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Payback Time - The Coming Decade Of Deleveraging

Tyler Durden's picture




 

Having gorged on the fat pipe of cheap credit for much of the previous few decades, the last few years have rapidly and aggressively slapped the US (and indeed much of the world) from its stupor. All that growth, was it real? The speed of economic leveraging began to gain momentum in the early 1970s and accelerated sharply in the 1980s as the cost of debt began its decades-long decline. That leverage enabled consumption and capex to rise quicker and with less capital but obviously with more risk. With the current balance-sheet recession stymieing monetary policy and fiscal policy hardly supportive, it seems the private deleveraging hole will be difficult to fill with public borrowing excess. It seems that credit markets (the ubiquitous source of all that leverage) have again and again sung from a different song-sheet with regard to the way we escape from the inevitable deleveraging we are currently undertaking. Matt King, of Citigroup, provides a thought-provoking (and all-encompassing) slide-deck on the coming decade of deleveraging and how now is time for payback.

 

Payback Time: The Coming Decade Of Deleveraging

Matt King - Citi Investment Research & Analysis


1. The Bubble In Credit

Post Crisis Recoveries... Temporary Blip, or permanently altered trajectory?

The current recovery in context...Fine in some respects, but something seems broken

A Crisis of Demand? Not just a matter of lowering rates (the balance sheet-recession)

More Borrowing = More Growth? previous growth was founded upon borrowing - was it real?

How Much Have We Borrowed? More debt in more sectors in more countries than ever before

Wealth Effects - spending only possible because of high net worth

Leading To The Growth Triangle - But Don't Look Down!!!

Love Triangle or Pyramid Scheme?

 

2. Ways Of Deleveraging

Balancing Government's Books - Austerity works if offset by private leveraging

Assessing The Broader Economy...but the private sector is in savings mode too!

Whole Economy Deleveraging - much harder - unless you debase the currrency

The Effect On GDP - without FX, adjustment is extremely painful!

Bring On The Central Banks - But don't expect them to work miracles

 

3. Investment Implications

Saved, or Doomed? It's all a question of confidence!

Growth - Lower, but above all, more volatile!!

Expectations Management - Optimism is becoming harder to sustain

Real Estate - Deleveraging + Older Populations = Downward Spiral

Equities - The end of the equity culture?

Banks and Bankruptcies - Be wary of multiples on leveraged instruments

Fixed Income - low yields should eventually make for tight spreads...

Credit -...but only once the bankruptcies are out of the way

Structured Credit - Better the devil you know (EFSF anyone?)

And In Conclusion...

Debt Needs To Fall...

Asset Prices Likely To Go With It...

and Fixed Returns Beat Uncertain Ones...

Deleveraging Is More Difficult Than You Think

 

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Thu, 11/17/2011 - 18:59 | 1889476 fonzanoon
fonzanoon's picture

where is the last part about gold and inflation? What am I missing here?

Thu, 11/17/2011 - 19:00 | 1889484 jdelano
jdelano's picture

So how is it not news that some guy fired s high-powered rifle at the upstairs windows of the white house in an attempt to kill Obama?

http://www.telegraph.co.uk/news/worldnews/barackobama/8897795/US-man-cha...

Thu, 11/17/2011 - 19:05 | 1889506 stopcpdotcom
stopcpdotcom's picture

They don't want to give the sheeple ideas.

Thu, 11/17/2011 - 20:03 | 1889685 TruthInSunshine
TruthInSunshine's picture

This article hits the nail squarely on the head.

The only thing The Bernank is doing is trying to reflate bubbles ( he has succeeded with sovereign bonds, corporate bonds, equities and some commodities - all trading extraordinarily higher than where anything remotely reflecting FMV based on valuation standards using anything remotely approaching honest math would put them - a unique accomplishment given the historically divergent pricing of bonds vs stocks - and symptomatic of extremely broken markets) in order to delay the panic that would dramatically accelerate the deleveraging that's already begun in earnest, as those still with jobs and income realize that the CAT 10 hurricane is coming, and begin to white knuckle their cash, in hopes of having enough liquidity to ride out the storm and aftermath.

In a debt/credit (same thing) based economy such as fractional reserve banking dependent ones, deleveraging is the mortal enemy and fatal assassin of the central banksters. It frustrates their game plan, runs interference with implementation of their policies, and thwarts their best efforts at keeping what is in all respects a true Ponzi Scheme alive and kicking.

Yet, deleveraging will prevail, no matter how desperate and to what order of magnitude of insanity the central banksters become or resort to.

In the end, The Bernank will be known as the boy who blew bubbles so that very important friends of the New York Branch of the Federal Reserve Bank could hitch their rides to the last opportunity to suckle the remaining lifeblood of taxpayers.

Greenspan & Bernanke formed quite the three decade bubble blowing machine.

For all those who would tout (sincerely or disingenuously) the magical abilities of Federal Reserve alchemy and ability to suspend gravity indefinitely, I'd suggest there really will be an end game whereby high inflation or debt forgiveness, both routes leading to extremely painful losses for huge numbers of people, investors, speculators, gamblers, taxpayers and the citizenry at large gets wounded very badly, some for the umpteenth time, and the system will have to reset (pick your poison based on your positions - one is definitively more just than the other, as it imposes more of the losses on investors, who should bear the risk of loss in anything approximating a 'market system,' rather than citizens and generations of citizens as a whole).

Basic Math says:

"Just like the mother in the movie 'Blow,' the inevitable process that has to occur, global deleveraging, on a scale at least equal to (actually far more so given mark-to-fantasy valuations  and leveraging gamesmanship) the circa-1981 through 2011 credit fed and central bankster sponsored debt bubble, is a complete and total bitch."

***In reality, the credit/debt based bloat that distorted all markets (which Bernank succeeded in completely breaking) began in 1913 in the U.S., but only really got underway, whereby credit extended and absorbed that exceeded the ability to repay said debt by a historically astronomical spread, from about 1972 onward, which just so coincidentally (or not) was the year after Nixon de jure took the United States off of the gold standard, freeing the Federal Reserve to print as many Federal Reserve Notes (a greener shade of toilet paper) as it wished, with no contraint other than episodic periods of inflationary bouts that hammered what once was a meaty middle class.

Thu, 11/17/2011 - 20:06 | 1889711 Fukushima Sam
Fukushima Sam's picture

And then there are the people who purposefully take their wealth out of the system because they want no part of it. The "economic terrorists", if you will.  ;-)

Thu, 11/17/2011 - 20:21 | 1889740 Talleyrand
Talleyrand's picture

You talkin' to me?

Fri, 11/18/2011 - 13:04 | 1890869 sqz
sqz's picture

Impressive research from Matt King again.

He seems to miss some implications from his data though.

Context: We are trapped in a Zero Interest Rate Policy environment due to pressure on public debt. But,

1. Unlike Japan, the US is able to keep printing and creating inflation, even without disinflation or deflation present.

2. A degree of capital destruction is both legally already happening (foreclosures) and potentially possible on a large scale (mortgage restructuring) as well as further price falls.

3. Unlike Japan, the US loves to spend (rather than save) at the drop of a hat if you can give them any excuse to do so - like giving them a job and not making them feel like their net worth is zero due to unreasonably high personal/household debt.

4. The US has a strong need for housebuilding every year just to replace old stock and build new stock, something like 1 million homes.

This means the US Fed can keep printing money and allowing credit creation. Corporate borrowing will remain stable or increase as a result, while their single largest costs (wage cost) are pinned due to high unemployment. Non-wage inflation will continue to rise and personal income will be eroded at the expense of corporate profit margins and higher product prices. As usual, Anglo corporates will hold off fixed/long-term investment for as long as possible due to culture and uncertainty.

Unless there is stunningly bad *structural* news that will have a (very) strong deflationary impact on the global real economy, like the complete and utter break-up of the Eurozone or Germany leaving the Eurozone, corporate earnings can only remain around this level or rise. Credit crunches or other non-structural financial problems will be solved with more of the same: throwing money at it.

In short, without deflation, both the monetary supply and negative real interest rates will persist and increase. Making both gold attractive as a store of value (there is no yield, but neither can you have negative interest on it!) and equity as an inflation-tracking asset. Only the UK is/will be more aggressively inflationary than the US, therefore possibly even better bargains in these asset classes are available there.

Unfortunately, for all the middle classes caught in the pinch, this will hurt. But it will hurt a lot more if you don't invest what little you have left in gold and equity for a decade!

Thu, 11/17/2011 - 20:20 | 1889738 Talleyrand
Talleyrand's picture

In the preamble, Mr. Durden wrote, "The speed of economic leveraging began to gain momentum in the early 1970s..."  I think we can narrow it down to 15 August 1971.

All this debt, all this leveraging - yeah, there may be a whole hell of a lot of it - but, what's the issue? It's just air-money. Get real money.

Thu, 11/17/2011 - 21:12 | 1889860 SWRichmond
SWRichmond's picture

All that growth, was it real?

All that demand for oil, was it real?

NOPE

Thu, 11/17/2011 - 22:31 | 1890044 Almost Solvent
Almost Solvent's picture

That's what future generations will hate us for most: the absolute waste of most "oil" for a few FRNs

Fri, 11/18/2011 - 17:02 | 1892457 Totentänzerlied
Totentänzerlied's picture

If the historiography of history is any guide, future (sycophantic apologeticist) historians will proclaim, with hands wringing,

"How could we possibly have known!? What could we possibly have done!?"

And the masses and the politicians and the intellectuals and the businessmen will love it for sparing them, one-and-all, from any blame.

And such will be the official history of the end of American empire and dollar-and-oil hegemony, forever and ever, amen.

Tue, 11/22/2011 - 21:46 | 1905009 Talleyrand
Talleyrand's picture

Maybe they will thank you for ridding then of the curse that is "oil".

Fri, 11/18/2011 - 00:37 | 1890318 oldman
oldman's picture

Thanks, Truth

You put this very nicely into perspective.

All's well that ends, as I read it. The thing that I find most interesting as an additional threat is the possibility of a global decliner in population that might just catch the tail end of de-leveraging and extend the lack of wealth and capital for another decade or so.

I am looking for the 'unknown' not because I want to create more 'human pain and suffering' but for the simple reason that there is always some odd wrinkle in these explanations that defies the human imagination-----any other ideas? This is becoming very interesting with so many that now have been cast out into the streets demanding change----maybe something like a new way of managing resources, etc,

THanks again for the effort above as it clarified a couple of things                   om

Fri, 11/18/2011 - 13:23 | 1891643 twotraps
twotraps's picture

Truthinsunchine, really well said, what are some scenarios you envision for the CAT 10 storm?  I'm shocked we have not seen more re-pricing of everything by now but so much has happened, the news gets worse, time goes on, it gets laughable, yet nothing seems to happen.  Interested primarily in protecting what i have but I wonder about a seriously overlooked investment/opportunity where the cash will run that could make for a serious multiple return.  Again, great comment

Fri, 11/18/2011 - 07:26 | 1890704 Seer
Seer's picture

Like what, help usher in Dimon as POTUS? (like Berlusconi being ousted for Monti)

Thu, 11/17/2011 - 19:08 | 1889523 Deadpool
Deadpool's picture

crazy mother fucker

Fri, 11/18/2011 - 07:29 | 1890707 Seer
Seer's picture

Would have to be- doesn't everyone know that the WH windows are bullet-proof?

Perhaps a martyr (for the "throw the bums out and replace them with other bums" [Party Pussy] crowd)?

Clowns to the left of me, jokers to the right...

Thu, 11/17/2011 - 19:12 | 1889533 Caviar Emptor
Caviar Emptor's picture

I reported that here on ZH days ago. Picked it up on a wire feed, never made the MSM. At that point the perpetrator was still at large. Obama was in CA that night

Thu, 11/17/2011 - 19:23 | 1889582 NotApplicable
NotApplicable's picture

I just googled it and got 224,000 news results, from every outlet I can think of.

Thu, 11/17/2011 - 19:53 | 1889678 jdelano
jdelano's picture

Published when? I never saw anything on bloomberg cnbc etc and I troll pretty much all day long.

Thu, 11/17/2011 - 20:46 | 1889805 DosZap
DosZap's picture

jdelano

TROLL all day?.........

You musta been asleep.

Fri, 11/18/2011 - 07:34 | 1890713 Seer
Seer's picture

There was a delay, as they were exploring ways in which to change this story to include that the person was "throwing box cutters" in the direction of the WH.  But, there was difficulty in making this sound in any way plausible.  Meanwhile, the "history" will be that this was an "anarchist," and we know that ALL "anarchists" are violent brick-throwers and that they are responsible for why everything is fucked up...

Winners: Homeland (in)Security

Losers: Real people

Popcorn time!

Thu, 11/17/2011 - 19:18 | 1889562 falak pema
falak pema's picture

well he did miss...

Thu, 11/17/2011 - 20:21 | 1889733 DosZap
DosZap's picture

jdelano

So how is it not news that some guy fired s high-powered rifle at the upstairs windows of the white house in an attempt to kill Obama?

Well, since he was using a pea shooter,(not a High powered rifle),on likely 6"'s of bullet proof glass, and Obama was thousands of miles away, it's not that big a deal.

He's been caught, and identified.  A nut job,or someone w/ an axe to grind over nothing.(maybe part of a PC stunt for votes).

And, you have not been listening, nor reading evidently, because it's been ALL over the news.

Thu, 11/17/2011 - 20:58 | 1889826 CompassionateFascist
CompassionateFascist's picture

Just another OWSer. And by the way, WHAT DE-LEVERAGING? Consumers are out buying their ChiCrap with debt plastic same as usual and the gubmint just took out another $2.4 trillion on its credit card. WHAT DE-LEVERAGING?? If they do, the system collapses now. If they don't, it collapses later. Better later than now. The "Super Committee" farce says all. They're cutting nothing.

Thu, 11/17/2011 - 21:10 | 1889851 DosZap
DosZap's picture

CompassionateFascist

Cutting 1.5-2T over a 15yr span, is nothing but a photo op.(the interest aone on the 15T, eats all that up per yr and much more.)

IF you could get them to agree on either.

As a debt free individual most of my long life.I am starting to see the cycle repeat.Americans can only wean themselves from  debt, for about 2-3 yrs, and then it's I DESERVE it time.

Also, after watching our leaders waste,spend, and do nothing, they are going to help us all..........go out with a part of the pie.

Govt gets it free, so why don't we?.Seriously only an honorable, moral peoples could do what's necessary to get GAME ON straight.

After watching OUR illustrious leaders/sarc, and the way they continue to care for themselves, and their buddies, spend like drunks...........J6P is saying, what the hell?.No job,no hope of a decent one, no REAL future screw them!.

When the/our  LEADERSHIP,is willing to take the pain ALSO, then you will get most peoples attention, not until.

Thu, 11/17/2011 - 22:08 | 1889987 Harlequin001
Harlequin001's picture

People don't deleverage anymore than businesses do. They default. That is reality.

The Fed is simply bailing out those it can't afford to let default for now...

Thu, 11/17/2011 - 22:26 | 1890020 TruthInSunshine
TruthInSunshine's picture

Defaulting is just one of what are many forms of deleveraging.

Paying down debt and saving are others.

Refraining from taking on new debt/loans is another form.

These are all actions that frustrate fractional reserve banking dependent economies, where the fiat is conjured from thin air, and at $0 cost basis for the the Money Masters, who can then loan it out at interest, leverage the debt outstanding multitudes higher, and make a killing even if a huge % of that debt goes bad - the Money Masters still make money on the debt that doesn't go bad, and they end up with an even higher pile of hard & real & really valuable assets, taken from those who did borrow in the form of securitized loans.

In any event, the fractional reserve loving Money Masters have no skin in the game; they conjured fiat from thin air at no cost to them, and used that as the pillar of a massive Ponzi Scheme, where they claim to have the force of law behind them in administering the terms of loans and debt disbursement and collecting on loans gone bad.

Wholesale refusing to play their game (i.e. borrow money from them and pledge things of real value for their monopoly fiat) is the only way to thwart them. With the leverage where it is at, if they can't push out bigger issuances of debt/credit, the system turns on them.

Fri, 11/18/2011 - 08:50 | 1890801 Harlequin001
Harlequin001's picture

Whilst we may be splitting hairs here I view deleveraging as paying down existing debt; default is not deleveraging though it leads to less debt, there is a creditor now that does not get his investment back. As for your other comments I agree, this is nothing more than I have been saying about China printing money to bail out Europe and everyone else...

an absolutely unbelievable state of affairs...

 

Thu, 11/17/2011 - 23:37 | 1890184 StychoKiller
StychoKiller's picture

With all the fuss over cutting (the rate!) of Govt spending, supposedly to the tune of $30BIllion, it should be obvious to all that almost NO ONE in the US Govt is able to really cut spending at this point!  The eyewash is so dilluted that no one should be taken in re: this "super" committee!

Thu, 11/17/2011 - 21:11 | 1889859 dark pools of soros
dark pools of soros's picture

perhaps the tattoo he has??

"The heavily tattooed suspect - who has the word "Israel" - written on his neck "

Thu, 11/17/2011 - 21:55 | 1889892 Carlyle Groupie
Carlyle Groupie's picture

Team Tyler may not want to sensationalize the fact that an Israelite attempted to assassinate the President of the United States.

Those on Wall St. have been successful in doing so since Obama was elected with no bullets fired.

http://www.zerohedge.com/search/apachesolr_search/Loughner

Thu, 11/17/2011 - 23:45 | 1890201 EINSILVERGUY
EINSILVERGUY's picture

The guy is hispanic. Israel is a common name in hispanic culture.

Fri, 11/18/2011 - 06:37 | 1890636 Vlad Tepid
Vlad Tepid's picture

So is Jesus, but you don't see Him shooting at windows (yet.)  

"Do you know how to use one of THESE?"

Thu, 11/17/2011 - 22:01 | 1889968 Socratic Dog
Socratic Dog's picture

"So how is it not news that some guy fired s high-powered rifle at the upstairs windows of the white house in an attempt to kill Obama?"

If it was an "assault rifle", from 600m he may as well have been using a slingshot.  If it was something useful at 600m, then it wasn't an "assault rifle".  And it needed a high level of skill and practice to be dangerous.

Even with that expertise, hitting Obama while he was in Australia might have been a bit tricky.

So it probably isn't news.  Not that that ever stopped the MSM.

Thu, 11/17/2011 - 22:07 | 1889982 Carlyle Groupie
Carlyle Groupie's picture

It wasn't Obama that I was concerned about it was the Ghost of Dick Cheney.

Thu, 11/17/2011 - 19:53 | 1889673 Hugh_Jorgan
Hugh_Jorgan's picture

4th Turning Bitchez!

If history follows the usual cycles we have 20+ years before we see any meaninful recovery, and long way to fall during that time...

Fri, 11/18/2011 - 07:42 | 1890716 Seer
Seer's picture

Recovery to what, another unsustainable bubble environment?

Crap, people, oil's lingering around $100/bbl, and gold's bottom is firmly above $1,600/oz.  These two should tell you that there's a LONG way yet to go, and that when we've "arrived" we'll find that there are firm (impossible to ignore) realities that'll keep it there.

Thu, 11/17/2011 - 20:02 | 1889697 philipat
philipat's picture

Doesn't this just prove that Citi remains a bloated monstrosity? I mean, what is the point of all this? We know all of the contents already whereas the value added should have been in the "So what should I do", of which there is none. What a waste of time, effort and another overpaid time waster.

Thu, 11/17/2011 - 20:27 | 1889755 Talleyrand
Talleyrand's picture

Fuk City Bank of New York.

Thu, 11/17/2011 - 20:18 | 1889727 Clint Liquor
Clint Liquor's picture

Deleveraging is for pussies.

Fri, 11/18/2011 - 01:39 | 1890451 prains
prains's picture

another one who just sees vag

Thu, 11/17/2011 - 20:20 | 1889735 Don Birnam
Don Birnam's picture

"...the fat pipe of cheap credit..."

Indeed, the ensuing, saturated high could only have come from the "crack pipe" of cheap credit.

Thu, 11/17/2011 - 19:00 | 1889482 TheSilverJournal
TheSilverJournal's picture

There will be no deleveraging. If deleveraging commences, then asset prices fall, the banks fail, and depositors lose their money. The Fed won't allow depositors to lose their money so the Fed either prints now to keep the credit stream going, or they print later to bail out the banks so depositors don't lose their money.

Thu, 11/17/2011 - 19:21 | 1889574 paarsons
paarsons's picture

I don't know.

There might be another Paul Volker in the future.

Raise interest rates.  Hike margins.  Get the speculators out.

It's 50-50.

http://fucklloydblankfein.blogspot.com

Thu, 11/17/2011 - 19:33 | 1889608 TheSilverJournal
TheSilverJournal's picture

In case you didn't know, rates have been promised to be kept at 0% until at least mid 2013. Fed President Evans is now publicly calling for more QE. If they Volker it now, depositors will lose their money. Real estate would crash. Interest on the debt would rocket and the US would be instantly insolvent.

Thu, 11/17/2011 - 21:59 | 1889964 DaveyJones
DaveyJones's picture

the math has us cornered. On top of that, we are not the economy we were when Volker pulled the plug.   

Thu, 11/17/2011 - 23:27 | 1890122 TruthInSunshine
TruthInSunshine's picture

Back in the early 80s, I was quite young, but some very sharp elders whom I respect tell me that the major structural difference between now and then was that the Fortune 500 hadn't packed up most of their factory, IT, customer service (My name is Peggy) jobs and moved them to Mexico, China, India, etc., so that when demand picked back up, those factories and other places of employment spun back up and reinstituted workers.

I think this is very true.

Now, the globalists have succeeded in making labor the cheapest commodity of all, and there's zero chance that any multinational that just built a billion or 3 billion USD factory (think Intel in China or Ford in Hermisillo, Mexico, as two of thousands of examples) did so with any intention other than nursing those large expenditures for dozens and dozens of years (30, 50?). Those jobs are not coming back, short of a major war, and even then, it's unlikely.

They tell me people with good jobs, not fearing the loss of their jobs, as NAFTA, China MFN trade status and a myriad of other 'free trade' pacts (pitting slave labor versus American middle class in the race for low bidder worker) hadn't been enacted yet, decimating middle class or even upper middle class notions of careers, let alone job security, even eagerly bought homes with 12% mortgages back in the circa 1981-1983 period.

This is just more proof that anyone claiming what we're experiencing in the U.S. is cyclical is delusional; it's as structural a change as structural gets.

Thu, 11/17/2011 - 23:44 | 1890198 Hayabusa
Hayabusa's picture

Funny how the news never reports these sort of FACTS!  It's a structural change and the only way those jobs are coming back is if our labor force does it cheaper, period.  No margin, no mission.

Thu, 11/17/2011 - 23:19 | 1890144 TheSilverJournal
TheSilverJournal's picture

Exactly,  the US is 70% service sector, the main export is the USD, the federal government is backing most of the mortgage market and over $1T in student loans, entitlements are enormous and growing, unemployment is out of control, etc...

Fri, 11/18/2011 - 00:36 | 1890312 Ropingdown
Ropingdown's picture

Wasn't the game simply this?  Globalize your corporation or assets.  Keep the peasants and old folks happy by multiplying civil service jobs and free medical care for thirty years....all paid for with borrowed money.  When things get tough move your headquarters to Singapore, Bahrain, Dubai, or Switzerland and just walk away from the debt.  Good strategy for a changing world.  Too bad it left labor to its own devices.  But labor was busy fighting for benefits instead of the country.  Labor got suckered, in other words.

Fri, 11/18/2011 - 01:15 | 1890404 TruthInSunshine
TruthInSunshine's picture

I try to be balanced in my opinions, fully aware that I could be wrong in any of my assessments, but I think organized labor wanted its cake and to eat it, too, and they hastened their ow,n decline, and might have even hastened the passage of the various free trade pacts which undercut their wage & benefit structures by such a large amount that it made sense for multinationals to make large scale capex expenditures in low cost labor markets such as China and Mexico.

In the end, almost everyone is greedy and wants more, and they'll take more and more, until the structure that gives them leverage and support deteriorates or is swept aside intentionally, at which point they must learn to take what they can get (which often isn't enough to avoid debt serfdom and a paycheck to paycheck existence with a shitty quality of life).

Any rational attempt to salvage and reform the U.S. economy requires elimination of much of the Wall Street parasites who distort capital flows and create frequent periods financial and economic crisis while feeding off of U.S. taxpayers (the too-big-to-fails that get rewarded for taking systemic threatening risks via implicit or express taxpayers backstops), with Wall Street and investment banking now accounting for 41% of U.S. GDP while U.S. manufacturing accounts for 14% (the exact inverse from 1968, widely regarded as the paramount of U.S. economic health and wide and vibrant middle class) AND to ensure that any policy goal of attracting more manufacturing to the U.S. has as a baseline understanding that unions should never be in a position to hold their employers and employment segments hostage in order to increase what might already be irrational wages/benefits vis-a-vis other sectors of the U.S. economy or the foreign competition (Germany is actually struggling with this dilemna now, with strong union forces trying to fend off more and more German multinational investment and production in east European nations such the Czech Republic and Poland and Slovakia).

Fri, 11/18/2011 - 00:23 | 1890286 Great Depressio...
Great Depression Trader's picture

Credited response.

Fri, 11/18/2011 - 00:27 | 1890294 Ropingdown
Ropingdown's picture

Indeed, in 1981 for practical purposes there was no Chinese or Indian economy.

Thu, 11/17/2011 - 19:44 | 1889644 tmosley
tmosley's picture

That is hitting the breaks after we've already gone over the cliff.  You can raise interest rates when the government is the world's largest creditor, not when it is the world's largest debtor.  Well, not without default.  Admittedly, simple default is the best path forward to preserve the current system, but I don't think it will ever happen.

Fri, 11/18/2011 - 00:42 | 1890328 Ropingdown
Ropingdown's picture

Italy and Spain have a message for us: "You don't raise your rates.  The creditors raise them.  You don't get any say in the matter!"  But we've still got 11 carrier battle groups and a safe spot in the world...big oceans, nice Canadians up north, a fence a'buildin' down south....so the world is going to have to think long and hard about who they'd like to piss off.  When the hard times come, we've got lots of coal to burn, lots of food to eat, lots of nukes to polish up as we smile at our neighbors.

Thu, 11/17/2011 - 20:40 | 1889788 fonzanoon
fonzanoon's picture

If they raise rates volker style we would never be able to afford the interest payments on out debt which is all short term and constantly rolled over. It's game over if rates rise.

Thu, 11/17/2011 - 22:30 | 1890029 Mr_Wonderful
Mr_Wonderful's picture

Not only that but the FED leveraged 60-1 against its capital would be fairly quickly wiped out as interest rates rose and the value of its more or less dubious portfolio fell. But not to worry, they were ahead of the curve. Last January they adopted an accounting change allowing them to book any trading losses as a liability to the Treasury, AKA the taxpayer. I don´t think they bothered to inform their congress rubber stamps of this.

Thu, 11/17/2011 - 21:37 | 1889908 slyhill
slyhill's picture

That pretty much sums it up right there.

Thu, 11/17/2011 - 22:26 | 1890034 JustObserving
JustObserving's picture

You cannot deleverage an economy of $15 trillion with Federal debts and unfunded liabilities growing by $8.65 trillion a year.  You will collapse the economy and have a revolution.  Better to try inflation which ultimately spawns hyperinflation.  That is much easier politically - especially if you have large external debts.

Thu, 11/17/2011 - 23:39 | 1890188 TruthInSunshine
TruthInSunshine's picture

If you think inflation is much easier politically, you haven't experienced what is rapidly decelerating real incomes in a society built upon high expectations, amidst a rapidly deteriorating economic structural foundation.

Whether inflation is what we will see is not what I am debating with you (I do not know if inflation, deflation, stagflation or a curious hybrid of bi-flation will prevail in the years to come). I am parsing and criticizing your generic claim that inflation is a politically "easier" solution.

And by the way, inflation has led to revolution and political and economic turmoil far more often throughout human history than the deflation.

Fri, 11/18/2011 - 07:49 | 1890718 Seer
Seer's picture

Keep things in historical perspective.

The Fed has only been around for as long as oil has been pumped.  As oil extraction becomes increasingly more tenuous so too will the Fed's power.

OIL (energy) = GROWTH = MAINTENANCE OF POWER FOR THE FED (and TPTB)

Printing fiat isn't the same as pumping physical oil.  The path is clear: those pumping the physical will quit accepting fiat; end of Fed (and banking cartels [oil cartel to operate as the only super cartel]).

Fri, 11/18/2011 - 08:52 | 1890806 Harlequin001
Harlequin001's picture

and what about the Bank of England, and all the other Central Banks?

They have been around much longer...

Thu, 11/17/2011 - 19:04 | 1889501 chump666
chump666's picture

Citi is putting out some really good analysis of late.  The above was exceptional.

 

Thu, 11/17/2011 - 19:11 | 1889535 Deadpool
Deadpool's picture

those that can't do teach.

Thu, 11/17/2011 - 19:14 | 1889547 chump666
chump666's picture

...and +1 for one of my fav comic book characters

Fri, 11/18/2011 - 00:02 | 1890240 weinerdog43
weinerdog43's picture

And those who can't even teach, post stupid shit like this.  fuck you

Thu, 11/17/2011 - 19:54 | 1889674 Eally Ucked
Eally Ucked's picture

All that work is useless because data is shit and beautilul colors wont change that fact. At least few guys have jobs preparing reports like that.

Thu, 11/17/2011 - 21:13 | 1889861 dark pools of soros
dark pools of soros's picture

all automated..  runs daily

Thu, 11/17/2011 - 19:05 | 1889505 catch edge ghost
catch edge ghost's picture

Growth can last forever. We'll discover more Earth.  But we should look further ahead and begin a great project to import another Sun.

Thu, 11/17/2011 - 21:04 | 1889843 CompassionateFascist
CompassionateFascist's picture

This has been done: read Gene Wolfe, Book of the New Sun. It will change your life.

Thu, 11/17/2011 - 19:09 | 1889513 Deadpool
Thu, 11/17/2011 - 19:08 | 1889519 Rastamann
Rastamann's picture

wow..... a charts treasury chest ( forgive the pun) .... thanks

Thu, 11/17/2011 - 19:09 | 1889522 ghostfaceinvestah
ghostfaceinvestah's picture

ZIRP and QE accelerate deleveraging, Bernanke doesn't quite get that.  Since the interest rate on risk free investments is zero thanks to ZIRP, and the potential return on risky assets has dimished thanks to excess liquidity via QE, the single best, risk free investment most people can make is paying down debt.

Fri, 11/18/2011 - 01:05 | 1890390 Dirtt
Dirtt's picture

You have the pulse on human nature. More sheep are starting to do the math. That is something the Fed has no control over.

Recognition. It is the proverbial genie out of the bottle. We sheep here are doing everything in our power to shake off debt.  The mission is ZERO DEBT understanding that equity will collapse in sync. But the lifestyle will be much improved for everyone once they learn how to live in equilibrium. 

If others share our mission, then the FED is phucked.

Fri, 11/18/2011 - 08:09 | 1890737 Seer
Seer's picture

"the single best, risk free investment most people can make is paying down debt."

And what of the possibility that someday someone may not be there to collect the debt?

As someone who has a bit of debt, wouldn't it benefit me to encourage others to pay their debt off?  That is, if wide-scale debt repayment results in collapsing the banking system, couldn't that be a positive for someone holding debt (again, greater chance that there won't be someone there to collect it)?

All eggs-in-one-basket isn't a good thing.  Hedge risk.

Thu, 11/17/2011 - 19:09 | 1889528 nyse
nyse's picture

I would love to see the full report. Thanks in any case.

Thu, 11/17/2011 - 19:28 | 1889529 Caviar Emptor
Caviar Emptor's picture

Word to the wise: there's nothing ordinary about this crisis. It's not even just different because it's bigger. There are far-reaching imbalances that were deliberately pushed during the last 30 years as a matter of policy. Those imbalances have created permanent constraints going forward. That doesn't mean there will never be growth again, but there has to be more than just de-leveraging and debt re-structuring. Otherwise the same things will happen again, and crash sooner and harder. 

Thu, 11/17/2011 - 19:31 | 1889605 topcallingtroll
topcallingtroll's picture

Real honest to god secular growth will not be seen in the usa or europe these next ten years at least. I share your pessimism.

Select third world countries are the only place to find real growth. SPY has a big international exposure. Index level returns in latin america and asia ex japan ex china are the best bets.

It is difficult if not impossible to speculate your way to a comfortable retirement. Or build a portfolio of individual stocks and bonds and beat the indices. Ninety percent of variance of returns is asset class performance, not individual bond or stock performance.

Thu, 11/17/2011 - 19:59 | 1889690 Snidley Whipsnae
Snidley Whipsnae's picture

tctroll... "Select third world countries are the only place to find real growth."

..................................

Do you believe that these 'select third world countries' will decouple in the world wide deleveraging/depression that is coming? I don't. Any country that is dependent on exports for gdp growth is going to get hammered. Any country that is dependent on finished products for gdp growth is going to get hammered. That pretty much covers the field. The countries that export oil and food commodities will do ok IF they can compete on price and are not affected by the coming trade barriers, tariffs, capital controls, etc. We are in for a hell of a ride...buckle up.

Your comment about going for beta, holding certain asset classes, is the route to long term wealth preservation. We are now in a situation that requires emphasis on wealth preservation, since multiplication of wealth is only working for those with extremely good inside connecions. Corazine has the connections, Celente thought he had the connections through his relationship with Corazine. Big wake up call for Celente.

Fri, 11/18/2011 - 08:23 | 1890757 Seer
Seer's picture

"Real honest to god secular growth"

Please define.  And, please state the (expected) duration.

Thanks.

Fri, 11/18/2011 - 14:20 | 1891691 blunderdog
blunderdog's picture

Given context, seems "honest to god secular growth" means "inflation-adjusted real gains in equity valuations."

The thing is, given that economic growth has become defined in such a way, it's only relevant to the 15% (or so) of the population who have significant resources to invest.

So who cares about REAL economic growth?  Most folks would be more than happy to see economic decline/collapse if it made it easier for them to afford whatever meager standard of living they've currently achieved.

Security and satisfaction of basic needs is more valuable to most people than "economic growth."

(EDIT: This is why I predict the bankers will be the long-term losers.  Sadly it could easily take 20 years to play out.)

Thu, 11/17/2011 - 19:12 | 1889536 Piranhanoia
Piranhanoia's picture

Funny about the things we think we need. Most don't seem to be based in the 'need' category.  Guess we will have to learn all over again.  Soon.

Thu, 11/17/2011 - 19:12 | 1889537 Mr_Wonderful
Mr_Wonderful's picture

Amazing job Tylers, what is usually to be expected from you.

Good luck, Mr. W.

 

Thu, 11/17/2011 - 19:13 | 1889541 kengland
kengland's picture

How does massive monetary intervention come into play in this work? Do you think the central banks are going to sit back and watch this? So freaking typical of these linear thinkers

Thu, 11/17/2011 - 19:13 | 1889542 falak pema
falak pema's picture

the print operation has a natural limit. You can't print if all you print gets turned to gold. That's kills the press. We are moving there as food/water will be more expensive than gold in some places. we are stuck with fiat and fiat is stuck with inflation because of debt mountain. Only one way out : debt Jubilee or its death in stagnation and so, war. The sooner the debt jubilee comes the sooner we move to growth again. But to have debt jubilee you need the Oligarchs to sign off half their assets...Thats the cat that has to be belled. 25 T asset/debt jubilee and the world can immediately start again.

Thu, 11/17/2011 - 19:17 | 1889557 fonzanoon
fonzanoon's picture

The printing is just to buy time until the super committe finds the 15 trillion in cuts. Once they do that we can bring those jobs home with our pro growth agenda. Then we are all set. So they will keep printing for a while. It's not like central banks around the world and the big big money are buying gold in preperation for something. Thats silly.

Thu, 11/17/2011 - 19:48 | 1889658 ffart
ffart's picture

It's all gonna be unicorns and rainbows!

http://www.youtube.com/watch?v=_73NU6OlNuw

Thu, 11/17/2011 - 20:28 | 1889758 tradewithdave
tradewithdave's picture

After reading all this, I have to admit I was getting a bit nervous.  Then I remembered, we have a SUPER committee.  Phewww... It's all good.  That's how the republic rolls... super.

TradeWithDave.com

Thu, 11/17/2011 - 19:40 | 1889633 Mr_Wonderful
Mr_Wonderful's picture

What is going on is massive debt deleveraging which means rising price of cash which in turn is reflected in a 100-year low in the price of debt.

It was possible to find idiots to go into debt to chase falling prices but nowadays it´s practically impossible - Goldman Sachs warehouse trading with extraterrestrials notwitstanding -.

There is nothing to do but let the market correct this mess over the next years. It´ll be painful, it has already crashed by 50% twice in the last decade but we´ll have to bite the bullet.

 

Thu, 11/17/2011 - 19:50 | 1889664 fonzanoon
fonzanoon's picture

what is going on is the threat of deleveraging, it's consequences which you speak of and it is deliberate. If people start feeling some of the pain from biting that bullet they are going to come begging to the bernak. People talk alot about biting the bullet but push come to shove nobody will really want to.

Thu, 11/17/2011 - 20:35 | 1889777 Mr_Wonderful
Mr_Wonderful's picture

The govt. is running massive deficits and food stamp programs to counter the overindebtness correction. It´s pretty hopeless in the long run. The more time that passes the more overproduction and overcapacity and armies of cheap labor you´ll see. Those jokers don´t even have a clue about the black  holes their current education and unemployment reservoirs will land in five years from now.

Fri, 11/18/2011 - 08:33 | 1890771 Seer
Seer's picture

"The sooner the debt jubilee comes the sooner we move to growth again."

Growth is what got us here.

Growth IS interest.  It's borrowing from the future.  That is, until someone can say how there can be a system that doesn't use interest (usury) and is able to direct capital (more) "efficiently," it can ONLY be another cycle of the same old same old... and the BIG problem lies in the fact that (the exploitable-ness of) resources are shrinking and demographics project increasing costs for maintaining the exiting base of slaves.

Thu, 11/17/2011 - 19:16 | 1889556 Aengrod
Aengrod's picture

Gold Bitchezzzz

Thu, 11/17/2011 - 19:17 | 1889559 ivars
ivars's picture

And there will be more kids after that, as history and poor nations ( no household debt) teaches us. If you can not grow with debt, You grow with numbers. Charts here:

http://www.tfmetalsreport.com/comment/86220#comment-86220

http://www.tfmetalsreport.com/comment/86393#comment-86393

So no debt, more children and population growth. What is better?And  for whom?

 

 

Fri, 11/18/2011 - 08:56 | 1890812 Seer
Seer's picture

"You grow with numbers"

That's a virtual statement.

Nature provides for growth, not so for virtual constructs such as "debt" and "numbers."

Thu, 11/17/2011 - 19:18 | 1889563 RobotTrader
RobotTrader's picture

Citibank

Primary Dealer, PigMan Firm, and part of the Gold Cartel

Now, suddenly, they are the "experts".

Hey, I heard that Sandy Weill is putting his house on the market for $88 million, a new world record price for that type of property.

http://realestate.aol.com/blog/2011/11/11/sandy-weills-central-park-pent...

 

Thu, 11/17/2011 - 19:38 | 1889618 akak
akak's picture

Not sure if I disagreed with the tone of your comment, but gave you a red arrow anyway just because, well, it's you.

Thu, 11/17/2011 - 19:46 | 1889653 chump666
chump666's picture

follow the money.  Citi and others are preparing for a sovereign default/de leverage trade. The print job will only happen when oil hits 50, 60, 70 a barrel.  The markets are kidding themselves that liquidity will flood in near tern, these ranges are being smacked down now.  Look for Aug/Oct lows.

...stocks are toast for a few mths or so

Thu, 11/17/2011 - 20:04 | 1889703 Richard Head
Richard Head's picture

Fuck your "world record."  You sound like and are a major tool.

Thu, 11/17/2011 - 19:19 | 1889564 mynhair
mynhair's picture

"Must print more to negate all that crap debt."

 

- Bernank's nightmare

 

matter<-->anti-matter

Thu, 11/17/2011 - 19:35 | 1889613 scatterbrains
scatterbrains's picture

There's your debt jubilee right there.. print it out of existance. You gruel eating bitches just aren't invited is all.

Thu, 11/17/2011 - 19:19 | 1889567 molecool
molecool's picture

Oh yeah - Citigroup is where I would expect to be the purveyor of pay back time, right...

Seriously, Tyler - get real... whatever 'analysis' comes out of Citigroup's lying fangs is best to be faded.

Thu, 11/17/2011 - 19:22 | 1889578 mynhair
mynhair's picture

"Citibank is sad to announce the departure of ___________."

Fri, 11/18/2011 - 00:08 | 1890257 weinerdog43
weinerdog43's picture

The Republic party?  Oh wait.... that would be you.

Thu, 11/17/2011 - 19:29 | 1889596 ACP
ACP's picture

I better max out my credit cards and default before da shit gets real.

Thu, 11/17/2011 - 19:40 | 1889631 chump666
chump666's picture

the ole 2008 trick.   Cue Meredith Whitney and her call that banks will cut dividends

Thu, 11/17/2011 - 19:53 | 1889677 terryfuckwit
terryfuckwit's picture

never mind "bring on the central banks".... get the bastard game destoyers of the pitch forever....

Thu, 11/17/2011 - 20:02 | 1889695 Georgesblog
Georgesblog's picture

Reducing debt load is always the plan for financial health. The problem is that the central banks refuse to believe that the patient has died. They pump the corpse full of increasing dosages of fiat currency "adrenaline", and wonder why the body doesn't jump and win a marathon. The currency bubble will pop, scattering worthless paper like confetti.

http://georgesblogforum.wordpress.com/2011/11/02/the-daily-climb-2/

Thu, 11/17/2011 - 20:02 | 1889699 Absalon
Absalon's picture

One man's debt is another man's asset.  If we deleverage by debt write-offs (or inflation) then the money "disappears" but if we deleverage by paying down debt then the money just has to go into another asset.

You can invest in a company by buying the shares or buying the debt.  In a real sense you are just buying different tranches based on the same underlying asset.  You would expect our modern society to be more capital intensive than society in 1930 so it is not at all clear that debt to gdp levels should be the same.

Thu, 11/17/2011 - 20:39 | 1889787 tradewithdave
tradewithdave's picture

You are assuming that we measure "position" in economics and finance.  We no longer measure position.  We measure "velocity."  Why do you think Soros fund is called Quantum fund.  It's fine if you want to measure "position".... stack your gold up in your basement.  It just makes it easier for them to take it.  There is no more money to be made in "position"... only in "velocity." 

Am I saying don't buy precious metals?  No.  You should buy precious metals and oil... then don't stop driving once you get your car loaded. 

www.tradewithdave.com

Thu, 11/17/2011 - 20:03 | 1889700 Fake Jim Quinn
Fake Jim Quinn's picture

Not so sure. We can't pay the debt, that is true. So USA either walks away by default or by high inflation. The high inflation scenario though wipes out banks. I have a hard time seeing how the Fed will purposely choose a path that destroys banks. Besides, a default by the USA screws China principally. A high inflation screws China AND the US citizens. Given the political choice, it seems easier to blame the Chinese and default on them, and not wipe out US citizen's savings, purchasing power, jobs etc. There is at least a 50% chance that debt destruction results in falling asset prices. 

Fri, 11/18/2011 - 09:04 | 1890831 Seer
Seer's picture

"Given the political choice, it seems easier to blame the Chinese and default on them"

As a matter of fact this is EXACTLY how it's being set up.  Just look at the "currency manipulation" barbs being exchanged.  China is being painted as the "enemy."  Sigh, while I'd agree that China isn't exactly my cup of tea, China is being constructed as the lightening rod away from the banksters (TPTB [western world]).

It's so predictable it's not even funny.

Thu, 11/17/2011 - 20:04 | 1889702 High Plains Drifter
High Plains Drifter's picture

hey look. a guy at citi trying to tell us what to think..........oh my..........

Thu, 11/17/2011 - 20:04 | 1889705 eurusdog
eurusdog's picture

That has been news since it happened. I have been following it since the SS put announced they were looking for the guy. NOT NEWS, consider reading more news sources, and not just ZH, and you might see it.

Thu, 11/17/2011 - 20:06 | 1889712 Mr_Wonderful
Mr_Wonderful's picture

Short crude oil. The world is swiming in oil as everything else. Its elevated price is just a scam. The probability of war is zero. Uncle Sam can´t go to war against Iran because both its flanks are insecure. The left flank goes to the Straits of Hormuz and if that is closed this means crude price $300 and Stalingrad for US forces in Iraq and other US vassal states in the gulf. As for the right flank that supply line goes through Pakistan. It´s shaky enough as it is.

Thu, 11/17/2011 - 20:09 | 1889719 That Peak Oil Guy
That Peak Oil Guy's picture

I would be with you on the whole scam thing if it weren't for the actual data.

Thu, 11/17/2011 - 20:45 | 1889802 Talleyrand
Talleyrand's picture

Ok. I'll get right to it!

Thu, 11/17/2011 - 21:14 | 1889864 CompassionateFascist
CompassionateFascist's picture

You are assuming rational behavior on the part of the elites. All of history argues against you.

Fri, 11/18/2011 - 09:14 | 1890855 Seer
Seer's picture

And the world is swimming in USD.  Your point?

Can't push on a string.

It's about "affordability!"

And given my belief that we're facing a contraction, therefore a reversal of economies of scale, I don't see oil as being anything other than becoming LESS affordable (most will have to apply their decreasing income/wealth toward energy and food).

"The probability of war is zero."

If the probability of war is ZERO, then why is the US cramming troops into Australia?  It's either because of increasing risks (or war, likely positioning against China), because militarism is the only "growth" sector, or both.

Thu, 11/17/2011 - 20:15 | 1889725 Mr_Wonderful
Mr_Wonderful's picture

What would that data be?

Thu, 11/17/2011 - 22:17 | 1890016 That Peak Oil Guy
That Peak Oil Guy's picture

You can get started on your education here: http://www.theoildrum.com

 

Thu, 11/17/2011 - 20:19 | 1889732 Clint Liquor
Clint Liquor's picture

 

"where is the last part about gold and inflation? What am I missing here?"

The missing part is the fact that fiat currencies (debt based) cannot survive deflation. They will collapse. Dollars will be ass-wipe. Although, I hear the YEN is much softer and plusher.

Thu, 11/17/2011 - 21:11 | 1889856 CPL
CPL's picture

I was almost out of the three ply Lehman's I picked up at a fire sale a couple of years back.  I'll need something with the extra comfort a discerning gentleman like myself requires soon.

Thu, 11/17/2011 - 23:44 | 1890197 mephisto808
mephisto808's picture

What do you think of MMT? http://pragcap.com/resources/media-section

Fri, 11/18/2011 - 09:18 | 1890860 Seer
Seer's picture

"The missing part is the fact that fiat currencies (debt based) cannot survive deflation."

Nor can they survive inflation.  Since there's no example of a long-surviving fiat currency it should be clear what the fate of such currencies is.

Thu, 11/17/2011 - 20:38 | 1889785 bank guy in Brussels
bank guy in Brussels's picture

The key chart above is this one, 'Maybe Japan's not done so badly after all'

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2...

Indeed there's a great hidden nugget there. Over 20 years ago Japan had a major collapse, full of bad debt ... and yet (contrary to Western myth) they indeed did all right, without 'austerity'.

Yes, their share market prices, and property and asset prices, dropped by 70% and more ... but basically life did not change too much for most Japanese, even though paper wealth diminished.

And Japan never had any significant amount of GDP loss, unlike the US depression in the 1930s and so on.

What is not being said here, is that Japan's public sector levered up while the private sector slowly deleveraged -

AND, very importantly, Japanese people largely kept their wages and earning power maintained. In other words, the government 'bailouts' were spent keeping common people in jobs with spending money in their pockets, not just routed for bankster profits.

It is common on ZeroHedge to sneer at these kind of thoughts, to think it's better just to default and liquidate, but Japan seems to show that the best way through this big mess, is really to keep working people with spending money.

As Nomura economist Richard Koo points out, it's ok for gov't to lever up to the extent of the private pool of savings within a society, in the years of balance-sheet recession when the private sector is deleveraging.

If here in Europe and the West we would do as well as Japan, we should be very happy. So it seems we should listen to the economist who best represents the policies of Japan's success story -

Here is a good short survey of Richard Koo's main ideas, video of him speaking at the April 2011 Bretton Woods Conference sponsored by the Institute for New Economic Thinking.

http://www.youtube.com/watch?v=5zCJy84Yvvo

Thu, 11/17/2011 - 20:57 | 1889827 DosZap
DosZap's picture

bank guy in Brussels ,

BIG differnces,Japanese peple were in their prime earning years, and an avg savings rate of 25%.

And as the most Xenophobic race on earth, they worked as one.

Plus, their auto industry, has been the mainstay along with electronics for most of those twenty years.(meaning they had/have a solid mfg base) we have shit.

We are in a reverse position(the same one they are now facing, with even more debt to GDP/Demographics,and most of the savings now gone).

Demographics, debt to savings rate,a service economy,nearly ZERO mfg, a totally corrupt govt, and a welfare state extrordinaire,military excursions, major wars, have murdered us.

Fri, 11/18/2011 - 03:14 | 1890554 TruthInSunshine
TruthInSunshine's picture

Bank Guy in Brussels: I couldn't disagree with everything you said more even if I went out of my way to try and do so.

The Japanese have suffered a precipitous fall in living standards since the Japanese Economy peaked in roughly the very early 1990s.

To accompany their fall in living standards, they pay more in taxes than they ever did as a % of their income, so as to sustain a perpetually growing and already insufferably bloated bureaucracy while the level of efficient, effective and constructive government services has consistently fallen, they for the first time since the immediate post-WWII era they have a not so insignificant number of homeless people and elderly who live in abject poverty, they receive negative real returns on savings due to the nationalization of the Japanese Banking Sector (which especially hurts the retired and elderly), and prospects for real growth in Japan's Economy are dim, to put it mildly.

If you want to know the true state of Japan in terms of economic health look at the youth and the elderly:  Young people are as disenchanted with the system as they've ever been (as their level of unemployment has risen dramatically in terms of % and real wages have fallen) and the elderly have resigned themselves to receive less and less support from governmental programs although they've never been taxed as high, either directly (income taxes, etc.) or indirectly (negative real returns on savings, etc.).

The kicker is that Japan is now one of the most heavily indebted nations on the face of the planet, both in absolute terms, and in terms of national debt expressed as a percentage of annual GDP (or even GNP).

While it is still young in its course, I believe the Icelandic Model of purging a sick economy of its disease quickly, and not conforming to the wishes of those not having the inherent interests of native Icelanders at heart, is a far better model than the Japanese one that you incompletely described and even romanticized.

Fri, 11/18/2011 - 06:14 | 1890645 Vlad Tepid
Vlad Tepid's picture

You have it exactly right.  The Japanese people have LIVED austerity since their fall 20 years ago.  Has the above poster ever seen the size of living spacein the cities?  The standard middle class apartments are positively claustrophobic...and anyone who has been in the older minka or machiya know that Japanese traditionally lived large...even the peasantry.

There's a story Alex Kerr relates where a former Eastern European bureaucrat working for the German embassy is taken on a tour by his GovJapan equivalent.  He points out of the train to a row of "mansion" apartment flats and asks "Is that where the poor people live?"  The GovJapan bureaucrat politely explains that that is where he lives.

True austerity, bitchez.

Fri, 11/18/2011 - 09:24 | 1890872 Seer
Seer's picture

Add to this picture the fact that it's a nation that's dependent on energy imports. Island w/o necessary resources = well, = shaky future.

Iceland at least has energy...

Keep in mid tha the true cost of operating and maintaining all the techo-shit has yet to vist us.

Thu, 11/17/2011 - 20:40 | 1889790 devo
devo's picture

Can anyone recommend a good corporate bond fund?

Thu, 11/17/2011 - 20:54 | 1889823 devo
devo's picture

I have no credit card debt, and I've been wondering if it would be wise to max out my credit card (15k limit) since Obama will pay for it. What do you guys think? Should we all buy gold on our cards? This is a serious question, despite how absurd it sounds.

Thu, 11/17/2011 - 21:27 | 1889889 mayhem_korner
mayhem_korner's picture

Should we all buy gold on our cards?

 

If you don't have the cake on hand to make the purchases, you're actually betting the gold value will rise faster than interest on your card.

My two cents is that you're better off fashioning a regular buying program and sticking to it, even if that means accumulating only a few ounces at a time.

Thu, 11/17/2011 - 21:40 | 1889914 devo
devo's picture

Mayhem, you missed my snarky comment about Obama footing the bill. :)

If fiat will be worthless, wouldn't maxing out credit cards on gold be wise? It seems the irresponsible action would be rewarded in one of two ways:

1. Obama forgives consumer debt.

2. Fiat is worthless, and the creditor goes bust (after the debtor declares bankruptcy)

No?

Thu, 11/17/2011 - 21:46 | 1889937 Caviar Emptor
Caviar Emptor's picture

On a long enough timeline, fiat will be worthless. But things can be irrational and unpredictable in the short run. I second the vote for gradual buying over an extended period (1-2years). In this environment, ALL big bets will get punished

Thu, 11/17/2011 - 23:07 | 1890120 mayhem_korner
mayhem_korner's picture

 

 

I got the snarky comment.  But you did raise a serious question, one that others have raised.  And my thought is that unless you are definitively at the end game (where everyone is converting daily-deflating fiat into something valuable) then there is still the need to remain solvent. 

Fri, 11/18/2011 - 10:00 | 1890967 Seer
Seer's picture

I seem to recall some Mormon guy getting hauled off due to failure to repay a bunch of debt that he'd rung up thinking that he could skip out on repayment because the "End Days" were going to beat the debt collectors to his door.

Timing is everything...

Fri, 11/18/2011 - 14:22 | 1891788 blunderdog
blunderdog's picture

It's been made a lot tougher to walk away from CC debt, so while the bet makes perfect sense, there's a major downside if things don't work out in your favor.

Thu, 11/17/2011 - 21:01 | 1889838 chump666
chump666's picture

AUD about to hit Sept lows.  Can feel a Soros moment kicking in, if the EUR is supported, you hit the European indexes. 

Thu, 11/17/2011 - 21:42 | 1889931 Caviar Emptor
Caviar Emptor's picture

Breaking: BAGHDAD—A tense standoff between local police and the Iraqi Army played out on Thursday at the gate of the U.S. airbase in the northern city of Kirkuk, where a dispute over land and oil threatens national stability and unity as U.S. forces withdraw.The territorial conflict, between the central government in Baghdad and the semiautonomous Kurdistan region, is just one flashpoint that some American and Iraqi officials say could boil over after the full pullout of U.S. troops at the end of December.



http://online.wsj.com/article/SB1000142405297020451720457704444127242707...

Fri, 11/18/2011 - 10:05 | 1890982 Seer
Seer's picture

OIL.  TURMOIL.  US TROOPS.  Whe woulda thunk that these would all come in to play? </sarc>

Create the disturbance and then use it as an excuse to rush in and "save" the day.

Plays well to the militarists, oil producers, humanitarians and banksters...

The roundness of the world is a perfect place to hold one big circle-jerk.

Thu, 11/17/2011 - 21:42 | 1889932 Mr_Wonderful
Mr_Wonderful's picture

The timing is way off as you can see. There isn´t a snowball chance in hell that a US president would start a major war this late in his term. So short crude with confidence.

Thu, 11/17/2011 - 21:48 | 1889939 Caviar Emptor
Caviar Emptor's picture

Ahem. Proceed at your own risk with the developing Iraq story (posted above), the very old but still unfolding Iran story and the sudden Kuwait story. Fundamentals are also not in your favor

Thu, 11/17/2011 - 21:54 | 1889953 Mr_Wonderful
Mr_Wonderful's picture

The left flank is very insecure as you point out which makes war against the middle objective extremely unlikely. Thanks for supporting my points.

Thu, 11/17/2011 - 22:50 | 1890073 surf0766
surf0766's picture

That is assuming we will have elections in 2012..

Fri, 11/18/2011 - 00:01 | 1890238 Demogorgon
Demogorgon's picture

The POTUS is a distraction, a diversion. Right, left, doesn't matter. The bankers are in control.

Thu, 11/17/2011 - 22:07 | 1889983 s2man
s2man's picture

OMG. You mean there are private and public debt bubbles?! I just shit my pants.

Thu, 11/17/2011 - 23:08 | 1890119 mbtshoe
mbtshoe's picture

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Short crude oil. The world is swiming in oil as everything else. Its elevated price is just a scam. The probability of war is zero. Uncle Sam can´t go to war against Iran because both its flanks are insecure. The left flank goes to the Straits of Hormuz and if that is closed this means crude price $300 and Stalingrad for US forces in Iraq and other US vassal states in the gulf. As for the right flank that supply line goes through Pakistan. It´s shaky enough as it is.

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