Why "This Time Won't Be Different" For Japan In Two Charts

Tyler Durden's picture

While Japan's recent attempt to massively reflate and break out of its "liquidity trap" - an artificial construct to explain what happens when an artificial model, created by a flawed and artificial economic theory explodes in a singularity of Econ PhD idiocy leaving billions of impoverished people in its wake, is nothing new, there are those who are rather skeptical this latest attempt to achieve what Japan has not been able to do in over 30 years will work. And while one can come up with complicated, expansive, verbose theories based on Keynesian DSGE models and other such gibberish, why this time will be different for Japan, there is a very quick and simple argument why it won't.

The simple counter-argument to this time being different is summarized in the two charts below, which show the relative asset and liability composition of the various key players in the Japanese and US market, split between the Household, Investment Trust, Pension Fund, and Insurance sectors, amounting to some $54 trillion in the US and 1.5 quadrillion yen.

The key differences are highlighted in red.

What the charts above clearly show is how vastly lower the allocation to equities is in Japan relative to the US: this means that the 'wealth effect' generated in Japan as a result of the recent 20%+ surge in the Nikkei has only one fifth the impact it has had in the US. More importantly the equity asset boost resulting from perceived, if not actual, future inflation, will be woefully insufficient to offset the concurrent surge in the marginal cost of living, i.e. real inflation.

As we wrote previously, not even three full months into Abe's latest and greatest reflation experiment the prices of gas and various other non-staple products has soared. This will only get worse as energy import costs explode in the coming weeks and months, putting the Japanese consumer - now with just one (and almost zero today) nuclear power plant and thus entirely reliant on outside sources of energy - into a spending vice, where the rise in costs far outweighs the "wealth effect" from the stock market. 

The primary reason for this is that unlike the US, Japan has traditionally, culturally and historically been a nation of savers: whether this meant allocating capital into the bond market (a phenomenon which had spared the Japanese bond market from complete annihilation so far even as its debt/GDP has exploded to over 230%), or keeping it planted firmly in the bank (where it gladly collected zero percent interest).

This epic difference is best seen in the top chart, which shows that some 55.6% of all Japanese assets are in currency and deposits, compared to just 14.3% in the US.

And this is where it all begins and ends.

Prudent readers can guess where we are going from here: assuming that a few months of currency collapse manage to undo decades and generations of ingrained habits and behavioral patterns, which they most certainly can't, assuming Abe is successful in generating his own great rotation into stocks, the question is where will the money comes from.

The answer: from the appropriate liability which matches the various "savings" tranches in the household balance sheet, namely Japanese government bonds.

That's right: what Abe wants to do in Japan is nothing short of what Bernanke wants to do in the US - force everyone out of money markets (so far he has succeeded here - as the "great" inflow into equities, if only for the past four weeks, has not come from bonds but from money markets, which should also explain the steadfast desire of everyone from Volcker, to Geithner to the SEC to crush the $3 trillion money market industry) and out of bonds into stocks.

The problem is that in Japan a great outflow of bonds means game over. Because while in the US Bernanke just may monetize every single bond issued by the Fed without causing hyperinflation, or at least not while the shadow banking sector continues to deleverage at a pace of some $150 billion per quarter as we have shown continues to happen, Japan has no such luxury. In fact, the biggest holder by far of JGBs are various domestic pension and retirement funds, which have already indicated they may soon rotate out of bonds.

The problem is what happens once said rotation begins?

Well, the clock begins ticking. Because with a debt load of some 230% of GDP, and with debt that is 2000% of government revenue, about five times more than the second highest (Greece), a simple doubling of average interest rates means half of all government revenues goes to pay interest. Double rates again, and it's game over for the funding side of the Japanese P&L statement, as all inbound cash will have to pay down interest, pushing Japan into the long-delayed hyperinflationary spiral.

And, by the way, none of the above is new! In fact, everything said previously has been well-known to every Japanese PM, and central banker for the past 30 years. It is also the reason why nobody has attempted the kind of ultimately suicidal move that Abe is now trying.

The good news is that it will ultimately be the bond market which puts an end to this latest bout of insanity before it is too late. Unless of course, we get bad news, which in Japan will means 2% inflation... then 12%... then 22%.... then 222% and so on.

By that point every central bank will be openly monetizing not only its own but everyone else's debt too, as the full 1930s rerun, which most certainly included full-blown currency war just before full-blown trade war erupted, unfolds.

And as everyone knows from history, both of the above metaphoric wars in the 1930s culminated with a different war. A real one.

Source: Bank of Japan December 2012, Flow of Funds

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lolmao500's picture

All signs point toward Japan being done as a country and as a society for the next 50 years at least, perhaps even forever.

Lost Wages's picture

They had a good 4000 years. Then the Americans came.

philipat's picture

And went!!

And at least in Japan they don't need to issue automatic weapons and a billion rounds of hollow-tip ammo for "Your safety".

kaiserhoff's picture

Yes.   I know quite a bit about Europe, almost nothing about Japan.  But they don't have the urban scum class you see in almost every American city, or the cynical useless ragheads surrounding Paris. 

Socialism works, after a fashion, in Scandinavia, because those "countries" are just over-sized tribes.  They have informal ways of getting the useless off their asses, or letting them freeze, and everyone understands the necessity of that.

Japan's economic policy is shit for brains, but they have a work ethic and ethnic unity.  I wish I could say as much for the States.

ersatzteil's picture

Excellent points, contrast Japan's tsunami and Fukushima disaster with Hurricane Katrina. 

The Japanese will survive.

The United States is artificially held together, lacks moral and ethnic cohesion, and will go the way of New Orleans and New England, if the aftermath of recent natural disasters are any indicators.

I hope it'll be like the Road Warrior.


Reptil's picture


the reaction on Fukushima as a positive thing? ignoring a MASSIVE radioactive contamination, because the effects won't be noticed until a few years into the future? (which is about now, much sooner than Chernobyl's effects became evident) In other words, the japanese population in the affected areas (where the plume was, but now everywhere, because they did their best effort to transport and spread the contamination), yes those obedient workers with excellent work-ethics, who sought no alternative to the top down directed policies, are now finding out all their children will become very sick, and that they can't produce healthy offspring anymore.

And the "funny" thing is, they still refuse to riot, and now are destined die slowly, painfully, while their countrymen who are slightly healthier, regard them with suspicion as they're "agents of harmful doubt". So they can't leave, or send their children off to safer places to live, even if they want to.

A large part of Japan will have to be abandoned, as it will be unfit for habitation. Worse than that, the northern Pacific Ocean, which is huge, has been seriously contaminated, and is still being contaminated, and because of the process of bio-accumulation, will cease to be a source of food.

So... no, I'm sorry, you've been misinformed, by people that know very well what the dangers are from their "risk models", but lost the connection to reality; what effects these risks have. The excellent "work-ethic" also has brought ordinairy japanese a dependence on their leaders, which has been betrayed. Some scepticism, and distrust of authority is mostly very healthy, since authority with that magnitude in most cases (throughout history) has been corrupted. It's just that now, it's on a planetary scale. The kids in the video below are just the first to find out. http://youtu.be/ZD9yGONdEUY

And no, it's not because they're scared that they've developed cystes (pre-cancers) in their thyroïd glands

for those interested how long we all have been lied to, with potential disastrous effects to the survival of our (and many other) species, this is an interesing inteview: http://lhalevy.audioacrobat.com/download/22ae6b12-f70b-574f-30a5-7446abd...
for those who are not, here is a picture of a cute puppy dog: http://favimages.com/wp-content/uploads/2012/02/face-puppy-dog-brown-cut...

good night

thefedisscam's picture

WRONG! Japan NEVER had 4000 years of history!! You mixed up Japan with China like MANY Americans do! The world ancient civilizations has NEVER had Japanese seating! Japan did NOT even had a language until a Chinese called Xu Fu in Qin Dynasty (around 200 B.C.) went to Japan, and brought them the Chinese language and skills! And some rumor said Xu Fu was the FIRST Japanese emperor.

"The first known written reference to Japan is in the brief information given in Twenty-Four Histories in the 1st century AD. The main cultural and religious influences came from China.[1]"


fourchan's picture

well the japaneese have blown away the chinese in terms of class, culture, style and society.

and their language doesnt sound like a bag of cats, so they are far superor to chinas slave state

in that respect too.

Totentänzerlied's picture

Japan can and will persevere for 50 years. Can't say the same for America.

Vampyroteuthis infernalis's picture

Since when did we get the attack of Eurotrash tonight?

bobthehorse's picture

Japan's been in deflation fairy land for the past 20 years.

What's gonna change?

Money printing certainly won't.

The debt is so giant that velocity is impossible.

No velocity, no inflation.


Mark123's picture

Why does anyone work anymore?  I just don't get it.

Just get over it and rely on the state....it's so obvious.

fonzannoon's picture

everything seems to always come up roses for the bernak.

Whiteshadowmovement's picture

Its a total headscratcher, huh fonz? I guess some people are just lucky that way...


"fortune smiles on some, and laughs at others"

Whiteshadowmovement's picture

PS- hey doc, you in the house? I look forward to picking up that discussion...

fonzannoon's picture

whiteshadow I met with a hedge fund manager today. A 2 and 20 guy. He went over his whole quant model, which was impressive. When I started picking and poking he admitted that he and many of his clients were stockpiling several different metals as well, and I mean stockpiling. I was floored. He said that they are all preparing for the collapse of the dollar. He admitted he had no idea when it would happen, but he was actively prepping.

I think your only downfall is you seem absolutely convinced that the way you see things working out, will work out. The bernak's great experiment will be successful. I respectfully disagree. In truth I can only really base that on the people I interact with everyday. I can tell you with certainty that in my small sample group, no one is buying it. They look at the market with disdain. They feel like they have no choice to run in front of that steamroller to pick up that penny. They just want to be way the hell out of the way before it gets too close. In each of their own ways people are just getting themselves ready for what they all seem certain is coming. They know the economy sucks and see the market as more and more artificial and unsustainable every day.

This conversation seems to always revolve around gold. I think it is less about gold and more about real assets. The part about Paulson and the gld does not go very far. He is a putz. Him trading in paper or whatever just does not have a lot of validity to any of this when you reduce things to real people.

Again, I am not saying I know for a fact that the way you see things is wrong, and I am not saying this can't go on for a long long time. I just think that to embrace any viewpoint with such certainty, which you seem to do with the bernak and this experiment, can get people in trouble. May as well hedge yourself, and concede the possibility that the Bernak may lose his grip.


Whiteshadowmovement's picture

hey fonz, trust me I tread very very carefully and as I said, Im not buying indexes, lol, I do my best to find alpha for my clients and I think even as Austrians we have a certain duty to keep speculating no matter what the situation.

I happen to have my beautifully worn in Yale Edition of Mises' Socialism right in front of me:

"...the speculator is interested in the result of his speculation to the highest possible degree...The speculator works for the community, but he himself feels the success or failure of his action proportionately more than the community. As profit or loss, they appear much greater in proportion to his means than to the total resources of society. The more successfully he speculates the more means of production are at his disposal, the greater becomes his influence on the business of society. The less successfully he speculates the smaller becomes his property, the less becomes his influence in business. If he loses everything by speculation he disappears from the ranks of those who are called to the direction of economic affairs."

A lot of people would just like to pick up their toys and go home, I really get that. In fact Ill admit I personally have lost a good deal of money in early 2012 on these exact same sentiments of distrust (picking tops etc.) but I still had an excellent 2012 after adjusting my outlook. I try to approach it like this: put yourself in earnest in the position of tbtp, and try to see how they would act and what obstacles would derail their plans and what they would do about it. Also, I should tell you, personally I have maybe 70% of my own net worth in real assets- forestry land, some commercial real estate and classic cars, so Im not really worried about the outcome. 


PS- I kind of laid out my next reply for the good doc earlier, if youre up for it ill post it here for you.

fonzannoon's picture

Yeah go for it.

Again I don't totally disagree with you, and for me it is more about real assets in general rather than one particular one. All I am advancing here is that people are truly catching on that there is serious inflation taking place. That leaves them with no choice but to start to believe that the Bernak is being less than honest with them. Where it goes from here remains to be seen. But people don't want to sit on cash. The question is will they run to paper assets or real assets. Maybe both. But the herd is getting ready to stampede.

Whiteshadowmovement's picture

(all done on my ipad so forgive the errors etc.)

I think I can structure my argument around 2 basic principles:

In the first place, let me use the words of the other contributor (and feel free to jump in tenpanhandle): "most gold bugs are buggy about gold because they see the ongoing destruction and eventual (near term) failure of our financial system which consists of a mountain of paper products derived out of a molehill of tangible products."

If you guys will allow me to put it so crudely, I will use the term "hyperinflation" from here on out as a way to save time. I know it doesnt cover the ins and outs, but the argument is fairly simple: when paper products collapse from devaluation, as most of you think is guaranteed to happen, then of course PMs go up in value.

Let me now state why I think this is the wrong way to look at the modern world. You guys seem to conceive of Bernanke sitting there by a printer or a keyboard hovering over the control+p button and doing nothing but waiting for his next opportunity to create more money. I also get the impression from gold bugs- as is often mentioned- that he is trying to prove his thesis on how the Great Depression was fought. i.e. he would have dropped money from helicopters then and he is doing it now. So naturally you (all) feel bullish on gold because if he is going to repeat the inflationary efforts to quell the Great Depression, well then you guys will counter him by going into the one thing that was the enemy of fiat in the 20th century: gold (which is why central planners decided to abolish that standard in the first place).

Unfortunately, I think you guys are like the generals of WWI, you are using the wrong weapons to fight the last war and where you cant realize the tactics have totally changed. Gold is the wrong weapon here. You see, I think the more accurate way to picture the Feds efforts is like a giant octopus with infinite arms that can move at the speed of light. Its objective is to constantly "plug holes" in the market, not to print money. If stocks are starting to fall, then they get ramped. If commodities start to rise, they get slammed. Treasuries are kept in a "safe" range. And so on. Its a big behavioral finance game, in the sense that they can actually achieve the outcome they want in nature by rigging the system to remove all alternatives to participants through behavioral psychology.

This really isnt about inflation, this is about central planning. The digital age brought unfathomable advances to the effects of central planning, that previous central planners in the 20th century could not even have dreamed of! An interesting book comes to mind as a way of illustrating to you guys what I mean: called Red Plenty by Francis Spufford,


Did you know back in the 1950's the Soviet Union achieved growth rates of above 5% each year? This was by American estimates, not local data I might add. And this was faster growth than even the USA accomplished. How could this be? Here is an excerpt from the book:

"Give your imagination permission to engage with some unlikely facts: in the 1950s, the USSR was one of the growth stars of the planetary economy, second only to Japan in the speed with which it was hauling itself up from the wreckage of the war years. And this is on the basis not of the official Soviet figures of the time, or even of the CIA’s anxious recalculations of them, but of the figures arrived at after the Soviet Union’s fall by sceptical historians with access to the archives. The Soviet economy grew through the second half of the 50s at 5%, 6%, 7% a year. As Paul Krugman has mischievously pointed out, the USSR’s growth record in the 50s elicited exactly the same awed commentary as Chinese and Indian growth does today. For a while, in the late 1950s and early 1960s, people in the west felt the same mesmerised disquiet over Soviet growth that they were going to feel for Japanese growth in the 1970s and 1980s, and for Chinese and Indian growth from the 1990s on,"

"Beneath several layers of varnish, the phenomenon was real."

So how could this have happened? We all know today there Soviet experiment was doomed to failure, but there was a brief time, just about at the end of the 1950's, when sputnik was launched, etc. when it really seemed possible for a moment, that the USSR might actually catch up to the USA and surpass it in quality of life. Remember Nixon and Khrushchev at the worlds fair? At the time, it really seemed like it might be possible for the centrally planned soviet economy to catch up and there was even soviet champagne around at the time and the promise that every volga car would some day be better engineered than the best Porsche. What happened? The planned economy of the USSR did not allow for innovation to the next level and inevitably fell behind by relying only on copying western technologies. That and the massive misdevelopment of the economy- Stalin had armies of slave laborers at no cost, so it was nothing for him to dig 10 holes until he found the source of a mine for example. So the economy was massively misappropriated towards wasteful projects. Just like in china where you can get laborers at slave wages to build buildings nobody really needs.

But going back to the example of the USSR, of course with that misallocation of resources, that growth from the 50's was totally unsustainable, but nevertheless, life got pretty comfortable by the 1970's (lots of stolen R&D also helped), where much of the population had tvs and cars already, but that was only because they had mastered the production of the 50's and 60's, namely heavy industries. By the 70's, GDP growth went way down again and they were selling raw commodities to make ends meet. The reason being that the centrally planned economy was not able to manage the economy properly or plan for innovation and thus could not make the jump to computers and plastics and advanced carbon products etc.

The main issue was that of course without a price feedback system, you get too much noise and cannot keep up with plugging holes, *UNLESS* you have supercomputing at your disposal and a banking monopoly, in which case its you making the noise, and remember although the Fed also encourages malinvestment, it doesnt "lock out" innovation in any real way.

The "going digital" aspect of it takes central planning to a whole new level. The idea that you can control the money supply in a paper based economy is laughable. And if that were what was going on, you would all be right to buy gold. But it isnt, whats really going on is that the Fed now has the following things at its disposal that no central planner has ever had before:

-Supercomputing to allow it operate at the speed of light to fix prices before bubbles of "unrest" pop-up. It doesnt have to be perfect (and we wouldnt want it to look to perfect, which is why gold hasnt been slammed harder already), but theyve been doing a tremendous job at it the past few years. They have used their digital edge to fix prices AND keep the appearance of a free market. Thats how you know it works. In the USSR, everyone knew that prices were fixed and often out of tune with supply and demand. In modern times, this goes totally unnoticed by the general population, and not only is it seamless, but it also is THE DRIVING force behind most decisions. In other words, the USSRs central planners were *reactive* trying to correct imbalances after they occured, whereas the Fed is *proactive* and stops any perceived imbalances from ever occurring by using its edge to influence market psychology. In other words, if the USSR was afraid of inflation, it would try to freeze prices. If the Fed was afraid of inflation (and it is), it would mount a preemptive attack on commodities.

A huge difference in approach and this is only possible now for the Fed because of the digital age, no central planner could even theoretically have tried this before.

The Fed also has other weapons that let it succeed at central planning the way they have been succeeding, because of a few other factors that were never present in earlier periods of central planning:

-First and foremost the Cantillon Effect, which loosely defined equates to a proportional benefit to first to create and receive new money. Because of Roueff's exorbitant privilege:


The Fed has a special advantage that no other central planner has ever had. Namely total global interdependence on 1 reserve currency. Sure, there have been other reserve currencies in the past, but nothing like this, where all commodity transactions around the world are essentially conducted in this sole currency. The British pound never had this status at the peak of their empire. Also this comes back to the idea that the US will remain the worlds dominant military superpower, especially in light of the fact that China has hitched its entire growth and stability model on the Dollar, I know some of you will debate the viability of this, but suffice it to say it is fairly unimaginable that commodities will stop being traded in dollars in the next few years in favor of Yuan. Whats good for the goose is still good for the gander in terms of USD supremacy.

Lastly, the Fed has something else no central planner has had before it- a total merger of central planning and the banking cartel. When the banks nearly collapsed and were in consequence made even bigger and more systemically important, it was perfectly clear what the intention was. Total and utter control of the money supply and money velocity. In all previous systems of central planning, even if the central planner could expect the collusion of the banking cartel, it could never have worked like it does today as paper still dominated in those times, which was really beyond the pale of control. Today, not only do the central planners and the banks walk around with a metaphorical a-bomb pointed at the world in the event things dont got their way, but also they have total control of the digital pool of money, which frees them up to make everything up amongst themselves (MZN if you will) as they go, as long as they make sure M2 is control for the rest, which is not that hard with digital tweaking at all times.

Ok, so having laid out why I think "this time its different" for central planning (haha, I know) let me say that I also expect this to collapse eventually, but not at least for another generation (20 years+) and maybe not at all if the Fed can just hold out long enough to pray that some natural tech breakthrough bails it out. Look how long the USSR lasted. I simply cant imagine that this wont work for the near and medium term, because the demographics force everyone to accept this status quo.

There is no hope for the comfortable retirement of boomers other than the Feds benevolent central planning (as their 401ks, social security and other retirement funds are held hostage) so they will happily accept this valiant attempt by central planners to ensure a big welfare state. I dont think society has yet tested how big a welfare state can get. Depending on how much technology you apply, I wouldnt be surprised if the answer was around 75% of people on welfare. I can certainly tell you the generation of young people currently in the world has absolutely NO interest or plans to rock the boat as a whole. Theyve been taught by their baby- and echo- boom parents that the game is all about getting theirs.

Btw want to see my entire generation summed up in one laugh out loud funny video: http://www.youtube.com/watch?v=0AMcl7lQ7j8

It is literally a perfect storm that way in favor of central planning and way, way more welfare, in the form of a big race to get more benefits than the next person.

fonzannoon's picture

Here is what I would take issue with. It may or may not end up in hyperinflation, but it is totally about inflation. The bottom line is more people everyday are starting to wake up to how much inflation is hurting. At the same time they have the all knowing Bernak and the rest of the media bombing them with the propoganda that their is no inflation. At first they were apathetic, now they are skeptical. I am curious to see what happens next.

"They have used their digital edge to fix prices AND keep the appearance of a free market. Thats how you know it works. In the USSR, everyone knew that prices were fixed and often out of tune with supply and demand. In modern times, this goes totally unnoticed by the general population".

I believe that the appearance of a free market has been completely lost. Everyone I speak to about the market uses the terms "bullshit" and "manipulation" to describe it. People don't know what to do about it, many of them are still in the mode that there is absolutely nothing they can do about it. But they are not fooled into thinking they are watching anything other than manipulation. They are losing faith. Getting slammed with inflation while the very person in charge of monetary policy tells you there is no inflation is a bad combination.

I also can tell you that most people, whether they own gold or not, absolutely believe that should the time ever come, anyone owning a paper certificate will be left with a worthless IOU. I am not going to claim that every one of those people will be stacking gold bars. I certainly don't know how many of them would have to start buying physical to crack something open somewhere. But seeing how people are losing faith and catching on to the lies they are being spoonfed, I think it is a real possibility Bernak ends up losing his grip bigtime.

Whiteshadowmovement's picture

I dunno fonz, I see this argument as well that people are waking up to it being all bullshit, but even more I see the greed and fear of missing a rally. I cannot even describe to you the psychological impact the 30% DAX rally had on my European clients. They couldnt get long enough as far as they were concerned. I remember at one point people were asking me if their German banks were going to fail and if they should move money somewhere else etc in early 2012, but then by the end of the year theyre pissed they missed the 30% move.

To answer your question as to how do people cope with rising inflation? I think the answer is simple, they will vote themselves more entitlements with every coming election, welfare will expand in reach and amount. Also, as I said, I firmly expect the Bernank to make sure commodity prices are flat with some sluggish growth. As long as the rise in commodities does not outpace the rise in welfare benefits, things should be ok. Likewise, everyone else will be treated to a rip-roaring market in the hope that this wealth effect is stimulative enough to offset real inflation. Ill tell you what, once Etrade starts to accept EBT cards for SPY, then the game is up...


you know what gold bugs remind me of? That episode of the Simpsons where Bart goes to Australia. One of the best Simpsons ever.

It all starts with Bart disputing Lisa's assertion that the Coriolis effect always makes the water drain the same way. He spends the first part of the episode fighting the drain in his sink and toilets trying to force it to go the other way. Then he is even more incredulous as Lisa explains that in the Southern hemisphere it is reversed (side note- actually not true). So then Bart tries to amass proof hes right and in the process causes an international incident when he racks up an enormous collect long distance bill to Australia. The simpsons are then flown to Australia for a formal apology. Here is where it gets really funny: As they enter their luxurious quarters within the embassy, and the state department guys are settling them in, they ask if the Simpsons have any questions.

Homer: Oh, yeah, this is the life! Boy, next summer can you commit some fraud in Orlando, Florida?

Bart: I'm way ahead of you, Dad.

Conover: [walking in] Kno-ock! Simpsons, I'd like you to meet our ambassador, the honorable Avril Ward.

Ward: Hello. Now, everything is all set for Bart's apology. Mr. Conover will meet you at the parliament house at three p.m. Questions?

Bart: Yeah, do the toilets go backwards in here?

Ward: No. To combat homesickness, we've installed a device that makes them swirl the correct American way. [he flushes the toilet]

[it swirls one way, then a machine kicks in and makes it swirl the other way]

Homer: [singing] Sweet land of liberty, of thee I sing...[weeps]


http://www.youtube.com/watch?v=5P_blkNZ97s&feature=player_detailpage#t=7... (unfortunately youtube only had this in Spanish, hence the text)


And thats all there is to this in my mind fellas- in this analogy, Bart is the gold bug, the water flow is the market, and that giant toilet machine is the Fed. Homer of course, is retail.

fonzannoon's picture

I hear you, and again I think you and I are taking the temperature of two different types of people. I think the people you deal with truly want things to continue as they are because they are living the dream. The people I deal with are walking right on the line and have a little less to lose each day. the idea of a reset is starting to appeal to them, even though they truly don't realize how painful that can be as well.

I can also tell you that living in NY, many people with half a brain and the means to do so are making plans to leave. They want to go somewhere where work and effort is rewarded and people voting themselves entitlements does not exist. I am curious to see where that drives things.

As for your point about technology. That is a total wildcard and I think has the ability to really throw bernanke and everyone else a major curveball. I think a lot of people are going to find out they can be replaced. There was a documentary I saw a while back called "Surviving Progress". Not bad if you want to check it out.

I see from your edit that you focus a lot on "goldbugs". I think you are focusing on a tiny portion of people accumulating gold these days. I think the stock permabulls are quite possibly the dumbest human beings I have ever met. But there is no point in focusing on them. In every niche market you will find a group of people like that.

I just want to point out that I just watched a Dos Equis commercial...."he once ran a marathon, because it was on his way. Sasquatch has taken a photograph of him....


Whiteshadowmovement's picture

The funny thing about my clients to me was really that in May last year they were terrified, they were literally sitting around all day panicking that Europe was going to collapse on itself, the banks would go insolvent. Several of my clients asked me to draw up specific contingency plans for this event. Yet these very same people could only see Dollar signs by the end of December as the FT was hammering at them with headline after headline of the generational opportunity in EU stocks.


I actually think the idea of people embracing a reset is non-sense. Thats why they voted for Obama, they want everything to stay exactly as it is. They simply want to be told by some paternalistic authority that things are being taken care of. Its exactly because of what you are describing I think that they wont dare to rock the boat because of the awareness that they cant come up with *anything* at all to replace the status quo. I honestly think understanding the sheer burn out of the baby boomers and the apathy of my generation is the perfect recipe for maintaining the status quo. 

i know boomers are super touchy here about their demographic challenge, but recall what Carlin once said about them:



"No, a lot of these – hold on a second. A lot of these cultural crimes I’ve been complaining about can be blamed on the baby boomers. Something else I’m a little tired of hearing about – The Baby Boomers Whinny, Narcissistic, Self-indulgent people, with a simple philosophy: “Give Me IT! It’s Mine!” “Give Me That! It’s Mine!” These people were given everything – everything was handed to them. And they took it all – took it all, sex, drugs and rock-n-roll and they stayed loaded for 20 years and had a free ride, but now they’re staring down the barrel of middle-age-burn out and they don’t like it, they don’t like it, so they turned self-righteous and they want to make things hard on younger people. They tell them to abstain from sex, say no to drugs, as for the Rock-n-Roll they sold that for television commercials a long time ago, so they could buy pasta machines, StairMaster’s and soybean futures; “Soybean Futures.”

You know something: they’re cold bloodless people, it’s in their slogans, it’s in their rhetoric; “no pain, no gain” “just do it” “life is short” “play hard” “shit happens” “deal with it” “get a life”. These people went from ‘do your own thing’ to ‘just say no’. They went from: “love is all you need” to “whoever winds up with the most toys wins”. And they went from ‘cocaine to Regaine’. They did.

And you know something they’re still counting grams, only now its fat grams.

And worst of it is, the rest of us have to watch these commercials on TV for Levi’s loose fitting jeans and fat-ass Docker pants because these degenerate yuppie boomer cock-suckers couldn’t keep their hands off the Croissants and the Häagen-Dazs. And there big fat asses have spread all over and they have to wear fat ass Docker pants. Fuck these Boomers! Fuck these Yuppies! And fuck everybody now that I think of it.

Fuck everybody."



That is the generation that has absolutely no chance but to succumb to Central Planning and the welfare state



fonzannoon's picture

Regarding Europe. they need to hurry up and have their crisis before summer hits and they take their 2 month vacation. That woke me up last year, or was it the year before? I can't remember anymore. It seems like groundhog day....Europe, in the middle of full crisis mode...goes on vacation. That is when I realized fully and completely that I was watching Kabuki theatre.

Regarding Obama....You make it seem like he won 98% to 2%. Basically half the country thought he was the most evil human being that has ever existed and the other half is convinced he is their savior.

I don't get too concerned with the red team blue team stuff. I know you like the Simpsons. So I am sure you have seen Idiocracy. That, unfortunately seems to be where we are heading.

Whiteshadowmovement's picture

lol, fonz, you must forgive the frequent Simpsons references but you see my generation was practically weaned on them and I can safely say I learned more from the Simpsons than I ever did from the formal education system.

By the way, I think you got me wrong, I think thats why they voted for Obama in the *first* term. You see, because the "Change" was nothing. I think deep down everybody knew it (I agree completely with you, I see no distinction between the two parties at all). I think deep down, they just wanted someone to tell things are going to be in control, and when Obama delivered more status quo, they shrugged it off. Besides, we all know so well that the second election was hardly a contest at all, whether Glenn Hubbard is in the Fed instead of Bernanke would have made no difference to the grand scheme of things.

fonzannoon's picture

You see Chris Rock's comments today? That's where we are at. We are screwed.

Whiteshadowmovement's picture

I really miss those XX commercials! We dont have that here in SA... I always used to love that Old Spice ad with Bruce Campbell, remember that:



PS- your comment about people looking to move somewhere where work and effort are rewarded and people do not vote themselves entitlements reminds me about an old joke about East Germany:

A French guy, an Italian guy and a German guy are told its the end of the world, what do they want to do with their last day:

-The French guy says Im going to have a 10 course meal

-The Italian guy says Im going to have a Bottle of the best chianti

-The German guys says, Im going to East Germany, because there everything is 20 years behind...


Kind of why I moved to Africa- no minimum wages, no taxes for me as a foreigner (provided I dont formally "earn" money here, and even if cap gains are 15% on property for example, corporate is fairly low too), and you guys would love the fact that gold is still legal tender here- I could take 20 Krugerrands and walk into a BMW dealership and theyd have to sell me a car.

fonzannoon's picture

Hah I remember those commercials. Good stuff! I think it was Stephen Wright who said "experience is something you don't get until just after you need it".

Scout out a plot of land for me if you have the chance. I was convincing my wife it was going to be New Zealand but you are painting quite a picture.

Whiteshadowmovement's picture

lol, forget new zealand, its nice but its too small, in many ways, Africa is the freest place on earth. Let me tell you in Miami I would have to show my ID like 3 times a day on average. Here I simply dont carry it, the ID of someone asking for my ID just never comes up.


A plot of land you say- prepare to be dazzled:





$1 = R9



What do you think, all within 2 hrs of Cape Town by car?


VIRGIN LAND, fonz, some of the richest on earth. A white south african farmer makes about 25x the output of his French counterpart.


Also 3,000 hours of sunshine per year, no natural disasters of any kind (no floods, no hurricanes, no tornadoes, no earthquakes) and some of the strongest Riparian rights there are in the world. Your water rights have been grandfathered to your property for 200+ years...

Heres the bottom line about South Africa: $2 million dollars here are the equivalent of $20 million in Miami...


fonzannoon's picture

You show me an Irish pub and a good pizzeria and you have a neighbor.

You will probably have me as a neighbor either way at this rate. Maybe the pizzeria or pub can be my contribution.

Whiteshadowmovement's picture

Fonz, let me show you my favorite Pizzeria (run by real italians) just down the road from where I live in CT;



Oh and their daily take away menu:


A main course runs about $10

As far as Irish pubs, you can take your pick:


fonzannoon's picture

wow i am taking this under advisement.

Whiteshadowmovement's picture

Oh also i should mention British legal system (very fair courts, have never had a problem, won the only law suit Ive ever filed) and some of the very best health care in the world at 3rd world prices. It costs me $40-80 for any Doctors appt and I go to a nice Jewish Dr. just like you guys.

Its also a real foodie place, its tough to eat a bad meal here anywhere:


fonzannoon's picture

sounds like you have one of the better seats in the house to view whatever comes down the road.

Whiteshadowmovement's picture

its got a lot going for it, not just freedom and high quality of life but in my mind its set for most eventualities: if commodities spike, then hey we're loaded here. Besides, clean unspoilt and unpolluted nature. Agriculture is huge here and enormously plentiful and since were so far away from everywhere else food will always be affordable in the local markets. And trade with the African interior is guaranteed to grow by leaps and bounds (as I mentioned Joburg is 10% of the entire GDP of the entire continent). The way to really understand this place is its the first world built right on top of the 3rd world, theres nothing else like it, you should see the level of service when you go on safari- they make cruise ships look like gulags.

Oh and I might add, a nation that always has been and always will be supporters of gun ownership. I think we might rival texas here with guns per capita (at least among whites).

fonzannoon's picture

sounds like you have one of the better seats in the house to view whatever comes down the road. smart move.

Whiteshadowmovement's picture

One other nice thing is commercial property yield about 10-12% per annum so its a really solid return except for the currency fluctuations. The reason being that interest rates are still very high here. Prime is like 9%








Gotta dip fonz, see you tomorrow


PS- id be more than happy to show you around if youre ever in my neck of the hemisphere!


Catflappo's picture

I am sure all of the above can be paraphrased to "Fuck you Bernanke"?

Seer's picture


No matter how "sharp" any entity is it cannot do without PHYSICAL.

This time IS different:


A comment on an earlier post of yours (above) about people taking their toys and running off.  I agree that taking "toys" that only work in the current sandbox and believing they will have value in some other "new" sandbox is a bad assumption.  HOWEVER, I believe that you're making a bad assumption in miscalculating the value of said "toys" (which really does require close inspection- not all that you choose to call "toys" [a bit condescending I'd have to point out] are going to be worthless).  Yes, IF we were to continue playing in the same sandbox you'd likely be right; however, that's a BIG "if," and all seems to point that we're LONG overdue for a major paradigm shift (the word apocalypse is apropos because it really means "a great unveiling," and day by day we're coming to the point where more and more people are starting to question the game going on in the current sandbox).

It would be my hope that folks "running off" understand what is necessary in any new "world/sandbox."  I know that I'm concentrating on what matters most: Food, Shelter and Water.  I also understand that cooperation is essential, which is why I seek to be part of a community rather than be off in some bunker (waiting for "the event" to occur)- I'm living the life that I see in the future, today.

Whiteshadowmovement's picture

Sorry im a bit confused by what you're getting at exactly...

By the way, Im not being condescending, "taking your toys off the table and going home" is a fairly well known idiom I would have thought. It simply refers to the way children figure out when they cant win at a game then they are better off going home and not playing at all. The "toys" isnt referrring to anything specifically, other than money perhaps.

All Im suggesting with the above idiom is that this psychology of quitting the game will be overcome by the greed and fear of missing rallies. 

chindit13's picture

Enjoyed your exchange here.  It's a different way of thinking than the norm on this site, so I hope others find it refreshing.

I will take exception because I have less faith in Fed and Banker competence, despite their supercomputers, models, and the intricately interwoven fabric of their system.  What you describe is Ray Dalio's "beautiful deleveraging", where Bernanke is able to fill in holes just enough to prevent anyone from falling in, but not so much as to cause someone to trip over the mound.  Certainly he (Bernanke) has done a much better job than anyone who heard his comments in 2007 and 2008 might have expected.

Personally, I believe where he will fail is in not being content with flat prices, that is, falls in some and rises in others, leading not to overall deflation or inflation, but as I like to say "flatulation".  I believe his attempts to resurrect the housing market will be his downfall...if he continues on that path.  He should content himself with puffing up 401Ks and such, and let housing be merely something to keep the rain off and the cold out.  If housing catches fire again (figuratively, of course), then I doubt Bernanke will be able to keep the overall inflation level at 2% (or 3 or 5 or 10%).  Houses will become the "Third Income" source again, and the resulting purchasing power will both push other prices up AND bring in that Sword of Damocles in the form of those trillions in excess reserves upon which the Broad Money crowd has been justifying their gold purchases.

In the past, Bernanke stated that "it is unlikely housing prices will fall nationwide at the same time".  Right now he seems to be admitting he was wrong on that account, but that he can make up for it (and get growth going again) by making them all rise nationwide at the same time.

If he continues to ignore the little anecdotes of the return of 2007 (Flip this House on TV), inflation will get out of hand.  If he tries to do with housing what he tries to do with commodities, we might be able to extend this game.  We might also finally get the big rush of air out of the balloon that he has been trying so desperately to avoid.

Jam Akin's picture

Agree with you Chindit - much enjoyed reading this exchange.  I also share your skepticism about the efficacy of central planning - advances in computing technology notwithstanding!    The inevitable often takes much longer to transpire than the foresighted observer expects.

Thanks Whiteshadow for sharing the info about SA lifestyle - you've added a new dimension to my thinking.


Whiteshadowmovement's picture

Hi chindit13, thanks a lot for your comment, sorry I didnt see it yesterday. I appreciate your thoughts and you certainly make a very valid point. I think in the case of housing, it will certainly be a challenge for the Bernank to take a Goldilocks approach there but as long as banks continue not to lend as they are doing, there is a fairly good chance inflation can be roughly contained so long as he continues to ensure that commodities are rigged to stay flat (or very low single digit appreciation). I think it will also take several years for housing to heat up to 2007 levels, as several consumers are still shell-shocked from the last crash and moreover there is still so much foreclosure inventory to clear that I think this backlog buys the Bernank a very good amount of time. There will always be bubbles in some cities (I used to live in Miami and remember the days when 1 house would get sold five times in a single day) but in my mind this is mainly, if not all, foreign money finding dollar denominated assets.

Seer's picture

" I can certainly tell you the generation of young people currently in the world has absolutely NO interest or plans to rock the boat as a whole. Theyve been taught by their baby- and echo- boom parents that the game is all about getting theirs."

"Certainly?"  How certain?

Are the riots by all the younger people in Europe minimal?  I'm thinking that you're looking at a sample size drawn from the upper-class reaches (upper-class by world standards).

As far as technology supporting larger percentages of people (to keep centralization going along longer), please note that technology is a PROCESS and that it does not create stuff (it's means to synthesize things, using energy).

Trade wars (and economies of scale in reverse) will up-end any thoughts that this can be carried on much longer.

Whiteshadowmovement's picture

Hi seer,

To answer your first question, well you might just have to trust me on that one given that I am speaking for my own generation

This videp should explain my generations priorities perfectly:


Also I slightly disagree with your definition of tech ology, I think its pri ary purpose is labor saving through efficiency

Regarding trade wars, I think all countries are totally aware of the system of Dollar reserve currency dependence, have you read the article I posted above on exorbitant privilege?

Notarocketscientist's picture

No 2 instances are of course the same - and I think the key difference here is one of control.

The USSR could keep the charade going using totalitarian tactics.

The US - and other western countries - are unlikely to whip their populations - look at France - as the country sinks economically people become violent - the unions attack bosses and take over plants.

Riots will become the norm as we sink deeper.  And that will lead to chaos and economic collapse.

That is the argument for holding gold

Whiteshadowmovement's picture

Well my counter argument would be that governments will head this off by increasing welfare scope and reach year after year and thus toss their populations enough of a bone to prevent the very riots you speak of.

I think you also overstate the totalitarian reach of the USSR, I think many people were quite content in their way under that central planning system, inefficient as it was. Indeed, as the book I referenced points out, in the 50's there was fast GFP growth followed by 20 years of slow growth but a decently comofrtable life by the 70's

andrewp111's picture

Yeah, but what happens when the supplies run low? When there isn't enough food to distribute, or enough fuel to transport it?