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"Off With Our Heads!": Bil Gross On How "Future Generations Pay The Price For Their Parents’ Mindless Thrusting"
Just Released by Bill Gross, his January Outlook
Off With Our Heads!
- American politicians and citizens alike have no clear vision of the
costs of a seemingly perpetual trillion-dollar annual deficit. - Policy stimulus is focused on maintaining current consumption as
opposed to making the United States more competitive in the global
marketplace. - Dollar depreciation will sap the purchasing power of U.S. consumers,
as well as the global valuation of dollar denominated assets.
The mating rites of mantises are well known: a chemical produced
in the head of the male insect says, in effect, “No, don’t go near her,
you fool, she’ll eat you alive.” At the same time a chemical in his
abdomen say, “Yes, by all means, now and forever yes.”While the male is making up what passes for his mind, the female
tips the balance in her favor by eating his head. The male, absorbed in
the performance of his vital functions, holds the female in a tight
embrace. But the wretch has no head – he has hardly a body. And, all
that time, that masculine stump, holding on firmly, goes on with the
business!
–Annie Dillard, Pilgrim at Tinker Creek
If you’re ever in the mood for a glimpse of raw nature that
closely parallels the human condition, read Annie Dillard’s Pulitzer
Prize winning Pilgrim at Tinker Creek. We are all, in her
well-documented tale, mantises eating and being eaten, mindlessly
thrusting and flailing about in activity that would make little sense to
a visitor from another space-time. What mimics the pelvic thrust of the
male mantis is really the struggling ego of the human being, stretching
for more habitable space, gasping (metaphorically) for purer air,
reaching for dominance over what we know not. Herman Melville, speaking
through the visage of Captain Ahab in Moby-Dick, writes that
“all mortal greatness is but a disease.” The egos that seek renown,
however, are hard to kill and expert at masquerading and wearing
disguises. Even those advocating or living by the Golden Rule can be
held suspect to some chemical – this time above the belt – that says,
“Look at me, look at me.” Presidents, Dalai Lamas, and yes, bond
managers are more than likely infected and affected as opposed to philanthropically or altruistically directed and intentioned.
If so, I’m not sure how one escapes from the philosophical darkness
of this self-described “Tinker Creek.” Eastern religions speak to
seeking the Buddha mind – an “unconscious” consciousness that supposedly
confirms an “inner worldly” worldliness. Theoretically this can lead to
Nirvana, which is the absence of ego – an antibody against Ahab’s
mortal disease. “Nirvana” it is said, “soars on wings that whisper.”
Perhaps, but almost all of us come into this world screaming and the
decibels diminish but never really whisper as the chemicals of old age
work their will. We are all, more than likely, doomed to be mantis-like –
some of us eating, some of us being eaten, but none quite aware as to
why we are at the dinner table in the first place.
Americans, unlike their developed world counterparts, have been
eating their fill lately, and supping at a dinner table laden with pork
and tax breaks for all. Unequivocally, we have been playing the part of
the female mantis, munching on the theoretical heads of future
generations, while paying no mind to the wretches that will eventually
be called upon to pay the bills.
I liked the op-ed on this subject by comedian Larry David in The New York Times the
other day. He thanked Congress and, of course, President Obama for
being able to afford more blueberries in his granola. Job creation for
more berry pickers would be Washington’s convoluted rationale, I
suppose. But, if so, they will assuredly be temporary instead of
permanent jobs and the $800-$900 billion price tag may add up to 3% of
GDP to the U.S. deficit annually for which future wretches will thrust
headlessly to service. The American hegemon knows no limits, it seems,
when it comes to spending other people’s money for their own
consumption. Unlike Euroland or the United Kingdom, which appear
to have gone on an extreme fiscal diet, the American answer to a
bulging waistline is always “mañana.” Debt commission recommendations
are tossed in the trashcan, tea party election rhetoric eventually
focuses on miniscule and merely symbolic earmarks, and both Democrats
and Republicans congratulate each other on their ability to reach a
bipartisan agreement for the good of the nation. Munch! Munch! Off with
our heads!
The problem is that politicians and citizens alike have no clear
vision of the costs of a seemingly perpetual trillion dollar annual
deficit. As long as the stock market pulsates upward and job growth
continues, there is an abiding conviction that all is well and that “old
normal” norms have returned. Not likely. There will be pain aplenty and
it’s imperative that we recognize now what the ultimate cost of
blueberries will mean for American citizens of tomorrow. Four major factors come to mind:
- American wages will lag behind CPI and commodity price gains.
Because
policy stimulus is focused on maintaining current consumption as
opposed to making the United States more competitive in the global
marketplace, American workers’ real wages will almost necessarily lag
historical norms. Chart 1 points out the graphical evidence of an
erosion of labor’s share of the American economic pie, falling from 62%
of GDP just recently to a current anemic 58%. Blame it on poor
education, blame it on globalization, but an ongoing rebalancing of rich
country/poor country wages inevitably will keep U.S. wages compressed
as deficit spending serves to reflate commodity and end product prices
in future years but not paychecks. Americans will feel the pain but like
the male mantis, probably not understand why they’ve lost their head.
- Dollar depreciation will sap the purchasing power of U.S.
consumers, as well as the global valuation of dollar denominated assets.
Unique
amongst almost all other global citizens, Americans are ignorant of the
merits (and the negatives) of currency depreciation. Unless they are
smacked with the reality of an expensive hotel or a meal in a foreign
port of call during summer vacation, we have few concerns when the
dollar depreciates against a basket of foreign currencies. If our stock
market goes up 10% annually in dollar-denominated terms, we assume we
are 10% richer even if the dollar sinks at the same time. If the cost of
imported goods and especially gasoline goes up more than our paychecks,
we blame it on a political conspiracy. The fact is that annual budget
deficits in the trillions of dollars add a like amount to the stock of
outstanding dollars, resulting in currency depreciation, higher import
inflation, and a degradation of dollar based assets in global financial
markets. We become less, not more wealthy, losing our heads while we
“hold on firmly and go on with (our) business”! - One of the consequences of perpetual trillion dollar
deficits is the need to finance them, and at attractively low interest
rates for as long as possible.
Currently, the Fed is doing
both, holding short term interest rates near zero, and engaging in Ponzi
like Quantitative Easing II purchases of longer dated Treasuries in the
open market. The combination offers bondholders about as an attractive
situation as the one facing a male praying mantis: zero percent interest
rates if you stay in cash, or probable principal losses if you take
durational risk by buying 5 and 10 year maturities. Eventually, as
reflationary policies take hold, long-term bondholders lose their heads
(and a portion of their principal as well), as yields rise to reflect
higher future inflation. Bondholders’ metaphorical warning: “don’t go
near those longer term bonds you fool.” - Trillion dollar annual deficits add up, and eventually produce a stock of debt that can become unmanageable: witness Greece, Ireland, or a host of Latin American countries of generations past.
According to Carmen Reinhart and Kenneth Rogoff’s excellent research in This Time Is Different,
once a country’s debt approaches 90% of GDP (as the U.S. is now doing),
its economic growth slows by up to 1% annually as the interest payments
drain resources that should be going for productivity enhancements.
Sovereign credit risk increases and yield spreads rise relative to
global competitors. Future generations pay the price for their parents’ mindless thrusting.
Investment Implications
- An astute mantis-like investor must defer immediate gratification,
make a 180? turn from that sexy looking female with those long green
legs (long term bonds) and mend his ways fast! It is still
possible to earn an attractive return from bond strategies (such as
PIMCO’s Total Return strategy in 2010), and the way to do it is to focus
on “safe spread” that emphasizes credit, as opposed to durational risk.
- These “safe spreads” include: emerging market corporates and
sovereigns with higher initial real interest rates and wider credit
spreads; floating as opposed to fixed interest obligations; and importantly currency exposure other than the dollar.
- For those inclined to lunch on stocks, remember to go where the
growth is – developing as opposed to developed markets. If the U.S. must
pay an eventual price for mindless deficit spending, then find
countries and currencies that appear to have their act under control:
Canada, Brazil, and yes even Mexico with its drug related violence. Mexico has a net national savings rate that exceeds our own by 20% of GDP. - Above all, remember that all investors should fear the
consequences of mindless U.S. deficit spending as far as the mantis eye
can see. Higher inflation, a weaker dollar and the eventual
loss of America’s AAA sovereign credit rating are the primary
consequences. Fear your head – fear your head.
William H. Gross
Managing Director
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"Future Generations Pay The Price For Their Parents’ Mindless Thrusting"
In reality....future generations will just be paying for the junk their parents are buying them today.
The ICBM nuke, stealth bomber, and predator drone playset?!
You shouldn't have!
Parents thrust their junk at children.
saying that to a TSA agent could get you arrested.
so all the overweight tattoo pierced 16-25 year olds drop out mothers and fathers are going to be the responsible ones we have to be sorry for. OK....
bill, try eating some bugs and thanks for helping create the monster deficit
its not the "parents" spending the $. its the obama admin and the WScabal of which you are part
Sure, all that toxic MBS and those foreclosures just magically appeared.
Oh, yeah. Everything turned to crap on the day Obama was sworn in. It was Utiopia under Bush. I get it now. More kool-aid please.
obama=bushjr=clinton=bushsr=etc.
They're all playing for the same team.
I'd say something like obama=bushjr=clinton=bushsr=regan=carter=ford=nixon=johnson. But that's just me..
Bill may soon be, eating bugs. I would say that the man is worried about the value of his bonds, as cunverted to paper and is sending a message.
Silver.
BTFD stupid!
period.
If this was a real war we would be hanging war profiteers, if this was a real crisis we would be cracking down on profiteers, they are not.
Calls for Austerity when all major financial institutions just got an unlimited bailouts is deceptive. This was all planned the Rhetoric going into 2011 is to cut domestic spending and selling off of public infrastructure and land but of course no budget cuts for the Pentagon and our ventures in the middle east. All planned. And all the bandits that just made off with the biggest financial swindle in my lifetime will be buying it up on pennies on the dollar.
This is a non crisis crisis, aka, a swindle. Now shut up and pay your bills, you will not be getting a bail out you rugged individualist you.
Well said! +1
Who's entertaining any hopes of a bailout for mainstreet?
I know I'm not. IF--by some miracle--the masses wake up, I want to be part of the guillotine crew.
But it won't happen.
We're already neutered, they'll just keep maintaining this indefinitely. The only thing that'll disrupt the system is a breakdown of infrastructure/logistics at some point.
Until we're no longer allowed to suckle at the teat of big business, we won't do a damned thing. And as long as they're able to punch keys and create more play money, nothing will happen. So, we're all trapped.
No other country is in a position to force us to pay up on our debts, and it doesn't matter anyhow -- everyone is high off the illusion of success; why "end" a good thing when you can just ignore all of it and continue for the foreseeable future?
The lower classes don't matter anyhow--when they get forced from the teat, they'll just be rounded up and tossed into prison and made profitable once more.
Yep, the hard part of going after someone or a group with an unlimited amount of money is they tend to buy off any allies you may aquire. Whose going to stop the money trust? Sad part is presidents of yesteryear used to talk about these types of issues and at least try to take actions against them ( see JFK ). But these clown ass representatives of today are so dumbed down for public consumption none of these issues even get raised.
On my next restaurant visit, I'll just charge the bill to my Great Grand Children.
NO MORE BILLS FOR ME!!!
thats funny...I'm going to try that
To do so, you will need to jack off when the waitor comes on the bill and leave some sperm on the bill for 5 minutes.
Tell them they can deepfreeze it and inseminate any woman with the message that their kids will need to do the same and the kids from those kids will need to pay. With a interest rate of 20% of course.
quid pro quo. Remember Tyler and project mayhem are doing the same to you on the food you order.
I suppose, but the devil's in the details.
Future generations in effect say, "Hmm, let's see, I can (a) endure endless austerity of reduced benefits and higher taxes (pain), or (b) I can repudiate debt taken out in my name but without my consent (resulting in damaged credit, loss of deposits, pain). What to do, given there's pain either way?"
Under (a) ordinary citizens endure the pain essentially alone; while, under (b) pain is shared between the beneficiaries (citizens) and the enablers (the Bill Grosses of the world). How would (will) you choose?
The inevitability of repudiation is one of the bees in bernake's bonnet... We may linger in the "austerity" camp for a while... jockeying for position to get governmental table scraps, but in the end, we will repudiate.
No thrusting...
no future.
Whoa! This Gross guy really got religion in the past three months eh?
He has a good writer and the Dillard book reference and mantis analogy are priceless. But him and soros with NWO and down dollar down (it's swooning up since he spoke, so soreass is a contrarian indicator now) and the rash of anti-gold MSM.
Mr. bond hates long term securities.
Now that is an ox, moron!
ORI
http://aadivaahan.wordpress.com/2011/01/05/stairwell-sigtar/
Gross is a gifted writer, and liar. No future generation is paying anything off. They never do and they never will. It will be a hyperinfiationary default, same as it ever was.
Lock & load AU@1372 bitchez
Greetings, Tyler, from the first-class lounge at Jeddah airport, Saudi Arabia. Here on business, and wanted you to know you're read here.
I've just send a message to the customs at Jeddah customs that there's a American typing on a laptop trying to smuggle cocaine into the country in his ass.
HAVE FUN WITH THE ANAL CAVITY SEARCH!!
VASELINE CON DIOS!!
Whew !
The only thing that can reverse America's doom (and the USD seizure as a reserve currency- its importance is already dwindling) is a magic reverse in productivity and US competitiveness vis-a-vis the emerging powers of China et al. Should this happen it will also result in deepening the US crisis internally.
For anyone wellread on history (rare in these financial blogs), and I mean history as in 2500BC to today in century steps, rather than detailistic financial stuff from 1900s, you will know that we are currently going through a transitional phase of empires. US is dying, China is rising. It started in the early 90s, and will last another generation and a half. By 2060-70 ANYTHING to do with US greatness (or much of the western imperial world and ethics) will be history. The good things that our "empires" gave the world, free thinking, democratic-ish processes etc, will be copied across. Much of the rest will be at the history books.
In other words history repeats. The Egyptians and Phenicians came ruled and went, the Greeks folowed, Romans took over, then split into Byzantine empire, the European renaissance took over from them, while Ottamans ruled the east, Anglosaxons and their empire which subsequently pushed the industrial revolution into gear and created the US dream and resulting greatness etc etc. These are 300+ year cycles. Guess what: The US one is just coming to an end. And there is pretty much nothing you guys (or us Europeans) can do.
The only upside for Europeans vs our US brothers, is that ANY successful monkey in the world wished they were born European and not American. European history, geography and culture might (just) save our asses from total slavery. Not so sure for the US though. My 1yo daughter will be learning mandarin though, thats for sure.
Tred carefully,Sir, posters here know that all thier lives they have been lied to by those seeking to control them. Historians are notorious for un-ending bias, self interest, and of course , tenure.
I don't completely disagree but you are writing off the US a bit too much like it will become an African desert wasteland. The US has excellent food production capability and land resource. Food is pretty darn important to people. Additionally natural resources are quite solid should we ever choose to extract them. Let's not forget natural transportation advantages with numerous excellent harbors/ports/rivers/intra-coastal waterways and decent rail that is easily improvable. Manufacturing can be done anywhere, proximity to resources is better but with global transportation not a requirement - which leads to China's current competitive advantage which is primarily labor/currency arbitrage. Their goal is play that advantage and rise as fast as possible before it rebalances with the rest of the world (hence fixed currency and support for developed countries US/Spain/Euro etc... who they need to buy their goods to keep it going). The US also enjoys excellent relations with resource heavy Canada who shares a boarder and Great Lakes access. Pre-existing military isn't too bad either especially since a good number of countries around the world have nothing and have become completely reliant on others to defend them. Not a totally different picture from your own but I think it paints a more accurate picture of the long-term and sustainable advantages that exist for the US (we also have a very friendly resource heavy trading partner to our North).
Gross continues to polish his legacy for when he retires from the spot light. It doesn't hurt that he's positioning himself to be on the side of the people when the anger boils over. I find it interesting that his new home is isolated from the plebs by a bridge. Maybe it's just a coincidence.
I don't give a shit what someone says when it doesn't match what he does. Bill can talk about hometown values until he's blue in his face. He ain't living them and doesn't intend to as long as he wishes to grow his wealth and power. But it sounds good when the plebs are massed at the bridge.
i have been to Harbor Island a couple of times. it is junky. i body surfed at that break. almost killed myself, by getting smacked by a wave.
The number of socialist losers and angry whiners is increasing on zero hedge, but is fortunately still a minority. Bill Gross is right. Many others are also right. It's our collectivist mentality and desire to get something for nothing that motivates the socialists and the losers and it will destroy our country. Unfairness never stopped economic growth, but laziness and killing of incentives certainly can. I started with almost nothing and am doing quite well. So can that minority on zero hedge who just complain and sit at home. Go out and create a business like I did. If you can't do it then you truly are a loser, so just quit your bitching and go whine to your momma who is letting you stay in your old bedroom because you don't want to work.
Bill's losing it.
I have never said this before but, I agree with Gross COMPLETELY!
I'd hardly call what the UK is doing thus far as an extreme fiscal diet - it strikes me more as 'We'll only spend £120 billion this year instead of £150 billion, so we're cutting our spending by, shock, horror, £30 billion". And as far as student tuition fees are concerned (not that it was mentioned above), all I can see happening there is a move to the American model, flash buildings, more unnecessary courses producing more graduates with fewer jobs available.
Cynical? Maybe...
DavidC
You're probably right, sadly. What the UK needs more than anything right now is a shakedown in the schooling system, breaking TPTB in the universities. They should really be cutting all subsidies, sacking all the top brass of the major universities, and letting the remains build anew. A student educational revolution is what we need. Adopting the corporate "seat warmer" factory model of the US is only going to make drones, not a new economy.
Both of you are wrong
UK's budget Deficit is 150bpounds instead of 163bpounds last year
That means they are still borrowing for many more years until they balance their budget, that is if they can!
I was using the figures as an example, not an exactitude.
My point remains valid, however, even with your comment and, indeed, is confirmed by it.
DavidC
Yes, future generations. Because, of course, it's impossible for bondholders to share any of the pain.
STFU, Combover.
This. It's fun how they're framing the debate to be between scorn and pity for the "useless eaters". I can't think of an insult good enough to describe these people.
And always they position themselves as doing "the people's" work....which of course is in the best interest of the useless eating people. I don't know what's worse. Their hypocrisy or the fact that so many people eat it up for breakfast.
Did anyone expect being conquered by Mexico would lead anywhere else?
Future generations pay the price for their parents’ mindless thrusting.
The Pope agrees, take of the condom and thrust with a purpose!
It is the politicians who drained the Treasury of what our parents taxes paid. First by congress tapping Social Security funds in the 80's replaced funds with an IOU to keep the whole thing rolling. Next, I think IRA's, Roth IRA's & 401k plans along with private Pension funds are the next Target. In 1933 they siezed citizen's gold...this time around, the IRA's & 401k's are the "new" gold for politicians to target next...a matter of time.
BG should worry about Republican de-reg instead. http://www.ritholtz.com/blog/2011/01/corporate-self-regulation-how-did-t...
Mr. Issa appears to be off his rocker.
BG should worry about Republican de-reg instead. http://www.ritholtz.com/blog/2011/01/corporate-self-regulation-how-did-t...
Mr. Issa appears to be off his rocker.
My bullshit detector just pegged. Painting with a wide brush you can say just about anything that is both true and untrue.
Yes, future generations will pay for all this. Until they don't. Hat tip to Stein's law.
There will be a major war before our grand kids come along, it will be our kids doing the fighting. You don't have some many billions in a free for all for finite resources without some serious issues arising.
The US will over step its position thinking its still the 20th Century not the 21st. Looks like China and Russia will tell the US to take a hike and India hte rest of Asia and Europe will be silent as mice.
The male praying mantis should learn from the Anglerfish. The male Anglerfish bites into the female and remains as a parasite for life.
sounds like my ex-wife.
outstanding
Wow! What insight! I heard Bill coined the phrase "buy low, sell high" and Polonius borrowed "neither a borrower nor lender be" from him.
Moralizing from an idiot, what next!
Now it's official. Bill Gross has found God.
by Tyler DurdenGross finally coming out and saying exactly what has been said in the past on this site.
Why don’t he just speed it up a little and write about this.
http://www.zerohedge.com/article/financial-con-decade-explained-so-simply-even-congressman-will-get-it?page=1
on Sat, 07/10/2010 - 23:28
#462766
Your theory is based on the assumption that in either austerity or excess stimulus outcomes, the financial oligarchy will have unlimited access to zero cost money. One can more convincingly make the claim that in a new stimulus environment thr oligarchy will have access to even lower cost funding/fiat (QE2.0 will mean excess reserves will go from 1 trillion to $3 trillion - that will buy a lot of cell phone towers and bridges), thus making supply demand curves for any cash generating assets meaningless. Yes, in austerity you will have firesales of formerly public assets, but in stimulus you will have an environment where those who wish to acquire said public assets can bid their price up to essentially infinity. In other words, the transfer of wealth will continue regardless of whether we are in an austerity or stimulus regime. The only thing that will stop this transfer is the end of zero cost capital, and thus the forced end of the enabler of this massive con game, the Fed itself. People will have to realize their fate lies in their own hands to end the Fed; the economic regime has little to no bearing.
The Nirvana Bhudda reference comes from Bill Gross doing Yoga. I spoke with a woman that takes it with him. While I don't personally know him, I believe he and a few other power house money players are now in the phase of no growth lament. This phase causes angst and it just reaches the extremely wealthy last. Pain is the catalyst of change.
It is these kinds of individuals that eventually fund reform. Nothing new under the sun when it comes to the cyclical nature of human nature.
i can't believe HOMO bill takes group yoga. plus with a woman. he is doing it for the downward dog.
my daughter told me you always have to end your yoga session with corpse pose. my daughter is teaching all the elites white wives how to be a corpse. laugh out loud, getting them ready for submission and death to soon follow. damn dumb down dog america yogies.
You got to be kidding me!
This dude's investment advice is to speculate in F/X and 'invest' in emerging markets! Canada (housing bubble) and Mexico (WWIII)? How about Argentina? Peruvian railroads?
What happens with the populace cuts off the current rulers' heads? What happens when the 'Niewe government' goes Marxist and confiscates all foreign held assets?
Better to go to 7Eleven and 'invest' in lottery tickets.
Gross wants to say G-O-L-D but it's verboten. lol I bet he's got some shiny yellow stuff stashed away in that mansion of his, though.
Bill is part of the new global elite:
http://www.theatlantic.com/magazine/print/2011/01/the-rise-of-the-new-gl...
The Rise of the New Global Elite
“His point was that if the transformation of the world economy lifts four people in China and India out of poverty and into the middle class, and meanwhile means one American drops out of the middle class, that’s not such a bad trade,” the CEO recalled.
Holy shit, he actually said that? lol So much for his new man-of-the-people schtick.
What he is saying is just reality -- the imbalance of living standards on the planet, enforced by the US Military is coming to an end. The alternative is WWIII, which no one can afford.
Future generations pay the price for their parents’ mindless thrusting. – Bill Gross
Bill Gross and the government-connected money cabal to which he belongs blame us for what they do. “2010 was the year the people took on the banks and the banks won,” can’t continue. You can’t make an economy work on a system run by a corrupt international money power that “STOLE the PEOPLE”S right to own their own money system.”
As Jim Willie wrote Dec. 29, 2010, in Asset Speculation and Capital Destruction, The Cost of 0% Money on The Market Oracle:
“The true singlemost cause of (capital) wreckage is the artificial low forced cost of money, the near zero cost of usury. The subtitle to that billboard is that CAPITAL IS TRASH. Imagine in a nation that developed, promoted, and exploited the fullest riches of capitalism, embarked upon a path to destroy capital without even the recognition by its best brain trusts. Their mental chambers have been totally corrupted by the justification that inflation is a positive force that must be managed. Nothing could be further from the truth. The consequences of artificially cheap money, the wrecked pricing of usury, ultimately is capital destruction and economic failure.”
Housing is just one of the vehicles that the US banking sector has used, according to Willie, to accelerate capital destruction to support its consumer society, using the Fed’s Keynesian notion that cheap money is a good thing. “Nothing could be further from the truth,” says Willie. “Cheap money comes with a deadly ultimate cost.”
Here’s Willie on the housing market boom:
.”Recall in 2001 when USFed Chairman Greenspan showed open frustration with the bond market. Greenspan openly urged the long-term interest rates to come down, so that housing prices would rise and support the consumer society. He attempted (and succeeded for five years) to prevent the natural course of a major stock market plunge to be followed by a major housing market decline, as history would have dictated. He knew it would have been the end of the US financial structures, with big US banks going bust. That is whey he resigned in late 2005. He did not wish to preside over his handiwork disaster. He did not want to reap the harvest of the seeds of destruction he sewed. Greenspan essentially assured the USTreasury Bond market that the vigilantes would be killed off, and enlisted the aid of JPMorgan with Interest Rate Swap contracts...
“The housing market boom ensued. It was unique. This time around, second mortgages were easy. Home equity lines of credit were easy. Origination fees (points as closing costs) were held down. Some people refinanced every 12 to 18 months. People without income had home loans approved. A street bum in St Petersburg Florida owned four properties bought with nothing down before he died. Income and asset verification became an annoying irrelevance. The end result was that the entire US housing market morphed into a gigantic ATM machine. Cheap money overbuilt the homes (MacMansions) and brought the 2nd and 3rd homes into play. From the year 2000 to 2007, the amount of mortgage equity removed from assets was astonishing. People ate capital in a veritable frenzy. The graph shown here is of equity withdrawal as a percentage of disposal income. From 2% to 8%, the trend was revealed as a quadruple. The trend was cheered by USFed Chairman Greenspan. With the home price declines came a new American phenomenon, negative home equity. The current figure is 23% of Americans owe more in their home loans than their homes are worth on the market. They are prisoners of capitalism gone awry. The ruin of the US homeowners is the symbol of the US systemic failure. So are food stamps and tent cities.
“The trend turned to tragedy. Instead of investment in capital equipment, factories, and providing the fertile ground for robust job growth with legitimate income, the nation did the opposite. Investment instead was made in the $trillions on devices to drain capital, namely homes, shopping malls, and big box retail stores. The nation turned into a consumption engine whereby 70% of the US Gross Domestic Product was devoted to consumption. In a sense, the nation ate their homes and shopped until they croaked. Following the binge, came the current trend with mortgage defaults, home foreclosures, and bankruptcies. Lest one forget, the tent cities of homeless. To think that a collection of homes could supplant a collection of factories to drive economic progress and sustain a standard of living is the greatest folly in the history of the USEconomy. It is the last chapter of failed Keynesian policy. Remember well, it was blessed by Greenspan as good and wholesome and legitimate. He also blessed as sophisticated, legitimate, and robust the entire offload of debt risk with credit derivatives. THE GREENSPAN LEGACY IS OF RUIN, but in particular ruin from 0% usury cost as its root disease.
“The perversity is so deep that home builders have often morphed into arbitrage outfits, who purchase wrecked development project homes and sell them to Fannie Mae. Even PIMCO has become a major buyer of wrecked housing portfolios with hopes to unload them onto Fannie Mae. Even big US banks have made the rules for home loan modification so twisted, that huge 25% profits can be snagged by merely forcing foreclosure, then sending the wreckage through the FDIC. The rules have been changed to favor the banks. Other arbitrage funds have sprung up to deal with mortgage backed bonds, as the vibrant funds have turned into processors of ruined capital. Regard these all as recyclers, no different than scrap metal, scrap paper, and scrap plastic processors that we are familiar with. The nation has not only created vehicles to drain and deplete capital, it has created recyling process plants to handle the wrecked capital. For the unrecoverable toxic waste paper, go to Fannie Mae. So the investment trend enabled accelerated depletion of capital, the shortage of factories, and the removal of legitimate wealth engines. It is like making bread without wheat…”
http://www.marketoracle.co.uk/Article25313.html
I was just thinking how much I could use some mindless thrusting.
"Above all, remember that all investors should fear the consequences of mindless U.S. deficit spending as far as the mantis eye can see. Higher inflation, a weaker dollar and the eventual loss of America’s AAA sovereign credit rating are the primary consequences. Fear your head – fear your head."
Sounds like a great argument for PMs.