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An "Austrian" Bill Gross Discusses Credit Creation

Tyler Durden's picture




 

This month's Bill Gross letter, notably shorter than usual, is as close to the bond manager discussing an Austrian economics worldview as we will likely ever see him: in brief, it's all about the credit/money creation, with an emphasis on the use of proceeds of said creation under ZIRP, i.e., malinvestment , or as Gross puts it: "credit growth is a necessary but not sufficient condition for economic growth. Economic growth depends on the productive use of credit growth, something that is not occurring."

From Pimco's Bill Gross:

For Wonks Only

A credit-based financial economy (as opposed to pure cash) depends on an ever-expanding outstanding level of credit for its survival. Without additional credit, interest on previously issued liabilities cannot be paid absent the sale of existing assets, which in turn would lead to a vicious cycle of debt deflation, recession and ultimately depression. It is this expansion of private and public market credit which the Fed and the BOE have successfully engineered over the past five years, while their contemporaries (the ECB and BOJ) have until now failed, at least in terms of stimulating economic growth.

The unmodeled (for lack of historical example) experiment that all major central banks are now engaged in is to ask and then answer: What growth rate of credit is enough to pay prior bills, and what policy rate/amount of Quantitative Easing (QE) is necessary to generate that growth rate? Assuming that the interest rate on outstanding debt in the U.S. is approximately 4.5% (admittedly a slight stab in the dark because of shadow debt obligations), a Fed governor using this template would want credit to expand by at least 4.5% per year in order to prevent the necessary sale of existing assets (debt and equity) to cover annual interest costs. That is close to saying they would want nominal GDP to expand at 4.5%, but that’s another story/ Investment Outlook.

How are they doing? Chart 1 shows outstanding credit growth for recent quarters and all quarters since January 2004. The chart’s definition of credit includes the standard Fed definition of private non-financial credit (corporations, households, mortgages), public liabilities (government debt), as well as financial credit. The current outstanding total approximates $58 trillion and has been expanding at an average annual rate of 2% for the past five years, and 3.5% for the most recent 12 months.

 

 

Put simply, if credit needs to expand at 4.5% per year, then the private and public sectors in combination must create approximately $2.5 trillion of additional debt per year to pay for outstanding interest. They are underachieving that target in the U.S., which is the reason why GDP growth struggles at 2% real or lower and nominal GDP growth seems capped at 4.5% or lower. Credit creation is essential for economic growth in a finance-based economy such as ours. Without it, growth stagnates or withers. Its velocity/turnover is critical as well.

The velocity/turnover of credit mentioned above, in turn, is a function of price or the yield of credit. No central banker knows what that appropriate yield/price is and so Yellen/ Carney/Draghi/Kuroda walk up forward interest rates carefully so as not to cause a credit collapse. As a general rule, the projected return on financial assets (relative to their risk) must be sufficiently higher than the return on today’s or forward curve levels of cash (overnight repo), otherwise holders of assets sell longer-term maturities and hold dollar bills in a mattress – lowering velocity and creating a recession/debt delevering. We are dangerously close to the crossing of the lines between long-term asset returns and forward levels of cash yields, which currently rest at 2.5%+ in 2017 and beyond. If the forward levels are not validated, however, the danger is lessened.

Today’s levels of interest rates and stock prices offer a historically unacceptable level of risk relative to return unless the policy rate is kept low – now and in the future. That is the basis for The New Neutral, PIMCO’s assumption that the fed funds rate peaks at 2% or less in 2017 versus others’ assumptions (Taylor, Fisher, Lacker, the market) that it goes much higher. BOE’s Carney, by the way, believes his country’s New Neutral is 2.5%, a level consistent with PIMCO’s 2% in the U.S. If so, existing asset prices in the U.S., while artificially high and bond yields artificially low, may continue to be so unless the Fed oversteps its interest rate line. 

This global monetary experiment may in the short/intermediate term calm markets, support asset prices and promote economic growth, although at lower than historical levels. Over the long term, however, economic growth depends on investment and a rejuvenation of capitalistic animal spirits – a condition which currently does not exist. Central bankers are hopeful that fiscal policy (which includes deficit spending and/or tax reform) may ultimately lead to higher investment, but to date there has been little progress, as seen in Chart 2. The U.S. and global economy ultimately cannot be safely delevered with artificially low interest rates, unless they lead to higher levels of productive investment.

 

“For Wonks Only” Speed Read

1. Cross your fingers, credit growth is a necessary but not sufficient condition for economic growth. Economic growth depends on the productive use of credit growth, something that is not occurring.

 

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Wed, 09/03/2014 - 08:42 | 5174899 Ghordius
Ghordius's picture

"Put simply, if credit needs to expand at 4.5% per year, then the private and public sectors in combination must create approximately $2.5 trillion of additional debt per year to pay for outstanding interest."

as usual, the narrative is that something needs to expand, to grow, to go up. so if it isn't the real economy, then at least the financial economy, and so credit needs to expand 4.5%

sure

I'd be laughing if this same narrative wasn't constantly harping on the eurozone's need to expand credit, and failure to do so

how about real capital formation? which, in my own experience, is often self-funded in small and medium businesses? which in the eurozone are often really private, and have currently shrinking external funding? You know, SMEs. Those who create jobs, then Big Biz's claim to fame is to rationalize, which is the more often than not the opposite

Wed, 09/03/2014 - 08:49 | 5174930 Buckaroo Banzai
Buckaroo Banzai's picture

There is nothing inherently wrong with expansion and growth. That is not where the fallacy of Gross' logic lies.

Since debt can not be extinguished with more debt, it is the money supply that must increase by 4.5% in his scenario, not the credit supply.

Of course, in a world where the money is a debt instrument, we are entirely fucked. Too bad Bill Gross hasn't figured that out yet.

Wed, 09/03/2014 - 08:59 | 5174975 Ghordius
Ghordius's picture

there is nothing inherently wrong with expansion of the real economy in tandem with the financial economy. but that's where Bill Gross and the others get on my nerves. it would be more profitable in the long term if those "financialists" would realize that their world is only part of the real world, and their world smothers what is the future

and yes, real money would make this more obvious. but thinking about the long term and the real economy would achieve the same result

you know what my biggest problem is with real money proposals? as long as the new derivatives are around... useless. only my opinion

Wed, 09/03/2014 - 09:01 | 5174993 NidStyles
NidStyles's picture

They aren't useless. They are just coming from the position that real markets do not look like Wall Street, and it's a correct position. 

Wed, 09/03/2014 - 09:16 | 5175044 LawsofPhysics
LawsofPhysics's picture

Bullshit.  Bill Gross is another huckster of paper promises.    "Credit" is a nescessary evil sometimes, but so is some sort of rule of law.

Collateral, real fucking capital, and energy available for consumption are fundamental to real growth.

I lived near Bill in Corona Del Mar.  He is a shyster, smart enough to see what the Fed would do 30+ years

ago, I'll give him that much credit.  However, he isn't worth the Real value of another neighbor, Harold Beckman. (Beckman Scientific)

Wed, 09/03/2014 - 09:11 | 5175023 Oldwood
Oldwood's picture

Can anyone loan me some money to buy stocks with? Thats pro growth, right? I'm convinced if we can just get the market up to 100,000 we will all be rich!

Wed, 09/03/2014 - 08:59 | 5174979 NidStyles
NidStyles's picture

growth =/= expansion. One is good, the other is detrimental to valuations especially in a market economy. Expansion tends to destroy capital. Actual growth in products and sectors is what you are after, not expansion, which just means creation of supply without demand. 

Wed, 09/03/2014 - 12:15 | 5175870 teslaberry
teslaberry's picture

gross's framework is the 'finance economy' where all money enters the economy as loans. (money supply with interest and principle owed on it)

 

 

Wed, 09/03/2014 - 10:27 | 5175390 assistedliving
assistedliving's picture

Bill is not so bad.  He even answered one of my emails :-)

He's only confused about the Fed looking at the 4.5% credit expansion rate.  the banker unemployment rate

is 8%.  There's your rate

 

Wed, 09/03/2014 - 08:46 | 5174900 firstdivision
firstdivision's picture

Wait, you mean one has to do something productive with borrowed money.  That's unAmerican, and I should be able to rack up as much debt as I want on depreciating TV's!

y(t)=y0ekt  bitches!

Wed, 09/03/2014 - 09:03 | 5174999 NidStyles
NidStyles's picture

functionally retarded exponentials, sounds like something an economist would say.

Wed, 09/03/2014 - 08:39 | 5174901 wallstreetapost...
wallstreetaposteriori's picture

c'mon debt delevering!

Wed, 09/03/2014 - 08:41 | 5174905 buzzsaw99
buzzsaw99's picture

Pay me beaucoup to underperform the 10y ust. [/bill gross]

Wed, 09/03/2014 - 08:41 | 5174906 Squid-puppets a...
Squid-puppets a-go-go's picture

The U.S. and global economy ultimately cannot be safely delevered with artificially low interest rates, unless they lead to higher levels of productive investment

casinos are productive, arent they? oh, wait....

Wed, 09/03/2014 - 08:57 | 5174965 The Most Intere...
The Most Interesting Frog in the World's picture

Not nearly as productive as state sponsored pot shops!

Wed, 09/03/2014 - 09:19 | 5175068 LawsofPhysics
LawsofPhysics's picture

Exactly.  Artificially holding interest rates low is essentially like outlawing gravity on earth and believing that there is no cost for capital and you can in fact get a "free lunch".

We all know how this ends...

tick tock.

Wed, 09/03/2014 - 11:23 | 5175532 JRobby
JRobby's picture

"casinos are productive, arent they? oh, wait...."

They sure are! Just ask the 7,000 newly unemployed people in the Atlantic City NJ area.

Wed, 09/03/2014 - 08:42 | 5174908 Mercury
Mercury's picture

For Wonks and Zero Hedge readers only.

Wed, 09/03/2014 - 09:21 | 5175082 disabledvet
disabledvet's picture

Actually I didn't understand a single word of this. Maybe if he'd opened by saying "clean up this shit Muhammad!" then I would have been able to focus better.

Try to read what that clown says at SA and he doesn't make any sense either.

Do they even have a position in the market? I mean WTF? Bull or bear and go from there...

Wed, 09/03/2014 - 08:45 | 5174914 Atomizer
Atomizer's picture

Why would I borrow money to keep a bankster employed? Think about that long and hard. 

Wed, 09/03/2014 - 08:45 | 5174915 AdvancingTime
AdvancingTime's picture

 We should understand that demand drives investment, confidence is not the real driver. Lack of real growth is about lack of real demand. Much of the demand we see today is driven by artificially low interest rates and QE that distorts the markets.

 We must differentiate the kinds of economic growth and understand that all growth is not created equal. If you spend money but afterwards have little to show for it you have wasted it. Sadly, much of the money America "invests in itself" each year through government spending and programs falls into this category. More on the kind of growth we need in the article below.

http://brucewilds.blogspot.com/2014/01/false-demand-fuels-wrong-kind-of-...

Wed, 09/03/2014 - 10:28 | 5175394 froze25
froze25's picture

Don't forget about he Military Black hole that soaks up the excess wealth of the nation.  Just as fortold in 1984, what a wonderful book. Oceanania has always been at war with East Asia.

Wed, 09/03/2014 - 08:45 | 5174916 NoWayJose
NoWayJose's picture

But we are seeing productive use of all the free central bank money. US companies are using that money to build new factories in Asia, to speculate in stocks, to buyback shares, to buy foreign companies so that they can merge and move their HQ outside the US to avoid taxes, to speculate in real estate including buying up low cost housing and renting it out, and to speculate in oil and other commodities. Of course, none of this creates real jobs in the US (actually it reduces jobs), but there is more demand for trading algorithm programmers, for lawyers, and for waiters in upscale New York restaurants.

Wed, 09/03/2014 - 08:47 | 5174920 Debugas
Debugas's picture

what a joke "credit growth is a necessary condition for economic growth"

DEFINE ECONOMIC GROWTH PLEASE.

forests grow without credit system, they add to prosperity

Wed, 09/03/2014 - 08:59 | 5174973 The Most Intere...
The Most Interesting Frog in the World's picture

"DEFINE ECONOMIC GROWTH PLEASE."

 

Government financed college student binge drinking.

Wed, 09/03/2014 - 08:48 | 5174924 Ewtman
Ewtman's picture

Patrick.net thread with an interesting corollary...

 

http://patrick.net/forum/?p=1248656

 

Wed, 09/03/2014 - 09:39 | 5175195 blindman
blindman's picture

from link.
darlag said
"Heraclitusstudent says

So far, when feeling unsafe, everyone rushes to the security of treasury bonds. This is the safest alternative: safer than cash in a bank, or the money market or cash in a mattress

I understand why you would think that. We've all been indoctrinated to think that way. If you turn on CNBC all the talking heads will espouse the same thing. Which is why it doesn't work that way... the herd thinks that way.

Deflation is an animal with which no one alive today has any experience. My 90 year old mother was a 5 year old child when the stock market crashed in 1929. She has memories of her family moving to a tenant farm when her dad lost his job. But she remembers nothing of the socioeconomics of the day, nothing of the politics. Only in retrospect does she know how poor they must have been.

Deflation has no masters. When the deflationary price spiral starts downward the price of EVERYTHING collapses. It is such an unusual phenomenon. Bonds don't rise because people shift from equities, gold doesn't surge because people don't trust the currency. None of the commonly held observations of market behavior apply during a truly deflationary episode. Everything collapses in price -- TOGETHER. That is why it is considered such a hideous monster. There are no safe havens from deflation.

There are no tools, no secret weapons, for fighting deflation because it is a wholly and totally psychological phenomenon. The mood of the masses create it and the mood of the masses cure it. No interest rate, no money pumping, no social programs, no economic stimulus, no nothing, can affect it. Until the damaged mass psychology has healed enough from the trauma, people will continue to huddle and hoard and shun participation.

I keep saying that the Fed has only one real weapon, the ability to persuade the masses that it is in control and everything will be all right. That's all they have. After 80 years of indoctrination, a great many people believe that. I think you do. But I believe the reality is that they are just the Wizard of Oz, a lot of bells and whistles and charts and graphs that have no meaning in a time of massive credit bubbles, declining asset prices and deteriorating social mood. The combination will eventually overwhelm them.

To the degree the Fed can continue to convince the herd that it is safe and sound, they will appear to be successfully holding up the economy. But as the St Louis Fed president remarked the other day, the herd is "hoarding" cash. Do you understand how funny and ridiculous that statement is? People are SAVING money and the Fed considers that a detriment to the economy. That is how far out of control the massive credit bubble has gotten.

But he is right in one regard, SAVING is the first psychological cause of a deflationary spiral. People refuse to spend money to buy products that are rapidly declining in price because they think it might be cheaper tomorrow. Tomorrow they don't buy it because it might be cheaper the next day. And the spiral continues until one day a few brave souls gamble that the time is right. But the bottom of the spiral is historically a long way down, as anyone who has studied the Great Depression can attest.

The Fed is trying desperately to hold on to the hearts and minds of the public. That is where economic salvation will come from, if it is possible to be saved. All the other stuff they purport to be doing, the twists and easings, are just fluff for the gullible herd. If they can't convince the majority of people and businesses to continue to borrow and spend, to stop saving and waiting for prices to stabilize, they will fail.

My Austrian bent is telling me they will fail. My Elliott Wave experience is concurring."
.
i say the system of money and property is just rotten to the core
and they intersected in failure when the housing/ credit/ atm bubble
burst in 2008. it has been stealing money ever since and that is
no way to instill confidence in a trust based system. extraordinarily
they have got away with it. must be because we are like mushrooms,
human mushrooms, and human mushrooms don't go out and borrow money
to put to good productive use, call me deflated, disgruntled and
on the verge of depressed.
not only that, i don't really want or need for anything better
than what i already have that i can't fix or make myself, for the
most part. the money system works great when you want to expand
and develop a continent or a region. the steady state phase is where
it shows its crooked origins.

Wed, 09/03/2014 - 11:49 | 5175721 malek
malek's picture

 The combination [of deflationary forces] will eventually overwhelm them [the Fed].

Do people making such statements ever make a simple thought experiment:

1. Can deflation [as measured in fiat currency] always be prevented by "printing" enough additional fiat currency? Yes.

2. The Fed has no limits on how much they can "print", and they will always find takers of the freshly minted credit ("free lunches!")

3. The whole thing continues until the Fed stops or the perceived value of the fiat currency is entirely destroyed.
Which outcome do you find more likely?

From a viewpoint of the fiat currency, the perceived value of the fiat currency being entirely destroyed is NOT a deflationary collapse.

Conclusion:
I would not put too much of my fiat money in a mattress, betting on a purely deflationary collapse.

Wed, 09/03/2014 - 12:36 | 5175958 blindman
blindman's picture

it is all about timing. they say, i think, the best
time to plant is on the waxing gibbous. and of course,
buy high, sell low. ....er ...
.
i like to think of deflation as not merely a monetary
phenomena but more like a societal yard sale where
collectively people look around at their stuff and no
one really wants any of it so it is sold off for firewood
or raw material recycling, at those prices. the 1928
piano is now worth its weight in firewood. now that is
deflation. the house on the block, same thing, with taxes
in arrears, the land sells for 1 dollar as it is not the only
house like that on the block and the cost of rehabilitation
isn't justified in the neighborhood. maybe that is economic
collapse and not deflation?
.
us dollar leave the country so fast to be circulated globally,
or did, probably will in the future? that is the question,
the status of the dollar globally. what will it be?
and when they go to bury me, what be the charge and can
i cover it? maybe enough to dig the hole but just short
of filling it in? depending on what, the dollar?

Wed, 09/03/2014 - 13:25 | 5176233 malek
malek's picture

 a societal yard sale

What they're going to pay in, at that yard sale?

If nothing else is explicitly mentioned, the measuring stick is the US Dollar.
I'm waiting for many deflationistas to at some point change their story "but we meant deflationary collapse if measured in gold [oil|loafs of bread|seashells] !"

Wed, 09/03/2014 - 13:35 | 5176287 Escrava Isaura
Escrava Isaura's picture

blindman,

You don't sound blind at all!

Two great posts... Actually, some great comments in the whole thread.

You raised a great point by “status of the dollar globally”.

The dollars outside US exceeds US gold, US growth that can be tapped on for returns (income), and/or in earning interest.

Huge tensions are coming from these offshore dollars versus US national economy.  

This economic disorder started in 1945. And the dollar needed to keep this Ponzi scheme going grows exponentially.

All these issue raised here will only get worse…. Not that you all don’t know it.

Wed, 09/03/2014 - 14:42 | 5176628 blindman
blindman's picture

worthwhile broadcast, you will get the
significance if you have the time.
.
Caravan To Midnight - Episode 110 Capital Kinetics with Greg Morse
https://www.youtube.com/watch?v=HmJKrhWucC0
.
asymmetric financial warfare devouring the
real economy. class warfare where there
isn't really even a playing field, never mind
a level one.

Tue, 09/09/2014 - 15:08 | 5198745 daedon
daedon's picture

Unless of course your only measure of inflation/deflation is Canadian bacon, of which Putin's countrymen will be purchasing some $500,000,000 less in the near future.

Wed, 09/03/2014 - 08:53 | 5174954 AdvancingTime
AdvancingTime's picture

Today many people forget that small business is the backbone of America, this is the real job creator and the place where people "with skin in the game" produce real goods and services. This is where the work force skills are learned and honed. It does not help that the President and most of Washington lack solid backgrounds in both business and the economy. More on this subject in the article below.

http://brucewilds.blogspot.com/2013/12/the-reason-dismal-job-creation-wi...

Wed, 09/03/2014 - 09:17 | 5175052 Oldwood
Oldwood's picture

This lack of business background is not by accident. They see commerce as evil and only to be used to advance their goals. They only believe in commerce or ideologies and it is always a one way trade.

Wed, 09/03/2014 - 09:21 | 5175083 LawsofPhysics
LawsofPhysics's picture

Demand for what?  be specific.  There are now 7+ billion people (and growing) all competing for a higher standard of living and all the energy and resources that make that possible.

There is plenty of demand you stupid spamming fuck.

Wed, 09/03/2014 - 12:56 | 5176060 froze25
froze25's picture

The resources are avialible, but far fewer people control access to them.  In the USA for example scarcity has been done through EPA/DEC regulation.  Limiting the number of producers and sellers of a raw material making it only availible in a quanity that demands a premium price.  With a simple stoke of a pen this could be undone.  That will not happen because it is the same sarcity that keep the top at the top and the bottom just getting by.

Wed, 09/03/2014 - 15:07 | 5176731 TruthHunter
TruthHunter's picture

"Today many people forget that small business is the backbone of America"


Too many small business men forget that the Republicans and or the 1% aren't

their friends.

Wed, 09/03/2014 - 09:12 | 5174995 Dubaibanker
Dubaibanker's picture

I said this a while ago, about last year, that the difference between US debt and Chinese debt is that the US debt is unproductive since the last decade while the Chinese debt has been productive. 

US had productive debt until a decade ago and hence US did very well since World War-II until about 2001 and we all know what happened in 2001. Since then, US got embroiled in 'unproductive' spending and has been unable to get returns on the same or create jobs to receive taxes etc. Furthermore, all the debt in the last 7 years since 2007 has gone to fill the 'gaps' or losses on the balance sheets of the TBTF banks and increased the unproductivity because it is not being lent further for a productive use or employment creation or infra building etc. While China is still building infra, creating jobs and receiving taxes, increasing wages and hence supporting consumption and not spending unproductively (yet).

When China and HK cross border trading begins in Oct 2014, China will open the door a bit further and allow billions of dollars to move onshore and become the 2nd largest stock market cap exchange arrangement in the world (just behind Nasdaq) and 3rd largest in the world by cash trading!

Meanwhile, US is staring at a major brick wall. Productivity, employment, tax revenues, car sales, retail sales, infra spending etc are all plunging while fraud, gun related killings, anti depressant use, drug use, militarization of police and overall debt of corporates as well as households etc are on the rise.

When the 200mph debt train (and gathering speed) hits this wall, please stand aside, because the implosion will be heard and felt not miles away, but thousands of miles away!

Wed, 09/03/2014 - 09:19 | 5175012 oudinot
oudinot's picture

The analysis is way too complicated

In my estimation  big companies crowd out small businessess for cheap credit.  Big companies borrow to buy back stock (economically unproductive), don't reinvest in their companies (low capex), slash jobs (mergers, layoffs to increase profits) and do not innovate.

Small companies grow much faster than large companies, hire more profusely and innovate.

Against this backdrop, demographics are skewed to an older population (after 49, most people taper their spending), the older population hoard jobs (they haven't saved for retirement), younger people do not get the jobs they  traditionally would such that they will not produce the necessary tax basis to support the oldies.

Meanwhile, the oldsters live longer, spend the govt's money on pensions,  medicare,disablity and, since they have the voting powers vote themselves monies that , traditionally, woulod have gone to children, younger people's education, lower taxes.  The government's debt grows and crowds out innovative investment , education, economic progress.

Bascially, as ever every day goes by we are more Fucked.

Whether, the Fed interest normalization is 2%, 4.5% or 45% is immaterial; like St. Thomas Aquinas arguing with other medieval churchman how many angels can dance on the head of a pin.

Wed, 09/03/2014 - 09:22 | 5175086 Oldwood
Oldwood's picture

The only rule of survival is productivity. We can subvert this with "policy" for a while but it always reasserts itself. Produce or die. Old or young doesn't matter. If young people can't out perform old ones, that says a lot. Evil corporations will shed the less productive in a heartbeat. Many older folks are willing to work longer, harder and for less than the more idealistic young. They are going to have to get over that. Taxing the earnings and savings of those still working to redistribute is not a sustainable path.

Wed, 09/03/2014 - 09:43 | 5175206 LawsofPhysics
LawsofPhysics's picture

Are you suggesting that if you want to eat, you have to work?

 

47+ million SNAP recipients disagree.

Wed, 09/03/2014 - 10:31 | 5175405 Oldwood
Oldwood's picture

SNAP is not sustainable

Wed, 09/03/2014 - 11:45 | 5175711 LawsofPhysics
LawsofPhysics's picture

no shit sherlock, doesn't make it any less real to those on the dole now does it?

 

Wed, 09/03/2014 - 09:27 | 5175115 himaroid
himaroid's picture

You could add that animal spirits will never revive under socialist rule.

Wed, 09/03/2014 - 09:44 | 5175210 LawsofPhysics
LawsofPhysics's picture

Tell that to the millions of Soviets who lived through the 80's and 90's.

Wed, 09/03/2014 - 09:10 | 5175017 Quinvarius
Quinvarius's picture

The real question is, why would Japan run out of toilet paper?

When you get past the freakiness and into the economics, you realize that there is no shortage at the right price and in the right market.  For some reason, there is no economic incentive to produce or stock toiletpaper in stores.  What would cause that?

Wed, 09/03/2014 - 09:24 | 5175109 Oldwood
Oldwood's picture

They just don't give a shit anymore?

Wed, 09/03/2014 - 09:47 | 5175235 oudinot
oudinot's picture

Toilet paper is not produced in Japan (no forests) and the companies that do produce toilet paper do not want to exchange their produced toilet paper for the printed version, the yen.

Wed, 09/03/2014 - 09:16 | 5175046 RaceToTheBottom
RaceToTheBottom's picture

It is not very productive to continually push a string.

Wed, 09/03/2014 - 09:16 | 5175048 Raoul_Luke
Raoul_Luke's picture

"You didn't build that" doesn't lend itself to the productive use of credit...

Wed, 09/03/2014 - 09:23 | 5175097 toros
Wed, 09/03/2014 - 09:24 | 5175104 himaroid
himaroid's picture

It's all very simple. oBUMMER and the socialist wildly miscalculated when they assumed that true Capitalist would be their slaves.

Wed, 09/03/2014 - 09:32 | 5175149 Oldwood
Oldwood's picture

If you follow the socialist conversation you will notice a real disgust with competition or anything that would reward one person over another from the pursuit of wealth. They see it as a theft of power rather than the power being conferred upon the socially deserving as they would have it. Further, they see this mentality of pursuit of wealth as a disease, a flaw that for most is incurable, but also something to be used. They believe that they can tax this behavior and even go so far as to publicly demean it and those so afflicted will continue to produce infinitely as they have no control of their obsessions. I have seen these people openly discuss this and make such proclamations, even to the point of admitting that they were dependent upon them to advance their own agendas.

Wed, 09/03/2014 - 09:43 | 5175213 himaroid
himaroid's picture

At least it is fun to watch their reactions as their stolen wealth and lifestyle slips away from them.

Wed, 09/03/2014 - 09:45 | 5175221 LawsofPhysics
LawsofPhysics's picture

"Socialist"?!? 

Socialism requires that the people own and control the productive capacity...

Hey dipshit, I think you have your "isms" fucked up.  As YOU even point out, these are a few privileged individuals advancing their own agendas for huge profit and not subject to any rule of law. This is called fascism/cronyism you stupid fuck.

Wed, 09/03/2014 - 10:50 | 5175471 Oldwood
Oldwood's picture

"isms" are but a label. I'm referring to what these people call themselves. I don't care what your definition is. Rule of law is defined by those who rule us, not by the ruled. But hang on to your ideologies. I know you would like to believe that a utopian existence waits for us if we only had the proper enlightened leaders but the reality is as long as power is concentrated it will be used against everyone below them and you can call it anything you want. Capitalism, socialism and communism are labels applied to ideals that will never exist in nature, but provide a great tool of leverage to allow those who would seek to acquire power and control over us to gain popular support. Every fucking tyrant in history has done as much, I'm simply pointing out the fulcrum that self described leftists use, whatever their "ism".

Wed, 09/03/2014 - 11:08 | 5175535 Seer
Seer's picture

"I know you would like to believe that a utopian existence waits for us"

Really, he has stated this?

Project much?

Wed, 09/03/2014 - 11:49 | 5175718 LawsofPhysics
LawsofPhysics's picture

And I am simply pointing out that capital and talent will go were they are respected.  Create your own utopia asshat, that's the only way to such things.  People are only "ruled" in so much as the consent.  I do not.

Wed, 09/03/2014 - 11:29 | 5175630 Ckierst1
Ckierst1's picture

When last I checked, fascism was classed as a branch of socialism, as was Marxism.  As far as having only a relatively few beneficiaries, socialist systems of political economy notoriously produce elitist cadres ("All are equal, but some are more equal than others.").  They must have their Philosopher Kings, you know.

Wed, 09/03/2014 - 09:31 | 5175145 gcjohns1971
gcjohns1971's picture

"1. Cross your fingers, credit growth is a necessary but not sufficient condition for economic growth. Economic growth depends on the productive use of credit growth, something that is not occurring."

 

Duh.

That's what happens when the unavoidable cronyist, political-based distribution scheme for new cash repeatedly reposes the expanded credit in the hands of business failures and otherwise weak hands.

The credit creation process BY ITS VERY NATURE cannot distribute new credit by means of market-based merit.  The inevitable result of this drawback is MORAL HAZARD, the result of which is increasingly ineffective credit deployment.

Wed, 09/03/2014 - 09:48 | 5175236 LawsofPhysics
LawsofPhysics's picture

spot on, liquidity trap bitches.

Wed, 09/03/2014 - 09:54 | 5175261 blindman
blindman's picture

Casablanca gambling? I'm shocked!
https://www.youtube.com/watch?v=SjbPi00k_ME

Wed, 09/03/2014 - 11:17 | 5175580 Seer
Seer's picture

Big hug!

Peel back yet one more layer and you find that this "credit" thing is merely an overlay on the underlying premise of perpetual growth.

The trap that we continue to place ourselves in is to promote growth, thinking that we can do it in some benign/"utopian" way (check your isms) way and all is good.  WRONG.  It's a finite planet.

While I appreciate the origins of "interest" I'm afraid that it went off the rails a LONG time ago (when "interest" stopped being pegged to cattle/calves).   Add on fractional reserve banking and at that juncture there is ZERO ability to have anything that could remotely be viewed as being "responsible" (I'm being nice here).

It's pretty hard to call something false/a lie when the foundation that it rests on is built on a lie (and deceit- have I mentioned that humans are deceptive?).

Wed, 09/03/2014 - 09:53 | 5175255 gcjohns1971
gcjohns1971's picture

Credit wonks miss the fact that there is an asymetrical relationship between money and credit.   Money isn't always credit. Sometimes real stuff is money.  But credit is always money - or it isn't credit at all.

Hence the fly in the credit ointment, an excess of credit cannot resolve problems caused by a shortage of real money.  Attempting to do so will simply be the impetus for Gresham's Law to come into operation.

Wed, 09/03/2014 - 10:32 | 5175410 marathonman
marathonman's picture

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

We will choose option 2.  Welcome to Weimar.

Wed, 09/03/2014 - 11:20 | 5175596 Seer
Seer's picture

I suspect that it's being drawn out for the simple reason that it'll mark the end of the System.  Of course there will be big wars, but TPTB don't care about these: it's the System that they care about; or more correctly, it's about being able to control the System (and set the odds to their favor).

Wed, 09/03/2014 - 11:15 | 5175567 Equality 7-25-1
Equality 7-25-1's picture

Credit, loan sharking, whats the diff?

Wed, 09/03/2014 - 11:22 | 5175606 Seer
Seer's picture

One has a greater arsenal of violence behind it than the other...

Wed, 09/03/2014 - 19:15 | 5177549 Otto Zitte
Otto Zitte's picture

So you think Blagegovich is running CYNK from Norman Cay, not doing dong work for Barry in Holder's dungeon?

Wed, 09/03/2014 - 12:39 | 5175712 cowboybob
cowboybob's picture

I have Mr. Gross’ commentaries from years past when his sidekicks Paul McCulley and Morgan le Fay were cheerleaders for financial repression. Back then when it might have mattered the Bond King was not upset.

 “I’m surprised at you, Scarlett, for sprouting a conscience this late in life.”

- Rhett Butler

Wed, 09/03/2014 - 11:57 | 5175769 all-priced-in
all-priced-in's picture

Is Bill saying?

 

I can't get ahead by taking out a "payday" loan every month to make my car payment, pay my rent & buy food?  

 

 

 

Wed, 09/03/2014 - 14:40 | 5176620 flow5
flow5's picture

What a crock of economic bullshit.  The output gap is simply about the use or non-use of savings. 

Wed, 09/03/2014 - 17:26 | 5177290 blindman
blindman's picture

your savings are meaningless, they print the
equivalent for the cost of the fibers and
then charge the taxpayer. then they steal it
and give it to themselves, very simple and
effective.

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