This page has been archived and commenting is disabled.
The Defining Problem Of Our Times (In 1 Simple Chart)
Submitted by Tim Price via Sovereign Man blog,
“When sorrows come,” wrote Shakespeare, “they come not single spies, but in battalions.”
True. And Jeremy Warner for the Daily Telegraph identifies ten such sorrows in his ‘ten biggest threats to the global economy’:
1) Geopolitical risk;
2) The threat of oil and gas price spikes;
3) A hard landing in China;
4) Normalization of monetary policy in the Anglo-Saxon economies;
5) Euro zone deflation;
6) ‘Secular stagnation’;
7) The size of the debt overhang;
8) Complacent markets;
9) House price bubbles;
10) Ageing populations.
We’ll start with point #7: the size of the debt overhang.
Since this was never addressed in the immediate aftermath of the Global Financial Crisis, it’s hardly a surprise to see the poison of debt continue to drip onto all things financial.
ALL German government paper out to three years, for example, now offers a negative yield. Investors must pay rent to the German government in order to buy its debt.
This has implications. And much of the rest of Warner’s ‘threats’ are inextricably linked to this debt overhang.
Point #8: Complacent markets? Check. (Though stocks have lost a lot of their nerve…)
Point #9: House price bubbles? Check. Since the monetary policy response to having too much debt in the system has been to slash rates and keep them at multi-century lows, it’s hardly a surprise to see property prices in a bubble. Again.
Point #5: Euro zone deflation? Check. This is less of a threat to solvent consumers, but deadly for indebted governments.
Point #4: Pending normalization of monetary policy in the UK and US? Check.
This threatens the integrity of the credit markets. And it’s worth asking whether central banks could possibly afford to let interest rates rise and risk bankrupting their governments.
We saw one particularly eye-catching chart last week, via Grant Williams, comparing the leverage ratios of major US financial institutions over recent years (shown below).
The Fed’s leverage ratio (total assets to capital) now stands at just under 80x. That compares with Lehman Brothers’ leverage ratio, just before it went bankrupt, of just under 30x.
Sometimes a picture really does paint a thousand words.
And this, again, brings us back to the defining problem of our time: too much debt in the system.
In a recent interview with Jim Grant, Sprott Global questioned the famed interest rate observer about the likely outlook for bonds. Grant responds:
“I’m not sure what a bear market would look like, but I think that it would be characterized at first by a lot of people rushing through a very narrow gate. ”
Grant was also asked if it was possible for the Fed to lose control of the bond market:
“Absolutely, it could. The Fed does not control events for the most part. Events certainly will end up controlling the Fed. To answer your question – yeah. I think the Fed can and will lose control of the bond market.”
As we have written on innumerable prior occasions, we wholeheartedly agree. What will drive pretty much all asset markets over the near, medium and longer term is almost entirely down to how credit markets behave.
The fundamentals (again, take one look at the chart) are utterly shocking, as are the implications.
And let us not confuse the prognosis by arguing over the diagnosis.
As Professor Antal Fekete writes in his Monetary Economics 101: The real bills doctrine of Adam Smith -
“Hyperinflation and hyper-deflation are just two different forms of the same phenomenon: credit collapse.
Arguing which of the two forms will dominate is futile: it blurs the focus of inquiry and frustrates efforts to avoid disaster.”
»
- 15122 reads
- Printer-friendly version
- Send to friend
- advertisements -
What, shadow banking/ derivatives dont get in the top 10?
James Carville might say, its the debt stupid:
http://www.safehaven.com/article/35400/fix-gold-collapse-the-world
pick your poison...either way the economies dead..
just go long...
black market...bitchez!
when the economy dies, black markets thrive..
That's racisssssssst.
‘ten biggest threats to the global economy’:
Jeremy "Don't Ever Accuse Me of Thinking Outside the Box" Warner forgot the number one problem:
government.
A nice gold revaluation upwards makes all that leverage go away...
Just sayin'...
This is what I don't get. You've got the MASSIVE revaluation.
JUST FRIGGIN DEFAULT ALREADY!
I mean...sorry but the folks managing the pension plan spent all the money wilding in Barabados. We live in a police state already....don't tell We the People you didn't know this.
Just doesn't make any sense.
In the meantime if the tax code wasn't so hopelessly bankrupt legislators COULD end the tax free status of REIT's. Legislators COULD end the tax favored status of MLP's.
Nope..."it's all about hammering corporations for domociling in a foreign country." I mean seriously...these two party clowns are hopelessly BANKRUPT. Can the worthless phicktards even explain what a TRILLION DOLLARS is?
Sorry but tea party all the way. I've travelled this whole country the past five years and simply put all I've seen is a bunch of clowns...mouths agape... with their dicks in their hands.
Well, here's the scoop:
THE FED IS THE "BAD BANK", and the IMF / SDR is their "solution".
Time for we the people to take our money printing press back from the self chosenites...
game over!
No, now the game really starts and the ante up will be blood....
The lack of credit in financed assets will create deflation there.
The increase in money supply will create hyperinflation in non financed assets.
weneedanewwordhere
RIPS
Lack of credit? Really? Where?
As long as people are being paid in dollars then there will be no lack of credit. You might have a problem of excess SAVINGS however...
D-Vet,
Now/Today there is excessive credit fueled by artificially low interest rates. When/not IF those rates go up....cheap loans go away too. What will that do to housing and auto sales? You will be able to afford more home for less dollars. More car for less dollars. Krugtard etc will all be screaming that this is the deflation that they were warning about.
In tandem real assets/ non financed assets will start their hyper inflationary rise. Tons of dollars coming home chasing real assets. If history is any kind of teacher it will not go into financed assets..but into survival assets. Also assets with no counter-party risk start the moon shot.
Hope that clarifies it.
RIPS
Listen.
In your precious little USSA country there will be no such inflation/deflation nonsense as the guys at the ZH "GENIUS" bar proclaim.
Yawn...
In your moms basement you arent going to get your ass kicked...here its different bitch.
Fuck off nationalist cock sucker.
Rips
Listen rips.
Let me be real clear. Wait a minute, why am I responding to a troll?
Stop the trolling! For once and for all!
Ohhh, I get it you're a comedian....its working because we are all laughing AT you.
RIPS
You may be right. After all, something cannot inflate/deflate if it doesn't exist. The real economy just dies one piece at a time. So maybe the price of your corn fructose and sawdust bread loaf will remain constant...
What will there be?
Gram Parsons, "Streets of Baltimore"
https://www.youtube.com/watch?v=n1c05Xbwp-o&index=4&list=PLEvr99j7ruPxub...
Interesting theory, but when and where was the last (or any) hyper deflation?
hindenburg
Alright...that was funny.
But on a serious note, hyper-deflation did occur in the waning days of the Roman Empire as the debased coinage was abandoned as valueless and land rapidly fell out of cultivation. Hyper-deflation is just another name for what happens when vast thunderheads of unpayable debt are blown off in the wake of a political collapse.
You're right, deflation happens when a state disintegrates entirely, because inflation is a tactic that requires control. Inflation is always the answer when there is control, because it's the least painful tactic for those in power (with wealth). That said, the inflation tactic can lead to disintigration.
Disintegration has been a constant in society since Nixon abandoned gold. See the divorce rates, debt at all levels and the growing number of welfare recipients. Now, the absurd notion (funded by the out of control govt.) to codify the act of homosexual sex as a marriage. The Emperor has been naked for 45 years! If they can just keep the rest of the world supporting their schemes through fiat toilet paper, who knows how far the depravity can go.
All deflation is hyper-deflation. Yes, the Hindenberg. Because there's no such thing as a bubble popping slowly.
Any time the thought of a naked Shrilarly Clinton crossed the mind of a red blooded male.
LOL
+1
CRAP!!! Now I gotta drag out the brain bleach...double strength...
Not sure what the definition of hyperdeflation is but check out milk prices. They have been dropping considerably all around the world. I'd say almost all the dairies in my whole country are for sale. Fonterra in new zealand just slashed the price given to farmers.
Iron ore down over 40% this year.
You have to seperate the difference between a price collapse and a deflation.
Not just size but the "weight" of government expenditures matter if you get a deflation...but not necessarily if you get price collapse. The key is what a Bank is willing to lend into.
If prices are falling "because salt is now basically free" (the USA has about a trillion tons of it under the Great Lakes) the bank will lend into that because salt is a preservative.
The same goes for a collapse in natural gas prices. Natural gas is a feedstock for the entire energy and chemical business. If that price collapses (as it did in the USA two years ago...before Clowny said "no problem" when it came to burning it up on the power line) then Banks will ABSOLUTELY want to lend into that because that is not just a comparative advantage but an advantage beyond compare.
There is also what is called "informational advantage"...bit that is something I'm still trying to figure out. Interesting conceptually though...
The FED is subsidising all assets.These are not real markets. It ends with a delivery default....in any real thing.
Doesnt help that the russians and chinese dont want our food anymore.
RIPS
The Fed will run out of paper and ink before it will suffer deflation.
Today may very well have been the day the fed lost control. Many people were looking for a rebound that never happened. I find it interesting that Hilsenbarf hasn't come out with a 3:30 stick save article lately.
The irish national income and expenditure accounts for 2013 were published a few days ago.
They paint a vary different picture from the GDP fettish economists who want their masters debt claims to remain sustainable in the midst of a hyperinflationary collapse.
irish Household equipment and operation consumption at current market prices Y2008 to Y2013
Millions of euro
5,426
4,032
3,662
3,405
3,316
3,187
Bono says without large Corporate tax breaks and him you guys are fucked. Can't you write songs or make sweaters anymore?
If we look at the Irish conduit economy further growth of the capital stock will merely increase depreciation “Growth” therefore is a destroyer of real end use purchasing power. Annual Percentage Changes in the Main Constituents of consumption of Table 14 (constant market prices) 2012 -13 Food :+ 1.9 % Non alc beverages : – 3% Alc beverages : -5.6 % Tabacco : -14.4 % Clothing and footwear : + .03% household equipment and operation ; : – .08% transport & communication : -1.4% Recreation , entertainment and eduacation : -2.8 % Expenditure outside the state : -1.3% Expenditure by non residents : 10.8 % !!!!!!!!!!!! Just to add the Irish population continues to rise , this is therefore not a artifact of a declining population. This is a massive loss of purchasing power per capita. As I have noted recently much of the domestic activity in the irish economy is a result of non residents gaining purchasing power (see above data) relative to residents and burning resources not burned by the Irish and local mainly foregin labour force in the catering sector. Anecdotally I can confirm a further increase in this trend for 2014.
If we look at housing rent , repairs and government extraction at current market prices it has risen for each year since the 2009 /10 slump.
Y2009 to Y2013 (millions of euro) : 14,568 14,179
14,657 15,040 15,905
Expenditure on clothes and shoes have decreased for each year since 2009
3,627 3,293 3,106 2,984 2,906
Expenditure on Fuel and power (excluding motor fuels) has increased for each year since Y2009 3,051 3,081 3,161 3,387 3,471
Under such circumstances of extreme housing & private car abundunce and extreme shortage of social goods why is the government encouraging “growth ”
what is the purpose of growth if is not directed at people ??????
A truly national policy would ban these conduit growth activities for many decades at least.
Give people a social credit so that they can resettle into the near empty market towns and villages of Ireland.
So they do not waste energy commuting into the no purpose jobs of the national and financial capitals scarcity production mill.
What we are in fact seeing is a fascist policy of directing consumption towards high end corporate goods.
People are being herded into these conduit consumer war goods of destruction.
Great stuff as always. Mark my words...you're about to see a "sea change."
I mean that literally. Once production starts moving via ship out of the USA the world will start to see the true revolution in production that has been going on here in the past thirty years.
We already have in the USA a massive build out of shipping infrastructure as a result of the "tulip mania" of the 1990's. What hasn't happened yet are US flagged vessels plying the Seas.
Take a look at Clipper Ships if you wanna see how big the USA can build them.
Yes the leverage for the fed may seem high but the fed is not a stand alone institution, it is a consortion of private (and corporate) entities as banks to include a 10% investment of the US goverment. So therefore the leverage is spread out amongst the fed members.
but, but, oil is dropping
As we can most clearly see in Ireland GDP does not put food in ones belly.
Ever since the euro experiment really got going in the late 1970s we have seen a massive subtraction of peoples real purchasing power in favour of conduit corporate value added goods of little basic utility.
This has reached such a extreme level in euroland that we are witnessing a total implosion of society and european culture.
The global oil price rise , the hockey stick China growth as a result from mainly euroland capital export ,and the general extreme late stage mercantalism that we have seen is screamng off the pages since the late 1990s and traces its roots to the post war period and most certainly since the rise of the euro scarcity maw.
Productions role it seems in euroland is not to satisfy consumption , its quite the opposite in fact.
The costs are socilaized on the masses and consumption is destroyed en masse.
We have a very simple breakdown of the production , distribution and consumption chain when looked at from a social credit standpoint.
So the great question of our time is......................if productions role is not to produce goods for consumption then what exactly is its function ????
Supply-side economics dominates upstairs. They really believe (in the religious fundamentalist sense) that all we have to focus on is production and the rest will take care of itself: "build it and they will come". When said production results in white-elephants (be it bridges to nowhere, ghost cities, low-quality plastic shit we don't need, or financial "innovations"), they just pass it off as inventory to service future demand or some other bullshit excuse.
This is a predictable consequence of producers dominating politics, because they are better organised into concentrated pressure groups than the broad mass of consumers, and of our flawed political system that has pressure points in the first place.
Producers need to be reminded that they are nothing without consumers. Bailing out only the supply-side leads nowhere if the demand side is imprisoned by debt and lack of income.
Producers know who's buttering their bread!
True that. Who needs customers when you can just take it all with violence and lies?
Unfortunately, this appears to be the natural endpoint of Capitalism. Be successful enough by servicing demand and enough wealth is generated to start buying control. No need to cede control to customers when you can just stomp on their faces.
(For clarification, I include credit production (banksters) alongside other forms of production. These particular "producers" exercise a much greater degree of influence than others. Apologies to the smaller producers out there who actually DO still answer to customers and do something useful).
"The Defining Problem Of Our Times"
The Defining Problem Of Our Times is the theft and violence by the banksters backstopped by the violence of government.
An American, not US subject.
"Save mankind, guillotine a pol, crat, func, and bankster."
Gram Parsons, "Kiss the Children"
https://www.youtube.com/watch?v=XWXUD3ZpWE8&index=8&list=PLEvr99j7ruPxub...
.
random leads to lazier focus, or is that lassie, or
lazer? whatever, just remember to kiss the
children.
Credit collapse in countries with credit money and usury is.....
terrorism.
Hyperinflation = debtors get the stuff.
Hyper-deflation = the creditors get the stuff.
Hyper-debasement = the government gets all the stuff
1) Geopolitical risk;
2) The threat of oil and gas price spikes;
3) A hard landing in China;
4) Normalization of monetary policy in the Anglo-Saxon economies;
5) Euro zone deflation;
6) ‘Secular stagnation’;
7) The size of the debt overhang;
8) Complacent markets;
9) House price bubbles;
10) Ageing populations.
11) Criminal Fraud UNITED STATES, CORP. INC.
Unless the FED is going to come in and by ALL the empty houses, all the gasoline, all the sugar and snacks with Trillions of $$ created out of nothing, then their shall be no hyperinflation because aint nobody got any money (or credits) left.
Inflation is a symptom of excess credit creation. Hyperinflation occurs when everyone loses faith, the crack up boom.
I contend the primary reason that inflation has not raised its ugly head or become a major economic issue is because we are pouring such a large percentage of wealth into intangible products or goods. This includes currencies. If faith drops in these intangible "promises" and money suddenly flows into tangible goods seeking a safe haven inflation will soar. Like many of those who study the economy I worry about the massive debt being accumulated by governments and the rate that central banks have expanded the money supply.
The timetable on which economic events unfold is often quite uneven and this supports the possibility of an inflation scenario. A key issue being one of timing. If the price of gas jumps to $8 a gallon overnight do you buy gas and not make your car payment or stop driving the twenty miles to work? Answer, it could be months before your car is repossessed so you buy gas.
It is important to remember that debts can go unpaid and promises be left unfilled. If this happens where does it leave us? Chaos and major disruption would result from such a scenario. As we have seen from the economic crisis of 2008 and following many other unsettling developments legal actions can continue to drag on for years. More in the article below.
http://brucewilds.blogspot.com/2014/04/inflation-seed-of-economic-chaos....
were fucked !
~DipshitMiddleClassWhiteKId
It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward. When this happens we are at the end game.
At some point the return on loaning money is simply not worth the risk! Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.
The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.
http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit...
I always thought that hyper-deflation was a sexual term describing a situation when you are are in bed at your girlfriend's and her husband returns unexpectedly.
The term for the situation you describe is "getting shot."
I still don't fully understand why, or fully accept that, civilization as we know it would come unglued and everything would go back to the Stone Age if the market value of PMs were allowed to rise considerably -- say, double or triple. Just a little over three years ago silver was worth right at three times what it is now, and gold was worth nearly twice its present value. The sky didn't fall. The lights stayed on. Dams didn't break. ATMs still worked There was no more street crime or police brutality than usual. Of course, those prices only lasted a few days, it seemed like. I sure wish I'd cashed out of PMs then. But all I had was physical, which takes time and effort to liquidate.
There was never a bull. Only a hologram of a golden calf. The coyotes smell blood. The sheeple smell each others butts... the stomach turns.... Hell shows up and wants to get paid.
I'm surprised the housing bubble isn't further up the list.
ask a russian or argentinian or venezuelan what a currency collapse looks like. the usa is looking more and more like post ww2 britain with a struggling, welfare supported middle class crushed by state debt owed to the usa.
in a currency collapse there will be hyperinflation in a deflating economy. they become the same side of the coin.
The government ponzi machine will never allow hyper-deflation, but that doesn't mean it can't occur. Think Germany after WWII. Think of those amazing aerial shots of nothing but devastation. Think the U.S. South post-Civil War. Think Scarlet O'Hara eating grass. That's hyper-deflation.
I'd rather picture Scarlet eating me for some grass, anyway, that's what you get for electing politicians based on what they will kick back to you rather than sound government. One constant thing in humanity is greed and jealousy, that's what all of our politicans propagate now in order to get elected.
On the other hand, politicians are simply responding to the electorate's demand for more and more personal advantages while shirking their fair share of the tax costs. Hence burgeoning deficits and tax "relief" for the wealthiest and most influential.
if (effective money supply = money supply x velocity of money) then i wonder if you could have a situation where the money supply was increasing and the velocity of money was decreasing at the same time hence both inflationary and deflationary pressures at the same time in different parts of the economy e.g. a decline in the 99%'s disposable income creating the decline in the velocity of money and thus the deflationary pressure and the Fed giving out free money to the 1% creating the other.