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Seth Klarman: "If The Economy Is So Fragile That Government Can't Allow Failure Then We Are Indeed Close To Collapse"
Following today's flashback to the most euphoric and irrationally exuberant days of market peaks (and bubbles) gone by, driven entirely by the now constant central-planner dilution of current and future wealth, these selected excerpts from Seth Klarman's latest letter to investors is just the cold water of common sense everyone needs:
From Seth Klarman of Baupost:
Is it possible that the average citizen understands our country's fiscal situation better than many of our politicians or prominent economists?
Most people seem to viscerally recognize that the absence of an immediate crisis does not mean we will not eventually face one. They are wary of believing promises by those who failed to predict previous crises in housing and in highly leveraged financial institutions.
They regard with skepticism those who don't accept that we have a debt problem, or insist that inflation will remain under control. (Indeed, they know inflation is not well under control, for they know how far the purchasing power of a dollar has dropped when they go to the supermarket or service station.)
They are pretty sure they are not getting reasonable value from the taxes they pay.
When an economist tells them that growing the nation's debt over the past 12 years from $6 trillion to $16 trillion is not a problem, and that doubling it again will still not be a problem, this simply does not compute. They know the trajectory we are on.
When politicians claim that this tax increase or that spending cut will generate trillions over the next decade, they are properly skeptical over whether anyone can truly know what will happen next year, let alone a decade or more from now.
They are wary of grand bargains that kick in years down the road, knowing that the failure to make hard decisions is how we got into today's mess. They remember that one of the basic principles of economics is scarcity, which is a powerful force in their own lives.
They know that a society's wealth is not unlimited, and that if the economy is so fragile that the government cannot allow failure, then we are indeed close to collapse. For if you must rescue everything, then ultimately you will be able to rescue nothing.
They also know that the only reason paper money, backed not by anything tangible but only a promise, has any value at all is because it is scarce. With all the printing, the credibility of our entire trust-based monetary system will be increasingly called into question.
And when you tell the populace that we can all enjoy a free lunch of extremely low interest rates, massive Fed purchases of mounting treasury issuance, trillions of dollars of expansion in the Fed's balance sheet, and huge deficits far into the future, they are highly skeptical not because they know precisely what will happen but because they are sure that no one else--even, or perhaps especially, the policymakers—does either.
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I have a difficult time believing those who claim that the "American people know what is going on." A minor number may know, but the majority are clueless and furthermore have no desire to find out. Inundated by "positive thinking" from the MSM, they still believe that our economic problems can be solved by politics and cling to the belief that our debt and assorted financial problems CAN and WILL be solved in the near future. Someone will fix the problems, - someone always has. Right?
@ newworldorder:
I don't know, most of the people I interact with seem to have a pretty good idea of what's going on. Maybe not to the extent that the average ZH'er does, but you don't have to look far to see that something's grossly wrong with this picture.
The Sheeple who don't have a clue? I'll be perfectly plain about it: I despise Henry Kissinger as a person, but I have to admit he was quite brilliant in coining the term "useless eaters". It's hard to feel bad for these people, since they are their own worst enemies, more often than not.
Ignorance is no excuse. If they choose to remain blissfully unaware of the freight train that's heading towards them, then the consequences for their inaction are theirs to deal with.
Nobody forced them to take the blue pill.
They do it to themselves, they do, and that's what really hurts. They do it to themselves, just them, them and no one else. They do it to themselves...
Well, they have been lied to their whole life...
My perspective is, 10x as many people are aware now, compared to say... September 10th, 2011.
So blame the grifter and not the mark? Fair point.
It would be heartening if your 'awareness' estimation is half correct, but I'm not holding my breath.
This title sums it up...PERFECTLY STATED...!!
I believe "The Collaborators" are petrified of an early collapse, as opposed to the 'controlled' one they envision.
"Penny" is a GREAT NAME for a billionaire...!!
she can fit a roll of them up her big jewish nose
In the words of philosopher Zappa: http://www.youtube.com/watch?v=Y3-Z_gVbsxc
Her parents first met when bending over to pick up the same penny on a city sidewalk. Romance ensued, thus the name.
Just like Goldman is a great surname for a gold shorter.
The list;
1) Elected politicians
2) Lobbyist
3) Bankers
These Fuckers will pay
' as always, when mr. gao does his`sir semi-annual ten year bogey-dance of 'pulling a rabbit out of a fox hole'-- saving the taxpayers trillions? unbeknowst to all, to be suffering an obtuse amnesia... a something? about a 'clock-work orange fiat addiction', always misplacing duty-calls over inferr'd convenience?, tooooo... tell the public, that the saving were already realized and spent? whilst, whistling past the graveyard on a wobbly gait... tripping over his mind all the mawkish 'forget-me-nought-tease'es! sanctimoniously genuflecting at a arcane, and ole sooooo tarnished, 'babylonian sphinxs marriner`'ezekiel' eccles'- mausoleum', with a lucky rabbit-foot as a amulet. as he... mr. gao knows all too well-- we are all nought... as far as one would percieve from the preordained 'lord fiat's', abottoirs' tannery?! '
Bubble Bernanke and the fed cannot stop QE. They will need to increase the drugs because the equity market market makers need more.
The Fed cannot stop QE we all know this. They stop and US interest rates climb quickly. The Fed's practically the only buyer of US debt these days whether it's directly or shuffled through it's banks.
The Fed QEs until the US dollar craters and there is a currency crisis.
The reason Germany and other countries are asking for their gold back. They know very well how it will end.
There is no evidence that stopping QE will make interest rates go up. Back when QE was time limited, interest rates actually went down when QE stopped. But we do know that the stock market starts to go down shortly after QE is stopped (go look at a graph of history to convince yourself). Every time the market dropped, Ben panicked and restarted QE. Now that the BOJ has joined Ben in this mad bubbilicious money printing, we have a double pump pushing up stocks. The Fed and BOJ can't stop QE because the market would go down, and then at some undefined threshhold the entire financial system would go down with it. But even this double pump will run out of gas and stop working eventually. They are already at max QE and more won't do any good (although the ECB could still do QE to pump stox). Once the QE stops working, it is game over.
Source? I didn't see a link or citation to where that Klarman commentary originated from...
"Is it possible that the average citizen understands our country's fiscal situation better than many of our politicians or prominent economists?"
There it is again, the "fallacy of irrationality." These scumbags are not irrational or lacking understanding, they just plain and simply don't' care. They get their payoffs today and the American people pay in treasure and blood tomorrow.
The "error of rationality" prevents people from clearly seeing the criminality of these scumbags so please stop attributing a lack of rationality or understanding to these thieving and murderous criminals.
Or put another way: the MF Global and Corzine affair was just irrationality and lack of understanding. Right?! hujel
The crooks, whether in Wall St or Washington, LOVE that people actually buy it when they claim incompetence. I mean, think about it. When you commit corrupt deeds, what is your easiest out? Ignorance or incompetence, every time. Complicity is a much more serious crime, and thats why if someone claims incompetence you shouldn't take their word for it.
they are highly skeptical not because they know precisely what will happen but because they are sure that no one else--even, or perhaps especially, the policymakers—does either.
The people know on some level what will happen, but they are ridiculed because they do not have an PhD in Economics from Princeton and they cannot quantify the risk like the brilliant Wall Street sages can. There is also a segment that is just oblivious, partly because they do not want to face reality and some since they are incapable.
Knowing what will happen is not that difficult, the when and how and path forward, that is the great unknown.
Fortunes will be lost and won when this edifice comes crashing down ... along with quite a few desperate, starving people as well some corpses. That is the path Bam, Bennie etal have chosen for us. We can take solace in they will be held to account by a higher power.
sschu
"In history, it is always people with a low level of culture who triumph over people with a high level of culture."
Mao Zedong
When Orwell wrote 1984, the only Big Brother lie he failed to anticipate is "Debt is Wealth." This is precisely the mantra that Krugman - excuse me, "Nobel prize winning economist Paul Krugman" - states over and over. The combination of the repetition and the credibility of this moniker is fooling fewer and fewer people these days. I still remain amazed that it ever fooled anyone.
"You can fool some people somtimes, but you can't fool all the people all of the time."
-Bob Marley
Yeah, but wasn't
"You can fool all the people some of the time, and some of the people all the time,
but you cannot fool all the people all the time."
By Abraham Lincoln?
Hence niggers are everywhere and whitey is nowhere..
It is because they live in a real economic world where one has to pay bills using what income or savings they have. And they know with each passing month, seeing Europe, Cyprus now and remembering 2008 onward ... that they (that includes you Paul Krugman) must eventually pay for all this madness.
"If The [insert => philosophy/economy/religious ideology here] Is So Fragile That Government Can't Allow Failure Then We Are Indeed Close To Collapse"
This can be said of ANY system of thought.
See Macbeth: "The Lady doth protest too much."
See "Free Markets"
See Open Borders
See Multiculturalism
See Religion
See MIC
the "economy" is the "government",
zam zam, same thing. waters ......
.
the mind is a terrible thing to taste.
.
Too bad. So sad.
http://www.theglobeandmail.com/news/politics/harper-tells-quebec-audienc...
Harper tells Quebec audience he’s fed up with constitutional battleslol we are fucked!
Hyperinflation....deflationary spiral....it will all be academic when the SHTF. Either way, it ain't gonna be pretty. It'll be pretty shitty.
It will be like watching a supernova from one of the doomed star's planets.
Yeah, but does it really END with a deflationary spiral?
Can you imagine? You wake up tomorrow and a pack of cigarettes cost $1.00, a car is $6000, your house is only worth $160,000 (but the neighbor's house is available $120,000 so you can finally force your kid to move out), the Dow Jones is 4250 (Gold at $300-$700).
What that would mean is: USD have become greatly more valuable. USD that are held as reserves by people across the world. USD that can be (and are) printed at will.
Perhaps summoned into existence is a more apt description. How long do you see that scenario holding up? Like 4 days? Until everyone in Saudi Arabia, Singapore, Dubai, Bombay, Moscow, Frankfurt.... Divests themselves of every last USD. I see deflation in the real estate market but thats about it.
The problem with divesting all those dollars is that you just turn them into something else. In a world of competitive devaluations this poses a serious problem. If you are responsible, like Swiss your currency will be stratospheric and price you out of world markets. You can turn them into commodities but that is hard to trade and they are still valued in a currency, some currency.
Depending on the exchange rates, what country carries enough currency and clout worldwide to replace dollars?
Today's CME report is interesting as usual
Total inventory didn't change much:
5/2: 8,033,591
5/1: 8,099,095
But registered (which is stand-for-delivery stock)... WAY different story. 5.4% of registered gold out the door on 5/2. All from Scotia, which had their registered holdings drop 23% in one day, and is down 44% for the month, even with the transfer they had a few days ago. My guess is Scotia actually has real phyzz and it's walking out the door.
Compared to 4/5 (when Bloomie took the data away and I started looking at stocks directly) total registered gold is down 36.6%, and eligible is down 2.5%. For registered holdings, BSBC is down 26.6%, JPM down 49.5%, and Scotia 44.4%. If the current pace of depletion is maintained there will be no gold available for delivery sometime around July 1st.
Well said, Mr Klarman. It reminds me of this:
'...In every stage of these Oppressions We have Petitioned for Redress in the most humble terms: Our repeated Petitions have been answered only by repeated injury. A Prince whose character is thus marked by every act which may define a Tyrant, is unfit to be the ruler of a free people...'.
Source – The Declaration of Independence
CONgress no longer represents the people; it uses them. The latest example: O'bomba appointing a hateful money grubber as the first woman Commerce Secretary whose own family firm was prosecuted for fraud. She brought in other liars and thief banksters to vault the unknown Obama into national prominence, and now he rewards her...so they can all thieve with impunity.
Congress uses the people? Really? I had no idea. Thanks for sharing. Good job finding the Declaration of Independence, too! You're on it!
There really won't be anything significant to report until the currency collapses.
We clearly see what will happen between now and then, endless printing to keep bond markets and stock markets and banks and governments going, individuals drifting toward bankruptcy (and economies slipping into depression) from falling real wages and rising prices (both caused by currency debasement from so much printing).
Ok, maybe 401k and pension fund confiscation will be big news, but we know it's gonna happen, just not when exactly.
That's pretty much it until the currency collapses (from so much printing).
The only significant news will be on the tyranny front as government control expands and Americans lose the last few tidbits of their rights. But then again it's not really news when we know it's gonna happen.
Gun owners think they'll make big news some day when they finally do their "revolt" to "take America back", but it'll never happen, it's just talk. They're being looted into poverty now by that same government and it doesn't seem to bother them.
So nope, not much in the way of big news till currency collapse. Could be two years, five years, maybe ten at the outside.
Until then it'll be article after article by pundit after pundit saying how destructive QE is, how stupid TPTB are, etc, etc, same crap we've heard five years now, like this article.
American people have short memories. History class cleaned up the massacres except for the only one that counts any more and if that is distorted from its actual truth.
Who declared war on the American people? The Federal Reserve Bank et al.
But, their "town crier" is working for the enemy. They vote and the man they did not vote for wins. The speechs and deafening applause is what is keeping most citizens from realizing they are in danger. Tomorrow...it will be better..just go forward.
There will be a war against teh America people by the very people their tax dollars armed and trained. They will be a confiscation not only of guns but also property.
This is happening to all 1st world nations. Currency manipulation, predatory lending, investments fixed-to-fail. As was noted by so many, this a transfer of wealth in nothing more than a restructiuring of teh globe in a business deal and now will be a slaughter (through starvation, lack of necessities, health care, or at the end of a barrel) of those who once held it - the middle class globally (except Iceland).
It would be my hope that rational men from everywhere on the globe have clandestinely met and through the same maneuvers, (hit men, infiltration, undermining) will attempt to reverse this heist of biblical proportions.
Collaborators: You'll be the last to go. No witnesses. No interviews. No books. It's part of the protocol.
Bubbles [like Michael Jackson] are a Keynesian's best friend. It looks like they help the little kids but they're there to fuck them.
There will be some isolated pops but collapse is unlikely. Just another 100 years of grinding down is what we have to look forward to barring a cheaper energy breakthrough from piepants (aka modern science, or the bespectacled buddy system).
https://www.youtube.com/watch?v=2nGw_vAnqPI
re "They are pretty sure they are not getting reasonable value from the taxes they pay".
what would a better "value" be ?
more efficient slaughters, theft, and fraud ?
I'd gladly pay double the taxes if they'd do NOTHING.