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Ugly = Beautiful; Beautiful = Ugly: Ray Dalio On Deleveraging

Econophile's picture




 

This article originally appeared on The Daily Capitalist.

I've been working on an article about the state of economic recovery and have been studying deleveraging, debt levels, bank balance sheets, foreclosures, and the like. So I was very pleased to find a long research piece put out by Bridgewater's Ray Dalio on that topic. As readers may know, I am a fan of Dalio and I appreciate his often unique and out-of-the-box view of the markets and the economy. Bridgewater also agrees with my belief that the economy is heading for stagnation and decline this year.

Dalio's piece was very disappointing because it was an incorrect look at how business cycles work and the role of deleveraging and the liquidation of malinvestment. It may actually lead one to make bad investment decisions.  Because Bridgewater's macro economic forecast came to conclusions similar to mine, I had assumed that perhaps they had done a somewhat "Austrian" analysis, but now I question that. Again, as I mentioned in the above article, you don't have to be "Austrian" reach similar conclusions, but they would have to look at indicators an "Austrian" would look at and interpret them in the same way.

Dalio's article, "An In-Depth Look at Deleveragings" is apparently authored by him. It concludes that the best way to "deleverage" is a "proper" combination of debt reduction (defaults and restructurings) and debt monetization (monetary inflation). This is what he considers to be a "beautiful" deleveraging whereas deleveraging by debt reduction and austerity are "ugly." The ugly ones cause recessions/depressions and deflation which is bad. Beautiful deleveragings minimize debt reduction and revive economies with monetary stimulation.

Unfortunately this is a very conventional view and it is wrong. 

I'm not going to get into the entire 31 page article, but he examines six historical events that supposedly exemplify "beautiful" and "ugly" deleveragings. They are the U.S. Great Depression (1930-1932), Japan (1990 to present), Spain (9/2008 to present), UK (1947-1969), and U.S. 9/2008 to 2/2009 (pre-QE). At the end he tackles an analysis of the Weimar hyperinflation. 

I'm not as familiar with the UK and Spain, but I am familiar with both U.S. events and the Weimar hyperinflation. Dalio unfortunately accepts the conventional wisdom of contemporary neo/Keynesian-Classical-Monetarist econometric analysis of these events and fails to understand most of the real causes underlying these crises. To save you the suspense, he believes that the current boom-bust cycle is an example of a "beautiful" deleveraging.

Dalio defines a beautiful deleveraging as one "in which enough 'printing' occurred to balance the deflationary forces of debt reduction and austerity in a manner in which there is positive growth, a falling debt/income ratio and nominal GDP growth above nominal interest rates."

He says,

Thus far, this deleveraging would win our award of the most beautiful deleveraging on record. The key going forward will be for the policy makers to maintain balance so that the debt/income ratio keeps declining in an orderly way.

What he is saying is that the Fed's policy of ZIRP, debt guarantees, and QE avoided a disaster, prevented a collapse of the credit markets, and has allowed deleveraging to occur on a more or less orderly basis, and has promoted growth. He notes that the credit markets are "largely healed" and that "private section credit growth is improving."

This is the Conventional View of the Crisis and he, like most people holding this view, are engaging in a wishful thinking analysis of how things occurred. One could believe that a chariot pulled the sun across the heavens every day, and because the sun came up every day, this analysis is correct. We understand that there are other forces at work. But he is not alone in his conclusions. 

He uses a monetarist view which says that tinkering with money supply can prevent the worst from happening. He sees the problem as one in which there was a shortage of money which caused the bust, rather than it being the result of "money printing". If the Fed could have prevented the worst from happening by printing money, then all of our problems would be solved. Unfortunately for the monetarists at the Fed, including Mr. Bernanke, they have yet to achieve their goal.

Dalio also takes a classical view of the economy as one big aggregate machine which can be properly measured by GDP. His main measure of the problem is the amount of debt to GDP, a measure which really doesn't tell us much. All GDP can tell us is how much money was spent at any given time. At best it is a rough measure; at worst it is a misleading measure because the data is not revealing of what really happened in an economy where millions of individual decisions are made every day. The amount of debt versus GDP tells us nothing about the role of debt, the value of underlying assets, the ability of pay debt, whether the debt was built on monetary steroids or real economic activity, or really anything. "Economies" don't incur debt, people do.

Further he measures everything in nominal terms which makes any conclusion misleading without at least trying to apply a deflator to the measure. Then one has to choose the right deflator to determine if the measured activity was really positive or negative. It is many Austrians' belief that price inflation is actually much higher than officially stated and that there are a number of ways to game the data to make it look better. I have written many times about this and my conclusion is that what we are seeing as "growth" is actually a data fiction because it fails to properly measure the impact of price inflation. In fact what we are seeing as "growth" now is really a further destruction of capital by investors and businesses.

He then uses a neo-Keynesian econometric methodology to interpret and analyze the results. That is, tinkering with the big machine called "the economy" can more or less solve our problems if it is done just right. And we all know that the tinkerers have done a great job of "running" the economy. In fact the current policies proposed and implemented by mainstream economists have been failures and have resulted in an increasingly unstable and fragile economy.

Thus faith in all that tinkering, especially by the Fed, caused the boom-bust credit cycle, and further tinkering with QE and ZIRP, plus the Fed's and the federal government's role in preventing a liquidation of malinvestment has only caused the economic pain to be stretched out much longer than it otherwise would have had the government had not interfered. Further, these policies have only served to create further future instability and economic risk. Other than that his analysis is fine.

What he calls "ugly", an austerity and debt reduction, is actually "beautiful". While it is painful, it is painful for a much shorter period of time and enables the "economy", i.e., people, to go bankrupt, repair their finances, start saving again, create new capital, and then create new economic growth and jobs. By preventing or delaying this process the policy makers only doom us to economic stagnation, inflation, and permanent high unemployment. And I fear that is exactly where we are headed.

 

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Sun, 03/18/2012 - 13:05 | 2267234 brianshell
brianshell's picture

Most everyone looks at the pyramid from the bottom. Try looking from the top. If you had the power, as the money printers do, to influence the law makers and regulators to change the rules just for them, then you could ignore mark to market and assume mark to model rules.

Simply written, you function in a different system that is shielded from the normal rules. You can always survive because you can rewrite the rules to protect yourself.

You really don't have to worry about loan losses or CDS payouts because you can just print more money at will.

As for the main street cattle, you only want to milk them routinely and keep them calm.

Sun, 03/18/2012 - 09:41 | 2266920 RoadKill
RoadKill's picture

Dalio is right.

Deleveraging is a spectrum.  Default and deflation on one end.  Inflation on the other.  There are 3 principals as well.  Depending on which one you are, you will favor a different outcome.

If you are a lender (or saver which is a defacto lender) – you will prefer defaults and deflation.  The money you lent at fixed rates will earn a higher real interest rate.  And while you will suffer some defaults, businesses will still own the same assets and you will own the equity stakes in addition to what you previously owned (a bigger piece of a smaller pie).

If you are an equity holder (or borrower) you will prefer inflation.  Equating borrowers and equity holders may not make sense unless you are familiar with LOOP.  Equity + Put = Debt + Call.  Anyway, the value of business assets will go up, but the claims of creditors will remain constant – so equity holders get a bigger share of asset ownership.  Likewise, if you have borrowed money, your effective real interest rate goes down AND if you used that loan to buy something tangible – the value of that goes up relative to the debt.

Now we can argue about the relative morality of the 2 positions.  It’s unfair for irresponsible borrowers to benefit.  It’s unfair for evil banks to prey on unsophisticated borrowers.  Etc…  But from the standpoint of the 3rd principal – morality is irrelevant.

The 3rd principal is the economy as a whole.  Since both extreme deflation and extreme inflation have potential long-term impacts on potential growth, the best position for the economy as a whole is Goldilocks.  A bit of both.

Now where I will agree with ZH is that this is almost IMPOSSIBLE to pull off.  That’s why I’m betting on nationalization and game theory leading to massive defaults and deflation.  But there are just as many people on ZH arguing the other side.  Every Goldbug is inherently betting that inflation will be the preferred route.

Frankly we’ve seen both routes taken before.  The Great Depression and Japan – would be terrible outcomes for the Goldbugs, and I’d make a mint on equity shorts.  Zimbabwe or Weimar would be a disaster for me – and everyone hoarding gold would be rich – assuming we still ascribe gold any value.  And yes, society devalues specific commodities all the time –regardless of what inflation should suggest.  Industrial commodities loose demand (Whale Oil – 1856-1896) or we discover massive new low cost supplies (salt in ancient times, tea pre-india colonization, nat gas since 2008).  And non-industrial commodities (call them reserve commodities) are valued SOLELY based on societal fashion preferences.  There are multitudes of precious and semi-precious materials that were once considered luxuries and are now considered worthless (because they have no industrial use).  But not trying to pick a fight with the goldbugs.

BTW – I think we will have massive defaults and deflation UNTIL it gets so painful we opt for inflation.  Where I differ from the gold bugs is that I will swap my INFLATED short equity positions into a variety of useful resources at far reduced costs.  Somethings are already getting interesting.  I was a huge gas bear at $8.  But as we close in on $1 I’ll be looking at the debt of a number of levered gas producers.  Same with solar and wind.  I was a huge bear on things like Vestas at E100 (forget E300), but with gas at $1 I’ll be able to pick up the debt at 50% - there is some value in the technology.  Other commodities – oil, coal, metals etc… will fall hard in deflation and then you buy them.

Sun, 03/18/2012 - 12:44 | 2267198 riphowardkatz
riphowardkatz's picture

The only reason I am responding to your non sense is to try and clear some confusion for  others. I have no hope that you will be able to get your mind around the facts.

Price of gold in yen
http://goldprice.org/NewCharts/gold/images/gold_15_year_o_s_jpy.png?0.9185509567614645 

The amount of dollars has doubled since 2000 and you are saying inflation will be the choice once deflation his? What?

http://www.forbes.com/sites/michaelpollaro/2012/03/17/money-supply-booming-seeds-of-the-next-greater-recession/  

You are so far off base that you have left the stadium. Your misunderstanding of the proper definitions of inflation and deflation cause you many problems. If you want to use deflation and inflation to mean prices going up and prices going down best of luck to you. You will be forever confused. Inflation and deflation are increase or decrease of prices caused by an increasing money supply(which has doubled and with multiplier effect has potentional for 3x growth). Prices can go down without there being deflation. The liquidation of malinvestments can cause asset classes to tumble without there being less dollars. 

"BTW – I think we will have massive defaults and deflation UNTIL it gets so painful we opt for inflation. "

The amount of dollars in existance has doubled, the gold prices has doubled, the price of oil has doubled and you are still predicting that we will "opt for inflation" Are you choosing to be ignorant or just really ignorant?

It is never moral or practical for governments to increase the money supply(counterfiet). It is never moral or practical for governments to bail out debtors. It is moral and practical for governments to spend the amount of money they can take in through taxation and reduce expenses to meet that amount. It is moral and practical for people to default and be forced into liquidation  

 

Sun, 03/18/2012 - 10:39 | 2266996 TrulyStupid
TrulyStupid's picture

The US gov/Fed Reserve is a net debtor. It has been monetizing debt and borrowing to close its fiscal deficit and to lend money to other institutions who are overlevered and in constant need of new "loans". To quit printing and propping would start a cascading series of defaults a la 2008, which could only be stopped by resuming printing money (we've gone through several iterations of this scenario already).

To delever in a rational fashion say a la Ron Paul, by restoring fiscal balance and recapitalizing banking institutions would cause a huge dislocation of government control and economic power which is their raison d'etre. As long as  the FED/gov't  is in control... they will continue to print and the end result will be a hyperinflationary collapse based on international dollar divestiture and with that a collapse of the welfare/warfare state.

Sun, 03/18/2012 - 11:36 | 2267071 Ayr Rand
Ayr Rand's picture

Agreed the Fed will continue to print, but hyperinflationary collapse seems unlikely at this point. Hyperinflationary collapse is the complete collapse in trust / confidence on our monetary system, and in particular the ability to obtain needed goods and services with our money. Although our institutions are eroding and respect for the rule-of-law is decaying (note for example the lack of regard for the Constitution by this and the previous president), we still have a powerful military and the ability to lock down the resources we require simply by enforcing existing policies such as the Monroe doctrine. The Americas as a whole could be self-supporting on any basis you choose to identify. If we are willing to invade Iraq and Afghanistan 10,000 miles away to guarantee oil for Europe, why wouldn't we invade Venezuela and tighten our relationships with Canada and Mexico to guarantee our own oil supply? Much cheaper, much easier. 

I have a lot of respect for Ray Dalio, but the fact is that even 4 years after this crisis started, we really haven't deleveraged in the sense of public + private debt. Congratulating ourselves on a beautiful deleveraging is just premature exultation. If and when we start to seriously deleverage, things will get very bad. Even if we went back to 2008-style deficits, the equivalent of at least 1,000,000 government employees would be out of work. Since the corporate sector is unwilling to increase employment, the household sector will continue to be weak. The financial sector is actually insolvent, which is why the 6,000,000 houses in shadow inventory haven't cleared-- the banks can't afford to recognize the loss so are letting people live in house payment-free for years.

So the corporate sector is the only engine we have, consistent with stock market results. The question ZH has raised repeatedly is how sustainable, for how long, when federal, household, and financial are so overleveraged? 

Sun, 03/18/2012 - 02:22 | 2266683 partimer1
partimer1's picture

Dalio's work has. Long disclaimer at the end. He holds positions based on his own research, and he has been right all along. He is a money manager, not your savior. He said he only needs to see whats coming 6-9 months ahead of others. His concept of "machine" means exactly what it means, non-emotional, no-right or wrong, just the way it happens. If you want to end the fed, to have gold standard, you can keep dreaming about it. If you want to have a revolution, you go pick up a gun, and start shooting. Dalio doesn't claim he fix anything, he only makes money for his clients. He is good at it, really good at it.

Sun, 03/18/2012 - 13:02 | 2267229 riphowardkatz
riphowardkatz's picture

That is all fine and dandy but the article he posted had nothing to do with making money 6-9 months out. It had to do with a judegment on what he things is practical way for governments to act. This has nothing to do with speculation. It was to do with morality. When you make a case like the case he made you open yourself up to critcism from people who believe it is neither moral or practical to bailout bankrupt entities, or to counterfiet money into existance to pay off government largess.

Sun, 03/18/2012 - 14:18 | 2267400 partimer1
partimer1's picture

Government acts inits own interest, and it consists of people with their personal interests. Dalio just passed a judgement that It's just too much damage to let the chips fall. He doesn't brand himself "autrian" or"Keynesian" or whatever it may be. He has his unique way to see the world in a "transaction" fashion. People criticize him because they had nothing better to do.

Sun, 03/18/2012 - 16:11 | 2267650 riphowardkatz
riphowardkatz's picture

"People criticize him because they had nothing better to do." great argument and you support him because you have nothing better to do?

I critize him because he is a pragamtist. That is the cause of the problems we have today. The belief that someone or entity can tune knobs to make outcomes that are less bad. It isn't possible, hasn't been possible and always leads to more knob tuning into the system explodes.

 

Sat, 03/17/2012 - 23:12 | 2266438 ekm
ekm's picture

Sir

Do you or anybody remember the story of Rothchild (true or not is irrelevant) right after te WWI's final battle?

He knew Napoleon lost one day in advance and sold english gilts. All present traders followed suit. Prices collapsed. His men bought everything up at the end of the day at a fraction of the cost. Next day news came that Napoleon lost and gilts' prices went thru the roof. He basically owned england on paper.

It's called "suckering".

Like Buffett, TARP saved Dalio's ass (quite probably, I can't prove it). But that he is trying to lure suckers with that article (same as Warren Buffett), I have no doubt about it.

Sun, 03/18/2012 - 07:03 | 2266814 New World Chaos
New World Chaos's picture

That was Waterloo, long before WWI.  But yeah.  Thanks to leverage, Rothschild increased his wealth thousands of times with that one suckering and ended up owning England on paper.  More importantly, he owned the politicians and the courts which enforced his brutal austerity which paid his bonds without inflation.

Sat, 03/17/2012 - 21:52 | 2266221 steve from virginia
steve from virginia's picture

Dalio's analysis of Weimar Republic is incorrect in too many aspects to be useful.

Weimar debt taken on beginning in 1915 was modest to GDP and mostly to German citizens, there was no threat of default.

Weimar obligations to Allies post-Versailles were paid in kind, that is industrial goods worth appx. $1bn/year. The Germans were able to pay b/c post war output of these goods tripled after end of hostilities and English blockade. Goods included steel, iron, timber, cement and coal. Until 1920, France occupied Dusseldorf as surety for items due. Once the French turned over Dusseldorf to the Germans the flow of goods became intermittent leading to occupation of Rhineland by the French army in 1922.

Inflation took place in all European countries AND the US after WWI because of a shortage of consumer goods. This is an ordinary consequence of war and is well known. There was hyperinflation in many areas of Europe after WWII and in Japan. There was inflation in the US for this reason during and after the Vietnam war.

Weimar inflation was also consequence of gold flows back into the country by investors looking for opportunities. Weimar authorities did not sterilize these flows (by issuing more debt) so an arbitrage between goldmark and papiermark took place: goldmark trading at exponentially increasing premium to papiermark. This was an error by the bureaucrats but these dudes make errors (see Greece).

'Durable' debts such as mortgages and business loans taken on before the great inflation were reinstated after the currency issues were resolved. Prices and terms were adjusted to reflect the new money cost.

There are many myths about the great inflation but property such as building or farms did not change hands for pennies in Germany as most transactions requiring large sums were settled -- as elsewhere in the so-called 'modern' world -- with gold.

Savings were indeed lost but understand that Weimar was not a rich country after four years of a lost- and extraordinarily costly war. Like the rest of Europe, Weimar suffered a lost generation. There were few in Weimar with any savings and those who had savings were not naive. They held savings in gold, foreign currencies (UK sterling) or in real estate, valuable objects or shares in German- and other companies. Those who suffered in Weimar were not the so-called middle class but the penniless, often veterans who could not afford bread at any price.

Sat, 03/17/2012 - 21:07 | 2266144 Piranhanoia
Piranhanoia's picture

The market, lets see.  The info we get is crap. The figures are bogus.  The system is broke.  The goverment can't do anything.  Inflation is on. CDS swaps are about to explode.  Organized crime is the modus operandi.   The market goes up until it doesn't.  The dow is high because it is in a pan of hot water and the temp keeps going up.  It is about to boil which will cause burns and vaporization.

Sun, 03/18/2012 - 05:14 | 2266770 falak pema
falak pema's picture

the whole point is that centralised banking is reinventing the function of the market as an oligarchy tool to fool the public into thinking the market is still free. It is not, but the Oligarchy has an impossible task : save its skin all the while it imposes austerity on the world. In the end the people pay and the Oligarchy stays rich. Is this workable?

That is the big question. Dalio is on the side of the Ben Bernanke caper, so he has to believe it will work. If he didn't he'd stay silent and act accordingly...But he is stuck in a way. He is a king of the present system of collective rip off.

The only REAL way out? Armageddon and a Caesar who crosses the Rubicon...that's history; time's arrow. 

Or the people will claim the heads of the Oligarchs...one day!

Do the Oligarchs want to end up like Louis XVI or Caesar...place your bets!

Sat, 03/17/2012 - 19:51 | 2265954 Goldtoothchimp09
Goldtoothchimp09's picture

just End the FED and introduce a currency that isn't debt money - would be a great start

Sat, 03/17/2012 - 18:32 | 2265783 SwingForce
SwingForce's picture

How high will taxes have to go to pay off all this deficit PRINTING????

Sat, 03/17/2012 - 19:24 | 2265885 WhiteNight123129
WhiteNight123129's picture

Wait a minute, Dalio worked in commodities in the 1970s and went out to ddfend Gold recently as a form of money, so I guess it will be beautiful for hoarders and speculators.

 

Sat, 03/17/2012 - 18:10 | 2265741 NuYawkFrankie
NuYawkFrankie's picture

Who gives a FF what Dildo Dalio has to say?

Just another toady blood-sucker, headed for the trash-heap'

Sat, 03/17/2012 - 18:10 | 2265735 engineertheeconomy
engineertheeconomy's picture

How about you give me $100 for every $20 that I give you?

That is exactly how our "economy" is rigged.

We have to buy the Bankers 5 houses for every 1 that we buy for ourselves.

Then, if they decide to stop approving home loans because they have a hair up their ass, we're really fucked.

The music stops playing, and there's not enough chairs.

They have the economy under an extreme vacuum, they're taking out $5 for every $1 they put in to it.

It's a fucking ponzi scheme to the tenth power.

Deleveraging is a nice way of saying "we're taking all your homes away from you, you fucking morons"

Because you're too stupid to throw us Bankers out of the fucking government

Especially you cops and military people out there. It's your godamned job to protect the citizens of this (once) great country.

You all should be ashamed of yourselves.

Sat, 03/17/2012 - 18:15 | 2265748 NuYawkFrankie
NuYawkFrankie's picture

Re you cops and military people out there. It's your godamned job to protect the citizens of this (once) great country.

Wrong. It's YOUR JOB to protect yourself - better get used to that concept real quick....

Sat, 03/17/2012 - 20:02 | 2265986 Money 4 Nothing
Money 4 Nothing's picture

Agreed, I guess alot of people haven't read the Second Amendment..

Sat, 03/17/2012 - 18:43 | 2265805 lunaticfringe
lunaticfringe's picture

Actually it's the job of both entities. Responsible cirizens and oath taking cops and soldiers. I award you each 1/2 point.

Sat, 03/17/2012 - 17:56 | 2265700 Clowns on Acid
Clowns on Acid's picture

"His (Dalio's)main measure of the problem is the amount of debt to GDP, a measure which really doesn't tell us much. All GDP can tell us is how much money was spent at any given time. At best it is a rough measure; at worst it is a misleading measure because the data is not revealing of what really happened in an economy where millions of individual decisions are made every day."

Dalio sees that the spread of corporatism (TBTF banks, bailed out Car companies, Alternative energy loan guarantees and handouts) and the shrinking of economic "individual decisions".

If you want for yourself and family to survive, work for Gov't, or a large corporation and keep your head down and personal opinions in line with MSM. This is what Obama and is minions of smirking jackals have in mind.

Dalio recognizes this and therefore gives the Fed management of the economy a chancwe of ultimately being successful.

I don't.

Sat, 03/17/2012 - 17:26 | 2265617 ebworthen
ebworthen's picture

Simple exercise:  if we all had printing presses in our homes would it be a "beautiful" deleveraging to print ourselves out of debt?

If it isn't good for a household to overspend and go into debt then be able to print money out of nowhere how can it be so for a nation?

Such central bank intervention only shifts assets and savings from households to banks and governments, and creates the very boom/bust cycles said intervention is claimed to ameliorate.

Sat, 03/17/2012 - 22:44 | 2266374 disabledvet
disabledvet's picture

this is a good and "beyond valid" (axiomatic?) point. this collapse may have not been an accident as Chairman Greenspan inverted the yield curve for years before "finally being fired but achieving the desired result." I don't recall the problem being inflation but a so called "non-existent asset bubble in real estate." quite the double-speak. Having said that what choice did the monetary authorities have really? The entire financial system was imploding all around them...interest rates had already been lowered to zero in anticipation of "something bad"--and of course "it was worse than that." So what's the answer? Besides the mother of all counter-cyclical moves by the Fed and Federal Government there has been strikingly public acceptance/view of inflation as both needed and good. And of course high prices will be what "tames the deficit and debt bombs." The answer toward these stated goals is strikingly simple: only a good offense is a good defense. In short "capital appreciation."

Sun, 03/18/2012 - 01:06 | 2266613 ebworthen
ebworthen's picture

That is the trap.

What capital is appreciating?

A normal responsible person is having a hard time finding more than 3% growth on anything and if you subtract fees it is closer to 1.5%, much more than inflation of gas and food (things we need each week).

They could have kept their hands out of the spaghetti and let people make their own meals, and of course not bailed out the banks, corporations, and insurers at the expense of future generations.

You have to let things implode and consequences fall to those who gambled versus those who were prudent; otherwise you may as well throw responsibility and bill and tax paying out the window and admit you are running a ponzi that punishes the frugal and rewards speculators and the indolent.

What we have is a perverted admixture of both where the worst impulses are rewarded and the good defamed.

Sat, 03/17/2012 - 17:18 | 2265594 skepticCarl
skepticCarl's picture

But maybe Dalio is correct in his assesments.  We have not either imploded from deflationary forces, nor exploded from hyper inflationary forces.  If things break down this year, I'll change my tune, and start singing "darn, that econophile was right!".

Sat, 03/17/2012 - 18:29 | 2265776 Thisson
Thisson's picture

What are you, living under a rock?  We are imploding right now.  We're like mountain climbers lashed to each other, and Greece has fallen off the cliff.  It's going to drag Portugal over the cliff next, then Spain and Italy, and eventually the US is going over the cliff, too.

Once the bond market cuts our funding, there are two remaining choices: print or balance the budget.  Both of those choices will be very painful.  They just distribute different amounts of pain to different groups.

Sun, 03/18/2012 - 06:18 | 2266800 BidnessMan
BidnessMan's picture

Balance the Budget is impossible. There was a huge political fight in the US over cuts of less than $50 billion, yet the annual deficit is $ 1 trillion and growing. Let's focus on what alternatives might actually happen.

Sun, 03/18/2012 - 01:24 | 2266639 bankruptcylawyer
bankruptcylawyer's picture

its' been 4 years of me talking to people on the street who are occupiers , tea partiers, others. 

i live in a neighborhood which is working class at best but really i live near projects and its' a working neighborhood with LOTS of people dependent on the dole of government or the dole of 'trickle down' from wall street. 

 

it's taken me a while to realize , that we will NOT be better off under some sort of unpredictable revolutionary period of economic collapse that would seemingly  be a clearing point for massive amounts of debt in the economy. why?

because people will just want to get theirs, only everything will be way more poor, crime, more fear, and more anger. 

i don't know if an american revolution nowish or laterish is going to correct the wrongs of 2008 and put us on some better sustainable path. we are likley to get to a path which is more or less similar to the one we are currently on, only with a few different masters , a smaller amount of government spending/entitlements balanced by smaller private and public debt loads and maybe most of wall street banks consolidated into one mega monopoly bank that is the 'good' bank 'bad' bank that will be inevitably created to deal with the situation wether in or out of receivership. basically the fed becomes all the big banks and maybe a few insurance companies are wrapped into it and the govenrment and courts support it. 

 

so what? does this really bring a better world with less slavery than the one we already exist in? i dunno. i think slavery winds up the same or worse. the only solace being a few heads of rich financiers will roll or leave for south america or something . 

 

so what?

 

we're fucked. we made our bed. you cannot avoid sleep with a revolution you can only alter the nature of the dreams that you would otherwise dream without one.

Sun, 03/18/2012 - 04:36 | 2266755 jeff montanye
jeff montanye's picture

or smaller banks.  it's what history teaches: s and l crisis in '90 worked out better, nordic banks in late '90's worked out better.  we and europe are following the bad example of japan from '89, which worked out worse.  no one stays powerful forever, especially when he is so inefficient (not to mention evil).

Sat, 03/17/2012 - 22:41 | 2266368 ihedgemyhedges
ihedgemyhedges's picture

" Both of those choices will be very painful.  They just distribute different amounts of pain to different groups."

And I think we all know for which group it will be the most painful, don't we???????????  Not the ones living in the 50 room mansions with Rottweilers waiting at the gates...................

Sat, 03/17/2012 - 16:23 | 2265455 rational
rational's picture

Pretty familiar with Dalio's track record? What's yours? 

Sat, 03/17/2012 - 17:03 | 2265554 qqqqtrader
qqqqtrader's picture

He can deleverage this... SP500 10yr Periods Performance

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