"Unless you enjoy multivariate regression analysis I suggest skimming the BIS working paper. Major points I got were:
1. Almost all of the dollar denominated debt and bond growth since 2009 was generated by the global shadow banking system. Banks per se were smaller players in issuing this debt, and US-based banks (i.e. the ones in reach of Federal Reserve life preservers) were minor. Sovereign wealth funds are large players in this. When we think of huge sovereign wealth funds held by major hydrocarbon exporters then the pucker factor rises.
One implied result of the BIS paper is that it will be extremely difficult or impossible for Federal Reserve emergency liquidity operations to stem a panic, even if the Fed is inclined to do so. AEP in the Telegraph article stated this more directly. The real problem is that modern bailout operations have large fiscal components as well as monetary components. Looking at the Bundestag's chronic heartburn with Greece and the EFSF is educational. Alternatively, consider how well proposals for a larger TARP type program aimed primarily at foreign entities would be received by the US Congress. And especially in 2016.
2. A major revelation was that $1 trillion of the dollarized lending went into Chinese companies. However the authors claim most of this lending was through Chinese banks.
3. "Emerging Markets" again account for 1/2 of the total offshore dollarized loans and bonds. This is $4.5 trillion and mainly centered in Brazil, Russia, India, China, etc.
4. From page 20:
"Fourth, since the crisis, the Federal Reserve's compression of term premia via its bond buying has led to a surge in US dollar borrowing through bond markets. Time-varying regressions and VARanalysis also indicate that inflows into bond mutual funds played a significant role in transmitting monetary ease, giving evidence of the portfolio rebalancing channel of the Federal Reserve large-scale bond purchases. In particular, given the low expected returns of holding US Treasury bonds (in relation to expected short-term rates), investors have sought out and found dollar bond issuers outside the US, many rated BBB and thus offering a welcome credit spread."
These dollarized bond funds were the "conservative" play for those players unwilling to also assume exchange rate risk.
"BBB..." This is already the S&P/Fitch ground floor of "investment grade." And that was the rating assigned to these foreign issuers during a time of free money and bubble expansion. We already know the bulk of bond mutual fund buyers are institutions. And many are required to flush any paper that falls below investment grade. And being 'smart money' they will have tried to hedge their risks against such a 'Credit Event' with credit default swaps (CDS).
We also know that CDS contracts typically require the CDS writer to begin posting progressively higher amounts of cash collateral as the credit outlook darkens for the underlying instrument. For instance, even if S&P/Fitch merely change the outlook from 'positive' to 'neutral' the required posted collateral percentage rises. And again from neutral to negative and so forth.
In the case of dollar loans and bonds the collateral needs to be in dollars. Therefore even if the CDS writer manages to borrow Euros with wet ink they still have to exchange these for dollars. See USD/Euro FX trend for the result."
Thank you, Mark, for the detailed analysis. Here are my initial thoughts:
1. Currencies respond to supply and demand like any other commodity. As such, it's instructive to to look at the supply of U.S. dollars and see how it's changed since 2008:money supply (Wikipedia)
2. However you measure money supply, the supply of dollars hasn't risen by much: MZM Money Stock has risen $2 trillion since 2010, Adjusted Monetary Base rose from $1 trillion to $3 trillion, and M2 Money Stock from around $8 trillion to around $10 trillion.
To put that roughly $2 trillion increase in money supply in context:
The GDP of the U.S. is about $17 trillion.
Global GDP is around $72 trillion.
Global debt rose $57 trillion from 2007 to 2014:
3. If there is demand for $9 trillion USD, that dwarfs the increase in US money supply. It also dwarfs the expansion in the Federal Reserve's balance sheet, roughly $3.5 trillion since 2008.
4. Borrowing in U.S. dollars was the easy, profitable trade as long as the dollar was declining. Traders being traders, everybody jumped into the easy, profitable trade with all four feet. Now that the dollar has reversed, everyone who is holding debt in dollars is losing money every time the USD ticks higher.
5. Much of the shadow banking system is opaque, and assumptions made about the outstanding debt in USD are likely to be not just wrong but grossly under-estimated. See #2 above.
If you wanted a trade that was guaranteed to blow up, you couldn't do much better than "dollar bond issuers outside the US, many rated BBB." As Mark noted, once this gunwales-at-sea-level debt gets downgraded a notch, institutional owners will be obligated to sell, regardless of any other conditions. Selling will beget selling.
6. U.S. Treasuries are essentially the only super-liquid safe haven offering a yield above 1%. And what do you need to buy Treasuries? U.S. dollars. The point here is the demand for USD is not limited to those scrambling for USD to pay off dollar-denominated debt--it's a global consequence of the global economy skidding off the cliff into recession.
Borrowing in USD was risk-on; buying USD is risk-off. As the real global economy slips into recession, risk-on trades in USD-denominated debt are blowing up and those seeking risk-off liquidity and safe yields are scrambling for USD-denominated assets.
It's important to recall that buyers of U.S. Treasuries are getting not just the 2+% yield-- they're getting the capital appreciation from the USD rising against their home currency. Depending on the home currency, those who dumped their home currency and bought USD last summer have gained 17% to 25%, even if they received 0% yield.
Add all this up and we have to conclude that, in terms of demand for USD--you ain't seen nuthin' yet.
Can't wait to see what I can buy with my strong dollar!
Buy moar gold, then go fishing.
Don't forget your boating accident.
And said insurance on said boat...
"skidded"???? hahaha...that implies somebody was actually trying to hit the fucking brakes!
No...they have driven this dragster full speed off the cliff...no brakes applied and full speed ahead to the bottom!
Those tracks you saw weren't skid marks...they were burn outs from stomping on the fucking gas!
Yeah. That's how I see it too. The Thelma and Louise moment was the first bail out maneuvers in 2007/2008. They've been hitting the brakes, playing with the windshield wipers, lights and turn signals ever since. But, this was a big cliff...
perhaps it's the cigarette lighter?????,
how about the visors did you move them around??
Ha! They even switched drivers too.
does gold help in a depression?
In a deflationary depression (a la 1930's, and seems to be what happens next, and last for several years) "Cash is King", and gold would likely be priced much, much lower than it is today.
In a hyper-inflationary depression (a la Zimbabwe/Weimar, and perhaps occuring after the prolonged and deep period of deflationary depression) gold is protective and would likely be priced much higher.
But the best protection, no matter what happens, is individual preparation and resilience in combination with mutually supportive and cooperative community.
This is why the hyperinflationists continue to be wrong;
When the economy crashes and margin calls come in, investors have to get their greasy, little sausage-like fingers on US$'s. This forces a cascade of liquidations of over-priced 'assets' to come up with the dollars.
Back in 2007 I used to call this "the Hunt for Liquidity," and it is very deflationary.
This is why 'Simple Simon' Black is wrong when he calls for the imminent demise of the US$. I'm not saying the dollar won;t eventually collapse, but it can't happen with the current monstrous levels of US$-denominated debt in the system.
The fed and Treasury may be creating vast amount of new currency and credit, but its not in the hands of the people who owe the debts. Thse people still need to get their hands on dollars to service their debt; hence the demand for US$'s.
People often forget that their are only 4 possible outcomes with debt:
1) It is created = Inflationary
2) It is serviced/rolled-over = Neutral
3) It is defaulted = Deflationary
4) It is paid back = Deflationary
When a debt is paid-off, the 'money' that was in circulation is destroyed; this is very deflationary.
The only inflationary outcome is when additional debt is created.
At some point, the Ponzi will stop; new debt-serfs will refuse or be unable to participate; the bankster will have nobody to take their loans. That will be the day the system goes into a deflationary spiral...
A deflationary spiral can lead to hyperinflation. Not only can it cause the Fed to print more, it can also cause people to lose faith in the dollar. If enough debts are defaulted on, people may start to figure that the dollar ain't worth a shit. That's what could lead to hyperinflation.
"A deflationary spiral can lead to hyperinflation."
Eventually, yes.
Exactly. It may be several YEARS of severe deflationary depression, like the 1930's or possibly worse.
(It seems hyperinflationism sometimes overlooks that part because of longing for a time that justifies fiat-hate/gold fixation.)
While prepping for either (deflation or hyperinflation) has some similarities (as in meet your basic needs, build up locally supportive community), there are some polar differences. Perhaps the biggest: in a deflation, "cash is king" and debt is a worsening burden. So prepping for a deflation means getting out of debt and into cash (being aware of possibilities of bank runs and financial institution failures).
I have lived my life planning for and assuming deflation first (though I don't know for how long) then inflation or even hyperinflation for just the reasons you cite. The deflation will be in sputters and waterfalls. It will go on a while, things will be tied up in court. And yeah, they will try to print and bailout into this thing to prop up nominal values.
MsCreant:
Would you mind telling me, honestly, how best to prepare for deflation. I am losing my ass out here.
Someone, help!!!
Thank you
My grandmother pulled $3,000 dollars (all she had) out of the bank 2 weeks before the market crashed in 1929. Her father had wealthy friends that warned them the crash was coming. Also, crashes were commonly understood back then as possibilities. She said she had a hard time during the depression but she felt like she did better than a lot of people because she had cash in her hands.
For me, that and PMs, in case hyperinflation takes hold when they start printing into this. The Bernanke would, the Yellen, probably.
I have funds trapped I can't get to but they are not in stocks. If we get on the other side of this and the accounts mean anything, bully for me. Meanwhile I assume I will lose it all. The govt will seize it to save me from the unsavory financial fuckers out there, then they will spend it and IOU it (like Social Security) before I can use it to retire.
We all are going to lose something. No one escapes this.
Lay up some food, seeds, gardening tools. If you want me to talk more about that say so and I will post about it.
I like this list: http://www.thepowerhour.com/news/items_disappearfirst.htm
I have no debt. My house is paid for. Those are the kinds of preps I made. This may not be the kind of advice you were looking for, I hope others answer you too.
Thank you so much. Yes I do want you to post a about it. I feel like I am just treading water right now. Can't seem to get the house paid off......... things keep going negative each time I have a minor victory then 2 defeats come up and knock it down. I keep cutting my living expenses then they keep going up! This is why I don't understand the deflation prediction. I can't see anything but inflation..... in everything except for the real estate. my house has not increased in value in 15 years. I guess that means I paid too much for it..... or I don't know what. I paid what everyone else at that time on that street paid....... I always thought the value of the house would eventually catch up with the mortgage and the principle could be paid with ease at the end......... now I just don't see it.
sigh...... just keep looking for any answers and directions I can get to try to give me an edge. At this point I will take anything I can get.
thanks for the link I will go and read there all I can.
Exactly. Deflationary episodes as a result of massive debt will happen, however, it is the Feds' RESPONSE to these episodes that will cause loss of faith in US$. Remember, the banking cabal owned by the Fed does NOT want your dollars to increase in value. That can't happen when you are a lender. Inflation must occur or they are only hurting themselves.
My head spins from all these cogent analyses done by ZH readers, mainly because the system is totally contrived and the dishonesty is rampant. Who fcking knows if we are in deflation or inflation..... the data is all made up anyway and the dollar supported by a massive shadow industry.
Everything is made up except for the price of food. Easily 2x what it was in 2007.
Exactly, for me it's easy, it's a fucking inflationary environment for me. Everything that I need to survive and have a good life is up, food, going out, rent, utilities, vacation... Doesn't take an expert to tell me that my dollar doesn’t go far.
Lose faith in the dollar and exchange them for what?
Anything tangible at first, and then eventually nothing.
Hyperinflation after a deflationary thermonuclear bomb detonates over the global financial system? I don't think so. All rescue efforts are off the table. All chambers are empty. Bullets have been expended. No, this dance with a deflationary debt spiral leads to a new Dark Age.....
Since the fed isn't printing actual currency we won't have hyper-inflation with digital credit money. Any liquidating event will be deflationary. The uncertainty comes from when the whole system blows up and those digital U.S dollars aren't worth spit. That will be when having physical assets will pay off.
Exactly!
That's why I always say: "Cash, Bonds, Gold."
["Cash" = FRN's in hand, not digits in a computer.]
Ditch the bonds and your point becomes 100 percent valid. Not correct or incorrect.
Wait, what?
PoolShark: the hyperinflationists continue to be wrong ... That's why I always say: "Cash, Bonds, Gold."
Dr. Engali: we won't have hyper-inflation with digital credit money ... the whole system blows up and those digital U.S dollars aren't worth spit
Bullshit.
Are you trying to make my head explode?
Money does well during periods of deflation.
Gold is money.
Gold does well during deflations (see 1930's, 2008-2011, etc.)
In fact, Gold does better during deflations than inflations (see 1980-2000).
Any questions? See this:
http://globaleconomicanalysis.blogspot.com/2007/02/is-gold-inflation-hedge.html
Flawed thinking.
Cash does best during periods of true deflation.
Before FDR, the US Dollar was linked to and redeemable in Gold (for every US citizen too!), so there was no difference.
Afterwards, Gold did only do OK during deflation/disinflation periods because some people feared the problem would be solved by money printing and bought gold as a precaution.
(I'm not going to parse through lengthy 8 year old Mish posts, as even he has turned from a gold hater to kind of friendly towards it, over the last few years.)
(I'm not going to parse through lengthy 8 year old Mish posts, as even he has turned from a gold hater to kind of friendly towards it, over the last few years.)
Your loss.
[PS: Mish has been bullish Gold for as long as I have been reading him; since at least 2006...]
As long as the proles can't get their grubby little hands on it, things will be peachy. Unfortunately magic money is like heroin, the dosage has to keep going up to achieve the same effect and with currencies the crossover point is unknown but not to worry, the CB's are trying to find that point so they can step over it.
Valid points.
But what do the facts say?
"Pig in a python." Too much oil, natural gas, innovation, etc.
Prices are falling, the debts are collapsing, those debts are repaid in "worthless dollars."
Citigroup has beyond belief earnings potential here...and of course obviously the ability to grow the US economy with those earnings as well.
Right now not only do they look like the only good "true Bank" (one that doesn't just lend to itself) in the world..they're doing it in a great lending environment actually.
I do agree for all intents and purposes the US appears functionally bankrupt to me.
And that's where hard medicine's difficulty is -- energy, food, etc are all going up in price, partly because the asset itself is losing value -- oil, farms, etc. There are always two ends to a stick and unfortunately for us, in these interesting times... there are termites eating from both ends to the middle.
Dr. Engali---I'm confused. You say we won't have hyperinflation and that the event will be deflationary. But isnt your next comment that ..."dollars aren't worth spit" a classic description of hyperinflation? In the Weimar hyperinflation, a wheelbarrow full of money was worth less than the wheelbarrow. In a deflation, as I understand it, the value of the curency rises due to scarcity. I'm sensing a contradiction. Can you expound, please?
Debt default via outright default or printing away the debt is hyperinflationary. Infact, it is the single most common cause of national hyperinflation.
Only when the person doing the printing owes the debt.
Private Consumer Debt in the western world is at or near all-time highs, and consumers can't print their own money to pay off their debts. Hence, the 'hunt for liquidity.'
[PS: if your premise were correct, why can't Japan create the inflation it wants?]
Snark hunting at its finest.....
".... outright default or printing away the debt is hyperinflationary.", if wages and .gov handouts are indexed to the "printing"..
If not, then will cause stagflation..Because the common man will have no way to purchase the higher priced goods and services..
1920's Germany indexed their "printing"...
Not quite. So long as the population is increasing, there is plenty of demand for the real resources that make a higher standard of living possible.
Yet another moron that believes growth can go on forever and ever.
The day that faith is lost and money or any paper promise has no value, things will get very expensive you stupid fuck. Why? simple, because you will have to provide something of real value in exchange. You really think in that moment that 7+ billion of us (many useles paper-pushers and useless eaters with no real tradable skills) are going to enter into a "deflationary spiral"?
LMFAO!!!!!!!!
Have you heard of the Great Depression? In what way did that not qualify as a deflationary spiral? It really happened.
There will be a unquenchable thirst for USD.
It's one thing to be arrogent and in the right. It's another thing to be a temper tantrum douche while being wrong. You are wrong. Deal with it.
In today's geopolitical environment, the 'unquenchable thirst for $USD' that you speak of, somewhat hinges on certain major economic and military power's decision to cooperate. Is it a given that they will roll over and play?
Thanks for the educational post.
trav7777
''It would behoove EVERYBODY to understand what we who speak of this mean by it. ONLY growth in credit can prolong the system and it is *required*, not optional.
Austerity means a monetary collapse. Via deflation.
The ONLY way to stop this if credit cannot or will not grow is via brute force devaluation. In the end, the deflation and inflation arguments end in the SAME PLACE.''
Wait. Wait.
The Puutie Ruble has been announced on ZH as the most desireable reserve currency. New development bank supposed to provide liquidity and funding for Greece, Brazil, Venezuela, and Russia. Everyone is supposed to be fleeing the USD.
Hyperinflation isn't necessary for a deeply indebted nation (with a foreign policy to match), to experience a currency crisis. In fact, at the rate the U.S. is 'making friends and influencing people' around the globe with other major economic and military powers, I'd suggest a currency crisis is but 48 hours away on any given day.
Funny thing about how they hate us in countries like Venezuela, Brazil, Argentina, China, Russia, etc...
But ever notice how the people in those countries rush out of their own currencies in a scramble to get their hands on American Dollars?...
@pool shark
trav7777 argued that debt default was inflationary as repayment extingushes credit money, when the debt is not repayed (credit money) stays 'in' circulation in the system.......
When a loan is defaulted, its value (which is held as an asset on the ledger) goes to zero. That 'money' is destroyed. That's deflationary...
But the banksters need only type numbers into computers to keep additional currency flowing to prevent that from happening and I think they will do so if for no other reason than to hold power just a little bit longer.
Better think calories and a way to protect them.
Wise (and soberingly True) words, G.O.O.D -
The '72 hour rule' should be near the front burner of any thinking man's mind going forward from here. And that's the first step in the journey of a thousand miles...
I'm Long storeable proteins:
Canned tuna, beef, chicken, sardines, bacon, shrimp, cheese and mackerel. Even bought a canned bread product last week.
Happy to convert bank Fiat into a caloric bank.
If history repeats, you won't have many dollars, thus you won't be able to buy much even with lower prices.
FUCK YOU FED!!
This man have a cure against the Dollar - and the FED ( He holds it into his hands ) :
http://media.gotraffic.net/images/iT9D4pz6faJA/v14/1200x-1.jpg
I do not need to get involved in this! Hold $, hold PMs. Done. Fuck it.
And then Hold your own.
It's crystal clear that banks are buying the $ by the truckload based on just the rise of the index.
The rate at which available dollars are soaked up in an event which we are about to experience, is quite shocking.
Don't get caught with no cash, or you wont eat...
I've thought about what happens when the ATMs run out of cash to dispense and no one comes around to refill them?
As long as the EBT/credit/debit/ cards work, they can keep this up. Once those systems are down and the ATMS are empty, the shit will be real.
Dollar shortage? Broke people always have a Dollar shortage. It doesn't mean there is actually a shortage of available dollars. And the people we think are broke, the banks, just loan themselves more dollars out of thin air. It is just a momo trade, like every other paper ghost people chase. Or perhaps someone can explain to me the mechanics of how a bank can't get paid to borrow the money it needs in these days of negative interest rates? Stop waiting for that last dollar to get out of the clown car. There is no limit.
Go ahead grandma, raise rates and collapse the whole fucking thing I dare you.
Well Grandma's in the cellar
Oh but lordy don't you smell er'
Printing dollars on her damp and dirty press
In the news there is chatter
The economy's in the shatter
And raising interest rates will only cause distress!
At least if she raises rates, they have room to cut.
2 hours to go to see how algos price Oil.
"Your Honor, Exhibit A why the FR is effed and can't raise rates"
They cannot raise rates, yet they must raise rates. Be not surprised at whatever they do, be it nothing, a tolken raise, or an actual raise.
Keep buying gold.
A LT winner.
I wonder if you have ever seen the movie "The Road" or "The Book of Eli"?
PM's didn't mean shit, but guns, ammo, food and water did.
ever see real life in zimbabwe or argentina or iraq? gold silver and gems always have value. they are the value of last resort.
...guns and ammo to protect those "gold silver and gems". Food and water to live comfortably whilst doing so.
the guy with the gold, silver, gems and the most guns wins. food and water become a moot point for them. same as it ever was. gotta kill the ones without anything but guns.
OT but it looks like the pussies did not have the stomach....
http://www.atf.gov/press/releases/2015-03-021015-advisory-notice-those-c...
1. Almost all of the dollar denominated debt and bond growth since 2009 was generated by the global shadow banking system.
2. A major revelation was that $1 trillion of the dollarized lending went into Chinese companies. However the authors claim most of this lending was through Chinese banks.
Isn't the author missing a rather important conclusion from these two points? (that I've been harping on for several years...)
What's backing the dollar?
World's manufacturing giant? Nah...
A Educated, modernized and super-productive workforce? Nah...
Low or no debt? Nah...
Thousands of tons of Gold? Nah...
A free and prosperous citizenry? Nah...
WTF is backing the dollar? Nah Thing...Oops!...
Hey F.I.A.T., you have been posting here long enuf to know that WHAT IS FULL FAITH AND CREDIT is the Jeopardy answer to your question. It says so right in the Constitution and we all know how highly respected that sainted document is..
Seriously, the dollar is backed by the last self-sufficient and still standing thermonuclear-armed "superpower". That's it, superpower status and corrupt morality.
"Currencies respond to supply and demand like any other commodity"
Yeah right, just like the Swiss franc, the euro, crude oil, precious metals, platinum and palladium.
Another blogger who thinks he knows supply and demand when everything is manipulated to fuck and back.
From AEP's Global finance faces $9 trillion stress test as dollar soars (Telegraph.co.uk)
The Fed's so-called "dot plot" - the gauge of future thinking by Fed members - hints at three rate rises this year, kicking off in June.
Thanks for the good laugh!
But he makes two good points:
[...] Fed tightening - which set off the East Asian crisis and Russia's default in 1998.
Emerging market governments learned the bitter lesson of that shock. They no longer borrow in dollars. Companies have more than made up for them.
The Institute of International Finance (IIF) calculates that the oil slump has slashed petrodollar flows by $375bn a year.
Put together that explains the collapsing oil price as oil producers scramble to make up falling US$ revenue by producing even more...
And Draghi, by devaluing the EUR now, makes the overall picture even worse
Remember those days in grade and high school, when you had to take those tests to get ranked, many years back it used to be the "Iowa test of basic skills", and now plenty more tests at all levels by other names? Remember how you felt on those timed tests, when you had completed about half the questions but only had about a third of the time left to finish? Lots of pressure. I'm thinking the guys really feeling like that now are the stuffed shirts in the finance industry and central banks, trying to come up with right answers on how to keep this chicken shit Ponzi going, and not only don't they have the answers, they're running out of time. Pressure anyone?
When this *really* gains speed...
Shit.Storm.
And there ain't enough umbrellas.
as if
"..The GDP of the U.S. is about $17 trillion.."
Oh, yesss! "I give you $5, you give me back $5, GDP is up $10 000".
Do you still believe this BS?
It is not correct that the dollar money supply hasn't risen much. The official M's are not a good indicator of this, since they contain non-money components like money market funds. The boad true US money supply (TMS-2) has increased by more than 100% since 2008.
To put a number to this: the increase in the US money supply since 2008 is $5.45 trillion, not $ 2 trillion.
So the only thing the FED can and probably will do is increase the money supply, QE4, also because the economy can't sustain an even higher dollar.
Barter wherever you can to lessen the blow as much as possible. Bastards can't inflate or deflate a blow job in exchange for a cheeseburger.
Beyond that, I don't really have any answers.