCHES!
I dunno. My take for the next decade is the middle ground. Flat stock market & housing market. Anemic growth. Unemployment in the 8-10% range. Basically the 1970s redeux.
Posted this on an earlier thread where it probs won't get answered (sadly, I have a day job and catch up with ZH at night UK time) but will post it here to see if the regulars can answer me...
Don't quite see how GLD etc.. being a big paper con (predicted demise.... it locks out when more than a certain percentage of holders try and redeem - a la Madoff) would raise the price of real physical gold. (The fact its a swizz is detailed in yesterdays post about GLDs NAV going up by all the "real" gold in the week being accounted for by this one move - ermm nah - it's easy enough to track stocks with leveraged derivatives - they just have a cut-off where their NAV=0 even though the underlying is nowhere near!).
Quite ready to accept I'm being a dumbass here, but what's the mechanism for real gold going up then? Isn't it more like a massive takedown where all the longs who didn't see the need for physical (because they are credulous) get wiped out?
Disgracefully OT on this thread I'll grant you....
Just to qualify - this is my "black swan" for the system (equities etc) to hit real value. i.e. the demolishing of paper unless it is a direct legally enforceable claim on an asset. And so much of it is nothing of the kind IMO.
Just needs a trigger for the dumb "investing" masses to doubt credibility - not of the economy even - but their claim on it. When it unwinds we'll find a lot of people who thought they owned safe assets, actually own jack shit. That will be messy.
The market price required to get the paper shares held by GLD investors (who think they hold gold) to be real gold in their hands.
You do not want to be anywhere near populated centers or reliant on stores during the months when that happens.
That's assuming the operators of GLD are "honest" and feel (or are compelled to) make good every redemption. What are the chances - really?
Edit - no, re-read - you're with me on that ;) Time to be in the Highlands with a two years supply of beer, fags, and Pot Noodles I suspect.... ;)
Not two year, there will be naught that you would want to come back to. It will be slave society central. Hive metro-centers. Mil-parks. Chemed wastes. Radioactive glow meadows. Zombie towns.
Mac, I am probably far from the best qualified to answer this question, but I will take a stab at it anyway. The argument for the GLD being exposed as a fraud resulting in the price of gold skyrocketing is due to the sudden reduction in the (apparent) supply of gold.
Think of it in another way, the manner in which it is proposed the GLD has been functioning within and affecting the gold market since its inception (assuming that GLD is only fractionally backed). Had GLD never been created, much of the demand (or a good portion, anyway) for gold would have had to have been supplied by actual physical gold, by MORE than was demanded with GLD in place, resulting in a higher price for gold than we see today. If GLD defaults, then there is going to be an absolute panic as those who thought what they held was "as good as gold" suddenly realize that it is not, and there will be a sudden chaotic rush to obtain what physical gold is still in the marketplace. Furthermore, such a GLD default would almost certainly call into question the integrity of the many unallocated and pooled gold accounts maintained by the bullion banks, resulting in withdrawals and redemptions out of them again in the hopes of obtaining physical gold. In such a panic and "paper gold" meltdown, the price of gold would necessarily shoot far higher than it is today, and in fact would almost certainly temporarily overshoot the equilibrium price that it would have been at in the absence of any of the paper gold unallocated and pooled accounts or the GLD ETF.
Absolutely appreciated that you've posted a considered response.
I almost see it the other way - but for the same reasons(!?). Via GLD and other ETFs (there is a hefty one here in England too) there is a massive amount of notional "cash-value" parked. Come the (expected by me at least) Madoff^100 moment the amount of real gold won't have changed, but the amount of "inferred cash" will.
If you step back and look at the amount of cash going into these funds - worldwide - it is flabbergasting, and partly (I suspect) propping the economy. It's like the effect you get off rising house prices - every home owner feels rich and spends more elsewhere. But are they rich....? Maybe if they sleep with gold bars under their pillow - otherwise its just some sort of big "notional wealth" prop that these funds feed into. The denouement is massively deflationary - because the assumed cash doesn't exist - to then buy real gold - or anything else!
Just a theory - any more thoughts will be gratefully bantered!
Mac,
I think I understand what you are arguing, but the difference as I see it is that, unlike the housing price run-up, the "gold" that is and has been bought is not actually in existence (again, assuming that the GLD is not fully backed by gold). It would be as if we had the bubble in house prices as we did, but without most of those putting mony into that market actually ever even bothering to visit the house they thought they were buying! And with ten times as many homes sold as actually existed. Now, if some (or enough) of the buyers started actually taking possession of their homes, it would soon be realized that there were not nearly as many built as had been claimed, with multiple claims on each house sold, resulting in a mad scramble to occupy those houses which did in fact exist.
Also, with the GLD and other such gold ETFs, the money put into them is or was actual money, whereas when people talk about losing money in the housing market, what was involved was falling valuations, not necessarily the loss of actual invested money.
Methinks I smell John Law's oversubscription! Hark, its the South Seas Company!
http://www.articlesbase.com/investing-articles/nothing-learned-in-300-ye...
"It is a crime to leave the mark with a cent of his money." :: W.C. Fields
"For carrying on an undertaking of great advantage; but nobody to know what it is..."
Hmmm - paper. Who'd have thought trees could be pressed into making something so evil...
it is not evil, it is school. we are learning.
There is no evil, shine a light on it, clean it up, be vigilant and it never comes again.
Oh grasshopper, much fun to have:
http://www.youtube.com/watch?v=6p9NTo6BWvs
/lol/
Nice link - ye loon :D
OK but to hark on about the housing analogy (different I'll allow in terms of liquidity/utilty to gold) the drying up of fresh credit cash in the system did not cause a leap up in housing prices (punter view in that scenario: "the banks won't lend me the cash, therefore its even harder to buy a house, therefore they are even more valuable)".
The total opposite - the cash value fell - the lack of credit and ensuing destruction in cash value of the presumed "convertible asset" led to big deflationary pressures.
Now to extend that to ETFs - which claim to run along with the underlying assets - its almost the same argument (from where I am now at least). How would a "Houses ETF" have done in that environment? Badly... but every stakeholder would have then made a claim on "houses" that were held in the fund. If it was leveraged (and lets not relive our own versions of the financial crisis but [Moody's/Squid-Spunk assisted this was one of them]) they may have found themselves holding - depending on the honesty of the counterparty and let's not get our hopes up...
a) bits of paper which were worth purely nothing beyond certain extremities (as any derivative - by definition - is)
b) a defined chunk of a market that real Joe Public was no longer putting the "real" dollars into and was crashing as a result
I'm just not sure there's a c) (recall in the real world I still can't buy a pack of fags for a sliver of gold off my "9-bar")
MacH, one thing akak and others of our ilk are saying is that real physical is better than real shares of GLD.
I go with my ilk: physical gold will shoot to the moon if/when GLD, COMEX or the LBMA do not have the gold.
fofoa.blogspot.com for a different take on gold.
I agree - but only to the extent (for now) that real physical *anything* is better than derivative tracking "anything". Gold will always, always be worth something - these ETFs won't....
I'm just looking from here in the UK - they are studiedly *not* trying to inflate their way out (it's a new government - totally opposed to the last). There IS a battle being fought about the primacy of cash which, in many parts of the world (NOT the US atm) is gaining traction. For once I think the US will follow, but as citizens of Golmanbernankesville you'll be the last to be told plainly....
Is it just me or are those interviewers really annoying as hell?
It's not just you. She came across as a smarmy know-nothing, and I only say that because my momma taught me not to cuss at ladies.
I liked how her final question amounted to, "isn't this glut of paper notes and further QE going to buy us a little more than a few months?" Forehead-palm.
I would like to re-iterate at this time that despite the viewpoint that gold only comes out of the COMEX, there are mines which produce the stuff.
AND these mines, mostly listed on exchanges outside the USA(for Huh-merricans, fuck yeah!™ you can buy these canajun stockses), have seen the naked shorting party of their lives on their share price. Now, its not like shooting fish in a barrel any more, and the banks and brokerages that leveraged up with commodities and shorted gold mining stocks are in deep doo doo.
The gold miners have yet to confirm the gold price rise, but in a declining yield environment, the gold price is well supported, so its only a matter of time before mining stock respond, though they really should be leading.
This is expressed in the following manner:
http://blogs.stockcharts.com/chartwatchers/2010/02/gold-miners-vs-gold-f...
Well, forgive me, that's kind of assuming the counter-argument without stating the "how".
i.e. it's saying the counterparty (the "shorts", the "real" sellers of gold, the miners - who are being "shorted" by some 'credible' cash-holder etc....) can happily keep paying out the value in cash if everyone who is in gold through some sort of derivate/ETF wanted to cash in now. Which (as per the housing derivateives argument above) is (and wasn't in late '08) possible.
Soooo.... if you take it as read (*if* you do) that it's not actually possible that that's the case - there's no way the calls on gold can be met - is the bum-out that ensues deflationary or inflationary? For me - my main argument perhaps - the destruction of fiat wealth (i.e. "notional value) is deflationary.
I suppose in that "panic" environment it's a confidence guess - cash or gold. Just to be controversial - I suspect it will be cash.
If it isn't, well then it's guns on the streets (most average folks don't have any gold) and then... who cares - neither commodity will buy the last loaf of bread.
Perhaps the cash versus gold argument amounts to a difference of timelines. During the SHTF scenario, cash might still buy things. As everything unwinds, buying things becomes secondary to not getting killed by zombies, not starving to death, and not dying from drinking putrid water. Neither cash nor gold will likely help you do any of those things unless you've made impeccable plans long beforehand. Many years after things have "settled down," so to speak, natural human inclination to barter and trade works to build an economy. In my opinion, at that point, "gold bitches."
Why is the BP spill burning?
http://www.ustream.tv/pbsnewshour
"Why is the BP spill burning?"
Good question.
That doesn't look good........
unbelievable!!!!! you found a pessimist out there!!!
what journalistic skill... truly floored.
choir dismissed.
"You'll see home starts, permits, sales plummet in the next few months, that's going to add more supply to the housing market"
I need help visualizing this scenario. If the number of home starts and permits decline, exactly how will that add more supply to the housing market? If you don't build, then new home inventories should decline - even if the demand drops (or inventory remains constant if the demand goes to Zero).
If new and/or existing home sales plummet, I can't see that adding inventory - only slowing the rate of inventory "burnout".
I tend to think of it like Xenon burnout (depletion) under a constant neutron flux after a power change.
View it as a battle between cash and assets (in this case houses). How is it tipping?
I think what you are saying is that there is competition between buyers holding on to their cash vice purchasing homes?
If that is the case, then the number of new units sold will either decline or - worst case scenario - go to zero.
As long as you are not building new homes, then the inventory will remain constant (zero sales) or slowly diminish with weak demand.
Maybe what they are trying to say is that even as demand for new homes declines precipitously, those knuckleheads will still keep building - albeit at a slower rate. Now THAT would add inventory!
Yep - to cash! Builders do want to sell them I'm thinking? Do cash holders want to buy houses...? Dunno... That $8k bung from the other taxpayers has stopped hasn't it?
I was also confused on how plummeting starts and permit issuance => more inventory. But, I can also confirm that while new permits in my area are slowing, they are still being issued, and there actually are (far fewer) new starts. Look, not all homebuilders that managed to stay afloat were able to get into the refurbishing biz. And they gotta eat, which means they build. Never mind the incredible amount of unfinished development projects just sitting everywhere, rotting, right alongside almost entire subdivisions on the market for over six months. It's getting ugly out here, and our housing market was not killed like a lot of other places. Scary times.
New homes, old homes, foreclosed, short sale, etc...are not going to be sold until prices drop further. Buyers are not convinced housing hasn't hit bottom. In these markets, you could buy a home today for $300,000 and in three month's it could lose 5 to 15%. That's a chance most will not take.
OT: Check out these amusing reader comments from all corners on a WSJ piece on Bernanke's recent musings on gold price:
http://blogs.wsj.com/economics/2010/06/09/bernanke-puzzled-by-gold-rally...
should we get excited that 'pundits' are now lending some credibility to what most of us who frequent ZH have known for some time?
Hmm.
Pento and Santelli debate Gold price movement 7.5 months ago.
http://www.youtube.com/watch?v=hL4ndgNyS7k
I guess Gold is moving up because traders are still covering shorts.
What is this "double dip" nonsense when we are still in the same hole we've been in.........