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Bill Gross Slams Broken Capitalism: "Policymakers Must Promote A Future Which Offers Hope As Opposed To Despair"
From Bill Gross latest monthly investment outlook letter, which is essentially the latest recap of our article from 2012 "How The Fed's Visible Hand Is Forcing Corporate Cash Mismanagement."
Games People Play
My mother taught me how to play Monopoly – the game – and the markets over 40 years past have taught me how to play Monopoly – the financial economy. Financial markets and our finance-based economy are actually quite similar to the game in terms of the rules and strategies it takes to win. Monopoly’s real-time bank (the Fed) distributes money to players at the beginning and then continues to create more and more credit as the economy passes go. The cash in Monopoly isn’t credit and the player can’t borrow, so in this respect the game and the reality are quite different, but the addition of cash liquifies the player in a similar way that the Fed creates money out of thin air to liquify today’s finance-based system and create growth in the real economy.
Good players know that it is critical to move quickly around the board, make acquisitions and then develop the properties by creating hotels. Three hotels on each property are desirable and of course as every Monopoly pro knows, it’s not Boardwalk or Park Place that are the key holdings but the Oranges and the Reds. Same thing in reality’s markets, I would suggest. Which companies and which investments to overweight and how much leverage to use usually point to the eventual winners. But an ample amount of cash is important as well as you land on other owners’ properties. You need liquidity to pay rent or service debt – otherwise you sell assets at a discounted price and are swiftly out of the game. That reminds me of Lehman Brothers and its aftermath. Early in Monopoly, property is king but later in the game, cash becomes king and those without cash and the ability to get it go bankrupt.
It appears however, that since 2008 the rules of the finance-based economy have been substantially changed. Perhaps Parker Brothers will have to come with a new version of its own which incorporates the modern day methodology of central banks using Quantitative Easing and the outright purchase and occasional guarantee of private securities and public stocks to keep the game going. It’s as if Monopoly’s bank, which has a limited amount of 1, 5, 10 … dollar bills in each game box had “virtually” added trillions of dollars more in order to keep players solvent, in the hopes that some of it would trickle out to the real economy. With interest rates near zero and banks and other financial intermediaries sitting on trillions of Dollars, Euros, and Yen, why wouldn’t they lend it out to the private economy in hopes that they could obtain a higher return on their money? Sounds commonsensical, doesn’t it? Not in reality.

Well to be fair, in some cases and some countries they have. Bank loans in the U.S., for instance, are currently growing at 8% year over year and our economy appears to be growing at a 3% real and nominal growth rate with inflation at 0%. Still, even with the U.S. growing at an acceptable rate for now, its recovery over the past 5 years has been anemic compared to historic norms, and other developed economies are faring much worse. Many appear to be facing new recessions even with interest rates at 0% or – incredibly – negative rates. German and Swiss 5 year yields cost the lender money. Surreal to say the least. Before 2008, economists and historians would not have believed such a condition could exist, but here it is with individual sovereign countries and their respective central banks pushing each other out of the way in a race to the bottom of interest rates – wherever that is – and a race to the bottom in terms of currency valuations. Central bankers claim that they are doing no such thing, but that bravado should be dismissed out of hand. You can’t accuse them of lying but you can accuse them of distorting reality.
If all of them collectively could be labeled “Parker Brothers,” like the creator of the board game, players would be justified in saying that competitive devaluations and the purchase of bonds at near zero interest rates is indeed a significant distortion of the markets and – more importantly – capitalism’s rules which have been the foundation of growth for centuries, long before Parker Brothers central bankers came into existence in the early part of the 20th century. Even as the financial system morphed from the gold standard, to the Bretton Woods Dollar standard in 1944, and then the abandonment of any standard in 1971, capitalism seemed to be on firm ground. Incentives to lend, borrow, and invest for a profit were never challenged on a secular basis prior to 2008, except in Japan. There may have been recessions where such an appeal was eliminated at the margin, but no – capitalism was king. It was, as Francis Fukuyama proclaimed, “The End of History” – game, set, match – as Communism and other similar economic systems headed for the trash bin.
But the distortions created by post 2008 Parker Brothers have called Fukuyama’s forecast into question. There can be no doubt that negative or even zero percent interest rates cannot be a permanent rule on Monopoly’s new board. Investors and game players do not logically give money away; a mattress ultimately becomes a more attractive haven. And most importantly – because the markets and the financial sector are ultimately the servants of the real economy – growth is challenged and stunted.
In a new world, returns on real investment – ROI’s and ROE’s – become so low that the risk of a new project or the purchase of green hotels offer too little return for too much risk. Like the endgame in Monopoly where cash becomes king at the game’s conclusion, cash accumulates in corporate coffers or is used to repurchase stock in the financial economy. Investment in plant and equipment is deferred. Structural headwinds such as aging demographics and abnormally high debt/GDP ratios do not offer the player a “get out of jail free” card, in fact they help keep the cell door closed. Hope is challenged.
In the final analysis, while there is no better system than capitalism, it is incumbent upon it and its policymakers to promote a future condition which offers hope as opposed to despair. Capitalism depends on hope – rational hope that an investor gets his or her money back with an attractive return. Without it, capitalism morphs and breaks down at the margin. The global economy in January of 2015 is at just that point with its zero percent interest rates.

Officials at the Federal Reserve – the most powerful and strongest of Parker Brothers – seem to now appreciate the hole that they have dug by allowing interest rates to go too low for too long. Despite reasonable growth, some of them recognize the system’s distortion if only because inflation is going down, not up, in the process. Other Parker Brothers countries face deflation in the midst of negative interest rates. But the Fed, uniquely in my opinion, will move up the Monopoly board’s interest rates in late 2015, hoping to avoid landing on the figurative Park Place and Boardwalk in the process. It won’t however, move quickly – capitalism has been damaged by the change in rules since 2008. Caution, therefore will prevail in the U.S. and elsewhere for a long time. Bonds despite their ridiculous yields will not easily be threatened with a new bear market. Investors should expect as well, that because of the slow unwinding of zero percent rates in the U.S., that U.S. and global stocks will be supported. Their heyday is over however. In effect, equity holders now own the Greens, the Blues and the railroads on Monopoly’s board while the Reds and the Oranges belong to another era. Returns in the real economy are too low partially because of the misguided efforts of Parker Brothers bankers. There is no doubt that structural secular stagnation factors such as demographics, high debt, and technology have contributed significantly as well. Fiscal policy has been anemic since 2010.
In the final analysis, an investor – a player – must be cognizant of future low and in some cases negative total returns in 2015 and beyond. Capitalism’s distortion, with its near term deflation, poses a small but not insignificant risk to what my mother warned was the final destination for all games – entertainment or real. “In the end,” she said, “all of the tokens, all of the hotels, all of the properties – they all go back in the box.” The strong odds are that 2015’s distorted capitalism continues with anemic growth, but the box rests on the family room coffee table, waiting, waiting, for its turn.
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People hate policy. Policy makers are useless and people hate them as well as what they produce. Policy makers wrote the bible and the koran and the torah.
His definition of Capitalism is not the same as my definition of Capitalism.
Look at this bullshit line: " Capitalism depends on hope..."
Hey Mr Gross you can't have Capitalism and Central Planning at the same time you moron!
I don't think I can disagree with Gross on that one. if you got no hope, you're not gonna go out and start a new business, "What's the use anyway." Instead, you are going to sit on your dead ass and die of inertia. Which is exactly what we have going on today.
I'm no fan of Bill Gross, but he gets that one right.
On the 'bankers' MONOPOLY board the Jail & 'Go to Jail' squares are substituted with additional GO & FREE PARKING squares.
That is because progressives are in charge.
Not a constitutional conservative anywhere in sight.....
Grimaldus
I used to park on those streets, and roll those dice.
A completely manipulated system = no hope?
WHO KNEW?
Central planning of the money supply with a debt-based paper money system where the banks benefit first from the central bank bubbles and are then bailed-out by the central banks is not capitalism.
We are all witnessing the global failure of central planning, owned regulators, and market rigging.
Crony Corruption where there ruling club is not too large.
debt slaves with devaluing savings are free to hope all they want.
The Bank never "goes broke". If the Bank runs out of money it may issue as much more as may be needed by merely writing on any ordinary paper. - Official Monoploy Rules (Parker Brothers)
A picture tells a thousand stories....
https://theconservativetreehouse.files.wordpress.com/2014/12/grubering-us-bush-murdoch-jarrett.jpg?w=640
Quite a collection Murdoch has there. Think he's got the whole set?
"the misguided efforts of Parker Brothers bankers"
Send all the bankers directly to jail. Do not pass go and collect $200.
Apologies to Parker Brothers for dragging their name into it.
Why? I think they are part of the "condition everyone to buy as much property as possible" crap.
Every heard of the Frankfurt School?
Romney
Have to disagree with you. Today it's collect $200 million for raping the middle class (private) and pay $20 million fine if you get caught.
But Gross is right. Why bother starting/keeping a small business when government and their banking cronies hate competition- that's you my friend.
Dear Leader Obama's middle name is Despair. OK... one of his two middle names along with Hussein.
Hope is important, but it is also destructive when misplaced, which is what we are witnessing. This false hope is what has driven the economy of gambling that puts "growth" ahead of productivity. More people than ever are directly dependent upon the financial industry of gambling. You go to the casino WITH your paycheck, not to GET your paycheck. Gambling produces nothing, it simply redistributes prior production. Those running the casinos survive and thrive on this false hope that they propagate in every way possible. Ultimately, the house always wins, but when only they hold the assets the whole thing will collapse because they have all forgotten that it was production that created the wealth.
You may be a loser, but to win you must first know how to play the game, secondly you have to know how to bet, and thirdly you have to know when to walk away, I know, I made a living off of them and had fun too.
and as the song goes, "know when to run"
"This isn't capitalism, it's crony capitalism, where CEOs can with a pen sign themselves huge bonuses, and with the same pen cut 20,000 jobs." - Robert Kiyosaki
Banks are effectively facilitating the robbing of millions of people of their retirements, allowing the wealthy to pull their money off of the table (Out of the markets, while they prop the markets up with QE), to reallocate capital to purchase more assets (More profitable ones, like Utility companies etc.), and contracting of the economy through illiquidity (Trickle down economics) to increaes the number of businesses going bankrupt (so they can purchase them @ bankruptcy prices with the cheap money), all the while increasing toxic loans (Car Loans at this point) leading everyone to yet another major financial collapse in the very near future. (September?)
No, I'd be more inclinded to say, "This isn't capitalism or crony capitalism, it's far worse, it's a Criminal Corporatocracy!"
http://galeinnes.blogspot.com/2015/01/criminal-corporatocracy.html
You'd think by now that people would see the truth....
instead of hope how about the fed gets OUT of the market as a player; how about some old fashion honesty and letting markets work on their own
Gross is an elite crony...what do you expect?
So are Pelosi and Boehner.
"Capitalism depends on hope". Casino Capitalism depends on the expectation of hope so that the swindlers in the Casino can rig the game and collect the gains of wealth transfer from the SUCKERS that are too stoopid to analyse the odds and expectations of loss in the rigged game.
Wall Street is no different than Atlantic City or Los Vegas and will be bankrupted in the exact same manner.
What's these "future" and "hope" thingies?
i "hope" the central printers get the fuck out of the way, and let the depression run its course (6 years later than it should have). tough times for a few years and then a resurgence on the other side. if they didnt fuck it up so bad, we'd be 3-4 years into a great recovery right now from the depths 2009 was leading to.
Do you really think they "Messed up"? I mean come on, you are clearly underestimating the enemy here, no, this was a planned thing, can't you see that?
Hope is for sheep. What is really needed is acceptance that the system is hopelessly rigged against all but a few thousand unimaginably wealthy people, things are not going to get better, and our choices, short of revolution, are slavery or death. Eventually even emigration won't be an option. Young Greeks can flee, but where will the young go when the whole world looks like Greece or 1980s Romania?
Why should our masters give us hope anyway? They're only keeping us around till they succeed in building robots and computers who can accomplish any task better than a human being---the Singularity. The first task assigned to the robots will be to build extermination chambers for those proles who still haven't gotten the message to stop reproducing. If we choose slavery, we'll get death.
We'll get death no matter what we do. The question is when and how can we delay it while retaining our dignity and self respect?
Now that's being more realistic, screw those optimist & pessimist, get real!
" The same minds that created the problem are incapable of providng its solution"
hey willie, go fuck yer mother
Where box car meets betsy.
I finally played Monopoly with my 8 year old. Previously he would get bored or frustrated and stomp out after a little while. But this time he really went with it. TWO full games in a row. Straight, full Monopoly rules (excpet we throw $100 into Free Parking). First game I won (barely). Second game (the required rematch) he stomped me into the dirt.
He was so proud of himself he told his teacher the next day. His teacher told him "That's not how you play Monopoly. You don't take people's money just because they land on your property." He did his 8-year-old best to set her straight but eventually just walked away from the conversation, confused. I fucking hate it when teachers do that kind of shit. I don't want to assume the teacher's motivations or political leanings from that conversation, but it's hard not to imagine.
Oh, and do you think the Fed will ever be any more honest than that teacher was about the REAL game they're running right now?
at least you didn't play monopoly with Dimon, Blankfein and Bill Dudley...the whole board would be covered with their red hotels and your only chance would be if there was a "keep me in jail" card...
In the teacher's version do you get a subsidy if you land on the crappy properties? WTF?
The teacher's version includes multiple "$50,000 student loan approved" squares.
But the game has no system in place to collect student loan payments.
I would pay his teacher a visit - bring the rules with you - be nice but ask for an explanation.
This person most likely spends more time with your child than you do. He obviously respects his teachers opinion or he would not have wanted to share his victory.
Note to myself - idea for a new game -
Sort of like monopoly buy if you don't put any effort into the game you get your EBT card recharged every time you roll the dice.
When a player accumulates excess cash 43.9% of it must be taken away and given to the players that have less cash through no fault of their own.
that's a good one and would be _highly_ educational re: real world shennanigans
You could re-draft the rules for the game "Life."
That could be hilarious.
@ NoDebt,
The real game there're running now is Fascism.
that teacher would find me having words with them in short order... for one, I "landed" on my property and pay out property taxes every year, half of which go to the fucking school district to pay for their sorry ass so they can say stupid shit like that to my kids... the conversation would rapidly get heated from there
fucking idiots... so pious and high and mighty with the minds of _our_ children while living off of _my_ dime...
You'd be wasting your time as well as getting your name on some list. Worse yet, you'd strengthen her resolve to further push her idiocy upon the children. Fighting social justice warriors is a lose-lose propositon.
The only real solution is home-schooling, that is, if you live someplace where the master allows it.
this is true
So, Gross would like to buy those bonds he's telling you to sell before rates go up at the end of the year.
We don't have capitalism we have crony capitalism .....big difference you know
I believe it's known as Fascism.
side note-
Overall, ConocoPhillips reported a loss of $39 million, or three cents a share, compared with a profit of $2.5 billion, or $2 a share, a year earlier.
boohooo ..whats that a penny or 3 on the elevator floor..
A billion here, a billion there, pretty soon it adds up to real money.
Your missing the big picture, without Mark to Unicorn accounting that would likely have been a coupel B loss....
Without Mark to Unicorn account I bet that would have been a loss of a B or so....
Ha ha too late.
That ship was catastrophically holed a long time ago. The band playing on the deck isn't going to stop the ship going down with all the passengers.
Humpty Dumpty sat on a wall.
Numpty Dumpty had a great fall.
All the Kings Horse and all the Kings men
Couldn't put Humpty Dumpty together again.
We have spent so long creating twisted narratives out of butchered history that we have lost our way in the forest and the wolves are loose.
Ahhh, a poem longing for those days. The days after the fall of the Holy Roman Empire and preceding the dark ages. If we could only have the Holy Roman Empire ruled by Charlemagne again. Oh, wait!
autofixer, nice avatar!
Maverick
weekly claims are out...you have to fckn laugh at these corrupt clowns..
If the Fed did what Gross suggests.....he and others like him would have been free falling off of roofs en mass.
Deflation destroys the wealthy, unless they can short or front run.
Inflation destroys the plebes.
Who was it that said we don't have markets...only manipulations?
But if he wanted to keeps it real....he shudda played this with mommy & daddy:
http://en.wikipedia.org/wiki/Ghettopoly
Maybe Bill Gross got chased out of PIMCO because he started telling the truth....
Bill sounds like a naive highly paid dick, or just a front for the man. Amazing that anyone would pay to hear what this man has to say.
AKA: You Can't Squeeze Blood Out Of A Turnip.
If the average Joe would learn about their governments currency, they would be really pissed-off. The time is near to Bludgeon some Banksters.
I own Gold/Silver. No despair in my family. Rock On and Stack On...
I've read the Creature from Jekyll Island and told my wife she should read it and she won't. She doesn't want to willfully think about it and fly into a rage. What a crazy, sick world we live in.
That shit doesn't mix well with soma. Causes indigestion and other emotional aliments.
Capitalism ....my ass. I don't even know what that means anymore. I'll stick with free markets, even though while I know what they are I have never seen one of any scale.
Those who seek to prosper from the casinos obviously see them as the core of capitalism and some rules of a market exist, but this IS NOT what we know capitalism is supposed to be.
PRODUCTION is WEALTH
Sitting behind a desk buying low, lying to a muppet to buy higher, is not production.
I've got an idea, how about banks loaning money to their local area say 20 mile radius instead of sweeping everynight into the stockmarket casino. If you're not helping the community what are you there for other than an outlet to sweep up currency for the big casino. All the money flow up into the casino instead of down into the community nothing will ever get better. There will never be hope with this going on because your deposit is a unsedured loan to them.
Are sweeps even worth the risk anymore? I can't imagine they pay more than what could be considered a rounding error.
but.. but...but...I don't understand. We're in the era of HOPE and CHANGE. What? Oh. It was hope for leftist/statist unproductive immoral losers? I see...
while there is no better system than capitalism,
Oh really?
Capitalism is "two years"
1) Take $1M and start a bank
2) Loan out $10M at a 4% interest spread yielding 40% on your "invested capital"
3) Your money doubles in a little less than two years
4) Reclaim your $1M investment and let the other $1M ride forever for your benefit ... doubling every two years.
How much capital do you, as the capitalist, have in the system after two years? A big fat zero?
And you're trying to tell me there's no better system than capitalism. It's at least as big a con as socialism. We do have more than these two alternatives available to us (regardless of what the capitalists and socialists work so hard to make us believe).
What if banking fuckery is removed from the equation?
The courthouse brainbox explodes?
A properly managed Medium of Exchange (MOE) is one that "first" knows money is "a promise to complete a trade" ... one that knows traders create money by getting their trading promises certified ... those certificates then exchanging as the most desired object of simple barter becaise they "never" lose or gain value ... one that assures that "all" certificates created are returned on promised delivery and extinguished ... one that monitors for DEFAULTs and collects an equal amount of INTEREST to mop them up, thus guaranteeing the marketplace zero INFLATION all the time everywhere by the relation: INFLATION = DEFAULT - INTEREST ... one that knows "commodity backing" is not required to recognize a trading promise ... one that knows "capital" is not required for someone to make a trading promise ... one that knows banks are not required to recognize and monitor trading promises ... thus, one that knows "banking fuckery is removed from the equation."
A properly managed
Yes we need a non-corruptible highest instance in charge and all will be great! (top-down solution)
But the central question is where we gonna find (and keep) such?
one that monitors for DEFAULTs and collects an equal amount of INTEREST to mop them up
Hooray, socializing the losses is the new solution!
Wait, what?
Hooray, socializing the losses is the new solution!
We have a marketplace. Trade takes place there. Trading is a social practice by its very nature. Some of the traders are socially responsible. Some are socially irresponsible. Some have bad luck. Some have good luck.
When you have a problem in a social environment, and that environment is unavoidable, the first task is to stratify the environment. You put the responsible traders with other responsible traders. You put the irresponsible traders in groups according to their unreliability. You then let these stratified groups become the new social environments in which they trade.
Thus, reliable traders who don't DEFAULT enjoy zero INTEREST collections. Must of us buying houses and cars with mortgages fall into that category. Traders who take risks and, while reliable, DEFAULT occasion (for whatever reason) pay some INTEREST that as a group reclaims the DEFAULTs of the group. Oil well drillers fall into that category. Traders who are total deadbeats basically are shunned from this social marketplace because their share of INTEREST totaling to their group's total DEFAULTs exceeds the value of their trading promises. Socialists and governments fall into that category.
It's really no different than managing risk with insurance. And when done improperly (as our medical insurance risk has come to be handled ... you can't take someone with a known malady and insure them with the same premium as someone who has no malady), it can only fail. When done properly, all have an "opportunity" for peaceful enjoyment, if not prosperity.
> one that monitors for DEFAULTs and collects an equal amount of INTEREST to mop them up
When you have a problem in a social environment, and that environment is unavoidable, the first task is to stratify the environment. You put the responsible traders with other responsible traders. You put the irresponsible traders in groups according to their unreliability. You then let these stratified groups become the new social environments in which they trade.
Oh, so the higher interest rates (raised because of defaults) will be collected from the defaulting entities!
Why did no one else come up with this ingenious solution, a la Baron Munchhausen "saves himself from drowning by pulling on his own hair"
Are you making this up as you're writing it here?
Fractional reserve banking is not capitalism. I'm not convinced that Capitalism has been tried, certainly not in the past century.
Here is simple capitalism, buy a pack of tomato seeds @ 100/$1. 100 plants produce 10 pounds each = 1000 pounds, @ $1/pound = $1000 or $999 gross profit (ignoring some expenses)
Here's the same example under socialism. You pay sales tax on the inputs, you have to buy water from the local water monopoly, you pay FICA, income, unemployment, property taxes. The gov't says you need price protection so they pay you subsidies. They tell tomato eaters that they cannot afford to feed themselves so they hand out food stamps.
which of my examples sounds like our system.
Did you purposely define capitalism incorrectly?
Capitalism is nothing more than taking your unconsumed wealth and investing it in further productive activity in the hope of a positive return.
Did you purposely define capitalism incorrectly?
I purposely characterized capitalism as what it obviously is ... two years ... and thus minimized it relevance in trade.
In the beginning there was "no unconsumed wealth". Yet trade ensued immediately and grew. When did capital come into play and why was it needed?
Test this with a thought experiment. Take a cruise ship that strands its passengers on an island. The island is not inhabited and is not a desert ... it has productive capacity. The passengers wading ashore have only the clothes on their backs ... or for better illustration, they are naked.
Now what? Do they conduct a poll to find out who has capital? Does one of them come forward and declare himself a capitalist and demand they come to him to get trading promises backed?
I think not.
Capital exists only for leverage. Leverage exists only to fuck the guy next to you. Capitalism is war. Nothing more.
Oh sure, the solution is to wheel out 'Hope' again? For fucks sakes.
I'll take green for $100 Alex.
It's not broken capitalism, or a rise in socialism, or communism... it's CORRUPTION. The size of the middle class is inversely proportional to political corruption.
Policymakers ..............lol
First, Capitalism is an economic system, not a socio-political one.
Second, it needs very few rules to function properly.
The most dangerous trait of Capitalism, and the seeds of its own destruction, is that it keeps increasing efficiency. It is a process locked in its DNA, mergers and acquisitions to get a bigger quote of the market and achieve economy of scale, are the means through which it self destroys. The race for efficiency, initially good, comes with unattended consequences when it goes out of control. We softened monopoly and concentration rules to let companies compete on a global arena. Problem is, some companies became so big and powerful beside starting operating in a disfunctional, non competitive way (we have cartels all over several industries, practically destroying the efficiency they were achieving with a very low propension to innovation as a winning business model sees innovation as an unnecessary risk), that they are able to manipulate pretty much any body of government on Earth so that Capitalism becomes an even more disfunctioning socio-political system, not just an economic one, an highly inefficient at that.
If long time ago we used to break oligopolistic/monopolistic positions, with the competition at a global level, there should be a size limit preventing companies to grow above a certain national market share or even a certain capitalization to prevent them from becoming inefficient monsters. Markets should remain full of companies lean, mean, much smaller than what are today, and highly competitive.
But now... who could even enforce something like this?
;-)
PS the Feds did a pretty great job with QE, they had no other choice but to compensate the deflation of bubbles with liquidity. Liquidity grows very slowly when the system expands (like putting air in a bicycle tire with a hand pump), but vanishes extremely fast when the bubble deflates (jut like a bicycle tire with a hole). Unfortunately the body of government that was supposed to re-order and take lead in fixing our economic system... (repairing the tire while the Fed was pumping air to keep it running)... was not able to do that.
The wealth concentration is just a side effect. In a non functioning economy, where speculative transactions are king (a speculative transaction is a transaction that implies goods or services changing hands without actually adding any real value to the service or good exchanged, which would actually create real wealth in the system), there can be only monetary expansion unbalanced by real growth.
If you consider that the monetary system is the way we allocate the real resources of the economic system, an expansion of the monetary system unmatched by a change in wealth of the economic system underlying it... can only precisely reallocate the real wealth in favor of all of those that are master of those speculative transactions? It is pretty obvious...
Wealth concentration creates massive problems to the entire socio-economic-political group...
If you consider that the monetary system is the way we allocate the real resources of the economic system,
It is not "the way we allocate the real resources of the economic system". It is a way we keep track of "in process trading promises" over time and space. It is a way of certifying those promises, the resulting certificates circulating as the most desireable objects of simple barter because they don't change value over time or space. It is a way of monitoring for DEFAULTs and immediately mopping them up with INTEREST collections thus assuring zero INFLATION all the time everywhere by the relation: INFLATION = DEFAULT - INTEREST.
"INFLATION = DEFAULT - INTEREST"
if the money supply was constant...
if the money supply was constant...
What is constant is the ratio of money supply to money demand... that ratio being exactly 1 . Since money is an in-process "promise to complete a trade", and since a trade, by definition says a balance between supply and demand, this becomes obvious. It begs no particular money supply level ... only a perpetual balance with money demand.
I've never heard something so silly. So, the laws of supply and demand don't apply to money? Then please explain FX arbitrage.
Then please explain FX arbitrage.
In an environment of properly managed MOEs, FX arbitrage does nothing. This is because the exchange rate between properly managed MOEs never changes. If a dollar and a peso are both properly managed MOEs, and what you can buy with a dollar, you can buy with ten pesos, then forever and ever, a dollar is worth ten pesos. When that ratio never changes, what is the opportunity for arbitrage? What explanation is needed?
Zero inflation could exist only in a perfect model, or in a totally paralized (broken, dead) system.
Actually inflation (or deflation) is just a small (well more or less small) dis-allignement in changes between the monetary system (that allows transactions to take place) and the economic system. When the monetary system grows faster than the real economic system the result is mostly a price increase of goods and services in a functional economy... or the growth of asset bubbles in an economy that is not growing or a combination of the two.
While a little excess of money can actually induce additional growth in a healty economic system. Central banks can only adjust the money supply, but cannot possibly heal the economic system if it is not working, by just pumping money in it hoping it will heal itself. This is probably the biggest mistake as it totally modified the allocation of the wealth of the system.
Furthermore for many reasons (one of them is definitely also the concentration of wealth) we are in a demand contraction phase for goods and services. So even expanding the money supply the goods and services are not likely to rise in price. Actually the contraction of the demand is running faster than the contraction of the supply and the defaults on the supply side are making liquidity evaporate faster fuelling the demand contraction even more... Paradoxically on one side we should pump liquidity to keep the supply system afloat, but not fixing the system, the medicine that we are giving trying to keep the patient alive is like a temporary relieve for the short term with toxic deadly effect in the medium term. It is a vicious cicle. More poor, less demand, less supply, more poor, less demand, less supply...
The only escape would be pumping money where they are needed. Markets are broken so trying to pump money in banks hoping that the supply side will be able to take it didn't work. The only way to stop this deflationary trend would be probably pumping money on the demand side, creating non market driven jobs or de-privatizing entire sectors of the real economy, at least temporary, reversing the wealth concentration trend and the general impoverishment. It would have been much cheaper and much more effective than what was done so far. The entire system needs to be recreated.
Lastly redesign the monetary system would really help. No need to use private sector nor debt, nor taxes.
ah yeah, hoping that the markets will fix themselves, is really wishful thinking, but they are too broken to be able to do that...
So, capitalism is so broken only socialism can fix it. Let me guess socialism is your answer to every problem
Lastly redesign the monetary system would really help. No need to use private sector nor debt, nor taxes.
A little bit of plain old common sense would help. If you could not see a way to complete a trade (in other words produce the goods or services to offer in exchange), is there really any way I could "pump" you into it? Of course not!
Well socialism is also bailing out financial institutions, "socializing" private losses. So we are already in a pseudo socialistic society.
I was born capitalist, will die one, but with every tool that we use, we should be aware of its potentials as well its limitations. Let me explain, if you use an allen key to cut the branches of a tree instead of a saw... well it might not be the best way of handling it?
We do not need socialism, but a major reset... I simply suggested that the markets are not capable of handling that, mostly because it would be like a surgeon trying to make a heart transplant on himself? You are free to try of course...
But I would love to listen to your alternatives. I love changes...
:-)
I was born capitalist, will die one
I was born with a blank set of memory cells. I was raised in an environment where capitalism and religion were praised. I was taught that socialism and failure to respect authority (5 of the 10 commandments address respect for authority) were bad. I was led to believe those were my only two choices. Luckily, somehow in the process, I retained (or maybe gained) an ability to think rationally.
I now know both (socialism and capitalism) are bad (actually for similar reasons) and that they are far from an exhaustive list of workable choices.
I simply suggested that the markets are not capable of handling that, mostly because it would be like a surgeon trying to make a heart transplant on himself? You are free to try of course...
A major reset can be accomplished without invasive surgery. In fact it's possible with only the bad guys knowing it even happened. The only effect it would have on the patient would be immediate and full correction of the patient's maladies. It requires only a change of our perception of money (to what it obviously is: "an in-process promise to deliver") and a few mechanisms we now have that favor capitalism (crony or otherwise) and also favor socialism (properly executed or otherwise).
First, Capitalism is an economic system, not a socio-political one.
Second, it needs very few rules to function properly.
The most dangerous trait of Capitalism, and the seeds of its own destruction, is that it keeps increasing efficiency. It is a process locked in its DNA, mergers and acquisitions to get a bigger quote of the market and achieve economy of scale, are the means through which it self destroys. The race for efficiency, initially good, comes with unattended consequences when it goes out of control. We softened monopoly and concentration rules to let companies compete on a global arena. Problem is, some companies became so big and powerful beside starting operating in a disfunctional, non competitive way (we have cartels all over several industries, practically destroying the efficiency they were achieving with a very low propension to innovation as a winning business model sees innovation as an unnecessary risk), that they are able to manipulate pretty much any body of government on Earth so that Capitalism becomes an even more disfunctioning socio-political system, not just an economic one, an highly inefficient at that.
If long time ago we used to break oligopolistic/monopolistic positions, with the competition at a global level, there should be a size limit preventing companies to grow above a certain national market share or even a certain capitalization to prevent them from becoming inefficient monsters. Markets should remain full of companies lean, mean, much smaller than what are today, and highly competitive.
But now... who could even enforce something like this?
;-)
PS the Feds did a pretty great job with QE, they had no other choice but to compensate the deflation of bubbles with liquidity. Liquidity grows very slowly when the system expands (like putting air in a bicycle tire with a hand pump), but vanishes extremely fast when the bubble deflates (jut like a bicycle tire with a hole). Unfortunately the body of government that was supposed to re-order and take lead in fixing our economic system... (repairing the tire while the Fed was pumping air to keep it running)... was not able to do that.
The wealth concentration is just a side effect. In a non functioning economy, where speculative transactions are king (a speculative transaction is a transaction that implies goods or services changing hands without actually adding any real value to the service or good exchanged, which would actually create real wealth in the system), there can be only monetary expansion unbalanced by real growth.
If you consider that the monetary system is the way we allocate the real resources of the economic system, an expansion of the monetary system unmatched by a change in wealth of the economic system underlying it... can only precisely reallocate the real wealth in favor of all of those that are master of those speculative transactions? It is pretty obvious...
Wealth concentration creates massive problems to the entire socio-economic-political group...
Wealth is the most concentrated in comm/socialism, example China.
Giants fall when they get too big, take the transition from Sears to Kmart to WalMart. Efficiency is a bell curve not linear.
Finally, the Fed did nothing but further distort the markets. QE was/is a disaster evidenced by their fear to let interest rates find a market price.
Capitalism has not been in play here, govt enabled protectionism and financial cartels (CBs) created a mess around the world.
I am afraid that we have the prize for most concentration of wealth... right here in western economies.
True, Capitalism is not in play here. That is why we cannot hope it can heal itself. Again, capitalism is just an economic system.
Governments "should" simply be a super-partes body, making clear set of rules aimed at making our lives together easier. Right now they are not, they can't. They are captive of the same economic system they should regulate so they cannot be super-partes.
Blaming governments or the economy for this mess is not really constructive, it is like asking what came first, the chicken or the egg? It happened, we let it happened, we have to fix it, or we can just wait to let it blow into social conflicts, or major wars (oligarcs and plutocrats, tend to like better wars, they definitely dislike reforms because they are part of the problem that needs fixing...).
I am not saying governments are good and can save the day punishing the bad capitalists... however the probability that a government could decide to rethink our systems is higher than the probability that broken markets could do it. Of course we should hope in good, very intelligent politicians not afraid to die for trying to fix the system. Unfortunately good, capable, intelligent, just, un-corruptible, corageous politicians are very very very very hard to find nowadays... actually I do not think they even exist anymore, still the probability of markets taking care of the problems is even lower.
;-)
So let it be wars or social unrest.
That is what is going to be most probable...
Not sure where you're getting your stats.
In China there are a dozen people worth a billion dollars, and a billion people worth a dozen dollars.
Please allow me to help you, I omitted the zeros and it might need some updates but not too many? In descending order...
:-)
1 Bill Gates $76 USA Tech
2 Carlos Slim Helu $72 Mexico Telecom
3 Amancio Ortega $64 Spain Retail
4 Warren Buffett $58 USA Finance
5 Larry Ellison $48 USA Tech
6 Charles Koch $40 USA Diversified
7 David Koch $40 USA Diversified
8 Sheldon Adelson $38 USA Entertainment
9 Christy Walton $37 USA Retail
10 Jim Walton $35 USA Retail
11 Liliane Bettencourt $35 France Product
12 Stefan Persson $34 Sweden Retail
13 Alice Walton $34 USA Retail
14 S. Robson Walton $34 USA Retail
15 Bernard Arnault $34 France Luxury
16 Michael Bloomberg $33 USA Finance
17 Larry Page $32 USA Tech
18 Jeff Bezos $32 USA Retail
19 Sergey Brin $32 USA Tech
20 Li Ka-shing $31 Hong Kong Diversified
21 Mark Zuckerberg $29 USA Tech
22 Michele Ferrero $27 Italy Food
23 Aliko Dangote $25 Nigeria Commodities
24 Karl Albrecht $25 Germany Retail
25 Carl Icahn $25 USA Finance
26 George Soros $23 USA Finance
27 David Thomson $23 Canada Media
28 Lui Che Woo $22 Hong Kong Entertainment
29 Dieter Schwarz $21 Germany Retail
30 Alwaleed Bin Talal Alsaud $20 Saudi Arabia Finance
31 Forrest Mars Jr. $20 USA Food
32 Jacqueline Mars $20 USA Food
33 John Mars $20 USA Food
34 Jorge Paulo Lemann $20 Brazil Drinks
35 Lee Shau Kee $20 Hong Kong Diversified
36 Steve Ballmer $19 USA Tech
37 Theo Albrecht Jr. $19 Germany Retail
38 Leonardo Del Vecchio $19 Italy Luxury
39 Len Blavatnik $19 USA Diversified
40 Alisher Usmanov $19 Russia Extractives
41 Mukesh Ambani $19 India Extractives
42 Masayoshi Son $18 Japan Telecom
43 Michael Otto $18 Germany Retail
44 Phil Knight $18 USA Retail
45 Tadashi Yanai $18 Japan Retail
46 Gina Rinehart $18 Australia Extractives
47 Mikhail Fridman $18 Russia Extractives
48 Michael Dell $18 USA Tech
49 Susanne Klatten $17 Germany Cars
50 Abigail Johnson $17 USA Finance
51 Viktor Vekselberg $17 Russia Metals
52 Lakshmi Mittal $17 India Metals
53 Vladimir Lisin $17 Russia Transport
54 Cheng Yu-tung $16 Hong Kong Diversified
55 Joseph Safra $16 Brazil Finance
56 Paul Allen $16 USA Tech
57 Leonid Mikhelson $16 Russia Extractives
58 Anne Cox Chambers $16 USA Media
59 Francois Pinault $16 France Retail
60 Iris Fontbona $16 Chile Extractives
61 Azim Premji $15 India Tech
62 Mohammed Al Amoudi $15 Saudi Arabia Extractives
63 Gennady Timchenko $15 Russia Extractives
64 Wang Jianlin $15 China Real Estate
65 Charles Ergen $15 USA Telecom
66 Stefan Quandt $15 Germany Cars
67 Germán Larrea Mota Velasco $15 Mexico Extractives
68 Harold Hamm $15 USA Extractives
69 Ray Dalio $14 USA Finance
70 Donald Bren $14 USA Real Estate
71 Georg Schaeffler $14 Germany Product
72 Luis Carlos Sarmiento $14 Colombia Finance
73 Ronald Perelman $14 USA Finance
74 Laurene Powell Jobs $14 USA Entertainment
75 Serge Dassault $14 France Aviation
76 John Fredriksen $14 Cyprus Transport
77 Vagit Alekperov $14 Russia Extractives
78 John Paulson $14 USA Finance
79 Rupert Murdoch $14 USA Media
80 Ma Huateng $13 China Tech
Not sure where you're going. This is a list of billionaires. I thought the topic was concentration of wealth. A measure of household net worth might help.
ranking - name - net worth -country - sector
feel lazy now, so I copied and paste without any formatting... the 80 welthiest gentlemen and ladies of course...
Having the largest share of the worlds wealth is a good thing, if you're here (US). I guess you're a supporter of the Gini coefficient. It would be best if we were equal and miserable like Chinese pheasants.
Nooo 2muchtax. Absolutely not.
An economic system is rich and healthy the more the wealth is distributed. I am not talking about forced redistribution of wealth. When we talk about middle class, that is what we lost almost definitively, it is not an abstract concept.. It is not about giving away freebies either.
We will always have some super rich and some poor. Yet a large middle class, educated, consuming is what we destroyed.
The middle class is not an abstract concept. It is a fundamental resource.It is also the reason why a healthy capitalistic economic system has its best match in a democratic political system.
Unless there is a major reset we will never be able to reconstruct that, because power (both economic and political) is self preserving and it is highly concentrated in very few hands now, uncapable of renovation without external forces (for example a new party, new politicians, might be able to do that)? Let me outline "might"
More crap from a .1%er. He's looking to be a "regular guy" so
when it collapses he has his $billions but can say "see I told ya"
My mother taught me to never lie.
In the final analysis, while there is no better system than capitalism, it is incumbent upon it and its policymakers to promote a future condition which offers hope as opposed to despair. Capitalism depends on hope – rational hope that an investor gets his or her money back with an attractive return...
The hope trope is getting old Bill.
Hasn't enough time has passed that we should now be allowed to substitute empiricism instead?
Capitalism doesn't depend on hope, it depends on a trusted, predictable and understandable framework of laws, obligations, infrastructure, property rights and freedoms.
Your interpretation of Mr. Gross's comments is quite wrong.
The whole key to an investment is RISK. The riskier the investment, the higher the return the investor must seek. Of course, the higher the risk, the more the chance the investment will fail. That is what Mr. Gross means by 'hope' - the hope that your investment in 10,000 shares of Sears won't go to zero, the hope that your Solyndra bonds won't go to zero, etc. The flip side of RISK is always HOPE, and I'm not talkin' 'bout Willis's..er, Obama's variety of hope.
Thanks to the Fed, we now have an environment where highly safe investments, like bank deposits, are beginning to have negative returns, as noted multiple times at ZH. However, risky assets, such as equities, are in the hands of manipulated and controlled 'markets' (I use the term very loosely!) which I frankly wouldn't touch with a ten-foot pole. Other asset classes like bonds have had their returns driven down as well, and the asset classes most impervious to manipulation (real estate, quality gems, art) are highly illiquid. As people approach retirement, they need income to live - where is that going to come from?
When I was a younger man, in the 80's and 90's, I thought if I won a lottery I would start a company. The idea of running a business excited me. No longer. Businessmen everywhere are reviled, unions and government set the rules by which you operate (and change them on the fly), and if you do manage to make money, the government seeks a way to confiscate it. Keynes moaned the loss of 'animal spirits'; that's exactly what the Fed, our creeping socialist gov'ts, cronyism, and a set of 'laws' (4th, 10th, 6th Amerndments, just for starters) more honoured in the breach than elsewhere have accomplished.
I find it hard to overly criticize family, friends and acquaintances for being oblivious to anything outside MSM reporting and sports.
It is beyond despairing, it is damned scary and depressing.
Dear Bill, The only "capitalism" seen in my lifetime in Amerika is from small business; the rest is pure "crony capitalism" you and your butt buddies promote with impunity. The "game" isn't to seek out markets and produce better products, the "game" is to suck up to asshats like Emperor Goebbels and his ilk to do 2 things; 1) get gubermint handouts, and 2) have gubermint destroy your competition through regulation so you don't have to compete. With CNTRL-P out of control, what do you think things will look like if long rated go up 2% Bill? You promoted it, gave it your blessing, now your pissed you can't get yield. Wait ... there's tears in my eyes I have to stop.WTF.
www.traderzoo.mobi
This from the jackass that said all Americans are overpaid. Go to hell Gross.
http://www.telegraph.co.uk/finance/economics/11358316/Central-bank-prophet-fears-QE-warfare-pushing-world-financial-system-out-of-control.html
Mr. William White said Quantitative Easing (QE) is a disguised form of competitive devaluation. "The Japanese are now doing it as well but nobody can complain because the US started it," he said.
"There is a significant risk that this is going to end badly because the Bank of Japan is funding 40pc of all government spending. This could end in high inflation, perhaps even hyperinflation.
"The emerging markets got on the bandwagon by resisting upward pressure on their currencies and building up enormous foreign exchange reserves. The wrinkle this time is that corporations in these countries - especially in Asia and Latin America - have borrowed $6 trillion in US dollars, often through offshore centres. That is going to create a huge currency mismatch problem as US rates rise and the dollar goes back up."
Mr. White's warnings are ominous. He acquired great authority in his long years at the BIS arguing that global central banks were falling into a trap by holding real rates too low in the 1990s, effectively stealing growth from the future through "intertemporal" effects.
He argues that this created a treacherous dynamic. The authorities kept having to push rates lower with the trough of each cycle, building up ever greater imbalances, in an ineluctable descent to the "zero bound", where monetary levers stop working properly.
Under his guidance, the BIS annual reports over the three years before the Lehman crisis were a rising crescendo of alarm calls at a time when other global watchdogs were asleep. His legendary report in June 2008 openly discussed whether the world was on the cusp of events that might prove as dangerous and intractable as the Great Depression, as it indeed it was.
Mr White said central banks have been put in an invidious position, compelled to respond to a deep economic disorder that is beyond their power. The latest victim is the Swiss National Bank, which was effectively crushed last week by greater global forces as it tried to repel safe-haven flows into the franc. The SNB was damned whatever it tried to do. "The only choice they had was to take a blow to the left cheek, or to the right cheek," he said.
He deplores the rush to QE as an "unthinking fashion". Those who argue that the US and the UK are growing faster than Europe because they carried out QE early are confusing "correlation with causality". The Anglo-Saxon pioneers have yet to pay the price. "It ain't over until the fat lady sings. There are serious side-effects building up and we don't know what will happen when they try to reverse what they have done."
The painful irony is that central banks may have brought about exactly what they most feared by trying to keep growth buoyant at all costs, he argues, and not allowing productivity gains to drive down prices gently as occurred in episodes of the 19th century. "They have created so much debt that they may have turned a good deflation into a bad deflation after all."
I've been saying this for many years (but no one listens to me!)
this is the achilles heel of capitalism ... the whole system depends upon the reasonable expectation of growth, of the increase of everyone's wealth ... without that reasonable expectation, nobody wants to invest, and nobody wants to loan money ... instead it all goes into the mattress ....into hoarding ....
No. Fiat currency requires perpetual growth. Capitalism allows for growth and contraction.
The natural reaction to perceived slow downs is to stop lending. This occurs until people perceive a bottom or rates rise enough to attract investment. This is natural human behavior and doesn't require politicians to intervene.
Still pitching the lower returns mantra? huh Bill. You've been completely wrong, what was the markets return last year? the year before? Just admit it, your as clueless as us.
Global 0% interest rates.
Last I checked Australia reserve rate was 2.5% still pathetic but 500% better than US and infinity % better than EU . WTF ! Yet AUD still weakening.
Guess I won't be fixing my homeloan rate just yet.
Physical PM's about the only things that make any sense now
he failed to make the obvious comparison to banks buying mortgage paper (you turn the deed over and the bank gives you half the value. the bank also buys back houses, since you must buy houses from the bank monopoly is really socialism.) on occasion the bank runs out of money, if i recall (a run on the bank is a terrible thing) i like these comparisons but lets keep it real. there is an optional libertarian wrinkle to the game, in which all taxes and penalties are tossed into a common pot, and the winner is the one who lands in jail (just visiting) as for jail some monopoly players actually go there, but of course you can buy your way out of it. while boardwalk and park place are not his ideal strategies, if you develop these properties the rent should someone else land on them is usually enough to bankrupt a player, and the object of the game is to be the last player standing. the object of capitalism (which in reality is a form of parasitism) is not to kill the host (consumers and the working class, but coexist with them through symbiosis). the host gets larger and stronger, while the parasitic form takes credit for the hosts economic growth, but in fact he was growing anyway, as part of the natural cycle of economic life. now the real world is shrinking, in economic terms, which has to do with population and technology, the parasitic banker class is having a tough sell on the linear expanding economy (trees growing all the way to the sky) but like all good parasites the banker class will adjust. whether the host decides on an palliative (or simply outright deworming) is another question
http://www.project-syndicate.org/commentary/eurozone-needs-more-than-qe-by-martin-feldstein-2015-01
First, though, consider why QE’s ability to stimulate growth and employment in the US does not imply that it will succeed in the eurozone. QE’s effect on demand in the US reflected the financial-market conditions that prevailed when the Federal Reserve began its large-scale asset purchases in 2008. At that time, the interest rate on ten-year Treasury bonds was close to 4%. The Fed’s aggressive program of bond-buying and its commitment to keep short-term interest rates low for a prolonged period drove the long-term rate down to about 1.5%.
The sharp fall in long-term rates induced investors to buy equities, driving up share prices. Low mortgage interest rates also spurred a recovery in house prices. In 2013, the broad Standard and Poor’s index of equity prices rose by 30%. The combination of higher equity and house prices raised households’ net worth in 2013 by $10 trillion, equivalent to about 60% of that year’s GDP.
That, in turn, led to a rise in consumer spending, prompting businesses to increase production and hiring, which meant more incomes and therefore even more consumer spending. As a result, real (inflation-adjusted) GDP growth accelerated to 4% in the second half of 2013. After a weather-related pause in the first quarter of 2014, GDP continued to grow at an annual rate of more than 4%.
Thus, QE’s success in the US reflected the Fed’s ability to drive down long-term interest rates. In contrast, long-term interest rates in the eurozone are already extremely low, with ten-year bond rates at about 50 basis points in Germany and France and only 150 basis points in Italy and Spain.
So the key mechanism that worked in the US will not work in the eurozone. Driving down the euro’s dollar exchange rate from its $1.15 level (where it was before the adoption of QE) to parity or even lower will help, but it probably will not be enough.
sorry, please try again
"Hope" and Change has already been taken
I don't disagree with what Bill Gross has to say but where was he 7 years ago; this didn't just come to him in a dream. He capitalized from the system and now, after he's raped and pillaged it, it's time for a reset? Talk is cheap Mr. Gross.
145
Hope is an ugly word these days. Thanks obama for your signature legacy achievement.
Translation: Get all your wealth out of banks and financial institutions NOW, before... poof, no more money/wealth: (by hook, crook, and/or bail-ins).