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In Uncharted Waters
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
What I see as extremes that must necessarily end badly, others see as mere extensions of recently successful policies and trends.
A long-time reader recently chastised me for using too many maybe's in my forecasts. The criticism is valid, as "on the other hand" slips all too easily from qualifying a position to rinsing it of meaning.
That said, given that we're in uncharted waters, maybe's become prudent and certainty becomes extremely dangerous. I have long held that the financial policy extremes that are now considered normal are unprecedented in the modern era: extremes in debt, leverage, risk, complexity and willful obfuscation of these extremes.
Consider the extent to which sky-high asset valuations and present-day "prosperity" depend on extremes of leverage: autos purchased with no money down, homes purchased with 3.5% down payments and FHA loans, stocks bought on margin, stock buybacks funded by loans, student loans issued with zero collateral, and so on--an inverted pyramid of "prosperity" resting precariously on a tiny base of actual collateral.
Since we have no guide to the future other than the past, we extrapolate past trends. Human nature hasn't changed over the short time-frames of civilizations (i.e. the past few thousand years), so in terms of human drives, emotions and responses, the past is an excellent guide to the range of human responses to crisis, euphoria, greed, fear, etc.
But extending trends is a shifting foundation for forecasts, as trends end and reverse, generally without telegraphing the end of an era. Few in 1639 China foresaw the collapse of the status quo Ming Dynasty a mere five years hence.
With the hindsight of history, we can discern the cracks in the Ming Dynasty before its collapse, but once we shift to our own era, things become less certain.
In my view, we're drifting in uncharted seas.
I have covered the dangers of certainty before: Certainty, Complex Systems, and Unintended Consequences (February 14, 2014)
What I see as extremes that must necessarily end badly, others see as mere extensions of recently successful policies and trends. Let's review a few of the many extremes that we now accept as ordinary and harmless.
Consider how much new debt is now required to lift GDP ("growth") off the flat line:
The slightest pause in the expansion of credit nearly collapsed the entire global economy:
Extraordinary central state and bank policies have boosted the wealth of those closest to the Federal Reserve's money spigot and left everyone else poorer:
It's not just real income that's declined--so has household wealth.
Incentives to borrow money to obtain a college degree are declining while student loan debt hits astounding extremes:
Feel free to extend this line of Federally funded student debt: where does it end?
The Federal Reserve has pushed astonishingly extreme policies for six years. Now that the Fed owns significant chunks of the Treasury bond and mortgage bond markets, it's being forced to limit these easing programs:
All the Fed money-printing and bond buying has sent money velocity in the real economy into a tailspin: this is good, right? No, actually it's a calamity. Money has slipped into a coma.
Extend the trendlines in these charts, and then ask yourself: where do they end? What will they trigger as they push ever deeper into uncharted waters?
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Where is the snow???
https://www.youtube.com/watch?v=IBKyn344csY
What??, wrong thread, screw it, there it is.
All your doomsday crap and the markets are bullish!! WTF I sold my GILD at $95 and its at $105. You basturds! I knew i should have followed my instincts. Zero H is right 1% of the time. So fuck off!!!!!!!!!!!!
If you buy and sell stocks based on what you read here maybe you deserve what you get.
It's a Trap!
Obviously...
Beyond here there be dragons
But actually, $200 billion a quarter to keep the market up is not even a fat finger for a CB.
I wonder how many electrons it takes to keep the currency and metals markets rigged.
"There are no markets, only interventions" Chris Powell, GATA
Anyone who does anything based on what other people think, believe, or say, is a total schmuck. gee, thanks captain obvious.
Ohh look a liberal that cant take responsibility for his own actions.....
Keep playing in a rigged casino....everyones winning.
What a smart guy.
RIPS
Zero H is right 1% of the time.
Really? You jumped in here 17 minutes after this story posted. You must be coming here for something.
Indygo...
Sometimes those that are right only 1% of the time are very,very right.
That's right; Blame others for your choices. That makes you a classic amerikan PUSSY and clearly responsible for where this country finds itself. BE PROUD! USA, USA, USA.
Leonardo Fibonacci2, you smell like a government TROLL!!!!
If the Federal reserve eextends QE .... nothing will change till at least 2016
Madoff was a chump. Wall St and the Fed are Pros.
Madoff did leave his Tribe a nice "How To..." manual though. His "crime" was not for ripping off people -- Wall St has been doing this for decades -- his crime was for ripping off his own kind: sharks and parasites. And that is unpardonable. Hooray for Maddoff!
You witnessed a parabolic move to the downside and didn't expect a snap back? After five years of this shit? You're joking, right? You believed some baloney argument over your own eyes?
WTF Leonardo, you encountered here a perfect indicator.... don't tell anyone...(except from Fibonacci1)
Leonardo,
If you're so disappointed go in 100% long...or even better do it highly leveraged. While you're at is put your house and savings up for collateral.
Ill telll you whats coming...
This country is headed for a disaster of biblical proportions.
Mayor: What do you mean, "biblical"?
Dr Ray Stantz: What he means is Old Testament, Mr.Durden, real wrath of God type stuff.
Dr. Peter Venkman: Exactly.
Dr Ray Stantz: Fire and brimstone coming down from the skies! Rivers and seas boiling!
Dr. Egon Spengler: Forty years of darkness! Earthquakes, volcanoes...
Winston Zeddemore: The dead rising from the grave!
Dr. Peter Venkman: Human sacrifice, dogs and cats living together... mass hysteria!
And dont forget that big fucking marshmellow man.
That first chart above shows you everything that's wrong with the system:
THEY CROSSED THE STREAMS!!!
The world now reminds me of the bible. The part right before god gets pissed
Rusty, do you know why AA Alcoa sales are up?
http://www.youtube.com/watch?v=FeTaejpg18g
They're (not AA) spraying aluminum.
Thanks, ran across this last night...
https://www.youtube.com/watch?v=N6cirGEJkLs
my neighbor's half-sister makes $71 hourly on the laptop . She has been fired from work for 9 months but last month her paycheck was $17975 just working on the laptop for a few hours. look at this site... www.job-reports.com
strap a fed banker to a torture device for the real answer. i guarantee the little douchebag would rat out the entire system if you just reveal a blade....
.."i guarantee the little douchebag would rat out the entire system if you just reveal a blade"..
We can't handle the truth..
(ain't gonna be many winners with this one)
Chinese buying "America" with freshly printed Yuan (see top chart).
And....US buying up Europe, with even moar freshly printed paper money.
this time is definitely different, this time the contagion will be global. Imagine Zimbabwe or Weinmar on a global scale. Only a matter of time now.
Contagion is a problem, we are all interconnected for better or worse. Some people have been calling for a "world currency" for years. the saying "one should never let a good crisis go to waste" means a meltdown with high levels of fear would present a perfect opportunity and catalyst to advance this agenda down the field.
Remember many people with agendas have a lot to gain when a major shift in the currency markets takes place. Even with some countries not participating in such a currency dislodging the American dollar as the world reserve currency represents such a shift. Calls for a new world currency may grow over the coming years, if the world stumbles into an economic hell the noise could become deafening because people and their leaders tend to look for easy answers. More about how chaos in the currencies might bring about a new world wide currency in the article below.
http://brucewilds.blogspot.com/2014/02/contagion-may-lead-to-new-world-currency.html
Bbrrr.... Depressing... Better lighten up the mood:
http://youtu.be/tGe4uWEvwe8
Sudden Thanks A Hole (it was funny)
Certainly lifted my mood in the first 5 minutes. Dont ask how it played for 5 minutes Mrs RIPS hears crying women........
See kids its daddys fault that mommy HAD to divorce him. He made me do it...and im sad.
Fuckin all hell...wtf is going on these days.
RIPS
You know its bad when you go from "jump! jump! jump!" to just "fall already!"
According to Marxist/Leninist theory capitalism will collapse due to its internal contradictions.". Yet so far (bonds versus equities) this has been verifiably false.
So apparently you really can't run out of other people's money. I still strongly believe that you can run out of liquidity though.
There's only so much debt that can be inflated away.
Prices for airfare have soared btw.
where do they end? What will they trigger as they push ever deeper into uncharted waters?
War, disease famine poverty social chaos. Just exactly what is happening in the middle east right now.
nah, like good warmongers we are dropping supplies to both sides right now.....
http://www.thedailybeast.com/articles/2014/10/21/isis-video-america-s-air-dropped-weapons-now-in-our-hands.html#
Well, it's only fair.
Extrapolate the ebola chart and you will see that all these other ones don't matter.
Sing it with me.....
THE HILLS ARE ALIVE WITH THE SOUND OF MUSIC!!!!!!!!
I prefer Jerry Lewis;s version of the song which he sung on T.V. (Ed Sullivan show I think) "THE HILLS ARE ALIVE WITH THE SOUND OF HEBREWS" and got a great laugh. Far more truth. Milestones
Goes on and on until a currency crisis.
Oh, weill make it to over the $18 trillion deficit level by end of 2014?
Wait until after the election.
The dollar has recently hit four year highs based on several other currencies being weak. While there are not many Bond Vigilantes there are a slew of Currency Vigilantes and they are ready to make their presence known. Recent weakness in the value of the Yen, Pound, and Euro must not go unnoticed.
The Currency Vigilantes are acutely aware of when a currency is overvalued or ready to be re-pegged and pounce on the weak currency to tear it apart. The article below questions just how stable the currency markets really are and may be a signal that currency trading is about to get very wild.
dude you forgot to pimp your blog in this one. the other three are ok though.
Um, you have that backwards. It isn't QE that has sent money velocity into a tailspin, it's the "you didn't build that" economic agenda, it's Obamacare, it's Dodd Frank, etc. etc. etc...
The fact that the velocity of money has stagnated is why QE hasn't worked (and produced infation), not the other way around.
Perhaps, but I'd also propose that the velocity of fiat is decreasing for "unexpected" reasons. (death of a currency versus a true reflection of declining demand, or did the population just stop breathing...)
I think it's mainly increased domestic consumption, which is offset by a decline in domestic production (business investment). Which ties back to the "you didn't build that" economic agenda, as well as the earlier big governmentism and weak dollar policies of the Bush Adminisration. I see those reasons as completely "expected" myself. It exactly what you would expect to see.
That is like asking whether the chicken or the egg came first.
Can velocity go below 1.0?
I always thought the egg musta came first. Am I missing something?
Helix6
"I always thought the egg musta came first. Am I missing something?"
Indeed you are the rooster came first,the hen is responsible for the egg.
US Citizen, Press TV reporter dead in car crash near Syria 2 days after Turkey calls her a spy
http://wtfrly.com/2014/10/20/us-citizen-press-tv-reporter-dead-in-car-cr...
It is happening in middle east but why not in Japan? they would be next logic developed country to go over the waterfall? before the US i would think? seems like there would be many countries to go before the US...
not all sheep are created equal. How many guns does the average Japanese houshold have anyway?
The moment the Japaneses stock market fails to rise enough to offset inflation while the yen continues to falll we will see a tsunami of money fleeing Japan. This will constitute the end of the line for those left holding both JGBs and the yen. This has been a long time coming and I contend the cross-border flow of money leaving Japan is why some stock markets have remained so resilient . When Japan crumbles it will be felt across the world. More on this subject in the article below.
http://brucewilds.blogspot.com/2014/05/japan-sliding-towards-abyss.html
Collapsed version: "we're drifting in uncharted seas".
Enuff said.
All the rest is just conversation.
All these trends have persisted because the markets rarely protest and, when they do, the government steps in to calm them down and erase the important message markets are sending. This time it has taken the better part of a decade of zero rates, $4 trillion of QE so far and daily threats to do more, if needed.
So, the charts are meaningless. Government watches them, too, and knows there is no nice way out, so they keep the game going. Easier to keep drinking than have a hangover and then take a $250,000 per speech bow after 'saving' the overly indebted world or take a bow for bringing back 3% down payment mortgages to 'ease' credit. Call it what you want, it's certainly not leadership.
You guys are just looking at this wrong; glass half empty vs full. See now, you we come from the top of the e-curve, looking down it's one long ride. Ahhh, ok I get now, we'e going from the bottom up. S*** we're f***ed...
Where does it all end? Ask Sarah Connor...Judgement Day.
Can money velocity go below 1.0? If it can, that is the very definition of crossing an event horizon, with the system imploding onto itself in a self-accelerating manner. I wonder if nominal negative rates could do this?
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...
with relation to the second last graph, how is the value of a bond determined?
- the price that which the bond can be resold for today? or
- the total return if the bond were to be held until expirary?