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Rory
Post  Post subject: End game?  |  Posted: Tue Aug 23, 2016 5:05 pm
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Yesterday we learned that Merkel has encouraged German citizens to hoard food and water supplies. Today we learn Germany is considering a return of conscription. Western nations are printing money (QE) and holding interest rates at zero because to do otherwise would lead to defaults and that, in turn, would alert our foreign creditors to the fact that we are essentially bankrupt. Major private banks are holding 10x the entire global GDP in opaque derivatives. I have absolutely no idea how our currencies are supposed to survive debt monetisation. There is practically no growth in the economy. The apparent job creation miracle is, in reality, the destruction of well paid full time permanent jobs and their replacement with low paid part time insecure jobs. National debt stands at 90% of GDP and something like 14% tax income is spent on servicing that debt. We are in a downward spiral out of which we seem incapable of growing. Practically all citizens are docile, inobservant passengers reliant on the government for basic infrastructure. We are psychologically and physically unprepared for a shock to the global economic system. Putin may well wish to initiate WWIII. The scariest thing of all, perhaps, is that mainstream media is practically silent.

Frankly - I am extremely afraid of our current position but everybody else laughs at the thought that war, or famine, or bankruptcy, or a police state could befall Western nations.

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iNow
Post  Post subject: Re: End game?  |  Posted: Tue Aug 23, 2016 11:33 pm
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Paradoxically, most of the problems you cite could be addressed with a simple spending program or fiscal stimulus.

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Rory
Post  Post subject: Re: End game?  |  Posted: Wed Aug 24, 2016 8:43 am
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Fiscal stimulus would create a temporary demand for labour - unless infrastructure projects are to be extended indefinitely?

How can that be maintained by merely pushing up the national debt?

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Rory
Post  Post subject: Re: End game?  |  Posted: Wed Aug 24, 2016 10:59 am
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'Socialisation of risk and privatisation of profit' is basically our big picture economic strategy.

What are we going to do if/when it fails, simultaneously, across multiple nations?

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Falconer360
Post  Post subject: Re: End game?  |  Posted: Wed Aug 24, 2016 5:32 pm
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Rory wrote:
'Socialisation of risk and privatisation of profit' is basically our big picture economic strategy.

What are we going to do if/when it fails, simultaneously, across multiple nations?


That's one of those bridges I'll worry about when we get to it sort of things. It's so far out of my ability to control or effect that I simply refuse to stress myself out over it by worrying about it. If it happens, well shit, if not then I go about life like usual.

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Rory
Post  Post subject: Re: End game?  |  Posted: Wed Aug 24, 2016 6:29 pm
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That was my brother's attitude, too. He said he doesn't care about politics, and I thought, 'actually, it's economics, but I won't p*ss you off by correcting you' and 'you will care when the supermarket shelves are empty'.

Each to his own: I'm going to start storing supplies.

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Rory
Post  Post subject: Re: End game?  |  Posted: Wed Aug 24, 2016 10:08 pm
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I have read some sources that suggest that Treasury Secretary Henry Paulson claimed, during the 2008 cinancial crisis, that martial law would most likely result without the bailout bill.

Is that true? Links to a trustworthy source?

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Falconer360
Post  Post subject: Re: End game?  |  Posted: Wed Aug 24, 2016 10:17 pm
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Rory wrote:
That was my brother's attitude, too. He said he doesn't care about politics, and I thought, 'actually, it's economics, but I won't p*ss you off by correcting you' and 'you will care when the supermarket shelves are empty'.

Each to his own: I'm going to start storing supplies.


Mine isn't so much from indifference like what you stated, more along the lines of "Focus on what you do have the power to effect, and let go of the things beyond your control."

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Rory
Post  Post subject: Re: End game?  |  Posted: Wed Aug 24, 2016 11:37 pm
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Is this footage genuine?


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iNow
Post  Post subject: Re: End game?  |  Posted: Thu Aug 25, 2016 1:07 am
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Rory wrote:
Fiscal stimulus would create a temporary demand for labour - unless infrastructure projects are to be extended indefinitely?

Why do you believe this? It's not true, especially given the multiplier effect coupled with the extremely low interest rates available, but I'm curious to understand your thinking.

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Rory
Post  Post subject: Re: End game?  |  Posted: Thu Aug 25, 2016 10:45 am
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Say the government invests (spends?) $800 billion (credit) on a bridge construction project. Demand for labour obviously increases, mostly in the construction and logistics sectors. Demand for construction materials increases. Workers have increased income.

What will the effects of those things be?

The workers might increase consumption - or, they may realise that this is a one-time stimulus effort, and choose to sequester any disposable income for the next (inevitable) 'rainy day'. Even if consumption increases, it's not likely to be concentrated: a worker buying one TV isn't going to keep an entire electronics business afloat. The spending by workers will be distributed thinly across myriad businesses, so the feedback effect on those businesses (if you were to ask them individually) would likely be undetectable. Ultimately, the demand for labour is engineered and artificial. The moment you remove the stimulus, demand for labour normalises in line with natural market conditions. If the project proves not to have any noticeable beneficial effect on the economy on a macro scale then you've just effectively borrowed your way to a lower credit rating.

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iNow
Post  Post subject: Re: End game?  |  Posted: Thu Aug 25, 2016 3:42 pm
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Correction: Some (most?) workers WILL increase consumption, especially those that didn't formerly have any work at all. They may not even choose to consume. They may simply pay down existing debts. Those payments still go to someone else and THAT person will likely spend it...

Either way, individuals benefiting from such a stimulus are going to spend AT LEAST SOME of the money of they're receiving. Their spending then by definition becomes the income of someone else... The shop keeper, the restaurant owner, the vehicle repair team, the theater, the sporting arena, the grocer, the whatever...

That money will get spent (minus some fraction they may choose to save) and that spending increases the income of someone else who will then themselves ALSO spend it elsewhere... lather, rinse, repeat.

It's unrealistic to assume that 100% of income will be saved by 100% of people were a stimulus of this nature to be implemented, and it's a remedially false assertion for you to make.

These effects continue even after the stimulus ends, even if they are only experienced at a lower magnitude they are still there. To ignore these effects or pretend their irrelevant is to argue an unrealistic and untenable position.

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Rory
Post  Post subject: Re: End game?  |  Posted: Thu Aug 25, 2016 6:52 pm
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I never said that 100% of the workers would save 100% of their income.

I do understand the point you are making: that there is a feed-forward effect on the economy.

However, I question how powerful this solution can be in reality.

Say, for simplicity's sake, the fiscal stimulus creates 100 new jobs (I know in reality the number of jobs created by a government-scale infrastructure programme would be greater).

If each of those workers spends 30% of his income (say, £300 - which is 1/3 the median income of the bottom 90% in the UK) on 300 different groceries. Each grocery is produced by a different manufacturer. None of the manufacturers are going to feel a massive boost in revenue, as far as I can tell. I have no formal education in Economics (it's not even taught at high school level) so no doubt you will have a better understanding of this than I. I'm not saying I'm categorically right on this, I'm just saying that's how I imagine it.

How can a large scale positive effect be noticed if the business created is mostly diluted across a multitude of sectors and individual businesses?

To my imagination, it's like saying Obama is going to give 2500 dollars to every American citizen - 800 billion dollars divide 320 million citizens. It's a nice amount of money, and will generate some economic activity, but to me it feels more like giving fishes than teaching to fish.

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iNow
Post  Post subject: Re: End game?  |  Posted: Fri Aug 26, 2016 1:52 am
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What if the government just subsidized a raise in the minimum wage... or maybe just healthcare expenses so those were no longer coming out of individuals pockets and backrupting them?


Image


Oh yeah, never mind. You get to live in a country where such fundamental requirements and foundational basic human needs are provided by the state simply for being lucky enough to exist on that particular bit of soil and plot of land. Those aren't issues of concern for you at all. My bad.

But what about the minimum wage thing, though? Another spending program, obvious benefit, not fundamentally different from stimulus in its effect.

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Rory
Post  Post subject: Re: End game?  |  Posted: Fri Aug 26, 2016 7:37 am
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On an ideological level, free healthcare and an increase in the minimum wage are certainly policies I would support, if it was within the means of the government and its populace to provide them without any significant adverse effect on the economy (as would be felt by average Joe - I don't care about the wealthy).

My main concern with free healthcare for all, or for the socioeconomically deprived, under the economic conditions in the West today - is, how are governments going to afford it?

They could raise taxes which would eat into citizens' disposable incomes. Or, they could tax only the rich and use it to fund healthcare for the poor - I would be in favour of this, but I'm not sure that high level politicians who rely on privately owned media companies for their electoral success, would be willing to upset the interests of powerful corporations.

An increase in the minimum wage... I used to be 100% in favour of. But, there's always the possibility that if you introduce a 15 dollars/hr minimum wage, employers will either lay off staff and/or invest in automation that replaces those jobs. And to break even on that investment in automation means keeping hold of the machinery in place of human labour - even if the nominal minimum wage is subsequently revised down, or if the minimum wage decreases in real terms. So, people who were previously paid 10 dollars per hour are now paid 0 dollars per hour (at least, some of them). And, if inflation increases sufficiently, it's no longer a raise in real wages.

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iNow
Post  Post subject: Re: End game?  |  Posted: Fri Aug 26, 2016 3:07 pm
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Rory wrote:
My main concern with free healthcare for all, or for the socioeconomically deprived, under the economic conditions in the West today - is, how are governments going to afford it?

Because it's much cheaper to do it that way than other ways, especially when you account for all of the downstream costs of not doing it. Better to view it more as an investment than a cost. Note also the longer-term societal costs and economic impact of having a largely sick populace dying and piling up in the streets or unproductive because they don't feel well all the time which only add to the problem. An ounce of prevention is worth a pound of cure, and whatnot.

http://www.visualcapitalist.com/u-s-hea ... -good-way/

Image


Rory wrote:
An increase in the minimum wage... I used to be 100% in favour of. But, there's always the possibility that if you introduce a 15 dollars/hr minimum wage, employers will either lay off staff and/or invest in automation that replaces those jobs. And to break even on that investment in automation means keeping hold of the machinery in place of human labour - even if the nominal minimum wage is subsequently revised down, or if the minimum wage decreases in real terms. So, people who were previously paid 10 dollars per hour are now paid 0 dollars per hour (at least, some of them). And, if inflation increases sufficiently, it's no longer a raise in real wages.

Yes, some people might be let go, but more people than that will get hired. The data is overwhelmingly clear on minimum wage raises. They're almost always effective and job losses are far fewer than critics believe, and are heavily overshadowed by the new job gains.

http://www.nelp.org/content/uploads/Min ... ffects.pdf

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Falconer360
Post  Post subject: Re: End game?  |  Posted: Fri Aug 26, 2016 4:40 pm
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Rory wrote:
An increase in the minimum wage... I used to be 100% in favour of. But, there's always the possibility that if you introduce a 15 dollars/hr minimum wage, employers will either lay off staff and/or invest in automation that replaces those jobs. And to break even on that investment in automation means keeping hold of the machinery in place of human labour - even if the nominal minimum wage is subsequently revised down, or if the minimum wage decreases in real terms. So, people who were previously paid 10 dollars per hour are now paid 0 dollars per hour (at least, some of them). And, if inflation increases sufficiently, it's no longer a raise in real wages.


Since I think Inow is doing a great job tackling your other points, I just wanted to talk about the scare tactic of automation. That if we raise the minimum wage, they will just automate more jobs to save money. This is simple threatening, by listening to their threats and not raising the minimum wage out of fear that they will automate, is just caving to their demands. It's no different than negotiating with a terrorist really (the companies being the terrorists in this situation). Shit this is why unions were formed in the first place, to stop employers from preying on their employees. The businesses are holding a virtual gun to their employees heads when they threaten automation in response to a higher minimum wage. When the reality is that eventually the employers will automate regardless of the minimum wage. 57% of the jobs in the world are currently susceptible to automation, and this number is only going to increase as technology progresses (http://futurism.com/85-jobs-threatened-automation-spell-doom/). At the end of the day companies care about the bottom line, and eventually people will be more expensive no matter how low the minimum wage is. I really think that eventually we will have to implement a universal basic income.

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iNow
Post  Post subject: Re: End game?  |  Posted: Fri Aug 26, 2016 5:45 pm
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The automation (rightly described by Falconer as a) scare tactic also misses a deeper point. Companies will ALWAYS try to automate and hold down costs regardless of what the minimum income level is.

This article summed it up neatly:

http://www.chicagobusiness.com/article/ ... automation
Quote:
Bottom line: Believe what you want about the economic effects of minimum wage increases. But don't kid yourself that holding down pay for low-wage workers will protect their jobs from automation.

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Rory
Post  Post subject: Re: End game?  |  Posted: Sat Aug 27, 2016 3:54 pm
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Maybe a real raise in the minimum wage would help the economy - I don't know.

My best guess is that, for it to work under the rather extreme economic conditions of today, the minimum wage would need to be high enough to facilitate social mobility - if it is to have any significant positive impact.

The minimum wage in the UK is £7.20 per hour, so a full time (40 hours per week) monthly take home salary is £900. That is easily eaten by rent (£400), energy bills (£50), water (£10), phone contract (£30), transport/fuel (£100). That leaves £300 and I haven't even included food/groceries or childcare. Basically, your average citizen is not going to be able to save anything. And many will only be working at that job because they have to in order to pay bills. It's not their idea of self-actualisation. They are not going anywhere - financially or in terms of personal growth.

I would rather work part time and spend the rest of my time doing things that actually matter to me on a deeper level (higher up Maslow's hierarchy).

Tangent: I passed by my local town shopping centre on Friday afternoon (nowhere near rush hour). It was absolutely full of shoppers! You could have been mistaken for thinking it was Christmas break. It shocked me because, historically, it would have been very quiet or almost empty on a random Friday in August at mid-afternoon. If these people are shopping, they're not working the conventional full time Monday-Friday 9-5. How are they paying for their shopping? Credit, I guess. That will run out.

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Rory
Post  Post subject: Re: End game?  |  Posted: Sat Aug 27, 2016 4:03 pm
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Or, even if companies retain staff on the increased minimum wage, the price of their product or service may increase. Say a shop assistant receives a 5 dollar per hour raise. They travel by bus and the bus driver also receives a 5 dollar per hour raise. The cost of the service is now higher and is passed on to the consumer (the shop assistant). It's swings and roundabouts.

Image

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Falconer360
Post  Post subject: Re: End game?  |  Posted: Sat Aug 27, 2016 4:43 pm
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Rory wrote:
Tangent: I passed by my local town shopping centre on Friday afternoon (nowhere near rush hour). It was absolutely full of shoppers! You could have been mistaken for thinking it was Christmas break. It shocked me because, histotically, it would have been very quiet or almost empty on a random Friday in August at mid-afternoon. If these people are shopping, they're not working the conventional full time Monday-Friday 9-5. How are they paying for their shopping? Credit, I guess. That will run out.

Or you know maybe they work different schedules. When you think of all the things that stay open late or open on weekends, it means there are people working those hours, and that they do not work 9-5 M-F. I work Wednesday through Sunday for instance, I've also worked Tuesday to Saturday, and Friday to Tuesday schedules. Or maybe it's people taking time out of their schedule for back to school shopping? I know school (Elementary and High School) starts on Monday here. Point is that there are a variety of reasons that people could be out shopping on a Friday at mid afternoon.

Rory wrote:
Or, even if companies retain staff on the increased minimum wage, the price of their product or service may increase. Say a shop assistant receives a 5 dollar per hour raise. They travel by bus and the bus driver also receives a 5 dollar per hour raise. The cost of the service is now higher and is passed on to the consumer (the shop assistant). It's swings and roundabouts.


Prices do raise but not drastically. From a study by Purdue University: "The purpose of this paper was to examine the effect that higher wages and health-care benefits have on costs and prices in limited-service restaurants. In order to compensate for higher wages, prices would have to increase between 4% and 25% and/or product size would have to be scaled back between 12% and 70%." "Limited-service restaurants are what many consumers refer to as "fast-food restaurants," where there usually is no tableside service and no tipping." https://www.purdue.edu/newsroom/releases/2015/Q3/study-raising-wages-to-15-an-hour-for-limited-service-restaurant-employees-would-raise-prices-4.3-percent.html

"That would mean a McDonald’s Big Mac, which currently goes for 3.99 (USD) would cost about 17 cents more, or 4.16 (USD).... The price increases would be a good deal larger if the minimum wage were raised to 22 (USD) an hour, or average private sector pay: the authors found they would increase by 25 percent, raising the price of a Big Mac by about a dollar." https://thinkprogress.org/this-is-how-much-a-big-mac-would-cost-if-the-minimum-wage-was-15-184b7523b273#.f2o7b8nne

For someone who hates big business and their stranglehold on the average person, you sure seem to fall for their scare tactics a lot. As Nick Hanauer (he was the one billionaire in that Inequality for All documentary), "The fundamental law of capitalism is: when workers have more money, businesses have more customers, and need more workers. The idea that high wages equals low employment, it's absurd."

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Last edited by iNow on Sat Aug 27, 2016 5:06 pm, edited 1 time in total.
Replaced dollar signs with (USD) to address latex rendering problem with double dollar signs


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Rory
Post  Post subject: Re: End game?  |  Posted: Sat Aug 27, 2016 9:12 pm
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I am well aware that citizens might be working alternate schedules - due to the proliferation of part time jobs to replace the destroyed full time jobs. My current (summer) job is a zero hours contract and I tend to work weekends and evening shifts. My concern is the massive growth of underemployment. The incumbent will not mention this, of course. The graph below shows that the actual number of hours worked across the entire UK economy plummeted in accordance with the most recent financial crisis and have never recovered. Note that three sources tell this narrative while the government source paints a rosy picture:

Image

And I'm not 'afraid' of an increase in the minimum wage. It has been tried recently here in the UK. I just don't think it will work because (i) products and services will increase in price - even if only slightly, this can have an additive effect. The price of lunch might only raise a bit, but if the price of a haircut, insurance, hotel rooms, coffee, rail travel... and so on... increase, then that can negate any nominal increase in the minimum wage (ii) the economic conditions are too unstable for that policy to serve as a quick fix. Re-arranging the deck chairs on the Titanic.

Scary fact: the Fed is leveraged 77:1

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iNow
Post  Post subject: Re: End game?  |  Posted: Sun Aug 28, 2016 1:25 am
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Rory wrote:
Scary fact: the Fed is leveraged 77:1

Sorry. Gonna need a source for that one, specifically some clarification on how it was calculated and whether or not that's even remotely close to accurate. Basically: Citation needed.

Also, digging more deeply... it wouldn't even really matter if the Fed was leveraged 77:1. Hell, it wouldn't matter if it was leveraged 7700:1. The FED can just print money or use quantitative easing to pay down the debt (while I acknowledge such a move would have it's own likely issues and consequences like inflation and downgraded credit ratings, you should note that those are wholly irrelevant to my primary point... which is that the leverage ratio of the Fed is not terribly relevant or worrisome given their position and abilities in the global economy... the strongest in the world and the one that sets the market for practically all others... it's not like we're talking about a household or family budget here).

When it comes to addressing this point, I realize there's an even better counter argument available than the Feds ability to print money or quantitatively ease: Other countries are willing to lend to the US at an impossibly low rate right now. We can get a "loan" at a measly half percent interest (0.5%). It's not like we're Argentina or Malawi who can only get a loan offered to them at nearly 30% (or at best above 25%) interest. It's even better in the UK right now where the world is offering you a 0.25% interest rate.

It's basically free borrowing... free money. It's as if you lent me £1,000 and it only cost me £5 in interest to pay you back (or £2.50 in the UK)... £1,005 total to repay (or £1,002.50 in UK). That's a lot different than Argentina where it would cost £288 solely in interest, or £1,288 to repay a £1,000 loan).

That's a pretty fabulous deal the US gets due to our creditworthiness and full faith and credit, so even if the 77:1 ratio is accurate (which I'm about 98% sure it's not), it's still not at all a problem.

http://www.tradingeconomics.com/country ... erest-rate

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Rory
Post  Post subject: Re: End game?  |  Posted: Sun Aug 28, 2016 11:50 am
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The 77:1 leverage is mentioned in this New York Times article written by William Cohan - business writer, former Wall Street banker and MD at JP Morgan Chase:

Quote:
Can the Fed’s equity capital of 56 billion dollars — yes, the Fed is leveraged 77 to 1 — be wiped out? A mere 1.3 percent change in the value of those 4.3 trillion dollars in bonds would theoretically wipe out the Fed’s equity.


http://dealbook.nytimes.com/2014/06/27/feds-balance-sheet-punctuated-by-a-big-question-mark/?_r=0

Image

Hyperinflation is the logical conclusion - the way to solve an unpayable debt?

Make the debt meaningless by making the currency meaningless.

The practically non-existent interest rate is engineered and artificial by central banks across the West to finance their own debt.

Image

Image

The government bond market is basically a Ponzi scheme.

Price discovery will happen - the house of cards will fall.

Sometimes the best place to hide is in plain sight:



If you think our governments care about us



I wish you the best of luck

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iNow
Post  Post subject: Re: End game?  |  Posted: Sun Aug 28, 2016 9:21 pm
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I think we're too far apart on this topic for me to feel that further comment is a valuable use of my time right now.


EDIT TO ADD:
Rory wrote:
The 77:1 leverage is mentioned in this New York Times article written by William Cohan - business writer, former Wall Street banker and MD at JP Morgan Chase:

Quote:
Can the Fed’s equity capital of 56 billion dollars — yes, the Fed is leveraged 77 to 1 — be wiped out? A mere 1.3 percent change in the value of those 4.3 trillion dollars in bonds would theoretically wipe out the Fed’s equity.


http://dealbook.nytimes.com/2014/06/27/feds-balance-sheet-punctuated-by-a-big-question-mark/?_r=0

Your article is more than 2 years old (June 2014). You said the Fed IS leveraged 77:1, not WAS or HAS BEEN. Curious how it looks now as we near September 2016, nearly 27 months or 9 quarters later.

Either way, Cohen has been yelling about the perils of the Fed balance sheet since the crash and none of his claims have been thus far correct. He's a bit like Marc Faber in that respect: http://ritholtz.com/2016/08/faber-50-cr ... g-however/

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Rory
Post  Post subject: Re: End game?  |  Posted: Sun Aug 28, 2016 10:34 pm
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Okay. If you decide to correct my evidence - I will be waiting.

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iNow
Post  Post subject: Re: End game?  |  Posted: Mon Aug 29, 2016 11:06 am
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I don't feel you've posted evidence that requires any countering. My issue is more with the way you're framing the situation. I'll try to clarify.

You're focused on debt as if government debt is equivalent to household debt. It's not, especially not when interest rates are against the zero lower bound. Government debt is basically just money we owe to ourselves (as opposed to household debt which is money we owe others; it's different there as our debt is someone else's income).

Your position also implicitly requires us to mistakenly treat debt as a pure cost as opposed to an investment with clear cascading ROI and magnifiers (hint: it's almost always the latter). Thinking this through to its logical conclusion, you simply must realize that your position naturally leads to implementation of austerity measures which (according to decades of evidence, including quite recently right there in your home country) paradoxically make worse the very problems you lament.

You're making claims that current policies will lead to runaway inflation, but the evidence is right in front of us that these policies have kept inflation at historic lows; inflation is significantly lower than it's been in a very long time.

Not to put too fine a point on it, but you (and whatever pundits and prognosticators you follow) are essentially fear mongering about inflation rising, and doing so at a time when moderately higher inflation would actually help the economy by triggering greater growth and enhancing export volume (thus creating more jobs and higher incomes across the board).

You're talking about the dangers of a collapsing houses of cards while in parallel advocating for us to enact the very steps that would make such an outcome more likely, not less. You're talking about governments not caring for the populace all while major spending continues to help people in need and while you yourself directly benefit from that spending every single day of your life.

The risk we currently face in the economy is not IMO rent seeking as you suggest, but is instead unabated secular stagnation.

This is not meant to be either personal or insulting, merely observational. I don't feel your argument is based on sound economics, but instead believe it to be based on personal politics (and perhaps a bit of puritanical morality given your debt fucused concerns as if debt is always and forever by definition unsavory and bad...it's not. It's a tool that when managed can help you do and build great things, much like any company making heavy up front capital investments to later realize sizable downstream profits).

It's okay for you to have a different viewpoint. Please don't misinterpret me. I just feel mine is the evidence based one here and yours is seemingly more rooted in narrative and narrow framing.

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Rory
Post  Post subject: Re: End game?  |  Posted: Mon Aug 29, 2016 5:34 pm
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Well, if you could point me to the debt ROI, that would be helpful. On a conceptual level, I can imagine that there is the potential to invest borrowed money profitably. But, that outcone is not a given. When you're in a (practically) zero interest rate, easy money culture - then I guess that any cash and any credit just looks like more leverage power. The power to borrow and speculate even more.

Household and government debt aren't identical; the scale and complexity of the respective borrowing contexts differ greatly. But there are fundamental similarities: there is always a debtor and a creditor; there is always credibility at stake.

Western governments are borrowing from foreign creditors (e.g. the US from China and Japan). Central banks are then buying most of their own government's Treasury bonds (writing themselves IOUs). This gives the illusion of credibility to overseas investors and allows interest rates to be kept artificially low because the debt appears less risky than it is in reality. The bonds probably wouldn't fare as well on the open market and would command a higher interest rate.

It's basically a confidence game and only a matter of time before investors realise that the system is broken and the central banks are doing all of the legwork to keep the illusion alive.

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Rory
Post  Post subject: Re: End game?  |  Posted: Tue Aug 30, 2016 8:24 am
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Now the central banks are buying corporate bonds to pick winners and save losers.

Well, the eye never would have evolved without natural selection. I guess they will never see.

They'll just keep laughing their way to (their own) bank.

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Rory
Post  Post subject: Re: End game?  |  Posted: Tue Aug 30, 2016 10:10 pm
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Image

Hello, economy.

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iNow
Post  Post subject: Re: End game?  |  Posted: Fri Sep 02, 2016 6:48 pm
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Would prefer this conversation not be turned into (yet another) rant corner style thread.

It's okay to disagree, but it is helpful to at least attempt to hold a valid understanding of the thinking of those with whom you disagree.

To that end, and returning to the FED leverage point, here's a good overview: https://www.brookings.edu/blog/ben-bern ... eet-large/

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Rory
Post  Post subject: Re: End game?  |  Posted: Fri Sep 02, 2016 10:10 pm
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Stop trying to educate me :D Love you iNow

The author claims that it may be beneficial for the Fed to maintain a large balance sheet because (i) allows for interest rates to be controlled (ii) the other central banks are doing it (iii) allows the market to be controlled/prevents "fire sales".

There are some further points - I don't understand them.

As counterpoints: (i) the Fed is taking on too much risk (ii) other central banks, in the UK and Europe, are trying out the same strategy (simultaneously). If I jump off of a cliff at the same time as someone else, I can't claim to have learned from their experience. In fact, one of the reasons I find the current approach so worrying, is that pretty well all Western nations are trying the exact same (untested) strategy concurrently. If the strategy fails, all nations fail and not one can provide emergency assistance to the others. (iii) Suppression of interest rates/buying of government bonds is creating massive distortions in the stock market that don't reflect developments in the REAL economy. Eventually the system will normalise - it won't be pretty.

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iNow
Post  Post subject: Re: End game?  |  Posted: Sat Sep 03, 2016 1:28 am
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Fair enough. Just to be clear, "the author" is former US Fed chairman Ben Bernanke, largely credited with having saved the world economy and preventing a second Great Depression.

http://www.theatlantic.com/magazine/arc ... in/308901/

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iNow
Post  Post subject: Re: End game?  |  Posted: Wed Sep 07, 2016 8:26 pm
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I found this interesting. It's a probabilistic distribution of the 5 most likely possible outcomes in the market as calculated by the folks over at Fidelity:

Image


https://www.fidelity.com/viewpoints/mar ... -scenarios

Quote:
After two years of moving sideways within a narrow trading range, the U.S. stock market (as measured by the S&P 500®) has recently set record highs. Is this the start of a major new uptrend? A gradual grind higher? Or is it all just a head fake?

To get a sense of what may lie ahead for stocks, it’s useful to consider potential market environment scenarios, and to assess their odds of occurring. From my perspective, I see five potential scenarios, or “regimes,” that may characterize the future investing backdrop for stocks. Let’s take a look at each of them—ranked in order from what I believe to be the most likely to the least probable scenarios.

(snip)

Five scenarios for stocks

1. Secular stagnation (more of the same)
2. Deglobalization
3. Bond-proxy bubble
4. Deflation bust (recession)
5. Inflation boom (global recovery)

(snip)

My base case scenario is a continuation of modest growth and ongoing monetary accommodation by most of the world’s central banks, and only limited tightening by the Fed (maybe one or two more rate hikes in the next 12 to 24 months). All in all, I see a market that is supported by slightly better fundamentals but is held back by structural forces. My sense is that the new highs are justified, but that stocks will only grind higher for now, as opposed to an explosive move to the upside.

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