Financial topics

[OLD1953]

If the deficit was growing in an exponential fashion I'd be in your camp. But it's not.

2009 - 1,413
2010 - 1,293
2011 - 1,299
2012 - 1,101

That's more than it should be, but it's not unrestricted growth. In 2009 we blew the lid off, and much of the TARP and rescue money actually was spent through 2011. Projections call for it to drop further, and I think it will drop from now to the point when we enter (are dragged into) WWIII.

http://www.usgovernmentspending.com/fed ... chart.html

I agree with John about the "script" we seem to follow, and that script calls for increasing restraint in spending up to the point where we go into a crisis war. Look at the charts on that link carefully, keeping productivity increases in mind as well.

We have to be careful on the definitions of what we are discussing when talking about inflation/deflation. The "Great Deflation" is the perfect example of this, prices fell during that period due to increases in productivity, not some shortage of gold. This was not painful for the new producers, but very painful for the traditional producers of goods.

[vincecate]

If the deficit was growing in an exponential fashion I'd be in your camp. But it's not.

2009 - 1,413
2010 - 1,293
2011 - 1,299
2012 - 1,101

First off, I bet that $1.1 trillion for next year is too low an estimate.

The US has gone from a national debt of $7 trillion to $15 trillion in about 6 years. A doubling time of 6 years is exponential growth in my book.

Now your deficit numbers alone would not make one predict a doubling in the next 6 years, but I bet it takes even less than that. The problem is that there is going to be an even worse recession or depression soon. You are not predicting smooth sailing for the economy from here on, are you? So instead of the recent $1.4 or $1.3 trillion per year it will be much worse.

http://www.financialsense.com/contribut ... c-downturn

[jdcpapa]

In a bubble the demand for something is so strong it drives the price up to levels that make it a bad investment. High demand is part of being a bubble, not evidence of no bubble.

Got it. Of course, you are right.

There's one thing I can think to add. Since the period of the bond is a long time, the investors may believe inflation rates will come down and that locking into a low interest rate now is still a good deal. I don't think that's the reason investors are buying US bonds now though. I think they are buying them in sort of a herd like fashion, thinking that they are safer and less bad than everything else.

In trying to think about why this wasn't obvious to me (that low rates on bonds indicates a bubble), most bubbles are based on greed and the idea that everyone is going to get rich, but the herding into bonds is based on fear. Nobody I've heard of is looking to get rich on higher bond prices.

People are moving in to short term bonds. I don't think they are trying to lock in these low rates. Typically people move into short term debt before they give up on the government completely and you get hyperinflation. It is like they think things will hold together for the next 3 months but they do not want to lock things up for 30 years. But as they all move into short term debt this alone also makes things more dangerous for the government. It makes it really easy for them to all get out soon. A company or government with long term debt is in a much safer position as the amount that it would have to refinance over the next year gets large when it is short term debt.

One funny thing about bonds is that people think about the interest rate. A low interest rate does not sound like a bubble.
But bond prices have to be high to get low interest rates.

It could be said that "people(EU) move into short term (US) debt" because of a "flight to safety". Presently, the US is not facing a sovereign debt crisis. The ebb and flow of its long term bond auctions remain whole. There has been a spike in short term issuances. This does not create a problem for the US.

When interest rates are lower on new issuances, older bond issuances with higher stated interest rates are priced higher and this creates a bubble in older issuances.

The December auction for 10 year treasuries (safe rate) was 2% and sold at a discount of 99.816.

[Higgenbotham]

Posted by sy on November 30 and he was right, the stock market is higher than the day this was posted.

Human sentiment is such that when the majority thought otherwise regarding what sy posted (including me), the majority will be wrong, and then one who thought otherwise notes the correctness of the prediction, that's when the market might go down.

I asked why it can't go on for along time. I agree with what you are and have been saying.

"Ponzi scheme fails long before that,
because the number of people willing to participate is limited to
"suckers."

But the people do not have the option of participating or not. The Fed and respective governments make those
decisions for us-we the people. One would have to be living in a cave or be deranged to see this not ending
badly. I just do not see TPTB stopping the train any time soon. They can't stop the train can they? This thing has to crash and crash hard.
But they will just keep pulling "magic" out of their rear ends until the people revolt or someone launches a preemptive strike somewhere and then we
have what politicians always wish for in times of internal struggle. An Enemy we can believe in. Distract and confuse the sheeple.

I'm in agreement with your prediction I just don't have the same time table as you. I am prep'ing for what ever comes down the pike.
I spent 4 years in Spec/Ops and live in rural NH. The winter is the only thing that concerns me if and when it all goes up in flames.

Cheers

sy

Like I was saying:World's central banks act to ease market strains
http://finance.yahoo.com/news/worlds-ce ... 58888.html

"Major central banks around the globe took coordinated action Wednesday to ease the strains on the world's financial system, saying they would make it easier for banks to get dollars if they need them. Stock markets rose sharply on the move. "

It seems as if there is no limit to the creativity of their desires to kick the can into infinity.

[jdcpapa]

The problem is that there is going to be an even worse recession or depression soon.

Smells like deflation to me.

[vincecate]

The problem is that there is going to be an even worse recession or depression soon.

Smells like deflation to me.

The most extreme deflation in a pure fiat currency seems to be Japan, with a percent or two. Not really something to worry about in fiat currencies. And Japan mostly borrowed from their citizens who were amazing savers while the US will mostly print. I doubt that the US money will act like the Japanese money did.

There have been over 100 cases of hyperinflation. Not sure why these are mostly ignored and everyone thinks of Japan.

[Higgenbotham]

I continue to be fascinated by the current response to the stock market rally. Now that it's up, there's no interest here in talking about shorting the market. On other forums, the shorts are very frustrated and are coming around to accepting this rally. Maybe it'll reach its final summit before mid January or so. My theory is that the European banks got a bailout and now they are gambling in the stock market. That's just a theory; I have no idea. I suppose if enough people believed that, the stock market might go up anyway.

[John]

On CNBC and BBTV, you can see that people feel really battered and
beaten down, not knowing what to expect next. People used to write to
me all the time telling me that I was a fool to be talking about a
crash. I haven't gotten one of those messages in a couple of years
now. No one really believes that any stock is better or worse than
any other stock, since they all go up and down together, depending on
the news from Europe. I listen to the cheerleaders on TV, but their
siren songs sound increasingly hollow. (Metaphor alert) The analysts
keep asking each other when the horrible uncertainty will be over, and
no one knows. Those who venture a guess say "years." All they do is
look at each other and hope.

John

[Trevor]

Personally, there are a couple things I'm surprised at. I expected the stock market to go lower than it currently is, like having the Dow Jones Industrial Average at around 10,000 or so, although it seems to be hovering in the 11,000-12,000 point range.

Second, I thought Greece would default by now and set off the chain reaction. They're hanging on by their fingernails and yet they're still hanging on. I don't expect that to last much longer.

What I'm wondering is this: is the crash going to be gradual, say over a course of a couple years, or will it be more immediate, like crashing 50-60 percent over the course of just a month or two.

[Higgenbotham]

Second, I thought Greece would default by now and set off the chain reaction. They're hanging on by their fingernails and yet they're still hanging on. I don't expect that to last much longer.

Some very long term cycles were showing me the likelihood that something big would happen near the end of April of this year. I thought several states might default and, it was funny, because I read two small things in the news that sort of corroborated that. One, the politicians were putting plans in place to handle the default of a state government. Two, Meredith Whitney was predicting hundreds of billions in municipal bond defaults in 2011. She had done an exhaustive study on the subject. Yet, nothing happened. So I waited for late April and all I saw happen was the price of silver, oil, stocks, etc., blow off. So I sold all my silver and that was the exact top. But for the life of me, I cannot figure out how all this is holding together.