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The Global Template For Collapse: The Enchanting Charms Of Cheap, Easy Credit
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Cheap, easy credit has created moral hazard and nurtured magical thinking throughout the global economy.
According to polls, the majority of Greek citizens want the benefits of membership in the euro/EU and the end of EU-imposed austerity. The idea that these are mutually exclusive doesn't seem to register.
This is the discreet charm of magical thinking: it promises an escape from the difficulties of hard choices, tough trade-offs, the disruption of vested interests and most painfully, the breakdown of the debt machine that has enabled the distribution of swag to virtually everyone in the system (a torrent to those at the top, a trickle to the majority at the bottom, but swag nonetheless).
If we had to summarize the insidious charm of magical thinking, we might start with the overpowering appeal of using credit to ease all difficulties.
Need money to fund various healthcare/national defense rackets? Borrow the money. Need to keep people employed building ghost cities in the middle of nowhere? Borrow the money. Need to keep buying shares of the company's stock to push the value of each share ever higher? Borrow the money.
The problem with cheap, easy credit is Cheap, easy credit destroys discipline. The lifetime costs of debt taken on to fund bridges to nowhere, healthcare/national defense rackets, ghost cities, stock buybacks, etc. are never calculated. The opportunity costs are also never calculated.
When credit is costly and hard to get, marginal borrowers can't get loans and nobody dares borrow at high rates of interest for low-yield, high-risk schemes. When credit is costly and hard to get, what doesn't pencil out doesn't get funded.
When credit is cheap and easy to get, every scheme and racket gets funding because hey, why not? The cost is low (at the moment) and the gain might be fantastic. But even if the gain is unknown, the kickback/campaign contributions make it worthwhile even if the scheme fails.
Professional economists are duty-bound to claim national economies are not merely extensions of households. But this is just another falsity passed off as sophisticated truth by a profession that is being discredited by the reality of its failed policies, failed theories and failed predictions.
Since human psychology remains the dominant force in all economics, the household and national economies can only differ in scale.
In the 1970s, credit was scarce and hard to get. Young workers qualified for a $300 limit credit card, and it took careful management of that responsibility (always paying on time, etc.) to get a meager increase to $500. Mortgage rates were high (10%+) and your income and household balance sheet were scrutinized before any lender took a chance on lending you tens of thousands of dollars to buy a house. After all, the bank would be stuck with the losses if you defaulted.
Then came financialization. Banks could skim the profits from originating loans and offload the risk of default onto towns in Norway, credulous pension funds and other greater fools.
And if a default threatened the bank--for example, Greece in 2011--the bank simply bought political power and shifted the debt onto taxpayers. "The ATMs will stop working," the bankers threatened their political flunkies in Congress in 2008, and the bought-and-paid-for toadies in Congress and the Federal Reserve obediently shifted trillions of dollars in private liabilities and sketchy debt-based "assets" such as mortgages onto the taxpayers and the Fed balance sheet.
The same transfer of risk and losses occurred in Europe, as these charts demonstrate: (Source: If Greece Defaults, Europe's Taxpayers Lose)
Here is the debt in 2009--mostly owed to private banks and bondholders:
Here is the debt in 2015--almost all was shifted onto the backs of taxpayers:
Ask yourself this: if you could shift risk and losses to the taxpayers, how would that affect your investing/gambling? Wouldn't you take much higher risks, knowing that losses would not fall to you but to abstract taxpayers? Of course you would, and this is the essence of moral hazard--the disconnect of risk and consequence.
Cheap, easy credit has created moral hazard and nurtured magical thinking throughout the global economy. The heart of magical thinking is that consequences have been disappeared or shifted onto others by financial enchantment.
The interest on the debt will be paid by growth.
We will make so much money on this investment/gamble, paying off the debt will be easy.
This bet can't lose because the Fed/People's Bank of China/ECB/Bank of Japan etc. will never let the market decline.
When I write about the Martian Central Bank issuing quatloos to save Earth's bankrupt financial system, we know it's a joke: the Martian Central Bank and the quatloo do not exist.
But there is no difference between believing in cheap, easy credit as the solution to all problems and believing that the Martian Central Bank will save us from the consequences of cheap, easy credit and the destruction of fiscal discipline.
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"Helicopters". Drink.
There are cracks forming in the debt bubble, Stockton, Detroit, Greece, Purto Rico, but at some point it will become a flood and all those who think they have asset in debt instruments will learn otherwise. The question is what 'tools' will the powers that be come out with to deal with that crisis. Never let a good crisis go to waste after all.
We say,
That is incorrect. In reality, it was the creators of cheap, easy credit who nutured magical thinking as a means to achieving global enslavement. Let's begin, today, to see it exactly as it is! It is a deliberate attempt by an extremely small number of (so-called) human beings to enslave the global population.
All we reallly have to do is say, "No," and retake from them Our Right to Exist, Free of Their Control! Refuse them. Take their ill-gained wealth away from them. Work through the transition to warless world freedom. Live with intelligence and prosperity. Change the global idea of "The Corporation", strip it of its legal status as a Person among real people--these unreal "persons" are criminally insane at their hearts!
The socialists have spent the last few generations creating the free shit army and now they'll get to enjoy the fruits of their labors, at least until the riots start......
all of this credit and the resulting debt are a mirage. no one has it to lend, and no one has it to repay. it's all being carried in a virtual wonderland. it's time to stop pretending any of this has real value.
When your debts are unpayable, you can defer judgment day with cheap, easy credit
Then came financialization. Banks could skim the profits from originating loans and offload the risk of default onto towns in Norway, credulous pension funds and other greater fools.
And who allowed them to do that...........................DOT GOV as the banks got them to pass laws so they could offload.
Gov wanted them to do that so they could increase GDP.............so GOV ..............could get more debt to carry on spending..................to stay in power.
FUBAR
Hey assahat, the bankers/financiers are the fucking government now. Have been for quite some time. This is the fucking problem. The republic is dead.
Yes, funny things happen when you fuck around with the time value of money.
Not "ha ha" funny. More like "oh, shit" funny.
Well, it's kind of funny. Whimpy never had to pay any time value of money for all those hamburgers he ate.
I call it "PHUNNY MONEY"TM
Banksters were given the power to create money from thin air and pass the bill to the public treasury and the individual citizen.
In other words, they were allowed to trade lies for treachery; it isn't just magic thinking, it is Satanic thinking.
There is no such thing as money any more. There is no reason to labor, to work, to toil - when your only recompense is lies and treachery.
Yes, call "financialization" and what is going to today what it really is, a "let the majority eat cake" monetary experiment.
It has been tried before, albeit on a smaller scale, the outcome will be no different this time around.
Get long sharecropping, black markets, and guillotines, beat the rush.
Orlov manages to make this actually sound funny.
The Care and Feeding of a Financial Black Holehttp://cluborlov.blogspot.com/2015/06/the-care-and-feeding-of-financial-...
And doing it openly, calmly, without remorse while working people are caught up living in their daily lives feeding this monster, totally unaware, trying to get to at least "0", and calling that success. Coupled with a gov that has first picking of the scraps and a few that make it into the cabal. What once was something that was just capitalism and competetion has quickly evolved into outright manipulation, starting with the "Act" in 1913. Now other big players have learned the game and it's now globally scary as the working class, the people, remain mostly unaware.
Yes, this is in fact global Weimar, the outcome will be no different this time around. Of course it will be on a much larger scale.
I wouldnt lend a cent to a greek
No problems. The central banks are the lenders of last resort. lol
"Professional economists..."
Now there's a word combination we can ponder today.
time to sell some islands.
trump should buy Mykanos for $2B. the greeks would have $300MM left over!
Yeah, but stupid constitutions have clearly stated that territory integrity is holy. Though, a few exceptions exist - like Crimea and Ukraine
last week proved that the Constitution's words and contractual obligations mean nothing.
wake up. :)
Last week? I've watched the constitution get slowly shredded over the course of my lifetime and we witnessed in 2009 exactly what contractual obligations really mean; they only apply to the proles, when it comes to the elites they mean nothing.
http://money.cnn.com/2006/03/31/news/companies/delphi/
Easy money corrupts. There is satisfaction from work and the feeling that one has earned something through effort.
Corruption robs us of that.
The Martian Central Bank does not exist. The Saturnian Central Bank exists.
Smith is still fixated on the dynamics of fiat currencies. Six months from now, in the smoking ruins of a global ponzi scheme, this article will sound as relevant as a dissertation on buggy whips.
'We will gladly lend you this gold --with an introductory rate of 0% interest !!-- to shop at Walmart or enjoy a fun-filled week in Cancun!'
Not.
In the real world, debt is never an asset.
Debt is always a liability for all parties involved.
The US dollar Federal Reserve Note is not created by any other means. Each dollar created has sprung into being based on a loan and thus as the primary instrument of debt. And for more than a hundred years now, the men behind the central banking system have been printing this kind of money for free, to be spent in any way they wish once it is "laundered" by the system and returned to them with interest yet! And yet now you tell me it has been a "liability" for them as well? In what way? Even if they are never paid back, they have ultimately lost nothing, because it was from nothing from which it was obtained. Literally.
It doesn't get any better than getting an Optum MasterCard to charge against your health savings account..the United Healthcare custodial bank, right in there..and of course their investments in low income housing...be careful with your health insurer plans...
http://ducknetweb.blogspot.com/2013/10/unitedhealthcare-doesnt-want-to-let.html
Nice thing about Canadian gun laws. Don't see them in stores so, up till now, no one has forced me to take yet another credit card at gunpoint. Maybe next week.
stop paying your taxes and the guns will come to you. That's a good sheep...
Nah. I already own too many. Side point to ponder, CDN govt. will NOT accept CDN cash when you pay for a passport. Has to be a credit card. ( Ps. paying taxes with a credit card is fine too. ) I generally use cash so found out the govt. doesn't accept it by offering.
Similar in the US. I can't write a check to my state government to pay sales tax. I have to give them access to a bank account. So I opened one exclusively for that purpose. It's kind of handy, as long as I keep a $0.00 balance in it, and when I file a return, the same day put the same amount into that account. That way, no "Oops, we accidentally took all your money and there's an endless and futile appeals process..."
Do much the same, but the sneaky devils at the bank decided, on their own, that I should have a $20,000 line of credit on it. They looked confused when I told them to remove it.
Oh, for Christ's Sake. It is amazing when they offer you "free" money and you turn it down, how shocked they are. I've taken far less than offered in home loans and they're always stunned. They say, "Oh, you qualify for [gigantic amount] more, you could buy a boat or take a trip!" I respond, "Great, but, would I have to pay the money back? Yes? Well, in that case, no thanks." And they look at me like I'm the dumbest guy in town.
Really, when somebody give you something without your asking for it, almost always it works to their advantage, not yours. Grandmas and baked goods would be among the few exceptions. What's amazing is how few people seem to grasp this, hence the confused response...I mean, why wouldn't you want a free starter "taste" of heroin? It's free...
Yeah. Recent scam "Choice rewards" ( no you can't choose not to ) and then if you want cash instead of something from their "rewards" catalog, they will put that onto your card, but not the one they came from. You have to get another card. All this so the credit company can skim 2.5 % from every sale, charge the store 5% and "reward" you with 2.5% of your own money. Store has to charge everyone that extra 5% after all.
I've always been the same.
Of course, now I understand that I actually WAS the idiot...but not for the reason they thought.
Why?
Because the real rate of inflation must, by definition, be greater than the real rate of interest under a debt-based fiat monetary regime or the currency will collapse.
By not borrowing to the limit (preferably on productive assets) I was transferring wealth through the printing press to everyone who did borrow to the limit.
Big difference between inter-bank "prime" rate and what you pay though. The credit card example, the one I had to get to allow a "cash back" option has a 19.9% annual interest rate ( this after the traditional 2.5% vig. ). So if you can borrow at inter-bank rates, yes. Heck if I could borrow at 0% and lend out at 19.9% , I could buy all the politicians I needed too. :-) Yes, a system that creates money with debt and demands repayment with interest can only exist during exponential growth. Exponential growth is the same system cancer uses, it always exceeds the resources at some point. Our present economic system is going to run out of poor people to rob for the same reason.
This trait of humans is well-known to professional heroin dealers. And cigarette manufacturers. If not for magical thinking, nobody would buy those prodcuts anymore. Yet they do. Voila.
Also, I'd argue that "easy money and easy credit" are a bit off the mark. It's Infinite Abstract money that allows endless easy credit. This scheme wouldn't work at all if we still used physical assets as money, or the backing for money. Indeed, that's why we don't anymore. There are certainly advantages to abstract money; don't get me wrong. But it's dangerous stuff, and human greed has to be strictly and sternly supervised to keep it from getting out of hand. That, clearly, is not the current state of things. The dope dealers are firmly in charge, and it looks like they've gotten so greedy they're going after everything the junkies can hand over, even if the deals that make the dealers incredibly wealthy also kill all the junkies. A wiser pusher would look to maintain his clientele; to shear the sheep, not skin them. But these aren't wise dope dealers, for the most part.
And they think they've discovered a new, previously undiscovered, cunning plan that cannot fail. Those are famous last words.
"Ask yourself this: if you could shift risk and losses to the taxpayers, how would that affect your investing/gambling? Wouldn't you take much higher risks, knowing that losses would not fall to you but to abstract taxpayers?"
No.
I would dispense with investing altogether, and create fraudulent investing vehicles to enable me to take and keep the loans.
In doing this my risk would be zero, and my gain 100% - a much better risk-reward than I could get in any legit investment.
So...
What is it you think they are doing on Wall Street...and in all the Corporate finance offices?