Financial topics

[Marc]

What I do consider to be relevant and undeniable is the fact that we are going through a period of de-leveraging. What that means to me is that in the broadest sense the debt will be eliminated whether it be by paying it down, forgiveness, default or any other “magically” contrived way.

Most governments don't seem to pay off debts in the normal way. They magically make new money out of thin air and pay off their debts with that. I am not aware of any in the last 50 years that have used budget surplus tax dollars over a long term to pay down their debt. However, I would not call printing money de-leveraging.

Good evening Vince,

Old had a good explanation of debt based banking and contraction, etc. in a post in response to your view of printing money. Koo contrasts the pubic and private reaction to the present crisis. He uses the analogy of the brake pedal and the gas pedal and backs it up with his analytical work product. The public (goverment) sector is pressing the gas(and arguably printing money) while the private sector is putting on the brakes and de-leveraging. I am not looking at it from a one dimensional stand point. I would not call printing money de-leveraging either. Objectively and professionally speaking, I call the contraction of debt by whatever means de-leveraging.

Regards,

John

I feel that John (jdcpapa) has a good analogy for what seems to be happening: the Fed and governments around the world are indeed printing loads of money, but the rate of monetary destruction in the private sector seems to be greater than the governmental money-printing that is occurring. Additionally, I respectfully feel that the banks would find some way, if at all possible, to put the kibosh on hyperinflation, as hyperinflation (at least Zimbabwe-style hyperinflation) would likely destroy the banks. However, once the bad debt in the private sector is destroyed, I'm not sure what interventions the Fed and its world counterparts would or could use to avoid a potential hyperinflationary endgame outcome; maybe they could and would frenetically try to take loads of money out of the system at that juncture. —Best regards, Marc

[Higgenbotham]

I feel that John (jdcpapa) has a good analogy for what seems to be happening: the Fed and governments around the world are indeed printing loads of money, but the rate of monetary destruction in the private sector seems to be greater than the governmental money-printing that is occurring. Additionally, I respectfully feel that the banks would find some way, if at all possible, to put the kibosh on hyperinflation, as hyperinflation (at least Zimbabwe-style hyperinflation) would likely destroy the banks. However, once the bad debt in the private sector is destroyed, I'm not sure what interventions the Fed and its world counterparts would or could use to avoid a potential hyperinflationary endgame outcome; maybe they could and would frenetically try to take loads of money out of the system at that juncture. —Best regards, Marc

Only thing I would add is, "However, once the rate of destruction of bad debt in the private sector falls below the rate of increase of debt in the government sector..." And we would need to look at that country by country (currency and bonds), region by region (currency and bonds), and throughout the system as a whole.

[Marc]

I feel that John (jdcpapa) has a good analogy for what seems to be happening: the Fed and governments around the world are indeed printing loads of money, but the rate of monetary destruction in the private sector seems to be greater than the governmental money-printing that is occurring. Additionally, I respectfully feel that the banks would find some way, if at all possible, to put the kibosh on hyperinflation, as hyperinflation (at least Zimbabwe-style hyperinflation) would likely destroy the banks. However, once the bad debt in the private sector is destroyed, I'm not sure what interventions the Fed and its world counterparts would or could use to avoid a potential hyperinflationary endgame outcome; maybe they could and would frenetically try to take loads of money out of the system at that juncture. —Best regards, Marc

Only thing I would add is, "However, once the rate of destruction of bad debt in the private sector falls below the rate of increase of debt in the government sector..." And we would need to look at that country by country (currency and bonds), region by region (currency and bonds), and throughout the system as a whole.

Exactly; and I think that Dr. Bernanke and his counterparts are likely watching such metrics closely —Best regards, Marc

[Higgenbotham]

In 1960, nearly 60 percent of young adults age 18 to 29 were married. Today, 20 percent have tied the knot.

http://www.10news.com/news/29998405/detail.html

The article says this is due to a "cultural shift". I think it's mostly due to the economy.

Whatever has caused it, it's a massive change.

[John]

We're in the other half of the Baby Boom. People avoid having children
as they enter a crisis era, and then have a baby boom when the
crisis ends.

[Higgenbotham]

The numbers I'm picking up vis a vis the last crisis era say this will be one heckuva baby bust unless a lot of kids are born out of wedlock.

[vincecate]

Additionally, I respectfully feel that the banks would find some way, if at all possible, to put the kibosh on hyperinflation, as hyperinflation (at least Zimbabwe-style hyperinflation) would likely destroy the banks. However, once the bad debt in the private sector is destroyed, I'm not sure what interventions the Fed and its world counterparts would or could use to avoid a potential hyperinflationary endgame outcome; maybe they could and would frenetically try to take loads of money out of the system at that juncture.

The problem is that the government is the one that makes and changes the laws, controls the police, and appoints the people that run the central bank. If the government is spending twice what it collects in taxes and nobody is buying their bonds then the government will get the central bank to buy their bonds one way or another. At least historically that is what always happens. If the central bank did not the government would be broke as it could only pay half its expenses.

The US government was able to influence the head of Al Gazera so that he would not publish bad things about the US. If the US government can control the head of the main Muslim/Arab news agency in another country, they can control the Federal Reserve Bank on US soil operating at the whim of US law.

http://news.cnet.com/8301-1023_3-201092 ... to-resign/

Again, historically the central banks always print whatever the government needs. I expect that this time as well.

[vincecate]

The numbers I'm picking up vis a vis the last crisis era say this will be one heckuva baby bust unless a lot of kids are born out of wedlock.

Birth control is a lot easier these days than 80 years ago. The pill was not approved in the US till the 1960s.

http://en.wikipedia.org/wiki/Combined_o ... ptive_pill

[Higgenbotham]

Birth control is a lot easier these days than 80 years ago.

Abortion is legal.

Median age at first marriage is skyrocketing.

Mexicans are returning home.

One aspect that seems hard to resolve is how comfortable people will feel with the chance that government programs like AFDC, medicaid, and food stamps are going to continue.

[vincecate]

Birth control is a lot easier these days than 80 years ago.

Abortion is legal.

Median age at first marriage is skyrocketing.

Mexicans are returning home.

One aspect that seems hard to resolve is how comfortable people will feel with the chance that government programs like AFDC, medicaid, and food stamps are going to continue.

If things get as bad as we expect, the birth rate will drop much more. Wow.