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The Data Doesn't Lie - Here's What's Really Driving Interest Rates!
Submitted by Thad Beversdorf via First Rebuttal blog,
So Hilsenrath claims a little birdie (Fed insider) told him that rates will be raised later this year. I expect the Fed is just jerking him around. There is nothing fundamentally or otherwise to suggest rates will move up. I’m not sure if Hilsenrath is part of the game or just a gullible fool who is being used to keep the market off balance. Why would the Fed want the market off balance? The Fed does so intentionally because theory suggests such a strategy will improve the effectiveness of monetary policy (refer to rational expectation model).
Regardless of what the Fed says, the reality is that interest rates are not moving up anytime soon. It is shocking to me how arbitrarily economists make certain predictions. I mean don’t get me wrong, I’m not a fan of ZIRP or NIRP. I see them as theft in the same way I see inflation as theft. Both effectively destroy the time value of money by way of politics and, these days more than ever, politics is simply another word for skullduggery.
But let’s take a look to see if we can find any reason why interest rates in the US would go up soon. Let’s start with market forces. Rates would go up naturally if demand for bonds declined. Problem is that looking to Europe’s interest rates moving deeper into negative territory almost daily I can’t see why foreign demand for US bonds would decline.
But perhaps domestic demand will fade enough to offset the increasing foreign demand. Well if investors had a reason to believe the market was ready to take off we should see a reallocation away from bonds and into equities. That too would result in a higher bond yields. Problem is that institutional money is actually flowing out of equities while retail investors have already loaded up on equities, matching 2007′s all time high market levels of retail investor cash. And so it seems that there is little chance of a market force leading to higher interest rates. But that hasn’t always stopped rates from rising.
The likely catalyst then for a change in rates and particularly a rise in rates would be the pure politics of Fed action. Now on the surface we know that the Fed uses rates to increase demand by way of lowering borrowing costs and to depress inflationary pressures by increasing the marginal return on cash making the opportunity cost of spending higher thus dampening consumption. But this is a very academic view of OMO. In the real world things are not quite that black or white. When the butterfly flaps its wings the consequences are vast and can be deep.
For instance we might have inflationary pressures that have been driven by money printing while consumer demand is dead. And so if the Fed acts to raise interest rates it will slow inflation but it will also result in even lower consumer demand. That would obviously be an unwanted drag on the economy.
Alternatively we could have inflation driven by money printing with decent consumer demand that has been funded by all time high debt levels. In this instance if the Fed were to raise interest rates it could quell inflation, however, it could also very well lead to an epidemic of bankruptcies. With consumers having remarkably high debt levels accruing beside declining real incomes, free cash flows would be squeezed beyond what many households could withstand. That is, higher interest rates require higher cash flows to service household debt and if cash-flow is already razor thin any increase results in failure.
These are just theoretical scenarios that point out the Fed cannot narrowly look at inflation and decide whether or not it will raise rates. There are many parameters the Fed must take into account. My theory is that for at least the past 15 years interest rates have been driven not by inflation or employment but by debt to income levels. I recently provided solid evidence that interest rates are being driven by debt to GDP at the national level. Specifically, I proved that interest rates moved in such a way so as to keep the nation’s total debt service to GDP between 2% and 5%.
Have a look at the following chart which depicts debt service to GDP (blue line) remain within its narrow range over time despite the large increase in debt. The relationship between debt service and GDP is not coincidence as we found very strong statistical significance. That article elicited a fairly shocked response because the overwhelming belief is that interest rates are very much a function of inflation and to some degree employment yet the data clearly suggests a different driver.
This time around I’d like to test our theory on the American household. I expect this relationship to hold just as true for households as it does for the nation’s total public debt service to the nation’s income (GDP). The idea is simple and logically necessary; don’t bankrupt your debtors. If you want people to take on debt for whatever reason then make sure they have sufficient cash-flow to cover the service on that debt. On the macro level we saw interest rates change, over time, in such a way so as to keep total public debt service between 2% and 5% of GDP (income) as the above chart depicts. Again it makes sense because if too much income is being diverted to servicing debt things begin to crack rather quickly.
I should also point out there would seem to be a natural cap on the ratio of debt service to income. We know it as the the savings rate and if debt service as a percentage of income breaches our savings rate we go into arrears and ultimately bankruptcy. If our theory is right we should be able to see that at no time does debt service to income exceed the savings rate. So let’s have a look.
And the theory holds. We can see that debt service to GDP (red line) was steady just below 5% from 1980 through the mid 1990′s. However, as the savings rate (blue line) began to close in on 5% we see the debt service to income ratio decline down to 2.5% where it remains today. Savings rate actually did drop to meet the debt service to income ratio during the credit crisis, and as predicted by our theory it resulted in an epidemic of bankruptcies, but it very quickly moved back higher in 2009. And so it would seem there is very solid support for the theory that interest rates are a function of debt to income and that the relationship has its own set of constraints. But we are certainly not done yet.
Let’s have a look now at the American household to see if our theory holds true on a more microeconomic view. The following chart depicts household consumer debt (no mortgages) and real household incomes. Remember that as incomes decline, there is a follow on decline in demand which must be propped up with increasing consumer debt levels to avoid the appearance of a contracting economy. This makes sense given the government wants to show economic growth, even if it must be just an illusion from debt. But so let’s have a look at what we find with the American household.
The above chart depicts real median household income (red line) and household consumer debt (blue line). Clearly there is no correlation or similarity between the two functions. During the first 15 years both income and consumer debt trend higher while the latter 15 years had debt continuing its trend higher while real incomes reversed and trended lower.
Dislocation of the income and debt levels is both intentional and problematic. As discussed above the debt is required to fill the demand void stemming from declining incomes but it also becomes quite risky. However, it has been decided by those who decide such things that creating the illusion of a prospering economy is important enough to take on all that extra consumer debt in order to create that illusion. But it requires some finesse to ensure that debt remains manageable and that finesse is being done through interest rates.
To quickly show that debt has been necessary given the desire to portray a growing economy let’s have a look at the following chart which depicts an adjusted GDP (adjusting out debt – orange line) and normal GDP (blue line).
We see that without the $10 trillion in debt we’ve taken on since 2008 our nation’s output would be half what it is today. Prior to 2000 the adjusted and unadjusted real GDP figures were very close. Then the gap widened slightly for the next 8 years but both were still growing. In 2008 however, something changed. Adjusted GDP simply collapsed. This signifies that something very significant did in fact change in the way we utilize debt as it became almost completely ineffective having a velocity of 0.2. That is for every $1trillion in debt we generated only $200B in output. The obvious reason for this is that debt is being used for consumption to a far greater extent than ever before, whereas historically debt was taken for investment and thus generated positive rather than negative returns.
Borrowing to consume is a troubling sign. But again it is necessary to perpetuate the Giant Con of economic prosperity. But continuously rising debt levels can be unsustainable while incomes decline, especially as we near peak debt levels. This requires interest rates be used to optimize debt service levels, meaning they need to track income. That is, when income goes up debt service levels can be allowed to move up but when incomes are on the decline debt service levels need to be pulled back. Because it is difficult to adjust principal levels in the short term and that economic strategy is to continually increase debt principal, the mechanism for adjusting debt service must be interest rates. Let’s see if we can find support for this theory showing up in the data.
And so we see exactly what our theory predicts. All we did here was to take the earlier chart above (household consumer debt vs real household incomes) and applied to it the historical 10 yr yield (which we used as a proxy for average interest on total public debt). That produced the total debt service levels (blue line) which we compared with real household incomes (red line). You can see that while we found no correlation earlier between household debt and real household incomes, here we find household debt service tracks almost perfectly to real household incomes, the only difference being interest rates.
That is strong evidence for our theory that interest rates are being used to maintain a debt service to income range in the American household the very same way we proved it was happening with the nation’s total public debt service to GDP. Let’s look specifically at the ratio range of household debt service to real household incomes. Here we will replace the 10 yr yield at the household level with the primary loan rate as it is a more accurate proxy for consumer debt rates.
What we find is absolutely incredible! I could not have fictionalized these results any better than how they are falling into place in support of our theory. Notice the household debt service to real household income ratio range is exactly the same as what we found with the total public debt service to GDP coming in at 2% to 5%. Meaning that at both the national level and the household level it has been set that debt service will range between 2% and 5% of income.
If you think this is a magical coincidence, well bless you you’re very sweet indeed. It’s not a coincidence and it’s not magic either. Not at all. This phenomenon is of necessity. That is, this relationship has to exist because of what debt consumption has become over the past 20 years as it relates to our economy. It is the foundation of the Giant Con and, as such, everything revolves around it. Not even interest rates escape its event horizon.
This is not to suggest that inflation is not a concern or that it is ignored. It is very much a concern and is receiving a lot of attention. However, inflation, to a large degree, is perception. And perceptions can be controlled by information and muscle, at least for a while. But I will save that discussion for another day. The bottom line here is that interest rates will continue to decline until the ratio of debt to income declines sufficiently so as to allow interest rates to move higher while maintaining a debt service to income ratio below our savings rate and in line with historic levels of between 2% and 5%.
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So what, Just BFTD. ES and I are BFF. Nuff to buy my Mistress (Gold).
The Fed will raise rates because they can't stop themselves.
They are arrogant, ignorant, out of touch, and out of ammunition. They see themselves as managers of the economy. No one else does, but at the moment they have no levers to pull, or buttons to push, except ONE.
Therefore, the idiots will push the button.
A little birdie??
Moar like a big fat fucker called CHINA that's about to crap all over Yankee Dollah if it loses value just like SNB crapped on the Euro!
XLF +2.5%. We have a winner. Assist by the ECB.
im reading this article and all along thinking the 'great reset' abslutely has to come in the form of an overnight debt repudiation (or part thereof - say 50% across the board), accompanied by an instantaneous resetting of interest rates to 5%
add japan when they are desparate. that is iff they(treasuries) aren't levered to the max...
Yep, they push buttons for one reason. Pump & Dump. If the Fed raises rates it will be to purposely tank the economy. Housing prices collapsed in 2006/2007 but it wasn't enough so oil prices were jacked up to $145/barrel in 2007/2008 to purposely finish the economy and pop the credit bubble. The result was bankers feeding on bankers (Bear Stearns, Lehman, BoA, AIG, etc). A 2-fer for the strong bankers because they picked up assets on the cheap, PLUS got tax payer funded bailouts. We are being set up exactly the same way again. Except now the only asset bubble is stocks, so it will have to be popped, and an interest rate hike is the pin. I think the only reason why they might NOT raise rates is because they haven't figured out yet how the select few will benefit from the implosion. I suspect they are thinking way past bankers now. Now its about which Soverign will survive, and which will not. The ECB QE announcement was a giant tell that they are getting close to deciding the winners and losers. Of course, their plan won't work as planned. Never does. But you can bet a select few will benefit as the world has never seen before, and the collateral damage will be epic. That's probably the only thing holding them back. The fear that if they do this wrong, the blowback from the masses might be a real hazard to them. Hence they have to have the police state totally entrenched before launching.
hold on there! u said-Except now the only asset bubble is stocks, so it will have to be popped,
epic 35 year bubble is the bond, the whole point...
Well energy just popped and housing is looking pretty frothy as well. If anything it seems they'll pop all the other bubbles to try and save the stock market.
It's actually the perfect trap.
IF Rates are determined by debt-to-income levels (which I'm willing to accept)...
But these days, annual income levels are lower than overall debt.
So raising rates would mean that debt already owed would require ever higher annual income levels just to make payments.
Hence, rates must stay low...
But if rates stay low, more debt will be created, low opportunity cost, easy method of financializing into profit...
So the debt-to-income levels will continue to skew away from a controllable ratio...
So the rates must continue lower long term...
So... literally a financial singularity, and we're past the event horizon seemingly.
There's room for the debt masters to extract more from their slaves. 1) About $1300, which is 2.5% of the annual $51900 earnings. That's the difference between the savings rate at 5% and debt service level around 2.5%. and, 2) oil prices have dropped. I heard on the radio that would save the average household about $700/yr. Those 2 combined equals $2000.
"The bottom line here is that interest rates will continue to decline until the ratio of debt to income declines sufficiently so as to allow interest rates to move higher while maintaining a debt service to income ratio below our savings rate and in line with historic levels of between 2% and 5%."
So, since debt servicing was near 2.5% of income, on this chart, they have room to raise. Now, all this article lacks is the breakdown of consumer debt that can currently be exploited the most.
As far as being beyond the event horizon. True, NIRP is sucking the life out of the host (private economy), but they can keep this up until every last private sector is totally dead or taken over by the state. That will be recognized by lower and lower overall living standards.
The fun part is that we will get to watch Japan enter the singularity before us (they crossed the event horizon long ago).
Long before the gravity of the singularity crushes the west, we will have front-row seats to Japan's demise.
That's why anyone who claims the fed will be raising rates is either a fool or a liar.
We are all Japan now.
Cash, Bonds, Gold...
I've been chuckling for years everytime some mentions the Fed raising rates or, even funnier, the phrase "Bond vigilantees". The fact is that rates will continue lower and go safely negative. So the Government will effectively MAKE $$ by issuing debt. This is a back door tax on Savers & Producers, but that is because they are no longer in the majority. The new Majority is that over 50% of their American people are dependent on the Entitlement State to survive. That isn't going to reverse ever, especially considering the accelerating pace of automation. The only way the Government can afford it is to have negative interest rates.
At this point, American Exceptionalism is the act of NOT taking a Government handout.
The Fed will raise rates because [they can't stop themselves].
That statement alone has no significance to me.
The question is if they would raise in a meaningful way, so more than 0.5% overall (not necessarily in one step) and without some new rule bending such as govt bonds are exempted from the rate rise.
I'm sure the answer is NO (short of an impeding currency collapse, then they might raise rates as a last fruitless effort to save the dollar.)
it's like the girlfriend who keeps promising you'll get a little when the time is right.
It's now or nevuhhhhh!
Elvis the Pelvis.
FREE BEER TOMORROW!
Hardest part about this market (ES and NQ for me) is like being with my smoke'n hot friend of the babe persuasion. Premature exits are severely frowned upon.
DOW 30,000 just around the corner!
Fundamentals don't matter, bulls figured this out, but now pretend they matter again when reasoning that the FED won't raise rates.
They will, not because the economy can handle them, but because it can't. The FED is not your servant and does not exist to hold up the economy, it exists to profit bankers.
From a credit based economy...
To a Slave Based Debt enonomy under Barry the Tyrant...
I hope you keep that thing sharp and well oiled;)
Yes - there are 18 trillion reasons why interest rates will not rise.
No question - we will see more QE from Fed before we see interest rates increase. . .
exactly. i've said this before. the FED can't raise rates or it will bankrupt is biggest debtor, and thus, will bankrupt itself. The blood suckers at the FED have enslaved the US to such a level that it now threatens itself.
FU FED.
FU .GOV. you fucking fiduciary retards.
"The FED must do this."
"The FED can't do that."
"Look, see this chart, this is why the FED can't raise rates."
Yes, I see it, it looks much like the other meaningless charts the past 6 years. The FED is not trying to save the economy, it's destroying the economy, or haven't you noticed?
What if the FED was short the market?
BING FUCKIN OH!
But not the Feral Reserve itself. It's the Big Bank OWNERS of the Fed who are going short.
So same thing
With 4 trillion in bonds, the FED is short interest rates. Marked to market, those bonds are worth a lot more as interest rates fall.
Hilsenrath - limp wristed fairy bitch
Christine LaGarde was mouthing off about the Fed increasing rates earlier today....
Meanwhile, there is buying panic in the "markets"
Actual dollar rates if you are a BORROWER in fact are rising quite dramatically.
Equities will rise in companies throwing off huge amounts of free cash flow because those dollars are suddenly worth a lot more and are a lot more "dear" (expensive.)
This is not a market for the defensively minded. Growth companies have run CIRCLES around the value "caps"...the one exception being a couple of VERY select utilities. (WEC, ETR and Dominion Resources.)
Apple is the case study..but there have been many more. Netflix, Amazon, Google, Tesla, the entire solar energy space.
These are all growth drivers so yes...equities can move much higher from here.
Yeah, and the lomg bond doubled equities returns last year. 27%.
As to the last sentence: A declining debt to income ratio will never happen. Until collapse anyway.
As to the last sentence: A declining debt to income ratio will never happen. Until collapse anyway.
"."
Which is why this statement is so laughable
"But it requires some finesse to ensure that debt remains manageable and that finesse is being done through interest rates."...
What "finesse" might they be showing at this late stage?...
"Hilsenrath claims a little birdie (Fed insider) told him that rates will be raised later this year. I expect the Fed is just jerking him around"
Jerks get jerked.
Definition of Jerk
: a stupid person or a person who is not well-liked or who treats other people badly
: a quick pull or twist
The FED jerks jerked the Hilsenrath jerk thus the two jerks were jerking each other
Well, woodchucks can't chuck wood, but they are killed when dropped by Comrade DiBlasio.
: a quick pull or twist...
Yeah... Have a feeling Hilsenrath's been doing alot of that these days!
What if the Fed raises short term rates and long rates actually go down in response? It could happen, and probably would.
What if the Fed raises short term rates and long rates actually go down in response? It could happen, and probably would.
But for how long?...
Like they always do they will make an announcement first then hold their finger up in air to determine "wind" direction then remove it from the table depending on the directions of said "arrows" red or green...
At this point?...
Doesn't really matter because they don't have enough left in the tank with what the SNB did last week the ECB this week and oil last month!
God forbid if the FED were put in the same conundrum as the SNB :
To choose between the real economy and the financial, casino "economy".
That's what the SNB retreat was about. It hurt the real economy to protect the franc against being inundated by bigger cousin Euro to which it was linked. "Can't afford an inflow of 100 B euros/month, no way! We will be drowning in devalued euros!"
If King $ is now harassed in similar fashion --as whispers and grumbles the US secretary of commerce-- : "We are being clobbered (think Boieng vs Airbus) by a STRONG $ in our export business"...
Then Potus will have to revise his book, caught between a rock and a hard place : If the $ continues to climb as FED tightens bond rates to accompany the so called virtuous spiral of US growth, -- "I am saying we are now in a growth cycle---it will condemn the trade balance even more. And that cuts the ground under our feet!"
That is exactly where the SNB found itself last week....
Basically this means that Pax Americana is finding itself more and more stretched in this crisis to play Unilateral hegemon and ASSUME the consequences of its acts.
USA is no longer a young giant that towers like a colossus, more an old, aging baby boomer who needs to watch his gall bladder or liver.
The Fed may take advantage of the current bid for bonds to reduce its balance sheet. That would twist up quite a few folks, wouldn't it? Out-trading the entire world, really.
wow that certainly was a lot of words
Just to say "more of the same old paper shuffle". It will all end when China has extracted all the gold she could get from the west, dumps her remaining $ denominated assets and backs the yuan with gold. game over, new game.
Borrowing to buy cars we shouldn't have, borrowing to get an education that is malaligned with the economy, borrowing to keep the dividends and EPS numbers where they need to be, borrowing to pretend that the Fed is propping up Main St...at some point, the numbers will be unfudgeable and the day after that David Tepper will be on CNBC telling us he is short everything and the economy is in freefall.
banking establishments are more dangerous than standing armies... and the spending of money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale... bank paper must be suppressed, and the circulating medium must be restored to the nation to whom it belongs.
Thomas Jefferson
Fuck you Central Banks!
GOLD Bitches!
“I’m not sure if Hilsenrath is part of the game or just a gullible fool…”
It doesn’t really matter: “part of the game” or “just a gullible fool”.
A very large fraction of Americans are that way; and the main thing you need to know about them is that they will die, or kill, rather than correct their self-destructive habits.
And the problem, from our perspective, is, ‘How do we protect ourselves from their murderous political system?’
First, a person in this “large fraction” is doing battle with a conscience riddled with guilt (for crimes committed or a life wasted). He will seek to control/destroy any action or word that might give power to his conscience; he will even destroy his own child for such end. And, when he is given political power, he will seek to control/destroy every such action or word within his power.
You can find these people by the millions: as family members, neighbors and, of course, thru-out every level of government, not to mention non-stop indoctrination machines (education systems, churches and media).
When you have millions of such people who use this power within their families, you have the political foundation for a nation-wide tyranny.
One of the co-relatives of this condition is that they will be led only by those who feed them a steady diet of pleasing lies. Let me make this clear: they will only be led by cutthroats and thieves: people who know they can obtain what they want only by falsehoods.
We live, in other words, in a system dominated by criminal and useless classes; and they know that their safety lies in crimes ever more numerous and heinous. As far as they are concerned, if destruction of the American economy – and, thus, the world economy – is necessary, so be it.
What is the solution?
We need to give them EXACTLY what they want: rule by thieves – and make sure they pay for it.
And that will be the problem, ‘How do we protect ourselves from their rule by thieves?’
Protection from their tyranny WILL NOT COME simply by wishing to be left alone. For, to win their struggle against their conscience, they, by the millions, secretly long for the day when they will have the power necessary to “permanently” rid the earth of those who ask too many questions or describe too many crimes. For those who doubt this aim, let them explain the all-too-many death squads established across the planet. Such death squads were trained at Academy of the Americas in the American state of Georgia. In America they go by several names, FBI, CIA, local police, the DHS – especially the DHS (Department of Homeland Security); for, the DHS was specifically modeled after French committees of terror (1792-4), the Judeo-Bolshevik Cheka (aka NKVD, KGB et cetera) and the Nazi Schutzstaffel.
The primary purpose of these organs of terror was to protect rule by thieves by eliminating all dissent. If the DHS is modeled after those historical instruments of terror, what possibly could be its purpose?
Isn’t that a silly question?
After all, what does the DHS plan to do with 2-3 billion rounds of ammo… an amount sufficient to wage an Iraqi War, at its highest rate, for 25 years? Remember, so-called terrorists do not travel as armies; but, rather cells of 5-10… and the DHS needs 2-3 billion rounds of ammo for these tiny cells… you know, the ones established by the CIA or FBI? Try again.
The real purpose of the DHS is to secure rule by criminal and useless classes by literally exterminating large numbers of productive and thrifty classes. Those in the productive class provide market-related goods and services; those in the thrifty class include all those who have accumulated an earned savings (opposed to a plundered savings). Such savings can be in the form of physical gold, or ownership of a business, stocks or bonds, among others.
Do you think you will survive this extermination merely by sitting back and waiting for the crash? You’d better reconsider your posture.
This is the warning that comes from reading the act of Congress that established the DHS. This Act created a system by which informers could make false allegations against anyone they please with near-total impunity. Of course, such informers aren’t described as informers; rather they are given the title “submitting person” and their falsehoods will never be examined by any court or legislature or law enforcement agency. The legislation even specifies how this immunity is obtained. The “submitting person” only has to give an “express statement” that his lies were “voluntarily given” and that he expected “protection from disclosure”. It’s all there, in the act that created the DHS.
I’m sorry guys, but silly season is over.
If you want to survive, you have to combine with others of like mind for the purpose of mutual protection, among other purposes. The big question now is, ‘HOW is this to be done?’ And the quick answer is, ‘You must establish First-Amendment assemblies – the only historically-proven method by which men have made their lives and property secure from rule by thieves.’
The American Revolution, you see, was powered by a large network of such assemblies: from town meetings, county meetings, state conventions and, ultimately, Continental Congresses.
I’m sorry, again: but I seem to be the only source for this information – despite all my efforts to distribute such knowledge.
Real, effective, protection is only possible by knowledge of the law and procedures of redress – and actions based on that knowledge.
Which state convention should I go to so I can join your protection group?
Thanks for your reply.
First, go to the article, ‘Locate or establish an assembly’; then follow instructions there.
Basically you need to tell me where you live and your contact info; I will then forward such information to others in your area. My contact info is at the bottom of this webpage; there are several ways to contact me, by e-mail, or a more private method (US Postal Service, for example); phone is possible but difficult.
The fed will not raise rates until there is an exodus from the dollar.
The fundamental core of income is value. And if spiraling debt continues to be the basis of our economy then value and income will suffer, and legitimate trade cannot prosper when there can be no exchange of value.
IOW, if the currency has no value, there will be nothing traded in exchange for the currency.
The attack on saving in Europe and America is an attack on the value of the currency. Without an increase in interest rates, there will no savings or real capital formation. Therefore, there will be no growth. Wealth and fortune do not come without work and savings that real prosperity requires.
Supply and demand determines the true interest rate. When the central bankers base their interest rate on the mortgage rate, they open a bag of worms, tying the rate to the lowest common denominator for savings while they themselves reap usurious rate on their credit loans, such as 19% on credit cards for money they print free for themselves. Money’s value must be honestly established in the marketplace “without bankers, government politicians, or the Federal Reserve manipulating its value to serve special interests.”
History shows that as the destruction of monetary value becomes rampant, the people suffer, and the economic and political structure becomes unstable. And the victims are never the recipients of the borrowed funds. And the greater the debt, the greater the need to inflate the currency.
Is the U.S. dollar to be reduced merely to a centrally controlled trading stamp, i.e.,non-currency, such as in the former USSR?
“The economy of the Soviet Union was a government-controlled planned economy, where the government controlled prices and the exchange of currency. Thus, its role was unlike that of a currency in a market economy, because distribution of goods was controlled by other mechanisms than currency, such as centrally planned quotas, queuing or blat. Only a limited set of products could be freely bought, thus the ruble had a role similar to trading stamps or food stamps. The currency was not internationally exchangeable and its export was illegal. The sudden transformation from a Soviet "non-currency" into a market currency contributed to the economic hardship following the collapse of the Soviet planned economy.” – Wikipedia
What the world needs now is not lower interest rates but restored confidence in the system.
“Economic intervention, financed by inflation, is high-stakes government. It provides the incentive for the big money to invest in gaining government control. The big money comes from those who have it – corporations and banking interests.” – Ron Paul
Prepare for more legalized plunder; prepare for further destruction of the middle class; prepare for the aftermath of a failed dollar. Prepare for chaos and national bankruptcy.
Well done sir, bravo
'Prepare for more legalized plunder; prepare for further destruction of the middle class; prepare for the aftermath of a failed dollar. Prepare for chaos and national bankruptcy.'
This paragraph could have been printed decades ago. It's a slow bleed that significantly quickened in '08.
As long as QE allows those in charge to remain in charge, there will be no changes-ever.
Well the world on the net is you have until September 2015 before the "Reset"....
Important and aggressive article but some questions. If gov't and individuals are borrowing too much, wouldn't that act to raise interest rates? Also, if this model really is correct what can it be used to predict. What will happen next? When will the Federal Reserve buy treasury bonds and there be some bad effect?
Tylers,
From a banker's standpoint, there is no time value to credit. Here is your quote:
Both effectively destroy the time value of money by way of politics and, these days more than ever, politics is simply another word for skullduggery
Our money supply is credit, and it comes into being with keyboard entries. When it returns to the ledger, said ledger decrments. This is CREDIT, not money. OK.
Floating money has no counterpart in a debt instrument. Floating money, if it is saved by a creditor, and then loaned out might have some time value. But, we are talking about two things here. Credit and Money.
If floating money is volume and path controlled, then one can make the claim that there is time value. Time value in turn is a function of foregone profits that a creditor might have made had they not made a loan.
Even with floating money, time value may be a hoax, because Saver/Creditor doesn't want it very much, otherwise he wouldn't be making the loan. If floating money has demurrage, then time value theory falls apart.
Creditors today are finance, and they don't loan out "their credit." A person who allows themselve to be hypothecated is really lending their credit, their signature authority. In other words, the debtor creates their own credit, and banker is simply an agent given some legal authority.
So, the time value theory is a falsehood, and that makes all the rest of your points lose impact. I might add that time value theory was invented at the School of Salamanca, populated by Crypto Jews. It was desireable to push this concept into the mind of man.
The charts prove that if you divide and multiply by enough different numbers they can represent what you want.
Yeah, and the lomg bond doubled equities returns last year. 27%
And the housing bubble was credit created against and asset class (housing). That credit then pointed at that asset, and drove it up in a false supply demand situation.
Credit as money chased after a fixed supply, making it appear to go up in value.
There is only prices, and prices are discovered in markets. And markets cannot work unless money works.
Credit cannot work, becuase it cannot channel into production and it takes outsize gains.
Also, money is sterile, it cannot grow. It is simply numbers. If you rub two coins together - maybe they can make some babies.
If somebody invents some new way of making real wealth, they can be rewarded in the market as they are deiivering a good or service that is desirable. The market flows existing money toward the creator of wealth.
However, when the market creates NEW money and flows it toward an asset class, that is entirely a different story.
The American Dream of an "accredited" degree, new car and new home translates simply as "debt, debt and more debt". Further, the securitization of the credit/debt cycles is what cost many their retirements last bail-out. We are speeding fast into this direction again, and bets are on that the next bail-out check was post-dated and ready for signing as soon as the last one cleared.
"CDOs subsequently exploded in popularity, with CDO sales rising almost 10-fold from $30 billion in 2003 to $225 billion in 2006. But their subsequent implosion, triggered by the U.S. housing correction, saw CDOs become one of the worst-performing instruments in the broad market meltdown of 2007-09. The bursting of the CDO bubble inflicted losses running into hundreds of billions on some of the biggest financial institutions, resulting in them either going bankrupt or being bailed out through government intervention, and contributing to escalation of the global financial crisis during this period."
http://www.investopedia.com/terms/c/cdo.asp
This is why the dollar rising is such a problem for the rest of the world, The dollar is up 18% in 9 month, which is an annual rate of 24%. Dollar debt servicing cost for the rest of the world are sykrocketing(ie effective interest rate is increasing) at the same time dollar income is decreasing.
As statisticians know, correlation does not imply cause. Additionally the claim that personal debt cannot exceed personal savings rate is suspicious. The years of excess savings would allow for personal debt to exceed personal savings.