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"We Will Have A Downturn", Dalio Warns, Return To QE Inevitable
Last week, we took a look at why zen master Ray Dalio’s All Weather fund has had a tough time riding out the series of violent thunderstorms that have shaken the market of late.
In short, “the historical relationships between asset classes (volatilities and correlations) that are used to construct optimal "risk-parity" funds in order that 'risk' is balanced and hedged across bonds and stocks (for example) broke down dramatically.”
Or, visually:


Fresh off a -4.2% performance for All Weather in August, Dalio sat down Wedensday with Tom Keene and Michael McKee for an interview on Bloomberg TV.
After concedeing that last month was indeed "lousy", Dalio went on to discuss the outlook for asset prices and the global economy ahead of an expected Fed rate hike cycle. The arguments will be familiar - especially to those who frequent these pages - but are worth recapping nonetheless.
First, there's the familiar idea that central banks are effectively out of ammunition and even if the will to ease is there (and make no mistake, in today's centrally planned world where every central banker from Washington to Tokyo has gone Keynesian crazy, we imagine that the will to ease will always be there), actually having the scope to do so is another matter. From Bloomberg:
“I don’t care whether they raise 25 basis points,” Dalio said Wednesday in an interview with Tom Keene and Michael McKee that was broadcast on Bloomberg radio and television. “What scares me, or what worries me, is what the next downturn in the economy looks like, with asset prices where they are and a lesser ability of central banks to ease monetary policy.”
He predicted that returns across asset classes over the next decade will only average 3 percent or 4 percent. Narrower spreads will make it much harder for asset purchases to have a big effect on the market, he said.
And then there's the argument - which we've been making for longer than we can rememeber - that paradoxically, because ultra accommodative monetary policy hasn't proven effective at engineering a robust global recovery by resuscitating demand, but has instead served to perpetuate a global deflationary supply glut, any move by the Fed to hike rates will almost invariably trigger a dramatic meltdown in already beleaguered emerging markets and that meltdown will in turn feedback to advanced economies causing the Fed to reverse course and launch QE4 at which point any semblance of credibility will be lost as will any hope that the world will ever be able to normalize without suffering through the worst collapse modern capital markets have ever witnessed:
Dalio, who manages the world’s biggest hedge fund, is among a small number of prominent money managers who have urged the Fed not to raise interest rates. Jeffrey Gundlach, co-founder of DoubleLine Capital, has said the Fed would have to reverse course if it raises rates prematurely.
“We will have a downturn,” Dalio said in the interview.
As the U.S. Federal Reserve meets Thursday to decide whether to raise interest rates, Dalio said a big increase in the near future is impossible because the global environment requires lower borrowing costs. He reiterated that the central bank will eventually return to quantitative easing.
If and when the Fed does finally move to hike, it will be interesting to watch not only Dalio's All Weather fund, but also the rest of the risk-parity crowd to see how the "rebalancing" works out in what are sure to be chaotic markets. On that note, we close with the following from Deutsche Bank:
A “policy error” rate hike might well result in positive correlations among equities, commodities and bonds, due to a combination of risk off and higher rates. In this case it is not entirely clear how risk-parity funds would rebalance: A potential candidate for inflows would be currencies, and in particular the dollar, which could be the only game in town. Of course, this would only put additional upward pressure on the dollar, reinforcing the “policy error” nature of the hike via additional traded goods price deflation (including commodities), weakness in net exports, and exacerbating pressure on dollar peggers.
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US debt has increased from $60 trillion in 2003 to $210 trilion in 2014 per Kotlikoff. US interest rates cannot be increased without sinking the US budget and economy. After ZIRP comes NIRP.
QE forever.
Hubba Hubba Hubba Money Money Money Who do you trust?
Kotlikoff goes on to illustrate that the fiscal gap is increasing at an alarming rate and that delay makes our problem much worse. In 2003, just a little more than a decade ago, the fiscal gap was $60 trillion. But by last year it had catapulted to $210 trillion. The fiscal gap may not continue increasing as rapidly as it has over the past decade, but with each passing year - as Congress and the President do their best to avoid action - our hole grows deeper by substantial amounts.
http://www.brookings.edu/research/opinions/2015/04/08-federal-debt-worse...
Removed the spiked punch bowl (QE) and the hangover soon sets in.
pods
Maybe NOPE (no interest rate policy expected) follows ZIRP or NIRP.
How low can the limbo go ?
Tally man ?
So does NIRP mean they will *pay* us to take the money?
Possibly, but it is a safe bet that you'll pay them even more to deposit your FRNs with them. There's a reason people are agitating for a cashless society.
Does Dalio advocate a cashless society? What is cash?
300+ pages of cheerleading for theft:
http://www.economicprinciples.org/
The premise that contradicts the facts which the author purports is exactly the same as the Austrian Economists. 300+ pages without mentioning the Austrians but instead swallowing the fallacy hook, line, and non-thinker.
The fallacy? Mises' Theory of Money and Credit correctly identifies money as organically arising as either species of commodity such as gold, silver, nickel, and copper. It requires productive work to find, mine, and bring to market these metals. This productive work is then valued by others who perform productive work. Producers of values voluntarily choose to accept the metals as representative of mediating the exchanged values of their mutually recognized productive work.
Then, this fact of [commodity] money is immediately contradicted by asserting that the counterfeiting of this productive work as claimed by the "paper oligarchy" can be introduced as money too, by force/decree - Fiat. This intoduction of fiat is then extended to the blasphemous identification that "credit" is money too.
Mises may have made this fallacy as a mistake since his times were prior to the obvious context that we can observe today. Mises' contradictions are almost forgiveable. Dalio's are inexcusable.
I have no idea if Dalio advocates a cashless society, but we are hearing grumblings about it on various financial websites. If you think paper is bad, just think about how bad cashless would be.
Someone asked about NIRP and what happens afterwards; WAR, a real shooting war, as the currency wars come to a close.
The Federal Reserve Raises the Stakes in the Global Currency Warto a bank, its product is money aka debt. it is poison like anyone having too much debt or business to have too much inventory. nirp is both a theft mechanism against savers and a weak way to force people to get the poison of the feds debt out of their system and into the peoples hands where it can be silently stolen through inflation aka dealuation aka printing. THE FED IS FUCKING EVIL AND HAS BEEN FOR 100 YEARS!!
So does NIRP mean they will *pay* us to take the money?
NIRP means they'll pay corporations and wealthy to very wealthy to take money they don't need. They'll use it for buybacks, dividends, etc and buying up all the little peoples homes to flip them in rentals.
Little people won't see that any of this and will still pay through the nose for money they actually need.
Rise like lions after slumber
In unvanquishable number
Shake your chains to earth like dew
That in sleep have fallen on you
Ye are many, they are few.
- Shelley
When China catches a cold, the rest of the world gets pneumonia.
Gold is undervalued; a good time to add. As CBs around the globe -- USA, EU, CHina, etc -- cut more and print, ultimately gold will rebound strongly. RE is way overpriced so i would not otuch it. There's going to lots of defaults and foreclosires there.
In GOD we trust
jesus saves; moses invests
http://www.bankrate.com/finance/real-estate/foreclosures-by-state/
We are seeing more non-payments in my city also. However, bankers are under no pressure to foreclose and move along since the Big Banks get free money from the Fed. Despite risky issues they still lend like crazy and care little about losses and non-performing laons. Strip malls everywhere while only a few miles away empty run down strips and stores.
Huge misallocation of resources.
You have forgotten that the dollar is only paper. More can be created at will by the touch of a button. The hole is only as deep as we want it to be. The Fed is only worried about EM and not the US.
The next decade is a bust economically...that cake is already baked. There are tons of reasons from a qualitative standpoint so many have covered...but I'd add that the quantity is also a huge factor.
The pace of core population growth (15-64yr/olds) is about to collapse. Consider the growth over the last 3 decades and the decade we know begin (#'s from OECD include anticipated immigration)...and consider the implications of the slowing growth on the decade we just finished and extrapolate that out to the much slower growth we now face.
'85-'94 = +18m
'95-'04 = +25m
'05-'14 = +15m
'15-'24 = +4.7m
This is an 80+% decrease from the core population increases seen from 95-04 and 66% decrease from the "glorious" 05-14 period when the Fed bought $4.5T of "assets" to "stabilize" the ship (and this assumes strong economic growth promoting family formation over the next decade...something unlikely to take place). This at a time we face massive increases in debt, unfunded liabilities for surging 65+yr/olds, and rates that can go no lower (or can they...NIRP?). Add in most other advanced and many developing nations now face large outright declines (china's core falls by <-11.5m>) in their core populations and the ability for the US to substitute international growth for declining domestic will be very difficult.
http://seekingalpha.com/article/3517306-why-fed-rate-hikes-are-truly-laughable-but-the-world-isnt-laughing#comment-60378096
^This feller has his finger on the button, as far as I'm concerned. What say you, Everett?
-Delmar
Harry Dent says it is all about Demographics I guess.
But what this guy was saying kind of opens it up a little more.
Good stuff, bad outlook.
I like Harry, tv88s, but I think he's confusing symptoms with root causes.
At any rate, I'd love to hear your best chops. Lotsa people don't know what teeth village and 88, when used together, actually means.
This guy does-
https://vimeo.com/70312775
haha we will have....how about we are already in one
yes ladies & gentlemen, we have another:
JPMorgan Chase: Jamie Dimon at Town Hall Meeting says it is his 'guess' that the Fed will not increase interest rates
Dimon: "You're guess isn't as good as mine."
and "because I'm richer than you."
Implied, but not spoken: "oh and I would spit on you and step on your balls because my money makes me a better person than you".
wanting lift-off just to get it over with,already...
wanting ZIRP just to prolong this agony.
tell the world how ya really feel
Say what? " is among a small number of prominent money managers who have urged the Fed not to raise interest rates."
Its just 0.25%. Credit card companies jack up rates far in excess of that all the time. But no one can handle a 0.25% increase? I know I live in a non-normal world for the last several years and using logic will get you killed but where is that great flood when you need it? There needs to be some serious cleansing...
Back around 2006-2007 Citi raised my rate over 20% out of the blue, on a card I had held since 1991. No late payments or anything like that, just a slight adjustment to my APR for new purchases. Went from around 12% to over 30%. I'm quite sure I never bought anything else with it before closing the account.
They acted quite incredulous when I called to close the account.
Wanted to know if there was a problem.
I told them "No problems, just close the account". If they can't figure that one out for themselved, I can't help them.
For those who want to know a little bit about economics reality, instead of watching tv, they should read zerohedge posting comments :-)
To just observing: 18 trillion is our debt, but you said 210 trillion. I believe your number, but what does it come from? derivatives?
In compelling testimony, Kotlikoff argues that the federal fiscal situation is much worse than the CBO estimates let on. The reason is that CBO's debt estimates do not take into account the full financial obligations the government is committed to honor, especially for future payments of Social Security, Medicare, and interest on the debt. He asserts that the federal government should help the public understand the nation's true fiscal situation by using what economists call "the infinite-horizon fiscal gap," defined as the value of all projected future expenditures minus the value of all projected future receipts using a reasonable discount rate.
What difference does the fiscal gap approach make in our understanding of the true federal debt? CBO tells us that the national debt was a little less than $13 trillion in 2014. But the fiscal gap in that year as calculated by Kotlikoff was $210 trillion, more than 16 times larger than the debt estimated by CBO and already judged, by CBO and many others, to be unsustainable. If a $13 billion gap is unsustainable, what term should we apply to a $210 trillion gap? Kotlikoff also calculates that the fiscal gap is equal to about 58 percent of the combined value of all future revenue. Thus, we would need to reduce spending or increase taxes by enough to fill that 58 percent gap if we wanted to put the federal budget on a path to solvency that balances the interests of those now receiving benefits and those who hope to receive benefits in the future.
http://www.brookings.edu/research/opinions/2015/04/08-federal-debt-worse...
Former Dallas Fed Chair Fisher also warned about US debt and unfunded laibilities on May 28, 2008 and no one paid attention. Now debt and unfunded liabilities are at least $50 trillion higher and growing at $8 trillion a year but nobody cares:
Add together the unfunded liabilities from Medicare and Social Security, and it comes to $99.2 trillion over the infinite horizon. Traditional Medicare composes about 69 percent, the new drug benefit roughly 17 percent and Social Security the remaining 14 percent.
Let’s say you and I and Bruce Ericson and every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income.
http://www.dallasfed.org/news/speeches/fisher/2008/fs080528.cfm
Thanks you guys :-) so, if U.S needed 45 billion a year more with .25 interest rate at 17 trillion...then 220 trillion would be??? around 600 billion needed more each year? yikes, can you imagine just a tiny interest rate of 1%? that would be 2.4 trillion a year? and what if it was 4% which it should be? yikes and double yikes!
I, for one, feel very fortunate that the FED can just magically create money out of thin air to cover the shortfall.
Imagine how hosed we would be if we couldn't?
Oh yes... It took the Fed 100 years to make a $ lose 97% of it's purchasing power... Let's see how long it takes under these economic conditions to inflate the debt away! Zimbabwae here we come!
Hey mullet you forgot about the unfunded liabilities that your government doesn't put into their debt numbers.
Think the U.S. national debt stands at roughly $17 trillion? If this outrageous amount wasn’t bad enough, the actual national debt is closer to $222 trillion, according to Prof. Lawrence Kotlikoff of Boston University. This is the real debt when you count all of the federal government’s unfunded liabilities for programs such as Medicare and Social Security. What is frightening is that the debt increased $11 trillion just in the last year to reach the sum of $222 trillion. This puts the real budget deficit at ten times the official reported number. Indeed this makes the talk from Congress about cutting a couple trillion dollars in spending over a decade seem rather trivial – and ridiculous.This is not your fault. Way too many pudits, analysts and commeters all talk about the US debt being $18T, and then use that for all kinds of calculations. That is just the FEDERAL GOVERNMENT's debt. Pirvate citizens (you and me), corporations, munciplal governments also borrow money, making the total US debt almost $60T. That is cold hard debt. It is closing in on 400% of GDP, over twice the 180% that any historical system has ever come back from. Now, add to that Social Security shortfalls, Medicare, Medicaid, and a blizzard of pensions, and just the Federal governments unfunded libailites take the $18T up to roughly $210T. There are also numerous private and muncipal pensions and health care systems that are also unfunded, for a grand total of "you can't count that high".
Exactly.
.25%
If you are levered up so tight that you can't take a .25% hike, I got no sympathy for you.
The world has evolved away from the business cycle.
Its now a self-perpetuating infini-cycle in a mirror room, and fully financed power, air, and food to go around.
How will this inception end ?
Correct me if I'm wrong but we are not at the lower bound, right? The overnight rate stands at 0.14% as of today. So are we really talking about a 0.11% increase?
I had thought they would raise at least 0.125 to show some semblance of credibility or faux confidence.
But now I realize there is no confidence and they see it is likely they will in fact have to ease. That hit they do not have the balls to take - to tighten and then ease. Would expose them as one note singers.
Thar she blows. S$P 2001 in preparation of blast off.
Of course...QE forever and ever and it will have no ill effect.
These assholes all make me sick! Just burn the whole fucking thing to the ground, and they are and will.
My guess is QE is going to buy up (delinquent) student loan backed securities @par and those will be helicopter dropped on the sheeple so they can get in on the wealth effect.
Because fairness and disparity.
Indeed it is! The Western Governemnts have a new economic policy. It is called "The Stock Markets Are The Economy". Without a care for mainstreet economics, wage growth, full time jobs, or the Middle Class, governments have committed their whole bailout potential to driving UP stock markets, and keeping them UP. If markets are high and the 1% have their assets at record valuations, then the governments consider the economy Fixed! In this new world, markets are everything, just keep stocks flying high, and keep asset owners rolling in profits. Markets before people, markets before industry, markets before mainstreet.
The bond markets are roughly an order of magnitude bigger than the stock markets, and in turn, the currency markets are around an order of magnitude bigger than the bond markets. Which means that tanking the dollar in a (vain) attempt to keep equities pumped isn't a case of the tail wagging the dog. It's a case of the flea on the tail of the dog wagging the dog.
Cry me a river. An Asset Gatherer that skims off of the counterfiet FRN system bitching about how rough things might be.
Daluio, Dimon, and Blankfein all act like the Fed has not already called them and asked them if they should hike or not.
Kabuli theater. No way Smellin Ye4llen hikes. I am jst interested i the fable she tells in explaining why.
And there you have it. Its all about "asset prices" - not real wages, income, spending ... or real lives of the 99%.
The Fed is the "fixer".
Geeee - I wonder why all of these money managers want super cheap money. Could it be because they get to make big returns on it, while you and I, the little man struggling to get by, has to pay for it all via. taxes?
hummmm
I'll bet it's a wild time if you're' in the clicke.
To be in the 1% or .01%, they just shovel it your way.
My personal little hell is a wife of 32 years, who thinks that's the norm, and I fucked her out of it. And I quote, " I just want what everyone else has".
Meanwhile, with the passing of every day, I get more and more paralyzed, EXACTLEY like playing musical chairs, and you just feel it ready to stop.
It's very hard to be motivated. I wish I was ignorant, some days. Meanwhile, the masses are blissfully going about their business, like all is good.
How do you guys deal with it?
easy https://www.youtube.com/watch?v=DMO_67C1cGs
Thanks Watson.
I'm already there.
But I'm much more ....... Irritated. Those little hobbies won't do.
Tell your wife that the only thing other people effectively have is DEBT. Most of the fancy stuff exposed on the lawn or driveway is owned by the BANK - including the house. And that she can have it provided SHE pays off the DEBT plus interest. Looks like a solid proposal to me.
Get rid of the bitch cunt wife.
Pronto.
Nopension, man my 17 year old nephew suggested that you should ditch your wife and runaway with as much money as you can. He also suggested you become a teenager again, live in a cool garage and get yourself a motorbike, Hot Rod or Muscle car. Perhaps even join a Car Club or Motorcycle Club? Learn how to surf or do some cool sport? Only go out with young chicks and get rid of them as soon as they want some sort of kommmitttment. Men don't realise that women need US! Women need to get laid, have some poor sucker pay their bills, buy them shit like houses, jewelry, take them to restaurants and buy new boring fucking cars like Mazda, Toyota Prius and BMW. To top it off once you have kids you are financially obligated for at least 18 fuckin' years.
What Confucius said about women, "Remember the three F's, Find them, Fuck them and Forget them" I hope these words of wisdom from a 17 year old has helped.GR your nephew is a genius. It took me until I hit 50 to realize that wisdom and I spent the next five years making up for it. Blew most of my money, traveled the world, banged myself stupid and no nasty rashes to show for it. It literally dragged me out of a multi year funk and now that's behind me, I'm living a quiet but satisfying life trying to get my body back into physical shape after all that excess lifestyle.
Hepatitis C doesn't cause a rash.
A 17 y.o. who has never gotten laid and probably never will, lol, given the planet's present male/female ratio (think: millions of aborted baby Chinese and Indian girls, and Middle Eastern girls who have been mutilated so that they won't enjoy sex).
It's nice fantasy advice, but not very useful real advice. Back in the 1970s, when the demographics were different, and men had better jobs than women, it would have worked pretty well. Not now. Now women often have the better-paying jobs.
"Only go out with young chicks," lol. Young chicks can get really handsome guys their own age; the "young chicks" I know prefer really good looking young guys, not some old dude (not that NoPension is really old, but he would be old to them). "Women need to get laid," lol. Yes they do, but they'll hold out for someone seriously handsome. "Join a car club," haha. And hang out with a bunch of dorks who can't get a date.
Sell everything and move to a trailer park. Maybe she will leave you. Then you can shack up with the trailer park beauty queen.
Now THAT is promising advice, LOL.
Live in the moment, NoPension. It's all we have anyway. Enjoy your health while you have it. Go fishing. Have a barbeque. Think of your kids. Quit smoking (you've said you smoke). Drink a beer. Marriage isn't easy; I'm sorry your wife is a dolt. Don't worry about the 1 percent or the masses; Voltaire's Candide (after roaming the world) concluded that the answer is to cultivate one's garden (figuratively). Things will probably get bad enough that you will look back on now and think now wasn't so bad, so enjoy now. And if you're irritated (you said above that you are), look into hormone supplementation; it could bring your mood back and make it all look funny instead of miserable.
Little confidence in the Fed just plummeted to ZERO confidence in the Fed and the entire financial system. This does not bode well.
They will give free trucks and cars away to small, medium biz , to clear out unsold inventory. All kinds crazy shit to come
So what happened to the term "BEAUTIFUL DE-LEVERAGING" that Ray Dalio used to describe what was being done to the US economy three years ago? Anyone remember that, or am I being too picky by remembering the past?
Correct me please, if I'm wrong.
De-leveraging is paying down debt.
Paying down debt DESTROYS money in our system.
Our system requires more debt/ money to operate.
Therefore, no intentional de-leveraging.
it seems deflation terrifies them.
http://www.economicprinciples.org/wp-content/uploads/ray_dalio__how_the_...
You ain't wrong... Except that debt isn't money, it's currency.
Anyway, congrats on 32 years! From my own experience (38 years) they go from menopausal to downright delusional around that time.
Wasn't this way before Gloria Steinem.
- A sympathetic fellow traveler.
Dalio ignores the trillions in covert QE to cover naked shots on Treasuries.
Dalio doesn't get it. The whole paradigm of central banks using monetary policy to prevent cyclical debt crises has been falsified. It is bunk, a sham, a scam. It cannot work.
Okay, so now what are "we" going to do? Hmm?
Article V or continue to boil like frogs?
As far as the elites are concerned? "Frog legs. It's what's for dinner."
They say they are doing something, but they are not doing anything that helps other than keep financing costs lower.
And personally I don't see them, the FED, explaining anything. My understanding is that Velocity is lowered through QE. I don't see them talking and explaining why they don't target the Multiplier Effect or Velocity of Money to crank up the Economy and Innovation.
I guess they are saying well we have low financing costs, so innovators should be fine.
But the Business Environment is Set up largely by Federal and State Rules not the FED.
- It is false to keep waiting for the FED to do something when all of this was obvious in 2000 and again when the bubble started to pop in Oct 2005.
- What did they do in 2005-2006, they expanded the war in Iraq as a kind of stimulus, FISCAL Stimulus, and it has continued since 2005.
- It is the US Congress who has the power, Responsibility, Function, to save the Middle Class and prevent QE & NIRP
Yeah our FED may be Full of Central Planners not Capitalist.
Business Dynamism in the USA has Collapsed.
http://www.kauffman.org/~/media/kauffman_org/research%20reports%20and%20...
http://www.brookings.edu/research/papers/2014/05/22-decline-business-dyn...
http://www.citylab.com/work/2014/07/the-troubling-decline-of-american-bu...
I might as well post some papers on the Subject of Velocity of Money since I am asking about the subject every where.
http://www.iseg.ulisboa.pt/departamentos/economia/wp/wp0102007deuece.pdf (Carlos Pestana Barros, Luis A. Gil-Alana, Pedro Leão)
https://www.stlouisfed.org/On-The-Economy/2014/September/What-Does-Money... ( Yi Wen, Maria A. Arias)
http://www.lse.ac.uk/economicHistory/pdf/FACTSPDF/1306Morgan.pdf (Mary S. Morgan)
http://www.nber.org/papers/w4379 (Michael D. Bordo, Lars Jonung, Pierre Siklos)
http://www.bis.org/publ/econ2.pdf (Warren D. McClam)
How much income is used for debt payments? A new database for ...
Yeller is irrelevant. She should just close the Eccles building and tell everyone to come back when the market hits 20% down to start QE engines back up. She just wastes everyones time with the same press conference over and over again. Blah Blah Blah
...a lesser ability of the central banks to ease monetary policy.
They have an unlimited ability to ease; it is the effectiveness and the ability to continue to fool the masses that is limited.
Dalio and Tudor Jones are just getting thier shops ready for the inevitable complete economic shitstorm.
-Chomu
Hey Ray, don't worry "There will be growth in the spring!"
A volatility choice. Just keep global assets volatility as low as you can. Enhance the whip (monetary policy only). Control the rules of the games (markets). Let the trade-offs be taken in the real economies. Labor, Wages, Houshold Savings, etc -what are these inconveniences along with the Preys.
The term "liquidity trap" that has been used by Allen Greenspan and others can be difficult to understand. At some point the return on loaning money is simply not worth the risk! Why do you want to loan money if most likely you will never be repaid or repaid with something that is totally worthless? When this happens the only safe place to store wealth will be in "tangible assets" and the only lenders will be those who print the money that nobody wants.
A solid lack of buyers in the bond market will signal the bubble bursting and that a liquidity trap has sprung. It might soon become apparent the economic efficiency of credit is beginning to collapse and the additional money poured into the system coupled with lower rates can no longer drive the economy forward. When this happens we are at the end game. The collapse of credit can pose major problems such as what we saw when many sellers were forced to demand payment up front before shipping goods in 2008. More on this subject below.
http://brucewilds.blogspot.com/2014/06/the-economic-efficiency-of-credit-can.html
We all get the ,gov that we deserve!
If the educated don't educate the sheeple to bring real change... None of this " I did my part and voted" then turned your back on your party that won and did nothing or think that there is nothing you can do because your party did not win... Think again...
We all need to take this/these .gov's by the balls and throw out the criminals and FORCE real change... or well we get the .gov we deserve.
Was it not Benjamin Franklyn, who said " it's a republic if we can keep it".
According to Macquarie Research:
https://app.box.com/s/hx16540dwpct4uj5h5iohxsa4197zozd
Time for a policy U-turn?
Back to the future: British Leyland
From conventional QEs to more unorthodox policies…
- As discussed (here and here), we do not believe that investors are likely to benefit from acceleration in growth rates, trade or liquidity and indeed on the contrary, negative feedback loops from EMs to DMs imply that neither would be able to support global growth. Secular stagnation is the key explanatory variable (here). The deflationary pressures from overleveraging, overcapacity and technology shifts can be either allowed to work through economies or the public sector needs to continue resisting via expansionary policies.
- Since ’08, monetary policies were doing most of the lifting with limited participation by fiscal authorities (bar China). In other words, in the absence of either private or public sectors driving higher velocity of money, it was Central Banks that were supplying incremental liquidity to preclude contraction of nominal GDP and avoid stronger deflationary pressures. However, marginal utility of incremental injections has been declining (witness much lower impact of recent ECB’s QE and increase in BoJ accommodation since Dec ’14).
- Part of the reason for monetary stimulus fading is that supply of US$ remains low. Global economy continues to reside on a de-facto US$ standard and current incremental supply is almost non-existent (depending on definition growing at +2%/-1% clip vs. average since ‘01 of ~15%). In other words, due to lack of recovery in the US velocity of money and lack of QEs, global economy is not getting enough US$ to continue leveraging.
…as efficacy of conventional monetary QE is questioned
- At the same time efficacy of continuing with conventional QE policies is being challenged and not just by independent observes but also ‘insiders’ (such as recent SF Fed paper). As velocity of money globally continues to fall, conventional QEs have to become exponentially larger, as marginal benefit declines. If the public sector is not prepared to step aside, what other measures can be introduced to support nominal GDP and avoid deflation?
- There are several policies that could be and probably would be considered over the next 12-18 months. If the private sector lacks confidence and visibility to raise velocity of money, then (arguably) the public sector could. In other words, instead of acting via bond markets and banking sector, why shouldn’t public sector bypass markets altogether and inject stimulus directly into the ‘blood stream’? Whilst it might or might not be called QE, it would have a much stronger impact and unlike the last seven years, the recovery could actually mimic a conventional business cycle and investors would soon start discussing multiplier effects and positioning in areas of greatest investment.
British Leyland failed, but it might work at least for a while
- British Leyland (formed from nationalized British car companies in the late ’60s) destroyed its automotive industry but for a time it provided employment and investment. Central Banks directly monetizing Government spending and funding projects would do the same. Whilst ultimately it would lead to stagflation (UK, 70s) or deflation (China, today), it could provide strong initial boost to generate impression of recovery and sustainable business cycle. It could also significantly shift global terms of trade (to the benefit of commodity producers) and cause a period of underperformance by our ‘Quality & Stability’ portfolio and improve performance of ‘Anti-Quality’ screen. What is probability of the above policy shift? Low over next six months; very high over the longer term.
global deflationary supply glut
On which planet was that?