Financial topics

[vincecate]

I have for some time believed that the FDIC will be way in over its head as some point as the economic collapse continues.

I agree but expect that the government will bail them out, printing money as needed. But then I am the resident hyperinflationist...

[OLD1953]

I always hesitate to say something relating to human behavior is "impossible", because I've seen so much crazy behavior over my life. While I can think of scenarios that would cause hyperinflation in the US (Ok, Bernake decides to really kick start the economy, and the FED simply buys up and cancels all credit card debt held by individuals up to say 20K total per household, yah, that would certainly cause some inflation) but I see no POLITICAL way for them to be approved. And that's what John means, sure, the EURO can be saved tomorrow, if they decide they'll take the hit and expel Greece, Italy, Portugal and Ireland from the EURO, and tell the investors "we have never said we will make good on their bonds, thats not written down anywhere, but we'll pick up the tab for 25% and DONE". Politically, that cannot happen. And neither can a helicoptor drop of cash on the lower 99%, because it is too unpalatable to the guys writing the checks for the political campaigns.

What will very likely be a clear sign that recovery will start soon will be for the guy who spends less in a political campaign to be the clear winner. Have that happen on a large scale, and it will show people have decided they have to pay attention again. And that's the only way this crazy government works at all, is when people pay attention to what's going on.

[biffbifford]

What will very likely be a clear sign that recovery will start soon will be for the guy who spends less in a political campaign to be the clear winner. Have that happen on a large scale, and it will show people have decided they have to pay attention again. And that's the only way this crazy government work at all, is when people pay attention to what's going on.]

It feels like people are beginning to pay attention, they just have been dormant for such a long time, they are confused about the issues. The government has done a marvelous job at making sure the people are at odds with each other. I hear it all the time, people who are just now becoming engaged in the country's political debate, regurgitating what they hear on FOX, or MSNBC. As long as [they] can keep us confused about the issues, in fear of the other party's political ideology, afraid that someone with dark skin and a turbin is going to blow us all up -- we will fight among each other. In the end, nothing changes, they (Congress) get what they want for both their personal, and special interests. If "we the people" could unite against this cancer, on any single issue, we could force change, even if it was temporary. But the reality is, war is good for business. Every time, a bomb is dropped. Bad news comes out of Europe. I seem to profit handsomely. Our consumer-driven economy is fueled by a drug called greed, and Congress is all too willing to sell the middle class to get another fix. I think we are beyond the point of just paying attention. United we stand, divided we fall.

[vincecate]

As for your statement about the 1930s, it proves that you're wrong, as
it shows how the government will take whatever political steps it can
to avoid hyperinflation. In today's political climate, there are
numerous steps that will be taken before there will be any risk
of hyperinflation. So there are many reasons why you're wrong.

I am listening to your Pollock video and how you talk about "there is no solution" to the economic crisis.

I don't think in the 1930s that the US had the debt of 80% of GNP and deficit of 40% of spending. This is a very hard thing to do when a currency is partially backed by gold. So at that time they were not so badly setup for hyperinflation that there was no way out. But today they are.

If printing money still works, then you can sort of fix any economic problem by printing up some money and throwing money at the problem. For there really to be no solution, things will have to get to where they can not just print money to solve problems.

How about looking at this from an abstract level. If country X has debt equal to GNP and spends twice what they get in taxes they historically end up with hyperinflation. As they print more and more money people less and less want to loan the government money, so it more and more has to survive on printing and not borrowing. This is the death spiral of hyperinflation. How can country X avoid the historical trap? Is cutting spending by 50% possible? Doubling taxes? Can a realistic combination of spending cuts and tax increases avoid getting into the death spiral? Can the hard decisions be made before the spiral is entered? Once in the spiral the currency almost always dies.

As you say, the US politics are paralyzed. Until there is a regeneracy event we expect US politics to stay paralyzed. How can they possibly fix the huge deficit problem before the death spiral of hyperinflation is entered and it is too late?

Note: For the purposes of this post take "printing money" to mean the Fed buying Treasuries with newly made money.

[jcsok]

Hig....100% short overnight, looking to scalp at 1215

[John]

Dear Vince,

> If printing money still works, then you can sort of fix any
> economic problem by printing up some money and throwing money at
> the problem. For there really to be no solution, things will have
> to get to where they can not just print money to solve problems.
>

This seems like it should be true, but it just isn't true.

In the 1990s, if someone had given me $10,000, then I would have
spent some of it, possibly most of it. But today, if the Fed
"printed" $10,000 and gave it to me, I'd barely spend a cent of
it. I'd save it all, for fear of being unemployed, or for fear
of not being able to borrow any money when I needed it for an
emergency.

What's the public mood like in Anguilla? Is it any different from
America? In America, everyone is in what I would call a "locked down"
mood. People don't want to spend money, businesses don't want to
invest money, and banks don't want to loan money.

It's not like "printing" money hasn't been tried. The U.S. has
"printed" almost $10 trillion in money in the last 3-4 years, but it
makes no difference at all. All the money goes into mattresses and
bank accounts, rather than into inflation.

Now Vince, think about this. How does the public mood in America
today differ from the public mood in 1920s Germany or 1970s America?

Even if the U.S. government "printed" another $10 trillion, I don't
think it would make any difference, while in the 1970s, or in 1920s
Germany, it would have caused massive inflation. That's why
hyperinflation is impossible at this time. Printing money
makes no difference at all, if the money doesn't circulate.

John

[OLD1953]

John

On that note, I found this article to be quite funny:

http://www.bloomberg.com/news/2011-12-0 ... nding.html


The European Central Bank may announce a range of measures tomorrow to stimulate bank lending, said three euro-area officials with knowledge of policy makers’ deliberations.

Options on the table include loosening collateral criteria so that institutions have more access to cheap ECB cash and offering them longer-term loans to grease the flow of credit to the economy, said the officials, who spoke on condition of anonymity because the discussions are private. Two said an interest rate cut is likely, with only the size of the reduction to be determined for the monthly decision tomorrow.
****************

Can someone show me this pent up desire for credit, NOT meant for refinancing old loans (mortgages) at lower rates, but for NEW purchases that will stimulate the economy? Where is it? What is the evidence that it exists? In other words, what evidence is there showing that qualified borrowers with sound credit, not overextended, are straining at the bit, begging for loans the banks won't extend?

I do not believe such exists, save on a most temporary basis, in today's markets. YES, there has been a spurt of buying in December, AS THERE ALWAYS IS. This year they've managed to cut prices so much, and extend hours so greatly, that they've slightly (I call single digits "slight") improved sales, at the cost of extra overhead. (Plus, I'd REALLY like to see figures for the net profit, not gross coming in the door. PROFIT is what makes business, not gross transfer of cash.) However, we need to see figures from the next two months, to see if mad discounts and crazy sales have actually created new sales or just moved a lot of purchases forwards from January and February. If they have, then this will be a very bad winter for retail.)

True, much of the buying has been on credit. How much of that credit will "stick" and how much will be paid down/off over the next billing cycle or two? The numbers will tell the tale, and we won't have those numbers until the 1st quarter is past and dead. (You know, if I was a bloomberg or MSN type, I'd right now claim to have a crystal ball with a perfect prediction record, and pull a bunch of numbers out of my @$$ and claim they are the figures for the next two months. But I'm not and I really try not to play those games. Just like I do not claim to be able to tell you what the POTUS is thinking. I may question his actions, but I don't know his thoughts. I can GUESS, and if I say I think they are trying for thus and such, I mean that I'm guessing. But please call me on it if I ever adopt the arrogance of claiming I know what someone else is thinking. Apparently the news shows, especially the finance news shows, are filled with mind readers and crystal ball gazers.)

[John]

Well, OLD, someone will make use of the money. In America, a bank can
borrow money from the Fed at near 0% interest, with a guarantee that
interest rates won't rise for two years, and then can use the money
to purchase Treasuries at a higher interest rate. It's a nice deal if you
can get it.

[jdcpapa]

The fact that the US$ is the world reserve currency cannot be ignored as well.

[richard5za]

Printing money
makes no difference at all, if the money doesn't circulate.

Dear John and Vince,
There is surely a set of circumstances that will cause serious (even hyper) inflation, and another set of circumstances that will result in deflation? AS a first step I am assuming that we are agreed that the lowest probabilty is for price stability in our times of financial crisis.

People who have money, spend at least enough to keep body and soul together, for them and their loved ones, including payments for housing, energy and transport. The more people that are unemployed the more there has to be a subsidy to prevent starvation. Starving people riot and can cause mayhem and this is to be avoided. Governments at national, state, provincial and municapal levels need to spend money on essential services and a range of things that can't be cut off. And this could mean printing a lot of money for many reasons e.g. to bail out an insolvent municipality. Levels of sovereign debt are already very high, above 80% of GDP in most if not all G10 countries (I need to uptodate myself on the stats). In a scenario where tax revenues collapse, which is really possible in current global circumstances, and considering that a high portion of the budget is already spent servicing debt, then budget deficits can increase to 20%, 30% even 50%, and lots of money gets printed out of necessity. Now you have all the ingredients for hyper-inflation.

Likewise one can build a cogent scenario for deflation.

As things stand I don't know which way its going to go. But I pray for inflation. It will be economic suicide for America to experience serious deflation; to the extent that I suspect that the political and social orders would change for a very long time.